<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AVANT! CORPORATION
(Exact Name of Registrant as Specified In Its Charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-3133226
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
------------------------
46871 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
(510) 413-8000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------------
GERALD C. HSU
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AVANT! CORPORATION
46871 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
(510) 413-8000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
WITH COPIES TO:
ROBERT V. GUNDERSON, JR., ESQ. FRED GREGURAS, ESQ.
STEVEN M. SPURLOCK, ESQ. JACQUELINE DAUNT, ESQ.
ANTHONY J. MCCUSKER, ESQ. JEFFREY VETTER, ESQ.
Gunderson Dettmer Stough Fenwick & West, LLP
Villeneuve Franklin & Hachigian, LLP Two Palo Alto Square
155 Constitution Drive Palo Alto, California 94306
Menlo Park, California 94025 (650) 494-0600
(650) 321-2400
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As promptly as practicable after this Registration Statement becomes
effective and the effective time of the merger (the "Merger") of a wholly owned
subsidiary of Avant! Corporation ("Avant!") with and into Technology Modeling
Associates, Inc. ("TMA"), as described in the Agreement and Plan of
Reorganization, dated as of September 7, 1997, attached as Appendix A to the
Joint Proxy Statement/Prospectus forming a part of this Registration Statement.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME FURTHER EFFECTIVE IN ACCORDANCE WITH SECTION
8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
(CONTINUED ON NEXT PAGE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) PRICE(1) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, par value $.0001............ 5,376,511 $17.063 $91,739,407.19 $27,063.13
</TABLE>
(1) Based upon an estimate of the maximum number of shares of the common stock,
$.0001 par value per share, of Avant! ("Avant! Common Stock") issuable in
connection with the Merger of Avant! and Technology Modeling Associates,
Inc. ("TMA") described herein, consisting of shares of Avant! common stock
issuable upon the conversion of the Common Stock of TMA.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) (1) and Section 6(b) under the Securities Act of
1933, as amended. The proposed maximum offering price is based on the
average of the high and low sales prices of Avant! Common Stock on the
Nasdaq National Market on December 19, 1997.
(3) A fee of $32,302.00 was previously paid by Avant! pursuant to Rule 14a-6
promulgated under the Securities Exchange Act of 1934, as amended, in
connection with the filing of the preliminary Joint Proxy Statement/
Prospectus on September 25, 1997. Pursuant to Rule 457(b) under the
Securities Act, as amended, such fee is being credited against the
registration fee.
<PAGE>
[LOGO]
AVANT! CORPORATION
46871 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
(510) 413-8000
December 24, 1997
Dear Avant! Stockholder:
A Special Meeting of Stockholders (the "Special Meeting") of Avant!
Corporation, a Delaware corporation ("Avant!"), will be held at the principal
executive offices of Avant!, 46871 Bayside Parkway, Fremont, California, on
January 15, 1998 at 10:00 a.m. local time.
At the Special Meeting you will be asked to consider and vote upon a
proposal (the "Avant! Share Issuance Proposal") to issue shares of Avant! common
stock, $.0001 par value (the "Avant! Common Stock"), in connection with the
merger (the "Merger") of Cardinal Merger Corporation, a California corporation
and a wholly owned subsidiary of Avant!, with and into Technology Modeling
Associates, Inc., a California corporation ("TMA"). In the Merger, each share of
TMA's common stock, no par value (the "TMA Common Stock"), outstanding as of the
closing of the Merger (other than shares that are owned by Avant! or any direct
or indirect wholly owned subsidiary of Avant! or of TMA, or shares as to which
dissenters' rights have been perfected under California law) will be converted
into the right to receive a fraction of a share of Avant! Common Stock (the
"Exchange Ratio"), the numerator of which is equal to $17.00, and the
denominator of which is equal to the average of the per share closing prices of
Avant! Common Stock as quoted on the Nasdaq National Market for the ten (10)
consecutive trading days ending three (3) business days prior to the closing
date of the Merger (the "Average Nasdaq Per Share Price"). Notwithstanding
anything to the contrary set forth above, in the event that the Average Nasdaq
Per Share Price is greater than $35.678, then the Exchange Ratio shall be
0.476484, and in the event that the Average Nasdaq Per Share Price is less than
$25.678, then the Exchange Ratio shall be 0.662045. As of December 19, 1997, the
Average Nasdaq Per Share Price was $21.241. If the Merger were consummated as of
December 19, 1997, based on the Average Nasdaq Per Share Price on such date, the
shares of Avant! Common Stock issued to TMA's shareholders in connection with
the Merger would represent 16.66% of the outstanding capital stock of the
combined company. However, there can be no assurance that the Average Nasdaq Per
Share Price and the number of outstanding shares of Avant! Common Stock and/or
TMA Common Stock will not change prior to the effective time of the Merger.
Therefore, there can be no assurance that the Avant! Common Stock issued to
TMA's shareholders in connection with the Merger will represent 16.66% of the
outstanding capital stock of the combined company at the effective time of the
Merger. In addition, all TMA stock options and subscription rights, together
with the underlying TMA stock plans, will be assumed by Avant! and converted
into options and subscription rights to purchase shares of Avant! Common Stock.
If the Merger is approved, the Avant! Board of Directors (the "Avant! Board")
intends to appoint Roy E. Jewell, the President and Chief Executive Officer of
TMA, to be the head of Avant!'s TCAD division.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE
TRANSACTIONS RELATED THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR
TO AND IN THE BEST INTERESTS OF AVANT! AND ITS STOCKHOLDERS. AFTER CAREFUL
CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE AVANT! SHARE ISSUANCE PROPOSAL.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Avant! stockholders at the Special Meeting and a proxy
card. The Joint Proxy Statement/Prospectus more fully describes the Avant! Share
Issuance Proposal and includes information about Avant! and TMA.
<PAGE>
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
SPECIAL MEETING.
Sincerely,
/s/ GERALD C. HSU
Gerald C. Hsu
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
AVANT! CORPORATION
46871 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
(510) 413-8000
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 15, 1998
------------------------
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Avant! Corporation, a Delaware corporation ("Avant!"), will be held
at the principal executive offices of Avant!, 46871 Bayside Parkway, Fremont,
California on January 15, 1998 at 10:00 a.m., local time, for the following
purposes:
(1) To consider and vote upon a proposal (the "Avant! Share Issuance
Proposal") to issue shares of Avant! common stock, $.0001 par value (the
"Avant! Common Stock"), in connection with the merger (the "Merger") of
Cardinal Merger Corporation, a California corporation and a wholly owned
subsidiary of Avant! ("Merger Sub"), with and into Technology Modeling
Associates, Inc., a California corporation ("TMA"), pursuant to which, among
other things, (a) Merger Sub will be merged with and into TMA, following
which TMA will become a wholly owned subsidiary of Avant!, (b) each share of
TMA's common stock, no par value (the "TMA Common Stock"), outstanding as of
the closing of the Merger (other than shares that are owned by Avant! or any
direct or indirect wholly owned subsidiary of Avant! or of TMA, or shares as
to which dissenters' rights have been perfected under California law) will
be converted into the right to receive a fraction of a share of Avant!
Common Stock (the "Exchange Ratio"), the numerator of which is equal to
$17.00, and the denominator of which is equal to the average of the per
share closing price of Avant! Common Stock as quoted on the Nasdaq National
Market for the ten (10) consecutive trading days ending three (3) business
days prior to the closing date of the Merger (the "Average Nasdaq Per Share
Price"), which as of December 19, 1997 was $21.241, provided, that
notwithstanding anything to the contrary set forth above, in the event that
the Average Nasdaq Per Share Price is greater than $35.678, then the
Exchange Ratio shall be 0.476484, and in the event that the Average Nasdaq
Per Share Price is less than $25.678, then the Exchange Ratio shall be
0.662045, and (c) all TMA stock options and subscription rights, together
with the underlying TMA stock plans, will be assumed by Avant! and converted
into options and subscription rights to purchase shares of Avant! Common
Stock. The Merger is more fully described in the accompanying Joint Proxy
Statement/Prospectus; and
(2) To transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof.
If the Merger is approved, the Avant! Board of Directors (the "Avant!
Board") intends to appoint Roy E. Jewell, the President and Chief Executive
Officer of TMA, to be the head of Avant!'s TCAD division.
Only stockholders of record at the close of business on December 10, 1997
are entitled to notice of and to vote at the Special Meeting, or at any
postponements or adjournments thereof. The affirmative vote of a majority of the
outstanding shares of Avant! Common Stock represented at the Special Meeting, in
person or by proxy, is required to approve the Avant! Share Issuance Proposal.
A complete list of stockholders entitled to vote at the Special Meeting will
be available for examination at Avant!'s principal executive offices, for any
purpose germane to the Special Meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the Special Meeting.
<PAGE>
IMPORTANT
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. WHETHER OR
NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE SPECIAL
MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Eric A. Brill
Eric A. Brill
SECRETARY
Fremont, California
December 24, 1997
<PAGE>
[LOGO]
TECHNOLOGY MODELING ASSOCIATES, INC.
595 LAWRENCE EXPRESSWAY
SUNNYVALE, CALIFORNIA 95086
(408) 328-0930
December 24, 1997
Dear TMA Shareholder:
A Special Meeting of Shareholders (the "Special Meeting") of Technology
Modeling Associates, Inc., a California corporation ("TMA"), will be held at the
principal executive offices of TMA, 595 Lawrence Expressway, Sunnyvale,
California, on January 15, 1998 at 10:00 a.m. local time.
At the Special Meeting you will be asked to consider and vote upon a
proposal (the "TMA Merger Proposal") to approve an Agreement and Plan of
Reorganization dated September 7, 1997 (the "Plan of Reorganization"), among
TMA, Avant! Corporation, a Delaware corporation ("Avant!"), and Cardinal Merger
Corporation, a California corporation and a wholly owned subsidiary of Avant!
("Merger Sub"), and the related Agreement of Merger to be entered into among
Avant!, TMA and Merger Sub, pursuant to which, among other things, (a) Merger
Sub will be merged with and into TMA (the "Merger"), following which TMA will
become a wholly owned subsidiary of Avant!, (b) each share of TMA common stock,
no par value (the "TMA Common Stock"), outstanding as of the closing of the
Merger (other than shares that are owned by Avant! or any direct or indirect
wholly owned subsidiary of Avant! or of TMA, or shares as to which dissenters'
rights have been perfected under California law) will be converted into the
right to receive a fraction of a share (the "Exchange Ratio") of Avant! common
stock, $.0001 par value (the "Avant! Common Stock"), the numerator of which is
equal to $17.00, and the denominator of which is equal to the average of the per
share closing price of Avant! Common Stock as quoted on the Nasdaq National
Market for the ten (10) consecutive trading days ending three (3) business days
prior to the closing date of the Merger (the "Average Nasdaq Per Share Price"),
which as of December 19, 1997 was $21.241, provided, that notwithstanding the
above, in the event that the Average Nasdaq Per Share Price is greater than
$35.678, then the Exchange Ratio shall be 0.476484, and in the event that the
Average Nasdaq Per Share Price is less than $25.678, then the Exchange Ratio
shall be 0.662045, and (c) all TMA stock options and subscription rights,
together with the underlying TMA stock plans, will be assumed by Avant! and
converted into options and subscription rights to purchase shares of Avant!
Common Stock. If the Merger were consummated as of December 19, 1997, based on
the Average Nasdaq Per Share Price on such date, the shares of Avant! Common
Stock issued to TMA's shareholders in connection with the Merger would represent
16.66% of the outstanding capital stock of the combined company. However, there
can be no assurance that the Average Nasdaq Per Share Price and the number of
outstanding shares of Avant! Common Stock and/or TMA Common Stock will not
change prior to the effective time of the Merger. Therefore, there can be no
assurance that the Avant! Common Stock issued to TMA's shareholders in
connection with the Merger will represent 16.66% of the outstanding capital
stock of the combined company at the effective time of the Merger. If the Merger
is approved, Avant! intends to appoint Roy E. Jewell, the President and Chief
Executive Officer of TMA, to be the head of Avant!'s TCAD division.
Wessels, Arnold & Henderson, L.L.C., the investment banking firm retained by
the TMA Board of Directors to perform certain financial advisory services in
connection with the Merger, has rendered its opinion that as of September 7,
1997 and updated as of November 18, 1997, the consideration to be received by
TMA's shareholders in the Merger was fair from a financial point of view to the
holders of
<PAGE>
TMA Common Stock. A copy of this opinion is attached to the Joint Proxy
Statement/Prospectus as Appendix B.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND THE
TRANSACTIONS RELATED THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR
TO AND IN THE BEST INTERESTS OF TMA AND ITS SHAREHOLDERS. AFTER CAREFUL
CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE TMA MERGER PROPOSAL.
In the materials accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by TMA shareholders at the Special Meeting and a proxy card.
The Joint Proxy Statement/Prospectus more fully describes the TMA Merger
Proposal and includes information about TMA and Avant!.
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND
VOTE IN PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
SPECIAL MEETING.
Sincerely,
/s/ Roy E. Jewell
Roy E. Jewell
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
595 LAWRENCE EXPRESSWAY
SUNNYVALE, CALIFORNIA 95086
(408) 328-0930
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 15, 1998
------------------------
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of Technology Modeling Associates, Inc., a California corporation
("TMA"), will be held at the principal executive offices of TMA, 595 Lawrence
Expressway, Sunnyvale, California, on January 15, 1998, at 10:00 a.m., local
time, for the following purposes:
(1) To consider and vote upon a proposal (the "TMA Merger Proposal") to
approve an Agreement and Plan of Reorganization dated September 7, 1997 (the
"Plan of Reorganization"), among TMA, Avant! Corporation, a Delaware
corporation ("Avant!"), and Cardinal Merger Corporation, a California
corporation and a wholly owned subsidiary of Avant! ("Merger Sub"), and the
related Agreement of Merger to be entered into among Avant!, TMA and Merger
Sub, pursuant to which, among other things, (a) Merger Sub will be merged
with and into TMA (the "Merger"), following which TMA will become a wholly
owned subsidiary of Avant!, (b) each share of TMA common stock, no par value
(the "TMA Common Stock"), outstanding as of the closing of the Merger (other
than shares that are owned by Avant! or any direct or indirect wholly owned
subsidiary of Avant! or of TMA, or shares as to which dissenters' rights
have been perfected under California law) will be converted into the right
to receive a fraction of a share (the "Exchange Ratio") of Avant! common
stock, $.0001 par value (the "Avant! Common Stock"), the numerator of which
is equal to $17.00, and the denominator of which is equal to the average of
the per share closing price of Avant! Common Stock as quoted on the Nasdaq
National Market for the ten (10) consecutive trading days ending three (3)
business days prior to the closing date of the Merger (the "Average Nasdaq
Per Share Price"), which as of December 19, 1997 was $21.241, provided, that
notwithstanding anything to the contrary set forth above, in the event that
the Average Nasdaq Per Share Price is greater than $35.678, then the
Exchange Ratio shall be 0.476484, and in the event that the Average Nasdaq
Per Share Price is less than $25.678, then the Exchange Ratio shall be
0.662045, and (c) all TMA stock options and subscription rights, together
with the underlying TMA stock plans, will be assumed by Avant! and converted
into options and subscription rights to purchase shares of Avant! Common
Stock. The Merger is more fully described in the accompanying Joint Proxy
Statement/Prospectus; and
(2) To transact such other business that may properly come before the
Special Meeting or any postponements or adjournments thereof.
If the Merger is approved, Avant! intends to appoint Roy E. Jewell, the
President and Chief Executive Officer of TMA, to be the head of Avant!'s TCAD
division.
Only shareholders of record at the close of business on December 19, 1997
are entitled to notice of and to vote at the Special Meeting, or at any
postponements or adjournments thereof. The affirmative vote of a majority of the
outstanding shares of TMA Common Stock is required to approve the TMA Merger
Proposal.
Under Sections 1300-1312 of the California General Corporation Law (the
"CGCL"), a shareholder who objects to the Merger can assert statutory
dissenters' rights to dissent from and obtain payment of the fair value of his
or her TMA Common Stock by strict compliance with the requirements of the CGCL.
See "The Merger and Related Transactions--Dissenters' Rights" in the Joint Proxy
Statement/Prospectus for a more detailed description of dissenters' rights with
respect to the Merger. The entire text of Sections 1300-1312 of the CGCL is
included as Appendix C to the Joint Proxy Statement/Prospectus. It is a
condition to the effectiveness of the Merger that no more than ten percent (10%)
of the outstanding shares of TMA Common Stock shall be eligible to exercise
dissenters' rights.
<PAGE>
IMPORTANT
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. WHETHER OR
NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND VOTE IN
PERSON. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE SPECIAL
MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ John DiGirolamo
John DiGirolamo
SECRETARY
Sunnyvale, California
December 24, 1997
PLEASE DO NOT SEND IN ANY
SHARE CERTIFICATES AT THIS TIME.
<PAGE>
JOINT PROXY STATEMENT
[LOGO] AVANT! CORPORATION [LOGO]
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 15, 1998
TECHNOLOGY MODELING ASSOCIATES, INC.
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 15, 1998
------------------------
PROSPECTUS
AVANT! CORPORATION
---------------------
This Joint Proxy Statement of Avant! Corporation, a Delaware corporation
("Avant!"), and Technology Modeling Associates, Inc., a California corporation
("TMA"), is being used (a) to solicit proxies on behalf of the Avant! Board of
Directors (the "Avant! Board") from holders of the outstanding Avant! common
stock, $.0001 par value ("Avant! Common Stock"), in connection with a Special
Meeting of Stockholders to be held at the principal executive offices of Avant!,
46871 Bayside Parkway, Fremont, California, on January 15, 1998 at 10:00 a.m.,
local time (the "Avant! Special Meeting"), and (b) to solicit proxies on behalf
of the TMA Board of Directors (the "TMA Board") from holders of the outstanding
TMA common stock, no par value ("TMA Common Stock"), in connection with a
Special Meeting of Shareholders to be held at the principal executive offices of
TMA, 595 Lawrence Expressway, Sunnyvale, California, on January 15, 1998 at
10:00 a.m., local time (the "TMA Special Meeting"). This Joint Proxy
Statement/Prospectus and the accompanying proxies are first being mailed to
stockholders of Avant! and shareholders of TMA on or about December 24, 1997.
At the Avant! Special Meeting, stockholders of Avant! will be asked to
consider and vote upon a proposal (the "Avant! Share Issuance Proposal") to
issue shares of Avant! Common Stock to shareholders of TMA in connection with
the merger (the "Merger") of Cardinal Merger Corporation, a California
corporation and a wholly owned subsidiary of Avant! ("Merger Sub"), with and
into TMA pursuant to the terms of an Agreement and Plan of Reorganization dated
September 7, 1997 (the "Plan of Reorganization"), among Avant!, TMA and Merger
Sub, a copy of which is attached to this Joint Proxy Statement/Prospectus as
Appendix A.
At the TMA Special Meeting, shareholders of TMA will be asked to consider
and vote upon a proposal (the "TMA Merger Proposal") to approve the Plan of
Reorganization and the related Agreement of Merger, pursuant to which, among
other things, (a) Merger Sub will be merged with and into TMA, following which
TMA will become a wholly owned subsidiary of Avant!, (b) each share of TMA
Common Stock outstanding as of the closing of the Merger (other than shares that
are owned by Avant! or any direct or indirect wholly owned subsidiary of Avant!
or of TMA, or shares as to which dissenters' rights have been perfected under
California law ("Dissenting Shares")) will be converted into the right to
receive a fraction of a share of Avant! Common Stock (the "Exchange Ratio"), the
numerator of which is equal to $17.00, and the denominator of which is equal to
the average of the per share closing price of Avant! Common Stock as quoted on
the Nasdaq National Market for the ten (10) consecutive trading days ending
three (3) business days prior to the closing date of the Merger (the "Average
Nasdaq Per Share Price"), which as of December 19, 1997 was $21.241, provided,
that notwithstanding anything to the contrary set forth above, in the event that
the Average Nasdaq Per Share Price is greater than $35.678, then the Exchange
Ratio shall be 0.476484, and in the event that the Average Nasdaq Per Share
Price is less than $25.678, then the Exchange Ratio shall be 0.662045, and (c)
all TMA stock options and subscription rights, together with the underlying TMA
stock plans including the 1989 Option Plan, the 1995 Option Plan, the TMA
Employee Stock Purchase Plan (the "ESPP"), and the 1996 Equity Incentive Plan
(collectively, the "TMA Stock Plans"), will be assumed by Avant! and converted
into options and subscription rights to purchase shares of Avant! Common Stock.
If the Merger were consummated as of December 19, 1997, based on the Average
Nasdaq Per Share Price on such date, the shares of Avant! Common Stock issued to
TMA's shareholders in connection with the Merger would represent 16.66% of the
outstanding capital stock of the combined company. However, there can be no
assurance that the Average Nasdaq Per Share Price and the number of outstanding
shares of Avant! Common Stock and/or TMA Common Stock will not change prior to
the effective time of the Merger. Therefore, there can be no assurance that the
Avant! Common Stock issued to TMA's shareholders in connection with the Merger
will represent 16.66% of the outstanding capital stock of the combined company
at the effective time of the Merger. If the Merger is approved, Avant! intends
to appoint Roy E. Jewell, the President and Chief Executive Officer of TMA, to
be the head of Avant!'s TCAD division.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Avant! under the Securities Act of 1933, as amended (the "Securities Act"), for
the offering of shares of Avant! Common Stock in connection with the Merger.
Avant! Common Stock is traded on the Nasdaq National Market under the symbol
"AVNT." On December 19, 1997, the closing sale price of the Avant! Common Stock
and TMA Common Stock as reported on the Nasdaq National Market was $17.938 and
$10.750 per share, respectively. The information set forth in this Joint Proxy
Statement/Prospectus concerning Avant! and Merger Sub has been furnished by
Avant!, and the information set forth in this Joint Proxy Statement/Prospectus
concerning TMA has been furnished by TMA. The current market quotations for the
Avant! Common Stock and the TMA Common Stock may be obtained on the World Wide
Web at http://www.nasdaq.com.
Under Sections 1300-1312 of the California General Corporation Law (the
"CGCL"), a TMA shareholder who objects to the Merger can assert statutory
dissenters' rights to dissent from and obtain payment of the fair value of his
or her TMA Common Stock by strict compliance with the requirements of the CGCL.
See "The Merger and Related Transactions--Dissenters' Rights" in the Joint Proxy
Statement/Prospectus for a more detailed description of dissenters' rights with
respect to the Merger. The entire text of Sections 1300-1312 of the CGCL is
included as Appendix C to the Joint Proxy Statement/Prospectus. It is a
condition to the effectiveness of the Merger that no more than 10% of the
outstanding shares of TMA of Common Stock shall be eligible to exercise
dissenters' rights. See "The Merger and Related Transactions-- Dissenters'
Rights" for a more detailed description of dissenters' rights of TMA
shareholders with respect to the Merger.
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED CAREFULLY BY BOTH AVANT! STOCKHOLDERS AND TMA SHAREHOLDERS IN
EVALUATING THE MERGER AND THE ACQUISITION OF SECURITIES OFFERED HEREBY.
THE SHARES OF AVANT! COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS DECEMBER 22, 1997
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AVAILABLE INFORMATION
Avant! and TMA are each subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, each files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and at Seven World Trade Center (13th Floor), New York, New
York 10048. Copies of such material may be obtained by mail from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also makes electronic
filings publicly available on the Internet within 24 hours of acceptance. The
SEC's Internet address is http://www.sec.gov. The SEC web site also contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the SEC. Avant! Common Stock and TMA
Common Stock are quoted on the Nasdaq National Market, and the reports, proxy
statements and other information referred to above can also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006. After
the consummation of the Merger, TMA will no longer file reports, proxy
statements or other information with the SEC or the Nasdaq National Market.
Instead, such information will be provided, to the extent required, in filings
made by Avant!.
Avant! has filed with the SEC a registration statement on Form S-4,
including this Joint Proxy Statement/Prospectus and other information (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Avant! Common Stock to be issued to holders
of TMA Common Stock in the Merger. This Joint Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the SEC. For further information, reference is hereby made to the
Registration Statement. Copies of the Registration Statement and the exhibits
and schedules thereto may be inspected, without charge, at the offices of the
SEC, or obtained at prescribed rates from the Public Reference Section of the
SEC at room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, or obtained from the SEC web site.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF AVANT! OR TMA SINCE SUCH DATE. THIS JOINT PROXY
STATEMENT/ PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES OF AVANT! TO BE ISSUED
IN THE MERGER, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
TRADEMARKS
ArcCell, VeriCheck, VeriView and LTL are registered trademarks of Avant!,
and Aquarius, Hercules, Planet, Solar and Star are trademarks of Avant!. TMA and
the TMA logo are registered trademarks of TMA, and T SUPREM-4, Depict, Terrain,
Medici, Davinci, Raphael, Aurora, TMA Visual, TMA Layout and Liquid are
trademarks of TMA. This Joint Proxy Statement/Prospectus also includes
trademarks of companies other than Avant! and TMA.
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT (THE "FORWARD-LOOKING STATEMENTS"). ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
THE FACTORS SET FORTH UNDER "RISK FACTORS" HEREIN. IN CONNECTION WITH THE
FORWARD-LOOKING STATEMENTS, TMA SHAREHOLDERS AND AVANT! STOCKHOLDERS SHOULD
CAREFULLY REVIEW THE FACTORS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS
UNDER "RISK FACTORS."
NEITHER AVANT! NOR TMA MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR
WARRANTY AS TO THE ATTAINABILITY OF THE PROJECTED OR ESTIMATED FINANCIAL
INFORMATION REFERENCED OR SET FORTH HEREIN UNDER "THE MERGER AND RELATED
TRANSACTIONS--OPINION OF TMA FINANCIAL ADVISOR" OR ELSEWHERE HEREIN OR AS TO THE
ACCURACY OR COMPLETENESS OF THE ASSUMPTIONS FROM WHICH THAT PROJECTED OR
ESTIMATED INFORMATION IS DERIVED. PROJECTIONS OR ESTIMATIONS OF THE COMBINED
COMPANY'S FUTURE PERFORMANCE ARE NECESSARILY SUBJECT TO A HIGH DEGREE OF
UNCERTAINTY AND MAY VARY MATERIALLY FROM ACTUAL RESULTS. REFERENCE IS MADE TO
THE PARTICULAR DISCUSSIONS SET FORTH UNDER "RISK FACTORS," "AVANT! MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"TMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
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TABLE OF CONTENTS
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SUMMARY.................................................................................................... 1
The Parties to the Merger................................................................................ 1
Avant! Special Meeting of Stockholders................................................................... 2
TMA Special Meeting of Shareholders...................................................................... 2
The Merger............................................................................................... 3
Market Price and Dividends on Avant! and TMA Common Stock................................................ 11
Risk Factors............................................................................................. 13
Selected Consolidated Financial Information.............................................................. 13
Comparative Per Share Data............................................................................... 15
RISK FACTORS............................................................................................... 17
Litigation Risk.......................................................................................... 17
Uncertainty Relating to Integration of Multiple Operations and Product Lines; Management of Growth....... 20
Interests of Certain Persons in the Merger............................................................... 21
Risks Associated with Exchange Ratio..................................................................... 21
Dependence Upon Key Personnel............................................................................ 22
Competition.............................................................................................. 22
Potential Fluctuations in Quarterly Results.............................................................. 23
Potential Volatility of Stock Price...................................................................... 23
Cost of Integration; Transaction Expenses................................................................ 24
Potential Dilutive Effect to Stockholders................................................................ 24
Shares Eligible for Public Sale.......................................................................... 24
Lengthy Sales Cycle...................................................................................... 25
Product Concentration.................................................................................... 25
Substantial Dependence on International Sales............................................................ 25
Dependence Upon Distributors and Manufacturer's Representatives.......................................... 26
New Products and Rapid Technological Change.............................................................. 27
Dependence Upon Semiconductor and Electronics Industries; General Economic and Market Conditions......... 27
Limitations on Protection of Intellectual Property and Proprietary Rights................................ 27
Risk of Product Defects.................................................................................. 28
Rights of Holders of TMA Common Stock Following the Merger............................................... 28
INTRODUCTION............................................................................................... 29
VOTING AND PROXIES......................................................................................... 29
Date, Time and Place of Avant! Special Meeting and TMA Special Meeting................................... 29
Record Date and Outstanding Shares....................................................................... 29
Avant! Stockholder Vote Required......................................................................... 30
TMA Shareholder Vote Required............................................................................ 30
Solicitation of Proxies; Expenses........................................................................ 31
DISSENTERS' RIGHTS......................................................................................... 31
THE MERGER AND RELATED TRANSACTIONS........................................................................ 33
General.................................................................................................. 33
Material Contacts and Board Deliberations................................................................ 33
Reasons for the Merger................................................................................... 34
Opinion of TMA Financial Advisor......................................................................... 37
Conversion of TMA Shares................................................................................. 40
No Termination Right in the Event of a Decline in Avant! Trading Price................................... 41
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Assumption of TMA Options and Subscription Rights........................................................ 41
Exchange of Certificates................................................................................. 42
Operations Following the Merger; Management of Combined Company.......................................... 43
Representations and Warranties and Covenants............................................................. 43
Other Offers............................................................................................. 45
Resale of Avant! Common Stock; Agreements with Affiliates................................................ 46
Interests of Certain Persons in the Merger............................................................... 46
Conditions to the Merger................................................................................. 47
Shareholder Agreement.................................................................................... 49
Closing.................................................................................................. 49
Termination.............................................................................................. 49
Expenses and Termination Fees............................................................................ 49
Amendment................................................................................................ 50
Certain Federal Income Tax Considerations................................................................ 51
Accounting Treatment..................................................................................... 53
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................................ 54
Avant! and TMA........................................................................................... 55
Avant! and Compass....................................................................................... 63
Avant!/TMA and Compass................................................................................... 69
AVANT! MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............... 73
Overview................................................................................................. 73
Results of Operations.................................................................................... 73
Comparison of Years Ended December 31, 1994, 1995 and 1996, and the Six Months Ended June 30, 1996 and
1997................................................................................................... 74
Recent Pronouncements.................................................................................... 76
Quarterly Results........................................................................................ 78
Liquidity and Capital Resources.......................................................................... 79
Litigation Risk.......................................................................................... 79
AVANT! BUSINESS............................................................................................ 83
Introduction............................................................................................. 83
Recent Developments...................................................................................... 83
Products................................................................................................. 85
Customers................................................................................................ 87
Sales and Marketing...................................................................................... 88
Customer Service and Support............................................................................. 89
Research and Development................................................................................. 89
Competition.............................................................................................. 90
Proprietary Rights....................................................................................... 91
Environmental Affairs.................................................................................... 91
Employees................................................................................................ 92
Properties............................................................................................... 92
Litigation............................................................................................... 93
AVANT! MANAGEMENT.......................................................................................... 97
EXECUTIVE COMPENSATION..................................................................................... 99
Stock Ownership of Certain Beneficial Owners and Management.............................................. 102
Director Compensation.................................................................................... 103
Certain Relationships and Related Transactions........................................................... 103
Employee Contracts and Change in Control Arrangements.................................................... 104
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TMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 105
Overview................................................................................................. 105
Results of Operation..................................................................................... 106
Nine months ended September 30, 1997 and 1996............................................................ 106
Years Ended December 31, 1996 and 1995................................................................... 108
Years Ended December 31, 1995 and 1994................................................................... 110
Selected Quarterly Financial Data........................................................................ 111
Liquidity and Capital Resources.......................................................................... 112
TMA BUSINESS............................................................................................... 113
Overview................................................................................................. 113
Products and Services.................................................................................... 113
Technology............................................................................................... 114
Customers................................................................................................ 114
Sales and Marketing...................................................................................... 114
Research and Development................................................................................. 115
Competition.............................................................................................. 116
Proprietary Rights....................................................................................... 117
Employees................................................................................................ 117
Properties............................................................................................... 118
Legal Proceeding......................................................................................... 118
CHANGES IN AND DISAGREEMENTS WITH TMA'S ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................. 119
STOCK OWNERSHIP OF TMA MANAGEMENT AND PRINCIPAL TMA SHAREHOLDERS........................................... 120
TMA MANAGEMENT............................................................................................. 122
CERTAIN INFORMATION WITH RESPECT TO TMA.................................................................... 123
Summary of the 1996 Equity Incentive Plan................................................................ 123
TMA 1996 Directors Stock Option Plan..................................................................... 125
TMA ESPP................................................................................................. 125
EXECUTIVE COMPENSATION..................................................................................... 130
Employment Contracts and Change-In-Control Arrangements.................................................. 132
Compensation of Directors................................................................................ 132
Certain Transactions..................................................................................... 133
DESCRIPTION OF AVANT! CAPITAL STOCK........................................................................ 134
Common Stock............................................................................................. 134
Preferred Stock.......................................................................................... 134
Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law.......... 134
Registration Rights...................................................................................... 135
Transfer Agent and Registrar............................................................................. 135
COMPARISON OF RIGHTS OF HOLDERS OF AVANT! COMMON STOCK AND HOLDERS OF TMA COMMON STOCK..................... 136
LEGAL MATTERS.............................................................................................. 142
EXPERTS.................................................................................................... 142
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
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APPENDICES
A-- Agreement and Plan of Reorganization By and Among Avant! Corporation, Cardinal Merger Corporation and
Technology Modeling Associates, Inc.
B-- Written Opinion of Wessels, Arnold & Henderson, L.L.C.
C-- California General Corporation Law, Chapter 13, Dissenters' Rights
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SUMMARY
THIS JOINT PROXY STATEMENT/PROSPECTUS RELATES TO THE MERGER WHEREBY, AMONG
OTHER THINGS, TMA WILL BECOME A WHOLLY OWNED SUBSIDIARY OF AVANT! AND SHARES OF
AVANT! COMMON STOCK WILL BE ISSUED TO THE TMA SHAREHOLDERS UPON THE CLOSING OF
THE MERGER. THE FOLLOWING IS INTENDED AS A SUMMARY OF THE INFORMATION CONTAINED
IN THIS JOINT PROXY STATEMENT/PROSPECTUS, IS NOT INTENDED TO BE A COMPLETE
STATEMENT OF ALL MATERIAL FEATURES OF THE PROPOSALS TO BE VOTED ON, AND IS
QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS JOINT PROXY STATEMENT.
CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS SUMMARY HAVE THE MEANINGS GIVEN
TO THEM ELSEWHERE IN THIS JOINT PROXY STATEMENT/ PROSPECTUS.
FOR PURPOSES OF THIS JOINT PROXY STATEMENT/PROSPECTUS, "AVANT!" REFERS TO
AVANT! CORPORATION AND ITS SUBSIDIARIES, "TMA" REFERS TO TECHNOLOGY MODELING
ASSOCIATES, INC. AND ITS SUBSIDIARIES AND "COMBINED COMPANY" REFERS TO THE
COMBINED BUSINESS OF AVANT! AND TMA FORMED AS A RESULT OF THE MERGER.
THE PARTIES TO THE MERGER
AVANT!. Avant! develops, markets and supports integrated circuit design
automation ("ICDA") software (also known as electronic design automation or
"EDA") for the physical design of high-density, high-performance integrated
circuits ("ICs"). Avant!'s product architecture is designed to solve the
problems inherent in submicron (less than 1.0-micron feature size) and deep
submicron (less than 0.5-micron feature size) IC design and to offer improved
time-to-market, reduced development and manufacturing costs and enhanced IC
performance when compared to previous generations of ICDA software. Avant!'s
products, Aquarius, Hercules, Planet, H-spice, Polaris and Star, are designed to
be compatible with the most commonly used ICDA tools and to be easily integrated
into the customer's existing design environment and methodology. Avant! markets
its products to major customer accounts worldwide through its direct sales
force, distributors and manufacturer's representatives and offers comprehensive
customer service, training and support. End users of Avant!'s products include a
number of leading electronics companies, such as, Matsushita, Motorola, National
Semiconductor, Fujitsu, Toshiba, Mitsubishi, Hitachi, Samsung and Sony. Avant!'s
principal executive offices are located at 46871 Bayside Parkway, Fremont,
California 94538, and its telephone number is (510) 413-8000.
Avant! acquired Compass Design Automation, Inc., a Delaware corporation
("Compass") on September 12, 1997 (the "Compass Acquisition"). Prior to the
Compass Acquisition, Compass was a subsidiary of VLSI Technology, Inc., a
Delaware corporation ("VLSI"). Upon the closing of the Compass Acquisition (the
"Compass Closing"), Compass became a wholly owned subsidiary of Avant! and (a)
each share of Compass capital stock owned directly or indirectly by Compass or
by any entity controlled by Compass was canceled and no stock of Avant! or other
consideration was delivered in exchange therefor, (b) the outstanding shares of
Compass preferred stock (other than those shares canceled under (a)), all of
which were owned by VLSI, were canceled and converted into the right to receive
an aggregate of $2,699,174 and 98,552 shares of Avant! common stock, (c) the
shares of Compass common stock owned by VLSI (other than those shares canceled
under (a)) were converted into the right to receive an aggregate of $11,602,831
and 423,640 shares of Avant!'s common stock, (d) the shares of Compass common
stock not owned by VLSI (other than those shares canceled under (a)) were
converted into the right to receive an aggregate of $2,447,725 and (e) the
unexpired and unexercised, vested options to purchase shares of Compass common
stock were converted into the right to receive an aggregate of $750,270 to the
extent exercisable. See "Risk Factors--Uncertainty Relating to Integration of
Multiple Operations and Product Lines; Management of Growth," "--Cost of
Integration; Transaction Expenses" and "Avant! Business--Recent Developments."
Avant! also acquired the assets of Datalink Far East Ltd., a Taiwan
corporation ("Datalink") on September 30, 1997, pursuant to an asset purchase
agreement (the "Datalink Acquisition"). Avant! will pay $900,000 to acquire
Datalink over five installments at specified times during the next two years.
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Avant! and certain of its officers are currently the subject of certain
civil and criminal litigation, an adverse outcome of which would have a material
and adverse effect on the business, operating results and financial condition of
the combined company. See "Risk Factors--Litigation Risk."
MERGER SUB. Merger Sub is a wholly owned subsidiary of Avant! with no
business operations other than in connection with facilitating the Merger.
Merger Sub's principal executive offices are located at 46871 Bayside Parkway,
Fremont, California 94538, and its telephone number is (510) 413-8000.
TMA. TMA is a leading provider of physical simulation software to support
IC design and manufacturing. TMA's technology computer-aided design ("TCAD")
software enables customers to design next-generation ICs with a focus not only
on performance but also on manufacturability and reliability early in the design
process. The migration to deep submicron (less than 0.5 micron) and other
leading edge technologies has resulted in the emergence of a new set of design
problems not adequately addressed by traditional EDA tools. TMA's software
allows designers to model on-chip physical devices, such as transistors and
interconnect structures, at a detailed level and to analyze various effects
related to semiconductor physics. Through the use of TMA's software,
semiconductor companies are able to reduce the need to manufacture costly and
time-consuming experimental wafers to test new technology designs and accurately
predict circuit performance. This allows customers to evaluate a broader range
of technologies in the production of more innovative products with higher yields
while reducing time-to-market. TMA sells to more than 240 commercial customers
in 19 countries.
AVANT! SPECIAL MEETING OF STOCKHOLDERS
TIME, DATE AND PURPOSE. The Avant! Special Meeting will be held at the
principal executive offices of Avant!, 46871 Bayside Parkway, Fremont,
California, on January 15, 1998 at 10:00 a.m. local time. The purpose of the
meeting is to consider and vote upon the Avant! Share Issuance Proposal.
RECORD DATE; VOTE REQUIRED. The record date for determining stockholders of
Avant! entitled to notice of and to vote at the Avant! Special Meeting is
December 10, 1997 (the "Avant! Record Date"). On the Avant! Record Date there
were 26,883,548 shares of Avant! Common Stock outstanding, held by approximately
161 holders of record. Each share of Avant! Common Stock entitles the holder
thereof to one vote upon all matters submitted to a vote of stockholders. The
presence at the Avant! Special Meeting in person or by proxy of the holders of a
majority of the outstanding shares of Avant! Common Stock constitutes a quorum.
The affirmative vote of the holders of a majority of the outstanding shares
of Avant! Common Stock represented at the Avant! Special Meeting, in person or
by proxy, is required to approve the Avant! Share Issuance Proposal. A vote in
favor of the Avant! Share Issuance Proposal constitutes a vote in favor of the
assumption by Avant! of all TMA stock options and subscriptions rights, which,
as adjusted to give effect to the Exchange Ratio, will become options and
subscription rights to purchase Avant! Common Stock. On the Avant! Record Date,
Avant! directors, executive officers and their affiliates held in the aggregate
approximately 2.2% of the outstanding shares of Avant! Common Stock entitled to
vote at the Avant! Special Meeting. See "Voting and Proxies."
TMA SPECIAL MEETING OF SHAREHOLDERS
TIME, DATE AND PURPOSE. The TMA Special Meeting will be held at the
principal executive offices of TMA, 595 Lawrence Expressway, Sunnyvale,
California, on January 15, 1998, at 10:00 a.m. local time. The purpose of the
TMA Special Meeting is to consider and vote upon the TMA Merger Proposal.
RECORD DATE; VOTE REQUIRED. The record date for determining shareholders of
TMA entitled to notice of and to vote at the TMA Special Meeting is December 19,
1997 (the "TMA Record Date"). On the TMA Record Date there were approximately
8,121,066 shares of TMA Common Stock outstanding, held by approximately 79
holders of record (although TMA has been informed that there are in excess of
900 beneficial owners of TMA Common Stock). Each share of TMA Common Stock
entitles the holder
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thereof to one vote upon all matters submitted to a vote of shareholders. The
presence at the TMA Special Meeting in person or by proxy of a majority of the
outstanding shares of TMA Common Stock constitutes a quorum.
The affirmative vote of the holders of a majority of the outstanding shares
of TMA Common Stock is required for the approval of the TMA Merger Proposal. On
the TMA Record Date, TMA directors and executive officers held in the aggregate
approximately 32.3% of the outstanding shares of TMA Common Stock entitled to
vote at the TMA Special Meeting. Certain officers and directors of TMA holding
an aggregate of 2,619,149 shares of TMA Common Stock, or approximately 32.3% of
the outstanding shares of TMA Common Stock, have agreed in a Shareholder
Agreement to vote their shares in favor of the TMA Merger Proposal. See "Voting
and Proxies."
THE MERGER
GENERAL. At the time and on the date the Agreement of Merger is filed with
the Office of the Secretary of State of the State of California (the "Effective
Time" and "Effective Date" or "Closing Date", respectively, of the Merger),
Merger Sub will be merged with and into TMA, the business, assets, liabilities
and obligations of Merger Sub will be assumed by TMA, the separate existence of
Merger Sub will cease and TMA will become a wholly owned subsidiary of Avant!.
In addition, at the Effective Time of the Merger, (a) each share of TMA Common
Stock outstanding as of the closing of the Merger (other than Shares that are
owned by Avant! or any direct or indirect wholly owned subsidiary of Avant! or
of TMA, or Shares as to which dissenters' rights have been perfected under
California law) will be converted into the right to receive a fraction of a
share of Avant! Common Stock, the numerator of which is equal to $17.00, and the
denominator of which is equal to the average of the per share closing price of
Avant! Common Stock as quoted on the Nasdaq National Market for the ten
consecutive trading days ending three business days prior to the closing date of
the Merger (the "Average Nasdaq Per Share Price"), which as of December 19, 1997
was $21.241, provided that, notwithstanding anything to the contrary set forth
above, in the event that the Average Nasdaq Per Share Price is greater than
$35.678, then the Exchange Ratio shall be 0.476484, and in the event that the
Average Nasdaq Per Share Price is less than $25.678, then the Exchange Ratio
shall be 0.662045, and (b) all TMA stock options, together with the underlying
TMA Stock Plans, will be assumed by Avant! and converted into options to
purchase shares of Avant! Common Stock at an exercise price based upon the
Exchange Ratio. The options issued under the 1996 Directors Stock Option Plan
will accelerate, by their terms, automatically upon consummation of the Merger.
The TMA Employee Stock Purchase Plan (the "TMA ESPP") and each outstanding
subscription to purchase shares of TMA Common Stock thereunder (a "TMA Purchase
Right") will be assumed by Avant! at the Effective Time of the Merger. The TMA
Purchase Rights so assumed by Avant! will continue to be exercisable upon the
same terms and conditions applicable to those rights immediately prior to the
Effective Time in accordance with the terms of the TMA ESPP, except that (a)
each such assumed TMA Purchase Right will be exercisable for shares of Avant!
Common Stock and (b) the purchase price payable per share of Avant! Common Stock
under the assumed right will be equal to 85% of the lower of (i) the fair market
value per share of the TMA Common Stock on the date the TMA Purchase Right was
granted, divided by the Exchange Ratio and rounded up to the nearest whole cent
and (ii) the fair market value per share of Avant! Common Stock on the date such
right is exercised. Other than the TMA Purchase Rights, no additional purchase
rights will be granted under the TMA ESPP.
As of December 19, 1997, the Exchange Ratio would have been 0.662045 shares
of Avant! Common Stock for each outstanding share of TMA Common Stock. As the
Exchange Ratio is subject to adjustment based on the determination of the
Average Nasdaq Per Share Price, holders of TMA Common Stock may not know the
exact number of shares of Avant! Common Stock to be received in respect of each
share of TMA Common Stock or the value of such shares until the Closing Date.
Assuming that all conditions to the Merger are met or waived prior thereto, and
that the TMA Merger Proposal and the Avant! Share Issuance Proposal are
approved, it is anticipated that the Effective Date of the Merger will occur on
the
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date of or promptly following the TMA Special Meeting and the Avant! Special
Meeting. The Exchange Ratio is subject to adjustment in the event that the
Average Nasdaq Per Share Price is between $35.678 and $25.678, such that the
number of shares of Avant! Common Stock to be issued for each share of TMA
Common Stock will increase or decrease so that the aggregate value of the
consideration to be received by TMA shareholders in the Merger remains fixed. In
the event the Average Nasdaq Per Share Price decreases below $25.678 the number
of shares of Avant! Common Stock to be issued to TMA shareholders will remain
constant and accordingly, the value of the consideration to be received by TMA
shareholders in the Merger will decrease. In the event the Average Nasdaq Per
Share Price increases above $35.678, the number of shares of Avant! Common Stock
to be issued to TMA shareholders will remain constant and accordingly, the value
of the consideration to be received by TMA shareholders will increase. As an
example, a holder of 1,000 shares of TMA Common Stock would receive 476 shares
of Avant! Common Stock at an Average Nasdaq Per Share Price of $35.678 or
higher, between 476 and 662 shares of Avant! Common Stock at an Average Nasdaq
Per Share Price of between $35.678 and $25.678 and 662 shares of Avant! Common
Stock at an Average Nasdaq Per Share Price of $25.678 or less (plus in each case
cash in lieu of fractional shares). As of December 19, 1997, the Average Nasdaq
Per Share Price was $21.241. Based on this Average Nasdaq Per Share Price, in
the Merger, a holder of 1,000 shares of TMA Common Stock would receive 662
shares of Avant! Common Stock. TMA shareholders are advised to obtain current
market quotations for Avant! Common Stock and TMA Common Stock. The current
market quotations for the Avant! Common Stock and the TMA Common Stock may be
obtained on the World Wide Web at http://www.nasdaq.com. See "Risk
Factors--Risks Associated with the Exchange Ratio." Since no fractional shares
of Avant! Common Stock will be issued in the Merger, cash will be paid in lieu
of the issuance of fractional shares. See "The Merger and Related
Transactions--Conversion of TMA Shares."
In connection with the Merger, Avant! will assume outstanding options to
purchase an aggregate of approximately 1,555,375 shares of TMA Common Stock
(based on the number of shares subject to outstanding TMA stock options on
November 30, 1997), which, as adjusted to give effect to the Exchange Ratio of
0.662045 (the Exchange Ratio as of December 19, 1997), will become options to
purchase an aggregate of approximately 1,029,728 shares of Avant! Common Stock.
Within ten days after the Closing Date, Avant! will file a registration
statement on Form S-8 with respect to the shares of Avant! Common Stock issuable
with respect to TMA stock options or TMA Purchase Rights under the TMA ESPP
assumed by Avant! pursuant to the Merger. See "The Merger and Related
Transactions--Assumption of TMA Options and Subscription Rights."
The following table presents the fully diluted equity interests in the
combined company of Avant! stockholders and TMA shareholders on a pro forma
combined basis as of December 19, 1997 (including shares issuable upon the
exercise of outstanding options to purchase shares of Avant! Common Stock and
TMA Common Stock):
<TABLE>
<CAPTION>
SHARES
(IN
THOUSANDS) %
------------- ---------
<S> <C> <C>
Avant! stockholders............................................................. 30,109,737 82.5
------------- ---------
TMA shareholders (1)............................................................ 6,406,239 17.5
------------- ---------
Total pro forma Avant! stockholders............................................. 36,515,976 100.0
------------- ---------
------------- ---------
</TABLE>
- ------------------------
(1) Assumes an Exchange Ratio of 0.662045. For further information, see
"Unaudited Pro Forma Condensed Combined Financial Statements" and "Avant!
Business--Recent Developments."
4
<PAGE>
Exchange of certificates evidencing TMA Common Stock for certificates
evidencing Avant! Common Stock will be made upon surrender of certificates
evidencing TMA Common Stock to Avant!'s exchange agent.
CERTIFICATES SHOULD NOT BE SURRENDERED FOR EXCHANGE PRIOR TO THE RECEIPT OF
THE NECESSARY APPROVALS OF THE AVANT! STOCKHOLDERS AT THE AVANT! SPECIAL MEETING
AND OF THE TMA SHAREHOLDERS AT THE TMA SPECIAL MEETING. IN ADDITION, FORMER TMA
SHAREHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES UNTIL THEY ARE PROVIDED
WITH A LETTER OF TRANSMITTAL AND RELATED INSTRUCTIONS AND MATERIALS FOR THE
EXCHANGE OF THEIR CERTIFICATES AFTER THE EFFECTIVE TIME. SEE "THE MERGER AND
RELATED TRANSACTIONS--EXCHANGE OF CERTIFICATES."
EFFECT OF AVANT! STOCK VALUE AND PER TMA COMMON STOCK MARKET PRICE
As described above, the Exchange Ratio varies inversely with the Avant!
trading price over the ten consecutive trading days ending three days prior to
the closing date of the Merger ("the Average Nasdaq Per Share Price").
Accordingly, the value of the consideration received by TMA shareholders in the
Merger will vary depending on the market price per share of Avant! Common Stock
on the Nasdaq National Market during the price measurement period and the
resulting number of shares of Avant! Common Stock to be issued in the Merger.
The Plan of Reorganization is not subject to termination in the event the
Average Nasdaq Per Share Price declines to any particular amount. The table
below illustrates the Exchange Ratio determined at various illustrative Average
Nasdaq Per Share Prices, and the value per share of TMA Common Stock at each
such illustrative Average Nasdaq Per Share Price and the approximate total
number of shares of Avant! Common Stock to be issued in the Merger at each such
Average Nasdaq Per Share Price. As illustrated by the table, in the event that
the Average Nasdaq Per Share Price is greater than $35.678, then the Exchange
Ratio shall be 0.476484, and in the event that the Average Nasdaq Per Share
Price is less than $25.678, then the Exchange Ratio shall be 0.662045. The
trading price of the Avant! Common Stock is subject to fluctuation. See "Risk
Factors--Potential Volatility of Stock Price."
<TABLE>
<CAPTION>
APPROXIMATE TOTAL
ILLUSTRATIVE VALUE OF EACH NUMBER OF AVANT!
AVERAGE NASDAQ SHARE OF TMA COMMON STOCK
PER SHARE EXCHANGE COMMON ISSUED IN THE
PRICE RATIO(3) STOCK(1) MERGER(2)
-------------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
$ 50.00 0.476484 $ 23.82 3,869,558
Exchange Ratio fixed at minimum................... $ 40.00 0.476484 $ 19.06 3,869,558
$ 35.678 0.476484 $ 17.00 3,869,558
$ 32.00 0.531250 $ 17.00 4,314,316
Exchange Ratio variable........................... $ 30.00 0.566666 $ 17.00 4,601,931
$ 28.00 0.607142 $ 17.00 4,930,640
$ 25.678 0.662045 $ 17.00 5,376,511
Exchange Ratio fixed at maximum................... $ 25.00 0.662045 $ 16.55 5,376,511
$ 20.00 0.662045 $ 13.24 5,376,511
</TABLE>
- ------------------------
(1) The value of each share of TMA Common Stock is calculated by multiplying the
illustrative Avant! Nasdaq Per Share Price by the corresponding Exchange
Ratio.
(2) Based on 8,121,066 shares of TMA Common Stock outstanding as of December 19,
1997.
(3) Represents ($17.00/Average Nasdaq Per Share Price) with a maximum value of
0.662045 and a minimum value of 0.476484.
5
<PAGE>
NO TERMINATION RIGHT IN THE EVENT OF A DECLINE IN AVANT! TRADING PRICE. The
Plan of Reorganization is not subject to termination in the event that the
Average Nasdaq Per Share Price increases or declines to a certain price. In the
event that the trading price of the Avant! Common Stock declines to below
$25.678 per share for the ten consecutive trading days ending three days prior
to the Effective Time, the dollar value of the consideration to be received by
TMA shareholders would decline because the Exchange Ratio would not be adjusted
any further. In addition, TMA would not be able to terminate the Plan of
Reorganization solely as a result of such decline in the trading price of the
Avant! Common Stock. Furthermore, in light of the recent substantial volatility
in the stock markets, particularly in the trading prices of securities of
technology companies, there can be no assurance that the Average Nasdaq Per
Share Price will not decrease below $25.678. As of December 19, 1997, the
Average Nasdaq Per Share Price was $21.241. See "Risk Factors--Risks Associated
with Exchange Ratio."
AVANT! BOARD RECOMMENDATION; AVANT!'S REASONS FOR THE MERGER. The Avant!
Board believes that the Merger will be potentially beneficial in several
respects. In reaching its determination to recommend approval of the Merger and
related transactions, the Avant! Board considered a number of factors,
including, but not limited to, the following:
(a) the combination of Avant! with TMA will create a combined company
with significantly greater resources, a more complete product offering for
the physical design, verification and simulation of ICs and greater sales
and marketing capabilities than those of Avant! alone, and may enable the
combined company to compete more effectively with competitors having greater
resources and broader product offerings than Avant! alone;
(b) the combination of TMA's TCAD technologies with Avant!'s ECAD
software provides an opportunity for the combined company to offer an
integrated line of IC design products, including products focused on
physical design and deep-submicron manufacturability, thereby addressing the
customer need for deep-submicron solutions;
(c) the Merger will permit Avant! to broaden and diversify its product
offerings with complementary software tools that it currently does not
offer, which may reduce the risk of dependence on individual products;
(d) Avant! believes that the management team of the combined company
will have greater depth and experience than that of Avant! alone; and
(e) a larger combined customer base and complementary distribution
channels will provide leverage for expanded sales and marketing
opportunities for the combined company.
TMA BOARD RECOMMENDATION; TMA'S REASONS FOR THE MERGER. The TMA Board has
unanimously approved the Plan of Reorganization, has unanimously determined that
the Merger is fair to, and in the best interests of TMA and its shareholders,
and unanimously recommends that holders of shares of TMA Common Stock vote FOR
approval and adoption of the Plan of Reorganization and the Merger.
The TMA Board identified several potential strategic benefits of the Merger
that TMA believes will contribute to the success of the combined company. These
potential benefits include:
(a) the combination of TMA's TCAD technologies with Avant!'s ECAD
software provides an opportunity for the combined company to offer an
integrated line of IC design products, including products focused on
physical design and deep-submicron manufacturability, thereby addressing the
customer need for deep-submicron solutions, a capability that is not
possible if TMA remains independent;
(b) Avant!'s market presence, larger customer base and larger sales and
distribution network offer expanded sales and marketing opportunities for
TMA's products;
(c) the combination of TMA and Avant! will create a combined company
with significantly greater resources and greater sales and marketing
capabilities than those of TMA alone, and may enable TMA to compete more
effectively in the marketplace;
6
<PAGE>
(d) the opportunity to expand TMA's international distribution of its
products by using Avant!'s worldwide sales and distribution presence; and
(e) the opportunity for the combined company to offer a broader and more
complete product line will provide TMA increased leverage for customers who
have entered into volume purchase orders with Avant!. See "The Merger and
Related Transactions--Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR. On September 7, 1997, Wessels, Arnold &
Henderson, L.L.C. ("WA&H") rendered a written opinion (the "WA&H Opinion") to
the TMA Board that, as of such date, and based on the procedures followed,
factors considered and assumptions made as set forth therein, the consideration
to be received by the holders of TMA Common Stock upon completion of the Merger
was fair from a financial point of view to the holders of TMA Common Stock. The
full text of the WA&H Opinion, which sets forth the assumptions made, procedures
followed, matters considered and limitations on the review undertaken, is
attached hereto as Appendix B to this Joint Proxy Statement/Prospectus and
should be read carefully and in its entirety in connection with this Joint Proxy
Statement/Prospectus. The WA&H Opinion is directed to the TMA Board, addresses
only the fairness as of September 7, 1997, from a financial point of view, of
the consideration to be received by holders of TMA Common Stock pursuant to the
Plan of Reorganization and does not constitute a recommendation to any holder of
TMA Common Stock as to how such shareholder should vote at the TMA Special
Meeting. A summary of all material provisions of the WA&H Opinion is set forth
in this Joint Proxy Statement/Prospectus and such summary is qualified in its
entirety by reference to the full text of such opinion. This opinion was updated
as of November 18, 1997. Cowen and Company has also provided certain preliminary
financial advisory services to TMA but has not rendered any fairness opinion in
connection with the Merger. See "The Merger and Related Transactions--Opinion of
TMA Financial Advisor" and "Appendix B."
OPERATIONS FOLLOWING THE MERGER; MANAGEMENT OF COMBINED COMPANY. Upon
consummation of the Merger, TMA will operate as a wholly owned subsidiary of
Avant!. If the Merger is approved, the Avant! Board intends to appoint Roy E.
Jewell, the President and Chief Executive Officer of TMA, to be the head of
Avant!'s TCAD division. See "The Merger and Related Transactions--Operations
Following the Merger; Management of Combined Company" and "--Interests of
Certain Persons in the Merger."
REPRESENTATIONS AND WARRANTIES AND COVENANTS. Under the Plan of
Reorganization, Avant! and TMA made a number of representations and warranties
regarding their respective capital structures, operations, financial conditions
and other matters. Each of Avant! and TMA has agreed that, until the closing of
the Merger or the termination of the Plan of Reorganization, it will (a) carry
on its business in the ordinary course and attempt to preserve its present
business and relationships with customers, suppliers and others, (b) not take
certain actions without the other's consent and (c) use its best efforts to
complete the Merger. See "The Merger and Related Transactions--Representations
and Warranties and Covenants."
OTHER OFFERS. TMA has agreed not to solicit, initiate discussions with or
engage in negotiations with any person relating to a possible acquisition of
TMA, except that if the TMA Board receives an unsolicited proposal (a "Takeover
Proposal") that it reasonably believes is more favorable to its shareholders
from a financial point of view than the Merger (a "Superior Proposal"), then the
TMA Board will not be prevented from providing information to or negotiating
with the party making the Superior Proposal or from making such disclosures to
the TMA shareholders as may be required to discharge the directors' fiduciary
duties. However, in the event either TMA or Avant! terminates the Plan of
Reorganization following a failure of the shareholders of TMA to approve the
Plan of Reorganization, and a Takeover Proposal with respect to TMA shall not
have been rejected by TMA and withdrawn by the third party, then TMA must
promptly pay Avant! a termination fee of $5,250,000. See "--Expenses and
Termination Fees" and "The Merger and Related Transactions--Other Offers."
RESALE OF AVANT! COMMON STOCK; AGREEMENTS WITH AFFILIATES. The shares of
Avant! Common Stock to be issued in the Merger have been registered under the
Securities Act and will be freely transferable, subject to certain limitations
on resale described in this Joint Proxy Statement/Prospectus. As a condition to
the obligations of the parties under the Plan of Reorganization, Avant! and TMA
have each received
7
<PAGE>
agreements from each person or entity who may be deemed an affiliate (as defined
in the Securities Act and the rules and regulations thereunder) of Avant! or
TMA, as appropriate pursuant to which such persons have agreed not to sell,
transfer or otherwise dispose of shares of TMA Common Stock or Avant! Common
Stock until such time after the Effective Time as Avant! has publicly released a
report including the combined financial results of Avant! and TMA for a period
of at least 30 days of combined operations of Avant! and TMA. Furthermore,
pursuant to such agreements, the affiliates of TMA have agreed to refrain from
the sale or transfer of any Avant! Common Stock received in connection with the
Merger, except in accordance with the provisions of the Securities Act and the
general rules and regulations thereunder. Such agreements also limit the ability
of the affiliates of Avant! to sell, transfer or otherwise dispose of shares of
Avant! Common Stock during the period preceding and following the Merger. See
"The Merger and Related Transactions--Resale of Avant! Common Stock; Agreements
with Affiliates."
INTERESTS OF CERTAIN PERSONS. In considering the recommendation of the TMA
Board with respect to the Merger, TMA shareholders should be aware that certain
members of TMA's management and Board have interests in connection with the
Merger and the agreements and transactions contemplated thereby that are in
addition to those of TMA shareholders generally. See "The Merger and Related
Transactions-- Interests of Certain Persons in the Merger."
CONDITIONS TO THE MERGER. The closing of the Merger is subject to various
conditions, including the approval by Avant!'s stockholders of the Avant! Share
Issuance Proposal, the approval by TMA's shareholders of the TMA Merger
Proposal, the receipt of certain consents and approvals from various third
parties and governmental agencies, including the approval of the Federal Trade
Commission and the Department of Justice pursuant to the filings made by the
parties under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, receipt of opinions of counsel to the effect that the Merger should
qualify as a reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), the absence of a material adverse change in the
business, prospects or financial condition of TMA and/or Avant!, and receipt of
a letter from KPMG Peat Marwick LLP, independent accountants, concurring with
Avant!'s management's conclusion that the Merger will qualify for pooling of
interests accounting treatment if consummated in accordance with the Plan of
Reorganization. TMA shall also receive a letter from Arthur Andersen LLP to the
effect that TMA qualifies for participation in this pooling of interests
transaction consummated in accordance with the Plan of Reorganization. Except
for matters required by law, each of the parties to the Plan of Reorganization
may, at its option, waive compliance with any condition to its obligation to
consummate the Merger. See "The Merger and Related Transactions--Conditions to
the Merger."
SHAREHOLDER AGREEMENT. Roy E. Jewell, Bennet L. Weintraub, Jue-Hsien Chern,
Lung Chu, David M. Lee, Milan G. Lazich, Louis A. Delmonico, Robert A. Dutton,
William E. Drobish, and Ronald A. Rohrer beneficially own an aggregate of
2,619,149 shares of TMA Common Stock, representing approximately 32.3% of the
votes entitled to be cast by holders of shares of TMA Common Stock issued and
outstanding as of the TMA Record Date. These individuals have entered into a
Shareholder Agreement with Avant!, pursuant to which each has (a) agreed to vote
the shares of TMA Common Stock held by him in favor of the TMA Merger Proposal,
(b) granted Avant! an irrevocable proxy to vote such individual's shares in
favor of the Merger and (c) granted Avant! an exclusive and irrevocable option
to purchase such individual's shares of TMA Common Stock in the event the Merger
does not occur, subject to certain conditions specified in the Shareholder
Agreement. These individuals' obligations under the Shareholder Agreement are
not impacted by TMA's receipt of a superior proposal. See "The Merger and
Related Transactions--Shareholder Agreement."
CLOSING. The Merger will be completed on the date that the Agreement of
Merger, is filed with the Office of the Secretary of State of the State of
California. The Effective Time is expected to occur as soon as practicable after
the receipt of the necessary approvals at the Avant! Special Meeting and the TMA
Special Meeting and satisfaction or waiver of the other conditions precedent to
the Merger, as set forth in the Plan of Reorganization (the "Closing"). It is
anticipated that the Closing will occur no later than two
8
<PAGE>
business days of the obtaining of the necessary approvals at the Avant! Special
Meeting and the TMA Special Meeting. See "The Merger and Related
Transactions--Closing."
TERMINATION. The Plan of Reorganization may be terminated by mutual
agreement of Avant! and TMA, or by either Avant! or TMA (a) if the closing of
the Merger has not occurred on or before January 31, 1998, (b) as a result of a
breach by the other party of a representation, warranty, or obligation set forth
in the Plan of Reorganization, which breach would result in a material adverse
change in the condition (financial or otherwise), properties, assets (including
intangible assets), liabilities, business, operations or results of operations
of such other party or its subsidiaries, and such breach has not been cured
within ten business days after written notice from the other party, (c) if there
shall have occurred a material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations, results of operations or prospects of the other party or
its subsidiaries and such other party shall have failed to propose a reasonably
acceptable plan to mitigate the effect of such material adverse change within 20
business days after notice of intent to terminate, (d) if the Board of the other
party withdraws or modifies, in an adverse manner, its recommendation of the
Plan of Reorganization or the Merger, (e) if there is a permanent injunction or
order of a court or other competent authority in effect preventing the Merger
which has become final and nonappealable or (f) if the required approval of the
Avant! stockholders or TMA shareholders is not obtained at the respective
Special Meetings. The Plan of Reorganization is not subject to termination
solely as a result of a decline in the Average Nasdaq Per Share Price. See "The
Merger and Related Transactions--No Termination Right in the Event of a Decline
in Avant! Trading Price" and "--Termination."
EXPENSES AND TERMINATION FEES. All costs and expenses incurred in
connection with the Plan of Reorganization and the transactions contemplated
thereby (including, without limitation, the fees and expenses of advisors,
accountants and legal counsel) will be paid by the party incurring such expense,
except that, in the event the Merger is not consummated for any reason or if the
Plan of Reorganization is terminated for any reason, other than in certain
specified circumstances relating to the conduct of Avant! in the period
following execution of the Plan of Reorganization, expenses incurred in
connection with printing the proxy materials and the Registration Statement, and
registration and filing fees incurred in connection with the Registration
Statement and the proxy materials in connection with the Merger, will be shared
equally by Avant! and TMA.
If either (a) Avant! or TMA terminates the Plan of Reorganization following
a failure of the TMA shareholders to approve the Plan of Reorganization and,
prior to the time of the TMA Special Meeting, there shall have been a Trigger
Event (as used herein, a "Trigger Event" shall occur if any Person commences a
tender or exchange offer following the successful consummation of which the
offeror and its affiliates would beneficially own securities representing 25% or
more of the voting power of TMA) with respect to TMA that TMA's Board of
Directors has not recommended that its shareholders reject or a Takeover
Proposal not rejected by TMA or withdrawn by the third party making such
Takeover Proposal or (b) Avant! terminates the Plan of Reorganization under
certain circumstances permitted by the Plan of Reorganization, and TMA is not
entitled to terminate the Plan of Reorganization for certain reasons permitted
by the Plan of Reorganization, and prior thereto there shall have been (i) a
Trigger Event with respect to TMA or (ii) a Takeover Proposal with respect to
TMA which shall not have been rejected by TMA and withdrawn by the third party,
then TMA shall promptly pay Avant! a termination fee of $5,250,000. If the Plan
of Reorganization is terminated by TMA under certain circumstances permitted by
the Plan of Reorganization and Avant! is not entitled to terminate the Plan of
Reorganization for the same reasons, then Avant! shall promptly pay TMA a
termination fee of $5,250,000. If TMA terminates the Plan of Reorganization due
in whole or in part to any failure by Avant! to use its reasonable best efforts
to perform and comply with all agreements and conditions required to be
performed or complied with under the Plan of Reorganization then, Avant! shall
promptly pay to TMA a termination fee of $5,250,000. See "The Merger and Related
Transactions--Expenses and Termination Fees."
9
<PAGE>
AMENDMENT. The Plan of Reorganization may be amended by the agreement of
the board of directors of Avant! and TMA at any time before or after approval by
the TMA shareholders or the Avant! stockholders, except that, after such
approval, no amendment may be made which (a) alters or changes the amount or
kind of consideration to be received upon conversion of the TMA Common Stock,
(b) alters or changes any term of the Articles of Incorporation of Merger Sub or
(c) alters or changes any of the terms and conditions of the Plan of
Reorganization if such alteration or change would adversely affect the holders
of TMA Common Stock or Avant! Common Stock. See "The Merger and Related
Transactions-- Termination" and "--Amendment."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. Avant! and TMA have received
opinions from Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP and
Fenwick & West LLP, respectively, that the Merger should qualify as a
reorganization for federal income tax purposes under Section 368(a) of the Code
(a "Reorganization"). Provided that the Merger does qualify as a Reorganization,
no gain or loss should be recognized for federal income tax purposes by TMA
shareholders upon their receipt of shares of Avant! Common Stock in exchange for
their shares of TMA Common Stock, except to the extent of cash received in lieu
of fractional shares or in respect of Dissenting Shares. Such legal opinions
have been filed as exhibits to the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part, are subject to certain limitations and
qualifications and are based upon certain factual assumptions and
representations. Furthermore, such legal opinions are not binding on the
Internal Revenue Service. ALL TMA SHAREHOLDERS SHOULD READ CAREFULLY THE
DISCUSSION UNDER "THE MERGER AND RELATED TRANSACTIONS--CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS." IN VIEW OF THE COMPLEXITIES OF FEDERAL INCOME AND OTHER TAX
LAWS, EACH TMA SHAREHOLDER SHOULD CONSULT WITH SUCH SHAREHOLDER'S TAX ADVISOR
REGARDING, AMONG OTHER THINGS, THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX
CONSEQUENCES OF THE MERGER APPLICABLE TO SUCH SHAREHOLDER'S SPECIFIC
CIRCUMSTANCES.
The Merger will not have any tax consequences for Avant! stockholders.
ACCOUNTING TREATMENT. The Merger is expected to be accounted for as a
pooling of interests in accordance with the provisions of Accounting Principles
Board Opinion No. 16. As a condition to the consummation of the Merger, Avant!
will receive a letter from KPMG Peat Marwick LLP, independent accountants,
concurring with Avant!'s management's conclusion that the Merger will qualify
for pooling of interests accounting treatment if consummated in accordance with
the Plan of Reorganization. TMA shall also receive a letter from Arthur Andersen
LLP to the effect that TMA qualifies for participation in this pooling of
interests transaction if consummated in accordance with the Plan of
Reorganization. See "The Merger and Related Transactions--Accounting Treatment."
DISSENTERS' RIGHTS. Under Chapter 13 of the CGCL, TMA shareholders who
object to the Merger may, under certain circumstances and by following
prescribed statutory procedures, have the right to dissent from the Merger and
seek a determination of, and receive payment for, the "fair value" of such
shareholder's shares. A complete copy of Chapter 13 of the CGCL is attached
hereto as Appendix C. The failure of such a dissenting shareholder to follow
such procedures, described more fully elsewhere in this Joint Proxy
Statement/Prospectus, may result in termination or waiver of such dissenters'
rights. However, no TMA shareholder will have dissenter's rights unless
Dissenting Shares represent at least five percent of the outstanding shares of
TMA Common Stock. It should be noted that if holders of more than an
insignificant number of shares of TMA Common Stock elect to exercise their
dissenters' rights, such action could adversely impact the ability of Avant! to
account for the business combination contemplated by the Merger as a pooling of
interests under generally accepted accounting principles, a condition to the
consummation of the Merger. Under the Plan of Reorganization, if Dissenting
Shares represent more than ten percent of the then outstanding shares of TMA
Common Stock, then Avant! and Merger Sub will not be obligated to consummate and
effect the Plan of Reorganization and the transactions contemplated
10
<PAGE>
thereby. See "Dissenters' Rights" for a more detailed description of TMA
shareholders' dissenters' rights with respect to the Merger.
No statutory appraisal rights are available to Avant! stockholders in
connection with the Merger.
COMPARATIVE RIGHTS OF SHAREHOLDERS. As a result of the Merger, holders of
TMA Common Stock will be exchanging their shares of a California corporation,
which is governed by the CGCL and TMA's Articles of Incorporation and Bylaws,
for shares of Avant! Common Stock issued by a Delaware corporation, which is
governed by the Delaware General Corporation Law ("DGCL") and Avant!'s
Certificate of Incorporation and Bylaws. Holders of TMA Common Stock should be
aware that certain significant differences exist between the rights of a
shareholder of a California corporation and those of a stockholder of a Delaware
corporation. There are certain differences between California corporate law and
Delaware corporate law, as well as between TMA's Bylaws and Articles of
Incorporation and Avant!'s Bylaws and Certificate of Incorporation. See
"Comparison of Rights of Holders of Avant! Common Stock and Holders of TMA
Common Stock."
REGULATORY MATTERS. Under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act") and the rules promulgated thereunder, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice and the specified waiting
periods have been satisfied. Each of Avant! and TMA made the required filings
under the HSR Act, and the HSR Act waiting period expired at 11:59 p.m. on
November 5, 1997.
MARKET PRICE AND DIVIDENDS ON AVANT! AND TMA COMMON STOCK
Avant! Common Stock is traded on the Nasdaq National Market under the symbol
"AVNT," and TMA Common Stock is traded on the Nasdaq National Market under the
symbol "TMAI." Trading of Avant! Common Stock began on June 7, 1995, and trading
of TMA Common Stock began on September 20, 1996.
The following table sets forth the closing sales price per share of Avant!
Common Stock and TMA Common Stock, as reported by the Nasdaq National Market, on
(a) September 5, 1997, the last full trading day preceding the date of the
announcement of the execution of the Plan of Reorganization by Avant! and TMA
and (b) December 19, 1997, the latest practicable trading day before printing
this Joint Proxy Statement/Prospectus. The "equivalent per share price" for TMA
Common Stock as of such dates equals the closing sale price per share of Avant!
Common Stock on such dates multiplied by the Exchange Ratio on such dates
(0.565893 and 0.662045, respectively). Avant! stockholders and TMA shareholders
are strongly encouraged to obtain current market information for shares of
Avant! Common Stock and TMA Common Stock. The current market quotations for the
Avant! Common Stock and the TMA Common Stock may be obtained on the World Wide
Web at http://www.nasdaq.com. See "Risk Factors--Potential Volatility of Stock
Price."
<TABLE>
<CAPTION>
AVANT! TMA EQUIVALENT
COMMON STOCK COMMON STOCK PER SHARE
PRICE PRICE PRICE
-------------- -------------- -------------
<S> <C> <C> <C>
September 5, 1997............................ $ 33.625 $ 13.500 $ 19.028
December 19, 1997............................ $ 17.938 $ 10.750 $ 11.876
</TABLE>
Avant! and TMA believe that TMA Common Stock presently trades on the basis
of the value of the Avant! Common Stock expected to be issued in exchange for
such TMA Common Stock in the Merger, discounted primarily for the uncertainties
associated with the Merger. Apart from the publicly disclosed information
concerning Avant! which is included in this Joint Proxy Statement/Prospectus,
Avant! cannot state with certainty what factors account for changes in the
market price of the Avant! Common Stock. See "Risk Factors--Potential Volatility
of Stock Price."
11
<PAGE>
The following table sets forth the high and low closing sale prices on
Avant!'s Common Stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------------- ---------
<S> <C> <C>
Fiscal Year Ended December 31, 1995
Second Quarter (from June 7, 1995)..................................... $ 34.00 $ 26.50
Third Quarter.......................................................... $ 49.25 $ 33.63
Fourth Quarter......................................................... $ 45.625 $ 14.25
Fiscal Year Ended December 31, 1996
First Quarter.......................................................... $ 25.75 $ 14.25
Second Quarter......................................................... $ 25.50 $ 16.50
Third Quarter.......................................................... $ 33.50 $ 20.75
Fourth Quarter......................................................... $ 36.00 $ 25.63
Fiscal Year Ended December 31, 1997
First Quarter.......................................................... $ 39.88 $ 24.25
Second Quarter......................................................... $ 32.38 $ 9.81
Third Quarter.......................................................... $ 35.00 $ 28.75
Fourth Quarter (through December 19, 1997)............................. $ 30.938 $ 15.50
</TABLE>
No cash dividends have been paid on the Avant! Common Stock since Avant!'s
initial public offering. Avant! does not anticipate paying cash dividends in the
foreseeable future.
Prior to TMA's initial public offering on September 20, 1996, there was no
public market for TMA's Common Stock. The following table sets forth the high
and low closing sale prices on TMA's Common Stock for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1996 HIGH LOW
------------ -----------
<S> <C> <C>
Third Quarter (from September 20, 1996).................... $ 16.25 $ 12.00
Fourth Quarter............................................. $ 15.00 $ 9.50
Fiscal Year Ending December 31, 1997
First Quarter.............................................. $ 17.00 $ 9.75
Second Quarter............................................. $ 14.50 $ 8.00
Third Quarter.............................................. $ 16.875 $ 11.00
Fourth Quarter (through December 19, 1997)................. $ 16.313 $ 9.00
</TABLE>
On September 5, 1997, the last full trading day before the date of the
commencement of the execution of the Plan of Reorganization by Avant! and TMA,
the closing sale price of TMA Common Stock as reported by the Nasdaq National
Market was $13.50 per share. On December 19, 1997, the last trading day for
which quotations were available at the time of printing this Joint Proxy
Statement/Prospectus, the closing sale price of TMA Common Stock as reported by
the Nasdaq National Market was $10.75 per share.
As of December 19, 1997, there were approximately 79 holders of record of
TMA Common Stock (although TMA has been informed that there are in excess of 900
beneficial owners).
TMA has not paid any cash dividends on its capital stock in recent years.
TMA currently anticipates that it will retain any future earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future.
12
<PAGE>
RISK FACTORS
The completion of the Merger and an investment in shares of Avant! Common
Stock each involve substantial risks. Shareholders of TMA and stockholders of
Avant! should consider the information set forth in "Risk Factors" and the other
information contained herein before deciding whether or not to approve the TMA
Merger Proposal or the Avant! Share Issuance Proposal, as applicable.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected financial information of Avant! and TMA as of
December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and
1996 has been derived from audited financial statements included elsewhere
herein. It is qualified by reference to, and should be read in conjunction with,
Avant!'s and TMA's consolidated financial statements and notes thereto included
elsewhere in this Joint Proxy Statement/Prospectus. The balance sheet
information as of September 30, 1997 and the statement of operations information
for the nine-month periods ended September 30, 1996 and 1997 are derived from
unaudited financial statements included elsewhere herein and have been prepared
on the same basis as the audited consolidated financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of Avant! and TMA for the unaudited interim
period. Avant!'s statement of income information for the years ended December
31, 1992 and 1993, and balance sheet information as of December 31, 1992 and
1993 are derived from audited consolidated financial statements not included
herein. TMA's statement of income information for the year ended December 31,
1993 and balance sheet information as of December 31, 1994 is derived from
audited consolidated financial statements not included herein. TMA's statement
of income information for the year ended December 31, 1992 and balance sheet
information as of December 31, 1992 and 1993 are derived from and qualified by
reference to unaudited consolidated financial statements of TMA, not included
herein.
The pro forma financial information does not purport to represent what
Avant!'s financial position or results of operations would actually have been
had the Merger occurred at the beginning of the earliest period presented or to
project Avant!'s financial position or results of operations for any future date
or period. In addition, it does not incorporate any benefits from cost savings
or synergies of operations that may be realized by the combined company. For
further information, see "Unaudited Pro Forma Condensed Combined Financial
Statements" and "Avant! Business--Recent Developments."
13
<PAGE>
SELECTED FINANCIAL DATA
AVANT!
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
-------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Total revenue................................. $14,806 $22,560 $39,344 $68,868 $106,087 $77,293 $104,332
Income (loss) from operations................. 1,171 1,231 5,348 11,790 19,232 20,828 (8,057)
Net income (loss) (2)......................... 307 2,389 4,009 8,350 12,484 15,264 (2,858)
Net income (loss) per share (2)............... $ 0.03 $ 0.15 $ 0.20 $ 0.35 $ 0.47 $ 0.57 $ (0.11)
Weighted average number of common and common
equivalent shares outstanding............... 8,954 16,284 20,457 24,159 26,761 26,621 25,616
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
-------------------------------------------- 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 6,966 $ 9,682 $ 9,925 $50,010 $ 33,067 $ 73,565
Working capital (1)................................ 7,397 12,530 36,464 93,005 115,977 89,587
Total assets....................................... 13,397 24,277 52,222 123,173 156,103 202,657
Long-term obligations.............................. 152 173 1,021 1,730 1,017 539
Mandatorily redeemable convertible preferred
stock............................................ 3,830 8,312 8,312 -- -- --
Shareholders' equity............................... $ 5,868 $ 7,177 $31,525 $99,411 $124,823 $150,169
</TABLE>
TMA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Total revenue.................................... $ 5,466 $8,088 $12,078 $12,593 $17,959 $12,825 $13,778
Income (loss) from operations.................... (262) 1,199 2,298 2,098 1,732 1,230 (1,204)
Net income....................................... (168) 768 1,454 1,282 1,224 592 69
Net income per share............................. $ (0.02) $ 0.09 $ 0.23 $ 0.23 $ 0.20 $ 0.11 $ 0.01
Weighted average number of common and common
equivalent shares outstanding.................. 9,236 8,238 6,389 5,508 6,217 5,486 8,379
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
--------------------------------------- 30,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $1,110 $1,597 $4,011 $3,284 $21,074 $12,420
Working capital (1)..................................... 583 1,063 1,909 2,742 34,454 34,253
Total assets............................................ 2,530 4,115 6,899 8,068 41,965 43,003
Long-term obligations................................... -- 350 1,031 728 858 519
Shareholders' equity.................................... $1,304 $1,526 $2,033 $3,455 $36,357 $36,551
</TABLE>
- ------------------------
(1) Working capital is computed as current assets less current liabilities.
(2) Amounts for 1992, 1993, 1994 and 1995 are pro forma. See Notes 1 and 6 of
Consolidated Financial Statements of Avant! included elsewhere in this Joint
Proxy Statement/Prospectus.
14
<PAGE>
AVANT! AND TMA
UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME DATA(1):
Total revenue.................................................... $51,422 $81,461 $124,046 $90,118 $118,110
Income (loss) from operations.................................... 7,646 13,888 20,964 22,058 (9,261)
Net income (loss) (2)............................................ 5,463 9,632 13,708 15,856 (2,789)
Net income (loss) per share (2).................................. $ 0.22 $ 0.35 $ 0.44 $ 0.52 $ (0.09)
Weighted average number of common and common equivalent shares
outstanding.................................................... 24,687 27,806 30,877 30,253 31,163
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
30,
1997
---------
(IN
THOUSANDS)
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......................................................................... $85,985
Working capital (3)(4)............................................................................ 117,040
Total assets...................................................................................... 245,660
Long-term obligations............................................................................. 1,058
Shareholders' equity (4).......................................................................... $179,920
</TABLE>
- ------------------------
(1) The unaudited selected pro forma condensed combined financial data gives
effect to the completion of the Merger as if it had occurred on January 1,
1994. See "Unaudited Pro Forma Condensed Combined Financial Statements."
(2) Amounts for 1994 and 1995 are pro forma. See Notes 1 and 6 of Consolidated
Financial Statements of Avant! included elsewhere in this Joint Proxy
Statement/Prospectus.
(3) Working capital is computed as current assets less current liabilities.
(4) Includes the effect of estimated expenses of approximately $6.8 million
expected to be incurred by the combined company in connection with the
Merger.
COMPARATIVE PER SHARE DATA
The following table sets forth certain per share data of Avant! and TMA and
combined per share data on an unaudited pro forma and equivalent pro forma
basis, after giving effect to the Merger on a pooling of interests basis. The
pro forma combined per share data gives effect to the Merger at the estimated
Exchange Ratio of 0.662045 (the Exchange Ratio as of December 19, 1997) shares
of Avant! Common Stock for each outstanding share of TMA Common Stock. The
actual number of shares of Avant! Common Stock to be issued in the Merger will
be determined at the Effective Time based on the Exchange Ratio at the Effective
Time. The pro forma combined per share data does not purport to represent what
Avant!'s financial position or results of operations would actually have been
had the Merger occurred at the beginning of the earliest period presented or to
project Avant!'s financial position or results of operations for any future date
or period. This data should be read in conjunction with the selected historical
financial data and pro forma condensed combined financial statements included
elsewhere herein and the separate historical financial statements and notes
thereto of TMA and Avant! included elsewhere herein. Neither Avant! nor TMA
declared any cash dividends during the periods presented.
15
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER SEPTEMBER
31, 30,
------------------- ------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
AVANT!
Net income (loss) (1)................................................. $0.20 $0.35 $0.47 $0.57 $(0.11)
Book value (2)........................................................ $5.00 $5.65
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER SEPTEMBER
31, 30,
------------------- ------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
TMA
Net income............................................................. $0.23 $0.23 $0.20 $0.11 $0.01
Book value (2)......................................................... $4.73 $4.52
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER SEPTEMBER
31, 30,
------------------- ------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED PER AVANT! SHARE
Net income (loss) (1)................................................. $0.22 $0.35 $0.44 $0.52 $(0.09)
Book value (2)(3)..................................................... $5.14 $5.63
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER SEPTEMBER
31, 30,
------------------- ------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
EQUIVALENT PRO FORMA PER TMA SHARE (4)
Net income (loss)..................................................... $0.15 $0.23 $0.29 $0.34 $(0.06)
Book value (2)(3)..................................................... $3.40 $3.72
</TABLE>
- ------------------------
(1) Amounts for 1994 and 1995 are pro forma. See Notes 1 and 6 of Consolidated
Financial Statements of Avant! included elsewhere in this Joint Proxy
Statement/Prospectus.
(2) Book value per share is computed by dividing shareholders' equity by the
number of shares of common stock outstanding at the end of each period. Pro
forma book value per share is computed by dividing pro forma shareholders'
equity by the pro forma number of shares of common stock outstanding at the
end of each period. Book value per share information as of December 31, 1994
and 1995 and September 30, 1996 is not presented.
(3) The parties anticipate that the combined company will incur direct
transaction costs and merger-related integration expenses totaling
approximately $6.8 million in connection with the Merger. Such costs include
financial advisory fees, transaction costs and other direct costs associated
with the Merger, including the following: (a) employee termination costs;
(b) charges for duplicate facilities; and (c) legal, accounting and printing
expenses. These costs are expected to be charged to the combined company.
The effects of these costs have not been reflected in the above pro forma
combined net income per share data, but are reflected in the above pro forma
book value per share data as of December 31, 1996 and September 30, 1997.
(4) The unaudited equivalent pro forma combined per TMA share amounts are
calculated by multiplying the pro forma combined per Avant! share amounts by
the estimated Exchange Ratio of 0.662045 (the Exchange Ratio as of December
19, 1997) shares of Avant! Common Stock for each outstanding share of TMA
Common Stock.
16
<PAGE>
RISK FACTORS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET FORTH BELOW AND OTHER
MATTERS DESCRIBED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. SEE
"FORWARD-LOOKING STATEMENTS." THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED
CAREFULLY IN EVALUATING THE PROPOSALS TO BE CONSIDERED AND VOTED UPON AT EACH OF
THE AVANT! SPECIAL MEETING AND THE TMA SPECIAL MEETING AND THE ACQUISITION OF
THE SECURITIES OFFERED HEREBY. FOR PERIODS FOLLOWING THE MERGER, REFERENCES TO
THE SERVICES, BUSINESS, FINANCIAL RESULTS OR FINANCIAL CONDITION OF AVANT!, AND
REFERENCES TO THE "COMBINED COMPANY," SHOULD BE CONSIDERED TO REFER TO AVANT!
AND ITS SUBSIDIARIES, INCLUDING TMA, UNLESS THE CONTEXT REQUIRES OTHERWISE.
LITIGATION RISK
Avant! is subject to a number of related litigation matters, including a
civil action brought by Cadence Design Systems, Inc. ("Cadence"), a criminal
complaint filed by the Santa Clara County District Attorney's office against
Avant! and certain of its employees and securities class action claims resulting
from these lawsuits. In addition, default judgments in the aggregate amount of
$31.4 million will be entered against Meta Software, Inc., which Avant! acquired
in October 1996 and which is now a wholly owned subsidiary of Avant! ("Meta").
CADENCE LITIGATION.
On December 6, 1995, Cadence filed an action against Avant! and certain of
its officers in the United States District Court for the District of Northern
California alleging copyright infringement, unfair competition, misappropriation
of trade secrets, conspiracy, breach of contract, inducing breach of contract
and false advertising. The essence of the complaint is that certain Avant!
employees who formerly were Cadence employees misappropriated and improperly
copied source code for certain important functions of Avant! place and route
products from Cadence, and that Avant! has allegedly competed unfairly by making
false statements concerning Cadence and its products. The action also alleges
that Avant! induced certain individual defendants to breach their agreements of
employment and confidentiality with Cadence. The matter is currently awaiting
trial, pending further pretrial matters. A trial date has not been set. On July
25, 1997, a federal judge stayed the Cadence civil action pending completion of
the criminal proceedings described below, except for limited discovery on
certain matters approved by the District Court. Avant! posted a $5.0 million
bond pending the resumption of the civil action.
In addition to actual and punitive damages, which were not quantified by
Cadence, Cadence seeks to enjoin the sale of Avant!'s place and route products
pending trial of the action. On March 18, 1997, the District Court denied
Cadence's motion for a preliminary injunction. Cadence appealed the order
denying a preliminary injunction. On September 23, 1997, the United States Court
of Appeals for the Ninth Circuit overruled the District Court's denial of
Cadence's motion with respect to Avant!'s ArcCell product, a product that Avant!
no longer sells, and held that a preliminary injunction should be granted
against the further sale of the ArcCell product. The Court of Appeals did not
enjoin Avant!'s Aquarius place and route products, but rather remanded this
aspect of Cadence's motion to the District Court for further consideration. The
Court of Appeals stated that, if Avant!'s Aquarius products are determined to
infringe Cadence products, the sale of the Aquarius products should be enjoined.
Avant! requested a rehearing on the issue, but on November 21, 1997 the Ninth
Circuit denied this request. On December 19, 1997, the District Court stated its
intention to enjoin Avant! from directly or indirectly marketing, selling,
licensing, copying or transferring any work copied or derived from Cadence's
Design Framework II, specifically including, but not limited to, Avant!'s
ArcCell, ArcCellBV and ArcCellXO products. The District Court also stated that
it would direct Avant! to deliver a copy of its order to all present or former
customers that have received copies of any such infringing products and, to the
extent it has a legal right to do so, request that such customers return or
destroy any such products. Avant! also will be directed to furnish to Cadence a
list of any customers that still maintain a functioning copy of such products.
At the December 19, 1997
17
<PAGE>
hearing, the District Court did not rule on Cadence's request to enjoin the
sale, license or support of Avant!'s Aquarius place and route products from
which Avant! derives a significant portion of its total revenue. The District
Court will hold future hearings regarding the Aquarius products. There can be no
assurance that the District Court will not, upon further consideration, grant a
preliminary injunction with respect to the sale of the Aquarius products, which
would have a material adverse effect on the combined company's business,
consolidated financial position and consolidated results of operations.
On January 16, 1996, Avant! filed a counterclaim against Cadence alleging
antitrust violations, racketeering, false advertising, defamation, trade libel,
unfair competition, unfair trade practices, negligent and intentional
interference with prospective economic advantage and intentional interference
with contractual relations. On December 19, 1997, Avant! stipulated to
temporarily dismissing its counterclaim in order to file more detailed
allegations. Avant! intends to refile its counterclaim in January 1998.
Avant! believes it has defenses to all of Cadence's claims and intends to
defend itself vigorously. If, however, Avant!'s defenses are unsuccessful,
Avant! may ultimately be permanently enjoined from selling certain place and
route products and may be required to pay damages to Cadence. In addition, upon
further consideration by the District Court, Avant! could be preliminarily
enjoined from selling its Aquarius place and route products. In such event,
Avant!'s business, consolidated financial condition and consolidated results of
operations may be materially adversely affected. In addition, it is likely that
an adverse judgment against Avant! would result in a steep decline in the market
price of Avant! Common Stock. Although it is reasonably possible Avant! may
incur a loss upon conclusion of these claims, an estimate of any loss or range
of loss cannot be made, based on information Avant! presently possesses. There
can be no assurance that an adverse judgment, if granted on any claim would not
have a material adverse effect on Avant!'s business, consolidated financial
position or consolidated results of operations. Furthermore, Cadence terminated
TMA's participation in its Platinum Partners Program after the announcement of
the proposed Merger. There can be no assurance that other customer relationships
of Avant!, TMA or the combined company will not be adversely affected in the
future as a result of the Cadence litigation.
CRIMINAL COMPLAINT.
The Santa Clara County District Attorney's office also is investigating the
allegations of misappropriation of trade secrets set forth in Cadence's lawsuit,
described above. On April 11, 1997, the Santa Clara County District Attorney
filed a criminal complaint alleging felony level offenses against, among others,
Avant! and the following Avant! employees and/or directors, Gerald C. Hsu,
President, Chief Executive Officer and Chairman of the Board of Directors, Y.
Eric Cho, a member of the Board of Directors, Y. Z. Liao, Corporate Fellow,
Stephen Wuu, CEO Staff, Operations, Leigh Huang, Marketing Manager and Eric
Cheng, Research and Development Manager, for allegedly violating various
California Penal Code sections relating to the theft of trade secrets. Avant!
and the individuals have pleaded not guilty and are awaiting further
proceedings. The criminal complaint could result in criminal fines against
Avant!, as well as the potential incarceration of certain members of its
management team. Such outcomes could result in canceled or postponed customer
orders, increased future expenditures, the loss of management and other key
personnel, additional stockholder litigation, loss of goodwill and would have
other material adverse effects on the business, consolidated financial position
or consolidated results of operations of the combined company.
SILVACO LITIGATION.
In March 1993, Meta filed a complaint in Santa Clara Superior Court against
Silvaco Data Systems, Inc. and related parties (collectively, "Silvaco") seeking
monetary damages and injunctive relief. Meta's complaint alleged, among other
things, that Silvaco breached its representative agreement with Meta by
withholding customer payments for products and services that had been delivered,
and by failing to pay royalties on software that Silvaco sold to others. In
August 1995, Meta was awarded $529,828 under the
18
<PAGE>
Superior Court's judicial arbitration program. Both parties rejected the award
and requested a trial de novo on the issues involved. In August 1995, Silvaco
filed a cross-complaint against Meta alleging, among other things, that Meta
owes Silvaco royalties and license fees pursuant to a product development and
marketing program and unpaid commissions related to Silvaco's sale of Meta's
products and services under such program. Meta filed an answer to the
cross-complaint denying the allegations contained therein. In July 1996, Silvaco
filed a first amended cross-complaint, adding Shawn Hailey, then the President,
Chief Executive Officer and a major shareholder of Meta, and, until July 1997,
the Senior Vice President of Avant!'s Silicon Division, as a personal defendant,
and further alleging defamation, interference with economic advantage, unfair
competition and abuse of process by acts or statements made by Meta or its
agents.
In August 1997, the Superior Court entered a default judgment against Mr.
Hailey for failure to timely answer the complaint. In October 1997, Mr. Hailey's
application for relief from the default judgment was denied. In August 1997, the
Superior Court entered a default judgment against Meta as to the defamation and
interference with economic advantage claims. On October 31, 1997, Meta's
application for relief from the default judgment was denied. On October 28,
1997, Silvaco first presented its theory of damages and a trial began on
November 3, 1997. On November 4, 1997, the Superior Court dismissed Meta's
remaining affirmative claims. On November 5, 1997, the Superior Court awarded
Silvaco $20.0 million in damages against Mr. Hailey and Meta related to the
defamation and interference with economic advantage claims, and, on November 6,
1997, the Superior Court awarded Silvaco $11.4 million in damages related to the
unfair competition claim. On November 12, 1997, the Superior Court awarded
nominal damages to Silvaco related to the product development claim. Silvaco's
claims based on the marketing program and abuse of process were dismissed.
Meta intends to pursue all remedies available to it in connection with the
litigation with Silvaco, including filing an appeal as quickly as practicable.
Meta believes it has substantial appellate issues which could cause the judgment
to be remanded to the trial court for further proceedings. Should Meta be
permitted to participate fully in further trial court proceedings, Meta believes
it would have substantial defenses to Silvaco's claims. However, there can be no
assurance that any such remedies will be successful. Although it is reasonably
possible Meta will incur a loss in relation to this claim, it is currently
unable to estimate the actual loss or range of loss. Payment of the damages
previously awarded, and damages which may be awarded in the future, would have a
material adverse effect on Avant!'s business, consolidated financial condition
and consolidated results of operations.
SECURITIES CLASS ACTION CLAIMS.
On December 15, 1995, Paul Margetis and Helen Margetis filed in the United
States District Court for the Northern District of California a securities fraud
class action complaint against Avant!. In addition, on December 19, 1995, Fred
Tarca filed in the United States District Court for the Northern District of
California a class action complaint against Avant! for violations of the federal
securities laws. These class action lawsuits allege certain securities law
violations, including omissions and/or misrepresentation of material facts. The
alleged omissions and/or misrepresentations are largely consistent with those
outlined in the Cadence claim described above. In February 1997, plaintiff Tarca
voluntarily dismissed his action and the Margetis plaintiffs were certified as
class representatives in their action. On July 25, 1997, a federal judge stayed
the Margetis action, except for certain documentary and third-party discovery,
pending resolution of the Cadence suit.
On May 30, 1997, Joanne Hoffman filed in the United States District Court
for the Northern District of California a purported class action alleging
securities claims on behalf of purchasers of Avant! Common Stock between March
29, 1996 and April 11, 1997, the date of the filing of the criminal complaints
against Avant! and six of its employees. Plaintiff alleges that Avant! and
various of its officers misled the market as to the likelihood of criminal
charges being filed and as to the validity of the Cadence allegations. Avant!
19
<PAGE>
has moved to dismiss the Hoffman complaint for failure to state a claim, but the
court has not yet heard argument on that motion.
Avant! believes it has defenses to all of the plaintiffs' claims and intends
to defend itself vigorously. There can be no assurance, however, that Avant!'s
defenses will be successful. Although it is reasonably possible Avant! will
incur a loss in relation to these claims, it is currently unable to estimate the
actual loss or range of loss. In the event Avant!'s defenses are unsuccessful,
Avant! may be required to pay damages to the securities class action plaintiffs,
and such a judgment could have a material adverse effect on Avant!'s business,
consolidated financial condition and consolidated results of operations.
POTENTIAL IMPACT ON TMA SHAREHOLDERS.
Although TMA has the right to terminate the Plan of Reorganization prior to
the Effective Time under certain circumstances, it is possible that developments
in the pending litigation described above that would give TMA the right to
terminate the Plan of Reorganization may occur only after the Effective Time. In
such event, TMA shareholders would bear the risk of any decline in the market
price of the Avant! Common Stock following an adverse outcome of the pending
litigation described above.
LITIGATION COSTS.
The pending litigation and any future litigation against the combined
company or its employees, regardless of the outcome, is expected to result in
substantial costs and expenses to the combined company. For example, during 1996
Avant! incurred and charged to operations approximately $6.8 million in
litigation expenses and expects to incur approximately $7.5 million in
litigation expenses in 1997. While litigation is inherently unpredictable,
Avant! currently expects that its litigation expenses during 1998 will be at
least as much as those incurred in 1997. Accordingly, any such litigation could
have a material adverse effect on the combined company's business, operating
results or financial condition. Furthermore, if Avant! is required to satisfy
the default judgments in full in the Silvaco litigation, Avant! could be
required to pay up to $31.4 million in damages, which would have a material
adverse effect on Avant!'s business, consolidated financial condition and
consolidated results of operations.
UNCERTAINTY RELATING TO INTEGRATION OF MULTIPLE OPERATIONS AND PRODUCT LINES;
MANAGEMENT OF GROWTH
In addition to the proposed acquisition of TMA in the Merger, Avant! has
also recently acquired Compass. The integration of TMA's and Compass' business
and personnel following the TMA and Compass acquisitions present difficult
challenges for Avant!'s management, particularly in light of the increased time
and resources required to effect the combination with these parties. Further,
both Avant! and TMA entered into the Plan of Reorganization with the expectation
that the Merger will result in synergies for the combined company. The combined
company, however, will be more complex and diverse than either Avant! or TMA
individually, and the combination and continued operation of their distinct
business operations, together with Compass will be difficult. While the
management and Boards of both Avant! and TMA believe that the combination of
Avant!, Compass and TMA can be effected in a manner that will realize the value
of the combined company, the management group of the combined company has
limited experience in combinations of this complexity or size. Accordingly,
there can be no assurance that the process of effecting these business
combinations can be effectively managed to realize the synergies anticipated to
result therefrom.
Avant! and TMA entered into the Plan of Reorganization, among other reasons,
in order to achieve potential mutual benefits from combining each of their
respective expertise and product lines for the physical design of high-density,
high-performance ICs. Realization of these potential benefits will require,
among other things, integrating the companies' (including Compass') respective
product offerings and coordinating the combined company's (including Compass')
sales and marketing and research and development efforts. Avant!, Compass and
TMA each have different systems and procedures in many operational areas that
must be rationalized and integrated. There can be no assurance that such
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integration will be accomplished effectively, expeditiously or efficiently. The
difficulties of such integration may be increased by the necessity of
coordinating geographically separated divisions, integrating personnel with
disparate business backgrounds and combining three different corporate cultures.
The integration of certain operations following the Compass Acquisition and the
Merger will require the dedication of management resources that may temporarily
distract attention from the day-to-day business of the combined company. The
business of the combined company may also be disrupted by employee uncertainty
and lack of focus during such integration. In fact, a substantial number of
Compass employees have been terminated by Avant! in an effort to streamline and
integrate the operations of Avant! and Compass. There can also be no assurance
that the combined company will be able to retain all of its key technical, sales
and other key personnel. Failure to effectively accomplish the integration of
the operations of Avant!, Compass and TMA could have a material adverse effect
on the combined company's business, operating results and financial condition.
Moreover, uncertainty in the marketplace or customer hesitation relating to the
Compass Acquisition or the Merger could negatively affect the combined company's
business, operating results and financial condition.
Each of Avant! and TMA has experienced periods of rapid growth and expansion
that has placed and will continue to place significant strains upon their
respective management systems and resources. The combined company's ability to
compete effectively and to manage future growth, if any, will require the
combined company to continue to implement and improve operational, financial and
management information systems on a timely basis and to expand, train, motivate
and manage its work force. There can be no assurance that the combined company's
personnel, systems, procedures and control will be adequate to support the
combined company's operations.
Avant! has also recently acquired the assets of Datalink Far East Ltd., a
Taiwanese distribution corporation ("Datalink"). Pursuant to an asset purchase
agreement (the "Datalink Acquisition"), Avant! will pay $900,000 to acquire
Datalink over five installments at specified times during the next two years.
TMA has also recently acquired Precim Corporation, an Oregon Corporation
("Precim"), in a merger in which TMA issued 387,000 shares of TMA Common Stock
to the shareholders of Precim.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the management of TMA have certain interests in the
Merger that are different from or in addition to, the interests of TMA
shareholders generally. These certain interests include the acceleration of
vesting of outstanding options under the Directors Plan, the appointment of Roy
E. Jewell as the head of Avant!'s TCAD division and the entering into of
severance arrangements with three TMA executive officers. See "Description of
Merger--Interests of Certain Persons in the Merger."
RISKS ASSOCIATED WITH EXCHANGE RATIO
As a result of the Merger, each share of TMA Common Stock will represent the
right to receive a number of shares of Avant! Common Stock equal to the Exchange
Ratio. The Exchange Ratio is subject to adjustment in the event that the Average
Nasdaq Per Share Price is between $35.678 and $25.678, such that the aggregate
value of the consideration to be received by TMA shareholders in the Merger
remains fixed at $17.00 per share. In the event the Average Nasdaq Per Share
Price decreases below $25.678 the value of the consideration to be received by
TMA shareholders in the Merger will decrease. In the event the Average Nasdaq
Per Share Price increases above $35.678, the value of the consideration to be
received by TMA shareholders will increase. The Plan of Reorganization is not
subject to termination in the event the Average Nasdaq Per Share Price increases
or declines to a certain price. As of December 19, 1997, the Average Nasdaq Per
Share Price was $21.241. The market prices of Avant! Common Stock and TMA Common
Stock are set forth herein under "Summary--Market Price and Dividends on Avant!
and TMA Common Stock." TMA shareholders and Avant! stockholders are advised to
obtain current market quotations for Avant! Common Stock and TMA Common Stock.
The Avant! Common Stock and the TMA Common Stock historically have been subject
to substantial price volatility. No assurance can be
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given as to the market prices of the Avant! Common Stock or the TMA Common
Stock, particularly in light of the recent volatility of the stock markets, at
any time before the Effective Time or of the Avant! Common Stock at any time
thereafter.
DEPENDENCE UPON KEY PERSONNEL
The combined company's future operating results depend in significant part
upon the continued service of its key management and technical personnel. Few of
the combined company's employees are bound by employment or non-competition
agreements, and due to the intense competition for such personnel, as well as
the uncertainty caused by the integration of Avant!'s, Compass' and TMA's
businesses, it is possible that the combined company will be unable to retain
such key technical and managerial personnel. In fact, Avant! terminated a
significant number of Compass employees following the Compass Acquisition
thereby adding to any uncertainty which may be felt by the combined company's
employees. There are only a limited number of qualified ICDA engineers, and
competition for such individuals is intense. If the combined company is unable
to attract, hire and retain qualified personnel in the future, the development
of new products and the management of an increasingly complex business would be
impaired which would materially adversely affect the combined company's
business, operating results and financial condition. Additionally, if the
criminal complaint filed relating to the matters underlying the pending
litigation between Avant! and Cadence results in a loss of Avant! personnel,
then the combined company's business, operating results and financial condition
may be materially adversely affected. See "--Litigation Risk," "Avant!
Business--Employees" and "TMA Business--Employees."
COMPETITION
The ICDA software market in which Avant! and TMA compete is intensely
competitive and subject to rapid change. Avant! and TMA currently face
competition from major ICDA vendors, including Cadence, which currently holds a
dominant share of the market for IC physical design software, Mentor Graphics
Corporation ("Mentor") and Synopsys, Inc. ("Synopsys"). As the combined company
expands its product offerings to include other library generation tools and
other EDA tools, it will compete increasingly with these established EDA
vendors. Certain of these established vendors have longer operating histories,
significantly greater financial, technical and marketing resources, greater name
recognition and a larger installed customer bases than the combined company. It
is possible that these large, well established EDA companies may acquire the
technology of one or more of the combined company's competitors in order to gain
access to the markets in which the combined company competes. With significantly
more financial resources than the combined company and large existing customer
bases, these potential competitors could increase the competition faced by the
combined company. Each of these competitors will likely be able to respond more
quickly to new or emerging technologies and changes in customer requirements,
and to devote greater resources to the development, promotion and sale of their
products than the combined company. Moreover, the industry in which Avant! and
TMA compete is undergoing a trend toward consolidation that is expected to
result in large, more financially flexible competitors with a broad range of
product offerings. In addition to competition from EDA vendors, the combined
company also faces competition from semiconductor companies that have internal
design groups that develop their own customized EDA tools for their own
particular needs and therefore may be reluctant to purchase products offered by
the combined company or other independent vendors. There can be no assurance
that the combined company will be able to compete successfully against current
and future competitors or that competitive pressures faced by the combined
company will not have a material adverse effect on its business, operating
results and financial condition. Each of Avant! and TMA has experienced pricing
pressures in the past, and increased competition from current competitors or new
market entrants could result in additional price reductions, reduced margins or
loss of market share, any of which could have a material adverse effect on the
combined company's business, operating results and financial condition. If the
combined company is unable to compete successfully against current and future
competitors, the
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combined company's business, operating results and financial condition will be
materially adversely affected. See "Avant! Business--Competition" and "TMA
Business--Competition."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The quarterly operating results of each of TMA and Avant! have varied, and
it is anticipated that the quarterly operating results of the combined company
will vary, substantially from period to period depending on factors such as the
outcome of the litigation described under "--Litigation Risk", increased
competition, the size, timing and structure of significant licenses, the timing
of revenue recognition under its time-based license agreements, the timing of
new or enhanced product announcements, introductions, or delays in the
introductions of new or enhanced versions of the combined company's products,
changes in pricing policies by the combined company or its competitors, market
acceptance of new and enhanced versions of the combined company's products,
conditions in the semiconductor industry, the cancellation of time-based
licenses or maintenance agreements, the unavailability of technology of third
parties, including that of Cadence and Mentor, which is incorporated in certain
of the products of the combined company, the mix of direct and indirect sales,
changes in operating expenses, changes in the combined company's strategy,
seasonal factors, personnel changes, economic conditions in the Asian markets,
the ability of the combined company to continue to market its products in Asian
markets, foreign currency exchange rates and general economic factors. Due to
the foregoing factors, and particularly the variability of the size, timing and
structure of significant licenses, quarterly revenue and operating results are
difficult to forecast. In particular, Avant! has adopted a flexible pricing
strategy pursuant to which Avant! offers both perpetual and time-based software
licenses to customers, depending on customer requirements and financial
constraints. Because each time-based license may have a different structure and
could be subject to cancellation, future revenue is unpredictable. In addition,
TMA's revenue and operating results depend on the volume and timing of orders
received during the quarter. A significant portion of TMA's revenue in each
period results from licenses entered into during that period and TMA's quarterly
operating results have in the past fluctuated as a result of seasonality of
customer buying patterns, with revenues for the first quarter of a year often
lower than those for the last quarter of the preceding year, and a significant
portion of revenue in a quarter typically is received in the last few weeks or
days of that quarter. Avant!'s and TMA's expense levels are based, in part, on
expectations as to future revenue levels. Accordingly, net income, if any, may
be disproportionately affected by a reduction in revenue in a quarter because
only a small portion of Avant!'s and TMA's expenses fluctuate with revenue. If
revenue levels are below expectations, the combined company's business,
operating results and financial condition are likely to be materially adversely
affected. Such shortfalls in the combined company's revenue or operating results
from levels expected by public market analysts and investors could have an
immediate and significant material adverse effect on the market price of
Avant!'s Common Stock. Additionally, the combined company may not learn of such
revenue shortfalls or earnings shortfalls or other failures to meet market
expectations for results of operations until late in a fiscal quarter, which
could result in an even more immediate and material adverse effect on the
trading price of the Avant! Common Stock. In such event, the market price of
Avant!'s Common Stock would be materially adversely affected. Due to the
foregoing, Avant! and TMA believe that period to period comparisons of their
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. See "Avant! Financial Statements and
Independent Auditor's Report" and "TMA Financial Statements and Independent
Auditor's Report."
POTENTIAL VOLATILITY OF STOCK PRICE
The market prices of the Avant! and the TMA Common Stock have fluctuated
significantly in the past and the market price of the shares of Avant! Common
Stock is likely to be highly volatile and may be significantly affected by many
factors, including, but not limited to, the outcome of outstanding Avant!
litigation, actual or anticipated fluctuations in the combined company's
operating results, announcements of technological innovations and new products
by competitors, new contractual relationships with strategic partners by the
combined company or its competitors, proposed acquisitions by the combined
company or
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competitors and financial results that fail to meet public market analyst
expectations of performance. In addition, the U.S. equity markets have from time
to time experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stocks of technology
companies. These broad market fluctuations may materially adversely affect the
market price of Avant! Common Stock in future periods, including prior to
consummation of the Merger. See "Summary-- Market Price and Dividends on Avant!
and TMA Common Stock."
COST OF INTEGRATION; TRANSACTION EXPENSES
Transaction costs relating to the Merger and the anticipated combination of
certain operations of Avant! and TMA are expected to result in one-time charges
to the combined company's earnings. Although it will not be feasible to
determine the actual amount of these charges until the operational and
transition plans are completed, the management of Avant! and TMA believe that
the aggregate charge will be approximately $6.8 million before taxes, although
such amount may be increased by unanticipated additional expenses incurred in
connection with the Merger. This aggregate charge is expected to include the
estimated costs associated with financial advisory, accounting and legal fees,
printing expenses, filing fees and other merger-related costs. While the exact
timing of these expenses cannot be determined at this time, the management of
Avant! anticipates that this aggregate charge to earnings will be recorded
primarily in the quarter ending March 31, 1998, the time at which the Merger is
expected to be consummated. In addition, in the third quarter of 1997, Avant!
incurred an expense of approximately $41.2 million for acquired in-process
research and development costs associated with the Compass Acquisition. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS
Although Avant! and TMA believe that beneficial synergies will result from
the Merger, there can be no assurance that the combining of Avant!'s, Compass'
and TMA's businesses, even if achieved in an efficient and effective manner,
will result in combined results of operations and financial condition superior
to that which would have been achieved by each company independently, or as to
the period of time required to achieve such result. The issuance of Avant!
Common Stock in connection with the Merger is likely to have a dilutive effect
on Avant!'s earnings per share and there is no assurance that Avant!
stockholders would not achieve greater returns on investment were Avant! to
remain an independent company. There also is no assurance that TMA shareholders
would not achieve greater returns on investment if TMA were to remain an
independent company.
SHARES ELIGIBLE FOR PUBLIC SALE
Sales of substantial amounts of Avant! Common Stock in the public market
after the consummation of the Merger could materially adversely affect
prevailing market prices of Avant!'s Common Stock. Avant! has issued an
aggregate of 522,192 shares of its Common Stock in connection with the Compass
Acquisition and, assuming an Exchange Ratio of 0.662045, the Exchange Ratio as
of December 19, 1997, Avant! will issue an additional approximately 5,376,511
shares of Common Stock in the Merger (based upon 8,121,066 shares of TMA Common
Stock outstanding as of December 19, 1997, but not including shares subject to
options to purchase TMA Common Stock to be assumed by Avant!). The shares of
Avant! Common Stock to be issued in the Merger as well as the shares issued in
the Compass Acquisition will be eligible for immediate sale in the public
market, subject to certain limitations under the Securities Act applicable to
affiliates of the combined company and certain agreements to be entered into by
certain affiliates of TMA which prohibit such persons from disposing of any
Avant! Common Stock during the period immediately following the Effective Time.
See "The Merger and Related Transactions--Resale of Avant! Common Stock;
Agreements with Affiliates."
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LENGTHY SALES CYCLE
Because of the complexity and substantial cost of Avant!'s and TMA's
products, licensing these products to customers typically involves a significant
technical evaluation and commitment of cash and other resources, with the
attendant delays frequently associated with customers' internal procedures to
approve large expenditures and to evaluate and accept new technologies that
affect key operations. In addition, certain of Avant!'s and TMA's foreign
customers have lengthy purchasing cycles that may increase the amount of time
each company must dedicate to placing its products with these customers. For
these and other reasons, the sales cycle associated with the licensing of the
combined company's products has been and is expected to continue to be lengthy
and subject to a number of significant risks, including customers' budgetary
constraints and internal acceptance evaluations that are beyond the combined
company's control. Because of the lengthy sales cycle and the large size of
customers' average orders, if revenue projected from a specific customer for a
particular period is not realized in that period, the combined company's
operating results for that period could be materially adversely affected.
PRODUCT CONCENTRATION
TMA derived a significant majority of its total revenue in 1996 and in the
nine months ended September 30, 1997 from the licensing and maintenance of two
software products, TSUPREM-4 and Medici.
Avant! derives a significant portion of its total revenue from the licensing
and support of Aquarius products which are the subject of pending litigation
with Cadence. See "--Litigation Risk."
Each of Avant! and TMA expects that revenue from the licensing and support
of TSUPREM-4 and Medici will account for a substantial percentage of the
combined company's revenues for the foreseeable future. As a result, the
combined company's business, operating results and financial condition are
significantly dependent upon continued market acceptance and purchases of
TSUPREM-4 and Medici. A decline in demand for any of these products as a result
of competition, technological change or other factors would have a material
adverse effect on the business, operating results and financial condition of the
combined company. These products could be rendered obsolete by future technical
advances by the combined company's competitors or even by certain of its
customers or marketing partners. There can be no assurance that TSUPREM-4 and
Medici will achieve continued market acceptance, that the combined company will
be successful in marketing such products or any new or enhanced products, or
that competitors will not introduce competing products that gain market
acceptance. Failure to develop or acquire additional products or product lines,
or to successfully market such products on a profitable basis, could have a
material adverse effect on the combined company's business, operating results
and financial condition. See "TMA Business."
SUBSTANTIAL DEPENDENCE ON INTERNATIONAL SALES
International revenue, principally to customers in Asia, accounted for
approximately 38%, 37%, 38% and 44% of the combined company's pro forma total
revenue in 1994, 1995, 1996 and the first nine months of 1997, respectively. The
combined company expects that international license and service revenue,
particularly in Asia, will continue to account for a significant portion of the
combined company's total revenue. Avant!'s and TMA's international revenue
involves a number of risks, including the impact of possible recessionary
environments in economies outside the U.S., longer receivables collection
periods and greater difficulty in accounts receivable collection, difficulties
in staffing and managing foreign operations, political and economic instability,
unexpected changes in regulatory requirements, reduced protection of
intellectual property rights in some countries and tariffs and other trade
barriers. Currency exchange fluctuations in countries in which the combined
company licenses its products could also materially adversely affect the
combined company's business, operating results and financial condition by
resulting in pricing that is not competitive with products priced in local
currencies. Furthermore, there can
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be no assurance that in the future the combined company will be able to continue
to price its products and services internationally in U.S. dollars because of
changing sovereign restrictions on importation and exportation of foreign
currencies as well as other practical considerations. In addition, the laws of
certain countries do not protect the combined company's products and
intellectual property rights to the same extent as do the laws of the U.S.
Accordingly, there can be no assurance that these factors will not have a
material adverse effect on the combined company's future international sales
and, consequently, on the combined company's business, operating results and
financial condition. In addition, there can be no assurance that the combined
company will be able to sustain or increase revenue derived from international
licensing and service or that the foregoing factors will not have a material
adverse effect on the combined company's future international license and
service revenue, and, consequently, on the combined company's business,
operating results and financial condition. See "TMA Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE UPON DISTRIBUTORS AND MANUFACTURER'S REPRESENTATIVES
Each of Avant! and TMA relies on distributors and manufacturer's
representatives ("Third Party Sellers") for licensing and support of its
products in Asia. A substantial portion of Avant!'s international license and
service revenue results from a limited number of these Third Party Sellers,
although Avant! had no individual customer representing over ten percent of
revenue in any of 1994, 1995, 1996, or the first nine months of 1997. In 1997,
Avant! consolidated its Japanese sales channel by forming a distributor,
MainGate Electronics, Inc. ("MainGate"), owned by Avant!, Gerald C. Hsu,
Avant!'s Chairman of the Board, President and Chief Executive Officer, and other
parties (including other Avant! employees and former employees of Avant!'s third
party distributors). See "The Merger and Related Transactions-- Interests of
Certain Persons in the Merger," "Avant! Business--Sales and Marketing" and
"Executive Compensation--Certain Relationships and Related Transactions." Sales
of TMA product licenses to customers in Japan are made exclusively through a
single distributor, Innotech Corporation ("Innotech") a company in which
Cadence, a competitor of Avant!, holds a minority interest. There can be no
assurance that Innotech will continue to serve as a distributor of TMA product
licenses to customers in Japan following the Merger in view of Cadence's pending
litigation with Avant!. In Korea, licenses to TMA customers have been made
through a single independent sales representative, C&G Technology, Inc. ("C&G");
however, TMA terminated its relationship with C&G and now sells directly in
Korea through a newly formed subsidiary in Korea. Sales to customers in Taiwan
were also carried out through a single independent sales representative,
Business Technology, Inc. ("BTI"). TMA expects that sales to customers in Japan,
Korea and Taiwan will continue to make up a significant proportion of TMA's
total product revenue for the foreseeable future. Furthermore, TMA's agreement
with BTI renews automatically every year but may be terminated if either party
gives notice 90 days prior to expiration. There can be no assurance that any or
all of the agreements with Innotech and BTI will continue for any substantial
period of time or that these companies will continue to distribute TMA's
software products after the Merger, and there is no assurance that the combined
company could replace these entities without significant difficulty. There can
be no assurance that Avant!'s or TMA's current Third Party Sellers or MainGate
will choose to or be able to market or service and support the combined
company's products effectively, that economic conditions or industry demand will
not materially adversely affect these or other Third Party Sellers or that these
Third Party Sellers or MainGate will not devote greater resources to marketing
and supporting products of the combined company's competitors. Additionally,
because the combined company's products are used by highly skilled professional
engineers, a Third Party Seller must possess sufficient technical, marketing and
sales resources in order to be effective and must devote these resources to a
lengthy sales cycle, customer training and product service and support. Only a
limited number of Third Party Sellers possess such resources. Accordingly, the
loss of, or a significant reduction in revenue from, one of Avant!'s or TMA's
Third Party Sellers, or MainGate or any other Third Party Sellers on which the
combined company's revenues may, in the future, become dependent, could have a
material adverse effect on the combined company's business, operating results
and financial condition. See "Avant! Management's
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Discussion and Analysis of Financial Condition and Results of Operations,"
"Avant! Business--Sales and Marketing," "TMA Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "TMA
Business--Sales and Marketing."
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The ICDA industry is characterized by extremely rapid technological change,
frequent new product introductions and enhancements, evolving industry standards
and rapidly changing customer requirements. The combined company's future
business, operating results and financial condition will depend in part upon its
ability to enhance its current products and to develop and introduce new
products on a timely and cost-effective basis that will keep pace with
technological developments and evolving industry standards and methodologies, as
well as address the increasingly sophisticated needs of the combined company's
customers. New technologies developed by the combined company or its competitors
could render existing products obsolete. The combined company's success will
depend upon its ability to enhance existing products and to introduce new
products on a timely and cost-effective basis that meet changing customer
requirements. There can be no assurance that the combined company will be
successful in developing new products or enhancing existing products or that
such new or enhanced products will receive market acceptance. On occasion, each
of Avant! and TMA has experienced delays in the scheduled introductions of new
and enhanced products, and there can be no assurance that they will be able to
introduce products on a timely basis in the future. Delays in the scheduled
availability of products, for technological or other reasons, or a lack of
market acceptance of such products, or the combined company's failure to
accurately anticipate customer demand, would have a material adverse effect on
its business, operating results and financial condition. See "Avant! Business"
and "TMA Business."
DEPENDENCE UPON SEMICONDUCTOR AND ELECTRONICS INDUSTRIES; GENERAL ECONOMIC AND
MARKET CONDITIONS
Avant! and TMA are each dependent upon the semiconductor and, more
generally, the electronics industries. Each of these industries is characterized
by rapid technological change, short product life cycles, fluctuations in
manufacturing capacity and pricing and gross margin pressures. Segments of these
industries have from time to time experienced significant economic downturns
characterized by decreased product demand, production over-capacity, price
erosion, work slowdowns and layoffs. Over the past few years, these industries
have experienced an extended period of significant economic growth. There can be
no assurance that economic growth in these industries will continue, and if it
does not, any downturn could be especially severe on the combined company.
During such downturns, the number of new IC design projects often decreases.
Because acquisitions of new licenses from the combined company are largely
dependent upon the commencement of new design projects, any slowdown in these
industries could have a material adverse effect on the combined company's
business, operating results and financial condition. For example, in 1995, TMA
derived a substantial majority of its product revenue from sales to
manufacturers of memory chips and other products that use advanced semiconductor
technology. Recently, manufacturers of memory chips have experienced intense
market pressure to reduce prices and manufacturing costs. These market pressures
could lead these or other manufacturers to reduce their research and development
efforts and consequently reduce or eliminate their use of the combined company's
products. The combined company's business, operating results and financial
condition may in the future reflect substantial fluctuations from period to
period as a consequence of patterns and general economic conditions in either
the semiconductor or electronics industry.
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Avant! and TMA rely on a combination of patents, trade secrets, copyrights
and trademarks, as well as contractual commitments, to protect their proprietary
rights in their software products. The companies generally enter into
confidentiality or license agreements with their employees, distributors and
customers,
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and limit access to and distribution of their software, documentation and other
proprietary information. Despite these precautions, there can be no assurance
that a third party will not copy or otherwise obtain and use the combined
company's products or technology without authorization, or develop similar
technology independently. In addition, effective patent, copyright and trade
secret protection may be unavailable or limited in certain foreign countries.
The combined company expects that software companies will increasingly be
subject to infringement claims as the number of products and competitors in the
industry in which Avant! and TMA currently compete grows and the functionality
of products in different industry segments overlaps. In particular, Avant!'s
current litigation with Cadence involves such infringement claims. Responding to
such claims, regardless of merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the combined company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if available, may not be available on terms acceptable to the
combined company, which could have a material adverse effect upon the combined
company's business, operating results and financial condition. There can be no
assurance that infringement claims will not be asserted against the combined
company in the future or that any such claims will not require the combined
company to enter into royalty arrangements or result in costly litigation, which
could materially adversely affect the combined company's business, operating
results and financial condition. TMA licenses from third parties software code
that has been incorporated into certain of TMA's products. Such licenses contain
provisions that could lead to termination upon TMA's breach or abandonment. Any
such termination could have a material adverse effect upon the combined
company's business, operating results and financial condition. See "--Litigation
Risk," "Avant! Business--Proprietary Rights," and "TMA Business--Proprietary
Rights."
RISK OF PRODUCT DEFECTS
Software products as complex as those offered by the combined company may
contain defects or failures when introduced or when new versions are released.
Avant! and TMA have in the past discovered software defects in certain of their
products and may experience delays or lost revenue to correct such defects in
the future. There can be no assurance that, despite testing by the combined
company, errors will not be found in new products or releases after commencement
of commercial shipments, resulting in loss of market share or failure to achieve
market acceptance. Any such occurrence could have a material adverse effect upon
the combined company's business, operating results and financial condition.
RIGHTS OF HOLDERS OF TMA COMMON STOCK FOLLOWING THE MERGER
Following the Merger, holders of TMA Common Stock outstanding as of the
Effective Date will become holders of Avant! Common Stock. Certain material
differences exist between the rights of TMA shareholders under California law,
TMA's Articles of Incorporation and TMA's Bylaws and the rights of Avant!
stockholders under Delaware law, Avant!'s Certificate of Incorporation and
Avant!'s Bylaws. These material differences include, but are not limited to, (a)
loss of the right to act by written consent, (b) loss of cumulative voting
rights, (c) limitation on the availability of appraisal rights with respect to
mergers, (d) more limited standing to bring shareholder derivative actions, (e)
limitations on the ability to call special shareholder meetings and (f) stricter
anti-takeover measures. As a result of these material differences, the right of
holders of Avant! Common Stock may be generally more limited than those of
holders of TMA Common Stock. See "Comparison of the Rights of Holders of Avant!
Common Stock and Holders of TMA Common Stock" for a complete description of the
material differences between the rights of holders of Avant! Common Stock and
the rights of holders of TMA Common Stock.
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INTRODUCTION
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by Avant! and by TMA of proxies to be voted, respectively, at the
Avant! Special Meeting to be held on January 15, 1998 and the TMA Special
Meeting to be held on January 15, 1998. This Joint Proxy Statement/Prospectus is
first being mailed to stockholders of Avant! and shareholders of TMA on or about
December 24, 1997.
The purpose of the Avant! Special Meeting is to consider and vote upon the
Avant! Share Issuance Proposal. The purpose of the TMA Special Meeting is to
consider and vote upon the approval of the TMA Merger Proposal. At the Effective
Time, Merger Sub will be merged with and into TMA, the separate existence of
Merger Sub will cease, all of the rights, privileges, powers, franchises,
properties, assets, liabilities and obligations of Merger Sub will be vested in
TMA and TMA will become a wholly owned subsidiary of Avant!. See "The Merger and
Related Transactions."
THE AVANT! BOARD UNANIMOUSLY APPROVED THE MERGER AND THE TRANSACTIONS
RELATED THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR TO AND IN THE
BEST INTERESTS OF AVANT! AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE
AVANT! BOARD UNANIMOUSLY RECOMMENDS THAT AVANT! STOCKHOLDERS VOTE FOR THE AVANT!
SHARE ISSUANCE PROPOSAL.
THE TMA BOARD UNANIMOUSLY APPROVED THE MERGER AND THE TRANSACTIONS RELATED
THERETO AND HAS UNANIMOUSLY DETERMINED THAT THEY ARE FAIR TO AND IN THE BEST
INTERESTS OF TMA AND ITS SHAREHOLDERS. AFTER CAREFUL CONSIDERATION, THE TMA
BOARD UNANIMOUSLY RECOMMENDS THAT TMA SHAREHOLDERS VOTE FOR THE TMA MERGER
PROPOSAL.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Avant! under the Securities Act for the offering of Avant! Common Stock in
connection with the Merger.
VOTING AND PROXIES
DATE, TIME AND PLACE OF AVANT! SPECIAL MEETING AND TMA SPECIAL MEETING
The Avant! Special Meeting will be held at the principal executive offices
of Avant!, 46871 Bayside Parkway, Fremont, California, on January 15, 1998, at
10:00 a.m., local time. The TMA Special Meeting will be held at the principal
executive offices of TMA, 595 Lawrence Expressway, Sunnyvale, California on
January 15, 1998, at 10:00 a.m. local time.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record of Avant! Common Stock at the close of business on
December 10, 1997 (the "Avant! Record Date") are entitled to notice of and to
vote at the Avant! Special Meeting. On the Avant! Record Date, there were
approximately 161 holders of record of Avant! Common Stock, and 26,883,548
shares of Avant! Common Stock were issued and outstanding. Each share of Avant!
Common Stock is entitled to one vote per share.
Shareholders of record of TMA Common Stock at the close of business on
December 19, 1997 (the "TMA Record Date") are entitled to notice of and to vote
at the TMA Special Meeting. On the TMA Record Date, there were approximately 79
holders of record of TMA Common Stock (although TMA has been informed that there
are in excess of 900 beneficial owners of TMA Common Stock), and approximately
8,121,066 shares of TMA Common Stock were issued and outstanding. Each share of
TMA Common Stock is entitled to one vote per share.
All properly executed proxies given by holders of Avant! Common Stock or TMA
Common Stock that are not revoked will be voted at the Avant! Special Meeting or
the TMA Special Meeting, as the case may be, and at any postponements or
adjournments of either such meeting, in accordance with the instructions
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contained therein. Proxies containing no instructions regarding the proposal
specified in the proxy will be voted, in the case of the Avant! Special Meeting,
in favor of the Avant! Share Issuance Proposal and, in the case of the TMA
Special Meeting, in favor of the TMA Merger Proposal. If any other matters are
properly brought before either the Avant! Special Meeting or the TMA Special
Meeting, all proxies will be voted in accordance with the judgment of the
proxies. Either Special Meeting may be adjourned, and additional proxies
solicited, if the vote necessary to approve a proposal has not been obtained.
Any adjournment of either Special Meeting will require the affirmative vote of
the holders of at least a majority of the shares represented, whether in person
or by proxy, at such Special Meeting (regardless of whether those shares
constitute a quorum).
An Avant! stockholder or a TMA shareholder who has executed and returned a
proxy may revoke such proxy at any time before it is voted at the Avant! Special
Meeting or the TMA Special Meeting, as the case may be, by executing and
returning a proxy bearing a later date, by filing written notice of such
revocation with the Secretary of Avant! or the Secretary of TMA, as appropriate,
which states that such proxy is revoked, or by attending the Avant! Special
Meeting or the TMA Special Meeting, as the case may be, and voting in person.
AVANT! STOCKHOLDER VOTE REQUIRED
The approval of the Avant! Share Issuance Proposal requires the affirmative
vote of a majority of the shares of Avant! Common Stock represented in person or
by proxy at the Avant! Special Meeting. On the Avant! Record Date, Avant!
directors, executive officers and their affiliates held in the aggregate
approximately 2.2% of the outstanding Avant! Common Stock. The holders of a
majority of the outstanding shares of Avant! Common Stock, present in person or
by proxy, will constitute a quorum for the transaction of business at the Avant!
Special Meeting or any adjournment thereof.
Votes cast by proxy or in person at the Avant! Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote.
TMA SHAREHOLDER VOTE REQUIRED
Approval of the TMA Merger Proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of TMA Common Stock. On the TMA
Record Date, TMA directors and executive officers held in the aggregate
approximately 32.3% of the outstanding shares of TMA Common Stock. Roy E.
Jewell, Bennet L. Weintraub, Jue-Hsien Chern, Lung Chu, David M. Lee, Milan G.
Lazich, Louis A. Delmonico, Robert A. Dutton, William E. Drobish and Ronald A.
Rohrer, the holders of an aggregate of 2,619,149 shares of TMA Common Stock
(approximately 32.3% of the outstanding TMA Common Stock), have agreed in a
Shareholder Agreement to vote their shares in favor of the TMA Merger Proposal.
The holders of a majority of the outstanding shares of TMA Common Stock, present
in person or by proxy, will constitute a quorum for the transaction of business
at the TMA Special Meeting or any adjournment thereof.
Votes cast by proxy or in person at the TMA Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions and broker non-votes as shares that are present and entitled to vote
for purposes of determining the presence of a quorum since the required vote of
TMA shareholders is based upon the number of outstanding shares of TMA Common
Stock, and such abstentions and broker non-votes will have the effect of a vote
against the TMA Merger Proposal.
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SOLICITATION OF PROXIES; EXPENSES
Avant! and TMA will bear their respective costs of solicitation of proxies
from their respective stockholders and shareholders. Avant! will bear the cost
of printing and filing this Joint Proxy Statement/ Prospectus and the
Registration Statement of which it is a part unless the Merger is not completed
for certain reasons, in which case such expenses will be divided equally between
Avant! and TMA. In addition to solicitation by mail, the directors, officers and
employees of Avant! and TMA and stockholders and shareholders of Avant! and TMA,
respectively, may solicit proxies from the stockholders and shareholders of
Avant! and TMA, respectively, by telephone, telegram or letter or in person for
no additional compensation. Brokers, nominees, fiduciaries and other custodians
have been requested by Avant! and TMA to forward proxy solicitation materials to
the beneficial owners of Avant! Common Stock and TMA Common Stock held of record
by such custodians. Such custodians will be reimbursed by Avant! and TMA for
their expenses.
In addition, although it is not currently anticipated, Avant! and/or TMA may
retain a proxy solicitation firm to aid in the solicitation of proxies from its
stockholders. If such a firm or firms are retained, they would be paid customary
fees (which, in each case, are not expected to exceed $10,000) and reimbursement
for out-of-pocket expenses.
DISSENTERS' RIGHTS
THE FOLLOWING SUMMARY OF TMA SHAREHOLDERS' DISSENTERS' RIGHTS UNDER
CALIFORNIA LAW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW, THE COMPLETE TEXT OF WHICH IS ATTACHED
HERETO AS APPENDIX C.
FAILURE TO STRICTLY FOLLOW THE PROCEDURES SET FORTH IN CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW MAY RESULT IN THE LOSS, TERMINATION OR WAIVER
OF DISSENTERS' RIGHTS. A TMA SHAREHOLDER WHO FAILS TO EITHER SIGN AND RETURN A
PROXY CARD DISAPPROVING THE PLAN OF REORGANIZATION OR TO ATTEND THE TMA SPECIAL
MEETING AND VOTE HIS OR HER SHARES AGAINST THE MERGER WILL NOT HAVE A RIGHT TO
EXERCISE DISSENTERS' RIGHTS. A TMA SHAREHOLDER WHO DESIRES TO EXERCISE HIS OR
HER DISSENTERS' RIGHTS ALSO MUST SUBMIT A WRITTEN DEMAND FOR PAYMENT TO TMA ON
OR BEFORE THE DATE OF THE TMA SPECIAL MEETING. IN ADDITION, NO TMA SHAREHOLDER,
UNDER ANY CIRCUMSTANCES, WILL HAVE A RIGHT TO DISSENT FROM THE PLAN OF
REORGANIZATION UNLESS THE HOLDERS OF AT LEAST FIVE PERCENT OF THE OUTSTANDING
SHARES OF TMA COMMON STOCK PERFECT THEIR RIGHT TO DISSENT IN ACCORDANCE WITH
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW.
NO STATUTORY DISSENTERS' OR APPRAISAL RIGHTS ARE AVAILABLE TO AVANT!
STOCKHOLDERS IN CONNECTION WITH THE MERGER.
Prior to the TMA Special Meeting, each TMA shareholder who elects to
exercise his or her dissenters' rights must make a written demand upon TMA for
the purchase of his or her TMA shares. The TMA shareholder's demand must state
the number and class of shares held of record by such TMA shareholder which such
TMA shareholder demands that TMA purchase, as well as a statement by such TMA
shareholder as to what such TMA shareholder claims the fair market value of such
shares was as of the last trading day prior to the date of the announcement of
the Merger (September 5, 1997). The statement of fair market value constitutes
an offer by such TMA shareholder to sell the shares at such price. Voting
against the Merger, abstaining from voting or failing to vote on the Merger will
not constitute such written demand within the meaning of Chapter 13 of the CGCL.
Any notice should be addressed to Technology Modeling Associates, Inc., 595
Lawrence Expressway, Sunnyvale, California 95086, Attention: Vice President
Finance and Administration and Chief Financial Officer.
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A TMA shareholder wishing to exercise his or her right to dissent from the
Merger and to demand payment for the value of his or her shares of TMA Common
Stock must vote against the Merger. A failure to vote, a vote in favor of the
Merger, by proxy or in person, or a direction to abstain will constitute a
waiver of such dissenters' rights.
Unless TMA shareholders holding at least five percent of the outstanding
shares of TMA Common Stock in the aggregate perfect their right to dissent and
exercise their dissenters' rights in accordance with Chapter 13 of CGCL, no TMA
shareholder will have a right to dissent from the Plan of Reorganization. It
should be noted that if holders of more than an insignificant number of shares
of TMA Common Stock elect to exercise their dissenters' rights, such action
could adversely impact the ability of Avant! to account for the business
combination contemplated by the Merger as a pooling of interests under generally
accepted accounting principles, a condition to the consummation of the Merger.
If the Merger is approved at the TMA Special Meeting and dissenters' rights
are perfected with respect to at least five percent of the outstanding TMA
Common Stock, TMA will mail by registered or certified mail, return receipt
requested, no later than ten days after the TMA Special Meeting, a written
notice of the approval of the Merger by the TMA shareholders (the "TMA Notice")
to all shareholders who have perfected their dissenters' rights, accompanied by
Sections 1300-1304 of the CGCL. The TMA Notice also shall state the price
determined by TMA to be the fair market value of shares of TMA Common Stock with
respect to which dissenters' rights are perfected under Chapter 13 of the CGCL
("TMA Dissenting Shares") and a brief description of the procedure to be
followed by a shareholder who elects to dissent.
Within the 30-day period following the mailing of the TMA Notice, each
dissenting TMA shareholder must submit to TMA for endorsement certificates for
any of such shareholder's TMA Dissenting Shares. If TMA and the TMA shareholder
agree upon the price of the TMA Dissenting Shares, the dissenting TMA
shareholder is entitled to the agreed price with interest at the legal rate on
judgment from the date of such agreement. Payment must be made within 30 days of
the later of the date of the agreement between the TMA shareholder and TMA or
the date the contractual conditions to closing of the transactions contemplated
by the Plan of Reorganization are satisfied.
A shareholder who perfects his or her dissenters' rights in accordance with
Chapter 13 of the CGCL retains all other rights of a shareholder until the fair
market value of his or her shares is agreed upon or determined. A dissenting TMA
shareholder may not withdraw a demand for payment without the consent of TMA.
If TMA and the TMA shareholder cannot agree as to the fair market value or
as to the fact that such shareholder's shares are TMA Dissenting Shares, such
TMA shareholder may file within six months of the date of mailing of the TMA
Notice a complaint with the California Superior Court for the proper county
demanding judicial determination of such matters. TMA will then be required to
make any payments in accordance with such judicial determination. If the
complaint is not filed within the specified six months, the shareholder's rights
as a dissenter are lost.
TMA Dissenting Shares lose their status as such if (a) TMA abandons the
Merger, (b) the shares are transferred prior to submission for endorsement or
are surrendered for conversion into shares of another class in accordance with
the Articles of Incorporation, (c) the TMA shareholder and TMA do not agree as
to the fair market value of such shares and a complaint is not filed within six
months of the date the TMA Notice was mailed or (d) the dissenting TMA
shareholder withdraws, with the consent of TMA, his or her demand for purchase
of shares.
If TMA Dissenting Shares constitute more than ten percent of the outstanding
shares of TMA Common Stock, then neither Avant! nor Merger Sub will be obligated
to close the Merger.
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THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Plan of Reorganization provides for the merger of a newly formed, wholly
owned subsidiary of Avant! with and into TMA, with TMA to be the surviving
corporation of the Merger and thus becoming a wholly owned subsidiary of Avant!.
The discussion of the Merger in this Joint Proxy Statement/Prospectus and the
description of the principal terms of the Plan of Reorganization are subject to
and qualified in their entirety by reference to the Plan of Reorganization,
which is attached hereto as Appendix A.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
Beginning in early August 1997, representatives of Avant! and TMA conducted
a series of meetings to consider the possibility of a strategic transaction or
business combination between the two companies.
On August 13, 1997, Roy E. Jewell, TMA's President, Chief Executive Officer
and Chairman of the Board met with Gerald C. Hsu, President, Chief Executive
Officer and Chairman of the Board of Avant! to discuss a possible business
combination.
On August 13, 1997, TMA retained Wessels, Arnold & Henderson L.L.C. ("WA&H")
as its financial advisor.
On August 23, 1997, Mr. Jewell and most of the members of the TMA Board met
with representatives of WA&H to discuss a proposed business combination with
Avant!.
On August 25, 1997, Mr. Jewell met with representatives of WA&H to further
discuss a proposed business combination with Avant!.
On August 29, 1997, the Avant! Board met informally and decided to make a
proposed offer of Avant! Common Stock with a value of $17.00 per share of TMA
Common Stock.
On August 29, 1997, the TMA Board met informally and considered Avant!'s
proposed offer of Avant! Common Stock with a value of $17.00 per share of TMA
Common Stock and determined to study such possibilities further.
During the period from August 29 through September 7, TMA and Avant!
conducted due diligence with respect to each other.
On September 1, 1997, Mr. Jewell, representatives of WA&H and Mr. Hsu met
and discussed the other proposed terms and conditions of the Merger.
On September 2, 1997, an initial draft of the Plan of Reorganization was
delivered by Avant! to TMA.
During the period from September 2 through September 7, negotiations with
respect to the Merger and the Plan of Reorganization continued.
On September 4, 1997, Avant! and TMA entered into a non-disclosure agreement
and continued to negotiate terms of the proposed Merger.
On September 5, 1997, the TMA Board met and discussed the terms of the
proposed transaction.
On September 5, 1997, the Avant! Board met and concluded that the Merger was
fair and in the best interests of Avant! and its stockholders and unanimously
approved and adopted the Plan of Reorganization.
On September 6, 1997, the TMA Board met and discussed due diligence issues
with respect to Avant! and the proposed Merger, including the litigation
described herein under "Risk Factors--Litigation Risk."
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On September 7, 1997, the TMA Board met and concluded that the Merger was
fair and in the best interests of TMA and its shareholders and unanimously
approved and adopted the Plan of Reorganization. The Plan of Reorganization was
then executed by TMA and Avant! on September 7, 1997.
A joint press release announcing execution of the Plan of Reorganization and
the terms of the Merger was issued in the morning on September 8, 1997.
On October 16, 1997, the TMA Board met, reviewed the proposed Merger and the
developments in the Cadence litigation through such date and unanimously
determined that, based on this review, the Merger continued to be fair and in
the best interests of TMA and its shareholders.
On November 18, 1997, the TMA Board met, reviewed the proposed Merger and
the Silvaco litigation through such date and unanimously determined that, based
on this review, the Merger continued to be fair and in the best interests of TMA
and its shareholders.
REASONS FOR THE MERGER
AVANT!'S REASONS FOR THE MERGER. In reaching its determination to recommend
approval of the Merger and related transactions, the Avant! Board considered a
number of factors, including, but not limited to, the following:
- the combination of Avant! with TMA will create a combined company with
significantly greater resources, and provide the opportunity to market a
more complete product offering for the physical design, verification and
simulation of ICs and greater sales and marketing capabilities than those
of Avant! alone, and may enable the combined company to compete more
effectively with competitors having greater resources and broader product
offerings than Avant!;
- the combination of TMA's TCAD technologies with Avant!'s ECAD software
provides an opportunity for the combined company to offer an integrated
line of IC design products, including products focused on physical design
and deep-submicron manufacturability, thereby addressing the customer need
for deep-submicron solutions;
- the Merger will provide Avant! with the opportunity to broaden and
diversify its product offerings with complementary software tools that it
currently does not offer, which may reduce the risk of dependence on
individual products;
- Avant! believes that the management team of the combined company will have
greater depth and experience than that of Avant! alone; and
- a larger combined customer base and complementary distribution channels
will provide leverage for expanded sales and marketing opportunities for
the combined company.
In the course of its deliberations, the Avant! Board reviewed and considered
the terms and conditions of the Plan of Reorganization and the presentations by
Avant's executive officers. The Avant! Board also considered, among other
matters, (a) information concerning Avant!'s and TMA's respective businesses,
prospects, financial performance and condition, operations, technology,
management and competitive position, (b) the historical financial condition,
results of operations and businesses of Avant! and TMA, (c) current financial
market conditions and historical market prices, volatility and trading
information with respect to Avant! Common Stock and TMA Common Stock, (d) the
consideration to be received by TMA shareholders in the Merger and the
relationship between the market value of Avant! Common Stock to be issued in
exchange for each share of TMA Common Stock and each TMA Stock Option and
Avant!'s per share reported earnings, earnings before interest and taxes and
certain other measures, (e) a comparison of selected recent acquisition and
merger transactions involving high-technology companies, (f) the belief that the
terms of the Plan of Reorganization, including the parties' respective
representations, warranties and covenants, and the conditions to their
respective obligations, are reasonable, (g) the ability of Avant! to devote
management time and energy to the integration and assimilation of TMA's business
and
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organization should the Merger be consummated, (h) the fact that the Merger is
expected to be accounted for as a pooling of interests and that no goodwill is
expected to be created on the financial statements of Avant! as a result
thereof, (i) the impact of the Merger on Avant!'s and TMA's customers, including
the potential loss of revenue that might result due to uncertainty among
customers caused by the Merger, and (j) reports from management, accounting
advisors and legal advisors as to the results of their due diligence
investigation of TMA. The Avant! Board also considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to, (a) the adverse effects on the operating results of the combined
company due to the expenses expected to be incurred, primarily in the third and
fourth quarters of 1997, in connection with the Compass Acquisition and the
Merger, including costs of integrating the businesses of TMA and Avant! and
transaction expenses arising from the Merger, (b) the risk that benefits sought
to be achieved in the Merger will not be realized, which may have a material
adverse effect on the combined company's business, operating results and
financial condition, (c) the risk that the operations of Avant! and TMA will not
be effectively integrated or that potential synergies expected to result from
the consolidation of the operations of the companies will not occur, and (d) the
other risks described under "Risk Factors."
In view of the wide variety of factors considered by the Avant! Board, the
Avant! Board did not find it practicable to quantify or otherwise assign
relative weights to the specific factors considered in approving the Plan of
Reorganization and Merger. However, after taking into account all of the factors
set forth above, the Avant! Board unanimously determined that the Plan of
Reorganization and the Merger were in the best interests of Avant! and its
stockholders and that Avant! should enter into the Plan of Reorganization and
complete the Merger. Accordingly, the Avant! Board unanimously recommends that
stockholders of Avant! vote for approval and adoption of the Avant! Share
Issuance Proposal.
TMA'S REASONS FOR THE MERGER. The TMA Board has unanimously approved the
Plan of Reorganization, has unanimously determined that the Merger is fair to,
and in the best interests of TMA and its shareholders, and unanimously
recommends that holders of shares of TMA Common Stock vote for approval and
adoption of the Plan of Reorganization and the Merger.
The TMA Board identified several potential strategic benefits of the Merger
that TMA believes will contribute to the success of the combined company. These
potential benefits include:
- the combination of TMA's TCAD technologies with Avant!'s ECAD software
provides an opportunity for the combined company to offer an integrated
line of IC design products, including products focused on physical design
and deep-submicron manufacturability, thereby addressing the customer need
for deep-submicron solutions, a capability that is not possible if TMA
remains independent;
- Avant!'s market presence, larger customer base and larger sales and
distribution network offer expanded sales and marketing opportunities for
TMA's products;
- the combination of TMA and Avant! will create a combined company with
significantly greater resources and greater sales and marketing
capabilities than those of TMA alone, and may enable TMA to compete more
effectively with competitors;
- the opportunity to expand TMA's international distribution of its products
by using Avant!'s worldwide sales and distribution presence; and
- the opportunity for the combined company to provide a broader and more
complete product offering will provide TMA with increased leverage with
customers who have entered into volume purchase orders with Avant!.
TMA further evaluated the merits of an investment in the Avant! Common Stock
and concluded that the Avant! Common Stock represents a more liquid investment
than the TMA Common Stock and is followed by a much greater number of stock
analysts. In this regard, the TMA Board considered the fact
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that the Exchange Ratio is designed to partially reduce the risk to TMA
shareholders from stock price fluctuations in the trading price of the Avant!
Common Stock prior to consummation of the Merger.
In the course of its deliberations, the TMA Board reviewed with TMA's
management a number of other factors relevant to the Merger. In particular, the
TMA Board considered, among other things, (a) the proposed terms of the Merger,
(b) the likelihood of realizing superior benefits through alternative business
strategies, (c) information concerning TMA's and Avant!'s respective businesses,
historical financial performances, operations and products, including public SEC
and analysts' reports and due diligence reports from management and TMA's
financial advisers, (d) comparative stock prices of TMA and Avant!, (e)
comparative volatility and trading volumes of the two companies' stock, (f) an
analysis of the relative value that TMA might contribute to the future business
and prospects of the combined organization, (g) the compatibility of the
management and businesses of TMA and Avant! and the benefits described earlier
that management hopes to attain through the Merger and (h) the detailed
financial analysis with respect to the companies presented by WA&H, including
their opinion that as of September 7, 1997, the consideration proposed to be
paid to TMA shareholders upon completion of the Merger was fair from a financial
point of view to the shareholders of TMA.
The TMA Board also considered certain risks arising in connection with the
Merger, including, (a) the results of an investigation and analysis into the
pending civil and criminal litigation against Avant! and certain of its
management initiated by Cadence and the other parties described under "Risk
Factors-- Litigation Risk," and the likelihood of potential disruption to
Avant!'s management if those matters were to go to trial, as well as the
potential disruption to Avant!'s business if the matters were adversely
determined, (b) the potential disruption of TMA's business that might result
from employee, distributor and customer uncertainty and lack of focus following
announcement of the Merger in connection with integrating the operations of TMA
and Avant!, (c) the possibility that the Merger might not be consummated, (d)
the effects of the public announcement of the Merger on TMA's sales and
operating results, its ability to attract and retain key management, marketing
and technical personnel, (e) the risk that the announcement of the Merger could
result in decisions by customers to defer purchases of products of TMA or
Avant!, (f) the risk that Avant!'s stock price might decline prior to the
closing, thus reducing the value per share to be received by TMA's shareholders,
as well as the fact that TMA does not have a right to terminate the Plan of
Reorganization solely as a result of a decline in the Average Nasdaq Per Share
Price to any particular price, (g) the risk that the combined companies do not
successfully integrate their products and operations, (h) the risk that the
other benefits sought to be achieved by the Merger will not be achieved and (i)
the other factors set forth under "Risk Factors."
Since the announcement of the proposed Merger, the United States Court of
Appeals for the Ninth District on September 23, 1997 overruled the Northern
California United States District Court's denial of a motion by Cadence for a
preliminary injunction against Avant!'s ArcCell and Aquarius products. The TMA
Board met on October 16, 1997 to review the Cadence litigation. Subsequent to
the October meeting, on December 19, 1997, the District Court stated its
intention to enjoin Avant! from directly or indirectly marketing, selling,
licensing, copying or transferring any work copied or derived from Cadence's
Design Framework II, specifically including, but not limited to, Avant!'s
ArcCell, ArcCellBV and ArcCellXO products. The District Court also indicated
that it will hold future hearings regarding Avant!'s Aquarius products. See
"Risk Factors--Litigation Risk."
On November 5 and 6, 1997, the Santa Clara County Superior Court announced
that it will enter default judgments aggregating $31.4 million against Meta
Software, Inc., a wholly-owned subsidiary of Avant!, in connection with the
Silvaco litigation described under "Risk Factors--Litigation Risk." The TMA
Board met on November 18, 1997 and discussed the effect of these default
judgments and the pending Silvaco litigation. The Board considered an
investigation and analysis of the risks relating to this litigation. It was also
noted that Avant! has informed TMA's management that it has not currently been
required to establish a reserve on its consolidated balance sheet as a result of
these judgments, because Avant! currently is unable to estimate the actual loss
or range of loss. In addition, WA&H confirmed to the
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TMA Board that it would deliver an updated fairness opinion as of November 18,
1997 although as described below the WA&H opinion does not consider the possible
effects of any litigation.
In view of the wide variety of factors considered by the TMA Board, the TMA
Board did not find it practicable to quantify or otherwise assign relative
weights to the specific factors considered in approving the Plan of
Reorganization and Merger. However, after taking into account all of the factors
set forth above, the TMA Board unanimously determined that the Plan of
Reorganization and the Merger continue to be in the best interests of TMA and it
shareholders and that TMA should enter into the Plan of Reorganization and
complete the Merger. Accordingly, the TMA Board unanimously recommends that
shareholders of TMA vote for approval the TMA Merger Proposal.
OPINION OF TMA FINANCIAL ADVISOR
Wessels, Arnold & Henderson, L.L.C. ("WA&H") was retained, pursuant to an
engagement letter dated August 13, 1997 (the "WA&H Engagement Letter"), to
furnish an opinion as to the fairness, from a financial point of view, to the
TMA shareholders of the consideration to be paid in the Merger. Cowen and
Company has also provided certain preliminary financial advisory services to TMA
but has not rendered any fairness opinion in connection with the Merger.
On September 7, 1997 WA&H rendered its opinion (the "WA&H Opinion") to the
TMA Board that, as of such date and based on the procedures followed, factors
considered and assumptions made by WA&H and certain other limitations, all as
set forth therein, the consideration proposed to be paid to the holders of TMA
Common Stock upon completion of the Merger was fair from a financial point of
view. A copy of the WA&H Opinion is attached as Appendix B to this Joint Proxy
Statement/Prospectus. On November 18, 1997, WA&H confirmed the WA&H Opinion as
of such date. TMA shareholders are urged to read the WA&H Opinion in its
entirety. This discussion is a summary of all material provisions of the opinion
and is qualified in its entirety by reference to the full text of the WA&H
Opinion.
The WA&H Opinion applies only to the fairness, from a financial point of
view, of the consideration to be paid to the TMA shareholders as provided by the
terms of the Agreement and should not be understood to be a recommendation by
WA&H to vote in favor of any matter presented in this Joint Proxy
Statement/Prospectus. TMA shareholders should note that the opinion expressed by
WA&H was provided for the information of the TMA Board in its evaluation of the
Merger, and is not intended to be a recommendation to any particular shareholder
as to how to vote on the Merger. The TMA Board did not impose any limitations on
the scope of the investigation of WA&H with respect to rendering its opinion.
WA&H assumed and relied upon the accuracy and completeness of the financial,
legal, tax, operating and other information provided by TMA and Avant! and
certain other publicly available information and did not independently verify
such information. Additionally, WA&H has not been asked and did not consider the
possible effects of any litigation (whether civil or criminal), other legal
claims or any other contingent matters. WA&H did not perform any independent
evaluation or appraisal of any of the respective assets or liabilities of TMA or
Avant!, nor was WA&H furnished with any such evaluations or appraisals. The WA&H
Opinion speaks only as of its date, is based on the conditions as they existed
and the information which was supplied to WA&H as of the date of the WA&H
Opinion, and is without regard to any market, economic, financial, legal or
other circumstance or event of any kind or nature which may exist or occur after
such date. Events occurring after the date of the WA&H Opinion may materially
affect the assumptions used in preparing the WA&H Opinion.
In connection with its review of the Merger, and in arriving at its opinion,
WA&H has, (a) reviewed and analyzed the financial terms of the Agreement, (b)
reviewed and analyzed certain publicly available financial and other data with
respect to TMA and Avant! and certain other relevant historical operating data
relating to TMA and Avant! made available to WA&H from published sources and
from the internal records of TMA and Avant!, (c) conducted discussions with
members of the senior management of TMA with respect to the business and
prospects of TMA relative to published industry analyst estimates,
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(d) conducted discussions with members of the senior management of Avant! with
respect to the business and prospects of Avant! relative to published industry
analyst estimates, (e) reviewed the reported prices and trading activity for
Avant! Common Stock and TMA Common Stock, (f) compared the financial performance
of Avant! and TMA and the prices of Avant! Common Stock and TMA Common Stock
with that of certain other comparable publicly traded companies and their
securities and (g) reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions. In addition, WA&H has
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as it has deemed necessary in arriving
at its opinion. In its opinion, WA&H noted that it had not been provided with
any financial forecasts for either TMA or Avant!.
The following is a summary of the financial analyses performed by WA&H in
connection with the delivery of the WA&H Opinion and made available to the TMA
Board:
COMPARABLE COMPANY ANALYSIS. WA&H used a comparable company analysis to
analyze TMA's operating performance relative to a group of publicly traded
companies that WA&H deemed for purposes of its analysis to be comparable to TMA.
In such analysis, WA&H compared the value to be achieved by the TMA shareholders
in the Merger, expressed as a multiple of certain operating data, to the market
trading values of the comparable companies expressed as a multiple of the same
operating results. WA&H compared multiples of selected financial data for TMA
with those of the following publicly traded companies in the EDA industry:
Cadence Design Systems Inc., Mentor Graphics Corporation ("Mentor"), OrCAD,
Inc., Synopsys, Inc. and Viewlogic Systems, Inc. (collectively referred to as
the "Comparable Companies"). Although such companies were considered comparable
to TMA for the purpose of this analysis based on certain characteristics of
their respective businesses, none of such companies possesses characteristics
identical to those of TMA. WA&H calculated the following valuation multiples
based on an implied value of $17.00 per share of TMA Common Stock and, as to the
Comparable Companies, on market prices and other information available as of the
same date. Multiples of future earnings were based on projected earnings as
estimated publicly by First Call Consensus. The mean and median price per share
as a multiple of each of the indicated statistics for TMA as compared to those
of the Comparable Companies were as follows: (a) projected calendar year 1997
earnings per share, 47.2x for TMA, as compared to a mean of 37.1x (23.2x
excluding Mentor) and a median of 22.7x (22.4x excluding Mentor) for the
Comparable Companies; and (b) projected calendar year 1998 earnings per share,
30.4x for TMA, compared to a mean of 19.3x and a median of 18.1x for the
Comparable Companies. The mean and median market capitalization as a multiple of
each of the indicated statistics for TMA as compared to those of the Comparable
Companies were as follows: (a) trailing 12 months revenue, 7.6x for TMA, as
compared to a mean of 3.7x and a median of 3.5x for the Comparable Companies;
and (b) annualized last quarter revenue, 6.5x for TMA, as compared to a mean of
3.4x and median of 3.0x for the Comparable Companies. In each of the comparisons
of the value to be achieved by the TMA shareholders in the Merger as compared to
the mean and median of the multiples of operating results realized by the
stockholders of the Comparable Companies, the multiples of operating results
achieved by the TMA shareholders was superior to those realized by the
Comparable Companies.
COMPARABLE TRANSACTIONS. WA&H compared multiples of selected financial data
and other financial data relating to the Merger with multiples paid in, and
other financial data from, 21 selected mergers (the "Comparable Transactions")
since 1992 of publicly traded companies in the software industry with aggregate
transaction values between $100 and $550 million. The Comparable Transactions
were selected primarily on the aggregate transaction value of the business
acquired and the target companies' involvement in the software industry. WA&H
noted that none of the target companies involved in these transactions had a
business that was directly comparable to TMA. This analysis produced multiples
of transaction value to latest 12-month revenues for the Comparable Transactions
ranging from 1.3x to 19.6x, with a mean and median of 7.1x and 4.8x,
respectively, compared with 7.6x for TMA. The multiple of transaction value to
latest 12-month operating income for the Comparable Transactions ranged from
4.5x to 259.9x, for companies with operating income, with a mean and median of
75.6x and 46.8x, respectively,
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compared with 75.0x for TMA. The multiple of transaction value to latest
12-month net income for the Comparable Transactions ranged from 21.5x to 185.6x,
for companies with net income, with a mean and median of 74.1x and 52.4x,
respectively, compared with 81.5x for TMA. WA&H also compared the premium of the
equity value per share over the target stock price four weeks and one day prior
to the announcement of the transaction. The premium of the equity value per
share over the stock price of the target four weeks prior to the announcement of
the transaction ranged from 1% to 59.9%, with a mean and a median of 37.1% and
40.6%, respectively, compared with 43.2% for TMA. The premium of the equity
value per share over the stock price of the target one day prior to the
announcement of the transaction ranged from -5.5% to 61.4%, with a mean and a
median of 24.2% and 23.1%, respectively, compared with 25.9% for TMA. In each of
the comparisons of the value to be achieved by the TMA shareholders in the
Merger as compared to the mean and median of the multiples of operating results
realized in the Comparable Transactions, the multiples of operating results
achieved by the TMA shareholders was superior to those realized by the
Comparable Transactions.
DISCOUNTED CASH FLOW ANALYSIS. WA&H estimated present values of TMA using a
discounted cash flow analysis using projections of future operations based in
part on information provided by TMA's management. WA&H calculated present values
of projected operating cash flows after net changes to working capital over the
period between December 31, 1996 and December 31, 2001 using a discount rate of
16.3%. WA&H calculated an approximate terminal value of TMA as of December 31,
1997 of 20.8x TMA's projected calendar year 2001 operating income. WA&H
determined this multiple by analyzing the current market multiple of operating
income for the Comparable Companies and applying this relationship to estimated
future operating income as of calendar year 2001. The terminal value was
discounted to present value using the same discount rate as the cash flows. WA&H
calculated an implied valuation of TMA by adding the present value of the cash
flows and the terminal value. The implied value of TMA based on this analysis
was $147.8 million. WA&H determined that, at the time of the WA&H Opinion, the
value of the consideration to be received by the TMA shareholders in the Merger
of approximately $153.2 million was greater than the present value of TMA cash
flows under the discounted cash flow valuation discussed above.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. WA&H
believes that its analyses must be considered as a whole and that selecting
portions of the analyses and of the factors considered by it, without
considering all factors and analyses, could create an incomplete or misleading
view of the processes underlying its opinion. In arriving at its fairness
determination, WA&H considered the results of all such analyses. In view of the
wide variety of factors considered in connection with its evaluation of the
fairness of the Merger consideration, WA&H did not find it practicable to assign
relative weights to the factors considered in reaching its opinion. No company
or transaction used in the above analyses as a comparison is identical to TMA or
Avant! or the proposed Merger. The analyses were prepared solely for purposes of
WA&H providing its opinion as to the fairness of the Merger consideration
pursuant to the Agreement to TMA shareholders and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. As described above, the WA&H
Opinion and presentation to the TMA Board was one of the many factors taken into
consideration by the TMA Board in making its determination to approve the
Agreement.
WA&H is a nationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. WA&H is familiar with TMA,
having acted as a managing underwriter of the initial public offering of TMA
Common Stock in September 1996. TMA selected WA&H to render the fairness opinion
based on WA&H's familiarity with TMA, its knowledge of the EDA industry and its
experience in mergers and acquisitions and in securities valuation generally.
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In the ordinary course of business, WA&H acts as a market maker and broker
in the publicly traded securities of TMA and Avant! and receives customary
compensation in connection therewith, and also provides research coverage of TMA
and Avant!. In the ordinary course of business, WA&H actively trades in the
publicly traded securities of TMA and Avant! for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities which positions, on occasion, may be material in
size or relative to the volume of trading activity. On the close of trading on
September 5, 1997 (the day before the execution and announcement of the
Agreement), WA&H held positions of 66,237 shares of Avant! Common Stock and
7,744 shares of TMA Common Stock.
Pursuant to the WA&H Engagement Letter, TMA paid WA&H a nonrefundable
opinion fee (the "Opinion Fee") of $300,000 upon the rendering of the WA&H
Opinion; payment of the Opinion Fee to WA&H is not contingent upon the closing
of the Merger. In addition, pursuant to the WA&H Engagement Letter, TMA has
agreed to pay WA&H, upon the closing of the Merger pursuant to the Agreement, a
transaction fee (the "Transaction Fee") of approximately $2,000,000. The Opinion
Fee will be credited against the Transaction Fee. Payment of the Transaction Fee
is contingent upon the closing of the Merger. TMA has also agreed to reimburse
WA&H for its reasonable out-of-pocket expenses and to indemnify WA&H against
certain liabilities relating to or arising out of services performed by WA&H in
connection with the Merger. The terms of the WA&H Engagement Letter, which are
customary for transactions of this nature, were negotiated at arm's length
between TMA and WA&H, and the TMA Board was aware of such fee arrangement at the
time of its approval of the Agreement.
In addition, TMA had initially considered retaining Cowen & Company
("Cowen") as its financial advisor in connection with the Merger. TMA
understands that Cowen began its due diligence work and began to analyze TMA and
other companies in its industry. TMA later decided to retain WA&H as its
financial advisor, but agreed to pay Cowen a fee of $500,000 in order to
reimburse Cowen for work it may have already undertaken, and to retain Cowen to
provide consulting services to TMA, and if requested by TMA to render a fairness
opinion in connection with transactions other than in the ordinary course of
TMA's business in which control or a material interest in TMA or its business or
a material amount of TMA's assets is transferred or acquired. TMA has not
requested Cowen to render any analyses or reports with respect to the Merger and
Cowen did not render any formal or informal opinion as to the Merger to TMA or
the TMA Board.
CONVERSION OF TMA SHARES
Upon the consummation of the Merger, each outstanding share of TMA Common
Stock will automatically be converted into a fraction of a share of Avant!
Common Stock, the numerator of which is equal to $17.00, and the denominator of
which is equal to the average of the per share closing price of Avant! Common
Stock as quoted on the Nasdaq National Market for the ten consecutive trading
days ending three business days prior to the closing date of the Merger (the
"Average Nasdaq Per Share Price"). Notwithstanding anything to the contrary set
forth above, in the event that the Average Nasdaq Per Share Price is greater
than $35.678, then the Exchange Ratio shall be 0.476484, and in the event that
the Average Nasdaq Per Share Price is less than $25.678, then the Exchange Ratio
shall be 0.662045. The Exchange Ratio is estimated to be 0.662045 (based on an
Average Nasdaq Per Share Price of $21.241 as of December 19, 1997) shares of
Avant! Common Stock for each outstanding share of TMA Common Stock. No
fractional shares of Avant! Common Stock will be issued in the Merger. Instead,
each TMA shareholder who would otherwise be entitled to receive a fraction of a
share of Avant! Common Stock will receive an amount of cash equal to the per
share market value of Avant! Common Stock multiplied by the fraction of a share
of Avant! Common Stock to which the shareholder would otherwise be entitled.
Based upon the capitalization of TMA and Avant! on their respective Record Dates
(and assuming no further changes in the capitalization of Avant! and TMA), the
TMA shareholders will own Avant! Common Stock
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representing approximately 16.66% of the Avant! Common Stock outstanding
immediately after consummation of the Merger. See "Risk Factors--Risks
Associated with Exchange Ratio."
NO TERMINATION RIGHT IN THE EVENT OF A DECLINE IN AVANT! TRADING PRICE
The Plan of Reorganization is not subject to termination in the event that
the Average Nasdaq Per Share Price increases or declines to a certain price. In
the event that the trading price of the Avant! Common Stock declines to below
$25.678 per share for the ten consecutive trading days ending three days prior
to the Effective Time, the dollar value of the consideration to be received by
TMA shareholders would decline because the Exchange Ratio would not be adjusted
any further. In addition, TMA would not be able to terminate the Plan of
Reorganization solely as a result of such decline in the trading price of the
Avant! Common Stock. Furthermore, in light of the recent substantial volatility
in the stock markets, particularly in the trading prices of securities of
technology companies, there can be no assurance that the price of the Avant!
Common Stock will not decrease below $25.678 per share. See "Risk Factors--Risks
Associated with Exchange Ratio."
ASSUMPTION OF TMA OPTIONS AND SUBSCRIPTION RIGHTS
At the Effective Time, the TMA Stock Plans and each outstanding option to
purchase shares of TMA Common Stock under the TMA Stock Plans, whether vested or
unvested, will be assumed by Avant!. Each such option so assumed by Avant! will
continue to have, and be subject to, the same terms and conditions set forth in
each of the TMA Stock Plans and the documents governing the outstanding options
immediately prior to the Effective Time, including a right of first refusal and
a repurchase right with respect to certain of such options, except that (a) such
option will be exercisable for that number of whole shares of Avant! Common
Stock equal to the product of the number of shares of TMA Common Stock that were
issuable upon exercise of such option immediately prior to the Effective Time
multiplied by the Exchange Ratio and rounded down to the nearest whole number of
shares of Avant! Common Stock and (b) the per share exercise price for the
shares of Avant! Common Stock issuable upon exercise of such assumed option will
be equal to the quotient determined by dividing the exercise price per share of
TMA Common Stock at which such option was exercisable immediately prior to the
Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
Consistent with the terms of the TMA Stock Plans and the documents governing the
outstanding options under those plans and except with respect to options granted
under the TMA 1996 Directors Stock Option Plan, which options will accelerate,
by their terms, automatically upon consummation of the Merger, the Merger will
not accelerate the exercisability or vesting of such options or the shares of
Avant! Common Stock which will be subject to those options solely as a result of
the consummation of the Merger and Avant!'s assumption of the options in
connection therewith. Avant! will take all necessary steps to ensure that the
options so assumed by Avant! qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code to the extent such options
qualified as incentive stock options prior to the Effective Time. Within ten
business days after the Effective Time, Avant! will issue to each person who,
immediately prior to the Effective Time was a holder of an outstanding option
under any of the TMA Stock Plans, a document in form and substance reasonably
satisfactory to TMA evidencing the foregoing assumption of such option by
Avant!. Avant! will take all corporate and other action necessary to reserve a
sufficient number of shares of Avant! Common Stock for issuance upon the
exercise of the options assumed by Avant! and upon the exercise of TMA Purchase
Rights described below.
As of November 30, 1997, there were outstanding, under the TMA Stock Plans,
options to purchase 1,555,375 shares of TMA Common Stock at exercise prices
ranging from $0.1485 to $15.50, with a weighted average exercise price of
approximately $7.09 per share.
The TMA Employee Stock Purchase Plan (the "TMA ESPP") and each outstanding
subscription to purchase shares of TMA Common Stock thereunder (a "TMA Purchase
Right") will be assumed by Avant! at the Effective Time of the Merger. The TMA
Purchase Rights so assumed by Avant! will continue
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to be exercisable upon the same terms and conditions applicable to those rights
immediately prior to the Effective Time in accordance with the terms of the TMA
ESPP, except that (a) each such assumed TMA Purchase Right will be exercisable
for shares of Avant! Common Stock and (b) the purchase price payable per share
of Avant! Common Stock under the assumed right will be equal to 85% of the lower
of (x) the fair market value per share of the TMA Common Stock on the date the
TMA Purchase Right was granted, divided by the Exchange Ratio and rounded up to
the nearest whole cent and (y) the fair market value per share of Avant! Common
Stock on the date such right is exercised. Within ten business days after the
Effective Time, Avant! will issue to each person who, immediately prior to the
Effective Time, was a holder of an outstanding TMA Purchase Right, a document in
form and substance reasonably satisfactory to TMA evidencing the foregoing
assumption of such TMA Purchase Right by Avant!.
Avant! will file within ten days after the closing of the Merger a
Registration Statement on Form S-8 under the Securities Act covering the shares
of Avant! Common Stock issuable upon the exercise of Avant! Common Stock options
and purchase rights created by the assumption by Avant! of the TMA Stock Plans
and the outstanding options thereunder and the TMA ESPP and the outstanding TMA
Purchase Rights thereunder.
EXCHANGE OF CERTIFICATES
Following effectiveness of the Merger, a letter of transmittal with
instructions will be mailed to each TMA shareholder of record for use in
exchanging TMA Common Stock certificates for Avant! Common Stock certificates.
Upon surrender of a TMA Common Stock certificate for cancellation to Harris
Trust Company of California, Avant!'s transfer agent, or to such other agent or
agents as may be appointed by Avant!, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the holder of such certificate will be entitled to receive in exchange therefor
a certificate representing the number of whole shares of Avant! Common Stock
equal to a fraction of a share of Avant! Common Stock equal to the Exchange
Ratio.
Following the Merger, each outstanding TMA Common Stock certificate will be
deemed for all corporate purposes, other than the payment of dividends, to
evidence the ownership of the number of full shares of Avant! Common Stock into
which such shares of TMA Common Stock shall have been so converted as a result
of the Merger and the right to receive an amount in cash in lieu of the issuance
of any fractional shares. No dividends or other distributions in respect of
Avant! Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered TMA Common Stock certificate with respect to the
shares of Avant! Common Stock represented thereby until the holder of record of
such certificate surrenders such certificate. Subject to applicable law,
following surrender of any such certificate, there will be paid to the record
holder of the certificates representing whole shares of Avant! Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of any such dividends or other distributions with a record date after
the Effective Time of the Merger theretofore payable with respect to such shares
of Avant! Common Stock.
If any certificate for shares of Avant! Common Stock is to be issued in a
name other than that in which the TMA Common Stock certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the TMA Common Stock certificate so surrendered be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Avant! or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Avant! Common Stock in any name other than that of the registered holder of the
TMA Common Stock certificate surrendered, or established to the satisfaction of
Avant! or any agent designated by it that such tax has been paid or is not
payable.
HOLDERS OF TMA COMMON STOCK CERTIFICATES SHOULD NOT SUBMIT THEIR
CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER OF
TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
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OPERATIONS FOLLOWING THE MERGER; MANAGEMENT OF COMBINED COMPANY
Upon consummation of the Merger, TMA will operate as a wholly owned
subsidiary of Avant!. If the Merger is approved, Avant! intends to appoint Roy
E. Jewell, the President and Chief Executive Officer of TMA, to be the head of
Avant!'s TCAD division.
REPRESENTATIONS AND WARRANTIES AND COVENANTS
The Plan of Reorganization contains various representations and warranties
of the parties, including representations by Avant!, TMA and Merger Sub as to
their organization and capitalization, their authority to enter into the Plan of
Reorganization and to complete the transactions contemplated thereby, the
existence of certain liabilities, the absence of certain material undisclosed
liabilities and changes in their businesses, the status of their respective
filings with the SEC, the status of their intellectual property rights and other
matters relating to their respective operations. Such representations and
warranties will not survive consummation of the Merger.
Under the terms of the Plan of Reorganization, and for the period from the
date of the Plan of Reorganization and continuing until the earlier of the
termination of the Plan of Reorganization or the Effective Time, TMA has agreed
(except to the extent expressly contemplated by the Plan of Reorganization or
the TMA Disclosure Schedules or as consented to in writing by Avant!) (a) to
carry on its and its subsidiaries' business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, (b) to pay and
to cause its subsidiaries to pay debts and taxes when due, subject (i) to good
faith disputes over such debts or taxes and (ii) in the case of taxes of TMA or
any of its subsidiaries, to Avant!'s consent to the filing of material tax
returns, if applicable, (c) to pay or perform other obligations when due, (d) to
use all reasonable efforts, consistent with past practice and policies, to
preserve intact its and its subsidiaries' present business organizations, (e) to
use reasonable best efforts consistent with past practice to keep available the
services of its and its subsidiaries' present officers and key employees and (f)
to use commercially reasonable efforts consistent with past practice to preserve
its and its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses will be unimpaired at the Effective Time. TMA has agreed to promptly
notify Avant! of any event or occurrence not in the ordinary course of its or
its subsidiaries' business, and of any event which could have an effect that is
materially adverse to its or its subsidiaries' (taken as a whole) condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, prospects, operations or results of operations.
Moreover, under the terms of the Plan of Reorganization, TMA has agreed
that, during the period from the date of the Plan of Reorganization and
continuing until the earlier of the termination of the Plan of Reorganization or
the Effective Time, except as expressly contemplated by the Plan of
Reorganization or the TMA Disclosure Schedule, it will not do, cause or permit
any of the following, or allow, cause or permit any of its subsidiaries to do,
cause or permit any of the following, without the prior written consent of
Avant!, which consent will not be unreasonably withheld or delayed, (a) enter
into any material contract or commitment, or violate, amend or otherwise modify
or waive any of the material terms of any of its material contracts, other than
in the ordinary course of business consistent with past practice, (b) transfer
to any person or entity any rights to its intellectual property other than in
the ordinary course of business consistent with past practice, (c) enter into or
amend any agreements pursuant to which any other party is granted exclusive
marketing or other exclusive rights of any type or scope with respect to any of
its products or technology, (d) 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, other than in the ordinary course of
business and consistent with past practice, which in the aggregate do not exceed
$100,000, (e) enter into any operating lease in excess of $100,000, (f) pay,
discharge or satisfy in an amount in excess of $100,000 in any one case or
$250,000 in the aggregate, any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise) arising other than in
the ordinary
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course of business, other than the payment, discharge or satisfaction of
liabilities reflected or reserved against in TMA's financial statements, (g)
make any capital expenditures, capital additions or capital improvements over
$100,000 except in the ordinary course of business and consistent with past
practice, (h) materially reduce the amount of any material insurance coverage
provided by existing insurance policies, (i) adopt or amend any employee benefit
or stock purchase or option plan, accept any new or additional subscriptions
under the TMA ESPP, or hire any officer level employee without prior
consultation with Avant!, pay any special bonus or special remuneration to any
employee or director, or increase the salaries or wage rates of its employees,
except in the ordinary course of business and consistent with past practices or
as previously disclosed to Avant!, (j) grant any severance or termination pay
(i) to any director or officer or (ii) to any other employee except (A) payments
made pursuant to standard written agreements outstanding on the date hereof or
(B) grants which are made in the ordinary course of business in accordance with
its standard past practice, (k) cause or permit any amendments to its Articles
of Incorporation or Bylaws or similar organizational documents, (l) issue,
deliver or sell or authorize or propose the issuance, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions (including subscription rights
under the TMA ESPP), rights, warrants or options to acquire, or other agreements
or commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefore
permitted under the Plan of Reorganization; provided, however, that TMA may, in
the ordinary course of business consistent with past practice, grant options for
the purchase of up to an aggregate of 40,000 shares of TMA Common Stock under
the TMA Stock Plans to existing employees and options to purchase Common Stock
under the TMA Stock Plans to new employees provided that TMA may not grant an
individual options to purchase an aggregate of more than 10,000 shares of TMA
Common Stock, (m) declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or repurchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination of
service to it or its subsidiaries, (n) accelerate, amend or change the period of
exercisability or vesting of options or other rights granted under its stock
option agreements or stock plans or authorize cash payments in exchange for any
options or other rights granted under any of such agreements or plans, (o) to
the knowledge of TMA, take any action that would interfere with Avant!'s ability
to account for the Merger as a pooling of interests, (p) sell, lease, license or
otherwise dispose of or encumber any of its properties or assets which are
material, individually or in the aggregate, to its and its subsidiaries'
business, taken as a whole, except in the ordinary course of business consistent
with past practice, (q) commence a lawsuit other than (i) for the routine
collections of bills, (ii) in such case where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Avant! prior to the
filing of such a suit, or (iii) for a breach of the Plan of Reorganization, (r)
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to its and its subsidiaries'
business, taken as a whole, (s) other than in the ordinary course of business,
make or change any material election in respect of taxes, except where such
change or election would not have a material adverse effect on TMA and its
subsidiaries, taken as a whole, adopt or change any accounting method in respect
of taxes, file any material tax return or any amendment to a material tax
return, enter into any closing agreement, settle any claim or assessment in
respect of taxes or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of taxes, (t) revalue in any
material respect 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 (u) take, or agree in writing or otherwise
to take, any of the actions described in (a) through (t) above, or any action
which would make
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any of its representations or warranties contained in the Plan of Reorganization
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants thereunder.
OTHER OFFERS
TMA and its subsidiaries and the officers, directors, employees or other
agents of TMA and its subsidiaries will not, directly or indirectly, (a) take
any action to solicit, initiate or encourage any Takeover Proposal (as defined
below) or (b) engage in negotiations with, or disclose any nonpublic information
relating to TMA or any of it subsidiaries to, or afford access to the
properties, books or records of TMA or any of its subsidiaries to, any person
that has advised TMA that it may be considering making, or that has made, a
Takeover Proposal; provided, however, that none of these provisions and nothing
in the Plan of Reorganization shall prohibit TMA's Board of Directors from
taking and disclosing to TMA's shareholders a position with respect to a tender
offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act. TMA
will promptly notify Avant! after receipt of any Takeover Proposal or any notice
that any person is considering making a Takeover Proposal or any request for
nonpublic information relating to TMA or any of its subsidiaries or for access
to the properties, books or records of TMA or any of its subsidiaries by any
person that has advised TMA that it may be considering making, or that has made,
a Takeover Proposal and will keep Avant! fully informed of the status and
details of any such Takeover Proposal notice or request. A "Takeover Proposal"
means any offer or proposal for, or any indication of interest in, a merger or
other business combination involving TMA or any of its subsidiaries or the
acquisition of any significant equity interest in, or a significant portion of
the assets of, TMA or any of its subsidiaries, other than the transactions
contemplated by the Plan of Reorganization. Notwithstanding the above, prior to
the Effective Time, TMA may, to the extent the Board of Directors of TMA
determines, in good faith, based upon and consistent with advice received in
consultation with outside legal counsel, that the Board's fiduciary duties under
applicable law require it to do so, participate in discussions or negotiations
with, and, subject to the requirements below, furnish information to any person,
entity or group after such person, entity or group has delivered to TMA in
writing, an unsolicited bona fide Takeover Proposal which the Board of Directors
of TMA in its good faith reasonable judgment determines, based upon and
consistent with advice received in consultation with its independent legal and
financial advisors, would result in a transaction more favorable than the Merger
to the shareholders of TMA from a financial point of view (a "TMA Alternative
Proposal"). In the event TMA receives a TMA Alternative Proposal, nothing
contained in the Plan of Reorganization (but subject to the terms thereof) will
prevent the Board of Directors of TMA from recommending such TMA Alternative
Proposal to its shareholders, if the Board determines, in good faith, based upon
and consistent with advice received in consultation with outside legal counsel,
that such action is required by its fiduciary duties under applicable law. In
such case, the Board of Directors of TMA may withdraw, modify or refrain from
making its recommendation for the Merger and, to the extent it does so, TMA may
refrain from soliciting proxies to secure the vote of its shareholders for the
Merger; provided, however, that TMA shall (a) provide at least 48 hours prior
notice to Avant! of any TMA Board meeting at which it is reasonably expected to
contemplate a TMA Alternative Proposal and (b) not recommend to its shareholders
a TMA Alternative Proposal for a period of not less than five business days
after Avant!'s receipt of a copy of such TMA Alternative Proposal (or a
description of the significant terms and conditions thereof, if not in writing);
and provided, further, that nothing stated above shall limit TMA's obligation to
hold and convene the TMA Special Meeting (regardless of whether the
recommendation of the Board of Directors of TMA shall have been withdrawn,
modified or not yet made) or to provide the TMA shareholders with material
information relating to such a meeting. Notwithstanding the above, TMA will not
provide any non-public information to a third party unless (a) TMA provides such
non-public information pursuant to a nondisclosure agreement with terms
regarding the protection of confidential information at least as restrictive as
such terms in the confidentiality agreement entered into between Avant! and TMA
on September 4, 1997, (b) such non-public information has been previously
delivered to Avant! and (c) TMA advises Avant! in writing of such disclosure,
including the party to whom disclosed. In addition, Avant! will
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not acquire or agree to acquire any direct competitor of TMA if such acquisition
would be reasonably likely to prevent or delay the Merger.
RESALE OF AVANT! COMMON STOCK; AGREEMENTS WITH AFFILIATES
The shares of Avant! Common Stock to be issued in the Merger have been
registered under the Securities Act and will be freely transferable, except that
shares of Avant! Common Stock to be received by TMA shareholders who are deemed
to be "affiliates" of Avant! or TMA prior to the Merger (as "affiliates" is
defined for purposes of Rule 145 ("Rule 145") under the Securities Act) may be
resold by them only in transactions permitted by the resale provisions of Rule
145 (or Rule 144 under the Securities Act in the case of such persons who become
affiliates of the combined company). Persons who may be deemed to be affiliates
of TMA or the combined company include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal shareholders
or stockholders of such party. As a condition to the obligations of the parties
under the Plan of Reorganization, Avant! shall have received agreements from
each person or entity who may be deemed an affiliate (as defined in the
Securities Act and the rules and regulations thereunder) of TMA pursuant to
which such persons will agree not to sell, transfer or otherwise dispose of
shares of TMA Common Stock or Avant! Common Stock until such time after the
Effective Time as Avant! has publicly released a report including financial
results covering at least 30 days of combined operations of Avant! and TMA.
Furthermore, pursuant to such agreements, the affiliates of TMA will agree to
refrain from the sale or transfer of any Avant! Common Stock received in
connection with the Merger, except in accordance with the provisions of the
Securities Act and the general rules and regulations promulgated thereunder.
Affiliates of Avant! will also be subject to certain similar limitations on
their ability to sell, transfer or otherwise dispose of shares of Avant! Common
Stock during the period preceding and following the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the TMA Board with respect to the
Merger, TMA shareholders should be aware that certain officers and directors of
TMA have interests in connection with the Merger which are different than the
interests of TMA shareholders generally.
If the Merger is approved, Avant! will appoint Roy E. Jewell to be the head
of Avant!'s TCAD division.
With the consent of Avant!, TMA has entered into letter agreements with the
following individuals providing the following severance arrangements upon
Termination (defined as termination without just cause or a resignation
following a reduction in compensation within 12 months of the Effective Date):
(a) Roy Jewell will be retained as a consultant for 18 months, receiving his
present base salary and full benefits; and (b) the following TMA employees will
be retained as consultants for the terms specified, and each will receive their
present base salary, full benefits and continued vesting of stock options for
such term: (i) Bennet Weintraub (6 months) and (ii) Jue-Hsien Chern (12 months).
Avant! intends to retain Mr. Jewell and Mr. Chern as the head of its TCAD
Division and TCAD Research and Development, respectively, following the Merger.
Each member of the TMA Board holds an option to purchase 5,000 shares of TMA
Common Stock at an exercise price of $10.00 per share. Such options were issued
pursuant to the 1996 Directors Stock Option Plan, which provides for automatic
acceleration of options upon consummation of the Merger. If the Merger had been
consummated on September 8, 1997, the date that the Merger was approved by the
TMA Board, the aggregate value of the Shares of Avant! Common Stock upon the
exercise of such options would have been $95,143.96.
Avant! has agreed that, after the Effective Time, Avant! will indemnify each
officer, director and employee of TMA and any of its subsidiaries serving as
such on the date of the Plan of Reorganization as provided in TMA's Articles of
Incorporation and Bylaws, and existing indemnification agreements between TMA
and such officers, directors and employees.
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If the Merger is completed and Avant!'s Japanese distributor, MainGate
Electronics, Inc. ("MainGate"), begins to distribute TMA's products in Japan and
other Asian markets, Gerald C. Hsu, Avant!'s Chairman of the Board, President
and Chief Executive Officer, and several other Avant! employees that own an
equity interest in MainGate, may realize an indirect benefit as a result of
increased revenues for MainGate. See "Avant! Business--Sales and Marketing" and
"Executive Compensation--Certain Relationships and Related Transactions."
CONDITIONS TO THE MERGER
Each party's respective obligation to complete the Merger is subject to,
among other things, the approval of the Plan of Reorganization and the Merger by
the requisite votes of the stockholders of Avant! and the shareholders of TMA,
the SEC having declared the Registration Statement effective, and the
satisfaction at or prior to the Effective Time of the following additional
conditions: (a) the absence of any temporary restraining order, preliminary or
permanent injunction or other legal action or regulatory restraint or
prohibition preventing the closing of the Merger; the absence of any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the closing of the Merger illegal;
the absence of any temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint limiting or restricting Avant!'s conduct or
operation of the business of TMA and its subsidiaries following the Merger; and
the absence of any proceeding brought by any administrative agency or commission
or other governmental entity, domestic or foreign, seeking the foregoing; (b)
all approvals, waivers, authorizations and consents, if any, necessary for
consummation of or in connection with the Merger and the several transactions
contemplated thereby, including such approvals, waivers, authorizations and
consents as may be required under the HSR Act, the Securities Act, the Exchange
Act and under state Blue Sky laws having been received; (c) Avant! and TMA
having received substantially identical written opinions of their respective
counsel, in form and substance reasonably satisfactory to them, and dated on or
about the Effective Time, to the effect that, based upon certain representations
and assumptions, the Merger will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Code, and such opinions shall not have been
withdrawn; and (d) the filing with the Nasdaq National Market of a Notification
Form for Listing of Additional Shares with respect to the shares of Avant!
Common Stock issuable in connection with the Merger.
In addition, the obligations of TMA to complete the Merger are subject to
the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by TMA: (a) the
representations and warranties of Avant! and Merger Sub in the Plan of
Reorganization shall be true and correct in all material respects (other than
representations and warranties regarding litigation connected with the Merger or
other proceedings connected with the Merger, which shall be governed solely by
the standard set forth in clause (a) of the preceding paragraph and except for
such representations and warranties that are qualified by their terms by a
reference to materiality which representations and warranties as so qualified
shall be true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time (except to the
extent such representations and warranties speak as of an earlier date) except,
in all such cases, where such breaches of such representations and warranties,
individually or in the aggregate, have not resulted in, nor reasonably would be
expected to result in liabilities aggregating in excess of $10.0 million or have
not substantially impaired nor reasonably would be expected to substantially
impair, Avant!'s ability after the Effective Time to continue to develop,
produce, sell and distribute the products and services that are material to
Avant!'s business in a manner that has resulted in or would reasonably be
expected to have a material adverse effect on Avant!; (b) Avant! and Merger Sub
shall have performed and complied in all material respects with all covenants,
obligations and conditions of the Plan of Reorganization required to be
performed and complied with by them as of the Effective Time; (c) TMA shall have
been provided with an officers' certificate, dated the Effective Date, executed
on behalf of Avant! by the President and Chief Financial Officer of Avant! to
the effect that, as of the Effective Time, the conditions provided for in
clauses (a) and
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(b) of this paragraph have been satisfied; (d) TMA shall have received a legal
opinion dated the Effective Date as to certain matters from Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, legal counsel to Avant! and Merger
Sub, in form and substance reasonably satisfactory to TMA; (e) there shall not
have occurred any material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations or, results of operations or prospects of Avant!, taken as
a whole, provided, however, that any developments, changes or results arising
out of or related to the litigation and other court proceedings described herein
that do not otherwise result in a material adverse effect on Avant! shall not be
considered for purposes of this provision; (f) TMA shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
any material contract of Avant! or any of its subsidiaries or otherwise; and (g)
certain affiliates of Avant! shall have executed a suitable Affiliates
Agreement.
In addition, the obligations of Avant! and Merger Sub to complete the Merger
are subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, by Avant!: (a) the
representations and warranties of TMA in the Plan of Reorganization shall be
true and correct in all material respects (other than representations and
warranties regarding litigation connected with the Merger or other proceedings
connected with the Merger, which shall be governed solely by the standard set
forth in clause (a) of the first paragraph of this section ("--Conditions to the
Merger"), and except for such representations and warranties that are qualified
by their terms by a reference to materiality, which representations and
warranties as so qualified shall be true in all respects) on and as of the
Effective Time as though such representations and warranties were made on and as
of such time except for changes contemplated by the Plan of Reorganization
except, in all such cases, where such breaches of such representations and
warranties, individually or in the aggregate, have not resulted in, nor
reasonably would be expected to result in liabilities aggregating in excess of
$2.0 million or, have not substantially impaired nor reasonably would be
expected to substantially impair, TMA's ability after the Effective Date to
continue to develop, produce, sell and distribute the products and services that
are material to TMA's business in a manner that has resulted in or would
reasonably be expected to result in a material adverse effect on TMA; (b) TMA
shall have performed and complied in all material respects with all covenants,
obligations and conditions of the Plan of Reorganization required to be
performed and complied with by it as of the Effective Time; (c) Avant! shall
have been provided with an officers' certificate, dated the Effective Date,
executed on behalf of TMA by its President and Chief Financial Officer to the
effect that, as of the Effective Time, the conditions provided for in clauses
(a) and (b) of this paragraph have been satisfied; (d) Avant! shall have
received a legal opinion, dated the Effective Time, from Fenwick & West LLP,
legal counsel to TMA, in form and substance reasonably satisfactory to Avant!;
(e) Avant! shall have been furnished with evidence satisfactory to it of the
consent or approval of those persons whose consent or approval shall be required
in connection with the Merger under any material contract of TMA or any of its
subsidiaries or otherwise; (f) there shall not have occurred any material
adverse change in the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, business, operations, results of
operations or prospects of TMA and its subsidiaries, taken as a whole; (g)
Avant! shall have received a letter from KPMG Peat Marwick LLP, independent
accountants, concurring with Avant!'s management's conclusion that the Merger
will qualify for pooling of interests accounting if consummated in accordance
with the Plan of Reorganization; (h) Avant! shall have received from each of the
affiliates of TMA identified in the TMA Disclosure Schedule an executed
Affiliate Agreement; (i) Dissenting Shares shall consist of no more than ten
percent of the then outstanding shares of TMA Common Stock; and (j) Avant! shall
have received a sufficient number of executed Continuity of Interest
Certificates, such that counsel to Avant! shall have concluded that the
continuity of interest requirement shall be satisfied for purposes of issuing
the tax opinion pursuant to the Plan of Reorganization.
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SHAREHOLDER AGREEMENT
Roy E. Jewell, Bennet L. Weintraub, Jue-Hsien Chern, Lung Chu, David M. Lee,
Milan G. Lazich, Louis A. Delmonico, Robert A. Dutton, William E. Drobish and
Ronald A. Rohrer beneficially own an aggregate of 2,619,149 shares of TMA Common
Stock, representing 32.3% of the votes entitled to be cast by holders of shares
of TMA Common Stock issued and outstanding as of the TMA Record Date. These
individuals have entered into a Shareholder Agreement with Avant!, pursuant to
which each has (a) agreed to vote the shares of TMA Common Stock held by him in
favor of the approval of the Plan of Reorganization and the Merger, (b) granted
Avant! an irrevocable proxy to vote such individual's shares in favor of the
Merger and (c) granted Avant! an exclusive and irrevocable option to purchase
such individual's shares of TMA Common Stock in the event the Merger does not
occur, subject to certain conditions specified in the Shareholder Agreement.
These individuals' obligations under the Shareholder Agreement are not impacted
by TMA's receipt of a superior proposal.
CLOSING
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Plan of Reorganization, Merger Sub and TMA will file
the Agreement of Merger, in form reasonably satisfactory to Avant! and TMA, with
the Secretary of State of the State of California. The Merger will become
effective upon such filing. It is anticipated that, assuming all conditions are
met, the Merger will occur and a closing will be held on January 16, 1998.
TERMINATION
At any time prior to the Effective Date, whether before or after approval of
the matters presented in connection with the Merger by the shareholders of TMA,
the Plan or Reorganization may be terminated (a) by mutual consent of Avant! and
TMA, (b) by either Avant! or TMA, if the Effective Date shall not have occurred
on or before January 31, 1998 (provided that the right to terminate the Plan of
Reorganization for this reason shall not be available to any party whose failure
to fulfill any obligation under the Plan of Reorganization has been a
significant cause of, or resulted in, the failure of the Effective Date to occur
on or before such date), (c) by either Avant! or TMA, if the other party shall
breach any of its representations, warranties or obligations under the Plan of
Reorganization, which breach would result in a material adverse change in the
condition (financial or otherwise), properties, assets (including intangible
assets), liabilities, business, operations or, results of operations of such
other party and its subsidiaries, taken as a whole, and such breach shall not
have been cured within ten business days following receipt by such other party
of written notice of such breach, (d) by either Avant! or TMA, if there shall
have occurred any material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations, results of operations or prospects of the other party and
its subsidiaries, taken as a whole, and such other party shall not have proposed
a plan to mitigate the effect of such material adverse change which is
reasonably acceptable to such party, within 20 business days after written
notice from such party that it intends to terminate the Plan of Reorganization,
(e) by either Avant! or TMA, if the Board of the other party withdraws or
modifies, in an adverse manner, its recommendation of the Plan of Reorganization
or the Merger or shall have resolved to do so, (f) by either Avant! or TMA, if
any permanent injunction of a court or other competent authority preventing
consummation of the Merger shall have become final and nonappealable, or (g) by
either Avant! or TMA, if the required approval of the shareholders of TMA or the
stockholders of Avant! is not obtained at the respective shareholder and
stockholder meetings.
EXPENSES AND TERMINATION FEES
All costs and expenses incurred in connection with the Plan of
Reorganization and the transactions contemplated thereby (including, without
limitation, the fees and expenses of its advisers, accountants and legal
counsel) will be paid by the party incurring such expense, except that, in the
event the Merger is not
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closed for any reason or if the Plan of Reorganization is terminated for any
reason other than any of the reasons, as they apply to permitted terminations by
TMA, set forth in (c), (d) or (e) above in "--Termination," expenses incurred in
connection with printing the proxy materials and the Registration Statement,
registration and filing fees incurred in connection with the Registration
Statement and the proxy materials in connection with the Merger will be shared
equally by TMA and Avant!.
In the event that (a) either Avant! or TMA shall terminate the Plan of
Reorganization following a failure of the shareholders of TMA to approve the
Plan of Reorganization and, prior to the time of the meeting of TMA's
shareholders, there shall have been (i) a Trigger Event (as defined below) with
respect to TMA that TMA's Board of Directors has not recommended that its
shareholders reject or (ii) a Takeover Proposal with respect to TMA which at the
time of the meeting of TMA's shareholders shall not have been rejected by TMA
and withdrawn by the third party, or (b) Avant! shall terminate the Plan of
Reorganization pursuant to any of the reasons, as they apply to permitted
terminations by Avant!, set forth in clauses (c), (d) and (e) above in
"--Termination," due in whole or in part to any failure by TMA to use its
reasonable best efforts to perform and comply with all agreements and conditions
required by the Plan of Reorganization to be performed or complied with by TMA
prior to or on the Effective Date or any failure by TMA's affiliates to take any
actions required to be taken hereby, (and if TMA is not entitled to terminate
the Plan of Reorganization pursuant to any of the reasons, as they apply to
permitted terminations by Avant!, set forth in clauses (c), (d) and (e) above in
"--Termination," and prior thereto there shall have been (i) a Trigger Event
with respect to TMA or (ii) a Takeover Proposal with respect to TMA which shall
not have been rejected by TMA and withdrawn by the third party, then TMA shall
promptly pay to Avant! the sum of $5,250,000; provided, however, that with
respect to this paragraph, a Trigger Event shall not be deemed to include the
acquisition by any Person of securities representing ten percent or more of TMA
if such Person has acquired such securities not with the purpose nor with the
effect of changing or influencing the control of TMA, nor in connection with or
as a participant in any transaction having such purpose or effect, including
without limitation (w) making any public announcement with respect to the voting
of such shares at any meeting to consider any merger, consolidation, sale of
substantial assets or other business combination or extraordinary transaction
involving TMA, (x) making, or in any way participating in, any "solicitation" of
"proxies" (as such terms are defined or used in Regulation 14A under the
Exchange Act) to vote any voting securities of TMA (including, without
limitation, any such solicitation subject to Rule 14a-11 under the Exchange Act)
or seeking to advise or influence any Person with respect to the voting of any
voting securities of TMA, (y) forming, joining or in any way participating in
any "group" within the meaning of Section 13(d)(3) of the Exchange Act with
respect to any voting securities of TMA or (z) otherwise acting, alone or in
concert with others, to seek control of TMA or to seek to control or influence
the management or policies of TMA. As used herein, a "Trigger Event" shall occur
if any Person commences a tender or exchange offer following the successful
consummation of which the offeror and its affiliates would beneficially own
securities representing 25% or more of the voting power of TMA.
If the Plan of Reorganization is terminated by TMA because of any of the
reasons, as they apply to permitted terminations by TMA, set forth in clauses
(c), (d) or (e) above in "--Termination," due in whole or in part to Avant!'s
failure to use the requisite efforts required by the Plan of Reorganization or
any failure by Avant!'s affiliates to take any actions required to be taken by
the Plan of Reorganization, and if Avant! is not entitled to terminate the Plan
of Reorganization because of any of the reasons, as they apply to permitted
terminations by Avant!, set forth in clauses (c), (d) and (e) above in
"--Termination," then Avant! must promptly pay to TMA a termination fee of
$5,250,000.
AMENDMENT
The boards of directors of Avant! and TMA may cause the Plan of
Reorganization to be amended at any time by execution of an instrument in
writing signed on behalf of each of Avant! and TMA, provided that an amendment
made subsequent to adoption of the Plan of Reorganization by the shareholders of
50
<PAGE>
TMA or Merger Sub, or the Avant! stockholders, shall not (a) alter or change the
amount or kind of consideration to be received upon conversion of the TMA Common
Stock, (b) alter or change any term of the Articles of Incorporation of TMA
after giving effect to the Merger or (c) alter or change any of the terms and
conditions of the Plan of Reorganization if such alteration or change would
adversely affect the holders of TMA Common Stock or Avant! Common Stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are applicable to holders of TMA
Common Stock. This discussion is based on currently existing provisions of the
Code, existing Treasury Regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences to
Avant!, TMA or TMA's shareholders as described herein.
TMA shareholders should be aware that this discussion does not deal with all
federal income tax considerations that may be relevant to particular TMA
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, who are subject to the alternative minimum tax
provisions of the Code, who are foreign persons or entities, who do not hold
their TMA Common Stock as capital assets, who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions or who receive cash for their TMA Common Stock pursuant to the
exercise of their dissenters' rights under the CGCL. In addition, the following
discussion does not address the tax consequences of the Merger under foreign,
state or local tax laws, the tax consequences of transactions effectuated prior
or subsequent to, or concurrently with, the Merger (whether or not any such
transactions are undertaken in connection with the Merger), including without
limitation any transaction in which shares of TMA Common Stock are acquired or
shares of Avant! Common Stock are disposed of, or the tax consequences of the
assumption by Avant! of outstanding options and subscriptions to acquire TMA
Common Stock. ACCORDINGLY, TMA SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
MERGER.
Avant! and TMA have received opinions (the "Tax Opinions") from Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP and Fenwick & West LLP,
respectively, that the Merger should constitute a "reorganization" within the
meaning of Section 368(a) of the Code (a "Reorganization") and that the material
tax consequences of the Merger to the TMA shareholders that are described in
clauses (a) through (e) below will result from the Merger. The Tax Opinions have
been filed as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part. Assuming the Merger is a Reorganization, then,
subject to the assumptions, limitations and qualifications referred to herein
and in the Tax Opinions, the Merger should result in the following federal
income tax consequences:
(a) No gain or loss should be recognized by holders of TMA Common Stock
solely upon their receipt in the Merger of Avant! Common Stock in exchange
therefor (except to the extent of cash received in lieu of a fractional
share of Avant! Common Stock).
(b) The aggregate tax basis of the Avant! Common Stock received by TMA
shareholders in the Merger (including any fractional share of Avant! Common
Stock not actually received) should be the same as the aggregate tax basis
of the TMA Common Stock surrendered in exchange therefor.
(c) The holding period of the Avant! Common Stock received by each TMA
shareholder in the Merger should include the period for which the TMA Common
Stock surrendered in exchange therefor was considered to be held, provided
that the TMA Common Stock so surrendered is held as a capital asset at the
time of the Merger.
51
<PAGE>
(d) Cash payments received by holders of TMA Common Stock in lieu of a
fractional share should be treated as if such fractional share of Avant!
Common Stock had been issued in the Merger and then redeemed by Avant!. A
TMA shareholder receiving such cash should recognize gain or loss, upon such
payment, measured by the difference (if any) between the amount of cash
received and the basis in such fractional share.
(e) Holders of TMA Common Stock who exercise dissenters' rights with
respect to their shares of TMA Common Stock and who receive payment for the
shares in cash should generally recognize gain or loss measured by the
difference between the amount of cash received and the shareholder's basis
in the shares surrendered, provided that the payment is neither essentially
equivalent to a dividend within the meaning of Section 302 of the Code nor
has the effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the Code (collectively, a "Dividend Equivalent Transaction"). A
sale of TMA Common Stock pursuant to an exercise of dissenters' rights will
generally not be a Dividend Equivalent Transaction if, as a result of such
exercise, the shareholder exercising dissenters' rights owns no shares of
TMA Common Stock (either actually or constructively within the meaning of
Section 318 of the Code) immediately after the Merger. If, however, a
shareholder's sale for cash of TMA Common Stock pursuant to an exercise of
dissenters' rights is a Dividend Equivalent Transaction, then such
shareholder may recognize income for federal income tax purposes in an
amount equal to the entire amount of cash so received.
Although Avant! and TMA have received the Tax Opinions from their respective
counsel that the Merger should qualify as a Reorganization and that the material
tax consequences of the Merger to the TMA shareholders that are described in
clauses (a) through (e) above will result from the Merger, a recipient of shares
of Avant! Common Stock could recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely TMA Common Stock). All or a portion of such gain may be taxable as
ordinary income. Gain could also have to be recognized to the extent that a TMA
shareholder was treated as receiving (directly or indirectly) consideration
other than Avant! Common Stock in exchange for such shareholder's TMA Common
Stock.
The parties will not request a ruling from the Internal Revenue Service (the
"IRS") in connection with the Merger. TMA shareholders should be aware that the
Tax Opinions do not bind the IRS and the IRS is therefore not precluded from
successfully asserting a contrary opinion. In addition, the Tax Opinions are
subject to certain assumptions, limitations and qualifications, including but
not limited to the truth and accuracy of certain representations made by Avant!,
TMA, Merger Sub and certain shareholders of TMA, including representations in
certain certificates to be delivered to counsel by the respective managements of
Avant!, TMA and Merger Sub and by certain shareholders of TMA. Of particular
importance is the assumption that the "continuity of interest" requirement for
treatment of the Merger as a Reorganization is satisfied.
To satisfy the continuity of interest requirement, TMA shareholders must
not, pursuant to a plan or intent existing at or prior to the Merger, dispose of
or transfer so much of either (a) their TMA Common Stock in anticipation of the
Merger or (b) the Avant! Common Stock to be received in the Merger
(collectively, "Planned Dispositions") such that TMA shareholders, as a group,
would no longer have a significant equity interest in the TMA business being
conducted after the Merger. TMA shareholders will generally be regarded as
having a significant equity interest as long as the number of shares of Avant!
Common Stock received in the Merger less the number of shares subject to Planned
Dispositions (if any) represents, in the aggregate, a substantial portion of the
entire consideration received by the TMA shareholders in the Merger. TMA and
Avant! have represented to respective counsel for Avant! and TMA that they have
no knowledge of any plan or intent on the part of TMA shareholders to engage in
a Planned Disposition of shares of TMA Common Stock. In addition, certain TMA
shareholders have represented that they have no plan or intent to make a Planned
Disposition of shares of TMA Common Stock. However, notwithstanding such
representations, no assurance can be made that the "continuity of interest"
52
<PAGE>
requirement will be satisfied. If such requirement is not satisfied, the Merger
would not be treated as a Reorganization.
A successful IRS challenge to the Reorganization status of the Merger (as a
result of a failure of the "continuity of interest" requirement or otherwise)
would result in TMA shareholders recognizing taxable gain or loss with respect
to each share of TMA Common Stock surrendered equal to the difference between
the shareholder's basis in such share and the fair market value, as of the
Effective Time, of the Avant! Common Stock received in exchange therefor. In
such event, a shareholder's aggregate basis in the Avant! Common Stock so
received would equal its fair market value as of the Effective Time, and the
shareholder's holding period for such stock would begin the day after the
Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
purposes. Accordingly, the affiliates of TMA have entered into agreements
imposing certain resale limitations on their stock. The affiliates of Avant!
will be subject to certain similar restrictions. See "--Resale of Avant! Common
Stock; Agreements with Affiliates." It is a condition to Avant!'s obligations to
consummate the Merger that, among other things, it receive a letter from KPMG
Peat Marwick LLP, the independent accountants for Avant!, concurring with
Avant!'s management's conclusion that the Merger will be treated as a pooling of
interests for accounting purposes if consummated in accordance with the Plan of
Reorganization. TMA shall also receive a letter from Arthur Andersen LLP to the
effect that TMA qualifies for participation in this pooling of interests
transaction consummated in accordance with the Plan of Reorganization.
53
<PAGE>
AVANT! AND TMA
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial data including the notes
thereto are based on and are qualified in their entirety by reference to, and
should be read in conjunction with, the consolidated financial statements of
Avant! and TMA included elsewhere in this Joint Proxy Statement/Prospectus.
The financial statement data as of September 30, 1997 and the nine-month
periods ended September 30, 1996 and 1997 are unaudited, and have been prepared
on the same basis as the financial information derived from the audited
financial statements, and in the opinion of management, contain all adjustments,
consisting of normal recurring accruals, necessary for the fair presentation of
the results of operations for such periods.
The unaudited pro forma condensed combined balance sheet data combine Avant!
and TMA balance sheets as of September 30, 1997, giving effect to the Merger as
if it had occurred on September 30, 1997. The unaudited pro forma condensed
combined statements of income combine Avant! and TMA results of operations for
the nine months ended September 30, 1996 and 1997 and each of the years in the
three-year period ended December 31, 1996, giving effect to the Merger as if it
had occurred on January 1, 1994.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial condition that
would have occurred had the Merger been consummated at the beginning of the
periods presented, nor is it necessarily indicative of future operating results
or financial condition.
54
<PAGE>
AVANT! AND TMA
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
AVANT! TMA ADJUSTMENTS COMBINED
-------- ------- -------------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 73,565 $12,420 $ -- $ 85,985
Short-term investments........................................ 24,205 22,164 -- 46,369
Accounts receivable, net...................................... 25,487 4,498 -- 29,985
Deferred income taxes......................................... 5,867 -- -- 5,867
Prepaid income taxes.......................................... -- 310 -- 310
Other assets.................................................. 12,412 794 -- 13,206
-------- ------- ------ --------
Total current assets...................................... 141,536 40,186 -- 181,722
Equipment, furniture and fixtures, net........................ 27,823 2,567 -- 30,390
Deferred income taxes......................................... 17,423 -- -- 17,423
Intangibles and other assets.................................. 15,875 250 -- 16,125
-------- ------- ------ --------
Total assets.............................................. $202,657 $43,003 $ -- $245,660
-------- ------- ------ --------
-------- ------- ------ --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of notes payable.............................. $ -- $ 303 $ -- $ 303
Current portion of capital lease obligations.................. 4 148 -- 152
Accounts payable.............................................. 6,918 445 -- 7,363
Accrued compensation.......................................... 8,622 -- -- 8,622
Accrued merger transaction costs.............................. -- -- 6,800(4) 6,800
Other accrued liabilities..................................... 17,473 2,516 -- 19,989
Current portion technology acquisition payable................ 406 -- -- 406
Deferred revenue.............................................. 18,526 2,521 -- 21,047
-------- ------- ------ --------
Total current liabilities................................. 51,949 5,933 6,800 64,682
Notes payable, less current portion............................. -- 198 -- 198
Capital lease obligations, less current portion................. -- 321 -- 321
Deferred rent................................................... 42 -- -- 42
Long-term portion technology acquisition payable................ 497 -- -- 497
-------- ------- ------ --------
Total liabilities......................................... 52,488 6,452 6,800 65,740
Shareholders' equity
Common stock.................................................. 3 478 -- 481
Additional paid-in capital.................................... 137,951 32,884 -- 170,835
Notes receivable from shareholders............................ -- (262) -- (262)
Deferred compensation......................................... (2,031) (784) -- (2,815)
Net unrealized gain (loss) on short-term investments.......... (28) -- -- (28)
Retained earnings............................................. 14,274 4,235 (6,800) 11,709
-------- ------- ------ --------
Total shareholders' equity................................ 150,169 36,551 (6,800) 179,920
-------- ------- ------ --------
Total liabilities and shareholders' equity................ $202,657 $43,003 $ -- $245,660
-------- ------- ------ --------
-------- ------- ------ --------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
55
<PAGE>
AVANT! AND TMA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
AVANT! TMA COMBINED
------- ------- ---------
<S> <C> <C> <C>
Revenue:
Software...................................................................... $30,929 $ 8,361 $39,290
Services and other............................................................ 8,415 1,909 10,324
Funded development............................................................ -- 1,808 1,808
------- ------- ---------
Total revenue............................................................... 39,344 12,078 51,422
Costs and expenses:
Costs of software............................................................. 1,122 626 1,748
Costs of services and other................................................... 2,940 341 3,281
Costs of funded development................................................... -- 1,563 1,563
Selling and marketing......................................................... 14,476 3,508 17,984
Research and development...................................................... 9,728 2,707 12,435
General and administrative.................................................... 4,130 1,035 5,165
Acquisition of technology..................................................... 1,600 -- 1,600
------- ------- ---------
Total operating expenses.................................................... 33,996 9,780 43,776
------- ------- ---------
Income from operations...................................................... 5,348 2,298 7,646
Other income (expense), net..................................................... 836 (83) 753
------- ------- ---------
Income before income taxes.................................................. 6,184 2,215 8,399
Provision for income taxes (5).................................................. 2,175 761 2,936
------- ------- ---------
Net income.................................................................. $ 4,009 $ 1,454 $ 5,463
------- ------- ---------
------- ------- ---------
Net income per share............................................................ $ 0.20 $ 0.23 $ 0.22
------- ------- ---------
------- ------- ---------
Weighted average common and common equivalent shares outstanding................ 20,457 6,389 24,687
------- ------- ---------
------- ------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
56
<PAGE>
AVANT! AND TMA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
AVANT! TMA COMBINED
------- ------- ---------
<S> <C> <C> <C>
Revenue:
Software...................................................................... $55,164 $ 8,773 $63,937
Services and other............................................................ 13,704 3,467 17,171
Funded development............................................................ -- 353 353
------- ------- ---------
Total revenue............................................................... 68,868 12,593 81,461
Costs and expenses:
Costs of software............................................................. 1,529 486 2,015
Costs of services and other................................................... 4,845 671 5,516
Costs of funded development................................................... -- 268 268
Selling and marketing......................................................... 22,741 3,469 26,210
Research and development...................................................... 15,318 4,178 19,496
General and administrative.................................................... 6,362 1,423 7,785
Acquisition of technology..................................................... 2,693 -- 2,693
Merger expenses............................................................... 3,590 -- 3,590
------- ------- ---------
Total operating expenses.................................................... 57,078 10,495 67,573
------- ------- ---------
Income from operations...................................................... 11,790 2,098 13,888
Other income, net............................................................... 2,787 49 2,836
------- ------- ---------
Income before income taxes.................................................... 14,577 2,147 16,724
Provision for income taxes (5).................................................. 6,227 865 7,092
------- ------- ---------
Net income.................................................................... $ 8,350 $ 1,282 $ 9,632
------- ------- ---------
------- ------- ---------
Net income per share............................................................ $ 0.35 $ 0.23 $ 0.35
------- ------- ---------
------- ------- ---------
Weighted average common and common equivalent shares outstanding................ 24,159 5,508 27,806
------- ------- ---------
------- ------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
57
<PAGE>
AVANT! AND TMA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
AVANT! TMA COMBINED
-------- ------- ---------
<S> <C> <C> <C>
Revenue:
Software..................................................................... $ 82,134 $12,418 $ 94,552
Services and other........................................................... 23,953 5,153 29,106
Funded development........................................................... -- 388 388
-------- ------- ---------
Total revenue.............................................................. 106,087 17,959 124,046
Costs and expenses:
Costs of software............................................................ 2,512 1,109 3,621
Costs of services and other.................................................. 7,269 1,607 8,876
Costs of funded development.................................................. -- 408 408
Selling and marketing........................................................ 29,928 6,310 36,238
Research and development..................................................... 20,696 5,037 25,733
General and administrative................................................... 15,450 1,756 17,206
Acquisition of technology.................................................... 1,700 -- 1,700
Merger expenses.............................................................. 9,300 -- 9,300
-------- ------- ---------
Total operating expenses................................................... 86,855 16,227 103,082
-------- ------- ---------
Income from operations..................................................... 19,232 1,732 20,964
Other income, net.............................................................. 4,204 439 4,643
-------- ------- ---------
Income before income taxes................................................. 23,436 2,171 25,607
Provision for income taxes..................................................... 10,952 947 11,899
-------- ------- ---------
Net income................................................................... $ 12,484 $ 1,224 $ 13,708
-------- ------- ---------
-------- ------- ---------
Net income per share......................................................... $ 0.47 $ 0.20 $ 0.44
-------- ------- ---------
-------- ------- ---------
Weighted average common and common equivalent shares outstanding............... 26,761 6,217 30,877
-------- ------- ---------
-------- ------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
58
<PAGE>
AVANT! AND TMA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
AVANT! TMA COMBINED
------- ------ ---------
<S> <C> <C> <C>
Revenue:
Software....................................................................... $60,030 $9,058 $69,088
Services and other............................................................. 17,263 3,767 21,030
------- ------ ---------
Total revenue................................................................ 77,293 12,825 90,118
Costs and expenses:
Costs of software.............................................................. 1,802 852 2,654
Costs of services and other.................................................... 5,383 1,328 6,711
Selling and marketing.......................................................... 22,318 4,412 26,730
Research and development....................................................... 15,133 3,784 18,917
General and administrative..................................................... 11,529 1,219 12,748
Acquired in-process research and development................................... 300 -- 300
------- ------ ---------
Total operating expenses..................................................... 56,465 11,595 68,060
------- ------ ---------
Income from operations....................................................... 20,828 1,230 22,058
Other income, net................................................................ 3,100 27 3,127
------- ------ ---------
Income before income taxes................................................... 23,928 1,257 25,185
Provision for income taxes....................................................... 8,664 665 9,329
------- ------ ---------
Net income................................................................... $15,264 $ 592 $15,856
------- ------ ---------
------- ------ ---------
Net income per share......................................................... $ 0.57 $ 0.11 $ 0.52
------- ------ ---------
------- ------ ---------
Weighted average common and common equivalent shares outstanding................. 26,621 5,486 30,253
------- ------ ---------
------- ------ ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
59
<PAGE>
AVANT! AND TMA
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
AVANT! TMA COMBINED
------- ------- ---------
<S> <C> <C> <C>
Revenue:
Software...................................................................... $77,669 $ 8,530 $86,199
Services and other............................................................ 26,663 5,248 31,911
------- ------- ---------
Total revenue............................................................... 104,332 13,778 118,110
Costs and expenses:
Costs of software............................................................. 1,635 953 2,588
Costs of services and other................................................... 8,664 1,483 10,147
Selling and marketing......................................................... 29,596 5,358 34,954
Research and development...................................................... 19,690 5,299 24,989
General and administrative.................................................... 11,618 1,889 13,507
Acquired in-process research and development.................................. 41,186 -- 41,186
------- ------- ---------
Total operating expenses.................................................... 112,389 14,982 127,371
------- ------- ---------
Loss from operations........................................................ (8,057) (1,204) (9,261)
Other income, net............................................................... 3,592 1,315 4,907
------- ------- ---------
Income (loss) before income taxes............................................. (4,465) 111 (4,354)
Income tax expense (benefit).................................................... (1,607) 42 (1,565)
------- ------- ---------
Net income (loss)............................................................. $(2,858) $ 69 $(2,789)
------- ------- ---------
------- ------- ---------
Net income (loss) per share..................................................... $ (0.11) $ 0.01 $ (0.09)
------- ------- ---------
------- ------- ---------
Weighted average common and common equivalent shares outstanding................ 25,616 8,379 31,163
------- ------- ---------
------- ------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
60
<PAGE>
AVANT! AND TMA
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Avant! and TMA statements of income for each of the years in the three
years ended December 31, 1996 and for each of the nine months ended September
30, 1996 and 1997 have been combined. The balance sheets for Avant! and TMA have
been combined as of September 30, 1997. The unaudited pro forma condensed
combined financial statements, including the notes thereto, should be read in
conjunction with the consolidated financial statements of Avant! and TMA
included elsewhere herein.
No adjustments have been made to conform the accounting policies of the
combining companies. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant.
(2) UNAUDITED PRO FORMA COMBINED NET INCOME PER SHARE
The unaudited pro forma condensed combined statements of income for Avant!
and TMA have been prepared as if the Merger was completed at the beginning of
the earliest period presented. The unaudited pro forma combined net income per
share is based on the combined weighted average number of common and common
equivalent shares of Avant! and TMA Common Stock for each period, based upon an
exchange ratio of 0.662045 (the Exchange Ratio as of December 19, 1997) shares
of Avant! Common Stock for each outstanding share of TMA Common Stock.
(3) PRO FORMA UNAUDITED COMBINED SHARES OUTSTANDING
These unaudited pro forma condensed combined financial statements reflect
the issuance of approximately 5,357,000 shares of Avant! Common Stock in
exchange for all the outstanding shares of TMA Common Stock (approximately
8,092,000 at September 30, 1997) and assumption of approximately 1,550,950 TMA
Common Stock options in connection with the Merger resulting in an exchange
ratio of 0.662045 (the Exchange Ratio as of December 19, 1997) shares of Avant!
Common Stock for each outstanding share of TMA Common Stock.
The following table details the pro forma share issuances (as of September
30, 1997) in connection with the Merger:
<TABLE>
<CAPTION>
AVANT!
COMMON
SHARES SHARES
OUTSTANDING ESTIMATED OUTSTANDING
(IN EXCHANGE (IN
THOUSANDS) RATIO THOUSANDS) %
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Avant! shares outstanding as of September 30, 1997.... 26,586 -- 26,586 83%
TMA shares outstanding as of September 30, 1997....... 8,092 .662045 5,357 17%
----------- ---
Pro forma shares of Avant! Common Stock outstanding
after completion of the Merger (as of September 30,
1997)............................................... 31,943 100%
----------- ---
----------- ---
</TABLE>
The actual Exchange Ratio will be determined at the effective time of the
Merger based on the Average Nasdaq Per Share Price on such date.
61
<PAGE>
AVANT! AND TMA
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(4) TRANSACTION COSTS AND MERGER RELATED EXPENSES
Avant! estimates that it will incur direct transaction costs and
merger-related integration expenses of approximately $6.8 million associated
with the Merger, consisting of transaction fees for investment bankers,
attorneys, accountants, financial printing and shareholder meetings of
approximately $4 million and severance costs, charges for duplicate facilities,
and certain other related costs of approximately $2.8 million. As of September
30, 1997, no transaction-related expenses had been incurred. These nonrecurring
transaction costs will be charged to operations primarily during the quarter in
which the Merger closes. The charge is a preliminary estimate only, and is
therefore subject to change.
The unaudited pro forma condensed combined balance sheet gives effect to
estimated direct transaction expenses and merger-related integration expenses as
if such costs and expenses had been incurred as of September 30, 1997. These
costs and expenses are assumed to be nondeductible for income tax purposes.
These costs and expenses are not reflected in the unaudited pro forma condensed
combined statement of income.
(5) PROVISION FOR INCOME TAXES
The provision for income taxes for Avant! is on a pro forma basis for 1994
and 1995, reflecting a tax expense that would have been reported if
Meta-Software, Inc. (an S corporation merged with Avant! in 1996) had been a C
corporation during those periods. See Notes 1 and 6 to Avant!'s financial
statements.
62
<PAGE>
AVANT! AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
including the notes thereto, give effect to the September 12, 1997 acquisition
of Compass by Avant! in exchange for $17,500,000 cash, 522,192 shares of Avant!
common stock, and $4,948,000 of direct transaction costs in a transaction
accounted for as a purchase. The condensed combined financial statements are
based on and are qualified in their entirety by reference to, and should be read
in conjunction with, the consolidated financial statements of Avant! and Compass
included elsewhere in this Joint Statement/Prospectus.
The financial statement data as of September 30, 1997 and for the nine-month
periods ended September 30, 1996 and 1997 are unaudited, and have been prepared
on the same basis as the financial information derived from the audited
financial statements, and in the opinion of management, contain all adjustments,
consisting of normal recurring accruals, necessary for the fair presentation of
the results of operations for such periods.
An unaudited pro forma condensed combined balance sheet is not presented
herein because the Compass acquisition is reflected in Avant!'s historical
balance sheet as of September 30, 1997. The unaudited pro forma condensed
combined statements of operations combine Avant! results of operations for the
nine months ended September 30, 1996 and 1997 and the year ended December 31,
1996 with Compass results of operations for the six months ended June 30, 1996
and 1997 and the year ended December 31, 1996, giving effect to the acquisition
as if it had occurred on January 1, 1996. Compass' condensed combined statements
of operations are presented for the six months ended June 30, 1996 and 1997
because the three months ended June 30, 1997 was the last complete quarter of
Compass operations prior to its acquisition. Upon consummation of the
acquisition in September 1997, the Company expensed approximately $41,186,000 of
acquired in-process research and development.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial condition that
would have occurred had the acquisition been consummated at January 1, 1996, nor
is it necessarily indicative of future operating results or financial position.
63
<PAGE>
AVANT! AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVANT! COMPASS ADJUSTMENTS COMBINED
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Software.................................................... $ 82,134 $ 33,942 $ -- $ 116,076
Services.................................................... 23,953 20,243 -- 44,196
---------- --------- ----------- -----------
Total revenue............................................. 106,087 54,185 -- 160,272
---------- --------- ----------- -----------
Costs and expenses:
Costs of software........................................... 2,512 5,003 -- 7,515
Costs of services and other................................. 7,269 6,006 -- 13,275
Selling and marketing....................................... 29,928 22,169 -- 52,097
Research and development.................................... 20,696 22,234 2,815(a) 45,745
General and administrative.................................. 15,450 6,274 -- 21,724
Acquisition of technology................................... 1,700 -- -- 1,700
Merger expenses............................................. 9,300 -- -- 9,300
---------- --------- ----------- -----------
Total operating expenses................................ 86,855 61,686 2,815 151,356
---------- --------- ----------- -----------
Income (loss) from operations........................... 19,232 (7,501) (2,815) 8,916
Other income (expense), net................................... 4,204 (1,220) -- 2,984
---------- --------- ----------- -----------
Income (loss) before income taxes....................... 23,436 (8,721) (2,815) 11,900
Income tax expense (benefit).................................. 10,952 (3,311) (1,015)(a) 6,626
---------- --------- ----------- -----------
Net income (loss)....................................... $ 12,484 $ (5,410) $ (1,800) $ 5,274
Cumulative dividends on Series A redeemable preferred stock... -- (220) -- (220)
---------- --------- ----------- -----------
Net income (loss) available to common shareholders............ $ 12,484 $ (5,630) $ (1,800) $ 5,054
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Net income (loss) per common share............................ $ 0.47 $ 0.19
---------- -----------
---------- -----------
Weighted average shares outstanding........................... 26,761 27,283
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
64
<PAGE>
AVANT! AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVANT! COMPASS ADJUSTMENTS COMBINED
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Software.................................................... $ 60,030 $ 17,990 $ -- $ 78,020
Services.................................................... 17,263 10,658 -- 27,921
---------- --------- ----------- -----------
Total revenue........................................... 77,293 28,648 -- 105,941
---------- --------- ----------- -----------
Costs and expenses:
Costs of software........................................... 1,802 3,068 -- 4,870
Costs of services and other................................. 5,383 3,306 -- 8,689
Selling and marketing....................................... 22,318 11,021 -- 33,339
Research and development.................................... 15,133 11,779 1,408(a) 28,320
General and administrative.................................. 10,609 2,566 -- 13,175
Acquired in-process research and development................ 300 -- -- 300
Merger expenses............................................. 920 -- -- 920
---------- --------- ----------- -----------
Total operating expenses................................ 56,465 31,740 1,408 89,613
---------- --------- ----------- -----------
Income (loss) from operations........................... 20,828 (3,092) (1,408) 16,328
Other income (expense), net................................... 3,100 (532) -- 2,568
---------- --------- ----------- -----------
Income (loss) before income taxes....................... 23,928 (3,624) (1,408) 18,896
Income tax expense (benefit).................................. 8,664 (1,247) (508)(a) 6,909
---------- --------- ----------- -----------
Net income (loss) ...................................... $ 15,264 $ (2,377) $ (900) $ 11,987
Cumulative dividends on Series A redeemable preferred stock... -- (110) -- (110)
---------- --------- ----------- -----------
Net income (loss) available to common shareholders............ $ 15,264 $ (2,487) $ (900) $ 11,877
---------- --------- ----------- -----------
---------- --------- ----------- -----------
Net income (loss) per share................................... $ 0.57 $ 0.44
---------- -----------
---------- -----------
Weighted average shares outstanding........................... 26,621 27,143
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
65
<PAGE>
AVANT! AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVANT! COMPASS ADJUSTMENTS COMBINED
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Software.................................................... $ 77,669 $ 15,747 $ -- $ 93,416
Services.................................................... 26,663 8,997 -- 35,660
---------- --------- ----------- -----------
Total revenue........................................... 104,332 24,744 -- 129,076
---------- --------- ----------- -----------
Costs and expenses:
Costs of software........................................... 1,635 1,862 -- 3,497
Costs of services and other................................. 8,664 2,696 -- 11,360
Selling and marketing....................................... 29,596 12,517 -- 42,113
Research and development.................................... 19,690 8,997 1,408(a) 30,095
General and administrative.................................. 11,618 2,960 -- 14,578
Acquired in-process research and development................ 41,186 -- -- 41,186
---------- --------- ----------- -----------
Total operating expenses................................ 112,389 29,032 1,408 142,829
---------- --------- ----------- -----------
Income (loss) from operations........................... (8,057) (4,288) (1,408) (13,753)
Other income (expense), net................................... 3,592 (876) -- 2,716
---------- --------- ----------- -----------
Income (loss) before income taxes....................... (4,465) (5,164) (1,408) (11,037)
Income tax expense (benefit).................................. (1,607) (1,508) (508)(a) (3,623)
---------- --------- ----------- -----------
Net income (loss) ...................................... $ (2,858) $ (3,656) $ (900) $ (7,414)
Cumulative dividends on Series A redeemable preferred stock... -- (110) -- (110)
---------- --------- ----------- -----------
Net income (loss) available to common shareholders............ $ (2,858) $ (3,766) $ (900) $ (7,524)
Net income (loss) per common share............................ $ (0.11) $ (0.29)
---------- -----------
---------- -----------
Weighted average shares outstanding........................... 25,616 26,138
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
66
<PAGE>
AVANT! AND COMPASS
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Avant! and Compass statements of operations for the year ended December
31, 1996 and for each of the nine months ended September 30, 1996 and 1997 have
been combined, giving effect to the business combination as if it had occurred
on January 1, 1996. The balance sheet is not presented herein because the
Compass acquisition is reflected in Avant!'s historical balance sheet as of
September 30, 1997. The statements of operations combine Avant! results of
operations for the nine months ended September 30, 1996 and 1997 and the year
ended December 31, 1996 with Compass results of operations for the six months
ended June 30, 1996 and 1997 and the year ended December 31, 1996. The condensed
combined statements of operations include Compass through the June 30, 1997
quarter, as that was the last complete quarter of Compass operations. The
unaudited pro forma condensed combined financial statements, including the notes
thereto, should be read in conjunction with the consolidated financial
statements of Avant! and Compass included elsewhere herein.
No adjustments have been made to conform the accounting policies of the
combining companies. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant.
(2) PRO FORMA ADJUSTMENTS
The unaudited pro forma combined condensed statements of operations give
effect to the following pro forma adjustment (in thousands):
(a) Represents amortization of goodwill and other intangibles over expected
useful lives ranging from four to five years and related tax benefit.
67
<PAGE>
AVANT!/TMA AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements,
including the notes thereto, give effect to the Merger in a transaction
accounted for as a pooling of interests and to the September 12, 1997
acquisition of Compass in a transaction accounted for as a purchase. The
condensed combined financial statements are based on and are qualified in their
entirety by reference to, and should be read in conjunction with, the
consolidated financial statements of Avant!, TMA and Compass included elsewhere
in this Joint Statement/Prospectus.
The financial statement data as of September 30, 1997 and for the nine-month
periods ended September 30, 1996 and 1997 are unaudited, and have been prepared
on the same basis as the financial information derived from the audited
financial statements, and in the opinion of management, contain all adjustments,
consisting of normal recurring accruals, necessary for the fair presentation of
the results of operations for such periods.
An unaudited pro forma condensed combined balance sheet is not presented
because the Compass acquisition is reflected in Avant!'s historical balance
sheet as of September 30, 1997 and the Avant!/TMA unaudited pro forma combined
balance is included elsewhere herein. The unaudited pro forma condensed combined
statements of operations combine pro forma Avant!/TMA results of operations for
the nine months ended September 30, 1996 and 1997 and the year ended December
31, 1996 with the historical Compass results of operations for the six months
ended June 30, 1996 and 1997 and the year ended December 31, 1996, giving effect
to the Merger and Compass acquisition as if they had occurred on January 1,
1996. Compass' condensed combined statements of operations are presented for the
six months ended June 30, 1996 and 1997 because the three months ended June 30,
1997 was the last complete quarter of Compass operations prior to its
acquisition.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results of financial condition that
would have occurred had the Merger and the Compass acquisition been consummated
at the beginning of the periods presented, nor is it necessarily indicative of
future operating results or financial condition.
68
<PAGE>
AVANT!/TMA PRO FORMA COMBINED AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AVANT! TMA
PRO FORMA PRO FORMA PRO FORMA
COMBINED COMPASS ADJUSTMENTS COMBINED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Software................................................. $ 94,552 $ 33,942 $ -- $ 128,494
Services................................................. 29,106 20,243 -- 49,349
Funded development....................................... 388 -- -- 388
----------- ---------- ----------- -----------
Total revenue........................................ 124,046 54,185 -- 178,231
----------- ---------- ----------- -----------
Costs and expenses:
Costs of software........................................ 3,621 5,003 -- 8,624
Costs of services and other.............................. 8,876 6,006 -- 14,882
Costs of funded development.............................. 408 -- -- 408
Selling and marketing.................................... 36,238 22,169 -- 58,407
Research and development................................. 25,733 22,234 2,815(a) 50,782
General and administrative............................... 17,206 6,274 -- 23,480
Acquisition of technology................................ 1,700 -- -- 1,700
Merger expenses.......................................... 9,300 -- -- 9,300
----------- ---------- ----------- -----------
Total operating expenses............................. 103,082 61,686 2,815 167,583
----------- ---------- ----------- -----------
Income (loss) from operations.......................... 20,964 (7,501) (2,815) 10,648
Other income (expense), net................................ 4,643 (1,220) -- 3,423
----------- ---------- ----------- -----------
Income (loss) before income taxes...................... 25,607 (8,721) (2,815) 14,071
Income tax expense (benefit)............................... 11,899 (3,311) (1,015)(a) 7,573
----------- ---------- ----------- -----------
Net income (loss).................................... 13,708 (5,410) (1,800) 6,498
Cummulative dividends on Series A redeemable preferred
stock.................................................... -- (220) -- (220)
----------- ---------- ----------- -----------
Net income (loss) available to common shareholders......... $ 13,708 $ (5,630) (1,800) $ 6,278
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Net income (loss) per common share......................... $ 0.44 $ 0.20
----------- -----------
----------- -----------
Weighted average shares outstanding........................ 30,877 31,399
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
69
<PAGE>
AVANT!/TMA PRO FORMA COMBINED AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AVANT! TMA
PRO FORMA PRO FORMA PRO FORMA
COMBINED COMPASS ADJUSTMENTS COMBINED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Software.................................................. $ 69,088 $ 17,990 $ -- $ 87,078
Services and other........................................ 21,030 10,658 -- 31,688
----------- --------- ----------- -----------
Total revenue......................................... 90,118 28,648 -- 118,766
----------- --------- ----------- -----------
Costs and expenses:
Costs of software......................................... 2,654 3,068 -- 5,722
Costs of services and other............................... 6,711 3,306 -- 10,017
Selling and marketing..................................... 26,730 11,021 -- 37,751
Research and development.................................. 18,917 11,779 1,408(a) 32,104
General and administrative................................ 12,748 2,566 -- 15,314
Acquired in-process research and development.............. 300 -- -- 300
----------- --------- ----------- -----------
Total operating expenses.............................. 68,060 31,740 1,408 101,208
----------- --------- ----------- -----------
Income (loss) from operations........................... 22,058 (3,092) (1,408) 17,558
Other income (expense), net................................. 3,127 (532) -- 2,595
----------- --------- ----------- -----------
Income (loss) before income taxes....................... 25,185 (3,624) (1,408) 20,153
Income tax expense (benefit)................................ 9,329 (1,247) (508)(a) 7,574
----------- --------- ----------- -----------
Net income(loss)...................................... 15,856 (2,377) (900) 12,579
Cummulative dividends on Series A redeemable preferred
stock..................................................... -- (110) -- (110)
----------- --------- ----------- -----------
Net income (loss) available to common shareholders.......... $ 15,856 $ (2,487) (900) $ 12,469
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Net income (loss) per common share.......................... $ 0.52 $ 0.41
----------- -----------
----------- -----------
Weighted average shares outstanding......................... 30,253 30,775
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
70
<PAGE>
AVANT!/TMA PRO FORMA COMBINED AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AVANT! TMA
PRO FORMA PRO FORMA PRO FORMA
COMBINED COMPASS ADJUSTMENTS COMBINED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Software.................................................. $ 86,199 $ 15,747 $ -- $ 101,946
Services and other........................................ 31,911 8,997 -- 40,908
----------- --------- ----------- -----------
Total revenue........................................... 118,110 24,744 -- 142,854
----------- --------- ----------- -----------
Costs and expenses:
Costs of software......................................... 2,588 1,862 -- 4,450
Costs of services and other............................... 10,147 2,696 -- 12,843
Selling and marketing..................................... 34,954 12,517 -- 47,471
Research and development.................................. 24,989 8,997 1,408(a) 35,394
General and administrative................................ 13,507 2,960 -- 16,467
Acquired in-process research and development................ 41,186 -- -- 41,186
----------- --------- ----------- -----------
Total operating expenses................................ 127,371 29,032 1,408 157,811
----------- --------- ----------- -----------
Income (loss) from operations........................... (9,261) (4,288) (1,408) (14,957)
Other income (expense), net................................. 4,907 (876) -- 4,031
----------- --------- ----------- -----------
Income (loss) before income taxes......................... (4,354) (5,164) (1,408) (10,926)
Income tax expense (benefit)................................ (1,565) (1,508) (508)(a) (3,581)
----------- --------- ----------- -----------
Net income (loss)....................................... (2,789) (3,656) (900) (7,345)
Cummulative dividends on Series A redeemable preferred
stock..................................................... -- (110) -- (110)
Net income (loss) available to common shareholders.......... $ (2,789) $ (3,766) (900) $ (7,455)
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Net income (loss) per common share.......................... $ (0.09) $ (0.20) $ 0.24
----------- --------- -----------
----------- --------- -----------
Weighted average shares outstanding......................... 31,163 19,162 31,685
----------- --------- -----------
----------- --------- -----------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
71
<PAGE>
AVANT!/TMA PRO FORMA COMBINED AND COMPASS
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Avant!/TMA pro forma combined and Compass historical statements of
operations for the year ended December 31, 1996 and for each of the nine months
ended September 30, 1996 and 1997 have been combined, giving effect to the
business combinations as if they had occurred on January 1, 1996. The Avant!/TMA
pro forma combined balance sheet is not presented herein because the Compass
acquisition is reflected in Avant!'s historical balance sheet included in the
Avant!/TMA pro forma balance sheet. The statements of operations combine
Avant!/TMA results of operations for the nine months ended September 30, 1996
and 1997 and for the year ended December 31, 1996 and Compass results of
operations for the six months ended June 30, 1996 and 1997 and for the year
ended December 31, 1996. the condensed combined statements of operations include
Compass through the June 30, 1997 quarter as that was the last complete quarter
of Compass operations. The unaudited pro forma condensed combined financial
statements, including the notes thereto, should be read in conjunction with the
consolidated financial statements of Avant!, TMA and Compass included elsewhere
herein.
No adjustments have been made to conform the accounting policies of the
combining companies. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant.
(2) PRO FORMA ADJUSTMENTS
The unaudited pro forma combined condensed statements of operations gives
effect to the following pro forma adjustment (in thousands):
(a) Represents amortization of goodwill and other intangibles over useful
lives ranging from four to five years and related tax benefit.
72
<PAGE>
AVANT! MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Avant! develops, markets and supports software products that assist design
engineers in the physical layout, design, verification, simulation and timing
analysis of advanced ICs. Avant!'s strategy is to focus on productivity
enhancing software for the ICDA segment of the EDA market.
Avant! resulted from the merger of ArcSys, Inc. and Integrated Silicon
Systems, Inc. ("ISS") on November 27, 1995. Effective September 27, 1996,
October 29, 1996 and November 27, 1996, Avant! merged with Anagram, Inc.
("Anagram"), Meta-Software, Inc. ("Meta") and FrontLine Design Automation, Inc.
("FrontLine"), respectively. These mergers have been accounted for by the
pooling-of-interests method, and accordingly, Avant!'s consolidated financial
statements give retroactive effect for all periods presented to include the
results of operations, financial position and cash flows of Anagram, Meta and
FrontLine. Effective September 12, 1997, Avant! acquired Compass Design
Automation, Inc., a Delaware corporation ("Compass"). The Compass acquisition
has been accounted for by the purchase method, and accordingly, Avant!'s
consolidated financial statements do not include the results of operations,
financial position, and cash flows of Compass prior to September 12, 1997.
Avant! began shipping Hercules-TM- (formerly VeriCheck), its hierarchical
physical verification software, in the third quarter of 1992, and Aquarius-TM-
(formerly ArcCell), its cell-based place and route software product, in 1993.
Anagram was founded in March 1993, and began shipping Star-Sim-TM-, its
high-capacity circuit simulation and high-accuracy timing analysis software, in
December 1994. Meta was founded in 1980, when it introduced its simulation and
library software products including Star-Hspice-TM-. FrontLine was founded in
1993. Substantially all of the Company's revenue for the years ended December
31, 1996, 1995 and 1994 and for the nine months ended September 30, 1997 and
1996 was derived from the licensing and support of Aquarius, Hercules, Star-Sim
and Star-Hspice.
RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenue for certain
items in Avant!'s Consolidated Financial Statements (after giving effect to
rounding) for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
------------------------------------- -----------
1994 1995 1996 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Percentage of total revenue
Total revenue....................................................... 100% 100% 100% 100%
Software.......................................................... 79% 80% 77% 78%
Services and other................................................ 21% 20% 23% 22%
Costs and expenses:
Costs of software................................................. 3% 2% 2% 2%
Costs of services and other....................................... 7% 7% 7% 7%
Selling and marketing............................................. 37% 33% 28% 29%
Research and development.......................................... 25% 23% 20% 20%
General and administrative........................................ 10% 9% 14% 14%
Acquired in-process research and development...................... 4% 4% 2% 1%
Merger expenses................................................... 0% 5% 9% 1%
--- --- --- ---
Total operating expenses........................................ 86% 83% 82% 74%
--- --- --- ---
Income (loss) from operations................................... 14% 17% 18% 26%
Other income (expense), net......................................... 2% 4% 4% 4%
--- --- --- ---
Income (loss) before income taxes................................. 16% 21% 22% 30%
Provision for income taxes (pro forma in 1994 and 1995)............. 6% 9% 10% 11%
--- --- --- ---
Net income (loss) (pro forma in 1994 and 1995).................... 10% 12% 12% 19%
<CAPTION>
1997
------------
<S> <C>
Percentage of total revenue
Total revenue....................................................... 100%
Software.......................................................... 74%
Services and other................................................ 26%
Costs and expenses:
Costs of software................................................. 2%
Costs of services and other....................................... 8%
Selling and marketing............................................. 28%
Research and development.......................................... 19%
General and administrative........................................ 11%
Acquired in-process research and development...................... 40%
Merger expenses................................................... --
---
Total operating expenses........................................ 108%
---
Income (loss) from operations................................... (8)%
Other income (expense), net......................................... 3%
---
Income (loss) before income taxes................................. (5)%
Provision for income taxes (pro forma in 1994 and 1995)............. (1)%
---
Net income (loss) (pro forma in 1994 and 1995).................... (4)%
</TABLE>
73
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996, AND THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997
REVENUE. Revenue consists primarily of fees for licenses of Avant!'s
software products, maintenance and customer support. Revenue from the sale of
software licenses is recognized after shipment of the products, delivery of
permanent authorization codes, and fulfillment of acceptance terms, if any,
providing that no significant vendor and post-contract support obligations
remain and collection of the related receivable is probable. Any remaining
insignificant vendor or post-contract support obligations are accrued at the
time the revenue is recognized. In instances where there is a contingency
regarding the sale, revenue recognition is delayed until the contingency has
been resolved. When Avant! receives advance payment for software products, such
payments are reported as deferred revenue until all conditions for revenue
recognition are met. Avant! has entered into certain license agreements under
which software, support and other services are provided to a customer for a
bundled price for a specific period. Generally, revenue under such agreements is
recognized ratably over the contract period. Maintenance revenue is deferred and
recognized ratably over the term of the maintenance agreement, which is
typically twelve months. Revenue from customer training, support and other
services is recognized as the service is performed.
Avant!'s total revenue increased 75% from $39,344,000 in 1994 to $68,868,000
in 1995 and 54% from 1995 to $106,087,000 in 1996, and increased 35% from
$77,293,000 in the first nine months of 1996 to $104,332,000 in the first nine
months of 1997. The percentage of Avant!'s revenue attributable to software
licenses decreased slightly from 79% and 80% in 1994 and 1995, respectively, to
77% in 1996 and 74% in the first nine months of 1997, due to the larger user
base and resulting increase in maintenance revenue.
Software revenue increased 78% from $30,929,000 in 1994 to $55,164,000 in
1995 and 49% to $82,134,000 in 1996, and increased 30% from $60,030,000 in the
first nine months of 1996 to $77,669,000 in the first nine months of 1997.
Increases in software revenue were due primarily to increased license revenue
from Avant!'s place and route, physical verification and simulation and timing
software. Services revenue increased 63% from $8,415,000 in 1994 to $13,704,000
in 1995 and 75% to $23,953,000 in 1996, and increased 54% from $17,263,000 in
the first nine months of 1996 to $26,663,000 in the first nine months of 1997,
all such increases reflecting the growing base of installed systems. Through
September 30, 1997, price increases have not been a material factor in Avant!'s
revenue growth. Avant! does not believe that period-to-period comparisons of
past revenue growth should be relied upon as indications of future performance.
See "Risk Factors--Potential Fluctuations in Quarterly Results."
As discussed in the notes to the consolidated financial statements, Avant!
is involved in litigation with Cadence and in other litigation issues. As a
result of such litigation, some customers may cancel or postpone orders of
Avant!'s products. As of September 30, 1997, such cancellations and
postponements had not had a material financial impact on Avant!; however,
significant order delays or cancellations in the future may impact Avant!'s
business, financial condition and results of operations. An adverse ruling in
the litigation could result in Avant!'s inability to sell certain of its
products and, as a result, could materially affect Avant!'s business, financial
condition and results of operations. See "Risk Factors--Litigation Risk."
COSTS OF SOFTWARE. Costs of software consist primarily of expenses
associated with product documentation and production costs as well as
amortization of capitalized software costs and other intangibles. Costs of
software increased from $1,122,000 in 1994 to $1,529,000 in 1995, and $2,512,000
in 1996, and decreased from $1,802,000 in the first nine months of 1996 to
$1,635,000 in the first nine months of 1997. Costs of software were higher for
the first nine months of 1996 than the first nine months of 1997 due to a major
product launch which occurred in 1996. Costs of software included amortization
of capitalized software amounting to $199,000, $228,000 and $88,000 in 1994,
1995 and 1996, respectively, and $70,000 and $49,000 in the first nine months of
1996 and 1997, respectively.
COSTS OF SERVICES. Costs of services consist of costs of maintenance and
customer support, and direct costs associated with providing other services.
Maintenance includes activities undertaken after the product is available for
general release to customers to correct errors, make routine changes and provide
74
<PAGE>
additional features. Customer support includes any installation assistance,
training classes, telephone question and answer services, newsletters, on-site
visits and software or data modifications. Costs of services increased from
$2,940,000 in 1994 to $4,845,000 in 1995 and $7,269,000 in 1996 representing
35%, 35% and 30% of services revenue for 1994, 1995 and 1996, respectively, and
increased from $5,383,000 in the first nine months of 1996 to $8,664,000 in the
first nine months of 1997, representing 31% and 32% of services revenue for the
first nine months of 1996 and 1997, respectively. The increases in costs of
services were due primarily to an increase in personnel and expenses necessary
to support Avant!'s growing base of installed software and customers.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist
primarily of costs, including sales commissions, of all personnel involved in
the sales process. This includes sales representatives, marketing associates,
benchmarking personnel and field application engineers. Selling and marketing
expenses also include costs of advertising, public relations, conferences and
trade shows. Selling and marketing expenses increased from $14,476,000 in 1994
to $22,741,000 in 1995 and $29,928,000 in 1996, and increased from $22,318,000
in the first nine months of 1996 to $29,596,000 in the first nine months of
1997. The increases reflect significant increases in sales personnel, new sales
offices, increases in marketing and advertising costs and increased foreign
sales commission due to higher revenue growth. Selling and marketing expenses
represented 37%, 33% and 28% of total revenue in 1994, 1995 and 1996,
respectively, and 29% and 28% of total revenue for the nine months ended
September 30, 1996 and 1997, respectively. The decrease in selling and marketing
expenses as a percentage of total revenue from 1994 through 1996 resulted
primarily from revenue growth and improved sales productivity. The increase in
the first nine months of 1997 reflects additional costs related to new sales
offices. Avant! expects to hire additional sales and marketing personnel and to
increase promotion and advertising expenditures throughout the remainder of
1997.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
include all costs associated with the development of new products and
significant enhancements of existing products. Research and development expenses
increased from $9,728,000 in 1994 to $15,318,000 in 1995 and to $20,696,000 in
1996, and increased from $15,133,000 in the nine months ended September 30, 1996
to $19,690,000 in the nine months ended September 30, 1997. Research and
development expenses represented 25%, 23% and 20% of total revenue in 1994, 1995
and 1996, respectively, and 20% and 19% of total revenue in the nine months
ended September 30, 1996 and 1997, respectively. The increases in research and
development expenses resulted from increased personnel-related costs associated
with the development of new products and significant enhancements of existing
products. The decreases in research and development as a percentage of total
revenue were due primarily to a higher growth rate in revenue. Avant!
anticipates that it will continue to devote substantial resources to product
research and development.
Software development costs are accounted for in accordance with the
Financial Accounting Standards Board's ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 86, under which Avant! capitalizes software
development costs once technological feasibility has been established. Avant!
amortizes such amounts over three years. Software costs capitalized have not
been material as products are made available for general release upon
achievement of technological feasibility.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $4,130,000 in 1994 to $6,362,000 in 1995 and to $15,450,000 in
1996, and increased from $10,609,000 in the nine months ended September 30, 1996
to $11,618,000 in the nine months ended September 30, 1997. The increases were
primarily due to increases in legal and personnel costs. General and
administrative expenses represented 10%, 9% and 14% of total revenue, in 1994,
1995 and 1996, respectively, and 14% and 11% of total revenue in the first nine
months of 1996 and 1997, respectively. Avant! charged to expenses approximately
$6,850,000 during 1996, net of expected recoveries from insurance related to the
Cadence litigation. Avant! expects these legal expenditures to continue
throughout 1997.
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ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. In September 1997, Avant!
acquired Compass Design Automation, Inc. In connection with the acquisition, net
intangibles of $56,008,000 were acquired, of which $41,186,000 was expensed as
acquired in-process research and development. It was expensed since it had not
reached technological feasibility and, in management's opinion, had no probable
alternative future use. In 1996, Avant! acquired rights to certain software
technology under development. As the acquired software had not reached
technological feasibility at the date of acquisition, it was expensed upon
acquisition. Acquisition of technology expenses were $1,600,000 in 1994,
$2,693,000 in 1995 and $1,700,000 in 1996.
MERGER EXPENSES. Avant! expects to incur costs of approximately $6,800,000
in the fourth quarter of 1997, related to the merger with TMA.
In connection with the 1996 mergers with Anagram, Meta and FrontLine, Avant!
incurred direct transaction costs and merger-related integration expenses of
approximately $9,300,000, consisting of transaction fees for investment bankers,
attorneys, accountants, financial printing and shareholder meetings of
approximately $5,352,000, charges for the elimination of duplicate facilities of
approximately $2,250,000, and severance and other related costs of approximately
$1,698,000.
In connection with the 1995 merger with ISS, the Company incurred direct
transaction costs and merger-related integration expenses of approximately
$3,590,000 consisting of transaction fees for investment bankers, attorneys,
accountants, financial printing and shareholder meetings of approximately
$2,858,000, charges for the elimination of duplicate facilities of approximately
$233,000 and severance and certain other related costs of approximately
$499,000.
INCOME (LOSS) FROM OPERATIONS. Avant! had income (loss) from operations of
$5,348,000, $11,790,000 and $19,232,000 in 1994, 1995 and 1996, respectively,
and $20,828,000 and $(8,057,000) in the first nine months of 1996 and 1997,
respectively. The changes in operating results are attributable to revenue
growth net of increased expenses necessary to support Avant!'s growth and the
loss in the first nine months of 1997 was attributable to the acquisition of
Compass and the related expense for acquired in-process research and
development. Operating income represented 14%, 17% and 18% of total revenue in
1994, 1995 and 1996, respectively, and 27% and (8)% of total revenue for the
nine months ended September 30, 1996 and 1997, respectively.
INTEREST INCOME AND OTHER, NET. Interest income and other was $836,000,
$2,787,000, $4,204,000 in 1994, 1995 and 1996, respectively, and was $3,100,000
and $3,592,000 in the first nine months of 1996 and 1997, respectively. Interest
income and other increased in 1994, 1995, 1996 and the first nine months of 1997
due to larger cash and investment balances.
INCOME TAX EXPENSE (BENEFIT). Avant! accounts for income taxes in
accordance with SFAS No. 109. Pro forma income taxes have been provided for 1994
and 1995 as if Meta (an S corporation for income tax reporting purposes) had
been a C corporation. The provision (benefit) for income taxes (pro forma in
1994 and 1995) as a percentage of pre-tax income was 35%, 43%, 47%, 36% and
(36)% for 1994, 1995, 1996 and the nine months ended September 30, 1996 and
1997, respectively. The percentage in 1995 and 1996 was higher than the federal
statutory rate of approximately 35% due to the effect of certain merger expenses
that were not deductible for income tax purposes. As of September 30, 1997, the
increase in deferred tax asset relates to future tax benefits attributable to
the Compass acquired in-process research and development.
RECENT PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) recently issued Statement of
Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. SFAS No. 128
requires the presentation of basic earnings per share ("EPS") and, for companies
with complex capital structures, diluted EPS. SFAS No. 128 is effective for
annual and interim periods ending after December 15, 1997. Avant! expects that
basic EPS
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will be higher than earnings per share as presented in the accompanying
unaudited pro forma condensed combined financial statements and the diluted EPS
will not differ materially from earnings per share as presented in the
accompanying unaudited pro forma condensed combined financial statements.
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME.
This Statement establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements. It does not,
however, require a specific format for the statement, but requires Avant! to
display an amount representing total comprehensive income for the period in that
financial statement. Avant! is in the process of determining its preferred
format. This Statement is effective for fiscal years beginning after December
15, 1997.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. The Statement establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. This Statement is effective for financial statements for
periods beginning after December 31, 1997.
On October 27, 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, which supersedes SOP 91-1, SOFTWARE REVENUE
RECOGNITION. The adoption of the provisions of SOP 97-2 is not expected to have
a material effect on the Company's consolidated results of operations. The
Company intends to adopt the provisions of SOP 97-2 for transactions entered
into after September 30, 1997.
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QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly financial data
for each of the eight three-month periods through the three-month period ending
September 30, 1997. In the opinion of Avant!'s management, this unaudited
financial information has been prepared on the same basis as the audited
consolidated financial statements contained herein and includes all necessary
adjustments (consisting only of normal recurring adjustments) that Avant!
management believes are necessary to present fairly the information set forth
therein. The operating results for any three-month period are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
--------------------------------------------------------------------------------------
1995 1996 1997
--------- ------------------------------------------ -------------------------------
DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
--------- --------- --------- --------- --------- --------- --------- ---------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software.......................... $ 17,093 $ 18,603 $ 19,807 $ 21,620 $ 22,104 $ 23,998 $ 25,370 $ 28,301
Services.......................... 4,125 4,944 6,011 6,308 6,690 7,195 9,134 10,334
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue................... 21,218 23,547 25,818 27,928 28,794 31,193 34,504 38,635
--------- --------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Costs of software................. 452 615 509 678 710 448 488 698
Costs of services................. 1,435 1,798 1,750 1,835 1,886 3,018 2,823 2,823
Selling and marketing............. 6,971 6,867 7,641 7,810 7,610 8,222 10,679 10,696
Research and development.......... 4,642 4,781 4,814 5,538 5,563 5,965 6,507 7,218
General and administrative........ 1,920 2,735 3,852 4,022 4,841 3,806 3,519 4,293
Acquisition of technology......... 2,693 -- -- 300 1,400 -- -- 41,186
Merger expenses................... 3,590 -- -- 920 8,380 -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses........ 21,703 16,796 18,566 21,103 30,390 21,459 24,016 66,914
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations... (485) 6,751 7,252 6,825 (1,596) 9,734 10,488 (28,279)
Other income (expense), net......... 1,002 908 1,135 1,057 1,104 929 1,374 1,289
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes........................... 517 7,659 8,387 7,882 (492) 10,663 11,862 (26,990)
Income tax expense (benefit) (pro
forma in 1995).................... 1,396 2,745 3,019 2,900 2,288 3,839 4,270 (9,716)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) (pro forma in
1995)........................... $ (879) $ 4,914 $ 5,368 $ 4,982 $ (2,780) $ 6,824 $ 7,592 $ (17,274)
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) per common share
(pro forma in 1995)............... $ (0.03) $ 0.19 $ 0.20 $ 0.18 $ (0.11) $ 0.25 $ 0.28 $ (0.66)
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Weighted average number of common
and common equivalent shares
outstanding....................... 26,593 26,120 26,618 27,125 24,775 27,298 26,831 26,054
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
Avant!'s quarterly results have varied in the past and may be subject to
fluctuations resulting from a variety of international factors, including
without limitation, developments in litigation involving Avant!, purchasing
patterns of customers, the completion of product evaluations by customers, the
timing of product enhancements and product introductions by Avant! and its
competitors and the timing of significant orders. The customer evaluation
process for Avant!'s products is lengthy, and the timing and outcome of such
evaluations have affected Avant!'s historical quarterly performance and may
impact future quarterly results. A substantial portion of Avant!'s revenue in
each quarter results from orders received in the same quarter. Avant!'s expense
levels are based, in part, on its expectations as to future revenue. Avant!
continues to expand and increase its operating expenses in order to generate and
support future revenue. If revenue levels are below expectations, operating
results are likely to be disproportionately affected because only a small
portion of Avant!'s expenses varies with its revenue. As a result, Avant!
believes that period-to-period comparisons of financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
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Due to the factors noted above, Avant!'s future earnings and stock price may
be subject to significant volatility, particularly on a quarterly basis. Any
shortfall in revenues or earnings from levels expected by securities analysts
could have an immediate and significant adverse effect on the trading price of
Avant!'s Common Stock. Additionally, Avant! may not learn of such shortfalls
until late in a fiscal quarter, which could result in an even more immediate and
adverse effect on the trading price of Avant!'s Common Stock. See "Risk
Factors--Potential Fluctuations in Quarterly Results".
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $5,568,000, $20,089,000 and $21,414,000
in 1994, 1995 and 1996, respectively, and $10,385,000 and $4,534,000 in the nine
months ended September 30, 1996 and 1997, respectively. The increases in cash
provided by operations primarily result from increases in net income through
December 31, 1996. The Company's net loss for the nine-month period ended
September 30, 1997 was largely due to a charge for in-process research and
development, so the Company generated cash from operations for the nine-month
period. Avant! used $23,488,000, $28,267,000 and $42,020,000 of net cash in
1994, 1995 and 1996, respectively, and used $47,211,000 and provided $28,708,000
in the nine months ended September 30, 1997 and 1996, respectively, for
investing activities. Net cash provided by, (used in), investing activities
relates primarily to net purchases of short-term "available-for-sale"
securities. These securities, which are accounted for in accordance with SFAS
No. 115, consist of short-term debt securities, U.S. Government Agency debt
securities, U.S. Treasury Bills, municipal/corporate auction preferred stock,
municipal bonds and demand deposit investments in limited-maturity fixed-income
mutual funds. Cash has also been used for the purchase of Compass, purchase of
leasehold improvements for Avant!'s new headquarters facilities, along with
furniture and fixtures, including workstations and file servers, for use by
Avant! employees. Avant! expects that purchases of equipment will likely
increase as Avant!'s employee base grows. Net cash provided by financing
activities was $17,953,000, $48,263,000 and $3,663,000 in 1994, 1995, and 1996
respectively, and $1,887,000 and $7,256,000 in the nine months ended September
30, 1996 and 1997, respectively. Net cash provided by financing activities was
lower in 1996 than in 1995 and 1994 due to Avant! receiving the proceeds from
the ISS initial public offering, which was completed in June 1995 and the Meta
initial public offering, which was completed in November 1995.
Avant!'s stated payment terms generally are net 30 days. However, in
Avant!'s experience, many customers do not comply with stated payment terms due
to industry or local practice, slower payment by certain major companies and
most foreign customers and general economic conditions. Avant! periodically
increases its allowance for doubtful accounts to reflect increased sales levels
and collection experience. Avant! believes that its allowance for doubtful
accounts is adequate.
As of September 30, 1997, Avant! had $97,770,000 of cash and short-term
investments and $89,587,000 in working capital. As of September 30, 1997, Avant!
had $51,949,000 in current liabilities, including $18,526,000 of deferred
revenue. As of September 30, 1997, there was no bank indebtedness outstanding
and Avant! had no long-term commitments other than technology acquisition
payable and operating and capital lease obligations.
Based on its operating plan, and absent any adverse judgments in the pending
litigation described under "Risk Factors--Litigation Risk", Avant! believes that
it has available cash and short-term investments sufficient to fund Avant!'s
operations through at least the next 12 months.
LITIGATION RISK
Avant! is subject to a number of related litigation matters, including a
civil action brought by Cadence Design Systems, Inc. ("Cadence"), a criminal
complaint filed by the Santa Clara County District Attorney's office against
Avant! and certain of its employees and securities class action claims resulting
from these lawsuits. In addition, default judgments in the aggregate amount of
$31.4 million will be entered against Meta Software, Inc., which Avant! acquired
in October 1996 and which is now a wholly owned subsidiary of Avant! ("Meta").
CADENCE LITIGATION.
On December 6, 1995, Cadence filed an action against Avant! and certain of
its officers in the United States District Court for the District of Northern
California alleging copyright infringement, unfair
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competition, misappropriation of trade secrets, conspiracy, breach of contract,
inducing breach of contract and false advertising. The essence of the complaint
is that certain Avant! employees who formerly were Cadence employees
misappropriated and improperly copied source code for certain important
functions of Avant! place and route products from Cadence, and that Avant! has
allegedly competed unfairly by making false statements concerning Cadence and
its products. The action also alleges that Avant! induced certain individual
defendants to breach their agreements of employment and confidentiality with
Cadence. The matter is currently awaiting trial, pending further pretrial
matters. A trial date has not been set. On July 25, 1997, a federal judge stayed
the Cadence civil action pending completion of the criminal proceedings
described below, except for limited discovery on certain matters approved by the
District Court. Avant! posted a $5.0 million bond pending the resumption of the
civil action.
In addition to actual and punitive damages, which were not quantified by
Cadence, Cadence seeks to enjoin the sale of Avant!'s place and route products
pending trial of the action. On March 18, 1997, the District Court denied
Cadence's motion for a preliminary injunction. Cadence appealed the order
denying a preliminary injunction. On September 23, 1997, the United States Court
of Appeals for the Ninth Circuit overruled the District Court's denial of
Cadence's motion with respect to Avant!'s ArcCell product, a product that Avant!
no longer sells, and held that a preliminary injunction should be granted
against the further sale of the ArcCell product. The Court of Appeals did not
enjoin Avant!'s Aquarius place and route products, but rather remanded this
aspect of Cadence's motion to the District Court for further consideration. The
Court of Appeals stated that, if Avant!'s Aquarius products are determined to
infringe Cadence products, the sale of the Aquarius products should be enjoined.
Avant! requested a rehearing on the issue, but on November 21, 1997 the Ninth
Circuit denied this request. On December 19, 1997, the District Court stated its
intention to enjoin Avant! from directly or indirectly marketing, selling,
licensing, copying or transferring any work copied or derived from Cadence's
Design Framework II, specifically including, but not limited to, Avant!'s
ArcCell, ArcCellBV and ArcCellXO products. The District Court also stated that
it would direct Avant! to deliver a copy of its order to all present or former
customers that have received copies of any such infringing products and, to the
extent it has a legal right to do so, request that such customers return or
destroy any such products. Avant! also will be directed to furnish to Cadence a
list of any customers that still maintain a functioning copy of such products.
At the December 19, 1997 hearing, the District Court did not rule on Cedence's
request to enjoin the sale, license or support of Avent!'s Aquarius place and
route products from which Avant! derives a significant portion of its total
revenue. The District Court will hold future hearings regarding the Aquarius
products. There can be no assurance that the District Court will not, upon
further consideration, grant a preliminary injunction with respect to the sale
of the Aquarius products, which would have a material adverse effect on the
combined company's business, consolidated financial position and consolidated
results of operations.
On January 16, 1996, Avant! filed a counterclaim against Cadence alleging
antitrust violations, racketeering, false advertising, defamation, trade libel,
unfair competition, unfair trade practices, negligent and intentional
interference with prospective economic advantage and intentional interference
with contractual relations. On December 19, 1997, Avant! stipulated to
temporarily dismissing its counterclaim in order to file more detailed
allegations. Avant! intends to refile its counterclaim in January 1998.
Avant! believes it has defenses to all of Cadence's claims and intends to
defend itself vigorously. If, however, Avant!'s defenses are unsuccessful,
Avant! may ultimately be permanently enjoined from selling certain place and
route products and may be required to pay damages to Cadence. In addition, upon
further consideration by the District Court, Avant! could be preliminarily
enjoined from selling its Aquarius place and route products. In such event,
Avant!'s business, consolidated financial condition and consolidated results of
operations may be materially adversely affected. In addition, it is likely that
an adverse judgment against Avant! would result in a steep decline in the market
price of Avant! Common Stock. Although it is reasonably possible Avant! may
incur a loss upon conclusion of these claims, an estimate of any loss or range
of loss cannot be made, based on information Avant! presently possesses. There
can be no assurance that an adverse judgment, if granted on any claim would not
have a material adverse effect on Avant!'s business, consolidated financial
position or consolidated results of operations. Furthermore, Cadence terminated
TMA's participation in its Platinum Partners Program after the
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announcement of the proposed Merger. There can be no assurance that other
customer relationships of Avant!, TMA or the combined company will not be
adversely affected in the future as a result of the Cadence litigation.
CRIMINAL COMPLAINT.
The Santa Clara County District Attorney's office also is investigating the
allegations of misappropriation of trade secrets set forth in Cadence's lawsuit,
described above. On April 11, 1997, the Santa Clara County District Attorney
filed a criminal complaint alleging felony level offenses against, among others,
Avant! and the following Avant! employees and/or directors, Gerald C. Hsu,
President, Chief Executive Officer and Chairman of the Board of Directors, Y.
Eric Cho, a member of the Board of Directors, Y. Z. Liao, Corporate Fellow,
Stephen Wuu, CEO Staff, Operations, Leigh Huang, Marketing Manager and Eric
Cheng, Research and Development Manager, for allegedly violating various
California Penal Code sections relating to the theft of trade secrets. Avant!
and the individuals have pleaded not guilty and are awaiting further
proceedings. The criminal complaint could result in criminal fines against
Avant!, as well as the potential incarceration of certain members of its
management team. Such outcomes could result in canceled or postponed customer
orders, increased future expenditures, the loss of management and other key
personnel, additional stockholder litigation, loss of goodwill and would have
other material adverse effects on the business, consolidated financial position
or consolidated results of operations of the combined company.
SILVACO LITIGATION.
In March 1993, Meta filed a complaint in Santa Clara Superior Court against
Silvaco Data Systems, Inc. and related parties (collectively, "Silvaco") seeking
monetary damages and injunctive relief. Meta's complaint alleged, among other
things, that Silvaco breached its representative agreement with Meta by
withholding customer payments for products and services that had been delivered,
and by failing to pay royalties on software that Silvaco sold to others. In
August 1995, Meta was awarded $529,828 under the Superior Court's judicial
arbitration program. Both parties rejected the award and requested a trial de
novo on the issues involved. In August 1995, Silvaco filed a cross-complaint
against Meta alleging, among other things, that Meta owes Silvaco royalties and
license fees pursuant to a product development and marketing program and unpaid
commissions related to Silvaco's sale of Meta's products and services under such
program. Meta filed an answer to the cross-complaint denying the allegations
contained therein. In July 1996, Silvaco filed a first amended cross-complaint,
adding Shawn Hailey, then the President, Chief Executive Officer and a major
shareholder of Meta, and, until July 1997, the Senior Vice President of Avant!'s
Silicon Division, as a personal defendant, and further alleging defamation,
interference with economic advantage, unfair competition and abuse of process by
acts or statements made by Meta or its agents.
In August 1997, the Superior Court entered a default judgment against Mr.
Hailey for failure to timely answer the complaint. In October 1997, Mr. Hailey's
application for relief from the default judgment was denied. In August 1997, the
Superior Court entered a default judgment against Meta as to the defamation and
interference with economic advantage claims. On October 31, 1997, Meta's
application for relief from the default judgment was denied. On October 28,
1997, Silvaco first presented its theory of damages and a trial began on
November 3, 1997. On November 4, 1997, the Superior Court dismissed Meta's
remaining affirmative claims. On November 5, 1997, the Superior Court awarded
Silvaco $20.0 million in damages against Mr. Hailey and Meta related to the
defamation and interference with economic advantage claims, and, on November 6,
1997, the Superior Court awarded Silvaco $11.4 million in damages related to the
unfair competition claim. On November 12, 1997, the Superior Court awarded
nominal damages to Silvaco related to the product development claim. Silvaco's
claims based on the marketing program and abuse of process were dismissed.
Meta intends to pursue all remedies available to it in connection with the
litigation with Silvaco, including filing an appeal as quickly as practicable.
Meta believes it has substantial appellate issues which could cause the judgment
to be remanded to the trial court for further proceedings. Should Meta be
permitted to participate fully in further trial court proceedings, Meta believes
it would have substantial
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defenses to Silvaco's claims. However, there can be no assurance that any such
remedies will be successful. Although it is reasonably possible Meta will incur
a loss in relation to this claim, it is currently unable to estimate the actual
loss or range of loss. Payment of the damages previously awarded, and damages
which may be awarded in the future, would have a material adverse effect on
Avant!'s business, consolidated financial condition and consolidated results of
operations.
SECURITIES CLASS ACTION CLAIMS.
On December 15, 1995, Paul Margetis and Helen Margetis filed in the United
States District Court for the Northern District of California a securities fraud
class action complaint against Avant!. In addition, on December 19, 1995, Fred
Tarca filed in the United States District Court for the Northern District of
California a class action complaint against Avant! for violations of the federal
securities laws. These class action lawsuits allege certain securities law
violations, including omissions and/or misrepresentation of material facts. The
alleged omissions and/or misrepresentations are largely consistent with those
outlined in the Cadence claim described above. In February 1997, plaintiff Tarca
voluntarily dismissed his action and the Margetis plaintiffs were certified as
class representatives in their action. On July 25, 1997, a federal judge stayed
the Margetis action, except for certain documentary and third-party discovery,
pending resolution of the Cadence suit.
On May 30, 1997, Joanne Hoffman filed in the United States District Court
for the Northern District of California a purported class action alleging
securities claims on behalf of purchasers of Avant! Common Stock between March
29, 1996 and April 11, 1997, the date of the filing of the criminal complaints
against Avant! and six of its employees. Plaintiff alleges that Avant! and
various of its officers misled the market as to the likelihood of criminal
charges being filed and as to the validity of the Cadence allegations. Avant!
has moved to dismiss the Hoffman complaint for failure to state a claim, but the
court has not yet heard argument on that motion.
Avant! believes it has defenses to all of the plaintiffs' claims and intends
to defend itself vigorously. There can be no assurance, however, that Avant!'s
defenses will be successful. While it is reasonably possible Avant! will incur a
loss in relation to these claims, it is currently unable to estimate the actual
loss or range of loss. In the event Avant!'s defenses are unsuccessful, Avant!
may be required to pay damages to the securities class action plaintiffs, and
such a judgment could have a material adverse effect on Avant!'s business,
consolidated financial condition and consolidated results of operations.
POTENTIAL IMPACT ON TMA SHAREHOLDERS.
Although TMA has the right to terminate the Plan of Reorganization prior to
the Effective Time under certain circumstances, it is possible that developments
in the pending litigation described above that would give TMA the right to
terminate the Plan of Reorganization may occur only after the Effective Time. In
such event, TMA shareholders would bear the risk of any decline in the market
price of the Avant! Common Stock following an adverse outcome of the pending
litigation described above.
LITIGATION COSTS.
The pending litigation and any future litigation against the combined
company or its employees, regardless of the outcome, is expected to result in
substantial costs and expenses to the combined company. For example, during 1996
Avant! incurred and charged to operations approximately $6.8 million in
litigation expenses and expects to incur approximately $7.5 million in
litigation expenses in 1997. While litigation is inherently unpredictable,
Avant! currently expects that its litigation expenses during 1998 will be at
least as much as those incurred in 1997. Accordingly, any such litigation could
have a material adverse effect on the combined company's business, operating
results or financial condition. Furthermore, if Avant! is required to satisfy
the default judgments in full in the Silvaco litigation, Avant! could be
required to pay up to $31.4 million in damages, which would have a material
adverse effect on Avant!'s business, consolidated financial condition and
consolidated results of operations.
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AVANT! BUSINESS
INTRODUCTION
Avant! resulted from the merger of ArcSys, 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 and acquired Nexsyn Design Technology Inc.
on December 31, 1996. Avant! is a Delaware corporation that develops, markets
and supports software products that assist design engineers in the physical
layout, design, verification, simulation, timing and analysis of ICs.
Avant!'s objective is to establish a significant market position as a
supplier of design software for the ICDA 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-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.
RECENT DEVELOPMENTS
LITIGATION DEVELOPMENTS
On December 6, 1995, Cadence Design Systems, Inc. ("Cadence") filed an
action against Avant! and certain of its officers in the United States District
Court for the District of Northern California alleging copyright infringement,
unfair competition, misappropriation of trade secrets, conspiracy, breach of
contract, inducing breach of contract and false advertising.
On April 11, 1997, the Santa Clara County District Attorney's office filed a
criminal complaint alleging felony level offenses against, among others, Avant!
and the following Avant! employees and/or directors, Gerald C. Hsu, President,
Chief Executive Officer and Chairman of the Board of Directors, Y. Eric Cho, a
member of the Board of Directors, Y. Z. Liao, Corporate Fellow, Stephen Wuu, CEO
Staff, Operations, Leigh Huang, Marketing Manager, and Eric Cheng, Research and
Development Manager, for allegedly violating various California Penal Code
sections relating to the theft of trade secrets. Avant! and the individuals have
pleaded not guilty and are awaiting further proceedings. The criminal complaint
could result in criminal fines against Avant!, as well as the potential
incarceration of certain members of its management team.
On September 23, 1997, the United States Court of Appeals for the Ninth
Circuit overruled the District Court's denial of Cadence's motion with respect
to Avant!'s ArcCell product, a product which Avant! no longer sells, and held
that a preliminary injunction should be granted against the further sale of the
ArcCell product. The Court of Appeals did not enjoin Avant!'s Aquarius place and
route products, but rather remanded this aspect of Cadence's motion to the
District Court for further consideration. The Court of Appeals stated that, if
Avant!'s Aquarius products are determined to infringe Cadence products, the sale
of the Aquarius products should be enjoined. Avant! requested a rehearing on the
issue, but on November 21, 1997 the Ninth Circuit denied this request. On
December 19, 1997, the District Court stated its intention to enjoin Avant! from
directly or indirectly marketing, selling, licensing, copying or transferring
any work copied or derived from Cadence's Design Framework II, specifically
including, but not limited to, Avant!'s ArcCell, ArcCellBV and ArcCellXO
products. The District Court also stated that it would direct Avant! to deliver
a copy of its order to all present or former customers that have received copies
of any such infringing products and, to the extent it has a legal right to do
so, request that such customers return or destroy any such products. Avant! also
will be directed to furnish to Cadence a list of any customers that still
maintain a functioning copy of such products. At the December 19, 1997 hearing,
the District Court did not rule on Cadence's request to enjoin the sale, license
or support of Avant!'s
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Aquarius place and route products. The District Court will hold future hearings
regarding the Aquarius products. See "--Litigation" and "Risk
Factors--Litigation Risk."
In March 1993, Meta Software, Inc., which Avant! acquired in October 1996
and which is now a wholly owned subsidiary of Avant! ("Meta"), filed a complaint
in Santa Clara Superior Court against Silvaco Data Systems, Inc. and related
parties (collectively, "Silvaco") seeking monetary damages and injunctive
relief. Meta's complaint alleged, among other things, that Silvaco breached its
representative agreement with Meta by withholding customer payments for products
and services that had been delivered, and by failing to pay royalties on
software that Silvaco sold to others. In August 1995, Meta was awarded $529,828
under the Superior Court's judicial arbitration program. Both parties rejected
the award and requested a trial de novo on the issues involved. In August 1995,
Silvaco filed a cross-complaint against Meta alleging, among other things, that
Meta owes Silvaco royalties and license fees pursuant to a product development
and marketing program and unpaid commissions related to Silvaco's sale of Meta's
products and services under such program. Meta filed an answer to the
cross-complaint denying the allegations contained therein. In July 1996, Silvaco
filed a first amended cross-complaint, adding Shawn Hailey, then the President,
Chief Executive Officer and a major shareholder of Meta, and, until July 1997,
the Senior Vice President of Avant!'s Silicon Division, as a personal defendant,
and further alleging defamation, interference with economic advantage, unfair
competition and abuse of process by acts or statements made by Meta or its
agents. See "Risk Factors--Litigation Risk."
In August 1997, the Superior Court entered a default judgment against Mr.
Hailey for failure to timely answer the complaint. In October 1997, Mr. Hailey's
application for relief from the default judgment was denied. In August 1997, the
Superior Court entered a default judgment against Meta as to the defamation and
interference with economic advantage claims. On October 31, 1997, Meta's
application for relief from the default judgment was denied. On October 28,
1997, Silvaco first presented its theory of damages and a trial began on
November 3, 1997. On November 4, 1997, the Superior Court dismissed Meta's
remaining affirmative claims. On November 5, 1997, the Superior Court awarded
Silvaco $20.0 million in damages against Mr. Hailey and Meta related to the
defamation and interference with economic advantage claims, and, on November 6,
1997, the Superior Court awarded Silvaco $11.4 million in damages related to the
unfair competition claim. On November 12, 1997, the Superior Court awarded
nominal damages to Silvaco related to the product development claim. Silvaco's
claims based on the marketing program and abuse of process were dismissed.
Meta intends to pursue all remedies available to it in connection with the
litigation with Silvaco, including filing an appeal as quickly as practicable.
Meta believes it has substantial appellate issues which could cause the judgment
to be remanded to the trial court for further proceedings. Should Meta be
permitted to participate fully in further trial court proceedings, Meta believes
it would have substantial defenses to Silvaco's claims. However, there can be no
assurance that any such remedies will be successful. Although it is reasonably
possible Meta will incur a loss in relation to this claim, it is currently
unable to estimate the actual loss or range of loss. Payment of the damages
previously awarded, and damages which may be awarded in the future, would have a
material adverse effect on Avant!'s business, consolidated financial condition
and consolidated results of operations.
ACQUISITIONS
Avant! acquired Compass Design Automation, Inc., a Delaware corporation
("Compass") on September 12, 1997 (the "Compass Acquisition"). Prior to the
Compass Acquisition, Compass was a subsidiary of VLSI Technology, Inc., a
Delaware corporation ("VLSI"). Upon the closing of the Compass Acquisition (the
"Compass Closing"), Compass became a wholly owned subsidiary of Avant! and (a)
each share of Compass capital stock owned directly or indirectly by Compass or
by any entity controlled by Compass was canceled and no stock of Avant! or other
consideration was delivered in exchange therefor, (b) the outstanding shares of
Compass preferred stock (other than those shares canceled under (a)), all of
which were owned by VLSI, were canceled and converted into the right to receive
an aggregate of $2,699,174 and 98,552 shares of Avant! common stock, (c) the
shares of Compass common stock owned by VLSI (other
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than those shares canceled under (a)) were converted into the right to receive
an aggregate of $11,602,831 and 423,640 shares of Avant!'s common stock, (d) the
shares of Compass common stock not owned by VLSI (other than those shares
canceled under (a)) were converted into the right to receive an aggregate of
$2,447,725 and (e) the unexpired and unexercised vested options to purchase
shares of Compass common stock were converted into the right to receive an
aggregate of $750,270 to the extent exercisable. Avant! accounted for the
Compass Acquisition as a purchase. In the third quarter of 1997, Avant! incurred
an expense of approximately $41.2 million for acquired in-process research and
development costs associated with the Compass Acquisition. See "Risk
Factors--Uncertainty Relating to Integration of Multiple Operations and Product
Lines; Management of Growth," "--Cost of Integration; Transaction Expense."
Avant! has also recently acquired Datalink Far East Ltd., a Taiwan
corporation ("Datalink") pursuant to an asset purchase agreement (the "Datalink
Acquisition"). Avant! will pay $900,000 to acquire Datalink over five
installments at specified times during the next two years.
PRODUCTS
Avant! products are based on Avant!'s proprietary architecture and
technology, which provide a breadth of automated IC physical design
capabilities. Avant!'s product architecture is designed to solve the problems
inherent in submicron (less than 1.0-micron feature size) and deep submicron
(less than 0.5-micron feature size) IC design and to offer improved
time-to-market, reduced development and manufacturing costs, and enhanced IC
performance when compared to previous generations of ICDA software.
Avant! products are designed to be compatible with the most commonly used
ICDA tools and to be easily integrated into the customer's existing design
environments and methodologies through industry standard interfaces. Avant!'s
products are primarily written in C, run on UNIX workstations such as those from
Sun Microsystems, Inc. and Hewlett-Packard Company, and support industry
standards such as Motiff, Xwindows, GDSII Stream format, EDIF, SDF, SPICE and
Verilog.
Avant!'s Aquarius family of cell-based place and route products includes
Aquarius-BV, Aquarius-XO and Aquarius-GA. All products are based on Avant!'s
patented cell-path timing-driven algorithms which increase circuit performance
and reduce design iterations. Aquarius-BV is used for standard-cell IC designs
with up to three layers of metal, and Aquarius-XO is used for more complex
standard-cell and mixed-block IC designs with up to six layers of metal.
Aquarius-BV and -XO reduce die size and shorten the design cycle by combining
the advantages of over-the-cell channel routing, channel routing and channel
compaction with the flexibility of area-based maze routing.
Avant!'s Aquarius-GA product is an advanced multi-layer place and route
system for gate-array ICs. Aquarius-GA increases gate utilization and minimizes
design congestion by using proprietary congestion-driven placement and routing
algorithms. Aquarius-GA includes many of the same features as Aquarius-BV and
- -XO to improve circuit performance. Aquarius-GA supports embedded designs
through its horizontal integration with Aquarius-BV and -XO.
Avant!'s Planet product complements the Aquarius products and is a physical
floorplanning and analysis solution for accurate prediction of the impact of
physical effects on design performance and routability early in the design
process.
Avant!'s Solar family of products are synthesis-oriented layout refinement
tools designed to optimize the performance and area of ICs to meet new deep
submicron "golden file" needs. Solar is tightly integrated with Avant!'s
Aquarius family of place and route tools.
Avant! believes its Hercules family of design verification software is the
industry's most advanced suite of IC physical verification products. The
Hercules family of products provide geometric and electrical verification
physical design layouts. Hercules' first module for design rule checking ("DRC")
was introduced in January 1992 and is the first hierarchical system offered for
complex submicron design.
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Avant!'s Star-Hspice product is the industry-standard circuit simulator that
validates critical paths, performs noise margin analysis and optimizes the
tradeoffs between IC speed and power prior to commencement of fabrication.
Star-Hspice incorporates special analysis features for performance and for yield
optimization, which has become increasingly important in deep submicron chip
design.
Avant!'s Star-Sim family of products are high-capacity circuit simulators
for deep submicron process applications such as graphics, memory, communications
and mixed-signal IC designs. The Star-Sim family of products help increase IC
performance and reliability and increase designer productivity by enabling
designers to characterize large blocks; to accurately simulate mixed-signal,
dynamic logic and memory circuits where performance, signal integrity and power
analyses are essential; and to reuse high-performance intellectual property
without changing the design process. Star-RC is a full-chip hierarchical
capacitance extractor and a critical net resistance and capacitance extractor.
All of Avant!'s Star products are tightly integrated with Avant!'s
hierarchical layout and verification tools, Aquarius and Hercules, to provide
efficient, accurate and predictable IC performance.
Avant!'s Polaris family of products utilize innovative Verilog simulation
solutions to ease the simulation, automated design verification and optimization
of IC design. To handle the complexity of large designs, the Polaris family of
products is capable of several levels of design abstraction and uses a variety
of design capture techniques. The products run on Unix and Windows workstation
platforms and are therefore attractive tools for a variety of hardware logic
designers.
During each of 1994, 1995 and 1996, Avant! derived substantially all of its
total revenue from the licensing and support of Aquarius, its cell-based place
and route software product, Hercules, its hierarchical physical verification
software product, Star-Hspice, its circuit simulator, Star-Sim products, its
high-capacity circuit simulation and high-accuracy timing analysis software, and
Polaris products, its Verilog simulation product. Absent any extraordinary
results from existing litigation, the company currently expects that these
products will continue to account for a significant portion of Avant!'s revenue
for the foreseeable future. See "Risk Factors--Litigation Risk." As a result,
Avant!'s future operating results are significantly dependent upon continued
market acceptance of these products. Avant! believes that a number of factors
will be necessary for its products to achieve continued market acceptance. These
factors include performance of Avant!'s existing products, successful
development of advanced features, adaptability into the user's design
environment, Avant!'s technical, managerial, service and support expertise, and
the customer's assessment of Avant!'s financial resources. A decline in demand
for these products as a result of competition, technological change or other
factors would have a material adverse effect on the business, operating results
and financial condition of Avant!. There can be no assurance that these products
will achieve continued market acceptance or that Avant! will be successful in
marketing any new or enhanced products.
During 1994, 1995, 1996, and during the first nine months of 1997, Avant!
derived 33%, 32%, 34%, and 44%, respectively, of its total revenue from the
licensing and support of its software products internationally, principally in
Asia. Avant! currently expects that the percentage from the license and support
of its software products in Asia will continue to be a significant percentage of
its total revenue. Any significant decline in demand for Avant!'s products in
Asia would have a material adverse effect on Avant!'s business, operating
results and financial condition. Avant!'s international revenue involves a
number of risks, including the impact of possible recessionary environments in
economies outside the U.S., longer receivables collection periods and greater
difficulty in accounts receivable collection, difficulties in staffing and
managing foreign operations, political and economic instability, unexpected
changes in regulatory requirements, reduced protection for intellectual property
rights in some countries and tariffs and other trade barriers. There can be no
assurance that Avant! will be able to sustain or increase revenue derived from
international licensing and service or that the foregoing factors will not have
a material adverse effect on Avant!'s future international license and service
revenue, and consequently, on Avant!'s business, operating results and financial
condition. Failure to sustain or increase such revenue would materially and
adversely affect Avant!'s business, operating results and financial condition.
Although Avant! has attempted to reduce the risk of fluctuations in
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exchange rates associated with international revenue by pricing its products and
services in U.S. dollars, Avant! pays the expenses of its international
operations in local currencies and does not currently engage in hedging
transactions with respect to such obligations. Currency exchange fluctuations in
countries in which Avant! licenses its products could have a material adverse
effect on Avant!'s business, operating results or financial condition by
resulting in prices that are not competitive with products priced in local
currencies. Furthermore, there can be no assurance that in the future Avant!
will be able to continue to price its products and services internationally in
U.S. dollars. See "Avant! Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The ICDA industry is characterized by extremely rapid technological change,
frequent new product introductions and enhancements, evolving industry standards
and rapidly changing customer requirements. The development of more complex ICs
embodying new technologies will require increasingly sophisticated design tools.
Avant!'s future results of operations will depend in part upon its ability to
enhance its current products and to develop and introduce new products on a
timely and cost-effective basis that will keep pace with technological
developments and evolving industry standards and methodologies, as well as
address the increasingly sophisticated needs of Avant!'s customers. For example,
all of Avant!'s current products operate in, and planned future products will
operate in, the Unix operating system. In the event that another operating
system, such as Windows NT, were to achieve broad acceptance in the ICDA
industry, Avant! would be required to port its products to such an operating
system, which would be costly, time consuming and could have a material adverse
effect on Avant!'s business, operating results or financial condition. Avant!
has in the past and may in the future experience delays in new product
development. The introduction of certain products in the past have been delayed
by as much as 12 months beyond their original scheduled release dates. There can
be no assurance that Avant! will be successful in developing and marketing
product enhancements or new products that respond to technological change,
evolving industry standards and changing customer requirements, that Avant! will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products or product
enhancements, or that its new products and product enhancements will adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance. Failure of Avant!, for technological or other reasons, to
develop and introduce new products and product enhancements in a timely and
cost-effective manner would have a material adverse effect on Avant!'s business,
operating results and financial condition. In addition, the introduction or even
announcement of products by Avant! or one or more of the competitors embodying
new technologies or changes in industry standards or customer requirements could
render Avant!'s existing products obsolete or unmarketable. There can be no
assurance that the introduction or announcement of new product offerings by
Avant! or one or more of its competitors will not cause customers to defer
purchases of existing Avant! products. Such deferment of purchases could have a
material adverse effect on Avant!'s business, operating results or financial
condition.
CUSTOMERS
Avant! focuses its sales and marketing efforts on creating strategic
relationships with technology leaders in IC design and with early adopters of
the most advanced EDA tools. By creating strong relationships with industry
leaders, Avant! receives critical technical feedback that enables it to develop
and implement proprietary design technologies and methodologies. In addition,
strategic relationships with these companies can create influential references
for other prospective customers.
The market for Avant!'s physical layout, verification and analysis products
encompasses a wide range of industries, including semiconductor, computer,
consumer electronics, multimedia and telecommunications IC companies worldwide.
End-users of Avant!'s products range from small companies to a number of the
world's largest manufacturing organizations.
No one customer accounted for greater than 10% of Avant!'s revenue in 1994,
1995, 1996 or the first nine months of 1997. Avant! does not believe that
seasonality is a significant factor in sales.
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SALES AND MARKETING
Avant! markets its products in North America and Europe primarily through
its direct sales and support force. Avant! employs highly skilled engineers and
technically proficient sales persons capable of serving the sophisticated needs
of its prospective customers' engineering and management staffs. Avant! has
domestic sales and support offices in or near Austin, Texas; Boston,
Massachusetts; Chicago, Illinois; Dallas, Texas; Los Angeles, California;
Phoenix, Arizona; Portland, Oregon; Philadelphia, Pennsylvania; Research
Triangle Park, North Carolina and Fremont, California; international sales and
support offices in London, England; Paris, France and Tokyo, Japan; and
international support offices in Munich, Germany; Geneva, Switzerland and Seoul,
South Korea. In addition to its direct sales and marketing efforts, Avant!
participates in industry trade shows and organizes seminars to promote the
adoption of its products and methodologies.
In Asia, Avant! markets its products primarily through a limited number of
"Third Party Sellers" that license and service Avant! products in this market.
Avant! also supports these distributors and representatives and their customers
with technical, sales and management personnel.
Avant! has relied on Third Party Sellers for licensing and support of its
products in Japan, Korea, Taiwan and Singapore. A substantial portion of
Avant!'s international license and service revenue has resulted from a limited
number of these Third Party Sellers. During 1994, 1995, 1996, and the first nine
months of 1997, revenue from these channels accounted for an aggregate of
approximately 30%, 28%, 27%, and 34%, respectively, of Avant!'s total revenue.
In 1997, Avant! consolidated its Japanese sales channel by forming a
distributor, MainGate Electronics, Inc. ("MainGate"), owned by Avant!, Gerald C.
Hsu, Avant!'s Chairman of the Board, President and Chief Executive Officer, and
other parties (including other Avant! employees and former employees of Avant!'s
third party distributors). Mr. Hsu owns approximately 40% and Avant! owns
approximately 35% of the outstanding shares of MainGate. See "The
Merger--Interests of Certain Persons in the Merger" and "Executive
Compensation--Certain Relationships and Related Transactions." Avant! believes
that this arrangement optimizes its competitive advantage in the Asian market to
an extent that could not be achieved by using another distributor or by directly
selling into these markets. Distribution and marketing in these markets are
dominated by local companies, making it difficult for non-local manufacturers to
distribute their products directly. Thus, Avant! created MainGate, which is
locally managed and operated and has significant local ownership. By providing
for local ownership of MainGate through equity incentives, Avant! believes that
it is best able to attract and retain top local talent. However, there can be no
assurance that MainGate will be successful. If it is not successful, it could
have a material adverse effect on Avant!'s business, operating results or
financial condition. See "Risk Factors--Dependence Upon Distributors and
Manufacturer's Representatives."
Since Avant!'s products are used by highly skilled professional engineers,
in order to be effective, a Third Party Seller must possess sufficient
technical, marketing and sales resources and must devote these resources to a
lengthy sales cycle, customer training and product service and support. Only a
limited number of Third Party Sellers possess such resources. In addition,
Avant!'s Third Party Sellers generally offer products of several different
companies, including, in some cases, products that are competitive with Avant!'s
products. There can be no assurance that Avant!'s current Third Party Sellers or
MainGate will choose to or be able to market or service and support Avant!'s
products effectively, that economic conditions or industry demand will not
adversely affect these or other Third Party Sellers, that any Third Party Seller
or MainGate will continue to market and support Avant!'s products or that these
Third Party Sellers or MainGate will not devote greater resources to marketing
and supporting products of other companies. The loss of, or a significant
reduction in revenue from, one of Avant!'s Third Party Sellers or MainGate could
have a material adverse effect on Avant!'s business, operating results or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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The license of Avant!'s software products generally involves a significant
commitment of capital by prospective customers, with the attendant delays
frequently associated with large capital expenditures and lengthy acceptance
procedures. For these and other reasons, the sales cycle associated with the
license of Avant!'s products is typically lengthy and subject to a number of
significant risks over which Avant! has little or no control and, as a result,
Avant! believes that its quarterly operating results are likely to vary
significantly in the future. Due to the nature of Avant!'s business, Avant! does
not believe any of its backlog orders to be firm.
CUSTOMER SERVICE AND SUPPORT
Avant!'s product management group provides customers with technical support,
training and consulting services. Avant! believes that a high level of customer
service and support is critical to the adoption and successful utilization of
its physical design technology and products.
To address technical issues, Avant! has established both field and corporate
technical application engineering groups that understand the design
methodologies of Avant!'s customers and generally have IC design backgrounds.
Most of Avant!'s customers currently have maintenance agreements that entitle
them to receive software updates, documentation updates and a formal problem
identification and resolution process through a support hotline. Questions or
suggestions may be submitted by facsimile or through the Internet network mail
system. Avant! also offers additional training and consulting services for a
fee. Avant! provides on-site and in-house training on all products.
Avant! consultants are available to work closely with customer design
engineering teams for all phases of physical design from conception through
implementation. Avant! consultants provide customers with in-depth technical
expertise in the use of Avant!'s physical design methodology and products.
RESEARCH AND DEVELOPMENT
The ICDA industry is characterized by extremely rapid technological change,
frequent product introductions and enhancements, evolving industry standards and
rapidly changing customer requirements. The development of more complex ICs
embodying new technologies will require increasingly sophisticated design tools.
Avant! believes its future competitive positions and future results of
operations will depend in large part on its ability to quickly and
cost-effectively develop new products, maintain and enhance its current product
line, maintain technological competitiveness and meet an expanding range of
customer requirements. In addition to supporting and enhancing its existing
physical layout, design, verification, simulation, timing and analysis products,
Avant! maintains an advanced research group that is responsible for exploring
new directions and applications of Avant's proprietary technologies, migrating
new technologies into the existing product lines and maintaining strong research
relationships outside Avant! with industry and academia.
During 1994, 1995, 1996 and the nine months ended September 30, 1997,
Avant!'s research and development expenditures were approximately $9.7 million,
$15.3 million, $20.7 million and $19.7 million, respectively (excluding
capitalized software development costs of $143,000, $63,000, none and none,
respectively, for the same periods). The amount of capitalized software
development costs amortized was $199,000, $228,000, $88,000 and $49,000 for
1994, 1995, 1996 and the nine months ended September 30, 1997, respectively.
Avant! believes that it must continue to commit substantial resources to
enhance and extend its product lines in order to remain competitive in the ICDA
market. Avant! intends to continue to increase its internally funded product
development program and, if appropriate, to enter into development agreements
with customers and other third parties to develop specific new product
applications and features. Avant! currently has no material third-party funded
development agreements.
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COMPETITION
The ICDA software market, in which Avant! competes, is intensely competitive
and subject to rapid change. Avant! currently faces competition from major ICDA
vendors, including Cadence, which currently holds a dominant share of the market
for IC physical design software, and Mentor Graphics Corporation ("Mentor"). As
Avant! expands its product offerings to include other library generation tools
and other EDA tools, it will compete increasingly with these EDA vendors. Each
of these major ICDA vendors has a longer operating history, significantly
greater financial, technical and marketing resources, greater name recognition
and a larger installed customer base than Avant!. In addition, each of these
competitors will likely be able to respond more quickly to new or emerging
technologies and changes in customer requirements, and to devote greater
resources to the development, promotion and sale of their products than Avant!.
These companies also have established relationships with current and potential
customers of Avant! and can devote substantial resources aimed at preventing
Avant! from enhancing relationships with existing customers or establishing
relationships with potential customers. Moreover, the industry in which Avant!
competes is undergoing a trend toward consolidation that is expected to result
in large, more financially flexible competitors with a broad range of product
offerings. Further, other companies may develop and bring new products to the
market which could create significant competition for Avant! and its products.
Competition from EDA companies that currently offer only functional or logic
design products and that choose to enter the physical design market could
present particularly formidable competition due to their relationships with
Avant!'s current and potential customers, their ability to offer a complete
integrated IC design solution which Avant! does not currently offer and their
knowledge of the EDA industry.
Avant! also competes with the internal ICDA development groups of its
existing and potential customers, many of whom design and develop customized
design tools for their particular needs and
therefore may be reluctant to purchase products offered by independent vendors,
such as Avant!. Furthermore, because there are relatively low barriers to entry
in the software industry, Avant! expects additional competition from other
established and emerging companies. There can be no assurance that Avant!'s
current or potential competitors will not develop products comparable or
superior to those developed by Avant! or adapt more quickly than Avant! to new
technologies, evolving industry trends or changing customer requirements.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which could materially and adversely affect Avant!'s
business, operating results or financial condition. In addition, the EDA
industry has become increasingly concentrated in recent years as a result of
consolidations, acquisitions and strategic alliances. Accordingly, it is
possible that new competitors or alliances among competitors could emerge and
rapidly acquire significant market share. Alliances among competitors could
present particularly formidable competition to Avant! by combining their
resources. There can be no assurance that Avant! will be able to compete
successfully against current and future competitors or that competitive
pressures faced by Avant! will not have a material adverse effect on its
business, operating results and financial condition. If Avant! is unable to
compete successfully against current and future competitors, Avant!'s business,
operating results and financial condition will be materially and adversely
affected.
Avant!'s competes on the basis of certain factors, including first-to-market
product capabilities, product performance, price, support of industry standards,
ease of use and customer technical support and service. Avant! believes that it
currently competes favorably overall with respect to these factors, particularly
first-to-market product capabilities, technical support and customer service.
In addition, competitors and potential competitors may resort to litigation
as a means of competition. Cadence has initiated litigation against Avant! and
certain of its officers and employees alleging trade secret misappropriation and
other claims. See "Risk Factors--Litigation Risk." There can be no assurance
that competitors of Avant!, in particular Cadence, will not initiate additional
litigation against Avant! and its officers, directors, employees or consultants.
The pending litigation against Avant! and any future litigation against Avant!
or its employees, regardless of the outcome, may result in substantial costs and
expenses to Avant! and significant diversion of effort by Avant!'s technical and
management personnel.
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Any such litigation could have a material adverse effect on Avant!'s business,
operating results or financial condition. See "Risk Factors--Competition."
PROPRIETARY RIGHTS
Avant! relies on a combination of license agreements, patents, copyright,
trademarks and trade secrets to establish and protect proprietary rights to its
technology. Avant! holds three U.S. patents covering certain aspects of its
products expiring between August 8, 2012 and September 1, 2013, and has seven
U.S. patent applications pending. Avant! also has foreign patent applications
corresponding to one of its U.S. patents and one of its U.S. patent applications
pending in certain foreign countries. In addition, Avant! acquired certain
rights to certain technology owned by VLSI pursuant to licenses granted by VLSI
to Compass which were acquired by Avant! pursuant to the Compass Acquisition and
pursuant to licenses granted directly by VLSI to Avant!. Avant! generally
provides products to end-users under non-exclusive licenses, which typically
have a perpetual term unless terminated for breach. The license provides that
the software may be used solely for internal operations in designated computers
at specified sites. Avant!'s software is shipped with a software security lock
which limits software access to authorized users. The source code of Avant!'s
products is protected both as a trade secret and as an unpublished copyrighted
work, and is not made available to third parties. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use Avant!'s
products or technology without authorization or to develop similar technology
independently. In addition, effective copyright and trade secret protection may
be unavailable or limited in certain foreign countries. Avant! believes that,
due to the rapid pace of innovation within the IC CAD software industry, factors
such as the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are more important to establishing and maintaining a
technology leadership position than are the various legal protections of its
technology.
Avant! is heavily dependent upon its proprietary software technology. Avant!
currently holds several patents and also relies on a combination of trade
secret, copyright and trademark laws, nondisclosure and other contractual
agreements and technical measures to protect its proprietary rights in its
products. Although Avant! holds several patents, there can be no assurance that
Avant! will develop additional proprietary products or technologies that are
patentable, that any issued patent will provide Avant! with any competitive
advantages or will not be challenged by third parties, or that the patents of
others will not have an adverse effect on Avant!'s ability to do business.
Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate Avant!'s products or design around the
patents currently issued or patents that may be issued in the future to Avant!.
There can be no assurance that the steps taken by Avant! will prevent
misappropriation of its technology, and such protections may not preclude
competitors from developing products with functionality or features similar to
Avant!'s products. In addition, effective copyright and trade secret protection
may be unavailable or limited in certain foreign countries. Avant! expects that
software companies will increasingly be subject to infringement claims as the
number of products and competitors in the industry in which Avant! competes
grows and the functionality of products in different industry segments overlaps.
In particular, Avant!'s current litigation with Cadence involves such
infringement claims. Avant! believes that its products and trademarks do not
infringe upon the proprietary rights of third parties. See "Risk
Factors--Litigation Risk." There can be no assurance, however, that third
parties will not assert infringement claims, regardless of merit, against Avant!
in the future or that such claims will not require Avant! to cease use of
certain technology or enter into expensive royalty arrangements, if licenses are
available, or result in costly litigation, any of which could materially and
adversely affect Avant!'s business, operating results or financial condition.
See "Risk Factors--Limitations on Protection of Intellectual Property and
Proprietary Rights."
ENVIRONMENTAL AFFAIRS
Avant!'s operations are subject to numerous federal, state and local laws
and regulations designed to protect the environment. There are no administrative
or judicial proceedings pending or threatened
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against Avant! alleging violations of such environmental laws and regulations.
Compliance with these laws and regulations has not had, and is not expected to
have, a material adverse effect on the capital expenditures, earnings and
competitive position of Avant!.
EMPLOYEES
As of November 20, 1997, Avant! had 572 employees, including 271 in research
and development, 201 in sales, marketing and related customers support services,
and 100 in finance and administration. Of these employees, 476 were located in
the United States, 72 in Europe, 4 in Japan and 20 in Taiwan. None of Avant!'s
employees is represented by a labor union or is subject to a collective
bargaining agreement, nor has Avant! experienced any work stoppage. Avant!
considers its relations with its employees to be good.
Avant! has recently experienced a period of rapid growth and expansion,
especially the mergers of four companies in a four month period in late 1996 and
the Compass Acquisition in the third quarter of 1997, that has placed and
continues to place a significant strain upon its management systems and
resources. Avant! currently plans to continue to expand its staff. To
accommodate this recent growth, Avant! will be required to implement a variety
of new and upgraded operational and financial systems, procedures and controls,
some of which currently require substantial management effort. There can be no
assurance that Avant! will be able to do so successfully. The increase in the
number of Avant!'s employees and Avant!'s market diversification and product
development activities have resulted in increased responsibility for Avant!'s
management. Avant! anticipates that continued growth, if any, will require it to
recruit and hire a substantial number of new engineering, managerial, finance,
sales and marketing and support personnel; however, there can be no assurance
that Avant! will be successful at hiring or retaining these personnel. Avant!'s
ability to compete effectively and to manage future growth, if any, will require
Avant! to continue to implement and improve operational, financial and
management information systems on a timely basis and to expand, train, motivate
and manage its work force. There can be no assurance that Avant!'s personnel,
systems, procedures and controls will be adequate to support Avant!'s
operations. Any failure to implement and improve Avant!'s operational, financial
and management systems or to expand, train, motivate or manage employees, could
have a material adverse effect on Avant!'s business, operating results or
financial condition.
Avant!'s future operating results depend in significant part upon the
continued service of its key technical and senior management personnel,
including in particular, Gerald C. Hsu, Avant!'s President and Chief Executive
Officer. None of Avant!'s employees is bound by an employment agreement.
Avant!'s business, operating results and financial condition also depend on its
continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such personnel is intense, and there can
be no assurance that Avant! will retain its key technical and managerial
personnel or attract such personnel in the future.
PROPERTIES
In February 1997, Avant! signed four leases for its new headquarters in
Fremont, California. The leases cover four buildings with an aggregate of
approximately 281,000 square feet of space with an aggregate annual base rent
amount of approximately $4.8 million. The leases for three of the buildings
expire on September 1, 2010 and the lease for the fourth building expires on
August 31, 2012. Avant! also occupies a facility near Research Triangle Park in
Durham, North Carolina with an annual base rent of approximately $666,000. The
lease expires on November 30, 2005. Avant! also leases sales and support offices
in the United States, Europe, Japan and Taiwan. Avant! believes that its
existing facilities are adequate for its current needs.
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LITIGATION
Avant! is subject to a number of related litigation matters, including a
civil action brought by Cadence Design Systems, Inc. ("Cadence"), a criminal
complaint filed by the Santa Clara County District Attorney's office against
Avant! and certain of its employees and securities class action claims resulting
from these lawsuits. In addition, default judgments in the aggregate amount of
$31.4 million will be entered against Meta Software, Inc., which Avant! acquired
in October 1996 and which is now a wholly owned subsidiary of Avant! ("Meta").
CADENCE LITIGATION.
On December 6, 1995, Cadence filed an action against Avant! and certain of
its officers in the United States District Court for the District of Northern
California alleging copyright infringement, unfair competition, misappropriation
of trade secrets, conspiracy, breach of contract, inducing breach of contract
and false advertising. The essence of the complaint is that certain Avant!
employees who formerly were Cadence employees misappropriated and improperly
copied source code for certain important functions of Avant! place and route
products from Cadence, and that Avant! has allegedly competed unfairly by making
false statements concerning Cadence and its products. The action also alleges
that Avant! induced certain individual defendants to breach their agreements of
employment and confidentiality with Cadence. The matter is currently awaiting
trial, pending further pretrial matters. A trial date has not been set. On July
25, 1997, a federal judge stayed the Cadence civil action pending completion of
the criminal proceedings described below, except for limited discovery on
certain matters approved by the District Court. Avant! posted a $5.0 million
bond pending the resumption of the civil action.
In addition to actual and punitive damages, which were not quantified by
Cadence, Cadence seeks to enjoin the sale of Avant!'s place and route products
pending trial of the action. On March 18, 1997, the District Court denied
Cadence's motion for a preliminary injunction. Cadence appealed the order
denying a preliminary injunction. On September 23, 1997, the United States Court
of Appeals for the Ninth Circuit overruled the District Court's denial of
Cadence's motion with respect to Avant!'s ArcCell product, a product that Avant!
no longer sells, and held that a preliminary injunction should be granted
against the further sale of the ArcCell product. The Court of Appeals did not
enjoin Avant!'s Aquarius place and route products, but rather remanded this
aspect of Cadence's motion to the District Court for further consideration. The
Court of Appeals stated that, if Avant!'s Aquarius products are determined to
infringe Cadence products, the sale of the Aquarius products should be enjoined.
Avant! requested a rehearing on the issue, but on November 21, 1997 the Ninth
Circuit denied this request. On December 19, 1997, the District Court stated its
intention to enjoin Avant! from directly or indirectly marketing, selling,
licensing, copying or transferring any work copied or derived from Cadence's
Design Framework II, specifically including, but not limited to, Avant!'s
ArcCell, ArcCellBV and ArcCellXO products. The District Court also stated that
it would direct Avant! to deliver a copy of its order to all present or former
customers that have received copies of any such infringing products and, to the
extent it has a legal right to do so, request that such customers return or
destroy any such products. Avant! also will be directed to furnish to Cadence a
list of any customers that still maintain a functioning copy of such products.
At the December 19, 1997 hearing, the District Court did not rule on Cadence's
request to enjoin the sale, license or support of Avant!'s Aquarius place and
route products from which Avant! derives a significant portion of its total
revenue. The District Court will hold future hearings regarding the Aquarius
products. There can be no assurance that the District Court will not, upon
further consideration, grant a preliminary injunction with respect to the sale
of the Aquarius products, which would have a material adverse effect on the
combined company's business, consolidated financial position and consolidated
results of operations.
On January 16, 1996, Avant! filed a counterclaim against Cadence alleging
antitrust violations, racketeering, false advertising, defamation, trade libel,
unfair competition, unfair trade practices, negligent and intentional
interference with prospective economic advantage and intentional interference
with
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contractual relations. On December 19, 1997, Avant! stipulated to temporarily
dismissing its counterclaim in order to file more detailed allegations. Avant!
intends to refile its counterclaim in January 1998.
Avant! believes it has defenses to all of Cadence's claims and intends to
defend itself vigorously. If, however, Avant!'s defenses are unsuccessful,
Avant! may ultimately be permanently enjoined from selling certain place and
route products and may be required to pay damages to Cadence. In addition, upon
further consideration by the District Court, Avant! could be preliminarily
enjoined from selling its Aquarius place and route products. In such event,
Avant!'s business, consolidated financial condition and consolidated results of
operations may be materially adversely affected. In addition, it is likely that
an adverse judgment against Avant! would result in a steep decline in the market
price of Avant! Common Stock. Although it is reasonably possible Avant! may
incur a loss upon conclusion of these claims, an estimate of any loss or range
of loss cannot be made, based on information Avant! presently possesses. There
can be no assurance that an adverse judgment, if granted on any claim would not
have a material adverse effect on Avant!'s business, consolidated financial
position or consolidated results of operations. Furthermore, Cadence terminated
TMA's participation in its Platinum Partners Program after the announcement of
the proposed Merger. There can be no assurance that other customer relationships
of Avant!, TMA or the combined company will not be adversely affected in the
future as a result of the Cadence litigation.
CRIMINAL COMPLAINT.
The Santa Clara County District Attorney's office also is investigating the
allegations of misappropriation of trade secrets set forth in Cadence's lawsuit,
described above. On April 11, 1997, the Santa Clara County District Attorney
filed a criminal complaint alleging felony level offenses against, among others,
Avant! and the following Avant! employees and/or directors, Gerald C. Hsu,
President, Chief Executive Officer and Chairman of the Board of Directors, Y.
Eric Cho, a member of the Board of Directors, Y. Z. Liao, Corporate Fellow,
Stephen Wuu, CEO Staff, Operations, Leigh Huang, Marketing Manager and Eric
Cheng, Research and Development Manager, for allegedly violating various
California Penal Code sections relating to the theft of trade secrets. Avant!
and the individuals have pleaded not guilty and are awaiting further
proceedings. The criminal complaint could result in criminal fines against
Avant!, as well as the potential incarceration of certain members of its
management team. Such outcomes could result in canceled or postponed customer
orders, increased future expenditures, the loss of management and other key
personnel, additional stockholder litigation, loss of goodwill and would have
other material adverse effects on the business, consolidated financial position
or consolidated results of operations of the combined company.
SILVACO LITIGATION.
In March 1993, Meta filed a complaint in Santa Clara Superior Court against
Silvaco Data Systems, Inc. and related parties (collectively, "Silvaco") seeking
monetary damages and injunctive relief. Meta's complaint alleged, among other
things, that Silvaco breached its representative agreement with Meta by
withholding customer payments for products and services that had been delivered,
and by failing to pay royalties on software that Silvaco sold to others. In
August 1995, Meta was awarded $529,828 under the Superior Court's judicial
arbitration program. Both parties rejected the award and requested a trial de
novo on the issues involved. In August 1995, Silvaco filed a cross-complaint
against Meta alleging, among other things, that Meta owes Silvaco royalties and
license fees pursuant to a product development and marketing program and unpaid
commissions related to Silvaco's sale of Meta's products and services under such
program. Meta filed an answer to the cross-complaint denying the allegations
contained therein. In July 1996, Silvaco filed a first amended cross-complaint,
adding Shawn Hailey, then the President, Chief Executive Officer and a major
shareholder of Meta, and, until July 1997, the Senior Vice President of Avant!'s
Silicon Division, as a personal defendant, and further alleging defamation,
interference with
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economic advantage, unfair competition and abuse of process by acts or
statements made by Meta or its agents.
In August 1997, the Superior Court entered a default judgment against Mr.
Hailey for failure to timely answer the complaint. In October 1997, Mr. Hailey's
application for relief from the default judgment was denied. In August 1997, the
Superior Court entered a default judgment against Meta as to the defamation and
interference with economic advantage claims. On October 31, 1997, Meta's
application for relief from the default judgment was denied. On October 28,
1997, Silvaco first presented its theory of damages and a trial began on
November 3, 1997. On November 4, 1997, the Superior Court dismissed Meta's
remaining affirmative claims. On November 5, 1997, the Superior Court awarded
Silvaco $20.0 million in damages against Mr. Hailey and Meta related to the
defamation and interference with economic advantage claims, and, on November 6,
1997, the Superior Court awarded Silvaco $11.4 million in damages related to the
unfair competition claim. On November 12, 1997, the Superior Court awarded
nominal damages to Silvaco related to the product development claim. Silvaco's
claims based on the marketing program and abuse of process were dismissed.
Meta intends to pursue all remedies available to it in connection with the
litigation with Silvaco, including filing an appeal as quickly as practicable.
Meta believes it has substantial appellate issues which could cause the judgment
to be remanded to the trial court for further proceedings. Should Meta be
permitted to participate fully in further trial court proceedings, Meta believes
it would have substantial defenses to Silvaco's claims. However, there can be no
assurance that any such remedies will be successful. Although it is reasonably
possible Meta will incur a loss in relation to this claim, it is currently
unable to estimate the actual loss or range of loss. Payment of the damages
previously awarded, and damages which may be awarded in the future, would have a
material adverse effect on Avant!'s business, consolidated financial condition
and consolidated results of operations.
SECURITIES CLASS ACTION CLAIMS.
On December 15, 1995, Paul Margetis and Helen Margetis filed in the United
States District Court for the Northern District of California a securities fraud
class action complaint against Avant!. In addition, on December 19, 1995, Fred
Tarca filed in the United States District Court for the Northern District of
California a class action complaint against Avant! for violations of the federal
securities laws. These class action lawsuits allege certain securities law
violations, including omissions and/or misrepresentation of material facts. The
alleged omissions and/or misrepresentations are largely consistent with those
outlined in the Cadence claim described above. In February 1997, plaintiff Tarca
voluntarily dismissed his action and the Margetis plaintiffs were certified as
class representatives in their action. On July 25, 1997, a federal judge stayed
the Margetis action, except for certain documentary and third-party discovery,
pending resolution of the Cadence suit.
On May 30, 1997, Joanne Hoffman filed in the United States District Court
for the Northern District of California a purported class action alleging
securities claims on behalf of purchasers of Avant! Common Stock between March
29, 1996 and April 11, 1997, the date of the filing of the criminal complaints
against Avant! and six of its employees. Plaintiff alleges that Avant! and
various of its officers misled the market as to the likelihood of criminal
charges being filed and as to the validity of the Cadence allegations. Avant!
has moved to dismiss the Hoffman complaint for failure to state a claim, but the
court has not yet heard argument on that motion.
Avant! believes it has defenses to all of the plaintiffs' claims and intends
to defend itself vigorously. There can be no assurance, however, that Avant!'s
defenses will be successful. Although it is reasonably possible Avant! will
incur a loss in relation to these claims, it is currently unable to estimate the
actual loss or range of loss. In the event Avant!'s defenses are unsuccessful,
Avant! may be required to pay damages to the securities class action plaintiffs,
and such a judgment could have a material adverse effect on Avant!'s business,
consolidated financial condition and consolidated results of operations.
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POTENTIAL IMPACT ON TMA SHAREHOLDERS.
Although TMA has the right to terminate the Plan of Reorganization prior to
the Effective Time under certain circumstances, it is possible that developments
in the pending litigation described above that would give TMA the right to
terminate the Plan of Reorganization may occur only after the Effective Time. In
such event, TMA shareholders would bear the risk of any decline in the market
price of the Avant! Common Stock following an adverse outcome of the pending
litigation described above.
LITIGATION COSTS.
The pending litigation and any future litigation against the combined
company or its employees, regardless of the outcome, is expected to result in
substantial costs and expenses to the combined company. For example, during 1996
Avant! incurred and charged to operations approximately $6.8 million in
litigation expenses and expects to incur approximately $7.5 million in
litigation expenses in 1997. While litigation is inherently unpredictable,
Avant! currently expects that its litigation expenses during 1998 will be at
least as much as those incurred in 1997. Accordingly, any such litigation could
have a material adverse effect on the combined company's business, operating
results or financial condition. Furthermore, if Avant! is required to satisfy
the default judgments in full in the Silvaco litigation, Avant! could be
required to pay up to $31.4 million in damages, which would have a material
adverse effect on Avant!'s business, consolidated financial condition and
consolidated results of operations.
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AVANT! MANAGEMENT
The executive officers and directors of Avant!, all of whom will continue in
such capacities after the Merger, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- -----------------------------------------------------------------------------
<S> <C> <C>
Gerald C. Hsu............... 50 President, Chief Executive Officer and Chairman of the Board of Directors
John P. Huyett.............. 44 Vice President of Finance, Treasurer and Principal Accounting Officer
Y. Eric Cho................. 50 Director
Tench Coxe.................. 39 Director
Eric A. Brill............... 47 Director and Secretary
Charles L. St. Clair........ 67 Director
</TABLE>
MR. HSU joined Avant! in March 1994 as President, Chief Executive Officer
and a director, and has been Chairman of the Avant! Board of Directors since
November 1995. From July 1991 to March 1994, Mr. Hsu was employed by Cadence,
where his last position was President and General Manager of the IC Design
Group. From June 1988 to July 1991, Mr. Hsu was employed by Sun Microsystems,
Inc., an engineering workstation company, where his last position was Director
of Strategic Business Development. Mr. Hsu holds an S.M. in Ocean Engineering
from the Massachusetts Institute of Technology, an M.S. in Mechanics and
Hydraulics from the University of Iowa and a B.S. in Applied Mathematics from
the National Chung-Hsing University.
MR. HUYETT has served as Vice President of Finance, Treasurer and Principal
Accounting Officer since he joined Avant! in connection with the merger of
Integrated Silicon Solutions, Inc. ("ISS") with and into Avant! in November
1995. From July 1993 to November 1995, Mr. Huyett served as Vice President of
Finance and Chief Financial Officer of ISS. Mr. Huyett also served as Treasurer
and Secretary of ISS from October 1994 to November 1995. Prior to July 1993, Mr.
Huyett was a partner with KPMG Peat Marwick LLP, independent auditors to Avant!.
DR. CHO co-founded Avant! in February 1991 and has been a director of Avant!
since such date. From January 1996 until his resignation in October 1997, Dr.
Cho served as the Senior Vice President of Corporate Operations. From October
1993 until January 1996, he served as the Vice President of Asian Operations.
From the inception of Avant! until October 1993, Dr. Cho served as Vice
President of Sales and Marketing. From September 1986 to February 1991, Dr. Cho
was employed by Cadence where his last position was a Marketing Director of the
IC Division. Dr. Cho holds an M.B.A. from New York University, an M.S. and a
Ph.D. in Electrical Engineering and Computer Science from the University of
California, Berkeley and a B.S. in Electrical Engineering from the National
Chiao-Tung University, Taiwan.
MR. COXE has been a director of Avant! since February 1992. Mr. Coxe is a
general partner of the general partner of Sutter Hill Ventures, a venture
capital investment firm, and has been associated with Sutter Hill Ventures since
1987. Mr. Coxe holds a B.A. in Economics from Dartmouth College and an M.B.A.
from the Harvard Business School.
MR. BRILL has been a director and the Secretary of Avant! since November
1996. Mr. Brill is a corporate and securities attorney whose practice focuses
principally on technology companies and private investment partnerships. He has
been in private practice since 1993, and previously practiced with the San
Francisco law firm of Farella, Braun & Martel. Mr. Brill holds a B.S. in History
from Cleveland State University and a J.D. from the Harvard Law School.
MR. ST. CLAIR has served as a consultant to Avant! since April 1996 and has
been a director of Avant! since September 1997. From September 1987 to March
1996, Mr. St. Clair was employed as an Advisor for
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Industrial Development to the Government of Botswana's Development Corporation.
From September 1981 to August 1987, Mr. St. Clair served as President of St.
Clair International, an international management consulting firm. Mr. St. Clair
holds a B.S. in Management and Economics from Arizona State University and a
B.F.T., Latin America from the American Graduate School for International
Management (Thunderbird).
There are no family relationships amongst any executive officers or
directors of Avant!.
A criminal complaint has been filed by the Santa Clara County District
Attorney's office against Gerald C. Hsu and Y. Eric Cho for alleged
misappropriation of trade secrets as set forth in the Cadence lawsuit. See "Risk
Factors--Litigation Risk."
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EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by Avant!'s Chief Executive Officer and the three other most highly compensated
officers who were serving as such at the end of 1996 (collectively, the "Named
Officers"), each of whose salary and bonus for 1996 exceeded $100,000 for
services rendered in all capacities to Avant! and its subsidiaries for that
fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
SALARY OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) BONUS ($)(1) (#)(2) ($)
- ----------------------------------------------- --------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Gerald C. Hsu ................................. 1996 $ 250,000 $ 350,000 175,000 --
President, Chief Executive Officer and 1995 150,000 250,000 50,000 --
Chairman of the Board of Directors
Y. Eric Cho (3) ............................... 1996 120,000 237,491 20,000 --
Senior Vice President of Corporate Operations 1995 90,000 206,536 -- --
and Director
John P. Huyett ................................ 1996 200,000 30,000 20,000 4,770(4)
Vice President of Finance and Treasurer 1995 150,000 95,000 67,500 16,500(4)
Shawn M. Hailey ............................... 1996 185,966 -- -- --
Senior Vice President of Silicon Division 1995 180,000 98,010 -- 1,648(5)
</TABLE>
- ------------------------
(1) Amounts in this column include amounts earned in the stated year but not yet
paid or paid in the subsequent year. Also, includes amounts deferred under
the 401(k) plan.
(2) Avant! did not grant any stock appreciation rights or make any long-term
incentive payments during the years covered by the table.
(3) Bonus amounts include commissions earned in the year listed. Mr. Cho
resigned in October 1997.
(4) Includes reimbursed moving expenses of $13,500 in 1995, and includes
matching contributions by Avant! to the 401(k) Plan in 1995 and 1996.
(5) Consists of matching contributions of $1,000 under a predecessor 401(k)
Profit Sharing Plan and $648 paid in premiums for Life and Accidental Death,
Disability and Dismemberment Insurance.
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The following table contains information concerning the stock option grants
made to each of the Named Officers in 1996. No stock appreciation rights were
granted to these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (4)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED (#) IN 1996 ($/SH)(3) DATE 5%($) 10%($)
- ------------------------------------ ----------- ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gerald C. Hsu (1)................... 175,000 9.93% $ 19.00 5/29/06 2,091,075 5,299,194
Y. Eric Cho (2)..................... 20,000 1.14 21.75 7/16/06 273,569 693,278
John P. Huyett (2).................. 20,000 1.14 21.75 7/16/06 273,569 693,278
Shawn M. Hailey..................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The option becomes exercisable as to 25% of the option shares one year from
the grant date and as to the balance ratably upon the optionee's completion
of the next thirty-six (36) months of service.
(2) These options become exercisable as to 1/3 of the option shares on the third
anniversary of the vesting commencement date, and as to the balance of the
option shares in equal annual installments ending on the tenth anniversary
of the vesting commencement date. These options can be accelerated at the
discretion of Gerald C. Hsu provided that certain performance objectives are
met.
(3) The exercise price for the options may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. Avant!
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares, together with any
federal and state income tax liability incurred by the optionee in
connection with such exercise. The plan administrator has the discretionary
authority to reprice the options through the cancellation of those options
and the grant of replacement options with an exercise price based on the
fair market value of the option shares on the regrant date. The options have
a maximum term of 10 years measured from the option grant date, subject to
earlier termination in the event of the optionee's cessation of service with
Avant! Under each of the options, the option shares will vest upon an
acquisition of Avant! by merger or asset sale, unless the options are
assumed by the acquiring entity.
(4) The potential realizable value of the options reported above was calculated
by assuming that the market price of the Common Stock of Avant! appreciates
5% and 10% from the date of grant of the options until the expiration of the
options. These assumed annual rates of appreciation were used in compliance
with the rules of the Securities and Exchange Commission and are not
intended to forecast future price appreciation of the Common Stock of
Avant!. The actual value realized from the options could be substantially
higher or lower than the values reported above, depending upon the future
appreciation or depreciation of the Common Stock during the option period
and the timing of exercise of the options. Unless the executive officer
remains employed until he vests in the option shares and the market price of
the Common Stock appreciates over the option term, no value will be realized
from the option grants made to the executive officers.
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The following table sets forth information concerning option exercises in
1996 and option holdings as of the end of 1996 with respect to each of the Named
Officers. No stock appreciation rights were outstanding at the end of that year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
VALUE REALIZED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES (MARKET PRICE AT OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED ON EXERCISE LESS AT FY-END (#) FY-END ($)(2)
EXERCISE EXERCISE -------------------------- ---------------------------
NAME (#) PRICE($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- ------------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald C. Hsu (2)............ 70,000 $ 1,615,600 497,396 127,604 14,756,797 1,626,953
Y. Eric Cho.................. -- -- -- 20,000 -- 200,000
John P. Huyett (2)........... 9,000 177,030 31,500 80,000 541,080 1,214,900
Shawn M. Hailey.............. -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The amounts reported above under the column "Value Realized" merely reflect
the amount by which the fair market value of the Common Stock of Avant! on
the date the option was exercised exceeded the exercise price of the option.
The option holder does not realize any cash until the shares of Common Stock
issued upon exercise of the options are sold.
(2) Based on the closing price of the Common Stock of Avant! at December 31,
1996, as reported on the Nasdaq National Market, of $31.75 per share, less
the exercise price payable for such shares.
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of October 15, 1997 certain information
with respect to shares beneficially owned by (a) each person who is known by
Avant! to be the beneficial owner of more than five percent of Avant!'s
outstanding shares of Common Stock, (b) each of Avant!'s directors and the
executive officers named in the Summary Compensation Table and (c) all current
directors and executive officers as a group. Beneficial ownership has been
determined in accordance with Rule 13d-3 under the Exchange Act. Under this
rule, certain shares may be deemed to be beneficially owned by more than one
person (if, for example, persons share the power to vote or the power to dispose
of the shares). In addition, shares are deemed to be beneficially owned by a
person if the person has the right to acquire shares (for example, upon exercise
of an option or warrant) within 60 days of the date as of which the information
is provided. In computing the percentage ownership of any person, the amount of
shares is deemed to include the amount of shares beneficially owned by such
person (and only such person) by reason of such acquisition rights. As a result,
the percentage of outstanding shares of any person as shown in the following
table does not necessarily reflect the person's actual voting power at any
particular date.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE MERGER AFTER THE MERGER
------------------------- -------------------------
BENEFICIAL OWNER (1) NUMBER PERCENT (2) NUMBER PERCENT (2)
- --------------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Amerindo Investment Advisors Inc. (3).......................... 6,104,903 23.39% 6,104,903 19.77%
FMR Corp. (4).................................................. 2,772,500 10.62 2,772,500 8.98
Van Wagoner Capital Management, Inc. (5)....................... 1,317,646 5.05 1,317,646 4.27
Gerald C. Hsu (6).............................................. 461,500 1.77 461,500 1.49
Y. Eric Cho.................................................... 385,200 1.48 385,200 1.25
John P. Huyett (7)............................................. 83,978 * 83,978 *
Shawn M. Hailey................................................ 1,570,727 6.02 1,570,727 5.09
Eric A. Brill (8).............................................. 5,000 * 5,000 *
Tench Coxe (9)................................................. 49,856 * 49,856 *
Charles L. St. Clair (10)...................................... 9,187 * 9,187 *
All directors and executive officers as a group
(7 persons) (11)............................................. 2,565,448 9.83 2,565,448 8.31
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Unless otherwise indicated, the address for each
listed stockholder is c/o Avant! Corporation, 46871 Bayside Parkway,
Fremont, California 94538. To Avant!'s knowledge, except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
the persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(2) Percentage of beneficial ownership is based on 26,096,494 shares of Common
Stock outstanding as of October 15, 1997, and 30,874,443 shares of Common
Stock outstanding after the Merger. The number of shares of Common Stock
outstanding after the Merger is calculated assuming that the Effective Date
of the Merger is October 15, 1997. There can be no assurance that the shares
of Common Stock outstanding at the Effective Time of the Merger will be
30,874,443, and therefore the percentages indicated may differ from the
actual percentages at the Effective Time of the Merger. The number of shares
of Common Stock beneficially owned includes the shares issuable pursuant to
stock options that are exercisable within sixty (60) days of October 15,
1997. Shares issuable pursuant to stock options deemed outstanding for
computing the percentage of the person holding such options but are not
outstanding for computing the percentage of any other person.
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(3) Based on Schedule 13D filed with the Securities and Exchange Commission as
of June 20, 1997. Excludes 14,500 shares of Common Stock for which
beneficial ownership has been disclaimed. Amerindo Investment Advisors
Inc.'s address is One Embarcadero Center, Suite 2300, San Francisco,
California 94111.
(4) Based on Schedule 13G filed with the Securities and Exchange Commission as
of February 14, 1997. FMR Corp.'s address is 82 Devonshire Street Boston, MA
02109.
(5) Based on Schedule 13G filed with the Securities and Exchange Commission as
of February 14, 1997. Van Wagoner Capital Management, Inc.'s address is One
Bush Street, Suite 1150, San Francisco, California 94104.
(6) Includes options exercisable into 283,375 shares of Common Stock under the
Option Plan.
(7) Includes options exercisable into 82,500 shares of Common Stock under the
Option Plan.
(8) Includes options exercisable into 5,000 shares of Common Stock under the
Option Plan.
(9) Includes options exercisable into 22,500 shares of Common Stock under the
Option Plan, and 2,994 shares beneficially owned by the retirement trust for
the benefit of the reporting person.
(10) Includes options exercisable into 6,666 shares of Common Stock under the
Option Plan.
(11) Includes options exercisable into 400,041 shares of Common Stock under the
Option Plan.
DIRECTOR COMPENSATION
Except for grants of stock options, directors of Avant! generally do not
receive compensation for services provided as a director. Avant! also does not
pay compensation for committee participation or special assignments of the Board
of Directors.
Non-employee Board members are eligible for option grants pursuant to the
provisions of the Automatic Option Grant Program under Avant!'s 1995 Stock
Option/Stock Issuance Plan. On November 22, 1996, Mr. Brill was granted an
option to purchase 20,000 shares of Common Stock at an exercise price of $26.00
per share under the Automatic Option Grant Program. Under the Automatic Option
Grant Program, each individual who first becomes a non-employee Board member
after the date of Avant!'s initial public offering will be granted an option to
purchase 20,000 shares on the date such individual joins the Board, provided
such individual has not been in the prior employ of Avant!. In addition, at the
1996 Annual Stockholders Meeting and each Annual Stockholders Meeting
thereafter, each individual who continues to serve and has served as a
non-employee Board member for at least six months prior to such Annual Meeting
will receive an additional option grant to purchase 5,000 shares of Common
Stock, whether or not such individual has been in the prior employ of Avant!.
Thus, on May 30, 1996, Mr. Coxe received an additional option grant to purchase
5,000 shares of Common Stock.
Non-employee Board members not serving on the Compensation Committee and
directors who are also employees of the Company are eligible to receive options
and be issued shares of Common Stock directly under the 1995 Stock Option/Stock
Issuance Plan. Employee-directors are also eligible to participate in the
Company's Employee Stock Purchase Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Before joining the Board of Directors of Avant! in November, 1996, Mr. Brill
was an attorney with the law firm of Farella Braun & Martel, LLP. Farella Braun
& Martel has represented, and continues to represent, Avant! in certain
litigation matters. In addition, Farella Braun & Martel represents Gerald C.
Hsu, individually, in the Cadence litigation. Through December 31, 1996, Mr.
Brill has received approximately $160,000 in connection with legal services
rendered by Mr. Brill to Avant! and in connection with a
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contract between Mr. Brill and Farella Braun & Martel pursuant to which Mr.
Brill received a portion of the legal fees paid by Avant! to Farella Braun &
Martel.
In 1997, Avant! consolidated its Japanese sales channel by forming a
distributor, MainGate Electronics, Inc. ("MainGate"), owned by Avant!, Gerald C.
Hsu, and other parties (including other Avant! employees and former employees of
Avant!'s third party distributors). Mr. Hsu owns approximately 40% and Avant!
owns approximately 35% of the outstanding shares of MainGate. Other than
possible appreciation of his investment in MainGate, Mr. Hsu has not derived,
directly or indirectly, any remuneration as a result of the distribution
agreement between Avant! and MainGate. The distributorship agreement that Avant!
entered into with MainGate is comparable, from a financial point of view, with
the agreement Avant! had with its previous distributors in the region and
contains no better terms, from a financial point of view, than Avant! could have
negotiated with other potential distributors. Avant! provided MainGate with a
working capital advance of approximately $1.6 million and has also made an
equity investment of approximately $294,000 in MainGate. The working capital
advance is evidenced by a promissory note in favor of Avant! payable upon demand
and bearing an interest rate of 5% compounded annually. See "The
Merger--Interests of Certain Persons in the Merger" and "Avant! Business--Sales
and Marketing."
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
None of Avant!'s executive officers has an employment or severance agreement
with Avant!, and their employment may be terminated at any time at the
discretion of the Board of Directors, with the exception of Gerald C. Hsu, who
can only be terminated upon at least 30 days' notice.
The Compensation Committee has the authority under the 1995 Stock
Option/Stock Issuance Plan to provide for the acceleration of vesting of the
shares of Common Stock subject to the outstanding options held by the Chief
Executive Officer and Avant!'s other executive officers under that Plan, in the
event their employment were to be terminated (whether involuntarily or through a
forced resignation) following a hostile take-over of Avant! effected through a
successful tender offer for more than 50% of Avant!'s outstanding Common Stock
or through a change in the majority of the Board as a result of one or more
contested elections for Board membership.
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TMA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
TMA was founded in 1979 to develop, market and support physical simulation
software for IC design and manufacturing. TMA's original products were based on
research done at Stanford University, and, until 1988, TMA was focused primarily
on research and development. In 1988, TMA hired additional management,
established an engineering strategy, added distribution channels and marketing
capabilities and began to position its products with a more commercial focus.
Today, TMA sells twelve products in six product groups and strives to offer
regular updates for its products.
TMA's revenue consists primarily of fees for licenses of TMA's software
products and fees for maintenance and customer support. Products typically are
licensed on a perpetual basis, with pricing determined by the number of
concurrent users. TMA recognizes revenue from software licenses when software
has been shipped and there are no significant remaining vendor obligations. When
TMA receives payment prior to shipment and fulfillment of significant vendor
obligations, such payments are recorded as deferred revenue and customer
deposits and are recognized as revenue only upon shipment and fulfillment of any
significant vendor obligations.
TMA sells its products directly through its own sales organization in North
America and Europe. In Asia, TMA uses an exclusive distributor in Japan and
exclusive sales representatives in Korea, Taiwan and other markets. The Japanese
distributor purchases TMA's products at a fixed price and, in turn, resells them
to its customers. The Asian sales representative firms are paid commissions
directly by TMA based on their licensing of TMA's products. On September 30,
1997, TMA terminated its representative relationship with C&G Technology, Inc.
("C&G"), its Korean sales representative. TMA subsequently established a
wholly-owned subsidiary in Korea in October 1997. The subsidiary, Technology
Modeling Associates Korea, Inc. will serve primarily as a sales and engineering
support office for TMA's customers in Korea. TMA does not expect that this
termination and establishment of a sales subsidiary will have a material adverse
effect on TMA's revenue from Korea in future periods.
TMA also earns revenue from maintenance agreements for customer and
technical support and product enhancements. Maintenance fees are paid in advance
and are not refundable. Maintenance revenue for ongoing customer support and
product enhancements is recognized ratably over the term of the maintenance
agreement, which is generally twelve months.
Beginning in the second quarter of 1996, TMA began offering professional
services, whereby TMA provides customers with methodologies for integrated
circuit design and manufacturing to improve design and production efficiencies
and calibration services to customize TMA's products to each customer's unique
manufacturing processes. TMA recognizes revenue under professional service
agreements on the percentage of completion method of accounting based upon the
achievement of contractual goals. Funded development revenue consists of revenue
earned on development contracts with government-sponsored and private entities
and is recognized under the percentage of completion method. In 1995, TMA began
reducing its participation in funded development programs.
On August 29, 1997, TMA completed the acquisition of Precim Corporation,
("Precim"). Precim is located in Portland, Oregon, and develops computer
automated products for optimizing the performance and quality of semiconductor
tooling (pattern transfer) activities in wafer fabrication. In connection with
the acquisition of Precim, which was in the form of merger accounted for as a
pooling-of-interests, TMA issued 387,000 shares of TMA Common Stock to the
shareholders of Precim. The acquisition of Precim does not have a material
impact on the historical financial statements of TMA. Accordingly, the results
of Precim have been combined with TMA's financial results commencing on the date
of acquisition and prior period financial statements will not be restated to
include Precim results.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statements of operations data of TMA expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
License................................................... 69.2% 69.7% 69.1% 70.6% 61.9%
Maintenance and other..................................... 15.8 27.5 24.0 23.8 30.8
Professional services..................................... -- -- 4.7 3.2 7.3
----- ----- ----- ----- -----
Total product revenue................................... 85.0 97.2 97.8 97.6 100.0
Funded development........................................ 15.0 2.8 2.2 2.4 0.0
----- ----- ----- ----- -----
Total revenue........................................... 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
License................................................... 5.2 3.9 6.2 6.6 6.9
Maintenance and other..................................... 2.8 5.3 5.3 4.8 4.4
Professional services..................................... -- -- 3.6 3.0 6.4
Funded development........................................ 13.0 2.1 2.3 2.6 0.0
----- ----- ----- ----- -----
Total cost of revenue................................... 21.0 11.3 17.4 17.0 17.7
----- ----- ----- ----- -----
Gross margin............................................ 79.0 88.7 82.6 83.0 82.3
Operating expenses:
Sales and marketing....................................... 29.0 27.5 35.1 34.4 38.9
Research and development.................................. 22.4 33.2 28.0 29.5 38.5
General and administrative................................ 8.6 11.3 9.9 9.5 11.4
Cost of Mergers........................................... -- -- -- -- 2.2
----- ----- ----- ----- -----
Total operating expenses................................ 60.0 72.0 73.0 73.4 91.0
----- ----- ----- ----- -----
Income (loss) from operations........................... 19.0 16.7 9.6 9.6 (8.7)
Other income (expense), net................................. (0.7) 0.4 2.5 0.2 9.5
----- ----- ----- ----- -----
Income before provision for income taxes.................. 18.3 17.1 12.1 9.8 0.8
Provision for income taxes.................................. 6.3 6.9 5.3 5.2 0.3
----- ----- ----- ----- -----
Net income................................................ 12.0% 10.2% 6.8% 4.6% 0.5%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUE
Total revenue increased 7.4% to $13.8 million for the nine months ended
September 30, 1997 from $12.8 million for the nine months ended September 30,
1996.
International sales were $9.0 million and $9.4 million for the nine months
ended September 30, 1997 and 1996, respectively, representing 65.0% and 73.4% of
total revenue for the respective periods. The increase in both total and
international revenue was due primarily to increased licensing and maintenance
and other revenue from North America offset by the delay of a number of orders,
primarily in the U.S. and by TMA's exclusive distributor in Japan, Innotech.
Additionally, the poor economic climate for semiconductor companies in Korea
continued in the third quarter of 1997, resulting in lower Korean revenue.
Despite a shortfall in revenue from Korea that is expected to continue for the
foreseeable future, it is anticipated that international revenue will continue
to constitute a significant portion of TMA's total revenue for the foreseeable
future. International revenues are subject to certain additional risks normally
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associated with international operations, including, among others, adoption and
expansion of government trade restrictions, volatile foreign exchange rates,
foreign withholding taxes, limitations on repatriation of earnings and reduced
protection of intellectual property rights. It has been TMA's experience that
some of its large Korean customers institute significant upgrades of their
design tools relatively infrequently and their purchasing patterns are hard to
predict.
License revenue decreased 5.8% to $8.5 million for the nine months ended
September 30, 1997 from $9.1 million for the nine months ended September 30,
1996. The primary reason for the decrease in license revenue was lower licensing
of TMA's process simulation and device simulation products in Japan, Korea and
Europe.
Maintenance and other revenue increased 38.7% to $4.2 million for the nine
months ended September 30, 1997 from $3.1 million for the nine months ended
September 30, 1996. The increase in maintenance and other revenue was primarily
due to an increase in TMA's installed base of products and TMA's continued
effort toward obtaining customer renewals of maintenance.
Professional services revenue increased to $1.0 million for the nine months
ended September 30, 1997 from $400,000 for the nine months ended September 30,
1996. It was not until the second quarter of 1996 that the Company commenced
performing services and recognizing revenue from professional services
contracts.
In 1995, TMA deliberately reduced its participation in funded development
programs and decided not to pursue new contracts. Consequently, there was no
funded development revenue for the nine months ended September 30, 1997.
COST OF REVENUE
Cost of revenue consists primarily of the costs of media and shipping of
licensed products, the costs of providing maintenance support to TMA's
customers, royalties payable and the costs of TMA's professional services group.
Cost of license revenue as a percentage of license revenue increased to 11.2%
for the six months ended September 30, 1997 from 9.4% of license revenue for the
nine months ended September 30, 1996. The increase corresponds to decreases in
revenue in the third quarter. Cost of license revenue increased primarily due to
increased royalty expenses incurred on revenues from third party software
products sold by TMA. Cost of maintenance and other revenue as a percentage of
maintenance and other revenue decreased to 14.4% for the nine months ended
September 30, 1997 from 20.4% for the nine months ended September 30, 1996, as
maintenance and other revenue increased at a faster rate than the costs of
providing maintenance support to TMA's customers. The cost of professional
services increased to $874,000 for the nine months ended September 30, 1997 from
$623,000 for the nine months ended September 30, 1996, as TMA hired additional
personnel to meet the obligations under the revenue contracts obtained by TMA.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses include the costs
associated with sales and marketing personnel, commissions, promotional events
(such as trade show and technical conference attendance) and advertising and
public relations programs. Sales and marketing expenses increased to $5.4
million for the nine months ended September 30, 1997 from $4.4 million for the
nine months ended September 30, 1996 and increased as a percentage of total
revenue to 38.9% from 34.4% for the six months ended June 30, 1997 and 1996,
respectively. Sales and marketing expenses increased primarily due to the
addition of sales and marketing personnel, the costs associated with the sales
reorganization completed in the second quarter of 1997 and the ongoing expenses
of sales offices opened in mid-1996 in Boston, Portland and Milan, Italy.
RESEARCH AND DEVELOPMENT. Research and development expenses include
engineering and operations personnel, the costs of creating new products and
developing enhancements to existing products and
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providing operations support. Software development costs have been expensed as
incurred, because software development has generally been completed concurrently
with the establishment of technological feasibility. Research and development
expenses increased to $5.3 million for the nine months ended September 30, 1997
from $3.8 million for the nine months ended September 30, 1996, and increased as
a percentage of total revenue to 38.5% from 29.5% for the nine months ended
September 30, 1997 and 1996, respectively. Research and development costs
increased primarily due to increased headcount.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include the
costs associated with the Company's executive office, human resources and
finance functions. For the nine months ended September 30, 1997 and 1996,
general and administrative expenses increased to $1.6 million from $1.2 million,
and increased as a percentage of total revenue to 11.5% from 9.5% for the nine
months ended September 30, 1997 and 1996, respectively. General and
administrative expenses increased primarily due to increased headcount, the
costs of being a public company, additional increases to bad debt reserves and
compensation accruals.
COST OF MERGERS
During the third quarter of 1997, TMA completed its merger with Precim
Corporation and announced its intent to merge with Avant!. TMA incurred
approximately $300,000 of costs associated with the mergers, primarily legal and
accounting fees.
OTHER INCOME (EXPENSE), NET
Other income consists primarily of interest income earned on excess cash
balances. Other expense consists primarily of interest paid on notes payable and
under capitalized lease obligations. Other income was $1.4 million and $132,000
for the nine months ended September 30, 1997 and 1996, respectively. Other
expense was $24,000 and $39,000 for the nine months ended September 30, 1997 and
1996, respectively. The increase in other income was due to the interest earned
on proceeds received from TMA's initial public offering during the third quarter
of 1996.
PROVISION FOR INCOME TAX
Provision for income tax consists primarily of federal income taxes, state
taxes and international withholding taxes. TMA's effective rate of taxation was
37.8% for the nine months ended September 30, 1997 as compared with 52.9% for
the nine months ended September 30, 1996. Because TMA generates a significant
portion of its total revenue from international sales, TMA historically has had
a significant amount of foreign tax withheld, and has not been able to utilize
all of its available tax credits. Accordingly, TMA generated significant tax
credit carryforwards. Given the uncertainty over ultimate utilization of these
credits, they have not been fully benefited in the 1996 tax provision, which
resulted in an effective rate of taxation in excess of the U.S. statutory rate.
Because of increases in domestic income, TMA's effective tax rate in 1997 has
declined, due to the anticipated utilization of available tax credits.
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUE
Total revenue increased 42.6% to $18.0 million for the year ended December
31, 1996 from $12.6 million for the year ended December 31, 1995.
International sales were $12.8 million and $9.1 million for the years ended
December 31, 1996 and 1995, respectively, representing 71.1% and 72.2% of total
revenue for the respective periods. The increase in both total and international
revenue was primarily due to increased licensing and maintenance and other
revenue from Asia.
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License revenue increased 41.5% to $12.4 million for 1996 from $8.8 million
for 1995. The increase in license revenue was primarily due to additional
licensing of TMA's process simulation and device simulation products.
Maintenance and other revenue increased 48.6% to $5.2 million for 1996 from
$3.5 million for 1995. The increase in maintenance and other revenue was
primarily due to an increase in TMA's installed base of products, TMA's
continued effort toward obtaining customer renewals of maintenance, and the
commencement of revenue from professional services contracts.
Revenue from funded development contracts increased slightly to $388,000 in
1996 from $353,000 in 1995 as TMA concluded work on outstanding funded
development projects. In 1995, TMA deliberately reduced its participation in
funded development programs and did not pursue new contracts in 1996.
COST OF REVENUE
Cost of license revenue as a percent of license revenue increased to 8.9%
for 1996 from 5.5% of license revenue for 1995. Cost of license revenue
increased primarily due to increased royalty expenses incurred on revenues from
third party software products sold by TMA. Cost of maintenance and other revenue
as a percent of maintenance and other revenue increased to 31.2% for 1996 from
19.4% for 1995. The increase in the cost of maintenance and other revenue was
attributable primarily to the start-up costs associated with TMA's professional
services group and additional personnel who are providing maintenance support to
TMA's customers. Cost of funded development revenue as a percentage of funded
development revenue increased to 105.0% for 1996 from 76.0% for 1995 as a result
of the timing of milestone payments associated with funded development programs.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased to $6.3 million
for 1996 from $3.5 million for 1995 and increased as a percentage of total
revenue to 35.1% from 27.5% for 1996 and 1995, respectively. Sales and marketing
expenses increased primarily due to the addition of sales and marketing
personnel and the opening of new sales offices in Boston, Portland and Milan,
Italy. TMA expects that its sales and marketing expenses will continue to
increase in absolute dollars.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$5.0 million for 1996 from $4.2 million for 1995, but decreased as a percentage
of total revenue to 28.0% from 33.2% for 1996 and 1995, respectively. Research
and development costs increased primarily due to increased headcount. The
decrease as a percentage of revenue was primarily due to revenues increasing at
a faster rate than the increase in research and development expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1.8 million for 1996 from $1.4 million for 1995, but decreased as a
percentage of total revenue to 9.9% from 11.3% for 1996 and 1995, respectively.
General and administrative expenses increased primarily due to increased
headcount and the costs of being a public company. The decrease as a percentage
of revenue was due to revenues increasing at a faster rate than the increase in
general and administrative expenses. TMA expects general and administrative
expenses will continue to decrease as a percentage of revenue.
OTHER INCOME (EXPENSE), NET
Other income was $568,000 and $192,000 for 1996 and 1995, respectively.
Other expense was $129,000 and $143,000 for 1996 and 1995, respectively. The
increase in other income was due to the interest earned on proceeds received
from TMA's initial public offering.
PROVISION FOR INCOME TAX
Provision for income tax consists primarily of federal income taxes, state
taxes and international withholding taxes. TMA's effective rate of taxation was
43.6% for 1996 and 40.3% for 1995. Because TMA
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generates a significant portion of its total revenue from international sales
that require the withholding of foreign tax, it has not been able to utilize all
of its available tax credits. Accordingly, TMA has generated significant tax
credit carryforwards. Given the uncertainty over ultimate utilization of these
credits, they have not been fully benefited in the tax provision, which has
resulted in an effective rate of taxation in excess of the U.S. statutory rate.
TMA expects its effective tax rate to decline in 1997 as it begins to utilize
its foreign tax credits.
YEARS ENDED DECEMBER 31, 1995 AND 1994
REVENUE
Total revenue increased 4.3% to $12.6 million for the year ending December
31, 1995 from $12.1 million for the year ending December 31, 1994. International
sales were $9.1 million and $7.8 million for 1995 and 1994, respectively,
representing 72.2% and 64.6% of total revenue for the respective periods. The
increase in both total and international revenue was due primarily to higher
unit sales in Japan and other parts of the world that more than offset a
decrease in sales in Korea and in North America.
License revenue increased 4.9% to $8.8 million for 1995 from $8.4 million
for 1994. The increase in license revenue was primarily due to additional
licensing of TMA's process simulation and device simulation products.
Maintenance and other revenue increased 81.6% to $3.5 million for 1995 from
$1.9 million for 1994. The increase in maintenance and other revenue was
primarily due to the continuation of renewals of maintenance contracts and the
sales of additional licenses to existing and new customers.
Revenue from funded development contracts decreased to $353,000 in 1995 from
$1.8 million in 1994 as TMA deliberately reduced its participation in funded
development programs in 1995.
COST OF REVENUE
Cost of license revenue as a percent of license revenue decreased to 5.5%
for 1995 from 7.5% of license revenue for 1994, primarily as a result of TMA's
selling a higher percentage of non-royalty products. Cost of maintenance and
other revenue as a percent of maintenance and other revenue increased to 19.4%
for 1995 from 17.9% for 1994, as TMA put more resources in its sales support
operations. Cost of funded development revenue decreased to $268,000 in 1995
from $1.6 million in 1994, as TMA made a strategic decision not to pursue
additional funded development projects in order to focus its resources on
increasing product sales.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses remained constant in
absolute dollars at $3.5 million, but decreased as a percent of revenue to 27.5%
for 1995 from 29.0% for 1994 primarily due to a large decline in commissions on
lower sales in Korea that offset an increase in headcount.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$4.2 million for 1995 from $2.7 million for 1994 and increased as a percentage
of total revenue to 33.2% from 22.4% for 1995 and 1994, respectively. Research
and development expenses increased as TMA increased engineering headcount in
1995 by approximately one-third.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1.4 million for 1995 from $1.0 million for 1994 and increased as a
percentage of total revenue to 11.3% from 8.6% for 1995 and 1994, respectively.
The increase in general and administrative expenses was primarily due to
additional personnel and higher legal and accounting fees.
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OTHER INCOME (EXPENSE), NET
Other income increased to $192,000 from $32,000 for 1995 and 1994,
respectively, due to interest earned on cash balances. Other expense increased
to $143,000 from $115,000 for 1995 and 1994, respectively, due to interest paid
on notes payable.
PROVISION FOR INCOME TAX
Provision for income tax consists primarily of federal income taxes, state
taxes and international withholding taxes. TMA's effective rate of taxation was
40.3% for 1995 and 34.4% for 1994. Because TMA generates a significant portion
of its total revenue from international sales that require withholding of
foreign tax, it has not been able to utilize all of its available tax credits.
Accordingly, TMA has generated significant tax credit carryforwards. Given the
uncertainty over ultimate utilization of these credits, they have not been
benefited in the tax provision, which has resulted in an effective rate of
taxation in excess of the U.S. statutory rate.
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth certain unaudited quarterly financial data
for each of the 11 quarters through the quarter ending September 30, 1997. This
unaudited information has been prepared on the same basis as the audited
consolidated financial statements contained herein and includes all necessary
adjustments (consisting of normal recurring adjustments) that TMA Management
believes are necessary to present fairly the information set forth therein. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
1997 QUARTER ENDED 1996 QUARTER ENDED
------------------------------- ------------------------------------------
SEP 30 JUNE 30 MAR 31 DEC 31 SEP 30 JUN 30 MAR 31
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Total product revenue..................... $ 3,459 $ 5,264 $ 5,055 $ 5,055 $ 4,735 $ 4,098 $ 3,683
Funded development........................ -- -- -- 79 82 146 81
--------- --------- --------- --------- --------- --------- ---------
Total revenue........................... 3,459 5,264 5,055 5,134 4,817 4,244 3,764
Gross profit................................ 2,583 4,490 4,269 4,190 3,978 3,579 3,088
Income (loss) from operations............... (2,127) 506 417 502 616 362 252
Net income (loss)........................... $ (1,000) $ 560 $ 509 $ 632 $ 298 $ 174 $ 120
Net income (loss) per share................. $ (0.13) $ 0.07 $ 0.06 $ 0.08 $ 0.05 $ 0.03 $ 0.02
Weighted average common and common
equivalent shares......................... 7,820 8,222 8,480 8,412 5,521 5,426 5,510
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTER ENDED
------------------------------------------
DEC 31 SEP 30 JUN 30 MAR 31
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Total product revenue.................................................... $ 3,888 $ 2,845 $ 3,171 $ 2,336
Funded development....................................................... 249 30 74 --
--------- --------- --------- ---------
Total revenue.......................................................... 4,137 2,875 3,245 2,336
Gross profit............................................................... 3,654 2,572 2,874 2,068
Income from operations..................................................... 857 382 502 357
Net income................................................................. $ 526 $ 248 $ 310 $ 198
Net income per share....................................................... $ 0.09 $ 0.04 $ 0.06 $ 0.04
Weighted average common and common equivalent shares....................... 5,744 5,570 5,314 5,403
</TABLE>
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TMA's operating results have varied in the past, and may vary significantly
in the future, depending on factors such as size and timing of significant
customer orders, timing and levels of operating expenses, increased competition,
timing of new product announcements and releases by TMA and its competitors,
market acceptance of new and enhanced versions of TMA's products, gain or loss
of significant customers, distributors or sales representatives, renewal rates
of maintenance contracts, pricing changes by TMA or its competitors, personnel
changes, and economic conditions in general and in the semiconductor industry
specifically. Any unfavorable change in these or other factors could have a
material adverse effect on TMA's operating results.
In particular, revenue and operating results depend on the volume and timing
of orders received during the quarter. A significant portion of TMA's revenue in
each period results from licenses entered into during that period, and TMA
historically has operated with little order backlog. There can be no assurance
that TMA will attain a significant backlog in the future. TMA's expense levels
are relatively fixed and are based, in part, on expectations regarding future
revenue. Furthermore, TMA often recognizes a substantial portion of its license
revenue in the last month or even weeks of a quarter, and, therefore its net
income, if any, may be disproportionately affected by a reduction in revenue
because only a small portion of TMA's expenses vary with its revenue. Because of
the relatively large dollar size of TMA's typical software license, any delay in
the closing of a transaction may have a significant impact on TMA's operating
results for a particular period.
In addition, TMA's revenue and results of operations have been and may
continue to be affected by seasonal trends, which may result in higher revenue
in certain periods due to customers' purchasing and budgetary practices. There
can be no assurance that seasonal trends in customer purchasing will not
materially adversely affect TMA's results of operations in future periods.
Consequently, operating results in any period should not be considered
indicative of the results to be expected for any future period.
LIQUIDITY AND CAPITAL RESOURCES
Historically, TMA has financed its operations through private sales of
equity securities and with cash generated from operations. During 1996,
approximately, $31.0 million in cash, net of expenses, was raised through the
Company's initial public offering.
For the nine months ended September 30, 1997, the Company generated $564,000
in cash for operating activities. The funds resulted primarily from net income
and an increase in accrued liabilities and deferred revenue, offset by an
increse in accounts receivable. Net cash provided by operating activities was
$2.3 million for 1996 which resulted primarily from net income and an increase
in deferred revenue. Cash used in investing activities was $8.7 million and $2.1
million for the nine months ended September 30, 1997 and 1996, respectively,
which resulted primarily from net purchases of short-term investments and
capital equipment.
As of September 30, 1997, TMA had working capital of $34.3 million and cash
and equivalents and short-term investments of $34.6 million. As of September 30,
1997, TMA had no bank indebtedness and no long-term commitments other than
operating lease obligations. TMA expects to spend approximately $1.0 million on
capital items in the next 12 months. TMA believes that the existing cash and
cash equivalents, short-term investments and funds generated from operations
will provide TMA with sufficient funds to finance its operations for at least
the next 12 months. TMA may require additional funds to support its working
capital requirements or for other purposes and may seek to raise such additional
funds through public or private financing or from other sources. No assurance
can be given that additional financing will be available or that, if available,
such financing will be obtainable on terms favorable to TMA or its shareholders.
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TMA BUSINESS
OVERVIEW
TMA is a leading provider of physical simulation software to support
integrated circuit design and manufacturing. TMA's TCAD software enables
customers to design next-generation ICs with a focus not only on performance but
also on manufacturability and reliability early in the design process. The
migration to deep submicron (less than 0.5 micron) and other leading edge
technologies has resulted in the emergence of a new set of design problems not
adequately addressed by traditional EDA tools. TMA's software allows designers
to model on-chip physical devices, such as transistors and interconnect
structures, at a detailed level and to analyze various effects related to
semiconductor physics. Through the use of TMA's software, semiconductor
companies are able to reduce the need to manufacture costly and time-consuming
experimental wafers to test new technology designs and accurately predict
circuit performance. This allows customers to evaluate a broader range of
technologies in the production of more innovative products with higher yields
while reducing time-to-market. TMA sells to more than 240 commercial customers
in 19 countries.
On August 29, 1997, TMA completed the acquisition of Precim Corporation
("Precim"). Precim is located in Portland, Oregon, and develops computer
automated products for optimizing the performance and quality of semiconductor
tooling (pattern transfer) activities in wafer fabrication. In connection with
the acquisition of Precim, which was in the form of merger accounted for as a
pooling-of-interests, TMA issued 387,000 shares of TMA Common Stock to the
shareholders of Precim.
PRODUCTS AND SERVICES
TMA provides a suite of software products for physical simulation of IC
technology, consisting of six product categories: process simulation, topography
simulation, device simulation, technology characterization, simulation
environment and application-specific solutions. Process and device simulation
products accounted for more than 70% of TMA's total revenue for 1996. TMA's
products are designed to be used as stand-alone tools or as part of an
integrated system. An initial set of tools licensed by a new customer might
include TMA WorkBench, TSUPREM-4 and Medici. This set of products would
typically be priced at $100,000 to $200,000 depending on the number of copies
licensed and the computer platform upon which they are installed. TMA's software
products are available for use on a variety of UNIX-based engineering
workstations.
<TABLE>
<CAPTION>
CATEGORY TMA PRODUCT APPLICATION
- ---------------------------------- --------------------- ------------------------------------------------------
<S> <C> <C>
Process Simulation TSUPREM-4 Simulate ion implantation, diffusion and oxidation
Topography Simulation DEPICT Simulate photolithography
TERRAIN Simulate deposition and etch
PROTEUS Optical proximity correction
Device Simulation MEDICI Simulate electrical behavior of 2D device structures
DAVINCI Simulate electrical behavior of 3D device structures
Technology Characterization RAPHAEL Extract models for multilayer interconnect structures
AURORA Extract transistor models
Simulation Environment TMA WORKBENCH Integrated system for simulation control and data
management
TMA VISUAL Analyze data graphically
TMA LAYOUT Graphical interface to layout
DFM WORKBENCH Design for manufacturability for yield optimization
Application-Specific Solutions LIQUID Design system for active matrix liquid crystal
displays (LCDs)
</TABLE>
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TMA has also recently begun to provide dedicated engineering personnel to
strategic customers to assist them in improving operational efficiency. For this
purpose, TMA maintains a staff of experienced IC technologists that are assigned
as consultants to the customer's development or design staff. Contracted
projects are priced at a negotiated fixed fee and provide both direct revenue
contributions to TMA and indirect revenue contributions by encouraging
additional licensing of TMA's software.
TECHNOLOGY
TMA's technical expertise includes semiconductor process and device physics,
algorithms for solving the equations that describe such physics and modern
software techniques for developing simulation systems. TMA's products reduce
complex semiconductor technology physics to efficient physical models. TMA has
developed proprietary methods for fine-tuning these models so that they predict
accurately the unique characteristics of a given IC manufacturer's technology.
TMA has also derived efficient solution algorithms to enhance the performance
and stability of its products. TMA uses state-of-the-art programming methods,
including object-oriented techniques, in software development to provide IC
manufacturers with software solutions to semiconductor technology-related
problems in IC design and manufacturing.
TMA's products enable engineers to consider performance, manufacturability
and reliability in the initial technology design. TMA has designed its TCAD
software to allow IC design teams to meet nominal performance, reliability and
yield objectives simultaneously. In this process, the engineer chooses a
technology design which produces devices that not only conform to performance
specifications, but also are as tolerant as possible to manufacturing
variations. Subsequently, the engineer uses Monte Carlo sampling to obtain
"worst case" technology models. These models define the fastest and slowest
device performance that can be expected as a result of manufacturing variations,
and are provided to circuit designers so that variations in final IC product
performance can be predicted. By using TMA's products, IC manufacturers can
understand technology implications on new IC products earlier and make the
corrections necessary to produce higher yielding products.
The technology models that TMA products generate are typically used by
traditional EDA tools during full circuit design. These models provide the link
between the physical design and the underlying technology, and include
interconnect models that define the parasitic electrical characteristics of
metalization technology and transistor models that define the electrical
performance of the active elements comprising the IC. As deep submicron designs
become more pervasive, the electrical impact of interconnect has become a
greater concern. This has created the current interest in signal integrity
analysis and the market success of the EDA tools that address layout parasitic
extraction and timing simulation. The technology models generated by TMA's
products provide the accuracy that facilitates the use of these more traditional
EDA tools in the deep submicron realm.
CUSTOMERS
TMA sells to more than 240 commercial customers in 19 countries.
Substantially all of TMA's customers come from three segments of the
semiconductor industry: IC manufacturers, equipment manufacturers and fabless
companies. To date, a significant majority of TMA's total revenue has been
derived from IC manufacturers.
SALES AND MARKETING
TMA markets its software and services worldwide. In North America and
Europe, TMA uses a direct sales force of nine people to reach customers from its
headquarters in Sunnyvale, California, and its sales offices in Boston,
Portland, Austin, London, England and Milan, Italy. In Asia, TMA markets its
products and services primarily through a distributor and sales representatives.
In Japan, TMA has established a mutually exclusive distributorship with Innotech
Corporation ("Innotech"), which has seven people dedicated to licensing and
supporting TMA's products in Japan. TMA's distribution agreement with
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Innotech renews automatically for one-year terms unless terminated by 90 days
written notice prior to expiration of a renewal period. There can be no
assurance that such agreement will not be terminated or that Innotech will
continue to serve as TMA's distributor, particularly in light of the fact that
Cadence, a competitor of Avant!, holds a minority interest. There can be no
assurance that Innotech will continue to serve as a distributor of TMA product
licenses to customers in Japan following the Merger in view of Cadence's pending
litigation with Avant! In each of Korea, Taiwan and Singapore, TMA's sales are
made through a local sales representative with geographic exclusivity. TMA's
sales channels, both direct and indirect, are also supported by field
application engineers trained by TMA.
In the nine months ended September 30, 1997 and 1996, 1995 and 1994,
licensing and maintenance of TMA's software products in Asia, primarily Japan,
Korea and Taiwan, accounted for approximately 49.7%, 60.0%, 61.5% and 55.9%,
respectively, of TMA's total revenue. Sales of TMA's product licenses to
customers in Japan are made exclusively through a single distributor, Innotech.
In the nine months ended September 30, 1997 and 1996, 1995 and 1994, sales
through this distributor accounted for 26.2%, 22.3%, 35.8% and 19.4%,
respectively, of TMA's total revenue. In Korea, licenses to customers are made
through a single independent sales representative, C&G Technology, Inc. ("C&G"),
however TMA has terminated this relationship with C&G and will distribute
products directly in Korea. Revenue from sales in Korea made up approximately
13.7%, 30.3%, 15.4% and 32.5% of TMA's total revenue in the nine months ended
September 30, 1997, and 1996, 1995 and 1994, respectively. Sales to customers in
Taiwan, which made up approximately 9.8%, 7.4%, 10.2% and 4.0% of TMA's total
revenue in the nine months ended September 30, 1997 and 1996, 1995 and 1994,
respectively, were also carried out through a single independent sales
representative, Business Technology, Inc. ("BTI"). TMA's agreement with BTI
renews automatically every year but may be terminated if either party gives
notice 90 days prior to the expiration of a renewal period.
In addition to its direct and indirect sales channels, TMA utilizes
advertising, newsletters, direct mailing and public relations programs,
participates in numerous industry trade shows and organizes seminars and
conferences to promote the adoption of its products and services.
RESEARCH AND DEVELOPMENT
TMA believes that its future success will depend in part on its ability to
maintain and improve its current technologies, enhance its existing products and
develop new products that meet an expanding range of customer requirements. The
research and development process at TMA is focused on working closely with
customers to solve their technology problems, especially those related to next
generation IC technology development and design for manufacturability. TMA has
introduced two products for the TCAD market in 1996 and a third, DFM WorkBench,
in February 1997. TMA strives to offer regular updates of its product offerings
and intends to expand its existing product offerings in the future. TMA's
products run in most UNIX-based environments. TMA intends to develop versions
that will run on additional platforms as market requirements dictate. Recently,
TMA began to rearchitect certain of its products to provide for next generation
capabilities.
In the past, TMA has developed products through efforts with, or acquired
technology from, IBM, Philips Research Labs, Plessey, Hewlett-Packard Co., Texas
Instruments Inc. and Stanford University that resulted in the licensing of code
and, in some cases, the payment of royalties by TMA. TMA also has informal
arrangements with other EDA companies, such as Avant!, Cadence Design Systems,
Inc., Epic Design Technology, Inc., Frequency Technology, Inc. and Mentor
Graphics Corp. to link certain synergistic products in order to create a
solution for IC physical design. In the future, TMA may license or acquire
technology or products from third parties or consultants.
As of September 30, 1997, TMA's engineering group consisted of 33 full-time
employees, 20 of whom had Ph.D. degrees and 11 of whom had M.S. degrees. TMA
seeks to hire experts in the fields of semiconductor physics, electrical
engineering, mathematics and software development. Such highly skilled
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individuals are difficult to find, and there is no assurance that TMA will be
able to hire and retain sufficient technological personnel in the future. For
the nine months ended September 30, 1997 and for 1996, 1995 and 1994, research
and development expenses were $5.3 million, $5.0 million, $4.2 million and $2.7
million, respectively. To date, all software development costs have been
expensed as incurred. TMA anticipates that it will continue to commit
substantial resources to research and development in the future.
The EDA industry is characterized by rapid technological change, frequent
new product introductions and enhancements of existing products, evolving
industry standards and rapidly changing customer requirements. TMA must meet the
challenges of the EDA industry by introducing new products and product
enhancements, and must continue to address customers' current and future needs
in a timely manner. There can be no assurance that TMA will succeed in
developing and marketing new products or product enhancements or that TMA will
not experience difficulties that could delay or prevent the development, the
introduction or the marketing of these products. Additionally, there can be no
assurance that TMA's new products and product enhancements will sufficiently
meet the requirements of the marketplace, will be of acceptable quality, or will
achieve market acceptance or that the introduction of new products or new
industry standards will not render existing products obsolete and unmarketable.
In order to meet changing market demands, TMA may need to increase the size and
expertise of its product development staff in order to address technological and
product development challenges. There can be no assurance that TMA will be able
to hire personnel who adequately understand the product development needs of an
evolving industry. An inability of TMA to respond to changing market conditions,
address customer requirements or develop and introduce products in a timely
manner will materially and adversely affect TMA's business, operating results
and financial condition.
COMPETITION
The historical competition for TCAD products has come from design automation
or research and development groups working within established IC manufacturing
companies. These companies, some of which are customers of TMA, have access to
significantly greater financial resources than TMA and may be able to develop
their own simulation tools, thus reducing their reliance upon products from
independent companies. Established IC manufacturers or design companies may also
elect in the future to market their internally developed products and compete
directly with TMA for other customers. If these or other established companies
enter the market, competitive pressures could intensify due to their
significantly greater financial, technical and marketing resources, as well as
the name recognition that these companies possess. The principal competitive
factors affecting this market are accuracy, functionality, technical competence
of engineering staff, reliability, price, tool integration and ease of use. TMA
believes it competes favorably with respect to such factors.
In addition, Silvaco International, Inc. ("Silvaco") and one other small
private company offer products that compete with a number of TMA's products.
Other companies offer a single product that competes with one of TMA's products.
Because these competitors are private companies for which little public
information is available, TMA can only estimate their size and market
penetration. TMA has experienced pricing pressures in the past, and increased
competition from current competitors or new market entrants could result in
additional price reductions, reduced margins or loss of market share, any of
which could have a material adverse effect on TMA's business, operating results
and financial condition. In addition, it is possible that large,
well-established EDA companies may acquire the technology of one or more of
TMA's private competitors to gain access to the markets in which TMA competes.
With significantly more financial resources than TMA and large existing customer
bases, these potential competitors could increase the competition faced by TMA.
Because of the changing nature of the EDA and TCAD markets and actual and
potential competition, there can be no assurance that TMA will be able to
maintain its market share or that its competitors will not increase their market
share of the TCAD market. See "Risk Factors--Competition."
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There can be no assurance that TMA's current or potential competitors will
not develop products comparable or superior to those developed by TMA or that
they will not adapt more quickly than TMA to new technologies. New competition
and potential alliances could emerge and rapidly acquire a significant market
share, which could have a material adverse effect on TMA's business, operating
results and financial condition.
PROPRIETARY RIGHTS
TMA licenses from third parties software code that has been incorporated
into certain of TMA's products. Such licenses contain provisions that could lead
to termination upon TMA's breach or abandonment. Any such termination could have
a material adverse effect upon TMA's business, operating results and financial
condition.
TMA relies primarily on a combination of trade secrets, copyright and
trademark laws, confidentiality procedures and contractual provisions to protect
its proprietary rights in its software products. TMA licenses its software
pursuant to signed license agreements that impose certain restrictions on
licensees' abilities to utilize the software. TMA also ships its software to all
customers with a security device. TMA does not license or release the source
code for its proprietary software to its customers, except in connection with
joint development agreements. TMA also generally enters into proprietary
information and confidentiality agreements with its employees, consultants and
distributors to limit access to, and distribution of, its source code,
documentation and other proprietary information. TMA currently has no patents or
patent applications pending.
Despite TMA's efforts to protect its proprietary rights, there can be no
assurance that a third party will not copy or otherwise obtain and use TMA's
products or technology without authorization, or develop similar or superior
technology independently. Policing unauthorized use of TMA's products is
difficult, and, while TMA is unable to determine the extent to which piracy of
its software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of many countries do not protect TMA's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that TMA's means of protecting its proprietary rights
will be adequate.
Although TMA believes its products do not infringe on the proprietary rights
of third parties, there can be no assurance that infringement claims will not be
asserted against TMA in the future and that any such claims will not require TMA
to enter into costly litigation. Irrespective of the validity or the successful
assertion of such claims, any such claims or any such litigation could result in
significant diversions of effort by TMA's technical and management personnel, as
well as significant costs incurred by TMA with respect to the defense thereof,
and could have a material adverse effect on TMA's business, operating results
and financial condition. In addition, if any claims or actions are asserted
against TMA, TMA may choose to, or be required to, obtain a license under a
third party's intellectual property rights. There can be no assurance that under
such circumstances a license would be available upon reasonable terms if, at
all. See "Risk Factors--Limitations on Protection of Intellectual Property and
Proprietary Rights."
EMPLOYEES
As of September 30, 1997, TMA employed 96 full-time persons, including 24 in
sales, presales technical support, marketing and related activities, 57 in
research and development, including operations support, 5 in the professional
services group and 10 in management, administration and finance. None of TMA's
employees is represented by a labor union or is the subject of a collective
bargaining agreement with respect to his or her employment by TMA. TMA has never
experienced a work stoppage and believes that its employee relations are good.
TMA's success depends to a significant extent upon a number of key technical
and management employees. The loss of the services of any of TMA's key employees
could have a material adverse effect on TMA. TMA's success also depends in large
part on its continued ability to attract and retain highly skilled
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technical, managerial, sales and marketing personnel with significant experience
in semiconductor physics, electrical engineering, mathematics and software
engineering. In the current employment climate in the Silicon Valley,
competition for such personnel is particularly intense.
PROPERTIES
TMA's principal administrative, sales, marketing, support and product
development facility is located in approximately 32,000 square feet of space in
Sunnyvale, California. The lease on this office space expires in February 2001,
and TMA has a one-time option to extend the lease term for an additional three
years. TMA also leases or subleases small offices in Boston, Portland, Austin,
England and Italy. TMA continues to pay rent in connection with the lease
agreement related to its previous headquarters in Palo Alto, California which it
is currently subleasing to a third party through May 1998, when TMA's lease
expires. See Note 7 of Notes to TMA Audited Consolidated Financial Statements.
TMA believes that suitable additional or alternative space will be available in
the future on commercially reasonable terms as needed.
LEGAL PROCEEDING
On October 14, 1997, Microunity Systems Engineering, Inc. filed an action
against Precim in the United States District Court for the Northern District of
California. The complaint alleges that certain Precim software products infringe
two patents and seeks an unspecified amount of damages, plus costs and attorneys
fees and also seeks to enjoin further infringement of these patents. This
complaint has not yet been served, therefore TMA is unable to ascertain the
effect, if any, that this complaint will have on TMA's business, operating
results and financial condition.
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CHANGES IN AND DISAGREEMENTS WITH TMA'S ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
In September 1995, the Board of Directors authorized TMA to retain Arthur
Andersen LLP as its independent public accountants and to dismiss its former
accountants, KPMG Peat Marwick LLP. The report of KPMG Peat Marwick LLP for the
year ended December 31, 1994 contained no adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
application of accounting principles. During the year ended December 31, 1994
and through the date of replacement, there were no disagreements with KPMG Peat
Marwick LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
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STOCK OWNERSHIP OF TMA MANAGEMENT AND PRINCIPAL TMA SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of TMA's Common Stock as of December 1, 1997 as to (a) each person who
is known by TMA to own beneficially more than 5% of the outstanding shares of
TMA Common Stock, (b) each director of TMA, (c) the President and Chief
Executive Officer of TMA and each of the TMA Named Executive Officers (as
defined below) and (d) all directors and executive officers of TMA as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)(2)
-----------------------
NAME NUMBER PERCENT
- ---------------------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
William E. Drobish
Star Ventures, L.P. (3)......................................................... 800,000 9.9%
Roy E. Jewell (4)................................................................. 730,777 9.0
Robert W. Dutton (5).............................................................. 730,000 9.0
Interactive Research, Inc. (6).................................................... 517,500 6.4
Warburg Pincus Counselors, Inc. (7)............................................... 498,000 6.1
Van Wagoner Capital, Inc. (8)..................................................... 430,500 5.3
Jue-Hsien Chern (9)............................................................... 161,927 2.0
Lung Chu (10)..................................................................... 78,634 1.0
David M. Lee (11)................................................................. 64,200 *
Louis A. Delmonico (12)........................................................... 35,000 *
Ronald A. Rohrer (13)............................................................. 29,000 *
All executive officers and directors as a group
(10 persons) (14)............................................................... 2,733,999 33.2
</TABLE>
- ------------------------
* Less than 1%
(1) Applicable percentage of ownership is based on shares of TMA Common Stock
outstanding as of December 1, 1997 together with applicable options for such
shareholder. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission (the "SEC"), and includes voting
and investment power with respect to shares. Shares of Common Stock subject
to options currently exercisable or exercisable within 60 days after
December 1, 1997 are deemed outstanding for computing the percentage
ownership of the person holding such options, but are not deemed outstanding
for computing the percentage of any other person.
(2) This table is based upon information supplied by officers, directors and
principal shareholders and filings with the SEC. Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, TMA believes that each of the shareholders named in this table
has sole voting and investment power with respect to the shares indicated as
beneficially owned.
(3) Dr. Drobish, a director of TMA, is a General Partner of Star Ventures, L.P.
("Star"), the record owner of the shares. Dr. Drobish's wife is the other
General Partner of Star. The address of Dr. and Mrs. Drobish and Star is c/o
Technology Modeling Associates, 595 Lawrence Expressway, Sunnyvale, CA
94086.
(4) Mr. Jewell is President, Chief Executive Officer and Chairman of the Board
of TMA. Mr. Jewell's address is c/o Technology Modeling Associates, 595
Lawrence Expressway, Sunnyvale, CA 94086.
(5) Includes 72,860 shares held by trust of which Mr. Dutton has beneficial
control. Dr. Dutton is a director of TMA. His address is c/o Technology
Modeling Associates, 595 Lawrence Expressway, Sunnyvale, CA 94086.
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(6) Based on the filing of Interactive Research, Inc. ("Interactive") on file
with the SEC as of December 1, 1997. The address of Interactive is 101 Park
Center Plaza, San Jose, California 95113.
(7) Based on the filing of Warburg Pincus Counselors, Inc. ("Warburg") on file
with the SEC as of December 1, 1997. The address of Warburg is 466 Lexington
Ave., 10th Floor, New York, New York 10017.
(8) Based on the filing of Van Wagoner Capital, Inc. on file with the SEC as of
December 1, 1997. The address of Van Wagoner Capital, Inc. is 345 California
St., Suite 2450, San Francisco, California 94104.
(9) Includes 40,300 shares subject to TMA's right of first refusal and right of
repurchase at the original purchase price as of March 31, 1997 and 35,000
shares subject to options exercisable within 60 days of December 1, 1997.
Dr. Chern is TMA's Vice President, Engineering and Chief Technical Officer.
(10) Includes 21,038 shares subject to TMA's right of first refusal and right of
repurchase at the original purchase price as of August 31, 1997 and 40,000
shares subject to options exercisable within 60 days of December 1, 1997.
Mr. Chu is TMA's Vice President, Strategic Alliances and Business
Development.
(11) Includes 2,600 shares subject to options exercisable within 60 days of
December 1, 1997. Mr. Lee is TMA's Vice President, Operations.
(12) Includes 15,000 shares subject to TMA's right of first refusal and right of
repurchase at the original purchase price as of August 31, 1997 and 15,000
shares subject to options exercisable within 60 days of December 1, 1997.
Dr. Delmonico is a director of TMA.
(13) Includes 15,000 shares subject to TMA's right of first refusal and right of
repurchase at the original purchase price as of August 31, 1997 and 11,000
shares subject to options exercisable within 60 days of December 1, 1997.
Dr. Rohrer is a director of TMA.
(14) Includes an additional 104,461 shares of which 47,964 shares are subject to
TMA's right of first refusal and right of repurchase at the original
purchase price as of August 31, 1997 and 104,850 shares subject to options
exercisable within 60 days of December 1, 1997, held by executive officers
not otherwise listed in this table.
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TMA MANAGEMENT
The following table sets forth information as of August 31, 1997 regarding
the directors and executive officers of TMA who will become officers of TMA, a
wholly-owned subsidiary of Avant! upon consummation of the Merger (the "TMA
Named Executive Officers"). Each of the current executive officers and employees
of TMA will be employed with TMA, a wholly-owned subsidiary of Avant! following
the Merger.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION WITH TMA
- ---------------------------- --- -----------------------------------------------------------------------------
<S> <C> <C>
Roy E. Jewell............... 42 President, Chief Executive Officer and Chairman of the Board of the Company
Bennet L. Weintraub......... 43 Vice President, Finance and Administration and Chief Financial Officer
Jue-Hsien Chern............. 43 Vice President, Engineering and Chief Technical Officer
Lung Chu.................... 45 Vice President, Strategic Alliances and Business Development
David M. Lee................ 51 Vice President, Operations
Milan G. Lazich............. 36 Director of Marketing
</TABLE>
ROY E. JEWELL has been President and Chief Executive Officer of TMA since
July 1992 and Chairman of the Board of TMA since May 1993. He began his
employment with TMA in June 1988 as a product marketing engineer, and from May
1991 to July 1992, he was Vice President of Marketing and Sales of TMA. Mr.
Jewell received his B.S. and M.A. in Physics from the University of South
Florida and his M.S. in Management and Administration Science from the
University of Texas, Dallas.
BENNET L. WEINTRAUB has been Vice President, Finance and Administration and
Chief Financial Officer of TMA since March 1996. From September 1993 to February
1996, he was the Director of Finance for Metra Biosystems Inc., a developer of
medical diagnostic tools. From September 1987 to September 1993, Mr. Weintraub
was the Controller of Advanced Polymer Systems Inc., a developer of drug
delivery technology. Mr. Weintraub received his B.A. in Mathematical Economics
from Pomona College and his M.B.A. from Harvard University. Mr. Weintraub is a
Certified Public Accountant.
JUE-HSIEN CHERN has been Vice President, Engineering of TMA since August
1994 and Chief Technical Officer since January 1997. From February 1989 to July
1994, he was Branch Manager, TCAD Branch, for Texas Instruments Inc., a
manufacturer of electronic components and systems. Dr. Chern received his B.S.
and M.S. in Civil Engineering from National Taiwan University and his Ph.D. in
Civil Engineering from the State University of New York, Buffalo.
LUNG CHU has been Vice President, Strategic Alliances and Business
Development, of TMA since December 1995. From October 1991 to December 1995, Mr.
Chu was the Director of the Services Program Office, Japan and Director of
Technology Partnership for Cadence Design Systems, Inc., a developer of design
automation software. From July 1986 to October 1991, he was the Manager,
Corporate CAD, at Apple Computer, Inc. Mr. Chu received his B.S. in Mechanical
Engineering from National Taiwan University, his M.S. in Engineering from Case
Western Reserve University and his M.S. in Electrical Engineering and Computer
Science and his M.B.A. from San Jose State University.
DAVID M. LEE has been Vice President, Operations, of TMA since March 1996.
From March 1995 to March 1996, Mr. Lee was TMA's Director of Operations and from
May 1990 to March 1995, he was TMA's Manager of Operations. Mr. Lee received his
B.S. in Electrical Engineering from the University of Texas.
MILAN G. LAZICH has been Director of Marketing of TMA since March 1996. From
January 1992 to March 1996, Mr. Lazich was the Marketing Manager of TMA, and,
from June 1989 to January 1992, he was a Marketing Analyst of TMA. Mr. Lazich
received his B.A. in Economics from the University of California, Los Angeles
and his M.B.A. from Santa Clara University.
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CERTAIN INFORMATION WITH RESPECT TO TMA
SUMMARY OF TMA PLANS
Below is a summary of the principal provisions of TMA's 1996 Equity
Incentive Plan, 1996 Directors Stock Option Plan and TMA ESPP. There is no need
for shareholder approval of these plans at the TMA Special Meeting, and none is
being sought. These summaries are provided to inform TMA shareholders and Avant!
stockholders of the TMA Plans and are qualified in their entirety by reference
to the full text of such plans. At the Effective Time, each of the TMA Plans
will be assumed by Avant! as described below.
SUMMARY OF THE 1996 EQUITY INCENTIVE PLAN
EQUITY INCENTIVE PLAN HISTORY
The TMA Board adopted, and the shareholders approved, TMA's 1996 Equity
Incentive Plan (the "Incentive Plan") in July 1996. The purpose of the Incentive
Plan is to provide incentives to attract, retain and motivate qualified
employees, officers, directors, consultants, independent contractors and
advisors whose present and potential contributions are important to the success
of TMA, by offering them an opportunity to participate in TMA's future
performance through awards of stock options, restricted stock and stock bonuses.
SHARES SUBJECT TO THE INCENTIVE PLAN
The stock subject to issuance under the Incentive Plan consists of shares of
TMA's authorized but unissued Common Stock. The number of shares currently
reserved for issuance under the Incentive Plan is 1,500,000 shares. If any
option granted pursuant to the Incentive Plan or TMA's 1989 Stock Option Plan or
1995 Stock Option Plan (both of which were terminated on September 19, 1996)
expires or terminates for any reason without being exercised in whole or in
part, or any award granted pursuant to the Incentive Plan terminates without
shares being issued, or any award is forfeited or repurchased by TMA at the
original purchase price, the shares released from such award will again become
available for grant and purchase under the Incentive Plan, however, after the
Effective Time, Avant! does not intend to issue any options under the Incentive
Plan. The number of shares reserved for issuance under the Incentive Plan is
subject to proportional adjustment to reflect stock splits, stock dividends and
other similar events.
ADMINISTRATION
The Incentive Plan is administered by the Compensation Committee (the
"Committee"), the members of which are appointed by the TMA Board. The Committee
currently consists of directors Delmonico, Dutton and Rohrer, each of whom are
"Non-Employee Directors," as that term is defined in the Exchange Act, and
"outside directors," as that term is defined pursuant to Section 162(m) of the
Code.
Subject to the terms of the Incentive Plan, the Committee determines the
persons who are to receive awards, the number of shares subject to each such
award and the terms and conditions of each such award. The Committee has the
authority to construe and interpret any of the provisions of the Incentive Plan
or any awards granted thereunder. Members of the Compensation Committee are not
eligible to receive awards under the Incentive Plan. Subsequent to the Effective
Time, the Incentive Plan will be administered by the Compensation Committee of
the Avant! Board.
ELIGIBILITY
Employees, officers, directors, consultants, independent contractors and
advisors of TMA (and of any parent or subsidiaries) are eligible to receive
awards under the Incentive Plan. No person who receives an award under the
Incentive Plan (a "Participant") is eligible to receive more than 500,000 shares
of Common Stock in any calendar year under the Incentive Plan, other than new
employees of TMA (including directors and officers who are also new employees)
who are eligible to receive up to a maximum
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of 800,000 shares of Common Stock in the calendar year in which they commence
their employment with the Company. As of September 30, 1997, approximately 89
people were eligible to participate in the Incentive Plan.
STOCK OPTIONS
The Incentive Plan permits the granting of options that are intended to
qualify either as Incentive Stock Options ("ISOs") or Nonqualified Stock Options
("NQSOs"). ISOs may be granted only to employees (including officers and
directors who are also employees) of TMA or any parent or subsidiary of TMA.
After the Effective Time, Avant! does not intend to issue any additional options
under the Incentive Plan.
The option exercise price for each ISO share must be no less than 100% of
the "fair market value" (as defined in the Incentive Plan) of a share of Common
Stock on the date the ISO is granted. In the case of an ISO granted to a 10%
shareholder, the exercise price for each such ISO share must be no less than
110% of the fair market value of a share of Common Stock on the date the ISO is
granted. The option exercise price for each NQSO share must be no less than 85%
of the fair market value of a share of Common Stock on the date of the grant. To
date, TMA has not granted options under the Incentive Plan at less than fair
market value.
The exercise price of options granted under the Incentive Plan may be paid
as approved by the Committee at the time of grant: (a) in cash (by check); (b)
by cancellation of indebtedness of TMA to the Participant; (c) by surrender of
shares of TMA's (or Avant!'s Common Stock subsequent to the Effective Time)
Common Stock (owned by the Participant for at least six months if such shares
were not obtained by the Participant in the public market) having a fair market
value on the date of surrender equal to the aggregate exercise price of the
option; (d) by tender of a full recourse promissory note; (e) by waiver of
compensation due to or accrued by the Participant for services rendered; (f) by
a "same-day sale" commitment from the Participant and a National Association of
Securities Dealers, Inc. ("NASD") broker; (g) by a "margin" commitment from the
Participant and a NASD broker; or (h) by any combination of the foregoing.
TERMINATION OF OPTIONS
Options are generally exercisable for a period of ten years. Options granted
under the Incentive Plan terminate three months (or such shorter or longer
period as determined by the Committee not exceeding five years) after the
Participant ceases to be employed or retained by TMA unless the termination of
employment is due to disability or death, in which case the option may, but need
not, provide that it may be exercised at any time within 12 months of
termination to the extent the option was exercisable on the date of termination.
If a Participant is determined by the TMA Board to have committed an act of
theft, embezzlement, fraud, dishonesty or breach of fiduciary duty to TMA (or
its Parent or subsidiaries), such Participant's options will terminate on the
date such Participant ceases to be employed or retained by TMA. In no event will
an option be exercisable after the expiration date of the option.
RESTRICTED STOCK AWARDS
The Committee may grant Participants restricted stock awards to purchase
stock either in addition to, or in tandem with, other awards under the Incentive
Plan, under such terms, conditions and restrictions as the Committee may
determine. The purchase price for such awards must be no less than 85% of the
fair market value of TMA's Common Stock on the date of the award (and in the
case of an award granted to a 10% shareholder, the purchase price shall be 100%
of the fair market value) and can be paid for in any of the forms of
consideration listed in items (a) through (e) in "Stock Options" above, as are
approved by the Committee at the time of grant. To date, TMA has not granted any
restricted stock awards. After the Effective Time, Avant! does not intend to
grant any restricted stock awards.
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STOCK BONUS AWARDS
The Committee may grant Participants stock bonus awards either in addition
to, or in tandem with, other awards under the Incentive Plan, under such terms,
conditions and restrictions as the Committee may determine. To date, TMA has not
granted any stock bonus awards. After the Effective Time, Avant! does not intend
to grant any stock bonus awards.
MERGERS, CONSOLIDATION, CHANGE OF CONTROL
In the event of a merger, consolidation, dissolution or liquidation of TMA,
the sale of substantially all the assets of TMA or any other similar corporate
transaction, the successor corporation may assume, convert or replace, or
substitute equivalent awards for, awards granted under the Incentive Plan or
provide substantially similar consideration, shares or other property as was
provided to shareholders of TMA (after taking into account provisions of the
awards). In the event that the successor corporation, if any, does not assume or
substitute the awards awarded, such awards will expire at the time and upon the
conditions as the Board determines.
At the Effective Time, the Incentive Plan and each outstanding option to
purchase shares of TMA Common Stock under the Incentive Plan, whether vested or
unvested, will be assumed by Avant! Each such option so assumed by Avant! will
continue to have, and be subject to, the same terms and conditions set forth in
the Plan and the documents governing the outstanding options immediately prior
to the Effective Time, except that (a) such option will be exercisable for that
number of whole shares of Avant! Common Stock equal to the product of the number
of shares of TMA Common Stock that were issuable upon exercise of such option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
rounded down to the nearest whole number of shares of Avant! Common Stock and
(b) the per share exercise price for the shares of Avant! Common Stock issuable
upon exercise of such assumed option will be equal to the quotient determined by
dividing the exercise price per share of TMA Common Stock at which such option
was exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent.
AMENDMENT OF THE INCENTIVE PLAN
The TMA Board may at any time amend or terminate the Incentive Plan,
including amendment of any form of award agreement or instrument to be executed
pursuant to the Incentive Plan. However, the Board may not amend the Incentive
Plan in any manner that requires shareholder approval pursuant to the code or
the regulations promulgated thereunder with respect to ISO plans, or the
Exchange Act or Rule 16b-3 (or its successor) promulgated thereunder.
TERM OF THE INCENTIVE PLAN
Unless terminated earlier as provided in the Incentive Plan, the Incentive
Plan will terminate in July 2006, ten years from the date the Incentive Plan was
adopted by the TMA Board.
TMA 1996 DIRECTORS STOCK OPTION PLAN
DIRECTORS PLAN HISTORY. The TMA Board, adopted, and the TMA shareholders
approved, the 1996 Directors Stock Option Plan (the "Directors Plan") in July
1996.
SHARES SUBJECT TO THE DIRECTORS PLAN
The shares subject to options under the Directors Plan consists of shares of
TMA's authorized but unissued TMA Common Stock. The aggregate number of shares
that may be issued pursuant to the Directors Plan is 150,000 shares of TMA
Common Stock. In the event that any outstanding option under the Directors Plan
expires or is terminated for any reason, the shares of Common Stock allocable to
the
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unexercised portion of such option may again be available for the grant of
options under the Directors Plan. This number of shares is subject to
proportional adjustment to reflect stock splits, stock dividends and other
similar events.
ADMINISTRATION
The Directors Plan is presently administered by the TMA Board. The
interpretation by the TMA Board of any of the provisions of the Directors Plan
or any option granted under the Directors Plan will be final and conclusive.
After the Effective Time, the Directors Plan will be administered by the
Compensation Committee of the Avant! Board.
ELIGIBILITY
Under the Directors Plan, TMA automatically grants options to each director
of the Company who is not an employee of TMA (or of any parent, subsidiary or
affiliate of the Company). Directors who are consultants or independent
contractors of the Company are eligible to participate in the Directors Plan. As
of September 30, 1997, four persons were eligible to receive options under the
Directors Plan.
FORMULA FOR OPTION GRANTS
Each non-employee director who first becomes a member of the Board after
September 19, 1996, the effective date of TMA's initial public offering of its
Common Stock (the "Effective Date"), will be automatically granted an option to
purchase 15,000 shares of Common Stock under the Directors Plan (the "Initial
Grant"). Also, at each annual meeting of shareholders of TMA, each non-employee
director will be automatically granted an additional option to purchase 5,000
shares of Common Stock under the Directors Plan (the "Succeeding Grant"), so
long as he or she has served continuously as a member of the Board since the
date of the prior annual meeting.
TERMS OF OPTION GRANTS
The Directors Plan permits the granting of options that are intended to
qualify as NQSOs. Each Initial Grant and Succeeding Grant will have a term of
ten years, unless terminated earlier due to the non-employee director's
termination as a director and consultant of TMA. Each Initial Grant or
Succeeding Grant will vest as to 25% of the shares subject to such grant upon
the first anniversary of the applicable grant date and as to 2.08% of the shares
on the last date of each month following such first anniversary, so long as the
non-employee director continuously remains a director or a consultant of TMA.
The option exercise price will be the "fair market value" (as defined in the
Directors Plan) of the TMA Common Stock as of the date of the grant of the
option. The option exercise price will be payable in cash (by check) and in a
number of other forms of consideration, including fully paid shares of Common
Stock owned by the non-employee director for more than six months, by waiver of
compensation due or accrued to the non-employee director for services rendered,
through a "same day sale," through a "margin commitment," or through any
combination of the foregoing.
No additional options will be granted under the Directors Plan subsequent to
the Effective Time.
MERGERS, CONSOLIDATIONS, CHANGE OF CONTROL
In the event of a merger or consolidation in which there is a substantial
change in the shareholders of TMA, dissolution or liquidation of TMA or any
other similar corporate transaction, the vesting of all options granted pursuant
to the Directors Plan will accelerate so that all outstanding options will
become vested and exercisable in full prior to the consummation of such
transaction, and if such options are not exercised prior to the consummation of
such event, such options will terminate.
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Upon the Effective Time, the vesting of each outstanding option under the
Directors Plan will, by its terms, automatically accelerate. The number of
shares of Avant! Common Stock issuable upon exercise as well as the exercise
price of outstanding options under the Directors Plan will be adjusted in the
same manner as outstanding options under the Incentive Plan.
AMENDMENT OF THE DIRECTORS PLAN
The TMA Board, to the extent permitted by law, and with respect to any
shares at the time not subject to options, may terminate or amend the Directors
Plan; provided, however, that the Board may not, without shareholder approval,
increase the total number of shares of Common Stock available for issuance under
the Directors Plan or change the class of persons eligible to receive options;
and provided further that no amendment may be made to the eligibility and award
formula or terms and conditions of options sections of the Directors Plan more
than once every six months, other than to comport with changes in the Code,
ERISA or the rules thereunder. In any case, no amendment of the Directors Plan
may adversely affect any then outstanding options or any unexercised portions
thereof without the written consent of the applicable non-employee director.
TERM OF THE DIRECTORS PLAN
Unless terminated earlier in accordance with the provisions of the Directors
Plan, the Directors Plan will terminate in July 2006, ten years from the date
the Directors Plan was adopted by the Board.
TMA ESPP
TMA ESPP PLAN HISTORY
The TMA Board adopted, and the shareholders approved the TMA ESPP in July
1996. In January 1997, the TMA Board made certain technical amendments to the
TMA ESPP. Shareholder approval for these amendments was not necessary. The
purpose of TMA ESPP is to provide employees of TMA designated by the Board as
eligible to participate ("Participating Employees") with a convenient means of
acquiring an equity interest in TMA through payroll deductions and to provide an
incentive for continued employment.
SHARES SUBJECT TO TMA ESPP
An aggregate of 200,000 shares of TMA's Common Stock has been reserved by
the TMA Board for issuance under the TMA ESPP.
ADMINISTRATION
The TMA ESPP is administered by the Committee. The interpretation or
construction by the Committee of any provisions of the TMA ESPP or of any option
granted under it will be final and binding on all Participating Employees.
Subsequent to the Effective Time, the TMA ESPP will be administered by the
Compensation Committee of the Avant! Board.
ELIGIBILITY
All employees of TMA, or of any of its subsidiaries, are eligible to
participate in an Offering Period (as hereinafter defined) under the TMA ESPP
except the following:
(a) employees who are not employed by TMA, or any of its subsidiaries,
fifteen days before the beginning of such Offering Period;
(b) employees who are customarily employed for less than twenty hours per
week;
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(c) employees who are customarily employed for less than five months in a
calendar year; or
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to section 424(d) of the Code, own
stock or hold options to purchase stock or who, as a result of
participation in the TMA ESPP, would own stock or hold options to
purchase stock possessing 5% or more of the total combined voting power
or value of all classes of stock of TMA or any of its subsidiaries.
(e) individuals who provide services to TMA as independent contractors
whether or not reclassified as common law employees, unless the Company
withholds or is required to withhold U.S. Federal employment taxes for
such individuals pursuant to Section 3402 of the Code.
As of September 30, 1997, approximately 89 persons were eligible to
participate in the TMA ESPP and 56,799 shares had been issued pursuant to the
TMA ESPP.
Each offering of Common Stock under the TMA ESPP is generally for a period
of 24 months (the "Offering Period") presently commencing on February 1 and
August 1 of each year and ending on January 31 and July 31 of each year. The
initial Offering Period commenced on September 20, 1997 and will end on July 31,
1998. Each Offering Period shall consist of four six-month purchase periods
(individually, a "Purchase Period") during which payroll deductions of the
Participating Employees are accumulated under the TMA ESPP. The first day of
each Offering Period is the "Offering Date" for such Offering Period and the
last business day of each Purchase Period is the "Purchase Date" for such
Purchase Period. A Participating Employee cannot participate simultaneously in
more than one Offering Period. The TMA Board has the power to change the
duration of Offering Periods or Purchase Periods without shareholder approval
provided that the change is announced at least 15 days prior to the scheduled
beginning of the first Offering Period or Purchase Period to be affected.
The TMA ESPP and each outstanding TMA Purchase Right will be assumed by
Avant! at the Effective Time. The TMA Purchase Rights so assumed by Avant! will
continue to be exercisable upon the same terms and conditions applicable to
those rights immediately prior to the Effective Time in accordance with the
terms of the TMA ESPP, except that each such assumed TMA Purchase Right will be
exercisable for shares of Avant! Common Stock for a purchase price described
below.
Participating Employees participate in the TMA ESPP during each Offering
Period through payroll deductions. A Participating Employee sets the rate of
such payroll deductions, which may not be less than 2% nor more than 15% of the
Participating Employee's W-2 compensation, including, but not limited to, base
salary, wages, commissions, overtime, shift premiums, bonuses and draws,
unreduced by the amount by which the Participating Employee's salary is reduced
pursuant to Sections 125 or 401(k) of the Code, not to exceed $21,250 per any
calendar year or such other lower limit as set by the Committee.
Participating Employees may elect to participate in any Offering Period by
enrolling as provided under the terms of the TMA ESPP. Once enrolled, a
Participating Employee will automatically participate in each succeeding
Offering Period unless the Participating Employee withdraws from the Offering
Period or the TMA ESPP is terminated. After the rate of payroll deductions for
an Offering Period has been set by a Participating Employee, that rate continues
to be effective for the remainder of the Offering Period (and for all subsequent
Offering Periods in which the Participating Employee is automatically enrolled)
unless otherwise changed by the Participating Employee. The Participating
Employee may increase or lower the rate of payroll deductions for any subsequent
Offering Period, but may only lower the rate of payroll deductions for an
ongoing Offering Period. Not more than one change may be made during a single
Offering Period.
No additional TMA Purchase Rights will be granted after the Effective Time.
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PURCHASE PRICE
The purchase price of shares that may be acquired in any Purchase Period
under the TMA ESPP will be 85% of the lesser of: (a) the fair market value of
the shares on the Offering Date; or (b) the fair market value of the shares on
the Purchase Date. The fair market value of a share of TMA's Common Stock is the
closing price of TMA's Common Stock on the Nasdaq National Market on the date of
determination as reported in THE WALL STREET JOURNAL, except that the fair
market value of a share of TMA's Common Stock on the Offering Date of the first
Offering Period was the price per share at which shares of TMA's Common Stock
were offered for sale to the public in TMA's initial public offering of shares
of its Common Stock pursuant to a registration statement filed with the SEC
under the Securities Act.
Subsequent to the Effective Time, the purchase price of shares of Avant!
Common Stock that may be acquired under the assumed TMA ESPP will be equal to
eighty-five percent (85%) of the lower of (a) the fair market value per share of
the TMA Common Stock on the date the TMA Purchase Right was granted, divided by
the Exchange Ratio and rounded up to the nearest whole cent or (b) the fair
market value per share of Avant! Common Stock on the date such right is
exercised.
PURCHASE OF STOCK UNDER THE TMA ESPP
On each Purchase Date, the number of whole shares a Participating Employee
will be able to purchase will be determined by dividing the total amount then
held in the Participating Employee's account pursuant to the TMA ESPP by the
purchase price for each share determined as described above. No more than twice
the number of shares an employee would have been eligible to purchase at 85% of
the fair market value of a share on the Offering Date may be purchased by an
employee if the fair market value of a share on the Purchase Date drops to less
than one-half of the fair market value on the Offering Date. At any time at
least to thirty days prior to the commencement of an Offering Period, the Board
may set a maximum number of shares which may be purchased by any employee
participating in the TMA ESPP on any Purchase Date.
WITHDRAWAL
A Participating Employee may withdraw from any Offering Period. Upon
withdrawal, the accumulated payroll deductions will be returned to the withdrawn
Participating Employee, without interest. No further payroll deductions for the
purchase of shares will be made for the succeeding Offering Period unless the
Participating Employee enrolls in the new Offering Period in the same manner as
for initial participation in the TMA ESPP.
AMENDMENT OF THE TMA ESPP
The TMA Board may at any time amend, terminate or extend the term of the TMA
ESPP, except that any such termination cannot affect the terms of options
previously granted under the TMA ESPP, nor may any amendment make any change in
the terms of options previously granted which would adversely affect the right
of any participant, nor may any amendment be made without shareholder approval
if such amendment would: (a) increase the number of shares that may be issued
under the TMA ESPP; or (b) change the designation of the employees (or class of
employees) eligible for participation in the TMA ESPP.
No additional TMA Purchase Rights will be granted after the Effective Time.
TERM OF THE TMA ESPP
The TMA ESPP will terminate upon the earlier to occur of (a) termination of
the TMA ESPP by the TMA Board, (b) issuance of all the shares of Common Stock
reserved for issuance thereunder, or (c) ten (10) years from the adoption of the
TMA ESPP by the Board. Avant! is not obligated to continue the TMA ESPP after
each TMA Purchase Right has been exercised.
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EXECUTIVE COMPENSATION
The following table sets forth total compensation for the fiscal years ended
December 31, 1996, and 1995 for the Chief Executive Officer of TMA and each of
the TMA Named Executive Officers who met the definition of "most highly
compensated executive officers" of TMA for 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------ -------------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION OPTIONS (#)
- --------------------------------------------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Roy E. Jewell 1996 $ 137,501 $ 126,921 $ 3,600(2) --
President and Chief Executive Officer 1995 127,506 71,119 3,600(2) --
Lung Chu 1996 120,000 67,324 -- --
Vice President, Strategic Alliances and Business 1995 -- -- -- 100,000
Development
Jue-Hsien Chern 1996 133,752 45,703 -- 20,000
Vice President, Engineering and Chief Technical 1995 132,506 38,143 -- --
Officer
David M. Lee 1996 105,450 18,976 -- 10,400
Vice President, Engineering 1995 90,902 6,398 3,002(3) --
</TABLE>
- ------------------------
(1) 1996 amounts include payments made during 1997 under TMA's 1996 Profit
Sharing Plan as follows: Mr. Jewell--$6,921; Mr. Masarich--$8,795; Mr.
Chu--$5,130; Dr. Chern--$5,703 and Mr. Lee-- $3,976. 1995 amounts include
payments made in 1996 under TMA's 1995 Profit Sharing Plan as follows: Mr.
Jewell--$11,419; Dr. Chern--$8,143 and Mr. Lee--$6,198. In April 1996, Dr.
Chern applied the cash from his profit-sharing distribution toward the
purchase of 10,178 shares of TMA Common Stock under TMA's 1995 Stock
Purchase Plan at a purchase price of $0.80 per share. These shares are
subject to TMA's right of repurchase at the original purchase price, which
right lapses over four years.
(2) Represents automobile allowances.
(3) Represents 401(k) plan contributions from TMA.
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The following table sets forth certain information with respect to stock
options granted to each of the TMA Named Executive Officers who met the
definition of "most highly compensated executive officer" for 1996.
In accordance with the rules of the Securities and Exchange Commission, the
table sets forth the hypothetical gains or "option spreads" that would exist for
the options at the end of their respective ten-year term based on assumed
annualized rates of compound stock price appreciation of 5% and 10% from the
dates the options were granted to the end of the respective option terms. Actual
gains, if any, on option exercises are dependent on the future performance of
the TMA Common Stock and overall market conditions. There can be no assurance
that the potential realizable values shown in this table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATE OF STOCK
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR FAIR MARKET OPTION TERM (1)(2)
OPTIONS TO EMPLOYEES IN BASE PRICE VALUE(2) EXPIRATION --------------------
NAME GRANTED (#) 1996 ($ PER SHARE) ($ PER SHARE) DATE 5% 10%
- ----------------------- ----------- --------------- ------------- ------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Roy Jewell............. -- -- -- -- -- -- --
Lung Chu............... -- -- -- -- -- -- --
Jue-Hsien Chern........ 20,000 4.7% $ 0.80 $ 3.00 3/15/2001 $ 76,577 $ 96,631
David Lee.............. 10,400 2.4 0.80 3.00 3/15/2001 39,820 50,248
</TABLE>
- ------------------------
(1) Potential realizable value is based on the assumption that the Common Stock
of TMA appreciates at the annual rate shown (compounded annually) from the
date of grant until the expiration of the five-year option term. The numbers
are calculated based on the requirements promulgated by the SEC and do not
reflect TMA's estimate of future stock price growth.
(2) The fair market value of the shares above were subsequently determined to be
$3.00 per share. This amount was used as the basis of the potential
realizable value.
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The following table sets forth certain information regarding the exercise of
stock options by the TMA Named Executive Officers who met the definition of
"most highly compensated executive officer" for 1996, in the fiscal year ended
December 31, 1996 and the value of stock options held as of December 31, 1996 by
such individuals. Also reported are values of "in-the-money" options, which
represent the positive spread between respective exercise prices of outstanding
stock options and the fair market value of TMA's Common Stock as of December 31,
1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR END (1) FISCAL YEAR END (2)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roy Jewell..................... -- -- -- -- -- --
Lung Chu....................... -- -- 25,000 75,000 $ 316,250 $ 948,750
Jue-Hsien Chern................ 20,000 $ 172,500 20,000 60,000 257,500 764,000
David Lee...................... 20,000 13,750 -- 10,400 -- 134,680
</TABLE>
- ------------------------
(1) Value realized is based upon the fair market value of TMA's Common Stock on
the date of exercise less the exercise price and does not necessarily
indicate that the optionee sold such stock.
(2) The fair market value of TMA's Common Stock as of December 31, 1996 was
$13.25, as traded on the Nasdaq National Market.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
TMA currently has no employment contracts with any of its executive
officers. TMA also has no compensatory plans or arrangements with such executive
officers where the amounts to be paid exceed $100,000 and which are activated
upon resignation, termination, retirement or upon a change in control of TMA.
See "Description of Merger and Plan of Reorganization--Interests of Certain
Persons in the Merger" for a description of the terms of the letter agreements
entered into among each of Messrs. Jewell, Chern and Weintraub and Avant! and
TMA.
COMPENSATION OF DIRECTORS
Directors of TMA receive $1,500 of cash compensation for each meeting of the
TMA Board that they attend, and are reimbursed for their reasonable expenses in
attending meetings of the TMA Board.
In July 1996, the TMA Board adopted the 1996 Directors Stock Option Plan
(the "Directors Plan") and reserved a total of 150,000 shares of TMA's Common
Stock for issuance thereunder. TMA's shareholders approved the Directors Plan in
July 1996. Members of the TMA Board who are not employees of TMA, or any parent,
subsidiary or affiliate of TMA, are eligible to participate in the Directors
Plan. Each non-employee director who first becomes a member of the Board after
September 19, 1996, the effective date of TMA's initial public offering of its
Common Stock (the "Effective Date"), will be automatically granted an option to
purchase 15,000 shares of TMA Common Stock under the Directors Plan (the
"Initial Grant"). Also, at each annual meeting of shareholders of TMA, each non-
employee director will be automatically granted an additional option to purchase
5,000 shares of TMA Common Stock under the Directors Plan (the "Succeeding
Grant"), so long as he or she has served continuously as a member of the TMA
Board since the date of the prior annual meeting.
Each Initial Grant and Succeeding Grant will have a term of ten years,
unless terminated earlier due to the non-employee director's termination as a
director and consultant of TMA. Each Initial Grant or Succeeding Grant will vest
as to 25% of the shares subject to such grant upon the first anniversary of the
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applicable grant date and as to 2.08% of the shares on the last date of each
month following such first anniversary, so long as the non-employee director
continuously remains a director or a consultant of TMA. The option exercise
price will be the "fair market value" (as defined in the Directors Plan) of the
TMA Common Stock as of the date of the grant of the option.
In the event of a merger or consolidation in which there is a substantial
change in the shareholders of TMA, dissolution or liquidation of TMA any other
similar corporate transaction, the vesting of all options granted pursuant to
the Directors Plan will accelerate so that all outstanding options will become
vested and exercisable in full prior to the consummation of such transaction,
and if such options are not exercised prior to the consummation of such event,
such options will terminate. See "Description of Merger and Plan of
Reorganization" and "Interests of Certain Persons in the Merger."
CERTAIN TRANSACTIONS
Since January 1, 1996, there has not been nor is there currently proposed,
any transaction or series of similar transactions to which TMA was, or is, to be
a party in which the amount involved exceeds $60,000 and which any director,
executive officer or holder of more than 5% of the Common Stock of TMA had, or
will have, a direct or indirect material interest other than (a) compensation
arrangements, which are described where required elsewhere in this Joint Proxy
Statement/Prospectus, and (b) the transactions described below.
In June 1995, TMA issued 840,000 shares of Common Stock under TMA's 1994
Stock Purchase Plan to Roy E. Jewell, TMA's President and Chief Executive
Officer, in exchange for a note receivable in the amounts of $504,000. The note
bears interest at a rate of 6.83% per year. In a related agreement, 25% of the
principal balance is to be forgiven by TMA on each anniversary date of such note
as long as Mr. Jewell is still actively employed by TMA. The first year's
forgiveness was guaranteed. TMA recorded an aggregate compensation expense of
$108,000 during 1995 and $126,000 during 1996 in connection with the forgiveness
of these notes.
See "The Merger and Related Transactions--Interests of Certain Persons in
the Merger" for a description of the terms of the letter agreements entered into
among each of Messrs. Jewell, Chern and Weintraub and Avant! and TMA.
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DESCRIPTION OF AVANT! CAPITAL STOCK
The authorized capital stock of Avant! consists of 50,000,000 shares of
Avant! Common Stock, and 5,000,000 shares of Preferred Stock ("Preferred
Stock"), $.0001 par value. As of December 19, 1997, there were 26,886,862 shares
of Common Stock issued and outstanding and no shares of Preferred Stock issued
and outstanding.
COMMON STOCK
Holders of shares of Avant! Common Stock are entitled to one vote per share
on all matters to be voted on by stockholders. Subject to the preferences that
may be applicable to any outstanding Preferred Stock, holders of Avant! Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the Avant! Board in its discretion from funds legally available therefor. In
the event of a liquidation, dissolution, or winding up of Avant!, holders of
Avant! Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding
Preferred Stock. Holders of Avant! Common Stock have no preemptive rights and
have no rights to convert their Avant! Common Stock into any other securities.
The outstanding shares of Avant! Common Stock are, and the Avant! Common Stock
to be outstanding upon completion of the offering will be, validly issued, fully
paid and nonassessable.
PREFERRED STOCK
The Avant! Board has the authority to cause Avant! to issue up to 5,000,000
shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any series or the designation of such
series, without any further vote or action by the stockholders. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of Avant! without further action by the stockholders and could
adversely affect the rights and powers, including voting rights, of the holders
of Avant! Common Stock. In certain circumstances, this could have the effect of
decreasing the market price of the Avant! Common Stock. Avant! has no present
plans to issue any shares of Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS. Avant!'s Certificate of
Incorporation ("Avant!'s Certificate") provides that all stockholder action must
be effected at a duly called meeting and not by a consent in writing. In
addition, Avant!'s Amended and Restated Bylaws ("Avant!'s Bylaws") do not permit
stockholders of Avant! to call a special meeting of stockholders. These
provisions of Avant!'s Certificate and Avant!'s Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of Avant!. Such provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Avant! Board and in the policies
formulated by the Avant! Board and to discourage certain types of transactions
that may involve an actual or threatened change of control of Avant!. In
addition, these provisions are designed to reduce the vulnerability of Avant! to
an unsolicited acquisition proposal and are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for Avant!'s shares
and, as a consequence, they also may inhibit fluctuations in the market price of
Avant!'s shares which could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the management
of Avant!.
DELAWARE TAKEOVER STATUTE. Avant! is subject to Section 203 of the DGCL
("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (a) prior to such date, the board of
directors of the corporation approved
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either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; (b) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(i) by persons who are directors and also officers and (ii) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (c) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
Section 203 defines "business combination" to include: (a) any merger or
consolidation involving the corporation and the interested stockholder; (b) any
sale, transfer, pledge or other disposition involving the interested stockholder
of ten percent or more of the assets of the corporation; (c) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (d)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (e) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
Certain holders (the "Holders") of Avant! Common Stock (the "Registrable
Securities") are entitled to certain rights with respect to the registration of
such shares under the Securities Act. The Holders include the Avant!
stockholders who were party to that certain Amended and Restated Investor Rights
Agreement, dated as of September 24, 1993 (the "Investor Rights Agreement") and
persons who held registration rights in connection with such persons' ownership
of securities in entities acquired by Avant!. Such registration rights generally
include (a) if Avant! proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders exercising registration rights, the Holders are entitled to notice of
such registration and are entitled to include their Registrable Securities
therein, (b) the Holders may require Avant! to file a registration statement
under the Securities Act at its expense with respect to their Registrable
Securities, and (c) the Holders may require Avant! to file additional
registration statements on Form S-3 registering the resale of their Registrable
Securities. These registration rights are subject to certain conditions and
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration and the right of Avant! not
to effect a requested registration within six months following an offering of
Avant!'s securities. No registration rights exist in connection with the
issuance of Avant! Common Stock to TMA shareholders in the Merger. In addition,
Avant! has agreed to file a Form S-3 to register 522,192 shares of Avant! Common
Stock acquired by VLSI Technology, Inc. in connection with the Compass
Acquisition.
TRANSFER AGENT AND REGISTRAR
Harris Trust Company of California at (213) 239-0671 serves as the transfer
agent and registrar for Avant! Common Stock.
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COMPARISON OF RIGHTS OF HOLDERS OF AVANT!
COMMON STOCK AND HOLDERS OF TMA COMMON STOCK
As a result of the Merger, holders of TMA Common Stock will be exchanging
their shares of a California corporation which is governed by the CGCL and TMA's
Amended and Restated Articles of Incorporation ("TMA's Articles") and Amended
and Restated Bylaws ("TMA's Bylaws"), for shares of the common stock of Avant!,
a Delaware corporation, which is governed by the DGCL, Avant!'s Certificate and
Avant!'s Bylaws. While the rights and privileges of stockholders of a Delaware
corporation such as Avant! are, in many instances, comparable to those of
shareholders of a California corporation such as TMA, there are certain
differences. The following is a summary of the material differences between the
rights of holders of TMA Common Stock and the rights of holders of Avant! Common
Stock at the date hereof. These differences arise from differences between the
DGCL and the CGCL and between Avant!'s Certificate and Avant!'s Bylaws on the
one hand and TMA's Articles and TMA's Bylaws on the other.
MERGERS AND CONSOLIDATIONS. Upon completion of the Merger and receipt of
Avant! Common Stock, TMA shareholders will experience no material change with
respect to their rights relating to mergers and consolidations other than as
described in "Comparison of Rights of Holders of Avant! Common Stock and Holders
of TMA Common Stock--Appraisal Rights."
The DGCL requires the approval of the Avant! Board of Directors and the
holders of a majority of the outstanding shares of Avant! Common Stock entitled
to vote thereon for mergers or consolidations, and for sales, leases or
exchanges of substantially all of Avant!'s property and assets. The DGCL would
permit Avant! to merge with another corporation without obtaining the approval
of Avant!'s stockholders if: (a) Avant! is the surviving corporation of the
merger; (b) the merger agreement does not amend Avant!'s Certificate; (c) each
share of Avant! Common Stock outstanding immediately prior to the effective date
of the merger is to be an identical outstanding or treasury share of Avant!
Common Stock after the merger; and (d) any authorized but unissued shares or
treasury shares of Avant! Common Stock to be issued or delivered under the plan
of merger plus those initially issuable upon conversion of any other securities
or obligations to be issued or delivered under such plan do not exceed 20% of
the shares of Avant! Common Stock outstanding immediately prior to the effective
date of the merger.
The CGCL requires that the principal terms of a merger be approved by the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon, except that, unless required by its articles of incorporation,
no authorizing shareholder vote is required of a corporation surviving a merger
if the shareholders of such corporation shall own, immediately after the merger,
more than five-sixths of the voting power of the surviving corporation or its
parent. TMA's Articles do not require a greater percentage vote. The CGCL
further requires the affirmative vote of a majority of the outstanding shares
entitled to vote thereon if (a) the surviving corporation's articles of
incorporation will be amended and would otherwise require shareholder approval
or (b) shareholders of such corporation will receive shares of the surviving
corporation having different rights, preferences, privileges or restrictions
(including shares in a foreign corporation) than the shares surrendered.
Shareholder approval is not required under the CGCL for mergers or
consolidations in which a parent corporation merges or consolidates with a
subsidiary of which it owns at least 90% of the outstanding shares of each class
of stock.
ANTI-TAKEOVER PROVISIONS. Upon completion of the Merger and receipt of
Avant! Common Stock, TMA shareholders will experience a material change with
respect to certain anti-takeover provisions as a result of certain provisions
contained within DGCL and Avant!'s Certificate.
Avant! is subject to the provisions of Section 203 of the DGCL ("Section
203") which prohibits a "business combination" (defined in Section 203 as
generally including mergers, sales and leases of assets, issuances of
securities, and similar transactions) by Avant! or a subsidiary with an
"interested stockholder" (defined in Section 203 as generally the beneficial
owner of 15% or more of Avant! Common Stock) within three years after the person
or entity becomes an interested stockholder, unless (a) prior to the person or
entity becoming an interested stockholder, the business combination or the
transaction pursuant to which
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such person or entity became an interested stockholder shall have been approved
by Avant!'s Board of Directors, (b) upon consummation of the transaction in
which he became an interested stockholder, the interested stockholder holds at
least 85% of the Avant! Common Stock (excluding shares held by persons who are
both officers and directors and shares held by certain employee benefit plans),
or (c) the business combination is approved by Avant!'s Board of Directors and
by the holders of at least two-thirds of the outstanding Avant! Common Stock,
excluding shares owned by the interested stockholder. See "Description of Avant!
Capital Stock--Antitakeover Effects of Provisions of the Certificate of
Incorporation, Bylaws and Delaware Law."
The DGCL requires a vote of the corporation's board of directors followed by
the affirmative vote of a majority of the outstanding stock of each class
entitled to vote for any amendment to the certificate of incorporation, unless a
greater level of approval is required by the certificate of incorporation.
Avant!'s Certificate requires the approval of 80% of the total number of shares
entitled to vote for the amendment of provisions relating to (a) the rights of
the board of directors and the stockholders to amend Avant!'s Bylaws, (b) the
removal of members of the board of directors, (c) the inability of the
stockholders to take any action by written consent and (d) the vote required to
amend Avant!'s Certificate. If an amendment would alter the powers, preferences
or special rights of a particular class or series of stock so as to affect them
adversely, the class or series shall be given the power to vote as a class
notwithstanding the absence of any specifically enumerated power in the
certificate of incorporation. The DGCL also states that the power to adopt,
amend or repeal the bylaws of a corporation shall be in the stockholders
entitled to vote, provided that the corporation in its certificate of
incorporation may confer such power on the board of directors in addition to the
stockholders. Avant!'s Certificate expressly authorizes the board of directors
to adopt, amend or repeal Avant!'s Bylaws. Avant!'s Certificate requires the
approval of 80% of the total number of shares entitled to vote for the amendment
of certain provisions of Avant!'s Bylaws relating to (a) the calling of special
meetings of stockholders, (b) the advance notice requirement for nominations of
persons for election to the board of directors by stockholders and (c) the
advance notice requirement for business brought before the annual meeting of
stockholders by a stockholder.
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the corporation's board of directors and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon, either before or
after the board approval. TMA's Articles do not require a greater level of
approval for an amendment thereto. Under the CGCL, the holders of the
outstanding shares of a class are entitled to vote as a class if a proposed
amendment to the articles of incorporation would: (a) increase or decrease the
aggregate number of authorized shares of such class; (b) effect an exchange,
reclassification or cancellation of all or part of the shares of such class,
other than a stock split; (c) effect an exchange, or create a right of exchange,
of all or part of the shares of another class into the shares of such class; (d)
change the rights, preferences, privileges or restrictions of the shares of such
class; (e) create a new class of shares having rights, preferences or privileges
prior to the shares of such class, or increase the rights, preferences or
privileges or the number of authorized shares having rights, preference or
privileges prior to the shares of such class; (f) in the case of preferred
shares, divide the shares of any class into series having different rights,
preferences, privileges or restrictions or authorize the board of directors to
do so; or (g) cancel or otherwise affect dividends on the shares of such class
which have accrued but have not been paid. Under the CGCL, a corporation's
bylaws may be adopted, amended or repealed either by the board of directors or
the shareholders of the corporation. TMA's Bylaws provide that TMA's Bylaws may
be adopted, amended or repealed either by the vote of the holders of a majority
of the outstanding shares entitled to vote or by the board of directors;
provided, however, that the TMA Board may not amend TMA's Bylaws in order to
change the authorized number of directors (except to alter the authorized number
of directors within the existing range of a minimum of four and a maximum of
seven directors).
The CGCL provides that, except where the fairness of the terms and
conditions of the transaction has been approved by the California Commissioner
of Corporations and except in a "short-form" merger (the
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merger of a parent corporation with a subsidiary in which the parent owns at
least 90% of the outstanding shares of each class of the subsidiary's stock), if
the surviving corporation or its parent corporation owns, directly or
indirectly, shares of the target corporation representing more than 50% of the
voting power of the target corporation prior to the merger, the nonredeemable
common stock of a target corporation may be converted only into nonredeemable
common stock of the surviving corporation or its parent corporation, unless all
of the shareholders of the class consent. The effect of this provision is to
prohibit a cash-out merger of minority shareholders, except where the majority
shareholders already own 90% or more of the voting power of the target
corporation and could, therefore, effect a short-form merger to accomplish such
a cash-out of minority shareholders.
APPRAISAL RIGHTS. Upon completion of the Merger and receipt of Avant!
Common Stock, TMA shareholders will be entitled to appraisal rights in fewer
instances than otherwise exist under California law.
The rights of appraisal of dissenting shareholders of TMA are governed by
Chapter 13 of the CGCL. Pursuant thereto, any shareholder has the right to
dissent from any merger or consolidation, except that no such appraisal rights
are available for the shares of any class or series if (a) approval of the
Merger by the shareholders is not required under Section 1201 of the CGCL, or
(b) such shares are then redeemable by the corporation at a price not greater
than the cash to be received in exchange for such shares. See "Dissenters'
Rights."
Under the DGCL, stockholders are entitled to certain limited rights of
appraisal. No appraisal rights shall be available, however, for the holders of
any shares of a stock of a constituent Delaware corporation to a merger if that
corporation survives the merger and the merger did not require for its approval
the vote of the stockholders of such constituent Delaware corporation. Moreover,
under the DGCL, no appraisal rights are available to stockholders of a Delaware
constituent corporation to a merger for any shares of stock which, at the record
date for the vote on such merger, were either (a) listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. (i.e., The Nasdaq National Market), or (b) held of record by more than
2,000 stockholders. Appraisal rights are available to Delaware stockholders in
any event if such stockholders are required by the terms of an agreement of
merger or consolidation to accept for such stock of the constituent corporation
anything except: (w) shares of stock of the corporation surviving or resulting
from such merger or consolidation; (x) shares of stock of any other corporation
which, at the effective date of the merger or consolidation, will be either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. (for example, the Nasdaq National Market) or held of
record by more than 2,000 stockholders; (y) cash in lieu of fractional shares of
the corporation described in clauses (a) and (b) above; or (z) any combination
of the shares of stock and cash in lieu of fractional shares described in
clauses (w), (x) and (y) above.
SPECIAL MEETINGS. Upon completion of the Merger and receipt of Avant!
Common Stock, TMA shareholders will be unable to call special meetings of
stockholders.
Under the CGCL, special meetings of shareholders may be called by a
corporation's board of directors, the chairman of the board of directors, the
president, the holders of shares entitled to cast not less than ten percent of
the votes at such meeting or such additional persons as may be provided in the
corporation's articles or bylaws. TMA's Bylaws do not provide for any such
additional persons to call special meetings of shareholders.
Under the DGCL, special meetings of stockholders may be called by a
corporation's board of directors or such person or persons as may be authorized
by such corporation's certificate of incorporation or bylaws. Avant!'s Bylaws
provide that special meetings of stockholders may be called by the president and
shall be called by the president or secretary at the written request of a
majority of the Avant! Board of Directors. Avant! stockholders do not have the
ability to call a special meeting of Avant! stockholders.
138
<PAGE>
Avant!'s Bylaws further provide that only such business shall be conducted at a
special meeting of stockholders as shall have been specified in the notice of
such meeting.
ACTIONS WITHOUT A MEETING. Upon completion of the Merger and receipt of
Avant! Common Stock, TMA shareholders will be unable to act by written consent
in lieu of a meeting.
Under the DGCL and the CGCL, unless otherwise provided in the certificate or
articles of incorporation, any action required to be taken or which may be taken
at an annual or special meeting of stockholders or shareholders may be taken
without a meeting if a consent in writing is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting at which all shares entitled to
vote were present and voted. Avant!'s Certificate provides that any action by
the stockholders must be taken at an annual special meeting of stockholders and
may not be taken by written consent. TMA's Articles provide that action by
written consent of stockholders is permitted, except that directors may not be
elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors.
PROXY REQUIREMENTS. Upon completion of the Merger and receipt of Avant!
Common Stock, TMA shareholders will be subject to the DGCL with respect to proxy
duration and revocability.
Under the CGCL, proxies are valid for an eleven-month period unless a
different period is expressly provided for in the appointment form. Under the
DGCL, proxies are valid for up to three years unless otherwise specified
therein. In addition, the CGCL specifies that, if the appointment form
conspicuously states that it is irrevocable, proxies from pledgees, purchasers
of the shares, creditors, contract employees, and persons designated in a
shareholder agreement, and other proxies coupled with an interest, are, under
certain circumstances irrevocable. Under the DGCL, a proxy is irrevocable if it
specifically states that it is irrevocable if, and only as long as, it is
coupled with an interest sufficient in law to support that power.
DERIVATIVE ACTIONS. Upon completion of the Merger and receipt of Avant!
Common Stock, TMA shareholders will have to meet stricter requirements in order
to bring a derivative action.
The CGCL provides that a shareholder bringing a derivative action on behalf
of the corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. The CGCL also
provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond.
Derivative actions may be brought in Delaware by a stockholder on behalf of,
and for the benefit of, the corporation. The DGCL provides that a stockholder
must represent in the complaint that he or she was a stockholder of the
corporation at the time of the transaction of which he or she complains. A
stockholder may not sue derivatively unless he first makes demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that such demand would have been futile. The DGCL does not have a bonding
requirement similar to that of the CGCL.
DIVIDENDS. Upon completion of the Merger and receipt of Avant! Common
Stock, TMA shareholders will experience no material change with respect to their
dividend rights.
The CGCL provides that a corporation may, unless otherwise restricted by its
articles of incorporation, make distributions (including cash dividends) to its
shareholders (a) if the amount of the retained earnings of the corporation
immediately prior to such distribution equals or exceeds the amount of such
distribution, (b) if, after giving effect to such distribution, the sum of the
assets of the corporation (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 125% of
its liabilities (not including deferred taxes, deferred income and other
deferred credits) or (c) if such corporation's total current assets would be at
least equal to its current liabilities or, if the average of the earnings of the
corporation before taxes on income and before interest expense for the two
preceding fiscal years was less than the average of the interest expense of the
corporation for those fiscal years, at least equal to 125% of its current
liabilities. TMA's Bylaws provide that the TMA Board of
139
<PAGE>
Directors may pay distributions and dividends as permitted by law. A Delaware
corporation may pay dividends not only out of surplus (the excess of net assets
over capital) but also out of net profits for the current or preceding fiscal
year if it has no surplus, subject to any restrictions contained in the
certificate of incorporation. Avant!'s Certificate contains no restrictions on
dividend payments.
INDEMNIFICATION. Upon completion of the Merger and receipt of Avant! Common
Stock, TMA shareholders will experience no material change with respect to
indemnification rights of certain officers and directors.
The DGCL provides that a corporation may indemnify its present and former
directors, officers, employees and agents against all reasonable expenses
(including attorneys' fees) and, against all judgments, fines and amounts paid
in settlement in actions brought against them (except in actions by or in the
right of the corporation) if such person acted in good faith, and in a manner
which he or she reasonably believed to be in, or not opposed to, the best
interests of the stockholders and, in the case of a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The corporation
shall indemnify such person to the extent that he or she is successful on the
merits or otherwise in the defense of any claim, issue or matter associated with
an action. Avant!'s Certificate provides for indemnification of directors or
officers to the fullest extent authorized by the DGCL.
Under the CGCL, (a) a corporation has the power to indemnify present and
former directors, officers, employees and agents against expenses, judgments,
fines and settlements (other than in connection with actions by or in the right
of the corporation) if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of the person was unlawful, and (b) a corporation has the power to
indemnify, with certain exceptions, any person who is a party to any action by
or in the right of the corporation, against expenses actually and reasonably
incurred by that person in connection with the defense or settlement of the
action if the person acted in good faith and in a manner the person believed to
be in the best interests of the corporation and its shareholders.
The indemnification authorized by the CGCL is not exclusive, and a
corporation may grant its directors, officers, employees or other agents certain
additional rights to indemnification. TMA's Articles and the TMA's Bylaws
provide for the indemnification of its agents (as defined under the CGCL) to the
fullest extent permissible under the CGCL, which may be in excess of the
indemnification expressly permitted by Section 317 of the CGCL, subject to the
limits set forth in Section 204 of the CGCL with respect to actions for breach
of duty to the corporation and its shareholders.
The DGCL and the CGCL allow for the advance payment on an indemnitee's
expenses prior to the final disposition of an action, provided that the
indemnitee undertakes to repay any such amount advanced if it is later
determined that the Indemnitee is not entitled to indemnification with regard to
the action for which the expenses were advanced.
FIDUCIARY DUTIES OF DIRECTORS. Upon completion of the Merger and receipt of
Avant! Common Stock, TMA shareholders will experience no material change with
respect to the fiduciary duties of directors.
Directors of corporations incorporated or organized under the DGCL and the
CGCL have fiduciary obligations to the corporation and its shareholders.
Pursuant to these fiduciary obligations, the directors must act in accordance
with the so-called duties of "care" and "loyalty." Under the DGCL, the duty of
care requires that the directors act in an informed and deliberative manner and
to inform themselves, prior to making a business decision, of all material
information reasonably available to them. The duty of loyalty may be summarized
as the duty to act in good faith, not out of self-interest and in a manner that
the directors reasonably believe to be in the best interest of the corporation.
Under the CGCL, the duty of loyalty requires directors to perform their duties
in good faith in a manner that the directors reasonably believe to be in the
best interest of the corporation and its stockholders. The duty of care requires
that the
140
<PAGE>
directors act with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would exercise under similar circumstances.
LIMITATION OF LIABILITY. Upon completion of the Merger and receipt of
Avant! Common Stock, TMA shareholders will experience no material change with
respect to the limitation of liability of directors.
The DGCL and the CGCL each provide that the charter documents of the
corporation may include provisions which limit or eliminate the liability of
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided such liability does not arise from
certain proscribed conduct, including, in the case of the DGCL, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, breach of the duty of loyalty, the payment of unlawful
dividends or expenditure of funds for unlawful stock purchases or redemptions or
transactions from which such director derived an improper personal benefit, or,
in the case of the CGCL, intentional misconduct or knowing and culpable
violation of law, acts or omissions that a director believes to be contrary to
the best interest of the corporation or its shareholders or that involve the
absence of good faith on the part of the director, the receipt of an improper
personal benefit, acts or omissions that show reckless disregard for the
director's duty to the corporation or its shareholders, where the director in
the ordinary course of performing a director's duties should be aware of a risk
of serious injury to the corporation or its shareholders, acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its shareholders, interested
transactions between the corporation and a director in which a director has a
material financial interest and liability for improper distributions, loans or
guarantees. Avant!'s Certificate contains a provision limiting the liability of
its directors to the fullest extent permitted by the DGCL. TMA's Articles
contain a provision limiting the liability of its directors to the fullest
extent provided by the CGCL.
CUMULATIVE VOTING FOR DIRECTORS. Upon completion of the Merger and receipt
of Avant! Common Stock, TMA shareholders will not have the benefit of cumulative
voting.
Under the CGCL, unless, subject to certain statutory restrictions,
prohibited in the corporation's articles of incorporation, if any shareholder
has given notice of his or her intention to cumulate votes for the election of
directors, any other shareholder of the corporation is also entitled to cumulate
his or her votes at such election. TMA's Articles do not prohibit cumulative
voting. Cumulative voting must be expressly provided for in the certificate of
incorporation of a Delaware corporation. Avant!'s Certificate of Incorporation
does not provide for cumulative voting.
FILLING VACANCIES ON THE BOARD OF DIRECTORS. Upon completion of the Merger
and receipt of Avant! Common Stock, TMA shareholders will be unable to fill the
vacancy created by the removal of a director.
Under the DGCL, unless the bylaws or certificate of incorporation provides
otherwise, the board of directors may fill vacancies, including vacancies
created by an increase in the number of directors. If the directors remaining in
office constitute less than a quorum of the board, the vacancy may be filled by
the affirmative vote of a majority of all the directors then in office, or by
the sole remaining director. Avant! Bylaws mirror this statutory provision. The
CGCL grants similar authority to the directors, subject to a provision to the
contrary in the articles of incorporation; provided, however, that unless
otherwise provided by the bylaws or articles of incorporation, only the
shareholders may fill vacancies created by the removal of directors. TMA's
Bylaws provide that vacancies occuring in the Board of Directors by reason of
removal of directors shall be filled only by approval of the shareholders.
REMOVAL OF DIRECTORS. Upon completion of the Merger and receipt of Avant!
Common Stock, TMA shareholders will experience no material change with respect
to their ability to remove a director.
Under the CGCL, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast against
such
141
<PAGE>
removal would be sufficient to elect the director under cumulative voting.
Stockholders of a Delaware corporation holding a majority of the outstanding
shares entitled to vote for directors may remove a director with or without
cause, except in certain cases involving classified boards or where cumulative
voting is permitted. Avant!'s Bylaws provide for such removal with or without
cause.
INSPECTION OF BOOKS AND RECORDS. Upon completion of the Merger and receipt
of Avant! Common Stock, TMA shareholders will have broader rights with respect
to inspection of corporate books and records.
Under the CGCL, any shareholder of record who is the holder of at least five
percent of all of the outstanding shares of stock of a corporation is entitled
to examine and copy a corporation's shareholder ledger. The CGCL also provides
that any shareholder of record may inspect the accounting books and records of
the corporation for a purpose reasonably related to such holder's interests as a
shareholder. Under the DGCL, any stockholder has the right to inspect and make
copies of the stockholder ledger and other books and records of the corporation
upon written demand.
THE FOREGOING IS AN ATTEMPT TO SUMMARIZE ALL MATERIAL DIFFERENCES IN THE
CORPORATION LAWS OF THE TWO STATES AND THE TMA ARTICLES AND THE AVANT!
CERTIFICATE AND DOES NOT PURPORT TO BE A COMPLETE LISTING OF DIFFERENCES IN THE
RIGHTS AND REMEDIES OF HOLDERS OF SHARES OF CALIFORNIA, AS OPPOSED TO DELAWARE,
CORPORATIONS AND SHAREHOLDERS OR STOCKHOLDERS OF TMA AND AVANT!, IN PARTICULAR.
SUCH DIFFERENCES CAN BE DETERMINED IN FULL BY REFERENCE TO THE CGCL AND TO THE
DGCL AND THE TMA ARTICLES AND THE AVANT! CERTIFICATE. IN ADDITION, THE LAWS OF
CALIFORNIA AND DELAWARE PROVIDE THAT SOME OF THE STATUTORY PROVISIONS AS THEY
AFFECT VARIOUS RIGHTS OF HOLDERS OF SHARES MAY BE MODIFIED BY PROVISIONS IN THE
ARTICLES OF INCORPORATION, CHARTER OR BYLAWS OF THE CORPORATION.
LEGAL MATTERS
Certain legal matters in connection with the Avant! Common Stock to be
issued in connection with the Merger will be passed upon for Avant! by Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park, California.
Fenwick & West LLP, Palo Alto, California, is acting as counsel for TMA in
connection with certain legal matters relating to the Merger.
EXPERTS
The consolidated balance sheets of Avant! Corporation and subsidiaries as of
December 31, 1995 and 1996 and the consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996 have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, and are included herein in reliance
upon the report of KPMG Peat Marwick LLP, and upon the authority of such firm as
experts in accounting and auditing.
The financial statements of TMA, as of December 31, 1995 and 1996 and for
each of the years in the three-year period ended December 31, 1996, have been
audited by Arthur Andersen LLP, independent certified public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of Arthur Andersen LLP as experts in giving said
reports.
The consolidated balance sheet of Compass Design Automation, Inc. and
subsidiaries as of December 31, 1996 and the consolidated statements of
operations, shareholders' deficit and cash flows as of and for the year ended
December 31, 1996 have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, and are included herein in reliance upon the
report of KPMG Peat Marwick LLP, and upon the authority of such firm as experts
in accounting and auditing.
142
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AVANT! CORPORATION AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Income.......................................................................... F-4
Consolidated Statements of Shareholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-7
Notes to Consolidated Financial Statements................................................................. F-8
COMPASS DESIGN AUTOMATION, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................................................... F-26
Consolidated Balance Sheets................................................................................ F-27
Consolidated Statements of Operations...................................................................... F-28
Consolidated Statements of Shareholders' Deficit........................................................... F-29
Consolidated Statements of Cash Flows...................................................................... F-30
Notes to Consolidated Financial Statements................................................................. F-31
TECHNOLOGY MODELING ASSOCIATES, INC.
Audited Consolidated Financial Statements as of December 31, 1996 and 1995 and for each of the three years
in the period ending December 31, 1996:
Report of Independent Public Accountants................................................................. F-41
Consolidated Balance Sheets.............................................................................. F-42
Consolidated Statements of Operations.................................................................... F-43
Consolidated Statements of Shareholders' Equity.......................................................... F-44
Consolidated Statements of Cash Flows.................................................................... F-45
Notes to Consolidated Financial Statements............................................................... F-46
Unaudited Condensed Financial Statements as of September 30, 1997 and for the nine month periods ending
September 30, 1997 and 1996:
Condensed Consolidated Balance Sheets.................................................................... F-57
Condensed Consolidated Statements of Operations.......................................................... F-58
Condensed Consolidated Statements of Cash Flows.......................................................... F-59
Notes to Unaudited Condensed Consolidated Financial Statements........................................... F-60
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Avant! Corporation:
We have audited the accompanying consolidated balance sheets of Avant!
Corporation and subsidiaries (the Company) as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996. In
connection with our audits of the accompanying consolidated financial
statements, we have also audited the accompanying consolidated financial
statement schedule. These consolidated financial statements and related
consolidated financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and consolidated financial statement schedule
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 Avant!
Corporation and subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedule, when considered in relation to the consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
KPMG Peat Marwick LLP
January 22, 1997, except as to the
second paragraph of Note 11,
which is as of March 18, 1997
San Jose, California
F-2
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- ---------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 50,010 $ 33,067 $ 73,565
Short-term investments.................................................. 46,969 84,256 24,205
Accounts receivable, net................................................ 12,839 13,321 25,487
Deferred income taxes................................................... 3,167 6,450 5,867
Prepaid income taxes.................................................... 328 1,254 --
Other................................................................... 1,724 7,892 12,412
---------- ---------- -------------
Total current assets.................................................. 115,037 146,240 141,536
Equipment, furniture and fixtures, net.................................... 7,003 8,929 27,823
Intangibles and other assets.............................................. 247 934 15,875
Deferred income taxes..................................................... 886 -- 17,423
---------- ---------- -------------
Total assets.......................................................... $ 123,173 $ 156,103 $ 202,657
---------- ---------- -------------
---------- ---------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations............................ $ 145 $ 52 $ 4
Accounts payable........................................................ 1,000 1,716 6,918
Accrued compensation.................................................... 2,418 4,082 8,622
Accrued income taxes.................................................... 553 -- 3,954
Other accrued liabilities............................................... 5,655 9,947 13,519
Current portion of technology acquisition payable....................... 876 642 406
Deferred revenue........................................................ 9,585 13,824 18,526
Shareholder distribution payable........................................ 1,800 -- --
---------- ---------- -------------
Total current liabilities............................................. 22,032 30,263 51,949
Capital lease obligations, less current portion........................... 40 -- --
Deferred rent............................................................. 110 71 42
Other noncurrent liabilities.............................................. 156 43 --
Technology acquisition payable, less current portion...................... 1,424 903 497
---------- ---------- -------------
Total liabilities..................................................... 23,762 31,280 52,488
---------- ---------- -------------
Commitments and contingencies
Shareholders' equity:
Series A convertible preferred stock, $.0001 par value; 5,000 shares
authorized; no shares issued and outstanding in 1995, 1996, and
1997.................................................................. -- -- --
Common stock, $.0001 par value; 25,000, 50,000 and 75,000 shares
authorized, 23,845, 24,952, and 26,586 shares issued and outstanding
in 1995, 1996, and 1997, respectively................................. 2 3 3
Additional paid-in capital.............................................. 95,189 110,583 137,951
Deferred compensation................................................... (517) (2,820) (2,031)
Net unrealized gain (loss) on short-term investments.................... 89 (75) (28)
Retained earnings....................................................... 4,648 17,132 14,274
---------- ---------- -------------
Total shareholders' equity............................................ 99,411 124,823 150,169
---------- ---------- -------------
Total liabilities and shareholders' equity................................ $ 123,173 $ 156,103 $ 202,657
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software................................................. $ 30,929 $ 55,164 $ 82,134 $ 60,030 $ 77,669
Services................................................. 8,415 13,704 23,953 17,263 26,663
--------- --------- --------- --------- ---------
Total revenue.......................................... 39,344 68,868 106,087 77,293 104,332
--------- --------- --------- --------- ---------
Costs and expenses:
Costs of software........................................ 1,122 1,529 2,512 1,802 1,635
Costs of services........................................ 2,940 4,845 7,269 5,383 8,664
Selling and marketing.................................... 14,476 22,741 29,928 22,318 29,596
Research and development................................. 9,728 15,318 20,696 15,133 19,690
General and administrative............................... 4,130 6,362 15,450 10,609 11,618
Acquired in-process research and development............. 1,600 2,693 1,700 300 41,186
Merger expenses.......................................... -- 3,590 9,300 920 --
--------- --------- --------- --------- ---------
Total operating expenses............................... 33,996 57,078 86,855 56,465 112,389
--------- --------- --------- --------- ---------
Income (loss) from operations.......................... 5,348 11,790 19,232 20,828 (8,057)
Interest income and other, net............................. 836 2,787 4,204 3,100 3,592
--------- --------- --------- --------- ---------
Income (loss) before income taxes...................... 6,184 14,577 23,436 23,928 (4,465)
Income tax expense (benefit)............................... 1,549 4,053 10,952 8,664 (1,607)
--------- --------- --------- --------- ---------
Net income (loss)...................................... $ 4,635 $ 10,524 $ 12,484 $ 15,264 $ (2,858)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per common share......................... $ 0.47 $ 0.57 $ (0.11)
--------- --------- ---------
--------- --------- ---------
Pro forma net income and per share data:
Income before income taxes as reported................... $ 6,184 $ 14,577
Pro forma provision for income taxes..................... 2,175 6,227
--------- ---------
Pro forma net income..................................... $ 4,009 $ 8,350
--------- ---------
--------- ---------
Pro forma net income per common share.................... $ 0.20 $ 0.35
--------- ---------
--------- ---------
Weighted average number of common and common equivalent
shares outstanding....................................... 20,457 24,159 26,761 26,621 25,616
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A NET
CONVERTIBLE UNREALIZED
PREFERRED STOCK COMMON STOCK ADDITIONAL GAIN (LOSS)
------------------------ ------------------------ PAID-IN DEFERRED ON SHORT-TERM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INVESTMENTS
----------- ----------- ----------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31,
1993..................... 1,710 $ 630 10,711 $ 1 $ 4,094 $ -- $ (8)
Issuance of common stock... -- -- 239 -- 517 -- --
Conversion of preferred
stock to common stock.... (1,023) (630) 1,023 -- 630 -- --
Issuance of common stock in
public offering, net of
expenses................. -- -- 2,250 -- 20,342 -- --
Exercise of common stock
options, including
related tax benefits..... -- -- 134 -- 848 -- --
Issuance of common stock
under employee stock
purchase plan............ -- -- 5 -- 66 -- --
Issuance of shares and
accumulated deficit of
merged company........... -- 113 --......... 1 -- --
Repurchase of common
stock.................... -- -- (12) -- (2) -- --
Issuance of common stock
options at below market
value.................... -- -- -- -- 62 (62) --
Unrealized loss on
short-term investments... -- -- -- -- -- -- (214)
Distributions to
shareholders............. -- -- -- -- -- -- --
Net income................. -- -- -- -- -- -- --
----------- ----- ----------- --- ----------- ------------- -----
Balances as of December 31,
1994..................... 687 -- 14,463 1 26,558 (62) (222)
Issuance of common stock... -- -- 1,063 -- 660 -- --
Conversion of long-term
debt to common stock..... -- -- 100 -- 100 -- --
Issuance of common stock in
public offerings, net of
expenses................. -- -- 3,367 -- 52,381 -- --
Conversion of mandatorily
redeemable convertible
preferred stock into
common stock............. -- -- 3,570 1 8,311 -- --
Conversion of preferred
stock into common
stock.................... (687) -- 687 -- -- -- --
Exercise of common stock
options and warrants,
including related tax
benefits................. -- -- 570 -- 5,948 -- --
Repurchase of common
stock.................... -- -- (18) -- (3) -- --
Issuance of common stock
options at below market
value.................... -- -- -- -- 588 (588) --
Amortization of deferred
compensation............. -- -- -- -- -- 133 --
Issuance of common stock
under employee stock
purchase plan............ -- -- 43 -- 534 -- --
Unrealized gain on
short-term investments... -- -- -- -- -- -- 311
Distributions to
shareholders............. -- -- -- -- -- -- --
Issuance of common stock
upon exercise of stock
appreciation rights...... -- -- -- -- 112 -- --
Net income................. -- -- -- -- -- -- --
----------- ----- ----------- --- ----------- ------------- -----
<CAPTION>
TOTAL
RETAINED SHAREHOLDERS'
EARNINGS EQUITY
----------- -------------
<S> <C> <C>
Balances as of December 31,
1993..................... $ 3,044 $ 7,761
Issuance of common stock... -- 517
Conversion of preferred
stock to common stock.... -- --
Issuance of common stock in
public offering, net of
expenses................. -- 20,342
Exercise of common stock
options, including
related tax benefits..... -- 848
Issuance of common stock
under employee stock
purchase plan............ -- 66
Issuance of shares and
accumulated deficit of
merged company........... (103) (102)
Repurchase of common
stock.................... -- (2)
Issuance of common stock
options at below market
value.................... -- --
Unrealized loss on
short-term investments... -- (214)
Distributions to
shareholders............. (2,326) (2,326)
Net income................. 4,635 4,635
----------- -------------
Balances as of December 31,
1994..................... 5,250 31,525
Issuance of common stock... -- 660
Conversion of long-term
debt to common stock..... -- 100
Issuance of common stock in
public offerings, net of
expenses................. -- 52,381
Conversion of mandatorily
redeemable convertible
preferred stock into
common stock............. -- 8,312
Conversion of preferred
stock into common
stock.................... -- --
Exercise of common stock
options and warrants,
including related tax
benefits................. -- 5,948
Repurchase of common
stock.................... -- (3)
Issuance of common stock
options at below market
value.................... -- --
Amortization of deferred
compensation............. -- 133
Issuance of common stock
under employee stock
purchase plan............ -- 534
Unrealized gain on
short-term investments... -- 311
Distributions to
shareholders............. (11,126) (11,126)
Issuance of common stock
upon exercise of stock
appreciation rights...... -- 112
Net income................. 10,524 10,524
----------- -------------
</TABLE>
F-5
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A NET
CONVERTIBLE UNREALIZED
PREFERRED STOCK COMMON STOCK ADDITIONAL GAIN (LOSS)
------------------------ ------------------------ PAID-IN DEFERRED ON SHORT-TERM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INVESTMENTS
----------- ----------- ----------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31,
1995..................... -- $ -- 23,845 $ 2 $ 95,189 $ (517) $ 89
Issuance of common stock in
acquisition of
technology............... -- -- 29 -- 1,500 (750) --
Issuance of common stock
for services............. -- -- 6 -- 140 -- --
Exercise of common stock
options, including
related tax benefits..... -- -- 989 1 9,857 -- --
Issuance of common stock
under employee stock
purchase plan............ -- -- 83 -- 1,177 -- --
Issuance of common stock
options at below market
value.................... -- -- -- -- 2,122 (2,122) --
Amortization of deferred
compensation............. -- -- -- -- -- 569 --
Unrealized loss on
short-term investments... -- -- -- -- -- -- (164)
Issuance of common stock
upon exercise of stock
appreciation rights...... -- -- -- -- 488 -- --
Reversal of prior year
shareholder
distribution............. -- -- -- -- 46 -- --
Contributed capital related
to stock compensation
expense.................. -- -- -- -- 64 -- --
Net income................. -- -- -- -- -- -- --
----------- ----- ----------- --- ----------- ------------- -----
Balances as of December 31,
1996..................... -- -- 24,952 3 110,583 (2,820) (75)
Exercise of common stock
options, including
related tax benefits
(unaudited).............. -- -- 1,045 -- 8,161 -- --
Issuance of common stock
under employee stock
purchase plan
(unaudited).............. -- -- 67 -- 1,830 -- --
Amortization of deferred
compensation
(unaudited).............. -- -- -- -- -- 789 --
Unrealized loss on
short-term investments
(unaudited).............. -- -- -- -- -- -- 47
Issuance of common stock
upon exercise of stock
appreciation rights
(unaudited).............. -- -- -- -- 59 -- --
Issuance of common stock in
acquisition of Compass
(unaudited).............. -- -- 522 -- 17,500 -- --
Contributed capital related
to stock compensation
expense (unaudited)...... -- -- -- -- (182) -- --
Net income (unaudited)..... -- -- -- -- -- -- --
----------- ----- ----------- --- ----------- ------------- -----
Balances as of September
30, 1997 (unaudited)..... -- $ -- 26,586 $ 3 $ 137,951 $ (2,031) $ (28)
----------- ----- ----------- --- ----------- ------------- -----
----------- ----- ----------- --- ----------- ------------- -----
<CAPTION>
TOTAL
RETAINED SHAREHOLDERS'
EARNINGS EQUITY
----------- -------------
<S> <C> <C>
Balances as of December 31,
1995..................... $ 4,648 $ 99,411
Issuance of common stock in
acquisition of
technology............... -- 750
Issuance of common stock
for services............. -- 140
Exercise of common stock
options, including
related tax benefits..... -- 9,858
Issuance of common stock
under employee stock
purchase plan............ -- 1,177
Issuance of common stock
options at below market
value.................... -- --
Amortization of deferred
compensation............. -- 569
Unrealized loss on
short-term investments... -- (164)
Issuance of common stock
upon exercise of stock
appreciation rights...... -- 488
Reversal of prior year
shareholder
distribution............. -- 46
Contributed capital related
to stock compensation
expense.................. -- 64
Net income................. 12,484 12,484
----------- -------------
Balances as of December 31,
1996..................... 17,132 $ 124,823
Exercise of common stock
options, including
related tax benefits
(unaudited).............. -- 8,161
Issuance of common stock
under employee stock
purchase plan
(unaudited).............. -- 1,830
Amortization of deferred
compensation
(unaudited).............. -- 789
Unrealized loss on
short-term investments
(unaudited).............. -- 47
Issuance of common stock
upon exercise of stock
appreciation rights
(unaudited).............. -- 59
Issuance of common stock in
acquisition of Compass
(unaudited).............. -- 17,500
Contributed capital related
to stock compensation
expense (unaudited)...... -- (182)
Net income (unaudited)..... (2,858) (2,858)
----------- -------------
Balances as of September
30, 1997 (unaudited)..... $ 14,274 $ 150,169
----------- -------------
----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 4,635 $ 10,524 $ 12,484 $ 15,264 $ (2,858)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 1,520 2,112 2,657 2,178 3,952
Gain on sale of securities.............................. -- -- (14) 14 --
Compensation expense (benefit) attributable to stock
appreciation rights................................... 380 484 (31) 17 (123)
Stock compensation expense (benefit).................... -- 112 64 -- --
Loss on disposal of equipment........................... 16 19 -- -- --
Amortization of capitalized software costs.............. 199 228 88 70 49
Amortization of deferred compensation................... -- 133 569 320 789
Deferred income taxes................................... 156 (1,431) (2,397) (1,409) (16,840)
Deferred rent........................................... 70 110 (39) (29) (29)
Acquired in-process research and development............ -- 2,693 750 -- 41,186
Stock issued for services............................... 52 -- 140 140 --
Changes in operating assets and liabilities:
Accounts receivable, net.............................. (4,826) (2,974) (482) (5,762) (7,833)
Prepaid income taxes and other assets................. (217) (799) (3,139) (5,736) (349)
Shareholder advances.................................. 300 -- -- -- --
Accounts payable...................................... 266 277 716 453 (14,794)
Accrued compensation.................................. 1,521 650 1,664 722 (563)
Accrued income taxes.................................. (221) 403 (553) (553) 3,766
Other accrued liabilities............................. 318 3,722 4,698 2,611 (1,063)
Deferred revenue...................................... 1,399 3,826 4,239 2,085 (756)
--------- --------- --------- --------- ---------
Net cash provided by operating activities........... 5,568 20,089 21,414 10,385 4,534
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of short-term investments....................... (92,615) (79,568) (206,593) (177,335) (59,277)
Maturities and sales of short-term investments............ 71,366 56,471 169,156 134,656 119,375
Purchases of equipment, furniture and fixtures............ (2,115) (5,107) (4,583) (4,532) (18,405)
Capitalized software development costs.................... (143) (63) -- -- --
Cash received in merger................................... 19 -- -- -- --
Payment for purchase of Compass, net of cash acquired..... -- -- -- -- (12,985)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities........................................ (23,488) (28,267) (42,020) (47,211) 28,708
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Distributions to shareholders............................. (2,896) (9,327) (1,754) (1,754) --
Payments on notes payable................................. (163) -- -- -- --
Principal payments under capital lease obligations........ (235) (235) (133) (104) (48)
Payments on technology acquisition payable................ -- (393) (755) (783) (642)
Issuance of preferred stock, net.......................... 427 500 -- -- --
Repurchase of common stock................................ (2) (3) -- -- --
Exercise of stock options................................. 201 4,646 5,128 3,898 6,116
Issuance of common stock under employee stock purchase
plan.................................................... 66 534 1,177 630 1,830
Issuance of common stock, net............................. 20,365 52,541 -- -- --
Issuance of convertible note.............................. 190 -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities........... 17,953 48,263 3,663 1,887 7,256
Net increase (decrease) in cash and cash equivalents........ 33 40,085 (16,943) (34,939) 40,498
Cash and cash equivalents, beginning of period.............. 9,892 9,925 50,010 50,010 33,067
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period.................... $ 9,925 $ 50,010 $ 33,067 $ 15,071 $ 73,565
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Avant! Corporation (the "Company" or "Avant!") develops, markets and
supports software products that assist design engineers in the automated design,
layout, physical verification and analysis of advanced integrated circuits. Its
primary customers are semiconductor companies in the United States, Japan,
Korea, Taiwan and Europe.
PRINCIPLES OF PRESENTATION AND PREPARATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
consolidated financial statements have been restated to reflect the effect of
the mergers with Integrated Silicon Systems, Inc. (ISS), Anagram, Inc.
(Anagram), Meta-Software, Inc. (Meta) and FrontLine Design Automation, Inc.
(FrontLine) discussed in Note 2.
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue consists primarily of fees for licenses of the Company's software
products, maintenance and customer support.
SOFTWARE REVENUE
Revenue from the sale of software licenses is recognized upon shipment
of the products, delivery of permanent authorization codes and fulfillment
of acceptance terms, if any, providing that no significant vendor and
post-contract support obligations remain and collection of the related
receivable is probable. Any remaining insignificant vendor or post-contract
support obligations are accrued at the time the revenue is recognized. In
instances where there is a contingency regarding the sale, revenue
recognition is delayed until the contingency has been resolved. When the
Company receives advance payments for software products, such payments are
reported as deferred revenue until all conditions for revenue recognition
are met. The Company has entered into certain license agreements under which
software, support and other services are provided to a customer for a
bundled price for a specific period of time. Generally, revenue under such
agreements is recognized ratably over the contract period.
SERVICES REVENUE
Maintenance revenue is deferred and recognized ratably over the term of
the maintenance agreement, which is typically 12 months. Revenue from
customer training, support and other services is recognized as the service
is performed.
F-8
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents.
Cash equivalents are stated at cost and consist primarily of certificates of
deposit and commercial paper. The carrying amount of cash and cash equivalents
approximates fair value.
SHORT-TERM INVESTMENTS
Short-term investments, which consist of demand deposit investments in
limited maturity fixed-income mutual funds, short-term debt securities, U.S.
Government Agency debt securities, U.S. Treasury Bills, municipal/corporate
auction preferred stock, municipal bonds and demand deposit investments in
limited-maturity fixed-income mutual funds are reported at fair value and are
classified as available-for-sale securities. The cost of securities sold is
determined using the specific identification method when computing realized
gains and losses. Fair value is determined using available market information.
As of December 31, 1995, the net unrealized gain on short-term investments of
$89,000 consisted of $136,000 of gross unrealized gains and $47,000 of gross
unrealized losses. As of December 31, 1996, the net unrealized loss on
short-term investments of $75,000 consisted of $86,000 of gross unrealized gains
and $161,000 of gross unrealized losses.
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures consist primarily of computer workstations
and file servers for employees and are stated at cost net of accumulated
depreciation of $5,127,000 and $7,784,000 as of December 31, 1995 and 1996,
respectively. Depreciation is provided on the straight-line method over the
estimated useful lives of the related assets (generally, five years).
SOFTWARE DEVELOPMENT COSTS
Certain software development costs for new products and product enhancements
are capitalized upon the establishment of technological feasibility, which is
defined by the Company as the completion of a working model of the software.
Capitalization of computer software development costs ceases, and amortization
begins, when the product is available for general release to customers. The
ongoing assessment of the realizability of these costs requires considerable
judgment related to anticipated future product revenues, estimated economic life
and changes in hardware and software technology. The amount of software
development costs capitalized for the years 1994, 1995 and 1996 was $143,000,
63,000, and none, respectively. Accumulated amortization of software development
costs was $1,077,000 and $1,165,000 as of December 31, 1995 and 1996,
respectively.
Amortization of software development costs is provided on a
product-by-product basis. Annual amortization is the greater of the amount
computed using the ratio of current product revenue to the total of current and
anticipated future product revenue or the straight-line method over the
remaining estimated economic life of the product. All current products have
estimated economic lives of three years. Amortization of software development
costs for the years 1994, 1995 and 1996 was $199,000, $228,000, and
F-9
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
$88,000, respectively. Amortization of software development costs is included in
costs of software in the accompanying consolidated statements of income.
INCOME TAXES
Income taxes are accounted for under the asset and liability 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 and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The pro forma provision for income taxes for 1994 and 1995 reflects the tax
expense that would have been reported if Meta (an S corporation for income tax
reporting purposes) had been a C corporation during those periods.
NET INCOME AND PRO FORMA NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number of
common and common equivalent shares outstanding during each period presented
using the treasury stock method. Common stock equivalents consist of stock
options and awards.
Pro forma net income per common share is computed using pro forma net income
which reflects the tax expense that would have been reported if Meta (an S
corporation for income tax reporting purposes) had been a C corporation.
Common stock equivalents are excluded from the computation if their effect
is antidilutive, except that common stock issued and stock options and awards
during the 12 months preceding the initial filing of the Registration Statement
for the Company's initial public offering have been included in the calculation
of common and common equivalent shares using the treasury stock method as if
they were outstanding for all periods presented. In addition during 1994 and
1995, the calculation includes shares deemed to be outstanding, which represent
the number of shares sufficient to fund Meta's final S corporation distribution.
STOCK OPTION AND STOCK PURCHASE PLANS
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted the disclosure requirements of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
Under SFAS No. 123, the Company must disclose pro forma net income and pro forma
earnings per share for employee stock option grants and employee stock
F-10
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
purchases made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied.
STATEMENTS OF CASH FLOWS
Interest of $42,000, $51,000, and $141,000, $9,000 and $112,000 was paid in
the years ended 1994, 1995 and 1996 and the nine-month periods ended September
30, 1996 and 1997, respectively. Income taxes of $1,125,000, $2,041,000, and
$11,076,000, $10,946,000 and $7,550,000 was paid during the years ended 1994,
1995 and 1996 and the nine-month periods ended September 30, 1996 and 1997,
respectively. Acquisition of equipment under capital lease obligations was
$298,000 during 1994. Deferred compensation of $62,000, $588,000, and
$2,872,000, $320,000 and $789,000 was recognized in the years ended 1994, 1995
and 1996 and the nine-month periods ended September 30, 1996 and 1997,
respectively, for stock options issued below market value. An income tax benefit
attributable to employee stock plans of $647,000, $1,302,000, $4,730,000,
$3,345,000 and $2,045,000 was credited to equity in the years ended December 31,
1994, 1995 and 1996 and the nine-month periods ended September 30, 1996 and
1997, respectively which is included in the change in prepaid income taxes and
other assets. In connection with the Company's initial public offering in 1995,
mandatorily redeemable convertible preferred stock was converted to common stock
in the amount of $8,312,000. Other accrued liabilities were reduced $488,000
through the issuance of common stock related to the accrued stock appreciation
rights liabilities in 1996. The Company issued $750,000 of common stock for the
acquisition of technology during 1996. Conversion of long-term debt to common
stock was $100,000 in 1995.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Resulting foreign exchange gains and losses, which have been
insignificant, are included in the results of operations.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of September
30, 1997, and for the nine months ended September 30, 1996 and 1997, have been
prepared on substantially the same basis as the audited consolidated financial
statements, and include all adjustments, consisting only of normal recurring
adjustments, which management believes are necessary for a fair presentation of
the financial information set forth herein.
RECLASSIFICATION
Certain amounts in the 1994 and 1995 consolidated financial statements have
been reclassified to conform to the 1996 presentation.
(2) MERGERS AND ACQUISITIONS
On December 31, 1996, the Company issued approximately 29,000 shares of its
common stock for all of the outstanding stock of Nexsyn Design Technology Inc.
(Nexsyn), and assumed approximately 22,000
F-11
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(2) MERGERS AND ACQUISITIONS (CONTINUED)
stock options under option plans. The financial position, results of operations
and cash flows of Nexsyn were not material to Avant!, and the acquisition was
accounted for by the purchase method.
On November 27, 1996, the Company issued approximately 1,812,000 shares of
its common stock for all of the outstanding common stock of FrontLine, and
assumed approximately 410,000 warrants and stock options under option plans.
On October 29, 1996, the Company issued approximately 4,471,000 shares of
its common stock for all of the outstanding common stock of Meta, and assumed
approximately 608,000 stock options and subscriptions under option and purchase
plans.
On September 27, 1996, the Company issued approximately 2,154,000 shares of
its common stock for all of the outstanding common and preferred stock of
Anagram, and assumed approximately 260,000 stock options under option plans. The
Anagram outstanding preferred stock has been presented as common stock for all
periods presented in the consolidated financial statements.
The FrontLine, Meta and Anagram mergers described above have been accounted
for as poolings of interests, and, accordingly, the Company's consolidated
financial statements have been restated for all periods prior to the mergers to
include the results of operations, financial position, and cash flows of
FrontLine, Meta and Anagram.
Total revenue and net income (loss) for the individual entities through
their respective acquisition dates are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Total revenue:
Avant!.................................................... $ 18,958 $ 38,004 $ 70,608
Anagram................................................... 241 3,508 7,009
Meta...................................................... 19,652 25,281 24,121
FrontLine................................................. 493 2,075 4,349
--------- --------- ----------
$ 39,344 $ 68,868 $ 106,087
--------- --------- ----------
--------- --------- ----------
Net income (loss):
Avant!.................................................... $ 2,260 $ 5,065 $ 5,309
Anagram................................................... 19 1,170 2,498
Meta (pro forma 1994 and 1995)............................ 2,134 2,177 4,477
FrontLine................................................. (646) (99) 70
--------- --------- ----------
3,767 8,313 12,354
Adjustment for deferred taxes............................... 242 37 130
--------- --------- ----------
As restated................................................. $ 4,009 $ 8,350 $ 12,484
--------- --------- ----------
--------- --------- ----------
</TABLE>
F-12
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(2) MERGERS AND ACQUISITIONS (CONTINUED)
In connection with the 1996 mergers with FrontLine, Meta and Anagram, the
Company incurred direct transaction costs and merger-related integration
expenses of approximately $9,300,000, consisting of transaction fees for
investment bankers, attorneys, accountants, financial printing and shareholder
meetings of approximately $5,352,000, charges for the elimination of duplicate
facilities of approximately $2,250,000, and severance costs and certain other
related costs of approximately $1,698,000. Of the $9,300,000 of merger-related
costs, approximately $8,400,000 related to cash expenditures while approximately
$900,000 related to noncash charges.
On November 27, 1995, the Company issued approximately 6,400,000 shares of
its common stock for all of the outstanding common stock of ISS, and assumed
approximately 1,500,000 stock options and subscriptions under various ISS stock
option and purchase plans. The merger has been accounted for as a pooling of
interests, and accordingly, the Company's consolidated financial statements have
been restated for all periods prior to the merger to include the results of
operations, financial position and cash flows of ISS.
In connection with the 1995 merger with ISS, the Company incurred direct
transaction costs and merger-related integration expenses of approximately
$3,590,000 consisting of transaction fees for investment bankers, attorneys,
accountants, financial printing and shareholder meetings of approximately
$2,858,000, charges for the elimination of duplicate facilities of approximately
$233,000, and severance and certain other related costs of approximately
$499,000. Of the $3,590,000 of merger-related costs, approximately $3,390,000
related to cash expenditures while approximately $200,000 related to noncash
charges.
As of December 31, 1996, accrued liabilities included approximately
$3,910,000 of merger related costs, which the Company expects to pay in 1997,
all of which are related to the 1996 mergers.
On May 5, 1994, ISS completed a merger with Performance Signal Integrity,
Inc. (PSI), a Pennsylvania corporation. The financial position, results of
operations and cash flows of PSI were not material to ISS, and the merger was
accounted for as an immaterial pooling of interests. Therefore, ISS's previously
reported financial results were not restated for the PSI merger.
(3) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In connection with the completion of the Company's initial public offering
in June 1995, all the outstanding mandatorily redeemable convertible preferred
stock automatically converted into approximately 3,570,000 shares of the
Company's common stock. In addition, outstanding warrants to acquire Series B
preferred stock were automatically converted into approximately 26,000 shares of
the Company's common stock.
(4) SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING AND CHANGES IN AUTHORIZED COMMON AND PREFERRED STOCK
In April 1995, the Company increased its authorized number of shares of
preferred stock to 5,000,000 shares and authorized the Board of Directors to fix
the rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
F-13
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(4) SHAREHOLDERS' EQUITY (CONTINUED)
preferences and the number of shares constituting any series or the designation
of such series, without any further vote or action by the shareholders.
In June 1995, the Company closed its initial public offering of common stock
at $13.00 per share. The net proceeds of the offering were $27,713,000 after
deducting applicable costs and expenses. In connection with the public offering,
all the outstanding Series A preferred stock automatically converted into
approximately 687,000 shares of the Company's common stock.
In May 1996, the Company increased its authorized number of shares of common
stock from 25,000,000 to 50,000,000 shares.
SHAREHOLDER DISTRIBUTIONS
Meta (an S corporation for income tax reporting purposes) made distributions
to its shareholders to provide them with funds to pay income taxes on corporate
earnings. Prior to the completion of the Meta initial public offering and the
termination of the S corporation election in November 1995, Meta declared a
distribution payable to existing shareholders of Meta. This distribution
represented undistributed tax basis earnings of Meta through the termination of
the S corporation election.
1995 STOCK OPTION/ISSUANCE PLAN
The Company approved the 1995 Stock Option/Stock Issuance Plan (the 1995
Plan) in April 1995, under which all remaining outstanding stock options and
shares available for grant under the Company's 1993 Stock Option/Stock Issuance
Plan and 1,000,000 additional shares of the Company's common stock has been
authorized for issuance. The 1995 Plan is intended to serve as a successor to
the 1993 Stock Option/Stock Issuance Plan (see below) and has terms similar to
those of the 1993 Stock Option/Stock Issuance Plan. Under the 1995 Plan,
however, each individual serving as a nonemployee Board of Directors' member on
the date the Underwriting Agreement for the initial public offering was executed
received an option grant on such date for 20,000 shares of common stock,
provided such individual had not otherwise been in the prior employ of the
Company. Each individual who first becomes a nonemployee Board of Directors'
member thereafter receives a 20,000 share option grant on the date such
individual joins the Board of Directors provided such individual has not been in
the prior employ of the Company. In addition, at each annual shareholders'
meeting, beginning with the 1996 Annual Shareholders' Meeting, each individual
who continues to serve as a nonemployee Board of Directors' member after the
meeting receives an additional option grant to purchase 5,000 shares of common
stock whether or not such individual has been in the prior employ of the
Company.
1993 STOCK OPTION/STOCK ISSUANCE PLAN
In September 1993, the Board of Directors approved the 1993 Stock
Option/Stock Issuance Plan (the Plan). Options granted under the Plan may be
either incentive stock options or nonstatutory stock options, as designated by
the Board of Directors. The Plan provides that the exercise price of an
incentive stock option and a nonstatutory option will be no less than the fair
market value and 85% of the fair market
F-14
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(4) SHAREHOLDERS' EQUITY (CONTINUED)
value, respectively, of the Company's common stock at the date of grant, as
determined by the Board of Directors.
The Company's Board of Directors also has the authority to set exercise
dates (no longer than 10 years from the date of grant), payment terms and other
provisions for each grant. Generally options granted under the Plan become
exercisable as to 25% of the shares on the anniversary date of grant and
thereafter become exercisable ratably over three years.
The Company has recorded deferred compensation of $3,522,000, representing
the difference between the exercise price and the deemed fair value of the
Company's common stock for 604,000 shares subject to common stock options
granted in the fourth quarter of 1994, the first quarter of 1995 and options
assumed in the Anagram and FrontLine mergers and Nexsyn acquisition during 1996.
The deferred compensation will be amortized to compensation expense over the
period during which the options become exercisable, generally four years.
In connection with the mergers discussed in Note 2, various ISS, Anagram,
Meta and FrontLine option plans were assumed by the Company, thereby allowing
participants to purchase Avant! stock in amounts and at prices adjusted to
reflect the relative exchange ratios of the mergers.
1992 STOCK OPTION/APPRECIATION PLAN
Under Meta's 1992 Stock Option/Appreciation Plan (the 1992 Plan), the
exercise price of stock options is to be not less than 90% of the fair market
value at the date of grant. Fair market value, in the absence of trading on a
national or regional stock exchange, was established by Meta's Board of
Directors based on an independent valuation of Meta. Options generally vested
over a period of one to four years from the date of grant, expire ten years from
the date of grant, and are terminated, to the extent not exercised, one month
after termination of employment.
The 1992 Plan provides for the exercise of stock appreciation rights with
respect to outstanding options in the absence of trading of Meta's stock on a
national or regional stock exchange. Upon the exercise of stock appreciation
rights, the employee surrendered the related unexercised option and received
cash payment equal to the excess of the fair market value of the underlying
shares at the time of exercise over the aggregate exercise price of the related
option. Compensation expense was recognized for the appreciation in value from
the date of grant.
During the months of June, July, and August 1995, Meta entered into
agreements with substantially all individual option holders under the 1992 Plan
terminating the stock appreciation right feature of the individual awards.
Compensation expense of $484,000, representing the difference between the
exercise price and the fair market value of the stock, was recorded based on the
vested stock appreciation rights of the individual shareholders through the date
such rights were terminated. Upon effectiveness of the Meta initial public
offering, all stock appreciation rights terminated, and no further compensation
expense was recorded.
F-15
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(4) SHAREHOLDERS' EQUITY (CONTINUED)
Opinion No. 25 in accounting for its option and purchase plans and
accordingly, compensation expense has been recognized for its stock options in
the financial statements using the intrinsic value method. Had the Company
determined compensation expense based on the fair value at the grant date for
its stock options under SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below for the
years ended December 31, (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Net income
As reported (pro forma in 1995)........................................ $ 8,350 $ 12,484
Additional compensation cost resulting from:
Fixed stock options.................................................. (1,772) (4,592)
Performance based stock options...................................... (2) (2)
Employee stock purchase rights....................................... (309) (1,044)
--------- ---------
Pro forma.......................................................... $ 6,267 $ 6,846
--------- ---------
--------- ---------
Earnings per share
As reported (pro forma in 1995)........................................ $ 0.35 $ 0.47
Pro forma.............................................................. $ 0.26 $ 0.26
</TABLE>
The fair value of each fixed stock option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: expected volatility
of 57% and 57%, risk-free interest rates of 7.86%, and 5.27% expected lives of
six months after vesting and no dividend yield.
The effects of applying SFAS No. 123 for disclosing compensation cost may
not be representative of the effects on reported net income for future years
because pro forma net income reflects compensation costs only for stock options
granted in 1995 and 1996 and does not consider compensation cost for stock
options granted prior to January 1, 1995.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1994, 1995, and 1996, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1994 1995 1996
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
------ -------- ------ -------- ------ --------
Outstanding at beginning
of year................ 734 $ 0.78 2,600 $ 6.42 3,477 $ 9.42
Granted................ 2,275 6.95 1,816 14.00 1,738 17.61
Exercised.............. (134 ) 0.69 (598 ) 11.21 (990 ) 3.41
Canceled............... (275 ) 0.68 (341 ) 7.16 (362 ) 14.10
------ ------ ------
Outstanding at end of
year................... 2,600 $ 6.42 3,477 $ 9.42 3,863 $ 12.84
------ ------ ------
------ ------ ------
Options exercisable at
end of year............ 881 1,444 1,996
------ ------ ------
------ ------ ------
Weighted average fair
value of options
granted during the
year................... -- $5.96 $7.28
------ ------ ------
------ ------ ------
</TABLE>
F-16
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(4) SHAREHOLDERS' EQUITY (CONTINUED)
The following summarizes information about fixed stock options outstanding
as of December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------- OPTIONS EXERCISABLE
NUMBER WEIGHTED ------------------------
OUTSTANDING AS AVERAGE WEIGHTED WEIGHTED
OF DECEMBER 31, REMAINING AVERAGE NUMBER AVERAGE
1996 CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICE (000) LIFE (YEARS) PRICE (000) PRICE
- ------------------------------------------------- --------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.07-0.30....................................... 902 6.86 $ 0.28 647 $ 0.29
$0.31-15.00...................................... 1,367 8.48 7.13 617 6.47
$15.01-25.00..................................... 1,145 8.61 18.66 672 17.35
$25.01-44.50..................................... 449 9.42 35.66 60 38.01
----- --- ------ ----- -----------
$0.07-44.50...................................... 3,863 8.15 $ 12.84 1,996 $ 7.57
----- --- ------ ----- -----------
----- --- ------ ----- -----------
</TABLE>
FrontLine granted certain employees stock option awards whose vesting is
contingent upon achieving certain performance measures. The exercise price of
each option, which has a 10 year life, is equal to the market price of the
Company's stock on the date of grant.
The fair value of each performance-based option is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996, respectively:
risk-free interest rates of 7.86% and 5.27%, expected lives six months after
vesting and no dividend yield.
The following is a summary of the activity under the Company's performance
based stock option plan:
<TABLE>
<CAPTION>
1995 1996
---------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..................... -- $ -- 72 $ 0.58
Granted.............................................. 72 0.58 24 0.58
--------- -----
Outstanding at end of year........................... 72 $ 0.58 96 $ 0.58
--------- -----
--------- -----
Options exercisable at end of year................... 13 35
Weighted average fair value of options granted during
the year........................................... $ 0.11 $ 0.08
--------- -----
--------- -----
</TABLE>
As of December 31, 1996, the 96,000 performance options outstanding under
the Plan have an exercise price of $0.58 and a weighted average remaining
contractual life of 8.68 years. The Company expects that approximately 50% of
the nonvested awards as of December 31, 1996 will eventually vest.
F-17
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(4) SHAREHOLDERS' EQUITY (CONTINUED)
WARRANTS
During 1995, FrontLine issued a warrant to purchase 10,380 shares of common
stock at a price of $0.58 per share in connection with a technology development
agreement. This warrant expires on October 31, 2000 and is exercisable upon
completion of certain milestones. As of December 31, 1996, there were no
warrants exercisable. Accounting for the value of this warrant will be
determined upon completion of the milestones and will be charged to income at
that time because the technology had not reached technological feasibility at
the date of the technology development agreement.
COMMON STOCK AWARDS
An agreement with a distributor provides for the issuance of common stock in
lieu of cash sales commissions. In April 1996, FrontLine issued approximately
6,000 shares of common stock and recognized a charge to income of approximately
$140,000. The Company may issue up to 15,000 additional shares of common stock
for future sales commissions through 1998.
(5) LEASES
CAPITAL LEASES
The Company is obligated to make future minimum lease payments under capital
lease arrangements of $52,000 during 1997.
OPERATING LEASES
The Company leases its Sunnyvale, California, Research Park Triangle, North
Carolina, and certain sales facilities under operating lease agreements which
expire over the next nine years. Rental expense incurred by the Company under
operating lease agreements totaled $1,190,000, $1,366,000, and $2,164,000, and
for the years ended December 31, 1994, 1995 and 1996, respectively.
Future annual minimum lease payments under operating leases for the years
ended December 31, are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................ $ 2,047
1998................................................ 1,175
1999................................................ 851
2000................................................ 742
2001................................................ 700
Thereafter.......................................... 2,741
---------
$ 8,256
---------
---------
</TABLE>
(6) INCOME TAXES
The components of income tax expense, as presented in the accompanying
consolidated statements of income, are comprised of federal taxes, state taxes
and certain foreign taxes. The pro forma provision for
F-18
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(6) INCOME TAXES (CONTINUED)
income taxes reflects the income tax expense that would have been reported if
Meta (an S corporation for income tax reporting purposes) had been a C
corporation for the years ended December 31, 1994 and 1995. The components of
income taxes and pro forma income taxes as of December 31, 1994, 1995 and 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Provision for income taxes:
Current:
Federal..................................................... $ 105 $ 1,736 $ 7,127
Foreign..................................................... 535 1,609 725
State....................................................... 106 837 767
--------- --------- ---------
Total..................................................... 746 4,182 8,619
--------- --------- ---------
Deferred:
Federal..................................................... 102 (826) (2,144)
State....................................................... 54 (605) (253)
--------- --------- ---------
Total..................................................... 156 (1,431) (2,397)
--------- --------- ---------
Charge in lieu of taxes attributable to employee stock plans.... 647 1,302 4,730
--------- --------- ---------
Total provision for income taxes.......................... $ 1,549 $ 4,053 $ 10,952
--------- --------- ---------
--------- --------- ---------
Pro forma income taxes:
Current:
Federal..................................................... $ 1,073 $ 2,989
Foreign..................................................... 535 1,609
State....................................................... 332 1,240
--------- ---------
Total..................................................... 1,940 5,838
--------- ---------
Deferred:
Federal..................................................... (394) (396)
State....................................................... (18) (517)
--------- ---------
Total..................................................... (412) (913)
--------- ---------
Charge in lieu of taxes attributable to employee stock plans.... 647 1,302
--------- ---------
Total pro forma provision for income taxes................ $ 2,175 $ 6,227
--------- ---------
--------- ---------
</TABLE>
F-19
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(6) INCOME TAXES (CONTINUED)
The Company's effective tax rate and pro forma effective rate differs from
the federal statutory income tax rate of 35% as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income tax expense at statutory rate................................................ $ 2,164 $ 5,102 $ 8,203
State tax expense................................................................... 153 491 1,540
Nondeductible merger costs.......................................................... -- 938 2,355
Change in valuation allowance....................................................... 89 (89) --
Tax exempt income................................................................... (140) (306) (307)
Tax credits......................................................................... (78) (148) (387)
Foreign sales corporation........................................................... -- (96) (980)
S corporation benefit............................................................... (1,134) (575) --
Establishment of deferred tax assets in conjunction with Meta's transition from an S
corporation to C corporation status............................................... -- (1,725) --
Foreign taxes paid by S Corporation................................................. 497 423 --
Other............................................................................... (2) 38 528
--------- --------- ---------
Actual income tax expense....................................................... $ 1,549 $ 4,053 $ 10,952
--------- --------- ---------
--------- --------- ---------
Income tax expense at statutory rate................................................ $ 2,164 $ 5,102
State tax expense................................................................... 259 815
Nondeductible merger costs.......................................................... -- 938
Change in valuation allowance....................................................... 89 (89)
Tax exempt income................................................................... (140) (306)
Tax credits......................................................................... (222) (253)
Foreign sales corporation........................................................... -- (96)
Other............................................................................... 25 116
--------- ---------
Pro forma income tax expense.................................................... $ 2,175 $ 6,227
--------- ---------
--------- ---------
</TABLE>
F-20
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(6) INCOME TAXES (CONTINUED)
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1995 and
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities...................................................... $ 1,385 $ 1,343
Allowance for doubtful accounts.......................................... 158 305
Tax credit carryforwards................................................. 361 --
Net operating loss carryforwards......................................... 286 201
Deferred revenue......................................................... 942 4,682
Property and equipment, principally due to depreciation.................. 1,140 760
Other.................................................................... 95 91
--------- ---------
Total gross deferred tax assets........................................ 4,367 7,382
Less valuation allowance................................................... -- --
--------- ---------
Deferred tax assets, net of valuation allowance........................ 4,367 7,382
--------- ---------
Deferred tax liability--Accrual to cash conversion......................... 314 932
--------- ---------
Net deferred tax assets................................................ $ 4,053 $ 6,450
--------- ---------
--------- ---------
</TABLE>
Management believes it is more likely than not that future operations will
generate sufficient taxable income to realize the deferred tax assets.
The Company had net operating loss carryforwards of $760,000 and $503,000 as
of December 31, 1995 and 1996, respectively, expiring through the year 2011.
(7) EMPLOYEE BENEFIT PLANS
401(K) PLAN
The Company has a 401(k) retirement savings plans covering substantially all
employees. Contributions are matched at the discretion of the Board of
Directors. The matching contributions amounted to $77,000, $115,000, and
$769,000, for 1994, 1995 and 1996, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company has a Qualified Employee Stock Purchase Plan, which permits
eligible employees to purchase newly issued common stock of the Company up to an
aggregate of 500,000 shares. Under this plan, employees may purchase from the
Company a designated number of shares through payroll deductions at a price per
share equal to 85% of the lesser of the fair market value of the Company's
common stock as of the date of the grant or the date the right to purchase is
exercised. Under the Plan, the Company sold 5,000, 43,000, and 83,000 shares, to
employees in 1994, 1995 and 1996, respectively.
Under SFAS No. 123, compensation cost would be recognized for the fair value
of the employee's purchase rights, which was estimated using the Black-Scholes
model with the following assumptions for
F-21
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(7) EMPLOYEE BENEFIT PLANS (CONTINUED)
1995 and 1996, respectively: expected volatility of 57% and 57%, risk-free
interest rates of 7.76% and 5.61% and no dividend yield. The weighted average
fair value of those purchase rights (including the 15% discount to the fair
value of the Company's common stock) granted in 1995 and 1996 were $13.25 and
$8.17, respectively.
(8) CONCENTRATIONS OF CREDIT RISK
The Company maintains excess cash balances in a variety of financial
instruments such as securities backed by the U.S. government,
municipal/corporate auction preferred stock, municipal bonds, short-term debt
securities, and demand deposit investments in limited-maturity fixed-income
mutual funds. The Company has not experienced any material losses in any of the
instruments it has used for excess cash balances.
To reduce credit risk, the Company performs ongoing credit evaluations of
its customers' financial condition. The Company maintains reserves for potential
credit losses, but historically has not experienced any significant losses
related to individual customers or groups of customers in any geographic area.
The Company's allowance for doubtful accounts was $899,000 and $762,000 as of
December 31, 1995 and 1996, respectively.
(9) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, comprising the
electronic design automation industry.
The Company's export revenues are all denominated in U.S. dollars.
International revenue, principally to customers in Asia, accounted for
approximately 33%, 32%, and 34% of total revenue in the years ended December 31,
1994, 1995 and 1996, respectively.
As of December 31, 1995 and 1996, no customer comprised in excess of 10% of
total accounts receivable.
(10) ACQUISITIONS OF TECHNOLOGY
In each of December 1996, September 1996, October 1995 and April 1994, the
Company acquired rights to certain software technology under development. As the
acquired software had not reached technological feasibility at the date of
acquisition, it was expensed upon acquisition.
Under the October 1995 agreement, the Company will make payments of
approximately $670,000, $475,000, $350,000 and $200,000 in March 1997, 1998,
1999 and 2000, respectively. The net present value of these payments is included
in technology acquisition payable in the accompanying consolidated balance
sheets.
(11) COMMITMENTS AND CONTINGENCIES
On December 6, 1995, Cadence Design Systems, Inc. (Cadence) filed an action
against the Company and certain of its officers in the Northern California
United States District Court alleging copyright infringement, unfair
competition, misappropriation of trade secrets, conspiracy, breach of contract,
F-22
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
inducing breach of contract and false advertising. The essence of the complaint
is that certain Avant! employees who were formerly Cadence employees allegedly
misappropriated and improperly copied source code for certain important
functions of Avant! place and route products from Cadence, and that the Company
has allegedly competed unfairly by making false statements concerning Cadence
and its products. The action also alleges that the Company induced certain
individual defendants to breach their agreements of employment and
confidentiality with Cadence. In addition to actual and punitive damages, which
were not quantified by Cadence, Cadence seeks to enjoin the sale of certain
place and route products.
On March 18, 1997, the Northern California District Court denied Cadence's
motion to obtain a preliminary injunction that would have prohibited the
production and sale of Avant!'s ArcCell, ArcCell-XO, Aquarius-XO and Aquarius-XO
2.0 products or any other product that Avant! is currently selling. The matter
is currently awaiting trial, pending further pretrial matters. A trial date has
not yet been set.
On January 16, 1996, Avant! filed a counterclaim alleging antitrust
violations, racketeering, false advertising, defamation, trade libel, unfair
competition, unfair trade practices, negligent and intentional interference with
prospective economic advantage and intentional interference with contractual
relations. Although Avant!'s counterclaim seeks unquantified damages according
to proof, Avant! specifically alleges that it has suffered losses in excess of
$500 million. The alleged losses are due largely to the decline in Avant!'s
stock market value caused by Cadence's misconduct.
The Santa Clara County District Attorney's office is also investigating the
allegations of misappropriation of trade secrets set forth in Cadence's lawsuit,
described above. On December 5, 1995, a search warrant was executed at the
Company's Sunnyvale, California, facility to determine whether there was
evidence of criminal conduct. No criminal charges have been filed against the
Company, the Company's management or its employees, but no assurance can be
given that such charges will not be filed in the future. A criminal complaint,
if filed against the Company, the Company's management or its employees, could
result in a loss of management and other personnel and could have other material
adverse effects on the Company.
On December 15, 1995, Paul Margetis and Helen Margetis filed in the United
States District Court for the Northern District of California a securities fraud
class action complaint. In addition, on December 19, 1995, Fred Tarca filed in
the United States District Court for the Northern District of California a class
action complaint for violations of the federal securities laws. These class
action lawsuits allege certain securities law violations, including omissions
and/or misrepresentation of material facts. The alleged omissions and/or
misrepresentations are largely consistent with those outlined in the Cadence
claim. In February 1997, plaintiff Tarca voluntarily dismissed his action and
the Margetis plaintiffs were certified as class representatives in their action.
The Margetis action has been informally stayed pending resolution of Cadence's
preliminary injunction motion.
When the lawsuits were originally filed against the Company, the Company
experienced delays in orders by customers due to the uncertainty of the pending
lawsuits against the Company. If the Company suffers an adverse outcome in
either the civil or criminal proceedings, then the Company would likely
experience future delays in orders from customers and would likely suffer the
loss of customers. If such
F-23
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
events were to occur, there would be a material adverse effect on the Company's
business, financial condition and results of operations.
The Company believes it has sufficient defenses to all the plaintiffs'
claims and intends to defend itself vigorously. If however, Avant!'s defenses
are unsuccessful, the Company may be enjoined from selling certain place and
route products and may be required to pay damages to Cadence. In such event,
Avant!'s business, operating results and financial condition would be materially
adversely affected. In addition, it is likely that an adverse judgment against
Avant! would result in a steep decline in the market price of Avant!'s common
stock. Although it is reasonably possible the Company may incur a loss upon
conclusion of these claims, an estimate of any loss or range of loss cannot be
made, and the Company believes, based on information it presently possesses,
that the conclusion of these claims will not have a material adverse effect on
the Company's consolidated financial position; however, there can be no
assurance that an adverse judgment, if granted on any claim would not have a
material adverse effect on the Company's business, consolidated financial
position or consolidated results of operations.
The Company is subject to other claims that have arisen in the ordinary
course of business. In the opinion of management, all such matters are without
merit or involve amounts that would not have a material adverse effect on the
Company's consolidated financial position if unfavorably resolved.
As of December 31, 1996, the Company was contingently liable for a $4
million letter of credit for general corporate matters.
(12) SUBSEQUENT EVENTS (UNAUDITED)
On April 11, 1997, the Santa Clara County District Attorney's office filed a
criminal complaint against Avant! and six of its employees. The individuals have
pleaded not guilty and are awaiting further proceedings. The criminal complaint
could result in criminal fines against Avant!, as well as potential
incarceration of certain members of its management team.
On September 23, 1997, the United States Court of Appeals for the Ninth
Circuit overruled a district court denial of Cadence's motion with respect to
Avant!'s ArcCell product, and held that a preliminary injunction should be
granted against the further sale of the ArcCell product, a product which Avant!
no longer sells. The Court of Appeals did not enjoin Avant!'s Aquarius product,
but rather remanded this aspect of Cadence's motion to the district court for
further consideration.
In March 1993, Meta filed a complaint in Santa Clara Superior Court against
Silvaco Data Systems, Inc. and related parties (collectively, "Silvaco") seeking
monetary damages and injunctive relief. Meta's complaint alleged, among other
things, that Silvaco breached its representative agreement with Meta by
withholding customer payments for products and services that had been delivered,
and by failing to pay royalties on software that Silvaco sold to others. In
August 1995, Meta was awarded $529,828 under the Superior Court's judicial
arbitration program. Both parties rejected the award and requested a trial de
novo on the issues involved. In August 1995, Silvaco filed a cross-complaint
against Meta alleging, among other things, that Meta owes Silvaco royalties and
license fees pursuant to a product development and marketing program and unpaid
commissions related to Silvaco's sale of Meta's products and services under such
program. Meta filed an answer to the cross-complaint denying the allegations
contained therein. In July 1996, Silvaco filed a first amended cross-complaint,
adding Shawn Hailey, then the President, Chief
F-24
<PAGE>
AVANT! CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995, AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(12) SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
Executive Officer and a major shareholder of Meta, and, until July 1997, the
Senior Vice President of Avant!'s Silicon Division, as a personal defendant, and
further alleging defamation, interference with economic advantage, unfair
competition and abuse of process by acts or statements made by Meta or its
agents.
In August 1997, the Superior Court entered a default judgment against Mr.
Hailey as to the defamation and interference with economic advantage claims for
failure to answer the complaint. In October 1997, Mr. Hailey's application for
relief from the default judgment was denied. In August 1997, the Superior Court
entered a default judgment against Meta as to the defamation and interference
with economic advantage claims. On October 31, 1997, Meta's application for
relief from the default judgment was denied. On October 28, 1997, Silvaco first
presented its theory of damages and a trial began on November 3, 1997. On
November 4, 1997, the Superior Court dismissed Meta's remaining affirmative
claims. On November 5, 1997, the Superior Court awarded Silvaco $20.0 million in
damages against Mr. Hailey and Meta related to the defamation and interference
with economic advantage claims, and, on November 6, 1997, the Superior Court
awarded Silvaco $11.4 million in damages related to the unfair competition claim
and claims related to the product development and marketing program. On November
12, 1997, the Superior Court awarded nominal damages to Silvaco related to the
August 1995 cross-complaint.
Meta intends to pursue all remedies available to it in connection with the
litigation with Silvaco, including filing an appeal as quickly as practicable.
Meta believes it has substantial appellate issues which could cause the judgment
to be remanded to the trial court for further proceedings. Should Meta be
permitted to participate fully in further trial court proceedings, Meta believes
it would have substantial defenses to Silvaco's claims. However, there can be no
assurance that any such remedies will be successful. Although it is reasonably
possible Meta will incur a loss in relation to this claim, it is currently
unable to estimate the actual loss or range of loss. Payment of the damages
previously awarded, and damages which may be awarded in the future, would have a
material adverse effect on Avant!'s business, consolidated financial condition
and consolidated results of operations.
In May 1997, the Company increased its authorized number of shares of common
stock from 50,000,000 to 75,000,000 shares.
On September 12, 1997, the Company acquired all of the outstanding common
and preferred stock of Compass Design Automation, Inc. in a transaction
accounted for as a purchase. The purchase price included cash of $17,500,000,
522,192 shares of Avant! common stock valued at $17,500,000, and transaction
costs of $4,948,000. The net purchase price of $39,948,000 was allocated as
follows: $6,701,000 to current assets; $4,441,000 to property, plant and
equipment; $41,186,000 to in-process research and development; $14,822,000 to
goodwill and other identifiable intangibles; and $27,202,000 to assumed
liabilities.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Compass Design Automation, Inc.:
We have audited the accompanying consolidated balance sheet of Compass Design
Automation, Inc. and subsidiaries (the Company) as of December 27, 1996, and the
related consolidated statements of operations, shareholders' deficit, and cash
flows for the year then ended. In connection with our audits of the accompanying
consolidated financial statements, we also have audited the accompanying
consolidated financial statement schedule. These consolidated financial
statements and related consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and consolidated financial
statement schedule based on our audits.
We conducted our audit 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 audit provides 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 Compass Design
Automation, Inc. and subsidiaries as of December 27, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles. Also in our opinion, the related
consolidated financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
San Jose, California
November 18, 1997
F-26
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 27,
1997
DECEMBER 27, -----------
1996
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 1,668 2,445
Accounts receivable, net............................................................ 12,644 7,168
Other receivables................................................................... 322 294
Prepaid and other current assets.................................................... 252 634
------------ -----------
Total current assets.............................................................. 14,886 10,541
Property, plant, and equipment, net................................................... 5,672 4,655
Other assets.......................................................................... 490 418
------------ -----------
Total assets...................................................................... $ 21,048 15,614
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.................................................................... $ 2,238 2,382
Payable to VLSI..................................................................... 13,423 11,781
Accrued compensation................................................................ 3,779 3,938
Other accrued liabilities........................................................... 1,962 2,065
Deferred revenue.................................................................... 9,846 9,290
------------ -----------
Total current liabilities......................................................... 31,248 29,456
Minority interest..................................................................... 56 65
Commitments and contingencies
Shareholders' deficit:
Series A redeemable preferred stock, $0.01 par value; 2,200 shares authorized; 2,200
shares issued and outstanding as of December 31, 1996; liquidation preference of
$2,200............................................................................ 22 22
Common stock, $0.01 par value; 40,000 shares authorized; 19,100 shares issued and
outstanding as of December 31, 1996............................................... 191 191
Additional paid-in capital.......................................................... 3,897 3,902
Accumulated deficit................................................................. (14,366) (18,022)
------------ -----------
Total shareholders' deficit....................................................... (10,256) (13,907)
------------ -----------
Total liabilities and shareholders' deficit....................................... $ 21,048 15,614
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX-MONTH
PERIODS ENDED
YEAR ENDED ------------------------
DECEMBER 27, JUNE 28, JUNE 27,
1996 1996 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Software..................................................................... $ 26,288 14,163 12,081
Software sales to VLSI....................................................... 7,654 3,827 3,666
Services..................................................................... 20,243 10,658 8,997
------------ ----------- -----------
Total revenue.............................................................. 54,185 28,648 24,744
------------ ----------- -----------
Costs and expenses:
Costs of software............................................................ 5,003 3,068 1,862
Costs of services............................................................ 6,006 3,306 2,696
Research and development..................................................... 22,169 11,779 8,997
Selling and marketing........................................................ 22,234 11,021 12,517
General and administrative................................................... 6,274 2,566 2,960
------------ ----------- -----------
Total operating expenses................................................... 61,686 31,740 29,032
------------ ----------- -----------
Loss from operations....................................................... (7,501) (3,092) (4,288)
Interest expense, net.......................................................... (995) (407) (589)
Other expense.................................................................. (225) (125) (287)
------------ ----------- -----------
Loss before taxes.......................................................... (8,721) (3,624) (5,164)
Income tax benefit............................................................. 3,311 1,247 1,508
------------ ----------- -----------
Net loss................................................................... (5,410) (2,377) (3,656)
Cumulative dividends on Series A redeemable preferred stock.................... (220) (110) (110)
------------ ----------- -----------
Net loss attributable to common shareholders............................... $ (5,630) (2,487) (3,766)
------------ ----------- -----------
------------ ----------- -----------
Net loss per common share.................................................. $ (0.29) (0.13) (0.20)
------------ ----------- -----------
------------ ----------- -----------
Shares used to compute net loss per common share............................... 19,100 18,821 19,162
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A PREFERRED STOCK
COMMON STOCK ADDITIONAL
------------------------ ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNTS SHARES AMOUNTS CAPITAL DEFICIT
----------- ----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 29, 1995............ 2,200 $ 22 18,678 $ 191 3,855 (8,956)
Exercise of stock options................... -- -- 422 -- 42 --
Net loss.................................... -- -- -- -- -- (5,410)
----- --- --------- ----- ----- ------------
Balances as of December 27, 1996............ 2,200 22 19,100 191 3,897 (14,366)
Exercise of stock options (unaudited)....... -- -- 62 -- 5 --
Net loss (unaudited)........................ -- -- -- -- -- (3,656)
----- --- --------- ----- ----- ------------
Balances as of June 27, 1997 (unaudited).... 2,200 $ 22 19,162 $ 191 3,902 (18,022)
----- --- --------- ----- ----- ------------
----- --- --------- ----- ----- ------------
<CAPTION>
TOTAL
SHAREHOLDERS'
DEFICIT
------------
<S> <C>
Balances as of December 29, 1995............ (4,888)
Exercise of stock options................... 42
Net loss.................................... (5,410)
------------
Balances as of December 27, 1996............ (10,256)
Exercise of stock options (unaudited)....... 5
Net loss (unaudited)........................ (3,656)
------------
Balances as of June 27, 1997 (unaudited).... (13,907)
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIODS ENDED
YEAR ENDED --------------------------
DECEMBER 27, JUNE 27,
1996 1997
------------ JUNE 28, 1996 -----------
-------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................. $ (5,410) (2,377) (3,656)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation............................................................ 2,243 1,938 1,087
Minority interest in net loss of consolidated subsidiary................ 56 66 9
Changes in operating assets and liabilities:
Accounts receivable, net.............................................. 532 1,200 5,477
Other receivables..................................................... (24) (127) 28
Prepaid and other current assets...................................... 120 (268) (383)
Other assets.......................................................... (110) (43) 72
Accounts payable...................................................... (164) 46 144
Payable to VLSI....................................................... 3,486 440 (1,642)
Accrued compensation.................................................. (822) (72) 159
Other accrued liabilities............................................. 255 301 103
Deferred revenue...................................................... 890 (496) (556)
------------ ------ -----------
Net cash provided by operating activities........................... 1,052 608 842
Cash flows used in investing activities--purchases of property, plant, and
equipment................................................................. (854) (1,107) (70)
Cash flows provided by financing activities--exercise of stock options...... 42 14 5
------------ ------ -----------
Net increase (decrease) in cash............................................. 240 (485) 777
Cash, beginning of year/period.............................................. 1,428 1,428 1,668
------------ ------ -----------
Cash, end of year/period.................................................... $ 1,668 943 2,445
------------ ------ -----------
------------ ------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Compass Design Automation, Inc. (the Company or Compass) develops, markets
and supports software products that assist design engineers in the automated
design, layout, physical verification and analysis of advanced integrated
circuits. Its primary customers are semiconductor companies in the United
States, Japan, Korea, Taiwan, and Europe. Compass is a majority owned subsidiary
of VLSI Technology, Inc. (VLSI) (see Note 10) and is dependent upon VLSI for
financial support.
FISCAL YEAR
The Company's fiscal year ends on the last Friday in December and consists
of 52 weeks.
PRINCIPLES OF PRESENTATION AND PREPARATION
The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries and a majority owned subsidiary. The
Company owns 60% of the outstanding shares of Compass Design Automation Korea
Company, Ltd. (Compass Korea) and, accordingly, consolidates the financial
position and results of operations of Compass Korea. The minority interest in
the net loss of Compass Korea is presented in other expense in the consolidated
statements of operations. All significant intercompany accounts and transactions
have been eliminated in consolidation. The financial statements include charges
from VLSI for certain services provided to the Company by VLSI and for certain
payments made on the behalf of the Company as discussed in Note 2.
The preparation of consolidated 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 consolidated
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue consists primarily of fees for licenses of the Company's software
products, maintenance, and customer support.
SOFTWARE REVENUE
Revenue from the sale of software licenses is recognized upon shipment of
the products, delivery of permanent authorization codes, and fulfillment of
acceptance terms, if any, providing that no significant vendor and postcontract
support obligations remain and collection of the related receivable is probable.
Any remaining insignificant vendor or postcontract support obligations are
accrued at the time the revenue
F-31
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED) (CONTINUED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
is recognized. If a contingency regarding the sale exists, revenue recognition
is delayed until the contingency has been resolved. When the Company receives
advance payments for software products, such payments are reported as deferred
revenue until all conditions for revenue recognition are met.
Revenue from the sale of custom software is recognized under the
percentage-of-completion method based on output measures which represent the
amounts of value added as specified in written custom software contracts.
SERVICES REVENUE
Maintenance revenue is deferred and recognized ratably over the term of the
maintenance agreement, which is typically 6 or 12 months. Revenue from customer
training, support and other services is recognized as the service is performed.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist primarily of computer workstations
and file servers for employees and are stated at cost net of accumulated
depreciation. Depreciation is provided on the straight-line method over the
estimated useful lives of the related assets (generally, five years).
SOFTWARE DEVELOPMENT COSTS
Development costs incurred in research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. To date, the Company's
software development has been completed concurrent with the establishment of
technological feasibility and, accordingly, no costs have been capitalized.
INCOME TAXES
Income taxes are accounted for under the asset and liability 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 and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The tax provision has been prepared as if the Company filed separate tax
returns on a stand alone basis. Under the terms of the tax-sharing agreement
between the Company and VLSI, VLSI has reimbursed the Company for the tax
benefit of its federal and state losses and credits. As a result, the net
deferred tax asset relating to the federal and state temporary differences less
prior and current year
F-32
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED) (CONTINUED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
payments, is recorded as a reduction of the payable to VLSI in the accompanying
consolidated balance sheet as of December 27, 1996.
NET LOSS PER COMMON SHARE
Cumulative dividends on Series A redeemable preferred are added to net loss
to arrive at net loss attributable to common shareholders. Net loss per common
share is computed using the weighted-average number of common shares outstanding
during each period presented. Common stock equivalents are excluded from the
computation as their effect is antidilutive.
STOCK OPTION AND STOCK PURCHASE PLANS
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted the disclosure requirements of Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
Under SFAS No. 123, the Company must disclosure pro forma net loss for employee
stock option grants and employee stock purchases made in 1996 and future years
as if the fair value based method defined in SFAS No. 123 had been applied.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Resulting foreign exchange gains and losses are included in the
consolidated results of operations.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of June 27,
1997, and for the six-month periods ended June 28, 1996 and June 27, 1997, have
been prepared on substantially the same basis as the audited consolidated
financial statements, and include all adjustments, consisting only of normal
recurring adjustments, which management believes are necessary for a fair
presentation of the financial information set forth herein.
(2) RELATED PARTY TRANSACTIONS
The Company has a technology subscription agreement with VLSI whereby VLSI
pays $1,596,000 per quarter to the Company for the rights to use certain
products. VLSI also made other purchases of products for resale to VLSI
customers. Revenue from VLSI of $7,654,000 is included in software revenue in
the consolidated statement of operations for the year ended December 27, 1996.
F-33
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED) (CONTINUED)
(2) RELATED PARTY TRANSACTIONS (CONTINUED)
VLSI charged the Company $864,000 during 1996 for finance, administrative,
legal, tax, and treasury services performed by VLSI or paid by VLSI on the
Company's behalf. Management believes these charges represent actual costs
incurred by VLSI on the Company's behalf. These costs are included in general
and administrative expenses in the consolidated statements of operations.
The Company rents its San Jose, California, facility under an operating
lease with VLSI. Total rent expense paid to VLSI during 1996 was $1,236,000 and
is included in general and administrative expenses in the consolidated financial
statements of operations.
(3) BALANCE SHEET COMPONENTS
ACCOUNTS RECEIVABLE
A summary of accounts receivable as of December 27, 1996, follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Trade receivables.................................................................. $ 12,799
Less allowance for doubtful accounts............................................... 155
---------
$ 12,644
---------
---------
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment as of December 27, 1996, follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Computer equipment................................................................. $ 25,254
Office and other equipment......................................................... 3,031
Leasehold improvements............................................................. 2,085
---------
30,370
Less accumulated depreciation and amortization..................................... 24,698
---------
$ 5,672
---------
---------
</TABLE>
(4) SHAREHOLDERS' DEFICIT
PREFERRED STOCK
The Company authorized and issued 2,200,000 shares of redeemable preferred
stock, designated as Series A, at a par value of $0.01. The rights, preferences,
and privileges of the Series A redeemable preferred stock are as follows:
- Upon declaration by the Board of Directors, the Series A shareholders
receive dividends of $0.10 per share. Subsequent to September 30, 1994,
these dividends accumulate annually, whether or not
F-34
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED) (CONTINUED)
(4) SHAREHOLDERS' DEFICIT (CONTINUED)
declared by the Board of Directors. As of December 27, 1997, undeclared
accumulated dividends of $495,000 were due to Series A shareholders.
- In the event of any liquidation, dissolution, or merger of the Company,
the Series A shareholders receive a $1.00 liquidation preference per share
(the initial purchase price) plus an amount equal to accrued and unpaid
dividends, prior to any distribution to the holders of common stock. In
addition, the holders of Series A preferred stock are entitled to
participate ratably in the remaining assets of the Company with the
holders of the common stock.
- The Series A shareholders have a voting right of one vote per share.
- The Series A redeemable preferred stock was scheduled for redemption at
$1.00 per share plus accrued and unpaid dividends at the option of the
Company in equal installments on October 1, 1994, 1995, and 1996. As of
June 27, 1997, no Series A redeemable preferred stock has been redeemed.
- The Company may not alter or amend any of the above rights, preferences,
and privileges of the shareholders of Series A redeemable preferred stock
without obtaining a majority vote or consent of the preferred stock
shareholders.
COMMON STOCK
The Company is authorized to issue 40,000,000 shares of $0.01 par value
common stock.
STOCK OPTION PLAN
The Company has a stock option plan, under which 4,150,000 shares of the
Company's common stock have been authorized for issuance.
The Company applies APB Opinion No. 25 in accounting for its option plan and
the VLSI stock purchase plan, and no compensation expense has been recognized
for stock option grants using the intrinsic value method. Had the Company
determined compensation expense based on the fair value at the grant date for
its stock options and the VLSI stock purchase plan under SFAS No. 123, the
Company's net
F-35
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED) (CONTINUED)
(4) SHAREHOLDERS' DEFICIT (CONTINUED)
loss would have been increased to the pro forma amounts indicated below for the
year ended December 27, 1996 (in thousands):
<TABLE>
<S> <C>
Net loss as reported: $ (5,410)
Additional compensation cost resulting from:
Fixed stock options.............................................. (2)
Employee stock purchase rights................................... (210)
---------
Pro forma net loss............................................. $ (5,622)
Cumulative dividends on Series A redeemable preferred stock.... (220)
---------
Pro forma net loss attributable to common shareholders......... $ (5,842)
---------
---------
Net loss per common shareholder as reported.................... $ (0.29)
Pro forma loss per common share................................ $ (0.31)
</TABLE>
The fair value of each option and purchase right is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for stock option grants and VLSI stock
purchase rights in 1996: expected volatility of 61%; risk-free interest rate of
6.16%; expected lives of four years and six months, respectively; and no
dividend yield.
A summary of the status of the Company's stock option plan as of and for the
year ended December 27, 1996, is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
PRICE
SHARES -----------
-------------
(IN
THOUSANDS)
<S> <C> <C>
Outstanding at beginning of year................................... 1,893 $ 0.10
Granted.......................................................... 138 0.10
Exercised........................................................ (422) 0.10
Canceled......................................................... (333) 0.10
------
Outstanding at end of year......................................... 1,276 0.10
------
------
Options exercisable at end of year................................. 743 0.10
------
------
Weighted-average fair value of options granted during the year..... $ 0.05
------
------
</TABLE>
F-36
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED) (CONTINUED)
(4) SHAREHOLDERS' DEFICIT (CONTINUED)
The following summarizes information about fixed stock options outstanding
as of December 27, 1996 (in thousands, except per share and contractual life
data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ----------------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------- ------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$0.10 1,276 7.02 years $ 0.10 743 $ 0.10
</TABLE>
(5) EMPLOYEE BENEFIT PLANS
401(K) PLAN
The Company's employees participate in the VLSI 401(k) retirement savings
plan which covers substantially all Compass employees. The plan provides for
discretionary Company matching contributions, which have not been material.
VLSI STOCK PURCHASE PLAN
Certain eligible employees of the Company participate in the Qualified
Employees Stock Purchase Plan of VLSI, which permits the purchase of VLSI stock
through payroll deductions at a price equal to 85% of the lesser of the market
value of VLSI's stock as of the date of the beginning or ending of the
enrollment period. Under the plan, Compass employees purchased 57,542 shares of
VLSI stock in 1996. The weighted average fair market of purchase rights granted
during 1996 was $3.28.
(6) INCOME TAXES
The Company files a consolidated tax return with VLSI. The tax provision has
been prepared as if the Company filed separate tax returns on a stand alone
basis. The components of income tax benefit, as presented in the accompanying
consolidated statement of operations, are comprised of federal taxes, state
F-37
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED) (CONTINUED)
(6) INCOME TAXES (CONTINUED)
taxes, and certain foreign taxes. The components of income tax benefit for the
year ended December 27, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal........................................................................... $ 1,712
Foreign........................................................................... (292)
State............................................................................. (2)
---------
Total current................................................................... 1,418
---------
Deferred:
Federal........................................................................... 1,820
Foreign........................................................................... 73
State............................................................................. --
---------
Total deferred.................................................................. 1,893
---------
Total income tax benefit........................................................ $ 3,311
---------
---------
</TABLE>
The Company's effective tax rate differs from the federal statutory income
tax rate of 35% for the year ended December 27, 1996, as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Income tax benefit at statutory rate................................................. $ 3,052
Other benefit........................................................................ 259
---------
Actual income tax benefit........................................................ $ 3,311
---------
---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 27, 1996, are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Accrued liabilities.............................................. $ 740
Deferred revenue................................................. 1,455
Warranty reserve................................................. 282
Accrued vacation................................................. 209
Net operating losses............................................. 5,455
Foreign tax credits.............................................. 4,134
Research and development credits................................. 1,477
Property and equipment, principally due to depreciation.......... 377
Other............................................................ 117
---------
Total net deferred tax asset................................... $ 14,246
---------
---------
</TABLE>
F-38
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED) (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The Company files a consolidated tax return with VLSI. The tax provision has
been prepared as if the Company filed separate tax returns on a stand alone
basis. Under the terms of the tax-sharing agreement between the Company and
VLSI, VLSI has reimbursed the Company for the benefit of its federal and state
losses and credits. As a result, the net deferred tax asset relating to the
federal and state temporary differences shown in the accompanying table, less
prior and current year VLSI reimbursements, is recorded as a reduction of the
payable to VLSI in the accompanying consolidated balance sheet as of December
27, 1996.
(7) CONCENTRATIONS OF CREDIT RISK
To reduce credit risk, the Company performs ongoing evaluations of its
customers' financial condition. The Company maintains reserves for potential
credit losses, but historically has not experienced any significant losses
related to individual customers or groups of customers in any geographic area.
As of December 27, 1996, two customers represented 15% and 12%,
respectively, of total accounts receivable. For the year ended December 27,
1996, sales to one customer represented 11% of total revenue.
(8) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, comprising the
electronic design automation industry.
A summary of the Company's operations by geographic area is presented below
(in thousands):
<TABLE>
<CAPTION>
U.S. EUROPE ASIA ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated customers.................... $ 18,430 14,696 13,405 -- 46,531
Revenue from affiliated customers...................... 7,654 -- -- -- 7,654
Intercompany revenue................................... 6,308 157 2,225 (8,690) --
Operating (loss) income................................ (7,869) 257 111 -- (7,501)
Identifiable assets.................................... 15,957 10,725 2,964 (8,598) 21,048
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company leases its San Jose, California, headquarters and certain field
sales and research and development facilities under operating lease agreements
that expire over the next 12 years. Rental expense incurred by the Company under
operating lease agreements totaled $1,472,000 for the year ended December 27,
1996.
F-39
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED) (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future annual minimum lease payments under operating leases for the
following fiscal years, are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING
- -------------------------------------------------------------------------------------
<S> <C>
1997................................................................................. $ 1,232
1998................................................................................. 686
1999................................................................................. 357
2000................................................................................. 129
---------
$ 2,404
---------
---------
</TABLE>
On August 12, 1997, the Company received a letter from one of its customers
alleging that the Company had delivered a faulty product which caused the
customer to incur actual damages and loss of market share. No legal claim has
been filed, and, accordingly, the Company is unable to estimate the amount of
any such damages.
The Company is also subject to claims that have arisen in the ordinary
course of business. The Company believes it has adequate legal defenses and
believes the ultimate outcome of these actions will not have a material effect
on the Company's consolidated financial position or results of operations.
(10) SUBSEQUENT EVENTS
Avant! acquired Compass Design Automation, Inc. on September 12, 1997 in a
transaction accounted for as a purchase. The purchase price included cash of
$17,500,000, Avant! common stock valued at $17,500,000, and transaction costs of
4,948,000. In connection with the purchase, all unvested options were canceled.
F-40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Technology Modeling Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Technology
Modeling Associates, Inc. (a California corporation) and subsidiary as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Technology Modeling
Associates, Inc. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
January 24, 1997
F-41
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 21,074 $ 3,284
Short-term investments.......................... 13,929 --
Accounts receivable, less allowance for doubtful
accounts of $175 and $165, respectively....... 2,671 2,799
Prepaid income taxes............................ 271 134
Other current assets............................ 1,259 410
------------ ------
Total current assets.......................... 39,204 6,627
LONG TERM ASSETS.................................. 250 --
PROPERTY AND EQUIPMENT, net....................... 2,511 1,441
------------ ------
$ 41,965 $ 8,068
------------ ------
------------ ------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable................ $ 303 $ 303
Current portion of capitalized lease
obligations................................... 138 --
Accounts payable................................ 662 604
Accrued liabilities............................. 1,738 1,442
Deferred revenue................................ 1,909 1,536
------------ ------
Total current liabilities..................... 4,750 3,885
------------ ------
LONG-TERM LIABILITIES, net of current portion:
Notes payable................................... 425 728
Capitalized lease obligations................... 433 --
------------ ------
Total long-term liabilities................... 858 728
------------ ------
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, no par value, Authorized: 25,000
shares Outstanding: 7,693 and 4,311 shares,
respectively.................................. 33,661 1,030
Notes receivable from shareholders.............. (474) (576)
Deferred compensation........................... (1,041) --
Retained earnings............................... 4,211 3,001
------------ ------
Total shareholders' equity.................... 36,357 3,455
------------ ------
$ 41,965 $ 8,068
------------ ------
------------ ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE:
License......................................... $ 12,418 $ 8,773 $ 8,361
Maintenance and other........................... 5,153 3,467 1,909
------------ ------------ ------------
Total product revenue......................... 17,571 12,240 10,270
Funded development.............................. 388 353 1,808
------------ ------------ ------------
Total revenue................................. 17,959 12,593 12,078
------------ ------------ ------------
COST OF REVENUE:
License......................................... 1,109 486 626
Maintenance and other........................... 1,607 671 341
Funded development.............................. 408 268 1,563
------------ ------------ ------------
Total cost of revenue......................... 3,124 1,425 2,530
------------ ------------ ------------
Gross profit.................................. 14,835 11,168 9,548
------------ ------------ ------------
OPERATING EXPENSES:
Sales and marketing............................. 6,310 3,469 3,508
Research and development........................ 5,037 4,178 2,707
General and administrative...................... 1,756 1,423 1,035
------------ ------------ ------------
Total operating expenses...................... 13,103 9,070 7,250
------------ ------------ ------------
Income from operations........................ 1,732 2,098 2,298
OTHER INCOME (EXPENSE), net....................... 439 49 (83)
------------ ------------ ------------
Income before provision for income taxes...... 2,171 2,147 2,215
PROVISION FOR INCOME TAXES........................ 947 865 761
------------ ------------ ------------
Net income.................................... $ 1,224 $ 1,282 $ 1,454
------------ ------------ ------------
------------ ------------ ------------
NET INCOME PER SHARE.............................. $ 0.20 $ 0.23 $ 0.23
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES.......................................... 6,217 5,508 6,389
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK NOTES TOTAL
--------------------- RECEIVABLE FROM DEFERRED RETAINED SHAREHOLDERS'
SHARES AMOUNT SHAREHOLDERS COMPENSATION EARNINGS EQUITY
---------- --------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993......... 5,040,000 $ 115 $ -- $ -- $ 1,411 $ 1,526
Exercise of stock options........ 748,400 84 -- -- -- 84
Issuance of stock under 1994
Stock Purchase Plan............ 274,668 93 -- -- -- 93
Stock compensation expense....... -- -- -- -- 46 46
Repurchase of common stock....... (3,039,738) (11) -- -- (1,159) (1,170)
Net income....................... -- -- -- -- 1,454 1,454
---------- --------- ----- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1994......... 3,023,330 281 -- -- 1,752 2,033
Exercise of stock options........ 128,200 14 -- -- -- 14
Issuance of stock under 1994
Stock Purchase Plan............ 1,258,124 755 (684) -- -- 71
Forgiveness of notes receivable
from shareholders.............. -- -- 108 -- -- 108
Repurchase of common stock....... (98,472) (20) -- -- (33) (53)
Net income....................... -- -- -- -- 1,282 1,282
---------- --------- ----- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1995......... 4,311,182 1,030 (576) -- 3,001 3,455
Exercise of stock options........ 323,770 60 -- -- -- 60
Issuance of stock under 1994
Stock Purchase Plan............ 495,070 1,191 (152) (800) -- 239
Deferred compensation related to
issuance of stock options...... -- 521 -- (521) -- --
Amortization of deferred
compensation................... -- -- -- 280 -- 280
Forgiveness of notes receivable
from shareholders.............. -- -- 119 -- -- 119
Repurchase of common stock....... (330,888) (190) 135 -- (14) (69)
Issuance of common stock, net of
issuance costs................. 2,893,535 31,049 -- -- -- 31,049
Net income....................... -- -- -- -- 1,224 1,224
---------- --------- ----- ------------- ----------- -------------
BALANCE, DECEMBER 31, 1996......... 7,692,669 $ 33,661 $ (474) $ (1,041) $ 4,211 $ 36,357
---------- --------- ----- ------------- ----------- -------------
---------- --------- ----- ------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 1,224 $ 1,282 $ 1,454
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 576 365 290
Allowance for doubtful accounts.............................................. 10 82 83
Non-cash compensation expense................................................ 399 108 46
Changes in operating assets and liabilities--
Accounts receivable........................................................ 118 (1,313) 27
Prepaid income taxes....................................................... (137) (134) --
Other current assets....................................................... (599) (245) (103)
Accounts payable........................................................... 58 253 (200)
Accrued liabilities........................................................ 296 (327) 1,008
Deferred revenue........................................................... 373 124 578
---------- --------- ---------
Net cash provided by operating activities................................ 2,318 195 3,183
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments............................................ (13,929) (1,901) (755)
Proceeds from sales of short-term investments.................................. -- 2,656 --
Issuance of note receivable.................................................... (250) -- --
Capital expenditures........................................................... (986) (651) (658)
Purchase of long-term assets................................................... (250) -- --
---------- --------- ---------
Net cash provided by (used for) investing activities..................... (15,415) 104 (1,413)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations........................................... (89) -- --
Payment of notes payable....................................................... (303) (303) (258)
Issuances of common stock...................................................... 31,348 85 167
Repurchases of common stock.................................................... (69) (53) (20)
---------- --------- ---------
Net cash provided by (used for) financing activities......................... 30,887 (271) (111)
---------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................ 17,790 28 1,659
CASH AND CASH EQUIVALENTS, beginning of period................................... 3,284 3,256 1,597
---------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period......................................... $ 21,074 $ 3,284 $ 3,256
---------- --------- ---------
---------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period--
Income taxes............................................................... $ 981 $ 915 $ 765
Interest................................................................... 133 122 82
Noncash financing activities--
Notes payable to former shareholders for repurchase of common stock.......... $ -- $ -- $ 1,150
Issuance of common stock for notes receivable................................ 152 684 10
Property and equipment financed with capital lease obligations............... 660 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS:
Technology Modeling Associates, Inc. (the "Company") was incorporated in
California in June 1980. The Company operates in a single industry segment and
is involved in the design, development, marketing, and support of physical
simulation software for integrated circuit design and manufacture. The Company
completed its Initial Public Offering on September 20, 1996.
The Company is subject to the risks and challenges associated with other
companies of similar size, including dependence on key individuals, successful
development of product enhancements, competition from substitute products and
larger companies, and continued successful marketing of its products. For the
three years ended December 31, 1996, 1995 and 1994, the Company derived a
significant portion of its total revenue from the licensing and maintenance of
two products, TSUPREM-4 and Medici, and the Company expects to continue to
derive a substantial portion of its revenue from these two products for the
foreseeable future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation.
FINANCIAL INSTRUMENTS
Cash and cash equivalents, primarily deposited at two financial
institutions, consist of money market instruments purchased with original
maturities of three months or less. Short-term investments the Company held
during 1996 were corporate and government debt instruments and U.S. Treasury
securities with maturities ranging from six to 18 months.
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". In compliance with SFAS No. 115, the
Company's investments are classified as available-for-sale and are stated at
fair value, which approximates their cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method over the useful lives of
the respective assets, generally three to seven years.
REVENUE RECOGNITION
License revenue consists principally of revenue from licensing the Company's
software and is generally recognized when the software has been shipped and
there are no significant remaining obligations. Maintenance revenue consists of
fees for providing system updates, user documentation and technical support for
software products, and is recognized ratably over the term of the maintenance
agreement. Professional services revenue consists of revenue earned on services
contracts and is recognized under the percentage of completion method. Funded
development revenue consists of revenue earned on development contracts with
government-sponsored and private entities. Revenue under these arrangements is
recognized under the percentage of completion method.
F-46
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
SOFTWARE DEVELOPMENT COSTS
Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," capitalization of
software development costs begins upon the establishment of technological
feasibility. The Company has defined the establishment of technological
feasibility as the completion of a working model, which occurs concurrently with
completion of the development efforts. Accordingly, amounts qualifying for
capitalization have not been material.
INCOME TAXES
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, 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. The measurement of deferred tax assets is reduced,
if necessary, by a valuation allowance for any tax benefits of which future
realization is uncertain (see Note 10).
STOCK COMPENSATION
Effective January 1, 1996 the Company adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation". In accordance with the
provisions of SFAS No. 123, the company applies APB Opinion 25 and related
interpretations in accounting for its employee stock plans. Note 9 to the
Consolidated Financial Statements contains a summary of the pro forma effects on
reported net income and earnings per share for 1996 and 1995 based on the fair
value of options and shares granted as prescribed by SFAS No. 123.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares consist of shares issuable upon the exercise of stock options using the
treasury stock method. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletins and staff policy, such computations include all common and
common equivalent shares issued within the twelve months preceding the filing
date as if they were outstanding for all periods presented (using the treasury
stock method and an assumed Initial Public Offering price of $12.00 per share
for stock options).
RECLASSIFICATIONS
Certain reclassifications have been made to amounts in prior years to
conform to the current year presentation.
F-47
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SHORT-TERM INVESTMENTS:
Management determines the appropriate classifications of securities at the
time of purchase and reevaluates such designations as of each balance sheet
date. The Company has classified its marketable securities as
available-for-sale. Available-for-sale securities are carried at fair value with
unrealized holding gains and losses, if material, being reported in
shareholders' equity. Realized gains and losses on available-for-sale securities
are included in other income (expense). At December 31, 1996, the fair market
value of these securities closely approximated their carrying cost.
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
VALUE AT
DECEMBER 31,
1996
------------
<S> <C>
U.S. Government and Agency Instruments.......................................... $ 6,053
Corporate Debt Instruments...................................................... 7,876
------------
$ 13,929
------------
------------
</TABLE>
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Computer equipment......................................................... $ 2,406 $ 1,787
Purchased software......................................................... 851 718
Leasehold improvements..................................................... 326 16
Furniture and fixtures..................................................... 967 383
--------- ---------
4,550 2,904
Less accumulated depreciation and amortization............................. 2,039 1,463
--------- ---------
$ 2,511 $ 1,441
--------- ---------
--------- ---------
</TABLE>
5. ACCRUED LIABILITIES:
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Accrued compensation....................................................... $ 826 $ 591
Commissions payable to foreign sales representatives....................... 384 392
Accrued subcontractor costs................................................ -- 231
Other accrued liabilities.................................................. 528 228
--------- ---------
$ 1,738 $ 1,442
--------- ---------
--------- ---------
</TABLE>
F-48
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE:
During 1993 and 1994, the Company repurchased 6,600,000 shares of common
stock from three different shareholders in exchange for $116,600 in cash and
$1,616,600 in promissory notes. The three shareholders consisted of two former
officers and one director of the Company. These notes are due in quarterly
installments, bear interest at 10% per annum, and expire July 1, 1998, April 15,
1999 and October 15, 1999. Two of the notes can be prepaid without penalty.
The amounts due under the notes were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-------------
<S> <C>
1997............................................................................ $ 303
1998............................................................................ 280
1999............................................................................ 145
-----
728
Less current portion............................................................ (303)
-----
Long-term portion............................................................... $ 425
-----
-----
</TABLE>
7. LEASE COMMITMENTS:
The Company leases its primary facility under a noncancelable operating
lease that expires in February 2001. In connection with the move to this
facility in March 1996, the Company vacated its former facility and subleased it
to a third party. This sublease is effective from May 1, 1996 through May 31,
1998, the expiration of the lease.
In May 1996, the Company entered into a $660,000 capital lease line for the
purchase of furniture and other office equipment. The interest rate on the lease
is 9.0% and borrowings are secured by the purchased equipment. As of December
31, 1996, the Company had acquired $660,000 of furniture and other office
equipment under the lease line.
Minimum future lease payments under noncancelable capital and operating
leases as of December 31, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1997..................................................................... $ 184 $ 772
1998..................................................................... 184 614
1999..................................................................... 184 517
2000..................................................................... 128 486
2001..................................................................... -- 77
----- -----------
Total minimum lease payments....................................... 680 $ 2,466
-----------
-----------
Less amount representing interest........................................ (109)
-----
Present value of lease payments.......................................... 571
Less current portion..................................................... (138)
-----
Long-term portion........................................................ $ 433
-----
-----
</TABLE>
F-49
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LEASE COMMITMENTS: (CONTINUED)
The minimum operating lease payments for the Company's former facility have
not been reduced by the minimum sublease rentals of $427,000 due ratably over
the next 17 months under the noncancelable sublease. Rent expense for 1996, 1995
and 1994 was $612,000, $362,000 and $325,000, respectively.
8. PROFIT SHARING:
The Company has a profit sharing plan covering substantially all of its
employees. Expenses related to the plan were $183,000, $210,000 and $236,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. For the years
ended December 31, 1995 and 1994, employees had the right to utilize
distributions under this plan to purchase shares of the Company's common stock
pursuant to the Company's 1994 Stock Purchase Plan.
9. COMMON STOCK:
In January 1996, the Company's Board of Directors declared a 2-for-1 split
of the Company's common stock. Accordingly, all share and per share amounts have
been restated to reflect the split. In July 1996, the Company's Board of
Directors (the "Board") and shareholders approved an increase in the authorized
number of shares of common stock from 10,000,000 to 25,000,000. The Board also
authorized 4,000,000 shares of preferred stock.
EMPLOYEE STOCK OPTION PLANS
The Company has issued stock options under three separate plans, the 1989
Stock Option Plan (the "1989 Plan"), the 1995 Stock Option Plan (the "1995
Plan"), and the 1996 Equity Incentive Plan (the "1996 Equity Plan"). The right
to grant further options under the 1989 Plan was terminated by vote of the Board
of Directors in 1995, the right to grant further options under the 1995 Plan was
terminated upon the completion of the Company's Initial Public Offering in
September 1996 and all subsequent grants have been made under the 1996 Equity
Plan.
Under the 1989 Plan, nonqualified stock options ("NQSO's") were granted to
eligible employees, officers and directors at prices not less than fair market
value as determined by the Board of Directors at the grant date. Options granted
under the 1989 Plan vest over four years, and expire five years from the date of
grant.
Under the 1995 Plan, incentive stock options ("ISO's") were granted to
eligible employees and officers and directors who are employees. NQSO's were
granted to non-employee directors. The 1995 Plan specifies that the exercise
price of NQSO's will be set by the Board of Directors at its discretion. The
exercise price of ISO's was not to be less than 100% of the fair market value as
determined by the Board of Directors at the grant date. Options granted under
the 1995 Plan generally vest over four years, and expire five years from the
date of grant.
In conjunction with the establishment of the 1995 Plan, the Board or
Directors offered employees holding NQSO's under the 1989 Plan the opportunity
to cancel their current options in exchange for the same number of ISO's under
the 1995 Plan. The exercise price of the new options was the fair market value
at the time of the new grant. The new options retain the same vesting schedule
as the old options, and expire five years from the new date of grant. NQSO's for
59,600 shares ranging in prices from $0.375 to $0.55 per share were canceled and
exchanged for ISO's at $0.60 per share.
F-50
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK: (CONTINUED)
Options granted under the 1989 Plan and the 1995 Plan will remain
outstanding in accordance with their terms, but no further options have been
granted under the 1989 Plan or the 1995 Plan after the offering.
The 1996 Equity Plan provides for the grant of both ISO's and NQSO's. ISO's
can only be granted to eligible employees, officers and directors, who are also
employees. NQSO's can be granted to eligible employees, officers, directors,
advisors and consultants. The 1996 Equity Plan specifies that the exercise price
of NQSO's will not be less than 85% of the fair market value on the date of
grant. The exercise price of ISO's will not be less than 100% of the fair market
value on the date of grant. The options can be granted for periods of up to ten
years and generally will vest over four years.
As of December 31, 1996, the Company had issued options to purchase 8,000
shares of common stock under the 1996 Equity Plan and there were 1,492,000
shares available for future grant. The Company has reserved 1,500,000 shares of
common stock for issuance under the 1996 Equity Plan.
1996 DIRECTORS STOCK OPTION PLAN
In July 1996, the Board adopted and the shareholders approved the 1996
Directors Stock Option Plan (the "1996 Directors Plan"). The Company has
reserved 150,000 shares of common stock for issuance under the 1996 Directors
Plan. The 1996 Directors Plan provides for the grant of nonqualified stock
options to nonemployee directors of the Company including an option to purchase
15,000 shares of common stock on the date that the optionee first becomes a
nonemployee director of the Company and an additional option to purchase 5,000
shares of common stock at each succeeding annual meeting. The exercise price per
share of all options granted under the 1996 Directors Plan will be equal to the
fair market value of the Company's common stock on the date of grant. Options
can be granted for periods of up to ten years and generally will vest over four
years. As of December 31, 1996, no options were granted under this plan.
1996 EMPLOYEE STOCK PURCHASE PLAN
In July 1996, the Board adopted and the shareholders approved the 1996
Employee Stock Purchase Plan (the "1996 Purchase Plan"). The Company has
reserved 200,000 shares of common stock for issuance under the 1996 Purchase
Plan. The 1996 Purchase Plan will enable eligible employees to purchase common
stock at 85% of the lower of the fair market value of the Company's common stock
on the first or last day of each six-month purchase period. As of December 31,
1996 no shares were issued under the plan.
1994 STOCK PURCHASE PLAN
On January 22, 1994, the Company adopted the 1994 Stock Purchase Plan (the
"1994 Plan") under which eligible employees, officers, consultants and directors
of the Company may purchase shares of the Company's common stock at the
discretion of the Board of Directors at a purchase price of 100% of the fair
market value of the stock as determined by the Board of Directors at the time of
purchase. Shares purchased under the 1994 Plan are subject to a right of
repurchase by the Company at the original issuance price. This repurchase right
lapses over a period of four years. On January 20, 1996, the Board of Directors
increased the number of shares reserved for issuance under the 1994 Plan from
2,000,000 to 3,000,000 shares. As of December 31, 1996, the Company had issued
and outstanding a total of 1,688,502 shares under the 1994 Plan of which 694,505
shares are subject to repurchase by the Company. As of December 31, 1996, there
were 1,311,498 shares available for future sale under the 1994 Plan.
F-51
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK: (CONTINUED)
NOTES RECEIVABLE FROM SHAREHOLDERS
In June 1995, the Company issued a total of 1,140,000 shares of common stock
to two officers of the Company in exchange for notes receivable. The terms of
the notes specify that 25% of the balance will be forgiven on each anniversary
date of the note while these individuals are still actively employed by the
corporation. The first year's forgiveness was guaranteed. The Company has
recorded compensation expense of $119,000 and $108,000 for the years ending
December 31, 1996 and 1995, respectively, in connection with the forgiveness of
these notes. In January 1996, one of the officers left the Company. The amount
of shares equal to his first year's forgiveness was repurchased by the Company.
The remaining balance of the note was canceled in exchange for the unvested
shares.
During 1996, the Company issued a total of 189,500 shares of common stock to
certain officers of the Company in exchange for notes receivable of $152,000.
The notes bear interest at 5.45% to 5.73% and the principal, with interest, is
due in January and April, 2000.
STOCK BASED COMPENSATION EXPENSE
The Company has several stock plans, as described above, which are accounted
for under APB Opinion No. 25, under which no compensation cost has been
recognized (except as discussed in the section entitled "Deferred Compensation"
below). Because the FASB Statement No. 123 method of accounting has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years. Had compensation cost for these plans been determined consistent with
Statement 123, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts (in thousands, except per share
data):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
NET INCOME:
As reported.............................................................. $ 1,224 $ 1,282
Pro forma................................................................ 1,135 1,277
EARNINGS PER SHARE:
As reported.............................................................. $ 0.20 $ 0.23
Pro forma................................................................ 0.18 0.23
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model with the following weighted average
assumptions respectively:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
Dividend yield.......................................... 0% 0%
Expected life:.......................................... 3.22 years 3.22 years
Expected volatility:
(after Sept. 20)...................................... 76.41% 0%
(before Sept. 20)..................................... 0%
Risk-free interest rates:............................... 5.19% - 6.43% 5.62% - 7.67%
Weighted average fair values:........................... $0.48 $0.11
</TABLE>
F-52
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK: (CONTINUED)
If the Company had elected to recognize the compensation cost based on the
fair value of the employees' stock purchase plan rights, the cost would have
been estimated using the Black-Scholes model with the following assumptions for
the period from September 20, 1996 to December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Dividend yield..................................... 0%
Expected life:..................................... 6 months
Expected volatility:............................... 76.41%
Risk-free interest rate:........................... 5.53%
Weighted average fair value:....................... $ 4.08
</TABLE>
STOCK OPTION ROLL FORWARD
A summary of the Company's stock options plans at December 31, 1996, 1995
and 1994 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- --------------------
SHARES WTD. AVG EX SHARES WTD. AVG EX SHARES WTD. AVG
000S PRICE 000S PRICE 000S EX PRICE
--------- ----------- --------- ----------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year............. 954.1 $ 0.37 2,019.9 $ 0.18 2,329.8 $0.12
Granted.......................................... 426.7 5.23 385.0 0.59 714.8 0.34
Exercised........................................ (323.8) 0.19 (128.2) 0.11 (748.4) 0.11
Canceled......................................... (109.1) 1.02 (1,322.6) 0.17 (276.3) 0.21
--------- ----- --------- ----- --------- ---------
Outstanding at end of the year................... 947.9 2.55 954.1 0.37 2,019.9 0.18
--------- ----- --------- ----- --------- ---------
Exercisable at end of the year................... 186.7 0.43 337.4 0.19 880.7 0.13
--------- ----- --------- ----- --------- ---------
</TABLE>
The following table summarizes information about outstanding stock options
at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED AVERAGE
NUMBER OF AVERAGE WEIGHTED AVERAGE NUMBER OF EXERCISE PRICE OF
SHARES EXERCISE REMAINING SHARES OPTIONS
OUTSTANDING EXERCISE PRICE RANGE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISABLE
- ----------- -------------------- ------------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
705,950 $0.11 and $0.80 $ 0.55 3.3 years 186,700 $0.43
234,000 $5.00 and $9.00 $ 8.20 4.5 years 0 Not Applicable
8,000 $12.38 and $13.50 $ 13.36 9.8 years 0 Not Applicable
</TABLE>
DEFERRED COMPENSATION
During 1996, the Company had sold 495,070 shares of common stock under the
1994 Plan and issued options to purchase 432,500 shares of common stock under
the 1995 Plan at per share prices that were subsequently determined to be less
than the fair value of the common stock at the date of issuance, resulting in
total deferred compensation of $1,321,000. This amount will be recognized as
expense over the four year vesting period of the underlying equity instruments.
Deferred compensation expense of $280,000 was recognized for the year ending
December 31, 1996.
F-53
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES:
The provisions for income taxes consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal............................................................ $ 50 $ 40 $ 43
State.............................................................. 109 80 76
Foreign withholding taxes.......................................... 955 745 642
--------- --------- ---------
1,114 865 761
--------- --------- ---------
Deferred:
Federal............................................................ (167) -- --
State.............................................................. -- -- --
Foreign withholding taxes.......................................... -- -- --
--------- --------- ---------
(167) -- --
--------- --------- ---------
Total................................................................ $ 947 $ 865 $ 761
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory Federal income tax rate of 34% to income before provision for
income taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Provision at statutory rate......................................... $ 738 $ 730 $ 753
State taxes, net of Federal tax benefit............................. 71 53 50
Foreign withholding taxes incurred.................................. 955 745 642
Foreign tax credit utilized......................................... (955) (698) (642)
Change in valuation allowance....................................... 139 95 23
Tax credits......................................................... -- (52) (30)
Other............................................................... (1) (8) (35)
--------- --------- ---------
$ 947 $ 865 $ 761
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-54
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES: (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1996 and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Cash to accrual adjustment................................................ $ -- $ 32
Reserves and accruals..................................................... 423 180
State taxes............................................................... 37 36
Foreign tax credit, research credit and alternative minimum tax credit
carryforwards........................................................... 689 486
--------- ---------
Total deferred tax assets................................................... 1,149 734
Less: Valuation allowance................................................... (803) (664)
--------- ---------
Net deferred tax assets..................................................... 346 70
--------- ---------
Deferred tax liabilities:
Depreciation.............................................................. (153) (70)
Other................................................................... (46) --
--------- ---------
Total deferred tax liabilities.............................................. (199) (70)
--------- ---------
Net deferred tax assets..................................................... $ 147 $ --
--------- ---------
--------- ---------
</TABLE>
As of December 31, 1996, the Company had foreign tax credit carryforwards of
approximately $216,000 and alternative minimum tax credit carryforwards of
approximately $176,000 for Federal income tax purposes. The Company also has
research credit carryforwards of approximately $270,000 and $28,000 for Federal
and California income tax purposes, respectively. If not utilized, these
carryforwards will expire in 1997 through 2011. Under the Tax Reform Act of
1986, the amount of credits that can be utilized in the carryforward period may
be limited in the event of certain stock ownership changes. The Company
experienced such a change in 1994; therefore, its ability to utilize the
carryforwards is subject to certain limitations.
As the Company generates a significant portion of its total revenue from
international sales that require withholding of foreign tax, it has not been
able to utilize all of its available tax credits. Accordingly, the Company has
generated significant tax credit carryforwards and believes that it will
generate additional carryforwards for the foreseeable future. This limitation
along with the change in ownership limitation discussed above raises uncertainty
regarding the realization of the tax credit carryforwards and the Company's
other deferred tax assets. Therefore, the Company has established a valuation
allowance of $803,000 as of December 31, 1996.
The Company's federal income tax return for 1993 is currently under
examination by the Internal Revenue Service ("IRS"). Management believes that
adequate provisions have been made and the IRS has not made a claim for any tax
deficiency. However, there can be no assurance that the IRS will not raise
matters in this examination that could exceed the amount of provision
established by the Company.
F-55
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INDUSTRY SEGMENT, GEOGRAPHIC AND MAJOR CUSTOMER INFORMATION:
The Company operates in one industry segment: the development, licensing,
and support of software applications for manufacturers of integrated circuits.
The Company's products are produced in Sunnyvale, California, and are sold
through direct and independent sales representatives mainly in North America,
Europe, Japan, Korea, and Taiwan. Sales in significant markets were as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Korea........................................................ $ 5,445 $ 1,945 $ 3,923
North America................................................ 5,194 3,500 4,275
Japan........................................................ 4,005 4,512 2,339
Taiwan....................................................... 1,326 1,287 485
Other........................................................ 1,989 1,349 1,056
--------- --------- ---------
$ 17,959 $ 12,593 $ 12,078
--------- --------- ---------
--------- --------- ---------
</TABLE>
All sales in Japan, Korea and Taiwan are made through an exclusive
distributor or independent sales representative in each country. A change in
distributor or representative could cause a delay in or possible loss of sales,
which would affect operating results adversely.
Sales to customers that comprised more than 10% of total revenue were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Innotech Corporation..................................................... 22% 38% 19%
Customer A............................................................... 18 * 11
Customer B............................................................... * * 13
Customer C............................................................... * * 12
Customer D............................................................... * * 11
</TABLE>
- ------------------------
* Represents less than 10% of total revenue for the period.
Innotech is the exclusive distributor of the Company's products in Japan.
The other customers are semiconductor manufacturers located in Korea and the
United States.
Accounts receivable concentrated with certain customers in certain
geographic locations potentially subject the Company to concentrations of credit
risk. At December 31, 1996, certain accounts receivable from Japanese and Korean
customers accounted for 8% and 19%, respectively, of total trade accounts
receivable. The Company generally does not require collateral on accounts
receivable as the majority of the Company's customers are large, well
established companies. The Company provides allowances for credit losses and
such losses have been insignificant to date.
F-56
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................................ $ 12,420
Short-term investments........................................................................... 22,164
Accounts receivable, net......................................................................... 4,498
Prepaid income taxes............................................................................. 310
Other current assets............................................................................. 794
-------------
Total current assets........................................................................... 40,186
LONG TERM ASSETS................................................................................... 250
PROPERTY AND EQUIPMENT, net........................................................................ 2,567
-------------
$ 43,003
-------------
-------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable................................................................. $ 303
Current portion of capitalized lease obligations................................................. 148
Accounts payable................................................................................. 445
Accrued liabilities.............................................................................. 2,516
Deferred revenue................................................................................. 2,521
-------------
Total current liabilities...................................................................... 5,933
-------------
LONG-TERM LIABILITIES, net of current portion:
Notes payable.................................................................................... 198
Capitalized lease obligations.................................................................... 321
-------------
Total long-term liabilities.................................................................... 519
-------------
SHAREHOLDERS' EQUITY:
Common stock..................................................................................... 33,362
Notes receivable from shareholders............................................................... (262)
Deferred compensation............................................................................ (784)
Retained earnings................................................................................ 4,235
-------------
Total shareholders' equity..................................................................... 36,551
-------------
$ 43,003
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-57
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUE:
License.................................................................................... $ 8,530 $ 9,058
Maintenance and other...................................................................... 4,241 3,058
Professional services...................................................................... 1,007 400
--------- ---------
Total product revenue.................................................................... 13,778 12,516
Funded development......................................................................... 0 309
--------- ---------
Total revenue............................................................................ 13,778 12,825
--------- ---------
COST OF REVENUE:
License.................................................................................... 953 852
Maintenance and other...................................................................... 609 373
Professional services...................................................................... 874 623
Funded development......................................................................... 0 332
--------- ---------
Total cost of revenue.................................................................... 2,436 2,180
--------- ---------
Gross profit............................................................................. 11,342 10,645
--------- ---------
OPERATING EXPENSES:
Sales and marketing........................................................................ 5,358 4,412
Research and development................................................................... 5,299 3,784
General and administrative................................................................. 1,589 1,219
Cost of Mergers............................................................................ 300 --
--------- ---------
Total operating expenses................................................................. 12,546 9,415
--------- ---------
Income (loss) from operations............................................................ (1,204) 1,230
OTHER INCOME, net............................................................................ 1,315 27
--------- ---------
Income before provision for income taxes................................................. 111 1,257
PROVISION FOR INCOME TAXES................................................................... 42 665
--------- ---------
Net income............................................................................... $ 69 $ 592
--------- ---------
--------- ---------
NET INCOME PER SHARE......................................................................... $ 0.01 $ 0.11
--------- ---------
--------- ---------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES......................................... 8,379 5,486
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-58
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................... $ 69 $ 592
Adjustments to reconcile net income to net cash provided by (used for) operating
activities:
Depreciation and amortization.......................................................... 626 447
Allowance for doubtful accounts........................................................ 86 10
Non-cash compensation expense.......................................................... 347 290
Changes in operating assets and liabilities--
Accounts receivable.................................................................. (1,913) 300
Prepaid income taxes................................................................. (39) (41)
Other current assets................................................................. 215 (207)
Accounts payable..................................................................... (217) (237)
Accrued liabilities.................................................................. 778 (397)
Deferred revenue..................................................................... 612 1,449
---------- ---------
Net cash provided by operating activities.......................................... 564 2,286
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments...................................................... (31,570) (994)
Sale of short-term investments........................................................... 23,335 --
Issuance of note receivable.............................................................. -- (250)
Collection of note receivable............................................................ 250 --
Capital expenditures..................................................................... (682) (811)
---------- ---------
Net cash used for investing activities............................................. (8,667) (2,055)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations..................................................... (102) (56)
Payment of notes payable................................................................. (227) (228)
Issuances of common stock................................................................ 613 26,810
Repayment of receivable from shareholder................................................. 122 --
Repurchases of common stock.............................................................. (957) (67)
---------- ---------
Net cash provided by (used for) financing activities............................... (551) 26,459
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................................................. (8,654) 26,690
CASH AND CASH EQUIVALENTS, beginning of period............................................. 21,074 3,284
---------- ---------
CASH AND CASH EQUIVALENTS, end of period................................................... $ 12,420 $ 29,974
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-59
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the audited financial statements and the notes thereto for the years ended
December 31, 1995 and 1996 included in this Joint Proxy Statement/Prospectus.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments that are, in the opinion of management, necessary to
state fairly the results for the periods presented. The results for such periods
are not necessarily indicative of the results to be expected for the full fiscal
year ending December 31, 1997, or any other future periods.
2. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which will be adopted by the Company in the fourth quarter of 1997. SFAS
No. 128 requires companies to compute net income per share under two different
methods, basic and diluted, and to disclose the methodology used for the
calculation. SFAS No. 128 requires restatement of all prior-period earnings per
share data presented. If SFAS No. 128 had been applied by the Company for the
nine months ended September 30, 1997 and 1996, both basic net income per share
and diluted net income per share would have been $.01 and $.11, respectively.
In February 1997, the FASB issued SFAS No. 129, "Disclosure Information
about Capital Structure", which will be adopted by the Company in the fourth
quarter of 1997. SFAS No. 129 requires companies to disclose certain information
about their capital structure. The Company does not anticipate that SFAS No. 129
will have a material impact on its financial statement disclosures.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective for fiscal periods beginning after
December 15, 1997. The Company anticipates that this adoption will not have a
material effect on its financial statements.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. The Company anticipates that
this adoption will not have a material effect on its financial statements.
3. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares consist of shares issuable upon the exercise of stock options using the
treasury stock method. Pursuant to SEC Staff Accounting Bulletins ("SAB") and
staff policy, such computations for the nine months ended September 30, 1996
include all common and common equivalent shares issued within the 12 months
preceding the filing date of the Company's initial public offering as if they
were outstanding for the entire period presented (using the treasury stock
method and the initial public offering price of $12.00 per share for stock
options).
F-60
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITION OF PRECIM CORPORATION
On August 29, 1997, TMA completed the acquisition of Precim Corporation
("Precim") a developer of software for full-chip optical proximity correction.
In connection with the acquisition of Precim, which was in the form of merger
accounted for as a pooling-of-interests, TMA issued 387,000 shares of TMA Common
Stock to the shareholders of Precim. Financial information for periods prior to
the merger have not been restated to include the results of Precim as the
results are not material to the overall operations or financial position of the
Company. Accordingly, the results of Precim have been included in the financial
statements commencing on the close of the acquisition. Precim, located in
Portland, Oregon, develops computer-automated products for optimizing the
performance and quality of semiconductor tooling (pattern transfer) activities
in wafer fabrication. Precim tools are used to construct or modify design
layouts to improve yield and circuit performance.
5. AVANT! MERGER
On September 7, 1997, TMA entered into an Agreement and Plan of
Reorganization with Avant! Corporation ("Avant!") pursuant which a wholly-owned
subsidiary of Avant! will be merged with and into TMA (the "Merger"). In
connection with the Merger, each outstanding share of TMA Common Stock will be
converted into the right to receive a fraction of a share of Avant! Common Stock
(the "Exchange Ratio"), the numerator of which is equal to $17.00, and the
denominator of which is equal to the average of the per share closing prices of
Avant! Common Stock as quoted on the Nasdaq National Market for the ten (10)
consecutive trading days ending three (3) business days prior to the closing
date of the Merger (the "Average Nasdaq Per Share Price"). Notwithstanding
anything to the contrary set forth above, in the event that the Average Nasdaq
Per Share Price is greater than $35.678, then the Exchange Ratio will be
0.476484, and in the event that the Average Nasdaq Per Share Price is less than
$25.678, then the Exchange Ratio will be 0.662045. In addition, all TMA stock
options and subscription rights, together with the underlying TMA stock plans,
will be assumed by Avant! and converted into options and subscription rights to
purchase shares of Avant! Common Stock based upon the Exchange Ratio.
F-61
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
AVANT! CORPORATION,
CARDINAL MERGER CORPORATION
AND
TECHNOLOGY MODELING ASSOCIATES, INC.
SEPTEMBER 7, 1997
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TABLE OF CONTENTS
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ARTICLE I THE MERGER........................................................................................ A-1
1.1 The Merger........................................................................................ A-1
1.2 Closing, Effective Time........................................................................... A-1
1.3 Effect of the Merger.............................................................................. A-2
1.4 Articles of Incorporation; Bylaws................................................................. A-2
1.5 Directors and Officers............................................................................ A-2
1.6 Effect on Capital Stock........................................................................... A-2
1.7 Dissenters' Rights................................................................................ A-3
1.8 Surrender of Certificates......................................................................... A-3
1.9 No Further Ownership Rights in TMAI Common Stock.................................................. A-4
1.10 Lost, Stolen or Destroyed Certificates............................................................ A-5
1.11 Tax and Accounting Consequences................................................................... A-5
1.12 Taking of Necessary Action; Further Action........................................................ A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TMAI........................................................... A-5
2.1 Organization, Standing and Power.................................................................. A-6
2.2 Capital Structure................................................................................. A-6
2.3 Authority......................................................................................... A-7
2.4 SEC Documents, Financial Statements............................................................... A-8
2.5 Absence of Certain Changes........................................................................ A-8
2.6 Absence of Undisclosed Liabilities................................................................ A-9
2.7 Permits and Licenses.............................................................................. A-9
2.8 Properties and Contracts.......................................................................... A-9
2.9 Litigation........................................................................................ A-10
2.10 Intellectual Property............................................................................. A-10
2.11 Environmental Matters............................................................................. A-11
2.12 Taxes............................................................................................. A-11
2.13 Employee Benefit Plans............................................................................ A-12
2.14 Certain Agreements Affected by the Merger......................................................... A-14
2.15 Brokers' and Finders' Fees........................................................................ A-14
2.16 Opinion of TMAI Financial Advisor................................................................. A-14
2.17 Registration Statement; Proxy Statement/Prospectus................................................ A-14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF AVANT! AND MERGER SUB.........................................
A-14
3.1 Organization, Standing and Power.................................................................. A-15
3.2 Capital Structure................................................................................. A-15
3.3 Authority......................................................................................... A-16
3.4 SEC Documents; Financial Statements............................................................... A-16
3.5 Absence of Certain Changes........................................................................ A-17
3.6 Litigation........................................................................................ A-17
3.7 Absence of Undisclosed Liabilities................................................................ A-17
3.8 Taxes............................................................................................. A-18
3.9 Registration Statement; Proxy Statement/Prospectus................................................ A-18
3.10 Intellectual Property............................................................................. A-19
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ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.............................................................. A-19
4.1 Conduct of Business of TMAI....................................................................... A-19
4.2 Covenants of TMAI................................................................................. A-19
4.3 Notices........................................................................................... A-21
4.4 Other Offers...................................................................................... A-21
4.5 Avant! Offers..................................................................................... A-22
ARTICLE V ADDITIONAL AGREEMENTS............................................................................. A-23
5.1 Proxy Statement/Prospectus; Registration Statement................................................ A-23
5.2 Meeting of Shareholders........................................................................... A-23
5.3 Access to Information............................................................................. A-23
5.4 Confidentiality................................................................................... A-24
5.5 Public Disclosure................................................................................. A-24
5.6 Consents; Cooperation............................................................................. A-24
5.7 Pooling Accounting................................................................................ A-25
5.8 Affiliates Agreements............................................................................. A-25
5.9 FIRPTA............................................................................................ A-25
5.10 Continuity of Interest Certificates............................................................... A-25
5.11 Legal Requirements................................................................................ A-25
5.12 Blue Sky Laws..................................................................................... A-26
5.13 Employee Benefit Plans............................................................................ A-26
5.14 Form S-8.......................................................................................... A-27
5.15 Indemnification................................................................................... A-27
5.16 Listing of Additional Shares...................................................................... A-28
5.17 Pooling Letters................................................................................... A-28
5.18 Best Efforts and Further Assurances............................................................... A-28
5.19 Notification of Certain Matters................................................................... A-28
5.20 Shareholder Agreement............................................................................. A-29
5.21 HSR Act Filings................................................................................... A-29
5.22 Schedules......................................................................................... A-29
5.23 Management of TCAD Division....................................................................... A-29
ARTICLE VI CONDITIONS TO THE MERGER......................................................................... A-29
6.1 Conditions to Obligations of Each Party to Effect the Merger...................................... A-29
6.2 Additional Conditions to Obligations of TMAI...................................................... A-30
6.3 Additional Conditions to the Obligations of Avant! and Merger Sub................................. A-31
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER............................................................... A-32
7.1 Termination....................................................................................... A-32
7.2 Effect of Termination............................................................................. A-33
7.3 Expenses and Termination Fees..................................................................... A-33
7.4 Amendment......................................................................................... A-34
7.5 Extension; Waiver................................................................................. A-34
ARTICLE VIII GENERAL PROVISIONS............................................................................. A-34
8.1 Survival.......................................................................................... A-34
8.2 Notices........................................................................................... A-35
8.3 Interpretation.................................................................................... A-35
8.4 Counterparts...................................................................................... A-36
8.5 Entire Agreement; Nonassignability; Parties in Interest........................................... A-36
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8.6 Severability...................................................................................... A-36
8.7 Remedies Cumulative............................................................................... A-36
8.8 Governing Law..................................................................................... A-36
8.9 Rules of Construction............................................................................. A-36
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EXHIBITS
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EXHIBIT A-1 TMAI Affiliates Agreement
EXHIBIT A-2 Avant! Affiliates Agreement
EXHIBIT B Shareholder Agreement
EXHIBIT C Continuity of Interest Certificate
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of September 7, 1997, by and among Avant! Corporation, a
Delaware corporation ("Avant!"), Cardinal Merger Corporation, a California
corporation ("Merger Sub") and wholly owned subsidiary of Avant! and Technology
Modeling Associates, Inc., a California corporation ("TMAI").
RECITALS
A. The Boards of Directors of TMAI, Avant! and Merger Sub believe it is in
the best interests of their respective corporations and the stockholders of
their respective corporations that TMAI and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into TMAI (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. In the Merger, among other things, the outstanding shares of TMAI Common
Stock, no par value ("TMAI Common Stock"), shall be converted into shares of
Avant! Common Stock, $.0001 par value ("Avant! Common Stock"), at the rate set
forth herein.
C. TMAI, Avant! and Merger Sub desire to make certain representations and
warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
E. The parties intend for the Merger to be accounted for as a pooling of
interests.
F. Concurrent with the execution of this Agreement and as an inducement to
Avant! and Merger Sub to enter into this Agreement, Roy E. Jewell, Bennet
Weintraub, Lung Chu, Jue-Hsien Chern, David M. Lee, Robert W. Dutton, William E.
Drobish, Louis A. Delmonico and Ronald A. Rohrer (the "Shareholders") who are
officers and directors of TMAI, have on the date hereof entered into an
agreement to vote the shares of TMAI's Common Stock owned by such persons to
approve the Merger.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California General Corporation Law ("California
Law"), Merger Sub shall be merged with and into TMAI, the separate corporate
existence of Merger Sub shall cease and TMAI shall continue as the surviving
corporation. TMAI as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article VI hereof
or at such other time as the parties hereto agree (the date on which the Closing
shall occur, the "Closing Date" or the "Effective Date"). The Closing shall take
place at the offices of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, 155 Constitution Drive, Menlo Park, California, or at such other
location as the parties hereto agree. In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by filing an Agreement
of Merger, in form reasonably satisfactory to Avant! and TMAI (the "Agreement of
Merger"), with the Secretary of State of the State of
A-1
<PAGE>
California, in accordance with the relevant provisions of California Law (the
time of such filing being the "Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Agreement of Merger and the
applicable provisions of California Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of TMAI and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of TMAI and Merger
Sub shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended; provided,
however, that Article I of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation is
TMAI."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors of Merger
Sub shall be the initial directors of the Surviving Corporation and the officers
of Merger Sub shall be the initial officers of the Surviving Corporation, until
their respective successors are duly elected or appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Merger Sub, Avant!, TMAI or the holders of any of the
following securities:
(a) CONVERSION OF TMAI COMMON STOCK. At the Effective Time, each share
of TMAI Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of TMAI Common Stock to be canceled
pursuant to Section 1.6(b) and any Dissenting Shares (as defined in Section
1.7 below)) will be canceled and extinguished and will be converted
automatically into the right to receive a fraction of a share of Avant!
Common Stock (the "Exchange Ratio"), the numerator of which is equal to (i)
$17.00, and the denominator of which is equal to (ii) the average of the per
share closing prices of Avant! Common Stock as quoted on the Nasdaq National
Market for the ten (10) consecutive trading days ending three (3) business
days prior to the Effective Date of the Merger (the "Average Nasdaq Per
Share Price"). Notwithstanding anything to the contrary set forth herein, in
the event that the Average Nasdaq Per Share Price is greater than $35.678
(the "Maximum Price"), then the Exchange Ratio shall be 0.476484, and in the
event that the Average Nasdaq Per Share Price is less than $25.678 (the
"Minimum Price"), then the Exchange Ratio shall be 0.662045.
(b) CANCELLATION OF TMAI COMMON STOCK OWNED BY AVANT! OR TMAI. At the
Effective Time, all shares of TMAI Common Stock that are owned by TMAI and
each share of TMAI Common Stock owned by Avant! or any direct or indirect
wholly owned subsidiary of Avant! or of TMAI immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) TMAI STOCK PLANS. At the Effective Time, the 1996 Equity Incentive
Plan, the 1995 Stock Option Plan and the 1989 Stock Option Plan of TMAI, and
all options to purchase TMAI Common Stock then outstanding under such plans,
shall be assumed by Avant! in accordance with Section 5.13. The TMAI 1989
Stock Option Plan, 1995 Stock Option Plan and 1996 Equity Incentive Plan are
sometimes collectively referred to herein as the "TMAI Stock Plans."
(d) TMAI EMPLOYEE STOCK PURCHASE PLAN. At the Effective Time, the TMAI
1996 Employee Stock Purchase Plan (the "TMAI ESPP") and all of the existing
rights and obligations of TMAI pursuant to the outstanding subscription
rights thereunder shall be assumed by Avant! in accordance with Section
5.13.
A-2
<PAGE>
(e) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each share of
Common Stock, no par value, of Merger Sub ("Merger Sub Common Stock"),
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one (1) validly issued, fully paid and
nonassessable share of Common Stock, no par value, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of
any such shares shall continue to evidence ownership of such shares of
capital stock of the Surviving Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible
into Avant! Common Stock or TMAI Common Stock), reorganization,
recapitalization or other like change with respect to Avant! Common Stock or
TMAI Common Stock occurring after the date hereof and prior to the Effective
Time.
(g) FRACTIONAL SHARES. No fraction of a share of Avant! Common Stock
will be issued, but in lieu thereof each holder of shares of TMAI Common
Stock who would otherwise be entitled to a fraction of a share of Avant!
Common Stock (after aggregating all fractional shares of Avant! Common Stock
to be received by such holder) shall receive from Avant! an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the Average Nasdaq Per Share Price.
1.7 DISSENTERS' RIGHTS. If, as of the Effective Time, holders of TMAI
Common Stock have complied with all requirements for perfecting and not
forfeited dissenters' rights ("Dissenting Shares") in connection with the Merger
under California Law, such Dissenting Shares shall not be converted into Avant!
Common Stock but instead shall be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to the California Law. TMAI shall give Avant! prompt notice of
any demand received by TMAI to require TMAI to pay the value of any Dissenting
Shares of TMAI Common Stock, and Avant! shall have the right to participate in
all negotiations and proceedings with respect to such demand. TMAI agrees that,
except with the prior written consent of Avant!, it will not make any payment
with respect to, or settle or offer to settle, any such purchase demand. Each
holder of Dissenting Shares (a "Dissenting Shareholder") who, pursuant to the
provisions of California Law, becomes entitled to payment of the value of shares
of TMAI Common Stock shall receive payment therefor (but only after the value
therefor shall have been agreed upon or finally determined pursuant to such
provisions). In the event of a legal obligation, after the Effective Time, to
deliver shares of Avant! Common Stock to any holder of shares of TMAI Common
Stock who shall have failed to make an effective payment demand or shall have
lost his or her status as a Dissenting Shareholder, Avant! shall issue and
deliver, upon surrender by such Dissenting Shareholder of his or her certificate
or certificates representing shares of TMAI Common Stock, the shares of Avant!
Common Stock to which such Dissenting Shareholder is then entitled under Section
1.6(a) and cash in lieu of fractional shares pursuant to Section 1.6(g).
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Harris Trust Company of California shall act as
exchange agent (the "Exchange Agent") in the Merger.
(b) AVANT! TO PROVIDE COMMON STOCK AND CASH. As soon as practicable after
the Effective Time, but no later than two (2) business days thereafter, Avant!
shall make available to the Exchange Agent for exchange in accordance with this
Article I, through such reasonable procedures as Avant! may adopt, (i) the
shares of Avant! Common Stock issuable pursuant to Section 1.6(a) in exchange
for shares of TMAI Common Stock outstanding immediately prior to the Effective
Time and (ii) cash in an amount sufficient to permit payment of cash in lieu of
fractional shares pursuant to Section 1.6(g).
(c) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
but no later than five (5) business days thereafter, the Surviving Corporation
shall cause to be mailed to each holder of record of
A-3
<PAGE>
a certificate or certificates (the "Certificates") which immediately prior to
the Effective Time represented outstanding shares of TMAI Common Stock, whose
shares were converted into the right to receive shares of Avant! Common Stock
(and cash in lieu of fractional shares) pursuant to Section 1.6, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Avant! may reasonably specify) and (ii) instructions for use
in effecting the surrender of the Certificates in exchange for certificates
representing shares of Avant! Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Avant!, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of record of such Certificate shall be
entitled to receive in exchange therefor a certificate representing the number
of whole shares of Avant! Common Stock and payment in lieu of fractional shares
which such holder of record has the right to receive pursuant to Section 1.6,
and the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of TMAI Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than as provided in subsection
(d) below, to evidence only the ownership of the number of full shares of Avant!
Common Stock into which such shares of TMAI Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions with respect to Avant! Common Stock with a record date after the
Effective Time will be paid to the holder of record of any unsurrendered
Certificate with respect to the shares of Avant! Common Stock represented
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Avant! Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this Section 1.8(d)) with respect
to such shares of Avant! Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Avant! Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Avant! or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Avant! Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Avant! or any
agent designated by it that such tax has been paid or is not payable.
(e) NO LIABILITY. Notwithstanding anything to the contrary in this Section
1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN TMAI COMMON STOCK. All shares of Avant!
Common Stock issued upon the surrender for exchange of shares of TMAI Common
Stock in accordance with the terms hereof (including any cash paid in lieu of
fractional shares) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of TMAI Common Stock, and following the
Effective Time there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of TMAI Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
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1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Avant! Common Stock
(and cash in lieu of fractional shares) as may be required pursuant to Section
1.6; provided, however, that the Exchange Agent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Avant!, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368 of the Code and (ii) qualify for accounting treatment as a pooling
of interests. No party shall take any action which, to such party's knowledge,
would cause the Merger to fail to qualify as a reorganization within the meaning
of Section 368 of the Code or to fail to qualify for accounting treatment as a
pooling of interest.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of TMAI and Merger Sub, the officers and directors of TMAI and
Merger Sub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TMAI
In this Agreement, any reference to any event, change, condition or effect
being "material" with respect to any entity or group of entities means any
material event, change, condition or effect related to the condition (financial
or otherwise), properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group of
entities. In this Agreement, any reference to a "Material Adverse Effect" with
respect to any entity or group of entities means any event, change or effect
that is materially adverse to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole; PROVIDED, HOWEVER, that (i) any adverse change, event or effect that
is demonstrated to be primarily caused by conditions affecting the United States
economy generally or the economy of any nation or region in which such entity or
any of its subsidiaries conducts business that is material to the business of
such entity and its subsidiaries, taken as a whole, shall not be taken into
account in determining whether there has been or would be a "Material Adverse
Effect" on or with respect to such entity, (ii) any adverse change, event or
effect that is demonstrated to be primarily caused by conditions generally
affecting the integrated circuit design automation software industry shall not
be taken into account in determining whether there has been or would be a
"Material Adverse Effect" on or with respect to such entity, (iii) any adverse
change, event or effect that is demonstrated to be primarily caused by the
announcement or pendency of the Merger shall not be taken into account in
determining whether there has been or would be a "Material Adverse Effect" on or
with respect to such entity, and (iv) any adverse change in the stock price of
an entity as quoted on the Nasdaq National Market shall not be taken into
account in determining whether there has been or would be a "Material Adverse
Effect" on or with respect to such entity.
In this Agreement, any reference to a party's "knowledge" means such party's
actual knowledge after due and diligent inquiry of officers, directors and other
employees of such party and its subsidiaries reasonably believed to have
knowledge of such matters.
Except as disclosed in a document of even date herewith and delivered by
TMAI to Avant! prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this
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Agreement (the "TMAI Disclosure Schedule"), TMAI represents and warrants to
Avant! and Merger Sub as follows:
2.1 ORGANIZATION, STANDING AND POWER. Each of TMAI and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of TMAI and its subsidiaries has
the corporate power to own its properties and to carry on its business as now
being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on TMAI.
TMAI has delivered a true and correct copy of the Articles of Incorporation
(referred to herein as TMAI's "Articles of Incorporation") and Bylaws or other
charter documents, as applicable, of TMAI and each of its subsidiaries, each as
amended to date, to Avant!. Neither TMAI nor any of its subsidiaries is in
violation of any of the provisions of its Articles of Incorporation or Bylaws or
equivalent organizational documents. TMAI is the owner of all outstanding shares
of capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by TMAI free and clear
of all liens, charges, claims or encumbrances or rights of others. There are no
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable
or convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating TMAI or any such subsidiary to issue,
transfer, sell, purchase, redeem or otherwise acquire any such securities.
Except as disclosed in the TMAI SEC Documents (as defined in Section 2.4), TMAI
does not directly or indirectly own any equity or similar interest in, or any
interest convertible or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
2.2 CAPITAL STRUCTURE. The authorized capital stock of TMAI consists of
25,000,000 shares of Common Stock, no par value, and 4,000,000 shares of
Preferred Stock, no par value, of which there were issued and outstanding as of
the close of business on August 31, 1997, 8,089,027 shares of TMAI Common Stock
and no shares of Preferred Stock. There are no other outstanding shares of
capital stock or voting securities of TMAI and no outstanding commitments to
issue any shares of capital stock or voting securities of TMAI after August 31,
1997 other than pursuant to (i) the exercise of options under the TMAI Stock
Plans and the 1996 Directors Stock Option Plan of TMAI (the "Directors Plan") or
(ii) the exercise of subscription rights outstanding as of such date under the
TMAI ESPP. All outstanding shares of TMAI Common Stock are duly authorized,
validly issued, fully paid and non-assessable and are free of any liens or
encumbrances, other than any liens or encumbrances created by or imposed upon
the holders thereof, and are not subject to preemptive rights or rights of first
refusal created by statute, the Articles of Incorporation or Bylaws of TMAI or
any agreement to which TMAI is a party or by which it is bound. As of the close
of business on August 31, 1997, TMAI had reserved (i) 1,500,000 shares of TMAI
Common Stock for issuance to employees pursuant to the 1996 TMAI Equity
Incentive Plan, of which no shares have been issued pursuant to option exercises
and 800,200 shares are subject to outstanding, unexercised options, (ii) 200,000
shares of TMAI Common Stock for issuance to employees pursuant to the TMAI ESPP,
of which 56,799 shares have been issued and no shares remain purchasable under
outstanding, unexercised subscription rights and no more than 143,201 shares are
subject to outstanding subscriptions, (iii) 229,925 shares of TMAI Common Stock
for issuance to employees pursuant to the TMAI 1989 Stock Option Plan, of which
no shares have been issued pursuant to option exercises and no shares are
subject to outstanding, unexercised options, (iv) 525,525 shares of TMAI Common
Stock for issuance to employees pursuant to the TMAI 1995 Stock Option Plan, of
which no shares have been issued pursuant to option exercises and no shares are
subject to outstanding, unexercised options, and (v) 150,000 shares of TMAI
Common Stock for issuance to board members pursuant to the Directors Plan, of
which no shares have been issued pursuant to option exercises and 15, 000 shares
are subject to outstanding, unexercised options. No Stock Bonuses, Restricted
Stock Awards or other stock-based awards (as all of such terms are defined in
the 1996 TMAI Equity Incentive Plan) have been issued prior to the date hereof
under the 1996 TMAI Equity Incentive Plan. Since August 31, 1997, TMAI has not
(i) issued or granted additional options
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under any of the TMAI Stock Plans or the Directors Plan or (ii) accepted any
additional Common Stock subscriptions or otherwise granted any additional
purchase rights under the TMAI ESPP, except as set forth in the TMAI Disclosure
Schedule. Except for the rights created pursuant to this Agreement and as
disclosed in this Section 2.2, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which TMAI is a party or
by which it is bound obligating TMAI to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of TMAI or obligating TMAI to grant, extend, accelerate
the vesting of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. There are no contracts,
commitments or agreements relating to voting, registration, purchase or sale of
TMAI's capital stock (i) between or among TMAI and any of its shareholders or
(ii) to TMAI's knowledge, between or among any of TMAI's shareholders other than
the Shareholder Agreements entered into pursuant hereto. The terms of the TMAI
Stock Plans permit the assumption or substitution of options to purchase Avant!
Common Stock as provided in this Agreement, without the consent or approval of
the holders of such securities, the TMAI shareholders, or otherwise and without
any acceleration of the exercise schedule or vesting provisions in effect for
those options. No benefits under any of such TMAI Stock Plans will accelerate in
connection with the Merger. No other outstanding options, whether under the TMAI
Stock Plans or otherwise, will be accelerated in connection with the Merger,
except options outstanding under the Directors Plan. The most recent two-year
offering period (as contemplated by the TMAI ESPP) commenced under the TMAI ESPP
on August 1, 1997, and except for the subscriptions to acquire no more than
143,201 shares of TMAI Common Stock under the TMAI ESPP, there are no other
subscriptions or purchase rights or options outstanding under the TMAI ESPP.
True and complete copies of all agreements and instruments relating to or issued
under the TMAI Stock Plans, the Directors Plan and the TMAI ESPP have been made
available to Avant! and such agreements and instruments have not been amended,
modified or supplemented, and there are no agreements to amend, modify or
supplement such agreements or instruments in any case from the form made
available to Avant!. TMAI will update the TMAI Disclosure Schedule to reflect
outstanding shares and options as of the Effective Time.
2.3 AUTHORITY. TMAI has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of TMAI, subject only to the approval of the Merger
by TMAI's shareholders as contemplated by Section 6.1(a). This Agreement has
been duly executed and delivered by TMAI and, subject to receipt of such
shareholder approval, constitutes the valid and binding obligation of TMAI
enforceable against TMAI in accordance with its terms. The Board of Directors of
TMAI has unanimously approved this Agreement and the transactions contemplated
hereby. The execution and delivery of this Agreement by TMAI does not, and,
subject to receipt of shareholder approval and the consents contemplated by
Section 2.3 of the TMAI Disclosure Schedule, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit under (i) any provision of the
Articles of Incorporation or Bylaws of TMAI or any of its subsidiaries, or (ii)
any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to TMAI or any of its
subsidiaries or any of their properties or assets, except where such conflict,
violation, default, termination, cancellation or acceleration with respect to
the foregoing provisions of (ii) would not have had and would not reasonably be
expected to have a Material Adverse Effect on TMAI. Except as set forth in the
TMAI Disclosure Schedule, no consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to TMAI or any of its subsidiaries in
connection with the execution and delivery of this Agreement, or the
consummation of the transactions contemplated hereby and thereby, except for (i)
the filing of the Agreement of Merger as provided in Section 1.2; (ii) the
filing with the
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Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers, Inc. (the "NASD") of the Proxy Statement (as defined in
Section 2.17) relating to the TMAI Shareholders' Meeting (as defined in Section
2.17) and any clearance thereof by the SEC (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable state securities laws and the securities laws of any
foreign country; (iv) filings required to be made by each of TMAI and Avant!
under the HSR Act (as defined in Section 5.21 below); and (v) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not have a Material Adverse Effect on TMAI and would not
prevent, or materially alter or delay any of the transactions contemplated by
this Agreement.
2.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. TMAI has furnished to Avant! a
true and complete copy of each statement, report, registration statement
(together with the prospectus in the form filed pursuant to Rule 424(b) of the
Securities Act of 1933, as amended (the "Securities Act"), if any), definitive
proxy statement and other filings filed with the SEC by TMAI on or after
September 20, 1996, and, prior to the Effective Time, TMAI will have furnished
Avant! with true and complete copies of any additional documents filed with the
SEC by TMAI prior to the Effective Time (collectively, the "TMAI SEC
Documents"). In addition, TMAI has made available to Avant! all exhibits to the
TMAI SEC Documents filed prior to the date hereof, and will promptly make
available to Avant! all exhibits to any additional TMAI SEC Documents filed
prior to the Effective Time. All documents required to be filed as exhibits to
the TMAI SEC Documents have been so filed. As of their respective filing dates,
or, with respect to registration statements as of their effective dates, the
TMAI SEC Documents complied in all material respects with the requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act, and none of the TMAI SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected, modified or superseded by a subsequently filed TMAI SEC Document. The
financial statements of TMAI, including the notes thereto, included in the TMAI
SEC Documents (the "TMAI Financial Statements"), complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto as of their respective
dates, and have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto).
The TMAI Financial Statements fairly present in all material respects the
consolidated financial condition and operating results of TMAI and its
subsidiaries at the dates and during the periods indicated therein (subject, in
the case of unaudited statements, to normal, recurring year-end adjustments).
There has been no change in TMAI accounting policies except as described in the
notes to the TMAI Financial Statements.
2.5 ABSENCE OF CERTAIN CHANGES. Except as set forth in the TMAI Disclosure
Schedule or in the TMAI SEC Documents, since June 30, 1997 (the "TMAI Balance
Sheet Date"), TMAI has conducted its business in the ordinary course consistent
with past practice and there has not occurred: (i) any change, event or
condition (whether or not covered by insurance) that has resulted in a Material
Adverse Effect on TMAI; (ii) any acquisition, sale or transfer of any material
asset of TMAI or any of its subsidiaries other than in the ordinary course of
business and consistent with past practice; (iii) any change in accounting
methods or practices (including any change in depreciation or amortization
policies or rates) by TMAI or any revaluation by TMAI of any of its or any of
its subsidiaries' assets; (iv) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of TMAI, or any direct
or indirect redemption, purchase or other acquisition by TMAI of any of its
shares of capital stock except for the repurchase at cost of unvested shares
held by TMAI employees on the termination of employment; (v) any material
contract entered into by TMAI or any of its subsidiaries, other than in the
ordinary course of business and as provided to Avant!, or any material amendment
or termination of, or default under, any material contract to which TMAI or any
of its subsidiaries is a party or by which it is bound; (vi) any action by TMAI
or, to TMAI's knowledge, any affiliate of TMAI which might reasonably be
expected to preclude
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the ability of Avant! to account for the business combination to be effected by
the Merger as a "pooling of interests" under generally accepted accounting
principles; (vii) any increase in the compensation payable or to become payable
by TMAI to any of its officers, directors, consultants or employees (except for
salary or rate increases granted to such persons in the ordinary course of
business and consistent with prior practice); (viii) any (A) grant of any
severance or termination pay to any director, officer or employee of TMAI or any
of its subsidiaries except in the ordinary course of business and consistent
with past practice, (B) entering into of any employment, deferred compensation
or other similar agreement (or any amendment to any such existing agreement)
with any director, officer or employee of TMAI or any such subsidiary except in
the ordinary course of business and consistent with past practice, (C) any
increase in benefits payable under any existing severance or termination pay
policies or employment agreements, or (D) any increase in compensation, bonus or
other benefits payable to directors, officers or employees of TMAI or any such
subsidiary, in each case other than in the ordinary course of business
consistent with past practice; or (ix) any negotiation or agreement by TMAI or
any of its subsidiaries to do any of the things described in the preceding
clauses (i) through (viii) (other than negotiations with Avant! and its
representatives regarding the transactions contemplated by this Agreement). Any
agreement or obligation to provide severance or termination payments and any
employment, deferred compensation or other similar agreements and the material
terms thereof are set forth on Section 2.5 of the TMAI Disclosure Schedule.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. TMAI has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the Balance Sheet
included in TMAI's Quarterly Report on Form 10-Q for the period ended June 30,
1997 (the "TMAI Balance Sheet"); (ii) those incurred in the ordinary course of
business and not required to be set forth in the TMAI Balance Sheet under
generally accepted accounting principles; (iii) those incurred in the ordinary
course of business since the TMAI Balance Sheet Date and consistent with past
practice; and (iv) those incurred in connection with the execution and delivery
of this Agreement and the transactions contemplated hereby.
2.7 PERMITS AND LICENSES. TMAI is now the holder of all licenses,
franchises, ordinances, authorizations, permits, and certificates, domestic or
foreign (collectively, the "TMAI Licenses"), necessary to enable it to continue
to conduct its business in all material respects, as presently conducted, except
where the failure to have such TMAI Licenses, individually or in the aggregate,
would not have a Material Adverse Effect on TMAI. All of the TMAI Licenses are
in full force and effect. TMAI has no reason to believe that any Federal, state,
or local government or agency having jurisdiction will revoke, cancel, rescind,
refuse to renew in the ordinary course, or modify any of the TMAI Licenses.
There is not now pending, or, to the knowledge of TMAI, threatened any
investigation before any such Federal, state, or local governments or agencies
which, either individually or in the aggregate, would have a Material Adverse
Effect on TMAI. TMAI has conducted its business so as to comply with all
applicable laws, regulations, ordinances, and codes, domestic and foreign,
including, without limitation, laws, regulations, ordinances, and codes relating
to the protection of the environment, the failure to comply with which could
reasonably be expected to have a Material Adverse Effect on TMAI.
2.8 PROPERTIES AND CONTRACTS.
(a) TMAI owns, or is licensed to use, or leases, all property and assets,
real and personal, tangible and intangible, used in or necessary for the conduct
of its business as currently conducted, except in those cases where the failure
so to own, license or lease would not have a Material Adverse Effect on TMAI and
except as this subsection (a) may relate to TMAI Intellectual Property which is
addressed exclusively by Section 2.10 below.
(b) To the knowledge of TMAI, (i) all of the material contracts of TMAI are
presently valid and existing and in full force and effect, and (ii) there is no
violation or default or claim of violation or default by any party thereto and
no condition or event has occurred which with notice or lapse of time or both
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would constitute a violation or default thereunder, except for any such failure
or any such violation, default, or claim, which would not have a Material
Adverse Effect on TMAI.
2.9 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of TMAI, threatened
against TMAI or any of its subsidiaries or any of their respective properties or
any of their respective officers or directors (in their capacities as such)
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on TMAI or that arise out of or in any way relate to
this Agreement, the Merger or any of the transactions contemplated hereby. From
the date of this Agreement until the Effective Time, TMAI shall promptly advise
Avant! of any such action, suit, proceeding, claim, arbitration or investigation
that is commenced, or, to the knowledge of TMAI, threatened against TMAI or any
of its subsidiaries. There is no judgment, decree or order against TMAI or any
of its subsidiaries, or, to the knowledge of TMAI, any of their respective
directors or officers (in their capacities as such), that could prevent, enjoin,
alter or materially delay any of the transactions contemplated by this Agreement
or that could reasonably be expected to have a Material Adverse Effect on TMAI.
2.10 INTELLECTUAL PROPERTY.
(a) TMAI and/or its subsidiaries own, or otherwise possess legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in source code and/or object code
form), and tangible or intangible proprietary information or material ("TMAI
Intellectual Property") that are used in the business of TMAI and its
subsidiaries as currently conducted (including with respect to products
currently under development), except to the extent that the failure to have such
rights has not had and would not reasonably be expected to have a Material
Adverse Effect on TMAI.
(b) Section 2.10 of the TMAI Disclosure Schedule lists (i) all patents and
patent applications and all material registered and unregistered trademarks,
trade names and service marks, registered copyrights, and maskworks that are
included in the TMAI Intellectual Property, in each case where such applications
have been filed by or registered in the name of TMAI or assigned to TMAI,
including the jurisdictions in which each such TMAI Intellectual Property right
has been issued or registered or in which any application for such issuance and
registration has been filed, (ii) all material licenses, sublicenses and other
agreements as to which TMAI is a party and pursuant to which any person is
authorized to use any TMAI Intellectual Property other than end user licenses
entered into with customers of TMAI in the ordinary course of business, and
(iii) all licenses, sublicenses and other agreements as to which TMAI is a party
and pursuant to which TMAI is authorized to use any third party patents,
trademarks or copyrights, including software ("TMAI Third Party Intellectual
Property Rights") which are incorporated in, are, or form a part of any TMAI
product that is material to its business or any TMAI product under development
that is expected to be material to its business, other than end user licenses of
commercially available products of third parties entered into in the ordinary
course of business.
(c) To the knowledge of TMAI, there is no material unauthorized use,
disclosure, infringement or misappropriation of any TMAI Intellectual Property
rights of TMAI or any of its subsidiaries, any trade secret material to TMAI or
any of its subsidiaries, or any TMAI Intellectual Property right of any third
party to the extent licensed by or through TMAI or any of its subsidiaries, by
any third party, including any employee or former employee of TMAI or any of its
subsidiaries. Neither TMAI nor any of its subsidiaries has entered into any
agreement to indemnify any other person against any charge of infringement by
any TMAI Intellectual Property, other than indemnification provisions contained
in end user licenses, distribution agreements or sales representative agreements
entered into with customers of TMAI arising in the ordinary course of business.
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(d) Neither TMAI nor any of its subsidiaries is, nor will they be as a
result of the execution and delivery of this Agreement or the performance of
their respective obligations under this Agreement, in breach of any license,
sublicense or other agreement relating to the TMAI Intellectual Property or TMAI
Third Party Intellectual Property Rights, which breach would have a Material
Adverse Effect on TMAI.
(e) To TMAI's knowledge, all patents, registered trademarks, service marks
and copyrights held by TMAI or any of its subsidiaries are valid and subsisting.
TMAI (i) has not been sued in any suit, action or proceeding which involves a
claim of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party;
(ii) has no knowledge that the manufacturing, marketing, licensing or sale of
its products infringes any patent, trademark, service mark, copyright, trade
secret or other proprietary right of any third party, which such infringement
would have a Material Adverse Effect on TMAI; and (iii) has not brought any
action, suit or proceeding for infringement of TMAI Intellectual Property or
breach of any license or agreement involving TMAI Intellectual Property against
any third party.
(f) TMAI has secured from all consultants and employees who contributed to
the creation or development of TMAI Intellectual Property valid written
assignments of the rights to such contributions that TMAI does not already own
by operation of law, the absence of which would have a Material Adverse Effect
on TMAI.
(g) TMAI has taken reasonable and practical steps to protect and preserve
the confidentiality of all TMAI Intellectual Property not otherwise protected by
patents, patent applications or copyright ("TMAI Confidential Information"). It
is TMAI's policy that all use, disclosure or appropriation of TMAI Confidential
Information owned by TMAI by or to a third party be pursuant to the terms of a
written agreement between TMAI and such third party. All use, disclosure or
appropriation of TMAI Confidential Information not owned by TMAI has been
pursuant to the terms of a written agreement between TMAI and the owner of such
TMAI Confidential Information, or is otherwise lawful.
2.11 ENVIRONMENTAL MATTERS. To the knowledge of TMAI, each of TMAI and its
subsidiaries is and at all times has been in compliance with all foreign,
federal, state and local laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic materials
or waste, except to the extent noncompliance with such laws has not had and
could not reasonably be expected to have a Material Adverse Effect on TMAI.
2.12 TAXES. TMAI and each of its subsidiaries, and each member of any
consolidated, combined or unitary group for Tax purposes of which TMAI or any of
its subsidiaries is or has been a member have timely filed all Tax Returns
required to be filed by them (other than those that are not, individually or in
the aggregate, material) and have paid all Taxes shown thereon to be due. The
TMAI Financial Statements (i) fully accrue all actual and contingent liabilities
for Taxes with respect to all periods through June 30, 1997 and TMAI and each of
its subsidiaries have not and will not incur any Tax liability in excess of the
amount reflected on the TMAI Financial Statements with respect to such periods,
and (ii) properly accrue in accordance with generally accepted accounting
principles all liabilities for Taxes payable after June 30, 1997 with respect to
all transactions and events occurring on or prior to such date. No material Tax
liability since June 30, 1997 has been incurred by TMAI or its subsidiaries
other than in the ordinary course of business and adequate provision has been
made in the TMAI Financial Statements for all Taxes since that date in
accordance with generally accepted accounting principles on at least a quarterly
basis. TMAI and each of its subsidiaries have withheld and paid or will timely
pay to the applicable financial institution or Tax Authority all amounts
required to be withheld. No notice of deficiency or similar document of any Tax
Authority has been received by either TMAI or any of its subsidiaries, and there
are no liabilities for Taxes with respect to the issues that have been raised
(and are currently pending) by any Tax Authority that could, if determined
adversely to TMAI and its subsidiaries, materially and adversely affect the
liability of TMAI and its subsidiaries for Taxes. Except as disclosed in the
TMAI Disclosure Schedule, there (i) is no material claim for Taxes that is a
lien against the property of TMAI or any of its subsidiaries other than
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liens for Taxes not yet due and payable, (ii) has been no notification received
by TMAI of any audit of any Tax Return of TMAI or any of its subsidiaries being
conducted, pending or threatened by a Tax Authority, and (iii) is no extension
or waiver of the statute of limitations on the assessment of any Taxes granted
by TMAI or any of its subsidiaries that is currently in effect, and (iv) is no
agreement, contract or arrangement to which TMAI or any of its subsidiaries is a
party that may result in the payment of any material amount that would not be
deductible by reason of Sections 280G or 404 of the Code. TMAI will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger. Neither
TMAI nor any of its subsidiaries is a party to any Tax sharing or Tax allocation
agreement nor does TMAI or any of its subsidiaries owe any amount under any such
agreement. TMAI and each of its subsidiaries are in material compliance with all
terms and conditions of any Tax exemptions or other Tax sharing agreement or
order of a foreign government applicable to them and the consummation of the
Merger shall not have any adverse effect on the continued validity and
effectiveness of any such Tax exemptions or other Tax sharing agreement or
order. For purposes of this Agreement, the following terms have the following
meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means (i)
any net income, alternative or add-on minimum tax, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax Authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of any express or implied obligation to indemnify any other
person. As used herein, "Tax Return" shall mean any return, statement, report or
form including, without limitation, estimated Tax returns and reports,
withholding Tax returns and reports and information reports and returns required
to be filed with respect to Taxes.
2.13 EMPLOYEE BENEFIT PLANS.
(a) Section 2.13 of the TMAI Disclosure Schedule lists, with respect to
TMAI, any subsidiary of TMAI and any trade or business (whether or not
incorporated) which is treated as a single employer with TMAI (an "ERISA
Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the Code,
(i) all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), (ii) each loan to
a non-officer employee in excess of $10,000, loans to officers and directors and
any stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code Section 125) or
dependent care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing, savings,
deferred compensation or incentive plans, programs or arrangements, (iv) other
fringe or employee benefit plans, programs or arrangements that apply to senior
management of TMAI and that do not generally apply to all employees, and (v) any
current or former employment or executive compensation or severance agreements,
written or otherwise, as to which unsatisfied obligations of TMAI of greater
than $10,000 remain for the benefit of, or relating to, any present or former
employee, consultant or director of TMAI (together, the "TMAI Employee Plans").
(b) TMAI has furnished to Avant! a copy of each of the TMAI Employee Plans
and related plan documents (including trust documents, insurance policies or
contracts, employee booklets and the most recent summary plan descriptions) and
has, with respect to each TMAI Employee Plan which is subject to ERISA reporting
requirements, provided copies of the most recent Form 5500 report. Any TMAI
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the
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Internal Revenue Service a favorable determination as to its qualified status
under the Code, including the provisions of the Tax Reform Act of 1986, or has
applied to the Internal Revenue Service for such a determination prior to the
expiration of the requisite period under applicable Treasury Regulations or
Internal Revenue Service pronouncements in which to apply for such determination
and to make any amendments necessary to obtain a favorable determination. TMAI
has also furnished Avant! with the most recent Internal Revenue Service
determination or opinion letter issued with respect to each such TMAI Employee
Plan, and nothing has occurred since the issuance of each such letter which
could reasonably be expected to cause the loss of the tax-qualified status of
any TMAI Employee Plan subject to Code Section 401(a).
(c) (i) None of the TMAI Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any TMAI Employee Plan, which could
reasonably be expected to have, in the aggregate, a Material Adverse Effect on
TMAI; (iii) each TMAI Employee Plan has been administered in accordance with its
terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect on TMAI or as otherwise
disclosed in the TMAI Disclosure Schedule; (iv) neither TMAI nor any subsidiary
or ERISA Affiliate is subject to any liability or penalty under Sections 4976
through 4980 of the Code or Title I of ERISA with respect to any of the TMAI
Employee Plans; (v) all material contributions required to be made by TMAI or
any subsidiary or ERISA Affiliate to any TMAI Employee Plan have been made on or
before their due dates and a reasonable amount has been accrued for such
required contributions to each TMAI Employee Plan for the current plan years;
and (vi) no TMAI Employee Plan is covered by, and neither TMAI nor any
subsidiary or ERISA Affiliate has incurred or expects to incur any material
liability under, Title IV of ERISA or Section 412 of the Code. With respect to
each TMAI Employee Plan subject to ERISA as either an employee pension plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(1) of ERISA, TMAI has prepared in good faith and
timely filed all requisite governmental reports (which were true and correct as
of the date filed) and has properly and timely filed and distributed or posted
all notices and reports to employees required to be filed, distributed or posted
with respect to each such TMAI Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of
TMAI is threatened, against or with respect to any such TMAI Employee Plan,
including any audit or inquiry by the IRS or United States Department of Labor.
Neither TMAI nor any TMAI subsidiary or other ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each TMAI Employee Plan, TMAI and each of its United
States subsidiaries have 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,
and (ii) the applicable requirements of the Family Leave Act of 1993 and the
regulations thereunder, except, in each case, to the extent that such failure to
comply would not, in the aggregate, have a Material Adverse Effect on TMAI.
(e) Except as otherwise disclosed in the TMAI Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former employee or other service provider of TMAI, any
TMAI subsidiary or any other ERISA Affiliate to severance benefits or any other
payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any such benefits, or increase the
amount of compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by TMAI, any TMAI subsidiary or other ERISA Affiliate
relating to, or change in participation or coverage under, any TMAI Employee
Plan which would materially increase the expense of maintaining
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such Plan above the level of expense incurred with respect to that Plan for the
most recent fiscal year included in TMAI's financial statements.
2.14 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated
hereby will (i) result in any material payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of TMAI or any of its subsidiaries,
(ii) materially increase any benefits otherwise payable by TMAI or (iii) result
in the acceleration of the time of payment or vesting of any such benefits.
2.15 BROKERS' AND FINDERS' FEES. TMAI has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby, other than fees and
expenses payable to Wessels, Arnold & Henderson, L.L.C. and Cowen and Company as
set forth on Section 2.15 of the TMAI Disclosure Schedule.
2.16 OPINION OF TMAI FINANCIAL ADVISOR. TMAI has received the opinion of
Wessels, Arnold & Henderson, L.L.C. and Cowen and Company, to the effect that,
as of the date hereof, the consideration to be received by TMAI's shareholders
in the Merger is fair, from a financial point of view, to the shareholders of
TMAI.
2.17 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The written
information supplied by TMAI expressly for the purpose of inclusion in the
registration statement on Form S-4 (or such other or successor form as shall be
appropriate) pursuant to which the issuance of the shares of Avant! Common Stock
to be issued in the Merger will be registered with the SEC (the "Registration
Statement") shall not at the time the Registration Statement (including any
amendments or supplements thereto) is declared effective by the SEC contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The written information supplied by TMAI
expressly for the purpose of inclusion in the combined proxy
statement/prospectus to be sent to the shareholders of TMAI in connection with
the meetings of TMAI's shareholders (the "TMAI Shareholders Meeting") and
Avant!'s stockholders (the "Avant! Stockholders Meeting") to be held in
connection with the Merger (such proxy statement/ prospectus as amended or
supplemented is referred to herein as the "Proxy Statement") shall not, on the
date the Proxy Statement is first mailed to TMAI's shareholders, at the time of
the TMAI Shareholders Meeting and at the Effective Time, contain any material
statement which, at such time, is false or misleading or omits to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not false or misleading or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the TMAI's
Shareholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by TMAI
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, TMAI shall promptly inform Avant!.
Notwithstanding the foregoing, TMAI makes no representation, warranty or
covenant with respect to any information supplied by Avant! or Merger Sub that
is contained in any of the foregoing documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AVANT! AND MERGER SUB
Except as disclosed in a document of even date herewith and delivered by
Avant! to TMAI prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this
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Agreement (the "Avant! Disclosure Schedule"), Avant! and Merger Sub jointly and
severally represent and warrant to TMAI as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Avant! and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of Avant! and Merger Sub has the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on Avant!.
Avant! has delivered a true and correct copy of the Certificate of Incorporation
and Bylaws or other charter documents, as applicable, of Avant! and each of its
subsidiaries, each as amended to date, to TMAI. Neither Avant! nor Merger Sub is
in violation of any of the provisions of its Certificate or Articles of
Incorporation or Bylaws or equivalent organizational documents. Avant! is the
owner of all outstanding shares of capital stock of Merger Sub and all such
shares are duly authorized, validly issued, fully paid and nonassessable. All of
the outstanding shares of capital stock of Merger Sub are owned by Avant! free
and clear of all liens, charges, claims or encumbrances or rights of others.
Merger Sub was formed on September 5, 1997 for the purpose of consummating this
Merger and has no material assets or liabilities and will conduct no business
except as is necessary for such purpose.
3.2 CAPITAL STRUCTURE. The authorized capital stock of Avant! consists of
75,000,000 shares of Common Stock, $.0001 par value, and 5,000,000 shares of
Preferred Stock, $.0001 par value, of which there were issued and outstanding as
of the close of business on August 31, 1997, 25,926,728 shares of Avant! Common
Stock and no shares of Preferred Stock. There are no other outstanding shares of
capital stock or voting securities of Avant! and no outstanding commitments to
issue any shares of capital stock or voting securities of Avant! after August
31, 1997, other than shares of Avant! Common Stock issued after August 31, 1997
upon the exercise of options under the Avant! 1995 Stock Option/Stock Issuance
Plan, the Integrated Silicon Systems, Inc. stock option plans, the
Meta-Software, Inc. stock option plans, the NexSyn, Inc. stock option plans, the
FrontLine Design Automation, Inc. stock option plans and the Anagram, Inc. stock
option plans (the "Avant! Stock Option Plans"). The authorized capital stock of
Merger Sub consists of 1,000 shares of Common Stock, no par value, all of which
are issued and outstanding and are held by Avant!. All outstanding shares of
Avant! and Merger Sub have been duly authorized, validly issued, fully paid and
are nonassessable and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof and are not subject
to preemptive rights or rights of first refusal created by statute, the
Certificate of Incorporation or Bylaws of Avant! or any agreement to which
Avant! is a party or by which it is bound. As of August 31, 1997, Avant! had
reserved 4,537,209 shares of Avant! Common Stock for issuance to employees,
directors and independent contractors pursuant to the Avant! Stock Option Plans,
of which approximately 21,861 shares have been issued pursuant to option
exercises, and approximately 1,697,089 shares are subject to outstanding,
unexercised options. Other than this Agreement and the Agreement and Plan of
Reorganization dated as of July 31, 1997 and as amended on August 27, 1997 among
Avant!, GB Acquisition Corporation, Compass Design Automation, Inc., and VLSI
Technology, Inc. (the "Compass Agreement"), there are no other options,
warrants, calls, rights, commitments or agreements of any character to which
Avant! or Merger Sub is a party or by which either of them is bound obligating
Avant! or Merger Sub to issue, deliver, sell, repurchase or redeem, or cause to
be issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Avant! or Merger Sub or obligating Avant! or Merger Sub to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement. The shares of Avant! Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid, and non-assessable, will
not be subject to any preemptive or other statutory right of stockholder, will
be issued in compliance with applicable U.S. Federal and State securities laws
and will be free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. Except for the
Registration Rights Agreement dated November 27, 1996, by and among Avant! and
Badruddin Agarwala, on behalf of the shareholders and the holders of warrants of
FrontLine Design Automation, Inc., there are no contracts, commitments or
agreements relating to voting, registration,
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purchase or sale of Avant!'s capital stock (i) between or among Avant! and any
of its stockholders or (ii) to the best of Avant!'s knowledge, between or among
any of Avant!'s stockholders.
3.3 AUTHORITY. Each of Avant! and Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of each of Avant! and
Merger Sub, subject only to the approval of the issuance of shares of Avant!
Common Stock in the Merger by the stockholders of Avant!. This Agreement has
been duly executed and delivered by each of Avant! and Merger Sub and
constitutes the valid and binding obligations of each of Avant! and Merger Sub,
enforceable against each in accordance with its terms. The Boards of Directors
of Avant! and Merger Sub have unanimously approved this Agreement and the
transactions contemplated hereby. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under (i) any provision of the Certificate of Incorporation or Bylaws of Avant!
or any of its subsidiaries, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Avant! or any of its subsidiaries or their properties or assets,
except where such conflict, violation, default, termination, cancellation or
acceleration with respect to the foregoing provisions of (ii) would not have had
and would not reasonably be expected to have a Material Adverse Effect on
Avant!. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Avant! or any of its subsidiaries in connection with the execution
and delivery of this Agreement by Avant! and Merger Sub or the consummation by
each of Avant! and Merger Sub of the transactions contemplated hereby, except
for (i) the filing of the Agreement of Merger as provided in Section 1.2, (ii)
the filing with the SEC and NASD of the Registration Statement, (iii) the filing
of a Form 8-K with the SEC and NASD within fifteen (15) days after the Closing
Date, (iv) any filings as may be required under applicable state securities laws
and the securities laws of any foreign country, (v) the filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares, in each
case with respect to the shares of Avant! Common Stock issuable upon conversion
of the TMAI Common Stock in the Merger and upon exercise of the options,
subscriptions or other awards, as the case may be, under the TMAI Stock Plans
and the TMAI ESPP to be assumed by Avant!, (vi) filings required to be made by
each of Avant! and TMAI under the HSR Act (as defined in Section 5.21 below);
(vii) the filing of a registration statement on Form S-8 covering the Avant!
Common Stock issuable pursuant to outstanding options under the TMAI Stock Plans
and TMAI ESPP; and (viii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Avant! or would not prevent or materially alter or
delay any of the transactions contemplated by this Agreement.
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. Avant! has furnished to TMAI a
true and complete copy of each statement, report, registration statement (with
the prospectus in the form filed pursuant to Rule 424(b) of the Securities Act),
definitive proxy statement, and other filings filed with the SEC by Avant! since
June 6, 1995, and, prior to the Effective Time, Avant! will have furnished TMAI
with true and complete copies of any additional documents filed with the SEC by
Avant! prior to the Effective Time (collectively, the "Avant! SEC Documents").
In addition, Avant! has made available to TMAI all exhibits to the Avant! SEC
Documents filed prior to the date hereof, and will promptly make available to
TMAI all exhibits to any additional Avant! SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the TMAI SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired or have been
terminated in accordance with their terms, and neither Avant! nor any of its
subsidiaries is in material default thereunder. As of their respective filing
dates, or, with respect to registration statements as of their effective dates,
the Avant! SEC Documents complied in all material respects with the requirements
of the
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Exchange Act and the Securities Act, and none of the Avant! SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected, superseded or modified by a subsequently filed
Avant! SEC Document. The financial statements of Avant!, including the notes
thereto, included in the Avant! SEC Documents (the "Avant! Financial
Statements") complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Avant! Financial Statements fairly present the consolidated
financial condition and operating results of Avant! and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). There has been
no change in Avant! accounting policies except as described in the notes to the
Avant! Financial Statements.
3.5 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Avant! SEC
Documents, since June 30, 1997 (the "Avant! Balance Sheet Date"), Avant! has
conducted its business in the ordinary course consistent with past practice and
there has not occurred: (i) any change, event or condition (whether or not
covered by insurance) that has resulted in a Material Adverse Effect on Avant!;
(ii) any acquisition, sale or transfer of any material asset of Avant! or any of
its subsidiaries other than in the ordinary course of business and consistent
with past practice; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Avant! or any revaluation by Avant! of any of its assets; (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Avant!, or any direct or indirect redemption, purchase or other
acquisition by Avant! of any of its shares of capital stock; (v) any material
contract entered into by Avant!, other than the Compass Agreement or in the
ordinary course of business and as provided to TMAI, or any material amendment
or termination of, or default under, any material contract to which Avant! is a
party or by which it is bound; (vi) any action by Avant! or, to Avant!'s
knowledge, any affiliate of Avant! which might reasonably be expected to
preclude the ability of Avant! to account for the business combination to be
effected by the Merger as a "pooling of interests" under generally accepted
accounting principles; or (vii) any negotiation or agreement by Avant! or any of
its subsidiaries to do any of the things described in the preceding clauses (i)
through (viii) (other than negotiations with TMAI and its representatives
regarding the transactions contemplated by this Agreement).
3.6 LITIGATION. There is no action, suit, proceeding, arbitration or
investigation pending or, to the knowledge of Avant!, threatened in writing
against Avant! that in any manner challenges or seeks to prevent, enjoin, alter
or delay any of the transactions contemplated hereby. Except as set forth in the
Avant! SEC Documents, Avant! is not aware of any other pending or threatened
action, suit, proceeding, investigation or claim, or any reasonable basis
therefor, that individually or in the aggregate would reasonably be expected to
have a Material Adverse Effect on Avant!. From the date of this Agreement until
the Effective Time, Avant! shall promptly advise TMAI of any such action, suit,
proceeding, claim, arbitration or investigation that is commenced, or, to the
knowledge of Avant!, threatened in writing against Avant! or any of its
subsidiaries. As of the date hereof, there is no judgment, decree or order
against Avant! or any of its subsidiaries, or, to the knowledge of Avant!, any
of their respective directors or officers (in their capacities as such), that
could prevent, enjoin, alter or materially delay any of the transactions by this
Agreement or that could reasonably be expected to have a Material Adverse Effect
on Avant!.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Avant! has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the Balance Sheet
included in Avant!'s Quarterly Report on Form 10-Q for the period ended June 30,
1997
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(the "Avant! Balance Sheet"); (ii) those incurred in the ordinary course of
business and not required to be set forth in the Avant! Balance Sheet under
generally accepted accounting principles; (iii) those incurred in the ordinary
course of business since the Avant! Balance Sheet Date and consistent with past
practice; and (iv) those incurred in connection with the execution of this
Agreement and the Compass Agreement and the transactions contemplated hereby or
thereby.
3.8 TAXES. Avant! and each of its subsidiaries, and each member of any
consolidated, combined or unitary group for Tax purposes of which Avant! or any
of its subsidiaries is or has been a member have timely filed all Tax Returns
required to be filed by them and have paid all Taxes shown thereon to be due.
The Avant! Financial Statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through June 30, 1997 and
Avant! and each of its subsidiaries have not and will not incur any Tax
liability in excess of the amount reflected on the Avant! Financial Statements
with respect to such periods, and (ii) properly accrue in accordance with
generally accepted accounting principles all liabilities for Taxes payable after
June 30, 1997 with respect to all transactions and events occurring on or prior
to such date. No material Tax liability since June 30, 1997 has been incurred by
Avant! or its subsidiaries other than in the ordinary course of business and
adequate provision has been made in the Avant! Financial Statements for all
Taxes since that date in accordance with generally accepted accounting
principles on at least a quarterly basis. Avant! and each of its subsidiaries
have withheld and paid or will timely pay to the applicable financial
institution or Tax Authority all amounts required to be withheld. No notice of
deficiency or similar document of any Tax Authority has been received by either
Avant! or any of its subsidiaries, and there are no liabilities for Taxes with
respect to the issues that have been raised (and are currently pending) by any
Tax Authority that could, if determined adversely to Avant! and its
subsidiaries, materially and adversely affect the liability of Avant! and its
subsidiaries for Taxes. There (i) is no material claim for Taxes that is a lien
against the property of Avant! or any of its subsidiaries other than liens for
Taxes not yet due and payable, (ii) has been no notification received by Avant!
of any audit of any Tax Return of Avant! or any of its subsidiaries being
conducted, pending or threatened by a Tax Authority, (iii) is no extension or
waiver of the statute of limitations on the assessment of any Taxes granted by
Avant! or any of its subsidiaries that is currently in effect, and (iv) is no
agreement, contract or arrangement to which Avant! or any of its subsidiaries is
a party that may result in the payment of any material amount that would not be
deductible by reason of Sections 280G or 404 of the Code. Avant! will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger. Neither
Avant! nor any of its subsidiaries is a party to any Tax sharing or Tax
allocation agreement nor does Avant! or any of its subsidiaries owe any amount
under any such agreement. Avant! and each of its subsidiaries are in full
compliance with all terms and conditions of any Tax exemptions or other
Tax-sharing agreement or order of a foreign government applicable to them and
the consummation of the Merger shall not have any adverse effect on the
continued validity and effectiveness of any such Tax exemptions or other
Tax-sharing agreement or order.
3.9 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The written
information supplied by Avant! and Merger Sub expressly for the purpose of
inclusion in the Registration Statement shall not, at the time the Registration
Statement (including any amendments or supplements thereto) is declared
effective by the SEC, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
written information supplied by Avant! expressly for the purpose of inclusion in
the Proxy Statement shall not, on the date the Proxy Statement is first mailed
to TMAI's shareholders, at the time of TMAI's Shareholders Meeting and at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which it is made, not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for TMAI's Shareholders Meeting which has
become false or
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misleading. If at any time prior to the Effective Time any event or information
should be discovered by Avant! or Merger Sub which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
Avant! or Merger Sub will promptly inform TMAI. Notwithstanding the foregoing,
Avant! and Merger Sub make no representation, warranty or covenant with respect
to any information supplied by TMAI which is contained in any of the foregoing
documents.
3.10 INTELLECTUAL PROPERTY. Avant! and/or its subsidiaries own, or
otherwise possess legally enforceable rights to use all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
maskworks, net lists, schematics, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications (in source code and/or object code form), and tangible or
intangible proprietary information or material that are used in the business of
Avant! and its subsidiaries as currently conducted (including with respect to
products currently under development), except to the extent that the failure to
have such rights has not had a Material Adverse Effect on Avant! excluding the
results and expense as of the date of this Agreement of any litigation or other
court proceedings.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF TMAI. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, TMAI agrees (except to the extent expressly contemplated
by this Agreement or the Disclosure Schedules or as consented to in writing by
Avant!) to carry on its and its subsidiaries' business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted; to pay
and to cause its subsidiaries to pay debts and Taxes when due subject (i) to
good faith disputes over such debts or Taxes and (ii) in the case of Taxes of
TMAI or any of its subsidiaries, to Avant!'s consent to the filing of material
Tax Returns, if applicable; to pay or perform other obligations when due; to use
all reasonable efforts consistent with past practice and policies to preserve
intact its and its subsidiaries' present business organizations; to use its
reasonable best efforts consistent with past practice to keep available the
services of its and its subsidiaries' present officers and key employees; and to
use its commercially reasonable efforts consistent with past practice to
preserve its and its subsidiaries' relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it
or its subsidiaries, to the end that its and its subsidiaries' goodwill and
ongoing businesses shall be unimpaired at the Effective Time. TMAI agrees to
promptly notify Avant! of any event or occurrence not in the ordinary course of
its or its subsidiaries' business, and of any event which could have a Material
Adverse Effect. Without limiting the foregoing, except as expressly contemplated
by this Agreement, TMAI shall not take, or agree in writing or otherwise to
take, any action which would make any of its representations or warranties
contained in this Agreement untrue or incorrect in any material respect or
prevent it from performing or cause it not to perform its covenants hereunder in
any material respect.
4.2 COVENANTS OF TMAI. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, except as expressly contemplated by this Agreement or the TMAI
Disclosure Schedule, TMAI shall not do, cause or permit any of the following, or
allow, cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of Avant!, which shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, Avant!'s
consent shall be deemed given if the matter is discussed in advance with John P.
Huyett, and he has received any additional information requested and, after such
discussion and receipt of any additional requested information, he shall not
have objected to the taking of the proposed action.
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(a) MATERIAL CONTRACTS. Enter into any material contract or commitment, or
violate, amend or otherwise modify or waive any of the material terms of any of
its material contracts, other than in the ordinary course of business consistent
with past practice;
(b) INTELLECTUAL PROPERTY. Transfer to any person or entity any rights to
its Intellectual Property other than in the ordinary course of business
consistent with past practice;
(c) EXCLUSIVE RIGHTS. Enter into or amend any agreements pursuant to which
any other party is granted exclusive marketing or other exclusive rights of any
type or scope with respect to any of its products or technology;
(d) INDEBTEDNESS. 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, other than in the ordinary course of business and
consistent with past practice, which in the aggregate do not exceed $100,000;
(e) LEASES. Enter into any operating lease in excess of an aggregate of
$100,000;
(f) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in an amount in
excess of $100,000 in any one case or $250,000 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 TMAI Financial Statements;
(g) CAPITAL EXPENDITURES. Make any capital expenditures, capital additions
or capital improvements over $100,000 except in the ordinary course of business
and consistent with past practice;
(h) INSURANCE. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(i) EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES. Adopt or amend any
employee benefit or stock purchase or option plan, accept any new or additional
subscriptions under the TMAI ESPP, or hire any officer level employee without
prior consultation with Avant!, pay any special bonus or special remuneration to
any employee or director, or increase the salaries or wage rates of its
employees, except in the ordinary course of business and consistent with past
practices or as previously disclosed to Avant!;
(j) SEVERANCE ARRANGEMENTS. Grant any severance or termination pay (i) to
any director or officer or (ii) to any other employee except (A) payments made
pursuant to standard written agreements outstanding on the date hereof or (B)
grants which are made in the ordinary course of business in accordance with its
standard past practice;
(k) CHARTER DOCUMENTS. Cause or permit any amendments to its Articles of
Incorporation or Bylaws or other similar organizational document;
(l) ISSUANCE OF SECURITIES. Issue, deliver or sell or authorize or propose
the issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of its capital stock or securities convertible into, or subscriptions
(including subscription rights under the TMAI ESPP), rights, warrants or options
to acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than the issuance
of shares of its Common Stock pursuant to the exercise of stock options,
warrants or other rights therefor permitted under this Agreement; provided,
however, that TMAI may, in the ordinary course of business consistent with past
practice, grant (A) options for the purchase of up to an aggregate of 40,000
shares of common stock under the TMAI Stock Plans to existing employees and (B)
options for the purchase of common stock under the TMAI Stock Plans to new
employees; provided, however, that TMAI may not grant an individual options to
purchase an aggregate of more than 10,000 shares of common stock pursuant to
this subsection (l) of Section 4.2.
(m) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any dividends on
or make any other distributions (whether in cash, stock or property) in respect
of any of its capital stock, or split, combine or
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reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(n) STOCK OPTION PLANS, ETC. Accelerate, amend or change the period of
exercisability or vesting of options or other rights granted under its stock
option agreements or stock plans or authorize cash payments in exchange for any
options or other rights granted under any of such agreements or plans, except as
disclosed in the TMAI Disclosure Schedule;
(o) POOLING. To the knowledge of TMAI, take any action, that would
interfere with Avant!'s ability to account for the Merger as a pooling of
interests;
(p) DISPOSITIONS. Sell, lease, license or otherwise dispose of or encumber
any of its properties or assets which are material, individually or in the
aggregate, to its and its subsidiaries' business, taken as a whole, except in
the ordinary course of business consistent with past practice;
(q) LAWSUITS. Commence a lawsuit other than (i) for the routine collection
of bills, (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
its business, provided that it consults with Avant! prior to the filing of such
a suit, or (iii) for a breach of this Agreement;
(r) ACQUISITIONS. Acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to its
and its subsidiaries' business, taken as a whole;
(s) TAXES. Other than as set forth in the TMAI Disclosure Schedule, or in
the ordinary course of business, make or change any material election in respect
of Taxes, except where such change or election would not have a Material Adverse
Effect on TMAI and its subsidiaries, taken as a whole, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes;
(t) REVALUATION. Revalue in any material respect 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
(u) OTHER. Take or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through (t) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
4.3 NOTICES. TMAI, with the assistance and advice of Avant!, shall give
all notices and other information required to be given to the employees of TMAI,
any collective bargaining unit representing any group of employees of TMAI, and
any applicable government authority under the WARN Act, the National Labor
Relations Act, the Code, COBRA, and other applicable law in connection with the
transactions provided for in this Agreement.
4.4 OTHER OFFERS. (a) TMAI and its subsidiaries and the officers,
directors, employees or other agents of TMAI and its subsidiaries will not,
directly or indirectly, (i) take any action to solicit, initiate or encourage
any Takeover Proposal (defined below) or (ii) engage in negotiations with, or
disclose any nonpublic information relating to TMAI or any of it subsidiaries
to, or afford access to the properties,
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books or records of TMAI or any of its subsidiaries to, any person that has
advised TMAI that it may be considering making, or that has made, a Takeover
Proposal; provided, however, that nothing herein shall prohibit TMAI's Board of
Directors from taking and disclosing to TMAI's shareholders a position with
respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under
the Exchange Act. TMAI will promptly notify Avant! after receipt of any Takeover
Proposal or any notice that any person is considering making a Takeover Proposal
or any request for nonpublic information relating to TMAI or any of its
subsidiaries or for access to the properties, books or records of TMAI or any of
its subsidiaries by any person that has advised TMAI that it may be considering
making, or that has made, a Takeover Proposal and will keep Avant! fully
informed of the status and details of any such Takeover Proposal notice or
request. For purposes of this Agreement, "Takeover Proposal" means any offer or
proposal for, or any indication of interest in, a merger or other business
combination involving TMAI or any of its subsidiaries or the acquisition of any
significant equity interest in, or a significant portion of the assets of, TMAI
or any of its subsidiaries, other than the transactions contemplated by this
Agreement.
(b) Notwithstanding the provisions of paragraph (a) above, prior to the
Effective Time, TMAI may, to the extent the Board of Directors of TMAI
determines, in good faith, based upon and consistent with advice received in
consultation with outside legal counsel, that the Board's fiduciary duties under
applicable law require it to do so, participate in discussions or negotiations
with, and, subject to the requirements of paragraph (c), below, furnish
information to any person, entity or group after such person, entity or group
has delivered to TMAI in writing, an unsolicited bona fide Acquisition Proposal
which the Board of Directors of TMAI in its good faith reasonable judgment
determines, based upon and consistent with advice received in consultation with
its independent legal and financial advisors, would result in a transaction more
favorable than the Merger to the shareholders of TMAI from a financial point of
view (a "TMAI Alternative Proposal"). In addition, notwithstanding the
provisions of paragraph (a) above, in connection with a possible Acquisition
Proposal, TMAI may refer any third party to this Section 4.4 or make a copy of
this Section 4.4 available to a third party. In the event TMAI receives a TMAI
Alternative Proposal, nothing contained in this Agreement (but subject to the
terms hereof) will prevent the Board of Directors of TMAI from recommending such
TMAI Alternative Proposal to its Shareholders, if the Board determines, in good
faith, based upon and consistent with advice received in consultation with
outside legal counsel, that such action is required by its fiduciary duties
under applicable law. In such case, the Board of Directors of TMAI may withdraw,
modify or refrain from making its recommendation set forth in Section 5.1, and,
to the extent it does so, TMAI may refrain from soliciting proxies to secure the
vote of its shareholders as may be required by Section 5.2(a); PROVIDED,
HOWEVER, that TMAI shall (i) provide at least 48 hours prior notice to Avant! of
any TMAI Board meeting at which it is reasonably expected to contemplate an
Alternative Proposal, and (ii) not recommend to its shareholders a TMAI
Alternative Proposal for a period of not less than five (5) business days after
Avant!'s receipt of a copy of such TMAI Alternative Proposal (or a description
of the significant terms and conditions thereof, if not in writing); and
PROVIDED, FURTHER, that nothing contained in this Section 4.4 shall limit TMAI's
obligation to hold and convene the TMAI Shareholders' Meeting (regardless of
whether the recommendation of the Board of Directors of TMAI shall have been
withdrawn, modified or not yet made) or to provide the TMAI shareholders with
material information relating to such a meeting.
(c) Notwithstanding anything to the contrary in this Section 4.4, TMAI will
not provide any non-public information to a third party unless: (i) TMAI
provides such non-public information pursuant to a nondisclosure agreement with
terms regarding the protection of confidential information at least as
restrictive as such terms in the Confidentiality Agreement; (ii) such non-public
information has been previously delivered to Avant!; and (iii) TMAI advises
Avant! in writing of such disclosure, including the party to whom disclosed.
4.5 AVANT! OFFERS Avant! will not acquire or agree to acquire any direct
competitor of TMAI if such acquisition would have reasonable likelihood of
preventing or delaying the Merger.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As promptly as
practicable after the execution of this Agreement, TMAI and Avant! shall prepare
and file with the SEC preliminary proxy materials relating to the approval of
the Merger and the transactions contemplated hereby by the shareholders of TMAI
and Avant! and, as promptly as practicable following receipt of SEC comments
thereon, Avant! shall file with the SEC a Registration Statement on Form S-4 (or
such other or successor form as shall be appropriate), which complies in form
with applicable SEC requirements and shall use all reasonable efforts to cause
the Registration Statement to become effective as soon thereafter as
practicable; provided, however, that Avant! shall have no obligation to agree to
account for the Merger as a "purchase" in order to cause the Registration
Statement to become effective. Subject to the provisions of Section 4.4, the
Proxy Statement shall include the recommendation of the Board of Directors of
TMAI in favor of the Merger.
5.2 MEETING OF SHAREHOLDERS.
(a) TMAI shall promptly after the date hereof take all action necessary in
accordance with California Law and its Articles of Incorporation and Bylaws to
convene the TMAI Shareholders Meeting on or prior to November 30, 1997 or as
soon thereafter as is practicable and in any event on the date within forty (40)
days of the date on which the Registration Statement shall be declared effective
by the SEC, unless otherwise mutually agreed by the parties hereto. TMAI shall
consult with Avant! and use all reasonable efforts to hold the TMAI Shareholders
Meeting and shall not postpone or adjourn (other than for the absence of a
quorum) the TMAI Shareholders Meeting without the consent of Avant!. Subject to
the provisions of Section 5.1 above, TMAI shall use its reasonable best efforts
to solicit from shareholders of TMAI proxies in favor of the Merger and shall
take all other action necessary or advisable to secure the vote or consent of
shareholders required to effect the Merger.
(b) Avant! shall promptly after the date hereof take all action necessary in
accordance with Delaware Law and its Certificate of Incorporation and Bylaws to
convene the Avant! Stockholders Meeting on or prior to November 30, 1997 or as
soon thereafter as is practicable and in any event on the date within forty (40)
days of the date on which the Registration Statement shall be declared effective
by the SEC, unless otherwise mutually agreed by the parties hereto. Avant! shall
consult with TMAI and use all reasonable best efforts to hold the Avant!
Stockholders Meeting on the same day as the TMAI Shareholders Meeting and shall
not postpone or adjourn (other than for the absence of a quorum) the Avant!
Stockholders meeting without the consent of TMAI. Avant! shall use its best
efforts to solicit from stockholders of Avant! proxies in favor of the Merger
and shall take all other action necessary or advisable to secure the vote or
consent of stockholders to effect the Merger.
5.3 ACCESS TO INFORMATION.
(a) TMAI shall afford Avant! and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of TMAI's and its subsidiaries'
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and personnel of TMAI and its
subsidiaries as Avant! may reasonably request. TMAI agrees to provide to Avant!
and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request. Avant! shall afford TMAI and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (i) all of
Avant!'s and its subsidiaries' properties, books, contracts, commitments and
records, and (ii) all other information concerning the business, properties and
personnel of Avant! and its subsidiaries as TMAI may reasonably request. Avant!
agrees to provide to TMAI and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request.
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(b) Subject to compliance with applicable law governing the exchange of
information, from the date hereof until the Effective Time, each of Avant! and
TMAI shall confer on a regular and frequent basis with one or more
representatives of the other party to report material operational matters and
the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation pursuant to
this Section 5.3 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.4 CONFIDENTIALITY. The parties acknowledge that Avant! and TMAI have
previously executed a non-disclosure agreement dated September 4, 1997 (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms.
5.5 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Avant! and TMAI shall consult with each other before issuing any press release
or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD. The parties have agreed to the text of the joint press release
announcing the signing of this Agreement.
5.6 CONSENTS; COOPERATION.
(a) Each of Avant! and TMAI shall promptly apply for or otherwise seek, and
use its reasonable best efforts to obtain, all consents and approvals required
to be obtained by it for the consummation of the Merger, and shall use its
reasonable best efforts to obtain all necessary consents, waivers and approvals
under any of its material contracts in connection with the Merger for the
assignment thereof or otherwise. Subject to compliance with applicable law
governing the exchange of information, the parties hereto will consult and
cooperate with one another, and consider in good faith the views of one another,
in connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to any federal or state
antitrust or fair trade law.
(b) Each of Avant! and TMAI shall use all reasonable efforts to resolve such
objections, if any, as may be asserted by any Governmental Entity with respect
to the transactions contemplated by this Agreement under the Sherman Act, as
amended, the Clayton Act, as amended, the Federal Trade Commission Act, as
amended, and any other Federal, state or foreign statutes, rules, regulations,
orders or decrees that are designed to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade
(collectively, "Antitrust Laws"). In connection therewith, if any administrative
or judicial action or proceeding is instituted (or threatened to be instituted)
challenging any transaction contemplated by this Agreement as violative of any
Antitrust Law, each of Avant! and TMAI shall cooperate and use all reasonable
efforts vigorously to contest and resist any such action or proceeding and to
have vacated, lifted, reversed, or overturned any decree, judgment, injunction
or other order, whether temporary, preliminary or permanent (each an "Order"),
that is in effect and that prohibits, prevents, or restricts consummation of the
Merger or any such other transactions, unless by mutual agreement Avant! and
TMAI decide that litigation is not in their respective best interests.
Notwithstanding the provisions of the immediately preceding sentence, it is
expressly understood and agreed that neither TMAI nor Avant! shall have any
obligation to litigate or contest any administrative or judicial action or
proceeding or any Order beyond January 31, 1998.
(c) Notwithstanding anything to the contrary in subsection (a) or (b) above,
(i) neither Avant! nor any of it subsidiaries shall be required to divest any of
their respective businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation that could reasonably be
expected to
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have a Material Adverse Effect on Avant! or of Avant! combined with the
Surviving Corporation after the Effective Time or (ii) neither TMAI nor its
subsidiaries shall be required to divest any of their respective businesses,
product lines or assets, or to take or agree to take any other action or agree
to any limitation that could reasonably be expected to have a Material Adverse
Effect on TMAI.
5.7 POOLING ACCOUNTING. Avant! and TMAI shall each use its best efforts to
cause the business combination to be effected by the Merger to be accounted for
as a pooling of interests and to take such action as may be reasonably necessary
to permit such treatment. Each of Avant! and TMAI shall use its best efforts to
cause its "Affiliates" (as defined in Section 5.8) not to take any action that
would adversely affect the ability of Avant! to account for the business
combination to be effected by the Merger as a pooling of interest.
5.8 AFFILIATES AGREEMENTS.
(a) Section 5.8(a) of the TMAI Disclosure Schedule sets forth those persons
who may be deemed "Affiliates" of TMAI within the meaning of paragraphs (c) and
(d) of Rule 145 promulgated under the Securities Act ("Rule 145"). TMAI shall
provide Avant! such information and documents as Avant! shall reasonably request
for purposes of reviewing such list. TMAI shall use its best efforts to deliver
or cause to be delivered to Avant!, as soon as practicable following the
execution of this Agreement (and in each case prior to the Effective Time) from
each of the Affiliates of TMAI, an executed Affiliates Agreement in
substantially the form attached hereto as EXHIBIT A-1. Avant! shall be entitled
to place appropriate legends on the certificates evidencing any Avant! Common
Stock to be received by such Affiliates of TMAI pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for Avant! Common Stock, consistent with the terms of such Affiliates
Agreements.
(b) Section 5.8(b) of the Avant! Disclosure Schedule sets forth each person
Avant! believes to be an "Affiliate" of Avant! within the meaning of paragraphs
(c) and (d) of Rule 145. Avant! will use its reasonable best efforts to deliver
or cause to be delivered to TMAI, as soon as practicable following the execution
of this Agreement (and in each case prior to the Effective Time) from each of
the Affiliates of Avant!, an executed Affiliates Agreement in substantially the
form attached hereto as EXHIBIT A-2.
5.9 FIRPTA. TMAI shall, prior to the Closing Date, provide Avant! with a
properly executed Foreign Investment and Real Property Tax Act of 1980
("FIRPTA") Notification Letter, in form and substance reasonably satisfactory to
Avant!, which states that shares of capital stock of TMAI do not constitute
"United States real property interests" under Section 897(c) of the Code, for
purposes of satisfying Avant!'s obligations under Treasury Regulation Section
1.1445-2(c)(3). In addition, simultaneously with delivery of such Notification
Letter, TMAI shall provide to Avant!, as agent for TMAI, a form of notice to the
Internal Revenue Service in accordance with the requirements of Treasury
Regulation Section 1.897-2(h)(2), which shall be in form and substance
reasonably satisfactory to Avant!, along with written authorization for Avant!
to deliver such notice form to the Internal Revenue Service on behalf of TMAI
upon the Closing of the Merger.
5.10 CONTINUITY OF INTEREST CERTIFICATES. TMAI shall use its best efforts
to deliver or cause to be delivered to Avant!, as of the Effective Time, from
holders of the outstanding capital stock of TMAI specified on Section 5.10 of
the TMAI Disclosure Schedule executed Continuity of Interest Certificates in the
form attached hereto as EXHIBIT C.
5.11 LEGAL REQUIREMENTS. Each of Avant!, Merger Sub and TMAI will, and
will cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon such
other party in connection with the consummation of the transactions contemplated
by this Agreement and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval,
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order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.12 BLUE SKY LAWS. Avant! shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Avant! Common Stock in connection with the
Merger. TMAI shall use its reasonable best efforts to assist Avant! as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Avant! Common Stock in
connection with the Merger.
5.13 EMPLOYEE BENEFIT PLANS.
(a) On or before the Effective Time, TMAI shall cause all options
outstanding under the Directors Plan to terminate as provided in the Directors
Plan. At the Effective Time, the TMAI Stock Plans and each outstanding option to
purchase shares of TMAI Common Stock under the TMAI Stock Plans, whether vested
or unvested, will be assumed by Avant!. Section 5.13(a) of the TMAI Disclosure
Schedule sets forth a true and complete list as of the date hereof of all
holders of outstanding options under the TMAI Stock Plans, including the number
of shares of TMAI capital stock subject to each such option, the exercise or
vesting schedule, the exercise price per share and the grant and expiration
dates of each such option. On the Closing Date, TMAI shall deliver to Avant! an
updated Section 5.13(a) of the TMAI Disclosure Schedule current as of such date.
Each such option so assumed by Avant! under this Agreement shall continue to
have, and be subject to, the same terms and conditions set forth in each of the
TMAI Stock Plans immediately prior to the Effective Time, except that (i) such
option will be exercisable for that number of whole shares of Avant! Common
Stock equal to the product of the number of shares of TMAI Common Stock that
were issuable upon exercise of such option immediately prior to the Effective
Time multiplied by the Exchange Ratio and rounded down to the nearest whole
number of shares of Avant! Common Stock, and (ii) the per share exercise price
for the shares of Avant! Common Stock issuable upon exercise of such assumed
option will be equal to the quotient determined by dividing the exercise price
per share of TMAI Common Stock at which such option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent. Consistent with the terms of the TMAI Stock Plans and the documents
governing the outstanding options under those plans and except as set forth in
the TMAI Disclosure Schedule, the Merger will not terminate or otherwise result
in the cash-out of any of the outstanding options under such plans or accelerate
the exercisability or vesting of such options or the shares of Avant! Common
Stock which will be subject to those options solely as a result of the
consummation of the Merger and Avant!'s assumption of the options in connection
therewith. Avant! shall take all necessary steps to ensure that the options so
assumed by Avant! qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent such options
qualified as incentive stock options prior to the Effective Time. Within ten
(10) business days after the Effective Time, Avant! will issue to each person
who, immediately prior to the Effective Time was a holder of an outstanding
option under any of the TMAI Stock Plans, a document in form and substance
reasonably satisfactory to TMAI evidencing the foregoing assumption of such
option by Avant!. Avant! will take all corporate and other action necessary to
reserve a sufficient number of shares of Avant! Common Stock for issuance upon
the exercise of the options assumed by Avant! pursuant to this subsection (a)
and upon the exercise of TMAI Purchase Rights pursuant to subsection (b) below.
(b) The TMAI ESPP and each outstanding subscription to purchase shares of
TMAI Common Stock thereunder (a "TMAI Purchase Right") shall be assumed by
Avant! at the Effective Time of the Merger. Section 5.13(b) of the TMAI
Disclosure Schedule sets forth a true and complete list as of the date hereof of
all holders of outstanding TMAI Purchase Rights, including the maximum number of
shares of TMAI Common Stock purchasable under each such right, the outstanding
balance in each TMAI ESPP participant's subscription account thereunder, the
fair market value per share of TMAI Common Stock on the date the TMAI Purchase
Right was granted, and the expiration date of such right. On the Closing Date,
TMAI shall deliver to Avant! an updated Section 5.13(b) of the TMAI Disclosure
Schedule current
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as of such date. The TMAI Purchase Rights so assumed by Avant! shall continue to
be exercisable upon the same terms and conditions applicable to those rights
immediately prior to the Effective Time in accordance with the terms of the TMAI
ESPP, except that each such assumed TMAI Purchase Right will be exercisable for
shares of Avant! Common Stock and the purchase price payable per share of Avant!
Common Stock under the assumed right will be equal to eighty-five percent (85%)
of the lower of (i) the fair market value per share of the TMAI Common Stock on
the date the TMAI Purchase Right was granted, divided by the Exchange Ratio and
rounded up to the nearest whole cent, or (ii) the fair market value per share of
Avant! Common Stock on the date such right is exercised. Within ten (10)
business days after the Effective Time, Avant! will issue to each person who,
immediately prior to the Effective Time was a holder of an outstanding TMAI
Purchase Right, a document in form and substance reasonably satisfactory to TMAI
evidencing the foregoing assumption of such TMAI Purchase Right by Avant!. No
additional TMAI Purchase Rights shall be granted after the Effective Time, and
Avant! shall not be obligated to continue the TMAI ESPP after each TMAI Purchase
Right has been exercised.
(c) Avant! shall take such reasonable actions as are necessary to allow
eligible employees of TMAI to participate in the benefit programs of Avant!, or
alternative benefits programs in the aggregate substantially comparable to those
applicable to employees of Avant! on similar terms, as soon as practicable after
the Effective Time of the Merger. For purposes of satisfying the terms and
conditions of such programs, to the extent permitted by Avant!'s benefit
programs, Avant! shall use reasonable efforts to give full credit for
eligibility and vesting for each participant's period of service with TMAI. The
Surviving Corporation will not substitute any employee's health, life or
disability insurance coverage without first obtaining a waiver by the substitute
carrier of any preexisting condition that such employee may have.
(d) Avant! shall issue offer letters to Roy E. Jewell and Jue-Hsien Chern
substantially in the forms attached to the TMAI Disclosure Schedule as EXHIBIT
5.13(d).
(e) On or before the Effective Time, TMAI shall take all necessary actions
to terminate its 401(k) Plan.
5.14 FORM S-8. Avant! agrees to file, no later than ten (10) days after
the Closing, a registration statement on Form S-8 covering the shares of Avant!
Common Stock issuable pursuant to (i) outstanding options under the TMAI Stock
Plans assumed by Avant! and (ii) outstanding TMAI Purchase Rights under the TMAI
ESPP assumed by Avant!. TMAI shall cooperate with and assist Avant! in the
preparation of such registration statement.
5.15 INDEMNIFICATION.
(a) From and after the Effective Time and for a period ending six (6) years
after the Effective Time, Avant! and the Surviving Corporation jointly and
severally shall indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date of this Agreement or who becomes prior to
the Effective Time, an officer, director or employee of TMAI or any of its
subsidiaries (the "Indemnified Parties") in respect of acts or omissions
occurring on or prior to the Effective Time to the extent provided under TMAI's
Articles of Incorporation, Bylaws and indemnification agreements in effect on
the date hereof; provided that such indemnification shall be subject to any
limitation imposed from time to time under applicable law. Without limitation of
the foregoing, in the event any such Indemnified Party is or becomes involved in
any capacity in any action proceeding or investigation in connection with any
matter relating to this Agreement or the transactions contemplated hereby
occurring on or prior to the Effective Time, Avant! and the Surviving
Corporation shall jointly and severally pay as incurred such Indemnified Party's
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith by counsel reasonably acceptable
to such Indemnified Parties. The provisions of this Section 5.15 are intended to
be for the benefit of, and shall be enforceable by, each Indemnified Party, his
or her heirs and representatives.
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(b) If Avant! or the Surviving Corporation or any of their respective
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving person of such consolidation
or merger or (ii) transfers all or substantially all of its properties and
assets to any person or entity, then and in each such case, proper provision
shall be made so that such successors or assigns of Avant! or the Surviving
Corporation, as the case may be, shall assume the obligations set forth in this
Section 5.15.
(c) Avant! shall use good faith efforts to cause to be maintained in effect
for a period of not less than three (3) years subsequent to the Effective Time
the current policies of the directors' and officers' liability insurance
maintained by Avant! and shall use good faith efforts to cause coverage to be
provided to the former directors and officers of TMAI thereunder (provided that
Avant! may substitute therefor policies of at least the same coverage containing
terms and conditions that are not less advantageous to the former directors and
officers of TMAI) with respect to matters occurring prior to the Effective Time.
(d) All agreements in effect at the date hereof pursuant to which TMAI
covenants and agrees in any respect to indemnify or defend any director or
executive officer of TMAI from and against any liability, cost or expense
identified in Section 5.15 of the TMAI Disclosure Schedule are expressly assumed
by Avant! at the Effective Time.
(e) Promptly after the date hereof, Avant! shall enter into indemnification
agreements with directors and officers of TMAI who become directors or officers
of the Surviving Corporation, which agreements shall be substantially identical
to those which Avant! has entered into with its current directors and officers.
5.16 LISTING OF ADDITIONAL SHARES. Prior to the Effective Time, Avant!
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the shares referred to in Section 6.1(f).
5.17 POOLING LETTERS.
(a) TMAI shall use all reasonable efforts to cause to be delivered to TMAI a
letter of Arthur Andersen LLP dated the Effective Date to the effect that the
Merger will qualify for pooling of interests accounting treatment if consummated
in accordance with this Agreement. Such letter shall be in a form reasonably
satisfactory to Avant! and TMAI and shall be customary in scope and substance
for letters delivered by independent public accountants in connection with
transactions of this type.
(b) Avant! shall use all reasonable efforts to cause to be delivered to
Avant! a letter of KPMG Peat Marwick LLP ("KPMG") dated the Effective Date to
the effect that the Merger will qualify for pooling of interests accounting
treatment if consummated in accordance with this Agreement. Such letter shall be
in a form reasonably satisfactory to Avant! and TMAI and shall be customary in
scope and substance for letters delivered by independent public accountants in
connection with transactions of this type.
5.18 BEST EFFORTS AND FURTHER ASSURANCES. Subject to the respective rights
and obligations of TMAI and Avant! under this Agreement, each of the parties to
this Agreement shall use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Subject to the foregoing, each party hereto, at
the reasonable request of another party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
5.19 NOTIFICATION OF CERTAIN MATTERS. TMAI shall give prompt notice to
Avant!, and Avant! shall give prompt notice to TMAI, of (i) 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 such party contained in this
Agreement to be untrue or inaccurate at or prior to the Effective Time and (ii)
any failure of TMAI, Avant! or Merger Sub, as the case may be, to comply with or
satisfy any covenant, condition or agreement
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to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.19 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
5.20 SHAREHOLDER AGREEMENT. TMAI and the Shareholders shall enter into the
Shareholder Agreement at EXHIBIT B concurrent with the execution of this
Agreement.
5.21 HSR ACT FILINGS. If applicable, each of Avant! and TMAI shall
promptly make its respective filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and thereafter shall make
any required submissions under the HSR Act with respect to the Merger, and shall
cooperate with each other with respect to the foregoing. TMAI and Avant! shall
give each other prior notice and consult with each other prior to any meeting
with the United States Federal Trade Commission or Department of Justice with
respect to their respective filings under the HSR Act or any review by either of
the foregoing agencies. Each of Avant! and TMAI shall take all reasonable
actions necessary to cause the expiration of the waiting periods under the HSR
Act as promptly as possible. Neither party shall be required to take any action
pursuant to Articles IV or V that would cause a violation of the HSR Act.
5.22 SCHEDULES. From time to time prior to the Closing Date, each of
Avant! and TMAI will promptly supplement or amend the TMAI or Avant! Disclosure
Schedules, as the case may be, with respect to any matter hereafter arising
that, if existing or occurring at or prior to the date of this Agreement, would
have been required to be set forth or described in the TMAI or Avant! Disclosure
Schedules, as the case may be, or that is necessary to correct any information
in the TMAI or Avant! Disclosure Schedules, as the case may be, or in any
representation and warranty of each of Avant! and TMAI that has been rendered
inaccurate thereby. For purposes of determining the accuracy of the respective
representations and warranties contained in Articles III and IV, and in order to
determine the fulfillment of the conditions set forth in Sections 6.2(a) and
6.3(a), the TMAI or Avant! Disclosure Schedules, as the case may be, shall be
deemed to include only that information contained therein on the date of this
Agreement and shall be deemed to exclude any information contained in any
subsequent supplement or amendment thereto unless such changes reflect actions
taken in compliance with the provisions of Articles IV and V hereof.
5.23 MANAGEMENT OF TCAD DIVISION. At the Effective Date of the Merger, Roy
Jewell will be appointed the head of Avant!'s TCAD division. As such, Mr. Jewell
will have full responsibility and authority to make all personnel decisions
related to Avant!'s TCAD division, including, without limitation, all
compensation decisions.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, subsection (e) of which may be waived, in writing, by agreement of
all the parties hereto:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved and adopted by (i) the holders of TMAI Common Stock representing a
majority of the total votes entitled to be cast on such matters at the TMAI
Shareholders Meeting at which a quorum is present in person or by proxy and
(ii) the holders of shares of Avant! Common Stock representing a majority of
the total votes cast on such matters at the Avant! Stockholders Meeting at
which a quorum is present in person or by proxy.
(b) REGISTRATION STATEMENT EFFECTIVE. The SEC shall have declared the
Registration Statement effective. No stop order suspending the effectiveness
of the Registration Statement or any part thereof
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shall have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement, shall have been initiated or
threatened by the SEC; and all requests for additional information on the
part of the SEC shall have been complied with to the reasonable satisfaction
of the parties hereto.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect;
nor shall there be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger, which
makes the consummation of the Merger illegal; and no temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting Avant!'s conduct or operation of the
business of TMAI and its subsidiaries following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending. In the event an injunction or other order shall have
been issued, each party agrees to use its reasonable diligent efforts to
have such injunction or other order lifted.
(d) GOVERNMENTAL APPROVAL. Avant!, TMAI and Merger Sub and their
respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers, authorizations and consents, if any,
necessary for consummation of or in connection with the Merger and the
several transactions contemplated hereby, including such approvals, waivers,
authorizations and consents as may be required under the HSR Act, Securities
Act and under state Blue Sky laws.
(e) TAX OPINIONS. Avant! and TMAI shall have received substantially
identical written opinions of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP and Fenwick & West LLP, respectively, in form and substance
reasonably satisfactory to them, and dated on or about the Effective Date to
the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, and such opinions shall not have been
withdrawn. In rendering such opinions, counsel shall be entitled to rely
upon, among other things, reasonable assumptions as well as representations
of Avant!, Merger Sub and TMAI and certain shareholders of TMAI.
(f) LISTING OF ADDITIONAL SHARES. The filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect
to the shares of Avant! Common Stock issuable upon conversion of the TMAI
Common Stock in the Merger and upon exercise of the options under the TMAI
Stock Plans, and upon the exercise of TMAI Purchase Rights under the TMAI
ESPP, assumed by Avant! shall have been made.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TMAI. The obligations of TMAI
to consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by TMAI:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The representations
and warranties of Avant! and Merger Sub in this Agreement shall be true and
correct in all material respects (other than representations and warranties
regarding litigation or other proceedings connected with the Merger, which
shall be governed solely by the standard set forth in Section 6.1(c) and
except for such representations and warranties that are qualified by their
terms by a reference to materiality which representations and warranties as
so qualified shall be true in all respects) on and as of the Effective Time
as though such representations and warranties were made on and as of such
time except for changes contemplated by this Agreement (except to the extent
such representations and warranties speak as of an earlier date) except, in
all such cases, where such breaches of such representations and warranties,
individually or in the aggregate, have not resulted in, nor reasonably would
be expected to result in liabilities aggregating in excess of $10,000,000 or
have not substantially impaired nor
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reasonably would be expected to substantially impair, Avant!'s ability after
the Closing to continue to develop, produce, sell and distribute the
products and services that are material to Avant!'s business in a manner
that has resulted in or would reasonably be expected to result in a Material
Adverse Effect on Avant!, and (ii) Avant! and Merger Sub shall have
performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by them as of the Effective Time.
(b) CERTIFICATE OF AVANT!. TMAI shall have been provided with a
certificate dated, the Effective Date, executed on behalf of Avant! by its
President and its Chief Financial Officer to the effect that, as of the
Effective Time, the condition provided for in subsection (a) above has been
satisfied.
(c) LEGAL OPINION. TMAI shall have received a legal opinion, dated the
Effective Date, from Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel to Avant! and Merger Sub, in form and substance
reasonably satisfactory to TMAI.
(d) NO MATERIAL ADVERSE CHANGES. There shall have been no material
adverse change in the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, business, operations or results
of operations (either actual since the date of this Agreement or as such
condition has been represented pursuant to Article III hereof) of Avant!
taken as a whole from the date hereof through the Closing Date; provided,
however, that any developments, changes or results arising out of or related
to the litigation and other court proceedings described in the Avant! SEC
Documents that do not otherwise result in a Material Adverse Effect on
Avant! shall not be considered for purposes of this Section 6.2(d).
(e) THIRD PARTY CONSENTS. TMAI shall have been furnished with evidence
satisfactory to it of the consent or approval of those persons whose consent
or approval shall be required in connection with the Merger under any
material contract of Avant! or any of its subsidiaries or otherwise.
(f) AFFILIATES AGREEMENT. Each of the Affiliates of Avant! identified
on Section 5.8(b) of the Avant! Disclosure Schedule shall have executed an
Affiliates Agreement in substantially the form attached hereto as EXHIBIT
A-2.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF AVANT! AND MERGER SUB. The
obligations of Avant! and Merger Sub to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Avant!:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The representations
and warranties of TMAI in this Agreement shall be true and correct in all
material respects (other than representations and warranties regarding
litigation or other proceedings connected with the Merger, which shall be
governed solely by the standard set forth in Section 6.1(c) and except for
such representations and warranties that are qualified by their terms by a
reference to materiality, which representations and warranties as so
qualified shall be true in all respects) on and as of the Effective Time as
though such representations and warranties were made on and as of such time
except for changes contemplated by this Agreement except, in all such cases,
where such breaches of such representations and warranties, individually or
in the aggregate, have not resulted in, nor reasonably would be expected to
result in liabilities aggregating in excess of $2,000,000 or, have not
substantially impaired nor reasonably would be expected to substantially
impair, TMAI's ability after the Closing to continue to develop, produce,
sell and distribute the products and services that are material to TMAI's
business in a manner that has resulted in or would reasonably be expected to
result in a Material Adverse Effect on TMAI, and (ii) TMAI shall have
performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time.
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(b) CERTIFICATE OF TMAI. Avant! shall have been provided with a
certificate, dated the Effective Date, executed on behalf of TMAI by its
President and its Chief Financial Officer to the effect that, as of the
Effective Time, the condition provided for in subsection (a) above has been
satisfied.
(c) LEGAL OPINION. Avant! shall have received a legal opinion, dated
the Effective Date, from Fenwick & West LLP, legal counsel to TMAI, in form
and substance reasonably satisfactory to Avant!.
(d) THIRD PARTY CONSENTS. Avant! shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger
under any material contract of TMAI or any of its subsidiaries or otherwise.
(e) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of TMAI and its subsidiaries,
taken as a whole from the date hereof through the Closing Date.
(f) LETTERS FROM ACCOUNTANTS. Avant! shall have received the letter
referred to in Section 5.17(b) from KPMG.
(g) AFFILIATE AGREEMENTS. Avant! shall have received from each of the
Affiliates of TMAI identified on Section 5.8(a) of the TMAI Disclosure
Schedule an executed Affiliate Agreement in substantially the form attached
hereto as EXHIBIT A-1.
(h) DISSENTING SHARES. Dissenting Shares shall consist of no more ten
(10) percent (10%) of the then outstanding shares of TMAI Capital Stock.
(i) CONTINUITY OF INTEREST CERTIFICATES. Avant! shall have received a
sufficient number of executed Continuity of Interest Certificates, in the
form attached hereto as EXHIBIT C, such that counsel to Avant! shall have
concluded that the Continuity of Interest requirement shall be satisfied for
purposes of issuing the tax opinion pursuant to Section 6.1(e) of this
Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. At any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
shareholders of TMAI, this Agreement may be terminated:
(a) by mutual consent of Avant! and TMAI;
(b) by either Avant! or TMAI, if the Effective Date shall not have
occurred on or before January 31, 1998; PROVIDED that the right to terminate
this Agreement pursuant to this paragraph (b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been
a significant cause of, or resulted in, the failure of the Effective Date to
occur on or before such date;
(c) by Avant!, if (i) TMAI shall breach any of its representations,
warranties or obligations hereunder, which breach would result in a material
adverse change in the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, business, operations or results
of operations of TMAI and its subsidiaries, taken as a whole, and such
breach shall not have been cured within ten (10) business days following
receipt by TMAI of written notice of such breach, (ii) (x) there shall have
occurred any material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations, results of operations or prospects of TMAI and its
subsidiaries, taken as a whole, and (y) TMAI shall not, within twenty (20)
business days of notice from Avant! to the effect that Avant! intends to
terminate this Agreement pursuant to
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this clause (ii), have proposed to Avant! a plan to mitigate the effect of
such material adverse change which plan shall be reasonably acceptable to
Avant!, or (iii) the Board of Directors of TMAI shall have withdrawn or
modified its recommendation of this Agreement or the Merger in a manner
adverse to Avant! or shall have resolved to do any of the foregoing;
(d) by TMAI, if (i) Avant! shall breach any of its representations,
warranties or obligations hereunder, which breach would result in a material
adverse change in the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, business, operations or results
of operations of Avant! and its subsidiaries, taken as a whole, and such
breach shall not have been cured within ten (10) business days following
receipt by Avant! of written notice of such breach, (ii) (x) there shall
have occurred any material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations, results of operations or prospects of Avant! and its
subsidiaries, taken as a whole, and (y) Avant! shall not, within twenty (20)
business days of notice from TMAI to the effect that TMAI intends to
terminate this Agreement pursuant to this clause (ii), have proposed to TMAI
a plan to mitigate the effect of such material adverse change which plan
shall be reasonably acceptable to TMAI, or (iii) the Board of Directors of
Avant! shall have withdrawn or modified its recommendation of this Agreement
or the Merger in a manner adverse to TMAI or shall have resolved to do any
of the foregoing; or
(e) by either Avant! or TMAI, if (i) any permanent injunction or other
order of a court or other competent authority preventing the consummation of
the Merger shall have become final and nonappealable or (ii) at the TMAI
Shareholders Meeting (including any adjournment or postponement thereof) the
requisite vote of shareholders of TMAI shall not have been obtained, or
(iii) at the Avant! Stockholders Meeting (including any adjournment or
postponement thereof) the requisite vote of stockholders of Avant! shall not
have been obtained.
7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Avant!, Merger Sub or TMAI or
their respective officers, directors, stockholders or affiliates, except to the
extent that such termination results from the breach by a party hereto of any of
its representations, warranties or covenants set forth in this Agreement;
PROVIDED that the provisions of Section 5.4 (Confidentiality), Section 7.3
(Expenses and Termination Fees) and this Section 7.2 and the Confidentiality
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
7.3 EXPENSES AND TERMINATION FEES.
(a) Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party incurring such
expense, except that, in the event the Merger shall not be consummated for any
reason or if this Agreement shall be terminated for any reason other than
pursuant to Section 7.1(d), expenses incurred in connection with printing the
Proxy Materials and the Registration Statement, registration and filing fees
incurred in connection with the Registration Statement and the Proxy Materials
in connection with the Merger shall be shared equally by TMAI and Avant!.
(b) In the event that (i) either Avant! or TMAI shall terminate this
Agreement pursuant to Section 7.1(e)(ii) following a failure of the shareholders
of TMAI to approve this Agreement and, prior to the time of the meeting of
TMAI's shareholders, there shall have been (A) a Trigger Event with respect to
TMAI that TMAI's Board of Directors has not recommended that its shareholders
reject or (B) a Takeover Proposal with respect to TMAI which at the time of the
meeting of TMAI's shareholders shall not have been rejected by TMAI and
withdrawn by the third party, or (ii) Avant! shall terminate this Agreement
pursuant to Section 7.1(c), due in whole or in part to any failure by TMAI to
use its reasonable best efforts to perform and comply with all agreements and
conditions required by this Agreement to be performed or complied with by TMAI
prior to or on the Closing Date or any failure by TMAI's affiliates to take any
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actions required to be taken hereby, (and if TMAI is not entitled to terminate
this Agreement by reason of Section 7.1(d)), and prior thereto there shall have
been (A) a Trigger Event with respect to TMAI or (B) a Takeover Proposal with
respect to TMAI which shall not have been rejected by TMAI and withdrawn by the
third party, then TMAI shall promptly pay to Avant! the sum of $5,250,000;
provided, however, that with respect to Section 7.3(b)(i)(A) and Section
7.3(b)(ii)(A), a Trigger Event shall not be deemed to include the acquisition by
any Person of securities representing 10% or more of TMAI if such Person has
acquired such securities not with the purpose nor with the effect of changing or
influencing the control of TMAI, nor in connection with or as a participant in
any transaction having such purpose or effect, including without limitation (i)
making any public announcement with respect to the voting of such shares at any
meeting to consider any merger, consolidation, sale of substantial assets or
other business combination or extraordinary transaction involving TMAI, (ii)
making, or in any way participating in, any "solicitation" of "proxies" (as such
terms are defined or used in Regulation 14A under the Exchange Act) to vote any
voting securities of TMAI (including, without limitation, any such solicitation
subject to Rule 14a-11 under the Exchange Act) or seeking to advise or influence
any Person with respect to the voting of any voting securities of TMAI, (iii)
forming, joining or in any way participating in any "group" within the meaning
of Section 13(d)(3) of the Exchange Act with respect to any voting securities of
TMAI or (iv) otherwise acting, alone or in concert with others, to seek control
of TMAI or to seek to control or influence the management or policies of TMAI.
As used herein, a "Trigger Event" shall occur if any Person commences a tender
or exchange offer following the successful consummation of which the offeror and
its affiliate would beneficially own securities representing 25% or more, of the
voting power of TMAI.
(c) If this Agreement is terminated by TMAI pursuant to any subsection of
Section 7.1(d) hereof, due in whole or in part to any failure by Avant! to use
its reasonable best efforts to perform and comply with all agreements and
conditions required by this Agreement to be performed or complied with by Avant!
prior to or on the Closing Date or any failure by Avant!'s affiliates to take
any actions required to be taken hereby (and Avant! is not entitled to terminate
this Agreement by reason of Section 7.1(c) hereof), then, Avant! shall promptly
pay to TMAI a termination fee of $5,250,000.
7.4 AMENDMENT. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of this Agreement by the stockholders of
TMAI, Avant! or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the TMAI Common Stock, (ii) alter
or change any term of the Articles of Incorporation of the Surviving Corporation
to be effected by the Merger, or (iii) alter or change any of the terms and
conditions of this Agreement if such alteration or change would adversely affect
the holders of TMAI Common Stock or Avant! Common Stock.
7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL. The representations, warranties and agreements set forth in
this Agreement shall terminate at the Effective Time, except that the agreements
set forth in Article I, Section 5.4 (Confidentiality) 5.7 (Pooling Accounting),
5.8 (Affiliates Agreements), 5.13 (Employee Benefit Plans), 5.14 (Form
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S-8), 5.15 (Indemnification), 5.16 (Listing of Additional Shares), 5.18 (Best
Efforts and Further Assurances), 7.3 (Expenses and Termination Fees), 7.4
(Amendment), and this Article VIII shall survive the Effective Time.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Avant! or Merger Sub, to:
Avant! Corporation
46871 Bayside Parkway
Fremont, California 94538
Attention: President
Facsimile No.: 510-413-8080
Telephone No.: 510-413-8000
with a copy to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
Attention: Steven M. Spurlock, Esq.
Facsimile No.: 650-321-2800
Telephone No.: 650-321-2400
(b) if to TMAI, to:
Technology Modeling Associates, Inc.
595 Lawrence Expressway
Sunnyvale, California 95086
Attention: President
Facsimile No.: 408-328-0940
Telephone No.: 408-328-0930
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attention: Jacqueline A. Daunt
Facsimile No.: 650-494-1417
Telephone No.: 650-494-0600
8.3 INTERPRETATION. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to September 7, 1997. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
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8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the TMAI Disclosure Schedule and the Avant! Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a)-(d) and (g), 1.7-1.9, 5.13, 5.14, 5.15 and 5.16; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
8.6 SEVERABILITY. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 REMEDIES CUMULATIVE. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California (without regard to its
principles of conflicts of law).
8.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
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IN WITNESS WHEREOF, Avant!, TMAI and Merger Sub have caused this Agreement
to be executed and delivered by their respective officers thereunto duly
authorized, all as of the date first written above.
<TABLE>
<S> <C> <C>
AVANT! CORPORATION
By: /s/ GERALD C. HSU
-----------------------------------------
Gerald C. Hsu
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
CARDINAL MERGER CORPORATION
By: /s/ GERALD C. HSU
-----------------------------------------
Gerald C. Hsu
PRESIDENT
</TABLE>
<TABLE>
<S> <C> <C>
TECHNOLOGY MODELING ASSOCIATES, INC.
By: /s/ ROY E. JEWELL
--------------------------------------
Roy E. Jewell
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
</TABLE>
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APPENDIX B
WRITTEN OPINION OF WESSELS, ARNOLD & HENDERSON, L.L.C.
September 7, 1997
The Board of Directors
Technology Modeling Associates, Inc.
595 Lawrence Expressway
Sunnyvale, CA 94086
Attention: Mr. Roy E. Jewell, President, Chief Executive Officer and Chairman
of the Board of Directors
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Technology Modeling Associates, Inc. (the
"Company"), of the consideration to be received by the shareholders pursuant to
the terms of the proposed Agreement and Plan of Reorganization (the "Agreement")
dated September 7, 1997 by and among Avant! Corporation, a Delaware corporation
(the "Acquiror"), Cardinal Merger Corporation, a California corporation ("Merger
Sub") and wholly owned subsidiary of the Acquiror and the Company, a California
corporation. Capitalized terms used herein shall have the meanings used in the
Agreement unless otherwise defined herein.
Pursuant to the Agreement, each outstanding share of common stock of the
Company is proposed to be converted into the right to receive a fraction of a
share of Red Common Stock (the "Exchange Ratio"), the numerator of which is
equal to (i) $17.00, and the denominator of which is equal to (ii) the average
of the per share closing prices of Red Common Stock as quoted on the Nasdaq
National Market for the ten (10) consecutive trading days ending three (3)
business days prior to the Effective Date of the Merger (the "Average Nasdaq Per
Share Price"). Notwithstanding anything to the contrary set forth herein, in the
event that the Average Nasdaq Per Share Price is greater than $35.678 (the
"Maximum Price"), then the Exchange Ratio shall be 0.476484, and in the event
that the Average Nasdaq Per Share Price is less than $25.678 (the "Minimum
Price"), the Exchange Ratio shall be 0.662045.
Wessels, Arnold & Henderson, L.L.C. ("Wessels, Arnold & Henderson"), as part
of its investment banking services, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We will render to the Board of Directors an opinion as to
the fairness, from a financial point of view, to the shareholders of the Company
of the consideration to be received by the shareholders in connection with the
Merger, and will receive a fee for our services. In the ordinary course of
business, Wessels, Arnold & Henderson acts as a market maker and broker in the
publicly traded securities of the Company and the Acquiror and receives
customary compensation in connection therewith, and also provides research
coverage for the Company and the Acquiror. In the ordinary course of business,
Wessels, Arnold & Henderson actively trades in the publicly traded securities of
the Company and the Acquiror for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
In connection with our review of the Merger, and in arriving at our opinion,
we have: (i) reviewed and analyzed the financial terms of the Agreement; (ii)
reviewed and analyzed certain publicly available financial and other data with
respect to the Company and Acquiror and certain other relevant historical
operating data relating to the Company and Acquiror made available to us from
published sources and from the internal records of the Company and Acquiror;
(iii) conducted discussions with members of the
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Board of Directors
September 7, 1997
Page 2
senior management of the Company with respect to the business and prospects of
the Company relative to published industry analyst estimates; (iv) conducted
discussions with members of the senior management of the Acquiror with respect
to the business and prospects of the Acquiror relative to published industry
analyst estimates; (v) reviewed the reported prices and trading activity for the
Company's Common Stock and the Acquiror's Common Stock; (vi) compared the
financial performance of the Company and the Acquiror and the prices of the
Company's Common Stock and the Acquiror's Common Stock with that of certain
other comparable publicly-traded companies and their securities; and (vii)
reviewed the financial terms, to the extent publicly available, of certain
comparable merger transactions. In addition, we have conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we have deemed necessary in arriving at our opinion.
We note that we were not provided with any financial forecasts for either
Acquiror or the Company, having been informed by each company's senior
management that it is not their practice to provide financial forecasts.
However, in the course of our discussions with each company's senior management,
we reviewed with them the most recently published analyst earnings estimates for
each company with respect to the third and fourth quarters of each company's
1997 fiscal year and 1998 fiscal year, publicly available information regarding
the size and forecasted growth rates for the markets served by each company's
products, and various trends affecting or expected to affect each company's
future operating results and financial condition.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided to us by the Company and the Acquiror (including without limitation the
financial statements and related notes of the Company and Acquiror), and have
not independently verified such information. Additionally, we have not been
asked and did not consider the possible effects of any litigations (whether
civil or criminal), other legal claims or any other contingent matters. Further,
our opinion is based on the assumption that the Merger will be accounted for as
a pooling-of-interests. We have not performed an independent evaluation or
appraisal of any of the respective assets or liabilities of the Company or the
Acquiror and we have not been furnished with any such valuations or appraisals.
It is understood that this letter is for the information of the Board of
Directors of the Company, and this letter shall not be published or otherwise
used and no public references to Wessels, Arnold & Henderson, L.L.C. shall be
made without our prior written consent, which consent shall not be unreasonably
withheld; provided, however, that this letter may be included in its entirety in
the proxy statement submitted to the shareholders of the Company for the purpose
of approving the Merger. Further, our opinion speaks only as of the date hereof,
is based on the conditions as they exist and information which we have been
supplied as of the date hereof, and is without regard to any market, economic,
financial, legal or other circumstance or event of any kind or nature which may
exist or occur after such date.
Based on our experience as investment bankers and subject to the foregoing,
including the various assumptions and limitations set forth herein, it is our
opinion that as of the date hereof, the consideration to be received by the
holders of the Company's Common Stock pursuant to the Agreement is fair from a
financial point of view to the holders of the Company's Common Stock.
Very truly yours,
Wessels, Arnold & Henderson, L.L.C.
By:/s/ MICHAEL P. OGBORNE
-----------------------------------
Mr. Michael P. Ogborne
Managing Director
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APPENDIX C
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
SEC. 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SEC. 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR
PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
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of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SEC. 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SEC. 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET
VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
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SEC. 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SEC. 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT;
PAYMENT; APPEAL; COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SEC. 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together
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with interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
SEC. 1307. DIVIDENDS ON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SEC. 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SEC. 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SEC. 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SEC. 1311. EXEMPT SHARES
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SEC. 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the
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reorganization or short-form merger, or to have the reorganization or short-form
merger set aside or rescinded, except in an action to test whether the number of
shares required to authorize or approve the reorganization have been legally
voted in favor thereof; but any holder of shares of a class whose terms and
provisions specifically set forth the amount to be paid in respect to them in
the event of a reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the approved
reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
In accordance with the DGCL, Avant!'s Certificate contains a provision to
limit the personal liability of the directors of the Registrant for violations
of their fiduciary duty. This provision eliminates each director's liability to
the Registrant or its stockholders for monetary damages except (i) for any
breach of the director's duty of loyalty to the Registrant or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions, or (iv) for any transaction from which
a director derived an improper personal benefit. The effect of this provision is
to eliminate the personal liability of directors for monetary damages for
actions involving a breach of their fiduciary duty of care, including any such
actions involving gross negligence.
Article IX of Avant!'s Certificate and Article VII, Section 6 of Avant!'s
Bylaws provide for indemnification of the officers and directors of the
Registrant to the fullest extent permitted by applicable law.
The Registrant has entered into indemnification agreements with each
director and executive officer which provide indemnification to such directors
and executive officers under certain circumstances for acts or omissions which
may not be covered by directors' and officers' liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 --Agreement and Plan of Reorganization dated as of September 7, 1997 among
the Registrant, Merger Sub and TMA (included as Appendix A to the Joint
Proxy Statement/Prospectus included in Part I of this Registration
Statement).
2.2 --Agreement and Plan of Reorganization dated as of July 31, 1997, as
amended on August 27, 1997, among the Registrant, GB Acquisition
Corporation, Compass Design Automation, Inc. and VLSI Technology, Inc.
2.3 --Form of Agreement of Merger to be executed by Registrant, Merger Sub and
TMA.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.4 --Shareholder Agreement dated as of September 7, 1997 among the
Registrant, Merger Sub and certain shareholders of TMA.
2.5 --Form of Affiliates Agreement to be executed by the Registrant and
certain shareholders of TMA.
2.6 --Form of Affiliates Agreement to be executed by the Registrant and
certain stockholders of Registrant.
3.1 --Registrant's Amended and Restated Certificate of Incorporation.(1)
3.2 --Registrant's Amended and Restated Bylaws.(1)
4.1 --Amended and Restated Investors' Rights Agreement between the Registrant
and certain investors dated September 24, 1994.(1)
4.2 --Specimen certificate of the Registrant's Common Stock.(1)
5.1 --Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
8.1 --Tax Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
8.2 --Tax Opinion of Fenwick & West, LLP.
11.1 --Computation of Net Income (Loss) and Pro Forma Net Income Per
Share--Avant!.
11.2 --Computation of Net Income and Pro Forma Net Income Per Share--TMA.
11.3 --Computation of Net Loss Per Share Attributable to Common
Shareholders--Compass.
21.1 --Subsidiaries of the Registrant.
23.1 --Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
(included in Exhibit 5.1).
23.2 --Consent of Fenwick & West, LLP (included in Exhibit 8.2).
23.3 --Consent of KPMG Peat Marwick LLP.
23.4 --Consent of Arthur Andersen LLP.
23.5 --Consent of Wessels, Arnold & Henderson, L.L.C.
23.6 --Consent of KPMG Peat Marwick LLP--Compass.
24.1 --Power of Attorney (included on page II-4).
99.1 --Form of Avant! Proxy Card.
99.2 --Form of TMA Proxy Card.
</TABLE>
- ------------------------
(1) Incorporated by reference from the Registrant's Registration Statement (File
No. 33-91128) on Form S-1 as declared effective on June 6, 1995.
II-2
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts--Avant!
Schedule II--Valuation and Qualifying Accounts--TMA
Schedule II--Valuation and Qualifying Accounts--Compass
Schedules not listed above have been omitted because the information
required to be set forth herein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the Registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Avant! hereby undertakes as follows: that prior to any public reoffering of
the securities registered hereunder through use of a prospectus which is a part
of this Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
Avant! undertakes that every prospectus (a) that is filed pursuant to the
immediately preceding paragraph, or (b) that purports to meet the requirements
of Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Avant!
pursuant to the foregoing provisions, or otherwise, Avant! has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Avant! of expenses incurred or paid by a
director, officer or controlling person of Avant! in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, Avant!
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
Avant! hereby undertakes to supply by means of a post-effective amendment
all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the Registration
Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Avant! has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on December 22, 1997.
<TABLE>
<S> <C> <C>
AVANT! CORPORATION
By: /s/ GERALD C. HSU
-----------------------------------------
Gerald C. Hsu
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Gerald C. Hsu and John P.
Huyett, and each one of them, his attorneys-in-fact , each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Registration Statement (including post effective amendments), and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ GERALD C. HSU President and Chief
- ------------------------------ Executive Officer December 22, 1997
Gerald C. Hsu (Principal Executive
Officer)
/s/ JOHN P. HUYETT Vice President of Finance,
- ------------------------------ Treasurer and Principal December 22, 1997
John P. Huyett Accounting Officer
/s/ Y. ERIC CHO
- ------------------------------ Director December 22, 1997
Y. Eric Cho
/s/ TENCH COXE
- ------------------------------ Director December 22, 1997
Tench Coxe
/s/ ERIC A. BRILL
- ------------------------------ Director and Secretary December 22, 1997
Eric A. Brill
/S/ CHARLES L. ST. CLAIR
- ------------------------------ Director December 22, 1997
Charles L. St. Clair
II-5
<PAGE>
SCHEDULE II
AVANT! CORPORATION
VALUATION AND QUALIFYING ACCOUNTS--
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED BALANCE AT
BEGINNING OF PERIOD TO EXPENSE DEDUCTIONS END OF PERIOD
--------------------- ------------------- ------------- ---------------
<S> <C> <C> <C> <C>
Year ended December 31, 1994 $ 412 $ 86 $ 61 $ 437
Year ended December 31, 1995 437 590 128 899
Year ended December 31, 1996 899 454 591 762
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the financial statements of Technology Modeling Associates, Inc. and subsidiary
included in this registration statement and have issued our report thereon dated
January 24, 1997.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
January 24, 1997
S-2
<PAGE>
SCHEDULE II
TECHNOLOGY MODELING ASSOCIATES, INC.
VALUATION AND QUALIFYING ACCOUNTS--
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO COSTS BALANCE AT
FOR THE FISCAL YEARS ENDED DECEMBER 31, BEGINNING OF PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
- ------------------------------------------------ --------------------- ------------------- ------------- ---------------
<S> <C> <C> <C> <C>
1994 $ 0 $ 83 $ -- $ 83
1995............................................ 83 82 -- 165
1996............................................ 165 10 -- 175
</TABLE>
S-3
<PAGE>
SCHEDULE II
COMPASS DESIGN AUTOMATION, INC.
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR BALANCE AT CHARGED TO COSTS BALANCE AT
ENDED DECEMBER 27, BEGINNING OF PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
- --------------------- --------------------- ------------------- ------------- ---------------
<S> <C> <C> <C> <C>
1996 145 10 -- 155
</TABLE>
S-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 --Agreement and Plan of Reorganization dated as of September 7, 1997 among
the Registrant, Merger Sub and TMA (included as Appendix A to the Joint
Proxy Statement/Prospectus included in Part I of this Registration
Statement).
2.2 --Agreement and Plan of Reorganization dated as of July 31, 1997, as
amended on August 27, 1997, among the Registrant, GB Acquisition
Corporation, Compass Design Automation, Inc. and VLSI Technology, Inc.
2.3 --Form of Agreement of Merger to be executed by Registrant, Merger Sub and
TMA.
2.4 --Shareholder Agreement dated as of September 7, 1997 among the
Registrant, Merger Sub and certain shareholders of TMA.
2.5 --Form of Affiliates Agreement to be executed by the Registrant and
certain shareholders of TMA.
2.6 --Form of Affiliates Agreement to be executed by the Registrant and
certain stockholders of Registrant.
3.1 --Registrant's Amended and Restated Certificate of Incorporation.(1)
3.2 --Registrant's Amended and Restated Bylaws.(1)
4.1 --Amended and Restated Investors' Rights Agreement between the Registrant
and certain investors dated September 24, 1994.(1)
4.2 --Specimen certificate of the Registrant's Common Stock.(1)
5.1 --Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
8.1 --Tax Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
8.2 --Tax Opinion of Fenwick & West, LLP.
11.1 --Computation of Net Income (Loss) and Pro Forma Net Income Per
Share--Avant!.
11.2 --Computation of Net Income and Pro Forma Net Income Per Share--TMA.
11.3 --Computation of Net Loss Per Share Attributable to Common
Shareholders--Compass.
21.1 --Subsidiaries of the Registrant.
23.1 --Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
(included in Exhibit 5.1).
23.2 --Consent of Fenwick & West, LLP (included in Exhibit 8.2).
23.3 --Consent of KPMG Peat Marwick LLP.
23.4 --Consent of Arthur Andersen LLP.
23.5 --Consent of Wessels, Arnold & Henderson, L.L.C.
23.6 --Consent of KPMG Peat Marwick LLP--Compass.
24.1 --Power of Attorney (included on page II-4).
99.1 --Form of Avant! Proxy Card.
99.2 --Form of TMA Proxy Card.
</TABLE>
- ------------------------
(1) Incorporated by reference from the Registrant's Registration Statement (File
No. 33-91128) on Form S-1 as declared effective on June 6, 1995.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JULY 31, 1997,
AMONG
AVANT! CORPORATION,
GB ACQUISITION CORPORATION,
COMPASS DESIGN AUTOMATION, INC.,
AND
VLSI TECHNOLOGY, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I: THE MERGER.........................................................1
1.1 Merger; Effective Time of the Merger..................................1
1.2 Closing...............................................................1
1.3 Effects of the Merger.................................................1
1.4 Escrow................................................................2
ARTICLE II: EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES;
SUPPLEMENTARY ACTION.......................................................2
2.1 Effect on Capital Stock...............................................2
2.2 Exchange of Certificates..............................................5
2.3 Supplementary Action..................................................7
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF COMPASS........................7
3.1 Organization, Standing and Power......................................7
3.2 Capital Structure.....................................................8
3.3 Subsidiaries..........................................................9
3.4 Authority.............................................................9
3.5 Financial Statements.................................................10
3.6 Payables; Receivables................................................11
3.7 Compliance with Laws.................................................11
3.8 No Defaults..........................................................12
3.9 Litigation...........................................................12
3.10 Conduct in the Ordinary Course......................................12
3.11 Absence of Undisclosed Liabilities..................................14
3.12 Documents and Information Supplied..................................14
3.13 Certain Agreements..................................................14
3.14 Employee Plans......................................................14
3.15 Major Contracts.....................................................15
3.16 Taxes...............................................................17
3.17 Intellectual Property...............................................19
3.18 Employee Agreements.................................................20
3.19 Restrictions on Business Activities.................................21
3.20 Title to Properties; Absence of Liens and Encumbrances:
Condition of Equipment.................................................21
3.21 Governmental Authorizations and Licenses............................22
3.22 Environmental Matters...............................................22
3.23 Insurance...........................................................25
3.24 Labor Matters.......................................................25
3.25 Personnel...........................................................26
3.26 Questionable Payments...............................................26
i
<PAGE>
3.27 Third-Party Consents...............................................26
3.28 Related Party Transactions.........................................27
3.29 Customers..........................................................27
3.30 Bank Accounts and Powers of Attorney...............................27
3.31 Products...........................................................27
3.32 Brokers or Finders; Professional Fees..............................27
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF AVANT! AND SUB................28
4.1 Organization; Standing and Power....................................28
4.2 Authority...........................................................28
4.3 Valid Issuance of Shares of Common Stock of Avant!..................29
4.4 Avant!. Financial Statements........................................29
4.5 Litigation..........................................................29
4.6 Reports.............................................................29
4.7 Restrictions on Business Activities.................................30
4.8 Brokers or Finders; Professional Fees...............................30
4.9 Conduct in the Ordinary Course......................................30
4.10 Third-Party Consents...............................................30
4.11 Due Diligence Investigation........................................30
ARTICLE V: CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL
AGREEMENTS...............................................................30
5.1 Conduct of Business of Compass......................................30
5.2 Access to Information; Provision of Interim Financial Statements....33
5.3 Compass Stockholders' Consent.......................................34
5.4 Exclusivity; Acquisition Proposals..................................34
5.5 Breach of Representations, Warranties, Agreements and Covenants.....34
5.6 Consents............................................................35
5.7 Best Efforts........................................................35
5.8 Legal Conditions to the Merger......................................35
5.9 Public Announcements................................................36
5.10 Affiliates Agreement...............................................36
5.11 Expenses...........................................................36
5.12 Information to be Supplied.........................................36
5.13 Form S-3 Registration Statement....................................36
5.14 Schedules..........................................................37
5.15 Certain Benefit Plans..............................................37
5.16 HSR Act Filing.....................................................38
5.17 Listing of Shares..................................................39
5.18 Voting Agreement...................................................39
ARTICLE VI: CONDITIONS PRECEDENT............................................39
6.1 Conditions to Each Party's Obligation to Effect the Merger..........39
6.2 Conditions of Obligations of Avant! and Sub.........................40
6.3 Conditions of Obligation of Compass.................................41
ii
<PAGE>
ARTICLE VII: INDEMNITY......................................................41
7.1 Survival of Representations, Warranties, Covenants and Agreements...41
7.2 Indemnification.....................................................42
7.3 Termination of Indemnity and Representations and Warranties.........43
ARTICLE VIII: TERMINATION...................................................44
8.1 Termination.........................................................44
ARTICLE IX: GENERAL PROVISIONS..............................................45
9.1 Amendment...........................................................45
9.2 Extension; Waiver...................................................45
9.3 Notices.............................................................45
9.4 Interpretation......................................................46
9.5 Counterparts........................................................46
9.6 Entire Agreement....................................................46
9.7 No Transfer.........................................................47
9.8 Severability........................................................47
9.9 Other Remedies......................................................47
9.10 Further Assurances.................................................47
9.11 Absence of Third-Party Beneficiary Rights..........................47
9.12 Governing Law......................................................47
EXHIBITS
1.1 Certificate of Merger
1.3(a) Certificate of Incorporation
1.3(b) Bylaws
1.4 Escrow Agreement
2.1(c) Allocation of Merger Consideration Among Company Stockholders
3.2 Voting Agreement
5.10(a) Affiliates Agreement
SCHEDULES
2.1(d) Holders of Compass Options Exercisable for Common Stock
2.1(e) Stock Options Exercised
3.2(a) Capital Structure
3.2(b) Compliance with Securities Laws
3.2(e) Stockholders Party to the Voting Agreement
3.3(a) Subsidiaries
3.3(b) Jurisdictions Qualified to do Business
3.5 Financial Statements
3.6 Receivables
3.7 Exceptions to Compliance with Laws
3.8 List of Defaults
3.9 Pending Litigation
iii
<PAGE>
3.10 Exceptions to Conduct in the Ordinary Course
3.11 Undisclosed Liabilities
3.13 Certain Agreements
3.14 Compass Compensation Plans
3.15 Major Contracts
3.16 Taxes
3.17 Compass Intellectual Property Rights
3.18 Proprietary Information Agreements
3.19 Restrictions on Business Activities
3.20 Real Property Leased; Physical Assets
3.21 Governmental Authorizations and Licenses
3.22 Environmental Matters
3.23 Insurance
3.25 Personnel
3.27 Third-Party Consents
3.28 Related Party Transactions
3.29 Customers
3.30 Bank Accounts and Powers of Attorney
5.10 List of Affiliates
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is dated as of July 31,
1997, by and among Avant! Corporation, a Delaware corporation ("Avant!"),
GB Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary
of Avant! ("Sub"), Compass Design Automation, Inc., a Delaware corporation
("Compass"), and VLSI Technology, Inc., a Delaware corporation ("VLSI").
INTENDING TO BE LEGALLY BOUND, and in consideration of the promises
and mutual covenants and agreements contained herein, Avant!, Sub, Compass and
VLSI hereby agree as follows:
ARTICLE I:
THE MERGER
1.1 MERGER; EFFECTIVE TIME OF THE MERGER. Subject to the terms and
conditions of this Agreement and Plan of Reorganization (this "Agreement") and
as contemplated by the Certificate of Merger attached hereto as EXHIBIT 1.1 (the
"Certificate of Merger"), Sub will be merged with and into Compass (the
"Merger") in accordance with the applicable provisions of the General
Corporation Law of the State of Delaware (the "DGCL"). The Certificate of
Merger provides, among other things, the mode of effecting the Merger and the
manner and basis of converting each issued and outstanding share of capital
stock of Compass into shares of Common Stock, par value $.0001 per share, of
Avant! ("Avant! Common Stock"). The Certificate of Merger shall be executed by
Compass, Avant! and Sub prior to the Effective Date of the Merger (as defined in
this Section 1.1).
Subject to the provisions of this Agreement, the Certificate of Merger
shall be filed in accordance with the DGCL on the Closing Date (as defined in
Section 1.2). The Merger shall become effective upon such filing of the
Certificate of Merger (the date of such filing being hereinafter referred to as
the "Effective Date of the Merger" and the time of confirmation of such filing
being hereinafter referred to as the "Effective Time of the Merger") in the
State of Delaware.
1.2 CLOSING. The closing of the Merger (the "Closing") will take
place as soon as practicable on the first business day after satisfaction or
waiver of the conditions precedent set forth in Article VI of this Agreement
(the "Closing Date"), at the offices of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 155 Constitution Drive, Menlo Park, California 94025,
unless a different date or place is agreed to in writing by Avant!, Sub and
Compass.
1.3 EFFECTS OF THE MERGER. At the Effective Time of the Merger, (a)
the separate existence of Sub shall cease and Sub shall be merged with and into
Compass (Sub and Compass are sometimes referred to herein as the "Constituent
Corporations" and Compass after the Merger is sometimes referred to herein as
the "Surviving Corporation"), (b) the Certificate of Incorporation of the
Surviving Corporation shall be set forth in EXHIBIT 1.3(a) hereto, (c) the
Bylaws of the Surviving Corporation shall be set forth in EXHIBIT 1.3(b) hereto,
(d) the directors
<PAGE>
of the Surviving Corporation shall be Gerald C. Hsu and John P. Huyett, (e) the
officers of the Surviving Corporation shall be Gerald C. Hsu, President and
Chief Executive Officer and John P. Huyett, Vice President, Chief Financial
Officer and Secretary and (f) the Merger shall, from and after the Effective
Time of the Merger, have all the effects provided by applicable law.
1.4 ESCROW. An amount of (a) the aggregate cash payment to be made
to VLSI Technology, Inc. ("VLSI") and (b) the aggregate number of shares of
Avant! Common Stock issuable to VLSI in connection with the Merger equal to ten
percent (10%) of the total consideration paid by Avant! in the Merger (the
"Escrow Proceeds") shall be held in escrow as collateral for the indemnification
obligations of Compass pursuant to Article VII of this Agreement and the
provisions of an escrow agreement ("Escrow Agreement") in the form attached
hereto as EXHIBIT 1.4. The Escrow Proceeds shall be withheld pro rata from
proceeds to be received by VLSI upon exchange of Compass shares for the right to
receive cash and/or shares of Avant! Common Stock.
ARTICLE II:
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES; SUPPLEMENTARY ACTION
2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time of the Merger,
by virtue of the Merger and without any action on the part of the holder of any
shares of capital stock of Compass:
(a) CAPITAL STOCK OF SUB. All issued and outstanding shares of
capital stock of Sub shall continue to be issued and outstanding and shall be
converted into 1,000 shares of Common Stock of the Surviving Corporation. Each
stock certificate of Sub evidencing ownership of any such shares shall
thereafter evidence ownership of such shares of capital stock of the Surviving
Corporation into which such shares of stock of Sub have converted.
(b) CANCELLATION OF CAPITAL STOCK OF COMPASS.
(i) All shares of capital stock of Compass that are owned
directly or indirectly by Compass or by any entity controlled by Compass shall
be canceled and no stock of Avant! or other consideration shall be delivered in
exchange therefor. For this purpose, a controlled entity shall mean a
corporation or other entity whose voting securities are owned or are otherwise
controlled directly or indirectly by a parent corporation or other intermediary
entity in an amount sufficient to elect at least a majority of the board of
directors or other managers of such corporation or other entity.
(ii) Each holder of a certificate representing any shares of
Compass capital stock after the Effective Time of the Merger shall cease to have
any rights with respect to such shares, except the right either to receive cash
and/or shares of Avant! Common Stock upon surrender of such certificate, or to
exercise such holder's dissenters' rights, if applicable, as provided in
Section 2.1(f) hereof and pursuant to the DGCL, or alternatively, the
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California General Corporation Law (the "CGCL"), to the extent Compass is
determined to be a foreign corporation contemplated by Section 2115 of the CGCL.
(c) CONVERSION OF CAPITAL STOCK OF COMPASS. Subject to
Section 2.2, at the Effective Time of the Merger, by virtue of the Merger and
without any action on the part of the holders thereof:
(i) CONVERSION OF COMPASS PREFERRED STOCK. Each share of
the Series A Preferred Stock of Compass (the "Compass Preferred Stock") issued
and outstanding at the Effective Time of the Merger (other than any shares of
Compass Preferred Stock to be canceled pursuant to Section 2.1(b)(i) and any
Dissenting Shares (as defined and to the extent provided in Section 2.1(f))
shall be canceled and extinguished and be converted automatically into the right
to receive that portion of the aggregate amount of $43,800,000 (the "Merger
Consideration") to which such share of Compass Preferred Stock is entitled
under, and in accordance with, Article Four, Section 2(a) of the Restated
Certificate of Incorporation of Compass (the "Liquidation Preference"). Such
Liquidation Preference equals the sum of $1.00 per share plus all accrued but
unpaid dividends. Additionally, the holders of Compass Preferred Stock shall
share ratably in the difference between the Merger Consideration and the
Liquidation Preference (the "Net Merger Consideration") with the holders of the
Common Stock of Compass and the holders of vested options to purchase Common
Stock of Compass (assuming that all such options have been exercised). The
Liquidation Preference plus the portion of the Net Merger Consideration payable
to the holders of Compass Preferred Stock pursuant to this Section 2.1(c)(i)
(the "Compass Preferred Stock Consideration") shall be payable in a combination
of cash and shares of Avant! Common Stock. For the purpose of determining the
number of shares of Avant! Common Stock issuable to the holders of the Compass
Preferred Stock, the price of the Avant! Common Stock shall be closing sales
price of Avant! Common Stock as quoted on the Nasdaq National Market for the
five (5) consecutive trading days ending three (3) business days prior to the
Closing Date of the Merger (the "Average Nasdaq Per Share Price"). The total
dollar and share amounts of the Compass Preferred Stock Consideration allocated
to the holders of Compass Preferred Stock is set forth in EXHIBIT 2.1(c),
subject to appropriate adjustments at the Closing to reflect the total of
accrued but unpaid dividends as of such date and the Average Nasdaq Per Share
Price.
(ii) CONVERSION OF COMPASS COMMON STOCK OWNED BY VLSI. Each
share of the Common Stock of Compass issued and outstanding and owned by VLSI
Technology, Inc. ("VLSI") immediately prior to the Effective Time of the Merger
(other than any shares of Compass Common Stock to be canceled pursuant to
Section 2.1(b)(i) and any Dissenting Shares (as defined and to the extent
provided in Section 2.1(f)) (the "VLSI-Owned Common Stock") shall be canceled
and extinguished and be converted automatically into the right to share ratably
in the Net Merger Consideration with the holders of the Compass Preferred Stock,
the holders of the Common Stock of Compass (excluding VLSI-Owned Common Stock)
and the holders of vested options to purchase Common Stock of Compass (assuming
that all such options have been exercised). Such portion of the Net Merger
Consideration payable to VLSI pursuant to this Section 2.1(c)(ii) shall be
payable in a combination of cash and shares of Avant! Common Stock. For the
purpose of determining the number of shares of Avant! Common Stock
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issuable to VLSI pursuant to this Section 2.1(c)(ii), the price of the Avant!
Common Stock shall be the Average Nasdaq Per Share Price. The total dollar and
share amounts of such portion of the Net Merger Consideration allocated to VLSI
pursuant to this Section 2.1(c)(ii) is set forth in EXHIBIT 2.1(C), subject to
appropriate adjustments at the Closing to reflect the total of accrued but
unpaid dividends as of such date and the Average Nasdaq Per Share Price.
(iii) CONVERSION OF COMPASS COMMON STOCK NOT OWNED BY
VLSI. Each share of the Common Stock of Compass issued and outstanding
immediately prior to the Effective Time of the Merger (other than any shares of
the VLSI-Owned Common Stock, any shares of Compass Common Stock to be canceled
pursuant to Section 2.1(b)(i) and any Dissenting Shares (as defined and to the
extent provided in Section 2.1(f)) shall be canceled and extinguished and be
converted automatically into the right to share ratably in the Net Merger
Consideration with the holders of the Compass Preferred Stock, the holders of
the VLSI-Owned Common Stock of Compass and the holders of vested options to
purchase Common Stock of Compass (assuming that all such options have been
exercised). Such portion of the Net Merger Consideration allocated to the
holders of the Common Stock of Compass pursuant to this Section 2.1(c)(iii)
shall be payable in cash. The total dollar amount of such portion of the Net
Merger Consideration allocated to the holders of the Common Stock of Compass
pursuant to this Section 2.1(c)(iii) is set forth in EXHIBIT 2.1(c), subject to
appropriate adjustments at the Closing to reflect the total of accrued but
unpaid dividends as of such date and the Average Nasdaq Per Share Price.
(d) CONVERSION OF COMPASS OPTIONS. At the Effective Time of the
Merger, each unexpired and unexercised option to purchase shares of Compass
Common Stock (a "Compass Option") granted under the stock option plans and
agreements or other agreements of Compass outstanding immediately prior to the
Effective Time of the Merger shall terminate and be converted into a right to
receive a cash payment to the extent exercisable for vested shares (the "Option
Payment") from Avant!. SCHEDULE 2.1(d) hereto sets forth a true and complete
list as of the date hereof of all holders of Compass Options to purchase shares
of Compass Common Stock, including the number of shares of Compass Common Stock
subject to such options, a breakdown as between vested and unvested options, the
exercise price per share and the term of such options and the residence address
of each such holder. Three (3) days prior to the Closing Date, Compass shall
deliver to Avant! an updated SCHEDULE 2.1(d) hereto current as of the Closing
Date. With respect to each Compass Option, the amount of the Option Payment
shall be equal to the product of (a) the pro rata share of the Net Merger
Consideration minus the exercise price per share of such Option multiplied by
(b) the number of shares for which such Option is exercisable or vested at the
Effective Time of the Merger. The Option Payment shall be made to the holder of
the Option (or his or her successors) upon the Effective Time of the Merger.
The provisions of the 1992 Stock Option Plan and the applicable stock option
agreement shall control in determining when an Option becomes exercisable or
vested and to what extent an Option is forfeited in the event that the holder's
service with the Company terminates. Each Compass Option shall terminate at the
Effective Time of the Merger to the extent not exercisable for vested shares on
such date. The parties intend that the conversion of the Compass Options
hereunder will not meet the requirements of Section 424(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and this Section 2.1(d) shall be
interpreted consistent with such
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intention. Consistent with the terms of the Compass Options and the documents
governing such Compass Options, the Merger will not accelerate any Compass
Option or any right of exercise, vesting or repurchase relating thereto.
Holders of Compass Options will not be entitled to acquire Compass Common Stock
following the Merger. Holders of vested Compass Options may elect to exercise
such options prior to the Effective Time of the Merger and receive the
consideration per share delineated in Section 2.1(c)(iii) by providing notice of
such exercise and payment of the exercise price thereof to Compass at any time
prior to the Effective Time of the Merger. In the event that any holder of
vested Compass Options does not exercise such Compass Options prior to the
Effective Time of the Merger, such Compass Options shall terminate and be
converted into a right to receive the Option Payment. The right to receive the
Option Payment may not be assigned or transferred. Any attempted assignment
contrary to this Section 2.1(d) shall be null and void.
(e) COMPASS CAPITAL STOCK SUBJECT TO REPURCHASE. All cash and
shares of Avant! Common Stock received in the Merger in exchange for shares of
Compass Preferred Stock or Compass Common Stock (collectively, the "Compass
Capital Stock") that, under applicable stock purchase, stock restriction or
similar agreements with Compass, are unvested or subject to a repurchase option
or other condition of forfeiture that by its terms does not terminate due to the
Merger ("Compass Restricted Stock") will also be unvested or subject to the same
repurchase option and escrow conditions or other condition, as the case may be,
and the certificates evidencing any such shares will be marked with appropriate
legends. SCHEDULE 2.1(e) hereto sets forth a true and complete list of all
holders of Compass Restricted Stock, including the number of shares of Compass
Restricted Stock held and a breakdown as between vested and unvested shares. On
the Closing Date, Compass shall deliver to Avant! an updated SCHEDULE 2.1(e)
hereto current as of the Closing Date.
(f) DISSENTERS' RIGHTS. If, as of the Effective Time of the
Merger, holders of the issued and outstanding Compass Capital Stock are entitled
to dissenters' rights under the DGCL, or alternatively, the CGCL to the extent
Compass is determined to be a foreign corporation contemplated by Section 2115
of the CGCL and have properly exercised and not lost such dissenters' rights
("Dissenting Shares") in connection with the Merger, shares of Compass Capital
Stock shall not be converted into or represent a right to receive the cash
consideration and/or Avant! Common Stock pursuant to Section 2.1(c) but shall be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares.
(g) FRACTIONAL SHARES. No fractional shares of Avant! Common
Stock shall be issued by virtue of the Merger, but in lieu thereof each holder
of shares of Compass Capital Stock who would otherwise be entitled to receive a
fraction of a share of Avant! Common Stock shall receive from Avant! the Average
Nasdaq Per Share Price multiplied by the fraction of a share of Avant! Common
Stock to which such holder would otherwise be entitled. The fractional share
interests of each Compass stockholder shall be aggregated, so that no Compass
stockholder shall receive cash in an amount greater than the value of one (1)
full share of Avant! Common Stock.
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2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Closing Date, Avant! shall
appoint Harris Trust Company to act as exchange agent (the "Exchange Agent") in
the Merger.
(b) AVANT! TO PROVIDE CASH AND COMMON STOCK. Promptly after the
Effective Time of the Merger (but in no event later than ten (10) business days
thereafter), Avant! shall deposit, or shall cause to be deposited, with the
Exchange Agent for exchange in accordance with this Article II, the cash and the
aggregate number of shares of Avant! Common Stock issuable pursuant to
Section 2.1 in exchange for outstanding shares of Compass Capital Stock.
(c) EXCHANGE PROCEDURES. Within ten (10) business days after
the Effective Time of the Merger, the Exchange Agent shall mail to each holder
of record of a certificate or certificates that immediately prior to the
Effective Time of the Merger represented outstanding shares of Compass Capital
Stock (the "Certificates") and which shares were converted into the right to
receive cash and/or shares of Avant! Common Stock pursuant to Section 2.1 hereof
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Avant! may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for cash and/or certificates representing shares of Avant! Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Avant!, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor the cash payment and/or a certificate representing
the number of whole shares of Avant! Common Stock, plus cash in lieu of
fractional shares in accordance with Section 2.1(g), to which such holder of
Compass Capital Stock is entitled pursuant to Section 2.1 hereof. The
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Compass Capital Stock that is not registered on the
transfer records of Compass, the appropriate cash payment and/or a certificate
representing the number of shares of Avant! Common Stock, plus cash in lieu of
fractional shares in accordance with Section 2.1(g), may be delivered to a
transferee if the Certificate representing such Compass Capital Stock is
presented to the Exchange Agent and accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at all times after the Effective
Time of the Merger to represent the right to receive upon such surrender the
cash payment and/or a certificate representing the number of whole shares of
Avant! Common Stock, plus cash in lieu of fractional shares in accordance with
Section 2.1(g), as provided by this Article II and the provisions of the DGCL
but shall have no other right; provided, however, that customary and appropriate
certifications, indemnities and bonds allowing exchange against lost or
destroyed certificates shall be provided; and provided further that nothing in
this Section 2.2(c) shall require Avant! to make a cash payment and/or exchange
its Common Stock to any holder of Compass Capital Stock who shall fail to
surrender a Certificate representing such shares or the certification,
indemnities and bonds relating to a lost
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certificate. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Compass Capital Stock for
any cash payment and/or share of Avant! Common Stock and any other cash,
dividends or distributions delivered to a public official pursuant to applicable
abandoned property, escheat and similar laws. Promptly following the date that
is six (6) months after the Effective Date of the Merger, the Exchange Agent
shall return to the Surviving Corporation the remaining portion of the cash and
shares of Avant! Common Stock deposited with the Exchange Agent pursuant to
Section 2.2(b) in its possession relating to the transactions described in this
Agreement, and the Exchange Agent's duties shall terminate. Thereafter, each
holder of a Certificate may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the cash payment and/or a certificate
representing the shares of Avant! Common Stock to which such holder is entitled
pursuant hereto.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPASS CAPITAL STOCK. The
cash consideration and all shares of Avant! Common Stock delivered upon the
surrender for exchange of shares of Compass Capital Stock in accordance with the
terms hereof (including any cash paid for fractional shares in respect therefor)
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of Compass Capital Stock. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Compass Capital Stock that were outstanding
immediately prior to the Effective Time of the Merger. If, after the Effective
Time of the Merger, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article II.
2.3 SUPPLEMENTARY ACTION. If, at any time after the Effective Time
of the Merger, any further assignments or assurances in law or any other things
are necessary or desirable to vest or to perfect or confirm of record in the
Surviving Corporation the title to any property or rights of either Compass or
Sub or otherwise to carry out the provisions of this Agreement, the officers and
directors of the Surviving Corporation are hereby authorized and empowered, in
the name of and on behalf of Compass and Sub, to execute and deliver any and all
things necessary or proper to vest or to perfect or confirm title to such
property or rights in the Surviving Corporation, and otherwise to carry out the
purposes and provisions of this Agreement.
ARTICLE III:
REPRESENTATIONS AND WARRANTIES OF COMPASS
Compass represents and warrants to Avant! and Sub that the
representations and warranties set forth below shall be true and correct as of
the date hereof, except as disclosed in a document delivered by Compass to
Avant! prior to the execution of this Agreement (the "Compass Disclosure
Schedules"). As used in this Agreement, "Business Condition" with respect to
Compass shall refer to Compass' financial condition, business (including
products currently under development), property, results of operations and
assets.
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3.1 ORGANIZATION, STANDING AND POWER. Compass is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as now being conducted.
Compass is duly qualified as a foreign corporation and is in good standing in
each jurisdiction in which the failure to so qualify would have a material and
adverse effect on Compass' Business Condition. Compass has delivered or made
available to Avant! complete and correct copies of its current charter and
Bylaws, and has delivered minutes of all directors' and stockholders' meetings,
complete and accurate as of the date hereof, and stock certificate books of
Compass, that correctly set forth the record ownership of all outstanding shares
of Compass Capital Stock and the addresses of each of its security holders.
3.2 CAPITAL STRUCTURE.
(a) The authorized Capital Stock of Compass consists of
40,000,000 shares of Common Stock and 2,200,000 shares of Preferred Stock. As
of the date of this Agreement, there were issued and outstanding 19,628,560
shares of Compass Common Stock, and there were issued and outstanding 2,200,000
shares of Compass Series A Preferred Stock. As of the date of this Agreement,
there were an aggregate of 1,880,774 shares of Common Stock reserved for
issuance upon the exercise of outstanding Compass Options. SCHEDULE 3.2(a) sets
forth a listing of each stockholder of Compass and the respective number of
shares of each class of Compass Capital Stock owned by each such stockholder.
Except as set forth on SCHEDULE 3.2(a), there are no outstanding shares of
Compass Capital Stock or any other equity securities or rights to purchase
equity securities of Compass, other than shares of Compass Capital Stock and
Compass Options as described in this paragraph.
(b) All outstanding shares of Compass Capital Stock are, and any
shares of Compass Capital Stock issued upon exercise of any Compass Option will
be, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, Compass' charter or Bylaws or
any agreement to which Compass is a party or by which Compass may be bound.
Except as set forth on SCHEDULE 3.2(b), all outstanding Compass Capital Stock or
other Compass securities have been issued in compliance with applicable
securities laws. Except for the Compass Options, there are no options,
warrants, calls, conversion rights, commitments or agreements of any character
to which Compass is a party or by which Compass may be bound that do or may
obligate Compass to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of Compass Capital Stock or that do or may obligate
Compass to grant, extend or enter into any such option, warrant, call,
conversion right, commitment or agreement.
(c) Except for the Compass Preferred Stock and as set forth on
SCHEDULE 2.1(e), none of the issued and outstanding shares of Compass Capital
Stock is subject to repurchase or redemption. All Compass Options have been
issued in accordance with Compass' stock option plans and all applicable
securities laws, including pursuant to valid permits or exemptions therefrom.
The Compass stock option plans and all amendments thereto have been approved by
all requisite Compass stockholder action. Compass does not have in effect any
stock appreciation rights plan and no stock appreciation rights are currently
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outstanding. The consummation of the Merger shall not cause an acceleration in
the vesting of any of Compass' Capital Stock.
(d) Except for any restrictions imposed by applicable securities
laws, the Compass Bylaws, the Compass stock option plan and agreements, and the
agreements related to Compass Restricted Stock listed in SCHEDULE 2.1(e), there
is no right of first refusal, co-sale right, right of participation, right of
first offer, option or other restriction on transfer applicable to any shares of
Compass Capital Stock.
(e) Except for the Voting Agreement entered into as of the date
hereof in substantially the form attached hereto as EXHIBIT 3.2(e) (the "Voting
Agreement") with the parties listed on SCHEDULE 3.2(e) hereto, Compass is not a
party or subject to any agreement or understanding, and there is no agreement or
understanding between or among any persons that affects or relates to the voting
or giving of written consent with respect to any outstanding security of
Compass.
3.3 SUBSIDIARIES.
(a) SCHEDULE 3.3(a) hereto sets forth each subsidiary of Compass
(each a "Subsidiary"), together with the jurisdiction of incorporation or
organization of each such Subsidiary, the outstanding capital stock of each such
Subsidiary, and the record owner of all such shares of capital stock. All the
outstanding shares of capital stock of each such Subsidiary have been validly
issued and are fully paid and nonassessable and are owned by Compass free and
clear of all adverse claims, restrictions on voting or transfer, pledges,
claims, liens, charges, encumbrances and security interests or other
restrictions of any kind or nature whatsoever (collectively, "Liens"). There
are no securities convertible into or exchangeable for, or any options,
warrants, calls, subscriptions or other rights (preemptive or otherwise) to
acquire, any shares of capital stock of such Subsidiaries or any agreements or
contractual commitments other than this Agreement obligating Compass, or
restricting Compass' rights, to transfer, sell or vote, the capital stock of any
of such Subsidiaries owned by it, directly or indirectly. Except as set forth
in SCHEDULE 3.3(a) hereto, neither Compass nor any of its Subsidiaries owns,
directly or indirectly, any capital stock or other ownership interest in any
corporation, partnership, joint venture or other entity or has any agreement,
understanding, contract or commitment relating to an interest in any
corporation, partnership, joint venture or other entity or Compass' or such
Subsidiary's investment therein. Each Subsidiary identified on SCHEDULE 3.3(a)
hereto is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation.
(b) SCHEDULE 3.3(b) hereto sets forth a true and complete list
of all jurisdictions in which Compass and its Subsidiaries are qualified to do
business or own or lease property or have employees.
3.4 AUTHORITY.
(a) Compass has all requisite corporate power and authority to
enter into this Agreement and the Certificate of Merger and the Escrow Agreement
(collectively, the
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"Related Agreements") and, subject to approval of this Agreement and the
Certificate of Merger by the stockholders of Compass, to execute, deliver and
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Related Agreements, the performance by Compass of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of Compass, including approval by its
Board of Directors, other than approval of the Compass stockholders. Each of
this Agreement and the Related Agreements is a legal, valid and binding
obligation of Compass enforceable against Compass in accordance with its
respective terms, except (i) as enforcement may be limited by bankruptcy,
insolvency, or other similar laws affecting the enforcement of creditors' rights
generally, (ii) that the availability of equitable remedies is subject to the
discretion of the court before which any proceeding therefor may be brought, and
(iii) that indemnification for securities law violations may not be enforceable
as a matter of public policy.
(b) Subject to satisfaction of the conditions set forth in
Article VI hereto, the execution and delivery of this Agreement and the Related
Agreements do not and the performance and consummation of the transactions
contemplated hereby and thereby will not, conflict with or result in any
conflict with, breach or violation of any statute, law, rule, regulation,
judgment, order, decree, or ordinance known to Compass and applicable to Compass
or its properties or assets, or conflict with or result in any conflict with,
breach or violation of or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation, forfeiture or
acceleration of any obligation or the loss of a benefit under, or result in the
creation of a lien or encumbrance on any of the properties or assets of Compass
pursuant to (i) any provision of the current charter or Bylaws of Compass, or
(ii) any agreement, contract, note, mortgage, indenture, lease, instrument,
permit, concession, franchise or license to which Compass is a party or by which
Compass or any of its property or assets may be bound or affected, other than
any such conflict, breach, violation or default which would not have a material
and adverse effect on the Business Condition of Compass.
(c) No consent, approval, order or authorization of, or
registration, declaration of, or qualification or filing with, any court,
administrative agency, commission, regulatory authority or other governmental or
administrative body or instrumentality, whether domestic or foreign (a
"Governmental Entity"), is required by or with respect to Compass in connection
with the execution and delivery of this Agreement and the Related Agreements by
Compass or the consummation by Compass of the transactions contemplated hereby
or thereby, except for (i) the filing of the Certificate of Merger as required
under the DGCL and appropriate documents with the relevant authorities of other
jurisdictions in which Compass is qualified to do business, (ii) compliance with
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") as described in Section 5.16 and (iii) such other consents, approvals,
authorizations, registrations or qualifications as may be required under
applicable securities or Blue Sky laws in connection with the Merger.
3.5 FINANCIAL STATEMENTS. Compass has delivered to Avant! a complete
and accurate copy of its unaudited balance sheet at December 27, 1996, and its
unaudited balance
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sheet at June 27, 1997, and its statement of operations, statement of cash flows
and statement of stockholders' equity, including notes thereto for the year
ended December 27, 1996, and the six months ended June 27, 1997, which are
unaudited (collectively, "the Compass Financial Statements"). The Compass
Financial Statements have been prepared internally in good faith by Compass'
management and applied on a consistent basis throughout the periods indicated
and with each other. Except for the absence of footnotes and customary year-end
adjustments in the financial statements the Compass Financial Statements fairly
present the financial position and operating results of Compass as of the dates,
and for the periods, indicated therein. The Compass Financial Statements have
been prepared with the understanding that: (i) materiality thresholds reflect
management judgments based on consolidated VLSI financial results; (ii) no
attempt has been made to apply carve out accounting principles; and (iii) income
tax provisions are based on the VLSI/Compass tax sharing agreement and do not
take into account FAS 109 on a separate company basis.
3.6 PAYABLES; RECEIVABLES.
(a) All accounts payable and notes payable by Compass to third
parties as of the date hereof arose, and as of the Closing, will have arisen, in
the ordinary course of business.
(b) All of the accounts receivable and notes receivable, net of
allowances, owing to Compass as of June 27, 1997 and as of the Closing are, or
will be, set forth in SCHEDULE 3.6 or an updated SCHEDULE 3.6 delivered at the
Closing, respectively, and constitute, and as of the Effective Time of the
Merger will constitute, valid and enforceable claims arising from bona fide
transactions in the ordinary course of business collectible in the recorded
amounts thereof, to the extent not previously collected (provided further that
this representation regarding collectibility of accounts shall be breached only
to the extent the sum of all uncollectible accounts exceeds the allowances in
the balance sheet as of June 27, 1997 in the Compass Financial Statements or
allowances made in the updated SCHEDULE 3.6 delivered at the Closing, which
allowances have been and shall be calculated in a manner consistent with the
methodologies and practices used by Compass in preparing its balance sheet as of
December 27, 1996), and, there are no known, contingent or asserted claims,
refusals to pay, rights of return, or other rights of set-off against any
thereof. As of the date hereof, and as of the Closing, there is and will be no
account receivable or note receivable that is pledged to any third party by
Compass.
(c) As of June 27, 1997, there are no debts, liabilities,
obligations or claims against Compass of any nature, whether accrued, absolute,
contingent or otherwise (collectively "Liabilities"), and whether due or to
become due, that would be required to be reflected in a balance sheet, or in the
notes thereto, that are not disclosed or provided for in the Compass Financial
Statements or the notes thereto. As of the date hereof, Compass has no
Liabilities other than those specifically set forth in the Compass Financial
Statements or that have arisen in the ordinary course of business since June 27,
1997. All of Compass' general ledgers, books and records have been made
available to Avant!. Compass does not have any of its records, systems,
controls, data or information recorded, stored, maintained, operated or
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otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
that (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of Compass or its parent, VLSI. Compass'
financial reserves in the Compass Financial Statements are adequate to cover
claims already incurred. The provision for taxes of Compass as set forth in the
Compass Financial Statements is adequate and accurate for taxes due or accrued
as of such date.
3.7 COMPLIANCE WITH LAWS. Except as set forth in SCHEDULE 3.7,
Compass is in compliance and has conducted its business and operations so as to
comply with all laws, ordinances, rules and regulations, judgments, decrees or
orders of any Governmental Entity known to Compass. There are no judgments or
orders, injunctions, decrees, stipulations or awards (whether rendered by a
court or administrative agency or by arbitration) against Compass or against any
of its properties or businesses, and none are pending or, to Compass' knowledge,
threatened in writing. Compass has not during the past three (3) years received
any governmental notice from any Governmental Entity for any violation of
applicable laws or regulations. Compass has all valid and current permits,
licenses, orders, authorizations, registrations, approvals and other instruments
(each of which is in full force and effect), and Compass has made all filings
and registrations and the like necessary or required by law to conduct its
business.
3.8 NO DEFAULTS. Except as set forth in SCHEDULE 3.8, Compass is
not, and it has not received notice that it is or would be with the passage of
time, in violation of any provision of its current charter or Bylaws or in
default or violation of any term, condition or provision of (a) any judgment,
decree, order, injunction or stipulation applicable to Compass, or (b) any
agreement, note, mortgage, indenture, law, statute, rule, regulation, contract,
lease, instrument, permit, concession, franchise or license to which Compass is
a party or by which Compass or its properties or assets may be bound other than
a default or violation that would not have a material and adverse effect on
Compass' Business Condition.
3.9 LITIGATION. Except as set forth in SCHEDULE 3.9, there is no
action, suit, proceeding, claim, arbitration or investigation pending or, to the
best of Compass' knowledge, threatened against Compass or, to the best of
Compass' knowledge, any of its officers or directors (in their capacities as
such), nor is there any reasonable basis therefor known to Compass. There is no
action, suit, proceeding or investigation by Compass currently pending or which
it intends to initiate. Compass is not a party to or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or Governmental
Entity. Compass has delivered to Avant! correct and complete copies of all
correspondence prepared by its counsel for Compass' independent public
accountants in connection with the last three (3) completed annual Compass
Financial Statements and any such correspondence since the date of the last
Compass Financial Statement.
3.10 CONDUCT IN THE ORDINARY COURSE. Except as set forth in
SCHEDULE 3.10, since June 27, 1997, Compass has conducted its business in the
ordinary course and there has not occurred:
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(a) Any change in the assets, liabilities, Business Condition or
operating results from that reflected in the Compass Financial Statements at,
and for the six months ended, June 27, 1997 and that might reasonably be
expected to have a material and adverse affect on the Business Condition of
Compass;
(b) Any amendments or changes in the charter or Bylaws of
Compass;
(c) Any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting the Business Condition of
Compass;
(d) Any issuance, redemption, repurchase or other acquisition of
shares of Compass Capital Stock (other than issuances pursuant to exercise of
Compass Options or repurchases of Common Stock at cost in the ordinary course
under the terms of agreements relating to Compass Restricted Stock), or any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to Compass Capital Stock;
(e) Any increase in or modification of the compensation or
benefits payable or to become payable by Compass to any of its service providers
or changes pursuant to employment agreements currently in effect or changes in
position;
(f) Any increase in or modification of any bonus, pension,
insurance or other employee benefit plan, payment or arrangement (including,
without limitation, the granting of stock options, restricted stock awards or
stock appreciation rights) made to, for or with any of its service providers;
(g) Any (i) sale of the property or assets of Compass
individually in excess of $10,000 or in the aggregate in excess of $25,000 other
than inventory sales or nonexclusive end user license grants in the ordinary
course of business consistent with past practice or (ii) any mortgage, pledge,
transfer of a security interest in, or lien created by it, with respect to any
of its properties or assets, except liens for taxes not yet due or payable
(other than liens arising under existing lease financing arrangements, liens
arising in the ordinary course of Compass' business that in the aggregate are
not material and liens for Taxes not yet due and payable);
(h) Any alteration in any term of any outstanding security of
Compass;
(i) Any (i) incurrence, assumption or guarantee by Compass of
any debt for borrowed money other than trade indebtedness incurred in the
ordinary course of business consistent with past practice; (ii) any waiver or
compromise by it of a valuable right or of a debt owed to it; (iii) any
satisfaction or discharge of any lien, claim, or encumbrance or payment of any
obligation by it, except that which is not material to its Business Condition;
(iv) issuance or sale of any securities convertible into or exchangeable for
debt securities of Compass; or (v) issuance or sale of options or other rights
to acquire from Compass, directly or indirectly, debt securities of Compass or
any securities convertible into or exchangeable for any such debt securities;
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(j) Any creation or assumption by Compass of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements, liens arising in the
ordinary course of Compass' business that in the aggregate are not material and
liens for Taxes not yet due and payable);
(k) Any making of any loan, advance or capital contribution to,
or investment in, any person other than advances made in the ordinary course of
business of Compass consistent with Compass' past practices;
(l) Any entry into, amendment of, relinquishment, termination or
nonrenewal by Compass of any contract, lease, commitment or other right or
obligation other than in the ordinary course of business consistent with past
practice;
(m) Any transfer or grant of a right under the Compass
Intellectual Property Rights (as defined in Section 3.17) other than those
transferred or granted in the ordinary course of business consistent with past
practice;
(n) Any labor dispute, other than routine individual grievances,
or any activity or proceeding by a labor union or representative thereof to
organize any employees of Compass;
(o) Any resignation or termination of employment of any of its
key employees (and Compass does not know of the impending resignation or
termination of employment of any such employee); or
(p) Any agreement or arrangement made by Compass to take any
action that, if taken prior to the date hereof, would have made any
representation or warranty set forth in this Section 3.10 untrue or incorrect as
of the date when made.
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 3.11 and in the Compass Financial Statements, Compass has no
liabilities or obligations (whether absolute, accrued or contingent, and whether
or not determined or determinable) of a character that should be accrued, shown,
disclosed, reserved or indicated in a balance sheet of Compass (including the
footnotes thereto).
3.12 DOCUMENTS AND INFORMATION SUPPLIED. The copies of all
instruments, agreements, and documents delivered by Compass, its stockholders
and professional advisors to Avant! and Sub or their counsel and accountants are
and will be true and correct copies of such documents. No representations or
warranties made by Compass in this Agreement, nor any document, information,
statement, financial statement, communication, letter, certificate or exhibit
prepared and furnished or to be prepared and furnished by Compass or its
representatives to Avant! or Sub pursuant hereto or in connection with the
transactions contemplated hereby contain or will contain any untrue statement of
a material fact, or omit or will omit to state a material fact necessary to make
the statements or facts contained herein or therein, in light of the
circumstances under which made, not misleading.
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3.13 CERTAIN AGREEMENTS. Except as set forth in SCHEDULE 3.13,
neither the execution and delivery of this Agreement or any of the Related
Agreements nor the consummation of the transactions contemplated hereby or
thereby will (a) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any service provider of Compass under any Plan (as defined in
Section 3.14 below) or otherwise, (b) materially increase any benefits otherwise
payable under any Plan, or (c) result in the acceleration of the time of payment
or vesting of any such benefits.
3.14 EMPLOYEE PLANS.
(a) Compass has not failed to comply in any material
respect with Title VII of the Civil Rights Act of 1964, as amended, the Fair
Labor Standards Act, as amended, the Occupational Safety and Health Act of 1970,
as amended, all applicable federal, state, and local laws, rules, and
regulations relating to employment, and all applicable laws, rules, and
regulations governing payment of minimum wages and overtime rates, and the
withholding and payment of compensation of employees, except where the failure
to so comply will not have a material and adverse effect on Compass' Business
Condition.
(b) Compass is not a party to, nor has Compass made any
contribution to or otherwise incurred any obligation under, any "multiemployer
plan" as defined in Section 3(37) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
(c) All plans, programs, policies, commitments or other
arrangements (whether or not set forth in a written document) maintained by or
on behalf of Compass that provide deferred or incentive compensation, stock
options or other stock purchase rights, severance or termination pay, medical,
dental, death, disability or accident benefits (whether or not insured),
collective bargaining agreements, or pension, profit sharing, savings or
retirement benefits to, or for the benefit of, any active, former or retired
service providers of Compass or their spouses or dependents are set forth in
SCHEDULE 3.14 (collectively, the "Plans").
(d) Compass has made available to Avant! or their counsel
complete and accurate copies of each Plan. Compass has prepared in good faith
and timely filed all requisite governmental reports and has properly and timely
posted, or distributed all notices and reports to employees required to be
filed, posted, or distributed with respect to each Plan, except where the
failure to so comply will not have a material and adverse affect on Compass'
Business Condition. Each Plan has at all times been operated and administered
in all material respects in accordance with its terms and all applicable laws
currently in effect, including ERISA and the Code, and including but not limited
to, amendments to Section 401(a) of the Code enacted by the Tax Reform Act of
1986, the Omnibus Budget Reconciliation Act of 1986, the Omnibus Budget
Reconciliation Act of 1987, the Technical and Miscellaneous Revenue Act of 1988,
and the Omnibus Budget Reconciliation Act of 1989.
(e) Compass has not violated in any material respect any of
the health care continuation coverage requirements of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") applicable to its employees prior to
the Time of Closing.
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(f) There are no "reportable events" under Section 4043 of
ERISA with respect to any pension benefit plan within the meaning of
Section 3(2) of ERISA, subject to Title IV of ERISA, and Compass has not
incurred any liability under Title IV of ERISA in connection with the
termination of any pension benefit plan or the complete or partial withdrawal
from any multiemployer plan within the meaning of Section 3(37) of ERISA.
3.15 MAJOR CONTRACTS. Except as set forth in SCHEDULE 3.15, Compass
is not a party to or subject to:
(a) Any union contract or any employment or consulting
contract or arrangement other than stock option or stock purchase agreements or
proprietary information agreements, written or oral with any director, officer
or affiliate;
(b) Any original equipment manufacturer agreement,
distribution agreement, volume or quantity purchase agreement or other similar
agreement (each a "Distribution Agreement"), or joint marketing, joint
development or joint venture contract or arrangement or any other agreement that
has involved or is expected to involve a sharing of profits with other persons
or provides for payments of more than $75,000 per annum;
(c) Any lease for real or personal property involving
payments of more than $75,000 per annum;
(d) Any instrument evidencing or related in any way to
indebtedness incurred in the acquisition of companies or other entities or
indebtedness for borrowed money by way of direct loan, sale of debt securities,
purchase money obligation, conditional sale, guarantee, leasehold obligations or
otherwise;
(e) Any license agreement over $100,000, either as licensor
or licensee other than standard end-user licensing agreements entered into in
the ordinary course of business;
(f) Any contract containing covenants purporting to limit
the freedom of Compass directly or indirectly to distribute or otherwise compete
in any line of business in any geographic area or with any third party;
(g) Any agreement of indemnification, except
indemnification provided in the ordinary course of business for officers and
directors pursuant to applicable corporate law;
(h) Any agreement, contract or commitment relating to
capital expenditures involving payments of more than $75,000 per annum;
(i) Any agreement, contract or commitment relating to the
disposition or acquisition by Compass of any assets (other than Inventory) or
any Compass Intellectual Property Rights (as defined in Section 3.17 below),
other than nonexclusive object code end-user license grants in the ordinary
course of business;
(j) Any agreement providing for minimum payment or resale
obligations, ongoing support or research and development obligations, or
warranty obligations on the part of Compass, except arrangements entered into in
the ordinary course of business;
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(k) Any agreement for the provision of products or
securities to any Governmental Entity, except customer agreements entered into
in the ordinary course of business;
(l) Any agreement requiring a commitment of Compass
resources or personnel to market, distribute or license products or technology,
whether on a best-efforts basis or otherwise;
(m) Any other agreement, contract, letter of intent,
memorandum of understanding or commitment that is material to Compass and that
provides for payments of more than $75,000 per year;
(n) Service contracts in excess of $100,000 for products
and contracts relating to material amounts of deferred revenues; or
(o) Any sole or limited source supplier agreements (written
or oral).
Except as set forth on SCHEDULE 3.15, each agreement, contract,
mortgage, indenture, plan, lease, instrument, permit, concession, franchise,
arrangement, license and commitment to which Compass is a party or by which it
is bound as set forth in SCHEDULE 3.15 (or required to be set forth in
SCHEDULE 3.15) (i) is valid and binding on Compass, (ii) is in full force and
effect and (iii) has not been breached by Compass or, to the best of Compass'
knowledge, any other party thereto in a manner that is material and adverse to
the Business Condition of Compass. To the best of Compass' knowledge, no party
to any such contract, agreement or instrument intends to cancel, withdraw,
modify or amend such contract, agreement or arrangement. Compass is not aware
of any facts from which it should reasonably conclude that it will not be able
to perform in all material respects the obligations required to be performed by
it subsequent to the date hereof under each such agreement, which
non-performance would reasonably be expected to result in a material and adverse
change to the Business Condition of Compass.
3.16 TAXES. Federal income tax returns and certain other Tax
returns have been filed on a combined or consolidated basis by VLSI. All Tax
returns, statements, reports, declarations and other forms and documents
(including without limitation estimated Tax returns and reports and material
information returns and reports) required to be filed with any Tax authority
with respect to any Taxable period ending on or before the Closing (or, in the
case of a Tax Return that is not filed with respect to a period) that is due on
or before the Closing, by or on behalf of Compass (collectively, "Tax Returns"
and individually a "Tax Return"), have been or will be completed and filed when
due (including any extensions of such due date), all such Tax Returns were or
will be complete and accurate as filed, and all amounts shown due on such Tax
Returns on or before the Effective Time of the Merger have been or will be paid
on or before such date. The Compass Financial Statements (i) fully accrue all
actual and contingent liabilities
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for Taxes (whether or not shown as due on the Tax Returns) with respect to all
periods or portions thereof through June 27, 1997 and Compass has not incurred
and will not incur any Tax liability in excess of the amount reflected on its
June 27, 1997 balance sheet included in the Compass Financial Statements with
respect to such periods or portions thereof, and (ii) fully accrues all material
liabilities for Taxes payable after June 30, 1997 with respect to all
transactions and events occurring on or prior to such date. All information set
forth in the notes to the Compass Financial Statements relating to Tax matters
is true, complete and accurate in all material respects. No Tax liability since
June 27, 1997 has been incurred by Compass in excess of the amount of Tax
liability that would have been incurred in the ordinary course of business of
Compass during such period had Compass not been a member of an affiliated,
consolidated, combined or unitary group for Tax purposes during any part of such
period and adequate provision has been made by Compass for all Taxes since that
date on at least a quarterly basis. Compass has withheld and paid to the
applicable financial institution or Tax authority all amounts required to be
withheld. Except as set forth on SCHEDULE 3.16, to the best knowledge of
Compass, no Tax Returns filed with respect to Taxable years of Compass through
the Taxable year ended December 31, 1996 in the case of the United States, have
been examined and closed. Compass (or any member of any affiliated or combined
group of which Compass has been a member) has not granted any extension or
waiver of the limitation period applicable to any Tax Returns that is still in
effect. Except as set forth on SCHEDULE 3.16, there is no material claim,
audit, action, suit, proceeding, or (to the best knowledge of Compass)
investigation now pending or (to the best knowledge of Compass) threatened
against or with respect to Compass in respect of any Tax or assessment. Except
as set forth on SCHEDULE 3.16, no notice of deficiency or similar document of
any Tax authority has been received by Compass, and there are no liabilities for
Taxes (including liabilities for interest, additions to Tax and penalties
thereon and related expenses) with respect to the issues that have been raised
(and are currently pending) by any Tax authority that could, if determined
adversely to Compass, materially and adversely affect the liability of Compass
for Taxes. There are no liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of Compass. Compass is in full compliance with
all the terms and conditions of any Tax exemptions or other Tax-sharing
agreement or order of a foreign government and the consummation of the Merger
will not have any adverse effect on the continued validity and effectiveness of
any such Tax exemption or other Tax-sharing agreement or order. Neither Compass
nor any person on behalf of Compass has entered into or will enter into any
agreement or consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state, local or
foreign income tax law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign income tax law) apply to any
disposition of any asset owned by Compass. None of the assets of Compass is
property that Compass is required to treat as being owned by any other person
pursuant to the so-called "safe harbor lease" provisions of former
Section 168(f)(8) of the Code. None of the assets of Compass directly or
indirectly secures any debt the interest on which is tax exempt under
Section 103(a) of the Code. None of the assets of Compass is "tax-exempt use
property" within the meaning of Section 168(h) of the Code. Compass has not
made and will not make a deemed dividend election under Treas. Reg. Section
1.1502-32(f)(2) or a consent dividend election under Section 565 of the Code.
Compass has not participated in (and will not participate in) an international
boycott within the meaning of Section 999 of the Code. Except as set forth on
SCHEDULE 3.16 hereto, Compass does not have and has not had a permanent
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establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States of America and such foreign country. All
material elections with respect to Compass' Taxes made during the fiscal years
ending December 27, 1994, 1995 and 1996 are reflected on the Compass Tax Returns
for such periods, copies of which have been provided to Avant!. There is no
agreement, contract or arrangement to which Compass is a party that could,
individually or collectively, result in the payment of any amount that would not
be deductible by reason of Sections 280G (as determined without regard to
Section 280G(b)(4)), 162 (other than 162(a)) or 404 of the Code. Compass is not
a party to or bound by any Tax indemnity, Tax sharing or Tax allocation
agreement (whether written or unwritten or arising under operation of federal
law as a result of being a member of a group filing consolidated Tax returns,
under operation of certain state laws as a result of being a member of a unitary
group, or under comparable laws of other states or foreign jurisdictions) which
includes a party other than Compass nor does Compass owe any amount under any
such Agreement. Compass has previously provided or made available to Avant!
true and correct copies of all Tax Returns, and, as reasonably requested by
Avant!, prior to or following the date hereof, presently existing information
statements and reports. Compass is not, and has not been, a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Other than by reason of the Merger, Compass has not been and will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger. For
purposes of this Agreement, the following terms have the following meanings:
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any and all
taxes including, without limitation, (i) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, value added, net worth, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in (i) or (ii) as a result
of any express or implied obligation to indemnify any other person. As used in
this Section 3.16, the term "Compass" means Compass and any entity included in,
or required to be included in, or required under generally accepted accounting
principles ("GAAP") to be included in any of the Compass Financial Statements.
3.17 INTELLECTUAL PROPERTY.
(a) Except as otherwise set forth in SCHEDULE 3.17, Compass
owns, or is licensed or otherwise entitled to exercise, without material
restriction, all rights to all patents, trademarks, trade names, service marks,
copyrights, mask work rights, trade secret rights and other intellectual
property rights, and any applications or registrations therefor, and all mask
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works, net lists, schematics, technology, source code, know-how, computer
software programs and all other tangible and intangible information or material
used in the business of Compass as currently conducted or in connection with
products currently under development without any conflict or infringement of the
rights of others (collectively, the "Compass Intellectual Property Rights").
All of the trademarks, trade names, service marks and registered copyrights
included in such Compass Intellectual Property Rights are set forth in
SCHEDULE 3.17. Except as set forth on SCHEDULE 3.17, Compass has no patents,
patent applications or copyright registrations. In addition, Compass has taken
all reasonable and practicable steps (including, without limitation, entering
into confidentiality and non-disclosure agreements with all officers and
employees of and consultants to Compass with access to or knowledge of Compass'
Intellectual Property Rights that Compass wishes to maintain as confidential) to
maintain the secrecy and confidentiality of and its proprietary rights in, all
Compass Intellectual Property Rights that Compass wishes to maintain as
confidential.
(b) SCHEDULE 3.17 also lists (i) all patents and patent
applications and all registered copyrights, trade names, trademarks, service
marks and other company, product or service identifiers included in the Compass
Intellectual Property Rights, and specifies the jurisdictions in which each such
Compass Intellectual Property Right has been registered, including the
respective registration numbers; (ii) other than nonexclusive end-user licenses
entered into in the ordinary course of business, all licenses, sublicenses and
other agreements as to which Compass is a party and pursuant to which Compass or
any other person is authorized to use any Compass Intellectual Property Right;
and (iii) all licenses under which Compass is or may be obligated to make
royalty or other payments. Copies of all licenses, sublicenses, and other
agreements identified pursuant to clause (ii) above have been delivered by
Compass to Avant!.
(c) Compass is not in violation in any material respect of
any license, sublicense or agreement described in SCHEDULE 3.17. As a result of
the execution and delivery of this Agreement or the performance of Compass'
obligations hereunder, Compass will not be in violation in any material respect
of any license, sublicense or agreement described in SCHEDULE 3.17, or lose or
in any way impair any rights pursuant thereto.
(d) Compass is the absolute owner or exclusive licensee of,
with all necessary right, title and interest in and to (free and clear of any
liens, encumbrances or security interests), the Compass Intellectual Property
Rights and has rights to the use, sale, license or disposal thereof in
connection with the services or products in respect of which the Compass
Intellectual Property Rights are being used or proposed to be used in connection
with products currently under development.
(e) No claims with respect to the Compass Intellectual
Property Rights have been asserted to Compass, or to Compass' knowledge, are
threatened by any person, (i) to the effect that Compass infringes any
copyright, patent, trade secret, or other intellectual property right of any
third party or violates any license or agreement with any third party, (ii)
contesting the right of Compass to use, sell, license or dispose of any Compass
Intellectual Property Rights, or (iii) challenging the ownership, validity or
effectiveness of any of the Compass Intellectual Property Rights.
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(f) To Compass' knowledge, all trademarks, service marks,
and other company, product or service identifiers held by Compass are valid and
subsisting.
(g) To the best of Compass' knowledge, there has not been
and there is not now any unauthorized use, infringement or misappropriation of
any of the Compass Intellectual Property Rights by any third party, including,
without limitation, any service provider of Compass; Compass has not been sued
or charged as a defendant in any claim, suit, action or proceeding that involves
a claim of infringement of any patents, trademarks, service marks, copyrights or
other intellectual property rights. To Compass' knowledge, it does not have any
infringement liability with respect to any patent, trademark, service mark,
copyright or other intellectual property right of another.
(h) No Compass Intellectual Property Right is subject to
any outstanding order, judgment, decree, stipulation or agreement restricting in
any manner the licensing thereof by Compass. Compass has not entered into any
agreement to indemnify any other person against any charge of infringement of
any Compass Intellectual Property Right, except in the ordinary course of
business. Compass has not entered into any agreement granting any third party
the right to bring infringement actions with respect to, or otherwise to enforce
rights with respect to, any Compass Intellectual Property Right. Compass has
the exclusive right to file, prosecute and maintain all applications and
registrations with respect to the Compass Intellectual Property Rights developed
or owned by Compass, except patents and patent applications previously assigned
to VLSI.
3.18 EMPLOYEE AGREEMENTS. To the best of Compass' knowledge, no
service provider of Compass is in violation of any term of any judgment, decree
or order, or any term of an employment contract (whether written or verbal),
patent or trademark disclosure agreement or any other contract or agreement
relating to the relationship of any such service provider with Compass or any
other party (including prior employers), because of the nature of the business
now conducted by Compass. Each current and former service provider of Compass
has executed a proprietary information and inventions agreement (or similar
agreement) with Compass in the form then being used by Compass, all of which
forms have been attached to SCHEDULE 3.18.
3.19 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth in
SCHEDULE 3.19, there is no agreement, judgment, injunction, order or decree
binding upon Compass or which has or could reasonably be expected to have the
effect of prohibiting or significantly impairing any material business practice
of Compass, any material acquisition of property by Compass, or the continuation
of the business of Compass as currently conducted.
3.20 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES:
CONDITION OF EQUIPMENT.
(a) Compass does not own any real property.
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(b) All of the existing Compass real property leases have
been previously delivered to Avant!. SCHEDULE 3.20 sets forth a complete and
accurate list of all real property leased by Compass.
(c) Compass owns or has valid leasehold interests in all of
its tangible properties and assets, real, personal and mixed, used in its
business, free and clear of any liens (other than liens for Taxes that are not
yet delinquent), charges, pledges, security interests or other encumbrances,
except as reflected in the Compass Financial Statements and except for such
imperfections of title and encumbrances, if any, that are not substantial in
character, amount or extent, and that do not and are not reasonably likely to
materially detract from the value, or interfere with the use, as presently
conducted, of the property subject thereto or affected thereby. Compass has
delivered to Avant! correct and complete copies of each lease identified in
SCHEDULE 3.20 and such lease(s) are valid and enforceable by Compass in
accordance with their terms, except (i) as enforcement may be limited by
bankruptcy, insolvency, or other similar laws affecting the enforcement of
creditors' rights generally, and (ii) that the availability of equitable
remedies is subject to the discretion of the court before which any proceeding
therefor may be brought. Compass has received no notice that, and, to the best
of Compass' knowledge, no circumstance exists which, with the passage of time or
the giving of notice could constitute a default under, any such lease(s).
Except as set forth in SCHEDULE 3.20, no consent of any party is required to any
lease of which Compass is a party as a consequence of the Merger.
(d) Each item of machinery and equipment (the "Equipment")
owned or leased by Compass is listed in SCHEDULE 3.20, except such Equipment
which individually has a net book value of less than $50,000. The Equipment is
(i) adequate for the conduct of the business of Compass consistent with its past
practice, (ii) suitable for the uses to which it is currently employed, (iii) in
good operating condition, (iv) regularly and properly maintained, and (v) not
obsolete, dangerous or in need of renewal or replacement, except for renewal or
replacement in the ordinary course of business.
(e) Since June 27, 1997, there has not occurred any
transfer of title other than in the ordinary course of business, any material
abandonment, or any material pilferage or any other material loss with respect
to, any of its property, plant or equipment.
(f) SCHEDULE 3.20 also contains a true and correct list of
all of the physical assets (including fixed assets) having a net book value in
excess of $50,000 owned or leased by Compass or on consignment, provided that
leased property may be summarized on such schedule by lessor, lease number,
amount financed and type of equipment. All improvements on leased property used
in the business of Compass and the present use thereof are performed in all
material respects in accordance with all applicable laws. The net book value of
any fixed assets used in Compass' business has not been written up or down,
other than pursuant to depreciation or amortization expense in accordance with
its historical practice.
3.21 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. SCHEDULE 3.21 sets
forth all of Compass' licenses, authorizations, permits, concessions,
certificates and other franchises of any Governmental Entity required to operate
its business as currently conducted (collectively, the
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Government Licenses). Compass is in compliance in all material respects with
the terms, conditions, limitations, restrictions, standards, prohibitions,
requirements and obligations of such Government Licenses. The Government
Licenses are in full force and effect. There is not now pending, nor, to the
best of Compass' knowledge, is there threatened, any action, suit, investigation
or proceeding against Compass before any Governmental Entity with respect to the
Government Licenses, nor is there any issued or outstanding notice, order or
complaint with respect to the violation by Compass of the terms of any
Government License or any rule or regulation applicable thereto.
3.22 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 3.22, the following terms
shall have the following meanings:
(i) "Court Order" shall mean any judgment, order,
award or decree of any foreign, federal, provincial, state, local or other court
or tribunal, or any Governmental Entity, and any award in any arbitration
proceeding.
(ii) "Disposal Site" shall mean landfill, disposal
agent, waste hauler or recycler of Hazardous Materials.
(iii) "Environmental Encumbrance" shall mean any
lien, claim, charge, security interest, mortgage, pledge, easement, conditional
sale or other title retention agreement, defect in title, covenant or other
restrictions of any kind in favor of any Governmental Entity for (i) any
liability under any Environmental Law or (ii) damages arising from, or costs
incurred by such Governmental Entity in response to, a Release or threatened
Release of Hazardous Material into the environment.
(iv) "Environmental Laws" shall mean all
Requirements of Laws that relate to any Hazardous Material, any Hazardous
Materials Activities or the use, handling, transportation, production, spin,
lead pumping, injection, deposit, disposal discharge, Release, threatened
Release, migration, emission, sale or storage of, or the exposure of any person
to, Hazardous Material
(v) "Governmental Permits" shall mean all licenses,
franchises, permits, privileges, immunities, approvals and other authorizations
from a Governmental Entity.
(vi) "Hazardous Material" shall mean any material or
substance that is prohibited or regulated by any Requirement of Law or that is
designated by any Governmental Entity to be radioactive, toxic, hazardous or
otherwise a danger to health, reproduction or the environment.
(vii) "Hazardous Materials Activities" shall mean the
generation, release, storage, use, handling, transportation, distribution, sale,
Release or threatened Release of, or Remedial Action concerning any Hazardous
Material, performed in connection with Compass' business or the Real Property.
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(viii) "Real Property" shall mean real property now or
at any time in the past owned or leased by Compass or any predecessors.
(ix) "Release" shall mean release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration of Hazardous Material in, on, under or through the Real Property or
the air, soil, surface water, ground water or improvements thereof.
(x) "Remedial Action" shall mean any reporting,
investigation, characterization, feasibility study, health assessment, risk
assessment, remediation, treatment, recycling, removal, transport, monitoring,
maintenance or any other activity incident to the Release, threatened Release,
investigation, remediation or removal of Hazardous Material existing on the Real
Property or in, on, under or through the air, soil, ground water, surface water
or improvements thereof.
(xi) "Requirements of Laws" shall mean any laws,
statutes, regulations, rules, guidelines, codes, ordinances, judgments,
injunctions' decrees, orders, permits, approvals, treaties or protocols enacted,
adopted, issued or promulgated by any Governmental Entity (including, without
limitation, those pertaining to electrical building, zoning, environmental and
occupational safety and health requirements) or common law in effect on the date
hereof.
(b) Except to the extent described in reasonable detail in
SCHEDULE 3.22 hereto:
(i) Compass complies in all respects with any
applicable existing federal, state or local law, statute or regulation, or any
existing decree, order, arbitration award, or any license or permit issued by
any federal, state or local governmental authority relating to the Environmental
Laws, including, without limitation, Environmental Laws relating to: (i)
Hazardous Materials; (ii) air, water and noise pollution; (iii) ground water
contamination; (iv) the release or threatened release into the environment of
Hazardous Materials; (v) the protection of wildlife, marine sanctuaries and
wetlands; (vi) the protection of natural resources; (vii) storage tanks, vessels
and related equipment; (viii) abandoned or discarded barrels, containers and
other closed receptacles; (ix) health and safety of employees and other persons;
and (x) otherwise relating to the manufacture, processing, use, distribution,
treatment, storage, disposal, transportation or handling of Hazardous Materials;
(ii) Compass has obtained all environmental health
and safety Governmental Permits necessary for its operation or required by any
Environmental Laws, all such Governmental Permits are in good standing, and
Compass is in compliance in all material respects with all terms and conditions
of such permits;
(iii) to Compass' knowledge, none of Compass nor any
of the Real Property or present or past Compass operations is subject to any
pending or ongoing investigation by notice or order from or agreement with any
person with respect to (A) any claim
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of Environmental Law, (B) any Remedial Action or (C) any claim of losses and
expenses arising from the Release or threatened Release of Hazardous Material;
(iv) Compass is not subject to any pending or
existing judicial or administrative proceeding, Court Order or settlement
alleging or addressing a violation of or liability under any Environmental Law;
(v) Compass has not filed, and Compass does not
intend to file any notice or report under any Environmental Law reporting a
violation of any Environmental Law;
(vi) to Compass' knowledge, there is not now, and
there has never been, on or under any Real Property; (A) any underground storage
tank or surface impoundment; or (B) any landfill or waste pile that either is or
was used to dispose or store any Hazardous Material or contains or contained
Hazardous Material;
(vii) Compass has not received any notice of claim to
the effect that it is or may be liable to any person as a result of the Release
or threatened Release of Hazardous Material into the environment or any
Hazardous Materials Activities from or on any Real Property;
(viii) There are no written notices or written
complaints which Compass has received in violation of the Environmental Laws;
(ix) Compass is not aware of any Environmental
Encumbrance on any Real Property;
(x) to Compass' knowledge, any asbestos-containing
material that is on or part of any Real Property is in good repair according to
the current standards and practices governing such material, and its presence or
condition does not violate any currently applicable Environmental Law;
(xi) none of the products Compass manufactures,
distributes or sells or has manufactured, distributed or sold in the past,
contains substantial amounts of asbestos containing material;
(xii) to Compass' knowledge, no Hazardous Material is
present on Real Property;
(xiii) Hazardous Materials Activities (A) have been
conducted in compliance with applicable Environmental Laws, and (B) have not
resulted in the exposure of any person to Hazardous Material in a manner that
has or will cause an adverse health effect to such person;
(xiv) no Court Order, action, proceeding, liability
or claim exists or, to Compass' knowledge, is threatened, against any Disposal
Site used by Compass or against
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Compass with respect to any transfer or release of Hazardous Materials by
Compass to a Disposal Site used by Compass, and there is no valid basis for such
claim based on any conduct of Compass;
(xv) Compass is not aware of any fact or
circumstance that is reasonably expected to involve Compass in any environmental
litigation or impose upon Compass any environmental liability that would have a
material and adverse effect on the Business Condition of Compass; and
(xvi) Compass has no records pertaining to
environmental audits or environmental assessments of any Real Property.
(c) Except to the extent described in reasonable detail on
SCHEDULE 3.22 attached hereto, there have been no events, conditions,
circumstances, activities, practices, incidents, actions or plans (i) which may
prevent continued compliance by Compass with the Environmental Laws or which may
give rise to any criminal or civil liability on the part of Compass or Avant!
under the Environmental Laws, and (ii) which could have a material adverse
effect on the Compass' Business Condition.
3.23 INSURANCE. Excluding any policies held by VLSI that included
coverage for Compass as a majority-owned subsidiary, SCHEDULE 3.23 lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of Compass, and the
amounts of coverage under each such policy and bond of Compass. Compass has not
been refused any requested coverage and no material claim made by Compass has
been denied by the underwriters of such policies or bonds. All premiums payable
under all such policies and bonds have been paid, and Compass is otherwise in
full compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). Compass is in
compliance in all material respects with each of such policies. Compass does
not know of any threatened termination of, the invalidation of any coverage of
or premium increase with respect to, any of such policies.
3.24 LABOR MATTERS. Compass is in compliance in all material
respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment and
wages and hours and occupational safety and health and employment practices, and
Compass is not engaged in any unfair labor practice. Compass has not received
any notice from any Governmental Entity; and, to the best of Compass' knowledge,
there has not been asserted before any Governmental Entity, any claim action or
proceeding to which Compass is a party or involving Compass, and there is
neither pending nor, to the best of Compass' knowledge, threatened any
investigation or hearing concerning Compass arising out of or based upon any
such laws, regulations or practices. There are no strikes or labor disputes
pending or threatened by or any attempts at union organization of any Compass
employees. No employee or group of employees whose continued services are
material to Compass business as presently conducted and as intended to be
conducted with regard to products currently under development has terminated
employment and, to the best of Compass' knowledge, there is none that intends to
do so.
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2.25 PERSONNEL. Set forth on SCHEDULE 3.25 is a true and complete
list identifying all current directors, officers, regular and temporary
employees, independent contractors and consultants of Compass, as of the date
hereof, setting forth the job title of, salary (including bonuses and
commissions) payable to each such person and the location at which each employee
is based. None of such service providers whose annual base compensation exceeds
$100,000 has indicated to Compass a present intention to resign or retire.
Except as may be modified by law for employees outside the State of California,
the employment of each of Compass' employees is at-will employment. Except as
set forth on SCHEDULE 3.25, Compass does not have any obligation (i) to provide
any particular form or period of notice prior to termination or (ii) to pay any
of such employees any severance benefits in connection with their termination of
employment or service. In addition, no severance pay will become due to any
Compass employees or other service providers in connection with the Merger as a
result of any Compass agreement, plan or program. Except as set forth on
SCHEDULE 3.25, Compass has not entered into any consulting agreements with any
service provider who owes services to or are owed compensation by Compass for
services provided.
3.26 QUESTIONABLE PAYMENTS. Neither Compass nor any director,
officer or other employee, agent or representative of Compass has (a) made any
illegal payments or provided services or other favors that are illegal in the
United States of America or in any foreign country in order to obtain
preferential treatment or consideration by any Governmental Entity with respect
to any aspect of the business of Compass; or (b) made any political
contributions that would not be lawful under the laws of the United States or
the foreign country in which such payments were made. To Compass' knowledge,
neither Compass nor any director, officer or other employee, agent or
representative of Compass has been the subject of any inquiry or investigation
by any Governmental Entity in connection with payments or benefits or other
favors to or for the benefit of any governmental or armed services official,
agent, representative or employee with respect to any aspect of the business of
Compass or with respect to any political contribution.
3.27 THIRD-PARTY CONSENTS. Except as set forth in SCHEDULE 3.27 and
except as required by the HSR Act and except for approval of the Merger by
Compass' stockholders, no consent or approval is needed from any third party in
order to effect the Merger or any of the transactions contemplated hereby, or
those that a third party has, to Compass' knowledge, decided are necessary to
avoid the loss of rights to use Compass Intellectual Property Rights. The
Compass stockholders that are party to the Voting Agreement represent a
sufficient majority of Compass stockholders to approve the Merger and related
transactions.
3.28 RELATED PARTY TRANSACTIONS. Except as set forth in
SCHEDULE 3.28, no employee, officer or director of Compass or member of his or
her immediate family is indebted to Compass, nor is Compass indebted (or
committed to make loans or extend or guarantee credit) to or subject to a
guarantee from any of them. None of such persons has any direct or indirect
ownership interest in any firm or corporation with which Compass is affiliated
or with which Compass has a business relationship, or any firm or corporation
that competes with Compass, except that the employees, officers or directors of
Compass and members of their immediate families may own stock in publicly traded
companies that may compete with Compass. No
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member of the immediate family of any officer or director of Compass is directly
interested in any contract with Compass.
3.29 CUSTOMERS. SCHEDULE 3.29 sets forth a list of the names of the
ten (10) largest customers of Compass during the past twelve (12) months
(determined on the basis of revenues and expenses, respectively, during such
period). Compass has not been informed by any of such customers that such
customer has terminated, or intends to reduce or terminate the use of Compass
products.
3.30 BANK ACCOUNTS AND POWERS OF ATTORNEY. Set forth in
SCHEDULE 3.30 is an accurate and complete list showing (a) the name and address
of each bank in which Compass has an account or safe deposit box, the number of
any such account or any such box and the names of all persons authorized to draw
thereon or to have access thereto and (b) the names of all persons, if any,
holding powers of attorney from Compass and a summary statement of the terms
thereof.
3.31 PRODUCTS. Compass has delivered to Avant! copies of its
warranty policies and all outstanding warranties or guarantees relating to any
of Compass' products other than warranties or guarantees implied by law.
Compass is not aware of any claim asserting (a) any material damage, loss or
injury caused by any product, or (b) any breach of any express or implied
product warranty or any other similar claim with respect to any product other
than standard warranty obligations (to replace, repair or refund) made by
Compass in the ordinary course of business.
3.32 BROKERS OR FINDERS; PROFESSIONAL FEES. No third party shall be
entitled to receive any brokerage commissions, finder's fees, fees for financial
advisory services or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Compass or any stockholder of Compass except Deutsche Morgan
Grenfell Inc. for whom VLSI shall be solely responsible.
ARTICLE IV:
REPRESENTATIONS AND WARRANTIES OF AVANT! AND SUB
Avant! and Sub represents and warrants to Compass that the
representations and warranties set forth below shall be true and correct as of
the date hereof. As used in this Agreement, Business Condition with respect to
Avant! shall refer to Avant! and all of its subsidiaries taken as a whole and
shall mean the financial condition, business (including products currently under
development), results of operations and assets of Avant! and all of its
subsidiaries taken as a whole.
4.1 ORGANIZATION; STANDING AND POWER. Each of Avant! and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has all requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as now being conducted.
Avant! is duly qualified as a foreign corporation and is in good standing in
each jurisdiction in which the failure to so qualify would have a material
adverse effect on Avant!'s Business Condition.
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4.2 AUTHORITY.
(a) Avant! and Sub have all requisite corporate power and
authority to enter into this Agreement and the Related Agreements (to the extent
each is a party), to execute, deliver and perform their respective obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Related
Agreements, the performance by Avant! and Sub of their respective obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of Avant! and Sub, including approval by their
respective Boards of Directors and by Avant! as the sole stockholder of Sub.
Each of this Agreement and the Related Agreements is a legal, valid and binding
obligation of Avant! and Sub enforceable against Avant! and Sub in accordance
with its terms, except as enforcement may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights generally
and except that the availability of equitable remedies is subject to the
discretion of the court before which any proceeding therefor may be brought.
(b) Subject to satisfaction of the conditions set forth in
Article VI hereto, the execution and delivery of this Agreement and the Related
Agreements do not and the performance and consummation of the transactions
contemplated hereby and thereby will not conflict with or result in any
violation of any statute, law, rule, regulation, judgment, order, decree, or
ordinance applicable to Avant! or Sub or their respective properties or assets,
or conflict with or result in any conflict with, breach or violation or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation, forfeiture or acceleration of any obligation
or the loss of a benefit under, or result in the creation of a lien or
encumbrance on any of the properties or assets of Avant! or Sub pursuant to (i)
any provision of their respective Certificate of Incorporation or Bylaws, or
(ii) any agreement, contract, note, mortgage, indenture, lease, instrument,
permit, concession, franchise or license to which Avant! or Sub is a party or by
which Avant! or Sub or any of their respective property or assets may be bound
or affected.
(c) No consent, approval, order or authorization of, or
registration, declaration, qualification, or filing of or with, any Governmental
Entity is required by or with respect to Avant! or Sub in connection with the
execution and delivery of this Agreement or the Related Agreements or the
consummation by Avant! and Sub of the transactions contemplated hereby, except
for (i) the filing of documents with, and the obtaining of orders from, the
various securities or "blue sky" authorities, (ii) the making of such reports
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
are required in connection with the transactions contemplated by this Agreement,
(iii) the filing of the Certificate of Merger with the appropriate documents
with the relevant governmental authorities, and (iv) compliance with the HSR Act
as described in Section 5.16.
4.3 VALID ISSUANCE OF SHARES OF COMMON STOCK OF AVANT!. The Shares
of Avant! Common Stock, when issued, sold and delivered to the stockholders and
optionholders of Compass in accordance with the terms hereof for the
consideration described herein, will be duly
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authorized, validly issued, fully paid and non-assessable and will be issued in
compliance with all applicable securities laws and will be free and clear of any
liens, claims, encumbrances or restrictions other than liens or encumbrances
created by or imposed upon the holders hereof.
4.4 AVANT! FINANCIAL STATEMENTS. The financial statements of
Avant! included in the Registration Statement on Form S-1, as amended, and the
annual, quarterly or other reports filed on or prior to the Closing Date by
Avant! with the Securities and Exchange Commission (the "SEC") (the "Avant!
Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto or, in the
case of unaudited statements as permitted by published rules and regulations of
the SEC) and fairly present the consolidated financial position of Avant! and
its consolidated subsidiaries at the dates thereof and the consolidated results
of their operations and changes in financial position for the periods then ended
(subject, in the case of unaudited statements, to normal recurring audit
adjustments). There has been no change in Avant!'s accounting policies or
estimates, except as described in the notes to the Avant! Financial Statements.
There has been no material and adverse change in Avant!'s Business Condition
subsequent to June 30, 1997.
4.5 LITIGATION. There is no action, suit, proceeding, arbitration
or investigation pending against Avant! or Sub that in any manner challenges or
seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated hereby.
4.6 REPORTS. Avant! has furnished or made available to Compass
complete and accurate copies, as amended or supplemented, of (i) its
Registration Statement on Form S-1, as amended, filed with the SEC, (ii) its
Quarterly Reports on Form 10-Q filed with the SEC since Avant! became obligated
to file such reports, and (iii) all other reports and filings made with the SEC,
including current reports on Form 8-K since Avant! became obligated to file such
reports (such reports and other filings, together with any amendments or
supplements thereto, are collectively referred to herein as the "Avant!
Reports"). As of their respective filing dates, the Avant! Reports complied in
all material respects with the rules and regulations promulgated by the SEC, and
none of the Avant! Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. Avant! has made all filings required under the rules
and regulations promulgated by the SEC.
4.7 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Avant! or Sub that has or
could reasonably have the effect of prohibiting or significantly impairing any
business practice of Avant!, any acquisition of property by Avant!, or the
continuation of the business of Avant! as currently conducted or as currently
proposed to be conducted.
4.8 BROKERS OR FINDERS; PROFESSIONAL FEES. No third party shall be
entitled to receive any brokerage commissions, finder's fees, or similar
compensation in connection with
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the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of Avant! or Sub.
4.9 CONDUCT IN THE ORDINARY COURSE. Since June 30, 1997, there has
not occurred any amendments or changes in the charter or Bylaws of Avant! or any
agreement or arrangement made by Avant! to do the same.
4.10 THIRD-PARTY CONSENTS. No consent or approval is needed from
any third party in order to enable Avant! and Sub to effect the Merger or any of
the transactions contemplated hereby.
4.11 DUE DILIGENCE INVESTIGATION. In each case, without affecting
the right of Avant! and Sub to rely on the representations, covenants and
warranties made herein by Compass:
(a) Each of Avant! and Sub acknowledges that: (i) it has
had the opportunity to visit with Compass and meet with its officers and other
representatives to discuss the business and the assets, liabilities, financial
condition, cash flow and operations of Compass, and (ii) all materials and
information requested by Avant! have, to Avant!'s knowledge, been provided to
Avant! to Avant!'s reasonable satisfaction.
(b) Each of Avant! and Sub acknowledges that it has made
its own independent examination, investigation, analysis and evaluation of
Compass, including its own estimate of the value of Compass' business.
(c) Each of Avant! and Sub acknowledges that it has
undertaken such due diligence (including, without limitation, a review of the
assets, liabilities, books, records and contracts of Compass) as it deems
adequate.
ARTICLE V:
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; ADDITIONAL AGREEMENTS
5.1 CONDUCT OF BUSINESS OF COMPASS. During the period from the
date hereof and continuing until the earlier of the termination of this
Agreement or the Effective Time of the Merger, Compass shall carry on its
business in the usual, regular and ordinary course in substantially the same
manner as conducted prior to the date of this Agreement and, to the extent
consistent with such business, use its best efforts to preserve intact its
present business organizations, keep available the services of its present
service providers and preserve its relationships with customers, suppliers,
distributors, licensers, licensees, and others with whom it has business
dealings, to the end that its goodwill and ongoing businesses shall be
unimpaired at the Effective Time of the Merger. Compass shall promptly notify
Avant! of any material event or occurrence not in the ordinary course of
business of Compass, and any event that would reasonably be expected to have a
material and adverse effect on the Business Condition of Compass. Except as
expressly contemplated by this Agreement, Compass, without the prior written
consent of Avant! or Sub shall not:
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(a) Accelerate, amend or change the period of
exercisability of options, warrants, stock or purchase rights or authorize cash
payments in exchange therefor;
(b) Enter into any commitment or transaction not in the
ordinary course of business to be performed over a period longer than six (6)
months in duration, or, except as in accordance with its existing capital budget
previously disclosed to Avant!, to purchase fixed assets with an aggregate
purchase price exceeding $10,000;
(c) Grant any severance or termination pay to any service
provider, except mandatory payments made pursuant to standard written agreements
outstanding on the date hereof (with any such agreement or arrangement to be
disclosed in SCHEDULE 3.18);
(d) Transfer to any person or entity any rights to the
Compass Intellectual Property Rights, except licenses of Intellectual Property
Rights in connection with the sale of Compass products in the ordinary course of
business consistent with past practice;
(e) Enter into or amend any agreements pursuant to which
any other party is granted marketing or other similar rights of any type or
scope with respect to any products of Compass;
(f) Violate, amend or otherwise modify, in any material
respect, the terms of any contract listed in SCHEDULE 3.15;
(g) Commence a lawsuit other than for the routine
collection of bills;
(h) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Compass
Capital Stock, or split, combine or reclassify any of its Common Stock or issue
or authorize the issuance of other securities in respect of, in lieu of, or in
substitution for shares of Compass Capital Stock, or repurchase or otherwise
acquire, directly or indirectly, any shares of Compass Capital Stock except as
set forth in the Compass Disclosure Schedules, pursuant to the exercise of
outstanding Compass Options or pursuant to repurchases of Common Stock at cost
from former service providers in accordance with the terms of agreements
providing for the repurchase of shares in connection with any termination of
service to Compass or repurchase of Compass options pursuant to a rescission
offer.
(i) Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of or authorization of, the purchase of any shares of
Compass Capital Stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than the issuance of shares of Compass Common Stock upon the
exercise of Compass Options;
(j) Cause or permit any amendments to Compass' charter or
Bylaws, or take any action or make any filings with any federal or state
regulatory agency or department that would modify or alter Compass' corporate,
legal or regulatory status in any material respect;
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(k) Acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Business Condition of Compass, except as in accordance with its existing capital
budget previously disclosed to Avant!;
(l) Sell, lease, license or otherwise dispose of any of its
properties or assets except in the ordinary course of business;
(m) 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;
(n) Adopt or amend any plan, or enter into any employment
contract, pay any special bonus or special remuneration to any service provider,
or increase the salaries or wage rates of its employees other than pursuant to
scheduled employee reviews under normal employee review cycles or pursuant to
Compass' existing bonus plans, as the case may be, or in connection with the
hiring of employees other than officers in the ordinary course of business, in
all cases consistent with past practice, or otherwise increase or modify the
compensation or benefits payable or to become payable by Compass to any of its
service providers, except for employees other than officers in the ordinary
course of business, consistent with past practice, or for changes pursuant to
employment agreements in effect as of the date hereof;
(o) Re-value in any material respect any of its assets,
including, without limitation, writing down the value of inventory or accounts
receivable;
(p) Pay, discharge or satisfy in an amount in excess of
$10,000 in any one case any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business consistent with
past practice of liabilities reflected or reserved against in the Compass
Financial Statements;
(q) Make any material Tax election, change any material Tax
election, adopt any Tax accounting method other than in the ordinary course of
business and consistent with past practice, change 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;
(r) Engage in any activities or transactions that are
outside the ordinary course of its business consistent with past practice,
including the forming, financing or contributing any property to any business
entity;
(s) Fail to pay or otherwise satisfy its monetary
obligations as they become due or consistent with past practice, except such as
are being contested in good faith;
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(t) Waive or commit to waive any rights of substantial
value;
(u) Cancel, amend or, other than in the ordinary course
upon expiration of a policy term, renew any insurance policy;
(v) Alter, or enter into any commitment to alter, in any
material respect its interest in any corporation, association, joint venture,
partnership or business entity in which Compass directly or indirectly holds any
interest on the date hereof;
(w) Pay its employees bonuses, other than in the ordinary
course of business, or any other extraordinary payments to its employees or
stockholders, including, without limitation, dividends or other distributions
with respect to its outstanding capital stock;
(x) Issue any new options, warrants or any instruments to
purchase Compass' Capital Stock; or
(y) Take, or agree (in writing or otherwise) to take, any
of the actions described in this Section 5.1 or any action that would make any
of the representations or warranties or covenants of Compass contained in this
Agreement untrue or incorrect.
5.2 ACCESS TO INFORMATION; PROVISION OF INTERIM FINANCIAL
STATEMENTS.
(a) Compass shall afford Avant! and its accountants,
counsel and other representatives, reasonable access during normal business
hours in such manner as not to disrupt business during the period from the date
of this Agreement until the earlier of the Effective Time of the Merger or the
termination of this Agreement to (i) all properties, books, contracts,
commitments and records, and (ii) all other information concerning the business,
properties and personnel as may reasonably be requested, provided that any
information provided pursuant hereto or any investigation by each party hereto
shall not affect such party's right to rely on the representations, warranties,
agreements and covenants made by the other party herein. Compass shall cause
Compass' accountants to cooperate with Avant! in reviewing the financial
statements of Compass' business.
(b) Compass shall provide Avant! with an unaudited monthly
balance sheet, income statement and statement of cash flows within fifteen (15)
days of each month-end prior to the Effective Time of the Merger as well as
copies of such other internal financial statements as may be reasonably
requested by Avant!.
(c) Compass shall provide Avant! with all information
regarding Compass necessary for the preparation of any documents or filings
prepared by Avant! to be filed with the SEC and any applicable securities or
blue sky commissions.
5.3 COMPASS STOCKHOLDERS' CONSENT. Compass shall solicit the
consent of its stockholders as promptly as practicable after the date hereof for
the purpose of obtaining the stockholder approval required in connection with
the transactions contemplated hereby, and shall use its best efforts to obtain
such approval.
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5.4 EXCLUSIVITY; ACQUISITION PROPOSALS. Until the earlier of (i)
the Closing or (ii) the termination of this Agreement:
(a) Compass shall not knowingly, and shall not knowingly
cause or permit, directly or indirectly, through any officer, director, agent or
representative (including, without limitation, investment bankers, attorneys,
accountants and consultants), or otherwise:
(i) Solicit, initiate or further the submission of
proposals or offers from, or enter into any agreement with, any firm,
corporation, partnership, association, group (as defined in Section 13(d)(3) of
the Exchange Act) or other person or entity, individually or collectively
(including, without limitation, any managers or other employees of Compass or
any affiliates), other than Avant! and Sub (a "Third Party"), relating to any
acquisition or purchase of all or any substantial portion of the assets of, or
any equity interest in, Compass or any merger, consolidation or business
combination with Compass;
(ii) Participate in any discussions or negotiations
regarding, or furnish to any Third Party any confidential information with
respect to Compass in connection with any acquisition or purchase of all or any
substantial portion of the assets of, or any equity interest in, Compass or any
merger, consolidation or business combination with Compass; or
(iii) Otherwise knowingly cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any Third Party to undertake or seek to undertake any acquisition or purchase of
all or any portion of the assets of, or any equity interest in, Compass, or any
merger, consolidation or business combination with Compass.
(b) In the event Compass receives prior to termination of
this Agreement any offer or indication of interest from any Third Party relating
to any acquisition or purchase of all or any portion of the assets of, or any
equity interest in, Compass or any merger, consolidation or business combination
with Compass, Compass shall promptly notify Avant! and Sub in writing, and shall
in any such notice, set forth in reasonable detail the identity of the Third
Party, the terms and conditions of any proposal and any other information
requested of it by the Third Party or in connection therewith.
(c) Compass shall immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any Third
Party conducted prior to the date of this Agreement with respect to any of the
foregoing.
5.5 BREACH OF REPRESENTATIONS, WARRANTIES, AGREEMENTS AND
COVENANTS. Each of Avant!, Sub and Compass shall use its respective best
efforts to refrain from taking any action that from the date hereof through the
Closing or earlier termination of this Agreement would cause or constitute a
breach of any of its respective representations, warranties, agreements and
covenants set forth in this Agreement. In the event of, and promptly after
becoming aware of, the actual, pending or threatened occurrence of any event
that would cause or constitute such a breach or inaccuracy, each party shall
give detailed notice thereof to the other parties and shall use its best efforts
to prevent or promptly remedy such breach or inaccuracy.
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5.6 CONSENTS. Each of Avant!, Sub and Compass shall promptly apply
for or otherwise seek and use its best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger, and
Compass shall use its best efforts to obtain all necessary consents, waivers and
approvals under any of Compass' agreements, contracts, licenses or leases in
connection with the Merger, except such consents and approvals which are not
material to the Business Condition of Compass (the existence of which Compass
shall have notified Avant! of) or which Avant! and Compass agree Compass shall
not seek to obtain.
5.7 BEST EFFORTS. If applicable, each of Avant!, Sub and Compass
shall use best efforts to effectuate the transactions contemplated hereby and to
fulfill and cause to be fulfilled the conditions to closing under this
Agreement.
5.8 LEGAL CONDITIONS TO THE MERGER.
(a) Compass shall take all reasonable actions necessary to
comply promptly with all legal requirements that may be imposed on Compass with
respect to the Merger and will promptly cooperate with and furnish information
to Avant! in connection with any such requirements imposed upon Avant! or Sub in
connection with the Merger. Compass shall take all reasonable actions to obtain
(and to cooperate with Avant! and Sub in obtaining) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity required to
be obtained or made by Compass (or by Avant! or Sub) in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement,
and to defend such lawsuits or other legal proceedings challenging this
Agreement or the consummation of the transactions contemplated hereby as Compass
deems advisable in good faith, to lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby as Compass deems advisable in
good faith, and to effect all necessary registrations and filings and
submissions of information as Compass deems advisable in good faith required by
any Governmental Entity, and to fulfill all conditions to this Agreement.
(b) Each of Avant! and Sub shall take all reasonable
actions necessary to comply promptly with all legal requirements that may be
imposed on them with respect to the Merger and will promptly cooperate with and
furnish information to Compass in connection with any such requirement imposed
upon Compass or any subsidiary of Compass in connection with the Merger. Avant!
and Sub shall take all reasonable actions to obtain (and to cooperate with
Compass in obtaining) any consent, authorization order or approval of, or
exemption by, any Governmental Entity required to be obtained or made by Avant!
or Sub (or by Compass or any of its subsidiaries) in connection with the Merger
or the taking of any action contemplated thereby or by this Agreement, and to
defend such lawsuits or other legal proceedings challenging this Agreement or
the consummation of the transactions contemplated hereby as Avant! and Sub deem
advisable in good faith, to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby as Avant! and Sub deem advisable in good faith,
and to effect all necessary registrations and
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filings and submissions of information as Avant! and Sub deem advisable in good
faith, required by any Governmental Entity, and to fulfill all conditions to
this Agreement.
5.9 PUBLIC ANNOUNCEMENTS. Avant! and Compass will make joint
announcements to employees and the public after the execution of this Agreement.
Each party will consult in advance with the other concerning the timing and
content of any announcements, press releases or public statements concerning the
Merger and will not make any such announcement, release or statement to any
party who is not entitled to have knowledge of the Merger without the other's
prior written consent (which consent shall not be unreasonably withheld);
provided, however, that either Avant! or Compass, or its parent, VLSI may make
any public statement concerning the Merger without the other's consent, after it
has used reasonable efforts to obtain consent, and in the opinion of counsel for
the disclosing party, such statement or announcement is required or advisable to
comply with applicable law.
5.10 AFFILIATES AGREEMENT. The stockholders of Compass listed on
SCHEDULE 5.10 are, in Compass' reasonable judgment, the only persons and
entities that are stockholders of Compass who may be deemed to be "affiliates"
of Compass within the meaning of Rule 145 (each such person an "Affiliate")
promulgated under the Securities Act of 1933, as amended (the "Securities Act")
("Rule 145"). Compass shall deliver or cause to be delivered to Avant!,
concurrently with the execution of this Agreement, from each of the Affiliates
of Compass who are directors or officers of Compass, and concurrently with or
promptly following execution of this Agreement from each other Affiliate, an
Affiliates Agreement in the form attached hereto as EXHIBIT 5.10(A). Avant! and
Sub shall be entitled to place appropriate legends on the certificates
evidencing any Avant! Common Stock to be received by such Affiliates pursuant to
the terms of this Agreement, and to issue appropriate stop transfer instructions
to the transfer agent for Avant! Common Stock, consistent with the terms of such
Affiliates Agreement. Such Affiliates Agreements shall not impose any greater
restrictions on Affiliates than are required by law.
5.11 EXPENSES. All costs and expenses incurred in connection with
this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby, including fees of any finders or brokers or investment
bankers, attorneys and accountants retained by such party, shall be paid by the
party incurring such expense.
5.12 INFORMATION TO BE SUPPLIED. All information supplied by
Compass, Avant! and Sub for inclusion in the Compass stockholder solicitation
materials as described in Section 5.3 above and any other solicitation materials
relating to the Merger or relating to any offering of securities by Avant! shall
not contain any untrue statement of material fact and shall not omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
5.13 FORM S-3 REGISTRATION STATEMENT. Within thirty (30) days of
the Effective Time of the Merger, Avant! shall file with the SEC a registration
statement on Form S-3 to register the Avant! Common Stock issued pursuant to the
Merger for resale. Avant! will, at its expense (excluding any broker fees and
commissions), use its best efforts to cause such
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registration statement to become effective, and, subject to the provisions
below, use best efforts to, keep such registration statement effective for the
lesser of one (1) year or until all such shares of Avant! Common Stock have been
sold. If at any time after such registration statement becomes effective,
Avant! advises the holders of such Avant! Common Stock in writing that due to
the existence of material information that has not been disclosed to the public
and included in the registration statement it is thus necessary to amend the
registration statement (including by reporting such information under the
Exchange Act), the holders of such Avant! Common Stock shall suspend any further
sale of Avant! Common Stock pursuant to the registration statement until the
registration statement has been amended. In such event, Avant! shall use best
efforts to amend the registration statement as soon as reasonably practicable
and in no event later than the earlier of (i) ten (10) days after Avant! has
advised the holders of such Avant! Common Stock to suspend sales (which ten (10)
day period may be extended, one time only, an additional ten (10) days (the
"Additional Suspension") if the Board of Directors of Avant! in its good faith
judgment determines that such disclosure would be substantially detrimental to
Avant!; provided, however, that Avant! shall only have the right to effect an
Additional Suspension twice in any twelve (12) month period) or (ii) the
commencement of any period in which directors and officers of Avant! are allowed
to buy or sell Common Stock of Avant! pursuant to Avant!'s insider trading
policy. Avant! shall not impose a suspension on the sale of Avant! Common Stock
by the holders of Avant! Common Stock unless Avant!'s insider trading window is
closed. In addition, Avant! shall use its best efforts to (i) register and
qualify the Avant! Common Stock covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the holders of a majority of such Avant! Common Stock;
provided that Avant! shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless Avant! is already
subject to service in such jurisdiction and except as may be required by the
Securities Act; and (ii) file with the SEC in a timely manner all reports and
other documents required of Avant! under the Exchange Act.
5.14 SCHEDULES. From time to time prior to the Closing Date, each
of Avant! and Compass will promptly supplement or amend the Compass or Avant!
Disclosure Schedules, as the case may be, with respect to any matter hereafter
arising that, if existing or occurring at or prior to the date of this
Agreement, would have been required to be set forth or described in the Compass
or Avant! Disclosure Schedules, as the case may be, or that is necessary to
correct any information in the Compass or Avant! Disclosure Schedules, as the
case may be, or in any representation and warranty of each of Avant! and Compass
that has been rendered inaccurate thereby. For purposes of determining the
accuracy of the respective representations and warranties contained in
Articles III and IV, and in order to determine the fulfillment of the conditions
set forth in Sections 6.2(a) and 6.3(a), the Compass or Avant! Disclosure
Schedules, as the case may be, shall be deemed to include only that information
contained therein on the date of this Agreement and shall be deemed to exclude
any information contained in any subsequent supplement or amendment thereto;
provided, however that for the purpose of determining the availability of rights
to indemnification under Article VII below or otherwise, such revised Compass or
Avant! Disclosure Schedules, as the case may be, shall be deemed to include all
information contained in such revised Compass or Avant! Disclosure Schedules as
of the Closing, as the case may be.
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5.15 CERTAIN BENEFIT PLANS. Avant! shall take such reasonable
actions as are necessary to allow eligible employees of Compass to participate
in the benefit programs of Avant!, or alternative benefits programs in the
aggregate substantially comparable to those applicable to employees of Avant! on
similar terms, as soon as practicable after the Effective Time of the Merger.
For purposes of satisfying the terms and conditions of such programs, to the
extent permitted by Avant!'s benefit programs, Avant! shall use reasonable
efforts to give full credit for eligibility, vesting or benefit accrual for each
participant's period of service with Compass or VLSI.
5.16 HSR ACT FILING.
(a) Each of Avant! and Compass shall (i) promptly make or
cause to be made the filings required of such party or any of its affiliates or
subsidiaries under the HSR Act with respect to the Merger and the other
transactions provided for in this Agreement, (ii) comply at the earliest
practicable date with any request under the HSR Act for additional information,
documents, or other material received by such party or any of its affiliates or
subsidiaries from the Federal Trade Commission or the Department of Justice or
other Governmental Entity in respect of such filings, the Merger, or such other
transactions, and (iii) cooperate with the other party in connection with any
such filing and in connection with resolving any investigation or other inquiry
of any such agency or other Governmental Entity under any Antitrust Laws (as
defined in Section 5.16(b)) with respect to any such filing, the Merger, or any
such other transaction. Each party shall promptly inform the other party of any
material communication with, and any proposed understanding, undertaking, or
agreement with, any Governmental Entity regarding any such filings, the Merger,
or any such other transactions. Neither party shall participate in any meeting
with any Governmental Entity in respect of any such filings, investigation, or
other inquiry without giving the other party notice of the meeting and, to the
extent permitted by such Governmental Entity, the opportunity to attend and
participate.
(b) Each of Avant! and Compass shall use its commercially
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the Merger or any other transactions
provided for in this Agreement under the HSR Act, the Sherman Act, as amended,
the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and
any other federal, state or foreign statutes, rules, regulations, orders, or
decrees that are designed to prohibit, restrict or regulate actions having the
purpose or effect of monopolization or restraint of trade (collectively,
"Antitrust Laws"). In connection therewith, if any administrative or judicial
action or proceeding is instituted (or threatened to be instituted) challenging
the Merger as violative of any Antitrust Law, and, if by mutual agreement,
Compass and Avant! decide that litigation is in their best interests, each of
Compass and Avant! shall cooperate and use its reasonable efforts vigorously to
contest and resist any such action or proceeding and to have vacated, lifted,
reversed, or overturned any decree, judgment, injunction, or other order,
whether temporary, preliminary, or permanent, that is in effect and that
prohibits, prevents, or restricts consummation of the Merger. Each of Compass
and Avant! shall use commercially reasonable efforts to take such action as may
be required to cause the expiration of the notice periods under the HSR Act or
other Antitrust Laws with respect to the Merger and
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such other transactions as promptly as possible after the execution of this
Agreement. Notwithstanding anything to the contrary in this Section 5.16,
neither Compass or any of its affiliates, nor Avant! or any of its affiliates,
shall be required to divest any of their respective businesses, product lines,
or assets, or to take or agree to take any other action or agree to any
limitation that would have a material adverse effect on their respective
businesses, product lines or assets.
5.17 LISTING OF SHARES. Upon Closing, Avant! will amend its listing
application with the Nasdaq National Market to include the Avant! Common Stock
issued under this Agreement.
5.18 VOTING AGREEMENT. Compass and the parties listed on
SCHEDULE 3.2(e) hereto shall enter into the Voting Agreement attached hereto as
EXHIBIT 3.21(e) concurrent with the execution of this Agreement.
ARTICLE VI:
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction (or, to the extent legally permissible, waiver) prior to the
Closing of the following conditions:
(a) APPROVALS. All authorizations, consents, orders or
approvals of, or declarations or filings with or expiration of waiting periods
imposed by, any Governmental Entity necessary for the consummation of the
transactions contemplated by this Agreement shall have been filed, occurred or
been obtained.
(b) LEGAL ACTION. No temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the Merger shall have been issued by any Governmental Entity of
competent jurisdiction and remain in effect, and no litigation not pending on
the date hereof shall be pending the ultimate resolution of which may in the
opinion of Avant! or Compass (i) result in the issuance of such an order or
injunction, or the imposition against Compass or Avant! of substantial damages
if the Merger is consummated, or (ii) render Avant!, Sub or Compass unable to
consummate the Merger. In the event any such order or injunction shall have
been issued, each party agrees to use its best efforts to have any such
injunction lifted as promptly as practicable.
(c) STATUTES. No action shall have been taken, and no
statute, rule, regulation or order shall have been enacted, promulgated or
issued or deemed applicable to the Merger by any Governmental Entity of
competent jurisdiction that would (i) make the consummation of the Merger
illegal or (ii) render Avant!, Sub or Compass unable to consummate the Merger,
except for any waiting period provisions.
(d) HSR. The applicable waiting period under the HSR Act
relating to the Merger shall have expired or been terminated.
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(e) STOCKHOLDER APPROVAL. This Agreement and the Merger
shall have been approved and adopted by (i) the holders of Compass Capital Stock
representing a majority of the total votes entitled to be cast on such matters,
(ii) the holders of a majority of the shares of Compass Preferred Stock
outstanding and voting together as a single class, and (iii) the holders of a
majority of the shares of Compass Common Stock outstanding and voting together
as a single class.
6.2 CONDITIONS OF OBLIGATIONS OF AVANT! AND SUB. The obligations
of Avant! and Sub to effect the Merger are also subject to the satisfaction of
the following conditions, unless waived by Avant!:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Compass set forth in this Agreement that are qualified as to
materiality shall be true and correct as so qualified, and the representations
and warranties of Compass set forth in this Agreement that are not so qualified
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent any such representation or warranty expressly speaks
as of an earlier date), and Avant! shall have received a certificate signed on
behalf of Compass by the chief executive officer and chief financial officer of
Compass to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF COMPASS. Compass shall
have performed in all material respects all obligations and covenants required
to be performed by it under this Agreement prior to the Closing Date, and Avant!
shall have received a certificate signed on behalf of Compass by the chief
executive officer and the chief financial officer of Compass to such effect.
(c) AFFILIATES AGREEMENT. Avant! shall have received from
each stockholder of Compass listed on SCHEDULE 5.10, a duly executed Affiliates
Agreement substantially in the form attached hereto and approved by Avant!'s and
Compass' respective counsel.
(d) TECHNOLOGY TRANSFER AGREEMENT. Compass and VLSI shall
have amended that certain Intercompany Agreement, dated July 1, 1991, by and
between Compass and VLSI in a manner satisfactory to Avant!.
(e) ESCROW AGREEMENT. The Escrow Agreement shall be
executed by all appropriate parties.
(f) OPINION OF COMPASS' COUNSEL. Avant! shall have
received an opinion dated the Closing Date of Larry L. Grant, counsel to
Compass, in form and substance reasonably satisfactory to Avant!.
(g) DISSENTING SHARES. Dissenting Shares shall consist of
no more than ten percent (10%) of the then outstanding shares of Compass Capital
Stock.
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(h) CONSENTS. Avant! shall have received duly executed
copies of all third-party consents and approvals contemplated by this Agreement
or the Compass Schedules in form and substance reasonably satisfactory to
Avant!.
(i) FIRPTA. Compass shall, prior to the Closing Date,
provide Avant! with a properly executed Foreign Investment and Real Property Tax
Act of 1980 ("FIRPTA") Notification Letter, in form and substance satisfactory
to Avant!, which states that shares of Compass Capital Stock do not constitute
"United States real property interests" under Section 897(c) of the Code, for
purposes of satisfying Avant!'s obligations under Treasury Regulation
Section 1.1445-2(c)(3). In addition, simultaneously with delivery of such
Notification Letter, Compass shall have provided to Avant!, as agent for
Compass, a form of notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) along with written
authorization for Avant! to deliver such notice form to the Internal Revenue
Service on behalf of Compass upon the Closing of the Merger.
(j) TERMINATION OF RIGHTS AND CERTAIN SECURITIES. Any
registration rights or rights of first refusal and/or negotiation relating to
any outstanding Compass Capital Stock shall by their terms terminate upon the
Closing or have been terminated or permanently waived as of the Closing, which
termination or waiver may be strictly contingent upon the occurrence of the
Closing. Except as contemplated by Section 3.2, with such changes as may be
permitted under Section 5.1, there shall be no warrants, options, convertible
securities or other rights to purchase or acquire any securities of Compass
outstanding.
6.3 CONDITIONS OF OBLIGATION OF COMPASS. The obligation of Compass
to effect the Merger is also subject to the satisfaction of the following
conditions unless waived by Compass:
(a) REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Avant! set forth in this Agreement that are qualified as to
materiality shall be true and correct as so qualified, and the representations
and warranties of Avant! set forth in this Agreement that are not so qualified
shall be true and correct in all material respects, in each case as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date (except to the extent any such representation or warranty expressly
speaks as of an earlier date), and Compass shall have received a certificate
signed on behalf of Avant! by the chief executive officer and chief financial
officer of Avant! to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF AVANT! AND SUB. Avant!
and Sub shall have performed in all material respects all obligations and
covenants required to be performed by them under this Agreement and the
Certificate of Merger prior to the Closing Date, and Compass shall have received
a certificate signed on behalf of Avant! by the chief executive officer and the
chief financial officer of Avant! to such effect.
(c) NO STOP ORDER. The SEC shall not have issued any stop
order preventing the sale of any Common Stock of Avant! pursuant to a
registration statement.
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(d) OPINION OF AVANT!'S COUNSEL. Compass shall have
received an opinion dated the Closing Date of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, counsel to Avant!, in form and substance
reasonably satisfactory to Compass.
ARTICLE VII:
INDEMNITY
7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS.
(a) Notwithstanding any investigation conducted at any time
with regard thereto by or on behalf of any party to this Agreement, all
representations, warranties, covenants and agreements of the parties hereto
shall survive the execution, delivery, and performance of this Agreement in
accordance with Section 7.3 of this Agreement. No investigation made by or on
behalf of a party hereto with respect to another party shall be deemed to affect
the party's reliance on the representations, warranties, covenants and
agreements made by the other party contained in this Agreement, when read
together with the disclosure schedules of such party, and shall not be a waiver
of Avant!'s or Sub's rights to indemnity as herein provided for the breach or
inaccuracy of or failure to perform or comply with any of Compass'
representations, warranties, covenants or agreements under this Agreement or the
Escrow Agreement. All representations and warranties of each party set forth in
this Agreement shall be deemed to have been made again by such party at and as
of the Closing Date.
(b) As used in this Article VII, any reference to a
representation, warranty, agreement or covenant contained in any section of this
Agreement shall include the Schedules attached hereto (in the form delivered at
the time of Closing).
(c) Nothing in this Agreement shall be construed as
limiting in any way: (i) the remedies that may be available to a party in the
event of fraud relating to the representations, warranties, agreements or
covenants made by any other party in this Agreement; (ii) Avant!'s right to seek
indemnification from VLSI for the applicable statute of limitations for breaches
of Section 3.16 of this Agreement.
(d) VLSI shall have liabilities and obligations for Damages
(as defined below) under this Agreement only with respect to claims submitted or
notice of claims provided during the time period of survivability of the
specific representation, warranty, covenant or agreement as set forth in
Section 7.3. Notwithstanding the expiration date of the representations,
warranties, covenants and agreements set forth herein, if Avant! or Compass
shall notify VLSI with respect to the submission of a claim during the time
period of survivability of such representation, warranty, covenant or agreement,
VLSI's liability or obligation for Damages shall continue in full force and
effect until settled with respect to those claims timely made.
(e) Avant! shall be entitled to use the Escrow Proceeds as
the sole remedy for the obligations of VLSI pursuant to this Article VII Of this
Agreement.
7.2 INDEMNIFICATION.
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(a) Subject to the limitations set forth in this
Article VII, VLSI hereby agrees to indemnify, reimburse, defend and hold
harmless Avant!, Compass and Sub and each of their respective officers,
directors, agents and affiliates against any and all losses, liabilities,
damages, demands, claims, suits, actions, judgments, and causes of action,
assessments, costs, and expenses, including, without limitation, interest,
penalties, attorneys' fees, any and all expenses incurred in investigating,
preparing, and defending against any litigation, commenced or threatened, and
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against, resulting from, imposed
upon, or incurred or suffered, directly or indirectly, by Avant!, Compass or Sub
and each of their respective officers, directors, agents and affiliates,
directly or indirectly, as a result of or arising from or in connection with:
(i) any inaccuracy in or breach, or any claim (including claims by parties other
than Avant!) that if true, would constitute a breach, nonfulfillment of or
noncompliance with any of the representations, warranties, covenants, or
agreements made by Compass in this Agreement (including any exhibit, letter,
schedule, certificate or document delivered pursuant hereto or other instrument
referred to herein) or the Escrow Agreement or any facts or circumstances
constituting such an inaccuracy, breach, nonfulfillment or noncompliance; (ii)
expenditures in excess of $100,000 in the aggregate in connection with the
lawsuits listed on SCHEDULE 3.9; and (iii) any Damages resulting from the
failure of the Compass Financial Statements to fairly present the financial
position and operating results of Compass in accordance with GAAP on a separate
company basis (all of which shall also be referred to as "Indemnifiable
Claims"). Avant! And Sub shall be entitled to make claims under the foregoing
provisions of this Article VII only in the event that Damages exceed $100,000 in
the aggregate.
(b) VLSI hereby agrees to indemnify, reimburse, defend and
hold harmless Avant!, Compass and Sub and each of their respective officers,
directors, agents and affiliates against any and all Damages asserted against,
resulting from, imposed upon, or incurred or suffered, directly or indirectly,
by Avant!, Compass or Sub and each of their respective officers, directors,
agents and affiliates, directly or indirectly, as a result of or arising from or
in connection with any inaccuracy in or breach, or any claim (including claims
by parties other than Avant!) that if true, would constitute a breach,
nonfulfillment of or noncompliance with any of the representations, warranties,
covenants, or agreements made by Compass in this Agreement relating to Taxes
(including any exhibit, letter, schedule, certificate or document delivered
pursuant hereto or other instrument referred to herein) or any facts or
circumstances constituting such an inaccuracy, breach, nonfulfillment or
noncompliance including, without limitation, any Taxes of Compass and its
subsidiaries with respect to any Tax year or portion thereof ending on or before
the Closing Date (or for any Tax year beginning before and ending after the
Closing Date to the extent allocable to the portion of such period beginning
before and ending on the Closing Date), to the extent that such Taxes exceed the
sum of (i) the amount of Taxes reflected in the reserve for Tax liability (other
than any reserve established to reflect timing differences between book and Tax
income) reflected on the June 27, 1997 balance sheet that is part of the Compass
Financial Statements and (ii) the amount of Taxes that would have been incurred
by Compass in the ordinary course of business between June 27, 1997 and the
Closing Date had Compass not been a member of an affiliated, consolidated,
combined or unitary group for Tax purposes during any part of such period.
Notwithstanding any other provision of this Agreement
44
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(including SECTION 7.3), the obligations of VLSI pursuant to this Section 7.2(b)
shall be unlimited and shall survive until expiration of the applicable statute
of limitations with respect to any Tax.
7.3 TERMINATION OF INDEMNITY AND REPRESENTATIONS AND WARRANTIES.
Except as otherwise stated in Article VII Of this Agreement the Indemnity
obligations of VLSI Pursuant to this Article VII For a breach or inaccuracy of
or a failure to perform or comply with any or all of Compass' representations,
warranties, covenants and agreements, and the representations and warranties of
Avant! And Compass shall terminate one (1) year after the Effective Time of the
Merger. The covenants of Article V listed in Section 9.11 are unaffected by the
termination provisions of this Section 7.3. For purposes of the indemnification
set forth herein, the fair market value of one share of Avant! Common Stock
shall be the Average Nasdaq Per Share Price.
ARTICLE VIII:
TERMINATION
8.1 TERMINATION.
(a) This Agreement may be terminated at any time prior to
the Effective Time of the Merger, whether before or after approval of the Merger
by the stockholders of Compass:
(i) by mutual agreement of the Boards of Directors of
Avant! and Compass;
(ii) by Avant!, if there has been a material breach by
Compass or Compass Stockholder of any representation, warranty, covenant or
agreement set forth in this Agreement and, to the extent such breach shall be
curable, such breach shall not have been cured within thirty (30) days following
receipt by Compass of written notice of such breach;
(iii) by Compass, if there has been a material breach by
Avant! Or Sub of any representation, warranty, covenant or agreement set forth
in this Agreement and, to the extent such breach shall be curable, such breach
shall not have been cured within thirty (30) days following receipt by Avant! of
written notice of such breach;;
(iv) by Compass or Avant!, if any permanent injunction or
other order of a court preventing the Merger shall have become final and
nonappealable or shall render unlikely within a reasonable period of time the
consummation of the Merger on the terms contemplated hereby; or
(v) by Compass or Avant!, if any Governmental Entity of
competent jurisdiction shall have issued a temporary restraining order,
preliminary injunction or permanent injunction or other order preventing the
consummation of the Merger or any litigation not pending on the date hereof
shall be pending, the ultimate resolution of which is likely in such party's
opinion to (i) result in the issuance of such an order or injunction, or the
imposition
45
<PAGE>
against the Surviving Corporation or Avant! of substantial damages if the Merger
is consummated, or (ii) render Avant!, Sub or Compass unable to consummate the
Merger.
(b) Where action is taken to terminate this Agreement pursuant
to this Section 8.1, it shall be sufficient authorization for such action to be
authorized by the Board of Directors of the party taking such action and for
such party to notify the other parties in writing of the termination.
(c) If the Effective Date shall not have occurred on or before
October 31, 1997, this Agreement may be terminated by Avant! Or Compass with
prior written notice to the other party provided that the right to terminate
this Agreement pursuant to this paragraph (c) shall not be available to any
party whose failure to fulfill any material, uncured breach of any obligation
under this Agreement that has been a significant cause of, or resulted in, the
failure of the Effective Date to occur on or before such date and provided
further that, except as otherwise provided herein, no such termination shall
relieve any party hereto of any liability or damages resulting from any breach
of this Agreement.
ARTICLE IX:
GENERAL PROVISIONS
9.1 AMENDMENT. This Agreement may be amended by the parties hereto
at any time before or after approval of the Merger by the stockholders of
Compass; provided, however, that following approval of the Merger by the
stockholders of Compass, no amendment shall be made that by law requires the
further approval of such stockholders without obtaining such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
9.2 EXTENSION; WAIVER. At any time prior to the Effective Time of
the Merger, each of Compass and Avant!, to the extent legally allowed, (a) may
extend the time for the performance of any of the obligations or other acts of
the other, (b) may waive any inaccuracies in the representations and warranties
made to it contained herein or in any document delivered pursuant hereto, and
(c) may waive compliance with any of the agreements or conditions for the
benefit of it contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
9.3 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given (a) on the same day if delivered
personally, (b) three (3) business days after being mailed by registered or
certified mail (return receipt requested), or (c) on the same day if sent by
facsimile, confirmation received, to the parties at the following addresses and
facsimile numbers (or at such other address or number for a party as shall be
specified by like notice):
If to Avant! or Sub, to:
Avant! Corporation
46
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46871 Bayside Parkway
Fremont, California 94538
Attention: John P. Huyett
Telephone No.: (510) 413-8000
Facsimile No.: (510) 413-8080
with copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
Attention: Steven M. Spurlock, Esq.
Telephone No.: (415) 321-2400
Facsimile No.: (415) 321-2800
If to Compass:
Compass Design Automation, Inc.
1865 Lundy Avenue
San Jose, California 95131
Attention: Paul McLellan
Telephone No.: (408) 434-7990
Facsimile No.: (408) 434-7820
If to VLSI:
VLSI Technology, Inc.
1109 McKay Drive, MS-45
San Jose, California 95131
Attention: Larry L. Grant, Esq.
Telephone No.: (408) 434-3063
Facsimile No.: (408) 434-7744
with copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Ann Yvonne Walker, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
9.4 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such references shall be to a Section, Exhibit
or Schedule to this
47
<PAGE>
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation."
9.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
9.6 ENTIRE AGREEMENT. Except for the mutual nondisclosure agreement
previously signed by the parties hereto, which shall survive in its entirety,
this Agreement and the documents and instruments and other agreements among the
parties delivered pursuant hereto constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements, understandings, representations and warranties, both written and
oral, among the parties with respect to the subject matter hereof and are not
intended to confer upon any other person any rights or remedies hereunder except
as otherwise expressly provided herein. EACH PARTY HERETO AGREES THAT, EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NEITHER
AVANT! AND SUB NOR COMPASS MAKES ANY OTHER REPRESENTATIONS OR WARRANTIES, AND
EACH HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS OR WARRANTIES MADE BY ITSELF OR
ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, FINANCIAL AND LEGAL ADVISORS
OR OTHER REPRESENTATIVES, WITH RESPECT TO THE EXECUTION AND DELIVERY OF THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, NOTWITHSTANDING THE DELIVERY
OR DISCLOSURE TO THE OTHER OR THE OTHER'S REPRESENTATIVES OF ANY DOCUMENTATION
OR OTHER INFORMATION WITH RESPECT TO ANY ONE OR MORE OF THE FOREGOING.
9.7 NO TRANSFER. This Agreement and the rights and obligations set
forth herein may not be transferred or assigned by operation of law or otherwise
without the consent of each party hereto. This Agreement is binding upon and
will inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
9.8 SEVERABILITY. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
9.9 OTHER REMEDIES. Unless otherwise expressly specified herein, any
and all remedies set forth in this Agreement and in the Related Agreements
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby or by law or equity on such
party; and the exercise of any one remedy will not preclude the exercise of any
other.
48
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9.10 FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
9.11 ABSENCE OF THIRD-PARTY BENEFICIARY RIGHTS. No provision of
this Agreement is intended, or will be interpreted, to provide to or create for
any third-party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, stockholder, employee, partner or any party hereto
or any other person or entity, and all provisions hereof will be personal solely
between the parties to this Agreement, except that the provisions of
Section 5.15 shall be for the benefit of the employees of Compass, and
Article IV and Sections 5.13 and 5.17 shall be for the benefit of the
stockholders of Compass and shall be enforceable by such individuals against
Avant! subject to the terms and conditions of this Agreement.
9.12 GOVERNING LAW. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware (without giving effect to its choice of law principles).
Provided, however, that the law governing the fiduciary duties of each party
hereto and their respective boards of directors and the law governing any other
matters of internal corporate governance of any of Avant! or Compass shall be
the law of their respective jurisdictions of incorporation.
49
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and Plan of Reorganization as of the date first above written.
AVANT! CORPORATION
By: /s/ Gerald C. Hsu
------------------------------------
Gerald C. Hsu
Chairman of the Board, Chief
Executive Officer and President
COMPASS DESIGN AUTOMATION, INC.
By: /s/ Paul McLellan
------------------------------------
Paul McLellan
President
GB ACQUISITION CORPORATION
By: /s/ Gerald C. Hsu
------------------------------------
Gerald C. Hsu
President
VLSI TECHNOLOGY, INC.
By: /s/ Larry L. Grant
------------------------------------
Larry L. Grant
Vice President, General Counsel and
Secretary
<PAGE>
AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (this
"Amendment") is made as of August 27, 1997, by and among Avant! Corporation,
a Delaware corporation ("Avant!"), GB Acquisition Corporation, a Delaware
corporation and a wholly owned subsidiary of Avant! ("Sub"), Compass Design
Automation, Inc., a Delaware corporation ("Compass"), and VLSI Technology,
Inc., a Delaware corporation ("VLSI").
R E C I T A L S
WHEREAS, Avant!, Sub, Compass and VLSI entered into that certain
Agreement and Plan of Reorganization, dated July 31, 1997 (the "Merger
Agreement"); and
WHEREAS, Avant!, Sub, Compass and VLSI desire to amend the Merger
Agreement as provided below.
NOW, THEREFORE, in consideration of the promises and conditions
contained herein, the parties hereby agree as follows:
1. Section 2.1(c)(i) of the Merger Agreement be, and it hereby is,
amended and restated to read in full as follows:
"(i) CONVERSION OF COMPASS PREFERRED STOCK. Each share of the
Series A Preferred Stock of Compass (the "Compass Preferred Stock") issued
and outstanding at the Effective Time of the Merger (other than any shares of
Compass Preferred Stock to be canceled pursuant to Section 2.1(b)(i) and any
Dissenting Shares (as defined and to the extent provided in Section 2.1(f))
shall be canceled and extinguished and be converted automatically into the
right to receive that portion of the aggregate amount of $35,000,000 (the
"Merger Consideration") to which such share of Compass Preferred Stock is
entitled under, and in accordance with, Article Four, Section 2(a) of the
Restated Certificate of Incorporation of Compass (the "Liquidation
Preference"). Such Liquidation Preference equals the sum of $1.00 per share
plus all accrued but unpaid dividends. Additionally, the holders of Compass
Preferred Stock shall share ratably in the difference between the Merger
Consideration and the aggregate Liquidation Preference (the "Net Merger
Consideration") with the holders of the Common Stock of Compass and the
holders of vested options to purchase Common Stock of Compass (assuming that
all such options have been exercised). The aggregate Liquidation Preference
plus the portion of the Net Merger Consideration payable to the holders of
Compass Preferred Stock pursuant to this Section 2.1(c)(i) (the "Compass
Preferred Stock Consideration") shall be payable in a combination of cash and
shares of Avant! Common Stock. For the purpose of determining the number of
shares of Avant! Common Stock issuable to the holders of the Compass
Preferred Stock, the price of the Avant! Common Stock shall be the average
closing sales price of Avant! Common Stock as quoted on the Nasdaq National
Market for the five (5) consecutive trading days ending three (3) business
days prior to the Closing Date of the Merger (the "Average Nasdaq Per Share
Price"). The total dollar and share amounts of the Compass Preferred Stock
Consideration allocated to the holders of Compass Preferred Stock are set
forth in EXHIBIT 2.1(c), subject to appropriate adjustments at the Closing to
reflect the total of accrued but unpaid dividends as of such date and the
Average Nasdaq Per Share Price."
<PAGE>
2. The following provision shall be inserted into the Merger Agreement
as Section 5.19:
"5.19 ELECTION PURSUANT TO INTERNAL REVENUE CODE SECTION 338(h)(10).
(a) VLSI agrees, at the request of Avant!, to join in an election
under Section 338(h)(10) of the Code (hereinafter referred to as the
"Election") and, at the request of Avant!, to join in an election under any
comparable provisions of state or local law under which such an Election is
permissible and to take all actions reasonably necessary to effect same,
including those actions set forth below.
(b) Avant! shall be responsible for the preparation and filing of
all forms and documents required in connection with the Election. VLSI shall
pay all Taxes resulting from the Election; provided, however, that if prior
to making such Election VLSI shall inform Avant! of the amount (the
"Additional Tax Amount") of the difference, if any, between the Taxes VLSI is
required to pay as a result of the Election and the Taxes that VLSI would
otherwise have incurred by reason of the Merger if the Election were not made
but the Merger were consummated, then Avant! shall indemnify VLSI for the
payment of the Additional Tax Amount. VLSI shall execute and deliver to
Avant! such documents or forms as are reasonably requested and are required
by any tax laws to complete properly the Election at least twenty (20) days
prior to the date such Election is required to be filed. For the purpose of
executing the Election, VLSI and Avant! shall, as soon as practicable after
the Effective Date of the Merger but in no event sooner than 90 days
thereafter, execute Internal Revenue Service Form 8023-A and all attachments
required to be filed therewith pursuant to applicable Treasury Regulations.
Avant! shall not file such Form 8023-A or the attachments thereto as
corrected, amended or supplemented unless it shall have obtained VLSI's
consent thereto, which consent shall not be unreasonably withheld. On or
prior to the tenth (10th) day after VLSI's receipt of such corrections,
amendments or supplements from Avant!, VLSI shall deliver to Avant! either
(i) its consent to such filing or (ii) a written notice specifying in
reasonable detail all disputed items and the basis therefore. If, within ten
(10) days after Avant!'s receipt of the written notice described in clause
(ii) above, VLSI and Avant! have been unable to resolve their differences,
any remaining disputed issues shall be submitted to Deloitte & Touche LLP to
resolve in a final and binding manner after hearing the views of both
parties. In that event, VLSI and Avant! shall execute and consent to the
filing of such corrected, amended or supplemented Form 8023-A in the manner
determined by Deloitte & Touche LLP.
(c) Avant!, not less than thirty (30) days prior to the date the
forms required under Section 338(h)(10) are required to be filed, shall
provide VLSI with a valuation statement reflecting, as of the Effective Date
of the Merger, the fair market values of all of the assets and the
liabilities of Compass. VLSI shall review said values and to the extent VLSI
disagrees therewith, will notify Avant!. Should the parties fail to agree,
the dispute shall be resolved by Deloitte & Touche LLP as set forth above.
VLSI and Avant! shall file all returns with respect to taxes and statements,
forms and schedules in connection therewith (including, without limitation,
Internal Revenue Service Form 8594 and any required exhibits thereto) in a
2
<PAGE>
manner consistent with such valuations, and shall take no position contrary
thereto unless required to do so by applicable tax laws.
(d) To the extent permitted by state and local laws, the principles
and procedures of this Section 5.20 shall also apply with respect to a
Section 338(h)(10) election or equivalent or comparable provision under state
or local law, including without limitation, an election under Section 338(g)
of the Code."
3. The following provision shall be inserted into the Merger Agreement
as Section 5.20:
"5.20 USE OF VLSI DATA CENTER. As of the date of the Merger
Agreement, VLSI occupied approximately 3,800 square feet of office space at
Compass' building located at 1865 Lundy Avenue, San Jose, California 95131
(the "Compass Space"). From the Effective Date of the Merger until December
31, 1997, VLSI shall have the right to continue to occupy and use the Compass
Space rent free as a data center upon the same terms and conditions that VLSI
occupied and used the Compass Space prior to the Effective Date of the
Merger."
4. The following provision shall be inserted into the Merger Agreement
as Section 5.21:
"5.21 INTERCOMPANY DEBT. The parties acknowledge that VLSI has
loaned money to Compass to cover operating and other expenses on an ongoing
basis, which such monies have been reflected in the Financial Statements as
intercompany debt payable to VLSI. Avant! hereby agrees to cause the
intercompany debt outstanding on the Effective Date of the Merger to be paid
in full to VLSI on or before September 26, 1997, or if the Effective Date of
the Merger has not occurred prior to that date, on the Effective Date of the
Merger; provided, however, the parties agree that, immediately prior to the
Effective Time of the Merger, VLSI shall contribute to the capital of Compass
the amount by which the intercompany debt owed to VLSI exceeds the sum of
$16,000,000 plus the amount of any intercompany receivable then due Compass
from VLSI. Such contribution shall not be made in cash but shall instead be
made by VLSI contributing a portion of such intercompany debt. It is further
understood that the intercompany debt may include amounts paid by Compass for
retention bonuses previously agreed to be paid by Compass which have been
disclosed to Avant! in SCHEDULE 3.13."
5. MISCELLANEOUS.
(a) NO OTHER MODIFICATION. Except as expressly provided herein, this
Agreement does not in any way change, modify or delete any of the provisions
of the Merger Agreement, and all such provisions shall remain in full force
and effect.
(b) GOVERNING LAW. This Amendment shall be governed by and construed
under the laws of the State of Delaware.
(c) COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
AVANT! CORPORATION
By: /s/ Gerald C. Hsu
--------------------------------------
Gerald C. Hsu
Chairman of the Board, Chief Executive
Officer and President
COMPASS DESIGN AUTOMATION, INC.
By: /s/ Paul McLellan
--------------------------------------
Paul McLellan
President
GB ACQUISITION CORPORATION
By: /s/ Gerald C. Hsu
--------------------------------------
Gerald C. Hsu
President
VLSI TECHNOLOGY, INC.
By: /s/ Larry L. Grant
--------------------------------------
Larry L. Grant
Vice President, General Counsel and
Secretary
<PAGE>
AGREEMENT OF MERGER BY AND AMONG
AVANT! CORPORATION,
CARDINAL MERGER CORPORATION, AND
TECHNOLOGY MODELING ASSOCIATES, INC.
THIS AGREEMENT OF MERGER is dated as of January __, 1998, by and
among Avant! Corporation, a Delaware corporation ("Avant!"), Cardinal Merger
Corporation, a California corporation and a wholly owned subsidiary of Avant!
("Merger Sub") and Technology Modeling Associates, Inc., a California
corporation ("TMA").
RECITALS:
A. The Boards of Directors of TMA, Avant! and Merger Sub believe
it is in the best interests of their respective corporations and the
stockholders of their respective corporations that TMA and Merger Sub combine
into a single company through the statutory merger of Merger Sub with and
into TMA (the "Merger") and, in furtherance thereof, have approved the Merger.
B. To effectuate the Merger, TMA, Merger Sub and Avant! have
entered into an Agreement and Plan of Reorganization (the "Plan of
Reorganization"), dated as of September 7, 1997, whereby all of the
outstanding shares of capital stock of TMA shall be converted into shares of
Avant! Common Stock, $.0001 par value ("Avant! Common Stock"), at the rate
set forth herein.
C. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), and to cause the Merger to
qualify as a reorganization under the provisions of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
D. The parties intend for the Merger to be accounted for as a
pooling of interests.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2)
Merger Sub shall be merged with and into TMA, the separate corporate existence
of Merger Sub shall cease and TMA shall continue as the surviving corporation.
TMA as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
1.2 EFFECTIVE TIME. The Merger shall become effective at such time
as this Agreement is filed with the Secretary of State of the State of
California, in accordance with the
<PAGE>
relevant provisions of the California General Corporation Law (the "California
Law") (the time of such filing being the "Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, all the property,
rights, privileges, powers and franchises of TMA and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of TMA and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation until thereafter
amended; provided, however, that Article I of the Articles of Incorporation of
the Surviving Corporation shall be amended to read as follows: "The name of
the corporation is Technology Modeling Associates, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors
of Merger Sub shall be the initial directors of the Surviving Corporation and
the officers of Merger Sub shall be the initial officers of the Surviving
Corporation, until their respective successors are duly elected or appointed
and qualified.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF
CERTIFICATES; SUPPLEMENTARY ACTION
2.1 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without
any action on the part of Merger Sub, Avant!, TMA or the holders of any of the
following securities:
(a) CONVERSION OF TMA COMMON STOCK. At the Effective Time,
each share of TMA Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of TMA Common Stock to be canceled
pursuant to Section 2.1(b) and any Dissenting Shares (as defined in Section 2.2
below)) will be canceled and extinguished and will be converted automatically
into the right to receive a fraction of a share of Avant! Common Stock (the
"Exchange Ratio"), the numerator of which is equal to (i) $17.00, and the
denominator of which is equal to (ii) the average of the per share closing
prices of Avant! Common Stock as quoted on the Nasdaq National Market for the
ten (10) consecutive trading days ending three (3) business days prior to the
Effective Date of the Merger (the "Average Nasdaq Per Share Price").
Notwithstanding anything to the contrary set forth herein, in the event that
the Average Nasdaq Per Share Price is greater than $35.678 (the "Maximum
Price"), then the Exchange Ratio shall be 0.476484, and in the event that the
Average Nasdaq Per Share Price is less than $25.678 (the "Minimum Price"), then
the Exchange Ratio shall be 0.662045.
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(b) CANCELLATION OF TMA COMMON STOCK OWNED BY AVANT! OR TMA.
At the Effective Time, all shares of TMA Common Stock that are owned by TMA and
each share of TMA Common Stock owned by Avant! or any direct or indirect wholly
owned subsidiary of Avant! or of TMA immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof.
(c) TMA STOCK PLANS. At the Effective Time, the 1996 Equity
Incentive Plan, the 1995 Stock Option Plan and the 1989 Stock Option Plan of
TMA, and all options to purchase TMA Common Stock then outstanding under such
plans, shall be assumed by Avant! in accordance with Section 5.13 of the Plan
of Reorganization.
(d) TMA EMPLOYEE STOCK PURCHASE PLAN. At the Effective Time,
the TMA 1996 Employee Stock Purchase Plan and all of the existing rights and
obligations of TMA pursuant to the outstanding subscription rights thereunder
shall be assumed by Avant! in accordance with Section 5.13 of the Plan of
Reorganization.
(e) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each
share of Common Stock, no par value, of Merger Sub ("Merger Sub Common Stock"),
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one (1) validly issued, fully paid and
nonassessable share of Common Stock, no par value, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital
stock of the Surviving Corporation.
(f) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Avant! Common Stock or TMA Common Stock), reorganization, recapitalization or
other like change with respect to Avant! Common Stock or TMA Common Stock
occurring after the date hereof and prior to the Effective Time.
(g) FRACTIONAL SHARES. No fraction of a share of Avant! Common
Stock will be issued, but in lieu thereof each holder of shares of TMA Common
Stock who would otherwise be entitled to a fraction of a share of Avant! Common
Stock (after aggregating all fractional shares of Avant! Common Stock to be
received by such holder) shall receive from Avant! an amount of cash (rounded
to the nearest whole cent) equal to the product of (i) such fraction,
multiplied by (ii) the Average Nasdaq Per Share Price.
2.2 DISSENTERS' RIGHTS. If, as of the Effective Time, holders of
TMA Common Stock have complied with all requirements for perfecting and not
forfeited dissenters' rights ("Dissenting Shares") in connection with the
Merger under California Law, such Dissenting Shares shall not be converted into
Avant! Common Stock but instead shall be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to the California Law. TMA shall give Avant! prompt
notice of any demand received by TMA to require TMA to pay the value of any
Dissenting Shares of TMA Common Stock, and Avant! shall have the right to
participate in all negotiations and proceedings with respect to such demand.
TMA agrees that, except with the prior written consent of Avant!, it will not
make any payment with respect to, or settle or offer to settle, any such
purchase
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demand. Each holder of Dissenting Shares (a "Dissenting Shareholder") who,
pursuant to the provisions of California Law, becomes entitled to payment of
the value of shares of TMA Common Stock shall receive payment therefor (but
only after the value therefor shall have been agreed upon or finally
determined pursuant to such provisions). In the event of a legal obligation,
after the Effective Time, to deliver shares of Avant! Common Stock to any
holder of shares of TMA Common Stock who shall have failed to make an
effective payment demand or shall have lost his or her status as a Dissenting
Shareholder, Avant! shall issue and deliver, upon surrender by such
Dissenting Shareholder of his or her certificate or certificates representing
shares of TMA Common Stock, the shares of Avant! Common Stock to which such
Dissenting Shareholder is then entitled under Section 2.1(a) and cash in lieu
of fractional shares pursuant to Section 2.1(g).
2.3 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. Harris Trust Company of California shall
act as exchange agent (the "Exchange Agent") in the Merger.
(b) AVANT! TO PROVIDE COMMON STOCK AND CASH. As soon as
practicable after the Effective Time, but no later than two (2) business days
thereafter, Avant! shall make available to the Exchange Agent for exchange in
accordance with this Article II, through such reasonable procedures as Avant!
may adopt, (i) the shares of Avant! Common Stock issuable pursuant to
Section 2.1(a) in exchange for shares of TMA Common Stock outstanding
immediately prior to the Effective Time and (ii) cash in an amount sufficient
to permit payment of cash in lieu of fractional shares pursuant to
Section 2.1(g).
(c) EXCHANGE PROCEDURES. As soon as practicable after the
Effective Time, but no later than five (5) business days thereafter, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of TMA Common Stock, whose shares
were converted into the right to receive shares of Avant! Common Stock (and
cash in lieu of fractional shares) pursuant to Section 2.1, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Avant! may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Avant! Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Avant!, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of record of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Avant! Common Stock and payment in
lieu of fractional shares which such holder of record has the right to receive
pursuant to Section 2.1, and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Certificate that, prior to
the Effective Time, represented shares of TMA Common Stock will be deemed from
and after the Effective Time, for all corporate purposes, other than as
provided in subsection (d) below, to evidence only the ownership of the number
of full shares of Avant! Common Stock into which such shares of TMA
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Common Stock shall have been so converted and the right to receive an amount
in cash in lieu of the issuance of any fractional shares in accordance with
Section 2.1.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Avant! Common Stock with a
record date after the Effective Time will be paid to the holder of record of
any unsurrendered Certificate with respect to the shares of Avant! Common
Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder
of the certificates representing whole shares of Avant! Common Stock issued
in exchange therefor, without interest, at the time of such surrender, the
amount of any such dividends or other distributions with a record date after
the Effective Time theretofore payable (but for the provisions of this
Section 2.3(d)) with respect to such shares of Avant! Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Avant! Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Avant! or any agent
designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Avant! Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Avant! or any agent designated by it that
such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary
in this Section 2.3, none of the Exchange Agent, the Surviving Corporation or
any party hereto shall be liable to any person for any amount properly paid
to a public official pursuant to any applicable abandoned property, escheat
or similar law.
2.4 NO FURTHER OWNERSHIP RIGHTS IN TMA COMMON STOCK. All shares
of Avant! Common Stock issued upon the surrender for exchange of shares of
TMA Common Stock in accordance with the terms hereof (including any cash paid
in lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of TMA Common Stock, and
following the Effective Time there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of TMA Common
Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in this Article II.
2.5 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time
after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of TMA and Merger Sub, the officers
and directors of TMA and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful
and necessary action, so long as such action is not inconsistent with this
Agreement.
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ARTICLE III
TERMINATION, AMENDMENT AND WAIVER
3.1 TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the shareholders of TMA, this Agreement may be terminated:
(a) by mutual consent of Avant! and TMA;
(b) by either Avant! or TMA, if the Effective Date shall not
have occurred on or before January 31, 1998; provided that the right to
terminate this Agreement pursuant to this paragraph (b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement has
been a significant cause of, or resulted in, the failure of the Effective Date
to occur on or before such date;
(c) by Avant!, if (i) TMA shall breach any of its
representations, warranties or obligations hereunder, which breach would
result in a material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations or results of operations of TMA and its subsidiaries,
taken as a whole, and such breach shall not have been cured within ten (10)
business days following receipt by TMA of written notice of such breach, (ii)
(x) there shall have occurred any material adverse change in the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations, results of operations or prospects of TMA
and its subsidiaries, taken as a whole, and (y) TMA shall not, within twenty
(20) business days of notice from Avant! to the effect that Avant! intends to
terminate this Agreement pursuant to this clause (ii), have proposed to
Avant! a plan to mitigate the effect of such material adverse change which
plan shall be reasonably acceptable to Avant!, or (iii) the Board of
Directors of TMA shall have withdrawn or modified its recommendation of this
Agreement or the Merger in a manner adverse to Avant! or shall have resolved
to do any of the foregoing;
(d) by TMA, if (i) Avant! shall breach any of its
representations, warranties or obligations hereunder, which breach would
result in a material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations or results of operations of Avant! and its subsidiaries,
taken as a whole, and such breach shall not have been cured within ten (10)
business days following receipt by Avant! of written notice of such breach,
(ii) (x) there shall have occurred any material adverse change in the
condition (financial or otherwise), properties, assets (including intangible
assets), liabilities, business, operations, results of operations or
prospects of Avant! and its subsidiaries, taken as a whole, and (y) Avant!
shall not, within twenty (20) business days of notice from TMA to the effect
that TMA intends to terminate this Agreement pursuant to this clause (ii),
have proposed to TMA a plan to mitigate the effect of such material adverse
change which plan shall be reasonably acceptable to TMA, or (iii) the Board
of Directors of Avant! shall have withdrawn or modified its recommendation of
this Agreement or the Merger in a manner adverse to TMA or shall have
resolved to do any of the foregoing; or
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(e) by either Avant! or TMA, if (i) any permanent injunction
or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable or (ii)
at the TMA Shareholders Meeting (as defined in the Plan of Reorganization)
(including any adjournment or postponement thereof) the requisite vote of
shareholders of TMA shall not have been obtained, or (iii) at the Avant!
Stockholders Meeting (as defined in the Plan of Reorganization) (including
any adjournment or postponement thereof) the requisite vote of stockholders
of Avant! shall not have been obtained.
3.2 AMENDMENT. The boards of directors of the parties hereto may
cause this Agreement to be amended at any time by execution of an instrument
in writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of this Agreement by the stockholders
of TMA, Avant! or Merger Sub shall not (i) alter or change the amount or kind
of consideration to be received on conversion of the TMA Common Stock, (ii)
alter or change any term of the Articles of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of this Agreement if such alteration or change would
adversely affect the holders of TMA Common Stock or Avant! Common Stock.
3.3 EXTENSION; WAIVER. At any time prior to the Effective Time
any party hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto and (iii) waive compliance with any of the agreements or conditions
for the benefit of such party contained herein. Any agreement on the part of
a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE IV
APPROVAL OF AGREEMENT
The respective Boards of Directors of each of Avant!, TMA and Merger
Sub have, by resolutions, duly adopted and approved the Merger, this Agreement,
and the Plan of Reorganization. The Stockholders of Avant!, TMA and Merger Sub
have, by resolutions, duly adopted and approved the Merger, this Agreement, and
the Plan of Reorganization in accordance with Delaware General Corporation Law
and California Law.
ARTICLE V
MISCELLANEOUS
5.1 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written
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and oral, among the parties with respect to the subject matter hereof; and
(b) shall not be assigned by operation of law or otherwise except as
otherwise specifically provided.
5.2 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
5.3 HEADINGS. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
AVANT! CORPORATION,
a Delaware corporation
By:
------------------------------------------
Gerald C. Hsu
Chairman of the Board, President and Chief
Executive Officer
By:
------------------------------------------
Eric A. Brill
Secretary
CARDINAL MERGER CORPORATION,
a California corporation
By:
------------------------------------------
Gerald H. Hsu
President
By:
------------------------------------------
John P. Huyett
Secretary
TECHNOLOGY MODELING ASSOCIATES, INC.,
a California corporation
By:
------------------------------------------
Roy E. Jewell
President
By:
------------------------------------------
John DiGirolamo
Secretary
<PAGE>
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT is dated as of September 7, 1997, among
Avant! Corporation, a Delaware corporation ("Avant!"), Cardinal Merger
Corporation, a California corporation and a wholly owned subsidiary of Avant!
("Sub"), and the other parties signatory hereto (each, a "Shareholder").
WHEREAS each Shareholder desires that Technology Modeling Associates,
Inc., a California corporation ("TMAI"), Avant! and Sub enter into an Agreement
and Plan of Reorganization dated as of the date hereof (as the same may be
amended or supplemented, the "Reorganization Agreement") with respect to the
merger of Sub with and into TMAI (the "Merger"); and
WHEREAS each Shareholder is executing this Agreement as an inducement
to Avant! to enter into and execute, and to cause Sub to enter into and execute,
the Reorganization Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by
Avant! and Sub of the Reorganization Agreement and the mutual covenants,
conditions and agreements contained herein and therein, the parties agree as
follows:
Section 1. REPRESENTATIONS AND WARRANTIES. Each Shareholder
individually as to itself, and not jointly, represents and warrants to Avant!
and Sub as follows:
(a) Such Shareholder is the record and beneficial owner of
the number of shares of Common Stock, no par value (the "Common Stock" and the
"TMAI Stock") of TMAI set forth opposite such Shareholder's name in Schedule A
hereto (as may be adjusted from time to time pursuant to Section 4, such
Shareholder's "Shares"). Except for such Shareholder's Shares and any other
shares of TMAI Stock subject hereto, such Shareholder is not the record or
beneficial owner of any shares of TMAI Stock.
(b) Such Shareholder has full power and authority to
execute and deliver this Agreement (including, without limitation, full power
and authority to sell the Shares and to receive shares of Avant! Common Stock in
payment of the Per Share Exercise Price hereunder). This Agreement has been
executed and delivered by such Shareholder and constitutes the legal, valid and
binding obligation of such Shareholder, enforceable against such Shareholder in
accordance with its terms. Neither the execution and delivery of this Agreement
nor the consummation by such Shareholder of the transactions contemplated hereby
will result in a violation of, or a default under, or conflict with, any
contract, trust, commitment, agreement, understanding, arrangement or
restriction of any kind to which such Shareholder is a party or bound or to
which such Shareholder's Shares are subject. To the best of such Shareholder's
knowledge, consummation by such Shareholder of the transactions contemplated
hereby will not violate, or require any consent, approval, or notice under, any
provision of any judgment, order, decree, statute, law, rule or regulation
applicable to such Shareholder or such Shareholder's
<PAGE>
Shares, except for any necessary filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or state takeover laws.
(c) Such Shareholder's Shares and the certificates
representing such Shares are now and at all times during the term hereof will be
held by such Shareholder, or by a nominee or custodian for the benefit of such
Shareholder, free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever, except for any such encumbrances or proxies arising
hereunder.
(d) No broker, investment banker, financial adviser or
other person is entitled to any broker's, finder's, financial adviser's or other
similar fee or commission from Avant!, Sub or TMAI in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
such Shareholder.
(e) Such Shareholder understands and acknowledges that
Avant! is entering into, and causing Sub to enter into, the Reorganization
Agreement in reliance upon such Shareholder's execution and delivery of this
Agreement. Such Shareholder acknowledges that the irrevocable proxy set forth
in Section 3 is granted in consideration for the execution and delivery of the
Reorganization Agreement by Avant! and Sub.
Section 2. COVENANTS. Each Shareholder severally, and not
jointly, agrees with, and covenants to, Avant! and Sub as follows:
(a) Such Shareholder shall not, except as contemplated by
the terms of this Agreement, (i) transfer (which term shall include, without
limitation, for the purposes of this Agreement any sale, gift, pledge or other
disposition), or consent to any transfer of, any or all of such Shareholder's
Shares or any interest therein, (ii) enter into any contract, option or other
agreement or understanding with respect to any transfer of any or all of such
Shares or any interest therein, (iii) grant any proxy, power-of-attorney or
other authorization or consent in or with respect to such Shares, (iv) deposit
such Shares into a voting trust or enter into a voting agreement or arrangement
with respect to such Shares, or (v) take any other action that would in any way
restrict, limit or interfere with the performance of its obligations hereunder
or the transactions contemplated hereby.
(b) If the holders of a majority of TMAI Stock approve the
Reorganization Agreement, such Shareholder's Shares shall be exchanged, pursuant
to the terms of the Reorganization Agreement, for the consideration provided in
the Reorganization Agreement. Such Shareholder, as a result of having agreed to
vote in favor of the Merger, hereby waives any rights of appraisal, or rights to
dissent from the Merger, that such Shareholder may otherwise have.
Section 3. GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY.
(a) Each Shareholder hereby irrevocably grants to, and appoints, Avant!,
Gerald C. Hsu and John P. Huyett and any other individual who shall hereafter be
designated by Avant!, such Shareholder's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of such
Shareholder, to vote such Shareholder's Shares, or grant a consent or approval
in respect
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of such Shares, at any meeting of shareholders of TMAI or at any adjournment
thereof or in any other circumstances upon which their vote, consent or other
approval is sought in favor of the Merger, the execution and delivery of the
Reorganization Agreement and approval of the terms thereof and each of the other
transactions contemplated by the Reorganization Agreement and the other
Documents.
(b) Such Shareholder represents that any proxies heretofore
given in respect of such Shareholder's Shares are not irrevocable, and that any
such proxies are hereby revoked.
(c) Such Shareholder hereby affirms that the irrevocable
proxy set forth in this Section 3 is given in connection with the execution of
the Reorganization Agreement, and that such irrevocable proxy is given to secure
the performance of the duties of the Shareholder under this Agreement. Such
Shareholder hereby further affirms that the irrevocable proxy is coupled with an
interest and may under no circumstances be revoked. Such Shareholder hereby
ratifies and confirms all that such irrevocable proxy may lawfully do or cause
to be done by virtue hereof. Such irrevocable proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 705(e) of the
California General Corporation Law (the "CGCL").
Section 4. GRANT OF OPTION. (a) Each Shareholder grants to
Avant!, with TMAI's consent, an exclusive and irrevocable option (the "Option")
to purchase, subject to the conditions to exercise during the period specified
in subsection (c) of Section 4 and subject to the conditions to closing set
forth in subsection (d) of Section 4, all of the Shares held by such Shareholder
at the exercise price specified in subsection (b) of Section 4.
(b) EXERCISE PRICE; PAYMENT. The exercise price of the
Option may be paid, in the absolute discretion of Avant!, either: (i) in cash
(by check or wire transfer) at a price of $17.00 per Share; or (ii) by issuing
to each Shareholder the number of fully paid and nonassessable shares of Avant!
Common Stock that otherwise would have been issued to each Shareholder at the
Effective Time of the Merger pursuant to the Reorganization Agreement had the
Merger occurred without exercise of the Option (rounded up or down, as the case
may require, to avoid the issuance of fractional shares of Avant! Common Stock).
The exercise price set forth in this subsection (b) of Section 4 shall be
referred to as the "Exercise Price."
(c) EXERCISE OF OPTION; DURATION; CLOSINGS.
(i) Subject to the conditions to closing set forth in
subsection (d) of Section 4, the Option may be exercised at any time after the
occurrence of an Exercise Event (as defined below) and prior to the Expiration
Date (as defined below); provided, that the Option must be exercised in whole
with respect to all Shares, and not in part.
(ii) An "Exercise Event" shall occur for purposes of
this Agreement upon the occurrence of (A) any event or circumstance which,
pursuant to the terms of Section 7.1(c) of the Reorganization Agreement, would
entitle Avant! to terminate the Reorganization Agreement (regardless of whether
the Reorganization Agreement has actually
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<PAGE>
been terminated as a result of such event or circumstance); or (B)(1) an offer,
including an exchange offer, for at least 20% of the outstanding shares of TMAI
capital stock other than by Avant! or any of its affiliates that has been
accepted by holders of at least 20% of the outstanding shares of TMAI capital
stock, (2) an acquisition of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), by any person, other than Avant! or any of its affiliates
or by an existing shareholder of TMAI holding 5% or more of the outstanding
stock of TMAI as of the date of this Agreement (a "Controlling Shareholder"), of
at least 20% of the outstanding shares of TMAI capital stock, except for between
shareholders or between shareholders and their affiliates, or (3) an agreement
by TMAI with any person, other than Avant! or any of its affiliates, to acquire
TMAI or a controlling interest in TMAI by merger, consolidation, purchase of
substantially all of TMAI's assets, purchase of stock or other business
combination.
(iii) The "Expiration Date" shall be the date of the
earliest to occur of (A) the Effective Time (as defined in the Reorganization
Agreement), or (B) the termination of the Merger Agreement pursuant to
Section 7.1 of the Merger Agreement, if an Exercise Event shall not have
occurred on or prior to such termination date; PROVIDED that, if Avant! has sent
a Notice of Exercise prior to the Expiration Date, the Expiration Date shall be
extended during the pendency of any legal action or proceeding or any other
activity the resolution of which would, or which is reasonably intended to,
satisfy the condition set forth in subsection (d)(i) of Section 4 and if such
condition is thereafter satisfied, for a period of 15 days after the date such
conditions are satisfied.
(iv) To exercise the Option, Avant! shall, prior to the
Expiration Date, send a written notice (a "Notice of Exercise") to the
Shareholder specifying (A) the location, date and time for the closing (a
"Closing") of the purchase (which date shall be no later than five calendar days
and no earlier than the next day after the date such notice is mailed, but in no
event earlier than the date on or by which the condition specified in
subsection (d)(i) of Section 4 has been satisfied); and (B) the form(s) in which
the Exercise Price is to be paid with respect to the Option. If the Closing is
to occur sooner than three calendar days from the date on which a Notice of
Exercise is sent, notice shall also be given to each Shareholder by confirmed
facsimile, at the time the Notice of Exercise is sent, of the information
contained in such Notice of Exercise.
(v) AT THE CLOSING:
(A) Avant! shall: (1) if it has elected to pay
the Exercise Price of the Option (with respect to all or any Shares) in cash,
deliver to each Shareholder by check or wire transfer an amount calculated by
multiplying the number of Shares with respect to which such election has been
made by $17.00; and/or (2) if it has elected to pay the Exercise Price of the
Option in shares of Avant! Common Stock, (a) deliver to each Shareholder one or
more certificates, registered in the Shareholder's name, representing a number
of fully paid and nonassessable shares of Avant! Common Stock equal to the
number of fully paid and nonassessable shares of Avant! Common Stock that
otherwise would have been issued to each Shareholder at the Effective Time of
the Merger pursuant to the Reorganization Agreement had
4
<PAGE>
the Merger occurred without exercise of the Option (rounded up or down, as the
case may require, to avoid the issuance of fractional shares of Avant! Common
Stock), and (b) agree with each Shareholder to file a registration statement on
Form S-3 with the Securities and Exchange Commission within ten (10) days of
such delivery of shares to register the resale of the Avant! Common Stock so
delivered to such Shareholder pursuant to this subsection (c)(v) of Section 3.
(B) Each Shareholder shall deliver to Avant!
one or more certificates registered in the name of Avant!, representing the
Shares subject to such Option exercise.
(d) CONDITION TO CLOSING.
(i) CONDITIONS TO CLOSING OBLIGATIONS OF AVANT! AND THE
SHAREHOLDER. The respective obligations of Avant! and each Shareholder to
proceed with the Closing shall be subject to the satisfaction prior to the
Closing, of the condition that no order, statute, rule, regulation, executive
order, stay, decree, judgment or injunction shall have been enacted, entered,
issued, promulgated or enforced by any court or governmental authority,
subsequent to the date of this Agreement, that prohibits or restricts the
effectuation of any of the transactions contemplated by this Agreement or the
Reorganization Agreement.
(ii) ADDITIONAL CONDITIONS TO AVANT!'S CLOSING
OBLIGATIONS. In addition to the condition specified in subsection (d)(i) of
Section 4, the obligation of Avant! to proceed with the Closing shall also be
subject to the satisfaction of the following conditions (except to the extent
waived by Avant!, in its sole discretion), notwithstanding the prior giving of
Notice of Exercise providing for the Closing;
(A) Each Shareholder and TMAI shall have
performed and complied in all material respects with the agreements and
obligations contained in this Agreement that are required to be performed and
complied with by it at or prior to the date of the Closing; and
(B) The representations and warranties of each
Shareholder contained in this Agreement shall be true and correct in all
material respects as of the date of this Agreement, and shall be deemed to have
been made again at and as of the Closing and shall then be true and correct in
all material respects.
(iii) ADDITIONAL CONDITION TO EACH SHAREHOLDER'S CLOSING
OBLIGATIONS. In addition to the condition specified in subsection (d)(i) of
Section 4, the obligation of each Shareholder to proceed with any Closing shall
also be subject to the satisfaction (except to the extent waived by each
Shareholder, in such Shareholder's sole discretion), of the following condition:
(A) Avant! shall have performed and complied in
all material respects with the agreements and obligations contained in this
Agreement that are required to be performed and complied with by it at or prior
to the date of the Closing.
5
<PAGE>
(e) COVENANT BY EACH SHAREHOLDER AND TMAI. Each
Shareholder and TMAI shall at no time prior to the Expiration Date take, or
refrain from taking, any action where the effect of so doing would be to
(i) prevent or disable the Shareholder from delivering the Shares to Avant! upon
exercise of the Option, (ii) prevent or disable the Shareholder or TMAI from
performing any of its other obligations under this Agreement, or (iii) prevent
or disable Avant! from exercising any of its rights under this Agreement;
including the exercise by TMAI of any right of TMAI or either Shareholder to
repurchase or restrict the transfer of the Shares.
Section 5. CERTAIN EVENTS. Each Shareholder agrees that this
Agreement and the obligations hereunder shall attach to such Shareholder's
Shares and shall be binding upon any person or entity to which legal or
beneficial ownership of such Shares shall pass, whether by operation of law or
otherwise, including without limitation such Shareholder's heirs, guardians,
administrators or successors. In the event of any stock split, stock dividend,
merger, reorganization, recapitalization or other change in the capital
structure of TMAI affecting TMAI Stock, or the conversion of any Shares that are
Preferred Stock into Common Stock, or the acquisition of additional shares of
TMAI Stock or other securities or rights of TMAI by any Shareholder, the number
of Shares listed on SCHEDULE A beside the name of such Shareholder shall be
adjusted appropriately and this Agreement and the obligations hereunder shall
attach to any additional shares of TMAI Stock or other securities or rights of
TMAI issued to or acquired by such Shareholder.
Section 6. STOP TRANSFER; LEGEND. TMAI agrees with, and covenants
to, Avant! that TMAI shall not register the transfer of any certificate
representing any Shareholder's Shares, unless such transfer is made in
compliance with this Agreement. Each Shareholder agrees that such Shareholder
will tender to TMAI, within five business days after the date hereof, any and
all certificates representing such Shareholder's Shares and TMAI will inscribe
upon such certificates the following legend: "The shares of Common Stock, par
value $0.001 per share, of Technology Modeling Associates, Inc. represented by
this certificate are subject to a Shareholder Agreement dated as of September 7,
1997, and may not be sold or otherwise transferred, except in accordance
therewith. Copies of such Agreement may be obtained at the principal executive
offices of Technology Modeling Associates, Inc."
Section 7. SHAREHOLDER CAPACITY. No person executing this
Agreement who is or becomes during the term hereof a director or officer of TMAI
makes any agreement or understanding herein in his or her capacity as such
director or officer. Each Shareholder signs solely in his or her capacity as
the record holder and beneficial owner of such Shareholder's Shares and nothing
herein shall limit or affect any actions taken by a Shareholder in its capacity
as an officer or director of TMAI to the extent specifically permitted by the
Reorganization Agreement.
Section 8. FURTHER ASSURANCES. Each Shareholder shall, upon
request of Avant! or Sub, execute and deliver any additional documents and take
such further actions as may reasonably be deemed by Avant! or Sub to be
necessary or desirable to carry out the provisions hereof and to vest the power
to vote such Shareholder's Shares as contemplated by Section 3 in Avant! and the
other irrevocable proxies described therein.
6
<PAGE>
Section 9. TERMINATION. This Agreement, and all rights and
obligations of the parties hereunder, shall terminate upon the earlier of
(a) the date upon which the Reorganization Agreement is terminated in accordance
with its terms or (b) the Effective Time (as defined in the Reorganization
Agreement).
Section 10. PUBLIC ANNOUNCEMENTS. Each Shareholder will consult
with Avant! before issuing, and provide Avant! with the opportunity to review
and comment upon, any press release or other public statements with respect to
the transactions contemplated by this Agreement and the Reorganization
Agreement, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law, court process or by obligations pursuant to any listing agreement with any
national securities exchange.
Section 11. MISCELLANEOUS. (a) Capitalized terms used and not
otherwise defined in this Agreement shall have the respective meanings assigned
to such terms in the Reorganization Agreement.
(b) All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice): (i) if to Avant! or Sub, to
the address set forth in Section 8.2 of the Reorganization Agreement; and
(ii) if to a Shareholder, to the address set forth on SCHEDULE A hereto, or such
other address as may be specified in writing by such Shareholder.
(c) The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(d) This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective (even without the signature of any other Shareholder) as
to any Shareholder when one or more counterparts have been signed by each of
Avant!, Sub and such Shareholder and delivered to Avant!, Sub and such
Shareholder.
(e) This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
(f) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
(g) Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or
7
<PAGE>
otherwise, by any of the parties without the prior written consent of the other
parties, except by laws of descent. Any assignment in violation of the
foregoing shall be void.
(h) If any term, provision, covenant or restriction herein,
or the application thereof to any circumstance, shall, to any event, be held by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law.
(i) Each Shareholder agrees that irreparable damage would
occur and that Avant! and Sub would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that Avant! and Sub shall be entitled to an injunction or
injunctions to prevent breaches by any Shareholder of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States located in the State of California or in California state
court, this being in addition to any other remedy to which Avant! and Sub are
entitled at law or in equity. In addition, each of the parties hereto
(i) consents to submit such party to the personal jurisdiction of any Federal
court located in the State of California or any California state court in the
event any dispute arises out of this Agreement or any of the transactions
contemplated hereby, (ii) agrees that such party will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (iii) agrees that such party will not bring any action relating
to this Agreement or any of the transactions contemplated hereby in any court
other than a Federal court located in the State of California or a California
state court.
(j) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT.
(k) No amendment, modification or waiver in respect of this
Agreement shall be effective against any party unless it shall be in writing and
signed by such party.
8
<PAGE>
IN WITNESS WHEREOF, Avant!, Cardinal Merger Corporation and the
Shareholders have caused this Agreement to be duly executed and delivered as of
the date first written above.
AVANT! CORPORATION
By: /s/ Gerald C. Hsu
--------------------------------
Gerald C. Hsu
Chairman of the Board,
Chief Executive Officer and President
CARDINAL MERGER CORPORATION
By: /s/ Gerald C. Hsu
--------------------------------
Gerald C. Hsu
President
/s/ Roy E. Jewell
-----------------------------------
Roy E. Jewell
/s/ Bennet L. Weintraub
-----------------------------------
Bennet L. Weintraub
/s/ Jue-Hsien Chern
-----------------------------------
Jue-Hsien Chern
/s/ Lung Chu
-----------------------------------
Lung Chu
/s/ David M. Lee
-----------------------------------
David M. Lee
/s/ Milan G. Lazich
-----------------------------------
Milan G. Lazich
<PAGE>
/s/ Louis A. Delmonico
-----------------------------------
Louis A. Delmonico
/s/ Robert A. Dutton
-----------------------------------
Robert A. Dutton
/s/ William E. Drobish
-----------------------------------
William E. Drobish
/s/ Ronald A. Rohrer
-----------------------------------
Ronald A. Rohrer
ACKNOWLEDGED AND AGREED
TO AS TO SECTIONS 4 AND 6:
TECHNOLOGY MODELING ASSOCIATES, INC.
By: /s/ Roy E. Jewell
---------------------------
Print Name: Roy E. Jewell
-------------------
Title: Chairman of the Board, Chief Executive
Officer and President
-----------------------------------------
<PAGE>
TECHNOLOGY MODELING ASSOCIATES, INC. AFFILIATES AGREEMENT
THIS AFFILIATES AGREEMENT (the "Affiliates Agreement") is entered into
as of January __, 1998 between Avant! Corporation, a Delaware corporation
("Avant!"), and the undersigned shareholder (the "Shareholder") of Technology
Modeling Associates, Inc., a California corporation ("TMAI").
RECITALS
A. TMAI, Avant! and Cardinal Merger Corporation, a California
corporation and a wholly owned subsidiary of Avant! ("Merger Sub"), have entered
into an Agreement and Plan of Reorganization dated September 7, 1997 (the
"Reorganization Agreement"), pursuant to which Merger Sub will be merged into
TMAI (the "Merger"), and TMAI will become a wholly owned subsidiary of Avant!.
B. Upon the consummation of the Merger and in connection therewith,
the undersigned Shareholder will become the owner of shares of Common Stock of
Avant! (the "Avant! Shares").
C. The parties to the Reorganization Agreement intend to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code") and intend to cause the Merger to qualify
as a "reorganization" under the provisions of Section 368(a)(1)(A) and Section
368(a)(2)(E) of the Code.
D. The parties to the Reorganization Agreement intend to cause the
Merger to be accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, provisions and covenants set forth in the Reorganization Agreement
and in this Affiliates Agreement, it is hereby agreed as follows:
1. The undersigned Shareholder hereby agrees that:
(a) The undersigned Shareholder may be deemed to be (but does
not hereby admit to be) an "affiliate" of TMAI within the meaning of Rule 145
under the Securities Act of 1933, as amended (the "Securities Act"), and
Accounting Series Release No. 130, as amended, of the Securities and Exchange
Commission (the "SEC') ("Release No. 130").
(b) The undersigned Shareholder will not sell, exchange,
transfer, pledge, dispose of or otherwise reduce the undersigned Shareholder's
risk relative to the Avant! Shares or any part thereof until such time after the
Effective Time of the Merger as financial results covering at least thirty (30)
days of the combined operations of Avant! and TMAI after the Effective Time of
the Merger have been, within the meaning of said Release No. 130, filed by
Avant! with the SEC or published by Avant! in an Annual Report on Form 10K, a
Quarterly Report on Form 10-Q, a Current Report on Form 8-K, a quarterly
earnings report, a press release
<PAGE>
or other public issuance that includes combined sales and income of TMAI and
Avant!. Avant! agrees to make such filing or publication as soon as practicable
and to notify the undersigned Shareholder promptly upon making such filing or
publication. The undersigned will not, during the thirty (30) day period prior
to the Effective Time of the Merger as determined in Avant!'s reasonable
discretion, sell, exchange, transfer, pledge, dispose of or otherwise reduce the
undersigned Shareholder's risk relative to the Avant! Shares or any part thereof
(including any disposition, within such period, of Shareholder's shares of TMAI
Common Stock).
(c) The undersigned Shareholder has, and as of the Effective
Time of the Merger will have, no present plan or intent (a "Plan") to engage in
a sale, exchange, transfer, pledge, disposition or any other transaction
(including a distribution by a partnership to its partners or by a corporation
to its shareholders) that results in a reduction in the risk of ownership
(collectively, a "Sale") with respect to any of the shares of Avant! Common
Stock to be acquired by the undersigned Shareholder upon consummation of the
Merger. The undersigned Shareholder is not aware of, or participating in, any
plan or intent on the part of TMAI's shareholders (a "Plan") to engage in a Sale
or Sales of the shares of Avant! Common Stock to be issued in the Merger such
that the aggregate fair market value, as of the Effective Time of the Merger, of
the shares subject to such Sales would exceed fifty percent (50%) of the
aggregate fair market value of all shares of outstanding TMAI Common Stock
immediately prior to the Merger. A sale of Avant! Common Stock shall be
considered to have occurred pursuant to a Plan if, among other things, such Sale
occurs in a transaction that is in contemplation of, or related or pursuant to,
the Reorganization Agreement (a "Related Transaction"). In addition, shares of
TMAI Common Stock (i) exchanged for cash in lieu of fractional shares of Avant!
Common Stock, (ii) with respect to which dissenters' rights are exercised and
(iii) with respect to which a Sale occurred in a Related Transaction prior to
the Merger shall be considered to have been shares of outstanding TMAI Common
Stock that were exchanged for Avant! Common Stock in the Merger and then
disposed of pursuant to a Plan. If any of the undersigned Shareholder's
representations in this subsection (c) ceases to be true at any time prior to
the Effective Time of the Merger, the undersigned Shareholder shall deliver to
each of TMAI and Avant!, prior to the Effective Time of the Merger, a written
statement to that effect. Except as otherwise set forth in APPENDIX A, the
undersigned Shareholder has not engaged in a sale of any shares of TMAI Common
Stock since August __, 1997. The undersigned Shareholder understands and
acknowledges that TMAI, Avant! and their respective shareholders, as well as
legal counsel to TMAI and Avant!, are entitled to rely on (i) the truth and
accuracy of the undersigned Shareholder's representations contained herein and
(ii) the undersigned Shareholder's performance of the obligations set forth
herein.
(d) Except with respect to the exchange of TMAI Common Stock for
Avant! Common Stock pursuant to the Merger, the undersigned has no current plan
or intent to engage in any Sale of any TMAI capital stock (whether or not
acquired pursuant to the exercise of a stock option since August __, 1997) on,
or prior to, the Merger. The undersigned shall immediately notify Avant! and
TMAI in writing via facsimile of any Sale of TMAI capital stock by the
undersigned on, or prior to, the Merger.
2
<PAGE>
(e) Subject to paragraphs (b), (c) and (d) of this Section 1,
the undersigned Shareholder agrees not to offer, sell, exchange, transfer,
pledge or otherwise dispose of any of the Avant! Shares unless at that time
either:
(i) such transaction is permitted pursuant to the
provisions of Rule 145(d) under the Securities Act;
(ii) counsel representing the undersigned Shareholder,
satisfactory to Avant!, shall have advised Avant! in a written opinion letter
satisfactory to Avant! and Avant!'s counsel and upon which Avant! and its
counsel may rely, that no registration under the Securities Act is required in
connection with the proposed sale, transfer or other disposition;
(iii) a registration statement under the Securities Act
covering the Avant! Shares proposed to be sold, transferred or otherwise
disposed of, describing the manner and terms of the proposed sale, transfer or
other disposition, and containing a current prospectus, is filed with the SEC
and made effective under the Securities Act; or
(iv) an authorized representative of the SEC shall have
rendered written advice to the undersigned Shareholder (sought by the
undersigned Shareholder or counsel to the undersigned Shareholder, with a copy
thereof and of all other related communications delivered to Avant!) to the
effect that the SEC will take no action, or that the staff of the SEC will not
recommend that the SEC take action, with respect to the proposed offer, sale,
exchange, transfer, pledge or other disposition if consummated.
(f) All certificates representing the Avant! Shares deliverable
to the undersigned Shareholder pursuant to the Reorganization Agreement and in
connection with the Merger and any certificates subsequently issued with respect
thereto or in substitution therefor shall, unless one or more of the alternative
conditions set forth in the subparagraphs of paragraph (e) of this Section 1
shall have occurred, bear a legend substantially as follows:
"The shares represented by this certificate may not be
offered, sold, exchanged, transferred, pledged or otherwise
disposed of except in accordance with the requirements of
the Securities Act of 1933, as amended, and the other
conditions specified in that certain Affiliates Agreement
dated as of September 7, 1997 between Avant! Corporation and
[name of shareholder], a copy of which Affiliates Agreement
may be inspected by the holder of this certificate at the
offices of Avant!, or Avant! will furnish, without charge, a
copy thereof to the holder of this certificate upon written
request therefor."
Avant!, at its discretion, may cause stop transfer orders to be placed with its
transfer agent with respect to the certificates for the Avant! Shares but not as
to the certificates for any part of the Avant! Shares as to which said legend is
no longer appropriate when one or more of the alternative conditions set forth
in the subparagraphs of paragraph (e) of this Section 1 shall have occurred.
3
<PAGE>
(g) The undersigned Shareholder will observe and comply with the
Securities Act and the General Rules and Regulations thereunder, as now in
effect and as from time to time amended and including those hereafter enacted or
promulgated, in connection with any offer, sale, exchange, transfer, pledge or
other disposition of the Avant! Shares or any part thereof.
2. REPORTS. From and after the Effective Time of the Merger and for
so long as necessary in order to permit the undersigned Shareholder to sell the
Avant! Shares pursuant to Rule 145 and, to the extent applicable, Rule 144 under
the Securities Act, Avant! will file on a timely basis all reports required to
be filed by it pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, referred to in paragraph (c)(1) of Rule 144 under the Securities Act (or,
if applicable, Avant! will make publicly available the information regarding
itself referred to in paragraph (c)(2) of Rule 144), in order to permit the
undersigned Shareholder to sell, pursuant to the terms and conditions of Rule
145 and the applicable provisions of Rule 144, the Avant! Shares.
3. WAIVER. No waiver by any party hereto of any condition or of any
breach of any provision of this Affiliates Agreement shall be effective unless
in writing.
4. NOTICES. All notices, requests, demands or other communications
that are required or may be given pursuant to the terms of this Affiliates
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by registered or certified mail, postage prepaid, as
follows:
(a) If to the Shareholder, at the address set forth below the
Shareholder's signature at the end hereof.
(b) If to Avant!:
Avant! Corporation
46871 Bayside Parkway
Fremont, California 94538
Attention: John P. Huyett
Fax: (510) 413-8000
Tel: (510) 413-8080
with a copy to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
Attention: Steven M. Spurlock, Esq.
Fax: (650) 321-2800
Tel: (650) 321-2400
4
<PAGE>
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
5. COUNTERPARTS. For the convenience of the parties hereto, this
Affiliates Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same document.
6. SUCCESSORS AND ASSIGNS. This Affiliates Agreement shall be
enforceable by, and shall inure to the benefit of and be binding upon, the
parties hereto and their respective successors and assigns. As used herein, the
term "successors and assigns" shall mean, where the context so permits, heirs,
executors, administrators, trustees and successor trustees, and personal and
other representatives.
7. GOVERNING LAW. This Affiliates Agreement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the State
of Delaware, without regard to the conflicts of law provisions thereof
8. EFFECTIVENESS; SEVERABILITY. This Affiliates Agreement shall
become effective at the Effective Time of the Merger. If a court of competent
jurisdiction determines that any provision of this Affiliates Agreement is
unenforceable or enforceable only if limited in time and/or scope, this
Affiliates Agreement shall continue in full force and effect with such provision
stricken or so limited.
9. EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not effect the construction or interpretation of this
Affiliates Agreement.
10. DEFINITIONS. All capitalized terms used herein shall have the
meaning defined in the Reorganization Agreement, unless otherwise defined
herein.
5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Affiliates Agreement
to be executed as of the date first above written.
AVANT! CORPORATION SHAREHOLDER
By:
------------------------------------- ------------------------------
Gerald C. Hsu (Signature)
Chairman of the Board,
Chief Executive Officer and President
------------------------------
(Print Name)
------------------------------
------------------------------
------------------------------
(Address)
<PAGE>
AVANT! CORPORATION AFFILIATES AGREEMENT
THIS AFFILIATES AGREEMENT (the "Affiliates Agreement") is entered into
as of January __, 1998 between Avant! Corporation, a Delaware corporation
("Avant!"), and the undersigned stockholder (the "Stockholder") of Avant!.
RECITALS
A. Avant!, Cardinal Merger Corporation, a California corporation and
a wholly owned subsidiary of Avant! ("Merger Sub") and Technology Modeling
Associates, Inc., a California corporation ("TMAI"), have entered into an
Agreement and Plan of Reorganization dated September 7, 1997 (the
"Reorganization Agreement"), pursuant to which Merger Sub will be merged into
TMAI (the "Merger"), and TMAI will become a wholly owned subsidiary of Avant!.
B. The parties to the Reorganization Agreement intend to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code") and intend to cause the Merger to qualify
as a "reorganization" under the provisions of Section 368(a)(1)(A) and
Section 368(a)(2)(E) of the Code.
C. The parties to the Reorganization Agreement intend to cause the
Merger to be accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, provisions and covenants set forth in the Reorganization Agreement
and in this Affiliates Agreement, it is hereby agreed as follows:
1. The undersigned Stockholder hereby agrees that:
(a) The undersigned Stockholder may be deemed to be (but does
not hereby admit to be) an "affiliate" of Avant! within the meaning of Rule 145
under the Securities Act of 1933, as amended (the "Securities Act"), and
Accounting Series Release No. 130, as amended, of the Securities and Exchange
Commission (the "SEC') ("Release No. 130").
(b) The undersigned Stockholder will not sell, exchange,
transfer, pledge, dispose of or otherwise reduce the undersigned Stockholder's
risk relative to the Avant! Shares or any part thereof until such time after the
Effective Time of the Merger as financial results covering at least thirty (30)
days of the combined operations of Avant! and TMAI after the Effective Time of
the Merger have been, within the meaning of said Release No. 130, filed by
Avant! with the SEC or published by Avant! in an Annual Report on Form 10K, a
Quarterly Report on Form 10-Q, a Current Report on Form 8-K, a quarterly
earnings report, a press release or other public issuance that includes combined
sales and income of TMAI and Avant!. Avant! agrees to make such filing or
publication as soon as practicable and to notify the undersigned Stockholder
promptly upon making such filing or publication. The undersigned will not,
during the thirty (30) day period prior to the Effective Time of the Merger as
determined in Avant!'s
<PAGE>
reasonable discretion, sell, exchange, transfer, pledge, dispose of or otherwise
reduce the undersigned Stockholder's risk relative to the Avant! Shares or any
part thereof.
(c) The undersigned has no current plan or intent to engage in
any Sale of any Avant! Common Stock (whether or not acquired pursuant to the
exercise of a stock option since August __, 1997) on, or prior to, the Merger.
The undersigned shall immediately notify Avant! in writing via facsimile of any
Sale of Avant! Common Stock by the undersigned on, or prior to, the Merger.
2. WAIVER. No waiver by any party hereto of any condition or of any
breach of any provision of this Affiliates Agreement shall be effective unless
in writing.
3. NOTICES. All notices, requests, demands or other communications
that are required or may be given pursuant to the terms of this Affiliates
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by registered or certified mail, postage prepaid, as
follows:
(a) If to the Stockholder, at the address set forth below the
Stockholder's signature at the end hereof.
(b) If to Avant!:
Avant! Corporation
46871 Bayside Parkway
Fremont, California 94538
Attention: John P. Huyett
Fax: (510) 413-8000
Tel: (510) 413-8080
with a copy to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
Attention: Steven M. Spurlock, Esq.
Fax: (650) 321-2800
Tel: (650) 321-2400
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
4. COUNTERPARTS. For the convenience of the parties hereto, this
Affiliates Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same document.
2
<PAGE>
5. SUCCESSORS AND ASSIGNS. This Affiliates Agreement shall be
enforceable by, and shall inure to the benefit of and be binding upon, the
parties hereto and their respective successors and assigns. As used herein, the
term "successors and assigns" shall mean, where the context so permits, heirs,
executors, administrators, trustees and successor trustees, and personal and
other representatives.
6. GOVERNING LAW. This Affiliates Agreement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the State
of Delaware, without regard to the conflicts of law provisions thereof
7. EFFECTIVENESS; SEVERABILITY. This Affiliates Agreement shall
become effective at the Effective Time of the Merger. If a court of competent
jurisdiction determines that any provision of this Affiliates Agreement is
unenforceable or enforceable only if limited in time and/or scope, this
Affiliates Agreement shall continue in full force and effect with such provision
stricken or so limited.
8. EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not effect the construction or interpretation of this
Affiliates Agreement.
9. DEFINITIONS. All capitalized terms used herein shall have the
meaning defined in the Reorganization Agreement, unless otherwise defined
herein.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Affiliates Agreement
to be executed as of the date first above written.
AVANT! CORPORATION STOCKHOLDER
By:
------------------------------------- ------------------------------
Gerald C. Hsu (Signature)
Chairman of the Board,
Chief Executive Officer and President
------------------------------
(Print Name)
------------------------------
------------------------------
------------------------------
(Address)
<PAGE>
December 22, 1997
Avant! Corporation
46871 Bayside Parkway
Fremont, California 94538
Re: REGISTRATION STATEMENT ON FORM S-4
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 to be filed
by Avant! Corporation (the "Company") with the Securities and Exchange
Commission on December 22, 1997, as thereafter amended or supplemented (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of shares of the Company's Common Stock
(the "Shares") to be issued to the shareholders of Technology Modeling
Associates, Inc. ("TMA") in connection with the merger of a wholly owned
subsidiary of the Company with and into TMA. As your legal counsel, we have
examined the proceedings taken and are familiar with the proceedings proposed
to be taken by you in connection with the sale and issuance of the Shares.
It is our opinion that, upon conclusion of the proceedings being
taken or contemplated by us, as your counsel, to be taken prior to the
issuance of the Shares and upon completion of the proceedings being taken in
order to permit such transactions to be carried out in accordance with the
securities laws of the various states where required, the Shares, when issued
and sold in the manner described in the Registration Statement, will be
legally and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to said
Registration Statement, and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus
constituting a part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
-----------------------------------------
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
<PAGE>
December 22, 1997
Board of Directors
Avant! Corporation
46871 Bayside Parkway
Fremont, California 94538
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing
of the Securities and Exchange Commission Form S-4 Registration Statement
filed on December 22, 1997, and related Exhibits thereto, as thereafter
amended at any time to and including the date hereof (the "S-4 Registration
Statement") relating to the Agreement and Plan of Reorganization (the
"Agreement") among Avant! Corporation, a Delaware corporation ("Avant!"), its
wholly owned subsidiary, Cardinal Merger Corporation, a California
corporation ("Merger Sub"), and Technology Modeling Associates, Inc., a
California corporation ("TMAI"), dated as of September 7, 1997. Pursuant to
the Agreement and the related Agreement of Merger (collectively, the "Merger
Agreements"), Sub will merge with and into TMAI (the "Merger"), and TMAI will
become a wholly owned subsidiary of Avant!.
Except as otherwise provided, capitalized terms referred to herein
have the meanings set forth in the Merger Agreements. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as legal counsel to Avant! and Merger Sub in
connection with the Merger. As such, and for the purpose of rendering this
opinion, we have and are relying upon (without any independent investigation
or review thereof) the truth and accuracy, at all relevant times, of the
statements, covenants, representations and warranties contained in the
following documents (including all schedules and exhibits thereto):
1. The Merger Agreements (including Exhibits);
2. The S-4 Registration Statement;
3. Representations made to us by Avant! and Merger Sub in a letter
reproduced as Exhibit A hereto;
4. Representations made to us by TMAI in a letter reproduced as
Exhibit B hereto;
5. Representations made to us by certain shareholders of TMAI in
"Technology Modeling Associates, Inc. Affiliates Agreements" and "Continuity
of Interest Certificates;"
<PAGE>
Avant! Corporation
December 22, 1997
Page 2
6. An opinion of counsel, received by TMAI from Fenwick & West LLP,
substantially identical in substance to this opinion (the "F&W Tax Opinion");
7. Such other instruments and documents related to the formation,
organization and operation of Avant!, TMAI and Merger Sub or to the
consummation of the Merger and the transactions contemplated thereby as we
have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or
obtained representations (and are relying thereon, without any independent
investigation or review thereof) that:
A. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents, and
there has been (or will be by the Effective Time) due execution and delivery
of all documents where due execution and delivery are prerequisites to
effectiveness thereof;
B. Any representation or statement made "to the knowledge of," or
"to the belief of" or otherwise similarly qualified is correct without such
qualification and all statements and representations, whether or not
qualified, will remain true through the Effective Time. As to all matters in
which a person or entity making a representation has represented that such
person or entity either is not a party to, does not have, or is not aware of
any plan, intention, understanding or agreement to take an action, there is
in fact no plan, intention, understanding or agreement and such action will
not be taken;
C. The Merger will be consummated pursuant to the Merger Agreements
and will be effective under the laws of the states of California and Delaware;
D. There is no plan or intention on the part of the TMAI stockholders
to engage in a sale, exchange, transfer, distribution, pledge, disposition or
any other transaction which would result in a direct or indirect disposition
(including a transaction which would have the effect of reducing such
stockholder's risk of loss with respect to such stock) of either TMAI capital
stock in anticipation of the Merger or of shares of Avant! Common Stock to be
issued to TMAI stockholders in the Merger, which shares would have an
aggregate fair market value, as of the Effective Date of the Merger, in
excess of 50% of the aggregate fair market value, immediately prior to the
Merger, of all outstanding shares of TMAI stock, or (b) more than 50% of the
shares of Avant! Common Stock to be received in exchange for TMAI Common
Stock in the Merger;
E. After the Merger, TMAI will hold "substantially all" of its and
Merger Sub's properties within the meaning of Section 368(a)(2)(E)(i) of the
Code and the regulations promulgated thereunder and will continue its
historic business or use a significant portion of its historic assets in a
business;
<PAGE>
Avant! Corporation
December 22, 1997
Page 3
F. To the extent any expenses relating to the Merger (or the "plan
of reorganization" within the meaning of Treas. Reg. Section 1.368-1(c) with
respect to the Merger) are funded directly or indirectly by a party other
than the incurring party, such expenses will be within the guidelines
established in Revenue Ruling 73-54, 1973-1 C.B. 187; any expenses paid on
behalf of TMAI stockholders will not exceed one percent (1%) of the total
consideration that will be issued in the Merger to TMAI stockholders in
exchange for their shares of TMAI stock;
G. No TMAI stockholder has guaranteed or will guarantee any TMAI
indebtedness outstanding during the period immediately prior to the Merger,
and at all relevant times, including as of the Effective Time, (i) no
outstanding indebtedness of TMAI, Avant! or Merger Sub has or will represent
equity for tax purposes; (ii) no outstanding equity of TMAI, Avant! or Merger
Sub has or will represent indebtedness for tax purposes; and (iii) no
outstanding security, instrument, agreement or arrangement that provides for,
contains, or represents either a right to acquire TMAI stock or to share in
the appreciation thereof constitutes or will constitute "stock" for purposes
of Section 368(c) of the Code;
H. Following the Merger, TMAI will continue its historic business
or use a significant portion of its historic business assets in a business;
I. None of TMAI, Avant! or Merger Sub is, or will be at the time of
the Merger, an investment company as defined in Section 368(a)(2)(F) of the
Code;
J. Counsel for Avant! and TMAI will, pursuant to Paragraphs 6.1(e)
of the Agreement and Plan of Reorganization, deliver opinions dated the
Closing Date to the effect that the Merger will be treated as a
"reorganization" within the meaning of Section 368(a) of the Code; and
K. The F&W Tax Opinion has been delivered and will not be withdrawn
prior to the consummation of the Merger.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that, if the Merger is consummated in accordance with the
provisions of the Merger Agreements (and without any waiver, breach or
amendment of any of the provisions thereof), for federal income tax purposes:
1. The Merger will be a "reorganization" for federal income tax
purposes within the meaning of Section 368(a) of the Code;
2. No gain or loss will be recognized by holders of TMAI Common
Stock solely upon their receipt in the Merger of Avant! Common Stock in
exchange therefor (except to the extent of cash received in lieu of a
fractional share of Avant! Common Stock).
3. The aggregate tax basis of the Avant! Common Stock received by
TMAI shareholders in the Merger (including any fractional share of Avant!
Common Stock not actually
<PAGE>
Avant! Corporation
December 22, 1997
Page 4
received) will be the same as the aggregate tax basis of the TMAI Common
Stock surrendered in exchange therefor.
4. The holding period of the Avant! Common Stock received by each
TMAI shareholder in the Merger will include the period for which the TMAI
Common Stock surrendered in exchange therefor was considered to be held,
provided that the TMAI Common Stock so surrendered is held as a capital asset
at the time of the Merger.
5. Cash payments received by holders of TMAI Common Stock in lieu
of a fractional share will be treated as if such fractional share of Avant!
Common Stock had been issued in the Merger and then redeemed by Avant!. A
TMAI shareholder receiving such cash will recognize gain or loss, upon such
payment, measured by the difference (if any) between the amount of cash
received and the basis in such fractional share.
6. Holders of TMAI Common Stock who exercise dissenters' rights
with respect to their shares of TMAI Common Stock and who receive payment for
the shares in cash will generally recognize gain or loss measured by the
difference between the amount of cash received and the shareholder's basis in
the shares surrendered, provided that the payment is neither essentially
equivalent to a dividend within the meaning of Section 302 of the Code nor
has the effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the Code (collectively, a "Dividend Equivalent Transaction"). A
sale of TMAI Common Stock pursuant to an exercise of dissenters' rights will
generally not be a Dividend Equivalent Transaction if, as a result of such
exercise, the shareholder exercising dissenters' rights owns no shares of
TMAI Common Stock (either actually or constructively within the meaning of
Section 318 of the Code) immediately after the Merger. If, however, a
shareholder's sale for cash of TMAI Common Stock pursuant to an exercise of
dissenters' rights is a Dividend Equivalent Transaction, then such
shareholder may recognize income for federal income tax purposes in an amount
equal to the entire amount of cash so received.
In addition to the assumptions set forth above, this opinion is
subject to the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue Service
or the courts, and there is no assurance that the Internal Revenue Service
will not successfully assert a contrary position. Furthermore, no assurance
can be given that future legislative, judicial or administrative changes, on
either a prospective or retroactive basis, would not adversely affect the
accuracy of the conclusions stated herein. Nevertheless, we undertake no
responsibility to advise you of any new developments in the application or
interpretation of the federal income tax laws.
2. This opinion addresses only the classification of the Merger as
a reorganization under Section 368(a) of the Code and the specific federal
income tax consequences enumerated above, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
<PAGE>
Avant! Corporation
December 22, 1997
Page 5
connection with the Merger). In particular, but without limitation, we
express no opinion regarding (i) whether and the extent to which any TMAI
shareholder who has provided or will provide services to TMAI, Avant! or
Merger Sub will have compensation income under any provision of the Code;
(ii) the effects of such compensation income, including but not limited to
the effect upon the basis and holding period of the Avant! stock received by
any such shareholder in the Merger; (iii) the potential application of the
"golden parachute" provisions (Sections 280G, 3121(v)(2) and 4999) of the
Code, the alternative minimum tax provisions (Sections 55, 56 and 57) of the
Code or Sections 305, 306, 357, 424, and 708, or the regulations promulgated
thereunder; (iv) the corporate level tax consequences of the Merger to
Avant!, Merger Sub or TMAI, including without limitation the recognition of
any gain and the survival and/or availability, after the Merger, of any of
the federal income tax attributes or elections of TMAI, after application of
any provision of the Code, as well as the regulations promulgated thereunder
and judicial interpretations thereof; (v) the basis of any equity interest in
TMAI acquired by Avant! in the Merger; (vi) the tax consequences of any
transaction in which TMAI stock or a right to acquire TMAI stock was
received; (vii) the potential application of the "disqualifying disposition"
rules of Section 421 of the Code to dispositions of TMAI Common Stock; (viii)
the application of the collapsible corporation provisions of Section 341 of
the Code to TMAI, Avant! or Merger Sub as a result of the Merger; and (ix)
the tax consequences of the Merger (including the opinion set forth above) as
applied to specific stockholders of TMAI and/or holders of options or
warrants for TMAI stock or that may be relevant to particular classes of TMAI
stockholders and/or holders of options or warrants for TMAI stock such as
dealers in securities, corporate shareholders subject to the alternative
minimum tax, foreign persons, and holders of shares acquired upon exercise of
stock options or in other compensatory transactions.
3. No opinion is expressed as to any transaction other than the
Merger as described in the Merger Agreements or to any transaction
whatsoever, including the Merger, if all the transactions described in the
Merger Agreements are not consummated in accordance with the terms of such
Merger Agreements and without waiver or breach of any material provision
thereof or if all of the representations, warranties, statements and
assumptions upon which we relied are not true and accurate through the
Effective Time and at all relevant times thereafter. In the event any one of
the statements, representations, warranties or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
4. This opinion has been delivered to you solely for the purpose of
being included as an exhibit to the Registration Statement; it may not be
relied upon for any other purpose (including, without limitation, satisfying
any conditions in the Agreement) or by any other person or entity, and may
not be made available to any other person or entity without our prior written
consent. We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to our name under the
captions "Legal Matters" and "Certain Federal Income Tax Consequences." This
consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Securities Act of 1933.
<PAGE>
Avant! Corporation
December 22, 1997
Page 6
Very truly yours,
/s/ Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
------------------------------------
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
<PAGE>
December 22, 1997
VIA FEDEX DELIVERY
TECHNOLOGY MODELING ASSOCIATES, INC.
595 Lawrence Expressway
Sunnyvale, California 95086
Attention: Board of Directors
Re: EXHIBIT TAX OPINION TO THE S-4 REGISTRATION STATEMENT FILED IN
CONNECTION WITH THE MERGER TRANSACTION INVOLVING TECHNOLOGY
MODELING ASSOCIATES, INC. AND AVANT! CORPORATION.
Ladies and Gentlemen:
We have been requested to render this opinion concerning certain matters
of U.S. federal income tax law in connection with the proposed merger (the
"MERGER") involving Technology Modeling Associates, Inc., a corporation
organized and existing under the laws of the State of California ("TMAI"),
Avant! Corporation, a corporation organized and existing under the laws of
the State of Delaware ("AVANT!"), and Cardinal Merger Corporation, a
wholly-owned subsidiary of Avant!, organized and existing under the laws of
the State of California ("MERGER SUB"). The Merger is further described in
and is in accordance with the Securities and Exchange Commission Form S-4
Registration Statement filed on December 22, 1997, and related Exhibits
thereto, as thereafter amended at any time to and including the date hereof
(the "S-4 REGISTRATION STATEMENT"). Our opinion has been requested solely in
connection with the filing of the S-4 Registration Statement with the
Securities and Exchange Commission with respect to the Merger.
The Merger is structured as a statutory merger of MERGER SUB with and
into TMAI, with TMAI surviving the merger and becoming a wholly-owned
subsidiary of AVANT!, all pursuant to the applicable corporate laws of the
State of Delaware and in accordance with the Agreement and Plan of
Reorganization by and among TMAI, AVANT! and MERGER SUB, dated as of
September 7, 1997, and exhibits thereto (collectively, the "AGREEMENT") and
the related Agreement of Merger (collectively, the "MERGER AGREEMENTS").
Except as otherwise indicated, capitalized terms used herein have the
meanings set forth in the Merger Agreements. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended
(the "CODE").
<PAGE>
We have acted as legal counsel to TMAI in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined and are
relying upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents
(including all schedules and exhibits thereto), among others:
1. The S-4 Registration Statement (including exhibits thereto);
2. The Merger Agreements;
3. An Officers' Tax Certificate of AVANT! and MERGER SUB dated November
21, 1997, signed by an authorized officer of each of AVANT! and MERGER SUB
and delivered to us from AVANT! and MERGER SUB and incorporated herein by
reference; a copy of this Certificate of Officer is attached hereto as
Exhibit A;
4. An Officer's Tax Certificate of TMAI dated December 3, 1997, signed
by an authorized officer of TMAI and delivered to us from TMAI and
incorporated herein by reference; a copy of this Certificate of Officer is
attached hereto as Exhibit B; and
5. An opinion of counsel, received by AVANT! from Gunderson, Dettmer,
Stough, Villeneuve, Franklin & Hachigan, LLP, substantially identical in
substance to this opinion (the "GUNDERSON TAX OPINION").
In addition, we have reviewed such other instruments and documents
related to the formation, organization and operation of TMAI, AVANT! and
MERGER SUB or the consummation of the Merger and the transactions
contemplated thereby as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations and are relying thereon (without any independent
investigation or review thereof) that:
(1) Original documents (including signature) are authentic, documents
submitted to us as copies conform to the original documents, and there has
been (or will be by the Effective Time of the Merger) due execution and
delivery of all documents where due execution and delivery are prerequisites
to the effectiveness thereof;
(2) Any representation or statement referred to above made "to the best
of knowledge" or otherwise similarly qualified is correct without such
qualification, and all statements and representations, whether or not
qualified are true and will remain true through the Effective Date;
(3) The Merger will be consummated pursuant to the Merger Agreements and
will be effective under the laws of the states of California and Delaware;
2
<PAGE>
(4) There is no plan or intention on the part of the TMAI stockholders
to engage in a sale, exchange, transfer, distribution, pledge, disposition or
any other transaction which would result in a direct or indirect disposition
of (a) shares of AVANT! Common Stock to be issued to TMAI stockholders in the
Merger, which shares would have an aggregate fair market value, as of the
Effective Date of the Merger, in excess of 50% of the aggregate fair market
value, immediately prior to the Merger, of all outstanding shares of TMAI
stock, or (b) more than 50% of the shares of AVANT! Common Stock to be
received in exchange for TMAI Common Stock in the Merger.
(5) Following the Merger, TMAI will hold "substantially all" of its and
MERGER SUB's assets within the meaning of Section 368(a)(2)(E)(i) of the Code
and the Treasury Regulations promulgated thereunder and will continue its
historic business or use a significant portion of its historic business
assets in a business;
(6) To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg. Section 1.368-1(c) with
respect to the Merger) are funded directly or indirectly by a party other
than the incurring party, such expenses will be within the guidelines
established in Revenue Ruling 73-54, 1973-1 C.B. 187; any expenses paid on
behalf of TMAI stockholders will not exceed one percent (1%) of the total
consideration that will be issued in the Merger to TMAI stockholders in
exchange for their shares of TMAI stock;
(7) No TMAI stockholder has guaranteed or will guarantee any TMAI
indebtedness outstanding during the period immediately prior to the Merger,
and at all relevant times prior to and including the Effective Date, (i) no
outstanding indebtedness of TMAI, AVANT!, or MERGER SUB has or will represent
equity for tax purposes; (ii) no outstanding equity of TMAI, AVANT!, or
MERGER SUB has represented or will represent indebtedness for tax purposes;
(iii) no outstanding security, instrument, agreement or arrangement that
provides for, contains, or represents either a right to acquire TMAI capital
stock (or to share in the appreciation thereof) constitutes or will
constitute "stock" for purposes of Section 368(c) of the Code;
(8) None of TMAI, AVANT!, or MERGER SUB is, or will be at the time of
the Merger, an investment company as defined in Section 368(a)(2)(F) of the
Code; and
(9) Counsel for AVANT! and TMAI will, pursuant to Paragraph 6.1(e) of
the Agreement, deliver opinions dated the Closing Date to the effect that the
Merger will be treated as a "reorganization" within the meaning of Section
368(a) of the Code; and
(10) The Gunderson Tax Opinion has been delivered and will not be
withdrawn prior to the Effective Date.
Based on the foregoing documents, materials, assumptions and information,
and subject to the qualifications and assumptions set forth herein, we are of
the opinion that, if the Merger is consummated in accordance with the
provisions of the Agreement and the exhibits thereto (and without any waiver,
breach or amendment of any of the provisions thereof), the
3
<PAGE>
Merger will be a "reorganization" for federal income tax purposes within the
meaning of Section 368(a) of the Code and AVANT!, MERGER SUB, and TMAI each
will be a "party to the reorganization" within the meaning of Section 368(b)
of the Code;
Our opinion set forth above is based on the existing provisions of the
Code, Treasury Regulations (including Temporary Treasury Regulations)
promulgated under the Code, published Revenue Rulings, Revenue Procedures and
other announcements of the Internal Revenue Service (the "SERVICE") and
existing court decisions, any of which could be changed at any time. Any
such changes might be retroactive with respect to transactions entered into
prior to the date of such changes and could significantly modify the opinion
set forth above. Nevertheless, we undertake no responsibility to advise you
of any subsequent developments in the application, operation or
interpretation of the U.S. federal income tax laws.
Our opinion concerning certain of the U.S. federal tax consequences of
the Merger is limited to the specific U.S. federal tax consequences presented
above. No opinion is expressed as to any transaction other than the Merger,
including any transaction undertaken in connection with the Merger. In
addition, this opinion does not address any estate, gift, state, local or
foreign tax consequences that may result from the Merger. In particular, we
express no opinion regarding: (i) the amount, existence, or availability
after the Merger, of any of the U.S. federal income tax attributes of TMAI,
AVANT! or MERGER SUB; (ii) any transaction in which TMAI Common Stock is
acquired or AVANT! Common Stock is disposed other than pursuant to the
Merger; (iii) the potential application of the "disqualifying disposition"
rules of Section 421 of the Code to dispositions of TMAI Common Stock; (iv)
the effects of the Merger and AVANT!'S assumption of outstanding options to
acquire TMAI stock on the holders of such options under any TMAI employee
stock option or stock purchase plan, respectively; (v) the effects of the
Merger on any TMAI stock acquired by the holder subject to the provision of
Section 83(a) of the Code; (vi) the effects of the Merger on any payment
which is or may be subject to the provisions of Section 280G of the Code;
and (vii) the application of the collapsible corporation provisions of
Section 341 of the Code to TMAI, AVANT! or MERGER SUB as a result of the
Merger.
No ruling has been or will be requested from the Service concerning the
U.S. federal income tax consequences of the Merger. In reviewing this
opinion, you should be aware that the opinion set forth above represents our
conclusions regarding the application of existing U.S. federal income tax law
to the instant transaction. If the facts vary from those relied upon
(including if any representations, covenant, warranty or assumption upon
which we have relied is inaccurate, incomplete, breached or ineffective), our
opinions contained herein could be inapplicable. You should be aware that an
opinion of counsel represents only counsel's best legal judgment, and has no
binding effect or official status of any kind, and that no assurance can be
given that contrary positions may not be taken by the Service or that a court
considering the issues would not hold otherwise.
In addition, we believe that the following fairly presents the current
federal income tax law applicable to the Merger, and the material tax
consequences to TMAI and
4
<PAGE>
TMAI's shareholders as a result of the Merger provided that the Merger
qualifies as a reorganization under Section 368 of the Code:
1. No gain or loss should be recognized by holders of TMAI Common Stock
solely upon their receipt in the Merger of Avant! Common Stock in exchange
therefor (except to the extent of cash received in lieu of a fractional share
of Avant! Common Stock).
2. The aggregate tax basis of the Avant! Common Stock received by TMAI
shareholders in the Merger (including any fractional share of Avant! Common
Stock not actually received) should be the same as the aggregate tax basis of
the TMAI Common Stock surrendered in exchange therefor.
3. The holding period of the Avant! Common Stock received by each TMAI
shareholder in the Merger should include the period for which the TMAI Common
Stock surrendered in exchange therefor was considered to be held, provided
that the TMAI Common Stock so surrendered is held as a capital asset at the
time of the Merger.
4. Cash payments received by holders of TMAI Common Stock in lieu of a
fractional share should be treated as if such fractional share of Avant!
Common Stock had been issued in the Merger and then redeemed by Avant!. A
TMAI shareholder receiving such cash should recognize gain or loss, upon such
payment, measured by the difference (if any) between the amount of cash
received and the basis in such fractional share.
5. Holders of TMAI Common Stock who exercise dissenters' rights with
respect to their shares of TMAI Common Stock and who receive payment for the
shares in cash should generally recognize gain or loss measured by the
difference between the amount of cash received and the shareholder's basis in
the shares surrendered, provided that the payment is neither essentially
equivalent to a dividend within the meaning of Section 302 of the Code nor
has the effect of a distribution of a dividend within the meaning of Section
356(a)(2) of the Code (collectively, a "Dividend Equivalent Transaction"). A
sale of TMAI Common Stock pursuant to an exercise of dissenters' rights
should generally not be a Dividend Equivalent Transaction if, as a result of
such exercise, the shareholder exercising dissenters' rights owns no shares
of TMAI Common Stock (either actually or constructively within the meaning of
Section 318 of the Code) immediately after the Merger. If, however, a
shareholder's sale for cash of TMAI Common Stock pursuant to an exercise of
dissenters' rights is a Dividend Equivalent Transaction, then such
shareholder may recognize income for federal income tax purposes in an amount
equal to the entire amount of cash so received.
This exhibit opinion is being delivered solely for the purpose of being
included as an exhibit to the S-4 Registration Statement; it may not be
relied upon or utilized for any other purpose (including, without limitation,
satisfying any conditions in the Agreement) or by any other person or entity,
and may not be made available to any other person or entity, without our
prior written consent. We do, however, consent to the use of this opinion as
an exhibit to the S-4 Registration Statement and to the use of our name in
the S-4 Registration Statement wherever it appears.
5
<PAGE>
Very truly yours,
/S/ FENWICK & WEST LLP
----------------------
FENWICK & WEST LLP
A LIMITED LIABILITY PARTNERSHIP INCLUDING
PROFESSIONAL CORPORATIONS
EXHIBITS:
EXHIBIT A -- An Officers' Tax Certificate of Avant! Corporation and
Cardinal Merger Corporation, dated November 21, 1997, and signed by
authorized officers of Avant! Software Corporation and Cardinal
Merger Corporation.
EXHIBIT B -- An Officer's Tax Certificate of Technology Modeling
Associates, Inc., dated November 21, 1997, and signed by an
authorized officer of Technology Modeling Associates, Inc.
6
<PAGE>
EXHIBIT 11.1
AVANT! CORPORATION
COMPUTATION OF NET INCOME (LOSS) AND PRO FORMA NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Common shares outstanding.................................. 13,470 20,688 24,581 24,338 25,616
Common stock equivalents:
Stock options and awards................................. 731 1,781 2,180 2,283 --
Pursuant to Staff Accounting Bulletin No. 83............. 745 520
Preferred stock.......................................... 5,125 851
Number of shares deemed outstanding to fund shareholder
distribution........................................... 386 319
--------- --------- --------- --------- ---------
Total.................................................. 20,457 24,159 26,761 26,621 25,616
Net income (loss).......................................... $ 12,484 $ 15,264 $ (2,858)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share................................ $ 0.47 $ 0.57 $ (0.11)
--------- --------- ---------
--------- --------- ---------
Pro forma net income....................................... $ 4,009 $ 8,350
--------- ---------
--------- ---------
Pro forma net income per share............................. $ 0.20 $ 0.35
--------- ---------
--------- ---------
</TABLE>
<PAGE>
EXHIBIT 11.2
TECHNOLOGY MODELING ASSOCIATES, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net income........................................................................... $ 1,224 $ 1,282 $ 1,454
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding........................................... 5,095 3,685 3,631
Shares related to SAB No. 83......................................................... 720 959 959
Weighted average common share equivalents related to stock options (using the
treasury stock method)............................................................. 402 864 1,799
--------- --------- ---------
Shares used in per share computation................................................. 6,217 5,508 6,389
--------- --------- ---------
--------- --------- ---------
Net income per share................................................................. $ 0.20 $ 0.23 $ 0.23
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 11.3
COMPASS DESIGN AUTOMATION INC.
COMPUTATION OF NET LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 27, 1996
-----------------
<S> <C>
Net loss....................................................................................... $ (5,410)
Dividends on Series A redeemable preferred stock............................................... (220)
-------
Net loss attributable to common shareholders................................................... $ (5,630)
-------
-------
Common shares outstanding...................................................................... 19,100
-------
-------
Net loss per share attributable to common shareholders......................................... $ (0.29)
-------
-------
</TABLE>
<PAGE>
Exhibit 21.1 Subsidiaries of Registrant
Name Jurisdiction of Incorporation
- ---- -----------------------------
Integrated Silicon Systems, Inc. North Carolina
ISS Software Inc. California
ISS Corporate Services, Inc. North Carolina
ArcSys UK Limited England
Avant! Export FSC, Inc. Barbados
FrontLine Design Automation, Inc. California
Meta-Software, Inc. California
Anagram, Inc. California
Avant! Japan KK Japan
Meta-Software KK Japan
Meta-Software SA Switzerland
Meta-Software Deutschland, GMBH Germany
AvanWise, Inc. Delaware
AvanSmart, Inc. Delaware
Nexsyn Design Technologies, Inc. California
Compass Design Automation, Inc. Delaware
Galax!, Inc. Delaware
Gemstone Corp., LLC Delaware
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Avant! Corporation:
We consent to the use of our reports herein and to the reference to our firm
under the heading "Experts" in the registration statement.
KPMG Peat Marwick LLP
San Jose, California
December 19, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
San Jose, California
December 22, 1997
<PAGE>
EXHIBIT 23.5
December 22, 1997
CONSENT OF WESSELS, ARNOLD & HENDERSON L.L.C.
Wessels, Arnold & Henderson L.L.C. hereby consents to the filing of the
opinion letter dated September 7, 1997 as an exhibit to the Registration
Statement on Form S-4 of Avant! Corporation and the use of our name and the
reference therein to such opinion letter. In giving our consent, we do not admit
that we are of the category of persons from whom such a consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder nor do we admit
that we are experts with respect to any part of such Registration Statement
within the meaning of the term "experts" as used in the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
Wessels, Arnold & Henderson L.L.C.
By: /s/ MICHAEL P. OGBORNE
----------------------------------
Name: Michael P. Ogborne
Title: Managing Director
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Compass Design Automation, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the registration statement.
KPMG Peat Marwick LLP
San Jose, California
December 19, 1997
<PAGE>
PROXY AVANT! CORPORATION
SPECIAL MEETING OF STOCKHOLDERS, JANUARY 15, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AVANT! CORPORATION
The undersigned stockholder of Avant! Corporation, a Delaware
corporation ("Avant!"), hereby constitutes and appoints Gerald C. Hsu and
John P. Huyett, and each of them, the attorneys and proxies of the
undersigned, each with the power of substitution, to attend and act for the
undersigned at the Special Meeting of Stockholders of Avant! to be held at
the principal executive offices of Avant! at 46871 Bayside Parkway, Fremont,
California 94538, on Thursday, January 15, 1998 at 10:00 a.m. local
time, and at any adjournments or postponements thereof, and in connection
therewith to vote and represent all of the shares of Common Stock of Avant!
held of record by the undersigned on December 10, 1997, as follows on the
reverse side of this proxy.
Said attorneys and proxies, and each of them, shall have all the powers
which the undersigned would have if acting in person. The undersigned hereby
revokes any other proxy to vote at such meeting and hereby ratifies and
confirms all that said attorneys and proxies, and each of them, may lawfully
do by virtue hereof. Said proxies, without hereby limiting their general
authority, are specifically authorized to vote in accordance with their best
judgment with respect to all matters incident to the conduct of the meeting
and all matters presented at the meeting but which are not known to the Board
of Directors at the time of the solicitation of this proxy.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
AVANT! CORPORATION
/ / PLEASE MARK VOTES
AS IN THIS EXAMPLE
1. A proposal (the Avant! Share Issuance Proposal) to issue
shares of Avant! Corporation Common Stock, $.0001 par value, in
connection with the merger (the Merger) of Cardinal Merger
Corporation, a California corporation and wholly owned subsidiary
of Avant! Corporation (Merger Sub), with and into Technology
Modeling Associates, Inc., a California corporation (TMA),
whereby each share of TMA Common Stock outstanding as of the
closing of the Merger will be converted into the right to receive
a fraction of a share of Avant! Common Stock (the Exchange
Ratio), the numerator of which is equal to $17.00 and the
denominator of which is equal to the average of the per share
closing prices of Avant! Common Stock as quoted on the Nasdaq
National Market for the ten consecutive trading days ending three
business days prior to the Effective Date of the Merger (the
Average Nasdaq Per Share Price). Notwithstanding the foregoing,
in the event that the Average Nasdaq Per Share Price is greater
than $35.678, then the Exchange Ratio shall be 0.476484, and in
the event that the Average Nasdaq Per Share Price is less than
$25.678, then the Exchange Ratio shall be 0.662045. In addition,
all options to purchase TMA Common Stock then outstanding under
the 1996 Equity Incentive Plan, the 1995 Stock Option Plan and
the 1989 Stock Option Plan of TMA will be assumed by Avant! and
converted into options to purchase Avant! Common Stock.
FOR AGAINST ABSTAIN
/ / / / / /
Each of the above-named proxies present at the Special Meeting,
either in person or by substitute, shall have and exercise all
the powers of said proxies hereunder. This proxy will be voted
in accordance with the choices specified by the undersigned on
this proxy. In their discretion, each of the above-named proxies
is authorized to vote upon such other business incident to the
conduct of the Special Meeting as may properly come before the
Special Meeting or any postponements or adjournments thereof. IF
NO INSTRUCTIONS TO THE CONTRARY ARE INDICATED HEREON, THIS PROXY
WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE FOR PROPOSAL
NO. 1 AND ON ANY OTHER MATTERS TO BE VOTED UPON.
The undersigned acknowledges receipt of a copy of the Notice of
Special Meeting of Stockholders and Joint Proxy Statement/
Prospectus relating to the Special Meeting.
IMPORTANT: In signing this proxy please sign exactly as your
name(s) is (are) shown on the share certificate to which the
proxy applies. When signing as an attorney, executor,
administrator, trustee or guardian, please give your full title
as such. If a corporation, please sign in full corporate name by
the President or other authorized officer. If a partnership,
please sign in partnership name by an authorized person. EACH
JOINT TENANT MUST SIGN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 1
Please sign your name.
Signature: _______________ Date: __________
Signature: _______________ Date: __________
<PAGE>
EXHIBIT 99.2
PROXY
TECHNOLOGY MODELING ASSOCIATES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Technology Modeling Associates, Inc., a
California corporation (the "Company"), appoints Roy E. Jewell and Bennet
Weintraub with full power to appoint a substitute, as the undersigned's proxy to
vote and otherwise represent all shares of the Company's stock held by the
undersigned at the Company's Special Meeting of Shareholders to be held at the
Company at 595 Lawrence Expressway, Sunnyvale, California 95086 on January 15,
1998 at 10:00 a.m., and at any continuations or adjournments thereof, as
specified below upon the following proposal and in his discretion upon such
other matters as may properly come before the meeting.
1. Proposal to approve and adopt the Agreement and Plan of Reorganization
and the Merger, which transaction provides for, among other things: the Merger
of a wholly-owned subsidiary of Avant! Corporation with and into TMA, with the
result that TMA will become a wholly-owned subsidiary of Avant! and the
conversion of each outstanding share of Common Stock into a fraction of a share
of Common Stock of Avant! equal to the Exchange Ratio, all as described in the
accompanying Joint Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
Date _________________________________
______________________________________
______________________________________
Signature(s)
Note: Please date and sign exactly as
name appears hereon. When signing as
attorney, personal representative,
executor, administrator, trustee or
guardian, please give full title as
such. If a corporation, please sign in
full corporate name by an authorized
officer. If a partnership, please sign
in partnership name by an authorized
person.
WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY AND RETURN
IT PRIOR TO THE MEETING IN THE
ENCLOSED ENVELOPE.
