<PAGE>
As filed with the Securities and Exchange Commission on January 12, 1998
Registration No. 333-43087
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
Amendment No. 1 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
AVANT! CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3133226
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 and address, including zip code, and telephone number, including area
code, of agent for service)
__________________
Copies to:
Steven M. Spurlock, Esq.
Anthony J. McCusker, Esq.
GUNDERSON DETTMER
STOUGH VILLENEUVE
FRANKLIN & HACHIGIAN, LLP
155 Constitution Drive
Menlo Park, California 94025
(650) 321-2400
__________________
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please 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 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.
SUBJECT TO COMPLETION, DATED JANUARY 12, 1998
<PAGE>
522,192 SHARES
AVANT! CORPORATION
COMMON STOCK
_________________
This Prospectus relates to the public offering, which is not being
underwritten, of 522,192 shares (the "Shares") of Common Stock, $0.0001 par
value (the "Common Stock") of Avant! Corporation ("Avant!" or the "Company").
The Shares may be offered by a certain stockholder of the Company (the
"Selling Stockholder") from time to time in transactions on the Nasdaq National
Market, in privately negotiated transactions, or by a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholder may effect such
transactions by selling the Shares to or through broker-dealers and such broker-
dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholder or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they sell as principal or
both (which compensation to a particular broker-dealer might be in excess of
customary commissions). See "Selling Stockholder" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholder. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholder.
On January 9, 1998, the closing bid price of the Company's Common Stock
on the Nasdaq National Market was $17.4375 per share. The Common Stock is
traded on the Nasdaq National Market under the symbol "AVNT."
______________________________
The Selling Stockholder and any broker-dealers or agents that participate
with the Selling Stockholder in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
______________________________
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 6.
______________________________
THESE SECURITIES 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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
______________________________
The date of this Prospectus is ______________, 1998
<PAGE>
AVAILABLE INFORMATION
Avant! is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and the following regional offices of the Commission: New York
Regional Office, Seven World Trade Center, 13th Floor, New York, New York
10048; and Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621. Copies of such material
may also be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed
fees. The Commission also makes electronic filings publicly available on the
Internet within 24 hours of acceptance. The Commission's Internet address is
http://www.sec.gov. The Commission web site also contains reports, proxy and
information statements, and other information regarding registrants that file
electronically with the Commission. The Common Stock of the Company is
quoted on the Nasdaq National Market. Reports, proxy and information
statements and other information concerning the Company may be inspected at
the National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments, exhibits and schedules,
referred to as the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act") with the Commission, with respect to
the Shares offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission, and to which reference is hereby made.
Statements contained in this Prospectus regarding the contents of any
contract or other document to which reference is made are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each
such statement being qualified in its entirety by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon the
payment of the fees prescribed by the Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the
Commission (File No. 0-25864) are hereby incorporated by reference in this
Prospectus and made a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. The Company's Quarterly Report on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
3. The Company's Current Reports on Form 8-K dated April 18, 1996,
September 10, 1997 and September 26, 1997;
4. The Company's Current Report on Form 8-K/A dated November 25, 1997;
5. The Company's Registration Statement on Form S-4 (File No.
333-42923) as filed with the Commission on December 22, 1997;
6. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A as filed with the Commission on
April 12, 1995; and
7. Proxy Statement for Annual Meeting of Stockholders held on May 15,
1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date of this Prospectus but prior to the
termination of the offering to which this Prospectus relates
2
<PAGE>
shall be deemed to be incorporated by reference in this Prospectus and to be
a part hereof from the respective dates of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated herein modifies,
supersedes or replaces such statement. Any statement so modified or
superseded shall not be deemed, except as so modified, superseded or
replaced, to constitute a part of this Prospectus.
Upon written or oral request, the Company will provide without charge to
each person to whom a copy of the Prospectus is delivered a copy of the
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
herein). Requests should be submitted in writing or by telephone at (510)
413-8000 to Chief Financial Officer, Avant! Corporation, at the principal
executive offices of the Company, 46871 Bayside Parkway, Fremont, California
94538.
______________________________
This Prospectus includes trademarks of the Company and other corporations.
______________________________
3
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN,
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
STATEMENTS CONTAINED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN THAT
ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE 1934 ACT, INCLUDING
WITHOUT LIMITATION STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS,
INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON
THE DATE HEREOF, AND THE COMPANY ASSUMES NO OBLIGATION TO UPDATE ANY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN
THIS PROSPECTUS UNDER "RISK FACTORS." IN EVALUATING THE COMPANY'S BUSINESS,
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH IN THIS
PROSPECTUS UNDER "RISK FACTORS" IN ADDITION TO THE OTHER INFORMATION SET FORTH
IN THIS PROSPECTUS AND INCORPORATED BY REFERENCE HEREIN.
4
<PAGE>
THE COMPANY
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.
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.
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 appealled 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 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 Aquarius place and
route products.
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.
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.
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. 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. See "Risk Factors--Litigation Risk."
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,
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. 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" and "--Cost of Integration; Transaction
Expenses."
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.
On September 7, 1997, Avant! entered into an Agreement and Plan of
Reorganization by and among Avant!, Cardinal Merger Corporation, a wholly
owned subsidiary of Avant! ("Merger Sub") and Technology Modeling Associates,
Inc. ("TMA"). If the proposed acquisition of TMA is completed, TMA will
become a wholly owned subsidiary of Avant!. Avant!'s management currently
anticipates that the proposed acquisition of TMA will be completed during
the first fiscal quarter of 1998.
5
<PAGE>
RISK FACTORS
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 certain documentary and
third-party discovery. 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
Avant!'s business, financial position and 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.
6
<PAGE>
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, there can be no assurance that Avant!'s
relationships with its customers 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 Avant!'s
business, consolidated financial position or consolidated results of
operations.
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
7
<PAGE>
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!
has moved to dismiss the Hoffman complaint for failure to state a claim, but the
court has not yet heard argument on that motion.
8
<PAGE>
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.
LITIGATION COSTS.
The pending litigation and any future litigation against Avant! or its
employees, regardless of the outcome, is expected to result in substantial
costs and expenses to Avant!. 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 Avant!'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, 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.
Upon completion of the proposed TMA Merger, the combined company 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 Avant!'s management believes
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 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! entered into the Agreement and Plan of Reorganization to acquire
TMA, among other reasons, in order to achieve potential benefits from
combining Avant!'s and TMA's 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
9
<PAGE>
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 proposed TMA acquisition 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
Avant!'s business, operating results and financial condition. Moreover,
uncertainty in the marketplace or customer hesitation relating to the Compass
Acquisition and the proposed TMA acquisition could negatively affect Avant!'s
business, operating results and financial condition.
Avant! has experienced periods of rapid growth and expansion that has
placed and will continue to place significant strains upon its management
systems and resources. 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 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.
10
<PAGE>
DEPENDENCE UPON KEY PERSONNEL
Avant!'s future operating results depend in significant part upon the
continued service of its key management and technical personnel. Few of
Avant!'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 Avant! 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 its employees. There are only a limited
number of qualified ICDA engineers, and competition for such individuals is
intense. If Avant! 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 Avant!'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 Avant!'s business, operating results and
financial condition may be materially adversely affected. See "--Litigation
Risk" and "Business--Employees."
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. Any such litigation could have a material adverse effect
on Avant!'s business, operating results or financial condition. See
"Business-Competition."
11
<PAGE>
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The quarterly operating results of Avant! have varied, and it is
anticipated that the quarterly operating results of Avant! 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 Avant!'s products, changes in pricing policies
by Avant! or its competitors, market acceptance of new and enhanced versions
of Avant!'s products, conditions in the semiconductor industry, the
cancellation of time-based licenses or maintenance agreements, the
unavailability of technology of third parties, the mix of direct and indirect
sales, changes in operating expenses, changes in Avant!'s strategy, seasonal
factors, personnel changes, economic conditions in the Asian markets, the
ability of Avant! 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. Avant!'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 expenses fluctuate with revenue. If revenue
levels are below expectations, Avant!'s business, operating results and
financial condition are likely to be materially adversely affected. Such
shortfalls in Avant!'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, Avant! 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! believes 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.
12
<PAGE>
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Avant! common stock has 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
litigation, actual or anticipated fluctuations in Avant!'s operating results,
announcements of technological innovations and new products by competitors,
new contractual relationships with strategic partners by Avant! or its
competitors, proposed acquisitions by Avant! or 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.
COST OF INTEGRATION; TRANSACTION EXPENSES
Transaction costs relating to the proposed TMA acquisition and the
anticipated combination of certain operations of Avant! and TMA are expected
to result in one-time charges to Avant!'s earnings. Although it will not be
feasible to determine the actual amount of these charges until the
operational and transition plans are completed, Avant!'s management believes
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 such proposed acquisition. 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 quarter in which the proposed TMA acquisition 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.
POTENTIAL DILUTIVE EFFECT TO STOCKHOLDERS
Although Avant! believes that beneficial synergies will result from the
proposed TMA acquisition, 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.
In addition, the issuance of Avant! common stock in connection with the
proposed TMA acquisition 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.
13
<PAGE>
SHARES ELIGIBLE FOR PUBLIC SALE
Sales of substantial amounts of Avant! common stock in the public market
after the consummation of the proposed TMA acquisition could materially
adversely affect prevailing market prices of Avant!'s common stock. If the
proposed TMA acquisition is completed, and assuming an Exchange Ratio of
0.662045, the Exchange Ratio as of December 19, 1997, Avant! will issue
approximately 5,376,511 shares of common stock in the TMA acquisition (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 proposed TMA acquisition will be eligible for immediate sale in
the public market, subject to certain limitations under the Securities Act
applicable to affiliates of Avant! 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 of such merger.
LENGTHY SALES CYCLE
Because of the complexity and substantial cost of Avant!'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 foreign customers
have lengthy purchasing cycles that may increase the amount of time Avant!
must dedicate to placing its products with these customers. For these and
other reasons, the sales cycle associated with the licensing of Avant!'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 Avant!'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, Avant!'s operating results for that period could be
materially adversely affected.
PRODUCT CONCENTRATION
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, Avant! currently
expects that these products will continue to account for a significant
portion of its revenue for the foreseeable future. As a result, Avant!'s
business, operating results and financial condition 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 such products or any new or
enhanced products. Failure to develop or acquire additional products, or to
successfully market such products on a profitable basis, could have a
material adverse effect on Avant!'s business, operating results and financial
condition. See "Business-Products."
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."
14
<PAGE>
SUBSTANTIAL DEPENDENCE ON INTERNATIONAL SALES
International revenue, principally to customers in Asia, accounted for
approximately 33%, 32%, 34% and 44% of Avant!'s total revenue in 1994, 1995,
1996 and the first nine months of 1997, respectively. Avant! expects that
international license and service revenue, particularly in Asia, will
continue to account for a significant portion of its total revenue. 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 of intellectual property rights in some
countries and tariffs and other trade barriers. Currency exchange
fluctuations in countries in which Avant! licenses its products could also
materially adversely affect Avant!'s business, operating results and
financial condition by resulting in pricing that is 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 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 Avant!'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 Avant!'s future
international sales and, consequently, on Avant!'s business, operating
results and financial condition. In addition, 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.
DEPENDENCE UPON DISTRIBUTORS AND MANUFACTURER'S REPRESENTATIVES
Avant! 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"), 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).
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
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 Avant!'s competitors. Additionally,
because Avant!'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
Third Party Sellers, or MainGate or any other Third Party Sellers on which
Avant!'s revenues may, in the future, become dependent, could have a material
adverse effect on Avant!'s business, operating results and financial
condition. See "Business--Sales and Marketing."
15
<PAGE>
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. Avant!'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
Avant!'s customers. New technologies developed by Avant! or its competitors
could render existing products obsolete. Avant!'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 Avant! will be successful in developing new
products or enhancing existing products or that such new or enhanced products
will receive market acceptance. On occasion, Avant! has experienced delays in
the scheduled introductions of new and enhanced products, and there can be no
assurance that it 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
Avant!'s failure to accurately anticipate customer demand, would have a
material adverse effect on its business, operating results and financial
condition. See "Business."
DEPENDENCE UPON SEMICONDUCTOR AND ELECTRONICS INDUSTRIES; GENERAL ECONOMIC AND
MARKET CONDITIONS
Avant! is 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 Avant!. During such downturns, the number of new IC
design projects often decreases. Because acquisitions of new licenses from
Avant! are largely
16
<PAGE>
dependent upon the commencement of new design projects, any slowdown in these
industries could have a material adverse effect on Avant!'s business,
operating results and financial condition. Avant!'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! relies on a combination of patents, trade secrets, copyrights and
trademarks, as well as contractual commitments, to protect its proprietary
rights in its software products. Avant! generally enters into confidentiality
or license agreements with its employees, distributors and customers, and
limits access to and distribution of its 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 Avant!'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. 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! currently competes 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 Avant! to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
available, may not be available on terms acceptable to Avant!, which could
have a material adverse effect upon Avant!'s business, operating results and
financial condition. There can be no assurance that infringement claims will
not be asserted against Avant! in the future or that any such claims will not
require Avant! to enter into royalty arrangements or result in costly
litigation, which could materially adversely affect Avant!'s business,
operating results and financial condition. See "--Litigation Risk" and
"Business--Proprietary Rights."
RISK OF PRODUCT DEFECTS
Software products as complex as those offered by Avant! may contain
defects or failures when introduced or when new versions are released. Avant!
has in the past discovered software defects in certain of its products and
may experience delays or lost revenue to correct such defects in the future.
There can be no assurance that, despite testing by Avant!, 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 Avant!'s
business, operating results and financial condition.
17
<PAGE>
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.
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 appealled 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 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 Aquarius place and
route products.
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.
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
18
<PAGE>
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. 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. See "Risk Factors--Litigation Risk."
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,
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. 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
19
<PAGE>
Compass Acquisition. See "Risk Factors--Uncertainty Relating to Integration of
Multiple Operations and Product Lines; Management of Growth" and "--Cost of
Integration; Transaction Expenses."
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.
On September 7, 1997, Avant! entered into an Agreement and Plan of
Reorganization by and among Avant!, Cardinal Merger Corporation, a wholly
owned subsidiary of Avant! ("Merger Sub") and Technology Modeling Associates,
Inc. ("TMA"). If the proposed acquisition of TMA is completed, TMA will
become a wholly owned subsidiary of Avant!. Avant!'s management currently
anticipates that the proposed acquisition of TMA will be completed during
the first fiscal quarter of 1998.
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.
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
20
<PAGE>
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, Avant! currently
expects that these products will continue to account for a significant
portion of its revenue for the foreseeable future. As a result, Avant!'s
business, operating results and financial condition 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 such products or any new or
enhanced products. Failure to develop or acquire additional products, or to
successfully market such products on a profitable basis, could have a material
adverse effect on Avant!'s business, operating results and financial
condition. See "Risk Factors--Product Concentration."
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 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
21
<PAGE>
internationally in U.S. dollars.
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.
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;
22
<PAGE>
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.
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 Main Gate 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.
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.
23
<PAGE>
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.
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
24
<PAGE>
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. 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!
25
<PAGE>
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. 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 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
26
<PAGE>
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.
LITIGATION
Avant! is subject to a number of related litigation matters, including a
civil action brought by 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, which Avant! acquired in October 1996 and which is
now a wholly owned subsidiary of Avant!
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
27
<PAGE>
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 certain documentary and
third-party discovery. 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
Avant!'s business, financial position and 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.
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, there can be no assurance that Avant!'s
relationships with its customers 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,
28
<PAGE>
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 Avant!'s business, consolidated financial
position or consolidated results of operations.
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 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
29
<PAGE>
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.
LITIGATION COSTS.
The pending litigation and any future litigation against Avant!
or its employees, regardless of the outcome, is expected to result in
substantial costs and expenses to Avant!. 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 Avant!'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.
30
<PAGE>
MANAGEMENT
The executive officers and directors of Avant!, and their ages as of
December 1, 1997, 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
31
<PAGE>
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."
32
<PAGE>
SELLING STOCKHOLDER
The following table sets forth certain information, as of December 19,
1997, with respect to the number of shares of Common Stock owned by the Selling
Stockholder and as adjusted to give effect to the sale of the Shares offered
hereby. The Shares are being registered to permit public secondary trading of
the Shares, and the Selling Stockholder may offer the Shares for resale from
time to time. See "Plan of Distribution."
The Shares being offered by the Selling Stockholder were acquired from the
Company in the Company's acquisition of Compass, pursuant to the Agreement and
Plan of Reorganization dated July 31, 1997, and as amended on August 27, 1997,
whereby GB Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of the Company, was merged with and into Compass, and all outstanding
shares of capital stock of Compass were converted into cash and/or shares of
Common Stock of the Company. Prior to the Company's acquisition of Compass,
Compass was a subsidiary of the Selling Stockholder, VLSI Technology, Inc. The
Common Stock was issued pursuant to the exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof.
The Company has filed with the Commission, under the Securities Act, a
Registration Statement on Form S-3, of which this Prospectus forms a part, with
respect to the resale of the Shares from time to time on the Nasdaq National
Market or in privately-negotiated transactions. The Company has agreed to use
its best efforts to keep such Registration Statement effective for the lesser of
one (1) year from the date of effectiveness of this Prospectus or until all
Shares have been sold.
The Shares offered by this Prospectus may be offered from time to time by
the Selling Stockholder named below:
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering the Offering
---------------------- ----------------------
Name and Address of Number of Number of Shares Number of
Selling Stockholder Shares Percent(1) Being Offered Shares Percent(1)
- ------------------- ------ ---------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C>
VLSI Technology, Inc. 522,192 1.94% 522,192 0 *
1109 McKay Drive, MS-45
San Jose, California 95131
TOTAL 522,192 1.94% 522,192 0 *
------- ---- ------- ----- -----
------- ---- ------- ----- -----
</TABLE>
_________________
* Less than 1%
(1) Based upon 26,886,862 shares of Common Stock outstanding on December 19,
1997. This Registration Statement shall also cover any additional
shares of Common Stock which become issuable in connection with the
shares registered for sale hereby by reason of any stock dividend,
stock split, recapitalization or other similar transaction effected
without the receipt of consideration which results in an increase in
the number of the Company's outstanding shares of Common Stock.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares
offered hereby may be sold by the Selling Stockholder from time to time in
transactions in the over-the-counter market, on the Nasdaq National Market, in
privately negotiated transactions, or by a combination of such methods of sale,
at fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices.
The Selling Stockholder may effect such transactions by selling the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions
33
<PAGE>
from the Selling Stockholder and/or the purchasers of the Shares for whom
such broker-dealers may act as agents or to whom they sell as principals, or
both (which compensation as to a particular broker-dealer might be in excess
of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Stockholder and any broker-dealers or agents that participate
with the Selling Stockholder in the distribution of the Shares may under certain
circumstances be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profit realized on
the resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholder may
agree to indemnify such broker-dealers against certain liabilities, including
liabilities under Securities Act.
In connection with the distribution of the Shares, the Selling
Stockholder may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales
of the Shares in the course of hedging the positions they assume with the
Selling Stockholder. The Selling Stockholder also may sell the Shares short
and redeliver the Shares to close out the short positions. The Selling
Stockholder also may enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares,
which the broker-dealers may resell or otherwise transfer pursuant to this
prospectus. The Selling Stockholder also may loan or pledge the Shares to a
broker-dealer and the broker-dealer may sell such shares so loaned or upon a
default the broker-dealer may affect sales of the pledged shares pursuant to
this prospectus.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholder (and, if it acts as agent for the
purchase of such Shares, from such purchaser). Broker-dealers may agree with
the Selling Stockholder to sell a specified number of Shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for the Selling Stockholder, to purchase as principal any unsold
Shares. Brokers-dealers who acquire Shares as principal may thereafter resell
such Shares from time to time in transactions (which may involve crosses and
block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, on the Nasdaq National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
Shares commissions computed as described above.
Under applicable rules and regulations under the 1934 Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Common Stock of the Company for a
period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, the Selling Stockholder will be
subject to applicable provisions of the 1934 Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Stockholder.
The Selling Stockholder will pay all commissions and other expenses
associated with the sale of Shares by it. The Shares offered hereby are being
registered pursuant to contractual obligations of the Company, and the Company
has agreed to bear certain expenses in connection with the registration and sale
of the Shares being offered by the Selling Stockholder. The Company has not
made any underwriting arrangements with respect to the sale of Shares offered
hereby.
34
<PAGE>
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo
Park, California.
EXPERTS
The consolidated balance sheets of Avant! Corporation and its
subsidiaries as of December 31, 1994, 1995 and 1996 and the consolidated
statements of income, stockholders' equity, and cash flows for each of the
years in the three year period ended December 31, 1996 incorporated in this
Prospectus by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as stated in their report and are
incorporated herein by reference in reliance upon such firm as experts in
accounting and auditing.
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 incorporated in this Prospectus by reference from the
Company's Current Report on Form 8-K/A dated November 25, 1997 have been
audited by KPMG Peat Marwick LLP, independent certified public accountants,
as stated in their report and are incorporated herein by reference in
reliance upon such firm as experts in accounting and auditing.
35
<PAGE>
NO DEALER, SALESPERSON, SELLING STOCKHOLDER OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS.
--------------------------
TABLE OF CONTENTS
Page
----
Available Information 2
Information Incorporated by Reference 2
Forward-Looking Statements 4
The Company 5
Recent Developments 5
Risk Factors 6
Business 18
Management 31
Selling Stockholder 33
Plan of Distribution 33
Legal Matters 35
Experts 35
522,192 SHARES
AVANT! CORPORATION
Common Stock
_____________
January __, 1998
_____________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable by the Registrant in
connection with the offering. All the amounts are estimates except for the
Securities and Exchange Commission registration fee.
Securities and Exchange Commission Registration Fee. . . . . . . . $ 2,628.50
Legal Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . 245,000.00
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . 440,000.00
Transfer Agent and Registrar Fees. . . . . . . . . . . . . . . . . 10,000.00
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 27,371.50
----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725,000.00
----------
----------
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation law ("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 of Incorporation
("Certificate") contains a provision to limit the personal liability of the
directors of Avant! for violations of their fiduciary duty. This provision
eliminates each director's liability to Avant! or its stockholders for
monetary damages except (i) for any breach of the director's duty of loyalty
to Avant! 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
Avant! to the fullest extent permitted by applicable law.
Avant! 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.
II-1
<PAGE>
ITEM 16. EXHIBITS.
The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.
(a) Exhibits
Exhibit
Number Description
2.1+ Agreement and Plan of Reorganization dated September 7, 1997, by
and among the Company, Cardinal Merger Corporation and Technology
Modeling Associates, Inc.
2.2+ Agreement and Plan of Reorganization dated July 31, 1997, as
amended on August 27, 1997, by and among the Company, GB
Acquisition Corporation, VLSI Technology, Inc. and Compass Design
Automation, Inc.
4.1+ Affiliates Agreement dated September 11, 1997, by and between the
Company and VLSI Technology, Inc.
5.1+ Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
23.1 Consent of KPMG Peat Marwick LLP--Avant!.
23.2 Consent of KPMG Peat Marwick LLP--Compass.
23.3+ Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP (included in the opinion filed as Exhibit 5.1).
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of Wessels, Arnold & Henderson, L.L.C.
23.6 Consent of Fenwick & West, LLP.
24.1+ Power of Attorney.
___________________
+ Previously filed.
ITEM 17. 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 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.
(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.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
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 the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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, the Registrant 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.
II-2
<PAGE>
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
1934 Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the 1934 Act) that is incorporated
by reference in the Registration Statement 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.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF FREMONT, STATE OF
CALIFORNIA, ON THIS 12TH DAY OF JANUARY, 1998.
AVANT! CORPORATION
By: /s/ Gerald C. Hsu
--------------------------------------
Gerald C. Hsu
Chairman of the Board, President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
--------- ----- ----
/s/ Gerald C. Hsu Chairman of the Board,
- --------------------------- President and Chief January 12, 1998
Gerald C. Hsu Executive Officer
* Vice President of
- --------------------------- Finance, Treasurer and January 12, 1998
John P. Huyett Principal Accounting Officer
*
- --------------------------- Director January 12, 1998
Y. Eric Cho
*
- --------------------------- Director January 12, 1998
Tench Coxe
II-4
<PAGE>
*
- --------------------------- Director and Secretary January 12, 1998
Eric A. Brill
*
- --------------------------- Director January 12, 1998
Charles St. Clair
*By: /s/ Gerald C. Hsu
----------------------
Gerald C. Hsu
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1+ Agreement and Plan of Reorganization dated September 7, 1997, by
and among the Company, Cardinal Merger Corporation and Technology
Modeling Associates, Inc.
2.2+ Agreement and Plan of Reorganization dated July 31, 1997, as
amended on August 27, 1997, by and among the Company, GB
Acquisition Corporation, VLSI Technology, Inc. and Compass Design
Automation, Inc.
4.1+ Affiliates Agreement dated September 11, 1997, by and between the
Company and VLSI Technology, Inc.
5.1+ Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
23.1 Consent of KPMG Peat Marwick LLP--Avant!.
23.2 Consent of KPMG Peat Marwick LLP--Compass.
23.3+ Consent of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP (included in the opinion filed as Exhibit 5.1).
23.4 Consent of Arthur Andersen LLP.
23.5 Consent of Wessels, Arnold & Henderson, L.L.C.
23.6 Consent of Fenwick & West, LLP.
24.1+ Power of Attorney.
___________________
+ Previously filed.
<PAGE>
EXHIBIT 23.1
The Board of Directors
Avant! Corporation
We consent to incorporation by reference in the registration statement dated
January 12, 1998 on Form S-3 of Avant! Corporation of our report dated
January 22, 1997, except as to the second paragraph of Note 11, which is as
of March 18, 1997, relating to the consolidated balance sheets of Avant!
Corporation and subsidiaries 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
and related schedule which report appears in the December 31, 1996, annual
report on Form 10-K of Avant! Corporation and to the reference to our firm
under the heading "Experts" in the registration statement.
San Jose, California KPMG Peat Marwick LLP
January 8, 1998
<PAGE>
EXHIBIT 23.2
The Board of Directors
Compass Design Automation, Inc.:
We consent to incorporation by reference in the registration statement dated
January 12, 1998 on Form S-3 of Avant! Corporation of our report dated
November 18, 1997, relating to the consolidated balance sheet of Compass
Design Automation, Inc. and subsidiaries as of December 31, 1996, and the
related consolidated statements of operations, shareholders' deficit, and
cash flows for the year then ended, and related schedule, which report
appears in the Form 8-KA of Avant! Corporation, dated November 25, 1997, and
to the reference to our firm under the heading "Experts" in the registration
statement.
San Jose, California KPMG Peat Marwick LLP
January 8, 1998
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our reports on
the December 31, 1996 consolidated financial statements of Technology
Modeling Associates, Inc. dated January 24, 1997 included in Avant!
Corporation's Registration Statement on Form S-4 (File No. 333-42923) dated
December 22, 1997.
/s/ Arthur Andersen LLP
San Jose, California
January 8, 1998
<PAGE>
Exhibit 23.5
January 8, 1997
CONSENT OF WESSELS, ARNOLD & HENDERSON L.L.C.
Wessels, Arnold & Henderson L.L.C. hereby consents to the incorporation
by reference in the Registration Statement filed as of January 12, 1998 on Form
S-3 of Avant! Corporation ("Avant!") of the opinion letter dated September 7,
1997 filed as an exhibit to the Registration Statement on Form S-4 of Avant!
on December 22, 1997 and to 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 COUNSEL
We consent to the incorporation by reference of the Registration
Statement on Form S-4 for Avant! Corporation, effective December 23, 1997, in
the Registration Statement on Form S-3 for Avant! Corporation filed on
January 12, 1998.
FENWICK & WEST LLP
Palo Alto, CA
January 12, 1998