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As filed with the Securities and Exchange Commission on June 9, 1997
Registration No. 333-27283
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ZYCAD CORPORATION
-----------------
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
41-1404495
(I.R.S. Employer Identification No)
47100 BAYSIDE PARKWAY
FREMONT, CA 94538
(510) 623-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
PHILLIPS W. SMITH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ZYCAD CORPORATION
47100 BAYSIDE PARKWAY
FREMONT, CA 94538
(510) 623-4400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
ANDREW J. HIRSCH, ESQ. DOUGLAS E. KLINT, ESQ.
Wilson Sonsini Goodrich & Rosati Vice President and General Counsel
Professional Corporation Zycad Corporation
650 Page Mill Road 47100 Bayside Parkway
Palo Alto, California 94304 Fremont, California 94538
(415) 493-9300 (510) 623-4400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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 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 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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM
SECURITIES TO BE REGISTERED AMOUNT TO OFFERING AGGREGATE OFFERING AMOUNT OF
BE REGISTERED (1) PRICE PER SHARE(2) PRICE(3) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.10 par value 6,044,680 shares $0.84375 $5,100,199 $1,546
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</TABLE>
(1) This Registration Statement relates to the resale of the number of shares
of Common Stock required to be issued upon (i) conversion of Registrant's
issued and outstanding Series A-1 Convertible Preferred Stock, Series A-2
Convertible Preferred Stock, Series A-3 Convertible Preferred Stock, Series
A-4 Convertible Preferred Stock and Series A-5 Convertible Preferred Stock
(collectively, the "Preferred Stock") into Common Stock, (ii) conversion of
Preferred Stock issued upon exercise of Registrant's Preferred Stock
Purchase Warrants ("Preferred Warrants"), and (iii) exercise of
Registrant's Common Stock Purchase Warrants ("Common Warrants"). The
number of shares issuable upon conversion of the Preferred Stock and
exercise of the Common Warrants is initially limited to 5,044,680 shares
(although 6,044,680 have been reserved for issuance) unless the Company
obtains shareholder approval of the issuance of additional shares of Common
Stock upon conversion of the Preferred Stock. Because of the possibility
of antidilution adjustments to the conversion price of the Preferred Stock
(which is based on the market price of the Common Stock), the number of
shares of Common Stock issuable upon such conversion or exercise and
subject to this Registration Statement is indeterminate and this
Registration Statement relates to the resale of such entire indeterminate
number of shares of Common Stock.
(2) Based upon a last reported sale on the Nasdaq National Market on May 9,
1997 of $0.84375 per share; the actual offering price may be higher or
lower depending on the market price of the Common Stock from time to time.
(3) Assumes 5,044,680 shares are issued pursuant to the conversion of the
Preferred Stock into Common Stock and exercise of Common Warrants to
purchase 500,000 shares of Common Stock at $2.25 per share. The aggregate
unconverted Stated Value of the issued and outstanding Preferred Stock was
$3,500,000 on May 15, 1997. Based upon a last reported sale on the Nasdaq
National Market on May 9, 1997 of $0.84375 per share, the actual number of
shares of Common Stock which would be issuable on May 15, 1997, upon
conversion of the issued and outstanding shares of Preferred Stock,
conversion of the Preferred Stock issuable upon exercise of the Preferred
Warrants and exercise of the Common Warrants would have been 7,639,670
shares.
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 such Section 8(a),
may determine.
(ii)
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ZYCAD CORPORATION
6,044,680 SHARES
COMMON STOCK, PAR VALUE $0.10 PER SHARE
This Prospectus relates to the resale by certain security holders named
herein (the "Selling Securityholders") of (i) up to 6,044,680 shares of the
Common Stock, par value $0.10 per share (the "Common Stock") of Zycad
Corporation, a Delaware corporation ("Zycad" or the "Company") which may be
issued upon conversion of $3,500,000 in aggregate stated value (the "Stated
Value") of the Company's Series A-1 Convertible Preferred Stock, Series A-2
Convertible Preferred Stock, Series A-3 Convertible Preferred Stock, Series
A-4 Convertible Preferred Stock and Series A-5 Convertible Preferred Stock
(collectively, the "Preferred Stock"), (ii) conversion of Preferred Stock
issued upon exercise of Registrant's Preferred Stock Purchase Warrants
("Preferred Warrants") to purchase 42,858 shares of Preferred Stock, and
(iii) the exercise of Common Stock Purchase Warrants (the "Common Warrants")
to purchase 500,000 shares of the Company's Common Stock. The number of
shares issuable upon conversion of the Preferred Stock (including that
issuable upon exercise of the Preferred Warrants) and exercise of the Common
Warrants is initially limited to 5,044,680 shares unless the Company obtains
shareholder approval of the issuance of additional shares of Common Stock
upon conversion of the Preferred Stock. Because of the possibility of
antidilution adjustments to the conversion price of the Preferred Stock
(which is based on the market price of the Common Stock), the number of
shares of Common Stock issuable upon such conversion or exercise and subject
to this Prospectus is indeterminate and this Prospectus relates to the resale
of such entire indeterminate number of shares of Common Stock. The Company
closed a private placement of $3,500,000 in aggregate principal amount of 6%
Subordinated Convertible Debentures Due 2000 (the "Debentures") and the
Common Warrants on February 13, 1997. On May 15, 1997, the Debentures were
exchanged with the holders thereof for one share of Preferred Stock and the
right to purchase pursuant to the Preferred Warrants 0.42858 shares of
Preferred Stock for each $35.00 in aggregate principal amount of the
Debentures. The Preferred Stock is convertible into shares of Common Stock
(the "Shares") as described below. The aggregate unconverted Stated Value of
the issued and outstanding Preferred Stock was $3,500,000 on May 15, 1997,
and an additional $52,356 of accrued premium was also available for
conversion as of such date. See "Plan of Distribution". Information
concerning the Selling Securityholders may change from time to time and will
be set forth in supplements to this Prospectus. Although the Company may
receive approximately $1,125,000 upon exercise of the Common Warrants and
$1,500,030 upon exercise of the Preferred Warrants, the Company will not
receive any proceeds from the offering of the Shares.
The Preferred Stock is convertible at the option of the holder at any time prior
to maturity, unless previously redeemed or repurchased, into the Shares at 83%
of the Market Price (the average of the lowest reported sales price of the
Common Stock on each of the five trading days immediately preceding the
conversion date) for the period May 15, 1997 through June 13, 1997; 82% of the
Market Price for the period June 14, 1997 through July 13, 1997; 81% of the
Market Price for the period July 14, 1997 through August 12, 1997; 80% of the
Market Price for the period August 13, 1997 through September 11, 1997; 79% of
the Market Price for the period September 12, 1997 through October 11, 1997; and
78% of the Market Price for the period October 12, 1997 through February 13,
2000. Each percentage set forth in the previous sentence will be reduced by
three percentage points (on a pro-rated basis for each day during such period
until effectiveness), if the effective date of the registration statement of
which this Prospectus is a part occurs after May 16, 1997 and prior to June 14,
1997; by up to an additional three percentage points (on a pro-rated basis for
each day during such period until effectiveness), if the effective date of such
registration statement occurs on or after June 14, 1997, and prior to July 14,
1997; by up to an additional three percentage points (on a pro-rated basis for
each day during such period until effectiveness) if the effective date occurs on
or after July 14, 1997, and prior to August 12, 1997. If the registration
statement has not become effective prior to July 14, 1997, the Company shall
make a cash payment to each holder of Preferred Stock for each day after July
14, 1997, and prior to August 13, 1997, that the registration statement is not
effective equal to one-thirtieth of three percent (3%) of the Stated Value of
the Preferred Stock originally issued to such holder. If the registration
statement has not become effective prior to August 13, 1997, on August 13, 1997,
the Company shall make a payment in cash to each holder of Preferred Stock equal
to three percent (3%) of the Stated Value of the Preferred Stock originally
issued to such holder and shall make an additional three percent (3%) payment at
the end of each full 30 day period thereafter until the earlier of the date the
registration statement becomes effective or February 14, 1997.
The Common Stock of the Company is traded on the Nasdaq National Market (symbol:
ZCAD). On May 9, 1997, the lowest reported sale price of the Common Stock on
the Nasdaq National Market was $0.84375 per share.
The Common Warrants are exercisable at any time until February 13, 2002 for
500,000 Shares at a price of $2.25 per share. The Preferred Warrants are
exercisable at such times as the market price of the Common Stock is at least
$1.50 per share, until February 13, 2002 for 42,858 shares of Preferred Stock
at a price of $35.00 per share.
The Preferred Stock accrues a premium ("Premium") daily at a rate per share
(as a percentage of the Stated Value per share) of 6% per annum. Accrued
Premium on each share of Preferred Stock is automatically converted into
Shares at the time of conversion of each such share of Preferred Stock;
provided, that the Company, at its option, may elect to redeem the Premium in
cash at the time of conversion. The Preferred Stock is not otherwise
redeemable at the option of the Company. On February 13, 2000, all then
outstanding shares of Preferred Stock and Premium (subject to the Company's
right to redeem Premium) will convert automatically into Common Stock;
provided, however, that if any Preferred Stock cannot be converted due to
limitations on the number of shares of Common Stock available for issuance
upon conversion, the remaining Preferred Stock must be redeemed by the
Company,
<PAGE>
to the extent funds are legally available therefor, at a redemption price per
share equal to the greater of (i) 120% of the Stated Value per share of
Preferred Stock plus accrued Premium, or (ii) the dollar amount which is the
product of (x) the Conversion Rate (as defined) and (y) the last reported
sale price of the Common Stock on such date. The Preferred Stock is also
redeemable at the option of each holder (i) upon the occurrence of an Event
of Non-compliance (as defined) or (ii) if insufficient shares of Common Stock
are available for conversion of such Preferred Stock. The redemption price
per share in such case would be the greater of (i) 110% of the Stated Value
per share of Preferred Stock plus accrued premium or (ii) the dollar amount
which is the product of (x) the Conversion Rate and (y) the last reported
sales price of the Common Stock on the date when the notice of redemption was
delivered.
The Company has been advised by the Selling Securityholders that the Selling
Securityholders, acting as principals for their own account, directly, through
agents designated from time to time, or through brokers, dealers, agents or
underwriters also to be designated, may sell all or a portion of the Shares
which may be offered hereby by them from time to time on terms to be determined
at the time of sale.
The aggregate proceeds to the Selling Securityholders from the sale of the
Shares which may be offered hereby by the Selling Securityholders will be the
purchase price of such Shares less commissions, if any.
The Selling Securityholders and any brokers, dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act, in which event any commissions received by such broker-dealers, agents or
underwriters and any profit on the resale of the Shares may be deemed to be
underwriting discounts under the Securities Act.
The Company has agreed to bear certain expenses in connection with the
registration of the Shares being offered by the Selling Securityholders.
The Company intends that the Registration Statement of which this Prospectus is
a part will remain effective until five years after the date of the
effectiveness of this Registration Statement or such earlier date as of which
such Registration Statement is no longer required for the transfer of the
subject securities.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
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 JUNE 11, 1997.
2
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TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . 3
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . 6
SELLING SECURITYHOLDERS. . . . . . . . . . . . . . . . . . 11
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . 12
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . 13
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . 13
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by any other person. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
information herein is correct as of any time subsequent to the date hereof.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the securities covered by this Prospectus,
nor does it constitute an offer to or solicitation of any person in any
jurisdiction in which such offer or solicitation may not lawfully be made.
AVAILABLE INFORMATION
The Company is subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and in
accordance therewith files reports, proxy and information statements and
other information with the Securities and Exchange Commission (the
Commission). Such reports, proxy and information statements and other
information can be inspected and copied at the offices of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as the following regional offices of the Commission at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies
of such material can also be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such reports, proxy and information statements and other
information concerning the Company may be inspected at the office of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. The Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the site is http://www.sec.gov.
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-3 (the Registration Statement) of which this
Prospectus is a part, including exhibits relating thereto, which has been filed
with the Commission under the Securities Act in Washington, D.C. Statements made
in this Prospectus as to the contents of any referenced contract, agreement or
other document are not necessarily complete, and each such statement shall be
deemed qualified in its entirety by reference thereto. Copies of the
Registration Statement and the exhibits and schedules thereto may be obtained,
upon payment of the fee prescribed by the Commission, or may be examined without
charge, at the office of the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission (File
No. 13244) pursuant to the Exchange Act and are incorporated by reference in
this Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1996.
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
3
<PAGE>
(c) The Company's Current Reports on Form 8-K dated January 15, 1997,
April 30, 1997 and May 15, 1997.
(d) The description of the Company's Common Stock offered for resale
hereby contained in the Company's Registration Statement on Form 8-A dated April
23, 1984, including any amendment or report filed for the purpose of updating
such description.
In addition, all reports and other documents subsequently filed by the Company
pursuant to Sections 13(a),13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of the Offering shall be deemed
to be incorporated by reference in this Prospectus from the date of filing such
documents. Any statement contained in a document 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
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as to modified or superseded,
to constitute a part of this Prospectus. The Company will provide without
charge to each person, including any beneficial owner, to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any and
all of the documents that are incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents). Requests for such documents should be
directed to the Secretary of the Company at the principal executive offices of
Zycad Corporation, 47100 Bayside Parkway, Fremont, California 94538, or by
telephone at (510) 623-4400.
4
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THE COMPANY
Zycad Corporation ("Zycad" or the "Company") designs, develops, manufactures,
markets and supports high performance simulation accelerators and
emulation/rapid prototyping systems which assist designers of integrated
circuits ("ICs") and IC-based electronic systems verify the accuracy of their
designs prior to committing these designs to silicon. Zycad's primary product
emphasis has been simulation accelerators, which combine proprietary hardware
design and simulation software to achieve faster simulation results than can be
attained using software simulation tools operating on standard work station
platforms. Since 1993, the Company has marketed emulation/rapid prototyping
systems, which are proprietary products based on field programmable gate array
("ProASIC") technology that also provide faster electronic systems design
verification. The Company recently announced the formation of a separate
division containing its simulation accelerator business. Division management
has informed the Company that they are preparing a proposal for the leveraged
buyout of the division. However, there can be no assurances that such a
proposal will be forthcoming or that such a proposal will be acceptable to
the Company or that the division will ultimately be sold.
As a result of research activities in 1992 to develop emulation technology,
Zycad developed superior FPGA technology applicable to a broader range of
commercial applications in much larger potential markets. In 1993 Zycad formed
the GateField division to commercially exploit this technology. In December
1995, Zycad completed its first beta-shipment of its own flash technology based
high-density ProASIC. These ProASICs, which are designed and developed by the
Company's GateField division (GateField) and manufactured by a Japanese foundry,
currently range in logic densities from 9,000 gates to 100,000 gates and are
targeted for sale to custom and/or semi-custom IC designers for use both in
design verification and as product components, in lieu of using application
specific ICs ("ASICs") in their products. Additionally, Zycad offers customers
consulting engineering services to further assist them in more quickly
completing and verifying their designs to get their products to market sooner.
The Company markets its products and services to a broad range of customers who
design electronic components, products and systems for application in a variety
of electronics industries including aerospace, computer, consumer electronics,
multimedia, networking, semi-conductor and telecommunications. Customers
include Intel, Advanced Micro Devices, IBM, Lucent Technologies, Hughes,
Siemens, Alcatel, Hitachi, Toshiba, NEC, and Hyundai.
As IC manufacturing process technology continues to advance to smaller
geometries, the average IC design continues to increase in complexity and
density; reaching over a million gates in many of today's designs. The
traditional software simulation products operating on workstations are
inadequate to provide the quick simulation and verification results needed to
bring these complex designs to market faster. Zycad's accelerator products are
designed specifically to meet customer needs for faster simulation and
verification results. The current LightSpeed simulation server product uses a
massively paralleled special purpose computer architecture, which incorporates
proprietary simulation algorithms to rapidly complete the simulation tasks. The
Company's accelerators operate in conjunction with Sun Microsystems and
Hewlett-Packard workstations.
The recent entry into the ProASIC market is consistent with the Company's
strategy to be the leading supplier of high performance design verification
systems and extends that strategy to now offer customers the silicon to
implement their designs and get their product to market faster than the 12 to
16 week wait for foundries to complete these designs in ASICs. While other
companies currently offer ProASICs, Zycad believes that its ProASICs will
offer customers certain advantages, including ASIC design methodologies and
high gate capacity, that will allow it to successfully compete in this market.
The Company, through one of its subsidiaries, Zycad International, acquired
Attest Software, Inc. (Attest) effective June 1, 1996 for $2,140,000 of the
Company's Common Stock. Attest's products include a suite of testability
analysis and test generation software tools that operate on workstations,
including Sun Microsystems and Hewlett-Packard. These products are
complimentary to Zycad's high performance fault simulation accelerators and
expand the market coverage for fault simulation and test generation products.
Zycad's products and services are sold primarily through its direct sales
organization, which includes sales, application engineering and consulting
engineering personnel. Distributors and manufacturers representatives are and
will continue to be also used to market the Company's products. Zycad's uses
third party manufacturing sources to assemble its accelerator product components
and its ProASIC products are produced by a foundry in Japan, with packaging and
assembly done in the Philippines. However, final assembly and test for all
products is performed at the Company's Fremont, California facilities. The
Company was incorporated in Delaware in June 1981 and has its principal
executive offices at 47100 Bayside Parkway, Fremont, California 94538, (510)
623-4400. Except as the context may otherwise require, the terms "Zycad" and
the "Company" also include all subsidiaries.
5
<PAGE>
RISK FACTORS
The Common Stock offered by this Prospectus involves a high degree of risk.
Where this Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, the
actual results could differ materially from any projected in such
forward-looking statements as a result of certain factors, including without
limitation, the risk factors set forth below and elsewhere in this Prospectus.
In addition to the other information in this Prospectus, the following factors
should be considered carefully in evaluating an investment in the shares of
Common Stock offered by this Prospectus.
NET LOSSES
The Company has experienced operating losses from continuing operations for the
last five fiscal quarters. The Company sustained a net loss of $21.4 million in
its fiscal year ended December 31, 1996, and has had net losses in four of its
last five fiscal years. In 1995, the Company had net income of $2.0 million,
and sustained losses of $9.7 million, $4.5 million and $2.8 million in 1994,
1993 and 1992, respectively. The Company experienced an operating loss for the
fiscal quarter ended March 31, 1997 of $5.6 million. There can be no assurance
that the Company will be able to achieve a profit in 1997 or in subsequent
quarters and years, or at all. In the future, the Company's ability to achieve
and sustain profitable operations will depend upon a number of factors,
including the Company's ability to control costs; the Company's ability to
reorganize its operation after the sale in April 1997 of certain operating
assets; the Company's ability to generate sufficient cash from operations or
obtain additional funds to fund its operating expenses; increased sales of its
Gatefield product line; and other factors.
NEGATIVE CASH FLOW; LIMITED WORKING CAPITAL
The Company's history of operating losses and product development activity has
required significant cash funding. As of March 31, 1997, the Company had a
working capital deficit of $(2.6 million). In April 1997, the Company agreed to
sell its Lightspeed product family for a purchase price of $5.0 million and its
holdings in Quality Systems Software, Inc. for $3.5 million. The Company
anticipates that cash generated by these sales and the availability under its
existing credit line, together with sources of additional liquidity such as
private or public offerings, equipment lease lines and the sale of additional
Company assets will enable the Company to meet its short-term liquidity needs.
The Company expects that it will require additional financing to support its
future operations. There can be no assurance that any such additional financing
will be available to the Company on acceptable terms as and when needed by the
Company.
POSSIBLE DISPOSITION OF THE SIMULATION ACCELERATOR BUSINESS
The Company recently announced the formation of a separate division
containing its simulation accelerator business. Division management has
informed the Company that they are preparing a proposal for the leveraged
buyout of the division. However, there can be no assurances that such a
proposal will be forthcoming or that such a proposal will be acceptable to
the Company or that the division will ultimately be sold. If the division is
sold to division management or to others, the Company's sole business will be
the Gatefield family of ProASIC products which are designed, developed and
sold by its Gatefield division. To date the sales of the Company's Gatefield
products have been extremely limited and there can be no assurance that
Gatefield will become a viable stand-alone business. See "Gatefield New
Business Risk." In particular, Gatefield has been dependent on revenues from
the Company's accelerator business to finance the development and
introduction of its products. If the remaining accelerator business is sold,
the Company will be dependent upon the proceeds of the sale, limited existing
cash reserves and additional outside financing to continue the introduction
of its Gatefield products. There can be no assurances that such additional
financing will be available on terms acceptable to the Company or that the
Gatefield products will be accepted in the marketplace.
DILUTION
As of May 14, 1997, the Company has outstanding convertible
debentures issued in 1996 having an aggregate principal amount of $1.4
million and Preferred Stock and Preferred Warrants exercisable for Preferred
Stock having an aggregate Stated Value of $5.0 million. The debentures are
convertible into Common Stock at the option of the holder at a price of 80%
of the average of the lowest reported sales prices for the Common Stock over
the five trading days prior to conversion. The Preferred Stock is
convertible into Common Stock at the option of the holder at a price of 78%
to 83% of the average of the lowest reported sales prices for the Common
Stock over the five trading days prior to conversion. These conversion
formulas result in a conversion price which is less than the market price at
the time of conversion. Thus, all conversions of such debentures and
Preferred Stock into Common Stock will have a dilutive effect on the holders
of Common Stock. The Company may also be required or may chose to sell
equity securities to obtain financing in the future including the sale of
additional securities of the Company to the Selling Securityholders. If the
Company sells additional equity securities at a price per share less than the
then existing market price, investors purchasing shares of Common Stock in
this offering would incur additional dilution.
DELISTING FROM THE NASDAQ NATIONAL MARKET
At December 31, 1996, the Company was not in compliance with the requirement
of the Nasdaq Stock Market for listing on the Nasdaq National Market (a
distinct tier of the Nasdaq Stock Market) to maintain minimum net tangible
assets (as defined) of $4.0 million. In a letter to the Company dated May 8,
1997, the representatives of the Nasdaq Stock Market indicated that if the
Company was not able to complete certain transactions which would result in
the Company having tangible net assets of at least $8.0 million on a pro
forma basis the Company would be delisted from the Nasdaq National Market.
The Company believes that this requirement was satisfied by the Company as of
May 15, 1997, although the Company has not yet received confirmation from the
Nasdaq Stock Market that such requirement has been satisfied. Although the
Company believes that it can continue to comply with the Nasdaq National
Market listing requirements, there can be no assurance that the Company will
be successful in doing so. However, even if its stock were delisted from the
Nasdaq National Market, the Company believes it would be eligible for listing
in the Nasdaq SmallCap Market, which is another tier of the Nasdaq Stock
Market. However, there can be no assurance that the Company will remain
eligible for listing on the Nasdaq SmallCap Market. Failure to maintain its
listing on the
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Nasdaq National Market or the Nasdaq SmallCap Market would have material adverse
consequences on the Company, including a requirement that the Company's
outstanding Preferred Stock and debentures be redeemed if the Company is not
listed on either the Nasdaq National Market or the Nasdaq SmallCap Market.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results have in the past and may in the future
vary significantly depending on factors including the timing of customer
development projects and related purchase orders for the Company's simulation
accelerators and ProASIC products, new product announcements and releases by the
Company and its competitors, gain or loss of significant customers, price
discounting of the Company's products, the timing of expenditures, customer
product delivery requirements, availability and cost of components or labor and
economic conditions, generally, and in the electronics industry, specifically.
Any unfavorable change in these or other factors could have a material adverse
effect on the Company's operating results for a particular quarter. Many of the
Company's customers order on an as-needed basis and often delay issuance of firm
purchase orders until their design project reaches a development stage requiring
the Company's products to accelerate design verification and completion. As a
result, the Company has in the past operated and expects to continue to operate
with no significant backlog. Quarterly revenue and operating results will
therefore depend on the volume and timing of orders received during the quarter,
which can be difficult to forecast accurately. Moreover, a significant portion
of the Company's revenue in each quarter generally results from orders received
and then shipped during the last few weeks of the quarter. The absence of
significant backlog and the concentration of sales at the end of the quarter
limit the Company's ability to plan or adjust operating expenses and production
and inventory levels. Therefore, if anticipated shipments in any quarter do not
occur or are delayed, expenditure levels could be disproportionately high as a
percentage of revenue, and the Company's operating results for that quarter
would be adversely affected. In addition, revenues generated from individual
systems with high sales prices can constitute a significant percentage of the
Company's quarterly revenue. Operating results in any period should not be
considered indicative of the results to be expected for any future period, and
there can be no assurance that the Company's net revenues will increase or that
the Company will be profitable in any future period.
DEVELOPING MARKET; ACCEPTANCE OF THE COMPANY'S PRODUCTS
The Company began shipping commercial volumes of its PXP simulation
accelerators in fiscal 1993. Substantially all of the Company's product
revenues (which constitute the majority of the Company's revenue) since
fiscal year 1993 have been derived from the sale of its PXP simulation
accelerators, but these revenues have been declining since 1995. The
Company introduced its LightSpeed simulation accelerators in the third
quarter of fiscal year 1996 with production shipments in fourth quarter of
fiscal year 1996. In April 1997, the Company sold the LightSpeed logic
simulation technology to IKOS Systems, Inc. for $5,000,000. In addition the
Company shipped its first GateField ProASIC products in fourth quarter of
fiscal year 1995 with limited production shipments in the second quarter of
fiscal year 1996. Revenues from the sale of GateField ProASIC products were
$94,000 during the first quarter of fiscal year 1997. There can be no
assurance that there will be market acceptance of these GateField ProASIC
products and fault simulation accelerators products. The adoption of the
Company's simulation accelerator products for the fault verification of IC
and system designs is expected to depend on the continued increase in
complexity of ICs designed for electronic systems, integration of the
Company's products with other tools for IC design and simulation, the ability
of hardware-assisted simulation accelerators to shorten the time of fault
simulation of IC designs, the development and market acceptance of design
verification technologies such as cycle-based software simulation and
ProASIC-based emulation, and continuation of industry acceptance of the need
for gate-level hardware-assisted simulation accelerators. In addition, the
adoption of the Company's ProASIC products is expected to depend on the
increasing complexity of ASIC designs, the high costs of non-recurring
engineering expenses and lengthy manufacturing process for ASICs, the ability
of ProASICs to shorten the time to market for ASIC designs, the integration
of the Company's ProASIC products with EDA tools and methodologies, and the
development and market acceptance of alternative prototyping systems.
Because the market for hardware-assisted simulation products and ProASICs is
evolving, it is difficult to predict with any assurance whether the market
for simulation accelerators or ProASICs will continue to expand. There can
be no assurances that such market will expand or, even if such market
expands, that the Company's products will achieve the market acceptance
required to attain profitability in the future.
COMPETITION
The EDA and IC industries are highly competitive and rapidly changing. The
Company's products are specifically targeted at growing segments of the IC and
electronic systems industries involving more complex designs that can benefit
from using simulation methodology to verify their designs more quickly and/or
ProASICs for either rapid prototyping verification purposes or for use in lieu
of ASICs as components with their product offering. In each case the desired
result is to introduce the product to the market in the shortest possible time.
To date, substantially all of the Company's product revenue has resulted from
sales of simulation accelerators to these segments of the market. The Company's
competition currently comes from traditional software verification methodologies
provided by EDA vendors such as Cadence Design Systems, Inc. and Mentor Graphics
Corporation. In addition the Company faces competition from ProASIC
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products sold by Xilinx Inc. ("Xilinx") and Altera Corporation ("Altera"),
among others. As a result of the lack of education and training by
potential users of simulation accelerators and ProASICs on how to use them
for "time to market" benefits, the Company must educate potential customers,
thereby lengthening the sales cycle, in order for such customers to consider
the Company's products for use within their EDA and IC design process. The
Company expects competition in the market for verification tools and for
ProASICs to increase as other companies attempt to introduce new products and
product enhancements. Moreover, the Company competes, and expects that it
will continue to compete, with established EDA and ProASIC companies. A
number of these companies have longer operating histories, significantly
greater financial, technical and marketing resources, greater name
recognition and larger installed customer bases than the Company. In
addition, many of these competitors and potential competitors have
established relationships with current and potential customers of the Company
and offer a broader and more comprehensive product line. Increased
competition could result in price reductions, reduced margins and loss of
market share, all of which could have a material adverse effect on the
Company. In addition, current competitors or other entities may develop
other products that have significant advantages over the Company's products.
There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not have a material adverse effect on its
operating results. In the event the Company is unable to compete effectively
with these or any other companies, the Company's business, financial
condition or results of operations could be materially and adversely affected.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The EDA and IC industries are characterized by extremely rapid technological
change in hardware, software and IC development, frequent new product
introduction, evolving industry standards and changing customer requirements.
The introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. The
Company's future success will depend upon its ability to enhance its current
series of simulation accelerators and ProASIC products and to design, develop
and support its next-generation products on a timely basis. Those efforts
require continuing investment in research and development by the Company to
address the increasingly sophisticated needs of the customers. There can be no
assurance that the Company will be successful in developing and marketing
product enhancements or new products that respond to technological change or
evolving industry standards or changing customers requirements, that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products, or that its new
products and product enhancements will adequately meet the requirements of the
marketplace, will be of acceptable quality or will achieve market acceptance.
Moreover, from time to time, the Company may announce new products or
technologies that have the potential to replace the Company's existing product
offerings. There can be no assurance that the announcement of new product
offerings will not cause customers to defer purchases of existing Company
products, which could adversely affect the Company's results of operations.
In addition, technological advances or the development of new technologies
could result in the introduction of competitive products with superior
performance to and substantially lower prices than the Company's products.
Further, the Company's new products and components are subject to significant
technical risks. If the Company experiences delays in the commencement of
commercial shipments of new products or components, the Company could
experience delays or loss of product sales. If the Company is unable, for
technological or other reasons, to develop and introduce new products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results and financial
condition would have a material adverse effect.
DYNAMIC ELECTRONICS INDUSTRY TRENDS
The Company is dependent upon new system and IC design projects and volatility
of the purchasing cycles in the electronics industry. The volatility is
characterized by rapid technological change, shortening product life cycles,
fluctuations in manufacturing capacity as well as pricing and margin
pressures. As a result, the electronics industry has historically experienced
sudden and unexpected downturns, at which time the number of new system and IC
design projects decrease. Because most of the Company's sales occur related to
the commencement of new projects for system and IC products, the Company is
dependent upon the rate of commencement of these design projects. Accordingly,
negative factors affecting the electronics industry could have a material
adverse effect on the Company's results of operations.
DEPENDENCE UPON CERTAIN SUPPLIERS
Certain key components used in the Company's products are presently available
from sole or limited sources. The inability to develop alternative sources for
these sole or limited source components or to obtain sufficient quantities of
these components could result in delays or reductions in product shipments which
could adversely affect the Company's operating results. The Company's
simulation accelerators use proprietary ASICs that are currently manufactured by
LSI Logic, Inc. and subassemblies and components that are provided by other
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third party manufacturers. In addition the Company's ProASICs are manufactured
by ROHM, a foundry located in Kyoto, Japan and packaged by Anam located in the
Philippines.
COMPONENT AVAILABILITY RISK
The Company generally purchases these components, including semiconductor
memories used in the Company's simulation accelerators, pursuant to purchase
orders placed from time to time in the ordinary course of business and has no
long-term supply arrangements with any of these source suppliers that require
the suppliers to provide components in guaranteed quantities or at set prices.
Moreover, the manufacture of these components can be extremely complex, and the
Company's reliance on the suppliers of these components exposes the Company to
production difficulties and quality variations that may be experienced by these
suppliers. Therefore, the Company's reliance on its sole and limited source
suppliers involves several risks, including a potential inability to obtain an
adequate supply of required components, reduced control over pricing and timely
delivery and quality of acceptable components. While the timeliness and quality
of deliveries to date from such suppliers have been acceptable, there can be no
assurance that problems will not occur in the future. Any prolonged inability
to obtain components or subassemblies in sufficient quantities or quality or on
favorable pricing or delivery terms, or any other circumstances that would
require the Company to seek alternative sources of supply, could have a material
adverse effect on the Company's operating results and could damage the Company's
relationships with its customers.
CUSTOMER CONCENTRATION
A relatively limited number of customers has historically accounted for a
substantial portion of the Company's net revenues. In fiscal years 1996, 1995
and 1994, Intel Corporation ("Intel") accounted for 10%, 17% and 14%,
respectively, of the Company's net revenues. For fiscal year 1996, sales to the
Company's top five customers accounted for approximately 22% of the Company's
net revenues. The Company expects that sales of its products to a limited
number of customers will continue to account for a high percentage of net
revenues for the foreseeable future. The loss of a major customer or any
reduction in orders by such customers, including reductions due to market or
competitive conditions in the electronics, IC and EDA industries, would have an
adverse effect on the Company's results of operations. Moreover, the Company's
ability to increase its sales will depend in part upon its ability to obtain
orders from new customers, as well as the financial condition and success of its
existing customers and the general economy; there can be no assurance that such
increases will occur.
LENGTHY SALES CYCLE
Sales of the Company's products depend, in significant part, upon the
commencement of and schedule adherence to projects for the design and
development of complex ICs and systems. In view of the significant amount of
time and commitment of capital involved, the Company may experience delays in
product shipment sales following initial qualification of the Company's systems
due to delays on the part of customers. For this and other reasons, the
Company's products typically have a lengthy sales cycle during which the Company
may expend substantial funds and management effort. Lengthy sales cycles
subject the Company to a number of significant risks, including fluctuations in
operating results, and higher selling expenses over which the Company may have
little or no control.
PROPRIETARY RIGHTS
The Company's success and ability to compete are dependent in part upon its
proprietary technology. The Company relies on patent, trademark, trade secret
and copyright law to protect its technology. The Company currently holds seven
U.S. patents. However, there can be no assurance that any patent owned by the
Company will not be invalidated, circumvented or challenged, that the right
granted thereunder will provide competitive advantages to the Company or that
any of the Company's future patent applications, whether or not challenged by
applicable governmental patent examiners, will be issued with the scope of the
claims sought by the Company, if at all. Furthermore, there can be no assurance
that others will not develop technologies that are similar or superior to the
Company's technology, duplicate the Company's technology or design around the
patents owned by the Company. The Company 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, it may be possible for a third party to
copy or otherwise obtain and use the Company'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.
Although none presently exists, from time to time the Company has received, and
may receive in the future, notice of claims of infringement or potential
infringement of other parties' proprietary rights. Although the Company does
not believe that its products infringe the proprietary rights of any third
parties, there can be no assurance that infringement or invalidity claims (or
claims for indemnification resulting from infringement claims) will not be
asserted against the Company or that any such assertions will not materially
adversely affect the Company' business, financial condition or results of
operations. Irrespective of the validity or the successful
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assertion of such claims, the Company could incur significant costs with respect
to the defense thereof which could have a material adverse effect on the
Company's business, financial condition or results of operations. If any claims
or actions are asserted against the Company, the Company may seek to obtain a
license under a third party's intellectual property rights. There can be no
assurance, however, that under such circumstances, a license would be available
under reasonable terms or at all.
The Company also relies on certain software which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that these third party software licenses will continue to be
available to the Company on commercially reasonable terms or otherwise. The
loss of or inability to maintain any of these software licenses could result in
delays or reductions in product shipments until equivalent software could be
identified, licensed and integrated, which would adversely affect the Company's
operating results.
INTERNATIONAL SALES
International sales accounted for approximately 31%, 30% and 26% of the
Company's net revenues in fiscal years 1996, 1995 and 1994, respectively.
The Company expects that international sales will continue to account for a
significant portion of its revenues, and plans to continue to expand its
international sales and distribution channels. These revenues involve a
number of inherent risks, including traditionally slower adoption of the
Company's products internationally, the impact of recessionary environments
in economies outside the United States, generally longer receivable
collection periods, unexpected changes in or impositions of legislative or
regulatory requirements, reduced protection for intellectual property rights
in some countries, potentially adverse taxes, delays resulting from
difficulty in obtaining export licenses for certain technology and other
trade barriers. There can be no assurance that such factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's results of operations. Currency exchange
fluctuations in countries in which the Company sells its systems could have a
material adverse effect on the Company by resulting in pricing that is not
competitive with prices denominated in local currencies.
DEPENDENCE UPON KEY PERSONNEL
The Company's future performance depends in significant part upon attracting and
retaining key technical, sales, senior management and financial personnel.
Competition for such personnel is intense, and the inability to retain its key
personnel or to attract, assimilate or retain other highly qualified personnel
in the future on a timely basis could have a material adverse effect on the
Company's results of operations. In particular, there are only a limited number
of qualified EDA, IC design and test engineers, and the competition for such
individuals is especially intense. In addition, the Company's ability to
compete effectively and to manage future growth, if any, will require the
Company to continue to retain and manage its employee workforce. There can be
no assurance that the Company will be able to do so successfully. The Company's
failure to do so could have a materially adverse effect upon the Company's
results of operations.
GATEFIELD NEW BUSINESS RISK
The GateField ProASIC products represent the start of a new and different
business by the Company. In addition to all of the previously mentioned
risks, there is the additional risk associated with starting this new ProASIC
business in a different market with different manufacturing, marketing and
distribution channels. The GateField division was established in August 1993
and from that date to the present, GateField has been in a research and
development mode of operation. It has now completed the design of a 100,000
gate family of products for production in 0.8 micron process technology.
With the R&D and manufacturability phases complete, the Company is now
beginning to market its products. The risks previously identified in this
section are magnified in relation to GateField as the Company has had no
prior experience in marketing ProASICs. The company competes with FPGA
market leaders like Xilinx, Altera, Actel Corporation and Lucent. These
companies use manufacturing process technologies that are more advanced than
the 0.8 micron technology that GateField is currently using and they have
well established distribution channels and excellent reputations. These
companies have comparable products with similar densities and, in some
instances, faster performance. The Company's ability to effectively compete
with these established ProASIC companies is dependent upon the Company's
ability to move quickly to the more advanced process technologies and to
establish distribution channels to market its products. Currently, GateField
is dependent upon Zycad's accelerator business to finance its successful
product introduction. Any additional deterioration in the financial results
of the Company's accelerator business could adversely affect the GateField
business.
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS ACTIVITIES
International revenues have accounted for a significant portion of the Company's
net revenues in the past, and Zycad believes that international revenues will
continue to account for a significant portion of net revenues. The Company's
success will depend in part upon its ability to manage international marketing
and sales operations and manufacturing relationships. In addition, Zycad
purchases a substantial portion of its parts from foreign suppliers. Zycad's
international manufacturing and sales are subject to changes in foreign
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political and economic conditions and to other risks including currency or
export/import controls and changes in tax laws, tariffs and freight rates. In
addition, the Company sells certain of its products in international markets and
buys certain products in international markets in currencies other than the U.S.
dollar, and the Company does not currently hedge its exposure to foreign
currency fluctuations. As a result, currency fluctuations could have a material
adverse effect on the Company's business and results of operations. With
respect to international sales that are denominated in U.S. dollars, increases
in the value of the U.S. dollar relative to foreign currencies can increase the
effective price of and reduce demand for the Company's products relative to
competitive products priced in the local currency. The United States has
considered trade sanctions against Japan. If trade sanctions were imposed,
Japan could enact trade sanctions in response. Because a number of the
Company's current and prospective customers and suppliers are located in Japan,
trade sanctions, if imposed, could have a material adverse effect on Zycad's
business and results of operations. Similarly, protectionist trade legislation
in either the United States or foreign countries could have a material adverse
effect on the Company's ability to manufacture or to sell its products in
foreign markets.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been, and is likely to
continue to be, highly volatile. Future announcements concerning the Company
or its competitors, quarterly variations in operating results, announcements
of technological innovations, the introduction of new products or changes in
product pricing policies by the Company or its competitors, disputes
regarding proprietary rights or other litigation, changes in earnings
estimates by analysts or other factors could cause the market price of the
Common Stock to fluctuate substantially. In addition, the stock market has
from time-to-time experienced significant price and volume fluctuations that
have particularly affected the market prices for the common stocks of
technology companies and that have often been unrelated to the operating
performance of particular companies. These broad market fluctuations may
also adversely affect the market price of the Company's Common Stock. In the
past, following periods of volatility in the market price of a company's
securities, securities class action litigation has occurred against the
issuing company. There can be no assurance that such litigation will not
occur in the future with respect to the Company. Such litigation could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's
business, financial condition and results of operations. Any adverse
determination in such litigation could also subject the Company to
significant liabilities.
SELLING SECURITYHOLDERS
The Preferred Stock and the Preferred Warrants were issued by the Company in
exchange for the Debentures on May 15, 1997, pursuant to Convertible
Securities Exchange Agreements dated May 15, 1997, and, were acquired by the
Selling Securityholders. The Common Warrants were issued on February 14,
1997, in connection with the issuance of the Debentures. The following table
sets forth information concerning the number of shares of Common Stock
issuable upon conversion of the issued and outstanding Preferred Stock, the
Preferred Stock issuable upon exercise of the Preferred Warrants and the
Common Stock issuable upon exercise of the Common Warrants which may be
offered from time to time pursuant to this Prospectus. Other than their
ownership of Company securities, none of the Selling Securityholders has had
any material relationship with the Company within the past three years.
Maximum Number of
Shares That May be Sold (1) (2)
Halifax Fund L.P. 1,765,638
Capital Ventures International 1,765,638
Heracles Fund 504,468
Lewis A. Fraser 504,468
Joseph A. Umbach 504,468
- ------------------------------------------
(1) The information set forth herein is as of May 15, 1997 and will be updated
as required.
(2) This number includes an indeterminate number of additional shares which may
become issuable upon conversion by reason of adjustments and fluctuations
of the conversion price. The last reported sale on the Nasdaq National
Market on May 9, 1997, was $0.84375 per share. At a conversion rate of
$0.7003125 per share (which would be the applicable rate on May 15, 1997,
assuming a market price of $0.84375), the Preferred Stock held by each
Selling Shareholder would be converted into 1,775,386 shares each for two
of the parties and 507,252 for each of the other three parties for a
total of 5,072,528 Shares. The outstanding Preferred Stock by its terms
may not be converted into more than 5,044,680 Shares in the aggregate
(although 6,044,680 shares have been reserved for issuance) unless
stockholder approval
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is obtained. If such stockholder approval is obtained, additional Shares
above this maximum could be issued. Under the terms of the Preferred Stock,
fractional shares will not be issued upon conversion of the Preferred Stock;
instead the number of Shares issuable upon conversion will be rounded up or
down to the nearest whole number.
The information concerning the Selling Securityholders may change from time
to time and will be set forth in Supplements to this Prospectus. In
addition, the per share conversion price and, therefore, the number of Shares
issuable upon conversion of the Preferred Stock is subject to adjustment
under certain circumstances. In addition, accrued Premium may be converted
in Shares unless the Company, at its option, redeems such Premium.
Accordingly, the aggregate Stated Value of Preferred Stock and the number of
Shares issuable upon conversion of the Preferred Stock may increase or
decrease. As of the date of this Prospectus, the aggregate Stated Value of
the Preferred Stock outstanding is $3,500,000 which, together with accrued
Premium, may be converted into 5,072,528 Shares assuming a conversion price
of $0.7003125 per share. Up to 42,858 additional shares of Preferred Stock
having an aggregate Stated Value of $1,500,030 are issuable upon exercise of
the Preferred Warrants. Such additional shares of Preferred Stock would be
convertible into 2,141,944 Shares at a conversion price of $0.7003125 per
share. Unless stockholder approval is obtained, the maximum number of Shares
issuable is 5,044,680 including up to 500,000 shares reserved for exercise of
the Common Warrants.
The Company and the Selling Securityholders have agreed to indemnify each other
against certain liabilities arising under the Subscription Agreement. The
Company has agreed to pay all expenses incident to the registration of the offer
and sale of the shares of Common Stock to the public pursuant to this Prospectus
other than selling commissions and fees.
Because the Selling Securityholders may offer all or some of the Shares pursuant
to the offering contemplated by this Prospectus, and to the Company's knowledge
there are currently no agreements, arrangements or understandings with respect
to the sale of any of the Shares that may be held by the Selling Securityholders
after completion of this offering, no estimate can be given as to the principal
amount of Shares that will be held by the Selling Securityholders after
completion of this offering. See "Plan of Distribution."
PLAN OF DISTRIBUTION
This Prospectus relates to the resale of (i) up to 6,044,680 shares of the
Common Stock of the Company which may be issued upon conversion of the Preferred
Stock, (ii) conversion of Preferred Stock issuable upon exercise of the
Preferred Warrants, and (iii) the exercise of the Common Warrants. The number
of shares issuable upon conversion of the Preferred Stock (including that
issuable upon exercise of the Preferred Warrants) and exercise of the Common
Warrants is initially limited to 5,044,680 shares (although 6,044,680 shares
have been reserved for issuance) unless the Company obtains stockholder approval
of the issuance of additional shares of Common Stock upon conversion of the
Preferred Stock. Because of the possibility of antidilution adjustments to the
conversion price of the Preferred Stock (which is based on the market price of
the Common Stock), the number of shares of Common Stock issuable upon such
conversion or exercise and subject to this Prospectus is indeterminate and this
Prospectus relates to the resale of such entire indeterminate number of shares
of Common Stock.
The Company will not receive any of the proceeds from the offering of the shares
of Common Stock issuable upon conversion of the Preferred Stock by the Selling
Securityholders and which are sold pursuant to the Registration Statement (of
which this Prospectus is a part). The Company may receive approximately
$2,625,030 upon exercise of the Common Warrants and Preferred Warrants (neither
of which are subject to this Prospectus), but will not receive any proceeds of
the sale of any Shares issued upon exercise thereof. The Company has been
advised by the Selling Securityholders that the Selling Securityholders may sell
all or a portion of the shares of Common Stock beneficially owned by them and
which may be offered hereby from time to time on any exchange or market on which
the securities are listed or quoted, as applicable, on terms to be determined at
the times of such sales. The Selling Securityholders may also make private
sales directly or through a broker or brokers. Alternatively, any of the
Selling Securityholders may from time to time offer the shares of Common Stock
which may be offered hereby and beneficially owned by them through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, commissions or concessions from the Selling Securityholders and the
purchasers of the Preferred Stock of shares of Common Stock for whom they may
act as agent. The Selling Securityholders may sell Common Stock short and
deliver shares of Common Stock registered hereby to close out such short
positions.
To the extent required, the number of shares of Common Stock to be offered
hereby, the names of the Selling Securityholders, the purchase price, the name
of any such agent, dealer or underwriter and any applicable commissions,
discounts or other terms constituting compensation with respect to a particular
offer will be set forth in an accompanying Prospectus Supplement. The aggregate
proceeds to
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the Selling Securityholders from the sale of the Shares offered by them hereby
will be the purchase price of such Shares less discounts and commissions, if
any.
The shares of Common Stock which may be offered hereby may be sold from time to
time in one or more transactions at fixed offering prices, which may be changed,
or at varying prices determined at the time of sale or at negotiated prices.
Such prices will be determined by the holders of such securities or by agreement
between such holders and underwriters or dealers who may receive fees or
commissions in connection therewith.
The outstanding Common Stock is listed for trading on the Nasdaq National
Market, and the shares of Common Stock issuable upon conversion of the Preferred
Stock have been authorized for listing on the Nasdaq National Market upon
official notice of issuance. In order to comply with the securities laws of
certain states, if applicable, the Preferred Stock and shares of Common Stock
offered hereby will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the Preferred Stock
and shares of Common Stock offered hereby 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 compliance with
same is effected.
The Selling Securityholders and any broker-dealers, agents or underwriters that
participate with the Selling Securityholders in the distribution of the Shares
offered hereby may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any commissions or discounts received by such
broker-dealers, agents or underwriters and any profit on the resale of the
Preferred Stock or shares of Common Stock offered hereby and purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
LEGAL MATTERS
The validity of the Common Stock has been passed upon for the Company by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements and the related financial statement schedule
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
Deloitte & Touche LLP, independent auditors, as stated in their reports
(which report on the financial statements expresses an unqualified opinion
and includes an explanatory paragraph relating to an uncertainty of the
Company's ability to continue as a going concern), which are incorporated
herein by reference, and have been so incorporated in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized statement of all estimated expenses
in connection with the issuance and distribution of the securities being
registered:
SEC registration fee $ 1,503
Legal expenses 30,000
Accounting fees and expenses 5,000
Miscellaneous 500
-------
Total $37,003
-------
-------
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law, under which law Registrant
is incorporated, grants corporations the power to indemnify their directors,
officers, employees and agents in accordance with the provisions therein set
forth. The provisions governing the indemnification by Registrant of its
directors, officers, employees and agents are set forth in Article Ten of
Registrant's Restated Certificate of Incorporation.
Article Ten provides as follows:
No Director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty by such
Director as a Director, provided, however, that this Article 10 shall not
eliminate or limit the liability of a Director to the extent provided by
applicable law (i) for any breach of the Director's duty of loyalty to the
Corporation 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 General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the Director derived an improper personal benefit.
No amendment to or repeal of this Article 10 shall apply to or have any effect
on the liability or alleged liability of any Director of the Corporation for or
with respect to any acts or omissions of such Director occurring prior to such
amendment or repeal.
Registrant maintains and pays the premium on contracts insuring Registrant (with
certain exclusions) against any liability to directors and officers it may incur
under the above indemnity provisions and insuring each director and officer of
Registrant (with certain exclusions) against liability and expense, including
legal fees, which he may incur by reason of his relationship to Registrant, even
if Registrant does not have the obligation or right to indemnify him against
such liability or expense.
ITEM 16. EXHIBITS
3.5 Certificate of Correction of Certificate of Designation of Series
A-1 Convertible Preferred Stock, Series A-2 Convertible Preferred
Stock, Series A-3 Convertible Preferred Stock, Series A-4
Convertible Preferred Stock and Series A-5 Convertible Preferred Stock.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
23.1* Consent of Counsel (contained in Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP, independent auditors.
24.1 Power of Attorney.
- -----------------
* Previously filed
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
II-1
<PAGE>
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) to reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b), if in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(c) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in this Registration Statement; provided,
however, that the undertakings set forth in paragraphs (a) and (b) above shall
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 of
1933 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
of 1933 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 of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 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 of 1933, 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 of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
that contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<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 this Amendment No. 1 to Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fremont, State of California on
this 4th day of June, 1997.
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
---------------------
Phillips W. Smith,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ PHILLIPS W. SMITH President and Chief Executive Officer June 4, 1997
- --------------------- (Principal Executive Officer)
(Phillips W. Smith)
/s/ STEPHEN A. FLORY
- -------------------- Chief Financial Officer and Treasurer June 4, 1997
(Stephen Flory) (Principal Financial Officer and
Principal Accounting Officer)
/s/ *
- --------------------
(Horst G. Sandfort) President, GateField Division and Director June 4, 1997
/s/ *
- --------------------
(Benjamin Huberman) Director June 4, 1997
/s/ *
- --------------------
(James R. Fiebiger) Director June 4, 1997
*By: /s/ Phillips W. Smith
---------------------
Phillips W. Smith,
Attorney-in-Fact
II-3
<PAGE>
ZYCAD CORPORATION
REGISTRATION STATEMENT ON FORM S-3
INDEX TO EXHIBITS
Exhibit
Number
3.5 Certificate of Correction of Certificate of Designation of Series
A-1 Convertible Preferred Stock, Series A-2 Convertible Preferred
Stock, Series A-3 Convertible Preferred Stock, Series A-4
Convertible Preferred Stock and Series A-5 Convertible Preferred Stock.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
23.1* Consent of Counsel (contained in Exhibit 5.1 hereto).
23.2 Consent of Deloitte & Touche LLP, independent auditors.
24.1 Power of Attorney.
- -----------------
* Previously filed
17
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF DESIGNATION OF
SERIES A-1 CONVERTIBLE PREFERRED STOCK,
SERIES A-2 CONVERTIBLE PREFERRED STOCK,
SERIES A-3 CONVERTIBLE PREFERRED STOCK,
SERIES A-4 CONVERTIBLE PREFERRED STOCK
AND SERIES A-5 CONVERTIBLE PREFERRED STOCK
Zycad Corporation, a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, does hereby certify:
1. A Certificate of Designation of Series A-1 Convertible Preferred
Stock, Series A-2 Convertible Preferred Stock, Series A-3 Convertible
Preferred Stock, Series A-4 Convertible Preferred Stock and Series A-5
Convertible Preferred Stock was filed with the Secretary of State of the
State of Delaware on May 15, 1997, and was corrected by a Certificate of
Correction filed with the Secretary of State of the State of Delaware on May
20, 1997. Said Certificate of Designation requires additional correction as
permitted by subsection (f) of Section 103 of the General Corporation Law of
the State of Delaware.
2. The inaccuracies or defects of said Certificate of Designation (as
originally filed) to be corrected are as follows:
(a) The words "Series A-1 Preferred" contained in the fourth line
of Section 1 of said Certificate of Designation should be deleted and the
words "Series A-4 Preferred" inserted in lieu thereof;
(b) In the fifth line of Section 5(d) of said Certificate of
Designation after the word "restrictions", the words "contained in the first
sentence" were omitted and should be inserted at such point;
(c) The introductory clause to Section 5(d) of said Certificate of
Designation which reads "Until such time as the holders of Common Stock of
the Company shall approve the issuance of shares of Common Stock upon
conversion of the Preferred Stock representing in excess of 20% of the issued
and outstanding shares of Common Stock of the Company:" should be deleted and
the words "Until such time as the holders of Common Stock of the Company
shall approve the issuance of shares of Common Stock upon conversion of the
Preferred Stock (and exercise of the Company's Common Stock Purchase Warrants
issued pursuant to the Subscription Agreements) representing 20% or more of
the issued and outstanding shares of Common Stock of the Company:" should be
inserted in lieu thereof;
<PAGE>
(d) The number "1,765,638" appearing twice in Section 5(d) of said
Certificate of Designation should be deleted in each instance and replaced
with the number "1,590,638";
(e) The number "504,468" appearing three times in Section 5(d) of
said Certificate of Designation should be deleted in each instance and
replaced with the number "454,468"; and
(f) In the fifth line of Section 5(f) of said Certificate of
Designation after the word "restrictions", the words "contained in the first
sentence" were omitted and should be inserted at such point.
3. Exhibit A to said certificate is corrected to read in its entirety
as set forth in Annex I hereto.
Zycad Corporation has caused this Certificate of Correction of
Certificate of Designation of Series A-1 Convertible Preferred Stock, Series
A-2 Convertible Preferred Stock, Series A-3 Convertible Preferred Stock,
Series A-4 Convertible Preferred Stock and Series A-5 Convertible Preferred
Stock to be signed by Douglas E. Klint, its authorized officer, this 30th day
of May, 1997.
By: /s/ Douglas E. Klint
-----------------------------------
Title: Vice President and Secretary
<PAGE>
ANNEX I
EXHIBIT A
TERMS OF
CERTIFICATE OF DESIGNATION OF
SERIES A-1 CONVERTIBLE PREFERRED STOCK,
SERIES A-2 CONVERTIBLE PREFERRED STOCK,
SERIES A-3 CONVERTIBLE PREFERRED STOCK,
SERIES A-4 CONVERTIBLE PREFERRED STOCK
AND SERIES A-5 CONVERTIBLE PREFERRED STOCK
OF
ZYCAD CORPORATION
SECTION 1. DESIGNATION, AMOUNT AND PAR VALUE.
The series of preferred stock shall be designated as the Series A-1
Convertible Preferred Stock (the "Series A-1 Preferred"), the Series A-2
Convertible Preferred Stock (the "Series A-2 Preferred"), the Series A-3
Convertible Preferred Stock (the "Series A-3 Preferred"), the Series A-4
Convertible Preferred Stock (the "Series A-4 Preferred") and the Series A-5
Convertible Preferred Stock (the "Series A-5 Preferred"). The Series A-1
Preferred, the Series A-2 Preferred, the Series A-3 Preferred, the Series A-4
Preferred and the Series A-5 Preferred are collectively referred to herein as
the "Preferred Stock". The number of shares so designated shall be 70,000
shares of Series A-1 Preferred, 70,000 shares of Series A-2 Preferred, 20,000
shares of Series A-3 Preferred, 20,000 shares of Series A-4 Preferred and
20,000 shares of Series A-5 Preferred. The par value of each share of
Preferred Stock shall be $0.10. Each share of Preferred Stock shall have a
stated value of $35.00 per share (the "Stated Value").
SECTION 2. PREMIUM.
(a) A premium ("Premium") shall accrue daily on each share of Preferred
Stock beginning on the Original Issue Date (as defined in Section 7) of such
share of Preferred Stock at a rate per share (as a percentage of the Stated
Value per share) equal to six (6%) per annum.
(b) Upon the occurrence of a Conversion Deficiency (as defined in
Section 7), until such securities have been duly converted (including any
such conversion after a Post Deficiency Conversion (as defined in Section 6)
or redeemed as provided herein or sufficient shares are made available for
full conversion of the outstanding Preferred Stock, the rate at which Premium
accrues upon all shares of Preferred Stock shall be increased (i) immediately
upon the occurrence thereof, to 8%; (ii) on the 31st day after the occurrence
thereof, to 11%; (iii) on the 61st day after the occurrence thereof, to 14%;
and after the passage of each additional thirty (30) day period thereafter,
by an additional one percentage point; provided, that notwithstanding any
cure of a Conversion Deficiency, the increase or increases in the rate at
which Premium accrues which took place prior to such cure shall remain in
effect after such cure. The Company shall provide prompt notice of any
<PAGE>
change in the rate at which Premium accrues to each holder of record of
Preferred Stock as of the date of such change at such holder's address on the
Company's books.
SECTION 3. VOTING RIGHTS; ADDITIONAL SERIES OF PREFERRED STOCK.
Except as otherwise provided herein and as otherwise provided by law,
the Preferred Stock shall have no voting rights. However, so long as any
shares of a series of Preferred Stock are outstanding, the Company shall not,
without the affirmative vote of the holders of a majority of the shares of
such series of the Preferred Stock then outstanding, (i) alter or change the
powers, preferences or rights given to such series of Preferred Stock, (ii)
authorize or create any class of stock ranking as to dividends or
distribution of assets upon a Liquidation (as defined below) senior to, prior
to or pari passu with such series of Preferred Stock, or (iii) issue any
shares of Preferred Stock other than pursuant to the Exchange Agreements or
pursuant to the Preferred Stock Purchase Warrants issued by the Company to
the initial holders of Preferred Stock.
SECTION 4. LIQUIDATION; MERGER, CONSOLIDATION.
Upon any liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary (a "Liquidation"), the holders of shares of
Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value, plus an amount equal to
accrued Premium, per share, whether declared or not, before any distribution
or payment shall be made to the holders of any Junior Securities, and if the
assets of the Company shall be insufficient to pay in full such amounts
together with any amounts payable to holders of Parity Securities, then the
entire assets to be distributed shall be distributed among the holders of
Preferred Stock and holders of Parity Securities ratably in accordance with
the respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full. A sale, conveyance or disposition of all
or substantially all of the assets of the Company shall be deemed a
Liquidation. The Company shall mail written notice of any such Liquidation,
not less than 30 days prior to the payment date stated therein, to each
record holder of Preferred Stock.
If at any time there occurs any consolidation or merger of the Company
with or into any other corporation or other entity or person (whether or not
the Company is the surviving corporation) or any other corporate
reorganization or transaction or series of related transactions, in any of
which in excess of 50% of the Company's voting power is transferred (a
"Merger Transaction"), the Preferred Stock shall be deemed converted into
Common Stock immediately prior to the effectiveness of such Merger
Transaction at the Conversion Rate in effect on the business day prior to the
effective date of such Merger Transaction; PROVIDED, HOWEVER, that if a
Merger Transaction or the record date for determination of the Company's
stockholders entitled to participate in such Merger Transaction shall occur
at any time before the expiration of a period in which there were in the
aggregate one hundred eighty (180) days on which no Conversion Deficiency
existed following the effectiveness of the registration statement
contemplated by the Registration Rights Agreements, dated as of February 13,
1997, between the Company and each initial holder of Preferred Stock, then at
the option of each holder of Preferred Stock, such holder may elect to
require the Company to redeem all of the
<PAGE>
Preferred Stock held by such holder as of the effective date of such Merger
Transaction in accordance with the provisions set forth in Section 6. Such
holder shall be entitled to make such election at any time up to ten (10)
trading days after the effective date of the Merger Transaction. Nothing in
this Section 4 shall prohibit a holder of Preferred Stock from converting
Preferred Stock into Common Stock in accordance with the terms of Section 5
hereof, up to and including the effective time and date of the Merger
Transaction.
SECTION 5. CONVERSION.
(a) HOLDER'S RIGHT TO CONVERT. Subject to the provisions of Section
5(d), each share of Preferred Stock shall be convertible into fully paid,
validly issued and nonassessable shares of Common Stock at the Conversion
Rate (as defined in Section 7) at the option of the holder in whole or in
part at any time.
(b) AUTOMATIC CONVERSION. Subject to the provisions of Section 5(d),
each share of the Preferred Stock shall convert automatically into fully
paid, validly issued and nonassessable shares of Common Stock at the
Conversion Rate on February 13, 2000.
(c) MECHANICS OF CONVERSION. A holder of Preferred Stock shall effect
conversions by surrendering the certificate or certificates representing the
shares of Preferred Stock to be converted to the Company, together with the
form of conversion notice attached hereto as Attachment 1 (the "Conversion
Notice") by either overnight courier or two-day courier to the principal
office of the Company. Each Conversion Notice shall specify the number of
shares of Preferred Stock to be converted and the date on which such
conversion is to be effected (the "Conversion Date"), which date may not be
prior to the date the holder delivers such Conversion Notice by facsimile
(with the original of such notice forwarded with the foregoing courier) to
the Company at such office. Except as set forth below in this Section 5(c),
each Conversion Notice, once given, shall be irrevocable. Each Conversion
Notice shall provide for the holder's election to convert either (i) shares
of Preferred Stock having an aggregate Stated Value of at least $50,000, or
(ii) if all of the shares of Preferred Stock held by such holder have an
aggregate Stated Value of less than $50,000, all shares of Preferred Stock
then held by such holder. Upon receipt of such Conversion Notice, the
Company shall immediately verify the holder's calculation of the Conversion
Rate and shall use its best effort to issue and deliver within three business
days after delivery to the Company of the certificates representing the
shares of Preferred Stock to be converted to the holder at the address of
such holder on the Company's books, or to its designee, (i) a certificate or
certificates, representing the number of shares of Common Stock being
acquired upon the conversion of shares of Preferred Stock and (ii) one or
more certificates representing the number of shares of Preferred Stock not
submitted for conversion; PROVIDED, HOWEVER, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon conversion of any shares of Preferred Stock until certificates
evidencing such shares of Preferred Stock are either delivered for conversion
to the Company or any transfer agent for the Preferred Stock or Common Stock,
or the holder notifies the Company that such certificates have been lost,
stolen or destroyed and provides an agreement reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
therewith. If after delivery of a Conversion Notice, such certificate or
certificates are not
<PAGE>
delivered by the date required under this Section 5(c), the holder shall be
entitled by written notice to the Company at any time on or before such
holder's receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for
conversion.
(d) LIMITATION ON CONVERSION. Until such time as the holders of
Common Stock of the Company shall approve the issuance of shares of Common
Stock upon conversion of the Preferred Stock (and exercise of the Company's
Common Stock Purchase Warrants issued pursuant to the Subscription
Agreements) representing 20% or more of the issued and outstanding shares of
Common Stock of the Company: (i) no share of Series A-1 Preferred may be
converted into Common Stock pursuant to Sections 5(a) or 5(b) if the number
of shares of Common Stock to be issued upon such conversion when aggregated
with the number of shares of Common Stock previously issued upon conversion
of the Series A-1 Preferred would exceed 1,590,638 (as such number may be
adjusted to account for stock splits, combinations, stock dividends or
similar transactions); (ii) no share of Series A-2 Preferred may be converted
into Common Stock pursuant to Sections 5(a) or 5(b) if the number of shares
of Common Stock to be issued upon such conversion when aggregated with the
number of shares of Common Stock previously issued upon conversion of the
Series A-2 Preferred would exceed 1,590,638 (as such number may be adjusted
to account for stock splits, combinations, stock dividends or similar
transactions); (iii) no share of Series A-3 Preferred may be converted into
Common Stock pursuant to Sections 5(a) or 5(b) if the number of shares of
Common Stock to be issued upon such conversion when aggregated with the
number of shares of Common Stock previously issued upon conversion of the
Series A-3 Preferred would exceed 454,468 (as such number may be adjusted to
account for stock splits, combinations, stock dividends or similar
transactions); (iv) no share of Series A-4 Preferred may be converted into
Common Stock pursuant to Sections 5(a) or 5(b) if the number of shares of
Common Stock to be issued upon such conversion when aggregated with the
number of shares of Common Stock previously issued upon conversion of the
Series A-4 Preferred would exceed 454,468 (as such number may be adjusted to
account for stock splits, combinations, stock dividends or similar
transactions); and (v) no share of Series A-5 Preferred may be converted into
Common Stock pursuant to Sections 5(a) or 5(b) if the number of shares of
Common Stock to be issued upon such conversion when aggregated with the
number of shares of Common Stock previously issued upon conversion of the
Series A-5 Preferred would exceed 454,468 (as such number may be adjusted to
account for stock splits, combinations, stock dividends or similar
transactions). In addition, no share of Preferred Stock may be converted
into Common Stock if, after giving effect to the conversion of such share of
Preferred Stock, the total number of shares of the Company's Common Stock
deemed beneficially owned by the holder of such share of Preferred Stock,
together with all shares of Common Stock deemed beneficially owned by the
such holder's "affiliates" as defined in Rule 144 of the Securities Act of
1933, as amended, would exceed 4.9% of the total issued and outstanding
shares of the Company's Common Stock. For purposes hereof, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, but shall be determined
exclusive of shares of Common Stock issuable upon conversion of the
unconverted portion of the shares of Preferred Stock and the unexercised or
unconverted portion of any other securities of the Company subject to a
limitation on conversion or exercise analogous to the limitation contained
herein.
<PAGE>
(e) CERTAIN LIMITATIONS AND ADJUSTMENTS
(i) STOCK SPLITS AND COMBINATIONS. The Company shall not effect or
fix a record date for any stock split, subdivision or combination with an
effective date within five (5) business days of a Merger Transaction.
(ii) CERTAIN DIVIDENDS AND DISTRIBUTIONS. The Company shall not make,
or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, with an effective date within five (5) trading days
of the effective date of a Merger Transaction.
(iii) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Company at any time or from time to time makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in securities of the Company other
than shares of Common Stock (including, without limitation, rights to
acquire Common Stock or such other securities), then and in each such
event, provision shall be made so that each holder of Preferred Stock shall
receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of such other securities of
the Company to which a holder on the relevant record or payment date, as
applicable, of the number of shares of Common Stock so receivable upon
conversion would have been entitled, plus any dividends or other
distributions which would have been received with respect to such
securities had such holder thereafter, during the period from the date of
such event to and including the Conversion Date, retained such securities,
subject to all other adjustments called for during such period under this
Section 5(e) with respect to the rights of the holders of Preferred Stock.
For purposes of this Section 5(e)(iii), the number of shares of Common
Stock so receivable upon conversion by a holder shall be deemed to be that
number which such holder would have received upon conversion of all shares
of Preferred Stock held by such holder if such holder's Conversion Date had
been the day preceding the date upon which the Company announced the making
of such dividend or other distribution.
(iv) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. In
the event that at any time or from time to time, the Common Stock issuable
upon the conversion of the Preferred Stock is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a subdivision
or combination of shares or stock dividend or reorganization provided for
elsewhere in this Section 5(e) or a merger or consolidation, provided for
in Section 4), then and in each such event each holder of Preferred Stock
shall have the right thereafter to convert such Preferred Stock into the
kind of stock receivable upon such recapitalization, reclassification or
other change by holders of shares of Common Stock all subject to further
adjustment as provided herein. In such event, the formulae set forth
therein for conversion and redemption shall be equitably adjusted to
reflect such change in number of shares or, if shares of a new class of
stock are issued, to reflect the market price of the class or classes of
stock (applying the same factors used in determination the Market Price for
Shares of Common Stock) issued in connection with the above-described
transaction.
<PAGE>
(v) REORGANIZATIONS. If at any time or from time to time there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section 5(e)) than, as a part of such reorganization,
provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion of the Preferred Stock
the number of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock deliverable upon conversion
would have been entitled on such capital reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions
of this Section 5(e) with respect to the rights of the holders of Preferred
Stock after the reorganization to the end that the provisions of this
Section 5(e) shall be applicable after that event and be as nearly
equivalent as may be practicable, including, by way of illustration and not
limitation, by equitably adjusting the formulae set forth herein for
conversion and redemption to reflect the market price of the securities or
property (applying the same factors used in determining the Market Price
for Shares of Common Stock) issued in connection with the above-described
transaction.
(vi) In the event of a reasonable, good faith dispute between a holder
of Preferred Stock and the Company with respect to the adjustment required
by Sections 5(e)(iv) or 5(e)(v), then, at the option of either the holder
or the Company, the dispute shall be submitted to the American Arbitration
Association for resolution according to the then applicable rules thereof.
The cost of such proceeding shall be shares fifty percent (50%) by the
holder or holders involved in the dispute and fifty percent (50%) by the
Company, except that each party shall bear its own legal and other
expenses.
(f) RESERVATION OF COMMON STOCK. The Company covenants that it
will at all times reserve and keep available out of its authorized and
unissued Common Stock solely for the purpose of issuance upon conversion of
each series of Preferred Stock as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than
the holders of Preferred Stock, such number of shares of Common Stock as
shall be issuable (taking into account the restrictions contained in the
first sentence of Section 5(d) hereof, if applicable) upon the conversion of
all outstanding shares of Preferred Stock; provided, that the number of
shares reserved for each series of the Preferred Stock shall not be less than
(i) 2,115,638 shares of Common Stock for issuance upon the conversion of the
Series A-1 Preferred; (ii) 2,115,638 shares of Common Stock for issuance
upon the conversion of the Series A-2 Preferred; (iii) 604,468 shares of
Common Stock for issuance upon the conversion of the Series A-3 Preferred;
(iv) 604,468 shares of Common Stock for issuance upon the conversion of the
Series A-4 Preferred; (v) 604,468 shares of Common Stock for issuance upon
the conversion of the Series A-5 Preferred; provided, however, that each such
reserved amount shall be deemed to include each holder's pro rata portion of
500,000 shares of Common Stock previously reserved for issuance upon the
exercise of the Company's Common Stock Purchase Warrants issued pursuant to
the Subscription Agreements, which pro rata portion of such 500,000 shares
may be issued either upon conversion of a holder's Preferred Stock or upon
the exercise of such holder's Common Stock Purchase Warrants, at the option
of such holder. Each specified number of shares reserved under this Section
5(f) shall be adjusted to account for stock splits, combinations, stock
dividends or similar transactions. The Company covenants that all shares of
<PAGE>
Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid and nonassessable.
(g) FRACTIONAL SHARES. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing fractions of
shares of Common Stock. The number of shares of Common Stock issuable upon
conversion shall be rounded up or down to the nearest whole share.
(h) STOCK CERTIFICATES. The issuance of certificates for shares
of Common Stock on conversion of Preferred Stock shall be made without charge
to the holders thereof for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificate, provided
that the Company shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the holder of such
shares of Preferred Stock so converted and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
(i) CONVERTED SHARES. Shares of Preferred Stock converted into
Common Stock shall be canceled and shall have the status of authorized but
unissued shares of preferred stock.
Section 6. REDEMPTION.
(a) If (whether or not a Conversion Notice shall have been given
with respect thereto) all outstanding shares of Preferred Stock cannot be
fully converted pursuant into Common Stock pursuant to Sections 5(a) or 5(b)
by reason of the limitation set forth in Section 5(d) (in either case a
"Conversion Deficiency"), from and after the fifth (5th) day following a
Conversion Deficiency, each holder shall have the right to demand in writing
(a "Redemption Notice") from the Company immediate redemption of any portion
of such holder's Preferred Stock with respect to which the Company does not
have sufficient shares of Common Stock available due to the limitation under
Section 5(d) (which portion shall be determined on a pro rata basis as if all
holders of Preferred Stock had given redemption notices on such date), at a
redemption price per share equal to the greater of (A) the dollar amount
which is the product of (x) the Conversion Rate and (y) the last reported
sales price of the Common Stock on the date when the Redemption Notice was
delivered or (B) 110% of the Stated Value per share of Preferred Stock plus
accrued Premium; PROVIDED, HOWEVER, that no holder may deliver a Redemption
Notice subsequent to receipt by such holder of notice from the Company (sent
by overnight or two-day courier, with a copy sent by facsimile) of
availability of sufficient shares of Common Stock to effect conversion (a
"Post Deficiency Conversion") of all shares of Preferred Stock; PROVIDED,
FURTHER, that such right shall be reinstated if the Company shall thereafter
fail to perfect such Post Deficiency Conversion by delivery of Common Stock
certificates in accordance with the applicable provisions of Section 5(b)
hereof within five business days of delivery of the notice of Post Deficiency
Conversion.
(b) If an Event of Noncompliance shall exist, then each holder of
Preferred Stock may deliver a Redemption Notice to the Company demanding
immediate redemption of any or all of such
<PAGE>
holder's shares of Preferred Stock at a redemption price per share equal to
the greater of (A) the dollar amount which is the product of (x) the
Conversion Rate and (y) the last reported sales price of the Common Stock on
the date when the Redemption Notice was delivered or (B) 110% of the Stated
Value per share of Preferred Stock plus accrued Premium.
(c) If on February 13, 2000, any shares of Preferred Stock cannot
be converted into Common Stock pursuant to Section 5(b) by reason of the
limitation set forth in Section 5(d), the Company shall redeem such remaining
shares at a redemption price per share equal to the greater of (i) 120% of
the Stated Value per share of Preferred Stock plus accrued Premium, or (ii)
the dollar amount which is the product of (x) the Conversion Rate and (y) the
last reported sale price of the Common Stock on such date.
(d) The Corporation shall have the right, in its sole discretion,
upon receipt of a Notice of Conversion pursuant to Section 5(c) or upon an
automatic conversion pursuant to Section 5(b), to redeem any portion of the
accrued Premium subject to such conversion for a sum of cash equal to the
amount of the Premium being so redeemed. All cash redemption payments
hereunder shall be paid in lawful money of the United States of America at
such address for the holder as appears on the books of the Company (or at
such other address as such holder shall hereafter give to the Company by
written notice). In the event the Company elects, pursuant to this Section
6(d), to redeem all or any portion of the Premium in cash and fails to pay
such holder the applicable redemption amount to which such holder is entitled
by depositing a check in the United States mail to such holder within three
(3) business days of receipt by the Company of a Conversion Notice (in the
case of a conversion pursuant to Section 5(a)) or of February 13, 2000 (in
the case of a conversion pursuant to Section 5(b)), the Company shall
thereafter forfeit its right to redeem such Premium in cash and such Premium
shall thereafter by converted into shares of Common Stock in accordance with
Section 5 hereof.
(e) Each holder of Preferred Stock shall have the right to require the
Company to provide advance notice to such holder stating whether the Company
will elect to redeem all or any portion of the Premium in cash pursuant to
the Company's redemption rights discussed in Section 5(d). A holder may
exercise such right from time to time by sending notice (an "Election
Notice") to the Company, by facsimile, requesting that the Company disclose
to such holder whether the Company would elect to redeem any portion of the
Premium for cash in lieu of issuing Common Stock in accordance with Section
5(a). The Company shall, no later than the close of business on the next
business day following receipt of an Election Notice, disclose to such holder
whether the Company would elect to redeem any portion of a Premium in
connection with a conversion pursuant to a Conversion Notice delivered over
the subsequent five (5) business day period. If the Company does not respond
to such holder within such one (1) business day period via facsimile, the
Company shall, with respect to any conversion pursuant to the Conversion
Notice delivered within the subsequent five (5) business day period, forfeit
its right to redeem such Premium in accordance with Section 5(d) and shall be
required to convert such Premium into shares of Common Stock in accordance
with Section 5 hereof.
<PAGE>
SECTION 7. DEFINITIONS.
For the purposes hereof, the following terms shall have the
following meanings:
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of California are authorized or required by law or other government
actions to close.
"Common Stock" means shares now or hereafter authorized of the
class of Common Stock, par value $.10, of the Company and stock of any other
class into which such shares may hereafter have been reclassified or changed.
"Conversion Date" has the meaning given in Section 5(c).
"Conversion Date Market Price" means for each time period set forth
below the average of the Market Price for Shares of Common Stock on the five
(5) trading days immediately preceding the Conversion Date multiplied by the
percentage set forth opposite such time period:
Conversion Date Percentage
--------------- ----------
Prior to May 15, 1997 100.0%
May 15, 1997 through June 13, 1997 85.0%
June 14, 1997 through July 13, 1997 84.0%
July 14, 1997 through August 12, 1997 83.0%
August 13, 1997 through September 11, 1997 82.0%
September 12, 1997 through October 11, 1997 81.0%
On or after October 12, 1997 80.0%
Each percentage set forth in the foregoing table will be reduced by two
percentage points, if the effective date of a registration statement filed
with the Securities and Exchange Commission relating to the resale of the
Common Stock issuable upon conversion of the Preferred Stock occurs on or
after May 15, 1997; by an additional three percentage points (on a pro-rated
basis for each day during such period until effectiveness), if the effective
date of such registration statement occurs after May 15, 1997 and prior to
June 14, 1997; by an additional three percentage points (on a pro-rated
basis for each day during such period until effectiveness), if the effective
date of such registration statement occurs on or after June 14, 1997, and
prior to July 14, 1997; by an additional three percentage points (on a
pro-rated basis for each day during such period until effectiveness), if the
effective date of such registration statement occurs on or after July 14,
1997, and prior to August 12, 1997.
"Conversion Deficiency" has the meaning given in Section 6(a).
"Conversion Rate" means, at any time, a fraction, of which the
numerator is the Stated Value of a share of Preferred Stock plus accrued
Premium for the period from the Original Issue Date of
<PAGE>
such share of Preferred Stock through the Conversion Date, and of which the
denominator is the Conversion Date Market Price at such time.
"Event of Noncompliance" means the occurrence of one or more of the
following events:
(a) The Company shall default (i) in making any redemption of
Preferred Stock as required hereunder or (ii) any payment under
Section 4.1 of an Exchange Agreement; or
(b) Any of the representations of warranties made by the Company
herein, in the Subscription Agreements, in the Exchange
Agreements, or in any certificate or financial or other written
statements of the Company heretofore or hereafter furnished by
or on behalf of the Company in connection with the execution and
delivery of the Subscription Agreements or the Exchange
Agreements shall be false or (when taken together with other
information furnished by or on behalf of the Company, including
Exchange Act Reports) misleading in any material respect at the
time made; or
(c) The Company shall fail to perform or observe any covenant or
agreement in the Subscription Agreements or the Exchange
Agreements, or any other covenant, term, provision, condition,
agreement or obligations of the Company under the terms hereof
and such failure shall continue uncured for a period of ten (10)
business days after notice from any holder of Preferred Stock of
such failure; or
(d) The Company shall (i) become insolvent; (ii) admit in writing
its inability to pay its debts generally as they mature; (iii)
make a general assignment for the benefit of creditors or
commence proceedings for its dissolution; or (iv) apply for or
consent to the appointment of a trustee, liquidator or receiver
for it or for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within forty-
five (45) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody
or control of the whole or any substantial portion of the
properties or assets of the Company and shall not be dismissed
within forty-five (45) days thereafter; or
(g) Any money judgment, writ or warrant of attachment, or similar
process in excess of Five Hundred Thousand Dollars ($500,000) in
the aggregate shall be entered or filed against the Company or
any of its properties or other assets and shall remain unpaid,
unvacated, unbonded and unstayed for a period of forty-five (45)
days or in any event later than ten (10) days prior to the date
of any proposed sale thereunder; or
<PAGE>
(h) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy
law or any law for the relief of debt shall be instituted by or
against the Company and, if instituted against the Company,
shall not be dismissed within forty-five (45) days after such
institution or the Company shall by any action or answer approve
of, consent to, or acquiesce in any such proceedings or admit to
any material allegations of, or default in answering a petition
filed in, any such proceeding; or
(i) If prior to February 13, 2000, trading in the shares of the
Common Stock shall be suspended on the Exchange for a period of
five consecutive trading days, other than as a result of the
suspension of trading in securities in general, or if such
Shares are delisted and not relisted within ten (10) days
thereafter.
(j) If on or prior to February 14, 1998, the Company has not caused
a registration statement relating to the resale of the Common
Stock issuable upon conversion of the Preferred Stock to be
declared effective by the Securities and Exchange Commission.
"Exchange" means the Nasdaq Stock Market.
"Exchange Agreements" means the several Convertible Securities
Exchange Agreements, each dated as of May 15, 1997, between the Company and
each of the original holders of the Preferred Stock.
"Junior Securities" means the Common Stock and all other equity
securities of the Company other than the Preferred Stock.
"Liquidation" has the meaning given in Section 4.
"Market Price for Shares of Common Stock" shall mean the price of
one share of Common Stock determined as follows: (a) if the Common Stock is
listed on the Exchange, the lowest reported sales price on the date of
valuation; or (b) if the Common Stock is listed on a national securities
exchange, the lowest reported sales price on the date of valuation; or (c) if
neither of clauses (a) nor (b) applies but the Common Stock is quoted in the
over-the-counter market on the "pink sheets" or bulletin board, the lesser of
(i) the lowest reported sales price or (ii) the last reported "bid" price on
the date of valuation, or (d) if none of clauses (i), (ii) or (iii) above
applies, the market value as determined by a nationally recognized financial
advisor retained by the Company for such purpose, taking into consideration,
among other factors, the earnings history, book value and prospects for the
Company, and the prices at which shares of Common Stock recently have been
traded.
"Original Issue Date" shall mean the date of the first issuance of
any shares of the Preferred Stock regardless of the number of transfers of
any particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock; PROVIDED,
HOWEVER, that in the case of Preferred Stock issued in exchange for the
Company's 6% Convertible Subordinated Debentures due February 13, 2000, such
term shall mean February 13, 1997.
<PAGE>
"Parity Securities" means any series of the Company's preferred
stock designated as having rights upon Liquidation in parity with the rights
of the holders of the Preferred Stock, the issuance of which was approved by
the holders of a majority interest of each series of the Preferred Stock.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Preferred Stock" has the meaning given in Section 1.
"Redemption Notice" has the meaning given in Section 6(a).
"Stated Value" has the meaning given in Section 1.
"Subscription Agreements" means the several Convertible Securities
Subscription Agreements, each dated as of February 13, 1997, between the
Company and each of the original holders of the Preferred Stock.
<PAGE>
ATTACHMENT 1
(To Be Executed by Registered Holder
in order to Convert Series A Convertible Preferred Stock)
CONVERSION NOTICE
FOR
SERIES A CONVERTIBLE PREFERRED STOCK
The undersigned, as Holder of _______ shares of Series A Convertible
Preferred Stock, represented by certificate No[s]. ____ the ("Preferred Stock"),
hereby irrevocably elects to convert ____________ shares of Preferred Stock and
U.S. $_____ of accrued Premium under the Preferred Stock into shares of Common
Stock, par value $.10 per share (the "Common Stock"), of Zycad Corporation
according Certificate of Designation relating to the Preferred Stock, as of the
date written below. The undersigned hereby requests that share certificates for
the Common Stock to be issued to the undersigned pursuant to this Conversion
Notice be issued in the name of, and delivered to, the undersigned or its
designee as indicated below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any.
The undersigned represents and warrants that, after giving effect to
the shares of the Company's Common Stock to be issued pursuant to this
Conversion Notice, the total number of shares of the Company's Common Stock
deemed beneficially owned by the undersigned, together with all shares of the
Company's Common Stock deemed beneficially owned by the undersigned's
"affiliates" as defined in Rule 144 of the Act, will not exceed 4.9% of the
total issued and outstanding shares of the Company's Common Stock. For purposes
hereof, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, but shall be
determined exclusive of shares of Common Stock issuable upon conversion of the
unconverted portion of the shares of Preferred Stock and the unexercised or
unconverted portion of any other securities of the Company subject to a
limitation on conversion or exercise analogous to the limitation contained
herein.
Accompanying this Conversion Notice is a Conversion Rate Computation
Schedule setting forth the determination by the undersigned of the number of
shares of Common Stock issuable pursuant to this Conversion Notice.
Conversion Information: NAME OF HOLDER:
---------------------------------------
By:
---------------------------------------------------
Print Name:
Print Title:
Print Address of Holder:
------------------------------------------------------
------------------------------------------------------
Issue Common Stock to:--------------------------------
at:---------------------------------------------------
------------------------------------------------------
Date of Conversion
------------------------------------------------------
Application Conversion Rate
-------------------------------------
<PAGE>
CONVERSION RATE COMPUTATION SCHEDULE
MARKET PRICE FOR SHARES OF COMMON STOCK on the five (5) trading days immediately
preceding the date of this Conversion Notice:
Trading Day Low Price
----------- ---------
Conversion Date Market Price:
- ----------------------------
Average of Low Prices listed above: $___________
Applicable percentage thereof: ____________%
Conversion Date Market Price $____________
Stated Value of Shares to be Converted:
- --------------------------------------
plus
Premium to be Converted: $____________
- -----------------------
Divided by Conversion Date
- --------------------------
Market Price per above: _____________
------------
Shares of Common Stock to be
issued on conversion: _____________
_____________
Remaining Shares of Preferred Stock to be Issued
as New Certificate: _____________
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-27283 of Zycad Corporation on Form S-3 of our
reports on the financial statements and financial statement schedule (which
report on the financial statements expresses an unqualified opinion and
includes an explanatory paragraph relating to an uncertainty of the Company's
ability to continue as a going concern), dated March 11, 1997 (April 14, 1997
as to the last paragraph of Note 5 and as to Note 11) appearing in and
incorporated by reference in the Annual Report on Form 10-K of Zycad
Corporation for the year ended December 31, 1996. We also consent to the
reference to us under the heading "Experts" in the Prospectus, which is part
of this Registration Statement.
DELOITTE & TOUCHE LLP
June 5, 1997
San Jose, California
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each such person whose signature
appears below constitutes and appoints Phillips W. Smith his attorney-in-fact
with the power of substitution, for him in any and all capacities, to sign any
amendments to the Registration Statement on Form S-3 of Zycad Corporation to
be filed on May 16, 1997, to sign any amendments to such Registration
Statement (including post-effective amendments), and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
such attorney-in-fact, or his substitutes, may do or cause to be done by
virture hereof.
Signature Title Date
<TABLE>
<S> <C> <C>
/s/ Horst G. Sandfort
- -------------------------
(Horst G. Sandfort) President, GateField Division and Director May 14, 1997
/s/ Benjamin Huberman
- -------------------------
(Benjamin Huberman) Director May 14, 1997
/s/ James R. Fiebiger
- -------------------------
(James R. Fiebiger) Director May 14, 1997
</TABLE>
