<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file number 0-13244
ZYCAD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 41-1404495
(State of incorporation) (I.R.S. Employer Identification No.)
47100 BAYSIDE PARKWAY, FREMONT, CALIFORNIA 94538
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 623-4400
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No .
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
TITLE OF EACH CLASS OUTSTANDING AT APRIL 13, 1997
Common stock, par value $0.10 per share 27,155,967
<PAGE>
ZYCAD CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 2
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and March 31, 1996 3
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and March 31, 1996 4
Notes to Condensed Consolidated Financial Statements, March 31,
1997 5
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 12
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZYCAD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,828 $ 1,703
Short-term investments 100 100
Accounts receivable, less allowance for doubtful
accounts of $1,073 in 1997 and $1,337 in 1996 5,857 12,088
Inventories, net 2,524 2,664
Other current assets 1,187 956
--------- ---------
Total current assets 11,496 17,511
Property and equipment, net 4,864 5,101
Purchased technology, net 2,570 2,776
Other assets 3,530 4,139
--------- ---------
Total assets $ 22,460 $ 29,527
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank financing $ 1,399 $ 3,203
Current portion of long-term obligations 1,060 1,958
Accounts payable 5,083 5,715
Accrued expenses 4,370 5,345
Deferred revenues 2,177 2,530
--------- ---------
Total current liabilities 14,089 18,751
Subordinated convertible debenture notes 6,998 7,342
Long-term obligations 384 719
Other long-term liabilities 138 146
--------- ---------
Total liabilities 21,609 26,958
Commitments and contingencies - -
Stockholders' equity
Preferred stock
$0.10 par value; 2,000,000 shares authorized;
shares issued and outstanding: none - -
Common stock
$0.10 par value; 40,000,000 shares authorized; shares issued
and outstanding: 25,485,926 in 1997 and 23,226,444 in 1996 2,550 2,323
Additional paid-in capital 59,512 55,784
Accumulated translation adjustments (111) (48)
Accumulated deficit (61,100) (55,490)
--------- ---------
Total stockholders' equity 851 2,569
--------- ---------
Total liabilities and stockholders' equity $ 22,460 $ 29,527
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
ZYCAD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Product $ 1,160 $ 3,084
Service 2,924 3,894
--------- ---------
Total revenues 4,084 6,978
--------- ---------
Cost of revenues
Product 1,383 1,235
Service 1,818 2,294
--------- ---------
Total cost of revenues 3,201 3,529
--------- ---------
Gross profit 883 3,449
--------- ---------
Operating expenses
Sales and marketing 3,253 3,298
Research and development 2,666 4,330
General and administrative 507 820
--------- ---------
Total operating expenses 6,426 8,448
--------- ---------
Operating loss (5,543) (4,999)
--------- ---------
Other income (expense)
Interest expense, net (444) (60)
Other income, net 377 42
--------- ---------
Total other expense (67) (18)
--------- ---------
Net loss $ (5,610) $ (5,017)
--------- ---------
--------- ---------
Net loss per share $ (0.22) $ (0.25)
--------- ---------
--------- ---------
Weighted average common shares outstanding 25,258 19,802
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
ZYCAD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(IN THOUSANDS) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (5,610) $ (5,017)
Reconciliation to net cash used in operating activities
Depreciation and amortization 1,115 1,041
Subordinated convertible debt interest capitalized, net 219 -
Collections under capital leases 516 118
Changes in assets and liabilities
Accounts receivable 5,729 2,770
Inventories 140 271
Other assets (86) (465)
Accounts payable and accrued expenses (1,615) 1
Deferred revenues (434) (36)
--------- ---------
Net cash used in operating activities (26) (1,317)
--------- ---------
Investing activities
Property and equipment purchases, net (336) (511)
Capitalized software (150) (300)
Collection of notes receivable - 76
Proceeds from sale of short-term investments - (48)
--------- ---------
Net cash used in investing activities (486) (783)
--------- ---------
Financing activities
Proceeds from issuance of convertible debenture notes, net 3,500 -
Proceeds from sales of common stock 65 139
Bank financing, net (1,804) 1,900
Borrowings under debt obligations - 338
Repayments of debt obligations (1,233) -
--------- ---------
Net cash provided by financing activities 528 2,377
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 109 81
--------- ---------
Net change in cash and cash equivalents 125 358
Cash and cash equivalents, beginning of year 1,703 3,722
--------- ---------
Cash and cash equivalents, end of year $ 1,828 $ 4,080
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information
Noncash activities
Common stock exchanges for convertible debentures $ 4,042 $ -
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
ZYCAD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
March 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
contain all adjustments of a normal recurring nature and certain one-time
charges in the opinion of management are necessary to present fairly the
financial position and results of operations of Zycad Corporation (the
Company). Interim results of operations are not necessarily indicative of
the results to be expected for the full year. The Company's interim fiscal
quarter ended on March 31, 1997 and 1996, respectively. The condensed
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto for the year ended December 31,
1996, included in the Company's 1996 Annual Report on Form 10-K.
2. NET INCOME (LOSS) PER SHARE
Net income per share is computed using the weighted average number of
common shares outstanding during each period, including dilutive common
share equivalents (Common Stock options and warrants).
Net loss per share is computed using the weighted average number of common
shares outstanding. Common share equivalents have not been included in the
net loss per share calculation because the effect would be anti-dilutive.
3. INVENTORIES
Inventories consisted of:
March 31, December 31,
(IN THOUSANDS) 1997 1996
----------------------------------------------------------------
Raw materials and work in process $ 1,410 $ 2,045
Finished goods 1,114 619
-------- ---------
$ 2,524 $ 2,664
-------- ---------
-------- ---------
4. SUBORDINATED CONVERTIBLE DEBENTURES
In anticipation of meeting the Company's 1997 cash requirements, in
February 1997 the Company completed a $3,500,000 private placement with
investors whereby the Company issued 6% Subordinated Convertible
Debentures (the Debentures) and Common Stock Purchase Warrants. The
Debentures accrue interest at an annual rate of 6%, beginning on the
date of issue, with the principal due and payable three years from the
date of issue, if and to the extent that the Debentures are not
previously converted. The Debentures are convertible at the option of
the holder into the Company's Common Stock at a price equal to 78% to
83% of the lowest reported sales price for the Common Stock on the
Nasdaq National Market for the five trading days prior to the date of
conversion. In addition, the investors received warrants to purchase up
to 500,000 additional shares of the Company's stock at $2.25 per share,
subject to certain conditions. On May 15, 1997, the Debentures were
converted into 100,000 shares of the Company's Convertible Preferred
Stock having an aggregate stated value of $3,500,000 and warrants to
purchase Convertible Preferred Stock having an aggregate stated value of
$1,500,000. Discount expense relating to the Subordinated Convertible
Debentures and the Convertible Preferred Stock is approximately
$875,000. At March 31, 1997, subordinated convertible debt interest
capitalized was $219,000.
5
<PAGE>
5. RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings per
Share". The Company is required to adopt SFAS No. 128 in the fourth
quarter of fiscal 1997 and will restate at that time earnings per share
(EPS) data for prior periods to conform with SFAS No. 128. Earlier
application is not permitted.
SFAS No. 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes dilution
and is computed by dividing net income available to common stockholders by
the weighted average of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock. Common share equivalents are not included in the diluted EPS
calculation where they are anti-dilutive.
Earnings or net loss per share under SFAS No. 128 would not have been
significantly different than the net loss per share currently reported for
the periods.
6. SUBSEQUENT EVENTS
DISPOSITION OF THE LIGHTSPEED PRODUCT FAMILY
On April 15, 1997, Zycad Corporation agreed to sell its technology
relating to its LightSpeed product family to IKOS Systems, Inc. (IKOS).
The purchase price was $5,000,000 and under the terms of the agreement,
IKOS paid $2,500,000 to Zycad upon execution of the agreement. An
additional $2,500,000 will be paid out upon completion of customer
transition milestones. The agreement called for IKOS to buy all of the
software and hardware simulation technology related to the LightSpeed
product, and for Zycad to promote IKOS' logic verification products to
its customers. Both companies will work closely to develop a product
transition program for Zycad's current logic simulation customers and
IKOS' Voyager Fault Simulation customers. Zycad will retain its fault
simulation products in addition to its GateField division. Information
contained in the April 15, 1997 press release shown as Item 7, Exhibit
20.01 on the Company's Form 8-K filed on April 30, 1997 further
describes the LightSpeed product family.
SALE OF QUALITY SYSTEMS SOFTWARE, INC.
In January 1996, Zycad Corporation (the Company) and Quality Systems
Software, Ltd. (QSS Ltd.), a U.K. company and owner of the DOORS
technology, established a joint venture, QSS Inc., to continue the
distribution operations of the DOORS technology and other products in
the North American market. In January 1997, QSS Inc. was restructured
so that QSS Ltd. became a subsidiary of QSS Inc. The Company's
ownership as a result of the QSS Inc. restructuring became 22% or
approximately 2,420,000 shares. On April 14, 1997, the Company signed
an agreement to sell its ownership in QSS Inc. for $3,500,000 cash.
The agreement was approved and finalized by the QSS Board of
Directors' on May 12, 1997. The Company received full payment on May
13, 1997.
CONVERSION OF $3.5 MILLION OF SUBORDINATED CONVERTIBLE DEBENTURES TO
PREFERRED STOCK
In anticipation of meeting the Company's 1997 cash requirements, in
February 1997, the Company completed a $3,500,000 private placement with
investors whereby the Company issued 6% Subordinated Convertible
Debentures (the Debentures) and Common Stock Purchase Warrants. On May
15, 1997, the Debentures were converted into approximately 100,000
shares of the Company's Convertible Preferred Stock having an aggregate
stated value of $3,500,000 and warrants to purchase Convertible
Preferred Stock having an aggregate stated value of $1,500,000. The
Convertible Preferred Stock is convertible at the option of the
stockholder (subject to certain maximum share limitations) into the
Company's Common Stock at a price equal to 78% to 83% of the average low
trade price for the Common Stock on the Nasdaq National Market for the
five days prior to the date of conversion. Discount expense relating to
the Subordinated Convertible Debentures and the Convertible Preferred
Stock is approximately $875,000 and will be amortized over the first six
month of 1997. At March 31, 1997, the Company recorded $219,000 of
subordinated convertible debenture interest expense.
6
<PAGE>
CONVERSION OF $10.0 MILLION OF SUBORDINATED CONVERTIBLE DEBENTURES
In May 1996, the Company sold a total of $10,000,000 of Subordinated
Convertible Debentures to institutional investors as part of a private
placement. The Debentures accrue interest at an annual rate of 6%,
beginning on the date of issue, with the principal due and payable three
years from the date of issue, if and to the extent that the Debentures
are not previously converted. The Debentures are convertible at the
option of the noteholders (subject to the maximum share limitations set
forth below) into Common Stock at a price equal to 80% to 85% of the
average closing bid price for the Common Stock on the Nasdaq National
Market for the five trading days prior to the date of conversion. In
addition, the investors received warrants to purchase up to 100,000
additional shares of the Company's Common Stock at $10.00 per share,
subject to certain conditions. In April and May 1997, an additional
$1,100,000 of original principal amount and $300,000 of accrued interest
was converted into approximately 1,656,000 shares of the Company's
Common Stock.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the
Company's Form 10-K for the year ended December 31, 1996, under the caption,
"Business".
RESULTS OF OPERATIONS
REVENUES Total revenues for the quarter ended March 31, 1997 were $4.1
million compared to $7.0 million for the quarter ended March 31, 1996, a
decrease of 43%. Product revenues for the quarter ended March 31, 1997
were $1.2 million compared to $3.1 million for the quarter ended March
31, 1996, a decrease of 61%. The decrease in product revenues was
primarily due to decreased shipments of the Company's accelerator
product family. Service revenues for the quarter ended March 31, 1997
were $2.9 million compared to $3.9 million for the quarter ended March
31, 1996, a decrease of 26%. This decrease in service revenues during
the first three months of 1997 is attributable to reduced maintenance
revenues related to older generation accelerator products.
GROSS PROFIT
Total gross profit was $0.9 million compared to $3.4 million for the three
months ended March 31, 1997 and 1996, respectively. The loss from product
revenues at the gross margin level was $0.2 million for the three months ended
March 31, 1997. Gross profit from product revenues was $1.8 million for the
three months ended March 31, 1996. This decrease in gross profit from product
revenues in 1997 as compared to 1996 was primarily due to decreased product
revenues that are required to compensate for fixed overhead expenses during the
same period. Gross profit from service revenues was $1.1 million, or 38%, for
the three months ended March 31, 1997 compared to $1.6 million, or 41%, for the
three months ended March 31, 1996. The decrease in gross profit from service
revenues in 1997 as compared to 1996 in both dollars and percentage was
primarily due to decreased service revenues.
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses were $3.3 million for both the first quarters of
1997 and 1996, respectively, which represents 80% of total revenues in 1997 and
47% of total revenues in 1996. The increase in sales and marketing expenses as
a percentage of total revenues in 1997 as compared to 1996 is primarily due to
decreased revenues in 1997.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased to $2.7 million for the three months
ended March 31, 1997 compared to $4.3 million during the three months ended
March 31, 1996. This decrease in 1997 as compared to 1996 is mainly due to
decreased staffing levels in 1997 as projects and activities associated with the
development and introduction of LightSpeed were not continued into 1997.
Additionally, research and development expenses related to the development of
high density FPGA products decreased in 1997 as product moved into
the production mode.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended March 31, 1997
and 1996 were $0.5 million and $0.8 million, respectively. The decrease in
expenses for the first quarter of 1997 was primarily related to the decreased
staffing level in 1997 as compared to 1996.
OTHER INCOME AND EXPENSES
Interest expense was $0.4 million for the first quarter of 1997 compared to $0.1
million for the first quarter of 1996. The increase in 1997 as compared to 1996
was primarily due to $0.5 million of interest expense related to the
Subordinated Convertible Debentures, partially offset by a translation exchange
gain of $0.2 million recorded in the first quarter of 1997. See Note 4 of Notes
to Condensed Consolidated Financial Statements.
8
<PAGE>
FACTORS AFFECTING FUTURE RESULTS
The Company continues to seek improvement in operating results through
introduction of new products, including verification tools and FPGA products.
However, there can be no assurance that the Company will be successful in its
efforts. In the future, the Company's operating results may be impacted by a
number of factors, including cancellation or delays of customer orders,
interruption or delays in the supply of key components, changes in customer base
or product mix, seasonal patterns of capital spending by customers, new product
announcements by the Company or its competitors, pricing pressures and changes
in general economic conditions. Historically, a significant portion of the
Company's shipments have been made in the last month of each quarter. As a
result, a shortfall in revenue compared to expectation may not evidence itself
until late in the quarter. Additionally, the timing of expenditures for research
and development activities and sales and marketing programs, as well as the
timing of orders by major customers, may cause operating results to fluctuate
between quarters and between years.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically used internally generated funds, public and
private offerings of common stock, sale and leaseback arrangements and bank
financing and credit lines to finance its business. Cash used in operations
was $26,000 in the first three months of 1997 compared to cash used in
operations of $1.3 million for the first three months of 1996. This decrease
in cash used in operations in 1997 compared to 1996 was primarily due to a
decrease in accounts receivable and an increase in accounts payable,
partially offset by the net loss and an increase in inventories. Net cash
used in investing activities was $0.5 million at March 31, 1997 compared to
$0.8 million at March 31, 1996. This decrease in net cash used for
investment is primarily due to reduced levels of capital equipment purchases
as well as reduced levels internally capitalized software. Net cash provided
by financing activities was $0.5 million in the first three months of 1997,
compared to $2.4 million for the same three month period in 1996. This
decrease in 1997 as compared to 1996 is primarily due to higher levels of
repayments of debt obligation and bank financing agreements.
At March 31, 1997 the Company had cash and cash equivalents of $1.8 million and
a working capital deficit of $(2.6) million. The Company has a $5.0 million
revolving credit facility that bears interest at the bank's prime rate
(currently 9.0%) plus 2.25%, which expires on January 31, 1999, of which $1.4
million was outstanding at March 31, 1997. This line of credit allows for the
use of substantially all of the Company's tangible assets as collateral. The
Company continues to work with certain vendors to facilitate extended trade
terms, thus reducing the Company's immediate cash requirements to meet
established payments and other normal, recurring period expenses.
At December 31, 1996, the Company was not in compliance with the requirement
of the Nasdaq Stock Market (NASD) 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 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 and any such decision
is subject to a review for a period of 45 days from May 8, 1997. Although
the Company believes that it can continue to comply with the NASD 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 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.
The Company continues to work on attaining revenue projections through 1997 and
by relying on the new credit line, together with sources of additional liquidity
such as private or public offerings, equipment lease lines and the sale of
certain company assets, the Company expects to meet short-term liquidity needs.
Should additional funding be required, however, there can be no assurance that
such funding will be available on acceptable terms as and when required by the
Company.
9
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 4.9 Convertible Securities Subscription Agreement dated February 13,
1997 between Zycad Corporation and Halifax Fund, L.P.
Exhibit 4.10 Convertible Securities Subscription Agreement dated February 13,
1997 between Zycad Corporation and Capital Ventures International
Exhibit 4.11 Convertible Securities Subscription Agreement dated February 13,
1997 between Zycad Corporation and Heracles Fund
Exhibit 4.12 Convertible Securities Subscription Agreement dated February 13,
1997 between Zycad Corporation and Joseph A. Umbach
Exhibit 4.13 Convertible Securities Subscription Agreement dated February 13,
1997 between Zycad Corporation and Lewis A. Fraser
Exhibit 4.14 6% Convertible Subordinated Debenture due February 13, 2000
issued to Halifax Fund, L.P.
Exhibit 4.15 6% Convertible Subordinated Debenture due February 13, 2000
issued to Capital Ventures International
Exhibit 4.16 6% Convertible Subordinated Debenture due February 13, 2000
issued to Heracles Fund
Exhibit 4.17 6% Convertible Subordinated Debenture due February 13, 2000
issued to Joseph A. Umbach
Exhibit 4.18 6% Convertible Subordinated Debenture due February 13, 2000
issued to Lewis A. Fraser
Exhibit 4.19 Registration Rights Agreement dated February 13, 1997 between
Zycad Corporation and Halifax Fund, L.P.
Exhibit 4.20 Registration Rights Agreement dated February 13, 1997 between
Zycad Corporation and Capital Ventures International
Exhibit 4.21 Registration Rights Agreement dated February 13, 1997 between
Zycad Corporation and Heracles Fund
Exhibit 4.22 Registration Rights Agreement dated February 13, 1997 between
Zycad Corporation and Joseph A. Umbach
Exhibit 4.23 Registration Rights Agreement dated February 13, 1997 between
Zycad Corporation and Lewis A. Fraser
Exhibit 4.24 Common Stock Purchase Warrant dated February 13, 1997 between
Zycad Corporation and Halifax Fund, L.P.
Exhibit 4.25 Common Stock Purchase Warrant dated February 13, 1997 between
Zycad Corporation and Capital Ventures International
10
<PAGE>
Exhibit 4.26 Common Stock Purchase Warrant dated February 13, 1997 between
Zycad Corporation and Heracles Fund
Exhibit 4.27 Common Stock Purchase Warrant dated February 13, 1997 between
Zycad Corporation and Joseph A. Umbach
Exhibit 4.28 Common Stock Purchase Warrant dated February 13, 1997 between
Zycad Corporation and Lewis A. Fraser
Exhibit 4.29 Agreement dated March 17, 1997 between Zycad Corporation and
Halifax Fund, L.P., Capital Ventures International, Heracles
Fund, Lewis A. Fraser and Joseph A. Umbach
Exhibit 27.1 Article 5 of Regulation S-X, Financial Data Schedule for Zycad
Corporation for the quarter ended March 31, 1997
(b) Reports on Form 8-K:
Zycad Corporation's Current Report on Form 8-K filed April 30, 1997.
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ZYCAD CORPORATION
/s/ STEPHEN A. FLORY
------------------------------
Stephen A. Flory
Vice President and Chief Financial
Officer
Dated: May 15, 1997
12
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CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
This Convertible Securities Subscription Agreement (the "Agreement") dated as
of February 13, 1997 has been executed by the undersigned (the "Subscriber")
in connection with (a) the sale of 6% Subordinated Convertible Debentures due
February 13, 2000 (the "Debentures") of Zycad Corporation, a Delaware
corporation (the "Company"), convertible into shares of Common Stock, par
value $0.10 per share, (the "Common Stock") of the Company, and (b) the
issuance by the Company of its warrants to purchase up to 500,000 shares of
Common Stock (the "Warrants"). The Company is offering an aggregate amount
of up to $5,000,000 of Debentures, together with the Warrants, at an
aggregate price of $5,000,000 (the "Offering"). The form of the Debentures,
including the terms on which the Debentures may be converted into Common
Stock, is attached hereto as Exhibit A. The form of the Warrants, including
the terms upon which the Warrants may be exercised, is attached hereto as
Exhibit B. The solicitation of this Agreement and, if accepted by the
Company, the offer and sale of the Debentures and the Warrants, are being
made in reliance upon the provisions of Regulation D ("Regulation D")
promulgated by the Securities and Exchange Commission ("SEC") under the
United States Securities Act of 1933, as amended (the "Securities Act") or
upon the provisions of Section 4(2) of the Securities Act. The Debentures,
the Warrants and the Common Stock issuable upon conversion or exercise
thereof are sometimes collectively referred to in this Agreement as the
"Securities." The Common Stock issuable upon conversion of the Debentures is
sometimes referred to as the "Underlying Stock", and the Common Stock
issuable upon the exercise of the Warrants is sometimes referred to as the
"Warrant Stock." The Subscriber wishes to subscribe for, and the Company
wishes to issue, the principal amount of Debentures and the number of
Warrants at the aggregate purchase price set forth in Section 14 and in
accordance with the other terms and conditions of this Agreement. In
consideration of the mutual promises, representations, warranties and
conditions set forth herein, and intending to be legally bounded hereby, the
Company and the Subscriber agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS
1.1 PURCHASE AND SALE OF SECURITIES.
(a) PURCHASE OF DEBENTURES AND WARRANTS. The Subscriber hereby
subscribes for the principal amount of Debentures and for the number of
Warrants and at the aggregate purchase price set forth in Section 14. The
closing of the purchase of such Debentures and Warrants (the "Closing Dates")
shall take place in two (2) separate closings, the first of which is
hereinafter referred to as the "First Closing", and the second of which is
hereinafter referred to as the "Second Closing". Subject to the satisfaction
(or waiver) of the conditions thereto set forth in Section 1.2 and 1.3 below:
(i) at the First Closing, the Company shall issue and sell to the Subscriber,
and the Subscriber shall purchase from the Company, seven-tenths of the
aggregate principal amount of
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Debentures and all of the Warrants which the Subscriber is purchasing
hereunder for consideration equal to seven-tenths of the Purchase Price, and
(ii) at the Second Closing, the Company shall issue and sell to the
Subscriber and the Subscriber shall purchase from the Company the remainder
of the aggregate principal amount of Debentures which the Subscriber is
purchasing hereunder for a price equal to the remainder of the Purchase Price.
(b) FORM OF PAYMENT. On each Closing Date (as defined below), (i)
the Subscriber shall pay the portion of the Purchase Price for the Securities
to be issued and sold at the applicable Closing by wire transfer to the
Company, in accordance with the Company's written instructions, against
delivery of duly executed Debentures and Warrants which the Subscriber is
then purchasing and (ii) the Company shall deliver to Subscriber such
Debentures and Warrants against delivery of such Purchase Price.
(c) CLOSING DATES. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 1.2 and 1.3 below, the date and time
of the issuance and sale of the Debentures and Warrants pursuant to this
Agreement ( the "Closing Dates") shall be (i) in the case of the First
Closing, 12:00 noon Eastern Standard Time on February 13, 1997 ("First
Closing Date"), and (ii) in the case of the Second Closing, 12:00 noon
Eastern Standard Time, three business days following notification of
satisfaction (or waiver) of the condition to such Closing set forth in
Section 1.3(b)(viii) below ("Second Closing Date") (subject, in each case, to
a two (2) business day grace period at either party's option), or, in each
case, at such mutually agreed upon time. Provided however, if pursuant to
Section 6(e) of the Registration Rights Agreement, the Subscriber has the
right (whether or not exercised) to have the Debentures issued at the First
Closing redeemed by the Company, the Subscriber shall no longer be obligated
to, but may at its option exercised in its sole discretion, purchase any part
or all of the remainder of the aggregate principal amount of Debentures
otherwise issuable at the Second Closing.__________
1.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND
SELL THE DEBENTURES AND WARRANTS. The obligation hereunder of the Company to
issue and/or sell the Debentures and Warrants to the Subscriber at each
Closing is subject to the satisfaction, at or before such Closing, of each
of the conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) ACCURACY OF THE SUBSCRIBER'S REPRESENTATION AND WARRANTIES.
The representations and warranties of the Subscriber shall be true and
correct as of the date when made and as of the applicable Closing Date
as though made at each such time.
(b) PERFORMANCE BY THE SUBSCRIBER. The Subscriber shall have
performed, satisfied and complied in all respects with all covenants,
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agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the applicable
Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
(d) PAYMENT OF PURCHASE PRICE. The Subscriber shall have delivered
to the Company that portion of the Purchase Price payable by the
Subscriber at the applicable Closing.
1.3 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SUBSCRIBER TO ACQUIRE
THE DEBENTURES AND WARRANTS. The obligation of Subscriber hereunder to
acquire and pay for the Debentures and Warrants at each of the First Closing
and the Second Closing, as applicable, is subject to the satisfaction, at or
before the Closing Date in respect of such Closing, of each of the following
conditions. Each of these conditions is for Subscriber's sole benefit and may
be waived by Subscriber at any time in its sole discretion.
(a) As to the First Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the First Closing Date as
though made at each such time.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this agreement to be performed, satisfied or
complied with by the Company at or prior to the First Closing.
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
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(iv) ADVERSE CHANGES. Since December 31, 1995, no event which
had or is likely to have a material adverse effect on the Company has
occurred, except as described in the Company's form 10-Q's for the
quarterly periods ended March 31, June 30, September 30, 1996, as well
as the Company's press release of February 5, 1997, a copy of which has
been furnished to the Subscriber.
(v) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
As of the First Closing Date, the trading of the Common Stock shall
not have been suspended by the SEC, the Nasdaq Stock Market (the
"Exchange") or the National Association of Securities Dealers, Inc.
(the "NASD") and the Common Stock shall not have been delisted from
the Exchange.
(vi) THE LEGAL OPINION. The Company shall have delivered to
the Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, in form and substance reasonably
satisfactory to the Subscriber.
(vii) OFFICER'S CERTIFICATE. The Company shall have delivered
to the Subscriber a certificate in substantially the form and substance
of the Officer's Certificate Exhibit which is annexed hereto and hereby
made a part hereof or in such other form and substance as shall be
reasonably satisfactory to the Subscriber, executed in either case by
an executive officer of the Company as of the First Closing Date, to
the effect that all the conditions to the First Closing shall have been
satisfied.
(viii) REGISTRATION RIGHTS AGREEMENT. The Company and the
Subscriber shall have entered into the Registration Rights Agreement
contemplated by Section 4.1.
(ix) IRREVOCABLE LETTER OF INSTRUCTION. The Company shall have
issued to the transfer agent for its Common Stock (and to any
substitute or replacement transfer agent for it's Common Stock
coterminous with the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form and
substance of the Transfer Agent Irrevocable Instruction Exhibit which
is annexed hereto and hereby made a part hereof.
(b) As to the Second Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Second Closing Date as
though made at each such time.
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<PAGE>
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Second Closing.
(iii) ADVERSE CHANGES. Since December 31, 1995, no event which
had or is likely to have a material adverse effect on the Company has
occurred, except as described in the Company's form 10-Q's for the
quarterly periods ended March 31, June 30, September 30, 1996, as well
as the Company's press release of February 5, 1997, a copy of which
has been furnished to the Subscriber.
(iv) NO SUSPENSION OF TRADING OR DELISTING OF COMMON STOCK. As of
the Second Closing Date, the trading of the Common Stock shall not
have been suspended by the SEC, the Exchange or the NASD, and the
Common Stock shall not have been delisted from the Exchange.
(v) THE LEGAL OPINION. The Company shall have delivered to the
Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, dated as of the Second Closing
Date, in form and substance reasonably satisfactory to the Subscriber.
(vi) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Subscriber a certificate in substantially the form and substance
of the Officer's Certificate Exhibit which is annexed hereto and
hereby made a part hereof or in such other form and substance as shall
be reasonably satisfactory to the Subscriber, executed in either case
by an executive officer of the Company as of the Second Closing Date,
to the effect that all the conditions to the Second Closing shall have
been satisfied.
(vii) REGISTRATION STATEMENT. The registration statement filed by
the Company pursuant to Section 2 of the Registration Rights Agreement
covering the resale of the Registrable Securities (as defined in the
Registration Rights Agreement) underlying (i) the Debentures issued at
the First Closing and to be issued at the Second Closing and (ii) the
Warrants issued at the First Closing (the "Registration Statement")
shall be effective, and no stop order shall have been issued in
respect thereof and the registration statement and use of the related
prospectus have not been suspended and there is no reason or basis for
such suspension in either case pursuant to Section 8 of the
Registration Rights Agreement.
(viii) FORM OF DEBENTURE. The form of Debenture to be executed
and delivered on the Second Closing Date pursuant to this Agreement
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<PAGE>
shall be in the same form and substance as the Debentures issued at
the First Closing, but dated as at the Second Closing Date, completed
to reflect the appropriate principal amounts thereof, and otherwise
amended only to reflect adjustments to the Applicable Percentages (as
defined in the Debentures) pursuant to the Registration Rights
Agreement prior to the Second Closing Date, as though such Debentures
had been issued on the First Closing Date.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
The Subscriber represents and warrants to the Company that:
2.1 NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Subscriber understands
that no United States federal or state agency or similar agency of any other
country, has passed upon or made any recommendation or endorsement of the
Company or the offering of the Securities.
2.2 INTENT. The Subscriber is purchasing the Securities for its own
account and not with a view towards distribution and the Subscriber has no
present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by
making the representations herein, the Subscriber does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with federal and state
securities laws applicable to such disposition. The Subscriber understands
that the Securities must be held indefinitely unless such Securities are
subsequently registered under the Securities Act of 1933 or an exemption from
registration is available. The Subscriber has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
2.3 SOPHISTICATED INVESTOR. The Subscriber is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D promulgated under the
Securities Act ("Regulation D")) and an accredited investor (as defined in
Rule 501 of Regulation D), and Subscriber has such experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in Securities. The Subscriber acknowledges that the Securities
are speculative and involve a high degree of risk.
2.4 INDEPENDENT INVESTIGATION. The Subscriber, in making its decision to
purchase the Securities subscribed for hereunder, has relied upon an independent
investigation made by it and/or its representatives and has not relied /^/ on
any oral or written representations or assurances from the Company or any
representative or agent of the Company, other than as set forth in this
Agreement, in the public filings of the Company and in the documents described
below. Prior to the date hereof, the Subscriber has been furnished with and has
reviewed the Company's latest proxy statement and Annual Report on Form 10-K
sent to the Company's shareholders and all documents filed by the Company with
the Securities and Exchange Commission (the "Commission")
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<PAGE>
since December 31, 1995, pursuant to sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(excluding preliminary proxy statement filings) (such documents are
collectively referred to in this Agreement as the "Exchange Act Reports").
The Subscriber has had a reasonable opportunity to ask questions of and
receive answers from the Company concerning the Company and the Offering and
has received satisfactory answers to all inquiries it has made with respect
to the Company and the Securities. The Subscriber acknowledges the price and
terms of the Securities offered hereby has been determined by negotiation
based, in part on the market price for the Common Stock, and does not
necessarily bear any relationship to the assets, book value or potential
performance of the Company or any other recognized criteria of value.
2.5 AUTHORITY. This Agreement has been duly authorized and validly
executed, and delivered by the Subscriber and is a valid and binding
agreement enforceable in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally.
2.6 NO LEGAL ADVICE FROM COMPANY. The Subscriber acknowledges that it
has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and tax
advisors. Except for any statements or representations of the Company made
in this Agreement and in the Exchange Act Reports, the Subscriber is relying
solely on such counsel and advisors and not on any statements or
representations of the Company or any of its representative or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
2.7 NO BROKERS. The Subscriber has taken no action which would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the
transactions contemplated hereby, except for dealings with Promethean
Investment Group, L.L.C., whose fees will be paid for by the Subscriber.
2.8 NOT AN AFFILIATE. The Subscriber is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
2.9 RELIANCE ON REPRESENTATIONS AND WARRANTIES. The Subscriber
understands that the Securities are being offered and sold to it in reliance
on specific provisions of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of the Subscriber set forth in this Agreement in order to determine the
applicability of such provisions.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Subscriber that:
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<PAGE>
3.1 COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act of 1934, is in full
compliance with all reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the continued listing of its
common stock, and such common stock is currently listed on the Exchange.
3.2 CURRENT PUBLIC INFORMATION. The Exchange Act Reports are the only
filings made by the Company since December 31, 1995, pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act.
3.3 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN REGARD TO
THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf has conducted any
"directed selling efforts" with respect to the Debentures or the Warrants nor
has the Company conducted any general solicitation (as that term is used in
Regulation D) with respect to any of the Securities, nor have they made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Securities under
the Act.
3.4 VALID ISSUANCE OF DEBENTURES AND CAPITAL STOCK. The Company has an
authorized capitalization consisting of 40,000,000 shares of Common Stock,
par value $0.10 and 2,000,000 shares of Preferred Stock, par value $0.10,
warrant outstanding for 194,500 shares of Common Stock, and stock options
granted to employees as described in the Exchange Act Reports. The Company
has issued and outstanding 25,223,412 shares of Common Stock. None of such
Preferred Stock has been issued or is outstanding. All of the issued shares
of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable; upon issuance of the
Securities, the Securities will be duly and validly issued, fully paid and
non-assessable; the shares of Common Stock issuable upon conversion of the
Debentures and exercise of the Warrants, when issued and delivered in
accordance with the terms of the Debentures and the Warrants respectively,
will be duly and validly issued, fully paid and non-assessable; and the
holders of outstanding Capital Stock of the Company are not and shall not be
entitled to preemptive or other rights afforded by the Company to subscribe
for the capital stock or other securities of the Company as a result of the
sale of the Securities or the issuance of Common Stock upon the conversion or
exercise thereof.
3.5 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on the Subsidiary Exhibit annexed
hereto and hereby made a part hereof. The Company and each such subsidiary,
if any, is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary other
than those in which the
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<PAGE>
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any effect on the business, operations, properties,
prospects, or financial condition of the entity with respect to which such
term is used and which is material and adverse to such entity or to other
entities controlling or controlled by such entity, and/or any condition or
situation which would prohibit or otherwise interfere with the ability of the
entity with respect to which said term is used to enter into and perform its
obligations under this Agreement.
3.6 AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Securities in accordance with the terms hereof and thereof, (ii)
the execution, issuance and delivery of this Agreement, the Debentures and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
Common Stock upon the conversion or exercise thereof, have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement and the Debentures and Warrants constitute,
and upon execution, issuance and delivery thereof the Debentures and Warrants
shall be, valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
3.7 CORPORATE DOCUMENTS. The Company has furnished or made available to
the Subscriber true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Certificate"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
3.8 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Debentures and the Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby, including without limitation the issuance of Common Stock upon the
conversion or exercise thereof, do not and will not (i) result in a violation
of the Company's Certificate of Incorporation or By-Laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company
or any of its subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
federal, state, local or foreign law, rule or
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<PAGE>
regulation, no representation is made herein with respect to any of the same
applicable solely to the Subscriber and not to the Company. The business of
the Company is not being conducted in violation of any law, ordinance or
regulations of any governmental entity, except for possible violations which
either singly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under federal, state or local law, rule
or regulation in the United States to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Securities in accordance with the
terms hereof and thereof (other than any SEC, NASD or state securities
filings which may be required to be made by the Company subsequent to either
the First Closing or the Second Closing, and any registration statement which
may be filed pursuant hereto); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Subscriber herein.
3.9 EXCHANGE ACT REPORTS. The Company has delivered or made available
to the Subscriber true and complete copies of the Exchange Act Reports
(including, without limitation, proxy information and solicitation
materials). The Company has not provided to the Subscriber any information
which, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company but which has not
been so disclosed. As of their respective dates, the Exchange Act Reports
complied in all material respects with the requirements of the Exchange Act
and rules and regulations of the SEC promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
Exchange Act Reports, and none of the Exchange Act Reports contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Exchange
Act Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed
or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
3.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, the date
through which the most recent annual report of the Company on Form 10-K which
has been prepared and filed with the SEC, a copy of which is included in the
Exchange Act Reports, no Material Adverse Effect has occurred or exists with
respect to the Company or its subsidiaries, except as described in the
Company's form 10-Q's for the quarterly
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periods ended March 31, June 30, September 30, 1996 as well as the Company's
press release of February 5, 1997, a copy of which has been furnished to the
Subscriber.
3.11 NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries have
no liabilities or obligations which are material, individually or in the
aggregate, and are not disclosed in the Exchange Act Reports, other than
those incurred in the ordinary course of the Company's or its subsidiaries'
respective businesses since December 31, 1995, and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole.
3.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed.
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
the Securities under the Act.
3.14 NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Subscriber relating to this Agreement for the
transactions contemplated hereby, except for dealings with Promethean
Investment Group, L.L.C., whose fees will be paid for by the Subscriber.
4. COVENANTS OF THE COMPANY
4.1 REGISTRATION RIGHTS. The Company agrees that, at the First Closing,
it will enter into a Registration Rights Agreement with the Subscriber, in
the form and substance of the Registration Rights Agreement Exhibit which is
annexed hereto and hereby made a part hereof.
4.2 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Debentures; and exercise of the Warrants;
provided, however, that the number of shares so reserved shall, except as
hereinafter and in the Debentures provided, shall be 1,750,000 shares,
subject to reduction and increase as hereinafter provided. The number of
shares so reserved may be reduced by the number of shares actually delivered
pursuant to conversion of Debentures or exercise of the Warrants (provided
that in no event shall the number of shares so reserved be less than the
maximum number required to satisfy the remaining conversion rights on the
unconverted Debentures and the remaining exercise
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rights under unexercised Warrants) and the number of shares so reserved shall
be increased to reflect stock splits and stock dividends and distributions.
In the event the number of shares so reserved shall be insufficient for
issuance upon the conversion of the Debentures and exercise of the Warrants,
or if the Holders of the Debentures would at any time upon conversion thereof
be entitled to the issuance of shares of Common Stock in excess of the
limitation in Paragraph 5(d) of the Debentures, then in either case the
Company shall use its best efforts and all due diligence to obtain the
approval by its shareholders of this Subscription Agreement and all
transactions contemplated hereunder, including the authorization of such
additional shares as may be required to issue such shares in excess of the
number so reserved or in excess of such limitation, as the case may be.
4.3 LISTING OF UNDERLYING SHARES. The Company hereby agrees, promptly
following the First Closing of the transactions contemplated by this
Agreement, to take such action to cause the Underlying Stock and the Warrant
Stock to be listed on the Exchange as promptly as possible but no later than
90 days following the First Closing Date. The Company further agrees, if the
Company applies to have the Common Stock traded on any principal stock
exchange or market, it will include in such application the Underlying Stock
and the Warrant Stock and will take such other action as is necessary or
desirable to cause the Underlying Stock and the Warrant Stock to be listed on
such other exchange or market as promptly as possible.
4.4 EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock
to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations
under said Act, and will not take any action or file any document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action under its
control to continue the listing and trading of its Common Stock on the
Exchange and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and the Exchange.
4.5 LEGENDS. The Underlying Stock and the Warrant Stock and
certificates evidencing the same shall, upon the effectiveness of the
Registration Statement be free of legends (except as provided in Section 5.1
below), "stop transfers," so-called, "stock transfer restrictions,"
so-called, or other restrictions.
4.6 CORPORATE EXISTENCE. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
5. LEGENDS
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5.1 LEGENDS. The Company will issue one or more Debentures in the name
of the Subscriber and in such denominations (but no less than $50,000 each)
to be specified by the Subscriber prior to (or from time to time subsequent
to) the Closings. The Debentures, the Warrants, certificates evidencing any
shares of Common Stock issued upon conversion or exercise thereof prior to
the effectiveness of the Registration Statement and, except as hereinafter
provided in this Section 5.1, certificates evidencing shares of Common Stock
issued upon conversion or exercise of the Debentures or Warrants, as the case
may be, after effectiveness of the Registration Statement, will bear the
following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED
FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Prior to the First Closing, the Company will issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer
agent for its Common Stock coterminous with the Company's appointment of any
such substitute or replacement transfer agent) instructions in substantially
the form and substance of the Transfer Agent Irrevocable Instruction Exhibit
which is annexed hereto and hereby made a part hereof. Such instructions
shall be irrevocable by the Company from and after the First Closing or from
and after the issuance thereof to any such substitute or replacement transfer
agent, as the case may be, except as otherwise expressly provided in the
Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the
Common Stock from time to time to issue certificates evidencing Underlying
Stock or Warrant Stock free of the Legend during the following periods and
under the following circumstances and without consultation by the transfer
agent with Company or its counsel and without the need for any further advice
or instruction to the transfer agent by or from the Company or its counsel:
(a) At any time from and after the effectiveness of the
Registration Statement except during a Suspension Period (as defined in
the Registration Rights Agreement):
(i) upon any surrender of one or more Debentures or Warrants
for conversion or exercise into Underlying Stock or Warrant Stock, as
the case may be, to the extent such surrender is accompanied by a
Conversion or Exercise Notice requesting the issuance of certificates
evidencing such Stock free of the Legend and either containing or also
accompanied by representations to the effect that the Holder of the
surrendered Debentures or Warrants intends to effect one or more sales
of
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<PAGE>
such Underlying or Warrant Stock pursuant to and in accordance with
the Registration Statement, including the prospectus delivery
requirements applicable thereto; and
(ii) upon any surrender of one or more certificates
evidencing Underlying Stock or Warrant Stock and which bear the
Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered and containing or also accompanied by representations
by the Holder of the surrendered Stock to the effect of those
described in Section 5.1(a)(i) above; and
(b) At any time from and after the First Closing Date, upon any
surrender of one or more certificates evidencing Underlying Stock or
Warrant Stock and which bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to
replace those surrendered and containing or also accompanied by
representations that (i) the Holder thereof is permitted to dispose thereof
pursuant to Rule 144(k) under the Act or (ii) the Holder intends to effect
the sale or other disposition of such Stock, whether or not pursuant to
the Registration Statement, to a purchaser or purchasers who will not be
subject to the registration requirements of the Act, or (iii) such Holder
is not then subject to such requirements.
In addition, and if applicable, the Company shall reissue the Debentures
and Warrants without the Legend set forth above at such time as (i) the
Holder thereof is permitted to dispose thereof pursuant to Rule 144(k) under
the Act or (ii) the Holder intends to effect a sale thereof to a purchaser or
purchasers who will not be subject to the registration requirements of the
Act, or (iii) the Holder is not then subject to such requirements.
5.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No Legend has been or
shall be placed on the share certificates representing the Securities and no
instructions or "stop transfers," so called, "stock transfer restrictions,"
so called, or other restrictions have been or shall be given to the Company's
transfer agent with respect thereto other than as set forth in this Section 5.
5.3 SUBSCRIBER'S COMPLIANCE. Nothing in this section shall affect in
any way the Subscriber's obligations under and agreement to comply with all
applicable securities laws upon resale of the Securities.
6. OTHER ISSUANCES OF SECURITIES
6.1 OTHER EQUITY OFFERINGS. During the period beginning on the First
Closing Date and expiring 180 calendar days following the effectiveness of
the Registration Statement, the Company will not make any Equity Offerings,
as defined in the
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<PAGE>
Debentures, except for an offering of rights to subscribe for shares of the
Company's Common Stock pursuant to any exemption from the registration
requirements of the Securities Act of 1933, as amended, including without
limitation the exemption provided by Regulations D and S promulgated
thereunder.
7. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL
THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The
parties hereby agree that all actions or proceedings arising directly or
indirectly from or in connection with this Agreement shall, at the option of
either party, be litigated only in the United States District Court for the
Southern District of New York located in New York County, New York. The
parties consent to the jurisdiction and venue of the foregoing courts and
consent that any process or notice of motion or other application to either
of said courts or a judge thereof may be served inside or outside the State
of New York or the Southern District of New York by registered mail, return
receipt requested, directed to the party for which it is intended at its
address set forth in this Agreement (and service so made shall be deemed
complete five (5) days after the same has been posted as aforesaid) or by
personal service or in such other manner as may be permissible under the
rules of said courts.
8. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT
8.1 ASSIGNMENT. Neither this Agreement nor any rights of the Subscriber
hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the
Securities purchased or acquired by the Subscriber hereunder with respect to
the Securities held by such person.
8.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought.
9. PUBLICITY
The Company agrees that it will not disclose, and will not include
in any public announcement, the name of the Subscriber without its consent,
unless and until
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<PAGE>
such disclosure is required by law or applicable regulation, and then only to
the extent of such requirement.
10. NOTICES, ETC.; EXPENSES; INDEMNITY
10.1 NOTICES. Any notice, demand or request required or permitted to be
given by either the Company or the Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or by facsimile, with a hard copy to follow by two day courier
addressed to the parties at the addresses of the parties set forth at the end
of this Agreement or such other address as a party may request by notifying
the other in writing. Copies of all notices to the Subscriber shall be sent
to its designee or representative.
10.2 COSTS AND EXPENSES. The Company shall be responsible for the
Subscriber's costs and expenses (including reasonable attorney's fees)
incurred in entering into this Agreement , but not to exceed $5,000 in the
aggregate for all Subscribers.
10.3 INDEMNIFICATION. Each party shall indemnify the other against any
loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
11. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each
of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
12. SURVIVAL; SEVERABILITY
The representations, warranties, covenants and agreements of the parties
hereto shall survive both the First Closing and the Second Closing. In the
event that any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
13. TITLE AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this
Agreement.
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<PAGE>
14. AMOUNT
The undersigned hereby subscribes for U.S. $1,225,000 in principal amount
of Debentures and Warrants to purchase 175,000 shares of Common Stock and
agrees to pay therefor funds in the amount of One Million Two Hundred Twenty
Five Thousand Dollars (U.S. $1,225,000 ).
The undersigned acknowledges that this subscription shall not be
effective unless accepted by the Company as indicated below.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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<PAGE>
Subscriber's Representative Name of Subscriber:
The Palladin Group
Attn: Andrew Kaplan Halifax Fund, L.P.
By: The Palladin Group, L.P.
Its: Investment Advisor
By /s/ Andrew Kaplan
-------------------------------------
Name: Andrew Kaplan
Title: Vice President
40 West 57th Street #1500
NEW YORK, NY 10019 Date of Subscription: February 13, 1997
______________________________
Address
Place of Execution: U.S.
(212) 698-0515
Telephone Place of Organization or Citizenship:
_______________________________________
(212) 698-0599 Place of Residency and/or Principal Place
of Business:
c/o Citco Fund Services Ltd.,
Corporate Centre,
West Bay Road,
PO Box 31106, SMB,
Grand Cayman, Cayman Islands
(Telephone) _________________________
(Fax) _________________________
Registration Instructions: ____________
(Name) (Please Print) __________________
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AS OF THE 13TH DAY OF
FEBRUARY, 1997.
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
--------------------------------------
Print Name: Phillips W. Smith
-------------------------------
Its: President and Chief Executive Officer
--------------------------------------
ATTEST
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<PAGE>
________________________
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<PAGE>
CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
This Convertible Securities Subscription Agreement (the "Agreement") dated as
of February 13, 1997 has been executed by the undersigned (the "Subscriber")
in connection with (a) the sale of 6% Subordinated Convertible Debentures due
February 13, 2000 (the "Debentures") of Zycad Corporation, a Delaware
corporation (the "Company"), convertible into shares of Common Stock, par
value $0.10 per share, (the "Common Stock") of the Company, and (b) the
issuance by the Company of its warrants to purchase up to 500,000 shares of
Common Stock (the "Warrants"). The Company is offering an aggregate amount
of up to $5,000,000 of Debentures, together with the Warrants, at an
aggregate price of $5,000,000 (the "Offering"). The form of the Debentures,
including the terms on which the Debentures may be converted into Common
Stock, is attached hereto as Exhibit A. The form of the Warrants, including
the terms upon which the Warrants may be exercised, is attached hereto as
Exhibit B. The solicitation of this Agreement and, if accepted by the
Company, the offer and sale of the Debentures and the Warrants, are being
made in reliance upon the provisions of Regulation D ("Regulation D")
promulgated by the Securities and Exchange Commission ("SEC") under the
United States Securities Act of 1933, as amended (the "Securities Act") or
upon the provisions of Section 4(2) of the Securities Act. The Debentures,
the Warrants and the Common Stock issuable upon conversion or exercise
thereof are sometimes collectively referred to in this Agreement as the
"Securities." The Common Stock issuable upon conversion of the Debentures is
sometimes referred to as the "Underlying Stock", and the Common Stock
issuable upon the exercise of the Warrants is sometimes referred to as the
"Warrant Stock." The Subscriber wishes to subscribe for, and the Company
wishes to issue, the principal amount of Debentures and the number of
Warrants at the aggregate purchase price set forth in Section 14 and in
accordance with the other terms and conditions of this Agreement. In
consideration of the mutual promises, representations, warranties and
conditions set forth herein, and intending to be legally bounded hereby, the
Company and the Subscriber agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS
1.1 PURCHASE AND SALE OF SECURITIES.
(a) PURCHASE OF DEBENTURES AND WARRANTS. The Subscriber hereby
subscribes for the principal amount of Debentures and for the number of
Warrants and at the aggregate purchase price set forth in Section 14. The
closing of the purchase of such Debentures and Warrants (the "Closing Dates")
shall take place in two (2) separate closings, the first of which is
hereinafter referred to as the "First Closing", and the second of which is
hereinafter referred to as the "Second Closing". Subject to the satisfaction
(or waiver) of the conditions thereto set forth in Section 1.2 and 1.3 below:
(i) at the First Closing, the Company shall issue and sell to the Subscriber,
and the Subscriber shall purchase from the Company, seven-tenths of the
aggregate principal amount of
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<PAGE>
Debentures and all of the Warrants which the Subscriber is purchasing
hereunder for consideration equal to seven-tenths of the Purchase Price, and
(ii) at the Second Closing, the Company shall issue and sell to the
Subscriber and the Subscriber shall purchase from the Company the remainder
of the aggregate principal amount of Debentures which the Subscriber is
purchasing hereunder for a price equal to the remainder of the Purchase Price.
(b) FORM OF PAYMENT. On each Closing Date (as defined below), (i)
the Subscriber shall pay the portion of the Purchase Price for the Securities
to be issued and sold at the applicable Closing by wire transfer to the
Company, in accordance with the Company's written instructions, against
delivery of duly executed Debentures and Warrants which the Subscriber is
then purchasing and (ii) the Company shall deliver to Subscriber such
Debentures and Warrants against delivery of such Purchase Price.
(c) CLOSING DATES. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 1.2 and 1.3 below, the date and time
of the issuance and sale of the Debentures and Warrants pursuant to this
Agreement ( the "Closing Dates") shall be (i) in the case of the First
Closing, 12:00 noon Eastern Standard Time on February 13, 1997 ("First
Closing Date"), and (ii) in the case of the Second Closing, 12:00 noon
Eastern Standard Time, three business days following notification of
satisfaction (or waiver) of the condition to such Closing set forth in
Section 1.3(b)(viii) below ("Second Closing Date") (subject, in each case, to
a two (2) business day grace period at either party's option), or, in each
case, at such mutually agreed upon time. Provided however, if pursuant to
Section 6(e) of the Registration Rights Agreement, the Subscriber has the
right (whether or not exercised) to have the Debentures issued at the First
Closing redeemed by the Company, the Subscriber shall no longer be obligated
to, but may at its option exercised in its sole discretion, purchase any part
or all of the remainder of the aggregate principal amount of Debentures
otherwise issuable at the Second Closing.__________
1.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND
SELL THE DEBENTURES AND WARRANTS. The obligation hereunder of the Company to
issue and/or sell the Debentures and Warrants to the Subscriber at each
Closing is subject to the satisfaction, at or before such Closing, of each
of the conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) ACCURACY OF THE SUBSCRIBER'S REPRESENTATION AND WARRANTIES.
The representations and warranties of the Subscriber shall be true and
correct as of the date when made and as of the applicable Closing Date
as though made at each such time.
(b) PERFORMANCE BY THE SUBSCRIBER. The Subscriber shall have
performed, satisfied and complied in all respects with all covenants,
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<PAGE>
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the applicable
Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
(d) PAYMENT OF PURCHASE PRICE. The Subscriber shall have delivered
to the Company that portion of the Purchase Price payable by the
Subscriber at the applicable Closing.
1.3 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SUBSCRIBER TO ACQUIRE
THE DEBENTURES AND WARRANTS. The obligation of Subscriber hereunder to
acquire and pay for the Debentures and Warrants at each of the First Closing
and the Second Closing, as applicable, is subject to the satisfaction, at or
before the Closing Date in respect of such Closing, of each of the following
conditions. Each of these conditions is for Subscriber's sole benefit and may
be waived by Subscriber at any time in its sole discretion.
(a) As to the First Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the First Closing Date as
though made at each such time.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this agreement to be performed, satisfied or
complied with by the Company at or prior to the First Closing.
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
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<PAGE>
(iv) ADVERSE CHANGES. Since December 31, 1995, no event which
had or is likely to have a material adverse effect on the Company has
occurred, except as described in the Company's form 10-Q's for the
quarterly periods ended March 31, June 30, September 30, 1996, as well
as the Company's press release of February 5, 1997, a copy of which has
been furnished to the Subscriber.
(v) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
As of the First Closing Date, the trading of the Common Stock shall
not have been suspended by the SEC, the Nasdaq Stock Market (the
"Exchange") or the National Association of Securities Dealers, Inc.
(the "NASD") and the Common Stock shall not have been delisted from
the Exchange.
(vi) THE LEGAL OPINION. The Company shall have delivered to
the Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, in form and substance reasonably
satisfactory to the Subscriber.
(vii) OFFICER'S CERTIFICATE. The Company shall have delivered
to the Subscriber a certificate in substantially the form and substance
of the Officer's Certificate Exhibit which is annexed hereto and hereby
made a part hereof or in such other form and substance as shall be
reasonably satisfactory to the Subscriber, executed in either case by
an executive officer of the Company as of the First Closing Date, to
the effect that all the conditions to the First Closing shall have been
satisfied.
(viii) REGISTRATION RIGHTS AGREEMENT. The Company and the
Subscriber shall have entered into the Registration Rights Agreement
contemplated by Section 4.1.
(ix) IRREVOCABLE LETTER OF INSTRUCTION. The Company shall have
issued to the transfer agent for its Common Stock (and to any
substitute or replacement transfer agent for it's Common Stock
coterminous with the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form and
substance of the Transfer Agent Irrevocable Instruction Exhibit which
is annexed hereto and hereby made a part hereof.
(b) As to the Second Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Second Closing Date as
though made at each such time.
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<PAGE>
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Second Closing.
(iii) ADVERSE CHANGES. Since December 31, 1995, no event which
had or is likely to have a material adverse effect on the Company has
occurred, except as described in the Company's form 10-Q's for the
quarterly periods ended March 31, June 30, September 30, 1996, as well
as the Company's press release of February 5, 1997, a copy of which
has been furnished to the Subscriber.
(iv) NO SUSPENSION OF TRADING OR DELISTING OF COMMON STOCK. As of
the Second Closing Date, the trading of the Common Stock shall not
have been suspended by the SEC, the Exchange or the NASD, and the
Common Stock shall not have been delisted from the Exchange.
(v) THE LEGAL OPINION. The Company shall have delivered to the
Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, dated as of the Second Closing
Date, in form and substance reasonably satisfactory to the Subscriber.
(vi) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Subscriber a certificate in substantially the form and substance
of the Officer's Certificate Exhibit which is annexed hereto and
hereby made a part hereof or in such other form and substance as shall
be reasonably satisfactory to the Subscriber, executed in either case
by an executive officer of the Company as of the Second Closing Date,
to the effect that all the conditions to the Second Closing shall have
been satisfied.
(vii) REGISTRATION STATEMENT. The registration statement filed by
the Company pursuant to Section 2 of the Registration Rights Agreement
covering the resale of the Registrable Securities (as defined in the
Registration Rights Agreement) underlying (i) the Debentures issued at
the First Closing and to be issued at the Second Closing and (ii) the
Warrants issued at the First Closing (the "Registration Statement")
shall be effective, and no stop order shall have been issued in
respect thereof and the registration statement and use of the related
prospectus have not been suspended and there is no reason or basis for
such suspension in either case pursuant to Section 8 of the
Registration Rights Agreement.
(viii) FORM OF DEBENTURE. The form of Debenture to be executed
and delivered on the Second Closing Date pursuant to this Agreement
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<PAGE>
shall be in the same form and substance as the Debentures issued at
the First Closing, but dated as at the Second Closing Date, completed
to reflect the appropriate principal amounts thereof, and otherwise
amended only to reflect adjustments to the Applicable Percentages (as
defined in the Debentures) pursuant to the Registration Rights
Agreement prior to the Second Closing Date, as though such Debentures
had been issued on the First Closing Date.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
The Subscriber represents and warrants to the Company that:
2.1 NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Subscriber understands
that no United States federal or state agency or similar agency of any other
country, has passed upon or made any recommendation or endorsement of the
Company or the offering of the Securities.
2.2 INTENT. The Subscriber is purchasing the Securities for its own
account and not with a view towards distribution and the Subscriber has no
present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by
making the representations herein, the Subscriber does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with federal and state
securities laws applicable to such disposition. The Subscriber understands
that the Securities must be held indefinitely unless such Securities are
subsequently registered under the Securities Act of 1933 or an exemption from
registration is available. The Subscriber has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
2.3 SOPHISTICATED INVESTOR. The Subscriber is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D promulgated under the
Securities Act ("Regulation D")) and an accredited investor (as defined in
Rule 501 of Regulation D), and Subscriber has such experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in Securities. The Subscriber acknowledges that the Securities
are speculative and involve a high degree of risk.
2.4 INDEPENDENT INVESTIGATION. The Subscriber, in making its decision to
purchase the Securities subscribed for hereunder, has relied upon an independent
investigation made by it and/or its representatives and has not relied /^/ on
any oral or written representations or assurances from the Company or any
representative or agent of the Company, other than as set forth in this
Agreement, in the public filings of the Company and in the documents described
below. Prior to the date hereof, the Subscriber has been furnished with and has
reviewed the Company's latest proxy statement and Annual Report on Form 10-K
sent to the Company's shareholders and all documents filed by the Company with
the Securities and Exchange Commission (the "Commission")
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<PAGE>
since December 31, 1995, pursuant to sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(excluding preliminary proxy statement filings) (such documents are
collectively referred to in this Agreement as the "Exchange Act Reports").
The Subscriber has had a reasonable opportunity to ask questions of and
receive answers from the Company concerning the Company and the Offering and
has received satisfactory answers to all inquiries it has made with respect
to the Company and the Securities. The Subscriber acknowledges the price and
terms of the Securities offered hereby has been determined by negotiation
based, in part on the market price for the Common Stock, and does not
necessarily bear any relationship to the assets, book value or potential
performance of the Company or any other recognized criteria of value.
2.5 AUTHORITY. This Agreement has been duly authorized and validly
executed, and delivered by the Subscriber and is a valid and binding
agreement enforceable in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally.
2.6 NO LEGAL ADVICE FROM COMPANY. The Subscriber acknowledges that it
has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and tax
advisors. Except for any statements or representations of the Company made
in this Agreement and in the Exchange Act Reports, the Subscriber is relying
solely on such counsel and advisors and not on any statements or
representations of the Company or any of its representative or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
2.7 NO BROKERS. The Subscriber has taken no action which would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the
transactions contemplated hereby, except for dealings with Promethean
Investment Group, L.L.C., whose fees will be paid for by the Subscriber.
2.8 NOT AN AFFILIATE. The Subscriber is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
2.9 RELIANCE ON REPRESENTATIONS AND WARRANTIES. The Subscriber
understands that the Securities are being offered and sold to it in reliance
on specific provisions of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of the Subscriber set forth in this Agreement in order to determine the
applicability of such provisions.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Subscriber that:
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<PAGE>
3.1 COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act of 1934, is in full
compliance with all reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the continued listing of its
common stock, and such common stock is currently listed on the Exchange.
3.2 CURRENT PUBLIC INFORMATION. The Exchange Act Reports are the only
filings made by the Company since December 31, 1995, pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act.
3.3 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN REGARD TO
THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf has conducted any
"directed selling efforts" with respect to the Debentures or the Warrants nor
has the Company conducted any general solicitation (as that term is used in
Regulation D) with respect to any of the Securities, nor have they made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Securities under
the Act.
3.4 VALID ISSUANCE OF DEBENTURES AND CAPITAL STOCK. The Company has an
authorized capitalization consisting of 40,000,000 shares of Common Stock,
par value $0.10 and 2,000,000 shares of Preferred Stock, par value $0.10,
warrant outstanding for 194,500 shares of Common Stock, and stock options
granted to employees as described in the Exchange Act Reports. The Company
has issued and outstanding 25,223,412 shares of Common Stock. None of such
Preferred Stock has been issued or is outstanding. All of the issued shares
of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable; upon issuance of the
Securities, the Securities will be duly and validly issued, fully paid and
non-assessable; the shares of Common Stock issuable upon conversion of the
Debentures and exercise of the Warrants, when issued and delivered in
accordance with the terms of the Debentures and the Warrants respectively,
will be duly and validly issued, fully paid and non-assessable; and the
holders of outstanding Capital Stock of the Company are not and shall not be
entitled to preemptive or other rights afforded by the Company to subscribe
for the capital stock or other securities of the Company as a result of the
sale of the Securities or the issuance of Common Stock upon the conversion or
exercise thereof.
3.5 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on the Subsidiary Exhibit annexed
hereto and hereby made a part hereof. The Company and each such subsidiary,
if any, is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary other
than those in which the
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<PAGE>
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any effect on the business, operations, properties,
prospects, or financial condition of the entity with respect to which such
term is used and which is material and adverse to such entity or to other
entities controlling or controlled by such entity, and/or any condition or
situation which would prohibit or otherwise interfere with the ability of the
entity with respect to which said term is used to enter into and perform its
obligations under this Agreement.
3.6 AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Securities in accordance with the terms hereof and thereof, (ii)
the execution, issuance and delivery of this Agreement, the Debentures and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
Common Stock upon the conversion or exercise thereof, have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement and the Debentures and Warrants constitute,
and upon execution, issuance and delivery thereof the Debentures and Warrants
shall be, valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
3.7 CORPORATE DOCUMENTS. The Company has furnished or made available to
the Subscriber true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Certificate"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
3.8 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Debentures and the Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby, including without limitation the issuance of Common Stock upon the
conversion or exercise thereof, do not and will not (i) result in a violation
of the Company's Certificate of Incorporation or By-Laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company
or any of its subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
federal, state, local or foreign law, rule or
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regulation, no representation is made herein with respect to any of the same
applicable solely to the Subscriber and not to the Company. The business of
the Company is not being conducted in violation of any law, ordinance or
regulations of any governmental entity, except for possible violations which
either singly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under federal, state or local law, rule
or regulation in the United States to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Securities in accordance with the
terms hereof and thereof (other than any SEC, NASD or state securities
filings which may be required to be made by the Company subsequent to either
the First Closing or the Second Closing, and any registration statement which
may be filed pursuant hereto); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Subscriber herein.
3.9 EXCHANGE ACT REPORTS. The Company has delivered or made available
to the Subscriber true and complete copies of the Exchange Act Reports
(including, without limitation, proxy information and solicitation
materials). The Company has not provided to the Subscriber any information
which, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company but which has not
been so disclosed. As of their respective dates, the Exchange Act Reports
complied in all material respects with the requirements of the Exchange Act
and rules and regulations of the SEC promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
Exchange Act Reports, and none of the Exchange Act Reports contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Exchange
Act Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed
or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
3.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, the date
through which the most recent annual report of the Company on Form 10-K which
has been prepared and filed with the SEC, a copy of which is included in the
Exchange Act Reports, no Material Adverse Effect has occurred or exists with
respect to the Company or its subsidiaries, except as described in the
Company's form 10-Q's for the quarterly
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periods ended March 31, June 30, September 30, 1996 as well as the Company's
press release of February 5, 1997, a copy of which has been furnished to the
Subscriber.
3.11 NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries have
no liabilities or obligations which are material, individually or in the
aggregate, and are not disclosed in the Exchange Act Reports, other than
those incurred in the ordinary course of the Company's or its subsidiaries'
respective businesses since December 31, 1995, and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole.
3.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed.
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
the Securities under the Act.
3.14 NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Subscriber relating to this Agreement for the
transactions contemplated hereby, except for dealings with Promethean
Investment Group, L.L.C., whose fees will be paid for by the Subscriber.
4. COVENANTS OF THE COMPANY
4.1 REGISTRATION RIGHTS. The Company agrees that, at the First Closing,
it will enter into a Registration Rights Agreement with the Subscriber, in
the form and substance of the Registration Rights Agreement Exhibit which is
annexed hereto and hereby made a part hereof.
4.2 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Debentures; and exercise of the Warrants;
provided, however, that the number of shares so reserved shall, except as
hereinafter and in the Debentures provided, shall be 1,750,000 shares,
subject to reduction and increase as hereinafter provided. The number of
shares so reserved may be reduced by the number of shares actually delivered
pursuant to conversion of Debentures or exercise of the Warrants (provided
that in no event shall the number of shares so reserved be less than the
maximum number required to satisfy the remaining conversion rights on the
unconverted Debentures and the remaining exercise
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rights under unexercised Warrants) and the number of shares so reserved shall
be increased to reflect stock splits and stock dividends and distributions.
In the event the number of shares so reserved shall be insufficient for
issuance upon the conversion of the Debentures and exercise of the Warrants,
or if the Holders of the Debentures would at any time upon conversion thereof
be entitled to the issuance of shares of Common Stock in excess of the
limitation in Paragraph 5(d) of the Debentures, then in either case the
Company shall use its best efforts and all due diligence to obtain the
approval by its shareholders of this Subscription Agreement and all
transactions contemplated hereunder, including the authorization of such
additional shares as may be required to issue such shares in excess of the
number so reserved or in excess of such limitation, as the case may be.
4.3 LISTING OF UNDERLYING SHARES. The Company hereby agrees, promptly
following the First Closing of the transactions contemplated by this
Agreement, to take such action to cause the Underlying Stock and the Warrant
Stock to be listed on the Exchange as promptly as possible but no later than
90 days following the First Closing Date. The Company further agrees, if the
Company applies to have the Common Stock traded on any principal stock
exchange or market, it will include in such application the Underlying Stock
and the Warrant Stock and will take such other action as is necessary or
desirable to cause the Underlying Stock and the Warrant Stock to be listed on
such other exchange or market as promptly as possible.
4.4 EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock
to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations
under said Act, and will not take any action or file any document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action under its
control to continue the listing and trading of its Common Stock on the
Exchange and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and the Exchange.
4.5 LEGENDS. The Underlying Stock and the Warrant Stock and
certificates evidencing the same shall, upon the effectiveness of the
Registration Statement be free of legends (except as provided in Section 5.1
below), "stop transfers," so-called, "stock transfer restrictions,"
so-called, or other restrictions.
4.6 CORPORATE EXISTENCE. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
5. LEGENDS
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5.1 LEGENDS. The Company will issue one or more Debentures in the name
of the Subscriber and in such denominations (but no less than $50,000 each)
to be specified by the Subscriber prior to (or from time to time subsequent
to) the Closings. The Debentures, the Warrants, certificates evidencing any
shares of Common Stock issued upon conversion or exercise thereof prior to
the effectiveness of the Registration Statement and, except as hereinafter
provided in this Section 5.1, certificates evidencing shares of Common Stock
issued upon conversion or exercise of the Debentures or Warrants, as the case
may be, after effectiveness of the Registration Statement, will bear the
following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED
FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Prior to the First Closing, the Company will issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer
agent for its Common Stock coterminous with the Company's appointment of any
such substitute or replacement transfer agent) instructions in substantially
the form and substance of the Transfer Agent Irrevocable Instruction Exhibit
which is annexed hereto and hereby made a part hereof. Such instructions
shall be irrevocable by the Company from and after the First Closing or from
and after the issuance thereof to any such substitute or replacement transfer
agent, as the case may be, except as otherwise expressly provided in the
Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the
Common Stock from time to time to issue certificates evidencing Underlying
Stock or Warrant Stock free of the Legend during the following periods and
under the following circumstances and without consultation by the transfer
agent with Company or its counsel and without the need for any further advice
or instruction to the transfer agent by or from the Company or its counsel:
(a) At any time from and after the effectiveness of the
Registration Statement except during a Suspension Period (as defined in
the Registration Rights Agreement):
(i) upon any surrender of one or more Debentures or Warrants
for conversion or exercise into Underlying Stock or Warrant Stock, as
the case may be, to the extent such surrender is accompanied by a
Conversion or Exercise Notice requesting the issuance of certificates
evidencing such Stock free of the Legend and either containing or also
accompanied by representations to the effect that the Holder of the
surrendered Debentures or Warrants intends to effect one or more sales
of
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<PAGE>
such Underlying or Warrant Stock pursuant to and in accordance with
the Registration Statement, including the prospectus delivery
requirements applicable thereto; and
(ii) upon any surrender of one or more certificates
evidencing Underlying Stock or Warrant Stock and which bear the
Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered and containing or also accompanied by representations
by the Holder of the surrendered Stock to the effect of those
described in Section 5.1(a)(i) above; and
(b) At any time from and after the First Closing Date, upon any
surrender of one or more certificates evidencing Underlying Stock or
Warrant Stock and which bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to
replace those surrendered and containing or also accompanied by
representations that (i) the Holder thereof is permitted to dispose thereof
pursuant to Rule 144(k) under the Act or (ii) the Holder intends to effect
the sale or other disposition of such Stock, whether or not pursuant to
the Registration Statement, to a purchaser or purchasers who will not be
subject to the registration requirements of the Act, or (iii) such Holder
is not then subject to such requirements.
In addition, and if applicable, the Company shall reissue the Debentures
and Warrants without the Legend set forth above at such time as (i) the
Holder thereof is permitted to dispose thereof pursuant to Rule 144(k) under
the Act or (ii) the Holder intends to effect a sale thereof to a purchaser or
purchasers who will not be subject to the registration requirements of the
Act, or (iii) the Holder is not then subject to such requirements.
5.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No Legend has been or
shall be placed on the share certificates representing the Securities and no
instructions or "stop transfers," so called, "stock transfer restrictions,"
so called, or other restrictions have been or shall be given to the Company's
transfer agent with respect thereto other than as set forth in this Section 5.
5.3 SUBSCRIBER'S COMPLIANCE. Nothing in this section shall affect in
any way the Subscriber's obligations under and agreement to comply with all
applicable securities laws upon resale of the Securities.
6. OTHER ISSUANCES OF SECURITIES
6.1 OTHER EQUITY OFFERINGS. During the period beginning on the First
Closing Date and expiring 180 calendar days following the effectiveness of
the Registration Statement, the Company will not make any Equity Offerings,
as defined in the
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<PAGE>
Debentures, except for an offering of rights to subscribe for shares of the
Company's Common Stock pursuant to any exemption from the registration
requirements of the Securities Act of 1933, as amended, including without
limitation the exemption provided by Regulations D and S promulgated
thereunder.
7. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL
THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The
parties hereby agree that all actions or proceedings arising directly or
indirectly from or in connection with this Agreement shall, at the option of
either party, be litigated only in the United States District Court for the
Southern District of New York located in New York County, New York. The
parties consent to the jurisdiction and venue of the foregoing courts and
consent that any process or notice of motion or other application to either
of said courts or a judge thereof may be served inside or outside the State
of New York or the Southern District of New York by registered mail, return
receipt requested, directed to the party for which it is intended at its
address set forth in this Agreement (and service so made shall be deemed
complete five (5) days after the same has been posted as aforesaid) or by
personal service or in such other manner as may be permissible under the
rules of said courts.
8. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT
8.1 ASSIGNMENT. Neither this Agreement nor any rights of the Subscriber
hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the
Securities purchased or acquired by the Subscriber hereunder with respect to
the Securities held by such person.
8.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought.
9. PUBLICITY
The Company agrees that it will not disclose, and will not include
in any public announcement, the name of the Subscriber without its consent,
unless and until
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such disclosure is required by law or applicable regulation, and then only to
the extent of such requirement.
10. NOTICES, ETC.; EXPENSES; INDEMNITY
10.1 NOTICES. Any notice, demand or request required or permitted to be
given by either the Company or the Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or by facsimile, with a hard copy to follow by two day courier
addressed to the parties at the addresses of the parties set forth at the end
of this Agreement or such other address as a party may request by notifying
the other in writing. Copies of all notices to the Subscriber shall be sent
to its designee or representative.
10.2 COSTS AND EXPENSES. The Company shall be responsible for the
Subscriber's costs and expenses (including reasonable attorney's fees)
incurred in entering into this Agreement , but not to exceed $5,000 in the
aggregate for all Subscribers.
10.3 INDEMNIFICATION. Each party shall indemnify the other against any
loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
11. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each
of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
12. SURVIVAL; SEVERABILITY
The representations, warranties, covenants and agreements of the parties
hereto shall survive both the First Closing and the Second Closing. In the
event that any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
13. TITLE AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this
Agreement.
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<PAGE>
14. AMOUNT
The undersigned hereby subscribes for U.S. $1,750,000 in principal amount
of Debentures and Warrants to purchase 175,000 shares of Common Stock and
agrees to pay therefor funds in the amount of One Million, Seven Hundred
Fifty Thousand Dollars (U.S. $1,750,000 ).
The undersigned acknowledges that this subscription shall not be
effective unless accepted by the Company as indicated below.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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<PAGE>
Subscriber's Representative Name of Subscriber:
Bala International
Capital Ventures International
By: Bala International Inc. as agent
By /s/ Andrew Frost
-------------------------------------
Name: Andrew Frost
Title: Director
401 City Avenue
Bala, Cynwyd, PA 19004 Date of Subscription: February 13, 1997
______________________________
Address
Place of Execution: U.S.
(610) 617-2705
______________________________ Place of Organization or Citizenship:
Telephone _______________________________________
Place of Residency and/or Principal Place
of Business:
c/o Bala International Inc.
401 City Avenue
Bala Cynwyd, PA 19004
(Telephone) _________________________
(Fax) _________________________
Registration Instructions: ____________
(Name) (Please Print) __________________
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AS OF THE 13TH DAY OF
FEBRUARY, 1997.
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
--------------------------------------
Print Name: Phillips W. Smith
-------------------------------
Its: President and Chief Executive Officer
--------------------------------------
ATTEST
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________________________
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CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
This Convertible Securities Subscription Agreement (the "Agreement")
dated as of February 13, 1997 has been executed by the undersigned (the
"Subscriber") in connection with (a) the sale of 6% Subordinated Convertible
Debentures due February 13, 2000 (the "Debentures") of Zycad Corporation, a
Delaware corporation (the "Company"), convertible into shares of Common Stock,
par value $0.10 per share, (the "Common Stock") of the Company, and (b) the
issuance by the Company of its warrants to purchase up to 500,000 shares of
Common Stock (the "Warrants"). The Company is offering an aggregate amount
of up to $5,000,000 of Debentures, together with the Warrants, at an
aggregate price of $5,000,000 (the "Offering"). The form of the Debentures,
including the terms on which the Debentures may be converted into Common
Stock, is attached hereto as Exhibit A. The form of the Warrants, including
the terms upon which the Warrants may be exercised, is attached hereto as
Exhibit B. The solicitation of this Agreement and, if accepted by the
Company, the offer and sale of the Debentures and the Warrants, are being
made in reliance upon the provisions of Regulation D ("Regulation D")
promulgated by the Securities and Exchange Commission ("SEC") under the
United States Securities Act of 1933, as amended (the "Securities Act") or
upon the provisions of Section 4(2) of the Securities Act. The Debentures,
the Warrants and the Common Stock issuable upon conversion or exercise
thereof are sometimes collectively referred to in this Agreement as the
"Securities." The Common Stock issuable upon conversion of the Debentures
is sometimes referred to as the "Underlying Stock", and the Common Stock
issuable upon the exercise of the Warrants is sometimes referred to as the
"Warrant Stock." The Subscriber wishes to subscribe for, and the Company
wishes to issue, the principal amount of Debentures and the number of
Warrants at the aggregate purchase price set forth in Section 14 and in
accordance with the other terms and conditions of this Agreement. In
consideration of the mutual promises, representations, warranties and
conditions set forth herein, and intending to be legally bounded hereby, the
Company and the Subscriber agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS
1.1 PURCHASE AND SALE OF SECURITIES.
(a) PURCHASE OF DEBENTURES AND WARRANTS. The Subscriber hereby
subscribes for the principal amount of Debentures and for the number of Warrants
and at the aggregate purchase price set forth in Section 14. The closing of the
purchase of such Debentures and Warrants (the "Closing Dates") shall take place
in two (2) separate closings, the first of which is hereinafter referred to as
the "First Closing", and the second of which is hereinafter referred to as the
"Second Closing". Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 1.2 and 1.3 below: (i) at the First Closing, the
Company shall issue and sell to the Subscriber, and the Subscriber shall
purchase from the Company, seven-tenths of the aggregate principal amount of
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<PAGE>
Debentures and all of the Warrants which the Subscriber is purchasing hereunder
for consideration equal to seven-tenths of the Purchase Price, and (ii) at the
Second Closing, the Company shall issue and sell to the Subscriber and the
Subscriber shall purchase from the Company the remainder of the aggregate
principal amount of Debentures which the Subscriber is purchasing hereunder for
a price equal to the remainder of the Purchase Price.
(b) FORM OF PAYMENT. On each Closing Date (as defined below), (i)
the Subscriber shall pay the portion of the Purchase Price for the Securities to
be issued and sold at the applicable Closing by wire transfer to the Company, in
accordance with the Company's written instructions, against delivery of duly
executed Debentures and Warrants which the Subscriber is then purchasing and
(ii) the Company shall deliver to Subscriber such Debentures and Warrants
against delivery of such Purchase Price.
(c) CLOSING DATES. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 1.2 and 1.3 below, the date and time of
the issuance and sale of the Debentures and Warrants pursuant to this Agreement
( the "Closing Dates") shall be (i) in the case of the First Closing, 12:00 noon
Eastern Standard Time on February 13, 1997 ("First Closing Date"), and (ii) in
the case of the Second Closing, 12:00 noon Eastern Standard Time, three business
days following notification of satisfaction (or waiver) of the condition to such
Closing set forth in Section 1.3(b)(viii) below ("Second Closing Date")
(subject, in each case, to a two (2) business day grace period at either party's
option), or, in each case, at such mutually agreed upon time. Provided however,
if pursuant to Section 6(e) of the Registration Rights Agreement, the Subscriber
has the right (whether or not exercised) to have the Debentures issued at the
First Closing redeemed by the Company, the Subscriber shall no longer be
obligated to, but may at its option exercised in its sole discretion, purchase
any part or all of the remainder of the aggregate principal amount of Debentures
otherwise issuable at the Second Closing. ____________
1.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND
SELL THE DEBENTURES AND WARRANTS. The obligation hereunder of the Company to
issue and/or sell the Debentures and Warrants to the Subscriber at each Closing
is subject to the satisfaction, at or before such Closing, of each of the
conditions set forth below. These conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion.
(a) ACCURACY OF THE SUBSCRIBER'S REPRESENTATION AND WARRANTIES. The
representations and warranties of the Subscriber shall be true and
correct as of the date when made and as of the applicable Closing Date
as though made at each such time.
(b) PERFORMANCE BY THE SUBSCRIBER. The Subscriber shall have
performed, satisfied and complied in all respects with all covenants,
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agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
applicable Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
(d) PAYMENT OF PURCHASE PRICE. The Subscriber shall have delivered
to the Company that portion of the Purchase Price payable by the
Subscriber at the applicable Closing.
1.3 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SUBSCRIBER TO ACQUIRE
THE DEBENTURES AND WARRANTS. The obligation of Subscriber hereunder to acquire
and pay for the Debentures and Warrants at each of the First Closing and the
Second Closing, as applicable, is subject to the satisfaction, at or before the
Closing Date in respect of such Closing, of each of the following conditions.
Each of these conditions is for Subscriber's sole benefit and may be waived by
Subscriber at any time in its sole discretion.
(a) As to the First Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the First Closing Date as
though made at each such time.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this agreement to be performed, satisfied or
complied with by the Company at or prior to the First Closing.
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
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(iv) ADVERSE CHANGES. Since December 31, 1995, no event which
had or is likely to have a material adverse effect on the Company has
occurred, except as described in the Company's form 10-Q's for the
quarterly periods ended March 31, June 30, September 30, 1996, as well
as the Company's press release of February 5, 1997, a copy of which
has been furnished to the Subscriber.
(v) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
As of the First Closing Date, the trading of the Common Stock shall
not have been suspended by the SEC, the Nasdaq Stock Market (the
"Exchange") or the National Association of Securities Dealers, Inc.
(the "NASD") and the Common Stock shall not have been delisted from
the Exchange.
(vi) THE LEGAL OPINION. The Company shall have delivered to the
Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, in form and substance reasonably
satisfactory to the Subscriber.
(vii) OFFICER'S CERTIFICATE. The Company shall have
delivered to the Subscriber a certificate in substantially the form
and substance of the Officer's Certificate Exhibit which is annexed
hereto and hereby made a part hereof or in such other form and
substance as shall be reasonably satisfactory to the Subscriber,
executed in either case by an executive officer of the Company as of
the First Closing Date, to the effect that all the conditions to the
First Closing shall have been satisfied.
(viii) REGISTRATION RIGHTS AGREEMENT. The Company and the
Subscriber shall have entered into the Registration Rights Agreement
contemplated by Section 4.1.
(ix) IRREVOCABLE LETTER OF INSTRUCTION. The Company shall have
issued to the transfer agent for its Common Stock (and to any
substitute or replacement transfer agent for it's Common Stock
coterminous with the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form and
substance of the Transfer Agent Irrevocable Instruction Exhibit which
is annexed hereto and hereby made a part hereof.
(b) As to the Second Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Second Closing Date as
though made at each such time.
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(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Second Closing.
(iii) ADVERSE CHANGES. Since December 31, 1995, no event
which had or is likely to have a material adverse effect on the
Company has occurred, except as described in the Company's form 10-Q's
for the quarterly periods ended March 31, June 30, September 30, 1996,
as well as the Company's press release of February 5, 1997, a copy of
which has been furnished to the Subscriber.
(iv) NO SUSPENSION OF TRADING OR DELISTING OF COMMON STOCK. As
of the Second Closing Date, the trading of the Common Stock shall not
have been suspended by the SEC, the Exchange or the NASD, and the
Common Stock shall not have been delisted from the Exchange.
(v) THE LEGAL OPINION. The Company shall have delivered to the
Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, dated as of the Second Closing
Date, in form and substance reasonably satisfactory to the Subscriber.
(vi) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Subscriber a certificate in substantially the form and substance
of the Officer's Certificate Exhibit which is annexed hereto and
hereby made a part hereof or in such other form and substance as shall
be reasonably satisfactory to the Subscriber, executed in either case
by an executive officer of the Company as of the Second Closing Date,
to the effect that all the conditions to the Second Closing shall have
been satisfied.
(vii) REGISTRATION STATEMENT. The registration statement
filed by the Company pursuant to Section 2 of the Registration Rights
Agreement covering the resale of the Registrable Securities (as
defined in the Registration Rights Agreement) underlying (i) the
Debentures issued at the First Closing and to be issued at the Second
Closing and (ii) the Warrants issued at the First Closing (the
"Registration Statement") shall be effective, and no stop order shall
have been issued in respect thereof and the registration statement
and use of the related prospectus have not been suspended and there is
no reason or basis for such suspension in either case pursuant to
Section 8 of the Registration Rights Agreement.
(viii) FORM OF DEBENTURE. The form of Debenture to be
executed and delivered on the Second Closing Date pursuant to this
Agreement
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shall be in the same form and substance as the Debentures
issued at the First Closing, but dated as at the Second Closing Date,
completed to reflect the appropriate principal amounts thereof, and
otherwise amended only to reflect adjustments to the Applicable
Percentages (as defined in the Debentures) pursuant to the
Registration Rights Agreement prior to the Second Closing Date, as
though such Debentures had been issued on the First Closing Date.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
The Subscriber represents and warrants to the Company that:
2.1 NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Subscriber understands
that no United States federal or state agency or similar agency of any other
country, has passed upon or made any recommendation or endorsement of the
Company or the offering of the Securities.
2.2 INTENT. The Subscriber is purchasing the Securities for its own
account and not with a view towards distribution and the Subscriber has no
present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by making
the representations herein, the Subscriber does not agree to hold the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with federal and state securities laws
applicable to such disposition. The Subscriber understands that the Securities
must be held indefinitely unless such Securities are subsequently registered
under the Securities Act of 1933 or an exemption from registration is available.
The Subscriber has been advised or is aware of the provisions of Rule 144
promulgated under the Act.
2.3 SOPHISTICATED INVESTOR. The Subscriber is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D promulgated under the
Securities Act ("Regulation D")) and an accredited investor (as defined in Rule
501 of Regulation D), and Subscriber has such experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in Securities. The Subscriber acknowledges that the Securities are
speculative and involve a high degree of risk.
2.4 INDEPENDENT INVESTIGATION. The Subscriber, in making its decision to
purchase the Securities subscribed for hereunder, has relied upon an independent
investigation made by it and/or its representatives and has not relied /^/ on
any oral or written representations or assurances from the Company or any
representative or agent of the Company, other than as set forth in this
Agreement, in the public filings of the Company and in the documents described
below. Prior to the date hereof, the Subscriber has been furnished with and has
reviewed the Company's latest proxy statement and Annual Report on Form 10-K
sent to the Company's shareholders and all documents filed by the Company with
the Securities and Exchange Commission (the "Commission")
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since December 31, 1995, pursuant to sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(excluding preliminary proxy statement filings) (such documents are
collectively referred to in this Agreement as the "Exchange Act Reports").
The Subscriber has had a reasonable opportunity to ask questions of and
receive answers from the Company concerning the Company and the Offering and
has received satisfactory answers to all inquiries it has made with respect
to the Company and the Securities. The Subscriber acknowledges the price
and terms of the Securities offered hereby has been determined by
negotiation based, in part on the market price for the Common Stock, and
does not necessarily bear any relationship to the assets, book value or
potential performance of the Company or any other recognized criteria of value.
2.5 AUTHORITY. This Agreement has been duly authorized and validly
executed, and delivered by the Subscriber and is a valid and binding agreement
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of creditors'
rights generally.
2.6 NO LEGAL ADVICE FROM COMPANY. The Subscriber acknowledges that it has
had the opportunity to review this Agreement and the transactions contemplated
by this Agreement with his or its own legal counsel and tax advisors. Except
for any statements or representations of the Company made in this Agreement and
in the Exchange Act Reports, the Subscriber is relying solely on such counsel
and advisors and not on any statements or representations of the Company or any
of its representative or agents for legal, tax or investment advice with respect
to this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
2.7 NO BROKERS. The Subscriber has taken no action which would give rise
to any claim by any person for brokerage commission, finder's fees or similar
payments by the Company relating to this Agreement or the transactions
contemplated hereby, except for dealings with Promethean Investment Group,
L.L.C., whose fees will be paid for by the Subscriber.
2.8 NOT AN AFFILIATE. The Subscriber is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
2.9 RELIANCE ON REPRESENTATIONS AND WARRANTIES. The Subscriber
understands that the Securities are being offered and sold to it in reliance on
specific provisions of United States federal and state securities laws and that
the Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Subscriber set
forth in this Agreement in order to determine the applicability of such
provisions.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Subscriber that:
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<PAGE>
3.1 COMPANY STATUS. The Company has registered its Common Stock pursuant
to Section 12(b) or 12(g) of the Exchange Act of 1934, is in full compliance
with all reporting requirements of the Exchange Act, and the Company has
maintained all requirements for the continued listing of its common stock, and
such common stock is currently listed on the Exchange.
3.2 CURRENT PUBLIC INFORMATION. The Exchange Act Reports are the only
filings made by the Company since December 31, 1995, pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act.
3.3 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN REGARD TO this
TRANSACTION. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf has conducted any "directed selling
efforts" with respect to the Debentures or the Warrants nor has the Company
conducted any general solicitation (as that term is used in Regulation D) with
respect to any of the Securities, nor have they made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of the Securities under the Act.
3.4 VALID ISSUANCE OF DEBENTURES AND CAPITAL STOCK. The Company has an
authorized capitalization consisting of 40,000,000 shares of Common Stock, par
value $0.10 and 2,000,000 shares of Preferred Stock, par value $0.10, warrant
outstanding for 194,500 shares of Common Stock, and stock options granted to
employees as described in the Exchange Act Reports. The Company has issued and
outstanding 25,223,412 shares of Common Stock. None of such Preferred Stock
has been issued or is outstanding. All of the issued shares of Common Stock
of the Company have been duly and validly authorized and issued and are
fully paid and non-assessable; upon issuance of the Securities, the
Securities will be duly and validly issued, fully paid and non-assessable;
the shares of Common Stock issuable upon conversion of the Debentures and
exercise of the Warrants, when issued and delivered in accordance with the
terms of the Debentures and the Warrants respectively, will be duly and
validly issued, fully paid and non-assessable; and the holders of
outstanding Capital Stock of the Company are not and shall not be entitled
to preemptive or other rights afforded by the Company to subscribe for the
capital stock or other securities of the Company as a result of the sale of
the Securities or the issuance of Common Stock upon the conversion or
exercise thereof.
3.5 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on the Subsidiary Exhibit annexed hereto
and hereby made a part hereof. The Company and each such subsidiary, if any, is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
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failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any effect on the business, operations, properties,
prospects, or financial condition of the entity with respect to which such term
is used and which is material and adverse to such entity or to other entities
controlling or controlled by such entity, and/or any condition or situation
which would prohibit or otherwise interfere with the ability of the entity with
respect to which said term is used to enter into and perform its obligations
under this Agreement.
3.6 AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Securities in accordance with the terms hereof and thereof, (ii) the
execution, issuance and delivery of this Agreement, the Debentures and the
Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
Common Stock upon the conversion or exercise thereof, have been duly authorized
by all necessary corporate action, and no further consent or authorization of
the Company or its Board of Directors or stockholders is required, (iii) this
Agreement has been duly executed and delivered by the Company, and (iv) this
Agreement and the Debentures and Warrants constitute, and upon execution,
issuance and delivery thereof the Debentures and Warrants shall be, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
3.7 CORPORATE DOCUMENTS. The Company has furnished or made available to
the Subscriber true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Certificate"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
3.8 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Debentures and the Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby,
including without limitation the issuance of Common Stock upon the conversion or
exercise thereof, do not and will not (i) result in a violation of the Company's
Certificate of Incorporation or By-Laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its subsidiaries is a party, or result in a
violation of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected (except for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
federal, state, local or foreign law, rule or
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regulation, no representation is made herein with respect to any of the same
applicable solely to the Subscriber and not to the Company. The business of
the Company is not being conducted in violation of any law, ordinance or
regulations of any governmental entity, except for possible violations which
either singly or in the aggregate do not and will not have a Material
Adverse Effect. The Company is not required under federal, state or local
law, rule or regulation in the United States to obtain any consent,
authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Securities
in accordance with the terms hereof and thereof (other than any SEC, NASD or
state securities filings which may be required to be made by the Company
subsequent to either the First Closing or the Second Closing, and any
registration statement which may be filed pursuant hereto); provided that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Subscriber herein.
3.9 EXCHANGE ACT REPORTS. The Company has delivered or made available to
the Subscriber true and complete copies of the Exchange Act Reports (including,
without limitation, proxy information and solicitation materials). The Company
has not provided to the Subscriber any information which, according to
applicable law, rule or regulation, should have been disclosed publicly prior to
the date hereof by the Company but which has not been so disclosed. As of their
respective dates, the Exchange Act Reports complied in all material respects
with the requirements of the Exchange Act and rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such Exchange Act Reports, and none of the Exchange
Act Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
Exchange Act Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
3.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, the date through
which the most recent annual report of the Company on Form 10-K which has been
prepared and filed with the SEC, a copy of which is included in the Exchange Act
Reports, no Material Adverse Effect has occurred or exists with respect to the
Company or its subsidiaries, except as described in the Company's form 10-Q's
for the quarterly
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periods ended March 31, June 30, September 30, 1996 as well as the Company's
press release of February 5, 1997, a copy of which has been furnished to the
Subscriber.
3.11 NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries have no
liabilities or obligations which are material, individually or in the aggregate,
and are not disclosed in the Exchange Act Reports, other than those incurred in
the ordinary course of the Company's or its subsidiaries' respective businesses
since December 31, 1995, and which, individually or in the aggregate, do not or
would not have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole.
3.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance has
occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed.
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Securities under the Act.
3.14 NO BROKERS. The Company has taken no action which would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Subscriber relating to this Agreement for the transactions
contemplated hereby, except for dealings with Promethean Investment Group,
L.L.C., whose fees will be paid for by the Subscriber.
4. COVENANTS OF THE COMPANY
4.1 REGISTRATION RIGHTS. The Company agrees that, at the First Closing,
it will enter into a Registration Rights Agreement with the Subscriber, in the
form and substance of the Registration Rights Agreement Exhibit which is annexed
hereto and hereby made a part hereof.
4.2 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Debentures; and exercise of the Warrants; provided,
however, that the number of shares so reserved shall, except as hereinafter and
in the Debentures provided, shall be 1,750,000 shares, subject to reduction and
increase as hereinafter provided. The number of shares so reserved may be
reduced by the number of shares actually delivered pursuant to conversion of
Debentures or exercise of the Warrants (provided that in no event shall the
number of shares so reserved be less than the maximum number required to satisfy
the remaining conversion rights on the unconverted Debentures and the remaining
exercise
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rights under unexercised Warrants) and the number of shares so reserved
shall be increased to reflect stock splits and stock dividends and
distributions. In the event the number of shares so reserved shall be
insufficient for issuance upon the conversion of the Debentures and exercise
of the Warrants, or if the Holders of the Debentures would at any time upon
conversion thereof be entitled to the issuance of shares of Common Stock in
excess of the limitation in Paragraph 5(d) of the Debentures, then in either
case the Company shall use its best efforts and all due diligence to obtain the
approval by its shareholders of this Subscription Agreement and all transactions
contemplated hereunder, including the authorization of such additional shares as
may be required to issue such shares in excess of the number so reserved or in
excess of such limitation, as the case may be.
4.3 LISTING OF UNDERLYING SHARES. The Company hereby agrees, promptly
following the First Closing of the transactions contemplated by this Agreement,
to take such action to cause the Underlying Stock and the Warrant Stock to be
listed on the Exchange as promptly as possible but no later than 90 days
following the First Closing Date. The Company further agrees, if the Company
applies to have the Common Stock traded on any principal stock exchange or
market, it will include in such application the Underlying Stock and the Warrant
Stock and will take such other action as is necessary or desirable to cause the
Underlying Stock and the Warrant Stock to be listed on such other exchange or
market as promptly as possible.
4.4 EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock to
continue to be registered under Section 12(g) or 12(b) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under said Act,
and will not take any action or file any document (whether or not permitted by
said Act or the rules thereunder) to terminate or suspend such registration or
to terminate or suspend its reporting and filing obligations under said Act.
The Company will take all action under its control to continue the listing and
trading of its Common Stock on the Exchange and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the NASD and the Exchange.
4.5 LEGENDS. The Underlying Stock and the Warrant Stock and certificates
evidencing the same shall, upon the effectiveness of the Registration Statement
be free of legends (except as provided in Section 5.1 below), "stop transfers,"
so-called, "stock transfer restrictions," so-called, or other restrictions.
4.6 CORPORATE EXISTENCE. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
5. LEGENDS
5.1 LEGENDS. The Company will issue one or more Debentures in the name of
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the Subscriber and in such denominations (but no less than $50,000 each) to be
specified by the Subscriber prior to (or from time to time subsequent to) the
Closings. The Debentures, the Warrants, certificates evidencing any shares of
Common Stock issued upon conversion or exercise thereof prior to the
effectiveness of the Registration Statement and, except as hereinafter provided
in this Section 5.1, certificates evidencing shares of Common Stock issued upon
conversion or exercise of the Debentures or Warrants, as the case may be, after
effectiveness of the Registration Statement, will bear the following legend (the
"Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Prior to the First Closing, the Company will issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock coterminous with the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
and substance of the Transfer Agent Irrevocable Instruction Exhibit which is
annexed hereto and hereby made a part hereof. Such instructions shall be
irrevocable by the Company from and after the First Closing or from and after
the issuance thereof to any such substitute or replacement transfer agent, as
the case may be, except as otherwise expressly provided in the Registration
Rights Agreement. It is the intent and purpose of such instructions, as
provided therein, to require the transfer agent for the Common Stock from time
to time to issue certificates evidencing Underlying Stock or Warrant Stock free
of the Legend during the following periods and under the following circumstances
and without consultation by the transfer agent with Company or its counsel and
without the need for any further advice or instruction to the transfer agent by
or from the Company or its counsel:
(a) At any time from and after the effectiveness of the
Registration Statement except during a Suspension Period (as defined in the
Registration Rights Agreement):
(i) upon any surrender of one or more Debentures or Warrants
for conversion or exercise into Underlying Stock or Warrant Stock, as
the case may be, to the extent such surrender is accompanied by a
Conversion or Exercise Notice requesting the issuance of certificates
evidencing such Stock free of the Legend and either containing or also
accompanied by representations to the effect that the Holder of the
surrendered Debentures or Warrants intends to effect one or more sales
of such Underlying or Warrant Stock pursuant to and in accordance with
the
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Registration Statement, including the prospectus delivery
requirements applicable thereto; and
(ii) upon any surrender of one or more certificates
evidencing Underlying Stock or Warrant Stock and which bear the
Legend, to the extent accompanied by a notice requesting the issuance
of new certificates free of the Legend to replace those surrendered
and containing or also accompanied by representations by the Holder of
the surrendered Stock to the effect of those described in Section
5.1(a)(i) above; and
(b) At any time from and after the First Closing Date, upon any
surrender of one or more certificates evidencing Underlying Stock or
Warrant Stock and which bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to
replace those surrendered and containing or also accompanied by
representations that (i) the Holder thereof is permitted to dispose thereof
pursuant to Rule 144(k) under the Act or (ii) the Holder intends to effect
the sale or other disposition of such Stock, whether or not pursuant to the
Registration Statement, to a purchaser or purchasers who will not be
subject to the registration requirements of the Act, or (iii) such Holder
is not then subject to such requirements.
In addition, and if applicable, the Company shall reissue the Debentures
and Warrants without the Legend set forth above at such time as (i) the Holder
thereof is permitted to dispose thereof pursuant to Rule 144(k) under the Act or
(ii) the Holder intends to effect a sale thereof to a purchaser or purchasers
who will not be subject to the registration requirements of the Act, or (iii)
the Holder is not then subject to such requirements.
5.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No Legend has been or
shall be placed on the share certificates representing the Securities and no
instructions or "stop transfers," so called, "stock transfer restrictions," so
called, or other restrictions have been or shall be given to the Company's
transfer agent with respect thereto other than as set forth in this Section 5.
5.3 SUBSCRIBER'S COMPLIANCE. Nothing in this section shall affect in any
way the Subscriber's obligations under and agreement to comply with all
applicable securities laws upon resale of the Securities.
6. OTHER ISSUANCES OF SECURITIES
6.1 OTHER EQUITY OFFERINGS. During the period beginning on the First
Closing Date and expiring 180 calendar days following the effectiveness of the
Registration Statement, the Company will not make any Equity Offerings, as
defined in the Debentures, except for an offering of rights to subscribe for
shares of the Company's
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<PAGE>
Common Stock pursuant to any exemption from the registration requirements of
the Securities Act of 1933, as amended, including without limitation the
exemption provided by Regulations D and S promulgated thereunder.
7. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL
THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The parties
hereby agree that all actions or proceedings arising directly or indirectly from
or in connection with this Agreement shall, at the option of either party, be
litigated only in the United States District Court for the Southern District of
New York located in New York County, New York. The parties consent to the
jurisdiction and venue of the foregoing courts and consent that any process or
notice of motion or other application to either of said courts or a judge
thereof may be served inside or outside the State of New York or the Southern
District of New York by registered mail, return receipt requested, directed to
the party for which it is intended at its address set forth in this Agreement
(and service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as may
be permissible under the rules of said courts.
8. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT
8.1 ASSIGNMENT. Neither this Agreement nor any rights of the Subscriber
hereunder may be assigned by either party to any other person. Notwithstanding
the foregoing, the provisions of this Agreement shall inure to the benefit of,
and be enforceable by, any transferee of any of the Securities purchased or
acquired by the Subscriber hereunder with respect to the Securities held by such
person.
8.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth in this Agreement
or therein. Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
9. PUBLICITY
The Company agrees that it will not disclose, and will not include in
any public announcement, the name of the Subscriber without its consent, unless
and until such disclosure is required by law or applicable regulation, and then
only to the extent of such requirement.
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<PAGE>
10. NOTICES, ETC.; EXPENSES; INDEMNITY
10.1 NOTICES. Any notice, demand or request required or permitted to be
given by either the Company or the Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or by facsimile, with a hard copy to follow by two day courier
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing. Copies of all notices to the Subscriber shall be sent to its
designee or representative.
10.2 COSTS AND EXPENSES. The Company shall be responsible for the
Subscriber's costs and expenses (including reasonable attorney's fees) incurred
in entering into this Agreement, but not to exceed $5,000 in the aggregate for
all Subscribers.
10.3 INDEMNIFICATION. Each party shall indemnify the other against any
loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
11. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
12. SURVIVAL; SEVERABILITY
The representations, warranties, covenants and agreements of the parties
hereto shall survive both the First Closing and the Second Closing. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that
such severability shall be effective if it materially changes the economic
benefit of this Agreement to any party.
13. TITLE AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
14. AMOUNT
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<PAGE>
The undersigned hereby subscribes for U.S. $1,750,000 in principal amount
of Debentures and Warrants to purchase 175,000 shares of Common Stock and
agrees to pay therefor funds in the amount of One Million Seven Hundred Fifty
Thousand Dollars (U.S. $1,750,000).
The undersigned acknowledges that this subscription shall not be effective
unless accepted by the Company as indicated below.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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<PAGE>
Subscriber's Representative Name of Subscriber:
Promethean Investment Group, L.L.C.
Heracles Fund
By: Promethean Investment Group, L.L.C.
Its: Investment Advisor
By /s/ James F. O'Brien
-----------------------------
Name: James F. O'Brien
Title: President
40 West 57th Street, #1520
New York, NY 10019 Date of Subscription: February 13, 1997
- -----------------------------
Address
Place of Execution: U.S.
(212) 698-0588
Telephone Place of Organization or Citizenship:
_____________________________________
(212) 698-0505
Fax Place of Residency and/or Principal
Place of Business:
c/o Bank of Bermuda (Cayman) Limited
P.O. Box 513, Third Floor, British
American Tower, Dr. Roy's Drive,
Gerogetown, Grand Cayman, Cayman Islands,
BWI
(Telephone) _________________________
(Fax) _________________________
Registration Instructions: _____________
(Name) (Please Print) ___________________
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AS OF THE 13TH DAY OF
FEBRUARY, 1997.
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
--------------------------------------
Print Name: Phillips W. Smith
-------------------------------
Its: President and Chief Executive Officer
--------------------------------------
ATTEST
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<PAGE>
________________________
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<PAGE>
CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
This Convertible Securities Subscription Agreement (the "Agreement") dated as
of February 13, 1997 has been executed by the undersigned (the "Subscriber")
in connection with (a) the sale of 6% Subordinated Convertible Debentures due
February 13, 2000 (the "Debentures") of Zycad Corporation, a Delaware
corporation (the "Company"), convertible into shares of Common Stock, par
value $0.10 per share, (the "Common Stock") of the Company, and (b) the
issuance by the Company of its warrants to purchase up to 500,000 shares of
Common Stock (the "Warrants"). The Company is offering an aggregate amount
of up to $5,000,000 of Debentures, together with the Warrants, at an
aggregate price of $5,000,000 (the "Offering"). The form of the Debentures,
including the terms on which the Debentures may be converted into Common
Stock, is attached hereto as Exhibit A. The form of the Warrants, including
the terms upon which the Warrants may be exercised, is attached hereto as
Exhibit B. The solicitation of this Agreement and, if accepted by the
Company, the offer and sale of the Debentures and the Warrants, are being
made in reliance upon the provisions of Regulation D ("Regulation D")
promulgated by the Securities and Exchange Commission ("SEC") under the
United States Securities Act of 1933, as amended (the "Securities Act") or
upon the provisions of Section 4(2) of the Securities Act. The Debentures,
the Warrants and the Common Stock issuable upon conversion or exercise
thereof are sometimes collectively referred to in this Agreement as the
"Securities." The Common Stock issuable upon conversion of the Debentures is
sometimes referred to as the "Underlying Stock", and the Common Stock
issuable upon the exercise of the Warrants is sometimes referred to as the
"Warrant Stock." The Subscriber wishes to subscribe for, and the Company
wishes to issue, the principal amount of Debentures and the number of
Warrants at the aggregate purchase price set forth in Section 14 and in
accordance with the other terms and conditions of this Agreement. In
consideration of the mutual promises, representations, warranties and
conditions set forth herein, and intending to be legally bounded hereby, the
Company and the Subscriber agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS
1.1 PURCHASE AND SALE OF SECURITIES.
(a) PURCHASE OF DEBENTURES AND WARRANTS. The Subscriber hereby
subscribes for the principal amount of Debentures and for the number of
Warrants and at the aggregate purchase price set forth in Section 14. The
closing of the purchase of such Debentures and Warrants (the "Closing Dates")
shall take place in two (2) separate closings, the first of which is
hereinafter referred to as the "First Closing", and the second of which is
hereinafter referred to as the "Second Closing". Subject to the satisfaction
(or waiver) of the conditions thereto set forth in Section 1.2 and 1.3 below:
(i) at the First Closing, the Company shall issue and sell to the Subscriber,
and the Subscriber shall purchase from the Company, seven-tenths of the
aggregate principal amount of
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<PAGE>
Debentures and all of the Warrants which the Subscriber is purchasing
hereunder for consideration equal to seven-tenths of the Purchase Price, and
(ii) at the Second Closing, the Company shall issue and sell to the
Subscriber and the Subscriber shall purchase from the Company the remainder
of the aggregate principal amount of Debentures which the Subscriber is
purchasing hereunder for a price equal to the remainder of the Purchase Price.
(b) FORM OF PAYMENT. On each Closing Date (as defined below), (i)
the Subscriber shall pay the portion of the Purchase Price for the Securities
to be issued and sold at the applicable Closing by wire transfer to the
Company, in accordance with the Company's written instructions, against
delivery of duly executed Debentures and Warrants which the Subscriber is
then purchasing and (ii) the Company shall deliver to Subscriber such
Debentures and Warrants against delivery of such Purchase Price.
(c) CLOSING DATES. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 1.2 and 1.3 below, the date and time
of the issuance and sale of the Debentures and Warrants pursuant to this
Agreement ( the "Closing Dates") shall be (i) in the case of the First
Closing, 12:00 noon Eastern Standard Time on February 13, 1997 ("First
Closing Date"), and (ii) in the case of the Second Closing, 12:00 noon
Eastern Standard Time, three business days following notification of
satisfaction (or waiver) of the condition to such Closing set forth in
Section 1.3(b)(viii) below ("Second Closing Date") (subject, in each case, to
a two (2) business day grace period at either party's option), or, in each
case, at such mutually agreed upon time. Provided however, if pursuant to
Section 6(e) of the Registration Rights Agreement, the Subscriber has the
right (whether or not exercised) to have the Debentures issued at the First
Closing redeemed by the Company, the Subscriber shall no longer be obligated
to, but may at its option exercised in its sole discretion, purchase any part
or all of the remainder of the aggregate principal amount of Debentures
otherwise issuable at the Second Closing.__________
1.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND
SELL THE DEBENTURES AND WARRANTS. The obligation hereunder of the Company to
issue and/or sell the Debentures and Warrants to the Subscriber at each
Closing is subject to the satisfaction, at or before such Closing, of each
of the conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) ACCURACY OF THE SUBSCRIBER'S REPRESENTATION AND WARRANTIES.
The representations and warranties of the Subscriber shall be true and
correct as of the date when made and as of the applicable Closing Date
as though made at each such time.
(b) PERFORMANCE BY THE SUBSCRIBER. The Subscriber shall have
performed, satisfied and complied in all respects with all covenants,
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<PAGE>
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the applicable
Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
(d) PAYMENT OF PURCHASE PRICE. The Subscriber shall have delivered
to the Company that portion of the Purchase Price payable by the
Subscriber at the applicable Closing.
1.3 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SUBSCRIBER TO ACQUIRE
THE DEBENTURES AND WARRANTS. The obligation of Subscriber hereunder to
acquire and pay for the Debentures and Warrants at each of the First Closing
and the Second Closing, as applicable, is subject to the satisfaction, at or
before the Closing Date in respect of such Closing, of each of the following
conditions. Each of these conditions is for Subscriber's sole benefit and may
be waived by Subscriber at any time in its sole discretion.
(a) As to the First Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the First Closing Date as
though made at each such time.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this agreement to be performed, satisfied or
complied with by the Company at or prior to the First Closing.
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
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<PAGE>
(iv) ADVERSE CHANGES. Since December 31, 1995, no event which
had or is likely to have a material adverse effect on the Company has
occurred, except as described in the Company's form 10-Q's for the
quarterly periods ended March 31, June 30, September 30, 1996, as well
as the Company's press release of February 5, 1997, a copy of which has
been furnished to the Subscriber.
(v) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
As of the First Closing Date, the trading of the Common Stock shall
not have been suspended by the SEC, the Nasdaq Stock Market (the
"Exchange") or the National Association of Securities Dealers, Inc.
(the "NASD") and the Common Stock shall not have been delisted from
the Exchange.
(vi) THE LEGAL OPINION. The Company shall have delivered to
the Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, in form and substance reasonably
satisfactory to the Subscriber.
(vii) OFFICER'S CERTIFICATE. The Company shall have delivered
to the Subscriber a certificate in substantially the form and substance
of the Officer's Certificate Exhibit which is annexed hereto and hereby
made a part hereof or in such other form and substance as shall be
reasonably satisfactory to the Subscriber, executed in either case by
an executive officer of the Company as of the First Closing Date, to
the effect that all the conditions to the First Closing shall have been
satisfied.
(viii) REGISTRATION RIGHTS AGREEMENT. The Company and the
Subscriber shall have entered into the Registration Rights Agreement
contemplated by Section 4.1.
(ix) IRREVOCABLE LETTER OF INSTRUCTION. The Company shall have
issued to the transfer agent for its Common Stock (and to any
substitute or replacement transfer agent for it's Common Stock
coterminous with the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form and
substance of the Transfer Agent Irrevocable Instruction Exhibit which
is annexed hereto and hereby made a part hereof.
(b) As to the Second Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Second Closing Date as
though made at each such time.
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<PAGE>
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Second Closing.
(iii) ADVERSE CHANGES. Since December 31, 1995, no event which
had or is likely to have a material adverse effect on the Company has
occurred, except as described in the Company's form 10-Q's for the
quarterly periods ended March 31, June 30, September 30, 1996, as well
as the Company's press release of February 5, 1997, a copy of which
has been furnished to the Subscriber.
(iv) NO SUSPENSION OF TRADING OR DELISTING OF COMMON STOCK. As of
the Second Closing Date, the trading of the Common Stock shall not
have been suspended by the SEC, the Exchange or the NASD, and the
Common Stock shall not have been delisted from the Exchange.
(v) THE LEGAL OPINION. The Company shall have delivered to the
Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, dated as of the Second Closing
Date, in form and substance reasonably satisfactory to the Subscriber.
(vi) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Subscriber a certificate in substantially the form and substance
of the Officer's Certificate Exhibit which is annexed hereto and
hereby made a part hereof or in such other form and substance as shall
be reasonably satisfactory to the Subscriber, executed in either case
by an executive officer of the Company as of the Second Closing Date,
to the effect that all the conditions to the Second Closing shall have
been satisfied.
(vii) REGISTRATION STATEMENT. The registration statement filed by
the Company pursuant to Section 2 of the Registration Rights Agreement
covering the resale of the Registrable Securities (as defined in the
Registration Rights Agreement) underlying (i) the Debentures issued at
the First Closing and to be issued at the Second Closing and (ii) the
Warrants issued at the First Closing (the "Registration Statement")
shall be effective, and no stop order shall have been issued in
respect thereof and the registration statement and use of the related
prospectus have not been suspended and there is no reason or basis for
such suspension in either case pursuant to Section 8 of the
Registration Rights Agreement.
(viii) FORM OF DEBENTURE. The form of Debenture to be executed
and delivered on the Second Closing Date pursuant to this Agreement
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<PAGE>
shall be in the same form and substance as the Debentures issued at
the First Closing, but dated as at the Second Closing Date, completed
to reflect the appropriate principal amounts thereof, and otherwise
amended only to reflect adjustments to the Applicable Percentages (as
defined in the Debentures) pursuant to the Registration Rights
Agreement prior to the Second Closing Date, as though such Debentures
had been issued on the First Closing Date.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
The Subscriber represents and warrants to the Company that:
2.1 NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Subscriber understands
that no United States federal or state agency or similar agency of any other
country, has passed upon or made any recommendation or endorsement of the
Company or the offering of the Securities.
2.2 INTENT. The Subscriber is purchasing the Securities for its own
account and not with a view towards distribution and the Subscriber has no
present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by
making the representations herein, the Subscriber does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with federal and state
securities laws applicable to such disposition. The Subscriber understands
that the Securities must be held indefinitely unless such Securities are
subsequently registered under the Securities Act of 1933 or an exemption from
registration is available. The Subscriber has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
2.3 SOPHISTICATED INVESTOR. The Subscriber is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D promulgated under the
Securities Act ("Regulation D")) and an accredited investor (as defined in
Rule 501 of Regulation D), and Subscriber has such experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in Securities. The Subscriber acknowledges that the Securities
are speculative and involve a high degree of risk.
2.4 INDEPENDENT INVESTIGATION. The Subscriber, in making its decision to
purchase the Securities subscribed for hereunder, has relied upon an independent
investigation made by it and/or its representatives and has not relied /^/ on
any oral or written representations or assurances from the Company or any
representative or agent of the Company, other than as set forth in this
Agreement, in the public filings of the Company and in the documents described
below. Prior to the date hereof, the Subscriber has been furnished with and has
reviewed the Company's latest proxy statement and Annual Report on Form 10-K
sent to the Company's shareholders and all documents filed by the Company with
the Securities and Exchange Commission (the "Commission")
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since December 31, 1995, pursuant to sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(excluding preliminary proxy statement filings) (such documents are
collectively referred to in this Agreement as the "Exchange Act Reports").
The Subscriber has had a reasonable opportunity to ask questions of and
receive answers from the Company concerning the Company and the Offering and
has received satisfactory answers to all inquiries it has made with respect
to the Company and the Securities. The Subscriber acknowledges the price and
terms of the Securities offered hereby has been determined by negotiation
based, in part on the market price for the Common Stock, and does not
necessarily bear any relationship to the assets, book value or potential
performance of the Company or any other recognized criteria of value.
2.5 AUTHORITY. This Agreement has been duly authorized and validly
executed, and delivered by the Subscriber and is a valid and binding
agreement enforceable in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally.
2.6 NO LEGAL ADVICE FROM COMPANY. The Subscriber acknowledges that it
has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and tax
advisors. Except for any statements or representations of the Company made
in this Agreement and in the Exchange Act Reports, the Subscriber is relying
solely on such counsel and advisors and not on any statements or
representations of the Company or any of its representative or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
2.7 NO BROKERS. The Subscriber has taken no action which would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the
transactions contemplated hereby, except for dealings with Promethean
Investment Group, L.L.C., whose fees will be paid for by the Subscriber.
2.8 NOT AN AFFILIATE. The Subscriber is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
2.9 RELIANCE ON REPRESENTATIONS AND WARRANTIES. The Subscriber
understands that the Securities are being offered and sold to it in reliance
on specific provisions of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of the Subscriber set forth in this Agreement in order to determine the
applicability of such provisions.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Subscriber that:
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<PAGE>
3.1 COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act of 1934, is in full
compliance with all reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the continued listing of its
common stock, and such common stock is currently listed on the Exchange.
3.2 CURRENT PUBLIC INFORMATION. The Exchange Act Reports are the only
filings made by the Company since December 31, 1995, pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act.
3.3 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN REGARD TO
THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf has conducted any
"directed selling efforts" with respect to the Debentures or the Warrants nor
has the Company conducted any general solicitation (as that term is used in
Regulation D) with respect to any of the Securities, nor have they made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Securities under
the Act.
3.4 VALID ISSUANCE OF DEBENTURES AND CAPITAL STOCK. The Company has an
authorized capitalization consisting of 40,000,000 shares of Common Stock,
par value $0.10 and 2,000,000 shares of Preferred Stock, par value $0.10,
warrant outstanding for 194,500 shares of Common Stock, and stock options
granted to employees as described in the Exchange Act Reports. The Company
has issued and outstanding 25,223,412 shares of Common Stock. None of such
Preferred Stock has been issued or is outstanding. All of the issued shares
of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable; upon issuance of the
Securities, the Securities will be duly and validly issued, fully paid and
non-assessable; the shares of Common Stock issuable upon conversion of the
Debentures and exercise of the Warrants, when issued and delivered in
accordance with the terms of the Debentures and the Warrants respectively,
will be duly and validly issued, fully paid and non-assessable; and the
holders of outstanding Capital Stock of the Company are not and shall not be
entitled to preemptive or other rights afforded by the Company to subscribe
for the capital stock or other securities of the Company as a result of the
sale of the Securities or the issuance of Common Stock upon the conversion or
exercise thereof.
3.5 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on the Subsidiary Exhibit annexed
hereto and hereby made a part hereof. The Company and each such subsidiary,
if any, is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary other
than those in which the
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<PAGE>
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any effect on the business, operations, properties,
prospects, or financial condition of the entity with respect to which such
term is used and which is material and adverse to such entity or to other
entities controlling or controlled by such entity, and/or any condition or
situation which would prohibit or otherwise interfere with the ability of the
entity with respect to which said term is used to enter into and perform its
obligations under this Agreement.
3.6 AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Securities in accordance with the terms hereof and thereof, (ii)
the execution, issuance and delivery of this Agreement, the Debentures and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
Common Stock upon the conversion or exercise thereof, have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement and the Debentures and Warrants constitute,
and upon execution, issuance and delivery thereof the Debentures and Warrants
shall be, valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
3.7 CORPORATE DOCUMENTS. The Company has furnished or made available to
the Subscriber true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Certificate"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
3.8 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Debentures and the Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby, including without limitation the issuance of Common Stock upon the
conversion or exercise thereof, do not and will not (i) result in a violation
of the Company's Certificate of Incorporation or By-Laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company
or any of its subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
federal, state, local or foreign law, rule or
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regulation, no representation is made herein with respect to any of the same
applicable solely to the Subscriber and not to the Company. The business of
the Company is not being conducted in violation of any law, ordinance or
regulations of any governmental entity, except for possible violations which
either singly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under federal, state or local law, rule
or regulation in the United States to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Securities in accordance with the
terms hereof and thereof (other than any SEC, NASD or state securities
filings which may be required to be made by the Company subsequent to either
the First Closing or the Second Closing, and any registration statement which
may be filed pursuant hereto); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Subscriber herein.
3.9 EXCHANGE ACT REPORTS. The Company has delivered or made available
to the Subscriber true and complete copies of the Exchange Act Reports
(including, without limitation, proxy information and solicitation
materials). The Company has not provided to the Subscriber any information
which, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company but which has not
been so disclosed. As of their respective dates, the Exchange Act Reports
complied in all material respects with the requirements of the Exchange Act
and rules and regulations of the SEC promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
Exchange Act Reports, and none of the Exchange Act Reports contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Exchange
Act Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed
or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
3.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, the date
through which the most recent annual report of the Company on Form 10-K which
has been prepared and filed with the SEC, a copy of which is included in the
Exchange Act Reports, no Material Adverse Effect has occurred or exists with
respect to the Company or its subsidiaries, except as described in the
Company's form 10-Q's for the quarterly
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periods ended March 31, June 30, September 30, 1996 as well as the Company's
press release of February 5, 1997, a copy of which has been furnished to the
Subscriber.
3.11 NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries have
no liabilities or obligations which are material, individually or in the
aggregate, and are not disclosed in the Exchange Act Reports, other than
those incurred in the ordinary course of the Company's or its subsidiaries'
respective businesses since December 31, 1995, and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole.
3.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed.
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
the Securities under the Act.
3.14 NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Subscriber relating to this Agreement for the
transactions contemplated hereby, except for dealings with Promethean
Investment Group, L.L.C., whose fees will be paid for by the Subscriber.
4. COVENANTS OF THE COMPANY
4.1 REGISTRATION RIGHTS. The Company agrees that, at the First Closing,
it will enter into a Registration Rights Agreement with the Subscriber, in
the form and substance of the Registration Rights Agreement Exhibit which is
annexed hereto and hereby made a part hereof.
4.2 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Debentures; and exercise of the Warrants;
provided, however, that the number of shares so reserved shall, except as
hereinafter and in the Debentures provided, shall be 1,750,000 shares,
subject to reduction and increase as hereinafter provided. The number of
shares so reserved may be reduced by the number of shares actually delivered
pursuant to conversion of Debentures or exercise of the Warrants (provided
that in no event shall the number of shares so reserved be less than the
maximum number required to satisfy the remaining conversion rights on the
unconverted Debentures and the remaining exercise
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rights under unexercised Warrants) and the number of shares so reserved shall
be increased to reflect stock splits and stock dividends and distributions.
In the event the number of shares so reserved shall be insufficient for
issuance upon the conversion of the Debentures and exercise of the Warrants,
or if the Holders of the Debentures would at any time upon conversion thereof
be entitled to the issuance of shares of Common Stock in excess of the
limitation in Paragraph 5(d) of the Debentures, then in either case the
Company shall use its best efforts and all due diligence to obtain the
approval by its shareholders of this Subscription Agreement and all
transactions contemplated hereunder, including the authorization of such
additional shares as may be required to issue such shares in excess of the
number so reserved or in excess of such limitation, as the case may be.
4.3 LISTING OF UNDERLYING SHARES. The Company hereby agrees, promptly
following the First Closing of the transactions contemplated by this
Agreement, to take such action to cause the Underlying Stock and the Warrant
Stock to be listed on the Exchange as promptly as possible but no later than
90 days following the First Closing Date. The Company further agrees, if the
Company applies to have the Common Stock traded on any principal stock
exchange or market, it will include in such application the Underlying Stock
and the Warrant Stock and will take such other action as is necessary or
desirable to cause the Underlying Stock and the Warrant Stock to be listed on
such other exchange or market as promptly as possible.
4.4 EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock
to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations
under said Act, and will not take any action or file any document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action under its
control to continue the listing and trading of its Common Stock on the
Exchange and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and the Exchange.
4.5 LEGENDS. The Underlying Stock and the Warrant Stock and
certificates evidencing the same shall, upon the effectiveness of the
Registration Statement be free of legends (except as provided in Section 5.1
below), "stop transfers," so-called, "stock transfer restrictions,"
so-called, or other restrictions.
4.6 CORPORATE EXISTENCE. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
5. LEGENDS
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5.1 LEGENDS. The Company will issue one or more Debentures in the name
of the Subscriber and in such denominations (but no less than $50,000 each)
to be specified by the Subscriber prior to (or from time to time subsequent
to) the Closings. The Debentures, the Warrants, certificates evidencing any
shares of Common Stock issued upon conversion or exercise thereof prior to
the effectiveness of the Registration Statement and, except as hereinafter
provided in this Section 5.1, certificates evidencing shares of Common Stock
issued upon conversion or exercise of the Debentures or Warrants, as the case
may be, after effectiveness of the Registration Statement, will bear the
following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED
FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Prior to the First Closing, the Company will issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer
agent for its Common Stock coterminous with the Company's appointment of any
such substitute or replacement transfer agent) instructions in substantially
the form and substance of the Transfer Agent Irrevocable Instruction Exhibit
which is annexed hereto and hereby made a part hereof. Such instructions
shall be irrevocable by the Company from and after the First Closing or from
and after the issuance thereof to any such substitute or replacement transfer
agent, as the case may be, except as otherwise expressly provided in the
Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the
Common Stock from time to time to issue certificates evidencing Underlying
Stock or Warrant Stock free of the Legend during the following periods and
under the following circumstances and without consultation by the transfer
agent with Company or its counsel and without the need for any further advice
or instruction to the transfer agent by or from the Company or its counsel:
(a) At any time from and after the effectiveness of the
Registration Statement except during a Suspension Period (as defined in
the Registration Rights Agreement):
(i) upon any surrender of one or more Debentures or Warrants
for conversion or exercise into Underlying Stock or Warrant Stock, as
the case may be, to the extent such surrender is accompanied by a
Conversion or Exercise Notice requesting the issuance of certificates
evidencing such Stock free of the Legend and either containing or also
accompanied by representations to the effect that the Holder of the
surrendered Debentures or Warrants intends to effect one or more sales
of
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such Underlying or Warrant Stock pursuant to and in accordance with
the Registration Statement, including the prospectus delivery
requirements applicable thereto; and
(ii) upon any surrender of one or more certificates
evidencing Underlying Stock or Warrant Stock and which bear the
Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered and containing or also accompanied by representations
by the Holder of the surrendered Stock to the effect of those
described in Section 5.1(a)(i) above; and
(b) At any time from and after the First Closing Date, upon any
surrender of one or more certificates evidencing Underlying Stock or
Warrant Stock and which bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to
replace those surrendered and containing or also accompanied by
representations that (i) the Holder thereof is permitted to dispose thereof
pursuant to Rule 144(k) under the Act or (ii) the Holder intends to effect
the sale or other disposition of such Stock, whether or not pursuant to
the Registration Statement, to a purchaser or purchasers who will not be
subject to the registration requirements of the Act, or (iii) such Holder
is not then subject to such requirements.
In addition, and if applicable, the Company shall reissue the Debentures
and Warrants without the Legend set forth above at such time as (i) the
Holder thereof is permitted to dispose thereof pursuant to Rule 144(k) under
the Act or (ii) the Holder intends to effect a sale thereof to a purchaser or
purchasers who will not be subject to the registration requirements of the
Act, or (iii) the Holder is not then subject to such requirements.
5.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No Legend has been or
shall be placed on the share certificates representing the Securities and no
instructions or "stop transfers," so called, "stock transfer restrictions,"
so called, or other restrictions have been or shall be given to the Company's
transfer agent with respect thereto other than as set forth in this Section 5.
5.3 SUBSCRIBER'S COMPLIANCE. Nothing in this section shall affect in
any way the Subscriber's obligations under and agreement to comply with all
applicable securities laws upon resale of the Securities.
6. OTHER ISSUANCES OF SECURITIES
6.1 OTHER EQUITY OFFERINGS. During the period beginning on the First
Closing Date and expiring 180 calendar days following the effectiveness of
the Registration Statement, the Company will not make any Equity Offerings,
as defined in the
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<PAGE>
Debentures, except for an offering of rights to subscribe for shares of the
Company's Common Stock pursuant to any exemption from the registration
requirements of the Securities Act of 1933, as amended, including without
limitation the exemption provided by Regulations D and S promulgated
thereunder.
7. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL
THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The
parties hereby agree that all actions or proceedings arising directly or
indirectly from or in connection with this Agreement shall, at the option of
either party, be litigated only in the United States District Court for the
Southern District of New York located in New York County, New York. The
parties consent to the jurisdiction and venue of the foregoing courts and
consent that any process or notice of motion or other application to either
of said courts or a judge thereof may be served inside or outside the State
of New York or the Southern District of New York by registered mail, return
receipt requested, directed to the party for which it is intended at its
address set forth in this Agreement (and service so made shall be deemed
complete five (5) days after the same has been posted as aforesaid) or by
personal service or in such other manner as may be permissible under the
rules of said courts.
8. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT
8.1 ASSIGNMENT. Neither this Agreement nor any rights of the Subscriber
hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the
Securities purchased or acquired by the Subscriber hereunder with respect to
the Securities held by such person.
8.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought.
9. PUBLICITY
The Company agrees that it will not disclose, and will not include
in any public announcement, the name of the Subscriber without its consent,
unless and until
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<PAGE>
such disclosure is required by law or applicable regulation, and then only to
the extent of such requirement.
10. NOTICES, ETC.; EXPENSES; INDEMNITY
10.1 NOTICES. Any notice, demand or request required or permitted to be
given by either the Company or the Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or by facsimile, with a hard copy to follow by two day courier
addressed to the parties at the addresses of the parties set forth at the end
of this Agreement or such other address as a party may request by notifying
the other in writing. Copies of all notices to the Subscriber shall be sent
to its designee or representative.
10.2 COSTS AND EXPENSES. The Company shall be responsible for the
Subscriber's costs and expenses (including reasonable attorney's fees)
incurred in entering into this Agreement , but not to exceed $5,000 in the
aggregate for all Subscribers.
10.3 INDEMNIFICATION. Each party shall indemnify the other against any
loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
11. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each
of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
12. SURVIVAL; SEVERABILITY
The representations, warranties, covenants and agreements of the parties
hereto shall survive both the First Closing and the Second Closing. In the
event that any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
13. TITLE AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this
Agreement.
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<PAGE>
14. AMOUNT
The undersigned hereby subscribes for U.S. $500,000 in principal amount
of Debentures and Warrants to purchase 50,000 shares of Common Stock and
agrees to pay therefor funds in the amount of Five Hundred Thousand Dollars
(U.S. $ 500,000).
The undersigned acknowledges that this subscription shall not be
effective unless accepted by the Company as indicated below.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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<PAGE>
Subscriber's Representative Name of Subscriber:
Promethean Investment Group, L.L.C.
Joseph A. Umbach
By: Promethean Investment Group, L.L.C.
Its: Investment Advisor
By /s/ James F. O'Brien
-------------------------------------
Name: James F. O'Brien
Title: President
40 West 57th Street, #1520
NEW YORK, NY 10019 Date of Subscription: February 13, 1997
______________________________
Address
Place of Execution: U.S.
(212) 698-0588
Telephone Place of Organization or Citizenship:
_______________________________________
(212) 698-0505
Fax Place of Residency and/or Principal Place
of Business:
c/o Joseph Victori Wines
2525 Palmer Avenue
New Rochelle, New York 10801
(Telephone) _________________________
(Fax) _________________________
Registration Instructions: ____________
(Name) (Please Print) __________________
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AS OF THE 13TH DAY OF
FEBRUARY, 1997.
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
--------------------------------------
Print Name: Phillips W. Smith
-------------------------------
Its: President and Chief Executive Officer
--------------------------------------
ATTEST
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________________________
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<PAGE>
CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT
This Convertible Securities Subscription Agreement (the "Agreement") dated as
of February 13, 1997 has been executed by the undersigned (the "Subscriber")
in connection with (a) the sale of 6% Subordinated Convertible Debentures due
February 13, 2000 (the "Debentures") of Zycad Corporation, a Delaware
corporation (the "Company"), convertible into shares of Common Stock, par
value $0.10 per share, (the "Common Stock") of the Company, and (b) the
issuance by the Company of its warrants to purchase up to 500,000 shares of
Common Stock (the "Warrants"). The Company is offering an aggregate amount
of up to $5,000,000 of Debentures, together with the Warrants, at an
aggregate price of $5,000,000 (the "Offering"). The form of the Debentures,
including the terms on which the Debentures may be converted into Common
Stock, is attached hereto as Exhibit A. The form of the Warrants, including
the terms upon which the Warrants may be exercised, is attached hereto as
Exhibit B. The solicitation of this Agreement and, if accepted by the
Company, the offer and sale of the Debentures and the Warrants, are being
made in reliance upon the provisions of Regulation D ("Regulation D")
promulgated by the Securities and Exchange Commission ("SEC") under the
United States Securities Act of 1933, as amended (the "Securities Act") or
upon the provisions of Section 4(2) of the Securities Act. The Debentures,
the Warrants and the Common Stock issuable upon conversion or exercise
thereof are sometimes collectively referred to in this Agreement as the
"Securities." The Common Stock issuable upon conversion of the Debentures is
sometimes referred to as the "Underlying Stock", and the Common Stock
issuable upon the exercise of the Warrants is sometimes referred to as the
"Warrant Stock." The Subscriber wishes to subscribe for, and the Company
wishes to issue, the principal amount of Debentures and the number of
Warrants at the aggregate purchase price set forth in Section 14 and in
accordance with the other terms and conditions of this Agreement. In
consideration of the mutual promises, representations, warranties and
conditions set forth herein, and intending to be legally bounded hereby, the
Company and the Subscriber agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS
1.1 PURCHASE AND SALE OF SECURITIES.
(a) PURCHASE OF DEBENTURES AND WARRANTS. The Subscriber hereby
subscribes for the principal amount of Debentures and for the number of
Warrants and at the aggregate purchase price set forth in Section 14. The
closing of the purchase of such Debentures and Warrants (the "Closing Dates")
shall take place in two (2) separate closings, the first of which is
hereinafter referred to as the "First Closing", and the second of which is
hereinafter referred to as the "Second Closing". Subject to the satisfaction
(or waiver) of the conditions thereto set forth in Section 1.2 and 1.3 below:
(i) at the First Closing, the Company shall issue and sell to the Subscriber,
and the Subscriber shall purchase from the Company, seven-tenths of the
aggregate principal amount of
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<PAGE>
Debentures and all of the Warrants which the Subscriber is purchasing
hereunder for consideration equal to seven-tenths of the Purchase Price, and
(ii) at the Second Closing, the Company shall issue and sell to the
Subscriber and the Subscriber shall purchase from the Company the remainder
of the aggregate principal amount of Debentures which the Subscriber is
purchasing hereunder for a price equal to the remainder of the Purchase Price.
(b) FORM OF PAYMENT. On each Closing Date (as defined below), (i)
the Subscriber shall pay the portion of the Purchase Price for the Securities
to be issued and sold at the applicable Closing by wire transfer to the
Company, in accordance with the Company's written instructions, against
delivery of duly executed Debentures and Warrants which the Subscriber is
then purchasing and (ii) the Company shall deliver to Subscriber such
Debentures and Warrants against delivery of such Purchase Price.
(c) CLOSING DATES. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 1.2 and 1.3 below, the date and time
of the issuance and sale of the Debentures and Warrants pursuant to this
Agreement ( the "Closing Dates") shall be (i) in the case of the First
Closing, 12:00 noon Eastern Standard Time on February 13, 1997 ("First
Closing Date"), and (ii) in the case of the Second Closing, 12:00 noon
Eastern Standard Time, three business days following notification of
satisfaction (or waiver) of the condition to such Closing set forth in
Section 1.3(b)(viii) below ("Second Closing Date") (subject, in each case, to
a two (2) business day grace period at either party's option), or, in each
case, at such mutually agreed upon time. Provided however, if pursuant to
Section 6(e) of the Registration Rights Agreement, the Subscriber has the
right (whether or not exercised) to have the Debentures issued at the First
Closing redeemed by the Company, the Subscriber shall no longer be obligated
to, but may at its option exercised in its sole discretion, purchase any part
or all of the remainder of the aggregate principal amount of Debentures
otherwise issuable at the Second Closing.__________
1.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND
SELL THE DEBENTURES AND WARRANTS. The obligation hereunder of the Company to
issue and/or sell the Debentures and Warrants to the Subscriber at each
Closing is subject to the satisfaction, at or before such Closing, of each
of the conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) ACCURACY OF THE SUBSCRIBER'S REPRESENTATION AND WARRANTIES.
The representations and warranties of the Subscriber shall be true and
correct as of the date when made and as of the applicable Closing Date
as though made at each such time.
(b) PERFORMANCE BY THE SUBSCRIBER. The Subscriber shall have
performed, satisfied and complied in all respects with all covenants,
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agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the applicable
Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
(d) PAYMENT OF PURCHASE PRICE. The Subscriber shall have delivered
to the Company that portion of the Purchase Price payable by the
Subscriber at the applicable Closing.
1.3 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SUBSCRIBER TO ACQUIRE
THE DEBENTURES AND WARRANTS. The obligation of Subscriber hereunder to
acquire and pay for the Debentures and Warrants at each of the First Closing
and the Second Closing, as applicable, is subject to the satisfaction, at or
before the Closing Date in respect of such Closing, of each of the following
conditions. Each of these conditions is for Subscriber's sole benefit and may
be waived by Subscriber at any time in its sole discretion.
(a) As to the First Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the First Closing Date as
though made at each such time.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this agreement to be performed, satisfied or
complied with by the Company at or prior to the First Closing.
(iii) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely effects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
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<PAGE>
(iv) ADVERSE CHANGES. Since December 31, 1995, no event which
had or is likely to have a material adverse effect on the Company has
occurred, except as described in the Company's form 10-Q's for the
quarterly periods ended March 31, June 30, September 30, 1996, as well
as the Company's press release of February 5, 1997, a copy of which has
been furnished to the Subscriber.
(v) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK.
As of the First Closing Date, the trading of the Common Stock shall
not have been suspended by the SEC, the Nasdaq Stock Market (the
"Exchange") or the National Association of Securities Dealers, Inc.
(the "NASD") and the Common Stock shall not have been delisted from
the Exchange.
(vi) THE LEGAL OPINION. The Company shall have delivered to
the Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, in form and substance reasonably
satisfactory to the Subscriber.
(vii) OFFICER'S CERTIFICATE. The Company shall have delivered
to the Subscriber a certificate in substantially the form and substance
of the Officer's Certificate Exhibit which is annexed hereto and hereby
made a part hereof or in such other form and substance as shall be
reasonably satisfactory to the Subscriber, executed in either case by
an executive officer of the Company as of the First Closing Date, to
the effect that all the conditions to the First Closing shall have been
satisfied.
(viii) REGISTRATION RIGHTS AGREEMENT. The Company and the
Subscriber shall have entered into the Registration Rights Agreement
contemplated by Section 4.1.
(ix) IRREVOCABLE LETTER OF INSTRUCTION. The Company shall have
issued to the transfer agent for its Common Stock (and to any
substitute or replacement transfer agent for it's Common Stock
coterminous with the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form and
substance of the Transfer Agent Irrevocable Instruction Exhibit which
is annexed hereto and hereby made a part hereof.
(b) As to the Second Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Second Closing Date as
though made at each such time.
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(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement and by all other
agreements related to this Agreement to be performed, satisfied or
complied with by the Company at or prior to the Second Closing.
(iii) ADVERSE CHANGES. Since December 31, 1995, no event which
had or is likely to have a material adverse effect on the Company has
occurred, except as described in the Company's form 10-Q's for the
quarterly periods ended March 31, June 30, September 30, 1996, as well
as the Company's press release of February 5, 1997, a copy of which
has been furnished to the Subscriber.
(iv) NO SUSPENSION OF TRADING OR DELISTING OF COMMON STOCK. As of
the Second Closing Date, the trading of the Common Stock shall not
have been suspended by the SEC, the Exchange or the NASD, and the
Common Stock shall not have been delisted from the Exchange.
(v) THE LEGAL OPINION. The Company shall have delivered to the
Subscriber the opinion of Wilson, Sonsini, Goodrich & Rosati,
independent counsel to the Company, dated as of the Second Closing
Date, in form and substance reasonably satisfactory to the Subscriber.
(vi) OFFICER'S CERTIFICATE. The Company shall have delivered to
the Subscriber a certificate in substantially the form and substance
of the Officer's Certificate Exhibit which is annexed hereto and
hereby made a part hereof or in such other form and substance as shall
be reasonably satisfactory to the Subscriber, executed in either case
by an executive officer of the Company as of the Second Closing Date,
to the effect that all the conditions to the Second Closing shall have
been satisfied.
(vii) REGISTRATION STATEMENT. The registration statement filed by
the Company pursuant to Section 2 of the Registration Rights Agreement
covering the resale of the Registrable Securities (as defined in the
Registration Rights Agreement) underlying (i) the Debentures issued at
the First Closing and to be issued at the Second Closing and (ii) the
Warrants issued at the First Closing (the "Registration Statement")
shall be effective, and no stop order shall have been issued in
respect thereof and the registration statement and use of the related
prospectus have not been suspended and there is no reason or basis for
such suspension in either case pursuant to Section 8 of the
Registration Rights Agreement.
(viii) FORM OF DEBENTURE. The form of Debenture to be executed
and delivered on the Second Closing Date pursuant to this Agreement
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shall be in the same form and substance as the Debentures issued at
the First Closing, but dated as at the Second Closing Date, completed
to reflect the appropriate principal amounts thereof, and otherwise
amended only to reflect adjustments to the Applicable Percentages (as
defined in the Debentures) pursuant to the Registration Rights
Agreement prior to the Second Closing Date, as though such Debentures
had been issued on the First Closing Date.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER
The Subscriber represents and warrants to the Company that:
2.1 NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Subscriber understands
that no United States federal or state agency or similar agency of any other
country, has passed upon or made any recommendation or endorsement of the
Company or the offering of the Securities.
2.2 INTENT. The Subscriber is purchasing the Securities for its own
account and not with a view towards distribution and the Subscriber has no
present arrangement (whether or not legally binding) at any time to sell the
Securities to or through any person or entity; provided, however, that by
making the representations herein, the Subscriber does not agree to hold the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with federal and state
securities laws applicable to such disposition. The Subscriber understands
that the Securities must be held indefinitely unless such Securities are
subsequently registered under the Securities Act of 1933 or an exemption from
registration is available. The Subscriber has been advised or is aware of the
provisions of Rule 144 promulgated under the Act.
2.3 SOPHISTICATED INVESTOR. The Subscriber is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D promulgated under the
Securities Act ("Regulation D")) and an accredited investor (as defined in
Rule 501 of Regulation D), and Subscriber has such experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in Securities. The Subscriber acknowledges that the Securities
are speculative and involve a high degree of risk.
2.4 INDEPENDENT INVESTIGATION. The Subscriber, in making its decision to
purchase the Securities subscribed for hereunder, has relied upon an independent
investigation made by it and/or its representatives and has not relied /^/ on
any oral or written representations or assurances from the Company or any
representative or agent of the Company, other than as set forth in this
Agreement, in the public filings of the Company and in the documents described
below. Prior to the date hereof, the Subscriber has been furnished with and has
reviewed the Company's latest proxy statement and Annual Report on Form 10-K
sent to the Company's shareholders and all documents filed by the Company with
the Securities and Exchange Commission (the "Commission")
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since December 31, 1995, pursuant to sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
(excluding preliminary proxy statement filings) (such documents are
collectively referred to in this Agreement as the "Exchange Act Reports").
The Subscriber has had a reasonable opportunity to ask questions of and
receive answers from the Company concerning the Company and the Offering and
has received satisfactory answers to all inquiries it has made with respect
to the Company and the Securities. The Subscriber acknowledges the price and
terms of the Securities offered hereby has been determined by negotiation
based, in part on the market price for the Common Stock, and does not
necessarily bear any relationship to the assets, book value or potential
performance of the Company or any other recognized criteria of value.
2.5 AUTHORITY. This Agreement has been duly authorized and validly
executed, and delivered by the Subscriber and is a valid and binding
agreement enforceable in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally.
2.6 NO LEGAL ADVICE FROM COMPANY. The Subscriber acknowledges that it
has had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and tax
advisors. Except for any statements or representations of the Company made
in this Agreement and in the Exchange Act Reports, the Subscriber is relying
solely on such counsel and advisors and not on any statements or
representations of the Company or any of its representative or agents for
legal, tax or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities laws of any
jurisdiction.
2.7 NO BROKERS. The Subscriber has taken no action which would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the
transactions contemplated hereby, except for dealings with Promethean
Investment Group, L.L.C., whose fees will be paid for by the Subscriber.
2.8 NOT AN AFFILIATE. The Subscriber is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
2.9 RELIANCE ON REPRESENTATIONS AND WARRANTIES. The Subscriber
understands that the Securities are being offered and sold to it in reliance
on specific provisions of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings
of the Subscriber set forth in this Agreement in order to determine the
applicability of such provisions.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Subscriber that:
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<PAGE>
3.1 COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act of 1934, is in full
compliance with all reporting requirements of the Exchange Act, and the
Company has maintained all requirements for the continued listing of its
common stock, and such common stock is currently listed on the Exchange.
3.2 CURRENT PUBLIC INFORMATION. The Exchange Act Reports are the only
filings made by the Company since December 31, 1995, pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act.
3.3 NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN REGARD TO
THIS TRANSACTION. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf has conducted any
"directed selling efforts" with respect to the Debentures or the Warrants nor
has the Company conducted any general solicitation (as that term is used in
Regulation D) with respect to any of the Securities, nor have they made any
offers or sales of any security or solicited any offers to buy any security,
under circumstances that would require registration of the Securities under
the Act.
3.4 VALID ISSUANCE OF DEBENTURES AND CAPITAL STOCK. The Company has an
authorized capitalization consisting of 40,000,000 shares of Common Stock,
par value $0.10 and 2,000,000 shares of Preferred Stock, par value $0.10,
warrant outstanding for 194,500 shares of Common Stock, and stock options
granted to employees as described in the Exchange Act Reports. The Company
has issued and outstanding 25,223,412 shares of Common Stock. None of such
Preferred Stock has been issued or is outstanding. All of the issued shares
of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable; upon issuance of the
Securities, the Securities will be duly and validly issued, fully paid and
non-assessable; the shares of Common Stock issuable upon conversion of the
Debentures and exercise of the Warrants, when issued and delivered in
accordance with the terms of the Debentures and the Warrants respectively,
will be duly and validly issued, fully paid and non-assessable; and the
holders of outstanding Capital Stock of the Company are not and shall not be
entitled to preemptive or other rights afforded by the Company to subscribe
for the capital stock or other securities of the Company as a result of the
sale of the Securities or the issuance of Common Stock upon the conversion or
exercise thereof.
3.5 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on the Subsidiary Exhibit annexed
hereto and hereby made a part hereof. The Company and each such subsidiary,
if any, is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary other
than those in which the
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<PAGE>
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect" means any effect on the business, operations, properties,
prospects, or financial condition of the entity with respect to which such
term is used and which is material and adverse to such entity or to other
entities controlling or controlled by such entity, and/or any condition or
situation which would prohibit or otherwise interfere with the ability of the
entity with respect to which said term is used to enter into and perform its
obligations under this Agreement.
3.6 AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Securities in accordance with the terms hereof and thereof, (ii)
the execution, issuance and delivery of this Agreement, the Debentures and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
Common Stock upon the conversion or exercise thereof, have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement and the Debentures and Warrants constitute,
and upon execution, issuance and delivery thereof the Debentures and Warrants
shall be, valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
3.7 CORPORATE DOCUMENTS. The Company has furnished or made available to
the Subscriber true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof (the "Certificate"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
3.8 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Debentures and the Warrants by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby, including without limitation the issuance of Common Stock upon the
conversion or exercise thereof, do not and will not (i) result in a violation
of the Company's Certificate of Incorporation or By-Laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company
or any of its subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect); provided that, for purposes of such representation as to
federal, state, local or foreign law, rule or
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<PAGE>
regulation, no representation is made herein with respect to any of the same
applicable solely to the Subscriber and not to the Company. The business of
the Company is not being conducted in violation of any law, ordinance or
regulations of any governmental entity, except for possible violations which
either singly or in the aggregate do not and will not have a Material Adverse
Effect. The Company is not required under federal, state or local law, rule
or regulation in the United States to obtain any consent, authorization or
order of, or make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or issue and sell the Securities in accordance with the
terms hereof and thereof (other than any SEC, NASD or state securities
filings which may be required to be made by the Company subsequent to either
the First Closing or the Second Closing, and any registration statement which
may be filed pursuant hereto); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Subscriber herein.
3.9 EXCHANGE ACT REPORTS. The Company has delivered or made available
to the Subscriber true and complete copies of the Exchange Act Reports
(including, without limitation, proxy information and solicitation
materials). The Company has not provided to the Subscriber any information
which, according to applicable law, rule or regulation, should have been
disclosed publicly prior to the date hereof by the Company but which has not
been so disclosed. As of their respective dates, the Exchange Act Reports
complied in all material respects with the requirements of the Exchange Act
and rules and regulations of the SEC promulgated thereunder and other
federal, state and local laws, rules and regulations applicable to such
Exchange Act Reports, and none of the Exchange Act Reports contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Exchange
Act Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed
or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
3.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1995, the date
through which the most recent annual report of the Company on Form 10-K which
has been prepared and filed with the SEC, a copy of which is included in the
Exchange Act Reports, no Material Adverse Effect has occurred or exists with
respect to the Company or its subsidiaries, except as described in the
Company's form 10-Q's for the quarterly
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periods ended March 31, June 30, September 30, 1996 as well as the Company's
press release of February 5, 1997, a copy of which has been furnished to the
Subscriber.
3.11 NO UNDISCLOSED LIABILITIES. The Company and its subsidiaries have
no liabilities or obligations which are material, individually or in the
aggregate, and are not disclosed in the Exchange Act Reports, other than
those incurred in the ordinary course of the Company's or its subsidiaries'
respective businesses since December 31, 1995, and which, individually or in
the aggregate, do not or would not have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole.
3.12 NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or circumstance
has occurred or exists with respect to the Company or its subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has not been so publicly announced or disclosed.
3.13 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
the Securities under the Act.
3.14 NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or
similar payments by the Subscriber relating to this Agreement for the
transactions contemplated hereby, except for dealings with Promethean
Investment Group, L.L.C., whose fees will be paid for by the Subscriber.
4. COVENANTS OF THE COMPANY
4.1 REGISTRATION RIGHTS. The Company agrees that, at the First Closing,
it will enter into a Registration Rights Agreement with the Subscriber, in
the form and substance of the Registration Rights Agreement Exhibit which is
annexed hereto and hereby made a part hereof.
4.2 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue shares of its Common
Stock upon conversion of the Debentures; and exercise of the Warrants;
provided, however, that the number of shares so reserved shall, except as
hereinafter and in the Debentures provided, shall be 1,750,000 shares,
subject to reduction and increase as hereinafter provided. The number of
shares so reserved may be reduced by the number of shares actually delivered
pursuant to conversion of Debentures or exercise of the Warrants (provided
that in no event shall the number of shares so reserved be less than the
maximum number required to satisfy the remaining conversion rights on the
unconverted Debentures and the remaining exercise
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rights under unexercised Warrants) and the number of shares so reserved shall
be increased to reflect stock splits and stock dividends and distributions.
In the event the number of shares so reserved shall be insufficient for
issuance upon the conversion of the Debentures and exercise of the Warrants,
or if the Holders of the Debentures would at any time upon conversion thereof
be entitled to the issuance of shares of Common Stock in excess of the
limitation in Paragraph 5(d) of the Debentures, then in either case the
Company shall use its best efforts and all due diligence to obtain the
approval by its shareholders of this Subscription Agreement and all
transactions contemplated hereunder, including the authorization of such
additional shares as may be required to issue such shares in excess of the
number so reserved or in excess of such limitation, as the case may be.
4.3 LISTING OF UNDERLYING SHARES. The Company hereby agrees, promptly
following the First Closing of the transactions contemplated by this
Agreement, to take such action to cause the Underlying Stock and the Warrant
Stock to be listed on the Exchange as promptly as possible but no later than
90 days following the First Closing Date. The Company further agrees, if the
Company applies to have the Common Stock traded on any principal stock
exchange or market, it will include in such application the Underlying Stock
and the Warrant Stock and will take such other action as is necessary or
desirable to cause the Underlying Stock and the Warrant Stock to be listed on
such other exchange or market as promptly as possible.
4.4 EXCHANGE ACT REGISTRATION. The Company will cause its Common Stock
to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will comply in all respects with its reporting and filing obligations
under said Act, and will not take any action or file any document (whether or
not permitted by said Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Act. The Company will take all action under its
control to continue the listing and trading of its Common Stock on the
Exchange and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and the Exchange.
4.5 LEGENDS. The Underlying Stock and the Warrant Stock and
certificates evidencing the same shall, upon the effectiveness of the
Registration Statement be free of legends (except as provided in Section 5.1
below), "stop transfers," so-called, "stock transfer restrictions,"
so-called, or other restrictions.
4.6 CORPORATE EXISTENCE. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
5. LEGENDS
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<PAGE>
5.1 LEGENDS. The Company will issue one or more Debentures in the name
of the Subscriber and in such denominations (but no less than $50,000 each)
to be specified by the Subscriber prior to (or from time to time subsequent
to) the Closings. The Debentures, the Warrants, certificates evidencing any
shares of Common Stock issued upon conversion or exercise thereof prior to
the effectiveness of the Registration Statement and, except as hereinafter
provided in this Section 5.1, certificates evidencing shares of Common Stock
issued upon conversion or exercise of the Debentures or Warrants, as the case
may be, after effectiveness of the Registration Statement, will bear the
following legend (the "Legend"):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED
FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Prior to the First Closing, the Company will issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer
agent for its Common Stock coterminous with the Company's appointment of any
such substitute or replacement transfer agent) instructions in substantially
the form and substance of the Transfer Agent Irrevocable Instruction Exhibit
which is annexed hereto and hereby made a part hereof. Such instructions
shall be irrevocable by the Company from and after the First Closing or from
and after the issuance thereof to any such substitute or replacement transfer
agent, as the case may be, except as otherwise expressly provided in the
Registration Rights Agreement. It is the intent and purpose of such
instructions, as provided therein, to require the transfer agent for the
Common Stock from time to time to issue certificates evidencing Underlying
Stock or Warrant Stock free of the Legend during the following periods and
under the following circumstances and without consultation by the transfer
agent with Company or its counsel and without the need for any further advice
or instruction to the transfer agent by or from the Company or its counsel:
(a) At any time from and after the effectiveness of the
Registration Statement except during a Suspension Period (as defined in
the Registration Rights Agreement):
(i) upon any surrender of one or more Debentures or Warrants
for conversion or exercise into Underlying Stock or Warrant Stock, as
the case may be, to the extent such surrender is accompanied by a
Conversion or Exercise Notice requesting the issuance of certificates
evidencing such Stock free of the Legend and either containing or also
accompanied by representations to the effect that the Holder of the
surrendered Debentures or Warrants intends to effect one or more sales
of
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<PAGE>
such Underlying or Warrant Stock pursuant to and in accordance with
the Registration Statement, including the prospectus delivery
requirements applicable thereto; and
(ii) upon any surrender of one or more certificates
evidencing Underlying Stock or Warrant Stock and which bear the
Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered and containing or also accompanied by representations
by the Holder of the surrendered Stock to the effect of those
described in Section 5.1(a)(i) above; and
(b) At any time from and after the First Closing Date, upon any
surrender of one or more certificates evidencing Underlying Stock or
Warrant Stock and which bear the Legend, to the extent accompanied by a
notice requesting the issuance of new certificates free of the Legend to
replace those surrendered and containing or also accompanied by
representations that (i) the Holder thereof is permitted to dispose thereof
pursuant to Rule 144(k) under the Act or (ii) the Holder intends to effect
the sale or other disposition of such Stock, whether or not pursuant to
the Registration Statement, to a purchaser or purchasers who will not be
subject to the registration requirements of the Act, or (iii) such Holder
is not then subject to such requirements.
In addition, and if applicable, the Company shall reissue the Debentures
and Warrants without the Legend set forth above at such time as (i) the
Holder thereof is permitted to dispose thereof pursuant to Rule 144(k) under
the Act or (ii) the Holder intends to effect a sale thereof to a purchaser or
purchasers who will not be subject to the registration requirements of the
Act, or (iii) the Holder is not then subject to such requirements.
5.2 NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No Legend has been or
shall be placed on the share certificates representing the Securities and no
instructions or "stop transfers," so called, "stock transfer restrictions,"
so called, or other restrictions have been or shall be given to the Company's
transfer agent with respect thereto other than as set forth in this Section 5.
5.3 SUBSCRIBER'S COMPLIANCE. Nothing in this section shall affect in
any way the Subscriber's obligations under and agreement to comply with all
applicable securities laws upon resale of the Securities.
6. OTHER ISSUANCES OF SECURITIES
6.1 OTHER EQUITY OFFERINGS. During the period beginning on the First
Closing Date and expiring 180 calendar days following the effectiveness of
the Registration Statement, the Company will not make any Equity Offerings,
as defined in the
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Debentures, except for an offering of rights to subscribe for shares of the
Company's Common Stock pursuant to any exemption from the registration
requirements of the Securities Act of 1933, as amended, including without
limitation the exemption provided by Regulations D and S promulgated
thereunder.
7. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL
THIS AGREEMENT SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The
parties hereby agree that all actions or proceedings arising directly or
indirectly from or in connection with this Agreement shall, at the option of
either party, be litigated only in the United States District Court for the
Southern District of New York located in New York County, New York. The
parties consent to the jurisdiction and venue of the foregoing courts and
consent that any process or notice of motion or other application to either
of said courts or a judge thereof may be served inside or outside the State
of New York or the Southern District of New York by registered mail, return
receipt requested, directed to the party for which it is intended at its
address set forth in this Agreement (and service so made shall be deemed
complete five (5) days after the same has been posted as aforesaid) or by
personal service or in such other manner as may be permissible under the
rules of said courts.
8. ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT
8.1 ASSIGNMENT. Neither this Agreement nor any rights of the Subscriber
hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any transferee of any of the
Securities purchased or acquired by the Subscriber hereunder with respect to
the Securities held by such person.
8.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Debentures, the
Warrants, the Registration Rights Agreement, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or termination is
sought.
9. PUBLICITY
The Company agrees that it will not disclose, and will not include
in any public announcement, the name of the Subscriber without its consent,
unless and until
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such disclosure is required by law or applicable regulation, and then only to
the extent of such requirement.
10. NOTICES, ETC.; EXPENSES; INDEMNITY
10.1 NOTICES. Any notice, demand or request required or permitted to be
given by either the Company or the Subscriber pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or by facsimile, with a hard copy to follow by two day courier
addressed to the parties at the addresses of the parties set forth at the end
of this Agreement or such other address as a party may request by notifying
the other in writing. Copies of all notices to the Subscriber shall be sent
to its designee or representative.
10.2 COSTS AND EXPENSES. The Company shall be responsible for the
Subscriber's costs and expenses (including reasonable attorney's fees)
incurred in entering into this Agreement , but not to exceed $5,000 in the
aggregate for all Subscribers.
10.3 INDEMNIFICATION. Each party shall indemnify the other against any
loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
11. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each
of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
12. SURVIVAL; SEVERABILITY
The representations, warranties, covenants and agreements of the parties
hereto shall survive both the First Closing and the Second Closing. In the
event that any provision of this Agreement becomes or is declared by a court
of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
13. TITLE AND SUBTITLES
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this
Agreement.
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14. AMOUNT
The undersigned hereby subscribes for U.S. $500,000 in principal amount
of Debentures and Warrants to purchase 50,000 shares of Common Stock and
agrees to pay therefor funds in the amount of Five Hundred Thousand Dollars
(U.S. $ 500,000 ).
The undersigned acknowledges that this subscription shall not be
effective unless accepted by the Company as indicated below.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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Subscriber's Representative Name of Subscriber:
Promethean Investment Group, L.L.C.
Lewis A. Fraser
By: Promethean Investment Group, L.L.C.
Its: Investment Advisor
By /s/ James F. O'Brien
-------------------------------------
Name: James F. O'Brien
Title: President
40 West 57th Street, #1520
NEW YORK, NY 10019 Date of Subscription: February 13, 1997
______________________________
Address
Place of Execution: U.S.
(212) 698-0588
Telephone Place of Organization or Citizenship:
_______________________________________
(212) 698-0505
Fax Place of Residency and/or Principal Place
of Business:
c/o 100 South Biscayne Blvd., #700
Miami, Florida 33133
(Telephone) _________________________
(Fax) _________________________
Registration Instructions: ____________
(Name) (Please Print) __________________
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AS OF THE 13TH DAY OF
FEBRUARY, 1997.
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
--------------------------------------
Print Name: Phillips W. Smith
-------------------------------
Its: President and Chief Executive Officer
--------------------------------------
ATTEST
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________________________
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THIS SUBORDINATED DEBENTURE HAS BEEN ISSUED PURSUANT TO REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAS
NOT BEEN REGISTERED UNDER THE ACT. THE DEBENTURES MAY NOT BE TRANSFERRED,
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE AND CURRENT REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
NO. 1 $1,225,000.00
6% CONVERTIBLE SUBORDINATED DEBENTURE DUE FEBRUARY 13, 2000
THIS CONVERTIBLE SUBORDINATED DEBENTURE ("Debenture") is one of a duly
authorized issue of Debentures of Zycad Corporation, a corporation duly
organized and existing under the laws of the State of Delaware (the
"Company"), designated as its 6% Convertible Subordinated Debentures Due
February 13, 2000 in an aggregate principal amount not exceeding Five Million
U.S. Dollars (U.S. $5,000,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to Halifax Fund, L.P.,
having an address at c/o Citco Fund Services Ltd., Corporate Centre, West Bay
Road, P.O. Box 31106, SMB, Grand Cayman, Cayman Islands, the holder hereof,
or its order (the "Holder"), the principal sum of One Million and Two Hundred
and Twenty Five Thousand United States Dollars (U.S. $1,225,000) on February
13, 2000 (the "Maturity Date") and to pay interest on the principal sum
outstanding under this Debenture ("Outstanding Principal Amount"), at the
rate of 6% per annum, accruing daily and due and payable semi-annually in
arrears on the 13th day of February and August of each year (each an
"Interest Payment Date"), with the first such payment due on August 13, 1997.
Accrual of interest shall commence on the first business day to occur after
the date hereof and shall continue until payment in full of the principal sum
has been made. The interest so payable will be paid to the person in whose
name this Debenture is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Convertible Securities
Subscription Agreement dated as of February 13, 1997 between the Company and
Halifax Fund, L.P. (the "Subscription Agreement"). The principal of and
interest on this Debenture are payable in such coin or currency of the United
States of America as of the time of payment is legal tender for payment of
public and private debts, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder hereof from
time to time, provided, however, that, in lieu of paying such interest in
coin or currency, the Company may, at its option, pay interest on this
Debenture for any Interest Payment Date by adding the amount of such interest
to the Outstanding Principal Amount due under this Debenture ("PIK Interest")
pursuant to a statement in the form of Exhibit 2 hereto ("PIK Statement")
delivered by the Company to the Holder
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on or prior to the applicable Interest Payment Date. If the cash interest
due hereunder is not paid to the Holder by the applicable Interest Payment
Date, then the Holder shall be entitled to the addition of PIK Interest
hereunder and to the delivery of a PIK Statement with respect thereto. Any
PIK Interest when so added to the Outstanding Principal Amount due under this
Debenture shall, for all purposes of this Debenture, be deemed to have been
part of the principal indebtedness originally evidenced by this Debenture
including, without limitation, for purposes of determining interest
thereafter payable hereunder and amounts thereafter convertible into Common
Stock hereunder. The Company will pay the principal of and all accrued and
unpaid interest due upon this Debenture on the Maturity Date, to the Holder
of this Debenture as of the tenth (10th) day prior to the Maturity Date and
addressed to such Holder at the last address appearing on the Debenture
Register.
Payment of the principal indebtedness evidenced from time to time by this
Debenture, and interest accrued thereon, shall be subject and subordinate, as
provided in Exhibit 3 hereto, to the Company's Senior Debt.
This Debenture is subject to the following additional provisions:
1. EXCHANGE. The Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$50,000 each as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. TRANSFERS. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act of
1933, as amended (the "Act") and applicable state securities laws and in
accordance with other applicable provisions hereof. Prior to due presentment
for transfer of this Debenture, the Company may treat the person in whose
name this Debenture is duly registered on the Company's Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
all other purposes, whether or not this Debenture be overdue, and the Company
shall not be affected by notice to the contrary.
3. DEFINITIONS. For purposes hereof the following definitions shall
apply:
"FIRST CLOSING" shall have the meaning provided in the Subscription
Agreement..
"SECOND CLOSING" shall have the meaning provided in the Subscription
Agreement.
"FIRST CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
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"SECOND CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
"COMMON STOCK" shall mean the Common Stock, par value $0.10 per
share of the Company.
"CONVERSION DATE MARKET PRICE" shall mean, (as set forth in the
schedule below,) an amount that is equal to X%, as set forth in the schedule
below, (the "X Percentage") of the average of the Market Price for Shares of
Common Stock on each of the five trading days immediately preceding the
Holder Conversion Date, subject to adjustment from time to time as set forth
in Paragraph 7 hereof and in Section 6 of the Registration Rights Agreement.
Conversion Date
(DAYS FROM FIRST CLOSING DATE) X
0 to 90 100%
91 to 120 85.0%
121 to 150 84.0%
151 to 180 83.0%
181 to 210 82.0%
211 to 240 81.0%
241 to maturity 80.0%
"CONVERSION DEFICIENCY" shall have the meaning set forth in
Paragraph 9(b).
"CONVERSION NOTICE" shall have the meaning set forth in Paragraph
5(c).
"CONVERSION RATE" shall have the meaning set forth in Paragraph 5(b).
"EQUITY OFFERINGS" shall mean the issuance or sale by the Company of
any Common Stock or securities which are convertible into or exchangeable for
its Common Stock or any convertible securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible securities (other than shares or options
issued or which may be issued pursuant to the Company's employee or director
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the First Closing Date and listed in the Exchange Act Reports).
"HOLDER CONVERSION DATE" shall have the meaning set forth in
Paragraph 5(c).
"MARKET PRICE FOR SHARES OF COMMON STOCK" shall mean the price of
one share of Common Stock determined as follows:
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(i) If the Common Stock is listed on the Exchange (as defined
in the Subscription Agreement), the lowest reported sales price on the date
of valuation;
(ii) If the Common Stock is listed on a national securities
exchange, the lowest reported sales price on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common stock is
quoted in the over-the-counter market on the pink sheets or bulletin board,
the lesser of (A) the lowest sales price or (B) the last reported "bid" price
on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii) above applies, the
market value as determined by a nationally recognized investment banking firm
or other 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. Such determination shall
be conclusive and binding on all persons.
"PARAGRAPH 4 TRANSACTION" shall mean a merger, consolidation, or
other transaction referred to in Paragraph 4.
"POST-DEFICIENCY CONVERSION" shall have the meaning set forth in
Paragraph 9(b).
"SUBSCRIPTION AGREEMENT" shall mean the Convertible Securities
Subscription Agreement dated as of February 13, 1997, between the Company and
the Subscriber or Subscribers to the original issue of the Debentures and the
Warrants.
"WARRANTS" shall have the meaning provided in the Subscription
Agreement.
4. MERGER, CONSOLIDATION. 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 "Paragraph 4 Transaction"), the Holders of
this Debenture, to the extent then outstanding and notwithstanding anything
in Paragraph 5(a) to the contrary, shall participate in any such transaction
as a class with common stockholders of the Company on the same basis as if
this Debenture had been converted one day prior the effective date of such
transaction, provided, however, that if a Paragraph 4 Transaction or the
record date for determination of the Company's stockholders entitled to
participate in such Transaction shall occur at any time before the expiration
of six (6) months following the effectiveness of the Registration Statement
contemplated by the Registration Rights Agreement, both of which are referred
to in the Subscription Agreement, then, at the option of the Holder of this
Debenture, such Holder may treat the effective date of such Paragraph 4
Transaction as the date for the redemption of this Debenture and shall be
entitled to receive the redemption price with respect to such redemption date
as is provided in Paragraph 9(b), as though such
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redemption date were the date of a Conversion Notice for purposes of such
Paragraph 9(b). Such Holder shall be entitled to make such election at any
time up to ten (10) trading days after the effective date of the Paragraph 4
Transaction. Nothing in this Section 4 shall prohibit the Holder from
converting any part or all of this Debenture in accordance with the terms
hereof, up to and including the effective time and date of the Paragraph 4
Transaction.
5. CONVERSION. This Debenture is subject to conversion as follows:
(a) (i) HOLDER'S RIGHT TO CONVERT. This Debenture shall be
convertible at any time, in whole or in part, at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common
Stock.
(ii) AUTOMATIC CONVERSION. At maturity of this Debenture, the
principal indebtedness then outstanding hereunder (including without
limitation all PIK Interest then included therein) shall automatically be
converted into fully paid, validly issued and nonassessable shares of Common
Stock and, except for the Holder's right to receive the Common Stock into
which this Debenture is automatically so converted and except for any portion
of this Debenture which cannot be so converted by reason of the limitations
provided or referred to in Paragraphs 5(d) and 9(b) hereof, this Debenture
shall be deemed to have been canceled whether or not surrendered upon such
automatic conversion.
(iii) ACCRUED BUT UNPAID INTEREST. Notwithstanding anything in
this Debenture to the contrary, the conversion of any part or all of the
Outstanding Principal Amount of this Debenture shall include, without
limitation, the conversion of all the accrued but unpaid interest on the
Outstanding Principal Amount so converted.
(b) CONVERSION PRICE FOR HOLDER CONVERTED SHARES. The Outstanding
Principal Amount of this Debenture that is converted into shares of Common
Stock shall be convertible into the number of shares of Common Stock which
results from application of the following formula:
P + I
----------------------------
Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on P as of the Holder Conversion Date
The number of shares of Common Stock into which the Outstanding
Principal Amount of this Debenture, and interest accrued thereon, may be
converted pursuant to this paragraph is hereafter referred to the "Conversion
Rate."
(c) MECHANICS OF CONVERSION. In order to convert this Debenture
(in whole or in part) into full shares of Common Stock, the Holder shall
surrender this
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Debenture, duly endorsed, by either overnight courier or 2-day courier, to
the principal office of the Company, and shall give written notice in the
form of EXHIBIT 1 hereto (the "Conversion Notice") by facsimile (with the
original of such notice forwarded with the foregoing courier) to the Company
at such office that the Holder elects to convert the principal amount
specified therein, which such notice and election shall be irrevocable by the
Holder unless the Company shall default in or fail to fulfill any or all of
its obligations arising hereunder or otherwise by reason of such notice or
election, in which case, in addition to and not in lieu of any and all other
rights and remedies to which the Holder may thereby be and become entitled,
such notice and election, by further notice to the Company may be revoked and
rescinded at the election of the Holder exercised in its sole discretion;
PROVIDED, HOWEVER, that the Company shall not be obligated to issue
certificates evidencing the shares of the Common Stock issuable upon such
conversion unless either the Debenture evidencing the principal amount is
delivered to the Company as provided above, or the Holder notifies the
Company that such Debenture(s) have been lost, stolen or destroyed and
promptly executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by its connection with such
Debentures; and provided further that each Conversion Notice shall provide
for the Holder's election to convert either (i) at least $50,000 of the
Outstanding Principal Amount of the Debenture or Debentures so to be
converted, or (ii) if such Outstanding Principal Amount shall then be less
than $50,000, the entire amount thereof.
Upon receipt of such Conversion Notice, the Company shall
immediately verify the Holder's calculation of the Conversion Rate and shall
use its best efforts to issue and deliver within three business days after
delivery to the Company of such Debenture(s), or after receipt of such
agreement and indemnification, to such Holder of Debenture(s) at the address
of the Holder, or to its designee, a certificate or certificates for the
number of shares of Common Stock to which the Holder shall be entitled as
aforesaid, together with a Debenture or Debentures for the principal amount
of Debentures not submitted for conversion. The date on which the Conversion
Notice is given (the "Holder Conversion Date") shall be deemed to be the date
the Company received by facsimile the Conversion Notice, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common Stock on such date.
(d) LIMITATION IN CONVERSION. Notwithstanding anything herein
contained to the contrary, the number of shares of Common Stock to be issued
pursuant to a Conversion Notice or pursuant to the automatic conversion
provided in Paragraph 5(a)(ii) hereof shall not exceed the number of such
shares which, together with the Common Stock theretofore issued upon
conversion of Debentures, would exceed 1,765,638 shares of Common Stock, as
theretofore adjusted pursuant to the provisions hereof.
6. [OMITTED]
7. STOCK SPLITS: DIVIDENDS, ADJUSTMENTS, REORGANIZATIONS.
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(a) 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) trading days of a Paragraph 4 Transaction.
(b) CERTAIN DIVIDENDS AND DISTRIBUTION. 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 Paragraph 4 Transaction.
(c) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Company at any time or from time to time after the First Closing Date
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 the Holders of
Debentures shall receive upon conversion thereof pursuant to Paragraph 5
hereof, 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 Holder Conversion
Date, retained such securities, subject to all other adjustments called for
during such period under this Paragraph 7 with respect to the rights of the
Holders of the Debentures. For purposes of this Paragraph 7(c), the number
of shares of Common Stock so receivable upon conversion by the Holder shall
be deemed to be that number which the Holder would have received upon
conversion of the entire Outstanding Principal Amount hereof if the Holder
Conversion Date had been the day preceding the date upon which the Company
announced the making of such dividend or other distribution.
(d) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. In
the event that at any time or from time to time after the First Closing Date,
the Common Stock issuable upon the conversion of the Debentures 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 Paragraph 7 or a merger or consolidation,
provided for in Paragraph 4), then and in each such event each Holder of
Debentures shall have the right thereafter to convert such Debenture 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 herein
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 determining the Market Price for Shares of Common Stock)
issued in connection with the above described transaction.
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(e) REORGANIZATIONS. If at any time or from time to time after the
First Closing Date 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 Paragraph 7) then, as a
part of such reorganization, provision shall be made so that the Holders of
the Debentures shall thereafter be entitled to receive upon conversion of the
Debentures 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 Paragraph 7 with respect to the rights of the Holders of
the Debentures after the reorganization to the end that the provisions of
this Paragraph 7 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.
(f) In the event of a reasonable, good faith dispute between a
Holder of Debentures and the Company with respect to the adjustment required
by Paragraph 7(d) or 7(e), 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 shared 50% by the Holder or Holders
involved in the dispute and 50% by the Company, except that each party shall
bear its own legal and other expenses.
8. FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder.
The number of shares of Common Stock that are issuable upon any conversion
shall be rounded up or down to the nearest whole share.
9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION
(a) RESERVATION REQUIREMENT. The Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of its Common Stock upon
conversion of the Debentures or upon exercise of Warrants; provided, however,
that the number of shares so reserved shall at all times be at least
1,750,000 shares. The number of shares so reserved may be reduced by the
number of shares actually delivered pursuant to conversion of Debentures and
exercise of Warrants (provided that, in no event shall the number of shares
so reserved be less than the maximum number required to satisfy remaining
conversion rights on the unconverted Debentures and remaining exercise rights
under any Warrants issued hereunder,) and the number of shares so reserved
shall be increased to reflect stock splits and stock dividends and
distributions.
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(b) CONVERSION DEFICIENCY. If the Company does not have a
sufficient number of shares of Common Stock available to satisfy the
Company's obligations to a Holder of Debentures or if (whether or not a
Conversion Notice shall have been given with respect thereto) one or more
Debentures cannot be fully converted pursuant to Paragraphs 5(a)(i) or (ii)
by reason of the limitation provided in Section 5(d) (in either case, a
"CONVERSION DEFICIENCY"), from and after the fifth (5th) day following a
Conversion Deficiency , each Holder of the Debentures shall have the right to
demand from the Company immediate redemption of any portion of the Debentures
with respect to which the Company does not have a sufficient number of shares
available so to satisfy such obligations of the Company or with respect to
which conversion is limited by Paragraph 5(d), as the case may be, in either
case in cash at a redemption price per Debenture equal to (A) the dollar
amount which is the product of (x) the Conversion Rate then applicable to the
Debentures so to be redeemed pursuant to this Paragraph 9(b) and (y) the last
reported sales price on the Exchange of the Company's Common Stock on the
date on which the Conversion Notice was delivered or (B) 110% of the
principal amount of the Debenture (including all PIK Interest) plus accrued
but unpaid interest, whichever is greater; PROVIDED HOWEVER, that no notice
of redemption may be delivered by a Holder subsequent to receipt by such
Holder of notice from the Company (sent by overnight or 2-day courier with a
copy sent by facsimile) of availability of sufficient shares of Common Stock
to perfect conversion (a "POST DEFICIENCY CONVERSION") of all the Debentures;
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
Paragraph 5(b) hereof and, to the extent not so converted, payment of all
accrued and unpaid interest in cash with respect thereto within five business
days of delivery of the notice of Post-Deficiency Conversion. In addition to
the foregoing, upon a Conversion Deficiency, the rate of interest on all of
the Debentures shall, to the maximum extent permitted by applicable law, be
increased by two percent (2%) (i.e. from 6% to 8%) commencing on the first
day of the thirty (30) day periods (or part thereof) following a Conversion
Deficiency, an additional three percent (3%) commencing on the first day of
each of the second and third such thirty (30) day period (or part thereof),
and an additional one percent (1%) on the first day of each consecutive
thirty (30) day period (or part thereof) thereafter until such securities
have been duly converted (including any such conversion after a Post
Deficiency Conversion) or redeemed as herein provided. Any such interest
which is not paid when due shall, to the maximum extent permitted by law,
accrue interest until paid at the rate from time to time applicable to
interest on the Debentures as to which the Conversion Deficiency has occurred.
10. [Omitted]
11. NO IMPAIRING. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debentures
set forth herein or of the Holders thereof.
12. HOLDERS' RIGHTS IF SHARES ARE DELISTED OR IF TRADING IN COMMON STOCK
IS SUSPENDED. In the event that at anytime on or after the date hereof and
prior to the third
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anniversary of the First Closing Date, trading in the shares of the Company's
Common Stock is suspended on the Exchange for such shares 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, then, at a Holder's option, the
Company shall redeem such Holder's Debentures at a date designated by such
Holder, and at the redemption price provided in Paragraph 9(b) as though the
date the Holder exercises such option were the date of a Conversion Notice
for purposes of such Paragraph 9(b).
13. LIMITATIONS ON HOLDER'S RIGHT TO CONVERT. Notwithstanding anything
to the contrary contained herein, each Conversion Notice shall contain a
representation that, after giving effect to the shares of the Company's
Common Stock to be issued pursuant to such conversion notice, the total
number of shares of the Company's Common Stock deemed beneficially owned by
the Holder, together with all shares of the Company's Common Stock deemed
beneficially owned by the Holder'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.
14. RIGHTS OF FIRST REFUSAL. The Holders shall have a right of first
refusal pro rata according to the Holder's ownership of Debentures on the
date on which the Company's notice pursuant to this Paragraph 14 is given on
any Equity Offerings (except for an offering of rights to subscribe for
shares of the Company's Common Stock, provided the Holders in such case are
given the right to subscribe for the number of shares to which they would
have been entitled if they then held the shares of Common Stock into which
the Debentures may have been converted), for a period of one (1) year from
the date hereof, so long as the Holders still hold any Debentures and
provided such Equity Offerings are made pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended,
including without limitation Regulation D and Regulation S thereunder. The
Company shall give the Holders written notice of its proposal to make such an
Equity Offering and shall provide with such notice copies of the
documentation, with the economic terms of the transaction specified, pursuant
to which the Equity Offering is to be effected. Such Holders shall have ten
(10) business days from receipt of such notice to deliver a written notice to
the Company that such Holders wish to exercise their right of first refusal
with respect to such Equity Offering, provided that such offering is
completed upon such terms and with such documentation within thirty (30)
calendar days after said ten (10) day period. If such Holders exercise their
right of first refusal with respect to any Equity Offering, they must close
the transactions contemplated by the proposed issuance within ten (10)
business days of the exercise of their right hereunder on the same economic
terms and using the same documentation provided in the Company's notice to
the Holders. If the Holders fail to close the transaction for any reason
other than a breach by the Company of its obligations hereunder, such
Holder's right of first refusal shall irrevocably terminate with respect to
such Equity Offering.
15. OBLIGATIONS ABSOLUTE. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, which
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is absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place and rate, and in the manner, herein prescribed.
16. WAIVERS OF DEMAND, ETC. The Company hereby expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of
all sums owing and to be owing hereon, regardless of and without any notice
(except as required by law), diligence, act or omission as or with respect to
the collection of any amount called for hereunder.
17. REPLACEMENT DEBENTURES. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed,
replacement Debenture(s) identical in all respects to the original
Debenture(s) (except for registration number and Outstanding Principal
Amount, I f different than that shown on the original Debenture(s)) shall be
issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such Debenture(s).
18. PAYMENT OF EXPENSES. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Subscription Agreement or the
Registration Rights Agreement dated as of February 13, 1997, among the
Company and Holders of Debentures.
19. DEFAULTS. If one or more of the following described "Events of
Default" shall occur:
(a) The Company shall default in the payment of (i) interest on this
Debenture, and such default shall continue for five (5) business
days after the due date thereof, or (ii) the principal of this
Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, 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 this Debenture or
the Subscription Agreement 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 Agreement, or any other covenant,
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term, provision, condition, agreement or obligation of the
Company under this Debenture and such failure shall continue
uncured for a period of ten (10) business days after notice from
the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make a
general assignment for the benefit of creditors or commence
proceedings for its dissolution; or (4) 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
(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;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may, by notice to the
Company declare the Debenture immediately due and payable, and the Holder may
immediately, and without expiration of any period of grace, enforce any and all
of the Holder's rights and remedies
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provided herein or any other rights or remedies afforded by law. In such
event, the Debenture shall be redeemed at a redemption price per Debenture
equal to the redemption price provided in Paragraph 9(b) , as though the date
of such decleration hereunder were the date of a Conversion Notice for
purposes of such Paragraph 9(b).
20. SAVINGS CLAUSE. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof.
Neither this Debenture nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the Company and a
majority-in-interest of the Holders.
22. ASSIGNMENT, ETC. The Holder may, subject to compliance with the
Subscription Agreement, without notice, transfer or assign this Debenture or
any interest herein and may mortgage, encumber or transfer any of its rights
or interest in and to this Debenture or any part hereof and, without
limitation, each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to transfer or assign its
interest; provided, however, that before the Registration Statement
contemplated by the Registration Rights Agreement becomes effective, (i) each
such assignee, transferee and mortgagee shall be a sophisticated investor as
contemplated by Section 2.3 of the Subscription Agreement and each such
assignment, transfer, mortgagee or other encumbrance shall comply with
Regulation D under the Securities Act as though such transaction has been a
part of the original offer and sale of the Debentures by the Company and
Regulation D was applicable thereto, or (ii) the holder will furnish the
Company with an opinion of counsel to the effect that such assignment,
transfer, mortgage or other encumbrance is otherwise exempt from the
registration requirements under the Securities Act. Each such assignee,
transferee and mortgagee shall have all of the rights and obligations of the
Holder under this Debenture. The Company agrees that, subject to compliance
with the Subscription Agreement, after receipt by the Company of written
notice of assignment from the Holder or from the Holders' assignee, all
principal, interest, and other amounts which are then due and thereafter
become due under this Debenture shall be paid to such assignee at the place
of payment designated in such notice. This Debenture shall be binding upon
the Company and its successors and shall inure to the benefit of the Holder
and its successors and assigns.
23. NO WAIVER. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other
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agreement shall be cumulative and not exclusive of any other, and may be
exercised by the Holder from time to time.
24. MISCELLANEOUS. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered or mailed to said party by certified mail,
return receipt requested, with a copy in each case sent on the same day to
the addressee by Federal Express or other such expedited means with delivery
confirmed by such means, at its address set forth herein or such other
address as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered
personally or when actually received by the party to whom it is addressed.
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to
include the singular. If more than one Company is named herein, the
liability of each shall be joint and several. Paragraph headings are for
convenience only and shall not affect the meaning of this document.
25. CHOICE OF LAW AND VENUE: WAIVER OF JURY TRIAL. THIS DEBENTURE
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Company hereby agrees
that all actions or proceedings arising directly or indirectly from or in
connection with this Debenture shall, at the Holder's sole option, be
litigated only in the United States District Court for the Southern District
of New York located in New York County, New York. The Company consents to
the jurisdiction and venue of the foregoing courts and consents that any
process or notice of motion or other application to either of said courts or
a judge thereof may be served inside or outside the State of New York or the
Southern District of New York by registered mail, return receipt requested,
directed to the Company at its address set forth in this Debenture (and
service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as
may be permissible under the rules of said courts.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of: February 13, 1997
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
-----------------------------------------------
Print Name: Phillips W. Smith
---------------------------------------
Print Title: President and Chief Executive Officer
--------------------------------------
Print Address:
------------------------------------
ATTEST
/s/ Douglas E. Klint
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THIS SUBORDINATED DEBENTURE HAS BEEN ISSUED PURSUANT TO REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAS
NOT BEEN REGISTERED UNDER THE ACT. THE DEBENTURES MAY NOT BE TRANSFERRED,
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE AND CURRENT REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
NO. 2 $1,225,000.00
6% CONVERTIBLE SUBORDINATED DEBENTURE DUE FEBRUARY 13, 2000
THIS CONVERTIBLE SUBORDINATED DEBENTURE ("Debenture") is one of a duly
authorized issue of Debentures of Zycad Corporation, a corporation duly
organized and existing under the laws of the State of Delaware (the
"Company"), designated as its 6% Convertible Subordinated Debentures Due
February 13, 2000 in an aggregate principal amount not exceeding Five Million
U.S. Dollars (U.S. $5,000,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to Capital Ventures
International, having an address at 1 Capital Place, P.O. Box 1787GT, Grand
Cayman, Cayman Islands, the holder hereof, or its order (the "Holder"), the
principal sum of One Million and Two Hundred and Twenty Five Thousand United
States Dollars (U.S. $1,225,000) on February 13, 2000 (the "Maturity Date")
and to pay interest on the principal sum outstanding under this Debenture
("Outstanding Principal Amount"), at the rate of 6% per annum, accruing daily
and due and payable semi-annually in arrears on the 13th day of February and
August of each year (each an "Interest Payment Date"), with the first such
payment due on August 13, 1997. Accrual of interest shall commence on the
first business day to occur after the date hereof and shall continue until
payment in full of the principal sum has been made. The interest so payable
will be paid to the person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of the Debentures
(the "Debenture Register"); provided, however, that the Company's obligation
to a transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Convertible Securities Subscription Agreement dated as of February 13, 1997
between the Company and Capital Ventures International (the "Subscription
Agreement"). The principal of and interest on this Debenture are payable in
such coin or currency of the United States of America as of the time of
payment is legal tender for payment of public and private debts, at the
address last appearing on the Debenture Register of the Company as designated
in writing by the Holder hereof from time to time, provided, however, that,
in lieu of paying such interest in coin or currency, the Company may, at its
option, pay interest on this Debenture for any Interest Payment Date by
adding the amount of such interest to the Outstanding Principal Amount due
under this Debenture ("PIK Interest") pursuant to a statement in the form of
Exhibit 2 hereto ("PIK Statement") delivered by the Company to the Holder
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on or prior to the applicable Interest Payment Date. If the cash interest
due hereunder is not paid to the Holder by the applicable Interest Payment
Date, then the Holder shall be entitled to the addition of PIK Interest
hereunder and to the delivery of a PIK Statement with respect thereto. Any
PIK Interest when so added to the Outstanding Principal Amount due under this
Debenture shall, for all purposes of this Debenture, be deemed to have been
part of the principal indebtedness originally evidenced by this Debenture
including, without limitation, for purposes of determining interest
thereafter payable hereunder and amounts thereafter convertible into Common
Stock hereunder. The Company will pay the principal of and all accrued and
unpaid interest due upon this Debenture on the Maturity Date, to the Holder
of this Debenture as of the tenth (10th) day prior to the Maturity Date and
addressed to such Holder at the last address appearing on the Debenture
Register.
Payment of the principal indebtedness evidenced from time to time by this
Debenture, and interest accrued thereon, shall be subject and subordinate, as
provided in Exhibit 3 hereto, to the Company's Senior Debt.
This Debenture is subject to the following additional provisions:
1. EXCHANGE. The Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$50,000 each as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. TRANSFERS. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act of
1933, as amended (the "Act") and applicable state securities laws and in
accordance with other applicable provisions hereof. Prior to due presentment
for transfer of this Debenture, the Company may treat the person in whose
name this Debenture is duly registered on the Company's Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
all other purposes, whether or not this Debenture be overdue, and the Company
shall not be affected by notice to the contrary.
3. DEFINITIONS. For purposes hereof the following definitions shall
apply:
"FIRST CLOSING" shall have the meaning provided in the Subscription
Agreement..
"SECOND CLOSING" shall have the meaning provided in the Subscription
Agreement.
"FIRST CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
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"SECOND CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
"COMMON STOCK" shall mean the Common Stock, par value $0.10 per
share of the Company.
"CONVERSION DATE MARKET PRICE" shall mean, (as set forth in the
schedule below,) an amount that is equal to X%, as set forth in the schedule
below, (the "X Percentage") of the average of the Market Price for Shares of
Common Stock on each of the five trading days immediately preceding the
Holder Conversion Date, subject to adjustment from time to time as set forth
in Paragraph 7 hereof and in Section 6 of the Registration Rights Agreement.
Conversion Date
(DAYS FROM First CLOSING DATE) X
0 to 90 100%
91 to 120 85.0%
121 to 150 84.0%
151 to 180 83.0%
181 to 210 82.0%
211 to 240 81.0%
241 to maturity 80.0%
"CONVERSION DEFICIENCY" shall have the meaning set forth in
Paragraph 9(b).
"CONVERSION NOTICE" shall have the meaning set forth in Paragraph
5(c).
"CONVERSION RATE" shall have the meaning set forth in Paragraph 5(b).
"EQUITY OFFERINGS" shall mean the issuance or sale by the Company of
any Common Stock or securities which are convertible into or exchangeable for
its Common Stock or any convertible securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible securities (other than shares or options
issued or which may be issued pursuant to the Company's employee or director
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the First Closing Date and listed in the Exchange Act Reports).
"HOLDER CONVERSION DATE" shall have the meaning set forth in
Paragraph 5(c).
"MARKET PRICE FOR SHARES OF COMMON STOCK" shall mean the price of
one share of Common Stock determined as follows:
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(i) If the Common Stock is listed on the Exchange (as defined
in the Subscription Agreement), the lowest reported sales price on the date
of valuation;
(ii) If the Common Stock is listed on a national securities
exchange, the lowest reported sales price on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common stock is
quoted in the over-the-counter market on the pink sheets or bulletin board,
the lesser of (A) the lowest sales price or (B) the last reported "bid" price
on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii) above applies, the
market value as determined by a nationally recognized investment banking firm
or other 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. Such determination shall
be conclusive and binding on all persons.
"PARAGRAPH 4 TRANSACTION" shall mean a merger, consolidation, or
other transaction referred to in Paragraph 4.
"POST-DEFICIENCY CONVERSION" shall have the meaning set forth in
Paragraph 9(b).
"SUBSCRIPTION AGREEMENT" shall mean the Convertible Securities
Subscription Agreement dated as of February 13, 1997, between the Company and
the Subscriber or Subscribers to the original issue of the Debentures and the
Warrants.
"WARRANTS" shall have the meaning provided in the Subscription
Agreement.
4. MERGER, CONSOLIDATION. 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 "Paragraph 4 Transaction"), the Holders of
this Debenture, to the extent then outstanding and notwithstanding anything
in Paragraph 5(a) to the contrary, shall participate in any such transaction
as a class with common stockholders of the Company on the same basis as if
this Debenture had been converted one day prior the effective date of such
transaction, provided, however, that if a Paragraph 4 Transaction or the
record date for determination of the Company's stockholders entitled to
participate in such Transaction shall occur at any time before the expiration
of six (6) months following the effectiveness of the Registration Statement
contemplated by the Registration Rights Agreement, both of which are referred
to in the Subscription Agreement, then, at the option of the Holder of this
Debenture, such Holder may treat the effective date of such Paragraph 4
Transaction as the date for the redemption of this Debenture and shall be
entitled to receive the redemption price with respect to such redemption date
as is provided in Paragraph 9(b), as though such
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redemption date were the date of a Conversion Notice for purposes of such
Paragraph 9(b). Such Holder shall be entitled to make such election at any
time up to ten (10) trading days after the effective date of the Paragraph 4
Transaction. Nothing in this Section 4 shall prohibit the Holder from
converting any part or all of this Debenture in accordance with the terms
hereof, up to and including the effective time and date of the Paragraph 4
Transaction.
5. CONVERSION. This Debenture is subject to conversion as follows:
(a) (i) HOLDER'S RIGHT TO CONVERT. This Debenture shall be
convertible at any time, in whole or in part, at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common
Stock.
(ii) AUTOMATIC CONVERSION. At maturity of this Debenture, the
principal indebtedness then outstanding hereunder (including without
limitation all PIK Interest then included therein) shall automatically be
converted into fully paid, validly issued and nonassessable shares of Common
Stock and, except for the Holder's right to receive the Common Stock into
which this Debenture is automatically so converted and except for any portion
of this Debenture which cannot be so converted by reason of the limitations
provided or referred to in Paragraphs 5(d) and 9(b) hereof, this Debenture
shall be deemed to have been canceled whether or not surrendered upon such
automatic conversion.
(iii) ACCRUED BUT UNPAID INTEREST. Notwithstanding anything in
this Debenture to the contrary, the conversion of any part or all of the
Outstanding Principal Amount of this Debenture shall include, without
limitation, the conversion of all the accrued but unpaid interest on the
Outstanding Principal Amount so converted.
(b) CONVERSION PRICE FOR HOLDER CONVERTED SHARES. The Outstanding
Principal Amount of this Debenture that is converted into shares of Common
Stock shall be convertible into the number of shares of Common Stock which
results from application of the following formula:
P + I
----------------------------
Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on P as of the Holder Conversion Date
The number of shares of Common Stock into which the Outstanding
Principal Amount of this Debenture, and interest accrued thereon, may be
converted pursuant to this paragraph is hereafter referred to the "Conversion
Rate."
(c) MECHANICS OF CONVERSION. In order to convert this Debenture
(in whole or in part) into full shares of Common Stock, the Holder shall
surrender this
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Debenture, duly endorsed, by either overnight courier or 2-day courier, to
the principal office of the Company, and shall give written notice in the
form of EXHIBIT 1 hereto (the "Conversion Notice") by facsimile (with the
original of such notice forwarded with the foregoing courier) to the Company
at such office that the Holder elects to convert the principal amount
specified therein, which such notice and election shall be irrevocable by the
Holder unless the Company shall default in or fail to fulfill any or all of
its obligations arising hereunder or otherwise by reason of such notice or
election, in which case, in addition to and not in lieu of any and all other
rights and remedies to which the Holder may thereby be and become entitled,
such notice and election, by further notice to the Company may be revoked and
rescinded at the election of the Holder exercised in its sole discretion;
PROVIDED, HOWEVER, that the Company shall not be obligated to issue
certificates evidencing the shares of the Common Stock issuable upon such
conversion unless either the Debenture evidencing the principal amount is
delivered to the Company as provided above, or the Holder notifies the
Company that such Debenture(s) have been lost, stolen or destroyed and
promptly executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by its connection with such
Debentures; and provided further that each Conversion Notice shall provide
for the Holder's election to convert either (i) at least $50,000 of the
Outstanding Principal Amount of the Debenture or Debentures so to be
converted, or (ii) if such Outstanding Principal Amount shall then be less
than $50,000, the entire amount thereof.
Upon receipt of such Conversion Notice, the Company shall
immediately verify the Holder's calculation of the Conversion Rate and shall
use its best efforts to issue and deliver within three business days after
delivery to the Company of such Debenture(s), or after receipt of such
agreement and indemnification, to such Holder of Debenture(s) at the address
of the Holder, or to its designee, a certificate or certificates for the
number of shares of Common Stock to which the Holder shall be entitled as
aforesaid, together with a Debenture or Debentures for the principal amount
of Debentures not submitted for conversion. The date on which the Conversion
Notice is given (the "Holder Conversion Date") shall be deemed to be the date
the Company received by facsimile the Conversion Notice, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common Stock on such date.
(d) LIMITATION IN CONVERSION. Notwithstanding anything herein
contained to the contrary, the number of shares of Common Stock to be issued
pursuant to a Conversion Notice or pursuant to the automatic conversion
provided in Paragraph 5(a)(ii) hereof shall not exceed the number of such
shares which, together with the Common Stock theretofore issued upon
conversion of Debentures, would exceed 1,765,638 shares of Common Stock, as
theretofore adjusted pursuant to the provisions hereof.
6. [OMITTED]
7. STOCK SPLITS: DIVIDENDS, ADJUSTMENTS, REORGANIZATIONS.
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(a) 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) trading days of a Paragraph 4 Transaction.
(b) CERTAIN DIVIDENDS AND DISTRIBUTION. 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 Paragraph 4 Transaction.
(c) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Company at any time or from time to time after the First Closing Date
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 the Holders of
Debentures shall receive upon conversion thereof pursuant to Paragraph 5
hereof, 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 Holder Conversion
Date, retained such securities, subject to all other adjustments called for
during such period under this Paragraph 7 with respect to the rights of the
Holders of the Debentures. For purposes of this Paragraph 7(c), the number
of shares of Common Stock so receivable upon conversion by the Holder shall
be deemed to be that number which the Holder would have received upon
conversion of the entire Outstanding Principal Amount hereof if the Holder
Conversion Date had been the day preceding the date upon which the Company
announced the making of such dividend or other distribution.
(d) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. In
the event that at any time or from time to time after the First Closing Date,
the Common Stock issuable upon the conversion of the Debentures 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 Paragraph 7 or a merger or consolidation,
provided for in Paragraph 4), then and in each such event each Holder of
Debentures shall have the right thereafter to convert such Debenture 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 herein
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 determining the Market Price for Shares of Common Stock)
issued in connection with the above described transaction.
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(e) REORGANIZATIONS. If at any time or from time to time after the
First Closing Date 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 Paragraph 7) then, as a
part of such reorganization, provision shall be made so that the Holders of
the Debentures shall thereafter be entitled to receive upon conversion of the
Debentures 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 Paragraph 7 with respect to the rights of the Holders of
the Debentures after the reorganization to the end that the provisions of
this Paragraph 7 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.
(f) In the event of a reasonable, good faith dispute between a
Holder of Debentures and the Company with respect to the adjustment required
by Paragraph 7(d) or 7(e), 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 shared 50% by the Holder or Holders
involved in the dispute and 50% by the Company, except that each party shall
bear its own legal and other expenses.
8. FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder.
The number of shares of Common Stock that are issuable upon any conversion
shall be rounded up or down to the nearest whole share.
9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION
(a) RESERVATION REQUIREMENT. The Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of its Common Stock upon
conversion of the Debentures or upon exercise of Warrants; provided, however,
that the number of shares so reserved shall at all times be at least
1,750,000 shares. The number of shares so reserved may be reduced by the
number of shares actually delivered pursuant to conversion of Debentures and
exercise of Warrants (provided that, in no event shall the number of shares
so reserved be less than the maximum number required to satisfy remaining
conversion rights on the unconverted Debentures and remaining exercise rights
under any Warrants issued hereunder,) and the number of shares so reserved
shall be increased to reflect stock splits and stock dividends and
distributions.
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<PAGE>
(b) CONVERSION DEFICIENCY. If the Company does not have a
sufficient number of shares of Common Stock available to satisfy the
Company's obligations to a Holder of Debentures or if (whether or not a
Conversion Notice shall have been given with respect thereto) one or more
Debentures cannot be fully converted pursuant to Paragraphs 5(a)(i) or (ii)
by reason of the limitation provided in Section 5(d) (in either case, a
"CONVERSION DEFICIENCY"), from and after the fifth (5th) day following a
Conversion Deficiency, each Holder of the Debentures shall have the right to
demand from the Company immediate redemption of any portion of the Debentures
with respect to which the Company does not have a sufficient number of shares
available so to satisfy such obligations of the Company or with respect to
which conversion is limited by Paragraph 5(d), as the case may be, in either
case in cash at a redemption price per Debenture equal to (A) the dollar
amount which is the product of (x) the Conversion Rate then applicable to the
Debentures so to be redeemed pursuant to this Paragraph 9(b) and (y) the last
reported sales price on the Exchange of the Company's Common Stock on the
date on which the Conversion Notice was delivered or (B) 110% of the
principal amount of the Debenture (including all PIK Interest) plus accrued
but unpaid interest, whichever is greater; PROVIDED HOWEVER, that no notice
of redemption may be delivered by a Holder subsequent to receipt by such
Holder of notice from the Company (sent by overnight or 2-day courier with a
copy sent by facsimile) of availability of sufficient shares of Common Stock
to perfect conversion (a "POST DEFICIENCY CONVERSION") of all the Debentures;
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
Paragraph 5(b) hereof and, to the extent not so converted, payment of all
accrued and unpaid interest in cash with respect thereto within five business
days of delivery of the notice of Post-Deficiency Conversion. In addition to
the foregoing, upon a Conversion Deficiency, the rate of interest on all of
the Debentures shall, to the maximum extent permitted by applicable law, be
increased by two percent (2%) (i.e. from 6% to 8%) commencing on the first
day of the thirty (30) day periods (or part thereof) following a Conversion
Deficiency, an additional three percent (3%) commencing on the first day of
each of the second and third such thirty (30) day period (or part thereof),
and an additional one percent (1%) on the first day of each consecutive
thirty (30) day period (or part thereof) thereafter until such securities
have been duly converted (including any such conversion after a Post
Deficiency Conversion) or redeemed as herein provided. Any such interest
which is not paid when due shall, to the maximum extent permitted by law,
accrue interest until paid at the rate from time to time applicable to
interest on the Debentures as to which the Conversion Deficiency has occurred.
10. [Omitted]
11. NO IMPAIRING. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debentures
set forth herein or of the Holders thereof.
12. HOLDERS' RIGHTS IF SHARES ARE DELISTED OR IF TRADING IN COMMON STOCK
IS SUSPENDED. In the event that at anytime on or after the date hereof and
prior to the third
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anniversary of the First Closing Date, trading in the shares of the Company's
Common Stock is suspended on the Exchange for such shares 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, then, at a Holder's option, the
Company shall redeem such Holder's Debentures at a date designated by such
Holder, and at the redemption price provided in Paragraph 9(b) as though the
date the Holder exercises such option were the date of a Conversion Notice
for purposes of such Paragraph 9(b).
13. LIMITATIONS ON HOLDER'S RIGHT TO CONVERT. Notwithstanding anything
to the contrary contained herein, each Conversion Notice shall contain a
representation that, after giving effect to the shares of the Company's
Common Stock to be issued pursuant to such conversion notice, the total
number of shares of the Company's Common Stock deemed beneficially owned by
the Holder, together with all shares of the Company's Common Stock deemed
beneficially owned by the Holder'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.
14. RIGHTS OF FIRST REFUSAL. The Holders shall have a right of first
refusal pro rata according to the Holder's ownership of Debentures on the
date on which the Company's notice pursuant to this Paragraph 14 is given on
any Equity Offerings (except for an offering of rights to subscribe for
shares of the Company's Common Stock, provided the Holders in such case are
given the right to subscribe for the number of shares to which they would
have been entitled if they then held the shares of Common Stock into which
the Debentures may have been converted), for a period of one (1) year from
the date hereof, so long as the Holders still hold any Debentures and
provided such Equity Offerings are made pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended,
including without limitation Regulation D and Regulation S thereunder. The
Company shall give the Holders written notice of its proposal to make such an
Equity Offering and shall provide with such notice copies of the
documentation, with the economic terms of the transaction specified, pursuant
to which the Equity Offering is to be effected. Such Holders shall have ten
(10) business days from receipt of such notice to deliver a written notice to
the Company that such Holders wish to exercise their right of first refusal
with respect to such Equity Offering, provided that such offering is
completed upon such terms and with such documentation within thirty (30)
calendar days after said ten (10) day period. If such Holders exercise their
right of first refusal with respect to any Equity Offering, they must close
the transactions contemplated by the proposed issuance within ten (10)
business days of the exercise of their right hereunder on the same economic
terms and using the same documentation provided in the Company's notice to
the Holders. If the Holders fail to close the transaction for any reason
other than a breach by the Company of its obligations hereunder, such
Holder's right of first refusal shall irrevocably terminate with respect to
such Equity Offering.
15. OBLIGATIONS ABSOLUTE. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, which
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is absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place and rate, and in the manner, herein prescribed.
16. WAIVERS OF DEMAND, ETC. The Company hereby expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of
all sums owing and to be owing hereon, regardless of and without any notice
(except as required by law), diligence, act or omission as or with respect to
the collection of any amount called for hereunder.
17. REPLACEMENT DEBENTURES. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed,
replacement Debenture(s) identical in all respects to the original
Debenture(s) (except for registration number and Outstanding Principal
Amount, If different than that shown on the original Debenture(s)) shall be
issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such Debenture(s).
18. PAYMENT OF EXPENSES. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Subscription Agreement or the
Registration Rights Agreement dated as of February 13, 1997, among the
Company and Holders of Debentures.
19. DEFAULTS. If one or more of the following described "Events of
Default" shall occur:
(a) The Company shall default in the payment of (i) interest on this
Debenture, and such default shall continue for five (5) business
days after the due date thereof, or (ii) the principal of this
Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, 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 this Debenture or
the Subscription Agreement 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 Agreement, or any other covenant,
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term, provision, condition, agreement or obligation of the
Company under this Debenture and such failure shall continue
uncured for a period of ten (10) business days after notice from
the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make a
general assignment for the benefit of creditors or commence
proceedings for its dissolution; or (4) 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
(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;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may, by
notice to the Company declare the Debenture immediately due and payable, and
the Holder may immediately, and without expiration of any period of grace,
enforce any and all of the Holder's rights and remedies
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<PAGE>
provided herein or any other rights or remedies afforded by law. In such
event, the Debenture shall be redeemed at a redemption price per Debenture
equal to the redemption price provided in Paragraph 9(b) , as though the date
of such decleration hereunder were the date of a Conversion Notice for
purposes of such Paragraph 9(b).
20. SAVINGS CLAUSE. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof.
Neither this Debenture nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the Company and a
majority-in-interest of the Holders.
22. ASSIGNMENT, ETC. The Holder may, subject to compliance with the
Subscription Agreement, without notice, transfer or assign this Debenture or
any interest herein and may mortgage, encumber or transfer any of its rights
or interest in and to this Debenture or any part hereof and, without
limitation, each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to transfer or assign its
interest; provided, however, that before the Registration Statement
contemplated by the Registration Rights Agreement becomes effective, (i) each
such assignee, transferee and mortgagee shall be a sophisticated investor as
contemplated by Section 2.3 of the Subscription Agreement and each such
assignment, transfer, mortgagee or other encumbrance shall comply with
Regulation D under the Securities Act as though such transaction has been a
part of the original offer and sale of the Debentures by the Company and
Regulation D was applicable thereto, or (ii) the holder will furnish the
Company with an opinion of counsel to the effect that such assignment,
transfer, mortgage or other encumbrance is otherwise exempt from the
registration requirements under the Securities Act. Each such assignee,
transferee and mortgagee shall have all of the rights and obligations of the
Holder under this Debenture. The Company agrees that, subject to compliance
with the Subscription Agreement, after receipt by the Company of written
notice of assignment from the Holder or from the Holders' assignee, all
principal, interest, and other amounts which are then due and thereafter
become due under this Debenture shall be paid to such assignee at the place
of payment designated in such notice. This Debenture shall be binding upon
the Company and its successors and shall inure to the benefit of the Holder
and its successors and assigns.
23. NO WAIVER. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other
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<PAGE>
agreement shall be cumulative and not exclusive of any other, and may be
exercised by the Holder from time to time.
24. MISCELLANEOUS. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered or mailed to said party by certified mail,
return receipt requested, with a copy in each case sent on the same day to
the addressee by Federal Express or other such expedited means with delivery
confirmed by such means, at its address set forth herein or such other
address as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered
personally or when actually received by the party to whom it is addressed.
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to
include the singular. If more than one Company is named herein, the
liability of each shall be joint and several. Paragraph headings are for
convenience only and shall not affect the meaning of this document.
25. CHOICE OF LAW AND VENUE: WAIVER OF JURY TRIAL. THIS DEBENTURE
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Company hereby agrees
that all actions or proceedings arising directly or indirectly from or in
connection with this Debenture shall, at the Holder's sole option, be
litigated only in the United States District Court for the Southern District
of New York located in New York County, New York. The Company consents to
the jurisdiction and venue of the foregoing courts and consents that any
process or notice of motion or other application to either of said courts or
a judge thereof may be served inside or outside the State of New York or the
Southern District of New York by registered mail, return receipt requested,
directed to the Company at its address set forth in this Debenture (and
service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as
may be permissible under the rules of said courts.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of: February 13, 1997
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
-----------------------------------------------
Print Name: Phillips W. Smith
---------------------------------------
Print Title: President and Chief Executive Officer
--------------------------------------
Print Address:
------------------------------------
ATTEST
/s/ Douglas E. Klint
- --------------------------------------
15
<PAGE>
THIS SUBORDINATED DEBENTURE HAS BEEN ISSUED PURSUANT TO REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAS
NOT BEEN REGISTERED UNDER THE ACT. THE DEBENTURES MAY NOT BE TRANSFERRED,
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE AND CURRENT REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
NO. 4 $350,000.00
6% CONVERTIBLE SUBORDINATED DEBENTURE DUE FEBRUARY 13, 2000
THIS CONVERTIBLE SUBORDINATED DEBENTURE ("Debenture") is one of a duly
authorized issue of Debentures of Zycad Corporation, a corporation duly
organized and existing under the laws of the State of Delaware (the
"Company"), designated as its 6% Convertible Subordinated Debentures Due
February 13, 2000 in an aggregate principal amount not exceeding Five Million
U.S. Dollars (U.S. $5,000,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to Heracles Fund,
having an address c/o Bank of Bermuda (Cayman) Limited, P.O. Box 513, Third
Floor, British American Tower, Dr. Roy's Drive, Georgetown, Grand Cayman,
Cayman Islands, BWI, the holder hereof, or its order (the "Holder"), the
principal sum of Three Hundred and Fifty Thousand United States Dollars (U.S.
$350,000) on February 13, 2000 (the "Maturity Date") and to pay interest on
the principal sum outstanding under this Debenture ("Outstanding Principal
Amount"), at the rate of 6% per annum, accruing daily and due and payable
semi-annually in arrears on the 13th day of February and August of each year
(each an "Interest Payment Date"), with the first such payment due on August 13,
1997. Accrual of interest shall commence on the first business day to
occur after the date hereof and shall continue until payment in full of the
principal sum has been made. The interest so payable will be paid to the
person in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Convertible Securities Subscription Agreement dated as of February 13, 1997
between the Company and Heracles Fund (the "Subscription Agreement"). The
principal of and interest on this Debenture are payable in such coin or
currency of the United States of America as of the time of payment is legal
tender for payment of public and private debts, at the address last appearing
on the Debenture Register of the Company as designated in writing by the
Holder hereof from time to time, provided, however, that, in lieu of paying
such interest in coin or currency, the Company may, at its option, pay
interest on this Debenture for any Interest Payment Date by adding the amount
of such interest to the Outstanding Principal Amount due under this Debenture
("PIK Interest") pursuant to a statement in the form of Exhibit 2 hereto
("PIK Statement") delivered by the Company to the Holder
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on or prior to the applicable Interest Payment Date. If the cash interest
due hereunder is not paid to the Holder by the applicable Interest Payment
Date, then the Holder shall be entitled to the addition of PIK Interest
hereunder and to the delivery of a PIK Statement with respect thereto. Any
PIK Interest when so added to the Outstanding Principal Amount due under this
Debenture shall, for all purposes of this Debenture, be deemed to have been
part of the principal indebtedness originally evidenced by this Debenture
including, without limitation, for purposes of determining interest
thereafter payable hereunder and amounts thereafter convertible into Common
Stock hereunder. The Company will pay the principal of and all accrued and
unpaid interest due upon this Debenture on the Maturity Date, to the Holder
of this Debenture as of the tenth (10th) day prior to the Maturity Date and
addressed to such Holder at the last address appearing on the Debenture
Register.
Payment of the principal indebtedness evidenced from time to time by this
Debenture, and interest accrued thereon, shall be subject and subordinate, as
provided in Exhibit 3 hereto, to the Company's Senior Debt.
This Debenture is subject to the following additional provisions:
1. EXCHANGE. The Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$50,000 each as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. TRANSFERS. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act of
1933, as amended (the "Act") and applicable state securities laws and in
accordance with other applicable provisions hereof. Prior to due presentment
for transfer of this Debenture, the Company may treat the person in whose
name this Debenture is duly registered on the Company's Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
all other purposes, whether or not this Debenture be overdue, and the Company
shall not be affected by notice to the contrary.
3. DEFINITIONS. For purposes hereof the following definitions shall
apply:
"FIRST CLOSING" shall have the meaning provided in the Subscription
Agreement.
"SECOND CLOSING" shall have the meaning provided in the Subscription
Agreement.
"FIRST CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
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"SECOND CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
"COMMON STOCK" shall mean the Common Stock, par value $0.10 per
share of the Company.
"CONVERSION DATE MARKET PRICE" shall mean, (as set forth in the
schedule below,) an amount that is equal to X%, as set forth in the schedule
below, (the "X Percentage") of the average of the Market Price for Shares of
Common Stock on each of the five trading days immediately preceding the
Holder Conversion Date, subject to adjustment from time to time as set forth
in Paragraph 7 hereof and in Section 6 of the Registration Rights Agreement.
CONVERSION DATE
(DAYS FROM First CLOSING DATE) X
0 to 90 100%
91 to 120 85.0%
121 to 150 84.0%
151 to 180 83.0%
181 to 210 82.0%
211 to 240 81.0%
241 to maturity 80.0%
"CONVERSION DEFICIENCY" shall have the meaning set forth in
Paragraph 9(b).
"CONVERSION NOTICE" shall have the meaning set forth in Paragraph 5(c).
"CONVERSION RATE" shall have the meaning set forth in Paragraph 5(b).
"EQUITY OFFERINGS" shall mean the issuance or sale by the Company of
any Common Stock or securities which are convertible into or exchangeable for
its Common Stock or any convertible securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible securities (other than shares or options
issued or which may be issued pursuant to the Company's employee or director
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the First Closing Date and listed in the Exchange Act Reports).
"HOLDER CONVERSION DATE" shall have the meaning set forth in
Paragraph 5(c).
"MARKET PRICE FOR SHARES OF COMMON STOCK" shall mean the price of
one share of Common Stock determined as follows:
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(i) If the Common Stock is listed on the Exchange (as defined
in the Subscription Agreement), the lowest reported sales price on the date
of valuation;
(ii) If the Common Stock is listed on a national securities
exchange, the lowest reported sales price on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common stock is
quoted in the over-the-counter market on the pink sheets or bulletin board,
the lesser of (A) the lowest sales price or (B) the last reported "bid" price
on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii) above applies, the
market value as determined by a nationally recognized investment banking firm
or other 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. Such determination shall
be conclusive and binding on all persons.
"PARAGRAPH 4 TRANSACTION" shall mean a merger, consolidation, or
other transaction referred to in Paragraph 4.
"POST-DEFICIENCY CONVERSION" shall have the meaning set forth in
Paragraph 9(b).
"SUBSCRIPTION AGREEMENT" shall mean the Convertible Securities
Subscription Agreement dated as of February 13, 1997, between the Company and
the Subscriber or Subscribers to the original issue of the Debentures and the
Warrants.
"WARRANTS" shall have the meaning provided in the Subscription
Agreement.
4. MERGER, CONSOLIDATION. 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 "Paragraph 4 Transaction"), the Holders of
this Debenture, to the extent then outstanding and notwithstanding anything
in Paragraph 5(a) to the contrary, shall participate in any such transaction
as a class with common stockholders of the Company on the same basis as if
this Debenture had been converted one day prior the effective date of such
transaction, provided, however, that if a Paragraph 4 Transaction or the
record date for determination of the Company's stockholders entitled to
participate in such Transaction shall occur at any time before the expiration
of six (6) months following the effectiveness of the Registration Statement
contemplated by the Registration Rights Agreement, both of which are referred
to in the Subscription Agreement, then, at the option of the Holder of this
Debenture, such Holder may treat the effective date of such Paragraph 4
Transaction as the date for the redemption of this Debenture and shall be
entitled to receive the redemption price with respect to such redemption date
as is provided in Paragraph 9(b), as though such
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redemption date were the date of a Conversion Notice for purposes of such
Paragraph 9(b). Such Holder shall be entitled to make such election at any
time up to ten (10) trading days after the effective date of the Paragraph 4
Transaction. Nothing in this Section 4 shall prohibit the Holder from
converting any part or all of this Debenture in accordance with the terms
hereof, up to and including the effective time and date of the Paragraph 4
Transaction.
5. CONVERSION. This Debenture is subject to conversion as follows:
(a) (i) HOLDER'S RIGHT TO CONVERT. This Debenture shall be
convertible at any time, in whole or in part, at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common
Stock.
(ii) AUTOMATIC CONVERSION. At maturity of this Debenture, the
principal indebtedness then outstanding hereunder (including without
limitation all PIK Interest then included therein) shall automatically be
converted into fully paid, validly issued and nonassessable shares of Common
Stock and, except for the Holder's right to receive the Common Stock into
which this Debenture is automatically so converted and except for any portion
of this Debenture which cannot be so converted by reason of the limitations
provided or referred to in Paragraphs 5(d) and 9(b) hereof, this Debenture
shall be deemed to have been canceled whether or not surrendered upon such
automatic conversion.
(iii) ACCRUED BUT UNPAID INTEREST. Notwithstanding anything in
this Debenture to the contrary, the conversion of any part or all of the
Outstanding Principal Amount of this Debenture shall include, without
limitation, the conversion of all the accrued but unpaid interest on the
Outstanding Principal Amount so converted.
(b) CONVERSION PRICE FOR HOLDER CONVERTED SHARES. The Outstanding
Principal Amount of this Debenture that is converted into shares of Common
Stock shall be convertible into the number of shares of Common Stock which
results from application of the following formula:
P + I
_____________________________________
Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on P as of the Holder Conversion Date
The number of shares of Common Stock into which the Outstanding
Principal Amount of this Debenture, and interest accrued thereon, may be
converted pursuant to this paragraph is hereafter referred to the "Conversion
Rate."
(c) MECHANICS OF CONVERSION. In order to convert this Debenture
(in whole or in part) into full shares of Common Stock, the Holder shall
surrender this
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Debenture, duly endorsed, by either overnight courier or 2-day courier, to
the principal office of the Company, and shall give written notice in the
form of EXHIBIT 1 hereto (the "Conversion Notice") by facsimile (with the
original of such notice forwarded with the foregoing courier) to the Company
at such office that the Holder elects to convert the principal amount
specified therein, which such notice and election shall be irrevocable by the
Holder unless the Company shall default in or fail to fulfill any or all of
its obligations arising hereunder or otherwise by reason of such notice or
election, in which case, in addition to and not in lieu of any and all other
rights and remedies to which the Holder may thereby be and become entitled,
such notice and election, by further notice to the Company may be revoked and
rescinded at the election of the Holder exercised in its sole discretion;
PROVIDED, HOWEVER, that the Company shall not be obligated to issue
certificates evidencing the shares of the Common Stock issuable upon such
conversion unless either the Debenture evidencing the principal amount is
delivered to the Company as provided above, or the Holder notifies the
Company that such Debenture(s) have been lost, stolen or destroyed and
promptly executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by its connection with such
Debentures; and provided further that each Conversion Notice shall provide
for the Holder's election to convert either (i) at least $50,000 of the
Outstanding Principal Amount of the Debenture or Debentures so to be
converted, or (ii) if such Outstanding Principal Amount shall then be less
than $50,000, the entire amount thereof.
Upon receipt of such Conversion Notice, the Company shall
immediately verify the Holder's calculation of the Conversion Rate and shall
use its best efforts to issue and deliver within three business days after
delivery to the Company of such Debenture(s), or after receipt of such
agreement and indemnification, to such Holder of Debenture(s) at the address
of the Holder, or to its designee, a certificate or certificates for the
number of shares of Common Stock to which the Holder shall be entitled as
aforesaid, together with a Debenture or Debentures for the principal amount
of Debentures not submitted for conversion. The date on which the Conversion
Notice is given (the "Holder Conversion Date") shall be deemed to be the date
the Company received by facsimile the Conversion Notice, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common Stock on such date.
(d) LIMITATION IN CONVERSION. Notwithstanding anything herein
contained to the contrary, the number of shares of Common Stock to be issued
pursuant to a Conversion Notice or pursuant to the automatic conversion
provided in Paragraph 5(a)(ii) hereof shall not exceed the number of such
shares which, together with the Common Stock theretofore issued upon
conversion of Debentures, would exceed 504,468 shares of Common Stock, as
theretofore adjusted pursuant to the provisions hereof.
6. [OMITTED]
7. STOCK SPLITS: DIVIDENDS, ADJUSTMENTS, REORGANIZATIONS.
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(a) 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) trading days of a Paragraph 4 Transaction.
(b) CERTAIN DIVIDENDS AND DISTRIBUTION. 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 Paragraph 4 Transaction.
(c) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Company at any time or from time to time after the First Closing Date
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 the Holders of
Debentures shall receive upon conversion thereof pursuant to Paragraph 5
hereof, 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 Holder Conversion
Date, retained such securities, subject to all other adjustments called for
during such period under this Paragraph 7 with respect to the rights of the
Holders of the Debentures. For purposes of this Paragraph 7(c), the number
of shares of Common Stock so receivable upon conversion by the Holder shall
be deemed to be that number which the Holder would have received upon
conversion of the entire Outstanding Principal Amount hereof if the Holder
Conversion Date had been the day preceding the date upon which the Company
announced the making of such dividend or other distribution.
(d) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. In
the event that at any time or from time to time after the First Closing Date,
the Common Stock issuable upon the conversion of the Debentures 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 Paragraph 7 or a merger or consolidation,
provided for in Paragraph 4), then and in each such event each Holder of
Debentures shall have the right thereafter to convert such Debenture 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 herein
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 determining the Market Price for Shares of Common Stock)
issued in connection with the above described transaction.
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(e) REORGANIZATIONS. If at any time or from time to time after the
First Closing Date 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 Paragraph 7) then, as a
part of such reorganization, provision shall be made so that the Holders of
the Debentures shall thereafter be entitled to receive upon conversion of the
Debentures 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 Paragraph 7 with respect to the rights of the Holders of
the Debentures after the reorganization to the end that the provisions of
this Paragraph 7 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.
(f) In the event of a reasonable, good faith dispute between a
Holder of Debentures and the Company with respect to the adjustment required
by Paragraph 7(d) or 7(e), 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 shared 50% by the Holder or Holders
involved in the dispute and 50% by the Company, except that each party shall
bear its own legal and other expenses.
8. FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder.
The number of shares of Common Stock that are issuable upon any conversion
shall be rounded up or down to the nearest whole share.
9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION
(a) RESERVATION REQUIREMENT. The Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of its Common Stock upon
conversion of the Debentures or upon exercise of Warrants; provided, however,
that the number of shares so reserved shall at all times be at least 500,000
shares. The number of shares so reserved may be reduced by the number of
shares actually delivered pursuant to conversion of Debentures and exercise
of Warrants (provided that, in no event shall the number of shares so
reserved be less than the maximum number required to satisfy remaining
conversion rights on the unconverted Debentures and remaining exercise rights
under any Warrants issued hereunder,) and the number of shares so reserved
shall be increased to reflect stock splits and stock dividends and
distributions.
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(b) CONVERSION DEFICIENCY. If the Company does not have a
sufficient number of shares of Common Stock available to satisfy the
Company's obligations to a Holder of Debentures or if (whether or not a
Conversion Notice shall have been given with respect thereto) one or more
Debentures cannot be fully converted pursuant to Paragraphs 5(a)(i) or (ii)
by reason of the limitation provided in Section 5(d) (in either case, a
"CONVERSION DEFICIENCY"), from and after the fifth (5th) day following a
Conversion Deficiency , each Holder of the Debentures shall have the right to
demand from the Company immediate redemption of any portion of the Debentures
with respect to which the Company does not have a sufficient number of shares
available so to satisfy such obligations of the Company or with respect to
which conversion is limited by Paragraph 5(d), as the case may be, in either
case in cash at a redemption price per Debenture equal to (A) the dollar
amount which is the product of (x) the Conversion Rate then applicable to the
Debentures so to be redeemed pursuant to this Paragraph 9(b) and (y) the last
reported sales price on the Exchange of the Company's Common Stock on the
date on which the Conversion Notice was delivered or (B) 110% of the
principal amount of the Debenture (including all PIK Interest) plus accrued
but unpaid interest, whichever is greater; PROVIDED HOWEVER, that no notice
of redemption may be delivered by a Holder subsequent to receipt by such
Holder of notice from the Company (sent by overnight or 2-day courier with a
copy sent by facsimile) of availability of sufficient shares of Common Stock
to perfect conversion (a "POST DEFICIENCY CONVERSION") of all the Debentures;
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
Paragraph 5(b) hereof and, to the extent not so converted, payment of all
accrued and unpaid interest in cash with respect thereto within five business
days of delivery of the notice of Post-Deficiency Conversion. In addition to
the foregoing, upon a Conversion Deficiency, the rate of interest on all of
the Debentures shall, to the maximum extent permitted by applicable law, be
increased by two percent (2%) (i.e. from 6% to 8%) commencing on the first
day of the thirty (30) day periods (or part thereof) following a Conversion
Deficiency, an additional three percent (3%) commencing on the first day of
each of the second and third such thirty (30) day period (or part thereof),
and an additional one percent (1%) on the first day of each consecutive
thirty (30) day period (or part thereof) thereafter until such securities
have been duly converted (including any such conversion after a Post
Deficiency Conversion) or redeemed as herein provided. Any such interest
which is not paid when due shall, to the maximum extent permitted by law,
accrue interest until paid at the rate from time to time applicable to
interest on the Debentures as to which the Conversion Deficiency has occurred.
10. [Omitted]
11. NO IMPAIRING. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debentures
set forth herein or of the Holders thereof.
12. HOLDERS' RIGHTS IF SHARES ARE DELISTED OR IF TRADING IN COMMON STOCK
IS SUSPENDED. In the event that at anytime on or after the date hereof and
prior to the third
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anniversary of the First Closing Date, trading in the shares of the Company's
Common Stock is suspended on the Exchange for such shares 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, then, at a Holder's option, the
Company shall redeem such Holder's Debentures at a date designated by such
Holder, and at the redemption price provided in Paragraph 9(b) as though the
date the Holder exercises such option were the date of a Conversion Notice
for purposes of such Paragraph 9(b).
13. LIMITATIONS ON HOLDER'S RIGHT TO CONVERT. Notwithstanding anything
to the contrary contained herein, each Conversion Notice shall contain a
representation that, after giving effect to the shares of the Company's
Common Stock to be issued pursuant to such conversion notice, the total
number of shares of the Company's Common Stock deemed beneficially owned by
the Holder, together with all shares of the Company's Common Stock deemed
beneficially owned by the Holder'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.
14. RIGHTS OF FIRST REFUSAL. The Holders shall have a right of first
refusal pro rata according to the Holder's ownership of Debentures on the
date on which the Company's notice pursuant to this Paragraph 14 is given on
any Equity Offerings (except for an offering of rights to subscribe for
shares of the Company's Common Stock, provided the Holders in such case are
given the right to subscribe for the number of shares to which they would
have been entitled if they then held the shares of Common Stock into which
the Debentures may have been converted), for a period of one (1) year from
the date hereof, so long as the Holders still hold any Debentures and
provided such Equity Offerings are made pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended,
including without limitation Regulation D and Regulation S thereunder. The
Company shall give the Holders written notice of its proposal to make such an
Equity Offering and shall provide with such notice copies of the
documentation, with the economic terms of the transaction specified, pursuant
to which the Equity Offering is to be effected. Such Holders shall have ten
(10) business days from receipt of such notice to deliver a written notice to
the Company that such Holders wish to exercise their right of first refusal
with respect to such Equity Offering, provided that such offering is
completed upon such terms and with such documentation within thirty (30)
calendar days after said ten (10) day period. If such Holders exercise their
right of first refusal with respect to any Equity Offering, they must close
the transactions contemplated by the proposed issuance within ten (10)
business days of the exercise of their right hereunder on the same economic
terms and using the same documentation provided in the Company's notice to
the Holders. If the Holders fail to close the transaction for any reason
other than a breach by the Company of its obligations hereunder, such
Holder's right of first refusal shall irrevocably terminate with respect to
such Equity Offering.
15. OBLIGATIONS ABSOLUTE. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, which
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is absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place and rate, and in the manner, herein prescribed.
16. WAIVERS OF DEMAND, ETC. The Company hereby expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of
all sums owing and to be owing hereon, regardless of and without any notice
(except as required by law), diligence, act or omission as or with respect to
the collection of any amount called for hereunder.
17. REPLACEMENT DEBENTURES. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed,
replacement Debenture(s) identical in all respects to the original
Debenture(s) (except for registration number and Outstanding Principal
Amount, I f different than that shown on the original Debenture(s)) shall be
issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such Debenture(s).
18. PAYMENT OF EXPENSES. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Subscription Agreement or the
Registration Rights Agreement dated as of February 13, 1997, among the
Company and Holders of Debentures.
19. DEFAULTS. If one or more of the following described "Events of
Default" shall occur:
(a) The Company shall default in the payment of (i) interest on this
Debenture, and such default shall continue for five (5) business
days after the due date thereof, or (ii) the principal of this
Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, 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 this Debenture or
the Subscription Agreement 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 Agreement, or any other covenant,
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term, provision, condition, agreement or obligation of the
Company under this Debenture and such failure shall continue
uncured for a period of ten (10) business days after notice from
the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make a
general assignment for the benefit of creditors or commence
proceedings for its dissolution; or (4) 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
(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;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may, by
notice to the Company declare the Debenture immediately due and payable, and
the Holder may immediately, and without expiration of any period of grace,
enforce any and all of the Holder's rights and remedies
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provided herein or any other rights or remedies afforded by law. In such
event, the Debenture shall be redeemed at a redemption price per Debenture
equal to the redemption price provided in Paragraph 9(b) , as though the date
of such decleration hereunder were the date of a Conversion Notice for
purposes of such Paragraph 9(b).
20. SAVINGS CLAUSE. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof.
Neither this Debenture nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the Company and a
majority-in-interest of the Holders.
22. ASSIGNMENT, ETC. The Holder may, subject to compliance with the
Subscription Agreement, without notice, transfer or assign this Debenture or
any interest herein and may mortgage, encumber or transfer any of its rights
or interest in and to this Debenture or any part hereof and, without
limitation, each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to transfer or assign its
interest; provided, however, that before the Registration Statement
contemplated by the Registration Rights Agreement becomes effective, (i) each
such assignee, transferee and mortgagee shall be a sophisticated investor as
contemplated by Section 2.3 of the Subscription Agreement and each such
assignment, transfer, mortgagee or other encumbrance shall comply with
Regulation D under the Securities Act as though such transaction has been a
part of the original offer and sale of the Debentures by the Company and
Regulation D was applicable thereto, or (ii) the holder will furnish the
Company with an opinion of counsel to the effect that such assignment,
transfer, mortgage or other encumbrance is otherwise exempt from the
registration requirements under the Securities Act. Each such assignee,
transferee and mortgagee shall have all of the rights and obligations of the
Holder under this Debenture. The Company agrees that, subject to compliance
with the Subscription Agreement, after receipt by the Company of written
notice of assignment from the Holder or from the Holders' assignee, all
principal, interest, and other amounts which are then due and thereafter
become due under this Debenture shall be paid to such assignee at the place
of payment designated in such notice. This Debenture shall be binding upon
the Company and its successors and shall inure to the benefit of the Holder
and its successors and assigns.
23. NO WAIVER. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other
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agreement shall be cumulative and not exclusive of any other, and may be
exercised by the Holder from time to time.
24. MISCELLANEOUS. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered or mailed to said party by certified mail,
return receipt requested, with a copy in each case sent on the same day to
the addressee by Federal Express or other such expedited means with delivery
confirmed by such means, at its address set forth herein or such other
address as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered
personally or when actually received by the party to whom it is addressed.
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to
include the singular. If more than one Company is named herein, the
liability of each shall be joint and several. Paragraph headings are for
convenience only and shall not affect the meaning of this document.
25. CHOICE OF LAW AND VENUE: WAIVER OF JURY TRIAL. THIS DEBENTURE
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Company hereby agrees
that all actions or proceedings arising directly or indirectly from or in
connection with this Debenture shall, at the Holder's sole option, be
litigated only in the United States District Court for the Southern District
of New York located in New York County, New York. The Company consents to
the jurisdiction and venue of the foregoing courts and consents that any
process or notice of motion or other application to either of said courts or
a judge thereof may be served inside or outside the State of New York or the
Southern District of New York by registered mail, return receipt requested,
directed to the Company at its address set forth in this Debenture (and
service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as
may be permissible under the rules of said courts.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of: February 13, 1997
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
-----------------------------------------------
Print Name: Phillips W. Smith
---------------------------------------
Print Title: President and Chief Executive Officer
--------------------------------------
Print Address:
------------------------------------
ATTEST
/s/ Douglas E. Klint
- --------------------------------------
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THIS SUBORDINATED DEBENTURE HAS BEEN ISSUED PURSUANT TO REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAS
NOT BEEN REGISTERED UNDER THE ACT. THE DEBENTURES MAY NOT BE TRANSFERRED,
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE AND CURRENT REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
NO. 3 $350,000.00
6% CONVERTIBLE SUBORDINATED DEBENTURE DUE FEBRUARY 13, 2000
THIS CONVERTIBLE SUBORDINATED DEBENTURE ("Debenture") is one of a duly
authorized issue of Debentures of Zycad Corporation, a corporation duly
organized and existing under the laws of the State of Delaware (the
"Company"), designated as its 6% Convertible Subordinated Debentures Due
February 13, 2000 in an aggregate principal amount not exceeding Five Million
U.S. Dollars (U.S. $5,000,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to Joseph A. Umbach,
having an address c/o Bank of Bermuda (Cayman) Limited, P.O. Box 513, Third
Floor, British American Tower, Dr. Roy's Drive, Georgetown, Grand Cayman,
Cayman Islands, BWI, the holder hereof, or its order (the "Holder"), the
principal sum of Three Hundred and Fifty Thousand United States Dollars (U.S.
$350,000) on February 13, 2000 (the "Maturity Date") and to pay interest on
the principal sum outstanding under this Debenture ("Outstanding Principal
Amount"), at the rate of 6% per annum, accruing daily and due and payable
semi-annually in arrears on the 13th day of February and August of each year
(each an "Interest Payment Date"), with the first such payment due on August 13,
1997. Accrual of interest shall commence on the first business day to
occur after the date hereof and shall continue until payment in full of the
principal sum has been made. The interest so payable will be paid to the
person in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of the Debentures (the
"Debenture Register"); provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Convertible Securities Subscription Agreement dated as of February 13, 1997
between the Company and Heracles Fund (the "Subscription Agreement"). The
principal of and interest on this Debenture are payable in such coin or
currency of the United States of America as of the time of payment is legal
tender for payment of public and private debts, at the address last appearing
on the Debenture Register of the Company as designated in writing by the
Holder hereof from time to time, provided, however, that, in lieu of paying
such interest in coin or currency, the Company may, at its option, pay
interest on this Debenture for any Interest Payment Date by adding the amount
of such interest to the Outstanding Principal Amount due under this Debenture
("PIK Interest") pursuant to a statement in the form of Exhibit 2 hereto
("PIK Statement") delivered by the Company to the Holder
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on or prior to the applicable Interest Payment Date. If the cash interest
due hereunder is not paid to the Holder by the applicable Interest Payment
Date, then the Holder shall be entitled to the addition of PIK Interest
hereunder and to the delivery of a PIK Statement with respect thereto. Any
PIK Interest when so added to the Outstanding Principal Amount due under this
Debenture shall, for all purposes of this Debenture, be deemed to have been
part of the principal indebtedness originally evidenced by this Debenture
including, without limitation, for purposes of determining interest
thereafter payable hereunder and amounts thereafter convertible into Common
Stock hereunder. The Company will pay the principal of and all accrued and
unpaid interest due upon this Debenture on the Maturity Date, to the Holder
of this Debenture as of the tenth (10th) day prior to the Maturity Date and
addressed to such Holder at the last address appearing on the Debenture
Register.
Payment of the principal indebtedness evidenced from time to time by this
Debenture, and interest accrued thereon, shall be subject and subordinate, as
provided in Exhibit 3 hereto, to the Company's Senior Debt.
This Debenture is subject to the following additional provisions:
1. EXCHANGE. The Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$50,000 each as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. TRANSFERS. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act of
1933, as amended (the "Act") and applicable state securities laws and in
accordance with other applicable provisions hereof. Prior to due presentment
for transfer of this Debenture, the Company may treat the person in whose
name this Debenture is duly registered on the Company's Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
all other purposes, whether or not this Debenture be overdue, and the Company
shall not be affected by notice to the contrary.
3. DEFINITIONS. For purposes hereof the following definitions shall
apply:
"FIRST CLOSING" shall have the meaning provided in the Subscription
Agreement.
"SECOND CLOSING" shall have the meaning provided in the Subscription
Agreement.
"FIRST CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
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"SECOND CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
"COMMON STOCK" shall mean the Common Stock, par value $0.10 per
share of the Company.
"CONVERSION DATE MARKET PRICE" shall mean, (as set forth in the
schedule below,) an amount that is equal to X%, as set forth in the schedule
below, (the "X Percentage") of the average of the Market Price for Shares of
Common Stock on each of the five trading days immediately preceding the
Holder Conversion Date, subject to adjustment from time to time as set forth
in Paragraph 7 hereof and in Section 6 of the Registration Rights Agreement.
CONVERSION DATE
(DAYS FROM First CLOSING DATE) X
0 to 90 100%
91 to 120 85.0%
121 to 150 84.0%
151 to 180 83.0%
181 to 210 82.0%
211 to 240 81.0%
241 to maturity 80.0%
"CONVERSION DEFICIENCY" shall have the meaning set forth in
Paragraph 9(b).
"CONVERSION NOTICE" shall have the meaning set forth in Paragraph 5(c).
"CONVERSION RATE" shall have the meaning set forth in Paragraph 5(b).
"EQUITY OFFERINGS" shall mean the issuance or sale by the Company of
any Common Stock or securities which are convertible into or exchangeable for
its Common Stock or any convertible securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible securities (other than shares or options
issued or which may be issued pursuant to the Company's employee or director
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the First Closing Date and listed in the Exchange Act Reports).
"HOLDER CONVERSION DATE" shall have the meaning set forth in
Paragraph 5(c).
"MARKET PRICE FOR SHARES OF COMMON STOCK" shall mean the price of
one share of Common Stock determined as follows:
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(i) If the Common Stock is listed on the Exchange (as defined
in the Subscription Agreement), the lowest reported sales price on the date
of valuation;
(ii) If the Common Stock is listed on a national securities
exchange, the lowest reported sales price on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common stock is
quoted in the over-the-counter market on the pink sheets or bulletin board,
the lesser of (A) the lowest sales price or (B) the last reported "bid" price
on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii) above applies, the
market value as determined by a nationally recognized investment banking firm
or other 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. Such determination shall
be conclusive and binding on all persons.
"PARAGRAPH 4 TRANSACTION" shall mean a merger, consolidation, or
other transaction referred to in Paragraph 4.
"POST-DEFICIENCY CONVERSION" shall have the meaning set forth in
Paragraph 9(b).
"SUBSCRIPTION AGREEMENT" shall mean the Convertible Securities
Subscription Agreement dated as of February 13, 1997, between the Company and
the Subscriber or Subscribers to the original issue of the Debentures and the
Warrants.
"WARRANTS" shall have the meaning provided in the Subscription
Agreement.
4. MERGER, CONSOLIDATION. 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 "Paragraph 4 Transaction"), the Holders of
this Debenture, to the extent then outstanding and notwithstanding anything
in Paragraph 5(a) to the contrary, shall participate in any such transaction
as a class with common stockholders of the Company on the same basis as if
this Debenture had been converted one day prior the effective date of such
transaction, provided, however, that if a Paragraph 4 Transaction or the
record date for determination of the Company's stockholders entitled to
participate in such Transaction shall occur at any time before the expiration
of six (6) months following the effectiveness of the Registration Statement
contemplated by the Registration Rights Agreement, both of which are referred
to in the Subscription Agreement, then, at the option of the Holder of this
Debenture, such Holder may treat the effective date of such Paragraph 4
Transaction as the date for the redemption of this Debenture and shall be
entitled to receive the redemption price with respect to such redemption date
as is provided in Paragraph 9(b), as though such
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redemption date were the date of a Conversion Notice for purposes of such
Paragraph 9(b). Such Holder shall be entitled to make such election at any
time up to ten (10) trading days after the effective date of the Paragraph 4
Transaction. Nothing in this Section 4 shall prohibit the Holder from
converting any part or all of this Debenture in accordance with the terms
hereof, up to and including the effective time and date of the Paragraph 4
Transaction.
5. CONVERSION. This Debenture is subject to conversion as follows:
(a) (i) HOLDER'S RIGHT TO CONVERT. This Debenture shall be
convertible at any time, in whole or in part, at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common
Stock.
(ii) AUTOMATIC CONVERSION. At maturity of this Debenture, the
principal indebtedness then outstanding hereunder (including without
limitation all PIK Interest then included therein) shall automatically be
converted into fully paid, validly issued and nonassessable shares of Common
Stock and, except for the Holder's right to receive the Common Stock into
which this Debenture is automatically so converted and except for any portion
of this Debenture which cannot be so converted by reason of the limitations
provided or referred to in Paragraphs 5(d) and 9(b) hereof, this Debenture
shall be deemed to have been canceled whether or not surrendered upon such
automatic conversion.
(iii) ACCRUED BUT UNPAID INTEREST. Notwithstanding anything in
this Debenture to the contrary, the conversion of any part or all of the
Outstanding Principal Amount of this Debenture shall include, without
limitation, the conversion of all the accrued but unpaid interest on the
Outstanding Principal Amount so converted.
(b) CONVERSION PRICE FOR HOLDER CONVERTED SHARES. The Outstanding
Principal Amount of this Debenture that is converted into shares of Common
Stock shall be convertible into the number of shares of Common Stock which
results from application of the following formula:
P + I
_____________________________________
Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on P as of the Holder Conversion Date
The number of shares of Common Stock into which the Outstanding
Principal Amount of this Debenture, and interest accrued thereon, may be
converted pursuant to this paragraph is hereafter referred to the "Conversion
Rate."
(c) MECHANICS OF CONVERSION. In order to convert this Debenture
(in whole or in part) into full shares of Common Stock, the Holder shall
surrender this
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Debenture, duly endorsed, by either overnight courier or 2-day courier, to
the principal office of the Company, and shall give written notice in the
form of EXHIBIT 1 hereto (the "Conversion Notice") by facsimile (with the
original of such notice forwarded with the foregoing courier) to the Company
at such office that the Holder elects to convert the principal amount
specified therein, which such notice and election shall be irrevocable by the
Holder unless the Company shall default in or fail to fulfill any or all of
its obligations arising hereunder or otherwise by reason of such notice or
election, in which case, in addition to and not in lieu of any and all other
rights and remedies to which the Holder may thereby be and become entitled,
such notice and election, by further notice to the Company may be revoked and
rescinded at the election of the Holder exercised in its sole discretion;
PROVIDED, HOWEVER, that the Company shall not be obligated to issue
certificates evidencing the shares of the Common Stock issuable upon such
conversion unless either the Debenture evidencing the principal amount is
delivered to the Company as provided above, or the Holder notifies the
Company that such Debenture(s) have been lost, stolen or destroyed and
promptly executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by its connection with such
Debentures; and provided further that each Conversion Notice shall provide
for the Holder's election to convert either (i) at least $50,000 of the
Outstanding Principal Amount of the Debenture or Debentures so to be
converted, or (ii) if such Outstanding Principal Amount shall then be less
than $50,000, the entire amount thereof.
Upon receipt of such Conversion Notice, the Company shall
immediately verify the Holder's calculation of the Conversion Rate and shall
use its best efforts to issue and deliver within three business days after
delivery to the Company of such Debenture(s), or after receipt of such
agreement and indemnification, to such Holder of Debenture(s) at the address
of the Holder, or to its designee, a certificate or certificates for the
number of shares of Common Stock to which the Holder shall be entitled as
aforesaid, together with a Debenture or Debentures for the principal amount
of Debentures not submitted for conversion. The date on which the Conversion
Notice is given (the "Holder Conversion Date") shall be deemed to be the date
the Company received by facsimile the Conversion Notice, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common Stock on such date.
(d) LIMITATION IN CONVERSION. Notwithstanding anything herein
contained to the contrary, the number of shares of Common Stock to be issued
pursuant to a Conversion Notice or pursuant to the automatic conversion
provided in Paragraph 5(a)(ii) hereof shall not exceed the number of such
shares which, together with the Common Stock theretofore issued upon
conversion of Debentures, would exceed 504,468 shares of Common Stock, as
theretofore adjusted pursuant to the provisions hereof.
6. [OMITTED]
7. STOCK SPLITS: DIVIDENDS, ADJUSTMENTS, REORGANIZATIONS.
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(a) 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) trading days of a Paragraph 4 Transaction.
(b) CERTAIN DIVIDENDS AND DISTRIBUTION. 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 Paragraph 4 Transaction.
(c) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Company at any time or from time to time after the First Closing Date
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 the Holders of
Debentures shall receive upon conversion thereof pursuant to Paragraph 5
hereof, 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 Holder Conversion
Date, retained such securities, subject to all other adjustments called for
during such period under this Paragraph 7 with respect to the rights of the
Holders of the Debentures. For purposes of this Paragraph 7(c), the number
of shares of Common Stock so receivable upon conversion by the Holder shall
be deemed to be that number which the Holder would have received upon
conversion of the entire Outstanding Principal Amount hereof if the Holder
Conversion Date had been the day preceding the date upon which the Company
announced the making of such dividend or other distribution.
(d) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. In
the event that at any time or from time to time after the First Closing Date,
the Common Stock issuable upon the conversion of the Debentures 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 Paragraph 7 or a merger or consolidation,
provided for in Paragraph 4), then and in each such event each Holder of
Debentures shall have the right thereafter to convert such Debenture 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 herein
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 determining the Market Price for Shares of Common Stock)
issued in connection with the above described transaction.
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(e) REORGANIZATIONS. If at any time or from time to time after the
First Closing Date 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 Paragraph 7) then, as a
part of such reorganization, provision shall be made so that the Holders of
the Debentures shall thereafter be entitled to receive upon conversion of the
Debentures 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 Paragraph 7 with respect to the rights of the Holders of
the Debentures after the reorganization to the end that the provisions of
this Paragraph 7 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.
(f) In the event of a reasonable, good faith dispute between a
Holder of Debentures and the Company with respect to the adjustment required
by Paragraph 7(d) or 7(e), 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 shared 50% by the Holder or Holders
involved in the dispute and 50% by the Company, except that each party shall
bear its own legal and other expenses.
8. FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder.
The number of shares of Common Stock that are issuable upon any conversion
shall be rounded up or down to the nearest whole share.
9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION
(a) RESERVATION REQUIREMENT. The Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of its Common Stock upon
conversion of the Debentures or upon exercise of Warrants; provided, however,
that the number of shares so reserved shall at all times be at least 500,000
shares. The number of shares so reserved may be reduced by the number of
shares actually delivered pursuant to conversion of Debentures and exercise
of Warrants (provided that, in no event shall the number of shares so
reserved be less than the maximum number required to satisfy remaining
conversion rights on the unconverted Debentures and remaining exercise rights
under any Warrants issued hereunder,) and the number of shares so reserved
shall be increased to reflect stock splits and stock dividends and
distributions.
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(b) CONVERSION DEFICIENCY. If the Company does not have a
sufficient number of shares of Common Stock available to satisfy the
Company's obligations to a Holder of Debentures or if (whether or not a
Conversion Notice shall have been given with respect thereto) one or more
Debentures cannot be fully converted pursuant to Paragraphs 5(a)(i) or (ii)
by reason of the limitation provided in Section 5(d) (in either case, a
"CONVERSION DEFICIENCY"), from and after the fifth (5th) day following a
Conversion Deficiency , each Holder of the Debentures shall have the right to
demand from the Company immediate redemption of any portion of the Debentures
with respect to which the Company does not have a sufficient number of shares
available so to satisfy such obligations of the Company or with respect to
which conversion is limited by Paragraph 5(d), as the case may be, in either
case in cash at a redemption price per Debenture equal to (A) the dollar
amount which is the product of (x) the Conversion Rate then applicable to the
Debentures so to be redeemed pursuant to this Paragraph 9(b) and (y) the last
reported sales price on the Exchange of the Company's Common Stock on the
date on which the Conversion Notice was delivered or (B) 110% of the
principal amount of the Debenture (including all PIK Interest) plus accrued
but unpaid interest, whichever is greater; PROVIDED HOWEVER, that no notice
of redemption may be delivered by a Holder subsequent to receipt by such
Holder of notice from the Company (sent by overnight or 2-day courier with a
copy sent by facsimile) of availability of sufficient shares of Common Stock
to perfect conversion (a "POST DEFICIENCY CONVERSION") of all the Debentures;
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
Paragraph 5(b) hereof and, to the extent not so converted, payment of all
accrued and unpaid interest in cash with respect thereto within five business
days of delivery of the notice of Post-Deficiency Conversion. In addition to
the foregoing, upon a Conversion Deficiency, the rate of interest on all of
the Debentures shall, to the maximum extent permitted by applicable law, be
increased by two percent (2%) (i.e. from 6% to 8%) commencing on the first
day of the thirty (30) day periods (or part thereof) following a Conversion
Deficiency, an additional three percent (3%) commencing on the first day of
each of the second and third such thirty (30) day period (or part thereof),
and an additional one percent (1%) on the first day of each consecutive
thirty (30) day period (or part thereof) thereafter until such securities
have been duly converted (including any such conversion after a Post
Deficiency Conversion) or redeemed as herein provided. Any such interest
which is not paid when due shall, to the maximum extent permitted by law,
accrue interest until paid at the rate from time to time applicable to
interest on the Debentures as to which the Conversion Deficiency has occurred.
10. [Omitted]
11. NO IMPAIRING. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debentures
set forth herein or of the Holders thereof.
12. HOLDERS' RIGHTS IF SHARES ARE DELISTED OR IF TRADING IN COMMON STOCK
IS SUSPENDED. In the event that at anytime on or after the date hereof and
prior to the third
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anniversary of the First Closing Date, trading in the shares of the Company's
Common Stock is suspended on the Exchange for such shares 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, then, at a Holder's option, the
Company shall redeem such Holder's Debentures at a date designated by such
Holder, and at the redemption price provided in Paragraph 9(b) as though the
date the Holder exercises such option were the date of a Conversion Notice
for purposes of such Paragraph 9(b).
13. LIMITATIONS ON HOLDER'S RIGHT TO CONVERT. Notwithstanding anything
to the contrary contained herein, each Conversion Notice shall contain a
representation that, after giving effect to the shares of the Company's
Common Stock to be issued pursuant to such conversion notice, the total
number of shares of the Company's Common Stock deemed beneficially owned by
the Holder, together with all shares of the Company's Common Stock deemed
beneficially owned by the Holder'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.
14. RIGHTS OF FIRST REFUSAL. The Holders shall have a right of first
refusal pro rata according to the Holder's ownership of Debentures on the
date on which the Company's notice pursuant to this Paragraph 14 is given on
any Equity Offerings (except for an offering of rights to subscribe for
shares of the Company's Common Stock, provided the Holders in such case are
given the right to subscribe for the number of shares to which they would
have been entitled if they then held the shares of Common Stock into which
the Debentures may have been converted), for a period of one (1) year from
the date hereof, so long as the Holders still hold any Debentures and
provided such Equity Offerings are made pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended,
including without limitation Regulation D and Regulation S thereunder. The
Company shall give the Holders written notice of its proposal to make such an
Equity Offering and shall provide with such notice copies of the
documentation, with the economic terms of the transaction specified, pursuant
to which the Equity Offering is to be effected. Such Holders shall have ten
(10) business days from receipt of such notice to deliver a written notice to
the Company that such Holders wish to exercise their right of first refusal
with respect to such Equity Offering, provided that such offering is
completed upon such terms and with such documentation within thirty (30)
calendar days after said ten (10) day period. If such Holders exercise their
right of first refusal with respect to any Equity Offering, they must close
the transactions contemplated by the proposed issuance within ten (10)
business days of the exercise of their right hereunder on the same economic
terms and using the same documentation provided in the Company's notice to
the Holders. If the Holders fail to close the transaction for any reason
other than a breach by the Company of its obligations hereunder, such
Holder's right of first refusal shall irrevocably terminate with respect to
such Equity Offering.
15. OBLIGATIONS ABSOLUTE. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, which
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is absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place and rate, and in the manner, herein prescribed.
16. WAIVERS OF DEMAND, ETC. The Company hereby expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of
all sums owing and to be owing hereon, regardless of and without any notice
(except as required by law), diligence, act or omission as or with respect to
the collection of any amount called for hereunder.
17. REPLACEMENT DEBENTURES. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed,
replacement Debenture(s) identical in all respects to the original
Debenture(s) (except for registration number and Outstanding Principal
Amount, I f different than that shown on the original Debenture(s)) shall be
issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such Debenture(s).
18. PAYMENT OF EXPENSES. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Subscription Agreement or the
Registration Rights Agreement dated as of February 13, 1997, among the
Company and Holders of Debentures.
19. DEFAULTS. If one or more of the following described "Events of
Default" shall occur:
(a) The Company shall default in the payment of (i) interest on this
Debenture, and such default shall continue for five (5) business
days after the due date thereof, or (ii) the principal of this
Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, 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 this Debenture or
the Subscription Agreement 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 Agreement, or any other covenant,
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term, provision, condition, agreement or obligation of the
Company under this Debenture and such failure shall continue
uncured for a period of ten (10) business days after notice from
the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make a
general assignment for the benefit of creditors or commence
proceedings for its dissolution; or (4) 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
(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;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may, by
notice to the Company declare the Debenture immediately due and payable, and
the Holder may immediately, and without expiration of any period of grace,
enforce any and all of the Holder's rights and remedies
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provided herein or any other rights or remedies afforded by law. In such
event, the Debenture shall be redeemed at a redemption price per Debenture
equal to the redemption price provided in Paragraph 9(b) , as though the date
of such decleration hereunder were the date of a Conversion Notice for
purposes of such Paragraph 9(b).
20. SAVINGS CLAUSE. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof.
Neither this Debenture nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the Company and a
majority-in-interest of the Holders.
22. ASSIGNMENT, ETC. The Holder may, subject to compliance with the
Subscription Agreement, without notice, transfer or assign this Debenture or
any interest herein and may mortgage, encumber or transfer any of its rights
or interest in and to this Debenture or any part hereof and, without
limitation, each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to transfer or assign its
interest; provided, however, that before the Registration Statement
contemplated by the Registration Rights Agreement becomes effective, (i) each
such assignee, transferee and mortgagee shall be a sophisticated investor as
contemplated by Section 2.3 of the Subscription Agreement and each such
assignment, transfer, mortgagee or other encumbrance shall comply with
Regulation D under the Securities Act as though such transaction has been a
part of the original offer and sale of the Debentures by the Company and
Regulation D was applicable thereto, or (ii) the holder will furnish the
Company with an opinion of counsel to the effect that such assignment,
transfer, mortgage or other encumbrance is otherwise exempt from the
registration requirements under the Securities Act. Each such assignee,
transferee and mortgagee shall have all of the rights and obligations of the
Holder under this Debenture. The Company agrees that, subject to compliance
with the Subscription Agreement, after receipt by the Company of written
notice of assignment from the Holder or from the Holders' assignee, all
principal, interest, and other amounts which are then due and thereafter
become due under this Debenture shall be paid to such assignee at the place
of payment designated in such notice. This Debenture shall be binding upon
the Company and its successors and shall inure to the benefit of the Holder
and its successors and assigns.
23. NO WAIVER. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other
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agreement shall be cumulative and not exclusive of any other, and may be
exercised by the Holder from time to time.
24. MISCELLANEOUS. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered or mailed to said party by certified mail,
return receipt requested, with a copy in each case sent on the same day to
the addressee by Federal Express or other such expedited means with delivery
confirmed by such means, at its address set forth herein or such other
address as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered
personally or when actually received by the party to whom it is addressed.
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to
include the singular. If more than one Company is named herein, the
liability of each shall be joint and several. Paragraph headings are for
convenience only and shall not affect the meaning of this document.
25. CHOICE OF LAW AND VENUE: WAIVER OF JURY TRIAL. THIS DEBENTURE
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Company hereby agrees
that all actions or proceedings arising directly or indirectly from or in
connection with this Debenture shall, at the Holder's sole option, be
litigated only in the United States District Court for the Southern District
of New York located in New York County, New York. The Company consents to
the jurisdiction and venue of the foregoing courts and consents that any
process or notice of motion or other application to either of said courts or
a judge thereof may be served inside or outside the State of New York or the
Southern District of New York by registered mail, return receipt requested,
directed to the Company at its address set forth in this Debenture (and
service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as
may be permissible under the rules of said courts.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of: February 13, 1997
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
-----------------------------------------------
Print Name: Phillips W. Smith
---------------------------------------
Print Title: President and Chief Financial Officer
--------------------------------------
Print Address:
------------------------------------
ATTEST
/s/ Douglas E. Klint
- --------------------------------------
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THIS SUBORDINATED DEBENTURE HAS BEEN ISSUED PURSUANT TO REGULATION D
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND HAS
NOT BEEN REGISTERED UNDER THE ACT. THE DEBENTURES MAY NOT BE TRANSFERRED,
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE AND CURRENT REGISTRATION
STATEMENT UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.
NO. 5 $350,000.00
6% CONVERTIBLE SUBORDINATED DEBENTURE DUE FEBRUARY 13, 2000
THIS CONVERTIBLE SUBORDINATED DEBENTURE ("Debenture") is one of a duly
authorized issue of Debentures of Zycad Corporation, a corporation duly
organized and existing under the laws of the State of Delaware (the
"Company"), designated as its 6% Convertible Subordinated Debentures Due
February 13, 2000 in an aggregate principal amount not exceeding Five Million
U.S. Dollars (U.S. $5,000,000) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to Lewis A Fraser, having
an address c/o 100 South Biscayne Blvd., Suite 700, Miami, Florida, 33131,
the holder hereof, or its order (the "Holder"), the principal sum of Three
Hundred and Fifty Thousand United States Dollars (U.S. $350,000) on February 13,
2000 (the "Maturity Date") and to pay interest on the principal sum
outstanding under this Debenture ("Outstanding Principal Amount"), at the
rate of 6% per annum, accruing daily and due and payable semi-annually in
arrears on the 13th day of February and August of each year (each an
"Interest Payment Date"), with the first such payment due on August 13, 1997.
Accrual of interest shall commence on the first business day to occur after
the date hereof and shall continue until payment in full of the principal sum
has been made. The interest so payable will be paid to the person in whose
name this Debenture is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Convertible Securities
Subscription Agreement dated as of February 13, 1997 between the Company and
Lewis A. Fraser (the "Subscription Agreement"). The principal of and
interest on this Debenture are payable in such coin or currency of the United
States of America as of the time of payment is legal tender for payment of
public and private debts, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder hereof from
time to time, provided, however, that, in lieu of paying such interest in
coin or currency, the Company may, at its option, pay interest on this
Debenture for any Interest Payment Date by adding the amount of such interest
to the Outstanding Principal Amount due under this Debenture ("PIK Interest")
pursuant to a statement in the form of Exhibit 2 hereto ("PIK Statement")
delivered by the Company to the Holder
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on or prior to the applicable Interest Payment Date. If the cash interest
due hereunder is not paid to the Holder by the applicable Interest Payment
Date, then the Holder shall be entitled to the addition of PIK Interest
hereunder and to the delivery of a PIK Statement with respect thereto. Any
PIK Interest when so added to the Outstanding Principal Amount due under this
Debenture shall, for all purposes of this Debenture, be deemed to have been
part of the principal indebtedness originally evidenced by this Debenture
including, without limitation, for purposes of determining interest
thereafter payable hereunder and amounts thereafter convertible into Common
Stock hereunder. The Company will pay the principal of and all accrued and
unpaid interest due upon this Debenture on the Maturity Date, to the Holder
of this Debenture as of the tenth (10th) day prior to the Maturity Date and
addressed to such Holder at the last address appearing on the Debenture
Register.
Payment of the principal indebtedness evidenced from time to time by this
Debenture, and interest accrued thereon, shall be subject and subordinate, as
provided in Exhibit 3 hereto, to the Company's Senior Debt.
This Debenture is subject to the following additional provisions:
1. EXCHANGE. The Debentures are exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$50,000 each as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. TRANSFERS. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged in the United States only in compliance with the Securities Act of
1933, as amended (the "Act") and applicable state securities laws and in
accordance with other applicable provisions hereof. Prior to due presentment
for transfer of this Debenture, the Company may treat the person in whose
name this Debenture is duly registered on the Company's Debenture Register as
the owner hereof for the purpose of receiving payment as herein provided and
all other purposes, whether or not this Debenture be overdue, and the Company
shall not be affected by notice to the contrary.
3. DEFINITIONS. For purposes hereof the following definitions shall
apply:
"FIRST CLOSING" shall have the meaning provided in the Subscription
Agreement.
"SECOND CLOSING" shall have the meaning provided in the Subscription
Agreement.
"FIRST CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
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"SECOND CLOSING DATE" shall have the meaning provided in the
Subscription Agreement.
"COMMON STOCK" shall mean the Common Stock, par value $0.10 per
share of the Company.
"CONVERSION DATE MARKET PRICE" shall mean, (as set forth in the
schedule below,) an amount that is equal to X%, as set forth in the schedule
below, (the "X Percentage") of the average of the Market Price for Shares of
Common Stock on each of the five trading days immediately preceding the
Holder Conversion Date, subject to adjustment from time to time as set forth
in Paragraph 7 hereof and in Section 6 of the Registration Rights Agreement.
Conversion Date
(Days from First Closing Date) X
------------------------------ -----
0 to 90 100%
91 to 120 85.0%
121 to 150 84.0%
151 to 180 83.0%
181 to 210 82.0%
211 to 240 81.0%
241 to maturity 80.0%
"CONVERSION DEFICIENCY" shall have the meaning set forth in
Paragraph 9(b).
"CONVERSION NOTICE" shall have the meaning set forth in Paragraph 5(c).
"CONVERSION RATE" shall have the meaning set forth in Paragraph 5(b).
"EQUITY OFFERINGS" shall mean the issuance or sale by the Company of
any Common Stock or securities which are convertible into or exchangeable for
its Common Stock or any convertible securities, or any warrants or other
rights to subscribe for or to purchase or any options for the purchase of its
Common Stock or any such convertible securities (other than shares or options
issued or which may be issued pursuant to the Company's employee or director
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the First Closing Date and listed in the Exchange Act Reports).
"HOLDER CONVERSION DATE" shall have the meaning set forth in
Paragraph 5(c).
"MARKET PRICE FOR SHARES OF COMMON STOCK" shall mean the price of
one share of Common Stock determined as follows:
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(i) If the Common Stock is listed on the Exchange (as
defined in the Subscription Agreement), the lowest reported sales price on
the date of valuation;
(ii) If the Common Stock is listed on a national securities
exchange, the lowest reported sales price on the date of valuation;
(iii) If neither (i) nor (ii) apply but the Common stock is
quoted in the over-the-counter market on the pink sheets or bulletin board,
the lesser of (A) the lowest sales price or (B) the last reported "bid" price
on the date of valuation; and
(iv) If neither clause (i), (ii) or (iii) above applies, the
market value as determined by a nationally recognized investment banking firm
or other 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. Such determination shall
be conclusive and binding on all persons.
"PARAGRAPH 4 TRANSACTION" shall mean a merger, consolidation, or
other transaction referred to in Paragraph 4.
"POST-DEFICIENCY CONVERSION" shall have the meaning set forth in
Paragraph 9(b).
"SUBSCRIPTION AGREEMENT" shall mean the Convertible Securities
Subscription Agreement dated as of February 13, 1997, between the Company and
the Subscriber or Subscribers to the original issue of the Debentures and the
Warrants.
"WARRANTS" shall have the meaning provided in the Subscription
Agreement.
4. MERGER, CONSOLIDATION. 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 "Paragraph 4 Transaction"), the Holders of
this Debenture, to the extent then outstanding and notwithstanding anything
in Paragraph 5(a) to the contrary, shall participate in any such transaction
as a class with common stockholders of the Company on the same basis as if
this Debenture had been converted one day prior the effective date of such
transaction, provided, however, that if a Paragraph 4 Transaction or the
record date for determination of the Company's stockholders entitled to
participate in such Transaction shall occur at any time before the expiration
of six (6) months following the effectiveness of the Registration Statement
contemplated by the Registration Rights Agreement, both of which are referred
to in the Subscription Agreement, then, at the option of the Holder of this
Debenture, such Holder may treat the effective date of such Paragraph 4
Transaction as the date for the redemption of this Debenture and shall be
entitled to receive the redemption price with respect to such redemption date
as is provided in Paragraph 9(b), as though such
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redemption date were the date of a Conversion Notice for purposes of such
Paragraph 9(b). Such Holder shall be entitled to make such election at any
time up to ten (10) trading days after the effective date of the Paragraph 4
Transaction. Nothing in this Section 4 shall prohibit the Holder from
converting any part or all of this Debenture in accordance with the terms
hereof, up to and including the effective time and date of the Paragraph 4
Transaction.
5. CONVERSION. This Debenture is subject to conversion as follows:
(a) (i) HOLDER'S RIGHT TO CONVERT. This Debenture shall be
convertible at any time, in whole or in part, at the option of the Holder
hereof, into fully paid, validly issued and nonassessable shares of Common
Stock.
(ii) AUTOMATIC CONVERSION. At maturity of this Debenture, the
principal indebtedness then outstanding hereunder (including without
limitation all PIK Interest then included therein) shall automatically be
converted into fully paid, validly issued and nonassessable shares of Common
Stock and, except for the Holder's right to receive the Common Stock into
which this Debenture is automatically so converted and except for any portion
of this Debenture which cannot be so converted by reason of the limitations
provided or referred to in Paragraphs 5(d) and 9(b) hereof, this Debenture
shall be deemed to have been canceled whether or not surrendered upon such
automatic conversion.
(iii) ACCRUED BUT UNPAID INTEREST. Notwithstanding anything in
this Debenture to the contrary, the conversion of any part or all of the
Outstanding Principal Amount of this Debenture shall include, without
limitation, the conversion of all the accrued but unpaid interest on the
Outstanding Principal Amount so converted.
(b) CONVERSION PRICE FOR HOLDER CONVERTED SHARES. The Outstanding
Principal Amount of this Debenture that is converted into shares of Common
Stock shall be convertible into the number of shares of Common Stock which
results from application of the following formula:
P + I
_____________________________________
Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on P as of the Holder Conversion Date
The number of shares of Common Stock into which the Outstanding
Principal Amount of this Debenture, and interest accrued thereon, may be
converted pursuant to this paragraph is hereafter referred to the "Conversion
Rate."
(c) MECHANICS OF CONVERSION. In order to convert this Debenture
(in whole or in part) into full shares of Common Stock, the Holder shall
surrender this
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Debenture, duly endorsed, by either overnight courier or 2-day courier, to
the principal office of the Company, and shall give written notice in the
form of EXHIBIT 1 hereto (the "Conversion Notice") by facsimile (with the
original of such notice forwarded with the foregoing courier) to the Company
at such office that the Holder elects to convert the principal amount
specified therein, which such notice and election shall be irrevocable by the
Holder unless the Company shall default in or fail to fulfill any or all of
its obligations arising hereunder or otherwise by reason of such notice or
election, in which case, in addition to and not in lieu of any and all other
rights and remedies to which the Holder may thereby be and become entitled,
such notice and election, by further notice to the Company may be revoked and
rescinded at the election of the Holder exercised in its sole discretion;
PROVIDED, HOWEVER, that the Company shall not be obligated to issue
certificates evidencing the shares of the Common Stock issuable upon such
conversion unless either the Debenture evidencing the principal amount is
delivered to the Company as provided above, or the Holder notifies the
Company that such Debenture(s) have been lost, stolen or destroyed and
promptly executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by its connection with such
Debentures; and provided further that each Conversion Notice shall provide
for the Holder's election to convert either (i) at least $50,000 of the
Outstanding Principal Amount of the Debenture or Debentures so to be
converted, or (ii) if such Outstanding Principal Amount shall then be less
than $50,000, the entire amount thereof.
Upon receipt of such Conversion Notice, the Company shall
immediately verify the Holder's calculation of the Conversion Rate and shall
use its best efforts to issue and deliver within three business days after
delivery to the Company of such Debenture(s), or after receipt of such
agreement and indemnification, to such Holder of Debenture(s) at the address
of the Holder, or to its designee, a certificate or certificates for the
number of shares of Common Stock to which the Holder shall be entitled as
aforesaid, together with a Debenture or Debentures for the principal amount
of Debentures not submitted for conversion. The date on which the Conversion
Notice is given (the "Holder Conversion Date") shall be deemed to be the date
the Company received by facsimile the Conversion Notice, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common Stock on such date.
(d) LIMITATION IN CONVERSION. Notwithstanding anything herein
contained to the contrary, the number of shares of Common Stock to be issued
pursuant to a Conversion Notice or pursuant to the automatic conversion
provided in Paragraph 5(a)(ii) hereof shall not exceed the number of such
shares which, together with the Common Stock theretofore issued upon
conversion of Debentures, would exceed 504,468 shares of Common Stock, as
theretofore adjusted pursuant to the provisions hereof.
6. [OMITTED]
7. STOCK SPLITS: DIVIDENDS, ADJUSTMENTS, REORGANIZATIONS.
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(a) 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) trading days of a Paragraph 4 Transaction.
(b) CERTAIN DIVIDENDS AND DISTRIBUTION. 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 Paragraph 4 Transaction.
(c) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Company at any time or from time to time after the First Closing Date
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 the Holders of
Debentures shall receive upon conversion thereof pursuant to Paragraph 5
hereof, 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 Holder Conversion
Date, retained such securities, subject to all other adjustments called for
during such period under this Paragraph 7 with respect to the rights of the
Holders of the Debentures. For purposes of this Paragraph 7(c), the number
of shares of Common Stock so receivable upon conversion by the Holder shall
be deemed to be that number which the Holder would have received upon
conversion of the entire Outstanding Principal Amount hereof if the Holder
Conversion Date had been the day preceding the date upon which the Company
announced the making of such dividend or other distribution.
(d) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. In
the event that at any time or from time to time after the First Closing Date,
the Common Stock issuable upon the conversion of the Debentures 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 Paragraph 7 or a merger or consolidation,
provided for in Paragraph 4), then and in each such event each Holder of
Debentures shall have the right thereafter to convert such Debenture 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 herein
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 determining the Market Price for Shares of Common Stock)
issued in connection with the above described transaction.
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(e) REORGANIZATIONS. If at any time or from time to time after the
First Closing Date 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 Paragraph 7) then, as a
part of such reorganization, provision shall be made so that the Holders of
the Debentures shall thereafter be entitled to receive upon conversion of the
Debentures 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 Paragraph 7 with respect to the rights of the Holders of
the Debentures after the reorganization to the end that the provisions of
this Paragraph 7 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.
(f) In the event of a reasonable, good faith dispute between a
Holder of Debentures and the Company with respect to the adjustment required
by Paragraph 7(d) or 7(e), 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 shared 50% by the Holder or Holders
involved in the dispute and 50% by the Company, except that each party shall
bear its own legal and other expenses.
8. FRACTIONAL SHARES. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder.
The number of shares of Common Stock that are issuable upon any conversion
shall be rounded up or down to the nearest whole share.
9. RESERVATION OF STOCK ISSUABLE UPON CONVERSION
(a) RESERVATION REQUIREMENT. The Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of its Common Stock upon
conversion of the Debentures or upon exercise of Warrants; provided, however,
that the number of shares so reserved shall at all times be at least 500,000
shares. The number of shares so reserved may be reduced by the number of
shares actually delivered pursuant to conversion of Debentures and exercise
of Warrants (provided that, in no event shall the number of shares so
reserved be less than the maximum number required to satisfy remaining
conversion rights on the unconverted Debentures and remaining exercise rights
under any Warrants issued hereunder,) and the number of shares so reserved
shall be increased to reflect stock splits and stock dividends and
distributions.
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(b) CONVERSION DEFICIENCY. If the Company does not have a
sufficient number of shares of Common Stock available to satisfy the
Company's obligations to a Holder of Debentures or if (whether or not a
Conversion Notice shall have been given with respect thereto) one or more
Debentures cannot be fully converted pursuant to Paragraphs 5(a)(i) or (ii)
by reason of the limitation provided in Section 5(d) (in either case, a
"CONVERSION DEFICIENCY"), from and after the fifth (5th) day following a
Conversion Deficiency , each Holder of the Debentures shall have the right to
demand from the Company immediate redemption of any portion of the Debentures
with respect to which the Company does not have a sufficient number of shares
available so to satisfy such obligations of the Company or with respect to
which conversion is limited by Paragraph 5(d), as the case may be, in either
case in cash at a redemption price per Debenture equal to (A) the dollar
amount which is the product of (x) the Conversion Rate then applicable to the
Debentures so to be redeemed pursuant to this Paragraph 9(b) and (y) the last
reported sales price on the Exchange of the Company's Common Stock on the
date on which the Conversion Notice was delivered or (B) 110% of the
principal amount of the Debenture (including all PIK Interest) plus accrued
but unpaid interest, whichever is greater; PROVIDED HOWEVER, that no notice
of redemption may be delivered by a Holder subsequent to receipt by such
Holder of notice from the Company (sent by overnight or 2-day courier with a
copy sent by facsimile) of availability of sufficient shares of Common Stock
to perfect conversion (a "POST DEFICIENCY CONVERSION") of all the Debentures;
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
Paragraph 5(b) hereof and, to the extent not so converted, payment of all
accrued and unpaid interest in cash with respect thereto within five business
days of delivery of the notice of Post-Deficiency Conversion. In addition to
the foregoing, upon a Conversion Deficiency, the rate of interest on all of
the Debentures shall, to the maximum extent permitted by applicable law, be
increased by two percent (2%) (i.e. from 6% to 8%) commencing on the first
day of the thirty (30) day periods (or part thereof) following a Conversion
Deficiency, an additional three percent (3%) commencing on the first day of
each of the second and third such thirty (30) day period (or part thereof),
and an additional one percent (1%) on the first day of each consecutive
thirty (30) day period (or part thereof) thereafter until such securities
have been duly converted (including any such conversion after a Post
Deficiency Conversion) or redeemed as herein provided. Any such interest
which is not paid when due shall, to the maximum extent permitted by law,
accrue interest until paid at the rate from time to time applicable to
interest on the Debentures as to which the Conversion Deficiency has occurred.
10. [Omitted]
11. NO IMPAIRING. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debentures
set forth herein or of the Holders thereof.
12. HOLDERS' RIGHTS IF SHARES ARE DELISTED OR IF TRADING IN COMMON STOCK
IS SUSPENDED. In the event that at anytime on or after the date hereof and
prior to the third
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anniversary of the First Closing Date, trading in the shares of the Company's
Common Stock is suspended on the Exchange for such shares 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, then, at a Holder's option, the
Company shall redeem such Holder's Debentures at a date designated by such
Holder, and at the redemption price provided in Paragraph 9(b) as though the
date the Holder exercises such option were the date of a Conversion Notice
for purposes of such Paragraph 9(b).
13. LIMITATIONS ON HOLDER'S RIGHT TO CONVERT. Notwithstanding anything
to the contrary contained herein, each Conversion Notice shall contain a
representation that, after giving effect to the shares of the Company's
Common Stock to be issued pursuant to such conversion notice, the total
number of shares of the Company's Common Stock deemed beneficially owned by
the Holder, together with all shares of the Company's Common Stock deemed
beneficially owned by the Holder'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.
14. RIGHTS OF FIRST REFUSAL. The Holders shall have a right of first
refusal pro rata according to the Holder's ownership of Debentures on the
date on which the Company's notice pursuant to this Paragraph 14 is given on
any Equity Offerings (except for an offering of rights to subscribe for
shares of the Company's Common Stock, provided the Holders in such case are
given the right to subscribe for the number of shares to which they would
have been entitled if they then held the shares of Common Stock into which
the Debentures may have been converted), for a period of one (1) year from
the date hereof, so long as the Holders still hold any Debentures and
provided such Equity Offerings are made pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended,
including without limitation Regulation D and Regulation S thereunder. The
Company shall give the Holders written notice of its proposal to make such an
Equity Offering and shall provide with such notice copies of the
documentation, with the economic terms of the transaction specified, pursuant
to which the Equity Offering is to be effected. Such Holders shall have ten
(10) business days from receipt of such notice to deliver a written notice to
the Company that such Holders wish to exercise their right of first refusal
with respect to such Equity Offering, provided that such offering is
completed upon such terms and with such documentation within thirty (30)
calendar days after said ten (10) day period. If such Holders exercise their
right of first refusal with respect to any Equity Offering, they must close
the transactions contemplated by the proposed issuance within ten (10)
business days of the exercise of their right hereunder on the same economic
terms and using the same documentation provided in the Company's notice to
the Holders. If the Holders fail to close the transaction for any reason
other than a breach by the Company of its obligations hereunder, such
Holder's right of first refusal shall irrevocably terminate with respect to
such Equity Offering.
15. OBLIGATIONS ABSOLUTE. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, which
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is absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place and rate, and in the manner, herein prescribed.
16. WAIVERS OF DEMAND, ETC. The Company hereby expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of
all sums owing and to be owing hereon, regardless of and without any notice
(except as required by law), diligence, act or omission as or with respect to
the collection of any amount called for hereunder.
17. REPLACEMENT DEBENTURES. In the event that any Holder notifies the
Company that its Debenture(s) have been lost, stolen or destroyed,
replacement Debenture(s) identical in all respects to the original
Debenture(s) (except for registration number and Outstanding Principal
Amount, I f different than that shown on the original Debenture(s)) shall be
issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such Debenture(s).
18. PAYMENT OF EXPENSES. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Subscription Agreement or the
Registration Rights Agreement dated as of February 13, 1997, among the
Company and Holders of Debentures.
19. DEFAULTS. If one or more of the following described "Events of
Default" shall occur:
(a) The Company shall default in the payment of (i) interest on this
Debenture, and such default shall continue for five (5) business
days after the due date thereof, or (ii) the principal of this
Debenture; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, 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 this Debenture or
the Subscription Agreement 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 Agreement, or any other covenant,
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term, provision, condition, agreement or obligation of the
Company under this Debenture and such failure shall continue
uncured for a period of ten (10) business days after notice from
the Holder of such failure; or
(d) The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make a
general assignment for the benefit of creditors or commence
proceedings for its dissolution; or (4) 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
(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;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which
waiver shall not be deemed to be a waiver of any subsequent default) at the
option of the Holder and in the Holder's sole discretion, the Holder may, by
notice to the Company declare the Debenture immediately due and payable, and
the Holder may immediately, and without expiration of any period of grace,
enforce any and all of the Holder's rights and remedies
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provided herein or any other rights or remedies afforded by law. In such
event, the Debenture shall be redeemed at a redemption price per Debenture
equal to the redemption price provided in Paragraph 9(b) , as though the date
of such decleration hereunder were the date of a Conversion Notice for
purposes of such Paragraph 9(b).
20. SAVINGS CLAUSE. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than
voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of
this Debenture will not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof.
Neither this Debenture nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the Company and a
majority-in-interest of the Holders.
22. ASSIGNMENT, ETC. The Holder may, subject to compliance with the
Subscription Agreement, without notice, transfer or assign this Debenture or
any interest herein and may mortgage, encumber or transfer any of its rights
or interest in and to this Debenture or any part hereof and, without
limitation, each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to transfer or assign its
interest; provided, however, that before the Registration Statement
contemplated by the Registration Rights Agreement becomes effective, (i) each
such assignee, transferee and mortgagee shall be a sophisticated investor as
contemplated by Section 2.3 of the Subscription Agreement and each such
assignment, transfer, mortgagee or other encumbrance shall comply with
Regulation D under the Securities Act as though such transaction has been a
part of the original offer and sale of the Debentures by the Company and
Regulation D was applicable thereto, or (ii) the holder will furnish the
Company with an opinion of counsel to the effect that such assignment,
transfer, mortgage or other encumbrance is otherwise exempt from the
registration requirements under the Securities Act. Each such assignee,
transferee and mortgagee shall have all of the rights and obligations of the
Holder under this Debenture. The Company agrees that, subject to compliance
with the Subscription Agreement, after receipt by the Company of written
notice of assignment from the Holder or from the Holders' assignee, all
principal, interest, and other amounts which are then due and thereafter
become due under this Debenture shall be paid to such assignee at the place
of payment designated in such notice. This Debenture shall be binding upon
the Company and its successors and shall inure to the benefit of the Holder
and its successors and assigns.
23. NO WAIVER. No failure on the part of the Holder to exercise, and no
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other
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agreement shall be cumulative and not exclusive of any other, and may be
exercised by the Holder from time to time.
24. MISCELLANEOUS. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered or mailed to said party by certified mail,
return receipt requested, with a copy in each case sent on the same day to
the addressee by Federal Express or other such expedited means with delivery
confirmed by such means, at its address set forth herein or such other
address as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered
personally or when actually received by the party to whom it is addressed.
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to
include the singular. If more than one Company is named herein, the
liability of each shall be joint and several. Paragraph headings are for
convenience only and shall not affect the meaning of this document.
25. CHOICE OF LAW AND VENUE: WAIVER OF JURY TRIAL. THIS DEBENTURE
SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Company hereby agrees
that all actions or proceedings arising directly or indirectly from or in
connection with this Debenture shall, at the Holder's sole option, be
litigated only in the United States District Court for the Southern District
of New York located in New York County, New York. The Company consents to
the jurisdiction and venue of the foregoing courts and consents that any
process or notice of motion or other application to either of said courts or
a judge thereof may be served inside or outside the State of New York or the
Southern District of New York by registered mail, return receipt requested,
directed to the Company at its address set forth in this Debenture (and
service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as
may be permissible under the rules of said courts.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of: February 13, 1997
ZYCAD CORPORATION
By: /s/ Phillips W. Smith
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Print Name: Phillips W. Smith
---------------------------------------
Print Title: President and Chief Executive Officer
--------------------------------------
Print Address:
------------------------------------
ATTEST
/s/ Douglas E. Klint
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement"),
entered into as of February 13, 1997, between Halifax Fund, L.P., with offices
at c/o Citco Fund Services Ltd., Corporate Centre, West Bay Road, P.O. Box
31106, SMB, Grand Cayman, Cayman Islands (the "Purchaser"), and ZYCAD
CORPORATION, a Delaware corporation with offices at 47100 Bayside Parkway,
Fremont, California 94538 (the "Company")
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities Subscription Agreement, dated
as of February 13, 1997 (the "Agreement"), by and between the Company and the
Purchaser, the Company has agreed to sell and the Purchaser has agreed to
purchase up to One Million and Seven Hundred and Fifty Thousand Dollars (U.S.
$1,750,000) of the Company's 6% Convertible Subordinated Debenture due February
13, 2000 (the "Debentures") convertible into shares of the Company's Common
Stock, $.10 par value. The Company has further agreed, pursuant to the
Agreement and under the circumstances provided therein, to issue Warrants to
purchase additional shares of such Common Stock. The shares of such Common
Stock issuable upon conversion of the Debentures and exercise of such Warrants
are collectively referred to herein as the "Shares".
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Purchaser's agreement to enter into the Agreement, the Company has agreed to
provide the Purchaser with certain registration rights with respect to the
Shares under certain circumstances set forth in the Agreement;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Agreement and this
Registration Rights Agreement, the Company and the Purchaser agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings. Other terms used herein which are
defined in the Agreement, the Debentures or the Warrants shall have the same
meanings herein as they do in such other documents.
"Commission" or "SEC" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean: (i) Shares issued to Purchaser or its
designee upon conversion of the Debentures, upon exercise of the Warrants
(including the Debentures and Warrants to be sold to the Purchaser on the First
Closing Date and on the Second Closing Date pursuant to the Agreement) or upon
any stock split, stock dividend, recapitalization or similar event with respect
to such Shares; and (ii) any securities issued
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or issuable to Purchaser or any Holder upon the conversion or exercise or
exchange of any Debentures, Warrants or Shares.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with Purchaser's exercise of its registration rights under
this Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, reasonable fees and disbursements of counsel to Holder for a
"due diligence" examination of the Company, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions, if any, applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holder not included within "Registration
Expenses."
"Holder" shall include the Purchaser and any transferee of Debentures,
Warrants, Shares or Registrable Securities which have not been sold to the
public to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 10 of this Agreement.
"Registration Statement" shall have the meaning set forth in Section 2(a)
herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. THE REGISTRATION REQUIREMENTS. The Company shall file as promptly as
possible and in any event by the forty-fifth (45th) calendar day after the First
Closing Date, and use its diligent best efforts to cause to become effective, as
promptly as possible and in any event by the ninetieth (90th) calendar day after
the First Closing Date in the case of the registration of the Underlying Stock
and the Warrant Stock, a registration statement on Form S-3 under the Securities
Act or, if Form S-3 is not then available, another appropriate form covering the
resale of the Underlying Stock issuable on conversion of the Debentures and the
resale of the Warrant Stock issuable upon the exercise of the Warrants, and
shall take all action necessary to qualify the Underlying Stock and the Warrant
Stock under state "blue sky" laws as hereinafter provided. The Company shall
use its diligent best efforts to effect the registration contemplated by the
foregoing (including, without limitation, the execution of an undertaking to
file amendments and
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<PAGE>
post-effective amendments, appropriate qualification under and compliance
with applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act) and
as would permit or facilitate the sale and distribution of all the
Registrable Securities in all states reasonably requested by the Holder for
purposes of maximizing the proceeds realizable by the Holder from such sale
and distribution. Such best efforts by the Company shall include, without
limitation, the following:
(a) The Company shall file (i) registration statements with the
Commission pursuant to Rule 415 under the Securities Act on Form S-3
under the Securities Act and the Company shall use its best efforts to
qualify for the use of such Form (or in the event that the Company is
ineligible to use such form, such other form as the Company is eligible
to use under the Securities Act) covering the Registrable Securities so
to be registered (each, a "Registration Statement"); (ii) such blue sky
filings as shall be reasonably requested to permit such sales PROVIDED,
HOWEVER, that the Company shall not be required to register the
Registrable Securities in any jurisdiction that would subject it to
general service of process in any such jurisdiction where it is not
then so subject or subject the Company to any tax in any such
jurisdiction where it is not then so subject or require the Company to
qualify to do business in any jurisdiction where it is not then so
qualified; and (iii) any required filings with the National Association
of Securities Dealers, Inc. ("NASD") or exchange where the Shares are
traded; all as soon as practicable after the date hereof. The Company
shall use its best efforts to have the Registration Statements and
other filings declared effective as soon thereafter as may be
practicable.
(b) The Company shall enter into such customary agreements (including
a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other reasonable actions in
connection therewith in order to expedite or facilitate the disposition
of such Registrable Securities and in such connection, whether or not
the Registrable Securities are to be sold in an underwritten offering,
the Company shall:
(i) make such representations and warranties to the
Holder and the underwriter or underwriters, if any, in form
and substance and scope as are customarily made by issuers to
underwriters in secondary underwritten offerings:
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any,
opinions of counsel to the Company, dated the effective day
(or in the case of an underwritten offering, dated the date of
delivery of any Registrable Securities sold pursuant thereto)
of the applicable registration statement (which counsel, and
opinions (in form, scope and substance), shall be reasonably
satisfactory to the managing underwriter or underwriters, if
any, and the
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appointed representative or counsel of the Holder, addressed
to the Holder and each underwriter, if any, covering the
matters customarily covered in opinions requested in secondary
underwritten offerings and, in the case of any underwritten
offering, such other matters as may be reasonably requested by
the Holder;
(iii) cause to be delivered, immediately prior to the
effectiveness of the applicable Registration Statement (and,
in the case of an underwritten offering, at the time of
delivery of any Registrable Securities sold pursuant thereto),
letters from the Company's independent certified public
accountants addressed to the Holder and each underwriter, if
any, stating that such accountants are independent public
accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder, and
otherwise in customary form and covering such financial and
accounting matters as are customarily covered by letters of
the independent certified public accountants delivered in
connection with secondary underwritten public offerings;
(iv) if an underwriting agreement is entered into, cause
the same to set forth indemnification and contribution
provisions and procedures which are no less favorable to the
Holder and the Company than those contemplated by sections 9
and 10 with respect to all parties to be indemnified pursuant
to such sections;
(v) deliver such documents and certificates as may be
reasonably requested by the Holder of the Registrable
Securities being sold or the managing underwriter or
underwriters, if any, to evidence compliance with clause (i)
above and with any customary conditions contained in the
underwriting agreement, if any, or other agreement entered
into by the Company;
the foregoing in this paragraph 2(b) shall be done at each closing
under any such underwriting or similar agreement or as and to the
extent required thereunder; provided, however, the foregoing in
paragraph 2(b) shall not be required on more than two (2) occasions.
(c) The Company shall make available for inspection and review by the
Holder, a representative or representatives of the Holder, any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney or accountant retained by such Holder or
underwriter, any such registration statement or amendment or supplement
or any blue sky, NASD or other filing, all financial and other records,
pertinent corporate documents and properties of the Company as they may
reasonably request for the purpose, and cause the Company's officers,
directors and employees to supply all information reasonably requested
by any such representative, underwriter, attorney or
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accountant in connection with such Registration Statement; PROVIDED,
HOWEVER, that the Holder shall first agree in writing with the Company
that any information that is reasonably and in good faith designated by
the Company in writing as confidential at the time of delivery of such
information shall be kept confidential by the Holder and that the
Holder will use reasonable efforts to cause its representatives and
such other persons so to keep such information confidential, unless
(i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of
regulatory authorities, (ii) disclosure of such information is required
by law (including any disclosure requirements pursuant to Federal
securities laws in connection with the filing of any Registration
Statement or the use of any prospectus referred to in this Agreement),
(iii) such information becomes generally available to the public other
than as a result of a disclosure or failure to safeguard by any such
person, (iv) such information becomes available to any such person from
a source other than the Company and such source, to the knowledge of
such persons, is not bound by a confidentiality agreement with the
Company, or (v) such information was known to or is developed by such
persons without reference to such confidential information of the
Company.
3. UNDERWRITTEN DISTRIBUTION. If the Holder intends to distribute the
Registrable Securities covered by a Registration Statement by means of an
underwriting, the Holder shall so advise the Company and, within 30 days of the
date thereof and without limiting the generality of other provisions hereof, the
Company will prepare and file such amendment or amendments to the Registration
Statement and make such other filings as may be necessary or appropriate to
effect any such underwritten distribution.
4. MULTIPLE HOLDERS. If there is more than one Holder, such Holders shall
act with respect to their rights under this Agreement according to the vote
of a majority-in-interest.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection
with any registration, qualification or compliance pursuant to this Agreement
shall be borne by the Company, and all Selling Expenses shall be borne by the
Holder.
6. REGISTRATION DELAY OR FAILURE. The Company acknowledges that its failure
to register the Registrable Securities in accordance with the Agreement and this
Registration Rights Agreement will cause the Holder to suffer damages and
undertake risks in amounts that will be difficult to ascertain and were not
anticipated in negotiating the terms hereof or of the Agreement, the Debentures
or the Warrants. Accordingly the parties agree that it is appropriate to
include herein a provision for liquidated damages and to compensate the Holder
fairly for the additional risk undertaken by the Holder resulting from the
Company's delay or failure to effect such registrations. The parties
acknowledge and agree that the provisions hereinafter set forth in this
Paragraph 6 represent the parties' good faith effort to quantify such damages
and to compensate for such additional risk and, as
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<PAGE>
such, agree that the form and amount of damages and risk compensation are
reasonable and will not constitute a penalty.
(a) If the Registration Statement covering the resale of the Underlying
Stock and the Warrant Stock is not effective by the ninetieth (90th)
calendar day after the First Closing Date, then, with respect to the
Debentures outstanding on such ninetieth day , each of the X%s (as defined
in the Debentures) used in determining the Conversion Date Market Price (as
defined in the Debentures) shall be reduced by two (2) percentage points,
and the X%s as so reduced shall then and thereafter be applicable to and
upon the conversion of such Debentures, in lieu and in place of the X%s
provided in the Debentures but subject to further reduction as hereinafter
provided in this Paragraph 6.
(b) If such Registration Statement still has not become effective by the
one hundred twentieth (120th) calendar day (or any lesser number of days
greater than the 90th calendar day after the First Closing Date then each of
the X%s applicable to the Debentures, as theretofore reduced pursuant to
Paragraph 6(a) hereof, shall be further reduced by three (3) percentage
points (or a prorated portion for each day between the 90th and 120th
calendar days) and, as further so reduced, shall then and thereafter be
applicable to and upon conversion of the Debentures, but subject to
further reduction as hereinafter provided.
(c) If such Registration Statement still has not become effective by the
one hundred fiftieth (150th) calendar day (or any lesser number of days
greater than the 120th calendar day) after the First Closing Date, then each
of the X%s applicable to the Debentures, as theretofore reduced pursuant to
Paragraphs 6(a) and (b) hereof, shall be further reduced by three (3)
percentage points (or a prorated portion for each day between the 120th and
150th calendar days) on such 150th calendar day, and the X%s applicable to
the Debentures, as so reduced, shall then and thereafter be applicable to
and upon the conversion of such Debentures.
(d) If such Registration Statement still has not become effective by the
one hundred eightieth (180th) calendar day after the First Closing Date,
then there shall be paid to each Holder by the Company, in cash, on such
180th day and on each succeeding 30th day thereafter upon which such
Registration Statement still has not become effective, an amount equal to 3%
of the Outstanding Principal Amount of the Debentures held by the Holder on
such 180th day or succeeding 30th day, as the case may be, plus an amount
equal to 3% of the Original Principal Amount of any Debentures converted
prior to such 180th day or succeeding 30th day, as the case may be, (each
such payment, a "30 Day Delay Payment") and if such Registration Statement
shall become effective after the one hundred fiftieth (150th) calendar day
after the First Closing Date but before such 180th day or any such
succeeding 30th day, there shall also be paid to the Holder, in cash, on the
effective date of the Registration Statement a 30 Day Delay
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Payment pro-rated according to the portion of the then current 30 day period
ending on such effective date.
(e) If such Registration Statement still has not become effective by the
first anniversary of the First Closing Date, then, at the Holder's option
exercised at any time thereafter, the Company shall redeem the Holder's
Debentures at a date designated by such Holder, and at the redemption price
provided in Paragraph 9(b) of the Debentures, as though the date so
designated were the date of a Conversion Notice for purposes of such
Paragraph 9(b).
7. REGISTRATION PROCEDURES. In the case of each registration effected by the
Company pursuant to this Agreement, the Company will keep the Holder advised in
writing as to initiation of each registration and as to the completion thereof.
At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for the period ending (i) sixty (60)
months after initial issuance of the Debentures, (ii) when the Holder has
completed the distribution of the Registrable Securities described in the
registration statement relating thereto, or (iii) the date on which the
Registrable Securities are distributed to the public pursuant to Rule 144(k)
or are saleable pursuant to Rule 144(k) promulgated under the Securities
Act, whichever first occurs.
(b) Furnish such number of prospectuses and other documents incident
thereto as the Holder from time to time may reasonably request.
8. SUSPENSION OF USE OF REGISTRATION STATEMENT. The Holder agrees that, upon
receipt of any notice from the Company of (A) the happening of any event which
makes any statements made in the registration statement(s) or related
prospectus(es) filed pursuant to this Registration Rights Agreement, or any
document incorporated or deemed to be incorporated therein by reference, untrue
in any material respect or which requires the making of any changes in such
registration statement(s) or prospectus(es) so that, in the case of such
registration statement(s), it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstance under
which they were made, not misleading or (B) that, in the judgment of the
Company's Board of Directors, it is advisable to suspend use of the
prospectus(es) for a discrete period of time due to pending corporate
developments which are or may be material to the Company but have not been
disclosed in the Registration Statement(s) or in relevant public filings with
the SEC, or (C) the SEC has issued a stop order suspending the effectiveness of
the Registration Statement(s), the Holder will forthwith discontinue disposition
of such Shares covered by such Registration Statement(s) or prospectus(es) until
it is advised in writing by the Company that use of the applicable prospectus
may be resumed, and has received copies of any additional or supplemented
filings that are incorporated or deemed to be incorporated by reference in such
prospectus(es). The Company shall use all reasonable best efforts to insure
that the use of the prospectus(es) may be resumed as soon as
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practicable, and in any event shall not be entitled to require the Holder to
suspend use of the prospectus(es) for more than thirty (30) consecutive days
on any one occasion, more than forty-five (45) consecutive days in the
aggregate on two occasions which are not at least 90 days apart or more than
an aggregate of sixty (60) days in any twelve month period.
9. INDEMNIFICATION.
(a) COMPANY INDEMNITY. The Company will indemnify the Holder, each of
its officers, directors and partners, and each person controlling Holder
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder,
any underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any state securities law or in either case,
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse the Holder,
each of its officers, directors and partners, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged
untrue statement or omission) based upon written information furnished to the
Company by Holder or the underwriter and stated to be specifically for use
therein. The Indemnity agreement contained in this Section 9(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. The Holder will, if Registrable Securities held
by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15
of the Securities Act and the rules and regulations thereunder, each other
Holder (if any), and each of their officers, directors and partners, and each
person controlling such other Holder against all claims, losses, damages and
liabilities (or actions in respect thereof arising out of or based on any
untrue statement (or alleged
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untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading, and will
reimburse the Company and such other Holders and their directors, officers
and partners, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by Holder
and stated to be specifically for use therein; provided, however, that the
obligations of Holder shall not apply to amounts paid in settlement of any
such claims, losses, damages or liabilities if such settlement is effected
without the consent of Holder (which consent shall not be unreasonably
withheld).
(c) PROCEDURE. Each party entitled to indemnification under this
Article (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim in any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Article except to the extent that the Indemnifying
Party is actually prejudiced by such failure to provide notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with the
defense of such claim and litigation resulting therefrom.
10. CONTRIBUTION. If the indemnification provided for in Section 9 herein is
unavailable to the Indemnified Parties in respect of any losses, claims, damages
or liabilities referred to herein, then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) as between the Company on the one hand and the Indemnified
Parties on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Indemnified
Parties, as the case may be, on the other from the offering of the Registrable
Securities, or (ii) if such allocation is not permitted by
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applicable law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and of the Indemnified Parties, as the case may be, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand and the
Indemnified Parties, as the case may be, on the other shall be deemed to be in
the same proportion as the proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
from the initial sale of the Debentures by the Company pursuant to the Agreement
bear to the gain realized by the Holder or the total underwriting discounts and
commissions received by the underwriters as set forth in the table on the cover
page of the prospectus, as the case may be. The relative fault of the Company
on the one hand and of the Holder or underwriters, as the case may be, on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission to state a
material fact relates to information supplied by the Company, by the Holder or
by the underwriters.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 10 exceed the amount that such Indemnifying Party would have
been obligated to pay by way of indemnification if the indemnification provided
for under Section 9(a) or 9(b) hereof had been available under the
circumstances.
The Company and the Holder agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
(even if the Indemnified Parties were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraphs. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraphs
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this section, no Indemnified Party shall be
required to contribute any amount in excess of the amount by which (i) in the
case of the Holder, the net proceeds received by the Holder from the sale of
Registrable Securities or (ii) in the case of an underwriter, the total price at
which the Registrable Securities purchased by it and distributed to the public
were offered to the public exceeds, in any such case, the amount of any damages
that the Holder or underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
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11. SURVIVAL. The indemnity and contribution agreements contained in Sections 9
and 10 and the representations and warranties of the Company referred to in
Section 2(b)(i) shall remain operative and in full force and effect regardless
of (i) any termination of the Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by or on behalf
of the Company and (iii) the consummation of the sale or successive resales of
the Registrable Securities.
12. INFORMATION BY HOLDER AND ANY UNDERWRITERS. The Holder and the underwriters,
if any, shall furnish to the Company, within 20 business days of the Company's
request therefor, such information regarding such Holder or underwriters, as the
case may be, and the distribution proposed by such Holder or underwriters as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement.
13. TRANSFER OF ASSIGNMENT OF REGISTRATION RIGHTS: The rights, granted to
Holder by the Company under this Registration Rights Agreement, to cause the
Company to register Registrable Securities, may be transferred or assigned to a
transferee or assignee of any of not less than $50,000 in principal amount of
Debentures and any Warrants, provided that the Company is given written notice
by Holder at the time of or within a reasonable time after said transfer or
assignment, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned, and provided further that the transferee or
assignee of such rights is not deemed by the board of directors of the Company,
in its reasonable judgment, to be a competitor of the Company; and provided
further that the transferee or assignee of such rights agrees to be bound by
this Registration Rights Agreement.
14. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Registration Rights Agreement contains the
entire understanding and agreement of the parties with respect to the subject
matter hereof, and may not be modified or terminated except by a written
agreement signed by both parties.
(b) NOTICES: Any notice or other communication given or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
if personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
addressee by facsimile, Federal Express or other such expedited means, (a) if to
Purchaser, at its address hereinabove set forth, (b) if to the Company, at its
address hereinabove set forth, (c) if, to a Holder other than the Purchaser, at
the address thereof furnished by like notice to the Company, or (d) to any such
addressee at such other address or addresses as shall be so furnished to the
other parties hereto by like notice.
(c) GENDER OF TERMS. All terms used herein shall be deemed to include the
feminine and the neuter, and the singular and the plural, as the context
required.
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(d) GOVERNING LAW; CONSENT OF JURISDICTION. This Registration Rights
Agreement and the validity and performance of the terms hereof shall be governed
by and construed in accordance with the laws of the State of New York, except to
the extent that the law of Delaware regulates the Company's issuance of
securities. The parties hereto hereby consent to, and waive any objection to
the exercise of, personal jurisdiction in the State of New York with respect to
any action or proceeding arising out of this Registration Rights Agreement.
(e) TITLE. The titles used in this Registration Rights Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
IN WITNESS WHEREOF, the parties hereto have cause this Registration Rights
Agreement to be duly executed as of the date first above written.
By: Halifax Fund, L.P.
By: The Palladin Group
Its:
By: /s/ Andrew Kaplan
----------------------------
Its: Vice President
---------------------------
ZYCAD CORPORATION
a Delaware Corporation
By: /s/ Phillips W. Smith
------------------------------------------------
Print Name: Phillips W. Smith
----------------------------------------
Print Title: President and Chief Executive Officer
---------------------------------------
ATTEST
/s/ Douglas E. Klint
- -----------------------------
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement"),
entered into as of February 13, 1997, between CAPITAL VENTURES INTERNATIONAL,
with offices at 1 Capital Place, P.O. Box 1787GT, Grand Cayman, Cayman
Islands (the "Purchaser"), and ZYCAD CORPORATION, a Delaware corporation with
offices at 47100 Bayside Parkway, Fremont, California 94538 (the "Company")
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities Subscription Agreement,
dated as of February 13, 1997 (the "Agreement"), by and between the Company
and the Purchaser, the Company has agreed to sell and the Purchaser has
agreed to purchase up to One Million and Seven Hundred and Fifty Thousand
Dollars (U.S. $1,750,000) of the Company's 6% Convertible Subordinated
Debenture due February 13, 2000 (the "Debentures") convertible into shares of
the Company's Common Stock, $.10 par value. The Company has further agreed,
pursuant to the Agreement and under the circumstances provided therein, to
issue Warrants to purchase additional shares of such Common Stock. The
shares of such Common Stock issuable upon conversion of the Debentures and
exercise of such Warrants are collectively referred to herein as the "Shares".
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Purchaser's agreement to enter into the Agreement, the Company has agreed to
provide the Purchaser with certain registration rights with respect to the
Shares under certain circumstances set forth in the Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Agreement and this Registration Rights Agreement, the Company and the
Purchaser agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings. Other terms used herein which
are defined in the Agreement, the Debentures or the Warrants shall have the
same meanings herein as they do in such other documents.
"Commission" or "SEC" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean: (i) Shares issued to Purchaser or
its designee upon conversion of the Debentures, upon exercise of the Warrants
(including the Debentures and Warrants to be sold to the Purchaser on the
First Closing Date and on the Second Closing Date pursuant to the Agreement)
or upon any stock split, stock dividend, recapitalization or similar event
with respect to such Shares; and (ii) any securities issued
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or issuable to Purchaser or any Holder upon the conversion or exercise or
exchange of any Debentures, Warrants or Shares.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with Purchaser's exercise of its registration rights
under this Agreement, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, reasonable fees and disbursements of
counsel to Holder for a "due diligence" examination of the Company, and the
expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions, if any, applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holder not included within
"Registration Expenses."
"Holder" shall include the Purchaser and any transferee of Debentures,
Warrants, Shares or Registrable Securities which have not been sold to the
public to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 10 of this Agreement.
"Registration Statement" shall have the meaning set forth in Section
2(a) herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. THE REGISTRATION REQUIREMENTS. The Company shall file as promptly as
possible and in any event by the forty-fifth (45th) calendar day after the
First Closing Date, and use its diligent best efforts to cause to become
effective, as promptly as possible and in any event by the ninetieth (90th)
calendar day after the First Closing Date in the case of the registration of
the Underlying Stock and the Warrant Stock, a registration statement on Form
S-3 under the Securities Act or, if Form S-3 is not then available, another
appropriate form covering the resale of the Underlying Stock issuable on
conversion of the Debentures and the resale of the Warrant Stock issuable
upon the exercise of the Warrants, and shall take all action necessary to
qualify the Underlying Stock and the Warrant Stock under state "blue sky"
laws as hereinafter provided. The Company shall use its diligent best
efforts to effect the registration contemplated by the foregoing (including,
without limitation, the execution of an undertaking to file amendments and
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post-effective amendments, appropriate qualification under and compliance
with applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act) and
as would permit or facilitate the sale and distribution of all the
Registrable Securities in all states reasonably requested by the Holder for
purposes of maximizing the proceeds realizable by the Holder from such sale
and distribution. Such best efforts by the Company shall include, without
limitation, the following:
(a) The Company shall file (i) registration statements with the
Commission pursuant to Rule 415 under the Securities Act on Form
S-3 under the Securities Act and the Company shall use its best
efforts to qualify for the use of such Form (or in the event that
the Company is ineligible to use such form, such other form as the
Company is eligible to use under the Securities Act) covering the
Registrable Securities so to be registered (each, a "Registration
Statement"); (ii) such blue sky filings as shall be reasonably
requested to permit such sales PROVIDED, HOWEVER, that the Company
shall not be required to register the Registrable Securities in any
jurisdiction that would subject it to general service of process in
any such jurisdiction where it is not then so subject or subject
the Company to any tax in any such jurisdiction where it is not
then so subject or require the Company to qualify to do business in
any jurisdiction where it is not then so qualified; and (iii) any
required filings with the National Association of Securities
Dealers, Inc. ("NASD") or exchange where the Shares are traded; all
as soon as practicable after the date hereof. The Company shall use
its best efforts to have the Registration Statements and other
filings declared effective as soon thereafter as may be practicable.
(b) The Company shall enter into such customary agreements
(including a customary underwriting agreement with the underwriter
or underwriters, if any) and take all such other reasonable actions
in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities and in such connection,
whether or not the Registrable Securities are to be sold in an
underwritten offering, the Company shall:
(i) make such representations and warranties to the
Holder and the underwriter or underwriters, if any, in form
and substance and scope as are customarily made by issuers to
underwriters in secondary underwritten offerings:
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any,
opinions of counsel to the Company, dated the effective day
(or in the case of an underwritten offering, dated the date
of delivery of any Registrable Securities sold pursuant
thereto) of the applicable registration statement (which
counsel, and opinions (in form, scope and substance), shall
be reasonably satisfactory to the managing underwriter or
underwriters, if any, and the
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appointed representative or counsel of the Holder, addressed
to the Holder and each underwriter, if any, covering the
matters customarily covered in opinions requested in
secondary underwritten offerings and, in the case of any
underwritten offering, such other matters as may be
reasonably requested by the Holder;
(iii) cause to be delivered, immediately prior to the
effectiveness of the applicable Registration Statement (and,
in the case of an underwritten offering, at the time of
delivery of any Registrable Securities sold pursuant
thereto), letters from the Company's independent certified
public accountants addressed to the Holder and each
underwriter, if any, stating that such accountants are
independent public accountants within the meaning of the
Securities Act and the applicable published rules and
regulations thereunder, and otherwise in customary form and
covering such financial and accounting matters as are
customarily covered by letters of the independent certified
public accountants delivered in connection with secondary
underwritten public offerings;
(iv) if an underwriting agreement is entered into, cause
the same to set forth indemnification and contribution
provisions and procedures which are no less favorable to the
Holder and the Company than those contemplated by sections 9
and 10 with respect to all parties to be indemnified pursuant
to such sections;
(v) deliver such documents and certificates as may be
reasonably requested by the Holder of the Registrable
Securities being sold or the managing underwriter or
underwriters, if any, to evidence compliance with clause (i)
above and with any customary conditions contained in the
underwriting agreement, if any, or other agreement entered
into by the Company;
the foregoing in this paragraph 2(b) shall be done at each closing under any
such underwriting or similar agreement or as and to the extent required
thereunder; provided, however, the foregoing in paragraph 2(b) shall not be
required on more than two (2) occasions.
(c) The Company shall make available for inspection and review by the
Holder, a representative or representatives of the Holder, any underwriter
participating in any disposition pursuant to a Registration Statement, and
any attorney or accountant retained by such Holder or underwriter, any such
registration statement or amendment or supplement or any blue sky, NASD or
other filing, all financial and other records, pertinent corporate documents
and properties of the Company as they may reasonably request for the purpose,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, underwriter,
attorney or
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accountant in connection with such Registration Statement;
PROVIDED, HOWEVER, that the Holder shall first agree in writing
with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential at
the time of delivery of such information shall be kept confidential
by the Holder and that the Holder will use reasonable efforts to
cause its representatives and such other persons so to keep such
information confidential, unless (i) disclosure of such information
is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of
such information is required by law (including any disclosure
requirements pursuant to Federal securities laws in connection with
the filing of any Registration Statement or the use of any
prospectus referred to in this Agreement), (iii) such information
becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by any such person, (iv) such
information becomes available to any such person from a source
other than the Company and such source, to the knowledge of such
persons, is not bound by a confidentiality agreement with the
Company, or (v) such information was known to or is developed by
such persons without reference to such confidential information of
the Company.
3. UNDERWRITTEN DISTRIBUTION. If the Holder intends to distribute the
Registrable Securities covered by a Registration Statement by means of an
underwriting, the Holder shall so advise the Company and, within 30 days of
the date thereof and without limiting the generality of other provisions
hereof, the Company will prepare and file such amendment or amendments to the
Registration Statement and make such other filings as may be necessary or
appropriate to effect any such underwritten distribution.
4. MULTIPLE HOLDERS. If there is more than one Holder, such Holders
shall act with respect to their rights under this Agreement
according to the vote of a majority-in-interest.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company, and all
Selling Expenses shall be borne by the Holder.
6. REGISTRATION DELAY OR FAILURE. The Company acknowledges that its
failure to register the Registrable Securities in accordance with
the Agreement and this Registration Rights Agreement will cause the
Holder to suffer damages and undertake risks in amounts that will
be difficult to ascertain and were not anticipated in negotiating
the terms hereof or of the Agreement, the Debentures or the
Warrants. Accordingly the parties agree that it is appropriate to
include herein a provision for liquidated damages and to compensate
the Holder fairly for the additional risk undertaken by the Holder
resulting from the Company's delay or failure to effect such
registrations. The parties acknowledge and agree that the
provisions hereinafter set forth in this Paragraph 6 represent the
parties' good faith effort to quantify such damages and to
compensate for such additional risk and, as
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such, agree that the form and amount of damages and risk
compensation are reasonable and will not constitute a penalty.
(a) If the Registration Statement covering the resale of the
Underlying Stock and the Warrant Stock is not effective by the
ninetieth (90th) calendar day after the First Closing Date, then,
with respect to the Debentures outstanding on such ninetieth day ,
each of the X%s (as defined in the Debentures) used in determining
the Conversion Date Market Price (as defined in the Debentures)
shall be reduced by two (2) percentage points, and the X%s as so
reduced shall then and thereafter be applicable to and upon the
conversion of such Debentures, in lieu and in place of the X%s
provided in the Debentures but subject to further reduction as
hereinafter provided in this Paragraph 6.
(b) If such Registration Statement still has not become effective
by the one hundred twentieth (120th) calendar day (or any lesser
number of days greater than the 90th calendar day after the First
Closing Date then each of the X%s applicable to the Debentures, as
theretofore reduced pursuant to Paragraph 6(a) hereof, shall be
further reduced by three (3) percentage points (or a prorated
portion for each day between the 90th and 120th calendar days) and,
as further so reduced, shall then and thereafter be applicable to
and upon conversion of the Debentures, but subject to further
reduction as hereinafter provided.
(c) If such Registration Statement still has not become effective
by the one hundred fiftieth (150th) calendar day (or any lesser
number of days greater than the 120th calendar day) after the First
Closing Date, then each of the X%s applicable to the Debentures, as
theretofore reduced pursuant to Paragraphs 6(a) and (b) hereof,
shall be further reduced by three (3) percentage points (or a
prorated portion for each day between the 120th and 150th calendar
days) on such 150th calendar day, and the X%s applicable to the
Debentures, as so reduced, shall then and thereafter be applicable
to and upon the conversion of such Debentures.
(d) If such Registration Statement still has not become effective
by the one hundred eightieth (180th) calendar day after the First
Closing Date, then there shall be paid to each Holder by the
Company, in cash, on such 180th day and on each succeeding 30th day
thereafter upon which such Registration Statement still has not
become effective, an amount equal to 3% of the Outstanding
Principal Amount of the Debentures held by the Holder on such 180th
day or succeeding 30th day, as the case may be, plus an amount
equal to 3% of the Original Principal Amount of any Debentures
converted prior to such 180th day or succeeding 30th day, as the
case may be, (each such payment, a "30 Day Delay Payment") and if
such Registration Statement shall become effective after the one
hundred fiftieth (150th) calendar day after the First Closing Date
but before such 180th day or any such succeeding 30th day, there
shall also be paid to the Holder, in cash, on the effective date of
the Registration Statement a 30 Day Delay
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Payment pro-rated according to the portion of the then current 30
day period ending on such effective date.
(e) If such Registration Statement still has not become effective
by the first anniversary of the First Closing Date, then, at the
Holder's option exercised at any time thereafter, the Company shall
redeem the Holder's Debentures at a date designated by such Holder,
and at the redemption price provided in Paragraph 9(b) of the
Debentures, as though the date so designated were the date of a
Conversion Notice for purposes of such Paragraph 9(b).
7. REGISTRATION PROCEDURES. In the case of each registration effected
by the Company pursuant to this Agreement, the Company will keep the Holder
advised in writing as to initiation of each registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for the period ending (i) sixty
(60) months after initial issuance of the Debentures, (ii) when the Holder
has completed the distribution of the Registrable Securities described in the
registration statement relating thereto, or (iii) the date on which the
Registrable Securities are distributed to the public pursuant to Rule 144(k)
or are saleable pursuant to Rule 144(k) promulgated under the Securities Act,
whichever first occurs.
(b) Furnish such number of prospectuses and other documents incident
thereto as the Holder from time to time may reasonably request.
8. SUSPENSION OF USE OF REGISTRATION STATEMENT. The Holder agrees that,
upon receipt of any notice from the Company of (A) the happening of any event
which makes any statements made in the registration statement(s) or related
prospectus(es) filed pursuant to this Registration Rights Agreement, or any
document incorporated or deemed to be incorporated therein by reference,
untrue in any material respect or which requires the making of any changes in
such registration statement(s) or prospectus(es) so that, in the case of such
registration statement(s), it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstance under which they were made, not misleading or (B) that, in the
judgment of the Company's Board of Directors, it is advisable to suspend use
of the prospectus(es) for a discrete period of time due to pending corporate
developments which are or may be material to the Company but have not been
disclosed in the Registration Statement(s) or in relevant public filings with
the SEC, or (C) the SEC has issued a stop order suspending the effectiveness
of the Registration Statement(s), the Holder will forthwith discontinue
disposition of such Shares covered by such Registration Statement(s) or
prospectus(es) until it is advised in writing by the Company that use of the
applicable prospectus may be resumed, and has received copies of any
additional or supplemented filings that are incorporated or deemed to be
incorporated by reference in such prospectus(es). The Company shall use all
reasonable best efforts to insure that the use of the prospectus(es) may be
resumed as soon as
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practicable, and in any event shall not be entitled to require the Holder to
suspend use of the prospectus(es) for more than thirty (30) consecutive days
on any one occasion, more than forty-five (45) consecutive days in the
aggregate on two occasions which are not at least 90 days apart or more than
an aggregate of sixty (60) days in any twelve month period.
9. INDEMNIFICATION.
(a) COMPANY INDEMNITY. The Company will indemnify the Holder, each
of its officers, directors and partners, and each person controlling Holder
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder,
any underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any state securities law or in either case,
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse the Holder,
each of its officers, directors and partners, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged
untrue statement or omission) based upon written information furnished to the
Company by Holder or the underwriter and stated to be specifically for use
therein. The Indemnity agreement contained in this Section 9(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. The Holder will, if Registrable Securities
held by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15
of the Securities Act and the rules and regulations thereunder, each other
Holder (if any), and each of their officers, directors and partners, and each
person controlling such other Holder against all claims, losses, damages and
liabilities (or actions in respect thereof arising out of or based on any
untrue statement (or alleged
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untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading, and will
reimburse the Company and such other Holders and their directors, officers
and partners, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by Holder
and stated to be specifically for use therein; provided, however, that the
obligations of Holder shall not apply to amounts paid in settlement of any
such claims, losses, damages or liabilities if such settlement is effected
without the consent of Holder (which consent shall not be unreasonably
withheld).
(c) PROCEDURE. Each party entitled to indemnification under this
Article (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim in any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Article except to the extent that the Indemnifying
Party is actually prejudiced by such failure to provide notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with the
defense of such claim and litigation resulting therefrom.
10. CONTRIBUTION. If the indemnification provided for in Section 9
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages or liabilities (i) as between the
Company on the one hand and the Indemnified Parties on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Indemnified Parties, as the case may be, on
the other from the offering of the Registrable Securities, or (ii) if such
allocation is not permitted by
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<PAGE>
applicable law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and of the Indemnified Parties, as the case may be, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand and the
Indemnified Parties, as the case may be, on the other shall be deemed to be
in the same proportion as the proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company from the initial sale of the Debentures by the Company pursuant to
the Agreement bear to the gain realized by the Holder or the total
underwriting discounts and commissions received by the underwriters as set
forth in the table on the cover page of the prospectus, as the case may be.
The relative fault of the Company on the one hand and of the Holder or
underwriters, as the case may be, on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company, by the Holder or by the underwriters.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 10 exceed the amount that such Indemnifying Party would
have been obligated to pay by way of indemnification if the indemnification
provided for under Section 9(a) or 9(b) hereof had been available under the
circumstances.
The Company and the Holder agree that it would not be just and equitable
if contribution pursuant to this Section 10 were determined by pro rata
allocation (even if the Indemnified Parties were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this section, no
Indemnified Party shall be required to contribute any amount in excess of the
amount by which (i) in the case of the Holder, the net proceeds received by
the Holder from the sale of Registrable Securities or (ii) in the case of an
underwriter, the total price at which the Registrable Securities purchased by
it and distributed to the public were offered to the public exceeds, in any
such case, the amount of any damages that the Holder or underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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<PAGE>
11. SURVIVAL. The indemnity and contribution agreements contained in
Sections 9 and 10 and the representations and warranties of the Company
referred to in Section 2(b)(i) shall remain operative and in full force and
effect regardless of (i) any termination of the Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified
Party or by or on behalf of the Company and (iii) the consummation of the
sale or successive resales of the Registrable Securities.
12. INFORMATION BY HOLDER AND ANY UNDERWRITERS. The Holder and the
underwriters, if any, shall furnish to the Company, within 20 business days
of the Company's request therefor, such information regarding such Holder or
underwriters, as the case may be, and the distribution proposed by such
Holder or underwriters as the Company may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
13. TRANSFER OF ASSIGNMENT OF REGISTRATION RIGHTS: The rights, granted to
Holder by the Company under this Registration Rights Agreement, to cause the
Company to register Registrable Securities, may be transferred or assigned to
a transferee or assignee of any of not less than $50,000 in principal amount
of Debentures and any Warrants, provided that the Company is given written
notice by Holder at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and provided further
that the transferee or assignee of such rights is not deemed by the board of
directors of the Company, in its reasonable judgment, to be a competitor of
the Company; and provided further that the transferee or assignee of such
rights agrees to be bound by this Registration Rights Agreement.
14. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Registration Rights Agreement contains
the entire understanding and agreement of the parties with respect to the
subject matter hereof, and may not be modified or terminated except by a
written agreement signed by both parties.
(b) NOTICES: Any notice or other communication given or permitted
under this Agreement shall be in writing and shall be deemed to have been
duly given if personally delivered or sent by registered or certified mail,
return receipt requested, postage prepaid with a copy in each case sent on
the same day to the addressee by facsimile, Federal Express or other such
expedited means, (a) if to Purchaser, at its address hereinabove set forth,
(b) if to the Company, at its address hereinabove set forth, (c) if, to a
Holder other than the Purchaser, at the address thereof furnished by like
notice to the Company, or (d) to any such addressee at such other address or
addresses as shall be so furnished to the other parties hereto by like notice.
(c) GENDER OF TERMS. All terms used herein shall be deemed to
include the feminine and the neuter, and the singular and the plural, as the
context required.
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<PAGE>
(d) GOVERNING LAW; CONSENT OF JURISDICTION. This Registration Rights
Agreement and the validity and performance of the terms hereof shall be
governed by and construed in accordance with the laws of the State of New
York, except to the extent that the law of Delaware regulates the Company's
issuance of securities. The parties hereto hereby consent to, and waive any
objection to the exercise of, personal jurisdiction in the State of New York
with respect to any action or proceeding arising out of this Registration
Rights Agreement.
(e) TITLE. The titles used in this Registration Rights Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the parties hereto have cause this Registration
Rights Agreement to be duly executed as of the date first above written.
By: Capital Ventures International
By: Bala International Inc.
---------------------------
Its: Agent
--------------------------
By: /s/ Andrew Frost
---------------------------
Its: Director
--------------------------
ZYCAD CORPORATION
a Delaware Corporation
By: /s/ Phillips W. Smith
---------------------------
Print Name: Phillips W. Smith
----------------------
Print Title: President and Chief Executive Officer
ATTEST
/s/ Douglas E. Klint
- ---------------------
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement"),
entered into as of February 13, 1997, between HERACLES FUND, with offices at
c/o Bank of Bermuda (Cayman) Limited, P.O. Box 513, Third Floor, British
American Tower, Dr. Roy's Drive, Georgetown, Grand Cayman, Cayman Islands,
BWI (the "Purchaser"), and ZYCAD CORPORATION, a Delaware corporation with
offices at 47100 Bayside Parkway, Fremont, California 94538 (the "Company")
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities Subscription Agreement,
dated as of February 13, 1997 (the "Agreement"), by and between the Company
and the Purchaser, the Company has agreed to sell and the Purchaser has
agreed to purchase up to Five Hundred Thousand Dollars (U.S. $500,000) of the
Company's 6% Convertible Subordinated Debenture due February 13, 2000 (the
"Debentures") convertible into shares of the Company's Common Stock, $.10 par
value. The Company has further agreed, pursuant to the Agreement and under
the circumstances provided therein, to issue Warrants to purchase additional
shares of such Common Stock. The shares of such Common Stock issuable upon
conversion of the Debentures and exercise of such Warrants are collectively
referred to herein as the "Shares".
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Purchaser's agreement to enter into the Agreement, the Company has agreed to
provide the Purchaser with certain registration rights with respect to the
Shares under certain circumstances set forth in the Agreement;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Agreement and this
Registration Rights Agreement, the Company and the Purchaser agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings. Other terms used herein which
are defined in the Agreement, the Debentures or the Warrants shall have the
same meanings herein as they do in such other documents.
"Commission" or "SEC" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean: (i) Shares issued to Purchaser or
its designee upon conversion of the Debentures, upon exercise of the Warrants
(including the Debentures and Warrants to be sold to the Purchaser on the
First Closing Date and on the Second Closing Date pursuant to the Agreement)
or upon any stock split, stock dividend, recapitalization or similar event
with respect to such Shares; and (ii) any securities issued
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or issuable to Purchaser or any Holder upon the conversion or exercise or
exchange of any Debentures, Warrants or Shares.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with Purchaser's exercise of its registration rights
under this Agreement, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, reasonable fees and disbursements of
counsel to Holder for a "due diligence" examination of the Company, and the
expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions, if any, applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holder not included within
"Registration Expenses."
"Holder" shall include the Purchaser and any transferee of Debentures,
Warrants, Shares or Registrable Securities which have not been sold to the
public to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 10 of this Agreement.
"Registration Statement" shall have the meaning set forth in Section 2(a)
herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. THE REGISTRATION REQUIREMENTS. The Company shall file as promptly as
possible and in any event by the forty-fifth (45th) calendar day after the
First Closing Date, and use its diligent best efforts to cause to become
effective, as promptly as possible and in any event by the ninetieth (90th)
calendar day after the First Closing Date in the case of the registration of
the Underlying Stock and the Warrant Stock, a registration statement on Form
S-3 under the Securities Act or, if Form S-3 is not then available, another
appropriate form covering the resale of the Underlying Stock issuable on
conversion of the Debentures and the resale of the Warrant Stock issuable
upon the exercise of the Warrants, and shall take all action necessary to
qualify the Underlying Stock and the Warrant Stock under state "blue sky"
laws as hereinafter provided. The Company shall use its diligent best
efforts to effect the registration contemplated by the foregoing (including,
without limitation, the execution of an undertaking to file amendments and
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post-effective amendments, appropriate qualification under and compliance
with applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act) and
as would permit or facilitate the sale and distribution of all the
Registrable Securities in all states reasonably requested by the Holder for
purposes of maximizing the proceeds realizable by the Holder from such sale
and distribution. Such best efforts by the Company shall include, without
limitation, the following:
(a) The Company shall file (i) registration statements with the
Commission pursuant to Rule 415 under the Securities Act on Form
S-3 under the Securities Act and the Company shall use its best
efforts to qualify for the use of such Form (or in the event that
the Company is ineligible to use such form, such other form as the
Company is eligible to use under the Securities Act) covering the
Registrable Securities so to be registered (each, a "Registration
Statement"); (ii) such blue sky filings as shall be reasonably
requested to permit such sales PROVIDED, HOWEVER, that the Company
shall not be required to register the Registrable Securities in any
jurisdiction that would subject it to general service of process in
any such jurisdiction where it is not then so subject or subject
the Company to any tax in any such jurisdiction where it is not
then so subject or require the Company to qualify to do business in
any jurisdiction where it is not then so qualified; and (iii) any
required filings with the National Association of Securities
Dealers, Inc. ("NASD") or exchange where the Shares are traded; all
as soon as practicable after the date hereof. The Company shall use
its best efforts to have the Registration Statements and other
filings declared effective as soon thereafter as may be practicable.
(b) The Company shall enter into such customary agreements
(including a customary underwriting agreement with the underwriter
or underwriters, if any) and take all such other reasonable actions
in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities and in such connection,
whether or not the Registrable Securities are to be sold in an
underwritten offering, the Company shall:
(i) make such representations and warranties to the
Holder and the underwriter or underwriters, if any, in form
and substance and scope as are customarily made by issuers to
underwriters in secondary underwritten offerings:
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any,
opinions of counsel to the Company, dated the effective day
(or in the case of an underwritten offering, dated the date of
delivery of any Registrable Securities sold pursuant thereto)
of the applicable registration statement (which counsel, and
opinions (in form, scope and substance), shall be reasonably
satisfactory to the managing underwriter or underwriters, if
any, and the
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appointed representative or counsel of the Holder, addressed
to the Holder and each underwriter, if any, covering the
matters customarily covered in opinions requested in
secondary underwritten offerings and, in the case of any
underwritten offering, such other matters as may be
reasonably requested by the Holder;
(iii) cause to be delivered, immediately prior to the
effectiveness of the applicable Registration Statement (and,
in the case of an underwritten offering, at the time of
delivery of any Registrable Securities sold pursuant thereto),
letters from the Company's independent certified public
accountants addressed to the Holder and each underwriter, if
any, stating that such accountants are independent public
accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder, and
otherwise in customary form and covering such financial and
accounting matters as are customarily covered by letters of
the independent certified public accountants delivered in
connection with secondary underwritten public offerings;
(iv) if an underwriting agreement is entered into, cause
the same to set forth indemnification and contribution
provisions and procedures which are no less favorable to the
Holder and the Company than those contemplated by sections 9
and 10 with respect to all parties to be indemnified pursuant
to such sections;
(v) deliver such documents and certificates as may be
reasonably requested by the Holder of the Registrable
Securities being sold or the managing underwriter or
underwriters, if any, to evidence compliance with clause (i)
above and with any customary conditions contained in the
underwriting agreement, if any, or other agreement entered
into by the Company;
the foregoing in this paragraph 2(b) shall be done at each closing
under any such underwriting or similar agreement or as and to the
extent required thereunder; provided, however, the foregoing in
paragraph 2(b) shall not be required on more than two (2)
occasions.
(c) The Company shall make available for inspection and review by
the Holder, a representative or representatives of the Holder, any
underwriter participating in any disposition pursuant to a
Registration Statement, and any attorney or accountant retained by
such Holder or underwriter, any such registration statement or
amendment or supplement or any blue sky, NASD or other filing, all
financial and other records, pertinent corporate documents and
properties of the Company as they may reasonably request for the
purpose, and cause the Company's officers, directors and employees
to supply all information reasonably requested by any such
representative, underwriter, attorney or
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accountant in connection with such Registration Statement;
PROVIDED, HOWEVER, that the Holder shall first agree in writing
with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential at
the time of delivery of such information shall be kept confidential
by the Holder and that the Holder will use reasonable efforts to
cause its representatives and such other persons so to keep such
information confidential, unless (i) disclosure of such information
is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of
such information is required by law (including any disclosure
requirements pursuant to Federal securities laws in connection with
the filing of any Registration Statement or the use of any
prospectus referred to in this Agreement), (iii) such information
becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by any such person, (iv) such
information becomes available to any such person from a source
other than the Company and such source, to the knowledge of such
persons, is not bound by a confidentiality agreement with the
Company, or (v) such information was known to or is developed by
such persons without reference to such confidential information of
the Company.
3. UNDERWRITTEN DISTRIBUTION. If the Holder intends to distribute the
Registrable Securities covered by a Registration Statement by means of an
underwriting, the Holder shall so advise the Company and, within 30 days of
the date thereof and without limiting the generality of other provisions
hereof, the Company will prepare and file such amendment or amendments to the
Registration Statement and make such other filings as may be necessary or
appropriate to effect any such underwritten distribution.
4. MULTIPLE HOLDERS. If there is more than one Holder, such Holders
shall act with respect to their rights under this Agreement
according to the vote of a majority-in-interest.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company, and all
Selling Expenses shall be borne by the Holder.
6. REGISTRATION DELAY OR FAILURE. The Company acknowledges that its
failure to register the Registrable Securities in accordance with
the Agreement and this Registration Rights Agreement will cause the
Holder to suffer damages and undertake risks in amounts that will
be difficult to ascertain and were not anticipated in negotiating
the terms hereof or of the Agreement, the Debentures or the
Warrants. Accordingly the parties agree that it is appropriate to
include herein a provision for liquidated damages and to compensate
the Holder fairly for the additional risk undertaken by the Holder
resulting from the Company's delay or failure to effect such
registrations. The parties acknowledge and agree that the
provisions hereinafter set forth in this Paragraph 6 represent the
parties' good faith effort to quantify such damages and to
compensate for such additional risk and, as
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such, agree that the form and amount of damages and risk compensation
are reasonable and will not constitute a penalty.
(a) If the Registration Statement covering the resale of the
Underlying Stock and the Warrant Stock is not effective by the
ninetieth (90th) calendar day after the First Closing Date, then,
with respect to the Debentures outstanding on such ninetieth day ,
each of the X%s (as defined in the Debentures) used in determining
the Conversion Date Market Price (as defined in the Debentures)
shall be reduced by two (2) percentage points, and the X%s as so
reduced shall then and thereafter be applicable to and upon the
conversion of such Debentures, in lieu and in place of the X%s
provided in the Debentures but subject to further reduction as
hereinafter provided in this Paragraph 6.
(b) If such Registration Statement still has not become effective
by the one hundred twentieth (120th) calendar day (or any lesser
number of days greater than the 90th calendar day after the First
Closing Date then each of the X%s applicable to the Debentures, as
theretofore reduced pursuant to Paragraph 6(a) hereof, shall be
further reduced by three (3) percentage points (or a prorated
portion for each day between the 90th and 120th calendar days) and,
as further so reduced, shall then and thereafter be applicable to
and upon conversion of the Debentures, but subject to further
reduction as hereinafter provided.
(c) If such Registration Statement still has not become effective
by the one hundred fiftieth (150th) calendar day (or any lesser
number of days greater than the 120th calendar day) after the First
Closing Date, then each of the X%s applicable to the Debentures, as
theretofore reduced pursuant to Paragraphs 6(a) and (b) hereof,
shall be further reduced by three (3) percentage points (or a
prorated portion for each day between the 120th and 150th calendar
days) on such 150th calendar day, and the X%s applicable to the
Debentures, as so reduced, shall then and thereafter be applicable
to and upon the conversion of such Debentures.
(d) If such Registration Statement still has not become effective
by the one hundred eightieth (180th) calendar day after the First
Closing Date, then there shall be paid to each Holder by the
Company, in cash, on such 180th day and on each succeeding 30th day
thereafter upon which such Registration Statement still has not
become effective, an amount equal to 3% of the Outstanding
Principal Amount of the Debentures held by the Holder on such 180th
day or succeeding 30th day, as the case may be, plus an amount
equal to 3% of the Original Principal Amount of any Debentures
converted prior to such 180th day or succeeding 30th day, as the
case may be, (each such payment, a "30 Day Delay Payment") and if
such Registration Statement shall become effective after the one
hundred fiftieth (150th) calendar day after the First Closing Date
but before such 180th day or any such succeeding 30th day, there
shall also be paid to the Holder, in cash, on the effective date of
the Registration Statement a 30 Day Delay
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Payment pro-rated according to the portion of the then current 30
day period ending on such effective date.
(e) If such Registration Statement still has not become effective
by the first anniversary of the First Closing Date, then, at the
Holder's option exercised at any time thereafter, the Company shall
redeem the Holder's Debentures at a date designated by such Holder,
and at the redemption price provided in Paragraph 9(b) of the
Debentures, as though the date so designated were the date of a
Conversion Notice for purposes of such Paragraph 9(b).
7. REGISTRATION PROCEDURES. In the case of each registration effected
by the Company pursuant to this Agreement, the Company will keep the Holder
advised in writing as to initiation of each registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for the period ending (i) sixty
(60) months after initial issuance of the Debentures, (ii) when the Holder
has completed the distribution of the Registrable Securities described in the
registration statement relating thereto, or (iii) the date on which the
Registrable Securities are distributed to the public pursuant to Rule 144(k)
or are saleable pursuant to Rule 144(k) promulgated under the Securities Act,
whichever first occurs.
(b) Furnish such number of prospectuses and other documents incident
thereto as the Holder from time to time may reasonably request.
8. SUSPENSION OF USE OF REGISTRATION STATEMENT. The Holder agrees that,
upon receipt of any notice from the Company of (A) the happening of any event
which makes any statements made in the registration statement(s) or related
prospectus(es) filed pursuant to this Registration Rights Agreement, or any
document incorporated or deemed to be incorporated therein by reference,
untrue in any material respect or which requires the making of any changes in
such registration statement(s) or prospectus(es) so that, in the case of such
registration statement(s), it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstance under which they were made, not misleading or (B) that, in the
judgment of the Company's Board of Directors, it is advisable to suspend use
of the prospectus(es) for a discrete period of time due to pending corporate
developments which are or may be material to the Company but have not been
disclosed in the Registration Statement(s) or in relevant public filings with
the SEC, or (C) the SEC has issued a stop order suspending the effectiveness
of the Registration Statement(s), the Holder will forthwith discontinue
disposition of such Shares covered by such Registration Statement(s) or
prospectus(es) until it is advised in writing by the Company that use of the
applicable prospectus may be resumed, and has received copies of any
additional or supplemented filings that are incorporated or deemed to be
incorporated by reference in such prospectus(es). The Company shall use all
reasonable best efforts to insure that the use of the prospectus(es) may be
resumed as soon as
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practicable, and in any event shall not be entitled to require the Holder to
suspend use of the prospectus(es) for more than thirty (30) consecutive days
on any one occasion, more than forty-five (45) consecutive days in the
aggregate on two occasions which are not at least 90 days apart or more than
an aggregate of sixty (60) days in any twelve month period.
9. INDEMNIFICATION.
(a) COMPANY INDEMNITY. The Company will indemnify the Holder, each
of its officers, directors and partners, and each person controlling Holder
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder,
any underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any state securities law or in either case,
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse the Holder,
each of its officers, directors and partners, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged
untrue statement or omission) based upon written information furnished to the
Company by Holder or the underwriter and stated to be specifically for use
therein. The Indemnity agreement contained in this Section 9(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. The Holder will, if Registrable Securities
held by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15
of the Securities Act and the rules and regulations thereunder, each other
Holder (if any), and each of their officers, directors and partners, and each
person controlling such other Holder against all claims, losses, damages and
liabilities (or actions in respect thereof arising out of or based on any
untrue statement (or alleged
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untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading, and will
reimburse the Company and such other Holders and their directors, officers
and partners, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by Holder
and stated to be specifically for use therein; provided, however, that the
obligations of Holder shall not apply to amounts paid in settlement of any
such claims, losses, damages or liabilities if such settlement is effected
without the consent of Holder (which consent shall not be unreasonably
withheld).
(c) PROCEDURE. Each party entitled to indemnification under this
Article (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim in any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Article except to the extent that the Indemnifying
Party is actually prejudiced by such failure to provide notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with the
defense of such claim and litigation resulting therefrom.
10. CONTRIBUTION. If the indemnification provided for in Section 9
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages or liabilities (i) as between the
Company on the one hand and the Indemnified Parties on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Indemnified Parties, as the case may be, on
the other from the offering of the Registrable Securities, or (ii) if such
allocation is not permitted by
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<PAGE>
applicable law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and of the Indemnified Parties, as the case may be, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand and the
Indemnified Parties, as the case may be, on the other shall be deemed to be
in the same proportion as the proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company from the initial sale of the Debentures by the Company pursuant to
the Agreement bear to the gain realized by the Holder or the total
underwriting discounts and commissions received by the underwriters as set
forth in the table on the cover page of the prospectus, as the case may be.
The relative fault of the Company on the one hand and of the Holder or
underwriters, as the case may be, on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company, by the Holder or by the underwriters.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 10 exceed the amount that such Indemnifying Party would
have been obligated to pay by way of indemnification if the indemnification
provided for under Section 9(a) or 9(b) hereof had been available under the
circumstances.
The Company and the Holder agree that it would not be just and equitable
if contribution pursuant to this Section 10 were determined by pro rata
allocation (even if the Indemnified Parties were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this section, no
Indemnified Party shall be required to contribute any amount in excess of the
amount by which (i) in the case of the Holder, the net proceeds received by
the Holder from the sale of Registrable Securities or (ii) in the case of an
underwriter, the total price at which the Registrable Securities purchased by
it and distributed to the public were offered to the public exceeds, in any
such case, the amount of any damages that the Holder or underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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11. SURVIVAL. The indemnity and contribution agreements contained in
Sections 9 and 10 and the representations and warranties of the Company
referred to in Section 2(b)(i) shall remain operative and in full force and
effect regardless of (i) any termination of the Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified
Party or by or on behalf of the Company and (iii) the consummation of the
sale or successive resales of the Registrable Securities.
12. INFORMATION BY HOLDER AND ANY UNDERWRITERS. The Holder and the
underwriters, if any, shall furnish to the Company, within 20 business days
of the Company's request therefor, such information regarding such Holder or
underwriters, as the case may be, and the distribution proposed by such
Holder or underwriters as the Company may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
13. TRANSFER OF ASSIGNMENT OF REGISTRATION RIGHTS: The rights, granted
to Holder by the Company under this Registration Rights Agreement, to cause
the Company to register Registrable Securities, may be transferred or
assigned to a transferee or assignee of any of not less than $50,000 in
principal amount of Debentures and any Warrants, provided that the Company is
given written notice by Holder at the time of or within a reasonable time
after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the securities with respect to which
such registration rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights is not deemed by the
board of directors of the Company, in its reasonable judgment, to be a
competitor of the Company; and provided further that the transferee or
assignee of such rights agrees to be bound by this Registration Rights
Agreement.
14. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Registration Rights Agreement contains
the entire understanding and agreement of the parties with respect to the
subject matter hereof, and may not be modified or terminated except by a
written agreement signed by both parties.
(b) NOTICES: Any notice or other communication given or permitted
under this Agreement shall be in writing and shall be deemed to have been
duly given if personally delivered or sent by registered or certified mail,
return receipt requested, postage prepaid with a copy in each case sent on
the same day to the addressee by facsimile, Federal Express or other such
expedited means, (a) if to Purchaser, at its address hereinabove set forth,
(b) if to the Company, at its address hereinabove set forth, (c) if, to a
Holder other than the Purchaser, at the address thereof furnished by like
notice to the Company, or (d) to any such addressee at such other address or
addresses as shall be so furnished to the other parties hereto by like notice.
(c) GENDER OF TERMS. All terms used herein shall be deemed to
include the feminine and the neuter, and the singular and the plural, as the
context required.
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<PAGE>
(d) GOVERNING LAW; CONSENT OF JURISDICTION. This Registration Rights
Agreement and the validity and performance of the terms hereof shall be
governed by and construed in accordance with the laws of the State of New
York, except to the extent that the law of Delaware regulates the Company's
issuance of securities. The parties hereto hereby consent to, and waive any
objection to the exercise of, personal jurisdiction in the State of New York
with respect to any action or proceeding arising out of this Registration
Rights Agreement.
(e) TITLE. The titles used in this Registration Rights Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the parties hereto have cause this Registration
Rights Agreement to be duly executed as of the date first above written.
By: Heracles Fund
By: Promethean Investment Group, L.L.C.
Its: Investment Advisor
By: /s/ James F. O'Brien
-----------------------
James F. O'Brien
Its: President
ZYCAD CORPORATION
a Delaware Corporation
By: /s/ Phillips W. Smith
----------------------------
Print Name: Phillips W. Smith
-----------------------
Print Title: President and Chief
Executive Officer
-------------------------
ATTEST
/s/ Douglas E. Klint
- ---------------------
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement"),
entered into as of February 13, 1997, between JOSEPH A. UMBACH, with offices
at c/o Joseph Victori Wines, 2525 Palmer Avenue, New Rochelle, New York 10801
(the "Purchaser"), and ZYCAD CORPORATION, a Delaware corporation with offices
at 47100 Bayside Parkway, Fremont, California 94538 (the "Company")
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities Subscription Agreement, dated
as of February 13, 1997 (the "Agreement"), by and between the Company and the
Purchaser, the Company has agreed to sell and the Purchaser has agreed to
purchase up to Five Hundred Thousand Dollars (U.S. $500,000) of the Company's 6%
Convertible Subordinated Debenture due February 13, 2000 (the "Debentures")
convertible into shares of the Company's Common Stock, $.10 par value. The
Company has further agreed, pursuant to the Agreement and under the
circumstances provided therein, to issue Warrants to purchase additional shares
of such Common Stock. The shares of such Common Stock issuable upon conversion
of the Debentures and exercise of such Warrants are collectively referred to
herein as the "Shares".
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Purchaser's agreement to enter into the Agreement, the Company has agreed to
provide the Purchaser with certain registration rights with respect to the
Shares under certain circumstances set forth in the Agreement;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Agreement and this
Registration Rights Agreement, the Company and the Purchaser agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings. Other terms used herein which are
defined in the Agreement, the Debentures or the Warrants shall have the same
meanings herein as they do in such other documents.
"Commission" or "SEC" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean: (i) Shares issued to Purchaser or its
designee upon conversion of the Debentures, upon exercise of the Warrants
(including the Debentures and Warrants to be sold to the Purchaser on the First
Closing Date and on the Second Closing Date pursuant to the Agreement) or upon
any stock split, stock dividend, recapitalization or similar event with respect
to such Shares; and (ii) any securities issued
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or issuable to Purchaser or any Holder upon the conversion or exercise or
exchange of any Debentures, Warrants or Shares.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with Purchaser's exercise of its registration rights
under this Agreement, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, reasonable fees and disbursements of
counsel to Holder for a "due diligence" examination of the Company, and the
expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions, if any, applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holder not included within
"Registration Expenses."
"Holder" shall include the Purchaser and any transferee of Debentures,
Warrants, Shares or Registrable Securities which have not been sold to the
public to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 10 of this Agreement.
"Registration Statement" shall have the meaning set forth in Section 2(a)
herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. THE REGISTRATION REQUIREMENTS. The Company shall file as promptly as
possible and in any event by the forty-fifth (45th) calendar day after the
First Closing Date, and use its diligent best efforts to cause to become
effective, as promptly as possible and in any event by the ninetieth (90th)
calendar day after the First Closing Date in the case of the registration of
the Underlying Stock and the Warrant Stock, a registration statement on Form
S-3 under the Securities Act or, if Form S-3 is not then available, another
appropriate form covering the resale of the Underlying Stock issuable on
conversion of the Debentures and the resale of the Warrant Stock issuable
upon the exercise of the Warrants, and shall take all action necessary to
qualify the Underlying Stock and the Warrant Stock under state "blue sky"
laws as hereinafter provided. The Company shall use its diligent best
efforts to effect the registration contemplated by the foregoing (including,
without limitation, the execution of an undertaking to file amendments and
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post-effective amendments, appropriate qualification under and compliance
with applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act) and
as would permit or facilitate the sale and distribution of all the
Registrable Securities in all states reasonably requested by the Holder for
purposes of maximizing the proceeds realizable by the Holder from such sale
and distribution. Such best efforts by the Company shall include, without
limitation, the following:
(a) The Company shall file (i) registration statements with the
Commission pursuant to Rule 415 under the Securities Act on Form
S-3 under the Securities Act and the Company shall use its best
efforts to qualify for the use of such Form (or in the event that
the Company is ineligible to use such form, such other form as the
Company is eligible to use under the Securities Act) covering the
Registrable Securities so to be registered (each, a "Registration
Statement"); (ii) such blue sky filings as shall be reasonably
requested to permit such sales PROVIDED, HOWEVER, that the Company
shall not be required to register the Registrable Securities in any
jurisdiction that would subject it to general service of process in
any such jurisdiction where it is not then so subject or subject
the Company to any tax in any such jurisdiction where it is not
then so subject or require the Company to qualify to do business in
any jurisdiction where it is not then so qualified; and (iii) any
required filings with the National Association of Securities
Dealers, Inc. ("NASD") or exchange where the Shares are traded; all
as soon as practicable after the date hereof. The Company shall use
its best efforts to have the Registration Statements and other
filings declared effective as soon thereafter as may be practicable.
(b) The Company shall enter into such customary agreements (including
a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other reasonable actions in
connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities and in such connection,
whether or not the Registrable Securities are to be sold in an
underwritten offering, the Company shall:
(i) make such representations and warranties to the Holder
and the underwriter or underwriters, if any, in form and
substance and scope as are customarily made by issuers to
underwriters in secondary underwritten offerings:
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any,
opinions of counsel to the Company, dated the effective day
(or in the case of an underwritten offering, dated the date of
delivery of any Registrable Securities sold pursuant thereto)
of the applicable registration statement (which counsel, and
opinions (in form, scope and substance), shall be reasonably
satisfactory to the managing underwriter or underwriters, if
any, and the
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appointed representative or counsel of the Holder, addressed
to the Holder and each underwriter, if any, covering the
matters customarily covered in opinions requested in secondary
underwritten offerings and, in the case of any underwritten
offering, such other matters as may be reasonably requested by
the Holder;
(iii) cause to be delivered, immediately prior to the
effectiveness of the applicable Registration Statement (and,
in the case of an underwritten offering, at the time of
delivery of any Registrable Securities sold pursuant thereto),
letters from the Company's independent certified public
accountants addressed to the Holder and each underwriter, if
any, stating that such accountants are independent public
accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder, and
otherwise in customary form and covering such financial and
accounting matters as are customarily covered by letters of
the independent certified public accountants delivered in
connection with secondary underwritten public offerings;
(iv) if an underwriting agreement is entered into, cause
the same to set forth indemnification and contribution
provisions and procedures which are no less favorable to the
Holder and the Company than those contemplated by sections 9
and 10 with respect to all parties to be indemnified pursuant
to such sections;
(v) deliver such documents and certificates as may be
reasonably requested by the Holder of the Registrable
Securities being sold or the managing underwriter or
underwriters, if any, to evidence compliance with clause (i)
above and with any customary conditions contained in the
underwriting agreement, if any, or other agreement entered
into by the Company;
the foregoing in this paragraph 2(b) shall be done at each closing
under any such underwriting or similar agreement or as and to the
extent required thereunder; provided, however, the foregoing in
paragraph 2(b) shall not be required on more than two (2)
occasions.
(c) The Company shall make available for inspection and review by the
Holder, a representative or representatives of the Holder, any
underwriter participating in any disposition pursuant to a
Registration Statement, and any attorney or accountant retained by
such Holder or underwriter, any such registration statement or
amendment or supplement or any blue sky, NASD or other filing, all
financial and other records, pertinent corporate documents and
properties of the Company as they may reasonably request for the
purpose, and cause the Company's officers, directors and employees
to supply all information reasonably requested by any such
representative, underwriter, attorney or
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accountant in connection with such Registration Statement;
PROVIDED, HOWEVER, that the Holder shall first agree in writing
with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential at
the time of delivery of such information shall be kept confidential
by the Holder and that the Holder will use reasonable efforts to
cause its representatives and such other persons so to keep such
information confidential, unless (i) disclosure of such information
is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of
such information is required by law (including any disclosure
requirements pursuant to Federal securities laws in connection with
the filing of any Registration Statement or the use of any
prospectus referred to in this Agreement), (iii) such information
becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by any such person, (iv) such
information becomes available to any such person from a source
other than the Company and such source, to the knowledge of such
persons, is not bound by a confidentiality agreement with the
Company, or (v) such information was known to or is developed by
such persons without reference to such confidential information of
the Company.
3. UNDERWRITTEN DISTRIBUTION. If the Holder intends to distribute the
Registrable Securities covered by a Registration Statement by means of an
underwriting, the Holder shall so advise the Company and, within 30 days of
the date thereof and without limiting the generality of other provisions
hereof, the Company will prepare and file such amendment or amendments to the
Registration Statement and make such other filings as may be necessary or
appropriate to effect any such underwritten distribution.
4. MULTIPLE HOLDERS. If there is more than one Holder, such Holders shall
act with respect to their rights under this Agreement according to the
vote of a majority-in-interest.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection
with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall
be borne by the Holder.
6. REGISTRATION DELAY OR FAILURE. The Company acknowledges that its failure
to register the Registrable Securities in accordance with the Agreement
and this Registration Rights Agreement will cause the Holder to suffer
damages and undertake risks in amounts that will be difficult to
ascertain and were not anticipated in negotiating the terms hereof or of
the Agreement, the Debentures or the Warrants. Accordingly the parties
agree that it is appropriate to include herein a provision for
liquidated damages and to compensate the Holder fairly for the
additional risk undertaken by the Holder resulting from the Company's
delay or failure to effect such registrations. The parties acknowledge
and agree that the provisions hereinafter set forth in this Paragraph 6
represent the parties' good faith effort to quantify such damages and to
compensate for such additional risk and, as
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such, agree that the form and amount of damages and risk compensation
are reasonable and will not constitute a penalty.
(a) If the Registration Statement covering the resale of the Underlying
Stock and the Warrant Stock is not effective by the ninetieth (90th)
calendar day after the First Closing Date, then, with respect to the
Debentures outstanding on such ninetieth day , each of the X%s (as
defined in the Debentures) used in determining the Conversion Date
Market Price (as defined in the Debentures) shall be reduced by two (2)
percentage points, and the X%s as so reduced shall then and thereafter
be applicable to and upon the conversion of such Debentures, in lieu and
in place of the X%s provided in the Debentures but subject to further
reduction as hereinafter provided in this Paragraph 6.
(b) If such Registration Statement still has not become effective by the
one hundred twentieth (120th) calendar day (or any lesser number of days
greater than the 90th calendar day) after the First Closing Date then
each of the X%s applicable to the Debentures, as theretofore reduced
pursuant to Paragraph 6(a) hereof, shall be further reduced by three (3)
percentage points (or a prorated portion for each day between the 90th
and 120th calendar days) and, as further so reduced, shall then and
thereafter be applicable to and upon conversion of the Debentures, but
subject to further reduction as hereinafter provided.
(c) If such Registration Statement still has not become effective by the
one hundred fiftieth (150th) calendar day (or any lesser number of days
greater than the 120th calendar day) after the First Closing Date, then
each of the X%s applicable to the Debentures, as theretofore reduced
pursuant to Paragraphs 6(a) and (b) hereof, shall be further reduced
by three (3) percentage points (or a prorated portion for each day
between the 120th and 150th calendar days) on such 150th calendar
day, and the X%s applicable to the Debentures, as so reduced, shall
then and thereafter be applicable to and upon the conversion of such
Debentures.
(d) If such Registration Statement still has not become effective by the
one hundred eightieth (180th) calendar day after the First Closing Date,
then there shall be paid to each Holder by the Company, in cash, on such
180th day and on each succeeding 30th day thereafter upon which such
Registration Statement still has not become effective, an amount equal
to 3% of the Outstanding Principal Amount of the Debentures held by the
Holder on such 180th day or succeeding 30th day, as the case may be,
plus an amount equal to 3% of the Original Principal Amount of any
Debentures converted prior to such 180th day or succeeding 30th day, as
the case may be, (each such payment, a "30 Day Delay Payment") and if
such Registration Statement shall become effective after the one hundred
fiftieth (150th) calendar day after the First Closing Date but before
such 180th day or any such succeeding 30th day, there shall also be paid
to the Holder, in cash, on the effective date of the Registration
Statement a 30 Day Delay
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Payment pro-rated according to the portion of the then current 30 day
period ending on such effective date.
(e) If such Registration Statement still has not become effective by the
first anniversary of the First Closing Date, then, at the Holder's
option exercised at any time thereafter, the Company shall redeem the
Holder's Debentures at a date designated by such Holder, and at the
redemption price provided in Paragraph 9(b) of the Debentures, as though
the date so designated were the date of a Conversion Notice for
purposes of such Paragraph 9(b).
7. REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep the Holder
advised in writing as to initiation of each registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for the period ending (i) sixty
(60) months after initial issuance of the Debentures, (ii) when the Holder
has completed the distribution of the Registrable Securities described in the
registration statement relating thereto, or (iii) the date on which the
Registrable Securities are distributed to the public pursuant to Rule 144(k)
or are saleable pursuant to Rule 144(k) promulgated under the Securities Act,
whichever first occurs.
(b) Furnish such number of prospectuses and other documents incident
thereto as the Holder from time to time may reasonably request.
8. SUSPENSION OF USE OF REGISTRATION STATEMENT. The Holder agrees that,
upon receipt of any notice from the Company of (A) the happening of any event
which makes any statements made in the registration statement(s) or related
prospectus(es) filed pursuant to this Registration Rights Agreement, or any
document incorporated or deemed to be incorporated therein by reference,
untrue in any material respect or which requires the making of any changes in
such registration statement(s) or prospectus(es) so that, in the case of such
registration statement(s), it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstance under which they were made, not misleading or (B) that, in the
judgment of the Company's Board of Directors, it is advisable to suspend use
of the prospectus(es) for a discrete period of time due to pending corporate
developments which are or may be material to the Company but have not been
disclosed in the Registration Statement(s) or in relevant public filings with
the SEC, or (C) the SEC has issued a stop order suspending the effectiveness
of the Registration Statement(s), the Holder will forthwith discontinue
disposition of such Shares covered by such Registration Statement(s) or
prospectus(es) until it is advised in writing by the Company that use of the
applicable prospectus may be resumed, and has received copies of any
additional or supplemented filings that are incorporated or deemed to be
incorporated by reference in such prospectus(es). The Company shall use all
reasonable best efforts to insure that the use of the prospectus(es) may be
resumed as soon as
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practicable, and in any event shall not be entitled to require the Holder to
suspend use of the prospectus(es) for more than thirty (30) consecutive days
on any one occasion, more than forty-five (45) consecutive days in the
aggregate on two occasions which are not at least 90 days apart or more than
an aggregate of sixty (60) days in any twelve month period.
9. INDEMNIFICATION.
(a) COMPANY INDEMNITY. The Company will indemnify the Holder, each of
its officers, directors and partners, and each person controlling Holder
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder,
any underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any state securities law or in either case,
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse the Holder,
each of its officers, directors and partners, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged
untrue statement or omission) based upon written information furnished to the
Company by Holder or the underwriter and stated to be specifically for use
therein. The Indemnity agreement contained in this Section 9(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. The Holder will, if Registrable Securities held
by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15
of the Securities Act and the rules and regulations thereunder, each other
Holder (if any), and each of their officers, directors and partners, and each
person controlling such other Holder against all claims, losses, damages and
liabilities (or actions in respect thereof arising out of or based on any
untrue statement (or alleged
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<PAGE>
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading, and will
reimburse the Company and such other Holders and their directors, officers
and partners, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by Holder
and stated to be specifically for use therein; provided, however, that the
obligations of Holder shall not apply to amounts paid in settlement of any
such claims, losses, damages or liabilities if such settlement is effected
without the consent of Holder (which consent shall not be unreasonably
withheld).
(c) PROCEDURE. Each party entitled to indemnification under this
Article (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim in any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Article except to the extent that the Indemnifying
Party is actually prejudiced by such failure to provide notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with the
defense of such claim and litigation resulting therefrom.
10. CONTRIBUTION. If the indemnification provided for in Section 9 herein is
unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein, then each such Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) as between the Company on the one hand and
the Indemnified Parties on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Indemnified Parties, as the case may be, on the other from the offering of
the Registrable Securities, or (ii) if such allocation is not permitted by
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applicable law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and of the Indemnified Parties, as the case may be, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand and the
Indemnified Parties, as the case may be, on the other shall be deemed to be
in the same proportion as the proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company from the initial sale of the Debentures by the Company pursuant to
the Agreement bear to the gain realized by the Holder or the total
underwriting discounts and commissions received by the underwriters as set
forth in the table on the cover page of the prospectus, as the case may be.
The relative fault of the Company on the one hand and of the Holder or
underwriters, as the case may be, on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company, by the Holder or by the underwriters.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 10 exceed the amount that such Indemnifying Party would
have been obligated to pay by way of indemnification if the indemnification
provided for under Section 9(a) or 9(b) hereof had been available under the
circumstances.
The Company and the Holder agree that it would not be just and equitable
if contribution pursuant to this Section 10 were determined by pro rata
allocation (even if the Indemnified Parties were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as
a result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this section, no
Indemnified Party shall be required to contribute any amount in excess of the
amount by which (i) in the case of the Holder, the net proceeds received by
the Holder from the sale of Registrable Securities or (ii) in the case of an
underwriter, the total price at which the Registrable Securities purchased by
it and distributed to the public were offered to the public exceeds, in any
such case, the amount of any damages that the Holder or underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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11. SURVIVAL. The indemnity and contribution agreements contained in Sections 9
and 10 and the representations and warranties of the Company referred to in
Section 2(b)(i) shall remain operative and in full force and effect regardless
of (i) any termination of the Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by or on behalf
of the Company and (iii) the consummation of the sale or successive resales of
the Registrable Securities.
12. INFORMATION BY HOLDER AND ANY UNDERWRITERS. The Holder and the
underwriters, if any, shall furnish to the Company, within 20 business days
of the Company's request therefor, such information regarding such Holder or
underwriters, as the case may be, and the distribution proposed by such
Holder or underwriters as the Company may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
13. TRANSFER OF ASSIGNMENT OF REGISTRATION RIGHTS: The rights, granted to
Holder by the Company under this Registration Rights Agreement, to cause the
Company to register Registrable Securities, may be transferred or assigned to
a transferee or assignee of any of not less than $50,000 in principal amount
of Debentures and any Warrants, provided that the Company is given written
notice by Holder at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and provided further
that the transferee or assignee of such rights is not deemed by the board of
directors of the Company, in its reasonable judgment, to be a competitor of
the Company; and provided further that the transferee or assignee of such
rights agrees to be bound by this Registration Rights Agreement.
14. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Registration Rights Agreement contains the
entire understanding and agreement of the parties with respect to the subject
matter hereof, and may not be modified or terminated except by a written
agreement signed by both parties.
(b) NOTICES: Any notice or other communication given or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
if personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
addressee by facsimile, Federal Express or other such expedited means, (a) if to
Purchaser, at its address hereinabove set forth, (b) if to the Company, at its
address hereinabove set forth, (c) if, to a Holder other than the Purchaser, at
the address thereof furnished by like notice to the Company, or (d) to any such
addressee at such other address or addresses as shall be so furnished to the
other parties hereto by like notice.
(c) GENDER OF TERMS. All terms used herein shall be deemed to include the
feminine and the neuter, and the singular and the plural, as the context
required.
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<PAGE>
(d) GOVERNING LAW; CONSENT OF JURISDICTION. This Registration Rights
Agreement and the validity and performance of the terms hereof shall be
governed by and construed in accordance with the laws of the State of New
York, except to the extent that the law of Delaware regulates the Company's
issuance of securities. The parties hereto hereby consent to, and waive any
objection to the exercise of, personal jurisdiction in the State of New York
with respect to any action or proceeding arising out of this Registration
Rights Agreement.
(e) TITLE. The titles used in this Registration Rights Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the parties hereto have cause this Registration
Rights Agreement to be duly executed as of the date first above written.
By: Joseph A. Umbach
By: Promethean Investment Group, L.L.C.
Its: Investment Advisor
By: /s/ James F. O'Brien
-----------------------
James F. O'Brien
Its: President
ZYCAD CORPORATION
a Delaware Corporation
By: /s/ Phillips W. Smith
----------------------------
Print Name: Phillips W. Smith
-----------------------
Print Title: President and Chief
Executive Officer
-------------------------
ATTEST
/s/ Douglas E. Klint
- ---------------------
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement"),
entered into as of February 13, 1997, between LEWIS A. FRASER, with offices
at c/o 100 South Biscayne Blvd., #700, Miami, Florida 33133 (the
"Purchaser"), and ZYCAD CORPORATION, a Delaware corporation with offices at
47100 Bayside Parkway, Fremont, California 94538 (the "Company")
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities Subscription Agreement,
dated as of February 13, 1997 (the "Agreement"), by and between the Company
and the Purchaser, the Company has agreed to sell and the Purchaser has
agreed to purchase up to Five Hundred Thousand Dollars (U.S. $500,000) of the
Company's 6% Convertible Subordinated Debenture due February 13, 2000 (the
"Debentures") convertible into shares of the Company's Common Stock, $.10 par
value. The Company has further agreed, pursuant to the Agreement and under
the circumstances provided therein, to issue Warrants to purchase additional
shares of such Common Stock. The shares of such Common Stock issuable upon
conversion of the Debentures and exercise of such Warrants are collectively
referred to herein as the "Shares".
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Purchaser's agreement to enter into the Agreement, the Company has agreed to
provide the Purchaser with certain registration rights with respect to the
Shares under certain circumstances set forth in the Agreement;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Agreement and this
Registration Rights Agreement, the Company and the Purchaser agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings. Other terms used herein which are
defined in the Agreement, the Debentures or the Warrants shall have the same
meanings herein as they do in such other documents.
"Commission" or "SEC" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean: (i) Shares issued to Purchaser or its
designee upon conversion of the Debentures, upon exercise of the Warrants
(including the Debentures and Warrants to be sold to the Purchaser on the First
Closing Date and on the Second Closing Date pursuant to the Agreement) or upon
any stock split, stock dividend, recapitalization or similar event with respect
to such Shares; and (ii) any securities issued
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or issuable to Purchaser or any Holder upon the conversion or exercise or
exchange of any Debentures, Warrants or Shares.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with Purchaser's exercise of its registration rights
under this Agreement, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, reasonable fees and disbursements of
counsel to Holder for a "due diligence" examination of the Company, and the
expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions, if any, applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holder not included within
"Registration Expenses."
"Holder" shall include the Purchaser and any transferee of Debentures,
Warrants, Shares or Registrable Securities which have not been sold to the
public to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 10 of this Agreement.
"Registration Statement" shall have the meaning set forth in Section 2(a)
herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. THE REGISTRATION REQUIREMENTS. The Company shall file as promptly as
possible and in any event by the forty-fifth (45th) calendar day after the
First Closing Date, and use its diligent best efforts to cause to become
effective, as promptly as possible and in any event by the ninetieth (90th)
calendar day after the First Closing Date in the case of the registration of
the Underlying Stock and the Warrant Stock, a registration statement on Form
S-3 under the Securities Act or, if Form S-3 is not then available, another
appropriate form covering the resale of the Underlying Stock issuable on
conversion of the Debentures and the resale of the Warrant Stock issuable
upon the exercise of the Warrants, and shall take all action necessary to
qualify the Underlying Stock and the Warrant Stock under state "blue sky"
laws as hereinafter provided. The Company shall use its diligent best
efforts to effect the registration contemplated by the foregoing (including,
without limitation, the execution of an undertaking to file amendments and
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post-effective amendments, appropriate qualification under and compliance
with applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act) and
as would permit or facilitate the sale and distribution of all the
Registrable Securities in all states reasonably requested by the Holder for
purposes of maximizing the proceeds realizable by the Holder from such sale
and distribution. Such best efforts by the Company shall include, without
limitation, the following:
(a) The Company shall file (i) registration statements with the
Commission pursuant to Rule 415 under the Securities Act on Form
S-3 under the Securities Act and the Company shall use its best
efforts to qualify for the use of such Form (or in the event that
the Company is ineligible to use such form, such other form as the
Company is eligible to use under the Securities Act) covering the
Registrable Securities so to be registered (each, a "Registration
Statement"); (ii) such blue sky filings as shall be reasonably
requested to permit such sales PROVIDED, HOWEVER, that the Company
shall not be required to register the Registrable Securities in any
jurisdiction that would subject it to general service of process in
any such jurisdiction where it is not then so subject or subject
the Company to any tax in any such jurisdiction where it is not
then so subject or require the Company to qualify to do business in
any jurisdiction where it is not then so qualified; and (iii) any
required filings with the National Association of Securities
Dealers, Inc. ("NASD") or exchange where the Shares are traded; all
as soon as practicable after the date hereof. The Company shall use
its best efforts to have the Registration Statements and other
filings declared effective as soon thereafter as may be practicable.
(b) The Company shall enter into such customary agreements (including
a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other reasonable actions in
connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities and in such connection,
whether or not the Registrable Securities are to be sold in an
underwritten offering, the Company shall:
(i) make such representations and warranties to the Holder
and the underwriter or underwriters, if any, in form and
substance and scope as are customarily made by issuers to
underwriters in secondary underwritten offerings:
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any,
opinions of counsel to the Company, dated the effective day
(or in the case of an underwritten offering, dated the date of
delivery of any Registrable Securities sold pursuant thereto)
of the applicable registration statement (which counsel, and
opinions (in form, scope and substance), shall be reasonably
satisfactory to the managing underwriter or underwriters, if
any, and the
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appointed representative or counsel of the Holder, addressed
to the Holder and each underwriter, if any, covering the
matters customarily covered in opinions requested in secondary
underwritten offerings and, in the case of any underwritten
offering, such other matters as may be reasonably requested by
the Holder;
(iii) cause to be delivered, immediately prior to the
effectiveness of the applicable Registration Statement (and,
in the case of an underwritten offering, at the time of
delivery of any Registrable Securities sold pursuant thereto),
letters from the Company's independent certified public
accountants addressed to the Holder and each underwriter, if
any, stating that such accountants are independent public
accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder, and
otherwise in customary form and covering such financial and
accounting matters as are customarily covered by letters of
the independent certified public accountants delivered in
connection with secondary underwritten public offerings;
(iv) if an underwriting agreement is entered into, cause
the same to set forth indemnification and contribution
provisions and procedures which are no less favorable to the
Holder and the Company than those contemplated by sections 9
and 10 with respect to all parties to be indemnified pursuant
to such sections;
(v) deliver such documents and certificates as may be
reasonably requested by the Holder of the Registrable
Securities being sold or the managing underwriter or
underwriters, if any, to evidence compliance with clause (i)
above and with any customary conditions contained in the
underwriting agreement, if any, or other agreement entered
into by the Company;
the foregoing in this paragraph 2(b) shall be done at each closing
under any such underwriting or similar agreement or as and to the
extent required thereunder; provided, however, the foregoing in
paragraph 2(b) shall not be required on more than two (2)
occasions.
(c) The Company shall make available for inspection and review by the
Holder, a representative or representatives of the Holder, any
underwriter participating in any disposition pursuant to a
Registration Statement, and any attorney or accountant retained by
such Holder or underwriter, any such registration statement or
amendment or supplement or any blue sky, NASD or other filing, all
financial and other records, pertinent corporate documents and
properties of the Company as they may reasonably request for the
purpose, and cause the Company's officers, directors and employees
to supply all information reasonably requested by any such
representative, underwriter, attorney or
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accountant in connection with such Registration Statement;
PROVIDED, HOWEVER, that the Holder shall first agree in writing
with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential at
the time of delivery of such information shall be kept confidential
by the Holder and that the Holder will use reasonable efforts to
cause its representatives and such other persons so to keep such
information confidential, unless (i) disclosure of such information
is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of
such information is required by law (including any disclosure
requirements pursuant to Federal securities laws in connection with
the filing of any Registration Statement or the use of any
prospectus referred to in this Agreement), (iii) such information
becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by any such person, (iv) such
information becomes available to any such person from a source
other than the Company and such source, to the knowledge of such
persons, is not bound by a confidentiality agreement with the
Company, or (v) such information was known to or is developed by
such persons without reference to such confidential information of
the Company.
3. UNDERWRITTEN DISTRIBUTION. If the Holder intends to distribute the
Registrable Securities covered by a Registration Statement by means of an
underwriting, the Holder shall so advise the Company and, within 30 days of
the date thereof and without limiting the generality of other provisions
hereof, the Company will prepare and file such amendment or amendments to the
Registration Statement and make such other filings as may be necessary or
appropriate to effect any such underwritten distribution.
4. MULTIPLE HOLDERS. If there is more than one Holder, such Holders shall
act with respect to their rights under this Agreement according to the
vote of a majority-in-interest.
5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection
with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall
be borne by the Holder.
6. REGISTRATION DELAY OR FAILURE. The Company acknowledges that its failure
to register the Registrable Securities in accordance with the Agreement
and this Registration Rights Agreement will cause the Holder to suffer
damages and undertake risks in amounts that will be difficult to
ascertain and were not anticipated in negotiating the terms hereof or of
the Agreement, the Debentures or the Warrants. Accordingly the parties
agree that it is appropriate to include herein a provision for
liquidated damages and to compensate the Holder fairly for the
additional risk undertaken by the Holder resulting from the Company's
delay or failure to effect such registrations. The parties acknowledge
and agree that the provisions hereinafter set forth in this Paragraph 6
represent the parties' good faith effort to quantify such damages and to
compensate for such additional risk and, as
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<PAGE>
such, agree that the form and amount of damages and risk compensation
are reasonable and will not constitute a penalty.
(a) If the Registration Statement covering the resale of the Underlying
Stock and the Warrant Stock is not effective by the ninetieth (90th)
calendar day after the First Closing Date, then, with respect to the
Debentures outstanding on such ninetieth day , each of the X%s (as
defined in the Debentures) used in determining the Conversion Date
Market Price (as defined in the Debentures) shall be reduced by two (2)
percentage points, and the X%s as so reduced shall then and thereafter
be applicable to and upon the conversion of such Debentures, in lieu and
in place of the X%s provided in the Debentures but subject to further
reduction as hereinafter provided in this Paragraph 6.
(b) If such Registration Statement still has not become effective by the
one hundred twentieth (120th) calendar day (or any lesser number of days
greater than the 90th calendar day) after the First Closing Date then
each of the X%s applicable to the Debentures, as theretofore reduced
pursuant to Paragraph 6(a) hereof, shall be further reduced by three (3)
percentage points (or a prorated portion for each day between the 90th
and 120th calendar days) and, as further so reduced, shall then and
thereafter be applicable to and upon conversion of the Debentures, but
subject to further reduction as hereinafter provided.
(c) If such Registration Statement still has not become effective by the
one hundred fiftieth (150th) calendar day (or any lesser number of days
greater than the 120th calendar day) after the First Closing Date, then
each of the X%s applicable to the Debentures, as theretofore reduced
pursuant to Paragraphs 6(a) and (b) hereof, shall be further reduced
by three (3) percentage points (or a prorated portion for each day
between the 120th and 150th calendar days) on such 150th calendar
day, and the X%s applicable to the Debentures, as so reduced, shall
then and thereafter be applicable to and upon the conversion of such
Debentures.
(d) If such Registration Statement still has not become effective by the
one hundred eightieth (180th) calendar day after the First Closing Date,
then there shall be paid to each Holder by the Company, in cash, on such
180th day and on each succeeding 30th day thereafter upon which such
Registration Statement still has not become effective, an amount equal
to 3% of the Outstanding Principal Amount of the Debentures held by the
Holder on such 180th day or succeeding 30th day, as the case may be,
plus an amount equal to 3% of the Original Principal Amount of any
Debentures converted prior to such 180th day or succeeding 30th day, as
the case may be, (each such payment, a "30 Day Delay Payment") and if
such Registration Statement shall become effective after the one hundred
fiftieth (150th) calendar day after the First Closing Date but before
such 180th day or any such succeeding 30th day, there shall also be paid
to the Holder, in cash, on the effective date of the Registration
Statement a 30 Day Delay
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<PAGE>
Payment pro-rated according to the portion of the then current 30 day
period ending on such effective date.
(e) If such Registration Statement still has not become effective by the
first anniversary of the First Closing Date, then, at the Holder's
option exercised at any time thereafter, the Company shall redeem the
Holder's Debentures at a date designated by such Holder, and at the
redemption price provided in Paragraph 9(b) of the Debentures, as though
the date so designated were the date of a Conversion Notice for
purposes of such Paragraph 9(b).
7. REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep the Holder
advised in writing as to initiation of each registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for the period ending (i) sixty
(60) months after initial issuance of the Debentures, (ii) when the Holder
has completed the distribution of the Registrable Securities described in the
registration statement relating thereto, or (iii) the date on which the
Registrable Securities are distributed to the public pursuant to Rule 144(k)
or are saleable pursuant to Rule 144(k) promulgated under the Securities Act,
whichever first occurs.
(b) Furnish such number of prospectuses and other documents incident
thereto as the Holder from time to time may reasonably request.
8. SUSPENSION OF USE OF REGISTRATION STATEMENT. The Holder agrees that,
upon receipt of any notice from the Company of (A) the happening of any event
which makes any statements made in the registration statement(s) or related
prospectus(es) filed pursuant to this Registration Rights Agreement, or any
document incorporated or deemed to be incorporated therein by reference,
untrue in any material respect or which requires the making of any changes in
such registration statement(s) or prospectus(es) so that, in the case of such
registration statement(s), it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstance under which they were made, not misleading or (B) that, in the
judgment of the Company's Board of Directors, it is advisable to suspend use
of the prospectus(es) for a discrete period of time due to pending corporate
developments which are or may be material to the Company but have not been
disclosed in the Registration Statement(s) or in relevant public filings with
the SEC, or (C) the SEC has issued a stop order suspending the effectiveness
of the Registration Statement(s), the Holder will forthwith discontinue
disposition of such Shares covered by such Registration Statement(s) or
prospectus(es) until it is advised in writing by the Company that use of the
applicable prospectus may be resumed, and has received copies of any
additional or supplemented filings that are incorporated or deemed to be
incorporated by reference in such prospectus(es). The Company shall use all
reasonable best efforts to insure that the use of the prospectus(es) may be
resumed as soon as
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<PAGE>
practicable, and in any event shall not be entitled to require the Holder to
suspend use of the prospectus(es) for more than thirty (30) consecutive days
on any one occasion, more than forty-five (45) consecutive days in the
aggregate on two occasions which are not at least 90 days apart or more than
an aggregate of sixty (60) days in any twelve month period.
9. INDEMNIFICATION.
(a) COMPANY INDEMNITY. The Company will indemnify the Holder, each of
its officers, directors and partners, and each person controlling Holder
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder,
any underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any state securities law or in either case,
any rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse the Holder,
each of its officers, directors and partners, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged
untrue statement or omission) based upon written information furnished to the
Company by Holder or the underwriter and stated to be specifically for use
therein. The Indemnity agreement contained in this Section 9(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. The Holder will, if Registrable Securities held
by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15
of the Securities Act and the rules and regulations thereunder, each other
Holder (if any), and each of their officers, directors and partners, and each
person controlling such other Holder against all claims, losses, damages and
liabilities (or actions in respect thereof arising out of or based on any
untrue statement (or alleged
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<PAGE>
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading, and will
reimburse the Company and such other Holders and their directors, officers
and partners, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by Holder
and stated to be specifically for use therein; provided, however, that the
obligations of Holder shall not apply to amounts paid in settlement of any
such claims, losses, damages or liabilities if such settlement is effected
without the consent of Holder (which consent shall not be unreasonably
withheld).
(c) PROCEDURE. Each party entitled to indemnification under this
Article (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim in any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Article except to the extent that the Indemnifying
Party is actually prejudiced by such failure to provide notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with the
defense of such claim and litigation resulting therefrom.
10. CONTRIBUTION. If the indemnification provided for in Section 9 herein is
unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein, then each such Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) as between the Company on the one hand and
the Indemnified Parties on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Indemnified Parties, as the case may be, on the other from the offering of
the Registrable Securities, or (ii) if such allocation is not permitted by
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<PAGE>
applicable law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and of the Indemnified Parties, as the case may be, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand and the
Indemnified Parties, as the case may be, on the other shall be deemed to be
in the same proportion as the proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company from the initial sale of the Debentures by the Company pursuant to
the Agreement bear to the gain realized by the Holder or the total
underwriting discounts and commissions received by the underwriters as set
forth in the table on the cover page of the prospectus, as the case may be.
The relative fault of the Company on the one hand and of the Holder or
underwriters, as the case may be, on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company, by the Holder or by the underwriters.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 10 exceed the amount that such Indemnifying Party would
have been obligated to pay by way of indemnification if the indemnification
provided for under Section 9(a) or 9(b) hereof had been available under the
circumstances.
The Company and the Holder agree that it would not be just and equitable
if contribution pursuant to this Section 10 were determined by pro rata
allocation (even if the Indemnified Parties were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as
a result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this section, no
Indemnified Party shall be required to contribute any amount in excess of the
amount by which (i) in the case of the Holder, the net proceeds received by
the Holder from the sale of Registrable Securities or (ii) in the case of an
underwriter, the total price at which the Registrable Securities purchased by
it and distributed to the public were offered to the public exceeds, in any
such case, the amount of any damages that the Holder or underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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11. SURVIVAL. The indemnity and contribution agreements contained in Sections 9
and 10 and the representations and warranties of the Company referred to in
Section 2(b)(i) shall remain operative and in full force and effect regardless
of (i) any termination of the Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by or on behalf
of the Company and (iii) the consummation of the sale or successive resales of
the Registrable Securities.
12. INFORMATION BY HOLDER AND ANY UNDERWRITERS. The Holder and the
underwriters, if any, shall furnish to the Company, within 20 business days
of the Company's request therefor, such information regarding such Holder or
underwriters, as the case may be, and the distribution proposed by such
Holder or underwriters as the Company may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
13. TRANSFER OF ASSIGNMENT OF REGISTRATION RIGHTS: The rights, granted to
Holder by the Company under this Registration Rights Agreement, to cause the
Company to register Registrable Securities, may be transferred or assigned to
a transferee or assignee of any of not less than $50,000 in principal amount
of Debentures and any Warrants, provided that the Company is given written
notice by Holder at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and provided further
that the transferee or assignee of such rights is not deemed by the board of
directors of the Company, in its reasonable judgment, to be a competitor of
the Company; and provided further that the transferee or assignee of such
rights agrees to be bound by this Registration Rights Agreement.
14. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Registration Rights Agreement contains the
entire understanding and agreement of the parties with respect to the subject
matter hereof, and may not be modified or terminated except by a written
agreement signed by both parties.
(b) NOTICES: Any notice or other communication given or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
if personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
addressee by facsimile, Federal Express or other such expedited means, (a) if to
Purchaser, at its address hereinabove set forth, (b) if to the Company, at its
address hereinabove set forth, (c) if, to a Holder other than the Purchaser, at
the address thereof furnished by like notice to the Company, or (d) to any such
addressee at such other address or addresses as shall be so furnished to the
other parties hereto by like notice.
(c) GENDER OF TERMS. All terms used herein shall be deemed to include the
feminine and the neuter, and the singular and the plural, as the context
required.
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<PAGE>
(d) GOVERNING LAW; CONSENT OF JURISDICTION. This Registration Rights
Agreement and the validity and performance of the terms hereof shall be
governed by and construed in accordance with the laws of the State of New
York, except to the extent that the law of Delaware regulates the Company's
issuance of securities. The parties hereto hereby consent to, and waive any
objection to the exercise of, personal jurisdiction in the State of New York
with respect to any action or proceeding arising out of this Registration
Rights Agreement.
(e) TITLE. The titles used in this Registration Rights Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the parties hereto have cause this Registration
Rights Agreement to be duly executed as of the date first above written.
By: Joseph A. Umbach
By: Promethean Investment Group, L.L.C.
Its: Investment Advisor
By: /s/ James F. O'Brien
-----------------------
James F. O'Brien
Its: President
ZYCAD CORPORATION
a Delaware Corporation
By: /s/ Phillips W. Smith
-----------------------------------------------
Print Name: Phillips W. Smith
---------------------------------------
Print Title: President and Chief Executive Officer
--------------------------------------
ATTEST
/s/ Douglas E. Klint
- ---------------------
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<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT BE
SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT
AND ALL APPLICABLE STATE SECURITIES LAWS.
Right to Purchase Shares of Common Stock of
Zycad Corporation
February 13, 1997
_________________________
Common Stock Purchase Warrant
ZYCAD CORPORATION, a Delaware corporation (the "Company"), hereby certifies
that for $10.00 and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Halifax Fund, L.P., having an
address at c/o Citco Fund Services Ltd., Corporate Centre, West Bay Road, P.O.
Box 31106, SMB, Grand Cayman, Cayman Islands ("Purchaser") or any other Warrant
Holder is entitled, on the terms and conditions set forth below, to purchase
from the Company at any time beginning after the date hereof and ending sixty
(60) months after the date hereof One Hundred and Seventy Five Thousand
(175,000) shares of fully paid and nonassessable shares of Common Stock, $.10
par value, of the Company (the "Common Stock"), at a purchase price per share
of Two Dollars and Twenty Five Cents (U.S. $2.25) per share of Common Stock (the
"Purchase Price"), as the same may be adjusted pursuant to Section and 5 herein.
1. DEFINITIONS.
(a) the term "Warrant Holder" shall mean the Purchaser or any assignee
of all or any portion of this Warrant at any given time who, at the
time of assignment, acquired the right to purchase at least 2,000
Warrant Shares, (such number being subject to adjustment after the
date hereof pursuant to Section 5 herein.)
(b) the term "Warrant Shares" shall mean the Shares of Common Stock or
other securities issuable upon exercise of this Warrant.
(c) other terms used herein which are defined in the Convertible
Securities Subscription Agreement (the "Agreement") or the
Registration Rights Agreement (the "Registration Rights Agreement"),
both of even date and delivery between the Company and the Purchaser,
or in the Debentures issued by the Company to the Purchaser pursuant
to the Agreement (the "Debentures"), shall have the same meanings
herein as therein.
<PAGE>
2. EXERCISE OF WARRANT. This Warrant may be exercised by the Warrant
Holder, in whole or in part, at any time and from time to time by surrender
of this Warrant, together with the form of subscription at the end hereof
duly executed by Warrant Holder, to the Company at its principal office. In
the event that the Warrant is not exercised in full, the number of Warrant
Shares shall be reduced by the number of such Warrant Shares for which this
Warrant is exercised, and the Company, at its expense, shall forthwith issue
and deliver to or upon the order of Warrant Holder a new Warrant of like
tenor in the name of Warrant Holder or as Warrant Holder (upon payment by
Warrant Holder of any applicable transfer taxes) may request, reflecting such
adjusted Warrant Shares.
If, despite the Company's obligations provided in Paragraphs 4(a) and
4(d) hereof, the Company shall not have registered pursuant to a Registration
Statement under the Act and/or available for issuance upon exercise of this
Warrant sufficient shares of Common Stock for such issuance as such
registered shares then, notwithstanding anything contained herein to the
contrary and in addition to and not in lieu of any of the other rights and
remedies to which the Warrant Holder may be entitled by reason of the
Company's failure fully to meet its obligations under Paragraphs 4(a) and
4(d) hereof, the Warrant Holder may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Purchase Price, elect instead to receive upon such
exercise the Net Number of shares of Common Stock determined according to the
following formula:
Net Number = (A X B) - (A X C)
-------------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this
Warrant is then being exercised.
B = the fair market value of a share of Common Stock at the
time of such calculation, as determined in accordance
with Paragraph 3(b) hereof.
C = the Purchase Price then in effect at the time of such
exercise.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter, the Company at its expense (including,
without limitation, the payment by it of any applicable issue taxes) will
cause to be issued in the name of and
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delivered to Warrant Holder, or as Warrant Holder (upon payment by Warrant
Holder of any applicable transfer taxes) may lawfully direct, a certificate
or certificates for the number of fully paid and non-assessable shares of
Common Stock to which Warrant Holder shall be entitled on such exercise,
together with any other stock or other securities or property (including
cash, where applicable) to which Warrant Holder is entitled upon such
exercise.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock,
then in such event Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, fair
market value shall equal the closing trading price of the Common Stock on the
Nasdaq Stock Market, the American Stock Exchange or the New York Stock
Exchange, whichever is the principal trading exchange or market for the
Common Stock (the "Principal Market") on the date of determination or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted in the Nasdaq Stock Market, the average of the closing bid
and asked prices on the over-the-counter market as furnished by any New York
Stock Exchange member firm reasonably selected from time to time by the
Company for that purpose, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the Nasdaq Stock
Market or traded over-the-counter and the average price cannot be determined
a contemplated above, the fair market value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall use its reasonable best efforts to insure
that a Registration Statement under the Act covering the issuance of the
Warrant Shares and the resale or other disposition thereof by Warrant Holder
is effective as provided in its Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation,
including, without limitation the notification of the Nasdaq Stock Market,
for the legal and valid issuance of this Warrant and the Warrant Shares to
the Warrant Holder under this Warrant.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps reasonably necessary
and within its control to insure that the Common Stock remains listed on the
Principal Market and shall not amend its Certificate of Incorporation or
Bylaws so as to adversely affect any rights of the Warrant Holder under this
Warrant.
(d) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable.
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<PAGE>
(e) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance
with the terms hereof, shall be validly issued, fully paid and
non-assessable. The Company has authorized and reserved for issuance to
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant.
(f) With a view to making available to Warrant Holder the benefits
of Rule 144 promulgated under the Act and any other rule or regulation of the
SEC that may at any time permit Warrant Holder to sell securities of the
Company to the public without registration, the Company agrees to use its
reasonable best efforts to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(iii) furnish to any Warrant Holder forthwith upon request a written
statement by the Company that it has complied with the reporting
requirements of Rule 144 and of the Act and the Exchange Act, a copy of
the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as may be reasonably
requested to permit any such Warrant Holder to take advantage of any
rule or regulation of the SEC permitting the selling of any such
securities without registration.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Purchase Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist,
the number of Warrant Shares as to which this Warrant is exercisable as of
the date of such subdivision, split-up, spin-off or combination shall
forthwith be proportionately increased in the case of a subdivision, or
proportionately decreased in the case of a combination. Appropriate
adjustments shall also be made to the purchase price payable per share, but
the aggregate purchase price payable for the total number of Warrant Shares
purchasable under this Warrant as of such date shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common Stock
("Common Stock Equivalents")
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<PAGE>
without payment of any consideration by holders of Common Stock for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon exercise or conversion
thereof), then the number of shares of Common Stock for which this Warrant
may be exercised shall be increased as of the record date (or the date of
such dividend distribution if no record date is set) for determining which
holders of Common Stock shall be entitled to receive such dividends, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Purchase
Price shall be adjusted so that the aggregate amount payable for the purchase
of all the Warrant Shares issuable hereunder immediately after the record
date (or on the date of such distribution, if applicable), for such dividend
shall equal the aggregate amount so payable immediately before such record
date (or on the date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company shall decrease the per share Purchase Price of this Warrant by an
appropriate amount based upon the value distributed on each share of Common
Stock as determined in good faith by the Company's Board of Directors.
(d) MERGER, ETC.. If at any time after the date hereof there shall
be a merger or consolidation of the Company with or into or a transfer of all
or substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon such transfer, merger or
consolidation becoming effective, and upon payment of the aggregate Purchase
Price then in effect, the number of shares or other securities or property of
the Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by Warrant Holder for the
shares of stock subject to this Warrant had this Warrant been exercised just
prior to such transfer, merger or consolidation becoming effective or to the
applicable record date thereof, as the case may be.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reorganization or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Purchase Price then in
effect, the number of shares or other securities or property resulting from
such reorganization or reclassification, which would have been received by
the Warrant Holder for the shares of stock subject to this Warrant had this
Warrant at such time been exercised.
-5-
<PAGE>
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for
the purchase of its Common Stock or any such convertible securities (other
than shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Exchange Act Reports) at an effective purchase price per share
which is less than the Purchase Price then in effect or the fair market value
(as hereinabove defined) of the Common Stock on the trading day next
preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying
the Purchase Price then in effect by a fraction, (x) the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, including, without duplication,
those deemed to have been issued under any provision of the Debentures and
the Warrants plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such fair market value or Purchase Price, as the case may
be, then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such
issue or sale including, without duplication, those deemed to have been
issued under any provision of the Debentures and Warrants. For purposes of
the foregoing fraction, Common Stock outstanding shall include, without
limitation, any Equity Offerings (as defined in the Debentures) then
outstanding, whether or not they are exercisable or convertible when such
fraction is to be determined.
In the event of any such issuance for a consideration which is less than
such fair market value and also less than the Purchase Price then in effect,
then there shall be only one such adjustment by reason of such issuance, such
adjustment to be that which results in the greatest reduction of the Purchase
Price computed as aforesaid. The number of shares which may be purchased
hereunder shall be increased proportionately to any reduction in Purchase
Price pursuant to this paragraph 5(f), so that after such adjustments the
aggregate Purchase Price payable hereunder for the increased number of shares
shall be the same as the aggregate Purchase Price in effect just prior to
such adjustments.
6. NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Warrant Holder against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value
of any Warrant Shares above the amount payable therefor on such exercise, and
(b) will take all such action as may be reasonably
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<PAGE>
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares on the exercise of this
Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section
5 hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation)
the right to vote such shares, receive dividends or other distributions
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each Warrant Holder, at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the Warrant and, in the case of any such loss, theft or destruction of the
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
10. SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Warrant Holder acknowledge and agree
that irreparable damage would occur in the event that any of the provisions
of this Warrant were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either
of them may be entitled by law or equity.
(b) Each of the Company and the Warrant Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States
District Court for
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<PAGE>
the Southern District of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Warrant and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such court, that the
suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and
the Warrant Holder consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Warrant and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing in this paragraph shall affect or limit any right to serve process in
any other manner permitted by law.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto and
the provisions contained in the Agreement, the Registration Rights Agreement
or the Debentures and incorporated into this Warrant and the Warrant Shares
contain the entire understanding of the parties with respect to the matters
covered hereby and thereby and, except as specifically set forth herein and
therein, neither the Company nor the Warrant Holder makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of this Agreement may be waived or amended other than by a written instrument
signed by the party against whom enforcement of any such amendment or waiver
is sought.
12. RESTRICTED SECURITIES. Sections 4.5, 5.1, 5.2 and 5.3 of the
Agreement are incorporated herein by reference and hereby made a part hereof.
13. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy
or facsimile at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
to the Company:
Zycad Corporation
47100 Bayside Parkway
Fremont, California 94538
Attn:
Fax: (510) 623-4575
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<PAGE>
with copies to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn:
Fax:
to the Warrant Holder:
Halifax Fund, L.P.
c/o Citco Fund Services Ltd.
Corporate Centre, West Bay Road
P.O. Box 31106
SMB, Grand Cayman, Cayman Islands, BWI
Attn:
Fax:
with copies to:
The Palladin Group
40 W. 57th Street, Suite 1500
New York, NY 10019
Attn: Andrew Kaplan
Fax: (212) 698-0599
Copies of all notices to the Company or to the Warrant Holder shall also be
provided to:
Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
New York, NY 10019
Attn: James F. O'Brien, Jr.
Fax: (212) 698-0505
GOULSTON & STORRS
400 Atlantic Avenue
Boston, MA 02110-3333
Attn: Richard Langerman, Esq.
Fax: (617) 574-4112
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<PAGE>
Either party hereto may from time to time change its address for notices
under this Section 13 by giving at least 10 days prior written notice of such
changed address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity
or enforceability of any other provision.
15. EXPIRATION. The right to exercise this Warrant shall expire sixty
(60) months after the date hereof.
[Signatures on next page.]
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<PAGE>
Dated as of: February 13, 1997 ZYCAD CORPORATION
By: /s/ Phillips W. Smith
--------------------------
Title: President and Chief Executive Officer
[CORPORATE SEAL]
Attest:
/s/ Douglas E. Klint
- --------------------
Its: Corporate Secretary
Halifax Fund, L.P.
By: The Palladin Group
Its: Investment Adviser
By: /s/ Andrew Kaplan
-------------------
Its: Vice President
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<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _________
shares of Common Stock of ZYCAD CORPORATION, a Delaware corporation (the
"Company"), and herewith makes payment of $__________ therefor, and requests
that the certificates for such shares be issued in the name of, and delivered
to _________________, whose address is __________________.
Dated: ___________________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
___________________________________
(Address)
Tax Identification Number:_____________
_____________________
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase
_____________ shares of Common stock of ZYCAD CORPORATION, a Delaware
corporation, to which the within Warrant relates, and appoints
_________________ Attorney to transfer such right on the books of ZYCAD
CORPORATION, a Delaware corporation, with full power of substitution the
premises.
Dated: ___________________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
___________________________________
(Address)
Signed in the presence of:
____________________________
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<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT
BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF
THE FEDERAL ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
Right to Purchase Shares of Common Stock of
Zycad Corporation
February 13, 1997
--------------------------
Common Stock Purchase Warrant
ZYCAD CORPORATION, a Delaware corporation (the "Company"), hereby
certifies that for $10.00 and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Capital Ventures
International, having an address at 1 Capital Place, P.O. Box 1787GT, Grand
Cayman, Cayman Islands ("Purchaser") or any other Warrant Holder is entitled,
on the terms and conditions set forth below, to purchase from the Company at
any time beginning after the date hereof and ending sixty (60) months after
the date hereof One Hundred and Seventy Five Thousand (175,000) shares of
fully paid and nonassessable shares of Common Stock, $.10 par value, of the
Company (the "Common Stock"), at a purchase price per share of Two Dollars
and Twenty Five Cents (U.S. $2.25) per share of Common Stock (the "Purchase
Price"), as the same may be adjusted pursuant to Section and 5 herein.
1. DEFINITIONS.
(a) the term "Warrant Holder" shall mean the Purchaser or any assignee
of all or any portion of this Warrant at any given time who, at the
time of assignment, acquired the right to purchase at least 2,000
Warrant Shares, (such number being subject to adjustment after the
date hereof pursuant to Section 5 herein.)
(b) the term "Warrant Shares" shall mean the Shares of Common Stock or
other securities issuable upon exercise of this Warrant.
(c) other terms used herein which are defined in the Convertible
Securities Subscription Agreement (the "Agreement") or the
Registration Rights Agreement (the "Registration Rights Agreement"),
both of even date and delivery between the Company and the Purchaser,
or in the Debentures issued by the Company to the Purchaser pursuant
to the Agreement (the "Debentures"), shall have the same meanings
herein as therein.
<PAGE>
2. EXERCISE OF WARRANT. This Warrant may be exercised by the Warrant
Holder, in whole or in part, at any time and from time to time by surrender
of this Warrant, together with the form of subscription at the end hereof
duly executed by Warrant Holder, to the Company at its principal office. In
the event that the Warrant is not exercised in full, the number of Warrant
Shares shall be reduced by the number of such Warrant Shares for which this
Warrant is exercised, and the Company, at its expense, shall forthwith issue
and deliver to or upon the order of Warrant Holder a new Warrant of like
tenor in the name of Warrant Holder or as Warrant Holder (upon payment by
Warrant Holder of any applicable transfer taxes) may request, reflecting such
adjusted Warrant Shares.
If, despite the Company's obligations provided in Paragraphs 4(a) and
4(d) hereof, the Company shall not have registered pursuant to a Registration
Statement under the Act and/or available for issuance upon exercise of this
Warrant sufficient shares of Common Stock for such issuance as such
registered shares then, notwithstanding anything contained herein to the
contrary and in addition to and not in lieu of any of the other rights and
remedies to which the Warrant Holder may be entitled by reason of the
Company's failure fully to meet its obligations under Paragraphs 4(a) and
4(d) hereof, the Warrant Holder may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Purchase Price, elect instead to receive upon such
exercise the Net Number of shares of Common Stock determined according to the
following formula:
Net Number = (A X B) - (A X C)
-------------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this
Warrant is then being exercised.
B = the fair market value of a share of Common Stock at the
time of such calculation, as determined in accordance
with Paragraph 3(b) hereof.
C = the Purchase Price then in effect at the time of such
exercise.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter, the Company at its expense (including,
without limitation, the payment by it of any applicable issue taxes) will
cause to be issued in the name of and
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<PAGE>
delivered to Warrant Holder, or as Warrant Holder (upon payment by Warrant
Holder of any applicable transfer taxes) may lawfully direct, a certificate
or certificates for the number of fully paid and non-assessable shares of
Common Stock to which Warrant Holder shall be entitled on such exercise,
together with any other stock or other securities or property (including
cash, where applicable) to which Warrant Holder is entitled upon such
exercise.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock,
then in such event Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, fair
market value shall equal the closing trading price of the Common Stock on the
Nasdaq Stock Market, the American Stock Exchange or the New York Stock
Exchange, whichever is the principal trading exchange or market for the
Common Stock (the "Principal Market") on the date of determination or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted in the Nasdaq Stock Market, the average of the closing bid
and asked prices on the over-the-counter market as furnished by any New York
Stock Exchange member firm reasonably selected from time to time by the
Company for that purpose, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the Nasdaq Stock
Market or traded over-the-counter and the average price cannot be determined
a contemplated above, the fair market value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall use its reasonable best efforts to insure
that a Registration Statement under the Act covering the issuance of the
Warrant Shares and the resale or other disposition thereof by Warrant Holder
is effective as provided in its Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation,
including, without limitation the notification of the Nasdaq Stock Market,
for the legal and valid issuance of this Warrant and the Warrant Shares to
the Warrant Holder under this Warrant.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps reasonably necessary
and within its control to insure that the Common Stock remains listed on the
Principal Market and shall not amend its Certificate of Incorporation or
Bylaws so as to adversely affect any rights of the Warrant Holder under this
Warrant.
(d) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable.
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<PAGE>
(e) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance
with the terms hereof, shall be validly issued, fully paid and
non-assessable. The Company has authorized and reserved for issuance to
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant.
(f) With a view to making available to Warrant Holder the benefits
of Rule 144 promulgated under the Act and any other rule or regulation of the
SEC that may at any time permit Warrant Holder to sell securities of the
Company to the public without registration, the Company agrees to use its
reasonable best efforts to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(iii) furnish to any Warrant Holder forthwith upon request a written
statement by the Company that it has complied with the reporting
requirements of Rule 144 and of the Act and the Exchange Act, a copy of
the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as may be reasonably
requested to permit any such Warrant Holder to take advantage of any
rule or regulation of the SEC permitting the selling of any such
securities without registration.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Purchase Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist,
the number of Warrant Shares as to which this Warrant is exercisable as of
the date of such subdivision, split-up, spin-off or combination shall
forthwith be proportionately increased in the case of a subdivision, or
proportionately decreased in the case of a combination. Appropriate
adjustments shall also be made to the purchase price payable per share, but
the aggregate purchase price payable for the total number of Warrant Shares
purchasable under this Warrant as of such date shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common Stock
("Common Stock Equivalents")
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<PAGE>
without payment of any consideration by holders of Common Stock for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon exercise or conversion
thereof), then the number of shares of Common Stock for which this Warrant
may be exercised shall be increased as of the record date (or the date of
such dividend distribution if no record date is set) for determining which
holders of Common Stock shall be entitled to receive such dividends, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Purchase
Price shall be adjusted so that the aggregate amount payable for the purchase
of all the Warrant Shares issuable hereunder immediately after the record
date (or on the date of such distribution, if applicable), for such dividend
shall equal the aggregate amount so payable immediately before such record
date (or on the date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company shall decrease the per share Purchase Price of this Warrant by an
appropriate amount based upon the value distributed on each share of Common
Stock as determined in good faith by the Company's Board of Directors.
(d) MERGER, ETC.. If at any time after the date hereof there shall
be a merger or consolidation of the Company with or into or a transfer of all
or substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon such transfer, merger or
consolidation becoming effective, and upon payment of the aggregate Purchase
Price then in effect, the number of shares or other securities or property of
the Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by Warrant Holder for the
shares of stock subject to this Warrant had this Warrant been exercised just
prior to such transfer, merger or consolidation becoming effective or to the
applicable record date thereof, as the case may be.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reorganization or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Purchase Price then in
effect, the number of shares or other securities or property resulting from
such reorganization or reclassification, which would have been received by
the Warrant Holder for the shares of stock subject to this Warrant had this
Warrant at such time been exercised.
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<PAGE>
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for
the purchase of its Common Stock or any such convertible securities (other
than shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Exchange Act Reports) at an effective purchase price per share
which is less than the Purchase Price then in effect or the fair market value
(as hereinabove defined) of the Common Stock on the trading day next
preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying
the Purchase Price then in effect by a fraction, (x) the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, including, without duplication,
those deemed to have been issued under any provision of the Debentures and
the Warrants plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such fair market value or Purchase Price, as the case may
be, then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such
issue or sale including, without duplication, those deemed to have been
issued under any provision of the Debentures and Warrants. For purposes of
the foregoing fraction, Common Stock outstanding shall include, without
limitation, any Equity Offerings (as defined in the Debentures) then
outstanding, whether or not they are exercisable or convertible when such
fraction is to be determined.
In the event of any such issuance for a consideration which is less than
such fair market value and also less than the Purchase Price then in effect,
then there shall be only one such adjustment by reason of such issuance, such
adjustment to be that which results in the greatest reduction of the Purchase
Price computed as aforesaid. The number of shares which may be purchased
hereunder shall be increased proportionately to any reduction in Purchase
Price pursuant to this paragraph 5(f), so that after such adjustments the
aggregate Purchase Price payable hereunder for the increased number of shares
shall be the same as the aggregate Purchase Price in effect just prior to
such adjustments.
6. NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Warrant Holder against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value
of any Warrant Shares above the amount payable therefor on such exercise, and
(b) will take all such action as may be reasonably
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<PAGE>
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares on the exercise of this
Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section
5 hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation)
the right to vote such shares, receive dividends or other distributions
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each Warrant Holder, at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the Warrant and, in the case of any such loss, theft or destruction of the
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
10. SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Warrant Holder acknowledge and agree
that irreparable damage would occur in the event that any of the provisions
of this Warrant were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either
of them may be entitled by law or equity.
(b) Each of the Company and the Warrant Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States
District Court for
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<PAGE>
the Southern District of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Warrant and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such court, that the
suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and
the Warrant Holder consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Warrant and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing in this paragraph shall affect or limit any right to serve process in
any other manner permitted by law.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto and
the provisions contained in the Agreement, the Registration Rights Agreement
or the Debentures and incorporated into this Warrant and the Warrant Shares
contain the entire understanding of the parties with respect to the matters
covered hereby and thereby and, except as specifically set forth herein and
therein, neither the Company nor the Warrant Holder makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of this Agreement may be waived or amended other than by a written instrument
signed by the party against whom enforcement of any such amendment or waiver
is sought.
12. RESTRICTED SECURITIES. Sections 4.5, 5.1, 5.2 and 5.3 of the
Agreement are incorporated herein by reference and hereby made a part hereof.
13. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy
or facsimile at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
to the Company:
Zycad Corporation
47100 Bayside Parkway
Fremont, California 94538
Attn:
Fax: (510) 623-4575
-8-
<PAGE>
with copies to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn:
Fax:
to the Warrant Holder:
Capital Ventures International
1 Capital Place
P.O. Box 1787GT
Grand Cayman, Cayman Islands
Attn:
Fax:
with copies to:
Attn:
Fax:
Copies of all notices to the Company or to the Warrant Holder shall also be
provided to:
Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
` New York, NY 10019
Attn: James F. O'Brien, Jr.
Fax: (212) 698-0505
GOULSTON & STORRS
400 Atlantic Avenue
Boston, MA 02110-3333
Attn: Richard Langerman, Esq.
Fax: (617) 574-4112
-9-
<PAGE>
Either party hereto may from time to time change its address for notices
under this Section 13 by giving at least 10 days prior written notice of such
changed address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity
or enforceability of any other provision.
15. EXPIRATION. The right to exercise this Warrant shall expire sixty
(60) months after the date hereof.
[Signatures on next page.]
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<PAGE>
Dated as of: February 13, 1997 ZYCAD CORPORATION
By: /s/ Phillips W. Smith
------------------------------
Title: President and Chief Executive Officer
[CORPORATE SEAL]
Attest:
/s/ Douglas E. Klint
- ------------------------
Its: Corporate Secretary
Capital Ventures International
By: Bala International
-----------------------
Its: Agent
----------------------
By: /s/ Andrew Frost
-----------------------
Its: Director
----------------------
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<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _________
shares of Common Stock of ZYCAD CORPORATION, a Delaware corporation (the
"Company"), and herewith makes payment of $__________ therefor, and requests
that the certificates for such shares be issued in the name of, and delivered
to _________________, whose address is __________________.
Dated: _________________________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
_________________________________________
(Address)
Tax Identification Number:_____________
_____________________
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase
_____________ shares of Common stock of ZYCAD CORPORATION, a Delaware
corporation, to which the within Warrant relates, and appoints ________________
Attorney to transfer such right on the books of ZYCAD CORPORATION, a Delaware
corporation, with full power of substitution the premises.
Dated: _________________________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
_________________________________________
(Address)
Signed in the presence of:
_____________________________
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<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT
BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF
THE FEDERAL ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
Right to Purchase Shares of Common Stock
of Zycad Corporation
February 13, 1997
------------------------
Common Stock Purchase Warrant
ZYCAD CORPORATION, a Delaware corporation (the "Company"), hereby
certifies that for $10.00 and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, HERACLES FUND,
having an address at c/o Bank of Bermuda (Cayman) Limited, P.O. Box 513,
Third Floor, British American Tower, Dr. Roy's Drive, Georgetown, Grand
Cayman, Cayman Islands, BWI ("Purchaser") or any other Warrant Holder is
entitled, on the terms and conditions set forth below, to purchase from the
Company at any time beginning after the date hereof and ending sixty (60)
months after the date hereof Fifty Thousand (50,000) shares of fully paid and
nonassessable shares of Common Stock, $.10 par value, of the Company (the
"Common Stock"), at a purchase price per share of Two Dollars and Twenty
Five Cents (U.S. $2.25) per share of Common Stock (the "Purchase Price"), as
the same may be adjusted pursuant to Section and 5 herein.
1. DEFINITIONS.
(a) the term "Warrant Holder" shall mean the Purchaser or any
assignee of all or any portion of this Warrant at any given time
who, at the time of assignment, acquired the right to purchase at
least 2,000 Warrant Shares, (such number being subject to
adjustment after the date hereof pursuant to Section 5 herein.)
(b) the term "Warrant Shares" shall mean the Shares of Common Stock
or other securities issuable upon exercise of this Warrant.
(c) other terms used herein which are defined in the Convertible
Securities Subscription Agreement (the "Agreement") or the
Registration Rights Agreement (the "Registration Rights
Agreement"), both of even date and delivery between the Company and
the Purchaser, or in the Debentures
<PAGE>
issued by the Company to the Purchaser pursuant to the Agreement
(the "Debentures"), shall have the same meanings herein as therein.
2. EXERCISE OF WARRANT. This Warrant may be exercised by the Warrant
Holder, in whole or in part, at any time and from time to time by surrender
of this Warrant, together with the form of subscription at the end hereof
duly executed by Warrant Holder, to the Company at its principal office. In
the event that the Warrant is not exercised in full, the number of Warrant
Shares shall be reduced by the number of such Warrant Shares for which this
Warrant is exercised, and the Company, at its expense, shall forthwith issue
and deliver to or upon the order of Warrant Holder a new Warrant of like
tenor in the name of Warrant Holder or as Warrant Holder (upon payment by
Warrant Holder of any applicable transfer taxes) may request, reflecting such
adjusted Warrant Shares.
If, despite the Company's obligations provided in Paragraphs 4(a) and
4(d) hereof, the Company shall not have registered pursuant to a Registration
Statement under the Act and/or available for issuance upon exercise of this
Warrant sufficient shares of Common Stock for such issuance as such
registered shares then, notwithstanding anything contained herein to the
contrary and in addition to and not in lieu of any of the other rights and
remedies to which the Warrant Holder may be entitled by reason of the
Company's failure fully to meet its obligations under Paragraphs 4(a) and
4(d) hereof, the Warrant Holder may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Purchase Price, elect instead to receive upon such
exercise the Net Number of shares of Common Stock determined according to the
following formula:
Net Number = (A X B) - (A X C)
-------------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this
Warrant is then being exercised.
B = the fair market value of a share of Common Stock at the
time of such calculation, as determined in accordance
with Paragraph 3(b) hereof.
C = the Purchase Price then in effect at the time of such
exercise.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five
-2-
<PAGE>
(5) days thereafter, the Company at its expense (including, without
limitation, the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to Warrant Holder, or as Warrant Holder
(upon payment by Warrant Holder of any applicable transfer taxes) may
lawfully direct, a certificate or certificates for the number of fully paid
and non-assessable shares of Common Stock to which Warrant Holder shall be
entitled on such exercise, together with any other stock or other securities
or property (including cash, where applicable) to which Warrant Holder is
entitled upon such exercise.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock,
then in such event Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, fair
market value shall equal the closing trading price of the Common Stock on the
Nasdaq Stock Market, the American Stock Exchange or the New York Stock
Exchange, whichever is the principal trading exchange or market for the
Common Stock (the "Principal Market") on the date of determination or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted in the Nasdaq Stock Market, the average of the closing bid
and asked prices on the over-the-counter market as furnished by any New York
Stock Exchange member firm reasonably selected from time to time by the
Company for that purpose, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the Nasdaq Stock
Market or traded over-the-counter and the average price cannot be determined
a contemplated above, the fair market value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall use its reasonable best efforts to insure
that a Registration Statement under the Act covering the issuance of the
Warrant Shares and the resale or other disposition thereof by Warrant Holder
is effective as provided in its Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation,
including, without limitation the notification of the Nasdaq Stock Market,
for the legal and valid issuance of this Warrant and the Warrant Shares to
the Warrant Holder under this Warrant.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps reasonably necessary
and within its control to insure that the Common Stock remains listed on the
Principal Market and shall not amend its Certificate of Incorporation or
Bylaws so as to adversely affect any rights of the Warrant Holder under this
Warrant.
-3-
<PAGE>
(d) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable.
(e) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance
with the terms hereof, shall be validly issued, fully paid and
non-assessable. The Company has authorized and reserved for issuance to
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant.
(f) With a view to making available to Warrant Holder the benefits
of Rule 144 promulgated under the Act and any other rule or regulation of the
SEC that may at any time permit Warrant Holder to sell securities of the
Company to the public without registration, the Company agrees to use its
reasonable best efforts to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(iii) furnish to any Warrant Holder forthwith upon request a written
statement by the Company that it has complied with the reporting
requirements of Rule 144 and of the Act and the Exchange Act, a copy of
the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as may be reasonably
requested to permit any such Warrant Holder to take advantage of any
rule or regulation of the SEC permitting the selling of any such
securities without registration.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of and
kind of securities purchasable upon exercise of this Warrant and the Purchase
Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist,
the number of Warrant Shares as to which this Warrant is exercisable as of
the date of such subdivision, split-up, spin-off or combination shall
forthwith be proportionately increased in the case of a subdivision, or
proportionately decreased in the case of a combination. Appropriate
adjustments shall also be made to the purchase price payable per share, but
the aggregate purchase price payable for the total number of Warrant Shares
purchasable under this Warrant as of such date shall remain the same.
-4-
<PAGE>
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common Stock
("Common Stock Equivalents") without payment of any consideration by holders
of Common Stock for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
exercise or conversion thereof), then the number of shares of Common Stock
for which this Warrant may be exercised shall be increased as of the record
date (or the date of such dividend distribution if no record date is set) for
determining which holders of Common Stock shall be entitled to receive such
dividends, in proportion to the increase in the number of outstanding shares
(and shares of Common Stock issuable upon conversion of all such securities
convertible into Common Stock) of Common Stock as a result of such dividend,
and the Purchase Price shall be adjusted so that the aggregate amount payable
for the purchase of all the Warrant Shares issuable hereunder immediately
after the record date (or on the date of such distribution, if applicable),
for such dividend shall equal the aggregate amount so payable immediately
before such record date (or on the date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company shall decrease the per share Purchase Price of this Warrant by an
appropriate amount based upon the value distributed on each share of Common
Stock as determined in good faith by the Company's Board of Directors.
(d) MERGER, ETC.. If at any time after the date hereof there shall
be a merger or consolidation of the Company with or into or a transfer of all
or substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon such transfer, merger or
consolidation becoming effective, and upon payment of the aggregate Purchase
Price then in effect, the number of shares or other securities or property of
the Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by Warrant Holder for the
shares of stock subject to this Warrant had this Warrant been exercised just
prior to such transfer, merger or consolidation becoming effective or to the
applicable record date thereof, as the case may be.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reorganization or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Purchase Price then in
effect, the number of shares or other securities or property resulting from
such reorganization or reclassification, which would have been received by
the Warrant Holder
-5-
<PAGE>
for the shares of stock subject to this Warrant had this Warrant at such time
been exercised.
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for
the purchase of its Common Stock or any such convertible securities (other
than shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Exchange Act Reports) at an effective purchase price per share
which is less than the Purchase Price then in effect or the fair market value
(as hereinabove defined) of the Common Stock on the trading day next
preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying
the Purchase Price then in effect by a fraction, (x) the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, including, without duplication,
those deemed to have been issued under any provision of the Debentures and
the Warrants plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such fair market value or Purchase Price, as the case may
be, then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such
issue or sale including, without duplication, those deemed to have been
issued under any provision of the Debentures and Warrants. For purposes of
the foregoing fraction, Common Stock outstanding shall include, without
limitation, any Equity Offerings (as defined in the Debentures) then
outstanding, whether or not they are exercisable or convertible when such
fraction is to be determined.
In the event of any such issuance for a consideration which is less than
such fair market value and also less than the Purchase Price then in effect,
then there shall be only one such adjustment by reason of such issuance, such
adjustment to be that which results in the greatest reduction of the Purchase
Price computed as aforesaid. The number of shares which may be purchased
hereunder shall be increased proportionately to any reduction in Purchase
Price pursuant to this paragraph 5(f), so that after such adjustments the
aggregate Purchase Price payable hereunder for the increased number of shares
shall be the same as the aggregate Purchase Price in effect just prior to
such adjustments.
6. NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Warrant Holder against impairment. Without limiting the
generality of the foregoing, the
-6-
<PAGE>
Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action
as may be reasonably necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares on the
exercise of this Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section
5 hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation)
the right to vote such shares, receive dividends or other distributions
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each Warrant Holder, at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the Warrant and, in the case of any such loss, theft or destruction of the
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
10. SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Warrant Holder acknowledge and agree
that irreparable damage would occur in the event that any of the provisions
of this Warrant were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either
of them may be entitled by law or equity.
-7-
<PAGE>
(b) Each of the Company and the Warrant Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States
District Court for the Southern District of New York for the purposes of any
suit, action or proceeding arising out of or relating to this Warrant and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction
of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Warrant Holder consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address in effect for notices to it under this Warrant
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing in this paragraph shall affect or limit
any right to serve process in any other manner permitted by law.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto and
the provisions contained in the Agreement, the Registration Rights Agreement
or the Debentures and incorporated into this Warrant and the Warrant Shares
contain the entire understanding of the parties with respect to the matters
covered hereby and thereby and, except as specifically set forth herein and
therein, neither the Company nor the Warrant Holder makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of this Agreement may be waived or amended other than by a written instrument
signed by the party against whom enforcement of any such amendment or waiver
is sought.
12. RESTRICTED SECURITIES. Sections 4.5, 5.1, 5.2 and 5.3 of the
Agreement are incorporated herein by reference and hereby made a part hereof.
13. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy
or facsimile at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice
is to be received) or (b) on the second business day following the date of
mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
to the Company:
Zycad Corporation
47100 Bayside Parkway
Fremont, California 94538
Attn: Doug Klint
Fax: (510) 623-4575
-8-
<PAGE>
with copies to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn:
Fax:
to the Warrant Holder:
Joseph A. Umbach
c/o Joseph Victori Wines
2525 Palmer Avenue
New Rochelle, New York, New York 10801
Copies of all notices to the Company or to the Warrant Holder shall also be
provided to:
Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
` New York, NY 10019
Attn: James F. O'Brien, Jr.
Fax: (212) 698-0505
GOULSTON & STORRS
400 Atlantic Avenue
Boston, MA 02110-3333
Attn: Richard Langerman, Esq.
Fax: (617) 574-4112
Either party hereto may from time to time change its address for notices
under this Section 13 by giving at least 10 days prior written notice of such
changed address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity
or enforceability of any other provision.
-9-
<PAGE>
15. EXPIRATION. The right to exercise this Warrant shall expire sixty
(60) months after the date hereof.
[Signatures on next page.]
-10-
<PAGE>
Dated as of: February 13, 1997 ZYCAD CORPORATION
By: /s/ Phillips W. Smith
-------------------------------
Title: President and Chief Executive Officer
[CORPORATE SEAL]
Attest:
/s/ Douglas E. Klint
- -----------------------------
Its: Corporate Secretary
Joseph A. Umbach
By: Promethean Investment Group, L.L.C.
Its: Investment Advisor
By: /s/ James F. O'Brien
----------------------------------
Name: James F. O'Brien
Title: President
-11-
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _____________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _________
shares of Common Stock of ZYCAD CORPORATION, a Delaware corporation (the
"Company"), and herewith makes payment of $__________ therefor, and requests
that the certificates for such shares be issued in the name of, and delivered to
_________________, whose address is __________________.
Dated: _________________________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
_________________________________________
(Address)
Tax Identification Number:_______________
_____________________
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase
_____________ shares of Common stock of ZYCAD CORPORATION, a Delaware
corporation, to which the within Warrant relates, and appoints ________________
Attorney to transfer such right on the books of ZYCAD CORPORATION, a Delaware
corporation, with full power of substitution the premises.
Dated: _________________________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
_________________________________________
(Address)
Signed in the presence of:
______________________________
-12-
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT BE
SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT
AND ALL APPLICABLE STATE SECURITIES LAWS.
Right to Purchase Shares of Common Stock
of Zycad Corporation
February 13, 1997
_________________________
Common Stock Purchase Warrant
ZYCAD CORPORATION, a Delaware corporation (the "Company"), hereby certifies
that for $10.00 and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Joseph A. Umbach, having an
address c/o Joseph Victori Wines, 2525 Palmer Avenue, New Rochelle, New York,
New York, 10801 ("Purchaser") or any other Warrant Holder is entitled, on the
terms and conditions set forth below, to purchase from the Company at any time
beginning after the date hereof and ending sixty (60) months after the date
hereof Fifty Thousand (50,000) shares of fully paid and nonassessable shares of
Common Stock, $.10 par value, of the Company (the "Common Stock"), at a
purchase price per share of Two Dollars and Twenty Five Cents (U.S. $2.25) per
share of Common Stock (the "Purchase Price"), as the same may be adjusted
pursuant to Section and 5 herein.
1. DEFINITIONS.
(a) the term "Warrant Holder" shall mean the Purchaser or any assignee
of all or any portion of this Warrant at any given time who, at the
time of assignment, acquired the right to purchase at least 2,000
Warrant Shares, (such number being subject to adjustment after the
date hereof pursuant to Section 5 herein.)
(b) the term "Warrant Shares" shall mean the Shares of Common Stock or
other securities issuable upon exercise of this Warrant.
(c) other terms used herein which are defined in the Convertible
Securities Subscription Agreement (the "Agreement") or the
Registration Rights Agreement (the "Registration Rights Agreement"),
both of even date and delivery between the Company and the Purchaser,
or in the Debentures issued by the Company to the Purchaser pursuant
to the Agreement (the "Debentures"), shall have the same meanings
herein as therein.
<PAGE>
2. EXERCISE OF WARRANT. This Warrant may be exercised by the
Warrant Holder, in whole or in part, at any time and from time to time by
surrender of this Warrant, together with the form of subscription at the end
hereof duly executed by Warrant Holder, to the Company at its principal
office. In the event that the Warrant is not exercised in full, the number
of Warrant Shares shall be reduced by the number of such Warrant Shares for
which this Warrant is exercised, and the Company, at its expense, shall
forthwith issue and deliver to or upon the order of Warrant Holder a new
Warrant of like tenor in the name of Warrant Holder or as Warrant Holder
(upon payment by Warrant Holder of any applicable transfer taxes) may
request, reflecting such adjusted Warrant Shares.
If, despite the Company's obligations provided in Paragraphs 4(a) and
4(d) hereof, the Company shall not have registered pursuant to a Registration
Statement under the Act and/or available for issuance upon exercise of this
Warrant sufficient shares of Common Stock for such issuance as such
registered shares then, notwithstanding anything contained herein to the
contrary and in addition to and not in lieu of any of the other rights and
remedies to which the Warrant Holder may be entitled by reason of the
Company's failure fully to meet its obligations under Paragraphs 4(a) and
4(d) hereof, the Warrant Holder may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Purchase Price, elect instead to receive upon such
exercise the Net Number of shares of Common Stock determined according to the
following formula:
Net Number = (A X B) - (A X C)
------------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this
Warrant is then being exercised.
B = the fair market value of a share of Common Stock at the
time of such calculation, as determined in accordance
with Paragraph 3(b) hereof.
C = the Purchase Price then in effect at the time of such
exercise.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter, the Company at its expense (including,
without limitation, the payment by it of any applicable issue taxes) will cause
to be issued in the name of and
-2-
<PAGE>
delivered to Warrant Holder, or as Warrant Holder (upon payment by Warrant
Holder of any applicable transfer taxes) may lawfully direct, a certificate
or certificates for the number of fully paid and non-assessable shares of
Common Stock to which Warrant Holder shall be entitled on such exercise,
together with any other stock or other securities or property (including
cash, where applicable) to which Warrant Holder is entitled upon such
exercise.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock,
then in such event Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, fair
market value shall equal the closing trading price of the Common Stock on the
Nasdaq Stock Market, the American Stock Exchange or the New York Stock
Exchange, whichever is the principal trading exchange or market for the
Common Stock (the "Principal Market") on the date of determination or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted in the Nasdaq Stock Market, the average of the closing bid
and asked prices on the over-the-counter market as furnished by any New York
Stock Exchange member firm reasonably selected from time to time by the
Company for that purpose, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the Nasdaq Stock
Market or traded over-the-counter and the average price cannot be determined
a contemplated above, the fair market value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall use its reasonable best efforts to insure that
a Registration Statement under the Act covering the issuance of the Warrant
Shares and the resale or other disposition thereof by Warrant Holder is
effective as provided in its Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation, including,
without limitation the notification of the Nasdaq Stock Market, for the legal
and valid issuance of this Warrant and the Warrant Shares to the Warrant Holder
under this Warrant.
(c) From the date hereof through the last date on which this Warrant
is exercisable, the Company shall take all steps reasonably necessary and within
its control to insure that the Common Stock remains listed on the Principal
Market and shall not amend its Certificate of Incorporation or Bylaws so as to
adversely affect any rights of the Warrant Holder under this Warrant.
(d) The Company shall at all times reserve and keep available, solely
for issuance and delivery as Warrant Shares hereunder, such shares of Common
Stock as shall from time to time be issuable.
-3-
<PAGE>
(e) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable. The
Company has authorized and reserved for issuance to Warrant Holder the requisite
number of shares of Common Stock to be issued pursuant to this Warrant.
(f) With a view to making available to Warrant Holder the benefits of
Rule 144 promulgated under the Act and any other rule or regulation of the SEC
that may at any time permit Warrant Holder to sell securities of the Company to
the public without registration, the Company agrees to use its reasonable best
efforts to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange
Act; and
(iii) furnish to any Warrant Holder forthwith upon request a
written statement by the Company that it has complied with the
reporting requirements of Rule 144 and of the Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the
Company as may be reasonably requested to permit any such Warrant
Holder to take advantage of any rule or regulation of the SEC
permitting the selling of any such securities without registration.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of and
kind of securities purchasable upon exercise of this Warrant and the Purchase
Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights under
this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number of Warrant Shares as to which this Warrant is exercisable as of the date
of such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the purchase price payable per share, but the aggregate purchase price
payable for the total number of Warrant Shares purchasable under this Warrant as
of such date shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the Company
declares a dividend or other distribution on Common Stock payable in Common
Stock or other securities or rights convertible into Common Stock ("Common Stock
Equivalents")
-4-
<PAGE>
without payment of any consideration by holders of Common Stock for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon exercise or conversion
thereof), then the number of shares of Common Stock for which this Warrant
may be exercised shall be increased as of the record date (or the date of
such dividend distribution if no record date is set) for determining which
holders of Common Stock shall be entitled to receive such dividends, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Purchase
Price shall be adjusted so that the aggregate amount payable for the purchase
of all the Warrant Shares issuable hereunder immediately after the record
date (or on the date of such distribution, if applicable), for such dividend
shall equal the aggregate amount so payable immediately before such record
date (or on the date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company shall decrease the per share Purchase Price of this Warrant by an
appropriate amount based upon the value distributed on each share of Common
Stock as determined in good faith by the Company's Board of Directors.
(d) MERGER, ETC.. If at any time after the date hereof there shall
be a merger or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon such transfer, merger or
consolidation becoming effective, and upon payment of the aggregate Purchase
Price then in effect, the number of shares or other securities or property of
the Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by Warrant Holder for the shares
of stock subject to this Warrant had this Warrant been exercised just prior to
such transfer, merger or consolidation becoming effective or to the applicable
record date thereof, as the case may be.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reorganization or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Purchase Price then in
effect, the number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.
-5-
<PAGE>
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for
the purchase of its Common Stock or any such convertible securities (other
than shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Exchange Act Reports) at an effective purchase price per share
which is less than the Purchase Price then in effect or the fair market value
(as hereinabove defined) of the Common Stock on the trading day next
preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying
the Purchase Price then in effect by a fraction, (x) the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, including, without duplication,
those deemed to have been issued under any provision of the Debentures and
the Warrants plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such fair market value or Purchase Price, as the case may
be, then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such
issue or sale including, without duplication, those deemed to have been
issued under any provision of the Debentures and Warrants. For purposes of
the foregoing fraction, Common Stock outstanding shall include, without
limitation, any Equity Offerings (as defined in the Debentures) then
outstanding, whether or not they are exercisable or convertible when such
fraction is to be determined.
In the event of any such issuance for a consideration which is less than
such fair market value and also less than the Purchase Price then in effect,
then there shall be only one such adjustment by reason of such issuance, such
adjustment to be that which results in the greatest reduction of the Purchase
Price computed as aforesaid. The number of shares which may be purchased
hereunder shall be increased proportionately to any reduction in Purchase
Price pursuant to this paragraph 5(f), so that after such adjustments the
aggregate Purchase Price payable hereunder for the increased number of shares
shall be the same as the aggregate Purchase Price in effect just prior to
such adjustments.
6. NO IMPAIRMENT. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrant Holder
against impairment. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action as
may be reasonably
-6-
<PAGE>
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares on the exercise of this
Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section
5 hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation)
the right to vote such shares, receive dividends or other distributions
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each Warrant Holder, at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the Warrant and, in the case of any such loss, theft or destruction of the
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
10. SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Warrant Holder acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Warrant and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) Each of the Company and the Warrant Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court for
-7-
<PAGE>
the Southern District of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Warrant and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such court, that the
suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and
the Warrant Holder consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Warrant and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing in this paragraph shall affect or limit any right to serve process in
any other manner permitted by law.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto and
the provisions contained in the Agreement, the Registration Rights Agreement or
the Debentures and incorporated into this Warrant and the Warrant Shares contain
the entire understanding of the parties with respect to the matters covered
hereby and thereby and, except as specifically set forth herein and therein,
neither the Company nor the Warrant Holder makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by a written instrument signed by
the party against whom enforcement of any such amendment or waiver is sought.
12. RESTRICTED SECURITIES. Sections 4.5, 5.1, 5.2 and 5.3 of the
Agreement are incorporated herein by reference and hereby made a part hereof.
13. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy or
facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
to the Company:
Zycad Corporation
47100 Bayside Parkway
Fremont, California 94538
Attn:
Fax: (510) 623-4575
-8-
<PAGE>
with copies to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn:
Fax:
to the Warrant Holder:
Capital Ventures International
1 Capital Place
P.O. Box 1787GT
Grand Cayman, Cayman Islands
Attn:
Fax:
with copies to:
Attn:
Fax:
Copies of all notices to the Company or to the Warrant Holder shall also be
provided to:
Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
` New York, NY 10019
Attn: James F. O'Brien, Jr.
Fax: (212) 698-0505
GOULSTON & STORRS
400 Atlantic Avenue
Boston, MA 02110-3333
Attn: Richard Langerman, Esq.
Fax: (617) 574-4112
-9-
<PAGE>
Either party hereto may from time to time change its address for notices under
this Section 13 by giving at least 10 days prior written notice of such changed
address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity
or enforceability of any other provision.
15. EXPIRATION. The right to exercise this Warrant shall expire sixty
(60) months after the date hereof.
[Signatures on next page.]
-10-
<PAGE>
Dated as of: February 13, 1997 ZYCAD CORPORATION
By: /s/ Phillips W. Smith
-----------------------------
Title: President and Chief Executive Officer
[CORPORATE SEAL]
Attest:
/s/ Douglas E. Klint
- -------------------------
Its: Corporate Secretary
Joseph A. Umbach
By: Promethean Investment Group
Its: Investment Advisor
-11-
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _________
shares of Common Stock of ZYCAD CORPORATION, a Delaware corporation (the
"Company"), and herewith makes payment of $__________ therefor, and requests
that the certificates for such shares be issued in the name of, and delivered to
_________________, whose address is __________________.
Dated: ___________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
___________________________________
(Address)
Tax Identification Number:_________
_____________________
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase
_____________ shares of Common stock of ZYCAD CORPORATION, a Delaware
corporation, to which the within Warrant relates, and appoints _________________
Attorney to transfer such right on the books of ZYCAD CORPORATION, a Delaware
corporation, with full power of substitution the premises.
Dated: ___________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
___________________________________
(Address)
Signed in the presence of:
____________________________
-12-
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT BE
SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT
AND ALL APPLICABLE STATE SECURITIES LAWS.
Right to Purchase Shares of Common Stock
of Zycad Corporation
February 13, 1997
_________________________
Common Stock Purchase Warrant
ZYCAD CORPORATION, a Delaware corporation (the "Company"), hereby
certifies that for $10.00 and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lewis A. Fraser,
having an address c/o 100 South Biscayne Blvd., #700, Miami, Florida 33133
("Purchaser") or any other Warrant Holder is entitled, on the terms and
conditions set forth below, to purchase from the Company at any time
beginning after the date hereof and ending sixty (60) months after the date
hereof Fifty Thousand (50,000) shares of fully paid and nonassessable shares
of Common Stock, $.10 par value, of the Company (the "Common Stock"), at a
purchase price per share of Two Dollars and Twenty Five Cents (U.S. $2.25)
per share of Common Stock (the "Purchase Price"), as the same may be adjusted
pursuant to Section and 5 herein.
1. DEFINITIONS.
(a) the term "Warrant Holder" shall mean the Purchaser or any assignee
of all or any portion of this Warrant at any given time who, at the
time of assignment, acquired the right to purchase at least 2,000
Warrant Shares, (such number being subject to adjustment after the
date hereof pursuant to Section 5 herein.)
(b) the term "Warrant Shares" shall mean the Shares of Common Stock or
other securities issuable upon exercise of this Warrant.
(c) other terms used herein which are defined in the Convertible
Securities Subscription Agreement (the "Agreement") or the
Registration Rights Agreement (the "Registration Rights Agreement"),
both of even date and delivery between the Company and the Purchaser,
or in the Debentures issued by the Company to the Purchaser pursuant
to the Agreement (the "Debentures"), shall have the same meanings
herein as therein.
<PAGE>
2. EXERCISE OF WARRANT. This Warrant may be exercised by the
Warrant Holder, in whole or in part, at any time and from time to time by
surrender of this Warrant, together with the form of subscription at the end
hereof duly executed by Warrant Holder, to the Company at its principal
office. In the event that the Warrant is not exercised in full, the number
of Warrant Shares shall be reduced by the number of such Warrant Shares for
which this Warrant is exercised, and the Company, at its expense, shall
forthwith issue and deliver to or upon the order of Warrant Holder a new
Warrant of like tenor in the name of Warrant Holder or as Warrant Holder
(upon payment by Warrant Holder of any applicable transfer taxes) may
request, reflecting such adjusted Warrant Shares.
If, despite the Company's obligations provided in Paragraphs 4(a) and
4(d) hereof, the Company shall not have registered pursuant to a Registration
Statement under the Act and/or available for issuance upon exercise of this
Warrant sufficient shares of Common Stock for such issuance as such
registered shares then, notwithstanding anything contained herein to the
contrary and in addition to and not in lieu of any of the other rights and
remedies to which the Warrant Holder may be entitled by reason of the
Company's failure fully to meet its obligations under Paragraphs 4(a) and
4(d) hereof, the Warrant Holder may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in part and, in lieu of making
the cash payment otherwise contemplated to be made to the Company upon such
exercise in payment of the Purchase Price, elect instead to receive upon such
exercise the Net Number of shares of Common Stock determined according to the
following formula:
Net Number = (A X B) - (A X C)
------------------
B
For purposes of the foregoing formula:
A = the total number of shares with respect to which this
Warrant is then being exercised.
B = the fair market value of a share of Common Stock at the
time of such calculation, as determined in accordance
with Paragraph 3(b) hereof.
C = the Purchase Price then in effect at the time of such
exercise.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter, the Company at its expense (including,
without limitation, the payment by it of any applicable issue taxes) will cause
to be issued in the name of and
-2-
<PAGE>
delivered to Warrant Holder, or as Warrant Holder (upon payment by Warrant
Holder of any applicable transfer taxes) may lawfully direct, a certificate
or certificates for the number of fully paid and non-assessable shares of
Common Stock to which Warrant Holder shall be entitled on such exercise,
together with any other stock or other securities or property (including
cash, where applicable) to which Warrant Holder is entitled upon such
exercise.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock,
then in such event Warrant Holder shall be entitled to cash equal to the fair
market value of such fractional share. For purposes of this Warrant, fair
market value shall equal the closing trading price of the Common Stock on the
Nasdaq Stock Market, the American Stock Exchange or the New York Stock
Exchange, whichever is the principal trading exchange or market for the
Common Stock (the "Principal Market") on the date of determination or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted in the Nasdaq Stock Market, the average of the closing bid
and asked prices on the over-the-counter market as furnished by any New York
Stock Exchange member firm reasonably selected from time to time by the
Company for that purpose, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the Nasdaq Stock
Market or traded over-the-counter and the average price cannot be determined
a contemplated above, the fair market value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors.
4. COVENANTS OF THE COMPANY.
(a) The Company shall use its reasonable best efforts to insure that
a Registration Statement under the Act covering the issuance of the Warrant
Shares and the resale or other disposition thereof by Warrant Holder is
effective as provided in its Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation, including,
without limitation the notification of the Nasdaq Stock Market, for the legal
and valid issuance of this Warrant and the Warrant Shares to the Warrant Holder
under this Warrant.
(c) From the date hereof through the last date on which this Warrant
is exercisable, the Company shall take all steps reasonably necessary and within
its control to insure that the Common Stock remains listed on the Principal
Market and shall not amend its Certificate of Incorporation or Bylaws so as to
adversely affect any rights of the Warrant Holder under this Warrant.
(d) The Company shall at all times reserve and keep available, solely
for issuance and delivery as Warrant Shares hereunder, such shares of Common
Stock as shall from time to time be issuable.
-3-
<PAGE>
(e) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when paid for or issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable. The
Company has authorized and reserved for issuance to Warrant Holder the requisite
number of shares of Common Stock to be issued pursuant to this Warrant.
(f) With a view to making available to Warrant Holder the benefits of
Rule 144 promulgated under the Act and any other rule or regulation of the SEC
that may at any time permit Warrant Holder to sell securities of the Company to
the public without registration, the Company agrees to use its reasonable best
efforts to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange
Act; and
(iii) furnish to any Warrant Holder forthwith upon request a
written statement by the Company that it has complied with the
reporting requirements of Rule 144 and of the Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the
Company as may be reasonably requested to permit any such Warrant
Holder to take advantage of any rule or regulation of the SEC
permitting the selling of any such securities without registration.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of and
kind of securities purchasable upon exercise of this Warrant and the Purchase
Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide its outstanding securities as to which purchase rights under
this Warrant exist, by split-up, spin-off, or otherwise, or combine its
outstanding securities as to which purchase rights under this Warrant exist, the
number of Warrant Shares as to which this Warrant is exercisable as of the date
of such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the purchase price payable per share, but the aggregate purchase price
payable for the total number of Warrant Shares purchasable under this Warrant as
of such date shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the Company
declares a dividend or other distribution on Common Stock payable in Common
Stock or other securities or rights convertible into Common Stock ("Common Stock
Equivalents")
-4-
<PAGE>
without payment of any consideration by holders of Common Stock for the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon exercise or conversion
thereof), then the number of shares of Common Stock for which this Warrant
may be exercised shall be increased as of the record date (or the date of
such dividend distribution if no record date is set) for determining which
holders of Common Stock shall be entitled to receive such dividends, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Purchase
Price shall be adjusted so that the aggregate amount payable for the purchase
of all the Warrant Shares issuable hereunder immediately after the record
date (or on the date of such distribution, if applicable), for such dividend
shall equal the aggregate amount so payable immediately before such record
date (or on the date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company shall decrease the per share Purchase Price of this Warrant by an
appropriate amount based upon the value distributed on each share of Common
Stock as determined in good faith by the Company's Board of Directors.
(d) MERGER, ETC.. If at any time after the date hereof there shall
be a merger or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Warrant Holder shall be entitled to receive upon such transfer, merger or
consolidation becoming effective, and upon payment of the aggregate Purchase
Price then in effect, the number of shares or other securities or property of
the Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by Warrant Holder for the shares
of stock subject to this Warrant had this Warrant been exercised just prior to
such transfer, merger or consolidation becoming effective or to the applicable
record date thereof, as the case may be.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reorganization or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Purchase Price then in
effect, the number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.
-5-
<PAGE>
(f) PURCHASE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for
the purchase of its Common Stock or any such convertible securities (other
than shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Exchange Act Reports) at an effective purchase price per share
which is less than the Purchase Price then in effect or the fair market value
(as hereinabove defined) of the Common Stock on the trading day next
preceding such issue or sale, then in each such case, the Purchase Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying
the Purchase Price then in effect by a fraction, (x) the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, including, without duplication,
those deemed to have been issued under any provision of the Debentures and
the Warrants plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such fair market value or Purchase Price, as the case may
be, then in effect; and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after such
issue or sale including, without duplication, those deemed to have been
issued under any provision of the Debentures and Warrants. For purposes of
the foregoing fraction, Common Stock outstanding shall include, without
limitation, any Equity Offerings (as defined in the Debentures) then
outstanding, whether or not they are exercisable or convertible when such
fraction is to be determined.
In the event of any such issuance for a consideration which is less than
such fair market value and also less than the Purchase Price then in effect,
then there shall be only one such adjustment by reason of such issuance, such
adjustment to be that which results in the greatest reduction of the Purchase
Price computed as aforesaid. The number of shares which may be purchased
hereunder shall be increased proportionately to any reduction in Purchase
Price pursuant to this paragraph 5(f), so that after such adjustments the
aggregate Purchase Price payable hereunder for the increased number of shares
shall be the same as the aggregate Purchase Price in effect just prior to
such adjustments.
6. NO IMPAIRMENT. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Warrant Holder
against impairment. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action as
may be reasonably
-6-
<PAGE>
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares on the exercise of this
Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Purchase Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section
5 hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of
such certificate to be mailed (by first class mail, postage prepaid) to the
Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation)
the right to vote such shares, receive dividends or other distributions
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each Warrant Holder, at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the Warrant and, in the case of any such loss, theft or destruction of the
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
10. SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Warrant Holder acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Warrant and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) Each of the Company and the Warrant Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court for
-7-
<PAGE>
the Southern District of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Warrant and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such court, that the
suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and
the Warrant Holder consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Warrant and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing in this paragraph shall affect or limit any right to serve process in
any other manner permitted by law.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto and
the provisions contained in the Agreement, the Registration Rights Agreement or
the Debentures and incorporated into this Warrant and the Warrant Shares contain
the entire understanding of the parties with respect to the matters covered
hereby and thereby and, except as specifically set forth herein and therein,
neither the Company nor the Warrant Holder makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by a written instrument signed by
the party against whom enforcement of any such amendment or waiver is sought.
12. RESTRICTED SECURITIES. Sections 4.5, 5.1, 5.2 and 5.3 of the
Agreement are incorporated herein by reference and hereby made a part hereof.
13. NOTICES. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy or
facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
to the Company:
Zycad Corporation
47100 Bayside Parkway
Fremont, California 94538
Attn:
Fax: (510) 623-4575
-8-
<PAGE>
with copies to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn:
Fax:
to the Warrant Holder:
Capital Ventures International
1 Capital Place
P.O. Box 1787GT
Grand Cayman, Cayman Islands
Attn:
Fax:
with copies to:
Attn:
Fax:
Copies of all notices to the Company or to the Warrant Holder shall also be
provided to:
Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520
` New York, NY 10019
Attn: James F. O'Brien, Jr.
Fax: (212) 698-0505
GOULSTON & STORRS
400 Atlantic Avenue
Boston, MA 02110-3333
Attn: Richard Langerman, Esq.
Fax: (617) 574-4112
-9-
<PAGE>
Either party hereto may from time to time change its address for notices under
this Section 13 by giving at least 10 days prior written notice of such changed
address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by
the party against which enforcement of such change, waiver, discharge or
termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity
or enforceability of any other provision.
15. EXPIRATION. The right to exercise this Warrant shall expire sixty
(60) months after the date hereof.
[Signatures on next page.]
-10-
<PAGE>
Dated as of: February 13, 1997 ZYCAD CORPORATION
By: /s/ Phillips W. Smith
-----------------------------------------
Title: President and Chief Executive Officer
[CORPORATE SEAL]
Attest:
/s/ Douglas E. Klint
- ---------------------
Its: Corporate Secretary
Lewis A. Fraser
By: Promethean Investment Group
Its: Investment Advisor
-11-
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _________
shares of Common Stock of ZYCAD CORPORATION, a Delaware corporation (the
"Company"), and herewith makes payment of $__________ therefor, and requests
that the certificates for such shares be issued in the name of, and delivered to
_________________, whose address is __________________.
Dated: ___________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
___________________________________
(Address)
Tax Identification Number:_________
_____________________
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase
_____________ shares of Common stock of ZYCAD CORPORATION, a Delaware
corporation, to which the within Warrant relates, and appoints _________________
Attorney to transfer such right on the books of ZYCAD CORPORATION, a Delaware
corporation, with full power of substitution the premises.
Dated: ___________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
___________________________________
(Address)
Signed in the presence of:
____________________________
-12-
<PAGE>
AGREEMENT
THIS AGREEMENT is made this 17th day of March 1997 between Zycad
Corporation ("Zycad") and Halifax Fund, L.P., Capital Ventures Intn'l, Heracles
Fund, Lewis A. Fraser and Joseph A. Umbach (collectively "Investors").
WHEREAS, Investors participated in a $5 million Debenture financing with
Zycad in February 13, 1997, of which $3.5 million was funded on or about
February 14, 1997 and $1.5 million will be funded when the S-3 for the
underlying common stock is effective and registered with the SEC (the
"Debentures"), and
WHEREAS, the Investors and Zycad are desirous of converting the Debentures
to Preferred Stock with essentially the same terms and conditions.
NOW, THEREFORE, it is mutually agreed as follows:
1. Zycad and the Investors agree to convert the Debentures into $5
million Series A Preferred Stock of Zycad, convertible into Zycad
Common Stock upon the same terms and conditions as the Debentures.
The Preferred Stock would have the same economic and financial terms
as the Debentures and the other terms and conditions shall be
essentially the same as the Debentures, and shall otherwise be
acceptable to each subscriber and its representatives, in their sole
discretion.
2. Zycad agrees not to issue any convertible instrument which would be
senior to the Preferred Stock being issued under this Agreement.
3. In the event the Common Stock of the Company trades at a closing price
below $1.25 for more than five (5) consecutive trading days, Zycad
agrees to seek shareholder approval for additional shares of common
stock to be reserved for conversion of the Preferred Stock.
4. Zycad agrees to have its counsel, Wilson, Sonsini, Goodrich and
Rosati, draft the documents necessary to complete the conversion of
the Debentures into Series A Preferred Stock and shall pay for the
attorneys fees of the attorney(s) representing the Investors for the
document. Investors will use their best efforts minimize attorney's
fees.
1
<PAGE>
IN WITNESS WHEREOF, the parties have signed below as of the date first
above written.
- -------------------------------- ------------------------------------
Halifax Fund, L.P. Capital Ventures International
By: The Palladin Group, L.P.
Its: Investment Advisor
By: /s/ Andrew Kaplan By: /s/ Andrew Frost
------------------------------ ---------------------------------
Name: Andrew Kaplan Name: Andrew Frost
---------------------------- -------------------------------
Title: Vice President Title: Director
---------------------------- ------------------------------
Date: 5/15/97 Date: /5/15/97
---------------------------- -------------------------------
- -------------------------------- ------------------------------------
Heracles Fund Joseph A. Umbach
By: Promethean Investment Grp. L.L.C. By: Promethean Investment Grp, L.L.C.
Its: Investment Advisor Its: Investment Advisor
By: /s/ James F. O'Brien By: /s/ James F. O'Brien
------------------------------ ---------------------------------
Name: James F. O'Brien Name: James F. O'Brien
---------------------------- -------------------------------
Title: President Title: President
---------------------------- ------------------------------
Date: 5/15/97 Date: 5/15/97
---------------------------- -------------------------------
- -------------------------------- ------------------------------------
Lewis A. Fraser Zycad Corporation
By: Promethean Investment Group,
L.L.C.
Its: Investment Advisor
By: /s/ James F. O'Brien By: /s/ Phillips W. Smith
------------------------------ ---------------------------------
Name: James F. O'Brien Name: Phillips W. Smith
---------------------------- -------------------------------
Title: President Title: President and Chief Executive
Officer
---------------------------- ------------------------------
Date: 5/15/97 Date: 5/15/97
---------------------------- -------------------------------
2
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,828
<SECURITIES> 100
<RECEIVABLES> 5,857
<ALLOWANCES> 0
<INVENTORY> 2,524
<CURRENT-ASSETS> 11,496
<PP&E> 4,864
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,460
<CURRENT-LIABILITIES> 14,089
<BONDS> 0
0
0
<COMMON> 2,550
<OTHER-SE> 59,401
<TOTAL-LIABILITY-AND-EQUITY> 22,460
<SALES> 1,160
<TOTAL-REVENUES> 4,084
<CGS> 1,383
<TOTAL-COSTS> 3,201
<OTHER-EXPENSES> 6,426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444
<INCOME-PRETAX> (5,610)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,610)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (5,610)
<EPS-PRIMARY> (0.22)
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