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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK,
$0.10 PAR VALUE
PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
registrant at March 26, 1997, based upon the closing price of the Common
Stock reported by the Nasdaq National Market, was approximately $35,545,292.
Shares of Common Stock held by each officer and director and by each person
who owns more than 5% of the outstanding Common Stock, based on Schedule 13G
filings, have been excluded from the computation in that such persons may be
deemed affiliates. This determination of affiliate status is not a
conclusive determination for other purposes.
At March 26, 1997, there were 25,470,923 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1996 are incorporated by reference into Parts II and IV of
this Form 10-K Report.
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PART I
ITEM 1. BUSINESS
Zycad Corporation-Registered Trademark- (the Company)(1) founded in 1981,
develops, manufactures and markets a broad range of high performance tools,
design services and electronic components that help designers speed the
process of moving their electronic products from concept to manufacturing.
Zycad calls this process, "Design Realization." It encompasses performing
the steps necessary to complete design verification and get to market in the
quickest way possible.
Zycad's Design Realization offerings include hardware and software simulation
verification tools, rapid prototyping vehicles, high-density programmable
Application-Specific Integrated Circuits (ASICs) and related desktop design
and programming tools. This suite of products enable electronic designers to
quickly and accurately verify their designs prior to production and support
initial and low volume ASIC production. Verification has the goal of
minimizing downstream problems and risks (i.e., avoiding the expensive and
time-consuming process of redesign should a final design not work or not meet
the customer requirements). This process of Design Realization via
comprehensive and fast verification throughout the design cycle ensures a
high quality, production-ready product that meets the customers'
time-to-market goals.
Zycad's two-fold business emphasis is on providing both the highest
performance verification product offerings (including both simulation and
rapid prototyping) in the Electronic Design Automation (EDA) market, and the
highest density programmable ASICs to the ASIC designer for both design
verification and design realization through use as a reprogrammable
component. All development activities are focused on optimizing their future
development and the integration of these technologies to solve customer's
high-end, complex verification problems, the most dramatic being that of
"system on a chip" or "system on silicon" design verification.
Customers benefit from Zycad's capabilities by:
- GETTING TO MARKET FASTEST at the most optimum cost.
- IMPROVING PRODUCT QUALITY through more comprehensive verification.
- REDUCING RISK AND MANAGING COMPLEXITY through the effective
application of advanced design verification tools, methodologies,
components and services for designs with more than 50,000 gates
all the way up to 16 million gates.
With Zycad's wide range of verification products, customers can quickly logic
simulate, fault simulate, and rapidly prototype their designs. Logic
simulation is used to verify accuracy, completeness, and quality of designs
before building hardware. Fault simulation is used to verify the quality and
completeness of tests developed for the design once it is manufactured.
Rapid prototyping is the ability to replicate the operation of a portion of a
design by using programmable ASICs or FPGAs. It takes a more flexible
approach than emulation systems to replicating the behavior of a system by
allowing other system components, like processors, memory, and software, to
be included in the prototyping environment.
Once verification is complete, the customer can actually implement their
design in Zycad's own programmable ASIC technology. No other EDA vendor can
actually produce your ASIC for immediate implementation in the end use
product.
Zycad's corporate office, and its product divisions are located in Fremont,
California. Sales and support offices are located throughout the United
States, Europe, Japan and Asia.
- -------------
(1) As used herein, the term "Company" includes Zycad Corporation and its
wholly-owned subsidiaries listed in Exhibit 21.1 hereto, unless the
context requires otherwise.
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STRATEGY
ZYCAD'S STRATEGY IS TO SPEED TIME-TO-DESIGN REALIZATION BY
DELIVERING THE HIGHEST PERFORMANCE DESIGN VERIFICATION
CAPABILITIES, TEST TOOLS AND PROGRAMMABLE ASICS IN THE WORLD.
In the development of today's electronic systems there are three fundamental,
overriding dynamics that drive design and design challenges in the EDA market:
- Time-To-Market (Time-to-Volume)
- Silicon Resources (The number of transistors that are available on a die)
- Design Efficiency (How many transistors the average engineer can design
per hour)
The interplay of these three factors influence the size and success or
failure of any development project and forces design engineers to seek
improved methods of development.
Current tools have solved many of the problems of getting the individual
components of the system to work right the first time, but fall short in
solving the problem for the entire system, which for many future designs will
all be incorporated on a single chip.
"System on a chip" developers face the following challenges:
- Creation of Intellectual Property (IP)
- Use and design reuse of IP (real design reuse of functional blocks from
multiple sources)
- Design verification and testability
- Transition from a mainly hardware centric design focus to a hardware
and software centric emphasis
Zycad will continue providing solutions which address the problem of
verification complexity driven by time-to-market pressures and the push to
"system on a chip". The Company will enable developers to quickly verify,
prototype and even implement the Integrated Circuits (ICs) for their complex
electronic systems. As with all development strategies, the ultimate
objective is to produce the best product, at the lowest cost, as early as
possible.
MARKET
System architects, system engineers, hardware and software design engineers,
and test engineers in all electronic industries confront a similar set of
problems in evolving new products from concept to physical reality. The most
challenging of these design issues revolve around:
- SHRINKING GEOMETRIES leading to deep sub-micron design and the associated
design and verification issues.
- Almost UNLIMITED CAPACITY in terms of the number of transistors that can
be put on a chip. We are approaching the era of 100 million transistors
on a single die.
- Trend towards "SYSTEM ON A CHIP" or "SYSTEM ON SILICON" which is driving
the requirement for commercially available IP and the design verification
issues associated with IP coming from multiple sources.
- SHRINKING PRODUCT LIFE CYCLES to the point where many high volume,
consumer oriented products have life cycles that are less than one year.
Sub-one year product life cycles have tremendous ramifications on product
development and manufacturing cycles.
These design challenges continue to make the product development cycle
difficult to predict, control and manage at a time when "time" is of the
essence. Being late to market, whether caused by the complexity associated
with design verification, having to do a major or minor redesign, or coping
with widespread field failures can be catastrophic to the product and the
companies designing them. All companies who develop electronic products must
overcome these design challenges and learn to live with the fundamental
competitive fact of life that more needs to be done in less time.
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Zycad's customers include:
- SEMICONDUCTOR MANUFACTURERS with architecture compatibility, fast
time-to-volume and high quality requirements.
- TELECOMMUNICATIONS MANUFACTURERS with high volume, high quality
and product life cycles of one year or less.
- MULTIMEDIA COMPANIES that need to make real-time subjective
measurements of their designs in order to fine-tune their products
before manufacturing and releasing to highly competitive markets.
- COMPUTER VENDORS with rapidly shortening product life cycles, requiring
a predictable development process and efficient system integration.
- MILITARY/AEROSPACE COMPANIES with the need to integrate increasingly
complex avionics in reduced budget and scheduling environments.
PROGRAMMABLE ASIC
The characteristics of today's over $20 billion ASIC market include
non-recurring engineering costs in the several hundred thousands of dollars
to incorporate complex designs into ASICs, lead times of up to 16 weeks (or
sometimes longer) from completion of design verification to receiving the
ASIC and over 50% of design starts resulting in unit volume of less than
1,000 units. When product life cycles are short, waiting 16 weeks has a
dramatic impact on time-to-market and thus profitability, and if the ASIC
doesn't meet the component or system requirements, causes even more costly
delays and ultimately dire profit consequences.
An alternative to this traditional ASIC approach is to use programmable
ASICs. When design corrections are needed, designers simply reprogram the
part and proceed with the verification process until complete. Then, instead
of waiting 16 or more weeks for a traditional ASIC turnaround, the
programmable ASIC can be incorporated in the final system and customer
shipments could start immediately upon completion of design verification and
system integration.
When increasing volume justifies it, the design can then be mapped to a
traditional ASIC for unit cost savings. But, this can be done while the
product is already shipping to customers, garnering market share and
generating revenues and profit.
With the wide acceptance of top-down design methodologies, the average size
of ASIC designs is over 50K gates and continues to grow. CMOS gate arrays
and cell based ASICs are highly integrated, flexible, and well supported by
EDA tools. But they also have high initial costs, slow turnaround time and
require zero design defects. Current Field Programmable Gate Array (FPGA)
and complex PLD products avoid these drawbacks, but do not provide the high
gate density, the flexibility, or the support for top-down design
methodologies needed for ASIC design.
Zycad's family of ProASIC-TM- (Programmable ASIC) products, together with its
ASIC methodology and implementation tools, provide a desktop programming
system that allows ASIC designers to easily work within their current design
environment to re-use functional blocks and IP from existing ASIC designs, to
verify the implementations of their new design, and get their product to
market faster.
ZYCAD'S PRODUCTS
Zycad offerings help designers speed the process of moving their electronic
products from design to manufacturing. This process is called Design
Realization and the emphasis is on the verification phase of moving the
design from concept into production. Products include LightSpeed Simulation
Servers-Registered Trademark-, Paradigm XP-Registered Trademark-simulation
accelerators, TDX-Registered Trademark- software fault and test tools,
ProASIC products and ProASIC rapid prototyping vehicles and services.
Zycad's goal is to help design engineers achieve Design Realization in the
most efficient and effective manner possible.
The product development process encompasses a host of detailed tasks at each
stage of development. However, from a high level perspective an idea is
turned into an architecture and then the detailed design and iterative
verification takes place. The design is then defined at the physical
implementation level in order to prepare for manufacturing. During this
process, test analysis can also take place in order to grade the tests that
will be used by manufacturing to
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verify the finished product. Prior to sending the ASICs off to be
manufactured, it is wise to verify them along with the software and other
system components in order to ensure system and architecture compatibility.
Zycad and its products are unique in many ways, which helps the company
maintain a strong technical lead in the industry. A few of the key unique
features are listed below.
PERFORMANCE
A criteria for all development at Zycad is that the products provide at least
an order of magnitude performance improvement over other methods available in
the marketplace. This performance is critical to both simulation and rapid
prototyping applications required for system verification.
ARCHITECTURE
The Company's hardware products' advantage over software-based simulators on
traditional workstations is achieved by Zycad's unique and proprietary
architecture. Zycad's development emphasis is on application-specific, high
performance simulation and rapid prototyping systems; not general purpose
machines as workstation manufacturers are designing. With this main focus,
Zycad employs specialized techniques, technology and architectures that
produce systems providing an order, to orders of magnitude greater
performance over workstations.
DESIGN HARDWARE
Zycad is an EDA company that actually uses its own tools and methodologies to
design its hardware. We are our own end user and, therefore, have the
opportunity to debug our tools and services in a real world environment
before taking them to our customers. Specifically, Zycad incorporates
these features into its main product lines:
LIGHTSPEED SIMULATION SERVER
LightSpeed is the Company's latest logic simulation accelerator and the
industry leading logic simulation engine. Performing up to 10 times
faster than its nearest competitor, LightSpeed is the industry's first
massively parallel simulation platform. LightSpeed systems
transparently integrate to the industry standard Verilog and VHDL
language and simulation environments. The system delivers supercomputer
(almost emulation-like) performance for the verification of
microprocessors, ASICs and system designs containing up to as much as 16
million gates. Prices range from $260,000 to well over $1 million.
PARADIGM XP SIMULATION ACCELERATOR
The Paradigm XP family is the world's leading line of structural
fault simulation accelerators and the price/performance leading
structural logic simulation accelerator. Systems range in price from
$50,000 for an entry-level model with 256,000 gate capacity to over $1
million for expansion to multimillion gate capacity. The Paradigm XP
provides powerful features that address ASIC, integrated circuit, and
system logic and fault verification problems including modular
compilation and hardware assisted toggle test.
Transparent interfaces are provided to popular structural
simulation environments including QuickSim II-TM- (Mentor Graphics-TM-),
Verilog-Registered Trademark- (Cadence), VantageSpreadSheet-TM-
(Viewlogic-TM-), MDE-Registered Trademark-/C-MDET (LSI Logic-TM-),
VLSI-TM- Link (Compass), VHDL System Simulator-TM- (Synopsys-Registered
Trademark-), ViewSim-Registered Trademark-(Viewlogic-Registered
Trademark-). This allows the Paradigm XP product line to transparently
integrate into these environments, making it easy for the design
engineer to access the XP accelerators in their design environment.
Libraries are always a main concern with our customers. In order
to ease the creation of accurate libraries for the Company's LightSpeed
and Paradigm XP systems, Zycad has developed automated tools that will
accept multiple sources for library translation.
TDX FAULT AND TEST TOOLS
In addition to the Company's hardware-assisted fault simulation
products, Zycad provides a powerful suite of software testability
analysis and test generation tools. These software tools include a high
performance fault simulator, IDDq, automated test pattern generation
(ATPG), and a fault manager system. Zycad's fault and test tools help
customers to significantly reduce the time required for test grading and
to improve the efficiency of test programs which ultimately leads to
higher quality products.
RAPID PROTOTYPING SYSTEM
The Company is currently developing a fully integrated rapid
prototyping vehicle based on its GateField GF200F and GF250F ProASIC
families combined with innovative packaging technology of a third party.
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This will enable a component form factor size solution offering
400,000 gates, dedicated memory blocks, and real time system performance.
GATEFIELD PROGRAMMABLE ASICS
The GateField GF100K, GF200F, and GF250F families of reprogrammable
ASICs use a unique architecture and switch technology to provide a
device that is comparable to a gate array in capacity and usable
density, while offering all the advantages of non-volatility and field
re-programmability. The revolutionary Sea-of-Tiles-Registered Trademark-
architecture coupled with GateField's ASICmaster-TM- software, provides
the ASIC designer with unparalleled gate capacity and automation. These
high density programmable ASICs currently range from 9,000 to 150,000
usable gates.
GateField ASICmaster software accepts net lists from standard mask
programmable ASIC tools, provided by companies such as Mentor Graphics,
Viewlogic, Cadence and Synopsys. ASICmaster performs place and route of
the design into the selected device and provides back annotated delay
information for simulation. Once the design is verified, ASICmaster
downloads the layout into the GateField ASICmakerhigh device programmer
for chip programming. Design services are provided as needed to help the
customer accelerate verification, complete ASIC conversions, complete
prototyping systems and enhance time-to-market.
PRODUCT DEVELOPMENT
Zycad is regularly engaged in ongoing research and development to further
enhance and improve its family of high-performance design verification and
Programmable ASIC software and hardware products. The Company introduced its
latest generation simulation accelerator, LightSpeed, in June 1996 and will
continue to add enhancements and interfaces to this product line in 1997.
The Company will also introduce several new programmable ASIC products
ranging in densities from 25K up to 150K, as well as rapid prototyping and
embedded memory solutions. In fiscal year 1996, the Company expensed
$15,783,000 on research and development, compared to $11,263,000 in 1995 and
$11,172,000 in 1994.
MARKETING & SALES
Zycad markets its products directly and through distributors, through a
worldwide product and service sales organization. The Company has direct
sales offices in North America, Europe, Japan, Korea, and Taiwan. To
complement its direct organization, the Company also has international
distributors in the Far East, Israel and Europe.
The Company highlights the economic benefits that can be gained from use of
its high performance verification products and services. In addition,
demonstration of the products' capacity and speed to individual potential
customers through the use of benchmark comparisons against software
alternatives is an important element of the selling cycle. The Company's
applications engineers, consulting engineers, and sales force are involved in
the sales process to provide pre-sale technical assistance, technical
credibility, and continuity with post-sale installation and servicing.
The Company's general policy is to sell and not to lease its products;
however, leasing arrangements are available for customers who prefer that
option.
The rate at which orders are received by the Company may vary from month to
month and quarter to quarter. In addition, customers' lead times for placing
purchase orders have varied substantially. For these reasons, the Company's
backlog at any particular date may not be indicative of its actual sales for
any succeeding period.
The Company offers a maintenance agreement to its customers under which its
applications engineers provide diagnostic, repair or replacement and
maintenance service. In addition, the Company offers software support and
updates as part of this agreement.
Zycad markets its GateField Programmable ASIC products both through its
GateField worldwide sales organization, as well as through manufacturing
representatives. In addition, the manufacturer of the GateField devices,
Rohm Co. LTD. (Rohm) located in Kyoto, Japan, also markets and sells the
ProASIC products in Japan on a non-exclusive basis. Rohm has a strong
marketing and sales presence in Japan through its seven design centers and
its direct sales
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force of 300 people. This partnership provides Zycad the opportunity to
quickly penetrate the Japanese market, which according to the market research
from Dataquest, constitutes 36% of the world's gate array market. The
ASICmaster software and the ASICmaker hardware are sold in Japan through
Zycad's direct sales organization.
For export sales information for the three years ended December 31, 1996, see
Note 9 to the Company's Consolidated Financial Statements in the Company's
Annual Report to Stockholders for the year ended December 31, 1996, which
Note has been incorporated herein by reference in Item 8.
COMPETITION
The EDA market is a dynamic market characterized by advancing technologies in
both hardware and software. The advancing technologies frequently result in
new product introductions, increased product capabilities and relative
product improvements in price/performance ratios. The Company recognizes that
rapid technological changes could impair its competitive position.
Indirect competition for the Company's system verification products consists
primarily of software simulators that run on general purpose workstations.
Software simulators currently hold a large share of the logic simulation
market. However, the Company's strategy is to leverage this large installed
base of software simulators by selling accelerators as a complementary high
performance point tool into the large installed base of EDA vendors whose
customers require increased simulation performance. Other indirect
competition comes from emulation solutions. However, emulation solutions are
competition only from the perspective of total available budget dollars for
EDA tools.
Direct competition to LightSpeed Simulation Servers comes from one other
company with a logic hardware-assisted simulator, IKOS Systems, Inc. Zycad
believes that the combined features, speed, and capacity of its current and
future products offer competitive performance and functionality advantages
over IKOS.
Management believes that its superior products, services, and customer
support will enable the Company to compete effectively in the EDA market
based on the breadth, quality, features, performance and price of its product
offerings and the neutrality, flexibility, and technological prowess of its
services offerings.
The Programmable ASIC market is a fast growing and dynamic market with
several large established vendors for similar products (FPGAs/CPLDs)
including Xilinx-TM-, Altera, Actel, Lattice and Lucent. These companies offer
broad product lines but have not yet been very successful in providing
high-density FPGA solutions to ASIC designers. Their penetration into this
market has been limited mainly by the mismatch between the top-down design
methodologies used by ASIC designers and the design tools required to use
their FPGAs/CPLDs effectively.
The revolutionary flash switch technology utilized by the ProASIC family of
products provides a 7X size advantage over switches used by SRAM-based
devices offered by the market leaders in higher gate count devices. This
switch technology is used in a Sea-of-Tiles architecture to create devices
that have a 2X-4X density advantage over the competitive offerings. Unlike
competing devices, the Sea-of-Tiles architecture has been designed
specifically to work seamlessly in the top-down design flow used by today's
ASIC designers. The GateField devices offer the ASIC designer not only high
density but also allow the designer to remain within his established design
environment.
PATENTS AND TRADEMARKS
Due to the rapid pace of technological advancement, the Company believes
that, while the protection of proprietary information is important, it must
continue to develop and market new products to remain competitive. The
Company protects its proprietary product information through issuance of
patents, use of employee nondisclosure agreements and by limiting access to
sensitive information. On July 2, 1985, United States Patent No. 4,527,249
was issued to the Company for "Concurrent Fault Simulation for Logic
Designs", and on April 5, 1988, United States Patent No. 4,736,338 was issued
to the Company for a "Programmable Look Up System". These patents are
effective for a period of 17 years from the issue date and the Company
believes that these patents are an important factor in the protection of its
proprietary information. On May 17, 1989, the Company signed a Patent Cross
License Agreement with IKOS Systems, Inc., under which both companies granted
to each other a perpetual non-exclusive license for logic or fault simulation
products utilizing inventions covered by its respective patents issued
through May 1, 1994.
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On October 10, 1995, United States Patent No. 5,457,653 was issued to the
Company for a "Technique to Prevent Reprogramming a Floating Gate Transistor
used to Directly Switch a Large Electrical Signal". In addition, on February
14, 1996, United States Patent No. 8,508,914 was issued to the Company for a
"Nonvolatile Reprogrammable Interconnect Cell with FN Tunneling and
Reprogramming Method Thereof"; on January 14, 1997, United States Patent No.
5,594,636 was issued to the Company for a "Logic Cell and Routing
Architecture in a Field Programmable Gate Array"; and on January 14, 1997,
United States Patent No. 5,594,698 was issued to the Company for "Random
Access Memory (RAM) Based Configurable Arrays". These are the first patents
issued for the GateField ProASIC technology and seven more patent
applications are pending at this time.
The Company has obtained federal trademark registration for its trademark
"Zycad Corporation" from the United States Patent and Trademark Office.
EMPLOYEES
At December 31, 1996, the Company had 182 employees. The employees are not
represented by a labor organization and the Company considers its relations
with its employees to be good.
MANUFACTURING
The Company's accelerator products utilize a technology which has significant
impact upon its manufacturing activities. The efficient use of full custom
ICs dramatically reduces both assembly and test time. In addition, custom
ICs tend to operate more reliably than a functionally equivalent printed
circuit board due to a number of factors including the reduction of solder
points and external contacts.
Product configurations include standard computer components such as a
controller, central processing unit (CPU) and main memory which are selected
from various independent suppliers on the basis of cost, reliability and
performance properties. These standard components are connected utilizing
proprietary bus structures and controlled using operating systems with
proprietary extensions as they interact with the Company's custom IC-based,
application-specific subsystems.
The Company contracts out certain manufacturing steps, including printed
circuit fabrication and assembly, circuit board wiring, cabinet fabrication
and assembly, sheet metal fabrication and painting, and performs final
assembly, configuration, testing and quality control procedures itself.
Circuit boards are wired by automated equipment on computerized instructions
generated on the Company's own Computer Aided Engineering (CAE) system, which
is used extensively in order, design and test phases. Manufacturing
efficiency is enhanced by testing each circuit board on the Company's test
equipment. After final assembly and configuration, each simulation system
undergoes additional "burn in" testing.
The Company's ProASIC products are manufactured by Rohm, located in Kyoto,
Japan under a manufacturing and development partnership agreement. GateField
and Rohm have built a strong working alliance that dates back to October
1993. Rohm is widely recognized for its expertise in Large Scale Integration
(LSI) manufacturing and as one of the pioneers in flash technology. As part
of the agreement, the company has secured guaranteed wafer capacity
sufficient to meet the expected product needs for the foreseeable future.
Packaging for the GateField parts is done by well established assembly houses
located in the Philippines and in Hong Kong. The company performs wafer sort
and final test at its facilities in Fremont, California, but as volume
dictates, these activities may be moved offshore. Currently, Zycad has
sufficient capacity to meet its present manufacturing requirements through
1997 and the foreseeable future.
ITEM 2. PROPERTIES
The Company occupies approximately 61,000 square feet of office space in
Fremont, California for its headquarters, manufacturing and engineering
operations. The total lease payments remaining amount to approximately $1.6
million. The lease expires August 1999. The Company's Service Division in
New Jersey, occupies approximately 37,000 square feet of office space. Total
lease payments remaining through February 1998 amount to approximately $1.0
million. For additional information, see Note 6 to the Company's
Consolidated Financial Statements in the Company's Annual Report to
Stockholders for the year ended December 31, 1996, which note has been
incorporated herein by reference in Item 8.
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The Company leases sales and support office space in seven domestic
locations, three European locations, one Taiwanese, one Korean and one
Japanese location on a short-term or intermediate-term basis.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 5, 1996, a special meeting of stockholders was held to vote on a
proposal to increase the number of shares of authorized Common Stock from
30,000,000 to 40,000,000 shares and to authorize the issuance of 2,000,000
shares of Series Preferred Stock with a par value of $0.10 per share. The
number of votes cast were as follows:
18,146,247 votes cast for
845,962 votes against
97,795 votes abstaining
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the heading "Stock Listing" on page 22 of the Company's
1996 Annual Report to Stockholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information under the heading "Selected Financial Data" on page 1 of the
Company's 1996 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 4 through 7 of the
Company's 1996 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report, the consolidated financial statements and
the notes to consolidated financial statements on pages 8 through 20 of the
Company's 1996 Annual Report to Stockholders are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Set forth below is information regarding the Directors and Executive Officers
of the Company, including information furnished by them as to their principal
occupation for the last five years, certain other directorships held by them,
and their ages at March 26, 1997:
Director
Name Since Age Principal Occupation
- ---- ----- --- --------------------
Phillips W. Smith 1990 59 President and Chief
Executive Officer of the
Company
James R. Fiebiger 1994 55 Industry Consultant; Chairman
and Managing Director,
Thunderbird Technology, Inc.
Benjamin Huberman 1990 59 President of Huberman Consulting
Group
Horst G. Sandfort 1995 54 President of GateField
Stephen A. Flory 42 Vice President and Chief Financial
Officer
Douglas E. Klint 46 Vice President, General Counsel and
Corporate Secretary
John R. Walsh 53 Vice President and General Manager,
Verification Division
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There is no
family relationship between any of the directors and executive officers of
the Company and there are no arrangements or understandings pursuant to which
any of them were elected as officers.
Dr. Smith was named President, Chief Executive Officer and director of the
Company in June 1990. He had been an independent industry consultant from
October 1989 to June 1990 after leaving his post as Chairman and Chief
Executive Officer of Edgecore Technology, Inc., a computer manufacturer,
after it was acquired by Arix Corporation in September 1989. Previously, Dr.
Smith had been President and Chief Executive Officer and a director of CAE
Systems, Inc.
Dr. Fiebiger was appointed a director of the Company in February 1994. Dr.,
Fiebiger has been a Consultant for the semiconductor industry since serving
as President and Chief Operating Officer of VLSI Technology, Inc., a
manufacturer of semiconductors, from February 1988 to August 1993. Previous
positions include President and CEO of Thomson-Mostek and Senior Vice
President and Assistant General Manager of Motorola's Worldwide Semiconductor
Sector. Dr. Fiebiger is also a member of the board of directors of Mentor
Graphics Corporation, Cooper & Chyan Technology, Inc., and Chairman and
Managing Director, Thunderbird Technology, Inc.
Mr. Huberman was appointed a director of the Company in September 1990. He
has served as President of the Huberman Consulting Group, a technology
consulting firm, since 1990. Prior to that, he served as Vice president of
Consultants International from 1981 to 1988 and as President from 1988 to
1990. Mr. Huberman is currently a member of the Chief of Naval Operations'
Executive Panel. From 1988 to mid-1990, he also served as the first chairman
of the Technical Advisory Panel to the U.S. Space Command. Mr. Huberman is
also a member of the board of directors of Silicon Valley Research, Inc.
9
<PAGE>
Mr. Sandfort was appointed a director of the Company in September 1995. He
held the position of Executive Vice President for Geographic Markets at LSI
Logic, where he had worldwide responsibilities for Sales, Marketing, and
Engineering in Asia, Canada, Europe, and the U.S.A. During his ten years at
LSI, he was also employed in a variety of other senior management positions
including General Manager, Germany; Vice President Marketing, Sales and
Engineering LSI Europe; and President, LSI Europe.
Mr. Flory has been with Zycad for nine years and has been its corporate
controller since 1995 and was promoted to Chief Financial Officer (CFO) in
February 1997. Before joining Zycad, Mr. Flory held various financial
positions for Motorola Corporation's European operations. Mr. Flory holds a
degree in accounting from the Institute of Chartered Management Accountants
in London, England.
Mr. Klint joined the Company in December 1984 as Director of Contracts, and
was named Corporate Secretary in June 1986, and was promoted to Vice
President and General Counsel in November 1987. Mr. Klint holds a J.D.
degree from William Mitchel College of Law and a B.A. degree from Gustavus
Adolphus College.
Mr. Walsh has been with Zycad since February 1991 when he joined the Company
as the Director of Customer Service. He was named the Vice President and
General Manager, International Operations, in 1996, and was promoted to the
Vice President and General Manager of the Verification Division in November
1996. Prior to joining Zycad, he was the Vice President of Operations for
Plexus Software. Previously, Mr. Walsh was the President and CEO of Plexus
Computer before it was acquired by Recognition Equipment, Inc.
BOARD COMMITTEES AND MEETINGS
The Board of Directors has a standing Audit Committee, Nominating Committee
and Compensation Committee.
The Audit Committee of the Board, which currently consists of directors
Benjamin Huberman and James Fiebiger, recommends engagement of the Company's
independent auditors, approves services performed by such auditors and
reviews and evaluates the Company's accounting system and its system of
internal controls. The Audit Committee met once during the year ended
December 31, 1996.
The Compensation Committee, which currently consists of directors James
Fiebiger and Benjamin Huberman, administers the Company's stock plans and
approves salaries, stock options and other compensation arrangements for
executive officers of the Company. The Compensation Committee met four times
during the year ended December 31, 1996.
The Nominating Committee, which currently consists of Directors James
Fiebiger and Benjamin Huberman, establishes criteria and qualifications for
prospective Board Members and recommends the nomination of Board Members
should a vacancy arise. The Nominating Committee met once during the year
ended December 31, 1996.
During the 1996 fiscal year, the Board of Directors held a total of five (5)
meetings. Each incumbent Board member attended at least 80% of the aggregate
of all meetings of the Board of Directors, plus all meetings of all
committees of the Board on which he served during the year ended December 31,
1996.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC.
Such officers, directors and ten-percent stockholders are also required by
SEC rules to furnish the Company with copies of all Section 16(a) forms that
they file.
10
<PAGE>
Based solely on its review of the copies of such forms received by it, or
representations from certain reporting persons that no Forms 5 were required
for such persons, the Company believes that, during the last fiscal year, all
Section 16(a) filing requirements applicable to its officers, directors, and
ten-percent stockholders were complied with.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table shows, as to the Chief Executive Officer and each of the
four other executive officers, information concerning compensation paid for
services to the Company in all capacities during the fiscal year ended
December 31, 1996, as well as the Company's two previous fiscal years (if
such person was the Chief Executive Officer or an executive officer, as the
case may be, during any part of such fiscal year).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation-
Compensation Other Securities
Name and Annual Bonus/Incentive Annual Underlying All Other
Principal Salary Compensation(1) Compensation Options Compensation
Position Year ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Phillips W. Smith 1996 245,000 0 28,355 (2) 100,000 18,484 (3)
President and Chief 1995 200,000 0 44,048 (4) 0 15,340 (3)
Executive Officer 1994 200,000 0 64,912 (5) 0 19,990 (3)
Peter J. Cassidy 1996 131,673 (6) 0 -- 0 5,438 (3)
Executive Vice President 1995 182,500 0 -- 0 9,125 (3)
& Chief Financial Officer 1994 175,000 0 -- 0 7,314 (3)
Douglas E. Klint 1996 142,006 0 -- 10,000 5,119 (3)
Vice President, General 1995 129,750 7,785 -- 20,000 6,488 (3)
Counsel and Corporate 1994 120,998 0 -- 0 6,050 (3)
Secretary
Charles R. Olson 1996 148,503 (7) 95,600 -- 0 7,363 (3)
Vice President 1995 150,000 93,400 -- 150,000 7,500 (3)
& General Manager
Accelerator Division
Horst G. Sandfort 1996 258,533 0 -- 0 10,940 (3)
President 1995 80,000 (8) 15,000 -- 400,000 0
GateField Division
</TABLE>
(1) Messrs. Smith, Cassidy and Klint are paid bonuses based on the Company's
profitability. Mr. Olson is paid incentive compensation based on the
Accelerator Division revenues and gross profit margin. Mr. Sandfort had a
one-time guaranteed bonus of $15,000.
(2) Represents $28,355 in cost of living adjustments for California housing.
(3) Represents Company contributions to defined benefit plans.
(4) Represents $44,048 in cost of living adjustments for California housing.
(5) Represents $25,937 in cost of living adjustments for California housing
and $38,975 in tax gross-up reimbursement payments for 1993 and 1994.
(6) Mr. Cassidy died in August 1996.
(7) Mr. Olson resigned in October 1996.
(8) Mr. Sandfort's hire date was September 1995.
11
<PAGE>
OPTION GRANTS TO EXECUTIVE OFFICERS
The following table sets forth further information regarding individual
grants of stock options pursuant to the 1993 Stock Option Plan during 1996 to
each of the executive officers named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS GRANTED PRICE APPRECIATION
SECURITIES TO EMPLOYEES IN EXERCISE EXPIRATION ------------------
NAME UNDERLYING 1996 PRICE ($/SH) DATE 5% 10%
- ---- ---------- ---- ------------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Douglas Klint 10,000 (1) 1.0% $1.63 10/29/2004 $4,310 $ 9,282
Phillips Smith 100,000 (2) 12.2% $1.63 10/29/2004 $42,920 $ 96,780
</TABLE>
Note: All option shave an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant.
(1) All 10,000 options are time based with vesting over four years subject to
accelerated vesting upon achievement of MBOs.
(2) Options for 100,000 shares are time-based with vesting over four years
subject to accelerated vesting upon achievement of MBOs.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
The following table shows, as to the individuals named in the Summary
Compensation Table above, information concern in stock options exercised
during the fiscal year ended December 31, 1996, and options held at fiscal
year end.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired Value Realized Options at FY-End (#) FY-End ($) (2)
Name on Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Phillips W. Smith 0 0 0 100,000 0 8,800
Peter J. Cassidy 0 0 300,000 0 215,400 0
Douglas E. Klint 0 0 2,500 31,042 220 2,731
Charles R. Olson 110,000 76,300 0 0 0 0
Horst G. Sandfort 0 0 19,345 380,655 1,702 33,497
</TABLE>
(1) Market value of underlying securities, based on the last sale price of
the Companies Common Stock on the National Association of Securities
Dealers, Inc. Automated Quotation (Nasdaq) National Market System on the
date of exercise, minus the exercise price.
(2) Market value of underlying securities, based on the last sale price of
the Company's Common Stock on the Nasdaq National Market System on
December 31, 1996 ($1.718 per share), minus the exercise price.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of the Company
receive a retainer of $2,500 per quarter plus a fee of $1,000 for attendance
at each Board and Board Committee meetings and are reimbursed for their
expenses in attending meetings of the Board of Directors. In September 1990,
Mr. Huberman received warrants from the Company entitling him to purchase
50,000 shares of the Company's Common Stock at an exercise price of $1.00 per
share, the then market value. In August 1993, Mr. Huberman received warrants
from the Company entitling him to purchase 30,000 shares of the Company's
Common Stock at an exercise price of $2.06 per share.
12
<PAGE>
In February 1994, Dr. Fiebiger received warrants from the Company entitling
him to purchase 50,000 shares of the Company's Common Stock at an exercise
price of $3.63 per share. Both of these warrants are exercisable for 10,000
shares on each anniversary date.
All warrants expire eight (8) years after their respective issue dates or 90
days after resignation from the Board of Directors, whichever occurs first.
See "Compensation Committee Interlocks and Insider Participation" for
information regarding consulting fees paid to a director during 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of outside directors James
Fiebiger and Benjamin Huberman. Neither of these individuals was at any time
during the fiscal year ended December 31, 1996, or at any other time an
officer or employee of the Company.
During fiscal year ended December 31, 1996, the Company paid Mr. Benjamin
Huberman, a member of the Board of Directors, $80,000 in consulting fees.
Mr. Huberman has worked closely with the Company in developing and marketing
the Company's consulting services. Management believes that this arrangement
is at least as favorable as could be negotiated with outside consultants.
During fiscal year ending December 31, 1996, the Company paid Dr. James
Fiebiger, a member of the Board of Directors, consulting fees in the amount
of $24,875. Dr. Fiebiger's consulting services were rendered for product
development, strategic planning and marketing consulting services for Field
Programmable Gate Array Products developed by the Company's GateField
Division. Management believes that this arrangement is at least as favorable
as could be negotiated with outside consultants.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
13
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of the
Company's Common Stock at March 26, 1997, by each beneficial owner, by each
director, by each of the executive officers and all executive officers named
in the Summary Compensation Table and directors of the Company as a group.
SHARES OF COMMON STOCK BENEFICIALLY OWNED
APPROXIMATE
NAME AMOUNT OWNED PERCENT OWNED
U.S. Bancorp 1,189,800 4.6%
Phillips W. Smith 500,000 2.0%
Peter J. Cassidy 300,000 (1) 1.2%
James Fiebiger 35,000 (2) *
Benjamin Huberman 110,000 (3) *
Douglas E. Klint 2,500 (4) *
Charles R. Olson 0 *
Stephen A. Flory 15,644 (5) *
Horst G. Sandfort 19,345 (6) *
All directors and executive
officers as a group (8 persons) 1,424,608 (7) 7.2%
*Less than one (1) percent.
(1) Represents 300,000 shares subject to options held by Mr. Cassidy's estate
that are exercisable through August 1997. Mr. Cassidy died in August 1996.
(2) Includes 30,000 shares subject to warrants held by Dr. Fiebiger that are
exercisable within 60 days of the Record Date.
(3) Includes 80,000 shares subject to warrants held by Mr. Huberman that are
exercisable within 60 days of the Record Date.
(4) Includes 2,500 shares subject to options held by Mr. Klint that are
exercisable within 60 days of the Record Date.
(5) Includes 15,644 shares subject to options held by Mr. Flory that are
exercisable within 60 days of the Record Date.
(6) Includes 19,345 shares subject to options held by Mr. Sandfort that are
exercisable within 60 days of the Record Date.
(7) Includes 447,489 shares subject to options and warrants held by six
persons that are exercisable within 60 days of the Record Date.
ITEM 13. CERTAIN TRANSACTIONS
No executive officers of the Company had indebtedness in excess of $60,000
outstanding during the past fiscal year.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Independent Auditors' Report (page 20 of the Company's
1996 Annual Report to Stockholders).
Consolidated Balance Sheets at December 31, 1996 and
1995 (page 8 of the Company's 1996 Annual Report to Stockholders).
Consolidated Statements of Operations for Years Ended
December 31, 1996, 1995 and 1994 (page 9 of the Company's 1996
Annual Report to Stockholders).
Consolidated Statements of Stockholders' Equity for
Years Ended December 31, 1996, 1995 and 1994 (page 10 of the
Company's 1996 Annual Report to Stockholders).
Consolidated Statements of Cash Flows for Years Ended
December 31, 1996, 1995 and 1994 (page 11 of the Company's 1996
Annual Report to Stockholders).
Notes to Consolidated Financial Statements (pages 12
through 19 of the Company's 1996 Annual Report to Stockholders).
2. The following financial statement schedules are included
herein: Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not
required, inapplicable or the information is otherwise included.
3. Exhibits:
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987).
3.2 Bylaws of the Company, as amended (incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1988).
3.3 Amendment to the Certificate of Incorporation of the Company.
10.1 * 1984 Stock Option Plan as amended (incorporated by
reference to Exhibit 10.2 of the Company's Annual Report on Form
10-K for the year ended December 31, 1987).
10.2 Patent Agreement dated October 28, 1985 with Control Data
Corporation (incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1985).
10.3 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1986).
10.4 Warrant Certificate for the purchase of 15,000 shares of
Common Stock executed with Douglas E. Johnson and John A. Fahlberg
(incorporated by reference 10.22 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1989).
15
<PAGE>
10.5 Patent Cross License Agreement dated May 17, 1989 with IKOS
Systems, Inc. (incorporated by reference 10.25 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1989).
10.6 Warrant Certificate for the purchase of 50,000 shares of
Common Stock executed with Benjamin Huberman dated September 19,
1990 (incorporated by reference 10.22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991).
10.7 Consulting Agreement dated October 1, 1990 with Benjamin
Huberman (incorporated by reference 10.24 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991).
10.8 Warrant Certificate for the purchase of 50,000 shares of
Common Stock executed with Yoshikazu Hori dated July 18, 1991
(incorporated by reference 10.25 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991).
10.9 Asset Purchase Agreement between Zycad Corporation and
Synopsys Technology Inc., a wholly-owned subsidiary of Synopsys,
Inc. dated as October 19, 1990 (incorporated by reference 10.26 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991).
10.10 Agreement regarding non-compete and payments dated
January 15, 1992 between Synopsys, Inc. and Synopsys Technology,
Inc. and Zycad Corporation (incorporated by reference 10.27 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1991).
10.11 Lease dated March 6, 1992 relating to premises at 47100
Bayside Parkway, Fremont, California (incorporated by reference
10.22 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992).
10.12 Promissory Note dated August 27, 1992 in the amount of
$600,000 from Phillips W. Smith (incorporated by reference 10.24 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.13* 1993 Stock Option Plan (incorporated by reference 10.13
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.14 Lease dated October 23, 1992 relating to premises at 100
Enterprise Drive, Rockaway, New Jersey (incorporated by reference
10.14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.15 Form of Warrant Certificate for the purchase of 30,000
shares of Common Stock executed by Benjamin Huberman and Yoshikazu
Hori dated August 16, 1993 (incorporated by reference 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1993).
10.16 Promissory Note (full recourse) dated September 1, 1993
in the amount of $900,000 by Phillips W. Smith and Patricia Smith
(incorporated by reference 10.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
10.17 Share Exchange and Allotment Agreement dated September
7, 1993, for the purchase of Integrated Circuit Applications, Ltd.
(incorporated by reference 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
10.18 SICAN/Zycad Technology Agreement dated September 23,
1993, between SICAN G.m.b.H. and Zycad Corporation (incorporated by
reference 10.18 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.19 Private Placement Distribution Agreement dated March 4,
1994 with Rosehouse, Ltd. (incorporated by reference 10.19 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1994).
16
<PAGE>
10.20 Warrant Certificate for purchase of 50,000 shares of
Common Stock executed with James Fiebiger dated February 4, 1994
(incorporated by reference 10.20 to the Company's Annual Report of
Form 10-K for the year ended December 31, 1994).
10.21 Warrant Certificate for purchase of 5,918 shares of
Common Stock executed with James Fiebiger dated November 11, 1994
(incorporated by reference 10.21 to the Company's Annual Report of
Form 10-K for the year ended December 31, 1994).
10.22 First Amendment to Rockaway, New Jersey Lease dated
January 13, 1995 (incorporated by reference 10.21 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.23 Purchase Agreement between Zycad Corporation and Attest
Software, Inc., dated May 31, 1996.
10.24 Factoring Agreement entered into at October 17, 1996,
by and between Zycad Corporation and Silicon Valley Bank.
10.25 Credit Loan and Security Agreement entered into at
January 6, 1997, by and between Zycad Corporation and Coast
Business Credit, a division of Southern Pacific Thrift and Loan
Association.
13.1 Registrant's Annual Report to Stockholders for the year
ended December 31, 1996, pages 1 through 22.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors, Deloitte & Touche LLP.
24.1 Power of Attorney. Reference is made to page 21.
27.1 Article 5 of Regulation S-X, Financial Data Schedules
for Zycad Corporation for the year ended December 31, 1996.
* Denotes a compensation plan in which an executive officer participates.
(b) REPORTS ON FORM 8-K. None.
(c) EXHIBITS. See response to Item 14(a)(3).
(d) FINANCIAL STATEMENTS SCHEDULES. See response to Item 14 (a)(2).
For the purposes of complying with the amendments to the Rules
governing Form S-8 (effective July 13, 1990) under the Securities
and Exchange Act of 1933, the undersigned hereby undertakes as
follows, which undertaken shall be incorporated by reference into
the Registrant's Registration Statements on Form S-8 (File Nos.
13244):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication af such issue.
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Zycad Corporation:
We have audited the consolidated financial statements of Zycad
Corporation at December 31, 1996 and 1995, and for each of the three years in
the period ended December 31, 1996, and have issued our report thereon (which
expresses an unqualified opinion and includes an explanatory paragraph
relating to an uncertainty of the Company's ability to continue as a going
concern) dated March 11, 1997 (April 14, 1997 as to the last paragraph of
Note 5 and as to Note 11). Our audits also included the consolidated
financial statement schedule of Zycad Corporation, listed at Item 14(a)(2).
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
March 11, 1997 (April 14, 1997
as to the last paragraph of
Note 5 and as to Note 11
of Notes to the Consolidated
Financial Statements of Zycad
Corporation incorporated by
reference in this Annual
Report on Form 10-K for
the year ended
December 31, 1996)
18
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
ZYCAD CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO COST END OF
DESCRIPTIONS OF PERIOD AND EXPENSE DEDUCTIONS PERIOD
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deducted from assets:
Allowance for doubtful accounts
(accounts receivable):
Years ended December 31,
1996 $ 296 $ 1,386 $ 345(1) $ 1,337
-------- -------- ---------- --------
-------- -------- ---------- --------
1995 $ 381 $ --- $ 85(1) $ 296
-------- -------- ---------- --------
-------- -------- ---------- --------
1994 $ 401 $ --- $ 20(1) $ 381
-------- -------- ---------- --------
-------- -------- ---------- --------
</TABLE>
(1) Write-off of accounts and notes determined to be uncollectable.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ZYCAD CORPORATION
By /s/ Phillips W. Smith
------------------------------
Phillips W. Smith
President and Chief Executive Officer
By /s/ Stephen A. Flory
------------------------------
Stephen A. Flory
Vice President and Chief Financial Officer
Date: April 14, 1997
20
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen A. Flory, and each of them, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead,
in any and all capacities, to sign any and all amendments to this report, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- -------------------------------------------------------------------------------
/s/ Phillips W. Smith Director April 14, 1997
- --------------------------
Phillips W. Smith
/s/ Horst G. Sandfort Director April 14, 1997
- --------------------------
Horst G. Sandfort
/s/ Benjamin Huberman Director April 14, 1997
- --------------------------
Benjamin Huberman
/s/ James R. Fiebiger Director April 14, 1997
- --------------------------
James R. Fiebiger
21
<PAGE>
Exhibit 3.3
ZYCAD CORPORATION
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
Phillips W. Smith, President and Chief Executive Officer, and Douglas E.
Klint, Secretary, of Zycad Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
do hereby certify:
FIRST: That on November 1, 1996, the Board of Directors of Zycad
Corporation did, by its resolution adopted at a duly constituted meeting of
said Board, propose an amendment, as hereafter set forth, to the Certificate
of Incorporation of said Corporation, and declared the advisability of such
amendment, and directed that the amendment be presented for the consideration
of the stockholders of said Corporation at the next special meeting of the
stockholders.
SECOND: That at the duly constituted special meeting of the
stockholders of said corporation held on December 5, 1996, the corporation
adopted a resolution adopting such amendment, in accord with the provisions
of Section 242 of the General Corporation Laws of the State of Delaware.
THIRD: That there has been duly adopted, in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware, an amendment to the Certificate of Incorporation of Zycad
Corporation which amends paragraph 4 (a) of Article 4 to read as follows:
"The corporation is authorized to issue a total of
42,000,000 shares of all classes of stock, of which,
40,000,000 shall be shares of Common Stock with a par
value of $0.10 per share and 2,000,000 shall be shares of
Series Preferred stock with a par value of $0.10 per share."
IN WITNESS WHEREOF, said Zycad Corporation has caused this Certificate
to be signed by Phillips W. Smith, its President and Chief Executive Officer,
and attested by Douglas E. Klint, its Secretary, this 5th day of December
1996.
ZYCAD CORPORATION
By /s/ Phillips W. Smith
----------------------------
Phillips W. Smith
President and CEO
ATTEST:
By /s/ Douglas E. Klint
- ------------------------------
Douglas E. Klint
Secretary
22
<PAGE>
MERGER AGREEMENT &
PLAN OF REORGANIZATION
DATED AS OF MAY 31, 1996
BETWEEN ZYCAD CORPORATION
AND
ATTEST SOFTWARE, INC.
AND
THE SHAREHOLDERS OF
ATTEST SOFTWARE, INC.
AND
ZYCAD INTERNATIONAL, INC.
<PAGE>
MERGER AGREEMENT AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
Recitals.......................................................... 5
ARTICLE ONE -The Merger and Reorganization........................ 6
ARTICLE TWO - Conversion of Shares................................ 6
ARTICLE THREE - Governance of Surviving Corporation............... 9
Articles of Incorporation.................................... 9
Bylaws....................................................... 9
Directors and Officers....................................... 9
ARTICLE FOUR - Representations and Warranties of Attest and
Shareholders................................................. 9
Organization and Standing of Attest.......................... 10
Subsidiaries................................................. 10
Capitalization............................................... 10
Share Ownership.............................................. 10
Options, Warrants and Convertible Securities................. 10
Financial Information........................................ 11
Absence of Undisclosed Liabilities........................... 11
Absence of Certain Changes................................... 12
Taxes........................................................ 13
Title to Properties; Liens and Encumbrances; Leasehold
Interests.................................................. 14
Patents, Trademarks, Etc..................................... 14
Material Contracts........................................... 15
Insurance.................................................... 16
Customers and Supplies....................................... 16
Compliance................................................... 17
Employee Matters............................................. 17
Employee Benefit Plans....................................... 18
Warranties; Returned Products................................ 18
Directors, Officers and Employees; Compensation; Bank
Accounts; Certain Transactions............................. 18
Litigation................................................... 18
Authority of Shareholders.................................... 19
Brokers...................................................... 19
Disclosure................................................... 20
Representations and Warranties............................... 20
Disclosures Applicable to All Provisions..................... 20
ARTICLE FIVE - Representations and Warranties of Zycad............ 20
Organization and Standing of Zycad and Subsidiary............ 20
Authority of Zycad and Subsidiary............................ 20
Access to Information........................................ 21
Brokers...................................................... 21
2
<PAGE>
No Restriction on Sharheolders' Disposition of Zycad Stock... 21
Disclosure................................................... 22
Representations and Warranties............................... 22
Valid Issuance of Zycad Stock................................ 22
ARTICLE SIX - Covenants of Shareholders and Attest................ 22
Operations of Attest......................................... 22
No Further Negotiations...................................... 23
Access....................................................... 23
Public Disclosure............................................ 23
Updating of Schedules........................................ 23
ARTICLE SEVEN - Closing........................................... 23
ARTICLE EIGHT - Conditions to Zycad's Obligation to Close......... 24
ARTICLE NINE - Conditions to Shareholder's Obligation to Close.... 25
ARTICLE TEN - Post Closing Obligations............................ 26
ARTICLE ELEVEN - Termination...................................... 27
Termination by Mutual Consent................................ 27
Termination at Zycad's Option................................ 27
Termination at Shareholder's Option.......................... 27
Additional Rights of Termination............................. 27
Expenses on Termination...................................... 28
ARTICLE TWELVE - Indemnification.................................. 28
Indemnification by Shareholders.............................. 28
Indemnification by Zycad..................................... 28
Notice and Opportunity to Defend............................. 29
Limitation................................................... 29
ARTICLE THIRTEEN - Miscellaneous.................................. 31
Survival of Representations and Warranties................... 31
Definition of Knowledge...................................... 31
Amendment.................................................... 31
Headings..................................................... 31
Entire Agreement............................................. 31
Counterparts................................................. 31
Notices...................................................... 32
Governing Law................................................ 33
Waiver....................................................... 33
Signatures........................................................ 33
3
<PAGE>
SCHEDULES
Schedule 4.1 Exceptions to Qualification as a Foreign Corporation
Schedule 4.3 Attest Capital Stock Table
Schedule 4.5 Incentive Stock Option Table
Schedule 4.6(a) List of Tangible Assets
Schedule 4.6(b) Balance Sheet
Schedule 4.7 Certain Material Liabilities of Attest
Schedule 4.8 Statement of Material Adverse Changes in Attest
Schedule 4.9 Statement of Tax Liabilities of Attest
Schedule 4.10 Exceptions to Title Properties and Statement of Default
of Attest
Schedule 4.11 Intellectual Property Rights of Attest
Schedule 4.12 Material Contracts of Attest
Schedule 4.13 Insurance Policies and Bonds of Attest
Schedule 4.14 Customers and Suppliers of Attest
Schedule 4.15 Compliance Exceptions
Schedule 4.16 Accrued Vacation Pay and Sick Leave of Attest Employees
Schedule 4.17 Attest Employee Benefits Plan
Schedule 4.18 Attest Warranties, Returned Products
Schedule 4.19(a) Attest Directors, Officers and Employees
Schedule 4.19(b) Attest's Bank Accounts
Schedule 4.19(c) Interests of Attest Directors and Officers
Schedule 4.20 Attest Litigation
Schedule 4.22 Brokers
Schedule 4.23 Accounts Receivable
EXHIBITS
Exhibit 7.1 Escrow Agreement
Exhibit 7.2 Employment Offers to Shareholders
Exhibit 8.1(b) Opinion of Counsel for Attest
Exhibit 9.1(b) Opinion of Counsel for Zycad
4
<PAGE>
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made
and entered into as of the 31st day of May, 1996, by and between Attest
Software, Incorporated, a company organized under the laws of California
with principal offices at 4677 Old Ironside Drive, Suite 100, Santa
Clara, California 95054, California ("Attest"); the holders of the
issued and outstanding shares of the capital stock of Attest and holders
of options therefor (the "Shareholders"); Zycad Corporation, a Delaware
Corporation with principal offices at 47100 Bayside Parkway, Fremont,
California 94538 ("Zycad"), and Zycad International, Inc., a California
corporation and a wholly owned subsidiary of Zycad ("Subsidiary").
RECITALS
WHEREAS, Shareholders are the owners and holders of all of the issued
and outstanding shares of the capital stock of Attest and all of the
options therefor; and
WHEREAS, Attest is a corporation duly organized and existing under the
laws of California with authorized capital stock consisting of
10,000,000 shares of common stock, par value of which 2,000,000 shares
are issued and outstanding on the date of this Agreement with options
for an additional 678,571 shares to be exercised on or before the
Closing Date; and
WHEREAS, Zycad is a corporation duly organized and existing under the
laws of the State of Delaware; and
WHEREAS, Subsidiary is a corporation duly organized and existing under
the laws of the State of California and is a wholly owned subsidiary of
Zycad; and
WHEREAS, the Shareholders and the respective Boards of Directors of
Attest, Subsidiary and Zycad have determined that it is advisable that
Subsidiary shall be merged with and into Attest on the terms and
conditions set forth herein and each such Board has, by resolution, duly
adopted, approved and authorized the execution and delivery of this
Agreement; and
WHEREAS, Shareholders, Attest, Subsidiary and Zycad deem it advisable to
set forth in this Agreement the representations and warranties of each
party and certain other undertakings and understandings in connection
with the stock purchase and to provide for certain matters in respect of
the conduct of the business of Attest prior to the Closing Date (as
hereinafter defined).
AGREEMENT
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained, the parties hereto agree as follows:
5
<PAGE>
ARTICLE ONE
MERGER AND REORGANIZATION
1.1 On the Closing Date, as defined in this Agreement, a merger shall
take place ("the Merger") whereby Subsidiary shall be merged with
and into Attest, and Attest shall be the Surviving Corporation.
(The term "Surviving Corporation" appearing in this Agreement
denotes Attest after consummation of the Merger.) Attest's
corporate name, existence, and all its purposes, powers, and
objectives shall continue unaffected and unimpaired by the Merger,
and as the Surviving Corporation it shall be governed by the laws
of the State of California and succeed to all of Subsidiary's
rights, assets, liabilities, and obligations in accordance with the
California General Corporation Law.
1.2 For Federal income tax purposes, the Merger shall constitute a tax
free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended.
ARTICLE TWO
CONVERSION OF SHARES
2.1 On the Closing Date:
(a) Each share of Subsidiary's common stock issued and outstanding
immediately before the Closing Date shall be converted into one
share of common stock of the Surviving Corporation; and
(b) All of the shares of Attest's common stock issued and
outstanding on the Closing Date consisting of 2,679,106 shares (the
"Attest Common Stock"), shall by virtue of the Merger and without
action on the part of the Shareholder be converted into an
aggregate of 387,098 shares of Zycad Common Stock ("Zycad Stock")
at an exchange ratio of .1444877 share of Zycad Stock for each
share of Attest Common Stock. Any fraction of a share of Zycad
Stock shall be eliminated by rounding down to the nearest full
share.
2.2 The number of shares of Zycad Stock to be exchanged for the Attest
Common Stock as specified in Section 2.1(b) is based on a Closing
Price of Zycad Common Stock of $6.20 per share (Closing Price is
defined as the average daily closing price [last trade] of Zycad
Common Stock as reported on NASDAQ for the 15 days preceding the
date hereof. Adjustments to the number of shares of Zycad Stock
shall be made, subject to the limitations of Section 12.4, if the
following formula results in a sum that is less than $130,000:
(Cash as of the hereof date + proceeds from the exercise of stock
options + prepaid expenses + accounts receivable as of the hereof
date + sales made by Attest but not invoiced prior to the Closing
Date) less (total liabilities including all accruals for expenses
related to Attest's business through the hereof date). Amounts
representing accounts receivable and sales made but not invoiced
shall be limited to those are, to Attest's knowledge, collectible.
All liabilities that should be accrued as of the hereof date under
generally accepted accounting principles shall be included in the
foregoing formula, whether or not they were accrued as liabilities
on the May 31, 1996 Balance Sheet.
6
<PAGE>
No adjustment in the number of shares shall be made if the above
computation results in an amount greater than $130,000.
2.3 One-half of the Zycad Stock shall be delivered to the Shareholders
on the Closing Date on a prorata basis based on their respective
ownership interest of the Attest Shares.
2.4 The balance of the Zycad Stock exchanged for the Attest Shares
shall be held in escrow (the "Escrowed Stock") in a separate escrow
account for each Shareholder on a prorata basis based on their
respective ownership interest and shall be released on the same
prorata basis in accordance with the following schedule:
a. One half of the Escrowed Stock shall be released upon the public
announcement of Zycad's fiscal First Quarter 1997 financial results,
provided there is a minimum of $1,200,000 in revenue generated from
the sale and support of Attest Software Products during the period
April 1, 1996 through March 31, 1997, (including revenue from sales
made by Attest but not invoiced prior to Closing) which includes
current Attest Products, as well as new versions or updates created
by Zycad from the Attest Software source code ("Attest Software
Revenue").
In the event that there is less than $1,200,000 in Attest Software
Revenue as stated above, but at least $800,000 in such revenue, the
one half of the Escrowed Stock shall be released on a prorata basis,
e.g., if the Attest Software Revenue equals $800,000, 66.67% of the
one half of the Escrow Stock shall be released.
b. A total of one-eighth of the Escrowed Stock shall be released upon
the public announcement of Zycad's Second Quarter 1997 financial
results provided there is a minimum of $300,000 in Attest Software
revenue in Second Quarter 1997.
A total of one-eighth of the Escrowed Stock shall be released upon
the public announcement of Zycad's Third Quarter 1997 financial
results provided there is a minimum of $300,000 in Attest Software
revenue in Third Quarter 1997.
A total of one-eighth of the Escrowed Stock shall be released upon
the public announcement of Zycad's Fourth Quarter 1997 financial
results provided there is a minimum of $300,000 in Attest Software
revenue in Fourth Quarter 1997.
A total of one-eighth of the Escrowed Stock shall be released upon
the public announcement of Zycad's First Quarter 1998 financial
results provided there is a minimum of $400,000 in Attest Software
revenue in First Quarter 1998.
In the event there is less than $1,300,000 in Attest Software
Revenue for the period April 1, 1997 through March 31, 1998, but at
least $900,000 in such Revenue, the balance of the one half of the
Escrowed Stock scheduled to be released during this period which
remain unreleased and held in escrow shall be released on a prorata
basis, e.g., if the Attest Software Revenue equals $900,000, 69.23%
of such unreleased shares of the one half of the Escrow Stock
scheduled to be released shall be released.
7
<PAGE>
c. Notwithstanding the above, in the event that the cumulative Attest
Software Revenue for the period April 1, 1996 through March 31,
1998 is a minimum of $2,500,000, all of the Escrowed Stock shall be
released.
d. In the event that not all of the Escrowed Stock is released under
the provisions of subsections a, b, or c above, the balance of the
Escrowed Stock shall be released upon the public announcement of
Zycad's Second Quarter 1998 financial results, provided that there
is a minimum of $500,000 in Attest Software Revenue for the period
January 1, 1998 to June 30, 1998.
e. In the event not all of the Escrowed Stock is released under the
provisions of subsections a, b, c or d above, the balance of the
Escrowed Stock shall be released to each Shareholder provided such
Shareholder is still a Zycad employee on June 30, 1998.
f. Notwithstanding anything to the contrary in this Section 2.4, if any
of the following occurs, the balance of the Escrowed Stock that is,
at the time such event occurs, still subject to the release
provisions of subsections a through e above, shall be released to
each such Shareholder as follows:
(1) In the event of a Shareholder's death or disability, the
balance of the Escrowed Stock shall be released to that Shareholder
upon the later of (i) his death or disability, or (ii) one (1) year
after the Closing Date, (subject, however, to Article Twelve below).
(2) In the event Zycad terminates a Shareholder's employment
without cause, the balance of the Escrowed Stock shall be released
to that Shareholder upon the later of (i) said termination of
employment, or (ii) one (1) year after the Closing Date, (subject,
however, to Article Twelve below).
g. Any Escrowed Stock remaining in escrow after the conditions
specified in subsection e above shall be canceled and forfeited.
h. Attest Software Revenue is further defined in Schedule 2.4.
2.5 This Escrowed Stock will also be used to offset any breaches of
Attest and Shareholder's representations, warranties, and
indemnification provisions as contained in this Agreement.
2.6 All Escrowed Stock shall be issued and outstanding on Zycad's
balance sheet and legally outstanding under Delaware law.
2.7 All cash dividends and distributions, if any, shall be paid to the
Shareholders currently and shall not be deposited in Escrow.
2.8 All voting rights on the Escrowed Stock shall be exercisable by or
on behalf of the Shareholders or their authorized agent.
2.9 The Escrowed Stock shall not be subject to claims for additional
tax paid, if any, as a result of an audit by the Internal Revenue
Service of the Shareholders or Zycad with respect to the herein
reorganization.
8
<PAGE>
2.10 Claims against the Escrowed Stock shall be satisfied by
transferring to Zycad the number of shares determined by dividing
the amount of each Shareholders' share of a claim (less his pro
rata share of the aggregate deductible amount stated in Section
11.4(a)) by the greater of $6.20 or the average daily closing price
(last trade) of Zycad common stock as reported on NASDAQ for the 15
days preceding the date on which such claim is deemed to be
matured. Alternatively, Shareholders may pay the amount of the
claim in cash within fifteen (15) days of notice to Shareholders,
in which case the number of shares that would otherwise be
transferred to Zycad shall thereafter, be subject only to the
restrictions of Section 2.4 above and future claims, if any, under
Article Twelve.
ARTICLE THREE
GOVERNANCE OF SURVIVING CORPORATION
3.1 Articles of Incorporation
The articles of incorporation of Attest in effect on the Closing
Date of the Merger shall become the articles of incorporation of
the Surviving Corporation. From and after the Closing Date of the
Merger, said articles of incorporation, as they may be amended from
time to time as provided by law, shall be, and may be separately
certified as, the articles of incorporation of the Surviving
Corporation.
3.2 Bylaws
The bylaws of Attest in effect on the Closing Date of the Merger
shall be the bylaws of the Surviving Corporation until they are
thereafter duly altered, amended or repealed.
3.3 Directors and Officers
The directors of Zycad Subsidiary on the Closing Date of the Merger
shall be the directors of the Surviving Corporation. They shall
hold office until their successors have been elected and qualified.
The officers of Zycad Subsidiary on the Closing Date of the Merger
shall be the officers of Surviving Corporation. Each shall hold
office subject to the bylaws and the pleasure of the directors of
Surviving Corporation.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF ATTEST AND SHAREHOLDERS
As inducement to the execution of this Agreement by the parties hereto,
Attest and the Shareholders represent and warrant that the following
statements are true and correct on the date hereof:
9
<PAGE>
4.1 Organization and Standing of Attest
Attest is a corporation duly incorporated, validly existing and in
good standing under the laws of California. Attest's Articles of
Incorporation, and all amendments thereto, and its By-laws, as
amended, copies of which have been delivered to Zycad, are
complete, correct and in full force and effect at the date of this
Agreement and Attest is not in violation of any provision of such
Article and By-laws. Attest has the corporate power and authority
to own, operate and dispose of its properties and to conduct its
business as now being conducted.
4.2 Subsidiaries
Attest has no subsidiaries and does not control, directly or
indirectly, any other corporation, partnership, association or
business organization.
4.3 Capitalization
As of the date of this Agreement and except as set forth in
Schedule 4.3, Attest's authorized capital stock consists of
10,000,000 shares of Attest Common Stock, of which 2,000,000 shares
are issued and outstanding. On or before the Closing Date options
for an additional 679,106 shares of Attest Common Stock will be
exercised and will be issued and outstanding. No Attest Stock is
held in the treasury of Attest. All outstanding shares of Attest
Stock are duly and validly authorized and issued, fully paid and
non-assessable, and the issuance and sale of all such Attest
securities has been in compliance with all applicable securities
laws. Attached hereto as Schedule 4.3 is a summary stock table for
Attest stock.
4.4 Share Ownership
The Shareholders are or will be the beneficial and record owners
and holders of all of said 2,679,106 shares of the capital stock
of Attest, which shares will be transferred to Zycad free and clear
of any claims, liens, charges, equities and encumbrances or other
restrictions which would in any way impair Shareholders right to
effectively sell or transfer such shares to Zycad.
4.5 Options, Warrants Equity Commitments and Convertible Securities
As of the date of this Agreement and except as set forth in
Schedule 4.5, Attest has outstanding options to purchase 1,869,000
shares under its Incentive Stock Option Plan. On or before the
Closing Date options for 679,106 shares of Attest Common Stock
will be exercised and said shares will be issued and outstanding.
The balance of options for 1,189,894 shares will be canceled on
the Closing Date. There are no warrants or other commitment or
agreement to issue, sell or transfer any shares of Attest capital
stock, or any securities or obligations convertible into or
exchangeable for shares of its capital stock to any third party.
Attached hereto as Schedule 4.5 is a summary stock option table for
the outstanding stock options.
10
<PAGE>
4.6 Financial Information
Attest has delivered to Zycad copies of the following financial
statements (collectively the "Financial Statements"): (i) the
unaudited results of operations (Statement of Profit and Loss) of
Attest for the three-month periods ended June 30, 1995, September
30, 1995, December 30, 1995, March 31, 1996, and for the one-month
period ended April 30, 1996 and (ii) the unaudited balance sheet of
Attest as of June 30, 1995, September 30, 1995, December 30, 1995,
March 31, 1996, April 30, 1996, and May 31, 1996 (the "Balance
Sheet"). Attest shall deliver to Zycad as soon as practicable
prior to the Closing Date Proforma financial statements as of the
Closing Date.
The Financial Statements, (including the notes thereto, if any)
were prepared by Attest management in accordance with the books and
records of Attest. Except as described on Schedule 4.6
Shareholders believe and represent that the Financial Statements
fairly and accurately present the business operations for the
periods covered by said statements in all material respects. None
of Attest's books and records, has been compiled or audited by a
Certified Public Accountant; and there can be no assurance that any
of the foregoing is in conformity with generally accepted
accounting principles.
The tangible assets reflected in the Balance Sheet are shown
thereon at actual cost, less depreciation and amortization, and in
the case of plant and equipment are, to the best of Attest's
knowledge, in good operating condition and state of repair. A true
and complete list of all tangible assets of Attest as of May 31,
1996 is attached hereto as Schedule 4.6(a).
Except as set forth in Schedule 4.6(b) attached hereto, all
accounts receivable reflected in the Balance Sheet at the date
thereof were bona fide accounts receivable resulting from the sale
of goods and services in the ordinary course of business, and,
shareholders have no reason to believe, such accounts receivable
are not collectible in full in the ordinary course of business or
are subject to conditions to payment, offsets, counterclaims,
defenses of any kind, returns, allowances or credits. There is no
allowance for warranty reserve reflected in the Financial
Statements. Zycad shall have the right to indemnification pursuant
to Section 12.1 of this Agreement for any accounts receivable
arising from Attest product shipment prior to Closing which is not
collected in full within ninety (90) days after Closing with
commercially reasonable collection efforts by Zycad. The amount to
be indemnified shall be the unpaid balance on said 90th day.
Shareholders will receive credit for any monies collected by Zycad
within 120 days after Closing.
4.7 Absence of Undisclosed Liabilities
Except as set forth in Schedule 4.7 attached hereto, at the date of
each such balance sheet Attest had no material liabilities (fixed
or contingent, including without limitation any tax liabilities due
or to become due) which were not fully disclosed, reflected or
provided for in each such balance sheet. The officers of Attest
and the Shareholders have no knowledge of any facts which would
form the basis for the assertion of any material claim or liability
which is not disclosed, reflected or provided for in each such
Balance Sheet or described in Schedule 4.7 hereto.
11
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4.8 Absence of Certain Changes
Except as set forth in Schedule 4.8 attached hereto, since the date
of the Balance Sheet there has not been:
a. any material adverse change in the condition (financial or
otherwise), assets, liabilities or business of Attest from that
reflected in the Financial Statements or, to the knowledge of the
officers of Attest or the Shareholders, any occurrence, circumstance
or combination thereof which reasonably could be expected to result
in any material adverse change in the condition (financial or
otherwise), assets, liabilities or business of Attest.
b. any damage, destruction or loss of any of the properties or assets
of Attest (whether or not covered by insurance) materially adversely
affecting the condition (financial or otherwise), assets,
liabilities or business of Attest;
c. any declaration, setting aside, payment or other distribution in
respect of any of Attest's capital stock, or any direct or indirect
redemption, purchase or other merger of any of such stock by Attest.
d. any change in the capitalization of Attest from that reflected in
the Financial Statements or in this Agreement, or any grant or
issuance of (i) any shares of capital stock of Attest; (ii) any
securities convertible into capital stock of Attest; or (iii) any
option, warrant or other right to subscribe for or acquire shares of
capital stock or securities convertible into capital stock of Attest;
e. any event, other than changes in general economic conditions which
affect the business of Attest, including without limitation, fire,
explosion, accident, requisition or taking of property by any
governmental agency, flood, drought, earthquake or other natural
event, riot, act of God or the public enemy or damage, destruction
or other casualty, whether or not covered by insurance, which has
materially adversely affected the condition (financial or
otherwise), assets, liabilities or business of Attest, or any such
event known to the officers of Attest or the Shareholders which
reasonably could be expected to materially adversely affect the
condition (financial or otherwise), assets, liabilities or business
of Attest;
f. any increase in compensation payable to or for the benefit of, or
committed to be paid to or for the benefit of, any director,
shareholder, officer or employee of Attest, or in any benefits
granted under any bonus, stock option, profit sharing, pension,
retirement, deferred compensation, or other direct or indirect
benefit plan, payment or arrangement made to, for the benefit of, or
with any such director, shareholder, officer or employee;
g. any borrowing or agreement to borrow funds or any incurring of any
other material indebtedness or liability; or any endorsement,
assumption or guarantee of payment or performance of any loan or
obligation of any other individual, firm, corporation or other
entity by Attest;
h. any change made by Attest in its methods of doing business or of
accounting;
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<PAGE>
i. any material mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be
imposed on or with respect to any properties or assets, tangible or
intangible, of Attest;
j. any technology licenses or sale or transfer of any technology rights
except software object code licenses granted in the normal course of
business.
k. any sale, lease or disposition of, or any agreement to sell, lease
or dispose of, any properties or assets held for use or used in the
business of Attest, other than sales, leases or dispositions for
fair equivalent value to persons other than directors, or officers
of Attest in the ordinary course of the business of Attest;
l. any modification, waiver, change, amendment, release, rescission,
accord and satisfaction nor termination of, or with respect to, any
material term, condition or provision of any material contract,
agreement, license or other instrument to which Attest is a party,
other than any satisfaction or performance in accordance with the
terms thereof and other than in the ordinary course of the business
of Attest;
m. any labor or employee disputes or disturbances materially adversely
affecting the condition (financial or otherwise), assets,
liabilities or business of Attest, including the filing of any
petition or charge of unfair labor practices with the National Labor
Relations Board or any action, claim or proceeding relating to equal
employment practices;
n. any loan or advance made by Attest to any individual, firm,
corporation or entity except for advances not material in amount
made to employees of Attest in the ordinary course of the business
of Attest;
o. any other event, development, or condition of any character known to
the officers of Attest or the Shareholders which materially
adversely affects, or may reasonably be expected to so affect, the
condition (financial or otherwise), assets, liabilities or business
of Attest.
4.9 Taxes
Except as set forth in Schedule 4.9, for all periods ended on or
prior to the Closing Date, Attest has filed or will file within the
time prescribed by law (including extensions of time approved by
the appropriate taxing authorities) all tax returns and reports for
Attest required to be filed with the Internal Revenue Service, the
appropriate California agencies and with all other jurisdictions,
including state, county, local and foreign government agencies or
instrumentalities where such filing is required by law. Except as
set forth in Schedule 4.9, Attest has paid, or has made adequate
provision in the Financial Statements for the payment of, all
taxes, interest, penalties, assessments or deficiencies due or
claimed to be due through the date of the Financial Statements and
through the Closing Date in the Proforma Closing Financial
Statements on or in respect of such tax returns and reports.
Except as set forth in Schedule 4.9, there are for such periods (i)
no other taxes which are due and payable by Attest which have not
been paid or otherwise reserved for in the Financial Statements,
including collection and remittance of sales tax; (ii) no other tax
returns or reports which are
13
<PAGE>
required to be filed which have not been filed; (iii) no unpaid
assessment for additional taxes other than reserved for in the
Financial Statements for any fiscal period or, to the knowledge of
the officers of Attest, any facts which would form the basis for
any material assessment for additional taxes; (iv) no pending or,
to the knowledge of the officers of Attest, threatened federal,
state or local tax audit of Attest; and (v) no agreement with any
federal state of local taxing authority that may affect the
subsequent tax liabilities of Attest.
Sales and payroll tax returns and reports have been prepared by
management without review by a Certified Public Accountant. Income
tax returns have been prepared by an accountant without review by a
Certified Public Accountant.
Attest has not accrued or reserved any amount for federal or state
income tax liabilities.
4.10 Title to Properties; Liens and Encumbrances; Leasehold Interests
Except as set forth in Schedule 4.10 or in the notes to the Balance
Sheet, Attest has good title to all properties and assets owned by
it, including those reflected in the Financial Statements (except
for properties and assets sold or otherwise disposed of in the
ordinary course of business since that date), subject to no
mortgage, pledge, lien, security interest, conditional sale
agreement, encumbrance or charge. Except as set forth in Schedule
4.10, Attest is not in default under the terms of any material
lease or sublease of any properties leased or subleased by it, and
such leases or subleases are valid and enforceable leases or
subleases for such properties. Except as set forth in Schedule
4.10, the property shown on the Balance Sheet constitutes all of
the tangible personal property utilized by Attest in the conduct of
its business as presently conducted.
4.11 Patents, Trademarks, Etc.
Attached hereto as Schedule 4.11 is a true and complete list and
summary description of all patents, patent applications, shop
rights, know-how, inventions (whether or not patentable),
trademarks and service marks and registrations thereof, trade
names, trade secrets, confidentiality rights and agreements,
copyrights, copyright registrations, proprietary ideas, licenses
and interests therein (individually and collectively referred to as
the "Intellectual Property Right(s)") presently owned or held by
Attest. Where an Intellectual Property Right is held by Attest as
a licensee under a license or sublicense or otherwise in any form
or manner other than as owner of clear title, this is so designated
in Schedule 4.11. Such Intellectual Property Right(s) are all such
rights that are required to enable Attest to conduct its business
as now conducted and as proposed to be conducted. Except as set
forth in Schedule 4.11, the business currently and proposed to be
conducted by Attest does not infringe and has not infringed the
rights of others, including without limitation any rights under
patents, patent applications, shop rights, know-how, inventions,
trademarks, service marks, trade names, trade secrets, copyrights,
contracts (whether express or implied in fact or in law),
proprietary ideas, licenses, privacy rights or interests therein.
To the best knowledge of Attest and the Shareholders, no
third-party is violating or has violated any of the Intellectual
Property Rights of Attest. Except as set forth in Schedule 4.11,
Attest is the sole and absolute owner of the Intellectual Property
Rights and has full right and authority to utilize the Intellectual
Property Right(s) and other processes, systems and techniques
presently employed, or proposed to be employed, by it in the
research, design, scale-up, manufacture, and marketing of its
products or projected products, and all rights to such Intellectual
Property Right(s) and other
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processes, systems and techniques developed by any employee of Attest
or developed for Attest by any consultant or third party have been duly
and validly assigned to Attest without any restriction or unpaid or
continuing royalty or other obligation. Except as set forth in
Schedule 4.11, no third party and no affiliate, officer, director, or
employee of Attest, nor any associates of any such person, owns or
holds, directly or indirectly, any interest in any Intellectual Property
Right(s) used or planned to be used by Attest. Except as limited by
the Export Control Act, Attest has the unrestricted right to license,
sublicense, or otherwise authorize any party whatsoever, anywhere
in the world, to use and exercise any or all of the Intellectual
Property Right(s), and, except as stated in Schedule 4.11, Attest
has not granted any such license, sublicense, or authority. The
closing and consummation of the transactions contemplated under
this Agreement shall create no restriction under, nor have any
other effect upon, Attest's right in, to, and under any of the
Intellectual property Right(s). Except as expressly set forth in
Schedule 4.11, Attest has not agreed to indemnify any person or
entity for patent, service mark, trade secret, trademark, or
copyright infringement as to any equipment, materials, products,
services, or supplies which Attest produces, uses, provides,
license, leases, sells or distributes. Attest has taken reasonable
security measures to protect the secrecy, confidentiality and value
of its trade secrets.
4.12 Material Contracts
Schedule 4.12 attached hereto identifies all currently existing
contracts, obligations or commitments, whether written or oral (i)
involving payment by Attest of more than $10,000 during the past 12
months, (ii) extending beyond the Closing Date and involving annual
payments by Attest of more than $10,000 during the next 12 months;
or (iii) which are material to the business of Attest, including
without limitation the following:
a. employment, bonus or consulting agreements; pension, profit sharing,
deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements
evidencing rights to purchase securities of Attest;
b. agreements with employees or others as to non-disclosure of
proprietary information and assignment of inventions and
developments;
c. agreements relating to the purchase, sale or license of patents,
copyrights, trade secrets, trade names or other rights to technology
or other intellectual property;
d. loan or other agreements, notes, indentures, or instruments relating
to or evidencing indebtedness for borrowed money, or mortgaging,
pledging, or granting or creating a lien or security interest or
other encumbrance on, any property of Attest; any agreement or
instrument evidencing any guaranty by Attest of payment or
performance by any other person;
e. agreements with dealers, sales representatives, brokers, and other
distributors, jobbers, advertisers or sales agencies;
f. agreements with any labor union or collective bargaining
organization or other labor agreements;
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g. any lease of machinery, equipment, other personal property,
including motor vehicles, and any lease or sublease of real estate
to which Attest is a party;
h. any joint venture contract or arrangement or other agreement
involving a sharing of profits or expenses to which Attest is a
party;
i. agreements limiting the freedom of Attest to compete in any line of
business or in any geographic area or with any person;
j. agreements providing for disposition of the business and assets, or
shares, of Attest; agreements of merger or consolidation to which
Attest is a party other than this Agreement; letters of intent with
respect to the foregoing;
k. agreements involving or letters of intent with respect to the merger
of assets or shares of any other business;
l. powers of attorney granted by Attest; and
m. any other contract, agreement or legal obligation to or with any
director, officer or shareholder.
True and complete copies of the written contracts and commitments
(with all amendments thereto) listed on Schedule 4.12 have been
delivered or made available to Zycad. Except as set forth in
Schedule 4.12, Attest has complied with all material provisions of
the contracts and commitments set forth in Schedule 4.12 hereto and
of all other material contracts and commitments to which it is a
party, and Attest is not in default under any thereof nor has any
party asserted that Attest is in default under any thereof nor, to
the knowledge of the officers of Attest and the Shareholders, does
any condition exist which with the passage of time or the giving of
notice would constitute a default under any thereof.
4.13 Insurance
Attached hereto as Schedule 4.13 is a true, correct and complete
list of all insurance policies and bonds in force in which Attest
is named as an insured party, or for which Attest is named as an
insured party, or for which Attest has paid any premiums, and said
Schedule correctly states the name of the insurer, the name of each
insured party, the type and amount of coverage, the deductible
amounts, if any, the expiration date and the premium of each such
policy or bond. Except as disclosed on said Schedule, all such
policies or bonds are currently in full force and effect. Attest
will continue all of such insurance in full force and effect up to
and including the Closing Date. All premiums due and payable on
such policies have been paid. Attest believes that such insurance
is adequate for the conduct of its business.
4.14 Customers and Suppliers
Attached hereto as Schedule 4.14 is a true, correct and complete
list of the names of all customers and suppliers of Attest who,
have purchased from or sold to Attest or who have entered into
contracts with respect to the purchase from or sale to Attest, of
products or services with an invoice price, before application of
any discounts, offsets or the like, of at
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least $10,000. No customer or supplier of Attest has given Attest
written notice of termination of its relationship with Attest, or
has indicated in writing an intention to terminate its relationship
with Attest, and to the knowledge of the officers of Attest and the
Shareholders, there are no unresolved written complaints or material
disputes existing with any such customer or supplier.
4.15 Compliance
Except as set forth in Schedule 4.15, to the knowledge of the
officers of Attest and the Shareholders, Attest has conducted its
business so as to comply with applicable laws, regulations,
ordinances and codes, including without limitation United States
Department of Commerce export licensing regulations, except where
the failure to so comply would not have a material adverse effect
on the condition (financial or otherwise), assets, liabilities or
business of Attest.
4.16 Employee Matters
a. Schedule 4.16 contains a complete listing of all Attest employee
benefit plans including, but not limited to, all pension,
retirement, employee savings, bonus, profit sharing, stock option,
worker's compensation insurance, group insurance or other employee
welfare or benefit plan (hereinafter "Benefit Plan") in which Attest
either participates or has responsibility. Current copies of those
Benefit Plans have been supplied to Zycad.
b. Attest is in material compliance with, and has filed, published and
disseminated, all reports, documents, statements and communications
required to be filed, published or disseminated by it under the
Employee Retirement Income Security Act of 1974, as amended
(hereinafter referred to as "ERISA"), and the rules and regulations
promulgated under said Act, and each Benefit Plan to which said Act,
rules and regulations are applicable is in substantial compliance
therewith.
c. to the knowledge of Attest, no Benefit Plan listed in Schedule 4.16
or any trustee or administrator thereof, has engaged in any
transaction that is likely to subject any Benefit Plan or the Attest
to tax or penalty or prohibited transactions imposed by Section 4975
of the Code or to a civil penalty imposed by any section of ERISA.
d. no Benefit Plan that is subject to ERISA and whose termination could
create a material liability for Attest has been completely or
partially terminated.
e. to the extent required by their terms or by law, all of the Benefit
Plans have been fully funded and no benefit Plan has incurred any
"accumulated funding deficiency", as such term is defined in Section
412 of the Code, whether or not such deficiency has been waived.
f. except as disclosed in Schedule 4.16, Attest has no obligations for
retiree health and life benefits under any plan.
g. Attest's Stock Option Plan complies with the requirements for
incentive stock option plans under Section 422 of the Code.
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4.17 Employee Benefit Plans
Schedule 4.17 attached hereto is a true, correct and complete list
and summary description of all employee benefit plans maintained by
Attest or Shareholders which cover employees of Attest. There are
no pending or, to the knowledge of the officers of Attest,
threatened claims by or on behalf of any trustee, beneficiary or
other party with rights under any such benefit plans which allege a
breach of fiduciary duties or violations of applicable state or
federal laws which could materially adversely affect the condition
(financial or otherwise), assets, liabilities or business of
Attest, nor, to the knowledge of the officers of Attest any facts
exist which would be the basis for any such claim.
4.18 Warranties; Returned Products
No customer of Attest has the right to return any products
manufactured or supplied by Attest for refund of purchase price or
credit pursuant to any agreement, understanding or practice of
Attest, other than those rights granted to a purchaser under the
terms and conditions of Attest's standard warranty described in
Schedule 4.18 attached hereto, or as set forth and described on
Schedule 4.18. Except as set forth on Schedule 4.18, there are no
existing claims by purchasers requesting or asserting the right to
return any Attest products for refund of purchase price or credit,
or demands for damages of any nature arising out of alleged
defective performance of such products. Attest is not aware of any
warranty, product repair or replacement claims or liabilities
relating to products manufactured or sold by Attest. There is no
reserve for warranty expense on the Balance Sheet.
4.19 Directors, Officers and Employees; Compensation; Bank Accounts;
Certain Transactions
Attached hereto as Schedule 4.19(a) is a true, correct and complete
list of all directors, officers and employees of Attest and the
annual total salary and bonus each is currently being or is
expected to be paid by Attest for the year ended December 31, 1996.
Except as disclosed in Schedule 4.19(a) there are no other forms of
compensation, deferred or otherwise, paid to or accrued for the
account of any such director, officer or employees of Attest. To
the knowledge of the officers of Attest, no officer or key employee
of Attest has expressed an intention (except as specified in
Schedule 4.19(a)) to terminate his or her employment with Attest.
Attached hereto as Schedule 4.19(b) is a true, correct and complete
list of each bank in which Attest has an account or safe deposit
box and the names of all persons authorized to draw funds thereon,
or have access thereto.
Except as set forth in Schedule 4.19(c) attached hereto, to the
knowledge of the officers of Attest, none of Attest's officers or
directors, or their respective spouses, owns directly or
indirectly, individually or collectively, a material interest in
any entity which (i) is a competitor, customer or supplier of
Attest or (ii) has an existing contractual relationship with Attest.
4.20 Litigation
Except as set forth in Schedule 4.20, there is no litigation or
proceeding pending or, to the knowledge of the officers of Attest
or the Shareholders, threatened against Attest, its
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properties or business, or the Shareholders relating to the operations
of Attest, nor is there any pending or, to the knowledge of the officers
of Attest or the Shareholders, threatened governmental investigation
relative to employee safety, discrimination matters, product
safety, wage or price regulations or environmental matters, nor are
there any actions or proceedings pending or proposed in which
Attest or the Shareholders are the plaintiff or petitioner except
as set forth in Schedule 4.20. To the knowledge of the officers of
Attest or the Shareholders, there is no judgment, decree,
injunction, rule or order of any court, arbitrator or governmental
agency against Attest.
4.21 Authority of Shareholders
Each Shareholder and Attest has the legal power and authority to
enter into and perform this Agreement and the transactions
contemplated herein. The execution, delivery and performance of
this Agreement and the other agreements contemplated herein by
Shareholders have been duly authorized by Attest's Board of
Directors. The Shareholders and Attest have the corporate power and
authority to consummate the sale of the Attest Stock pursuant to
this Agreement. This Agreement has been duly and validly
authorized by all necessary corporate action of Attest and will
constitute the legal, valid and binding obligation of Shareholders
and Attest, enforceable in accordance with its terms. Neither the
execution and delivery of this Agreement, nor the consummation of
the transactions contemplated herein, will violate any statute,
regulation or ordinance of any governmental authority, or conflict
with or result in the breach of any term, condition or provision of
the Articles of Incorporation or By-Laws of Attest, or of any
agreement, deed, contract, mortgage, indenture, writ, order,
decree, legal obligation or instrument to which Attest or
Shareholders is a party or by which Attest or any of its assets or
properties are or may be bound, or constitute a default (or an
event which, with the lapse of time or the giving of notice, or
both, would constitute a default) thereunder, or result in the
creation or imposition of any lien, charge or encumbrance, or
restriction of any nature whatsoever with respect to any properties
or assets of Attest, or give to others any interest or rights,
including rights of termination, acceleration or cancellation in or
with respect to any of the properties, assets, contracts or
business of Attest, except for such violations, conflicts,
breaches, defaults, liens, restrictions, interests and rights that
would not, in the aggregate, have a material effect of the
condition (financial or otherwise), assets, liabilities or business
of Attest, or that are cured, waived or terminated prior to the
Closing Date. No consent, approval, authorization, order,
registration or qualification of or with any court or any
regulatory authority or any other governmental body is required for
the consummation by Attest of the transactions contemplated by this
Agreement except those contemplated by this Agreement.
4.22 Brokers
Except as set forth in Schedule 4.22 hereto, neither Zycad nor
Attest nor anyone acting on their behalf has or will have, as a
result of any act or omission of either Shareholders or Attest, any
liability to any broker, finder, agent or other person (other than
legal and accounting advisors) in connection with the transactions
contemplated hereby, nor has Attest or anyone acting on its behalf,
agreed to pay any brokerage, finder's, consulting or investment
banking fee or commission, whether payable in cash, securities or
in any other form with any person, firm or entity with respect to
the transactions contemplated hereby.
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4.23 Disclosure
No representation or warranty by the Shareholders in this
Agreement, nor any statement or certificate furnished or to be
furnished to Zycad pursuant hereto, or in connection with the
transactions contemplated hereby, contains or will contain any
untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statements contained herein
or therein not misleading.
4.24 Disclosures Applicable to All Provisions
Disclosure of any matter in a particular schedule or provision of
Article Four shall constitute disclosure of such matter in each
schedule and section of Article Four to which the item is relevant.
4.25 Representations and Warranties
Shareholders representations and warranties contained in this
Agreement shall be true at the time of Closing as though such
representations and warranties were made at Closing.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF ZYCAD
As inducement to the execution of this Agreement by the parties hereto,
Zycad represents and warrants that the following statements are true and
correct on the date hereof:
5.1 Organization and Standing of Zycad and Subsidiary
Each of Zycad and its subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws
of the jurisdictions of their incorporation, and is duly qualified
to do business as a foreign corporation in each jurisdiction in
which the nature of its business or the character of its properties
makes such qualification necessary, except where the failure to so
qualify would not have a material adverse effect on the condition
(financial or otherwise), assets, liabilities or business of Zycad.
Zycad's Certificate of Incorporation, and all amendments thereto,
and its By-Laws, as amended, copies of which have been delivered to
Shareholders, are complete, correct and in full force and effect at
the date of this Agreement. Zycad has the corporate power and
authority to own, operate and dispose of its properties, to conduct
its business as now being conducted, to enter into, deliver and
perform its obligations and undertakings under this Agreement and
to complete the transactions contemplated herein.
5.2 Authority of Zycad and Subsidiary
Zycad and Subsidiary has the legal power and authority to enter
into and perform this Agreement and the transactions contemplated
herein. The execution, delivery and performance of this Agreement
and the other agreements contemplated herein by Zycad have been
duly authorized by the Board of Directors of Zycad. Zycad has the
corporate power and authority to consummate the purchase of stock
pursuant to this Agreement. This
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Agreement has been duly and validly authorized by all necessary
corporate action of Zycad and constitutes the legal, valid and
binding obligations of Zycad, enforceable in accordance with its
terms. Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated herein, will
violate any statute, regulation or ordinance of any governmental
authority, or conflict with or result in the breach of any term,
condition or provision of the Articles of Incorporation or By-Laws
of Zycad, or of any agreement, deed, contract, mortgage, indenture,
writ, order, decree, legal obligation or instrument to which Zycad is
a party or by which Zycad or any of its assets or properties are or
may be bound, or constitute a default (or an event which, with the
lapse of time or the giving of notice, or both, would constitute a
default) thereunder, or result in the creation or imposition of any
lien, charge or encumbrance, or restriction of any nature
whatsoever with respect to any properties or assets of Zycad, or
give to others any interest or rights, including rights of
termination, acceleration or cancellation in or with respect to any
of the properties, assets, contracts or business of Zycad, except
for such violations, conflicts, breaches, defaults, liens,
restrictions, interests and rights that would not, in the
aggregate, have a material effect on the condition (financial or
otherwise), assets, liabilities or business of Attest, or that
would not, in the aggregate have a material effect on the condition
(financial or otherwise), assets, liabilities or business of Zycad,
or that are cured, waived or terminated prior to the Closing Date.
No consent, approval, authorization, order, registration or
qualification of or with any court or any regulatory authority or
any other governmental body is required for the consummation by
Zycad of the transactions contemplated by this Agreement except
those contemplated by this Agreement.
5.3 Access to information
Zycad has been provided with all information about Attest requested
by it including without limitation all materials referenced in
Article Four or any schedule thereto; it has been provided the
opportunity to ask questions of and receive answers from Attest and
its management and has been supplied all information and
documentary material deemed necessary by it to verify the accuracy
of such information.
5.4 Brokers
Neither Shareholders or Attest nor anyone acting on their behalf
has or will have as a result of any act or omission by Zycad any
liability to any broker, finder, agent or other person (other than
legal and accounting advisors) in connection with the transactions
contemplated hereby, nor has Zycad or anyone acting on its behalf
agreed to pay any brokerage, finder's, consulting or investment
banking fee or commission, whether payable in cash, securities or
in any other form with any person, firm or entity with respect to
the transaction contemplated hereby.
5.5 No Restriction on Shareholders' Disposition of Zycad Stock
The Zycad Stock will not be registered under the Securities Act of
1933, as amended (the "Securities Act"), in reliance upon the
exemption from registration contained in Section 3(a)(10) thereof.
The Zycad Stock can be publicly traded subject only upon the
issuance of an opinion letter by Zycad to its transfer agent and
compliance with the requirements of Rule 145. Zycad will issue
such instructions to its transfer agent as may be necessary for
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Shareholders to sell the Zycad Stock. Zycad has complied or shall
comply with NASD rules with respect to the Zycad Stock and such
Stock shall be approved for full listing on NASDAQ.
5.6 Disclosure
No representation or warranty by Zycad in this Agreement, nor any
statement or certificate furnished or to be furnished to Attest or
Shareholders pursuant hereto, or in connection with the
transactions contemplated hereby, contains or will contain any
untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statements contained herein
or therein not misleading.
5.7 Representations and Warranties
Zycad's representations and warranties contained in this Agreement
shall be true at the time of Closing as though such representations
and warranties were made at Closing.
5.8 Valid Issuance of Zycad Stock
The Zycad Stock has been duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly
issued, fully paid, nonassessable, and issued in compliance with
all applicable federal and Delaware securities laws.
ARTICLE SIX
COVENANTS OF SHAREHOLDERS AND ATTEST
6.1 Operations of Attest
Attest and the Shareholders agree that they will, at all times
subsequent to the date of this Agreement and prior to the Closing
Date, operate Attest's business in the ordinary course consistent
with Attest's past practice, use their best efforts to preserve
intact Attest's present business organization, keep available the
services of Attest's present officers and employees, and preserve
Attest's relationships with customers, suppliers and others having
business relationships with Attest. Attest and the Shareholders
agree that during the period from the date hereof until the Closing
Date they will not, without the consent of Zycad, amend Attest's
Articles of incorporation or By-Laws, enter into any employment or
consulting contract, pay any dividend on Attest's stock, issue
Attest Stock, change any Stock Option Plan or other Employee
Benefit Plan, make any other distribution of assets to Attest's
shareholder, repurchase or make any reduction in any of Attest's
outstanding securities, issue any securities of any nature or grant
any further rights or options to acquire securities of Attest,
increase any compensation payable or to become payable or benefits
to be paid to any officer, employee or agent of Attest, enter into
any contract or commitment on behalf of Attest extending beyond the
date of this Agreement except sales of products and purchase of raw
materials and supplies in the ordinary course of business.
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6.2 No Further Negotiations
Until the Closing Date, or the earlier termination of this
Agreement, Attest and Shareholders will not (i) sell, offer to sell
or solicit offers to purchase any of the assets of Attest (other
than sales of the products of Attest in the ordinary course of
business); or (ii) sell, offer to sell or exchange or solicit
offers to purchase or exchange, any capital stock of Attest, from
any other party (other than Zycad), or enter into any merger,
consolidation, liquidation or similar transaction involving Attest
and any other party (other than Zycad), and Attest and the
Shareholders will not provide confidential, technical or other
information to any person (other than Zycad) in connection with any
such proposed purchase or transaction.
6.3 Access
Attest and the Shareholders shall permit Zycad to make such due
diligence investigation of Attest as Zycad deems appropriate, and
Attest and the Shareholders shall make available to Zycad and its
staff, attorneys, accountants, consultants and other
representatives all information about Attest which Zycad may
reasonably request in connection with such investigation. Unless
and until the transaction contemplated by this Agreement has been
completed, Zycad (and its staff, attorneys accountants, consultants
and other representatives) shall hold all such information and
documents received from Attest or any of its affiliates in
strictest confidence, pursuant to the terms and conditions of the
Confidentiality and Nondisclosure Agreement between Attest and
Zycad. All such information in written form and all such documents
shall be returned to Attest in the event the transactions
contemplated by this Agreement are not completed.
6.4 Public Disclosure
Neither party, nor any of its affiliates shall make any public
announcement or issue any press release concerning the proposed
stock sale without the prior consent of the other except as
required by law.
6.5 Updating of Schedules
Shareholders shall provide Zycad with updates to the Schedules set
forth in Article Four current as of the Closing Date.
ARTICLE SEVEN
CLOSING
The closing of the sale (the "Closing") of the capital stock of Attest shall
take place on June 1, 1996 (the "Closing Date") at a mutually agreeable time
and place (or such other time and place as may be mutually agreeable).
7.1 At the Closing, Shareholders shall deliver to Zycad, free and clear
of all encumbrances certificates for all the issued and outstanding
shares of Attest Stock in negotiable form, endorsed in blank with
all transfer stamps required by government authorities attached
hereto. Upon such delivery and delivery of the other documents
referred to in Article Eight,
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Zycad shall transfer to Shareholders fifty percent (50%) of the
Zycad Stock as adjusted for in Article Two of this Agreement. The
balance of the Zycad Stock shall be delivered into escrow to State
Street Bank and Trust Company as Escrow Agent to be held in escrow
under an Escrow Agreement pursuant to Section 2.4. The Escrow
Agreement shall be in a form reasonably acceptable to the parties
and shall be attached as Exhibit 7.1.
7.2 At Closing, Zycad will offer the Shareholders employment providing
for their continued employment at compensation and benefits at
least equal to what they were receiving at Attest. Attached hereto
as Exhibit 7.2 are copies of each offer letter to the Shareholders.
7.3 In addition, Shareholders shall deliver to Zycad the following
documents at Closing:
a. Minute book, stock transfer book, stock certificate book and
corporate seal of Attest.
b. All original agreements to which Attest is a party.
c. Signed employment agreements with Zycad.
ARTICLE EIGHT
CONDITIONS TO ZYCAD'S OBLIGATION TO CLOSE
The obligation of Zycad to consummate the purchase of Attest Stock is subject
to satisfaction, on or prior to the Closing Date, of the following conditions:
8.1 Attest shall have delivered to Zycad:
a. a certified copy of the resolution or resolutions duly adopted by
the Board of Directors and Shareholders authorizing execution of
this Agreement and the consummation by Attest and the Shareholders
of the transactions contemplated thereby;
b. an opinion in form and substance reasonably satisfactory to counsel
for Zycad, dated the Closing Date, of counsel for Attest. This
legal opinion shall be attached as Exhibit 8.1(b).
c. A Proforma Closing Balance Sheet and Statement of Profit and Loss as
of the Closing Date.
8.2 Shareholders shall have performed in all material respects the
obligations, covenants and undertakings by each herein to be
performed at or prior to the Closing Date including the
cancellation of the Shareholders/Attest inter-company debt if any,
and Zycad shall have received at Closing a certificate, dated the
Closing Date and executed on behalf of Attest by its President and
by each of the Shareholders to that effect.
8.3 The representations and warranties of Attest and the Shareholders
contained in this Agreement, including the schedules thereto, shall
be true in all material respects on and as of
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the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date, and Zycad shall
have received at the Closing a certificate to such effect, dated the
Closing Date and executed on behalf of Attest by its President and
by each of the Shareholders.
8.4 The transfer of Attest Stock pursuant to this Agreement shall not
violate any order, decree or judgment of any court or government
body having competent jurisdiction, and no law, rule, regulation or
order shall have been adopted, by any such body, prohibiting or
enjoining the transactions contemplated by this Agreement or which
would, in the reasonable judgment of Zycad, render it impossible or
inadvisable for Zycad to consummate the transactions contemplated
hereby or to own, operate or control the assets, properties or
business of Attest.
8.5 Attest and Zycad shall have received by the Closing Date all
authorizations and approvals of federal or state regulatory bodies
and officials as may be required in connection with the sale of the
Attest Stock and the transaction contemplated herein.
8.6 The California Department of Corporations shall have issued an
order declaring this transaction to be fair to the Shareholders.
8.7 All employees of Attest have accepted employment with Zycad and
have signed Zycad's Standard Employment Agreement.
8.8 Zycad shall have entered into an Escrow Agreement with State Street
Bank and Trust Company in substantially the form attached hereto as
Exhibit 7.1.
8.9 Receipt of any required third party contracts.
8.10 No shareholder entitled to exercise dissenters rights.
ARTICLE NINE
CONDITIONS TO SHAREHOLDERS' OBLIGATION TO CLOSE
The obligation of Shareholders to consummate the Stock Purchase is subject to
the satisfaction, on or prior to the Closing Date, of the following
conditions:
9.1 Zycad shall have delivered to Shareholders:
a. a certified copy of the resolution or resolutions duly adopted by
the Board of Directors of Zycad authorizing the execution of this
Agreement and the consummation by Zycad of the transactions
contemplated thereby;
b. an opinion in form and substance reasonably satisfactory to counsel
for Shareholders dated the Closing Date, of Zycad's counsel. This
legal opinion shall be attached as Exhibit 9.1(b).
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9.2 Zycad shall have performed in all material respects the
obligations, covenants and undertakings by it herein to be
performed at or prior to the Closing Date; and Shareholders shall
have received at Closing a certificate dated the Closing Date and
executed on behalf of Zycad by a duly authorized officer to that
effect.
9.3 The representations and warranties of Zycad contained in this
Agreement, including the schedules thereto, shall be true in all
material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made
on and as of such date, and Shareholders shall have received at the
Closing a certificate to such effect, dated the Closing Date and
executed on behalf of Zycad by its Chief Executive Officer or Chief
Financial Officer.
9.4 The transfer of Zycad Stock shall not violate any order, decree or
judgment of any court or governmental body having competent
jurisdiction, and no law, rule, regulation, or order shall have
been adopted, by any such body, prohibiting or enjoining the
transactions contemplated by this Agreement or which would, in the
reasonable judgment of Shareholders, render it impossible or
inadvisable for Shareholders to consummate the transactions
contemplated hereby.
9.5 Shareholders and Zycad shall have received by the Closing Date all
authorizations and approvals of federal or state regulatory bodies
and officials as may be required in connection with the sale of the
Attest Stock, and the issuance of the Zycad Stock and the
transactions contemplated herein.
9.6 The California Department of Corporations shall have issued an
order declaring this transaction to be fair to the Shareholders.
9.7 Zycad shall have entered into an Escrow Agreement with State Street
Bank and Trust Company in substantially the form attached hereto as
Exhibit 7.1.
9.8 The Zycad Stock shall be freely transferable and publicly tradable
subject only to the requirements of Rule 145 and subject to no
other restriction or limitation.
ARTICLE TEN
POST CLOSING OBLIGATIONS
Shareholders shall have the following obligations after the Closing Date:
10.1 Shareholders shall indemnify Zycad pursuant to Article Twelve.
10.2 Shareholders shall cooperate with Zycad in the orderly transfer of
its technology, business operations and its books and records.
Zycad shall have the following obligations after the Closing Date:
10.3 Zycad shall indemnify Shareholders pursuant to Article Twelve.
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10.4 Zycad agrees to reimburse Shareholders for the stock brokerage fees
incurred in selling the first $300,000 worth of Zycad stock in the
aggregate for all Shareholders on the condition that Zycad may
select the stockbroker provided, however, that said stockbroker
shall be a market maker as required by Rule 145.
ARTICLE ELEVEN
TERMINATION
11.1 Termination by Mutual Consent
At any time on or prior to the Closing Date, this Agreement may be
terminated by mutual written consent of the Boards of Directors of
Attest and Zycad, without liability on the part of any party.
11.2 Termination at Zycad's Option
At any time on or prior to the Closing Date, this Agreement may be
terminated by Zycad without liability to any party, by written
notice from the Board of Directors of Zycad to Attest, in any of
the following events:
a. Change in Management
There shall have been any change in the management of Attest, either
by death, disability, termination, resignation or otherwise; or
b. Failure of Conditions
The occurrence of any event which in the reasonable opinion of Zycad
renders one or more of the conditions to Zycad's obligations to
close listed in Article Seven hereof impossible to satisfy.
11.3 Termination at Shareholders' Option
At any time on or prior to the Closing Date, this Agreement may be
terminated by the Shareholders without liability to any party, by
written notice from the Shareholders to Zycad, in any of the
following events:
a. Failure of Conditions
The occurrence of any event which in the opinion of Shareholders
renders one or more of the conditions to Shareholders obligations to
close listed in Article Eight hereof impossible to satisfy.
11.4 Additional Rights of Termination
In addition to the other terms of this Article Eleven, this
Agreement may be terminated by written notice from either the Board
of Directors of Zycad or Shareholders to the other parties hereto,
without liability on the part of either party, if the purchase of
the Attest Stock has not been consummated by June 15, 1996 for any
reason whatsoever.
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11.5 Expenses on Termination
Upon termination for any reason pursuant to this Article Eleven,
each party shall bear all of its out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement,
including without limitation all legal, accounting, printing,
travel and other similar fees and expenses.
ARTICLE TWELVE
INDEMNIFICATION
12.1 Indemnification by Shareholders
Subject to the provisions of Section 12.4 and Section 12.1 hereof,
Shareholders agree to indemnify and hold harmless Zycad from and
against any and all loss, liability, damage or deficiency
(including, without limitation, interest, penalties and reasonable
attorneys' fees and disbursements) (collectively "Damages")
actually and reasonably incurred by Zycad (excluding any costs of
internal personnel of Zycad) that:
a. are caused by any breach of any representation, warranty, covenant
or agreement of the Shareholders or Attest contained in this
Agreement; or
b. are based on any undisclosed and valid claims of third parties
related to, based upon or arising out of the operations of Attest
prior to the Closing Date; or
c. represent federal or state taxes attributable to the activities of
Attest prior to the Closing except for state and federal tax
liability arising from the transactions contemplated by this
Agreement; or
d. arise out of an Insurance Claim. As used herein, the term "Insurance
Claim" shall mean any product liability or worker's compensation
claim, or any other claim for general liability of a type covered by
Shareholders comprehensive general liability, product liability or
property insurance, regardless of policy limits or deductible
amounts, which claim arises out of an occurrence prior to the
Closing.
12.2 Indemnification by Zycad
Subject to the provisions of Section 12.4 hereof, Zycad agrees to
indemnify and hold harmless Shareholders from and against any and
all Damages (as defined in Section 12.1 hereof) actually incurred
by Shareholders (excluding any costs of internal personnel of
Shareholders) that:
a. are caused by any breach of any representation, warranty, covenant
or agreement of Zycad contained in this Agreement; or
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b. are based on any claims of third parties related to, based upon or
arising out of the operations of Attest on or after the Closing Date
including but not limited to payments due Attest employees arising
after the Closing Date under any employment agreement or commission
agreement between Attest and employees of Attest; or
c. represent federal or state taxes attributable to the activities of
Attest on or after the Closing Date, except for state and federal
tax liability arising from the transactions contemplated by this
Agreement; or
d. are caused by (i) the release of Escrowed Stock to Shareholders
under Section 2.4 disproportionate to the number of shares of Zycad
Stock the Shareholders received in exchange for their Attest Shares
or (ii) any claim against the Escrowed Stock under Article Twelve
disproportionate to the number of shares of Zycad Stock the
Shareholders received in exchange for their Attest Shares.
12.3 Notice and Opportunity to Defend
Promptly after receipt by Zycad, on the one hand, or the Shareholders,
on the other hand, of notice of any action, proceeding or claim that
could give rise to a right of indemnification pursuant to Section 12.1
or 12.2 hereof, Zycad or Shareholders, as the case may be, shall give
the party who may become obligated to provide indemnification hereunder
(the "Indemnifying Party") written notice describing in reasonable
detail the facts and circumstances surrounding such claim within 10 days
of receiving such notice or otherwise becoming aware of the facts
constituting the claim. The Indemnifying Party shall have the right, at
its option, to compromise or defend, at its own expense and by its own
counsel, any such matter, including but not limited to an asserted
liability against the party seeking such indemnification, provided,
however, that the Indemnifying Party shall not settle a claim against
the Indemnified Party without the Indemnified Party's prior written
consent, which shall not be unreasonably withheld. If any Indemnifying
Party shall undertake to compromise or defend any such asserted
liability, it shall promptly notify the party seeking indemnification
(the "Indemnified Party) of its intention to do so, and the Indemnified
Party shall cooperate fully with the Indemnifying Party and its counsel
in the compromise of, or defense against, any such asserted liability.
In any event, the Indemnified Party shall have the right at its own
expense to participate in the defense of such asserted liability. Under
no circumstances shall the Indemnified Party compromise any such
asserted liability without the written consent of the Indemnifying Party
unless the Indemnifying Party has failed or refused to undertake the
defense or compromise of any such asserted liability after a reasonable
period of time not to exceed thirty (30) days has elapsed since the
Indemnifying Party received notice of a claim for indemnification
pursuant to this Section 12.3 hereof. The parties acknowledge that the
indemnification obligations set forth in this Article 12 were negotiated
between the parties.
12.4 Limitation
a. No indemnity shall be payable to Zycad with respect to any claim
arising under Section 12.1 hereof unless the aggregate amount of
Damages due from Shareholders with respect to all such claims shall
exceed $25,000 in the aggregate, whereupon all amounts then due from
Shareholders with respect to claims aggregating in excess of $25,000
shall be payable on demand, and all such amounts thereafter due from
Shareholders with respect to such claims shall be payable on demand.
This limitation
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shall not apply to claims for indemnification based upon a breach of
the representations and warranties contained in Section 4.5 of this
Agreement.
b. No indemnity shall be payable to Shareholders with respect to any
claim arising under Section 12.2 unless the aggregate amount of
Damages due from Zycad with respect to such claims shall exceed
$25,000 in the aggregate, whereupon all amounts then due from Zycad
with respect to such claims aggregating in excess of $25,000 shall
be payable on demand, and all such amounts thereafter due from Zycad
with respect to such claims shall be payable on demand.
c. The amount of Damages for which the Indemnifying Party may be liable
for indemnification shall be reduced by the amount of any insurance
proceeds received by the Indemnified Party with respect to the claim
that is the subject of indemnification pursuant to this Article
Twelve.
d. All claims for indemnification pursuant to this Article Twelve shall
expire one (1) year from the Closing Date, unless the Indemnifying
Party has received notice of such claim prior to such date.
Notwithstanding the foregoing, all claims for indemnification for
tax liability pursuant to Sections 12.1(c), and 12.2(c) shall not
expire until expiration of the relevant statutes of limitation
applicable to such tax matters.
e. The Escrow shall be the sole and exclusive remedy of Zycad in
connection with any claim, damage, loss, cost, expense, liability,
damage, penalty or obligation arising under or attributable to, or
by reason of or in connection with any rights of Zycad pursuant to
Section 12.1 above under Article Twelve. Zycad shall have the right
to satisfy any indemnity claims first with Escrowed Stock which has
been earned by Shareholders pursuant to Section 2.4. Shareholders
shall not under any circumstances be personally liable for any
indemnification claims by Zycad except to the extent Escrowed Stock
is available.
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ARTICLE THIRTEEN
MISCELLANEOUS
13.1 Survival of Representations and Warranties
All representations and warranties contained here or made in
writing by the parties hereto in connection herewith shall survive
the Closing Date until the first anniversary of the Closing Date,
at which time the representation and warranties shall terminate;
provided, however, that Zycad's representations and warranties in
Sec. 4.5 shall not terminate until the earlier of (i) 30 days after
all Escrowed Stock has been released, or (ii) July 30, 1998.
13.2 Definition of Knowledge
As used herein in connection with a specific representation or
warranty, "knowledge" of the officers of Attest or the Shareholders
or Zycad, as the case may be or "known" to the officers of Attest
or the Shareholders or Zycad means the knowledge of one or more of
such officers following such reasonable inquiry as is appropriate
under the circumstances and in the context of each such
representation or warranty.
13.3 Amendment
This Agreement may be amended, modified or supplemented in whole or
in part at any time by an instrument in writing executed in the
same manner as this Agreement after due authorization by the
respective Board of Directors of the parties hereto.
13.4 Headings
The Article and Section headings in this Agreement and in the Index
are solely for the convenience and reference of the parties hereto,
and are not intended to be descriptive of the entire contents of
any such Articles or Sections and shall not limit or otherwise
affect any of the terms or provisions hereof.
13.5 Entire Agreement
This Agreement and the documents, schedules and exhibits described
herein or attached or delivered pursuant hereto set forth the
entire agreement between the parties hereto with respect to the
transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to the subject
matter hereof. Except as expressly set forth herein, no party is
entitled to rely on any statement not contained herein or any
writing not specifically furnished pursuant hereto.
13.6 Counterparts
This Agreement may be executed in one or more counter parts each of
which shall be deemed to constitute an original and shall become
effective when each of the parties hereto has signed and delivered
to the other parties a copy of this Agreement, whether or not all
parties have signed the same copy.
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13.7 Notices
All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given when received, or when
sent by certified or registered mail, return receipt requested, or
by prepaid telex or telegram, as follows:
a. If to Attest:
Attest Software, Inc.
Attention: President
4677 Old Ironside Drive
Suite 100
Santa Clara, CA 95054
b. If to Zycad:
Zycad Corporation
Attention: Chief Executive Officer
47100 Bayside Parkway
Fremont, CA 94538
or to such other address as shall be designated by any of such
parties to the others by such a notice.
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13.8 Governing Law
This Agreement shall be governed by and construed in accordance
with the laws of California. The prevailing party shall be
entitled to reasonable attorneys' fees and costs incurred in
connection with such litigation.
13.9 Waiver
No waiver of any provision of this Agreement or any rights or
obligations of either party hereunder shall be effective, except
pursuant to a written instrument signed by the party or parties
waiving compliance, and any such waiver shall be effective only in
the specific instance and for the specific purpose stated in such
writing.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
signed in its corporate name by its duly authorized officers all as of the
date first above written.
ZYCAD CORPORATION: ATTEST SOFTWARE INCORPORATED:
By /s/ Peter J. Cassidy By /s/ Henry D. Holt, III
------------------------------------ -------------------------------
Peter J. Cassidy Henry D. Holt III
Executive VP and Chief President
Financial Officer
ZYCAD INTERNATIONAL, INC. SHAREHOLDERS
By /s/ Peter J. Cassidy /s/ Henry D. Holt, III
------------------------------------ -------------------------------
Peter J. Cassidy Henry D. Holt III
Executive VP and Chief
Financial Officer /s/ Alexander Miczo
-------------------------------
Alexander Miczo
/s/ Manzer Masud
-------------------------------
Manzer Masud
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[LOGO]
SILICON VALLEY FINANCIAL SERVICES
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, Ca 95054
(408) 654-1000 - Fax (408) 980-6410
FACTORING AGREEMENT
This Factoring Agreement (the "Agreement") is made on this Seventeenth
day of October, 1996, by and between Silicon Valley Financial Services (a
division of Silicon Valley Bank) ("Buyer") having a place of business at the
address specified above and ZYCAD CORPORATION, A DELAWARE corporation,
("Seller") having its principal place of business and chief executive office
at
Street Address: 47100 Bayside Parkway
City: Fremont
County: Alameda
State: California
Zip code: 94583-9942
Fax: 510/623-4400
1. DEFINITIONS. When used herein, the following terms shall have the
following meanings.
1.1. "Account Balance" shall mean, on any given day, the gross amount of
all Purchased Receivables unpaid on that day.
1.2. "Account Debtor" shall have the meaning set forth in the California
Uniform Commercial Code and shall include any person liable on any Purchased
Receivable, including without limitation, any guarantor of the Purchased
Receivable and any issuer of a letter of credit or banker's acceptance.
1.3. "Adjustments" shall mean all discounts, allowances, returns,
disputes, counterclaims, offsets, defenses, rights of recoupment, rights of
return, warranty claims, or short payments, asserted by or on behalf of any
Account Debtor with respect to any Purchased Receivable.
1.4. "Administrative Fee" shall have the meaning as set forth in Section
3.3 hereof.
1.5. "Advance" shall have the meaning set forth in Section 2.2 hereof.
1.6. "Collateral" shall have the meaning set forth in Section 8 hereof.
1.7. "Collections" shall mean all good funds received by Buyer from or
on behalf of an Account Debtor with respect to Purchased
Receivables.
1.8. "Compliance Certificate" shall mean a certificate, in a form
provided by Buyer to Seller, which contains the certification of the chief
financial officer of Seller that, among other things, the representations and
warranties set forth in this Agreement are true and correct as of the date
such certificate is delivered.
1.9. "Event of Default" shall have the meaning set forth in Section 9
hereof.
1.10. "Finance Charges" shall have the meaning set forth in Section 3.2
hereof.
1.11. "Invoice Transmittal" shall mean a writing signed by an authorized
representative of Seller which accurately identifies the receivables which
Buyer, at its election, may purchase, and includes for each such receivable
the correct amount owed by the Account Debtor, the name and address of the
Account Debtor, the invoice number, the invoice date and the account code.
1.12. "Obligations" shall mean all advances, financial accommodations,
liabilities, obligations, covenants and duties owing, arising, due or
payable by Seller to Buyer of any kind or nature, present or future, arising
under or in connection with this Agreement or under any other document,
instrument or agreement, whether or not evidenced by any note, guarantee or
other instrument, whether arising on account or by overdraft, whether direct
or indirect (including those acquired by assignment) absolute or contingent,
primary or secondary, due or to become due, now owing or hereafter arising,
and however acquired; including, without limitation, all Advances, Finance
Charges, Administrative Fees, interest, Repurchase Amounts, fees, expenses,
professional fees and attorneys' fees and any other sums chargeable to Seller
hereunder or otherwise.
1.13. "Purchased Receivables" shall mean all those accounts,
receivables, chattel paper, instruments, contract rights, documents, general
intangibles, letters of credit, drafts, bankers acceptances, and rights to
payment, and all proceeds thereof (all of the foregoing being referred to as
"receivables"), arising out of the invoices and other agreements identified
on or delivered with any Invoice Transmittal delivered by Seller to Buyer
which Buyer elects to purchase and for which Buyer makes an Advance.
1.14. "Refund" shall have the meaning set forth in Section 3.5 hereof.
1.15. "Reserve" shall have the meaning set forth in Section 2.4 hereof.
1.16. "Repurchase Amount" shall have the meaning set forth in Section
4.2 hereof.
1.17. "Reconciliation Date" shall mean the last calendar day of each
Reconciliation Period.
1.18. "Reconciliation Period" shall mean each calendar month of every
year.
2. PURCHASE AND SALE OF RECEIVABLES.
2.1. OFFER TO SELL RECEIVABLES. During the term hereof, and provided
that there does not then exist any Event of Default or any event that with
notice, lapse of time or otherwise would constitute an Event of Default,
Seller may request that Buyer purchase receivables and Buyer may, in its sole
discretion, elect to purchase receivables. Seller shall deliver to Buyer an
Invoice Transmittal with respect to any receivable for which a request for
purchase is made. An authorized representative of Seller shall sign each
Invoice Transmittal delivered to Buyer. Buyer shall be entitled to rely on
all the information provided by Seller to Buyer on or with the Invoice
Transmittal and to rely on the signature on any Invoice Transmittal as an
authorized signature of Seller.
2.2. ACCEPTANCE OF RECEIVABLES. Buyer shall have no obligation to
purchase any receivable listed on an Invoice Transmittal. Buyer may exercise
its sole discretion in approving the credit of each Account Debtor before
buying any receivable. Upon acceptance by Buyer of all or any of the
receivables described on any Invoice Transmittal, Buyer shall pay to Seller
80(%) percent of the face amount of each receivable Buyer desires to
purchase. Such payment shall be the "Advance" with respect to such
receivable. Buyer may, from time to time, in its sole discretion, change the
percentage of the Advance. Upon Buyer's acceptance of the receivable and
payment to Seller of the Advance, the receivable shall become a "Purchased
Receivable." It shall be a condition to each Advance that (i) all of the
representations and warranties set forth in Section 6 of this Agreement be
true and correct on and as of the date of the related Invoice Transmittal and
on and as of the date of such Advance as though made at and as of each such
date, and (ii) no Event of Default or any event or condition that with
notice, lapse of time or otherwise would constitute an Event of Default shall
have occurred and be continuing, or would result from such Advance.
Notwithstanding the foregoing, in no event shall the aggregate amount of all
Purchased Receivables outstanding at any time exceed Three Million One
Hundred Twenty Five Thousand and No/100 **** Dollars ($3,125,000.00).
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2.3 EFFECTIVENESS OF SALE TO BUYER. Effective upon Buyer's payment of
an Advance, and for and in consideration therefor and in consideration of the
covenants of this Agreement, Seller hereby absolutely sells, transfers and
assigns to Buyer, all of Seller's right, title and interest in and to each
Purchased Receivable and all monies due or which may become due on or with
respect to such Purchased Receivable. Buyer shall be the absolute owner of
each Purchased Receivable. Buyer shall have, with respect to any goods
related to the Purchased Receivable, all the rights and remedies of an unpaid
seller under the California Uniform Commercial Code and other applicable law,
including the rights of replevin, claim and delivery, reclamation and
stoppage in transit.
2.4 ESTABLISHMENT OF A RESERVE. Upon the purchase by Buyer of each
Purchased Receivable, Buyer shall establish a reserve. The reserve shall be
the amount by which the face amount of the Purchased Receivable exceeds the
Advance on that Purchased Receivable (the "Reserve"); provided, the Reserve
with respect to all Purchased Receivables outstanding at any one time shall
be an amount not less than 20(%) percent of the Account Balance at that time
and may be set at a higher percentage at Buyer's sole discretion. The reserve
shall be a book balance maintained on the records of Buyer and shall not be a
segregated fund.
3. COLLECTIONS, CHARGES AND REMITTANCES.
3.1 COLLECTIONS. Upon receipt by Buyer of Collections, Buyer shall
promptly credit such Collections to Seller's Account Balance on a daily
basis; provided, that if Seller is in default under this Agreement, Buyer
shall apply all Collections to Seller's Obligations hereunder in such order
and manner as Buyer may determine. If an item of collection is not honored or
Buyer does not receive good funds for any reason, the amount shall be
included in the Account Balance as if the Collections had not been received
and Finance Charges under Section 3.2 shall accrue thereon.
3.2 FINANCE CHARGES. On each Reconciliation Date Seller shall pay to
Buyer a finance charge in an amount equal to 1.5(%) percent per month of the
average daily Account Balance outstanding during the applicable Reconciliation
Period (the "Finance Charges"). Buyer shall deduct the accrued Finance
Charges from the Reserve as set forth in Section 3.5 below.
3.3 ADMINISTRATIVE FEE. On each Reconciliation Date Seller shall pay
to Buyer an Administrative Fee equal to .80(%) percent of the face amount of
each Purchased Receivable first purchased during that Reconciliation Period
(the "Administrative Fee"). Buyer shall deduct the Administrative Fee from
the Reserve as set forth in Section 3.5 below.
3.4 ACCOUNTING. Buyer shall prepare and send to Seller after the close
of business for each Reconciliation Period, an accounting of the transactions
for that Reconciliation Period, including the amount of all Purchased
Receivables, all Collections, Adjustments, Finance Charges, and the
Administrative Fee. The accounting shall be deemed correct and conclusive
unless Seller makes written objection to Buyer within thirty (30) days after
the Buyer mails the accounting to Seller.
3.5 REFUND TO SELLER. Provided that there does not then exist an Event
of Default or any event or condition that with notice, lapse of time or
otherwise would constitute an Event of Default, Buyer shall refund to Seller
by check after the Reconciliation Date, the amount, if any, which Buyer owes
to Seller at the end of the Reconciliation Period according to the accounting
prepared by Buyer for that Reconciliation Period (the "Refund"). The Refund
shall be an amount equal to:
(A) (1) The Reserve as of the beginning of that Reconciliation
Period, PLUS
(2) the Reserve created for each Purchased Receivable purchased
during that Reconciliation Period,
MINUS
(B) The total for that Reconciliation Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(3) Adjustments;
(4) Repurchase Amounts, to the extent Buyer has agreed to
accept payment thereof by deduction from the Refund;
(5) the Reserve for the Account Balance as of the first day of
the following Reconciliation Period in the minimum
percentage set forth in Section 2.4 hereof; and
(6) all amounts due, including professional fees and expenses,
as set forth in Section 12 for which oral or written demand has been made by
Buyer to Seller during that Reconciliation Period to the extent Buyer has
agreed to accept payment thereof by deduction from the Refund.
In the event the formula set forth in this Section 3.5 results in an amount
due to Buyer from Seller, Seller shall make such payment in the same manner
as set forth in Section 4.3 hereof for repurchases. If the formula set forth
in this Section 3.5 results in an amount due to Seller from Buyer, Buyer
shall make such payment by check, subject to Buyer's rights under Section 4.3
and Buyer's rights of offset and recoupment.
4. RECOURSE AND REPURCHASE OBLIGATIONS.
4.1 RECOURSE. Buyer's acquisition of Purchased Receivables from Seller
shall be with full recourse against Seller. In the event the Obligations
exceed the amount of Purchased Receivables and Collateral, Seller shall be
liable for any deficiency.
4.2 SELLER'S AGREEMENT TO REPURCHASE. Seller agrees to pay to Buyer on
demand, the full face amount, or any unpaid portion, of any Purchased
Receivable:
(A) which remains unpaid ninety (90) calendar days after the
invoice date; or
(B) which is owned by any Account Debtor who has filed, or has had
filed against it, any bankruptcy case, assignment for the benefit
of creditors, receivership, or insolvency proceeding or who has
become insolvent (as defined in the United States Bankruptcy Code)
or who is generally not paying its debts as such debts become due;
or
(C) with respect to which there has been any breach of warranty or
representation set forth in Section 6 hereof or any breach of any
covenant contained in this Agreement; or
(D) with respect to which the Account Debtor asserts any discount,
allowance, return, dispute, counterclaim, offset, defense, right of
recoupment, right of return, warranty claim, or short payment;
together with all reasonable attorneys' and professional fees and expenses
and all court costs incurred by Buyer in collecting such Purchased Receivable
and/or enforcing its rights under, or collecting amounts owed by Seller in
connection with, this Agreement (collectively, the "Repurchase Amount").
4.3 SELLER'S PAYMENT OF THE REPURCHASE AMOUNT OR OTHER AMOUNTS DUE
BUYER. When any Repurchase Amount or other amount owing to Buyer becomes
due, Buyer shall inform Seller of the manner of payment which may be any one
or more of the following in Buyer's sole discretion: (a) in cash immediately
upon demand therefor; (b) by delivery of substitute invoices and an Invoice
Transmittal acceptable to Buyer which shall thereupon become Purchased
Receivables; (c) by adjustment to
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<PAGE>
the Reserve pursuant to Section 3.5 hereof; (d) by deduction from or offset
against the Refund that would otherwise be due and payable to Seller; (e) by
deduction from or offset against the amount that otherwise would be forwarded
to Seller in respect of any further Advances that may be made by Buyer; or
(f) by any combination of the foregoing as Buyer may from time to time choose.
4.4 SELLER'S AGREEMENT TO REPURCHASE ALL PURCHASED RECEIVABLES. Upon
and after the occurrence of an Event of Default, Seller shall, upon Buyer's
demand (or, in the case of an Event of Default under Section 9(B),
immediately without notice or demand from Buyer) repurchase all the Purchased
Receivables then outstanding, or such portion thereof as Buyer may demand.
Such demand may, at Buyer's option, include and Seller shall pay to Buyer
immediately upon demand, cash in an amount equal to the Advance with respect
to each Purchased Receivable then outstanding together with all accrued
Finance Charges, Adjustments, Administrative Fees, attorney's and professional
fees, court costs and expenses as provided for herein, and any other
Obligations. Upon receipt of payment in full of the Obligations, Buyer shall
immediately instruct Account Debtors to pay Seller directly, and return to
Seller any Refund due to Seller. For the purpose of calculating any Refund
due under this Section only, the Reconciliation Date shall be deemed to be
the date Buyer receives payment in good funds of all the Obligations as
provided in this Section 4.4.
5. POWER OF ATTORNEY. Seller does hereby irrevocably appoint Buyer and its
successors and assigns as Seller's true and lawful attorney in fact, and
hereby authorizes Buyer, regardless of whether there has been an Event of
Default, (a) to sell, assign, transfer, pledge, compromise, or discharge the
whole or any part of the Purchased Receivables; (b) to demand, collect,
receive, sue, and give releases to any Account Debtor for the monies due or
which may become due upon or with respect to the Purchased Receivables and to
compromise, prosecute, or defend any action, claim, case or proceeding
relating to the Purchased Receivables, including the filing of a claim or the
voting of such claims in any bankruptcy case, all in Buyer's name or Seller's
name, as Buyer may choose; (c) to prepare, file and sign Seller's name on any
notice, claim, assignment, demand, draft, or notice of or satisfaction of
lien or mechanics' lien or similar document with respect to Purchased
Receivables; (d) to notify all Account Debtors with respect to the Purchased
Receivables to pay Buyer directly; (e) to receive, open, and dispose of all
mail addressed to Seller for the purpose of collecting the Purchased
Receivables; (f) to endorse Seller's name on any checks or other forms of
payment on the Purchased Receivables; (g) to execute on behalf of Seller any
and all instruments, documents, financing statements and the like to perfect
Buyer's interests in the Purchased Receivables and Collateral; and (h) to do
all acts and things necessary or expedient, in furtherance of any such
purposes. If Buyer receives a check or item which is payment for both a
Purchased Receivable and another receivable, the funds shall first be applied
to the Purchased Receivable and, so long as there does not exist an Event of
Default or an event that with notice, lapse of time or otherwise would
constitute an Event of Default, the excess shall be remitted to Seller. Upon
the occurrence and continuation of an Event of Default, all of the power of
attorney rights granted by Seller to Buyer hereunder shall be applicable with
respect to all Purchased Receivables and all Collateral.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
6.1 RECEIVABLES' WARRANTIES, REPRESENTATIONS AND COVENANTS. To induce
Buyer to buy receivables and to render its services to Seller, and with full
knowledge that the truth and accuracy of the following are being relied upon
by the Buyer in determining whether to accept receivables as Purchased
Receivables, Seller represents, warrants, covenants and agrees, with respect
to each Invoice Transmittal delivered to Buyer and each receivable described
therein, that:
(A) Seller is the absolute owner of each receivable set forth
in the Invoice Transmittal and has full legal right to sell,
transfer and assign such receivables;
(B) The correct amount of each receivable is as set forth in the
Invoice Transmittal and is not in dispute;
(C) The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future and any
and all obligations required of the Seller have been fulfilled as
of the date of the Invoice Transmittal;
(D) Each receivable set forth on the Invoice Transmittal is based
on an actual sale and delivery of goods and/or services actually
rendered, is presently due and owing to Seller, is not past due or
in default, has not been previously sold, assigned, transferred, or
pledged, and is free of any and all liens, security interests and
encumbrances other than liens, security interests or encumbrances
in favor of Buyer or any other division or affiliate of Silicon
Valley Bank;
(E) There are no defenses, offsets, or counterclaims against any
of the receivables, and no agreement has been made under which the
Account Debtor may claim any deduction or discount, except as
otherwise stated in the Invoice Transmittal;
(F) Each Purchased Receivable shall be the property of the Buyer
and shall be collected by Buyer, but if for any reason it should be
paid to Seller, Seller shall promptly notify Buyer of such payment,
shall hold any checks, drafts, or monies so received in trust for
the benefit of Buyer, and shall promptly transfer and deliver the
same to the Buyer;
(G) Buyer shall have the right of endorsement, and also the right
to require endorsement by Seller, on all payments received in
connection with each Purchased Receivable and any proceeds of
Collateral;
(H) Seller, and to Seller's best knowledge, each Account Debtor
set forth in the Invoice Transmittal, are and shall remain solvent
as that term is defined in the United States Bankruptcy Code and
the California Uniform Commercial Code, and no such Account Debtor
has filed or had filed against it a voluntary or involuntary
petition for relief under the United States Bankruptcy Code;
(I) Each Account Debtor named on the Invoice Transmittal will not
object to the payment for, or the quality or the quantity of the
subject matter of, the receivable and is liable for the amount set
forth on the Invoice Transmittal;
(J) Each Account Debtor shall promptly be notified, after
acceptance by Buyer, that the Purchased Receivable has been
transferred to and is payable to Buyer, and seller shall not take
or permit any action to countermand such notification; and
(K) All receivables forwarded to and accepted by Buyer after the
date hereof, and thereby becoming Purchased Receivables, shall
comply with each and every one of the foregoing representations,
warranties, covenants and agreements referred to above in this
Section 6.1.
6.2 ADDITIONAL WARRANTIES, REPRESENTATIONS AND COVENANTS. In addition
to the foregoing warranties, representations and covenants, to induce Buyer
to buy receivables and to render its services to Seller, Seller hereby
represents, warrants, covenants and agrees that:
(A) Seller will not assign, transfer, sell, or grant, or permit
any lien or security interest in any Purchased Receivables or
Collateral to or in favor of any other party, without Buyer's prior
written consent;
(B) The Seller's name, form of organization, chief executive
office, and the place where the records concerning all Purchased
Receivables and Collateral are kept is set forth at the beginning
of this Agreement, Collateral is located only at the location set
forth in the beginning of this Agreement, or, if located at any
additional location, as set forth on a schedule attached to this
Agreement, and Seller will give Buyer at least thirty (30) days
prior written notice if such name, organization, chief executive
office or other locations of Collateral or records concerning
Purchased Receivables or Collateral is changed or added and shall
execute any documents necessary to perfect Buyer's interest in the
Purchased Receivables and the Collateral;
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<PAGE>
(C) Seller shall (i) pay all of its normal gross payroll for
employees, and all federal and state taxes, as and when due,
including without limitation all payroll and withholding taxes and
state sales taxes; (ii) deliver at any time and from time to time
at Buyer's request, evidence satisfactory to Buyer that all such
amounts have been paid to the proper taxing authorities; and (iii)
if requested by Buyer, pay its payroll and related taxes through a
bank or an independent payroll service acceptable to Buyer.
(D) Seller has not, as of the time Seller delivers to Buyer an
Invoice Transmittal, or as of the time Seller accepts any Advance
from Buyer, filed a voluntary petition for relief under the United
States Bankruptcy Code or had filed against it an involuntary
petition for relief;
(E) If Seller owns, holds or has any interest in, any copyrights
(whether registered, or unregistered), patents or trademarks, and
licenses of any of the foregoing, such interest has been disclosed
to Buyer and is specifically listed and identified on a schedule to
this Agreement, and seller shall immediately notify Buyer if Seller
hereafter obtains any interest in any additional copyrights,
patents, trademarks or licenses that are significant in value or
are material to the conduct of its business; and
(F) Seller shall provide Buyer with a Compliance Certificate (i)
on a quarterly basis to be received by Buyer no later than the
fifth calendar day following each calendar quarter, and; (ii) on a
more frequent or other basis if and as requested by Buyer.
7. ADJUSTMENTS. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6.1, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall
promptly advise Buyer and shall, subject to the Buyer's approval, resolve
such disputes and advise Buyer of any adjustments. Unless the disputed
Purchased Receivable is repurchased by Seller and the full Repurchase Amount
is paid, Buyer shall remain the absolute owner of any Purchased Receivable
which is subject to Adjustment or repurchase under Section 4.2 hereof, and
any rejected, returned, or recovered personal property, with the right to
take possession thereof at any time. If such possession is not taken by
Buyer, Seller is to resell it for Buyer's account at Seller's expense with
the proceeds made payable to Buyer. While Seller retains possession of said
returned goods, Seller shall segregate said goods and mark them "property of
Silicon Valley Financial Services."
8. SECURITY INTEREST. To secure the prompt payment and performance to
Buyer of all of the Obligations, Seller hereby grants to Buyer a continuing
lien upon and security interest in all of Seller's now existing or hereafter
arising rights and interest in the following, whether now owned or existing
or hereafter created, acquired, or arising, and wherever located
(collectively, the "Collateral");
(A) All accounts, receivables, contract rights, chattel paper,
instruments, documents, letters of credit, bankers acceptances,
drafts, checks, cash, securities, and general intangibles
(including, without limitation, all claims, causes of action,
deposit accounts, guaranties, rights in and claims under insurance
policies (including rights to premium refunds), rights of tax
refunds, copyrights, patents, trademarks, rights in and under
license agreements, and all other intellectual property);
(B) All inventory, including Seller's rights to any returned or
rejected goods, with respect to which Buyer shall have all the
rights of any unpaid seller, including the rights of replevin,
claim and delivery, reclamation, and stoppage in transit;
(C) All monies, refunds and other amounts due Seller, including,
without limitation, amounts due Seller under this Agreement
(including Seller's right of offset and recoupment);
(D) All equipment, machinery, furniture, furnishings, fixtures,
tools, supplies and motor vehicles;
(E) All farm products, crops, timber, minerals and the like
(including oil and gas);
(F) All accessions to, substitutions for, and replacements of, all
of the foregoing;
(G) All books and records pertaining to all of the foregoing; and
(H) All proceeds of the foregoing, whether due to voluntary or
involuntary disposition, including insurance proceeds.
Seller is not authorized to sell, assign, transfer or otherwise
convey any Collateral without Buyer's prior written consent, except for the
sale of finished inventory in the Seller's usual course of business. Seller
agrees to sign UCC financing statements, in a form acceptable to Buyer, and
any other instruments and documents requested by Buyer to evidence, perfect,
or protect the interests of Buyer in the Collateral. Seller agrees to deliver
to Buyer the originals of all instruments, chattel paper and documents
evidencing or related to Purchased Receivables and Collateral.
9. DEFAULT. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder.
(A) Seller fails to pay any amount owed to Buyer as and when due;
(B) There shall be commenced by or against Seller any voluntary or
involuntary case under the United States Bankruptcy Code, or any
assignment for the benefit of creditors, or appointment of a
receiver or custodian for any of its assets;
(C) Seller shall become insolvent in that its debts are greater
than the fair value of its assets, or Seller is generally not
paying its debts as they become due or is left with unreasonably
small capital;
(D) Any involuntary lien, garnishment, attachment or the like is
issued against or attaches to the Purchased Receivables or any
Collateral;
(E) Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to
Buyer's satisfaction within ten (10) days after Buyer has given
Seller oral or written notice thereof; provided, that if such
breach is incapable of being cured it shall constitute an immediate
default hereunder;
(F) Seller is not in compliance with, or otherwise is in default
under, any term of any document, instrument or agreement evidencing
a debt, obligation or liability of any kind or character of Seller,
now or hereafter existing, in favor of Buyer or any division or
affiliate of Silicon Valley Bank, regardless of whether such debt,
obligation or liability is direct or indirect, primary or
secondary, joint, several or joint and several, or fixed or
contingent, together with any and all renewals and extensions of
such debts, obligations and liabilities, or any part thereof;
(G) An event of default shall occur under any guaranty executed by
any guarantor of the Obligations of Seller to Buyer under this
Agreement, or any material provision of any such guaranty shall for
any reason cease to be valid or enforceable or any such guaranty
shall be repudiated or terminated, including by operation of law;
(H) A default or event of default shall occur under any agreement
between Seller and any creditor of Seller that has entered into a
subordination agreement with Buyer; or
(I) Any creditor that has entered into a subordination agreement
with Buyer shall breach any of the terms of or not comply with such
subordination agreement.
10. REMEDIES UPON DEFAULT. Upon the occurrence of an Event of Default, (1)
without implying any obligation to buy receivables, Buyer may cease buying
receivables or extending any financial accommodations to Seller; (2) all or a
portion of the Obligations shall be, at the option of and upon demand by
Buyer, or with respect to an Event of Default described in Section 9(B),
automatically and without notice or demand, due and payable in full; and (3)
Buyer shall have and may exercise all the rights and remedies under this
Agreement and under applicable law, including the rights and remedies of a
secured party under the California Uniform Commercial Code, all the power of
attorney rights described in Section 5 with respect to all Collateral, and
the right to collect, dispose of, sell, lease, use, and realize upon all
Purchased Receivables and all Collateral in any commercial reasonable manner.
Seller and Buyer agree that any notice of sale required to be given to Seller
shall be deemed
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<PAGE>
to be reasonable if given five (5) days prior to the date on or after which
the sale may be held. In the event that the Obligations are accelerated
hereunder, Seller shall repurchase all of the Purchased Receivables as set
forth in Section 4.4.
11. ACCRUAL OF INTEREST. If any amount owed by Seller hereunder is not
paid when due, including, without limitation, amounts due under Section 3.5,
Repurchase Amounts, amounts due under Section 12, and any other Obligations,
such amounts shall bear interest at a per annum rate equal to the per annum
rate of the Finance Charges until the earlier of (i) payment in good funds or
(ii) entry of a final judgment thereof, at which time the principal amount of
any money judgment remaining unsatisfied shall accrue interest at the highest
rated allowed by applicable law.
12. FEES, COSTS AND EXPENSES; INDEMNIFICATION. The Seller will pay to
Buyer immediately upon demand all fees, costs and expenses (including fees of
attorneys and professionals and their costs and expenses) that Buyer incurs
or may from time to time impose in connection with any of the following: (a)
preparing, negotiating, administering, and enforcing this Agreement or any
other agreement executed in connection herewith, including any amendments,
waivers or consents in connection with any of the foregoing, (b) any
litigation or dispute (whether instituted by Buyer, Seller or any other
person) in any way relating to the Purchased Receivables, the Collateral,
this Agreement or any other agreement executed in connection herewith or
therewith, (d) enforcing any rights against Seller or any guarantor, or any
Account Debtor, (e) protecting or enforcing its interest in the Purchased
Receivables or the Collateral, (f) collecting the Purchased Receivables and
the Obligations, and (g) the representation of Buyer in connection with any
bankruptcy case or insolvency proceeding involving Seller, any Purchased
Receivable, the Collateral, any Account Debtor, or any guarantor. Seller
shall indemnify and hold Buyer harmless from and against any and all
claims, actions, damages, costs, expenses, and liabilities of any nature
whatsoever arising in connection with any of the foregoing.
13. SEVERABILITY, WAIVER, AND CHOICE OF LAW. In the event that any
provision of this Agreement is deemed invalid by reason of law, this
Agreement will be construed as not containing such provision and the
remainder of the Agreement shall remain in full force and effect. Buyer
retains all of its rights, even if it makes an Advance after a default. If
Buyer waives a default, it may enforce a later default. Any consent or waiver
under, or amendment of, this Agreement must be in writing. Nothing contained
herein, or any action taken or not taken by Buyer at any time, shall be
construed at any time to be indicative of any obligation or willingness on
the part of Buyer to amend this Agreement or to grant to Seller any waivers
or consents. This Agreement has been transmitted by Seller to Buyer at
Buyer's office in the State of California and has been executed and accepted
by Buyer in the State of California. This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of California.
14. ACCOUNT COLLECTION SERVICES. Certain Account Debtors may require or
prefer that all of Seller's receivables be paid to the same address and/or
party, or Seller and Buyer may agree that all receivables with respect to
certain Account Debtors be paid to one party. In such event Buyer and Seller
may agree that Buyer shall collect all receivables whether owned by Seller or
Buyer and (provided that there does not then exist an Event of Default or
event that with notice, lapse or time or otherwise would constitute an Event
of Default, and subject to Buyer's rights in the Collateral) Buyer agrees to
remit to Seller the amount of the receivables collections it receives with
respect to receivables other than Purchased Receivables. It is understood and
agreed by Seller that this Section does not impose any affirmative duty on
Buyer to do any act other than to turn over such amounts. All such
receivables and collections are Collateral and in the event of Seller's
default hereunder, Buyer shall have no duty to remit collections of
Collateral and may apply such collections to the obligations hereunder and
Buyer shall have the rights of a secured party under the California Uniform
Commercial Code.
15. NOTICES. All notices shall be given to Buyer and Seller at the
addresses or faxes set forth on the first page of this Agreement and shall be
deemed to have been delivered and received: (a) if mailed, three (3) calendar
days after deposited in the United States mail, first class, postage
pre-paid, (b) one (1) calendar day after deposit with an overnight mail or
messenger service; or (c) on the same date of confirmed transmission if sent
by hand delivery, telecopy, telefax or telex.
16. JURY TRIAL. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THE FOREGOING
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT;
AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS
DETERMINED FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL
COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.
17. TERM AND TERMINATION. The term of this Agreement shall be for one
(1) year from the date hereof, and from year to year thereafter unless
terminated in writing by Buyer or Seller. Seller and Buyer shall each have
the right to terminate this Agreement at any time. Notwithstanding the
foregoing, any termination of this Agreement shall not affect Buyer's
security interest in the Collateral and Buyer's ownership of the Purchased
Receivables, and this Agreement shall continue to be effective, and Buyer's
rights and remedies hereunder shall survive such termination, until all
transactions entered into and Obligations incurred hereunder or in connection
herewith have been completed and satisfied in full.
18. TITLES AND SECTION HEADINGS. The titles and section headings used
herein are for convenience only and shall not be used in interpreting this
Agreement.
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<PAGE>
19. OTHER AGREEMENTS. The terms and provisions of this Agreement shall
not adversely affect the rights of Buyer or any other division or affiliate of
Silicon Valley Bank under any other document, instrument or agreement. The
terms of such other documents, instruments and agreements shall remain in
full force and effect notwithstanding the execution of this Agreement. In the
event of a conflict between any provision of this Agreement and any provision
of any other document, instrument or agreement between Seller on the one hand,
and Buyer or any other division or affiliate of Silicon Valley Bank on the
other hand, Buyer shall determine in its sole discretion which provision
shall apply. Seller acknowledges specifically that any security agreements,
liens and/or security interests currently securing payment of any obligations
of Seller owing to Buyer or any other division or affiliate of Silicon Valley
Bank also secure Seller's obligations under this Agreement, and are valid and
subsisting and are not adversely affected by execution of this Agreement.
Seller further acknowledges that (a) any collateral under other outstanding
security agreements or other documents between Seller and Buyer or any other
division or affiliate of Silicon Valley Bank secures the obligations of Seller
under this Agreement and (b) a default by Seller under this Agreement
constitutes a default under other outstanding agreements between Seller and
Buyer or any other division or affiliate of Silicon Valley Bank.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the
day and year above written.
SELLER: ZYCAD CORPORATION
By /s/ Doug E. Klint
-------------------------------------
Title VP, Secretary & General Counsel
----------------------------------
BUYER: SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By
-------------------------------------
Title
----------------------------------
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<PAGE>
[LOGO]
SILICON VALLEY FINANCIAL SERVICES
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
(408) 654-1000 - Fax (408) 980-6410
SECRETARY'S CERTIFICATE OF RESOLUTION
The undersigned, as Secretary of Zycad Corporation, a Delaware
corporation (the "Corporation"), hereby certifies to Silicon Valley Financial
Services that at a meeting duly convened at which a quorum was present the
following resolutions were adopted by the Board of Directors of the
Corporation and that such resolutions have not been modified, amended, or
rescinded in any respect and are in full force and effect as of today's date.
RESOLVED, that this corporation be and hereby is authorized to sell this
corporation's accounts receivable to Silicon Valley Financial Services, a
division of Silicon Valley Bank, and to grant Silicon Valley Financial
Services a security interest in this corporation's assets, including, without
limitation, accounts, accounts receivable, contract rights, chattel paper,
general intangibles, instruments, documents, letters of credit, drafts,
inventory and equipment, presently owned or hereafter acquired and proceeds
and products of the foregoing (the "Collateral," as defined in the Factoring
Agreement).
RESOLVED, that this corporation be and hereby is authorized and directed
to execute and deliver certain agreements in connection with the sale of
receivables, and granting of security interests in the Collateral to Silicon
Valley Financial Services including, without limitations, a Factoring
Agreement and UCC-1 financial statement.
RESOLVED, that the following named officers of this corporation
("Authorized Officers") be, and any of them hereby are, authorized,
empowered, and directed to execute and deliver to Silicon Valley Financial
Services on behalf of this corporation all such further agreements and
instruments as may be deemed necessary or advisable in order to fully
effectuate the purposes and intent of the foregoing resolutions.
Print Names of Authorized Officers: Title:
Phillips W. Smith CEO
- ---------------------------------------- ------------------------------------
Doug E. Klint VP and General Counsel, Secretary
- ---------------------------------------- ------------------------------------
STEPHEN A. FLORY Corporate Controller
- ---------------------------------------- ------------------------------------
- ---------------------------------------- ------------------------------------
- ---------------------------------------- ------------------------------------
- ---------------------------------------- ------------------------------------
RESOLVED, that the Secretary or Assistant Secretary of this corporation
be, and hereby is authorized, empowered and directed to certify to the
passage of the foregoing resolutions under the seal of this corporation.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this
Seventeenth day of October, 1996.
/s/ Doug E. Klint
-------------------------------------------------
Signature
Secretary of ZYCAD CORPORATION
<PAGE>
[LOGO]
SILICON VALLEY FINANCIAL SERVICES
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
(408) 654-1000 - Fax (408) 980-6410
CERTIFICATION OF OFFICERS
The undersigned, being all of the officers of ZYCAD CORPORATION, a
Delaware corporation (the "Corporation"), hereby certify to Silicon Valley
Financial Services, a division of Silicon Valley Bank ("SVFS") that:
1. The correct name of the Corporation is Zycad Corporation, as set
forth in the Articles of Incorporation.
2. The Corporation was incorporated on June 22, 1981, under the laws of
the State of Delaware, and is in good standing under such laws.
3. The Corporation's place of business and chief executive office being
the place at which the Corporation maintains its books and records pertaining
to accounts, accounts receivables, contract rights, chattel paper, general
intangibles, instruments, documents, inventory, and equipment, is located at:
47100 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94583-9942
4. The Corporation has other places of business at the following
addressees:
None
5. There is no provision in the Certificate of Incorporation, Articles
of Incorporation, or Bylaws of the Corporation, or in the laws of the State
of its incorporation, requiring any vote or consent of shareholders to
authorize the sale of receivables or the grant of a security interest in any
assets of the Corporation. Such power is vested exclusively in the
Corporation's Board of Directors.
6. The officers of the Corporation, and their respective titles and
signatures are as follows:
PRESIDENT:
/s/ Phillips W. Smith
------------------------------------------------------------
(Signature)
VICE PRESIDENT:
------------------------------------------------------------
(Signature)
SECRETARY:
/s/ Doug E. Klint
------------------------------------------------------------
(Signature)
<PAGE>
TREASURER:
------------------------------------------------------------
(Signature)
OTHER OFFICER:
TITLE: Corporate Controller
/s/ Stephen A. Flory
------------------------------------------------------------
(Signature)
7. Except as indicated in this paragraph 7, each of the officers listed
in paragraph 6 has signatory powers with respect to all the Corporation's
transactions with SVFS. Explanation of exceptions:
8. The undersigned shall give SVFS prompt written notice of any change
or amendment with respect to any of the foregoing. Until such written notice
is received by SVFS, SVFS shall be entitled to rely upon the foregoing in all
respects.
IN WITNESS WHEREOF, the undersigned have executed this Certification of
Officers on OCTOBER 17, 1996.
PRESIDENT: /s/ Phillips W. Smith
----------------------------------------------------------------
VICE PRESIDENT:
----------------------------------------------------------------
SECRETARY: /s/ Doug E. Klint
----------------------------------------------------------------
TREASURER:
----------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
COAST BUSINESS CREDIT
LOAN AND SECURITY AGREEMENT
BORROWER: ZYCAD CORPORATION
ADDRESS: 47100 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538-9942
DATE: JANUARY 6, 1997
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association
("Coast"), a California corporation, with offices at 12121 Wilshire Boulevard,
Suite 1111, Los Angeles, California 90025, and the borrower named above, whose
chief executive office is located at the above address ("Borrower's Address").
The Schedule to this Agreement (the "Schedule") shall for all purposes be deemed
to be a part of this Agreement, and the same is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set forth
in Section 8 below.)
1. LOANS.
1.1 LOANS. Coast will make loans to Borrower (the "Loans"), in
amounts determined by Coast in its sole discretion, up to the amounts (the
"Credit Limit") shown on the Schedule, provided no Default or Event of Default
has occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall
bear interest at the rate shown on the Schedule, except where expressly set
forth to the contrary in this Agreement. Interest shall be payable monthly, on
the last day of the month. Interest may, in Coast's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Regardless of the amount of Obligations that may be
outstanding from time to time, Borrower shall pay Coast minimum monthly interest
during the term of this Agreement with respect to the Receivable Loans in the
amount set forth on the Schedule (the "Minimum Monthly Interest").
1.3 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Coast and are
not refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all
of the Obligations when due, Borrower hereby grants to Coast a security interest
in all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located: All Receivables, Inventory, Equipment, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Coast's possession (including claims and credit balances), and all proceeds of
any of the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make
Loans, Borrower represents and warrants to Coast as follows, and Borrower
covenants that the following representations will continue to be true,
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and that Borrower will at all times comply with all of the following
covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation,
is and will continue to be, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Borrower is
and will continue to be qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse effect
on Borrower. The execution, delivery and performance by Borrower of this
Agreement, and all other documents contemplated hereby (i) have been duly and
validly authorized, (ii) are enforceable against Borrower in accordance with
their terms (except as enforcement may be limited by equitable principles and by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
creditors' rights generally), and (iii) do not violate Borrower's articles or
certificate of incorporation, or Borrower's by-laws, or any law or any material
agreement or instrument which is binding upon Borrower or its property, and (iv)
do not constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in
the heading to this Agreement is its correct name. Listed on the Schedule are
all prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast 30 days' prior written notice before changing its name
or doing business under any other name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth
in the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule. Borrower will give Coast at least 30 days
prior written notice before opening any additional place of business, changing
its chief executive office, or moving any of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will
at all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Coast now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Coast and the Collateral against all claims of
others. None of the Collateral now is or will be affixed to any real property
in such a manner, or with such intent, as to become a fixture. Borrower is not
and will not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's
right to remove any Collateral from the leased premises. Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, whenever requested by Coast, use its best efforts to
cause such third party to execute and deliver to Coast, in form acceptable to
Coast, such waivers and subordinations as Coast shall specify, so as to ensure
that Coast's rights in the Collateral are, and will continue to be, superior to
the rights of any such third party. Borrower will keep in full force and
effect, and will comply with all the terms of, any lease of real property where
any of the Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral
in good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Coast have been, and will be,
prepared in conformity with generally accepted accounting principles (except, in
the case of unaudited financial statements, for the absence of footnotes and
subject to normal year-end adjustments) and now and in the future will fairly
reflect the financial condition of Borrower, at the times and for the periods
therein stated. Between the last date covered by any such statement provided to
Coast and the date hereof, there has been no material adverse change in the
financial condition or business of Borrower. Borrower is now and will continue
to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has
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timely paid, and will timely pay, all foreign, federal, state and local
taxes, assessments, deposits and contributions now or in the future owed by
Borrower. Borrower may, however, defer payment of any contested taxes,
provided that Borrower (i) in good faith contests Borrower's obligation to
pay the taxes by appropriate proceedings promptly and diligently instituted
and conducted, (ii) notifies Coast in writing of the commencement of, and any
material development in, the proceedings, and (iii) posts bonds or takes any
other steps required to keep the contested taxes from becoming a lien upon
any of the Collateral. As of the date hereof, Borrower is unaware of any
claims or adjustments proposed for any of Borrower's prior tax years which
could result in additional taxes becoming due and payable by Borrower.
Borrower has paid, and shall continue to pay all amounts necessary to fund
all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not
withdraw from participation in, permit partial or complete termination of, or
permit the occurrence of any other event with respect to, any such plan which
could result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or its successors or any other
governmental agency. Borrower shall, at all times, utilize the services of an
outside payroll service providing for the automatic deposit of all payroll
taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in
all material respects, with all provisions of all material foreign, federal,
state and local laws and regulations relating to Borrower, including, but not
limited to, those relating to Borrower's ownership of real or personal property,
the conduct and licensing of Borrower's business, and environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of Borrower, or
in any material impairment in the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted. Borrower will
promptly inform Coast in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against Borrower
involving any single claim of Fifty Thousand Dollars ($50,000.00) or more, or
involving One Hundred Thousand Dollars ($100,000.00) or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any
"margin stock" (as defined in Regulation G of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan will be used to
purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.
Borrower represents and warrants to Coast as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be.
All sales and other transactions underlying or giving rise to each Receivable
shall fully comply with all applicable laws and governmental rules and
regulations. All signatures and indorsements on all documents, instruments, and
agreements relating to all Receivables are and shall be genuine, and all such
documents, instruments and agreements are and shall be legally enforceable in
accordance with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast transaction reports and loan requests, schedules of
Receivables, and schedules of collections, all on Coast's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Coast's security interest and other rights in all of
Borrower's Receivables, nor shall Coast's failure to advance or lend against a
specific Receivable affect or limit Coast's security interest and other rights
therein. Loan requests received after 10:30 AM will not be considered by Coast
until the next Business Day. Together with each such schedule, or later if
requested by Coast, Borrower shall furnish Coast with copies (or, at Coast's
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request, originals) of all contracts, orders, invoices, and other similar
documents, and all original shipping instructions, delivery receipts, bills of
lading, and other evidence of delivery, for any goods the sale or disposition of
which gave rise to such Receivables, and Borrower warrants the genuineness of
all of the foregoing. Borrower shall also furnish to Coast an aged accounts
receivable trial balance in such form and at such intervals as Coast shall
request. In addition, Borrower shall deliver to Coast, upon Coast's request,
the originals of all instruments, chattel paper, security agreements, guarantees
and other documents and property evidencing or securing any Receivables, upon
receipt thereof and in the same form as received, with all necessary
indorsements, all of which shall be with recourse. Borrower shall also provide
Coast with copies of all credit memos as and when requested by Coast.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to
collect all Receivables, unless and until an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Coast, and Borrower shall deliver all such payments and proceeds to Coast within
one Business Day after receipt by Borrower, in their original form, duly
endorsed to Coast, to be applied to the Obligations in such order as Coast shall
determine. Coast may, in its discretion, require that all proceeds of
Collateral be deposited by Borrower into a lockbox account, or such other
"blocked account" as Coast may specify, pursuant to a blocked account agreement
in such form as Coast may specify. Coast or its designee may, at any time with
prior notice to Borrower notify Account Debtors that Coast has been granted a
security interest in the Receivables.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the
disposition of any Collateral shall be delivered to Coast within one Business
Day after receipt by Borrower, in their original form, duly endorsed to Coast,
to be applied to the Obligations in such order as Coast shall determine.
Borrower agrees that it will not commingle proceeds of Collateral with any of
Borrower's other funds or property, but will hold such proceeds separate and
apart from such other funds and property and in a constructive trust for Coast.
Nothing in this Section limits the restrictions on disposition of Collateral set
forth elsewhere in this Agreement.
4.6 DISPUTES. Borrower shall notify Coast promptly of all disputes
or claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (ii) no Default or
Event of Default has occurred and is continuing; and (iii) taking into account
all such discounts settlements and forgiveness, the total outstanding Loans will
not exceed the Credit Limit. Coast may, at any time after the occurrence of an
Event of Default, settle or adjust disputes or claims directly with Account
Debtors for amounts and upon terms which Coast considers advisable in its
reasonable credit judgment and, in all cases, Coast shall credit Borrower's Loan
account with only the net amounts received by Coast in payment of any
Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount. In the event any attempted return occurs after the
occurrence of any Event of Default, Borrower shall (i) hold the returned
Inventory in trust for Coast, (ii) segregate all returned Inventory from all of
Borrower's other property, (iii) conspicuously label the returned Inventory as
subject to Coast's security interest, and (iv) immediately notify Coast of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Coast's request deliver such
returned Inventory to Coast.
4.8 VERIFICATION. Coast may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Receivables, by means of mail, telephone or otherwise, either in the name
of Borrower or Coast or such other name as Coast may choose.
4.9 NO LIABILITY. Coast shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss or
destruction of, any goods, the sale or other disposition of which gives rise to
a Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Coast be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Coast from liability for its
own negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
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5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times
comply with the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the
tangible personal property Collateral and carry such other business insurance,
with insurers reasonably acceptable to Coast, in such form and amounts as Coast
may reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lenders loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment and Inventory totaling less than Fifty Thousand Dollars
($50,000.00), which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Coast may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Coast copies of all reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Coast shall from time to time reasonably
specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times,
and on one Business Day's notice, Coast, or its agents, shall have the right to
inspect, audit and copy Borrower's books and records and the Collateral (the
"Audits"). Coast shall take reasonable steps to keep confidential all
confidential information obtained in any Audit, but Coast shall have the right
to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The Audits
shall be at Borrower's expense and the charge for the Audits shall be Seven
Hundred Fifty Dollars ($750.00) per person per day (or such higher amount as
shall represent Coast's then current standard charge for the same), plus
reasonable out of pocket expenses. Borrower will not enter into any agreement
with any accounting firm, service bureau or third party to store Borrower's
books or records at any location other than Borrower's Address, without first
notifying Coast of the same and obtaining the written agreement from such
accounting firm, service bureau or other third party to give Coast the same
rights with respect to access to books and records and related rights as Coast
has under this Loan Agreement.
5.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior
written consent, do any of the following:
(i) merge or consolidate with another corporation or entity, except in a
transaction in which (A) the shareholders of the Borrower hold at least 50% of
the common stock and all other capital stock of the surviving corporation
immediately after such merger or consolidation, and (B) the Borrower is the
surviving corporation;
(ii) acquire any assets, except (A) in the ordinary course of business, or
(B) in a transaction or a series of transactions not involving the payment of
an aggregate amount in excess of Fifty Thousand Dollars ($50,000.00).
(iii) enter into any material other transaction outside the ordinary course
of business;
(iv) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
(v) store any Inventory or other Collateral with any warehouseman or other
third party;
(vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment,
or other contingent basis;
(vii) make any loans of any money or other assets, except (A) advances to
customers or suppliers in the ordinary course of business, (B) travel advances,
employee relocation loans and other employee loans and advances in the ordinary
course of business, and (C) loans to employees, officers and directors for the
purpose of purchasing equity securities of the Borrower;
(viii) incur any debts, outside the ordinary course of business, which would
have a material, adverse effect on Borrower or on the prospect of repayment of
the Obligations;
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(ix) guarantee or otherwise become liable with respect to the obligations of
another party or entity;
(x) pay or declare any dividends on Borrower's stock (except for dividends
payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or indirectly,
any of Borrower's stock, except that Borrower may repurchase stock owned by
employees, directors and consultants of Borrower pursuant to terms of
employment, consulting or other stock restriction agreements at such time as any
such employee, director or consultant terminates his or her affiliation with the
Borrower, for an aggregate purchase price not to exceed Fifty Thousand Dollars
($50,000.00) in any fiscal year;
(xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or
(xiii) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or
proceeding be instituted by or against Coast with respect to any Collateral or
relating to Borrower, Borrower shall, without expense to Coast, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Coast may deem them reasonably necessary in order to
prosecute or defend any such suit or proceeding.
5.7 INDEMNITY. Borrower hereby agrees to indemnify Coast and hold
Coast harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, reasonable costs and expenses
(including reasonable attorneys' fees), of every nature, character and
description, which Coast may sustain or incur based upon or arising out of any
of the Obligations, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Coast and Borrower, any actual or alleged failure of Coast
to comply with any writ of attachment or other legal process relating to
Borrower or any of its property, or any other matter, cause or thing whatsoever
occurred, done, omitted or suffered to be done by Coast relating to Borrower or
the Obligations (except any such amounts sustained or incurred as the result of
the negligence or willful misconduct of Coast). Notwithstanding any provision
in this Agreement to the contrary, the indemnity agreement set forth in this
Section shall survive any termination of this Agreement and shall for all
purposes continue in full force and effect.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request
by Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that the
Maturity Date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty (60) days prior to the next Maturity Date, that such party elects to
terminate this Agreement effective on the next Maturity Date. If this Agreement
is renewed under this Section 6.1, Borrower shall pay to Coast a renewal fee
(the "Renewal Fee") in the amount shown in the Schedule. The Renewal Fee shall
be due and payable on the effective date of renewal and thereafter shall incur
interest at a rate equal to the rate applicable to the Receivable Loans.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice of termination is given to Coast; or (ii) by Coast at any time
after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Coast under this
Section 6.2, Borrower shall pay to Coast a termination fee (the "Early
Termination Fee") in the amount shown on the Schedule. The Early Termination
Fee shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the rate applicable to the Receivable
Loans.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any
earlier effective date of termination, Borrower shall pay and perform in full
all Obligations, whether evidenced by installment notes or otherwise, and
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if on the Maturity
Date, or on any earlier effective date of termination, there are any
outstanding Letters of Credit issued by Coast or issued by another
institution based upon an application,
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guarantee, indemnity or similar agreement on the part of Coast,
then on such date Borrower shall provide to Coast cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Coast's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Coast's security interests in all of the Collateral and all of
the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Coast, Coast may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Coast shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Coast's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default" under this Agreement, and Borrower
shall give Coast immediate written notice thereof:
(a) Any material warranty, representation, statement, report or
certificate made or delivered to Coast by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading in a material respect; or
(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to
Coast as provided in Section 4.5 above, or shall fail to give Coast access to
its books and records or Collateral as provided in Section 5.4 above, or shall
breach any negative covenant set forth in Section 5.5 above; or
/ / /
(e) Borrower shall fail to comply with the financial covenants (if
any) set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary Obligation,
which failure is not cured within fifteen (15) Business Days after the date
due; or
(g) Any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within fifteen (15) Business Days after the occurrence of the same;
or
(h) Any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has
or may reasonably be expected to have a material adverse effect on Borrower's
business or financial condition; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower; or appointment of a receiver, trustee or custodian, for all
or any part of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding by Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or
(k) The commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 45 days after the date commenced; or
(l) Revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing, or commencement of proceedings by any guarantor of any of the
Obligations under any bankruptcy or insolvency law; or
(m) Revocation or termination of, or limitation or denial of
liability upon, any pledge of any
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LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
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certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or
(n) Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations, other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement; or
(o) There shall be a change in the record or beneficial ownership of
an aggregate of more than twenty percent (20%) of the outstanding shares of
stock of Borrower, in one or more transactions, compared to the ownership of
outstanding shares of stock of Borrower in effect on the date hereof, without
the prior written consent of Coast; or
(p) Borrower shall generally not pay its debts as they become due, or
Borrower shall conceal, remove or transfer any part of its property, with intent
to hinder, delay or defraud its creditors, or make or suffer any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or
(q) There shall be a material adverse change in Borrower's business
or financial condition; or
(r) Coast, acting in good faith and in a commercially reasonable
manner, deems itself insecure because of the occurrence of an event prior to the
effective date hereof of which Coast had no knowledge on the effective date or
because of the occurrence of an event on or subsequent to the effective date.
Coast may cease making any Loans hereunder during any of the above cure periods,
and thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence, and during the continuance, of
any Event of Default, Coast, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one or
more of the following:
(a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store, or remove any of the Collateral, and
remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as Coast deems it
reasonably necessary in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, however, that should Coast seek
to take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives:
(i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession;
(ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and
(iii) any requirement that Coast retain possession of, and
not dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and
make it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge;
(f) Sell, lease or otherwise dispose of any of the Collateral, in
its condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale. Coast shall have the
right to conduct such disposition on Borrower's premises without charge, for
such time or times as Coast deems
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LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
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reasonable, or on Coast's premises, or elsewhere and the Collateral need not
be located at the place of disposition. Coast may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as
to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value;
(h) Offset against any sums in any of Borrower's general, special or
other Deposit Accounts with Coast; and
(i) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto. All reasonable attorneys' fees, expenses, costs,
liabilities and obligations incurred by Coast with respect to the foregoing
shall be due from the Borrower to Coast on demand. Coast may charge the same to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as is applicable to the Receivable Loans. Without limiting any of Coast's
rights and remedies, from and after the occurrence of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an additional
three percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower
and Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7) days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least seven (7) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general, non-
specific terms;
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m;
(e) Payment of the purchase price in cash or by cashier's check or
wire transfer is required;
(f) With respect to any sale of any of the Collateral, Coast may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. Coast shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence, and during the
continuance, of any Event of Default, without limiting Coast's other rights and
remedies, Borrower grants to Coast an irrevocable power of attorney coupled with
an interest, authorizing and permitting Coast (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Coast agrees
to exercise the following powers in a commercially reasonable manner:
(a) Execute on behalf of Borrower any documents that Coast may, in
its sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose of
or to lease (as lessor or lessee) any real or personal property which is part of
Coast's Collateral or in which Coast has an interest;
(c) Execute on behalf of Borrower, any invoices relating to any
Receivable, any draft against any Account Debtor and any notice to any
Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim
of mechanic's, materialman's or other lien, or
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LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
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assignment or satisfaction of mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come into
Coast's possession;
(e) Endorse all checks and other forms of remittances received by
Coast;
(f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same;
(g) Grant extensions of time to pay, compromise claims and settle
Receivables and General Intangibles for less than face value and execute all
releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure
the release of any liens therefor, or both;
(i) Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books
or records belonging to, or relating to, Borrower to give Coast the same rights
of access and other rights with respect thereto as Coast has under this
Agreement; and
(k) Take any action or pay any sum required of Borrower pursuant to
this Agreement and any other present or future agreements. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast with respect to the foregoing
shall be added to and become part of the Obligations, and shall be payable on
demand. Coast may charge the foregoing to Borrower's loan account and the
foregoing shall thereafter bear interest at the same rate applicable to the
Receivable Loans. In no event shall Coast's rights under the foregoing power of
attorney or any of Coast's other rights under this Agreement be deemed to
indicate that Coast is in control of the business, management or properties of
Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of
any sale of the Collateral shall be applied by Coast first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by Coast
in the exercise of its rights under this Agreement, second to the interest due
upon any of the Obligations, and third to the principal of the Obligations, in
such order as Coast shall determine in its sole discretion. Any surplus shall
be paid to Borrower or other persons legally entitled thereto; Borrower shall
remain liable to Coast for any deficiency. If, Coast, in its sole discretion,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Coast shall have the
option, exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of purchase price or deferring the reduction
of the Obligations until the actual receipt by Coast of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Coast shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and under
all other applicable laws, and under any other instrument or agreement now or in
the future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Coast of one or more of its rights or remedies shall not be deemed an election,
nor bar Coast from subsequent exercise or partial exercise of any other rights
or remedies. The failure or delay of Coast to exercise any rights or remedies
shall not operate as a waiver thereof, but all rights and remedies shall
continue in full force and effect until all of the Obligations have been fully
paid and performed.
8. Definitions. AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS
HAVE THE FOLLOWING MEANINGS:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"BUSINESS DAY" means a day on which Coast is open for business.
"CLOSING DATE" date of the initial funding under this Agreement.
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LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
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"CODE" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or
both, would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the
Code.
"ELIGIBLE INVENTORY" means Inventory which Coast, in its sole
judgment, deems eligible for borrowing, based on such considerations as Coast
may from time to time deem appropriate. Without limiting the fact that the
determination of which Inventory is eligible for borrowing is a matter of
Coast's discretion, Inventory which does not meet the following requirements
will not be deemed to be Eligible Inventory: Inventory which (i) consists of
finished goods, in good, new and salable condition which is not perishable, not
obsolete or unmerchantable;(ii) raw materials, and is not comprised of work in
process, packaging materials or supplies; (iii) meets all applicable
governmental standards; (iv) has been manufactured in compliance with the Fair
Labor Standards Act; (v) conforms in all respects to the warranties and
representations set forth in this Agreement; (vi) is at all times subject to
Coast's duly perfected, first priority security interest; and (vii) is situated
at a one of the locations set forth on the Schedule.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary
course of Borrower's business from the sale, lease or rental of goods or
rendition of services, which Coast, in its good faith business judgment, shall
deem eligible for borrowing, based on such considerations as Coast may from time
to time deem appropriate. Without limiting the fact that the determination of
which Receivables are eligible for borrowing is a matter of Coast's discretion,
Receivables that are in excess of ninety (90) days past invoice date or do not
otherwise meet the requirements specified in Sections 1 and 7 of the Schedule,
will be expressly excluded from Eligible Receivables.
"ENTITY" means any person, partnership, trust or corporation and its
affiliates, subsidiaries, parents, stockholders, officers or directors.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of
this Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, inventions, designs, drawings, blueprints,
patents, patent applications, trademarks and the goodwill of the business
symbolized thereby, names, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit, and including without limitation all farm products), and all materials
and supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i)
the business, assets,
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LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
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conditions (financial or otherwise) or results of operations of Borrower or
any subsidiary of Borrower, (ii) the ability of Borrower to perform its
obligations under this Agreement (including, without limitation, repayment of
the Obligations as they come due) or (iii) the validity or enforceability of
this Agreement or any other material agreement or document entered into by
any party in connection herewith, or the rights or remedies of Coast
hereunder or thereunder.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 1 of the
Schedule.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and Coast.
"PERMITTED LIENS" means the following:
(a) purchase money security interests in specific items of Equipment;
(b) leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in writing
by Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently
with this Agreement;
(f) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase;
(h) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor and/or subordination agreement on Coast's then
standard form, acknowledge that the security interest is subordinate to the
security interest in favor of Coast, and agree not to take any action to enforce
its subordinate security interest so long as any Obligations remain outstanding,
and that Borrower agree that any uncured default in any obligation secured by
the subordinate security interest shall also constitute an Event of Default
under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"REAL PROPERTY" means Borrower's real property located at 47100
Bayside Parkway Fremont, CA 94538-9942.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
"TANGIBLE NET WORTH" means consolidated stockholders' equity plus
subordinated debt acceptable to Coast less goodwill, patents, trademarks,
copyrights, franchises, formulas, leaseholds, non-compete agreements,
engineering plans, deferred tax benefits and organization costs.
OTHER TERMS. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with
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generally accepted accounting principles, consistently applied. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations,
all checks, wire transfers and other items of payment received by Coast
(including proceeds of Receivables and payment of the Obligations in full) shall
be deemed applied by Coast on account of the Obligations three (3) Business Days
after receipt by Coast of immediately available funds, and, for purposes of the
foregoing, any such funds received after 10:30 AM on any day shall be deemed
received on the next Business Day. Coast shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Coast in its sole discretion, and Coast may charge Borrower's
loan account for the amount of any item of payment which is returned to Coast
unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in Coast's sole discretion reversed and re-
applied, to the Obligations, in such order and manner as Coast shall determine
in its sole discretion.
9.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest at the same rate applicable
to the Loans. Coast may also, in its discretion, charge any monetary
Obligations to Borrower's Deposit Accounts maintained with Coast.
9.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with
an account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty days after each account
is rendered, describing the nature of any alleged errors or omissions.
9.5 NOTICES. All notices to be given under this Agreement shall be
in writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Coast or Borrower at the addresses shown in the heading
to this Agreement, or at any other address designated in writing by one party to
the other party. Notices to Coast shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by
any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in full
force and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE ARE
NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH
ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE
PARTIES IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action
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taken by Coast, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast shall be liable for any claims, demands,
losses or damages, of any kind whatsoever, made, claimed, incurred or suffered
by Borrower or any other party through the ordinary negligence of Coast, or any
of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast, but nothing herein shall relieve Coast
from liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not
be waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse
Coast for all reasonable attorneys' fees and all filing, recording, search,
title insurance, appraisal, audit, and other reasonable costs incurred by Coast,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Coast incurs in order to do the following: prepare and
negotiate this Agreement and the documents relating to this Agreement; obtain
legal advice in connection with this Agreement or Borrower; enforce, or seek to
enforce, any of its rights; prosecute actions against, or defend actions by,
Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce Coast's security interest in, the Collateral; and otherwise
represent Coast in any litigation relating to Borrower. If either Coast or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys' fees, including (but not limited to) reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. Borrower shall also pay
Coast's standard charges for returned checks and for wire transfers, in effect
from time to time. All attorneys' fees, costs and charges to which Coast may be
entitled pursuant to this Paragraph may be charged by Coast to Borrower's loan
account and shall thereafter bear interest at the same rate as the Receivable
Loans.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations.
9.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof.
9.15 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than
one Person, their liability shall be joint and several, and the compromise of
any claim with, or the release of, any Borrower shall not constitute a
compromise with, or a release of, any other Borrower.
9.16 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Coast, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Coast, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of an
action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one year after the first act, occurrence or omission upon which
such claim or cause of action, or any part thereof, is based, and the service of
a summons and complaint on an officer of Coast, or on any other person
authorized to accept service on behalf of Coast, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Coast in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
14
<PAGE>
LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
- -------------------------------------------------------------------------
9.17 PARAGRAPH HEADING; CONSTRUCTION. Paragraph headings are only
used in this Agreement for convenience. Borrower and Coast acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Coast or Borrower under any rule
of construction or otherwise.
9.18 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts
and transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Coast to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Coast's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.19 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
ZYCAD CORPORATION
BY
-------------------------------
TITLE:
COAST:
COAST BUSINESS CREDIT, A DIVISION OF SOUTHERN PACIFIC THRIFT & LOAN
ASSOCIATION
BY
-------------------------------
ROBERT PETERS
TITLE: VICE PRESIDENT
15
<PAGE>
COAST BUSINESS CREDIT
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: ZYCAD CORPORATION
ADDRESS: 47100 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538-9942
DATE: JANUARY 6, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Thrift & Loan
Association, and the above-borrower of even date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. CREDIT LIMIT
(Section 1.1): Loans in a total amount at any time outstanding not to
exceed the lesser of a total of FIVE MILLION DOLLARS
($5,000,000.00) (the "Maximum Dollar Amount") or the sum
of (a), (b) and (c) below:
(a) Loans (the "Domestic Receivable Loans") in
an amount not to exceed 80% of the amount of
Borrower's domestic Eligible Receivables (as defined
in Section 8 above) and up to one (1) year of
payments due under domestic rental or lease Eligible
Receivables (as defined in Section 8 above);
(b) Loans (the "Foreign Receivable Loans") in an
amount not to exceed the lesser of:
(1) Up to 80% of the amount of Borrower's pre-
approved Foreign Eligible Receivables (as defined
in Section 7 below) provided that the Account
Debtor (as defined in Section 8 above) of each
Foreign Eligible Receivable complies with at
least one (1) of the following;
(i) possesses a Dunn & Bradstreet rating
equivalent to or better than 3A2, (ii) has a
verifiable credit history acceptable to Coast or
(iii) is a subsidiary of a U.S. company or is
itself a sufficiently large foreign corporation
as to be acceptable to Coast; plus
1
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SCHEDULE TO LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
----------------------------------------------------------------------
(2) Up to 90% of the amount of Borrower's
Foreign Eligible Receivables (as defined in
Section 7 below) that are supported by
acceptable Letters of Credit, FCIA insurance or
guaranteed by EXIM bank; or
(3) TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($2,500,000.00).
(c) Loans (the "Milestone Receivable Loans") in an amount
not to exceed the lesser of:
(1) Up to sixty percent (60%) of Borrower's
milestone Eligible Receivables (as defined in
Section 8 above) provided milestone billings are
final billings and those pertaining to government
contracts are in compliance with the Assignment of
Claims Act and the Procurement Act; or
(2) FIVE HUNDRED THOUSAND DOLLARS ($500,000.00).
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- --------------------------------------------------------------------------------
2. INTEREST.
INTEREST RATE ON LOANS
(Section 1.2): A rate equal to the "Prime Rate" plus 2.25% per
annum. Interest is calculated on the basis of a
360-day year for the actual number of days elapsed.
The interest rate applicable to all Loans shall be
adjusted monthly as of the first day of each month,
and the interest to be charged for each month shall
be based on the highest "Prime Rate" in effect during
said month, but in no event shall the rate of
interest charged for any loan in any month be less
than 9% per annum. "Prime Rate" means the actual
"Reference Rate" or the substitute therefor of the
Bank of America NT & SA whether or not that rate is
the lowest interest rate charged by said bank. If the
Prime Rate, as defined, is unavailable, "Prime Rate"
shall mean the highest of the prime rates published
in the Wall Street Journal on the first business day
of the month, as the base rate on corporate loans at
large U.S. money center commercial banks.
2
<PAGE>
SCHEDULE TO LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
----------------------------------------------------------------------
INTEREST RATE REDUCTION ON LOANS
The rate on the Loans shall be reduced to the
"Prime Rate" plus 2.00% per annum in the event
Borrower reports one (1) quarter of profitability.
The rate on the Loans shall be further reduced to
the "Prime Rate" plus 1.75% per annum in the event
Borrower reports two (2) consecutive quarters of
profitability. In the event Borrower reports a loss
in any quarter following any previous reduction in
the rate, the rate on the Loans shall revert back
to the "Prime Rate" plus 2.25% until the Maturity
Date, as it may be renewed. Borrower's 10K and 10Q
filings will be used to measure profitability in
connection with the rate reductions permitted under
this Section 2 of the Schedule. Reductions or
increases will become effective in the month
following the month in which Coast receives the
relative 10K and 10Q filings.
MINIMUM MONTHLY
INTEREST (Section 1.2): An amount equal to the Interest Rate described
above charged against an outstanding monthly
average of TWO MILLION DOLLARS ($2,000,000.00).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. FEES (Section 1.3):
LOAN FEE: FIFTY THOUSAND DOLLARS ($50,000.00) payable
THIRTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS
($37,500.00) at funding and TWELVE THOUSAND FIVE
HUNDRED DOLLARS ($12,500.00) one (1) year from the
date of the Loans.
FACILITY FEE: THREE THOUSAND TWO HUNDRED DOLLARS ($3,200.00) per
calendar quarter, payable in advance at the
beginning of each such period (pro rated for any
partial month at the beginning of the term of this
Agreement).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. MATURITY DATE
(Section 6.1): January 31, 1999, subject to automatic renewal as
provided in Section 6.1 above, and early
termination as provided in Section 6.2 above.
3
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SCHEDULE TO LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
----------------------------------------------------------------------
EARLY TERMINATION FEE
(Section 6.2): An amount equal to the Minimum Monthly Interest as
provided in Section 2 of this Schedule times the
number of months remaining prior to the Maturity
Date, as it may have been renewed.
RENEWAL FEE An amount equal to 0.25% of the Maximum Dollar
Amount (as defined in this Schedule) due and
payable in advance upon each annual renewal of
this Agreement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. REPORTING.
(Section 5.3):
Borrower shall provide Coast with the following:
1. RECEIVABLES. (i) Monthly Account Receivable agings,
aged by invoice date, within ten (10) days after the
end of each month.
(ii) Monthly Account Receivable agings,
aged by (1) product, (2) maintenance, (3) lease,
(4) engineering services, and (5) milestone billings at
the time of takeover and on a monthly basis thereafter,
within ten (10) days after the end of each month.
2. PAYABLES. Monthly accounts payable agings, aged by
invoice date, and outstanding or held check registers
within ten (10) days after the end of each month.
3. MONTHLY FINANCIALS. Monthly unaudited financial
statements, as soon as available, and in any event
within thirty (30) days after the end of each month.
4. QUARTERLY FINANCIALS. Quarterly unaudited financial
statements, as soon as available, and in any event
within forty-five (45) days after the end of each
fiscal quarter of Borrower.
5. CUSTOMER LISTS. Quarterly customer lists, including
customer name, address, and phone number.
6. ANNUAL FINANCIALS. Annual audited financial
statements, as soon as available, and in any event
within ninety (90) days following the end of Borrower's
fiscal year, certified by independent certified public
accountants acceptable to Coast.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4
<PAGE>
SCHEDULE TO LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): None
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES(Section 3.3): 100 Enterprise Drive, Suite 500,
Rockaway, N.J. 07866
MATERIAL ADVERSE LITIGATION
(Section 3.10): None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7. OTHER PROVISIONS
(Section 5.1):
1. Borrower's minimum availability at the time of funding, after
giving effect to Borrower's initial drawdown, shall be THREE
HUNDRED FIFTY THOUSAND DOLLARS ($350,000.00).
2. Borrower shall have no accounts payable over ninety (90) days at
the time of funding, after giving effect to Borrower's initial
drawdown, unless pre-approved in writing by Coast.
3. Borrower shall, at the time of funding and at all times during
the term of this Loan and Security Agreement, and any renewals
thereof, maintain a minimum consolidated net worth, including any
subordinated debt, of at least EIGHT MILLION DOLLARS
($8,000,000).
4. Borrower shall provide Coast with Borrower's financial forecasts
for review and acceptance by Coast prior to closing and annually
thereafter, as required by Coast
5. Borrower shall deliver to Coast within ten (10) days of filing,
copies of its 10-Q and 10-K filings.
6. Daily remittances shall be collected on either a payment in kind
or lockbox basis at Coast's sole discretion.
5
<PAGE>
SCHEDULE TO LOAN AND SECURITY AGREEMENT COAST BUSINESS CREDIT
----------------------------------------------------------------------
7. Borrower shall ensure that the Coast is granted a perfected
security interest on all of Borrower's assests including, without
limitation, accounts receivables, inventory, machinery and
equipment, and all other tangible and intangible assets including
patents, trademarks and/or copyrights.
8. Debenture notes to be subordinated in form and substance
acceptable to Coast.
9. Coast shall have the right to review and revise Borrower's
standard customer contracts prior to funding to ensure the
contracts contain language and non-offset provisions acceptable
to Coast.
10. Receivables that are ninety (90) days past the date of invoice
are expressly excluded from Eligible Receivables (as defined in
Section 8 above).
11. Foreign Eligible Receivables shall mean Eligible Receivables
(as defined in Section 8 above) that are owing to, invoiced by
and generated by Borrower not a foreign based Entity owned in
whole or part by Borrower.
12. Borrower agrees to provide Coast with the same Notice as provided
for in Section 1.11 of Exhibit 3 To 6% Convertible Subordinated
Debenture Due May 24, 1999 issued by Borrower ("Debentures").
13. Borrower expressly agrees that all of Borrower's Obligations
(as defined in Section 8 above) shall be and hereby are
"Designated Senior Indebtedness" as defined in Section 1.12 of
the Debentures.
Borrower: Coast:
ZYCAD CORPORATION. COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan
Association
By: /s/ Phillips W. Smith By:
------------------------------- -------------------------------
Robert Peters
Title: President and CEO Title: Vice President
6
<PAGE>
ZYCAD CORPORATION
CORPORATE OVERVIEW
Zycad Corporation (the Company), founded in 1981, develops, manufactures and
markets a broad range of high performance tools, design services and electronic
components that help designers speed the process of moving their electronic
products from concept to manufacturing. Zycad calls this process, "Design
Realization." It encompasses performing the steps necessary to complete design
verification and get to market in the quickest way possible.
Zycad's Design Realization offerings include hardware and software simulation
verification tools, rapid prototyping vehicles, high-density programmable
Application-Specific Integrated Circuits (ASICs) and related desktop design and
programming tools. This suite of products enable electronic designers to
quickly and accurately verify their designs prior to production and support
initial and low volume ASIC production. Verification has the goal of minimizing
downstream problems and risks (i.e., avoiding the expensive and time-consuming
process of redesign should a final design not work or not meet the customer
requirements). This process of Design Realization via comprehensive and fast
verification throughout the design cycle ensures a high quality, production-
ready product that meets the customers' time-to-market goals.
Zycad's twofold business emphasis is on providing both the highest performance
verification product offerings (including both simulation and rapid prototyping)
in the Electronic Design Automation (EDA) market, and the highest density
programmable ASICs to the ASIC designer for both design verification and design
realization through use as a reprogrammable component. All development
activities are focused on optimizing their future development and the
integration of these technologies to solve customer's high-end, complex
verification problems - the most dramatic being that of "system on a chip" or
"system on silicon" design verification.
Zycad's corporate office, and its product divisions are located in Fremont,
California. Sales and support offices are located throughout the United States,
Europe, Japan and Asia.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
- ------------------
Revenues (a) $ 33,577 $ 51,117 $ 50,051 $ 41,478 $ 45,154
Gross profit $ 16,569 $ 33,624 $ 30,094 $ 24,769 $ 28,949
Operating income (loss) $ (18,435) $ 2,550 $ (9,511) $ (8,565) $ (3,940)
Net income (loss) (b) (c) $ (21,376) $ 1,957 $ (9,748) $ (4,480) $ (2,798)
Net income (loss) per share $ (1.03) $ 0.09 $ (0.52) $ (0.26) $ (0.18)
Weighted average common shares
and common share equivalents
outstanding 20,655 21,233 18,598 16,908 15,850
- ------------------------------------------------------------------------------------------------------
YEAR END FINANCIAL DATA:
- ------------------------
Working capital (deficit) $ (1,240) $ 6,741 $ 1,621 $ 6,030 $ 10,829
Total assets (d) $ 29,527 $ 28,980 $ 29,825 $ 28,606 $ 30,913
Long-term debt $ 8,061 $ 1,207 $ 1,874 $ 81 $ 309
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) Revenues, net income or loss and net income or loss per share for 1995 and
1994 included amounts related to a technology distributed by Zycad and owned by
a U.K. Company. Effective January 1, 1996, a joint venture was formed by the
two companies. Consequently, specific revenues and costs related to this
product will no longer be consolidated in Zycad's financial statements (see Note
11 of Notes to Consolidated Financial Statements).
(b) The net loss in 1994 included a charge for asset write-downs and staff
reductions of $6,800,000, primarily related to the Company's decision to
discontinue selling the Paradigm ViP-TM- (VHDL instruction processor) product
(see Note 4 of Notes to Consolidated Financial Statements).
(c) The net loss in 1993 included $2,900,000 of staff reduction costs and
asset write downs and $3,900,000 of gain related to the sale of another
company's common stock.
(d) Total assets included a reduction of the purchase price of Attest
Software, Inc. in the quarter ended June 1996 of $345,000 relating to the value
ascribed to Zycad restricted stock issued to Attest shareholders.
1
<PAGE>
ZYCAD CORPORATION
TO OUR STOCKHOLDERS
1996 has been a year of transition for Zycad in a very fragile market
environment. When we went to the Design Automation Conference in June, 90% of
our demonstrations represented new product introductions by our Verification and
GateField divisions.
While the year was disappointing from a financial perspective, significant
technical and business achievements were realized:
- - The LightSpeed Simulation Server-TM- family was introduced at the Design
Automation Conference in June with the first shipments in late Q3.
LightSpeed offers customers unparalleled performance over existing solutions
in the market place. Customer acceptance has been excellent with over 20
systems in the field since late Q3.
- - GateField presented its 51,000 gate ProASIC-TM- (programmable ASIC)
technology in 0.8 micron structures and began development of a prototyping
vehicle that combines GateField technology with partitioning software and
multi-chip module technology.
The GateField products created a great level of interest in the market
place. However, it was learned that the performance features of the
products needed to be enhanced. Consequently a very aggressive transfer
into finer line geometries was initiated, resulting in "first time right"
working silicon, offering complexity to 100,000 total gates. This product
was delivered to customers during December 1996.
Customer acceptance of GateField is also excellent, with 14 customer design
wins in the fourth quarter of 1996. Major corporations in Japan and the U.S.
were committing design resources to the new GateField product.
- - The services and consulting business was merged with the GateField division
during 1996.
- - We completed the acquisition of Attest Software, Inc. in May 1996, further
strengthening our test and fault product offerings.
- - A second DARPA contract, valued at $2.3 million for the development of a
reconfigurable computing engine, based on GateField technology, was awarded
in September 1996.
- - The Company raised $10.0 million through subordinated convertible debentures
note in May 1996.
In January 1996, Zycad and Quality Systems Software Ltd., an 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 December 1996, the entire company, including
the U.K. subsidiary, was consolidated under QSS, Inc. Zycad's current
ownership at the end of 1996 is 22% (see Note 11 of Notes to Consolidated
Financial Statements).
In summary, both divisions contributed in 1996, however, the financial
performance was a major disappointment to everyone, including our employees, who
have been tireless in their efforts to support us throughout this transition
period. On the positive side, the LightSpeed product was delivered to customers
in production volume in the fourth quarter. The GateField 100K gate ProASIC was
introduced and shipped in the fourth quarter. The engineering and consulting
services added positively to our performance throughout the year.
What are the challenges and opportunities for 1997 as we look forward? The
LightSpeed Simulation Server family of products is expected to begin shipping
with the HDL interfaces for Verilog and VHDL in 1997. The VHDL interface should
be available in the first quarter of 1997. The Verilog interface should be
available in the second quarter of 1997. These interfaces are strategic to
addressing the broad logic simulation marketplace. The combination of LightSpeed
hardware and these strategic software interfaces should secure success
throughout 1997.
Our test and fault simulation product lines continue to be the industry standard
and contribute significantly to the Company's overall results. Several new
complimentary software and hardware products will be added to the hardware
accelerated fault simulation product line in 1997. In addition, significant
feature and function enhancements will be made to the software test products
associated with the Attest acquisition. These include improved support for HDL
interfaces and multiprocessing. These additional capabilities should
significantly increase the market interest for these products in the second half
of 1997.
We believe that Zycad can and will be a leader in providing high density
reprogrammable ASICs to the $20 billion ASIC market. No other suppliers are
delivering reprogrammable ASICs with logic gate densities equal to our 100K gate
part. As we take advantage of advanced manufacturing processes, we should gain
even greater density advantages. GateField is now shipping 0.6 micron parts and
by the third quarter of 1998 we expect to be shipping .35 micron parts which
will yield 400,000 reconfigurable logic-gates of capacity, much larger than any
current vendor can even contemplate in the 1998 timeframe.
2
<PAGE>
GateField has proven that it can design and manufacture a part that is
competitive on speed, performance and functionality. We continue to focus on
design wins, as that is the primary driving force for growing market share. A
design win positions Zycad competitively to vie for production volume business.
The customer typically moves towards product volume six to nine months after he
makes his initial design win selection. GateField is achieving great success,
particularly in the Japanese market. A number of the big Japanese companies
became customers in the fourth quarter of 1996 and we expect continued growth in
1997.
It was a difficult year for all of us. We appreciate your patience, continued
interest and loyalty during this transition year. We remain committed to
building a strong company. The tremendous investments, which were made in
GateField are expected to yield significant results in the years ahead.
Sincerely,
Phillips W. Smith
President and CEO
3
<PAGE>
ZYCAD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
OVERVIEW
The net loss for 1996 was $21.4 million, compared to net income in 1995 of $2.0
million. Total revenues for 1996 were $33.6 million, down $17.5 million from
1995. The reduction in revenue resulted in decreased gross margin: $16.6
million for 1996 compared to $33.6 million in 1995. The loss in 1996 was
significantly impacted by one-time charges to cost of sales of $1.8 million (see
Gross Profit), as well as an additional $1.8 million of restructuring charges
and bad debt (see Operating Expenses). In addition the company expensed $2.5
million related to accelerated amortization of discount on the $10.0 million
subordinated convertible debenture notes (see Note 5 of Notes to Consolidated
Financial Statements).
Operating expenses increased by $3.9 million in 1996 to $35.0 million. This
increase reflects the Company's continued research and development investment in
the GateField division plus the introduction of the LightSpeed Simulation
Server.
The Company completed the acquisition of Attest Software, Inc. in May 1996 for
approximately $2.1 million further strengthening our test and fault product
offerings.
REVENUES
Total revenues decreased 34% to $33.6 million in 1996 from $51.1 million in 1995
and increased 2% in 1995 from $50.1 million in 1994. Product revenues decrease
to $18.2 million in 1996 compared to $28.4 million in 1995, a decrease of 36%.
The decrease in product revenues in 1996 as compared to 1995 was primarily due
to decreased shipments of the Company's accelerator products and delays in
shipments of the next generation, faster LightSpeed accelerator product family,
introduced in late September 1996. Product revenues decreased to $28.4 million
in 1995 compared to $29.4 million in 1994, a decrease of 3%. This decrease was
primarily due to a decrease in Paradigm ViP and Paradigm RP-TM- product revenues
as the ViP product was discontinued at the end of 1994. Additionally, emphasis
on the RP product was reduced, pending introduction of the GateField high-
density Programmable ASICs. These decreases in revenues were partially offset
by purchases of the Paradigm XP-TM- products by the Company's largest customer.
Service revenues were $15.3 million, $22.7 million and $20.7 million in 1996,
1995 and 1994, respectively. The decrease in service revenues from 1996 as
compared to 1995 was mainly due to the exclusion (i.e. non-consolidation)of
revenue relating to the DOORS technology from revenue amounts in 1996, as
well as reduced maintenance revenues related to older generation accelerator
products and price reductions related to government contracts (see Note 2 of
Notes to Consolidated Financial Statements). The increase in service
revenues in 1995 as compared to 1994 was primarily due to increased demand
for the DOORS technology and increases in commercial contracts.
GROSS PROFIT
Gross profit from total revenues was $16.6 million, $33.6 million and $30.1
million in 1996, 1995 and 1994, respectively. Gross profit as a percentage of
total revenues was 49%, 66% and 60% for the same years ended December 31, 1996,
1995 and 1994, respectively.
Gross profit from product revenues was $9.8 million, or 54% of product sales in
1996 compared to $22.0 million, or 77% of product sales in 1995. This decrease,
both in dollars and as a percentage of product revenues was primarily due to
decreased product revenues as well as certain one-time charges of approximately
$1.8 million related to the write down of inventories in 1996. Other factors
contributing to the decrease in gross profit from product revenues in 1996 were
product mix of the LightSpeed product line, which included lower margins during
introduction, and higher discounts offered to customers for older generation
products. Gross profit from product revenues increased $0.9 million in 1995,
despite lower revenues as compared to gross profit from product revenues in
1994, primarily due to a shift in product mix to shipments of the higher-margin
Paradigm XP products.
Gross profit from service revenues was $6.8 million, $11.6 million and $9.0
million in 1996, 1995 and 1994, respectively. Gross profit as a percentage of
service revenues was 44%, 51% and 43% for the years ended December 31, 1996,
1995 and 1994, respectively. The decrease in gross profit from service revenues
in 1996 compared to 1995 was primarily due to decreased maintenance revenues in
1996 as well as the exclusion of DOORS revenues, which generally had a higher
profit margin. Gross profit from service revenues increased $2.6 million in
1995 compared to 1994, while service revenues increased $2.0 million. This
increase in gross margin was mainly due to a shift to sales of higher-value
commercial service contracts from lower-margin service contracts affiliated with
the mil/aero products in 1994.
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses were $14.3 million, or 43% of total revenues, $16.9
million, or 33% of total revenues and $18.9 million, or 38% of total revenues in
1996, 1995 and 1994, respectively. The decrease in actual expenses for 1996
compared to 1995 was primarily due to the inclusion of DOORS expenses of $2.1
million in 1995 (see Note 2 of Notes to Consolidated Financial Statements). The
increase in sales and marketing expenses as a percentage of total
4
<PAGE>
revenues for 1996 as compared to 1995 was attributable to reduced revenues as
well as higher marketing expenses in 1996 related to the introduction of the
LightSpeed product. In 1995, sales and marketing expenses decreased 11%, or
$2.0 million, compared to 1994, primarily due to reduced staffing levels
resulting from the restructuring actions taken in December 1994.
RESEARCH AND DEVELOPMENT
The Company's research and development expense was $15.8 million, $11.3 million
and $11.2 million in 1996, 1995 and 1994, respectively. The increase in
research and development expense in 1996 compared to 1995 was mainly due to
additional staffing levels and higher levels of engineering project activity
associated with the introduction of both the LightSpeed and the high-density
programmable ASICs product lines.
Research and development expense was relatively constant in 1995 and 1994. Due
to the restructuring in December 1994, personnel expense was lower in the first
half of 1995, but increased in the second half of 1995 as the Company began its
development for the next generation accelerator, LightSpeed and GateField
Programmable ASICs programs.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $4.9 million, $2.9 million and $2.7
million in 1996, 1995 and 1994, respectively. The increase in general and
administrative expenses for 1996 was primarily due to $1.0 million of bad debt
expense for potential uncollectable accounts receivable. An additional $0.8
million of expense in the second half of 1996 was attributable to the Company's
decision to restructure the organization in order to seek profitability and
growth. These expenses included severance and other fringe benefits related to
a reduction in force.
General and administrative expenses increased $0.2 million, or 6%, in 1995 over
1994. This increase remained relatively constant as a percentage of revenues
and was primarily due to increases necessary to support revenue growth as well
as higher special project costs.
ASSET WRITE-DOWNS AND STAFF REDUCTIONS
In the fourth quarter of 1994, the Company decided to discontinue selling its
VHDL accelerator product, the Paradigm ViP. This decision resulted from
disappointing financial performance in 1994 and the re-direction of the product
diversification strategy. Non-recurring costs of $6.8 million, principally
related to write-downs of capitalized software and inventory for the ViP product
line and staff reduction costs, were charged against income (see Note 4 of
Notes to Consolidated Financial Statements).
OTHER INCOME AND EXPENSE
Interest expense was $3.2 million in 1996 compared to $0.3 million in 1995 and
$0.2 million in 1994. This increase in 1996 was primarily due to $2.5 million
of the acceleration of amortization of discount expense related to the portion
of the Company's subordinated convertible debenture notes (see Note 5 of Notes
to Consolidated Financial Statements). Additionally, the Company recorded
higher interest expense related to higher borrowings and higher interest rates.
Other income was $0.2 million in 1996 and other expense was $0.3 million and
$0.1 million in 1995 and 1994, respectively. This fluctuation from year to year
was primarily due to transaction gains and losses related to foreign currency
adjustments.
INCOME TAXES
The Company did not record income tax expense (benefit) in 1996, 1995 and 1994
due to losses or the availability of net operating loss carryforwards (see Note
8 of Notes to Consolidated Financial Statements).
NET INCOME (LOSS)
The net loss for 1996 was $21.4 million, compared to net income in 1995 of $2.0
million and a net loss in 1994 of $9.7 million. In addition to reduced revenues
and decreased gross margin percentage for 1996, the loss in 1996 was
significantly impacted by one-time charges to cost of sales of $1.8 million,
discussed above in "Gross Profit", an additional $1.8 million of bad debt and
restructuring charges as discussed in "General and Administrative" and $2.5
million of amortization expense related to debenture discounts as discussed in
"Other Income and Expense".
The Company's net income of $2.0 million in 1995 represents an $11.7 million
improvement over the 1994 financial results based on increased revenues of $1.1
million. The Company's net income was comprised of $5.4 million profit
attributable to revenues from its accelerator business activity, $1.6 million
profit related to marketing and distribution of requirements management
technology, DOORS, owned by a third-party U.K. company, offset by $5.0 million
of expenses related to the development of the GateField Programmable ASICs.
The loss in 1994 included $6.8 million of asset write-downs and restructuring
costs as the Company continued to sell its ViP product and concentrated on fewer
product technology areas, as discussed in "Asset Write-Downs and Staff
Reductions".
FACTORS AFFECTING FUTURE RESULTS
The Company's revenues during 1994 through 1996 consisted principally of its
fault and simulation products, such as the Paradigm PXP and TDX products.
Revenue for these products declined during the three year period. The
Company's plans to offset this trend is principally dependent on the
successful introduction of the GateField high-density reprogrammable ASICs.
The Company continues to seek improvement in operating results through
introduction of new products, including verification tools and Field
Programmable Gate Array (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
cancellations
5
<PAGE>
or delays of customer orders, interruptions 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 $12.6
million in 1996 compared to cash generated by operations of $5.4 million in
1995. The increase in cash used in operations in 1996 was primarily due to the
net loss generated by operations, net sales under capital leases and a growth in
inventories, partially offset by a growth in accounts payable and accrued
liabilities. Cash generated by operations of $5.4 million in 1995 was the
result of net income of $2.0 million, an increase in accounts payable and a
decrease in accounts receivable and other assets, offset by an increase in
inventories and a decrease in accrued expenses. Cash used in investing
activities was $3.5 million in 1996, compared to $2.0 million in 1995, relating
primarily to capital equipment purchases and increased levels of capitalized
software. Net cash generated by financing activities was $13.9 million in 1996,
compared to net cash used in financing activities of $2.6 million in 1995. Cash
generated by financing activities in 1996 was primarily attributable to a $10.0
million subordinated convertible debenture notes offering in the second quarter,
$3.2 million in bank borrowings through use of factoring agreements, as well as
$0.7 million provided by the issuance of the Company's Common Stock.
At December 31, 1996 the Company had cash and cash equivalents of $1.7 million
and a working capital deficit of $(1.2) million at December 31, 1996 compared to
working capital of $6.7 million at December 31, 1995. The Company has a $3.1
million factoring arrangement with a bank which expires in October 1997, of
which $1.8 million was outstanding at December 31, 1996 (see Note 5 of Notes to
Consolidated Financial Statements). The Company's Japan subsidiary also has bank
factoring agreements for $1.4 million (see Note 5 of Notes to Consolidated
Financial Statements). Additionally, the Company, subsequent to December 31,
1996, obtained a $5.0 million line of credit with a lender that allows for the
use of substantially all of the Company's tangible assets as collateral (see
Note 11 of Notes to Consolidated Financial Statements).
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. It is
anticipated that minimum working capital will be required to meet sales demands
because levels of PXP and LightSpeed inventories should meet demands through the
second quarter of 1997.
The Company's operating and product development activities have required
significant cash. In anticipation of meeting the Company's 1997 cash
requirements, in February 1997, the Company completed a $5.0 million private
placement financing agreement with investors whereby the Company issued 6%
subordinated convertible debenture notes which can be converted into shares of
the Company's Common Stock. This funding is available to the Company in
traunches of $3.5 million upon closure of the debenture agreement and $1.5
million upon registration of additional shares of the Company's Common Stock
through the effective filing of an S-3 Registration Statement under the
Securities Act of 1933. The discount expense relating to these subordinated
convertible debenture notes is $0.9 million for the $3.5 million of funding and
$0.4 million for the $1.5 million of funding. This discount will be amortized
within 180 days of receipt of the cash (see Note 11 of Notes to Consolidated
Financial Statements).
The Company's debenture agreements specify certain events of default upon
which the debentures would become immediately payable, including a delisting
of the Company's Common Stock from the Nasdaq Stock Market. At December 31,
1996, the Company was not in compliance with the requirement of the Nasdaq
National Market (a distinct tier of the Nasdaq Stock Market) to maintain
minimum net tangible assets (as defined) of $4,000,000. A hearing is
scheduled for April 23, 1997 for Nasdaq to consider the Company's plans to
come into compliance with such requirement. The Company believes that if its
stock were delisted from the Nasdaq National Market, it would be eligible for
listing in the Nasdaq SmallCap Market, which is another tier of the Nasdaq
Stock Market, and, accordingly, believes it would remain in compliance with
the debenture requirement to trade on the Nasdaq Stock Market; however, no
assurances can be given.
The Company anticipates that by attaining revenue projections for 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 (see Note 11 of Notes to Consolidated Financial
Statements) 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.
6
<PAGE>
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT Except for the
historical information contained herein, the President's letter and
Management's Discussion and Analysis contain certain forward-looking
statements that involve potential risks and uncertainties. The Company's
future results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not
limited to, potential fluctuations in quarterly results, market acceptance of
the Company's products, competition, new products and the impact of new
technologies, dependence on certain suppliers, including sole and limited
source suppliers, customer concentration, proprietary technology rights,
international sales and risks inherent with international business
activities, dependence on key personnel, possible volatility of the Company's
stock price and continued listing on Nasdaq. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only at
the date hereof. The Company undertakes no obligation to revise or update
these forward-looking statements to reflect events or circumstances that
arise after the date of to reflect the occurrence of unanticipated events.
7
<PAGE>
ZYCAD CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1996 1995
- ------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 1,703 $ 3,722
Short-term investments 100 224
Accounts receivable, less allowance for doubtful
accounts of $1,337 in 1996 and $296 in 1995 12,088 12,123
Inventories 2,664 1,788
Other current assets 956 765
-------- --------
Total current assets 17,511 18,622
Property and equipment, net 5,101 5,598
Purchased technology 2,776 1,129
Other assets 4,139 3,631
-------- --------
Total assets $ 29,527 $ 28,980
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank financing $ 3,203 $ -
Current portion of long-term obligations 1,958 1,028
Accounts payable 5,715 3,968
Accrued expenses 5,345 3,955
Deferred revenues 2,530 2,930
-------- --------
Total current liabilities 18,751 11,881
Subordinated convertible debenture notes 7,342 -
Long-term obligations 719 1,207
Other long-term liabilities 146 213
-------- --------
Total liabilities 26,958 13,301
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: 23,226,444 in
1996 and 19,752,653 in 1995 2,323 1,975
Additional paid-in capital 55,784 47,837
Accumulated translation adjustments (48) (19)
Accumulated deficit (55,490) (34,114)
-------- --------
Total stockholders' equity 2,569 15,679
-------- --------
Total liabilities and stockholders' equity $ 29,527 $ 28,980
-------- --------
-------- --------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE>
ZYCAD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994
- -------------------------------------------------------------------------------
Revenues
Product $ 18,232 $ 28,422 $ 29,350
Service 15,345 22,695 20,701
--------- --------- ---------
Total revenues 33,577 51,117 50,051
--------- --------- ---------
Cost of revenues
Product 8,439 6,407 8,224
Service 8,569 11,086 11,733
--------- --------- ---------
Total cost of revenues 17,008 17,493 19,957
--------- --------- ---------
Gross profit 16,569 33,624 30,094
--------- --------- ---------
Operating expenses
Sales and marketing 14,325 16,911 18,895
Research and development 15,783 11,263 11,172
General and administrative 4,896 2,900 2,738
Asset write-downs and staff reductions - - 6,800
--------- --------- ---------
Total operating expenses 35,004 31,074 39,605
--------- --------- ---------
Operating income (loss) (18,435) 2,550 (9,511)
--------- --------- ---------
Other income (expense)
Interest expense, net (3,184) (343) (172)
Other income (expense), net 243 (250) (65)
--------- --------- ---------
Total other income (expense) (2,941) (593) (237)
--------- --------- ---------
Net income (loss) $ (21,376) $ 1,957 $ (9,748)
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share $ (1.03) $ 0.09 $ (0.52)
--------- --------- ---------
--------- --------- ---------
Weighted average common shares and
common share equivalents outstanding 20,655 21,233 18,598
--------- --------- ---------
--------- --------- ---------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
<PAGE>
ZYCAD CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Treasury Stock
Common Stock Additional and Notes Receivable Accumulated
------------------ Paid-In -------------------- Transaction Accumulated
(IN THOUSANDS) Shares Amount Capital Shares Amount Adjustments Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 18,043 $ 1,805 $ 44,992 (778) $ (3,566) $ (337) $(25,292) $ 17,602
Exercise of common stock
options 195 19 190 - - - - 209
Sale of common stock to
employees 74 7 194 - - - - 201
Foreign stock issue 722 72 1,363 778 2,666 - (1,031) 3,070
Current translation adjustment - - - - - 181 - 181
Net loss - - - - - - (9,748) (9,748)
- ------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1994 19,034 1,903 46,739 - (900) (156) (36,071) 11,515
Exercise of common stock
options 636 64 877 - - - - 941
Sale of common stock to
employees 28 3 38 - - - - 41
Issuance of common stock
under warrants, net 54 5 183 - - - - 188
Collection of note receivable
from stockholder - - - - 900 - - 900
Current translation adjustment - - - - - 137 - 137
Net income - - - - - - 1,957 1,957
- ------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1995 19,752 1,975 47,837 - - (19) (34,114) 15,679
Exercise of common stock
options 370 37 609 - - - - 646
Sale of common stock to
employees 26 3 75 - - - - 78
Issuance of common stock
for purchase of Attest, net 387 39 2,101 - - - - 2,140
Issuance of common stock
for debentures, net 2,691 269 5,162 - - - - 5,431
Current translation adjustment - - - - - (29) - (29)
Net loss - - - - - - (21,376) (21,376)
- ------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 23,226 $ 2,323 $ 55,784 - $ - $ (48) $(55,490) $ 2,569
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
ZYCAD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(IN THOUSANDS) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ (21,376) $ 1,957 $ (9,748)
Reconciliation to net cash provided by (used in) operating activities
Depreciation and amortization 4,307 4,732 4,431
Subordinated convertible debt interest capitalized 2,773 - -
Asset write-downs and staff reductions - 233 4,422
Loss on disposition of property and equipment - 226 326
Sales under capital leases (1,420) (854) (885)
Collections under capital leases 459 209 285
Changes in assets and liabilities
Accounts receivable 724 845 (2,912)
Inventories (876) (840) 220
Other assets (90) 382 83
Accounts payable and accrued expenses 3,174 (966) 978
Deferred revenues (292) (527) 751
---------- -------- ---------
Net cash provided by (used in) in operating activities (12,617) 5,397 (2,049)
---------- -------- ---------
Investing activities
Property and equipment purchases, net (1,773) (1,775) (3,770)
Capitalized software (1,698) (1,683) (3,492)
Collection of notes receivable - 1,500 -
---------- -------- ---------
Net cash used in investing activities (3,471) (1,958) (7,262)
---------- -------- ---------
Financing activities
Proceeds from issuance of convertible debenture notes, net 10,000 - -
Proceeds from sales of common stock 724 1,170 3,480
Bank financing, net 3,203 (2,897) 2,897
Lease receivables sold with recourse - - 612
Borrowings under debt obligations 882 217 1,985
Repayments of debt obligations (930) (1,084) (585)
---------- -------- ---------
Net cash provided by (used in) financing activities 13,879 (2,594) 8,389
---------- -------- ---------
Effect of exchange rate changes on cash and cash equivalents 190 16 (7)
---------- -------- ---------
Net change in cash and cash equivalents (2,019) 861 (929)
Cash and cash equivalents, beginning of year 3,722 2,861 3,790
---------- -------- ---------
Cash and cash equivalents, end of year $ 1,703 $ 3,722 $ 2,861
---------- -------- ---------
---------- -------- ---------
Supplemental disclosure of cash flow information
Noncash activities
Common stock exchanges for convertible debentures $ 5,431 $ - $ -
Common stock issued for the acquisition of all the
outstanding shares of Attest Software, Inc. $ 2,140 $ - $ -
Promissory notes issued in exchange for reduction of
accounts payable $ 901 $ - $ -
Equipment acquired under capital leases $ 490 $ 229 $ 1,125
Cash activities
Cash paid during the year for interest $ 471 $ 562 $ 385
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
11
<PAGE>
ZYCAD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Zycad Corporation (the Company), based in Fremont, California, designs,
manufactures, markets and services high-performance, simulation acceleration
technology and related software that address the issues associated with the
design verification of complex integrated circuits (ICs), application specific
integrated circuits (ASICs) and electronic systems as well as high density
reprogrammable ASIC technology (ProASIC). The Company also provides system
engineering services and custom solutions to military, aerospace and commercial
companies, primarily in the U.S., Asia and Europe.
The Company incurred a loss of $21,376,000 in 1996 and had a working capital
deficit of $1,240,000 as of year end. Management's plan to sustain operations
in 1997 includes obtaining additional financing and the sale of certain Company
assets. This plan was implemented in early 1997 and has resulted in the
completion of two financing agreements and one asset sale agreement (see Note
2 and Note 11).
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The functional currency of
the Company's foreign subsidiaries is the local currency.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit with banks and money market
instruments with original maturities of three months or less.
SHORT-TERM INVESTMENTS
Short-Term investments consist of Certificates of Deposit, stated at cost plus
accrued interest, which approximates market.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, short-term
investments and trade accounts receivable. The Company invests only in high
credit quality short-term debt investments and limits the amount of credit
exposure to any one entity. The majority of the Company's trade accounts
receivable are derived from sales to manufacturers in the semiconductor,
computer, military and aerospace industries. The Company performs ongoing credit
evaluations of its customers financial condition and limits the amount of credit
extended when deemed necessary, but generally requires no collateral. The
Company maintains reserves for potential credit losses.
INVENTORIES
Inventories are stated at the lower of standard cost, which approximates actual
cost on a first-in, first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Equipment acquired under capital
lease obligations is stated at the lower of fair value or the present value of
future minimum lease payments at the inception of the lease. Depreciation and
amortization is provided over the estimated useful lives of the assets or over
the life of the lease, as applicable, using the straight-line method. Field
spares are amortized over the estimated life of the related product.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of". The adoption of this
standard had no effect on the Company's financial condition or results of
operations.
CAPITALIZED SOFTWARE
The Company capitalizes software development costs in accordance with Statement
of Financial Accounting Standards No. 86 (SFAS No. 86), "Accounting for the
Costs of Computer Software to be Sold, Leased or otherwise Marketed".
Amortization of capitalized software development costs begins upon initial
product shipment. Software development costs are amortized (a) over the
estimated life of the related product, generally thirty-six months, using the
straight-line method, or (b) based on the ratio of current revenues from the
related products to total estimated revenues for such products, whichever is
greater.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees". The Company has presented the pro
forma disclosures of compensation expense under the fair value provisions of the
recently issued Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation" in Note 10.
12
<PAGE>
REVENUE RECOGNITION
The Company generally recognizes product revenues at the time of shipment, but
may delay revenue recognition until products are installed or accepted,
depending on the particular product and contract terms. Design and verification
service revenues are recognized as the services are performed. Revenues from
the sale of maintenance contracts are recognized over the term of the
respective contract.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109 (SFAS
No. 109), "Accounting for Income Taxes," which requires an asset and liability
approach to account for income taxes and requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax basis
of assets and liabilities and net operating loss and tax credit carryforwards.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common shares outstanding during each period including dilutive common share
equivalents, which consist of common stock options and warrants. Net loss per
share is computed using the weighted average number of common shares
outstanding. Common share equivalents are not included in the net loss per share
calculation because the effect would be anti-dilutive.
RECLASSIFICATION
Certain previously reported amounts in the 1995 and 1994 consolidated financial
statements and notes have been reclassified to conform with the 1996
presentation.
NOTE 2: CERTAIN TRANSACTIONS
JOINT VENTURE
The Company's financial statements include the activities related to the
distribution of third-party owned technology, DOORS, for the years ended
December 31, as follows (in thousands):
1995 1994
-------- --------
Service revenues $ 5,400 $ 2,100
Cost of service revenues 1,700 600
-------- --------
Gross profit 3,700 1,500
Sales and marketing expenses 2,100 600
-------- --------
Operating income $ 1,600 $ 900
-------- --------
-------- --------
The net assets related to the DOORS activities are not material. In January
1996, 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.
During 1996, the Company reported its 40% ownership of QSS Inc. on a
non-consolidated, one-line equity basis rather than in the detail as shown
above, for 1995 and 1994. For the year ended December 31, 1996, the 40%
equity share of the joint venture profit was $160,000 (included in Other
Income). 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% (see Note 11 concerning the subsequent sale of the
Company's interest).
COMPANY STOCK TRANSACTION
On March 14, 1994 the Company raised $3,100,000 of cash, net of broker fees and
discounts through the sale of 1,500,000 shares of its Common Stock including all
of its treasury shares. These shares were sold to foreign investors under the
provisions of Regulation S of the Securities Act of 1933, as amended (the
Securities Act).
NOTE 3: PURCHASED TECHNOLOGY
In June 1996, the Company acquired Attest Software, Inc. (Attest), located in
Santa Clara, California, in exchange for approximately 387,000 shares of the
Company's Common Stock, valued at approximately $2,140,000, for all the
outstanding Common Stock of Attest. This transaction was accounted for as a
purchase; accordingly, the operations of Attest have been included in the
consolidated results of the Company since the day of acquisition. The operating
results of Attest prior to the acquisition were not significant. As part of this
transaction, the technology purchased, used for fault simulation and automatic
test pattern generation (ATPG) tools, was valued at $2,055,000 which is being
amortized over seven years. Accumulated amortization was $165,000 at December
31, 1996.
In September 1993, the Company acquired Integrated Circuit Applications, Ltd.
(InCA), located in Ascot, United Kingdom for $450,000 cash and 460,000 shares of
the Company's Common Stock valued at approximately $1,322,000. This transaction
was accounted for as a purchase; accordingly, the operations of InCA have been
included in the Consolidated Results of the Company since the date of
acquisition. The operating results of InCA prior to the acquisition were not
significant.. As part of this transaction the technology purchased was valued
at $1,692,000 which is being amortized over seven years. Accumulated
amortization was $806,000, $564,000 and $322,000 at December 31, 1996, 1995 and
1994, respectively. The technology is utilized in the rapid prototyping and
emulation product markets and has been incorporated into the GateField
Programmable ASICs technology.
13
<PAGE>
NOTE 4: ASSET WRITE-DOWNS AND STAFF REDUCTIONS
During fourth quarter 1994, the Company recorded $6,800,000 of expenses, of
which $5,300,000 related to discontinuing its Paradigm ViP product line. The
remaining $1,500,000 was primarily related to various asset write-downs and
staff reductions. Details of the write-off are as follows (in thousands):
NON-CASH ASSET WRITE-DOWNS
ViP inventory $ 750
ViP related capital equipment,
including demos and spares 500
Capitalized ViP software 2,872
Other assets 300
--------
4,422
CHARGES RELATING TO CASH OUTFLOWS
ViP inventory purchase commitments 870
Vacated facilities ($200 long-term) 300
Severance and other staff reduction costs 908
Other 300
--------
Total $ 6,800
--------
--------
NOTE 5: BANK FINANCING AND LONG-TERM DEBT
BANK BORROWINGS
The Company has a $3,125,000 factoring agreement which bears an interest rate
of 1.5% per month and certain administrative fees, that expires in October 1997.
Under the factoring agreement, the Company can sell up to 80% of any receivable
listed on an invoice and the buyer may exercise its sole discretion in approving
the credit of each Account Debtor before buying any receivable. At December 31,
1996, the balance outstanding under this factoring agreement was $1,840,000.
Additionally, the Company's Japan subsidiary has promissory notes discounted
with banks in the amount of $1,363,000 that have been classified as bank
borrowings in accordance with Statement of Financial Accounting Standards No.
77 (SFAS No. 77), "Reporting by Transferors for Transfers of Receivables with
Recourse."
TERM LOANS
In 1995 and 1996, the Company entered into long-term loan agreements totalling
$2,179,000 that bear interest rates of 10.66% to 15.33% and mature over 36
months. These loans are secured by specific capital assets. At December 31,
1996, the balance outstanding under these loans was $810,000, with $644,000 due
in 1997 and $246,000 in 1998. In 1996, the Company obtained promissory notes
totalling $901,000 from key vendors that bear interest rates from 12% to 18%.
These notes are payable in the first nine months of 1997.
SUBORDINATED CONVERTIBLE DEBENTURE NOTES
In May 1996, the Company sold a total of $10,000,000 of subordinated convertible
debenture notes (the Notes) to institutional investors as part of a private
placement. The Notes 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 Notes are not previously converted. The
Notes 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 stock at $10.00 per share, subject to certain conditions.
The conversion of the Notes at 80% to 85% of the average closing bid price of
the Company's Common Stock results in the Notes being issued at a 15% to 20%
discount (the Conversion Discount). The Conversion Discount is being recognized
by the Company as non-cash interest expense from the date of issuance through
the date the security is most favorably convertible to the noteholders, with a
corresponding increase to the original principal amount of the Notes. Upon
conversion of the Notes, any portion of the Conversion Discount not previously
recognized is recorded as interest expense on that date. In addition, the
stated 6% annual interest is being recognized ratably over the term of the
Notes. During the year ended December 31, 1996, a total of $2,836,000 was
recorded as interest expense relating to the Notes, including $2,500,000
relating to the Conversion Discount.
The $10,000,000 original principal amount of the Notes is convertible up to
the maximum number of shares of the Company's Common Stock legally available
therefor, with each individual Note limited to a pro-rata amount of such
number of shares. To the extent that the debentures are still outstanding
after 180 days, the Company is obligated to issue a 2 1/2 year warrant to
purchase 10,000 shares of Zycad Common Stock at an exercise price of $10 per
share for each $1,000,000 of debentures outstanding to a maximum of 100,000
shares (pro-rated for each part $1,000,000). The warrants are redeemable by
the Company for $0.01 for each 10,000 share warrant if the Zycad stock price
is above $12. The Company issued 59,500 warrants in 1996. No value was
assigned to the warrants as the value was deemed to be nominal. During 1996,
an aggregate of $5,431,000 ($4,300,000 of the original principal of the Notes
and $1,131,000 of accrued interest) had been converted into 2,691,000 shares
of Common Stock. At December 31, 1996, the $7,342,000 outstanding balance of
the Notes consisted of $5,700,000 of the original principal amount of the
Notes and $1,642,000 of accrued interest. At December 31, 1996 approximately
3,179,000 shares of Common Stock had been reserved for conversion of the
remaining debentures.
In the event that the shares of Common Stock underlying a particular Note cannot
be issued upon request for conversion due to the above referenced maximum share
limitations, the Company is immediately obligated to repay the original
principal of that portion of the Note which is presented for
14
<PAGE>
conversion which cannot be converted plus a premium equal to 2%, starting
on the 31st day and each 30-day period thereafter, of such principal plus any
accrued and unpaid interest.
The debenture agreement specifies certain events of default, upon which the
debentures would become immediately payable, including a delisting of the
Company's Common Stock from the Nasdaq Stock Market. At December 31, 1996, the
Company was not in compliance with the requirement of the Nasdaq National Market
(a distinct tier of the Nasdaq Stock Market) to maintain minimum net tangible
assets (as defined) of $4,000,000. A hearing is scheduled for April 23, 1997
for Nasdaq to consider the Company's plans to come into compliance with such
requirement. The Company believes that if its stock were delisted from the
Nasdaq National Market, it would be eligible for listing in the Nasdaq SmallCap
Market, which is another tier of the Nasdaq Stock Market, and, accordingly,
believes it would remain in compliance with the debenture requirement to trade
on the Nasdaq Stock Market.
Based on the conversion of $3,970,000 of subordinated convertible debenture
notes and accrued interest to common stock in the first quarter of 1997 and
$256,000 in the second quarter, through April 14, 1997, and the agreement to
sell its interest in QSS, all as discussed in Note 11, and its projected
results for 1997, the Company believes it will remain listed on Nasdaq in
1997 and, accordingly, not cause an event of default with its debenture
agreement; however, no assurance can be given.
NOTE 6: LEASES AND COMMITMENTS
The Company leases its facilities and other equipment under operating lease
agreements which expire at various dates through 2002. The Company also leases
certain manufacturing equipment under capital leases which expire in 1999.
Approximate future minimum lease payments under these leases are as follows (in
thousands):
Capital Operating
Year Leases Leases
- --------------------------------------------------------------
1997 $ 537 $ 1,896
1998 441 965
1999 48 434
2000 - 7
2001 - 2
Thereafter - 9
- --------------------------------------------------------------
1,026 $ 3,313
---------
---------
Less amount representing
imputed interest 142
------
884
Less current portion 412
------
$ 472
------
------
Total operating lease expense was approximately $1,954,000 in 1996,
$1,638,000 in 1995 and $2,143,000 in 1994. Accumulated depreciation of
equipment under capital leases totalled $561,000 and $297,000 at December 31,
1996 and 1995, respectively. Depreciation expense on equipment under capital
leases was $264,000 in 1996, $204,000 in 1995 and $93,000 in 1994.
The Company leases office facilities under operating leases. Rent expense of
$1,732,000, $1,602,000 and $2,248,000 was incurred in 1996, 1995, and 1994,
respectively. During 1994, the Company sold $612,000 of its lease receivables
to certain finance companies. At December 31, 1996, the Company remains
contingently liable in the event of uncollectability for $128,000 to these
finance companies. During 1993, the Company entered into a joint development
agreement with a European company under which the Company agreed to spend
approximately $2.5 million over three years. At December 31, 1996,
approximately $185,000 remained under this obligation.
NOTE 7: SELECTED BALANCE SHEET INFORMATION
Selected Balance Sheet information is summarized as follows (in thousands):
December 31, 1996 1995
- ------------------------------------------------------------------------------
Accounts receivable
Accounts receivable $ 12,344 $ 12,111
Current portion lease receivables 1,081 308
Less allowance for doubtful
accounts (1,337) (296)
-------- --------
$ 12,088 $ 12,123
-------- --------
Inventories
Raw materials and supplies $ 2,045 $ 1,035
Finished goods 619 753
-------- --------
$ 2,664 $ 1,788
-------- --------
Property and equipment
Engineering, manufacturing, and
general office equipment $ 18,842 $ 19,131
Leasehold improvements 1,559 1,525
Equipment under capital lease 1,714 1,208
-------- --------
22,115 21,864
Less accumulated depreciation
and amortization (17,014) (16,266)
-------- --------
$ 5,101 $ 5,598
-------- --------
Other Long-Term Assets
Capitalized software $ 6,208 $ 4,510
Accumulated amortization (2,799) (1,649)
-------- --------
3,409 2,861
Long-term portion of
employee loans 25 100
Long-term portion of
lease receivables 348 323
Other assets 357 347
-------- --------
$ 4,139 $ 3,631
-------- --------
Accrued expenses
Salaries and commissions $ 1,771 $ 1,416
Warranty expense 550 220
Other accrued expenses 3,024 2,319
-------- --------
$ 5,345 $ 3,955
-------- --------
15
<PAGE>
NOTE 8: INCOME TAXES
The provision (benefit) for income taxes reconciles to the amount computed by
applying the statutory federal rate to income or loss before taxes as follows
(in thousands):
Years Ended December 31,
-----------------------------
1996 1995 1994
--------- -------- ---------
Provision (benefit) at
statutory rate $ (7,482) $ 757 $ (3,388)
Foreign losses not
currently utilizable 217 21 91
Foreign income taxed
at different rates - - 67
Increase (decrease) in
valuation allowance
for reversing temporary
differences - (1,056) -
Domestic losses not
currently utilizable 6,986 164 3,108
Other 279 114 122
--------- -------- ---------
$ - $ - $ -
--------- -------- ---------
The Company was not required to pay income taxes in 1996, 1995 or 1994 due to
its net operating loss carryforwards.
Significant components of the Company's deferred tax asset are as follows:
December 31,
1996 1995
--------- ---------
Deferred tax asset
Net operating loss
carryforwards $ 18,112 $ 10,540
Tax credit carryforwards 3,114 3,036
Capitalized software and
other research and
development (933) (682)
Tax basis depreciation 1,411 1,330
Accruals and reserves
recognized in
different periods 2,340 1,058
Other 80 38
Valuation allowance (24,124) (15,320)
--------- ---------
$ - $ -
--------- ---------
The valuation allowance was established due to uncertainty regarding the
utilization of the net operating loss carryforwards. The net change in
valuation allowance was an increase of $8,804,000, a decrease of $991,000 and an
increase of $4,365,000 in 1996, 1995 and 1994, respectively.
Net pretax foreign income (losses) were ($620,000), $185,000 and $(261,000) in
1996, 1995 and 1994, respectively. The Company intends to indefinitely reinvest
the unremitted earnings of its foreign subsidiaries. The Company has net
operating loss carryforwards of approximately $46,300,000 for federal tax
purposes that will begin to expire in 2005. State operating loss carryforwards
expires as follows: $5,000,000 in 1997, $335,000 in 1998, $30,000 in 1999,
$90,000 in 2000 and $10,710,000 in the year 2001. The Company's tax credit
carryforwards of $2,800,000 and $378,000 available to reduce future federal and
California income taxes, respectively. These credits will expire beginning in
1999. The Company also has foreign net operating loss carryforwards of
approximately $3,500,000 which may be used to offset future foreign taxable
income.
The Tax Reform Act of 1986 and California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating losses and tax
credit carryforwards in the event of an "ownership change" as defined by the
Internal Revenue Code. If there should be such a change, the Company's ability
to utilize the stated carryforwards could be significantly limited.
NOTE 9: GEOGRAPHIC SEGMENT INFORMATION
Information concerning the Company's operations by geographic area is as
follows:
Net revenues to unaffiliated customers by geographic region (in thousands):
1996 1995 1994
--------- --------- ---------
United States $ 25,396 $ 42,107 $ 39,271
Europe 2,307 4,355 5,196
Japan 5,874 4,655 5,584
--------- --------- ---------
$ 33,577 $ 51,117 $ 50,051
--------- --------- ---------
The amounts reported for Europe and Japan reflect amounts sold by foreign
subsidiaries. Included in the domestic revenue amounts are sales directly to
Japan and other Asian countries amounting to $2,116,000 in 1996, $6,100,000 in
1995 and $2,200,000 in 1994. Outside the United States, the Company operates
three subsidiaries in Europe, one subsidiary in Japan and also supports a
branch office in Taiwan. For the years ended December 31, 1996, 1995 and 1994,
export sales (including sales by foreign subsidiaries), principally to Europe
and Japan, comprised approximately 31%, 30% and 26% of consolidated revenues,
respectively. During 1996, 1995 and 1994, one customer accounted for 10%, 17%
and 14% of consolidated revenues, respectively.
Operating results and identifiable assets by geographic location are as follows
(in thousands):
1996 1995 1994
--------- --------- ----------
Operating income (loss)
United States $ (17,338) $ 2,836 $ (9,235)
Europe (861) (383) (606)
Japan (236) 97 330
--------- --------- ----------
$ (18,435) $ 2,550 $ (9,511)
--------- --------- ----------
1996 1995 1994
--------- --------- ----------
Identifiable assets
United States $ 25,324 $ 25,040 $ 24,120
Europe 2,171 2,785 3,108
Japan 2,032 2,155 2,597
--------- --------- ----------
$ 29,527 $ 29,980 $ 29,825
--------- --------- ----------
16
<PAGE>
NOTE 10: STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company's Articles of Incorporation were duly amended by a proposal by the
Board of Directors November 1, 1996 and by vote of the stockholders at a special
meeting on December 5, 1996, to authorize the issuance of 2,000,000 shares of
undesignated Preferred Stock at $0.10 par value. There were no outstanding
shares of Preferred Stock at December 31, 1996.
COMMON STOCK
The Company's Articles of Incorporation were duly amended by a proposal by the
Board of Directors November 1, 1996 and by vote of the stockholders at a special
meeting on December 5, 1996, to increase the Company's Common Stock by
10,000,000 shares from 30,000,000 to 40,000,000 shares of Common Stock
authorized at $0.10 par value. At December 31, 1996 there were 23,226,444
shares of the Company's Common Stock outstanding.
STOCK COMPENSATION PLANS
Under the Company's stock option plans, options to purchase shares of Common
Stock may be granted to employees and directors at not less than the fair market
value on the effective date of the grant, as determined by the Board of
Directors. Dependent on the plan, options typically vest at specified intervals
over a three to four year period, and expire eight to ten years after the grant
date. In the event of termination, the Company has the right to cancel any
vested options not exercised within 90 days of the termination. Cancelled
options are returned to the options plans and are available for future grants.
Options granted to officers subsequent to June 22, 1990 provide for acceleration
of exercisability in the event of an acquisition of the Company that meets
certain defined criteria. The plans also permit the granting of incentive and
nonstatutory stock options and stock appreciation rights (SARs). At December 31,
1996, there were no SARs outstanding. In October 1996, the Company's Board of
Directors adopted the 1996 Stock Option Plan which was ratified by shareholders
in December, 1996. Under this plan, 750,000 shares of the Company's Common
Stock were reserved for issuance under this plan. In August 1993, the Company's
Board of Directors adopted the 1993 Stock Option Plan which was ratified by
shareholders in December 1995. Under this plan, 1,500,000 shares of the
Company's Common Stock were reserved for issuance in 1993, and subsequently
increased to 3,000,000 in 1995. In September, 1993, the CEO of the Company
exercised 900,000 options granted under the 1984 Stock Option Plan for a
$900,000 secured promissory note which was paid in 1995.
During 1995 stockholders approved a Non-Employee Directors' stock option plan,
whereby 200,000 additional shares have been reserved for issuance to outside
directors. No options have been issued under this plan.
In October 1996, the Company agreed to exchange outstanding options to purchase
the Company's Common Stock held by all employees for an equal number of options
with an exercise price of $1.63, the then-current fair market value of the
Company's Common Stock. In return, participating employees who chose to
exchange their options agreed to accept stock options which will vest on a
quarterly basis upon achievement of certain management goals to be established
quarterly for each such employee, or in any event, in October 2000, should the
employee still be employed by the Company. Options covering a total of
1,040,100 shares were exchanged under this program. The effect of such exchange
reduced the weighted average exercise price of the outstanding options from
$3.24 to $1.90 per share. The effect of the exchange has been included in the
accompanying table as options granted and cancelled.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
which establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement defines a fair value based method
of accounting for an employee stock option of similar equity instrument. Under
these method, compensation costs are measured at the grant date based on the
value of the award and are recognized over the service period, which is the
vesting period.
The Company continues to account for its stock-based awards using the intrinsic
value method in accordance with APB No. 25 and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock option plans (see Note 1). Had compensation cost
for the Company's various stock option plans been determined consistent with
SFAS No. 123, the Company's net income or loss and net income or loss per share
would have been changed to the pro forma amounts indicated below (in thousands,
except net income or loss per share amounts):
December 31,
1996 1995
---------- --------
Net income (loss) As reported $ (21,376) $ 1,957
Pro forma $ (22,280) $ 1,793
Net income (loss) As reported $ (1.03) $ 0.09
per share Pro forma $ (1.08) $ 0.08
The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively; expected volatility
of 90% for 1996 and 84% for 1995, risk-free interest rates of 6.07% and 6.16%
for 1996 and 1995, respectively, and expected lives of 3.5 years from the grant
date for both 1996 and 1995.
17
<PAGE>
Options under the employee stock option plans have been granted, exercised and
cancelled as follows:
Options Outstanding
-----------------------
Weighted-
Shares average
Available exercise
for Grant Shares price
-------------------------------------
Balance,
December 31, 1993 839,645 2,897,917 $ 1.849
Granted (438,000) 438,000 2.644
Exercised - (195,974) 1.074
Cancelled 516,005 (741,620) 2.463
-------------------------------------
Balance,
December 31, 1994 917,650 2,398,323 1.868
Additional shares
authorized 1,500,000 - -
Granted (1,538,826) 1,538,826 4.347
Exercised - (634,983) 1.472
Cancelled 221,190 (428,262) 2.060
-------------------------------------
Balance,
December 31, 1995 1,100,014 2,873,904 3.254
Additional shares
authorized 750,000 - -
Granted (2,311,120) 2,311,120 2.353
Exercised - (369,877) 1.531
Cancelled 1,517,026 (1,517,026) 5.286
-------------------------------------
Balance,
December 31, 1996 1,055,920 3,298,121 $ 1.881
-------------------------------------
The weighted average per share fair value of the stock options granted in
1996 and 1995 was $2.35 and $4.35, respectively. At December 31, 1996, 1995
and 1994, outstanding options under the employees stock option plans were
exercisable for 1,065,835, 1,067,024 and 1,349,321 shares respectively. All
outstanding options are nonqualified options.
The following tables summarize information about stock options outstanding at
December 31, 1996:
Options Outstanding
----------------------------------------------
Weighted-avg
Exercise Price Number Remaining Weighted-avg
----------------- Outstanding Contractual Exercise
From To at 12/31/96 Life Price
------------------------------------------------------------------------
$ 0.75 $ 1.00 624,735 4.02 $ 0.998
$ 1.31 $ 1.50 9,000 8.30 1.339
$ 1.56 $ 2.06 2,228,932 8.10 1.713
$ 2.38 $ 3.50 220,446 5.55 2.781
$ 3.63 $ 5.31 118,508 6.98 4.436
$ 6.00 $ 8.06 96,500 7.01 6.711
------------------------------------------------------------------------
$ 0.75 $ 8.06 3,298,121 6.88 $ 1.881
------------------------------------------------------------------------
Options Exercisable
---------------------------------
Exercise Price Number Weighted-avg
------------------ Outstanding Exercise
From To at 12/31/96 Price
-----------------------------------------------------------
$ 0.75 $ 1.00 474,151 $ 0.998
$ 1.31 $ 1.50 7,666 1.321
$ 1.56 $ 2.06 378,895 2.037
$ 2.38 $ 3.50 167,306 2.803
$ 3.63 $ 5.31 21,942 3.638
$ 6.00 $ 8.06 15,875 6.820
-----------------------------------------------------------
$ 0.75 $ 8.06 1,065,835 $ 1.794
-----------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN
Through the Company's Employee Stock Purchase Plan, eligible employees of the
Company may purchase Common Stock at the fair market value of the stock at the
beginning or end of each offering period (calendar quarters), whichever is
lower. Each participant may contribute from 3% to 10% of total compensation, up
to a limit of $25,000 annually. Additionally, each participant is prohibited
from owning more than 5% of the Company's Common Stock. In December 1995,
200,000 shares of Common Stock were made available for purchase under this plan,
of which 25,913 shares were issued at December 31, 1996, for prices ranging from
$1.72 per share to $5.25 per share and an average price of $2.98 per share. At
December 31, 1996, 174,087 shares were reserved for future issuance under the
Purchase Plan. The fair value of the 1996 awards was not considered
significant.
EMPLOYEE 401(k) PLAN
Through the Company's elective 401(k) savings plan, eligible U.S. employees of
the Company may contribute up to 20% of their pre-tax earnings, subject to
current IRS restrictions. Under the plan, the Company may make discretionary
matching contributions up to 25% up to the first 10% of an employee's
contributions. The participants vest in the Company's contribution over five
years. Company contributions to this plan were $200,000 in 1996, $198,000 in
1995 and $256,000 in 1994.
WARRANTS
At December 31, 1996, total warrants outstanding were 194,500. Purchase price
of the securities subject to these warrants range from $1.00 to $10.00 and they
expire at various dates through February 2000.
During 1996, 59,500 warrants were issued relating to the subordinated
convertible debenture note. No warrants were exercised or cancelled in 1996.
In 1995, warrants for 53,860 shares were exercised and warrants for 32,058
issued in prior years were cancelled. During 1994, warrants for 50,000 shares
were issued to Dr. Fiebiger, who was elected to the Board of Directors in 1994,
at an exercise price of $3.63. Warrants for an additional 5,918 shares were
given in lieu of cash to Dr. Fiebiger for consulting services valued at $16,800.
The exercise price for these warrants is $0. During 1993, 50,000 warrants
issued to a Director were exercised at an exercise price of $1.00 and 30,000
warrants each were issued to two Directors at an exercise price of $2.06.
NOTE 11: SUBSEQUENT EVENTS
BANK LINE OF CREDIT
On January 6, 1997 the Company obtained a $5,000,000 revolving credit facility
that bears interest at the bank's prime rate (currently 8.25%) plus 2.25%, which
expires on January 31, 1999. The line of credit agreement is secured by
substantially all of the Company's assets. Under the agreement, the Company is
required to meet certain financial covenants involving
18
<PAGE>
capital spending levels and debt ratio, and may not declare or make any cash or
stock dividends.
1996 SUBORDINATED CONVERTIBLE DEBENTURE NOTES
During the first quarter of 1997, an aggregate of $3,970,000 ($3,150,000 of the
original principal of the Notes and $820,000 of accrued interest) has been
converted into 2,158,195 shares of the Company's Common Stock. During the first
fourteen days of the second quarter of 1997, an aggregate of $256,000 ($200,000
of the original principal of the Notes and $56,000 of accrued interest) has been
converted into 170,502 shares of the Company's Common Stock.
1997 SUBORDINATED CONVERTIBLE DEBENTURE NOTES
On February 13, 1997, the Company completed a $5,000,000 private placement
financing agreement with investors, whereby the Company issued 6% subordinated
convertible debenture notes, which can be converted into shares of the Company's
Common Stock to be registered under Regulation D of the Securities Act of 1933.
The Company received $3,500,000 of the convertible subordinated debenture in
February 1997 and will receive the remaining $1,500,000 upon registration of
additional shares of the Company's Common Stock upon the effective filing of an
S-3 Registration Statement under the Securities Act of 1933. Conversion rights
on these debentures may be exercised at various dates, beginning on May 16,
1997, at discounts that range from 15% to 20% below the market price at the date
of conversion. The amortized discount expense will be $1,250,000 and will be
expensed over the first 180 days upon receipt of the cash. In addition, the
investors received warrants to purchase up to 500,000 additional shares of the
Company's Common Stock at $2.25 per share, subject to certain conditions.
The debenture agreement specifies certain events of default, upon which the
debentures would become immediately payable, including a delisting of the
Company's Common Stock from the Nasdaq Stock Market (see Note 5).
QSS INC.
On April 14, 1997, the Company signed an agreement to sell its ownership in QSS
Inc., a joint venture established with QSS Ltd., for $3,500,000 cash. Closing
is anticipated by April 30, 1997 (see Note 2).
19
<PAGE>
ZYCAD CORPORATION
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ZYCAD CORPORATION
We have audited the accompanying consolidated balance sheets of Zycad
Corporation and its subsidiaries at December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Zycad Corporation and its
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 5 to the Consolidated Financial Statements, the Company
is required to continue trading on Nasdaq to comply with its debenture
agreements. The Company is in discussions with Nasdaq concernings its
eligibility to continue trading on the exchange. The outcome of this matter
is uncertain, which raises substantial doubt about the Company's ability to
remain in compliance with its debt agreements and continue as a going
concern. Management's views concerning this matter are also described in Note 5.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
March 11, 1997 (April 14, 1997 as to the last paragraph of Note 5
and as to Note 11)
20
<PAGE>
ZYCAD CORPORATION
CORPORATE INFORMATION
CORPORATE OFFICERS
Phillips W. Smith
President and Chief Executive Officer
Stephen A. Flory
Vice President and Chief Financial Officer
Douglas E. Klint
Vice President, General Counsel
and Corporate Secretary
Horst G. Sandfort
President, GateField Division
ADMINISTRATIVE AND DIVISIONAL
OFFICERS
Martin J. Baynes
VP Engineering
Accelerator Division
James J. Ensell
VP Sales, East/Europe, GateField Division
Charlie Parr
VP Sales, GateField Division
Reg Simpson
VP Manufacturing, GateField Division
Timothy Saxe
VP Engineering
GateField Division
Vince Calandra
VP Sales, Eastern Region and Europe
John R. Walsh
VP Operations
Verification Division
Mike Gianfagna
VP Sales, Western Region and Asia Pacific
Makoto Yamada
Managing Director
Zycad Japan, K.K.
Peter Feist
VP Business Development
GateField Division
Richard Freeman
VP General Manager
GateField Division
INDEPENDENT AUDITORS
Deloitte & Touche LLP
San Jose, California
LEGAL COUNSEL
Wilson, Sonsini, Goodrich & Rosati
Palo Alto, California
TRANSFER AGENT & REGISTRAR
The Bank of Boston
Boston, Massachusetts
DIRECTORS
Phillips W. Smith
President and Chief Executive Officer
Zycad Corporation
James R. Fiebiger
Industry Consultant, Chairman & Managing Director
Thunderbird Technology, Inc.
Benjamin Huberman
President
Huberman Consulting Group
Horst G. Sandfort
President, GateField Division
AUDIT COMMITTEE AND
COMPENSATION COMMITTEE
James R. Fiebiger
Benjamin Huberman
ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders will be held at Zycad's corporate office,
47100 Bayside Parkway, Fremont, California 94538, on Wednesday, August 27,
1997, at 3:30 P.M. Pacific Daylight Time.
FORM 10-K
The Company has filed an annual report with the Securities and Exchange
Commission on Form 10-K. Stockholders may obtain a copy of this report, without
charge, by writing:
Zycad Corporation
Attention: Investor Relations
47100 Bayside Parkway
Fremont, CA 94538-9942
Email: [email protected]
Internet: http://www.zycad.com
21
<PAGE>
STOCK LISTING
The Company's Common Stock is traded in the over-the-counter market under the
Nasdaq National Market symbol ZCAD (see Note 5 of Notes to the Consolidated
Financial Statements). The following table sets forth the range of high and
low trading prices during each quarter for the two years ended December 31,
1996:
High Low
- --------------------------------------------
1996
First Quarter $ 9.13 $ 4.88
Second Quarter $ 8.88 $ 4.63
Third Quarter $ 6.13 $ 3.44
Fourth Quarter $ 3.63 $ 1.56
- --------------------------------------------
1995
First Quarter $ 1.94 $ 0.94
Second Quarter $ 4.31 $ 1.31
Third Quarter $ 10.75 $ 3.25
Fourth Quarter $ 10.13 $ 5.38
- --------------------------------------------
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain any earnings for use in its business and is
currently restricted from declaring or paying and cash or stock dividends. At
April 4, 1997, there were 1,269 stockholders of record.
22
<PAGE>
Exhibit 21.1
ZYCAD CORPORATION AND SUBSIDIARIES
Set forth below are the subsidiaries of the Registrant:
ZYCAD G.M.B.H.
Bahnhofstrasse 19a
85737 Ismaning
West Germany
ZYCAD SARL
69 rue d'Aguesseau
92100 Boulogne
France
ZYCAD LIMITED
Zycad House
London Road
Bracknell, Berkshire RG12 2UT
England
ZYCAD JAPAN KK
Toshin 24 Shin-Yokohama Bldg. B-8F
2-3-8, Shin Yokohama, Kohoku-ku
Yokohama, 222 Japan
ZYCAD INTERNATIONAL, INC.
47100 Bayside Parkway
Fremont, CA 94538
ATTEST SOFTWARE, INC.
47100 Bayside Parkway
Fremont, CA 94538
24
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements
No. 2-93079 of Zycad Corporation on Form S-8, and No. 33-12170, No. 33-36124
and No. 333-08089 on Form S-3 of our reports (which express an unqualified
opinion and include an explanatory paragraph relating to an uncertainty of
the Company's ability to continue as a going concern) dated March 11, 1997
(April 14, 1997 as to the last paragraph of Note 5 and as to Note 11),
appearing in and incorporated by reference in the Annual Report of Form 10-K
of Zycad Corporation for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
San Jose, California
April 14, 1997
23
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