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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 June 30, 1996
Commission File Number 0-19682
CAYENNE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2784044
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 New England Executive Park
Burlington, Massachusetts 01803
Telephone Number (617) 273-9003
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
Name of each exchange on which registered: none
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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 the registrants 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. Yes No X.
As of September 23 1996, there were 17,631,445 shares outstanding of
the registrant's common stock, $0.01 par value. As of that date, the aggregate
market value of voting stock held by non-affiliates of the registrant was
approximately $64,770,746.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference
into the definitive Proxy Statement for the Special Meeting in Lieu of Annual
Meeting of Stockholders of the Company to be held November 20, 1996, which will
be filed with the Securities and Exchange Commission not later than 120 days
after June 30, 1996.
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CAYENNE SOFTWARE, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business ............................................................ 3
Item 2. Properties .......................................................... 17
Item 3. Legal Proceedings ................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ................. 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 19
Item 6. Selected Financial Data ............................................. 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 21
Item 8. Financial Statements and Supplementary Data ......................... 34
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............................. 51
PART III
Item 10. Directors and Executive Officers of the Registrant .................. 51
Item 11. Executive Compensation .............................................. 51
Item 12. Security Ownership of Certain Beneficial Owners and Management ...... 51
Item 13. Certain Relationships and Related Transactions ...................... 51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .... 52
Signatures ................................................................... 55
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PART I
ITEM 1. BUSINESS
GENERAL
Cayenne Software, Inc. (formerly Bachman Information Systems, Inc.)
("Cayenne(TM)" or the "Company"), organized as a corporation in 1983, develops,
markets and supports a comprehensive suite of software products and services.
Fortune 1000 companies and government agencies around the world use Cayenne
products as they develop, implement, and maintain enterprise-wide,
business-critical information systems. Cayenne's products are designed around an
innovative open architecture that enables organizations to create applications
that integrate diverse information sources into new high-performance computing
environments, to modify applications as business and technology change, and to
run those applications on a variety of platforms. Cayenne's approach to
reusability and its open architecture directly support mainframe and
client/server development and facilitates technology partnerships with other
leading software vendors.
Cayenne targets its products to Fortune 1000 companies, government
agencies, and organizations of similar size throughout the world that use
workstations, mid-range and mainframe computers and relational database
management systems for data-intensive applications.
As the Company continues to make the transition from providing tools
focused solely on mainframe application development to supporting customers'
needs for a more open and flexible set of solutions aimed at the growing
client/server market, it faces many challenges. Since fiscal 1993, the Company
has sought to address some of these challenges and, during fiscal 1995 and 1996,
the Company introduced additional products targeted at the client/server market.
The Company plans to continue to enhance its product offerings through
development efforts, strategic alliances and acquisitions to improve its
competitive position. The actions necessary to execute this transition have had
an adverse effect on the Company's operating results during fiscal 1996, 1995
and 1994.
In July, 1996, the Company acquired Cadre Technologies Inc. ("Cadre")
thereby expanding its product offerings and customer base. Cadre develops,
markets and supports software tools for the creation of complex computer
software. Most of the products sold by Cadre help to automate the process of
requirements analysis and software design by groups of software engineers.
Customers use the tools to capture, traverse, and analyze abstract models of the
system to be built. These models assist users, and sometimes their customers, in
understanding a software system, planning its implementation and making
engineering trade-offs. Additional Cadre products address document generation,
model configuration management, software construction, and the "reverse
engineering" (understanding) of existing software.
Cadre's customers are generally developers of complex software systems,
in both the information system ("IS") and the "technical" sectors. While most of
Cadre's current customers consider themselves in the technical sector, the
Company expects a shift toward IS customers as it concentrates on
"object-oriented" ("OO") technology. The Company's strategy is to maintain
Cadre's position as a leading provider of tools to the technical market, while
introducing new products and enhancements for Cadre's OO product line.
ACQUISITIONS
On July 18, 1996, the Company completed its acquisition of Cadre under
an Agreement and Plan of Merger (the "Merger Agreement") dated as of March 25,
1996 by and among the Company, Cadre and B.C. Acquisition Corp. ("Acquisition
Corp"), a wholly-owned subsidiary of the Company. The Merger Agreement provided
that upon the terms and subject to the conditions specified therein that,
effective on the closing, Acquisition Corp. would be merged with and into Cadre,
the separate corporate existence of Acquisition Corp. would cease, and Cadre
would continue as the surviving corporation in the merger and as a wholly-owned
subsidiary of the Company. The acquisition will be accounted for as a "pooling
of interests" beginning the first quarter of fiscal 1997. Pursuant to the Merger
Agreement, the amount of Company shares of common stock issued was 4,716,442 and
the exchange ratio was determined to be 0.3088 Company share for each
outstanding Cadre share. The fair market value of a share of the Company's
common stock at the time of the merger was $5.625 per share. Stratagem
Partnering Inc. acted as the Company's financial advisor in connection with the
Cadre acquisition.
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INDUSTRY BACKGROUND
Organizations have found in recent years that good information systems
supporting well-designed business processes can provide a substantial
competitive edge. The growth of business process re-engineering is an attempt to
re-think business processes and work flow from the ground up in order to achieve
the dramatic improvements in productivity required to reduce costs, improve
service to customers and gain competitive advantage. This re-thinking of the
business process creates challenges for IS professionals by creating many new
processes to support, and by rendering existing systems partially or completely
obsolete. As a result, there is an increasing demand for new application
development as well as a need for better integration among existing information
resources.
While in the past a majority of information-intensive applications were
built using large, centralized mainframe computers (such as those built by IBM),
with mainframe database management technology and very simple user interaction,
the proliferation of personal computers, networks and related technology over
the last ten to fifteen years has made a variety of new computing configurations
possible. New technologies promise systems that are easier to use and provide
better real-time access to information. After an initial investment, they also
promise a more rational cost structure over time.
Today, several very different types of technology coexist in large
organizations, each serving the needs of a specific user constituency. This
diversity of technology creates serious challenges for information systems
professionals, as they work to build new applications, maintain older mainframe
"legacy" applications, incorporate new client/server and communications
technology, integrate a variety of databases and applications for improved
access, and grow staff skills to meet overall requirements. To alleviate some of
these pressures, recent technology developments have emphasized systems of
hardware and software that are scalable, meaning they can be sized to meet the
small or large demands of the organizational units they support. Scalable
systems allow growing organizations to build on the investment they have made in
infrastructure and staff development, adding capacity incrementally, rather than
acquiring an entirely new system that might be very different from its
predecessor.
The primary goal of these changes is to make the organization more
productive by making more information available to the people who need it. This
improves the organization's ability to conduct its business. A related goal is
to create a more flexible infrastructure in which incremental growth results in
incremental cost, not a complete system redesign.
With the acquisition of Cadre, the Company has entered into an
additional industry segment focused on the creation and maintenance of complex
software systems, the problem addressed by Computer Aided Software Engineering
("CASE") products. During the 1970's, a number of "structured" techniques and
methods were invented to replace earlier ad-hoc approaches to software
development. The analysis and design (as opposed to implementation) techniques
emphasize the building of abstract models to assist in the understanding,
planning, and implementation of a system. The rationale for modeling is the same
in software as it is in any engineering discipline; money and effort are saved
if problems are identified and dealt with early in the engineering process.
STRUCTURED ANALYSIS AND STRUCTURED DESIGN. In the early eighties,
networks of computer workstations made it feasible to partially automate the
capture, traversal, and analysis of engineering models by work groups. This
technology was rapidly adopted in the civil, mechanical, and electrical
engineering domains. The CASE market expanded quickly in the mid-to
late-eighties, as did the number of companies formed to service it. The high end
of the market, with its multi-user networked UNIX engineering workstation
solution, found a home in technically-oriented organizations, such as those in
telecommunications, aerospace and defense. The other end of the market focused
on single-user, personal computer ("PC") based products. These found early
success in corporate IS organizations, where PCs were widely used.
The IS CASE market declined in the early nineties for a number of
reasons. While the IS software development market is large, commitment to
structured methods (and the attendant engineering discipline) was
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weak. Some CASE companies made claims which the products were unable to deliver
and soured the market. Others were slow to respond to technology changes such as
the shift to client-server application development and object orientation
(discussed further below). The decline resulted in a number of market leaders
closing or being acquired. The technical market, where Cadre derived the
majority of its business, was affected by the contraction and consolidation in
the defense industry. Consequently, Cadre diversified its product line into the
software development process, including debugging, measurement and verification
tools.
OBJECT ORIENTED TECHNOLOGY. In the meantime, the software development
community began to experiment with "object-oriented" technology, and in
particular, OO analysis, design and implementation techniques. The structured
techniques mentioned previously generally partition a system purely along
functional lines, i.e. in terms of what the system does. The OO approach
partitions a system into "objects," where each object encapsulates information
and those functions that operate on that information. The benefit of the OO
approach is that systems partitioned this way are more robust, more amenable to
change, and the objects are easier to reuse in other systems.
Cadre started selling its first OO analysis and design products (based
on the method of developing software created by Shlaer-Mellor) in 1989. When
market momentum began to build around a related method called the Object
Modeling Technique ("OMT"), Cadre initially entered the market by reselling an
OMT product in 1993. This was replaced by the OMT tool developed by Westmount
Technology B.V., acquired by Cadre in 1995. As the structured tools market
matures, the Company expects a transition to the OMT tool and related products.
These products run on both UNIX-based platforms and Windows 95 and NT-based
platforms.
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THE TRANSITION TO CLIENT/SERVER COMPUTING
New technology configurations combine personal computers, from which
information or processing is requested by users or "clients", with small,
medium, or large "server" machines that service those requests for information
or processing, and often perform additional tasks that are triggered by these
requests. The desired result is a network of information stores that contains
the knowledge base of the business (sometimes called an "information
warehouse"), and is queried and updated by a variety of applications that serve
specific departments and goals. This type of configuration is loosely referred
to as "client/server" computing.
Centralized IS groups have become accustomed over time to the issues
and strategies which arise when a large amount of data must be managed and a
large number of users supported. Concerns about controlled access, controlled
redundancy, management of application changes, large team development,
application performance and system documentation have been part of the IS
specialist's role for quite some time. Smaller departmental computing groups can
sometimes be unaware of the implications of under managing these issues, and
unaware of the techniques that can help control risk, if they have not had to
confront the problems that can result when such controls are not in place.
Today, forward-thinking organizations seek to combine the best of all
worlds, and apply the new, productive tools that have been created for rapid
development of small applications to larger, more ambitious, mission-critical
projects. At the same time, IS specialists in these organizations want to ensure
that applications, corporate data, and the infrastructure that supports them are
treated as important corporate assets and managed with the necessary controls.
APPLICATION DEVELOPMENT STRATEGIES
In the past, companies that have worked to provide state-of-the art
application development products have seemed to focus on one or the other of
these worlds -- automation of the rapid application development ("code it and
go") approach, or automation of the techniques pioneered by early methodologists
in largely mainframe environments. Again, the trend had been toward diverse
techniques being used in organizations and projects of different sizes or
technologies. But Cayenne and many of Cayenne's customers see significant value
in creating a scalable development approach, one that provides the productivity
of rapid, visual development with the reliability of a robust environment. Some
techniques commonly associated with mainframe-oriented development in the past,
such as data and process modeling, automated database design, and performance
analysis, can be applied with equal success to the development of client/server
applications; they need only be adapted to the characteristics of specific
technology environments.
As IS organizations seek productivity tools that will help them make
these difficult transitions, they prefer to work with vendors who understand
their special challenges. In exploring the various tools available to them, they
are confronted by a wide variety of claims, prices, and function. Cayenne
believes it can provide a unique and critical service as a company that
understands the challenges of both the traditional IS environment and the new
technologies and methods.
Many organizations have recently invested heavily in the hardware and
connectivity infrastructures that will form the foundation of their new
client/server systems. Components of these infrastructures include computers,
network-related hardware and software, database management systems, gateways,
and other enabling technologies. These organizations are now turning their
attention to the applications that will be built using this new technology
infrastructure, and which will support the newly-designed business processes.
Applications fall into several different categories, based on their
complexity and on the user constituency they serve. Cayenne focuses on solutions
that enable development, deployment, and maintenance of the more complex
applications that impact multiple departments or the entire enterprise.
Many of these applications are considered to be "business-critical,"
meaning that their continued operation and effectiveness is critical to the
execution of day-to-day business. Many other application development tools on
the market today provide productivity benefits for smaller, less complex,
applications, but these tools lack the
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robust features that allow an organization to continue using those same tools to
address more complex requirements for applications that are central to the
business. Cayenne's strategy is to produce solutions to a number of different
problems relating to the development of business-critical applications in both
mainframe and client/server technologies.
As the Company continues to make the transition from providing tools
focused solely on mainframe application development to supporting customers'
needs for a more open and flexible set of solutions aimed at the growing
client/server market, it faces many challenges. To address some of these
challenges, in fiscal 1995 and 1996, the Company introduced a suite of
additional products targeted at the client/server market. The Company plans to
continue to enhance its product offerings through development efforts, strategic
alliances and acquisitions to improve its competitive position. The actions
necessary to execute this transition have had an adverse effect on the Company's
operating results during fiscal 1996, 1995 and 1994. In July 1996, the Company
acquired Cadre thereby expanding its product offerings and customer base.
CAYENNE'S APPROACH
Cayenne provides products and services in the following solution areas:
- Modeling business requirements
- Designing and re-engineering databases
- Developing and deploying applications
- Work group support
- Managing the process
- Leveraging legacy systems
- Structured Analysis and Design
- Object Oriented Technology
Cayenne takes the following unique approach to these areas, which provides a
number of benefits to organizations seeking strategic solutions to their
information systems challenges.
SEPARATION BETWEEN CONCEPTUAL AND PHYSICAL CONCERNS. Cayenne solutions
enforce a separation between conceptual business requirements, where
organizations capture information about what data needs to be available and what
happens to it, and physical implementation, where technology-specific concerns
are addressed in an implementation design. This separation provides flexibility.
Changes to the business requirements or policies and changes to the technology
environment can be addressed independently, allowing organizations to leverage
investments in each. The technology-independent approach helps organizations
focus on business requirements, increasing the likelihood that the finished
application will meet those requirements.
FLEXIBILITY TO ENTER THE DEVELOPMENT PROCESS AT ANY STAGE. Cayenne
solutions address the entire life cycle of application development, and many of
them can be used at multiple stages of the life cycle. For example, database
design products can capture existing database structures from applications that
have already been developed, allowing database designers to view and optimize
the data structures. Design can begin with a new project or with an existing
system already in production. This flexibility supports an iterative development
process, and allows incorporation of formal analysis and modeling where needed.
INTEGRATION OF PRODUCTS ON MULTIPLE PLATFORMS. Used individually,
Cayenne products provide users with sophisticated solutions to application
development problems. Cayenne enhances their utility by offering total system
integration across products on both Windows and OS/2 platforms. Product
integration enhances communication, efficiency, and productivity, and it
increases the return on the investment in time and effort expended throughout
the application development life cycle. Using Cayenne products, systems
analysts, application developers, and database designers can work in concert,
using the same model from the conceptual phase through to physical database
implementation. Over time, this cycle can be reversed as business requirements
change or migration to new platforms requires redesign.
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ABILITY TO ACHIEVE PRODUCTIVITY BY REUSING PREVIOUS WORK. The
technology-independent approach, combined with the use of object-oriented
techniques, allows for the reuse of valuable work -- a very important
contributor to productivity. Cayenne supports reuse by:
- Providing development tools that help build scalable applications,
minimizing the need for redevelopment.
- Modeling applications at a business level, so that requirements are
implemented consistently across platforms and applications.
- Employing object-oriented techniques such as inheritance and
encapsulation in application development, business modeling, and
database design.
- Re-engineering legacy systems, so data structures and business
rules can be captured from existing implementations and reused in
models and new implementations.
- Providing open interfaces, so information captured in Cayenne
products can be reused with best-in-class tools or custom
solutions.
STRATEGIC DIRECTION
Cayenne continues to invest in robust solutions that facilitate development of
the most critical applications, are applicable across multiple platforms, can be
used throughout the application development life cycle, and will stand the test
of time, justifying customer investments. These solutions result from a
combination of Cayenne-built software products, joint development efforts with
partners, acquired technology, and services provided by Cayenne's highly
experienced trainers and consultants. Cayenne has invested in both its mainframe
and client/server solutions, recognizing that many organizations will need to
maintain both types of environments for some time to come. In addition, through
its acquisition of Cadre, the Company has expanded in the areas of structured
analysis and design and oriented technology.
CAYENNE'S SOLUTIONS
Cayenne's diverse solutions, composed of software products and services,
assisted information systems specialists in the following areas: modeling
business requirements; designing and re-engineering databases; developing and
deploying applications; work group support; designing for performance; managing
the process; leveraging legacy systems; structured analysis and design; and
object-oriented technology. The suite of products and services provided by
Cayenne and its partners allows customers to choose from the wide variety of
application development tools on the market that best meet their needs. Except
for designing for performance, Cayenne offers products and services today in
each of the following solution areas.
MODELING BUSINESS REQUIREMENTS
Cayenne offers tools on both Windows and OS/2 platforms that enable data
analysts, system analysts, and other business analysts to model information
systems more quickly and thoroughly than they can using conventional techniques.
GROUNDWORKS for Windows and GroundWorks for OS/2 (formerly, the BACHMAN/Analyst)
are tools for analysts that incorporate the data, logic, and process
requirements into a unified model. Further, they can be used to generate
implementation components for a variety of database and software environments.
These data modeling tools incorporate a rule-based expert system that places
Cayenne's modeling expertise in the hands of users, helping them to improve the
quality and effectiveness of the resulting models.
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GroundWorks integrates process and data models. This integration streamlines the
modeling process, reduces opportunities for error, and promotes an
object-oriented approach to analysis -- all of which facilitate reuse. One
important goal of GroundWorks is to help user teams, analysts, and application
developers communicate business requirements. Models created using one product
are fully compatible with the other, providing organizations with greater
platform flexibility.
DESIGNING AND RE-ENGINEERING DATABASES
Cayenne offers tools on both Windows and OS/2 platforms that allow data
analysts, application developers, and database designers to design, implement,
and maintain high-performance relational databases. TERRAIN is Cayenne's family
of database design tools that offers a comprehensive, scalable database design
environment for business-critical client/server databases. TERRAIN 500 provides
graphical support for basic design tasks, such as object creation and
maintenance, reporting, and database documentation. Open Connectivity tasks
support Microsoft Open Database Connectivity (ODBC), allowing Terrain 500 users
to import and export designs from over 40 popular Database Management Systems
(DMBSs), including Microsoft and SYBASE SQL Server, ORACLE, Informix, and
DB2/6000.
TERRAIN 1000 was designed specifically for users of Microsoft and
SYBASE SQL Server, with built-in expertise appropriate to users of Version 4.2,
4.9, and System 10. Terrain 1000 has all the functionality of Terrain 500, but
with greater depth and breadth (version-specific Design task rules to help users
evaluate their designs, advisors for performance optimization, and support for
all SQL Server objects, for example). When used with the optional TERRAIN 100/S
module, users can connect directly to a Microsoft or SYBASE SQL Server catalog
in order to capture existing databases and generate DDL based on their Terrain
designs. Another optional module, TERRAIN 100/O, provides similar functionality
for ORACLE databases. Designs created using Terrain 1000 are compatible with
Terrain 500, and vice versa.
Terrain for OS/2 (formerly, the BACHMAN/DBA), is optimized through
expert-systems technology for IBM's DB2 database management system. Terrain for
OS/2, in combination with DDL GENERATOR products, allows database
administrators to design relational databases and create data definitions for a
number of different relational databases, including DB2, DB2/6000, SYBASE SQL
Server, Microsoft SQL Server, ORACLE, Ingres, INFORMIX, ADABAS, and the OS/2
databases (Extended Services Database Manager (DBM) and DB2/2). These products
also capture existing database designs to facilitate the re-engineering of
database definitions to one or more technologies.
Organizations seeking an integrated application development solution
can use TERRAINMAP to translate GroundWorks data models into Terrain 1000
designs. Once in Terrain, the design can be implemented in any ODBC-compliant
DBMS. This integration makes it possible to completely re-engineer existing
production systems, and to maintain a single data model and deploy it across any
number of database platforms. Organizations can start in either place --with an
existing data model or an existing database-- and use TerrainMap to help ensure
both optimal design and optimal performance.
The illustration below demonstrates Cayenne's scalable solution for
certain of its products.
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[GRAPHIC OMITTED. The vertical axis charts functionality and the horizontal axis
charts project dependency. The graph depicts the Company's scalable solution
for its Terrain, GroundWorks, Shared Work Manager and TerrainMap products.]
DEVELOPING AND DEPLOYING APPLICATIONS
ELLIPSE provided a comprehensive solution for building and maintaining
business-critical client/server applications. It combined a productive, visual
development environment with a robust production system and integrated life
cycle management. This combination allowed organizations to build reliable and
scalable multi-platform client/server applications. Teams of developers on the
Sun Solaris platform could use Ellipse to build small or large database
applications, and deploy those applications to one or more production sites.
Ellipse helped organizations take advantage of the special benefits of
client/server computing by automatically partitioning the application between
clients and servers. Ellipse's automatic recovery and restart features ensured
that applications and information would be available when needed by business
users, thereby reducing the risk of bringing run-the-business applications to
new client/server technology. Ellipse was based on a shared object repository
and incorporated configuration management and version control features which
facilitate ease of maintenance and a smooth transition to new software releases.
In July 1996, the Company entered into an agreement with Seer Technologies, Inc.
("Seer") providing for the sale of its Ellipse product in exchange for certain
royalties payable under the terms of the joint development and distribution
agreement described below if the Company's former Ellipse customers migrate to
Seer's HPS product.
GENERATOR FOR POWERBUILDER allows an organization that uses
both GroundWorks or Terrain for DB2 and Powersoft Corporation's PowerBuilder to
directly take advantage of modeling work in designing a new application.
The Generator creates several different types of PowerBuilder application
components using information specified in Groundworks or Terrain for DB2,
offering time savings and improved application consistency and quality.
Combined Cayenne-Netron solution. Cayenne's open architecture allows
customers to take advantage of the implementation tools that meet their needs.
Netron Inc.'s CAP/Link provides a link between Groundworks for OS/2 and Netron's
multi-platform COBOL construction product, NETRON/CAP. This combined solution is
used today by a number of organizations who are committed to COBOL development,
want to evolve
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toward a reusable code base, and want integration with high-level modeling in
order to ensure that new applications meet business requirements. Cayenne sells
Netron's application development products in Italy, Ireland and the United
Kingdom.
WORK GROUP SUPPORT
REPORTS provides over 100 standard reports on CAYENNE model and design
information. Taking advantage of easy-to-use database technology --Microsoft
Access-- Reports provides Windows-based access to GroundWorks model information,
and to Terrain design information. Reports are standard across all products,
enhancing communication among members of application development teams.
SHARED WORK MANAGER allows groups of analysts to share models and
integrate the results of their work. Shared Work Manager is the first work group
modeling product that takes an intelligent approach to resolving modeling
conflicts that arise in a multi-user environment. It enables groups to interact
in a manner consistent with their organization's culture and work-flow methods.
The product helps users achieve a shortened development cycle without
sacrificing application quality because it supports parallel development,
increases consistency across applications, streamlines work flow, and simplifies
and encourages teamwork.
DESIGNING FOR PERFORMANCE
WINDTUNNEL was a Windows-based performance modeling and prediction
product for mainframe and client/server applications using DBMSs such as SYBASE
SQL Server and IBM's DB2/VMS. WindTunnel helped application teams evaluate
performance and predict system resource demands early in the application
development life cycle. Traditional performance methods are used much later,
usually after an application has been fully developed. Finding potential
performance bottlenecks early can help organizations rework and redesign,
thereby meeting their performance objectives in a more cost-effective way.
At the end of fiscal 1996, the Company decided no longer to actively
sell and market its WindTunnel product.
MANAGING THE PROCESS
SERVEYOR is a multi-platform client/server product that integrates
process and project management to enable information systems development teams
to work more efficiently and effectively. Organizations that have adopted a
development methodology can use Serveyor to adapt that methodology for specific
projects, assign tasks and deliverables, launch the tool appropriate for
performing each task, track progress, and manage resources within and across
projects. Serveyor incorporates a large knowledge base of information relevant
to information systems processes and tasks, enabling staff members to learn on
the job. Overall, this product serves as an umbrella over the other tools,
tasks, and deliverables that make up the development process. Serveyor is
distributed by Cayenne under the terms of a worldwide technology and marketing
agreement with Rapid Systems Development, Inc. which owns certain rights to the
technology for the product.
LEVERAGING LEGACY SYSTEMS
BUSINESS RULE CAPTURE lets users exploit the valuable information in
legacy systems --their logic and objects-- and use that information to
re-engineer applications as they migrate from traditional host-based systems to
distributed systems. By enabling organizations to quickly summarize the business
logic in legacy COBOL applications, Business Rule Capture shortens the cycle for
maintenance, system integration, and new development. And once existing business
rules are clearly understood, database managers can better understand how
programs access data and then optimize the supporting data structures
accordingly.
LEGACY CAPTURE products facilitate the re-engineering of IMS data
structures to create an implementation-independent model where they can be
reused in new relational database structures. In addition, flat file data
structures from existing COBOL applications can also be re-engineered using
these products. Reverse engineering products support the needs of IS departments
that manage multiple databases, and they also
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help accelerate business process re-engineering projects by allowing
organizations to take advantage of business information that is available in
existing systems.
PRODUCTION DBA provides a seamless interface between Cayenne's database
modeling and design products and BMC Software's CHANGE MANAGER, a
mainframe-based product which coordinates data structure changes among multiple
DB2 subsystems.
CAYENNE 2000 is a tool to help diagnose Year 2000 challenges. It can
detect date dependencies in single or across multiple COBOL programs, generate
reports on the changes needed and the impact of those changes, and provide an
estimate of the cost to fix the problems. It can also correct certain simple
date dependency problems.
STRUCTURED ANALYSIS AND DESIGN
TEAMWORK is a family of structured methods products, used by both C++
and Ada developers, which help software engineers improve software quality,
streamline the software development process, and reduce development costs.
Specific Teamwork tools address aspects of development including requirements
analysis, real-time systems development, dynamic verification, structured
design, testcase generation, and document generation.
VANTAGETEAM is a family of structured method products that enable
relational database developers to build and maintain enterprise client/server
systems. Its integrated, model-driven environment offers developers a choice of
either structured or object-oriented modeling approach. VantageTeam features
extensive code-generation capabilities for popular 3GLs and 4GLs, and supports
the leading relational database management systems, including CA-Ingres,
Informix, Oracle and Sybase.
OBJECT ORIENTED TECHNOLOGY
OBJECTTEAM FOR OMT automates and manages software construction using
the Object Modeling Technique (OMT). It provides a multi-user repository with
version and configuration management, supports the Rumbaugh et al. Object
Modeling Technique, and generates incremental code.
INTERNATIONAL VERSIONS OF CAYENNE PRODUCTS
The Cayenne product set is available worldwide. Products sold internationally
typically include a hardware security key to prevent or reduce the use of
illegally copied products. (Products for the domestic market use OEM software
to enable concurrent licensing.) Many of Cayenne's products are enabled for
double-byte character sets. This enablement is a prerequisite for translation
into large-character-set languages such as Kanji. Kanji versions of Groundworks
for OS/2, Groundworks Capture for COBOL, Groundworks Capture for IMS and
Terrain for OS/2 have been created.
RISKS OF INTERNATIONAL OPERATIONS
Approximately 63%, 53% and 47% of Cayenne's revenues in fiscal 1996,
1995 and 1994, respectively, were attributable to international sales. Cayenne
commenced operations of its German subsidiary, Bachman Information Systems,
GmbH, in November 1990. Cayenne acquired the Cayenne-related business of
Pro-Systems S.A., its distributor in France, in October 1991; all of the stock
of its distributor in the United Kingdom, Bachman Information Systems Limited,
in November 1991; and the Cayenne-related business of Bachman Italia, S.r.l.,
its distributor in Italy, in January 1992. The Company also commenced
operations of its Spanish and Singapore subsidiaries in April 1996 and February
1995, respectively. The future contribution of sales from the foreign
subsidiaries to Cayenne's results of operations depends on Cayenne's success in
maintaining cost-effective direct marketing operations through these
wholly-owned subsidiaries. In September 1994, as part of a restructuring to
reduce expenses, Cayenne reorganized the operations of its German subsidiary.
The Company is in the process of consolidating overlapping subsidiaries it
acquired in connection with the Cadre merger and has acquired subsidiaries in
the Netherlands and Australia in connection therewith.
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<PAGE> 13
Approximately 4%, 4% and 6%, of Cayenne's revenue in fiscal 1996, 1995
and 1994 was attributable to sales made to independent international
distributors. Sales in countries in which Cayenne continues to use independent
distributors will remain subject to the distributors' financial condition and
success, which cannot be controlled by Cayenne.
Risks inherent in Cayenne's international business generally include
exposure to currency fluctuations, longer payment cycles, greater difficulties
in accounts receivable collection and the requirement of complying with a wide
variety of foreign laws. While Cayenne has not experienced any material delays,
expenditures or other adverse consequences in complying with foreign laws to
date, it has been necessary for Cayenne to take steps to protect its proprietary
rights and license its products under local laws from country to country.
13
<PAGE> 14
CUSTOMERS AND APPLICATIONS
Cayenne's products are used worldwide by information systems
specialists in a wide variety of business, government, and non-profit
organizations. Generally, the customers are users of computing environments for
data-intensive applications. As of June 30, 1996, Cayenne had licensed over
14,000 copies of its products to over 1,075 customers worldwide across a variety
of industries. With the acquisition of Cadre, the Company has expanded its
customer base to include customers that are generally developers of complex
software systems, covering a wide range of applications in the IS and
"technical" sectors.
Historically, Cayenne relied significantly on its relationship with IBM
for development and marketing of Cayenne's products. IBM was Cayenne's single
largest customer in each of fiscal 1996, 1995 and 1994 when revenue from IBM
(including license and maintenance fees paid by IBM in connection with its own
use of Cayenne products, as well as amounts paid by IBM as a distributor and
systems integrator) accounted for 31%, 20% and 13% of Cayenne's total revenue,
respectively. In January 1993, Cayenne discontinued its membership in the IBM
International Alliances for AD/Cycle, SystemView, and Information Warehouse.
Cayenne and IBM entered into a settlement and release agreement dated June 30,
1993 (the "IBM Settlement Agreement") pursuant to which Cayenne and IBM severed
certain of their remaining relationships. Each party released and discharged the
other party from all known and unknown claims occurring on or prior to June 30,
1993. See, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for further information.
CUSTOMER SUPPORT AND SOFTWARE MAINTENANCE
Cayenne believes that high-quality customer service and technical
support are essential competitive factors in its marketplace. Through its
training, consulting, maintenance, and support services, Cayenne listens to its
customers' needs and provides services that will maximize the results achieved
by customers using Cayenne's products. Maintenance, support, and training also
provide valuable feedback that is used to refine, enhance, and develop Cayenne
products.
Customers receive maintenance support from a staff of highly
experienced customer specialists via a telephone "hot line". In the past,
software maintenance and support were generally provided without extra charge
for ninety days following the initial licensing of a product. The Company has
changed this practice and generally no longer provides maintenance and support
without charge. Annual maintenance contracts are available for a fixed price per
copy. These customers also receive periodic product upgrades and
feature/function enhancements.
TRAINING AND CONSULTING
Cayenne provides conceptual and product-oriented training courses for
customers at education facilities in the United States in Atlanta, Burlington
(Massachusetts), Chicago, New York City and Rockville, Maryland as well as in
Toronto, Canada; Boulogne-Billancourt, France; Turin, Italy; Munich, Germany;
and Bracknell, England. Cayenne's international distributors provide training
and consulting to customers in their territories. Courses are also available to
be customized and delivered at customer sites.
The Company provides professional services delivered by experienced
consultants. These offerings are designed to promote customer success in the
planning, implementation, and ongoing use of Cayenne's software products.
Cayenne's consultants provide a number of services for organizations making
transitions into client/server technology, including designing relational
databases, establishing a client/server architecture, and facilitating the
creation of productive development processes.
MARKETING AND SALES
Cayenne markets its products to Fortune 1000 companies, government
agencies, and organizations of similar size worldwide that use computers and
software for data-intensive and transaction-intensive applications. Cayenne
seeks to promote acceptance of its products among technical personnel, as well
as at the management level. Cayenne markets its products through a direct sales
force in the United States and through wholly-owned
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<PAGE> 15
subsidiaries in Australia, Canada, France, Germany, Italy, the Netherlands,
Singapore, Spain and the United Kingdom. Distributors, agents and other
resellers market Cayenne's products in over 40 other countries.
Cayenne promotes a team selling approach in which telemarketing,
corporate sales, and field sales representatives work together to identify,
qualify, inform, and sell to prospective customers.
In conjunction with its expansion into the client/server development
marketplace and in an effort to promote distribution through alternate channels,
Cayenne has been actively engaged in evaluating alternate distribution channels
such as value-added resellers ("VARs") and system integrators worldwide. At the
end of fiscal 1995, Cayenne and Seer entered into a joint development and joint
distribution agreement. Cayenne will integrate its modeling and database design
tools with Seer's Freeway repository, and will resell the repository. Seer will
resell Cayenne's database design tools.
Cayenne's marketing program includes advertising, public relations,
promotional materials, direct mail, seminars, consultant briefings, user
meetings, trade shows and telemarketing. The focus of these efforts is to
position Cayenne and the value of Cayenne's solutions to customers as well as
industry influencers. Cayenne's senior technical personnel frequently
participate in industry conferences that increase customer awareness of
Cayenne's products and its technological innovations. In fiscal 1996 and 1995,
Cayenne pursued a focused marketing campaign to increase awareness of the value
of Cayenne's solutions in client/server environments. Cayenne has also joined
Sybase, Inc.'s Warehouse WORKS data warehouse program and will maintain
compatibility with Sybase data warehouse offerings and participate in joint
marketing activities.
Cayenne regards its customer service and support organization as an
integral complement to its corporate strategy. Cayenne believes that its
reputation for strong after-sale support has helped the Company achieve
additional sales, as well as contributing to a high level of customer
satisfaction.
PRODUCT DEVELOPMENT AND MANUFACTURING
To date, a significant majority of Cayenne's software products have
been developed internally by its employees and consultants. As a result of the
Company's acquisition of Cadre in July 1996, Cayenne now supports development
and manufacturing for a family of structured analysis and design and object-
oriented products. In developing new products and enhancements, Cayenne uses an
integrated engineering approach that emphasizes market-driven quality and
customer satisfaction. This approach incorporates the perspectives of customers
and functional experts, as well as personnel in the areas of marketing, sales,
software engineering, quality assurance, documentation, and customer support.
Cayenne's research and development staff has significant expertise in
the technologies bearing on development of software tools, including personal
workstations, mainframe systems, graphics, expert systems, database design,
enterprise modeling, systems analysis, code generators, interface design,
operating systems, networks, and language/compiler skills. Cayenne uses its
product set in the design of future product enhancements and in the development
and deployment of the Company's own internal information systems. In fiscal
1995, Cayenne entered into an agreement to develop, maintain and enhance certain
of Cayenne's products in India allowing Cayenne to realize savings in
development costs while maintaining control over the product development
process.
The products developed and enhancements added by Cayenne are determined
by Cayenne's assessment of market revenue, growth opportunity, and return on
investment, tempered by the technical feasibility of the innovation, and the
need to maintain the highest levels of product quality and customer
satisfaction. Market opportunity is assessed by a combination of direct market
and customer research, by access to opinion leaders in technology, by working
along side customers to define their most productive development methodologies,
and by working with customer development partners to manage projects involving
substantial innovation and requiring supplementary funding.
The Company's future financial performance will depend in part on the
successful development and introduction of new products and enhancements to
existing products, and customer acceptance of these products.
15
<PAGE> 16
Many software companies have experienced delays in completing the development of
new products and there can be no assurance that the Company will not encounter
difficulties that could delay or prevent the successful introduction and
marketing of new and enhanced versions of its products.
During fiscal 1996, 1995, and 1994, Cayenne spent $7,665,000 $8,676,000
and $10,771,00 respectively, on internal product development, and did not
capitalize any software costs. Also during fiscal 1994, a charge for purchased
research and development of $1,736,000 was recorded upon the closing of the
acquisition of Cooperative Solutions, Inc.
COMPETITION
The market for application design and development products is highly
competitive and characterized by continual change and improvement in
technology. The list of Cayenne's principal competitors in sales situations
depends on several factors including the solution area, whether the focus is
mainframe or client/server development, and whether the customer seeks
strategic or tactical solutions. Cayenne's principal competitors in the
modeling and database design market include LogicWorks, Inc., Intersolv, Inc.,
and Texas Instruments, Incorporated. In the process management market, LBMS,
Inc. serves similar needs to the Company's Serveyor product. Cayenne faces
additional competition with its entry into the CASE market occupied by Cadre.
The CASE market is characterized by rapid change and frequent introduction of
new products. In the Structured technical market, Cayenne's primary competitor
is Interactive Development Environments, Inc. ("IDE"). In the object-oriented
market, Cayenne's primary competitors are Rational Software Corp., Platinum
Technology, Inc. and IDE. Many other companies produce products that compete
with Cayenne and still others might become competitors in the future. As
Cayenne expands its product line into new solution areas it is encountering
additional competitors. Many of Cayenne's existing and potential competitors
have substantially greater financial, marketing, and technological resources
than Cayenne.
The principal competitive factors that have affected the market for
Cayenne's products include responsiveness to customer needs, product function,
product reliability, product ease of use, product openness, quality of customer
training and support, vendor reputation, relationships with other vendors, and
price. A variety of external and internal events and circumstances could
adversely affect Cayenne's competitive capacity in the future. Cayenne's ability
to be competitive will depend, to a great extent, on performance in product
development and in sales and marketing. To be successful in the future, Cayenne
must respond promptly and effectively to the challenges of technological change
and its competitors' innovations by continually enhancing its own product
offerings and ensuring that the market is aware of the solutions Cayenne offers.
PROPRIETARY RIGHTS PROTECTION
Cayenne relies on a combination of copyright, trade secret, patent and
trademark laws and license agreements to protect its proprietary rights in
technology. Cayenne distributes its products under signed software license
agreements which grant customers a perpetual, non-exclusive license to Cayenne's
products subject to restrictions on copying, disclosure, usage, decompiling and
transferability. The source code for all of Cayenne's products is protected as a
trade secret and as an unpublished copyrighted work. In addition, Cayenne has
entered into nondisclosure and invention agreements with each of its key
technical employees. All products are delivered as object code. International
products are usually delivered with the addition of an electronic hardware "key"
to hinder the use of unauthorized copies.
Charles W. Bachman has assigned to Cayenne a patent on certain
technology used in its products, United States Patent 4,631,664, "Partnership
Data Base Management System and Method." This patent covers the unique internal
formats used to store design information in many of Cayenne's products. Mr.
Bachman and other inventors have also assigned to Cayenne patents with respect
to the systems used in certain Cayenne products for dynamically modeling
organizational information systems (United States Patent 5,146,591, "Dynamic
Information Management System Utilizing Entity-Relationship Information Model in
which the Attribute is Independent of an Entity") and for processing complex
information representative of business transactions (United States Patent
5,179,698, "System for Transforming User Data in Accordance with an Algorithm
Defined by Design Data and for Evaluating the Transformed Data Against Logical
Criteria"). Seven additional patents have been granted by the United States
Patent and Trademark Office (the "PTO") pertaining to technology used in
Cayenne's products. In addition, patent applications filed in April and December
1991 (derived from filings under the Patent Cooperation
16
<PAGE> 17
Treaty) are pending before the Canadian, Japanese and European patent offices.
These applications are directed to the subject matter of all of the above
referenced Cayenne patents except U.S. Patent 4,631,664. In connection with its
acquisition of WindTunnel Software, Inc. ("Windtunnel") Cayenne acquired rights
to certain patent applications pending with the PTO pertaining to the
technology used in the WindTunnel product. The PTO has rejected some of the
claims of those applications on the bases, among others, of prior art with
respect to the technology involved. In view of the probable expense and
difficulty of overcoming the rejections, the uncertainty of the probable
outcome, and the availability of other means such as copyright, trademark and
trade secret law to protect the Company's rights in the technology, Cayenne has
decided not to pursue prosecution of the WindTunnel patent applications. There
can be no assurance that a patent will be issued in respect of any of that
application or, if it is, that it will provide meaningful protection to
Cayenne.
Despite the steps taken by Cayenne to protect its proprietary rights,
it may be possible for unauthorized third parties to copy aspects of Cayenne's
products, to develop similar technology independently or to obtain and use
information that Cayenne regards as proprietary. Cayenne believes that, because
of the rapid pace of technological change in the software industry, patent,
trade secret and copyright protection is less significant to Cayenne's
competitive position than factors such as the knowledge, ability and experience
of Cayenne's personnel, new product development, frequent product enhancements,
name recognition and ongoing reliable product maintenance support.
As of the date hereof, Cayenne has not received any claim alleging that
any of Cayenne's products infringes proprietary rights of any third party
seeking indemnification for such an infringement, and Cayenne does not know of
any basis for such a claim. If any such claim were to be asserted, it might
involve costly and protracted litigation. No assurance can be given that Cayenne
would be successful in any such litigation or that, if it were not successful,
it would be able to license the disputed proprietary rights on commercially
reasonable terms.
SEASONALITY AND BACKLOG
The Company's quarterly results are subject to fluctuations resulting
from a variety of factors, including the effects of domestic and international
economic conditions, budgetary considerations and spending patterns of
customers, the Company's sales compensation plan, the timing of large individual
orders, new product introductions, and recognition of fees in connection with
license, development and similar agreements. The Company typically realizes a
larger percentage of its software product license revenues in the second and
fourth quarters of each fiscal year, with traditionally its lowest product
license revenues occurring in the first quarter of each fiscal year. This
seasonality results in part from budgetary considerations and spending patterns
of the Company's customer base and the Company's sales commission plan, which
compensates sales personnel for achieving or exceeding annual quotas. In
addition, a major portion of each quarter's product license revenues is
typically realized in the last month of the quarter. As a result of the factors
discussed above, the Company's operating results for any one quarter are not
necessarily indicative of results for any future period.
While the length of the sales cycle varies, Cayenne typically does not
have a significant backlog, and substantially all of its product revenues in any
quarter result from sales made in that quarter.
EMPLOYEES
As of August 31, 1996, Cayenne employed 375 people worldwide on a full
time basis. No employees are represented by a labor union. Cayenne has not
experienced any work stoppages and believes its relations with employees are
good. Cayenne believes that its future success will depend in part on its
continued ability to attract and retain highly qualified personnel in a
competitive market for experienced and talented software developers and sales
and marketing personnel.
ITEM 2. PROPERTIES
Cayenne's executive offices, principal research and development
facilities, and principal marketing, customer service and support and production
facilities are located in approximately 50,000 square feet of space in
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<PAGE> 18
an executive office park in Burlington, Massachusetts. Cayenne occupies that
space under a lease expiring October 31, 1997. Cayenne maintains its primary
sales and support offices in nine locations in the United States, and its
distribution subsidiaries have offices in Toronto, Canada; Bracknell, England;
Boulogne-Billancourt, France; Munich, Germany; Singapore; Madrid, Spain; Delft,
Netherlands; Canberra, Australia; and Florence, Milan, Rome, and Turin, Italy.
Cayenne believes that its current facilities are sufficient for its
current operations and that those facilities will continue to provide adequate
space for Cayenne's operations in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Cayenne is not aware of any material litigation or claim pending or
threatened against Cayenne or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the range of
high and low sales prices for the Company's common stock, as reported by the
NASDAQ National Market System. The Company's common stock is traded under the
NASDAQ symbol "CAYN" (formerly "BACH") since the Company's initial public
offering on November 26, 1991. These prices reflect interdealer prices, without
retail mark-ups, mark-downs or commissions, and do not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1995
------------------ ----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $ 7.875 $5.75 $2.75 $1.75
Second Quarter 10.25 4.625 4.1875 2.00
Third Quarter 11.875 8.25 5.375 3.50
Fourth Quarter 10.00 6.50 7.875 4.50
</TABLE>
The Company has not declared or paid cash dividends on its common stock
and does not plan to pay cash dividends to its stockholders in the near future.
The Company presently intends to retain any earnings to finance further growth
of its business. As of September 23, 1996, there were 527 stockholders of record
of the Company's common stock.
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<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
form 10-K:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------
STATEMENT OF OPERATIONS DATA 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Software license ....................................... $ 12,658 $ 11,264 $ 15,807 $ 18,257 $ 35,239
Consulting and education services ...................... 8,911 10,330 8,953 8,712 6,557
Maintenance ............................................ 10,383 11,728 11,742 9,053 6,201
-------- -------- -------- -------- --------
Total revenues(1) ................................ 31,952 33,322 36,502 36,022 47,997
Costs and expenses:
Cost of revenues
Cost of software licenses ........................... 1,216 2,050 2,021 2,020 1,784
Cost of consulting and education services
and maintenance ................................... 7,630 9,810 8,224 6,907 4,516
Sales and marketing .................................... 15,205 17,007 20,307 24,363 27,335
Research and development ............................... 7,665 8,676 10,771 5,824 6,589
General and administrative ............................. 4,271 4,253 4,989 6,133 4,990
Restructuring and other costs .......................... 1,125 2,000 -- 6,316 --
Charge for purchased research and development .......... -- -- 1,736 -- --
-------- -------- -------- -------- --------
Total costs and expenses ......................... 37,112 43,796 48,048 51,563 45,214
-------- -------- -------- -------- --------
Income (loss) from operations ............................. (5,160) (10,474) (11,546) (15,541) 2,783
Interest income, net ...................................... 294 460 362 542 486
Other income .............................................. 116 -- -- 364 --
-------- -------- -------- -------- --------
Income (loss) before provision for
income taxes and extraordinary item ..................... (4,750) (10,014) (11,184) (14,635) 3,269
Provision for income taxes ................................ 1,083 246 357 94 1,370
-------- -------- -------- -------- --------
Income (loss) before extraordinary item ................... (5,833) (10,260) (11,541) (14,729) 1,899
Extraordinary item--reduction of income taxes due
to utilization of prior years' net operating losses ..... -- -- -- -- 909
-------- -------- -------- -------- --------
Net income (loss) ................................... $ (5,833) $(10,260) $(11,541) $(14,729) $ 2,808
======== ======== ======== ======== ========
Income (loss) per common share:
Income (loss) before extraordinary item ................... $ (.51) $ (1.12) $ (1.30) $ (1.81) $ 0.25
Extraordinary item ........................................ -- -- -- -- 0.12
-------- -------- -------- -------- --------
Net income (loss) per common share .................. $ (.51) $ (1.12) $ (1.30) $ (1.81) $ 0.37
======== ======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding(2) ................. 11,478 9,181 8,844 8,125 7,501
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------------
BALANCE SHEET DATA 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital ........................................... $ 8,971 $ 5,388 $ 6,865 $ 16,694 $ 28,363
Total assets .............................................. 23,316 21,209 26,040 37,345 52,265
Long-term obligations ..................................... 59 51 -- 151 668
Redeemable Series A Convertible Preferred Stock ........... -- 5,493 -- -- --
Stockholders' equity ...................................... 10,649 3,640 12,508 21,840 36,094
</TABLE>
- --------------------
(1) Beginning in fiscal 1995 IBM is no longer considered a related party. The
financial statements have been reclassified to conform to fiscal 1995
presentation.
(2) For this computation, in fiscal 1992 previously outstanding preferred stock
has been reflected at the beginning of the period issued as Cayenne common stock
outstanding for all periods presented. All outstanding shares of Cayenne's
preferred stock were converted into Cayenne common stock in the second quarter
of fiscal 1992.
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<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On July 18, 1996, the Company completed its acquisition of Cadre
Technologies Inc. ("Cadre") under an Agreement and Plan of Merger dated March
25, 1996, by and among the Company, Cadre and B.C. Acquisition Corp., whereby
the Company agreed to acquire all of the outstanding capital stock of Cadre in
exchange for 4,716,442 shares of Cayenne common stock (the "merger"). The
merger is expected to be accounted for as a pooling-of-interests beginning in
the first quarter of fiscal 1997. Additionally, effective upon the merger, the
Company changed its name to Cayenne Software, Inc. The Company acquired Cadre
to expand its product offerings to include structured analysis and design and
object-oriented technology and to expand its customer base. During the quarter
ended June 30, 1996, the Company incurred expenses of approximately $.6 million
principally related to advertising and promotion of the Company's new name and
product strategy and $1.1 million related to the discontinuance of products
not strategic to the Company's core business.
This Annual Report on Form 10-K may contain forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below under the caption
"Factors That May Affect Future Results."
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RESULTS OF OPERATIONS
The following table sets forth certain income and expense items in
Cayenne's consolidated statements of operations as a percentage of total
revenues and the percentage change in dollar amounts of such items for the
fiscal periods indicated:
<TABLE>
<CAPTION>
PERCENT CHANGE
PERCENTAGE OF YEAR TO YEAR
TOTAL REVENUES FOR -----------------------
YEAR ENDED JUNE 30, 1996 1995
-------------------------------- COMPARED COMPARED
1996 1995 1994 TO 1995 TO 1994
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Software license .................. 39.6% 33.8% 43.3% 12.4% (28.7)%
Consulting and education services . 27.9 31.0 24.5 (13.7) 15.4
Maintenance ....................... 32.5 35.2 32.2 (11.5) (0.1)
----- ----- -----
Total revenues .................. 100.0 100.0 100.0 (4.1) (8.7)
Costs and Expenses:
Cost of revenues
Cost of software licenses ....... 3.8 6.2 5.5 (40.7) 1.4
Cost of consulting and education
services and maintenance ..... 23.9 29.4 22.5 (22.2) 19.3
Sales and marketing ............... 47.5 51.0 55.6 (10.6) (16.3)
Research and development .......... 24.0 26.0 29.5 (11.7) (19.5)
General and administrative ........ 13.4 12.8 13.7 .4 (14.8)
Restructuring and other costs ..... 3.5 6.0 -- (43.8) --
Charge for purchased
research and development ........ -- -- 4.8 -- (100.0)
----- ----- -----
Total costs and expenses ...... 116.1 131.4 131.6 (15.3) (8.9)
===== ===== =====
Loss from operations ................. (16.1) (31.4) (31.6) (50.7) (9.3)
Interest income, net ................. .9 1.3 1.0 (36.1) 27.1
Other income ......................... .3 -- -- -- --
----- ----- -----
Loss before provision for
income taxes ........................ (14.9) (30.1) (30.6) (52.6) (10.5)
Provision for income taxes ........... 3.4 0.7 1.0 340.2 (31.1)
----- ----- -----
Net loss ............................. (18.3)% (30.8)% (31.6)% (43.1)% (11.1)%
===== ===== =====
</TABLE>
Cayenne's operating results for the years ended June 30, 1996, 1995 and
1994 were significantly adversely affected by the continuing market trends of
Cayenne customers moving from mainframe development towards client/server and
similar computing platforms, together with Cayenne's efforts to respond to those
trends.
In particular, Cayenne's business operations in fiscal 1994 were
significantly adversely affected by the severing of substantially all of its
relationships with IBM. Cayenne historically relied significantly on its
relationship with IBM for development and marketing of Cayenne's products. Prior
to fiscal 1993, Cayenne's products were designed primarily for organizations
that employ IBM and IBM-compatible mainframe computers, the MVS operating system
and the DB2 relational database management system. As a result, the market for
Cayenne's products has been directly affected by declines in the acceptance of
those IBM and IBM-compatible products. Prior to January 1993, Cayenne was a
member of IBM's International Alliances for AD/Cycle, SystemView and Information
Warehouse. Cayenne also maintained a close technical relationship with IBM,
which provided Cayenne with access to technical information concerning certain
current and planned developments in IBM products and systems. IBM marketed
Cayenne's products in the United States, Canada, Puerto Rico and Austria prior
to July 1993, and continues to be a non-exclusive distributor of Cayenne's
products in certain Asia-Pacific countries and Switzerland.
22
<PAGE> 23
While Cayenne expects that its broadened focus will benefit Cayenne in
the long-term, there can be no assurance that the foregoing events will not
materially adversely affect either the success with which Cayenne develops,
supports and sells products for use with IBM and IBM-compatible computers and
systems or the extent to which IBM continues to be a customer of Cayenne. The
foregoing events may limit Cayenne's ability to compete as effectively in the
IBM and IBM-compatible market, particularly with companies that continue to be
members of IBM's International Alliances.
Historically, Cayenne relied significantly on its relationship with IBM
for development and marketing of Cayenne's products. IBM was Cayenne's single
largest customer in each of fiscal 1996, 1995 and 1994 when revenue from IBM
(including license and maintenance fees paid by IBM in connection with its own
use of Cayenne products, as well as amounts paid by IBM as a distributor and
systems integrator) accounted for 31%, 20% and 13% of Cayenne's total revenue,
respectively.
REVENUES
As the Company continues its migration from providing tools focused
solely on mainframe application development to supporting customers' needs for a
more open and flexible set of solutions aimed at the growing client/server
market, it faces many challenges. The Company has addressed some of these
challenges during the past two fiscal years by introducing additional products
targeted at the client/server market. The Company plans to continue to enhance
its product offerings through development efforts, strategic alliances and
acquisitions to improve its competitive position. The actions necessary to
execute this transition have had an adverse effect on the Company's operating
results during fiscal 1996, 1995 and 1994. In July 1996, the Company acquired
Cadre, thereby expanding its product offerings and customer base.
Cayenne's revenues currently are derived from three sources: (i) fees
for the perpetual license of Cayenne's proprietary software products, (ii) fees
from sales of consulting and education services, and (iii) maintenance fees for
maintaining, supporting and providing periodic upgrades of Cayenne's software
products.
23
<PAGE> 24
The following table sets forth the amount of revenue derived by
Cayenne, by source, for each period indicated and the percentage change in such
amounts as compared to the prior period:
<TABLE>
<CAPTION>
PERCENT CHANGE
YEAR TO YEAR
---------------------
YEAR ENDED JUNE 30, 1996 1995
---------------------------------- COMPARED COMPARED
1996 1995 1994 TO 1995 TO 1994
---- ---- ---- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Software License
United States ........................... $ 4,260 $ 5,010 $ 6,282 (15.0)% (20.2)%
Italy ................................... 5,565 2,832 3,376 96.5 (16.1)
Export Sales from United States ......... 806 803 1,153 0.4 (30.4)
Rest of world ........................... 2,027 2,619 4,996 (22.6) (47.6)
------- ------- -------
Total software license ................ 12,658 11,264 15,807 12.4 (28.7)
Consulting and education services
United States ........................... 1,517 2,632 3,422 (42.4) (23.1)
Italy ................................... 6,462 5,395 3,729 19.8 44.7
Rest of world ........................... 932 2,303 1,802 (59.5) 27.8
------- ------- -------
Total consulting and education services 8,911 10,330 8,953 (13.7) 15.4
Maintenance
United States ........................... 5,119 7,058 7,996 (27.5) (11.7)
Italy ................................... 1,955 1,292 808 51.3 59.9
Rest of world ........................... 3,309 3,378 2,938 (2.0) 15.0
------- ------- -------
Total maintenance ..................... 10,383 11,728 11,742 (11.5) (0.1)
Total revenues ............................. $31,952 $33,322 $36,502 4.1% (8.7)%
======= ======= =======
</TABLE>
1996 COMPARED TO 1995
SOFTWARE LICENSES. Software license revenue for fiscal 1996 amounted to
$12,658,000 compared to $11,264,000 for fiscal 1995, an increase of 12%. This
increase resulted primarily from a series of significant orders in the quarter
ended December 31, 1995 from a major Italian systems integrator for the
Company's mainframe based products. These orders accounted for approximately 19%
of total software license revenue for the fiscal year ended June 30, 1996.
Revenue continues to be impacted by aggressive efforts of Cayenne customers to
move away from traditional, centralized mainframe development towards
client/server and similar computing platforms.
Client/server product license revenue accounted for 40% of license revenue
for the year ended June 30, 1996, compared to 16% for the year ended June 30,
1995. Client/server product license revenue represented approximately 62% of
software license revenue for the quarter ended June 30, 1996 versus 25% for the
comparable period of the prior fiscal year. These results reflect the continued
market trend in the United States to migrate from mainframe to client/server
environments. The Company's client/server products were introduced during the
fourth quarter of fiscal 1995.
Cayenne typically does not grant to its customers a contractual right to
return software products. Accordingly, no provision for estimated returns is
generally recorded at the time of sale. When approved by management, however,
Cayenne has accepted returns of certain software products and has provided an
allowance for those specific products. Cayenne's return experience for fiscal
1996 and 1995 was approximately $350,000 and $261,000 respectively. Cayenne does
not license its software products with any warranty provisions, and accordingly
has not accrued any related warranty expense.
24
<PAGE> 25
CONSULTING AND EDUCATION SERVICES. Total consulting and education
revenue in fiscal 1996 decreased over the preceding year by $1,419,000 or 14%.
Consulting and education revenue in Italy increased 20%, while United States
revenue declined by approximately 42% for the year ended June 30, 1996 compared
to the prior fiscal year. The increase in consulting and education revenue in
Italy is attributable to increased demand for the Company's consulting services
from its increased customer base and mainframe sales. The decrease in the United
States consulting and education revenue is attributable to decreased demand
together with reduced staffing in this area. Training courses are offered for
each of Cayenne's major products. Typically, consulting and education revenue
follows the trend of software license revenue and, therefore, the decline in
license revenue experienced in the United States has caused the consulting and
education revenue also to decline in fiscal 1996 from fiscal 1995.
MAINTENANCE. Maintenance revenue for annual maintenance contracts is
deferred and recognized ratably over the term of the agreement. The increase in
maintenance revenue in Italy resulted from increased penetration of the
international markets along with an increase in the portion of the customer base
that renewed maintenance contracts. The decrease in maintenance revenue in the
United States resulted primarily from the aforementioned market place migration
to client/server tools and fewer customers renewing their maintenance contracts
on mainframe based tools. The aggressive migration from mainframe to
client/server products has resulted in an increased number of customers not
renewing their maintenance contracts. The Company's client/server products were
introduced late in fiscal 1995 and have not offset the mainframe decline.
COSTS AND EXPENSES
The following table sets forth statement of operations data of Cayenne
and the percentage change in dollar amounts of such items for the periods
indicated:
<TABLE>
<CAPTION>
PERCENT CHANGE
YEAR TO YEAR
---------------------
YEAR ENDED JUNE 30, 1996 1995
---------------------------------- COMPARED COMPARED
1996 1995 1994 TO 1995 TO 1994
---- ---- ---- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cost of revenues
Cost of software licenses ... $ 1,216 $ 2,050 $ 2,021 (40.7)% 1.4%
Cost of consulting, education
and maintenance ........... 7,630 9,810 8,224 (22.2) 19.3
------- ------- -------
Total cost of revenues ...... 8,846 11,860 10,245 (25.4) 15.8
End-of-period headcount ..... 67 76 77 (11.8) (1.3)
Sales and marketing ............ 15,205 17,007 20,307 (10.6) (16.3)
End-of-period headcount ..... 78 95 123 (17.9) (22.8)
Research and development ....... 7,665 8,676 10,771 (11.7) (19.5)
End-of-period headcount ..... 48 55 83 (12.7) (33.7)
General and administrative ..... 4,271 4,253 4,989 .4 (14.8)
End-of-period headcount ..... 25 23 27 8.7 (14.8)
Restructuring and other costs .. 1,125 2,000 -- (43.8) --
Charge for purchased R&D ....... -- -- 1,736 -- (100.0)
------- ------- -------
Total costs and expenses ....... $37,112 $43,796 $48,048 (15.3) (8.9)
======= ======= =======
End-of-period headcount ..... 218 249 310 (12.4)% (19.7)%
</TABLE>
25
<PAGE> 26
COST OF REVENUE. Cayenne's cost of software licenses includes product
packaging, documentation and media, as well as the amortization of capitalized
software development costs. Cost of consulting and education services and
maintenance includes personnel, travel and occupancy costs connected with
providing such services.
Costs of software licenses were $1,216,000 and $2,050,000 for fiscal
1996 and 1995, respectively. Included in cost of software licenses was
amortization of capitalized internally developed software costs of $0 and
$616,000 for fiscal 1996 and 1995, respectively. Fiscal year 1995 also included
approximately $600,000 in software product royalties to third parties versus
$452,000 in fiscal 1996. Royalties are paid on certain products which the
Company distributes for third parties.
Capitalized software expenses are amortized over the estimated useful
life of the products capitalized (generally two years, five years in the case of
WindTunnel). As a result, amortized amounts are generally not tied directly to
software license revenue in any particular period, causing fluctuations in the
cost of software license revenue as a percentage of related software license
revenue. Cost of software licenses as a percentage of related software license
revenue was 10% and 18% for fiscal 1996 and 1995, respectively.
The cost of consulting, education and maintenance as a percentage of
related revenue decreased to 40% in fiscal 1996 from 45% in fiscal 1995. The
decrease in the cost of consulting, education and maintenance was principally
caused by decreased costs in North America as the Company adjusted staffing
levels to more closely align with demand.
SALES AND MARKETING. For fiscal 1996, sales and marketing expense
decreased by approximately $1,802,000 or 11% from fiscal 1995. In fiscal 1996,
sales and marketing expense as a percentage of total revenues decreased to 48%
from 51% the previous year primarily because of reduced marketing activities
and reduced headcount. During the fourth quarter of fiscal 1996 the Company had
increased marketing costs of approximately $600,000 principally related to
advertising and promotion of the Company's new name and product strategy. This
compares to $629,000 of costs incurred in fiscal 1995 related to the launch of
the Company's new products together with the Company's user conference held in
September 1994.
RESEARCH AND DEVELOPMENT. Cayenne's belief that product and technical
leadership are critical to its success has resulted in a high level of
expenditures for product research and development. In fiscal 1996, the Company
focused the majority of its research and development resources on porting its
current products to new platforms and development of new products targeted at
the client/server market. Research and development expense decreased by
approximately $1,011,000 or 12% from fiscal 1995 to 1996 and also decreased as a
percentage of revenue to 24% in fiscal 1996 versus 26% in fiscal 1995. This
decrease is due primarily to reduced spending on the Ellipse and WindTunnel
products, both of which are no longer considered strategic to the Company. The
consolidation of the San Jose and Burlington facilities completed in late 1995
has also contributed to the lower expense base.
GENERAL AND ADMINISTRATIVE. General and administrative expense as a
percentage of total revenue amounted to 13% in both fiscal year 1996 and 1995.
Expenses remained relatively flat for the year ended June 30, 1996 compared to
the prior fiscal year.
RESTRUCTURING AND OTHER COSTS. Based on the results of fiscal year
1996, and in conjunction with the contemplated merger between Cayenne and Cadre,
the Company reviewed its product strategy and determined that several products
including WindTunnel were no longer consistent with the Company's objectives.
Accordingly, the Company evaluated the net realizable value of the related
intangible assets and recorded a charge of approximately $1,125,000 principally
related to the writeoff of the intangible asset acquired as part of its
acquisition of WindTunnel Software, Inc. ("WindTunnel"). (See, also, Note 13.)
Following the completion of certain significant development efforts and
associated product introductions, the Company effected a restructuring on
September 29, 1994 to streamline its operations and better align expenses with
revenue. The Company recorded a restructuring charge of $2,000,000 during the
three months ended
26
<PAGE> 27
<TABLE>
September 30, 1994. The restructuring included a charge of approximately
$1,500,000 in termination charges resulting from a 20% reduction in staff
(approximately 70 employees). Prior to the execution of this restructuring, the
Board of Directors of the Company approved a plan to terminate certain specified
employees and close certain facilities. Such plan was communicated to the
employees of the Company prior to the end of the quarter and such employees were
specifically identified and terminated. The termination benefits to such
employees were consistent with the Company's written severance policy and
agreements. The restructuring also included approximately $300,000 in related
facilities expense associated with the closure of the Company's San Jose,
California development facility. The Company also reorganized the operations of
its German subsidiary by reducing its facilities and staff and is pursuing
distribution arrangements in that territory. As part of the restructuring, the
Company also evaluated the value of certain contracts based on a number of
factors including business plans, budgets, economic projections and market
analysis. Based on a review of these factors, the Company determined to cancel
certain contracts. The termination costs associated with those contracts
amounted to approximately $200,000 and are included in the restructuring charge.
At June 30, 1996, the Company believes it has met all obligations with regard to
the restructuring.
EFFECT OF INTERNATIONAL OPERATIONS ON INCOME (LOSS) FROM OPERATIONS
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS
United States ...................... $(2,354) $ (6,025) $ (7,408)
Italy .............................. 336 (540) (452)
Rest of World ...................... (3,142) (3,909) (3,686)
------- -------- --------
$(5,160) $(10,474) $(11,546)
======= ======== ========
</TABLE>
In addition to the factors listed above, the operations of Cayenne's
international subsidiaries significantly affected its results of operations in
fiscal 1996, 1995 and 1994.
For fiscal 1996, the loss from United States and Rest of World
operations decreased by approximately $3,671,000 and $767,000, respectively,
primarily due to reduced headcount and other cost control measures
implemented by the Company. For fiscal 1996, Italian operations were profitable
by $336,000 compared to a loss of $540,000 in fiscal 1995. This increase in
profitability of the Italian subsidiary is attributable to a series of
significant orders from a large systems integrator received during the second
quarter of fiscal year 1996. Included in the fiscal 1995 results of operations
is $2,000,000 of restructuring charges, approximately $1,700,000 in the United
States, $240,000 in Rest of World and $60,000 in Italy.
INTEREST INCOME, NET
Interest income, net decreased in fiscal 1996 compared to fiscal 1995
due primarily to lower rates earned on balances available for investment.
PROVISION FOR INCOME TAXES
Because of the operating losses for fiscal 1996 and 1995, the tax
provision for those periods are composed mostly of foreign withholding taxes and
income taxes related to the profitability of certain foreign subsidiaries.
At June 30, 1996, the Company had a deferred tax asset of approximately
$23,000,000, composed principally of net operating loss carryforwards, which was
offset fully by a valuation allowance due to the uncertainty of realization.
27
<PAGE> 28
1995 COMPARED TO 1994
SOFTWARE LICENSES. Software license revenue for fiscal 1995 amounted to
$11,264,000 compared to $15,807,000 for fiscal 1994, a decrease of 29%. This
decrease resulted primarily from continued aggressive efforts by Cayenne
customers to move rapidly away from traditional, centralized mainframe
development towards client/server and similar computing platforms. These efforts
directly affected Cayenne's DB2/DBA and Analyst products worldwide, for which
revenues in fiscal 1995 decreased by approximately $1,900,000 and $2,100,000,
respectively, from fiscal 1994. These decreases in the Company's mainframe
focused products were offset somewhat by approximately $1,000,000 contributed by
the Company's GroundWorks and Terrain products which are two of the Company's
new client/server products released in late fiscal 1995. Software license
revenue for fiscal 1995 was also impacted by a reduction of approximately
$550,000 in the Company's allowance for sales returns based on management's
assessment of the Company's sales returns history and trends. Included in
software license revenue for fiscal 1995 is a significant order of approximately
$1,100,000 from an international customer. There were no similar large orders in
the prior fiscal year.
Cayenne typically does not grant to its customers a contractual right to
return software products. Accordingly, no provision for estimated returns is
generally recorded at the time of sale. When approved by management, however,
Cayenne has accepted returns of certain software products and has provided an
allowance for those specific products. Cayenne's return experience for fiscal
1995 and 1994 was approximately $261,000 and $325,000 respectively. Cayenne does
not license its software products with any warranty provisions, and accordingly
has not accrued any related warranty expense.
CONSULTING AND EDUCATION. Total consulting and education revenue in
fiscal 1995 increased over the preceding year by $1,377,000 or 15% due to the
increased number and use of courses and services available to Cayenne's larger
customer base in the Company's international subsidiaries. The increases in
consulting and education revenue in Italy and Rest of World are also
attributable to the addition of several long-term consulting contracts. Training
courses are offered for each of Cayenne's major products. Typically, consulting
and education revenue follows the trend of software license revenue and,
therefore, the decline in license revenue experienced in the United States has
caused the consulting and education revenue also to decline in fiscal 1995 from
fiscal 1994.
MAINTENANCE. Maintenance revenue for annual maintenance contracts is
deferred and recognized ratably over the term of the agreement. The increase in
maintenance revenue in Italy and Rest of World resulted from increased
penetration of the international markets along with an increase in the portion
of the customer base that renewed maintenance contracts. The decrease in
maintenance revenue in the United States resulted primarily from the
aforementioned market place migration to client/server tools and fewer customers
renewing their maintenance contracts on mainframe based tools. The Company's
client/server products were introduced late in fiscal 1995 and therefore there
is minimal maintenance revenue from those products to offset the mainframe
decline.
28
<PAGE> 29
COST OF REVENUE. Cayenne's cost of software licenses includes product
packaging, documentation and media, as well as the amortization of capitalized
software development costs. Cost of consulting and education services and
maintenance includes personnel, travel and occupancy costs connected with
providing such services.
Costs of software licenses were $2,050,000 and $2,021,000 for fiscal
1995 and 1994, respectively. Fiscal 1995 and 1994 included the amortization of
approximately $455,000 and $379,000 of purchased software related to the
September 1993 acquisition of WindTunnel Software, Inc. ("Windtunnel"). Fiscal
1994 included the write-off of $250,000 of certain prepaid software royalties.
Included in cost of software licenses was amortization of capitalized software
development costs of $616,000 and $1,044,000 for fiscal 1995 and 1994,
respectively. Fiscal year 1995 also included approximately $600,000 in software
product royalties to third parties versus $67,000 in Fiscal 1994. Royalties are
paid on certain products which the Company distributes for third parties.
Capitalized software expenses are amortized over the estimated useful
life of the products capitalized (generally two years, five years in the case of
WindTunnel). As a result, amortized amounts are generally not tied directly to
software license revenue in any particular period, causing fluctuations in the
cost of software license revenue as a percentage of related software license
revenue. Cost of software licenses as a percentage of related software license
revenue was 18% and 13% for fiscal 1995 and 1994, respectively.
The cost of consulting, education and maintenance as a percentage of
related revenue increased to 45% in fiscal 1995 from 40% in fiscal 1994. The
increase in the cost of consulting, education and maintenance was principally
caused by increased international costs as the international subsidiaries
increased staff and the use of third party consultants to meet the demand from
several long-term consulting contracts.
SALES AND MARKETING. For fiscal 1995, sales and marketing expense
decreased by approximately $3,300,000 or 16% from fiscal 1994. In fiscal 1995,
sales and marketing expense as a percentage of total revenues decreased to 51%
from 56% the previous year due to better alignment of sales and marketing
staffing and projected revenues. This decrease was due principally to reduced
headcount effected through the restructurings in the first quarter of fiscal
1995 along with a move in North America towards telesales and away from direct
field sales efforts. In fiscal 1995 and 1994, Cayenne began promoting a team
selling approach in which telemarketing, corporate sales, and field sales
representatives work together to identify, qualify, inform, and sell to
prospective customers.
RESEARCH AND DEVELOPMENT. Cayenne's belief that product and technical
leadership are critical to its success has resulted in a high level of
expenditures for product research and development. In fiscal 1995, the
29
<PAGE> 30
Company focused its research and development resources on porting its current
products to new platforms, continued development of the WindTunnel and Ellipse
products and development of new products targeted at the client/server market.
Research and development expense decreased by approximately $2,100,000 or 19%
from fiscal 1994 to 1995 and also decreased as a percentage of revenue to 26% in
fiscal 1995 versus 30% in fiscal 1994. This decrease is due primarily to reduced
spending on the Ellipse product, and the addition of agreements with certain
development partners whose funding offset approximately $460,000 of development
expense. During fiscal 1995, the Company closed its San Jose facility and
consolidated all research and development in Burlington, Massachusetts. Expenses
were also reduced in other areas of research and development effected through
the restructuring in September 1994.
GENERAL AND ADMINISTRATIVE. General and administrative expense
decreased to $4,253,000 in fiscal 1995 from $4,989,000 in fiscal 1994, a
decrease of $736,000 or 15%. The reduction is due primarily to a decrease in
goodwill amortization of approximately $400,000, along with continued expense
controls in the Company's administrative areas.
RESTRUCTURING COSTS. Following the completion of certain significant
development efforts and associated product introductions, the Company effected a
restructuring on September 29, 1994 to streamline its operations and better
align expenses with revenue. The Company recorded a restructuring charge of
$2,000,000 during the three months ended September 30, 1994. The restructuring
included a charge of approximately $1,500,000 in termination charges resulting
from a 20% reduction in staff (approximately 70 employees). Prior to the
execution of this restructuring, the Board of Directors of the Company approved
a plan to terminate certain specified employees and close certain facilities.
Such plan was communicated to the employees of the Company prior to the end of
the quarter and such employees were specifically identified and terminated. The
termination benefits to such employees were consistent with the Company's
written severance policy and agreements. The restructuring also included
approximately $300,000 in related facilities expense associated with the closure
of the Company's San Jose, California development facility. The Company also
reorganized the operations of its German subsidiary by reducing its facilities
and staff and is pursuing distribution arrangements in that territory. As part
of the restructuring, the Company also evaluated the value of certain contracts
based on a number of factors including business plans, budgets, economic
projections and market analysis. Based on a review of these factors, the Company
determined to cancel certain contracts. The termination costs associated with
those contracts amounted to approximately $200,000 and are included in the
restructuring charge. The Company believes the accrued restructuring balance of
$90,000 at June 30, 1995 represents its cash obligations, principally employee
related and facilities costs, significantly all of which are expected to be
disbursed by the end of fiscal 1996.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT. In November 1993, the
Company acquired substantially all the assets of Cooperative Solutions, Inc.
("CSI") of San Jose, California, including its product line, research and
development efforts, and employee and customer bases in exchange for assuming
certain liabilities. The purchase price, which was equal to the liabilities
assumed, was approximately $2.2 million. The acquisition was accounted for as a
purchase. The purchase price first was allocated to tangible assets based on
their fair market values. The remaining purchase price was allocated to
purchased research and development for software which has not reached
technological feasibility and has no alternative future use. A charge for
purchased research and development of $1.7 million was recorded upon the
closing of the acquisition in the Company's fiscal quarter ended December 31,
1993.
30
<PAGE> 31
In addition to the factors listed above, the operations of Cayenne's
international subsidiaries significantly affected its results of operations in
fiscal 1995 and 1994.
For fiscal 1995, the loss from Rest of World operations increased by
approximately $223,000 to $3,909,000. For fiscal 1995, the loss from Italian
operations increased by $88,000, to $540,000 versus $452,000 in fiscal 1994.
This increase is attributable to reduced software license revenue and start up
costs associated with several long-term consulting contracts. Included in the
results of operations for fiscal 1995 is $2,000,000 of restructuring charges,
approximately $1,700,000 in the United States, $240,000 in Rest of World and
$60,000 in Italy.
INTEREST INCOME, NET
Interest income, net increased in fiscal 1995 compared to fiscal 1994
due primarily to higher rates earned on balances available for investment.
PROVISION FOR INCOME TAXES
Because of the operating losses for fiscal 1995 and 1994, the tax
provision for those periods are composed mostly of foreign withholding taxes and
income taxes related to the profitability of certain subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996 the Company's principal sources of liquidity
included cash and cash equivalents aggregating $11,549,000 and a secured bank
line of credit in the amount of $4,000,000 discussed below. Cash and cash
equivalents increased by $3,344,000 compared to fiscal 1995. For fiscal 1996,
cash flows were principally affected by the loss from operations and were offset
by proceeds of approximately $6.0 million from the Company's private placement
in the first quarter of fiscal 1996. The Company's principal long-term cash
commitments are for office space operating leases.
On June 30, 1996, Cayenne had no material commitments for capital
expenditures.
On June 6, 1996, the Company amended and restated its revolving credit
agreement with a bank to borrow up to $4,000,000, increasing to $5,000,000 upon
achievement of profitability. The Company extended the term of such agreement
through October 5, 1996 and revised certain of the financial and operating
covenants as well as the borrowing base thereunder. The loan is contingent upon
meeting certain financial and operating covenants at the time of any borrowing
and over the life of the loan, including profitability of $250,000 in the fourth
quarter of fiscal 1996, for which the Company obtained a waiver of compliance.
The loan is secured by all of the assets of the Company and any borrowing
amounts are tied to a percentage of qualified accounts receivable outstanding at
the time of any borrowing. The financial covenants include the attainment of
certain specified levels of consolidated net income (loss) at the end of each
quarter, tangible net worth (generally defined as the excess of tangible net
assets of the Company over total liabilities (excluding any outstanding
redeemable preferred stock)) at the end of each quarter and month, and liquidity
(generally defined as cash and cash equivalents plus eligible domestic accounts
receivable and eligible international accounts receivable less any indebtedness
to the bank) at the end of each month. The Company was in compliance with all
covenants as waived at June 30, 1996. At June 30, 1996, the borrowing base under
the revolving credit agreement was approximately $1,723,000. The Company is
concluding negotiations with the bank to amend and extend its credit agreement
through October 5, 1997, to establish certain of the financial and operating
covenants as well as the borrowing base thereunder similar to those set forth
above and to set the borrowing limit at $5,000,000.
On July 18, 1996, the Company received shareholder approval to merge
with Cadre of Providence, Rhode Island. In connection with the merger the
Company issued 4,716,442 shares of Cayenne common stock for all of
31
<PAGE> 32
the outstanding capital stock of Cadre. The transaction is expected to be
accounted for as a pooling-of-interests for accounting purposes beginning in the
first quarter of fiscal year 1997. The combined companies expect to incur
charges to operations estimated between $6 million to $7 million during the
first quarter of fiscal 1997 to reflect costs associated with combining the
operations of the two companies, transaction fees and other costs incident to
the merger. Included in the estimated charge is approximately $1.6 million of
employee related termination expenses, $1.5 million of legal, accounting, broker
and other professional fees, $1.5 million of facility closure and consolidation
expenses, and $2.4 million of other miscellaneous expenses associated with the
consolidation of the two companies and the Company name change. In conjunction
with the merger, the Company guaranteed a $1,500,000 advance made to Cadre by
Silicon Valley Bank which was applied against the Company's borrowing base under
its credit agreement.
With the additional $6.0 million the Company raised in its September
1995 private placement and its revolving credit agreement, the Company
anticipates that existing cash balances and funds generated from operations will
provide sufficient cash resources to finance its current operations, including
Cadre, and projected capital expenditures through fiscal 1997. Thereafter, the
Company's cash requirements will depend upon the results of future operations,
including the impact of the Cadre acquisition, which cannot be foreseen. There
can be no assurance that the Company will be able to meet its loan covenants,
achieve its operating plan and return to profitability, and the failure to do so
may have a material adverse impact on the Company's business and operations. The
Company expects to incur a significant loss from operations in the first quarter
of fiscal 1997 which will include an estimated $6 million to $7 million in
charges discussed above associated with its acquisition of Cadre completed in
July 1996.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which is effective for the Company's fiscal year 1997. This statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company believes the effect of adopting this statement will not
be material.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" which is effective for the Company's fiscal year 1997. The Company
has determined that it will elect the disclosure-only alternative. The Company
will be required to disclose the pro forma net income or loss and per share
amounts in the notes to the financial statements using the fair value based
method beginning in fiscal 1997 with comparable disclosures for fiscal 1996. The
Company has not determined the impact of these pro forma adjustments.
FOREIGN CURRENCY
All of Cayenne's foreign sales, other than those of its foreign
subsidiaries, are invoiced and collected in United States dollars. Cayenne
experienced no significant gains or losses on foreign currency transactions or
translations in fiscal 1996, 1995 or 1994. No assurance can be given, however,
that it will not experience such material affects subsequent to June 30, 1996.
INFLATION
To date, inflation has not had a material impact on Cayenne's revenues
or income.
QUARTERLY PERFORMANCE
Cayenne's revenues vary from quarter to quarter; historically, the
largest portion of Cayenne's revenue has been recognized in the fourth quarter
of a fiscal year. The first quarter is traditionally Cayenne's slowest quarter.
In the normal course of events, Cayenne may realize lower revenue in the first
quarter than in the preceding quarter and also could realize lower revenue in
the third quarter than in the preceding second quarter. Cayenne has also
frequently recognized more revenue in the last month of each quarter than in
either of the preceding two months. Cayenne believes these quarterly and monthly
patterns have been partly attributable to Cayenne's sales commission policies,
which compensate sales personnel for meeting or exceeding annual quotas, and to
the budgeting and purchasing cycles of customers. In addition, Cayenne's revenue
and earnings have fluctuated historically, and may fluctuate in the future, due
to the timing of large individual orders. In the second quarter of fiscal 1996,
the Company had a series of significant orders from a major systems integrator
totaling $2.4 million.
32
<PAGE> 33
The Company completed an order for approximately $1.1 million from an
international customer in the third quarter of fiscal 1995.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company or statements
made by its employees may contain "forward-looking" information, as that term is
defined in the Private Securities Litigation Reform Act of 1995 (the "Act"). The
Company cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors, including but
not limited to the following:
The Company's future operating results are dependent on its ability to
develop product and market new and innovative products and services. There are
numerous risks inherent in this complex process, including rapid technological
change and the requirement that the Company bring to market in a timely fashion
new products and services which meet customers' changing needs.
Historically, the Company has generated a disproportionate amount of
its operating revenues toward the end of each quarter, making precise prediction
of revenues and earnings particularly difficult and resulting in risk of
variance of actual results from those forecast at any time. In addition, the
Company's operating results historically have varied from fiscal period to
fiscal period; accordingly, the Company's financial results in any particular
fiscal period are not necessarily indicative of results for future periods.
The Company operates in a highly competitive environment and in a
highly competitive industry, which include significant pricing pressures and
intense competition for skilled employees. From time to time, the Company may
experience unanticipated intense competitive pressure, possibly causing
operating results to vary from those expected.
The Company offers its products and services directly and through
indirect distribution channels. Changes in the financial condition of, or the
Company's relationship with, distributors and other indirect channel partners
could cause actual operating results to vary from those expected.
The Company does business worldwide. Global and/or regional economic
factors and potential changes in laws and regulations affecting the Company's
business, including without limitation, currency fluctuations, changes in
monetary policy and tariffs, and federal, state and international laws could
impact the Company's financial condition or future results of operations.
The market price of the Company's securities could be subject to
fluctuations in response to quarter to quarter variations in operating results,
changes in analysts' earnings estimates, market conditions in the information
technology industry, as well as general economic conditions and other factors
external to the Company.
33
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CAYENNE SOFTWARE, INC.
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants.............................................................. 35
Consolidated Balance Sheets as of June 30, 1996 and 1995....................................... 36
Consolidated Statements of Operations for the years ended June 30, 1996, 1995 and 1994......... 37
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1996, 1995
and 1994....................................................................................... 38
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994......... 39
Notes to Consolidated Financial Statements..................................................... 40
</TABLE>
34
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cayenne Software, Inc.:
We have audited the accompanying consolidated balance sheets of Cayenne
Software, Inc. (formerly Bachman Information Systems, Inc.) as of June 30, 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 June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cayenne
Software, Inc. as of June 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 20, 1996
35
<PAGE> 36
CAYENNE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (including securities purchased under agreements to
resell of $699 and $2,148 at June 30, 1996 and 1995, respectively) .................. $ 11,549 $ 8,205
Trade accounts receivable, less allowance for sales returns and doubtful
accounts of $716 and $718 at June 30, 1996 and 1995, respectively ................... 8,010 8,207
Prepaid expenses and other current assets ............................................. 2,020 1,001
-------- --------
Total current assets ............................................................ 21,579 17,413
Property and equipment, less accumulated depreciation and amortization ................... 1,315 1,887
Capitalized software costs, less accumulated amortization of $3,239
at June 30, 1995 ........................................................................ -- 1,441
Other assets ............................................................................. 422 468
-------- --------
Total assets ............................................................................. $ 23,316 $ 21,209
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................................... $ 1,564 $ 2,041
Accrued expenses ...................................................................... 1,725 1,244
Accrued compensation and benefits ..................................................... 2,161 2,081
Accrued restructuring costs (Note 13) ................................................. -- 90
Income and other taxes payable ........................................................ 1,967 988
Obligations under capital lease ....................................................... 59 34
Deferred revenue ...................................................................... 5,132 5,547
-------- --------
Total current liabilities ....................................................... 12,608 12,025
Obligations under capital lease .......................................................... 59 51
Commitments and contingencies (Note 7) ................................................... -- --
Redeemable Series A Convertible Preferred Stock, $1.00 par value; 5.000 shares
authorized; 0 and 1.787 shares outstanding at June 30, 1996 and 1995,
respectively (aggregate liquidation preference of $5,493 at June 30, 1995) .............. -- 5,493
Stockholders' equity:
Common stock, $.01 par value; 26,200 shares authorized; 12,759 and 9,398 shares issued
and outstanding at June 30, 1996 and 1995, respectively ............................. 128 94
Additional paid-in capital ............................................................ 68,366 55,653
Accumulated deficit ................................................................... (57,421) (51,588)
Accumulated translation adjustments ................................................... (424) (519)
-------- --------
Stockholders' equity ................................................................ 10,649 3,640
-------- --------
Total liabilities and stockholders' equity ............................................... $ 23,316 $ 21,209
======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
36
<PAGE> 37
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Software license ..................................... $ 12,658 $ 11,264 $ 15,807
Consulting and education services .................... 8,911 10,330 8,953
Maintenance .......................................... 10,383 11,728 11,742
-------- -------- --------
Total revenues .................................... 31,952 33,322 36,502
Costs and expenses:
Cost of revenues
Cost of software licenses ......................... 1,216 2,050 2,021
Cost of consulting and education services
and maintenance ................................. 7,630 9,810 8,224
Sales and marketing .................................. 15,205 17,007 20,307
Research and development ............................. 7,665 8,676 10,771
General and administrative ........................... 4,271 4,253 4,989
Restructuring and other costs (Note 13) .............. 1,125 2,000 --
Charge for purchased research and development (Note 2) -- -- 1,736
-------- -------- --------
Total costs and expenses .......................... 37,112 43,796 48,048
-------- -------- --------
Loss from operations .................................... (5,160) (10,474) (11,546)
Interest income ......................................... 358 499 459
Other income ............................................ 116 -- --
Interest expense ........................................ 64 39 97
-------- -------- --------
Loss before provision for income taxes .................. (4,750) (10,014) (11,184)
Provision for income taxes .............................. 1,083 246 357
-------- -------- --------
Net loss ................................................ $ (5,833) $(10,260) $(11,541)
======== ======== ========
Loss per common share (Note 1) .......................... $ (0.51) $ (1.12) $ (1.30)
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding .................. 11,478 9,181 8,844
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
37
<PAGE> 38
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
---------------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT EQUITY
------ ------ ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 ............ 8,191 $ 82 $ 51,480 $ 65 $(29,787) $ 21,840
Stock options exercised ........... 181 2 222 224
Issuance of common stock under
Employee Stock Purchase Plan .... 39 97 97
Issuance of common stock in
acquisition of business ......... 650 7 2,268 2,275
Currency translation adjustment ... (387) (387)
Net loss for the year ............. (11,541) (11,541)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1994 ............ 9,061 91 54,067 (322) (41,328) 12,508
Stock options exercised ........... 302 3 839 842
Issuance of common stock under
Employee Stock Purchase Plan .... 35 76 76
Issuance of warrants in conjunction
with the preferred stock ........ 319 319
Proceeds from Section 16(b) profits 352 352
Currency translation adjustment ... (197) (197)
Net loss for the year ............. (10,260) (10,260)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1995 ............ 9,398 94 55,653 (519) (51,588) 3,640
Stock options exercised ........... 259 3 893 896
Issuance of common stock under
Employee Stock Purchase Plan .... 14 82 82
Conversion of Series A Preferred
Stock ........................... 1,787 18 5,475 5,493
Exercise of Warrants .............. 187 2 498 500
Issuance of common stock through
private placement ............... 1,114 11 5,765 5,776
Currency translation adjustment ... 95 95
Net loss for the year ............. (5,833) (5,833)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1996 ............ 12,759 $ 128 $ 68,366 $ (424) $(57,421) $ 10,649
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
38
<PAGE> 39
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................... $ (5,833) $(10,260) $(11,541)
Adjustments to reconcile net loss to net cash
used in operating activities:
Charge for purchased research and development ...... -- -- 1,736
Depreciation and amortization ...................... 1,596 2,541 3,829
Write-down of intangible asset ..................... 986 -- --
Change in operating assets and liabilities, net of
effects of acquisitions
Trade accounts receivable ....................... 184 (93) 1,289
Prepaid expenses and other current assets ....... (1,028) 87 778
Accrued expenses ................................ 578 (790) (1,016)
Accrued restructuring costs ..................... (90) (741) (1,297)
Accounts payable ................................ (477) (498) 1,161
Accrued compensation and benefits ............... 30 (130) 566
Income and other taxes payable .................. 933 397 (306)
Deferred revenue ................................ (461) 152 (1,945)
-------- -------- --------
Net cash used in operating activities ................... (3,582) (9,335) (6,746)
Cash flows from investing activities:
Purchases of property and equipment ................ (432) (578) (1,456)
Acquisition of businesses .......................... -- -- (1,511)
-------- -------- --------
Net cash used in investing activities ................... (432) (578) (2,967)
Cash flows from financing activities:
Proceeds from issuance of common stock ............. 82 76 97
Proceeds from private placement .................... 5,776 -- --
Proceeds from exercise of warrants ................. 500 -- --
Proceeds from exercise of stock options ............ 896 842 224
Proceeds from issuance of preferred
stock and warrants (net of issuance costs) ...... -- 5,812 --
Proceeds from Section 16(b) profits ................ -- 352 --
Payments under capital lease obligations ........... (48) (174) (327)
Payments of notes payable .......................... -- -- (29)
-------- -------- --------
Net cash provided by (used in) financing activities ..... 7,206 6,908 (35)
Effect of foreign exchange rates on cash and
cash equivalents .................................. 152 87 84
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .... 3,344 (2,918) (9,664)
Cash and cash equivalents at beginning of year .......... 8,205 11,123 20,787
-------- -------- --------
Cash and cash equivalents at end of year ................ $ 11,549 $ 8,205 $ 11,123
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
39
<PAGE> 40
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS OPERATIONS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of Cayenne Software, Inc. (formerly Bachman Information Systems, Inc.) ("the
Company" or "Cayenne") and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated from the
consolidated 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(s) of the financial
statements and the reported amounts of revenues and expenses during the
reporting period(s). Actual results could differ from those estimates.
The Company develops, markets and supports an integrated suite of
software products and services. Many Fortune 1000 companies and government
agencies around the world use Cayenne products as they develop, implement, and
maintain business-critical information systems. Cayenne's products are designed
around an innovative open architecture that enables organizations to create
applications that integrate diverse information sources into new
high-performance computing environments, to modify applications as business and
technology change, and to run those applications on a variety of platforms.
Cayenne's approach to reusability and its open architecture directly support
client/server initiatives and partnerships with other leading software vendors.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of all foreign subsidiaries are translated at
period-end rates of exchange, and income statement accounts are translated at
average rates of exchange. Resulting translation adjustments are recorded as a
separate component of stockholders' equity, "Accumulated Translation
Adjustments."
Gains and losses resulting from foreign currency transactions were
immaterial for all periods presented.
REVENUE RECOGNITION
Revenue from product license fees is recognized upon shipment. At the
time the Company recognizes revenue from the sale of software products, no
significant vendor obligations remain and the costs of insignificant support
obligations are accrued. The Company typically does not grant to its customers a
contractual right to return software products. Accordingly, no provision for
estimated returns is generally recorded at the time of the sale. When approved
by management, however, the Company has accepted returns of certain software
products and has provided an allowance for those specific products. Maintenance
revenue for annual maintenance contracts is deferred and recognized ratably over
the term of agreement. Revenue from consulting and education services is
recognized as the related services are performed.
COST OF REVENUE
Cost of software licenses includes capitalized software amortization
expense (see Notes 1 and 4) and other costs principally related to the
duplication and distribution of licensed software products. Cost of consulting
and education services and maintenance includes personnel, travel and occupancy
costs connected with providing such services.
DEFERRED REVENUE
Maintenance revenue which is not yet earned is included in deferred
revenue.
40
<PAGE> 41
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with maturities
of less than ninety days when acquired. These investments are stated at cost
plus accrued interest, which approximates market value. Included in cash and
cash equivalents at June 30, 1996 and 1995, respectively, are $699,000 and
$2,148,000 in United States Treasury Securities under agreement to resell in
July 1996 and 1995, respectively. Treasury securities purchased under agreements
to resell are held in safekeeping by the Company's bank.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. At disposition, the cost
of property and related accumulated depreciation are removed from the balance
sheet and any gain or loss is included in the statement of operations.
Depreciation and amortization are provided on the straight-line method over the
estimated useful life of the related assets as follows:
<TABLE>
<S> <C>
Computer and related equipment....................... 3 to 5 years
Equipment under capital lease........................ Shorter of life of lease or useful life
Office furniture and fixtures........................ 5 to 7 years
Leasehold improvements............................... Shorter of life of lease or useful life
</TABLE>
SOFTWARE COSTS AND OTHER INTANGIBLE ASSETS
In accordance with Statement of Financial Accounting Standards No. 86
("SFAS 86"), "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed," the Company capitalizes certain software costs after
technological feasibility of the product has been established. Costs incurred
prior to the establishment of technological feasibility are charged to research
and development expense. Software costs are amortized, on a product by product
basis, ratably over the estimated economic life of the product (generally two
years, five years in the case of WindTunnel), or the ratio of current gross
revenues to total current and expected future gross revenues of the product,
whichever is greater.
The Company evaluates the net realizable value of capitalized software
costs in accordance with paragraph 10 of SFAS 86. The Company evaluates the net
realizable value of capitalized software and other intangible assets on an
ongoing basis relying on a number of factors including operating results,
business plans, budgets and economic projections and undiscounted cash flows. In
addition, the Company's evaluation considers non-financial data such as market
trends, product development cycles and changes in management's market emphasis.
Costs in excess of net assets of acquired companies are amortized on a
straight-line basis over a ten-year period. Goodwill totaled $581,000 before
accumulated amortization of $246,000 and $188,000 at June 30, 1996 and 1995,
respectively.
INCOME TAXES
In fiscal 1994, the Company adopted the Financial Accounting Standards
Board Statement No. 109 ("SFAS 109"), "Accounting for Income Taxes," which
requires the use of the asset and liability approach for accounting for income
taxes. Under SFAS 109, deferred tax assets and liabilities are recognized based
on temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse. SFAS 109 also requires a
41
<PAGE> 42
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
valuation reserve against deferred assets if based upon weighted available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. There was no material impact on the Company's results of
operations and financial position when SFAS 109 was adopted in 1994. Prior
fiscal years were not restated.
LOSS PER COMMON SHARE
Loss per common share is computed based on the weighted average number
of common shares and dilutive common equivalent shares outstanding during each
year except in loss years. Dilutive common equivalent shares consist of
preferred stock, warrants and stock options (calculated using the treasury stock
method). For the years ended June 30, 1996, 1995 and 1994, common equivalent
shares are excluded from the primary earnings per share calculation as they are
antidilutive. Fully diluted and primary earnings per share are the same amounts
for fiscal 1995 and 1994. Fully diluted earnings per share is $(.47) in fiscal
1996 as the Company's redeemable Series A Convertible Preferred Stock is assumed
to be converted at the beginning of the year.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of temporary cash investments and trade
receivables.
The Company invests its cash in deposits with major banks and in money
market investments and obligations of the United States Government and Federal
agencies. The Company has not experienced any significant losses on its
investments.
Concentrations of credit risk with respect to trade receivables include
receivables from a significant customer (see, also, Note 8.) and are otherwise
limited due to the large number of customers comprising the Company's customer
base and their dispersion across many different industries and geographies. The
Company performs ongoing credit evaluations of its customers and maintains
reserves for potential credit losses. Such losses to date have been within
management's expectations.
2. BUSINESS COMBINATIONS
On September 10, 1993, the Company acquired Chicago-based WindTunnel
Software, Inc. ("WindTunnel") in a merger transaction accounted for as a
purchase. The Company acquired WindTunnel in exchange for 650,000 shares of the
Company's common stock. The purchase price of WindTunnel was approximately
$2,500,000, based upon a stock price of $3.50 (which approximated the fair
market value of the Company's common stock at the time of the merger) for each
of the 650,000 shares of the Company's common stock issued in the merger and the
direct costs of the acquisition. The net tangible assets of WindTunnel acquired
by the Company were insignificant. The purchase price was allocated to the fair
value of WindTunnel's software, and is being amortized over five years. The
fiscal 1994 results reflect the allocation of the purchase price in accordance
with generally accepted accounting principles and include the results of
operations for WindTunnel since the acquisition date. (See, also, Note 13.)
On November 16, 1993, the Company acquired substantially all the assets
of Cooperative Solutions, Inc. ("CSI") of San Jose, California, including its
product line, research and development efforts, and employee and customer bases
in exchange for assuming certain liabilities. The acquisition was accounted for
as a purchase. The purchase price, which was equal to the liabilities assumed,
was approximately $2.2 million. The purchase price was first allocated to
tangible assets based on their fair market values. The remaining purchase price
was allocated to the fair value of purchased research and development for
software which had not reached technological feasibility and had no alternative
future use. A charge for purchased research and development of $1.7 million was
recorded upon the closing of the acquisition in the Company's fiscal quarter
ended December 31, 1993. The fiscal 1994 results reflect the allocation of the
purchase price in accordance with generally accepted accounting principles and
include the results of operations for CSI since the acquisition date.
42
<PAGE> 43
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
---- ----
<S> <C> <C>
Property and equipment
Computer and related equipment ............... $ 3,918 $10,797
Equipment under capital leases ............... 179 97
Office furniture and fixtures ................ 478 999
Leasehold improvements ....................... 171 324
------- -------
Total .................................... 4,746 12,217
Less accumulated depreciation and amortization 3,431 10,330
------- -------
$ 1,315 $ 1,887
======= =======
</TABLE>
Accumulated amortization for equipment under capital leases was $69,000
and $26,000 as of June 30, 1996 and 1995, respectively. During fiscal 1996, the
Company wrote-off $7,964,000 of fully depreciated assets.
4. CAPITALIZED SOFTWARE COSTS
The Company did not capitalize costs related to internally developed
software during any of the fiscal years ended June 30, 1996, 1995, and 1994
respectively. (See, also, Note 13.)
Amortization expenses for previously capitalized software costs for the fiscal
years ended June 30, 1996, 1995, and 1994 was approximately $0, $616,000 and
$1,044,000, respectively. The Company also amortized $456,000, $456,000 and
$379,000 of purchased software acquired in the WindTunnel transaction.
5. INCOME TAXES
The components of net deferred tax assets were as follows:
<TABLE>
<CAPTION>
JUNE 30
------------------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 20,250 $ 18,367
Tax credit carryforwards 1,417 1,417
Other 1,351 1,038
-------- --------
Gross deferred tax asset 23,018 20,822
Valuation allowance (23,018) (20,822)
-------- --------
Net deferred tax asset $ 0 $ 0
======== ========
</TABLE>
The entire deferred tax asset has been fully reserved with a valuation
allowance due to the uncertainty of realization. The Company has historically
not generated consistent taxable income sufficient to ensure usage of the
deferred tax asset.
At June 30, 1996, the Company had remaining tax net operating loss
("NOL") carryforwards of approximately $51,000,000, including approximately
$4,800,000 for international operations, currently available
43
<PAGE> 44
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
to offset future taxable income and unused federal tax credits of approximately
$1,400,000. If not utilized, these credits and carryforwards will expire between
the years 2004 and 2011. Due to the Company's issuances of stock, the Tax Reform
Act of 1986 has restricted the Company's use of approximately $7,000,000 of its
existing NOL carryforwards.
The provision for income taxes recorded in the years ended June 30,
1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Federal-current ........... -- -- --
State ..................... $ 120 -- --
Foreign taxes ............. 963 $ 246 $ 357
------ ------ ------
Total provision ....... $1,083 $ 246 $ 357
====== ====== ======
</TABLE>
The effective tax rates for the years ended June 30, 1996, 1995 and 1994 are not
meaningful, as the Company was in a net loss position.
6. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) defined contribution plan which is available
to all U.S. employees. The Company made no contributions to the plan in the
years ended June 30, 1996, 1995, and 1994.
The Company's 1992 Employee Stock Purchase Plan (the "Plan") permits
eligible employees to purchase up to a maximum of 625 shares of stock quarterly
on October 31, January 31, April 30, and July 31 at a purchase price equal to
85% of the market price of the Company's common stock on either the first or
last day of each quarterly period, whichever price is lower, through
accumulation of payroll deductions of up to 20% of each participating employee's
qualifying compensation during such quarterly period. The Plan commenced
operations on May 1, 1992. At June 30, 1996, 300,000 shares were reserved for
issuance under the Plan of which approximately 183,000 shares have been
purchased by employees.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office space under cancelable and non-cancelable
operating leases. Rent expense in the fiscal years ended June 30, 1996, 1995 and
1994 under such arrangements totaled $2,084,000, $2,194,000, and $2,198,000,
respectively.
44
<PAGE> 45
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
The Company also leases certain equipment under long-term leases. At
June 30, 1996, long-term lease commitments were as follows:
<TABLE>
<CAPTION>
OFFICE SPACE EQUIPMENT
OPERATING CAPITAL
LEASES LEASES
------------ ---------
<S> <C> <C>
Year ended June 30, 1997............................ $2,008 $ 64
Year ended June 30, 1998............................ 687 28
Year ended June 30, 1999............................ 645 21
Year ended June 30, 2000............................ 154 21
Year ended June 30, 2001............................ 122 7
------ ----
Total........................................... $3,616 141
Less amount representing interest................... 23
----
Present value of minimum lease payments............. 118
Less current portion................................ 59
----
Long-term portion................................... $ 59
====
</TABLE>
Included in the table above are the effects of a non-cancelable
facility sublease agreement for approximately $17,000 for fiscal year 1997.
In connection with the merger between the Company and Cadre, the
Company guaranteed a $1,500,000 advance provided to Cadre by the Company's
bank which was applied against the Company's borrowing base.
8. BUSINESS SEGMENT AND GEOGRAPHIC DATA
The Company operates in one business segment: development, marketing
and support of an integrated suite of software products and services. The
Company markets and services its products in the United States and in foreign
countries through its direct sales organization and distributors (which are
independent representatives). The Company's foreign operations are primarily
sales and customer service organizations. Geographic information for the years
ended June 30, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
United States ................. $ 10,896 $ 14,700 $ 17,700
Italy ......................... 13,982 9,519 8,020
Rest of World ................. 5,801 7,700 8,717
Export sales from United States 1,273 1,403 2,065
Intra-company transfers ....... 7,046 4,803 4,673
Intra-company eliminations .... (7,046) (4,803) (4,673)
-------- -------- --------
$ 31,952 $ 33,322 $ 36,502
======== ======== ========
INCOME (LOSS) FROM OPERATIONS
United States ................. $ (2,354) $ (6,025) $ (7,408)
Italy ......................... 336 (540) (452)
Rest of World ................. (3,142) (3,909) (3,686)
-------- -------- --------
$ (5,160) $(10,474) $(11,546)
======== ======== ========
</TABLE>
45
<PAGE> 46
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
United States.......................... $ 20,468 $ 18,971 $ 24,283
Italy.................................. 7,894 7,502 5,895
Rest of World.......................... 4,437 3,641 4,901
Eliminations........................... (9,483) (8,905) (9,039)
-------- -------- --------
$ 23,316 $ 21,209 $ 26,040
======== ======== ========
</TABLE>
Revenues from a major customer as a percentage of total revenue for the
years ended June 30, 1996, 1995 and 1994 were 31%, 20% and 13%, respectively.
Included in the results of operations for the year ended June 30, 1995 is
$2,000,000 of restructuring charges, approximately $1,700,000 in the United
States, $240,000 in Rest of World and $60,000 in Italy.
9. CAPITAL STOCK
The Company has 1,600,000 shares of $1.00 par value "blank check"
preferred stock authorized. Such shares may be issued in one or more future
series by the Board of Directors and, subject to certain limitations so as not
to adversely effect other holders of preferred stock, if any, are to have such
rights and preferences as the Board of Directors establishes before issuance. On
November 21, 1994, the Company issued 1,787.073 shares of redeemable Series A
Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock
is initially convertible into 1,000 shares of common stock and is entitled to
cast votes equal to the number of shares of common stock into which such
preferred stock is convertible. In connection with the issuance of the Series A
preferred stock, the Company issued to the Series A preferred stockholders
three-year warrants to purchase 357,415 shares of the Company common stock (with
Registration Rights) at an exercise price of $3.28 per share. These warrants
were valued at $319,000 and are included in additional paid in capital. As of
June 30, 1996, all shares of Series A Convertible Preferred Stock have been
converted to common stock. Also during fiscal year 1996, the Company received
$500,000 in connection with the exercise of warrants. Warrants for 204,976
shares of common stock remain outstanding at June 30, 1996.
10. STOCK OPTIONS
Under the Company's amended and restated incentive and nonqualified
stock option plan, incentive stock options can be granted to employees and
consultants entitling them to purchase shares of common stock within one to ten
years from the date of grant at option prices equal to the fair market value at
the date of grant. Nonqualified stock options are generally granted under the
same terms. The vesting period for stock options is generally four years. The
exercise price for incentive stock options may not be less than the fair market
value of the common stock on the date of the grant (or 110% of fair market value
in the case of employees or officers holding 10% or more of the total combined
voting power of all classes of stock of the Company). At June 30, 1996, the
number of shares issuable under the Plan is 4,250,000.
46
<PAGE> 47
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
--------- ---------
<S> <C> <C>
Options outstanding on June 30, 1993 1,176,304 $ .30 -$7.50
Options granted .................. 1,419,386 1.88 - 3.50
Options exercised ................ (181,380) .75 - 3.00
Options canceled ................. (368,626) 1.20 - 7.50
---------
Options outstanding on June 30, 1994 2,045,684 .30 - 7.50
Options granted .................. 539,150 1.88 - 6.50
Options exercised ................ (301,624) .30 - 4.88
Options canceled ................. (586,728) .75 - 7.50
---------
Options outstanding on June 30, 1995 1,696,482 1.20 - 8.75
Options granted .................. 790,307 6.00 - 8.75
Options exercised ................ (259,263) 1.20 - 7.50
Options canceled ................. (317,878) 1.88 - 8.75
---------
Options outstanding on June 30, 1996 1,909,648 1.20 - 8.75
Shares exercisable at June 30, 1996 700,648 $1.20 -$8.75
</TABLE>
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Cash Paid For:
Interest............................................. $ 64 $ 39 $ 97
Income taxes......................................... 395 321 251
Non Cash Investing and Financing Activity:
Increase in capital lease obligations................ 81 97 --
Conversion of Redeemable Series A Preferred Stock.... 5,493 -- --
</TABLE>
47
<PAGE> 48
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR 1996
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues......................................... $ 6,707 $10,247 $ 7,028 $ 7,970
Cost of Revenue.................................. 2,228 2,403 2,203 2,012
Income (loss) from operations.................... (2,014) 640 (1,443) (2,343)
Net income (loss)................................ (2,145) 499 (1,348) (2,839)
Net income (loss) per common share............... $ (0.21) $ 0.04 $ (0.11) $ (0.23)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1995
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues......................................... $ 6,584 $ 8,776 $ 8,398 $9,564
Cost of Revenue.................................. 2,705 3,158 2,722 3,275
Income (loss) from operations.................... (7,469) (1,376) (1,051) (578)
Net income (loss)................................ (7,447) (1,353) (983) (477)
Net income (loss) per common share............... $ (0.82) $ (0.15) $ (0.11) $(0.05)
</TABLE>
13. RESTRUCTURING AND OTHER COSTS
During fiscal 1996, the Company agreed to merge with Cadre Technologies
Inc. and change its name to Cayenne Software, Inc. Based on the results of
fiscal year 1996, and in conjunction with the contemplated merger between
Cayenne and Cadre, the Company reviewed its product strategy and determined that
several products including WindTunnel were no longer consistent with the
Company's objectives. Accordingly, the Company evaluated the net realizable
value of the related intangible assets and recorded a charge of approximately
$1,125,000 principally related to the writeoff of the intangible asset acquired
as part of its acquisition of WindTunnel.
Following the completion of certain significant development efforts and
associated product introduction, the Company effected a restructuring on
September 29, 1994 to streamline its operations and better align expenses with
revenue. The Company recorded a restructuring charge of $2,000,000 during the
three months ended September 30, 1994. The restructuring included a charge of
approximately $1,500,000 in termination charges resulting from a 20% reduction
in staff (approximately 70 employees). Prior to the execution of this
restructuring, the Board of Directors of the Company approved a plan to
terminate certain specified employees and close certain facilities. Such plan
was communicated to the employees of the Company prior to the end of the quarter
and such employees were specifically identified and terminated. The termination
benefits to such employees were consistent with the Company's written severance
policy and agreements. The restructuring also included approximately $300,000 in
related facilities expense associated with the closure of Company's San Jose,
California development facility. The Company also reorganized the operations of
its German subsidiary by reducing its facilities and staff and is pursuing
distribution arrangements in that territory. As part of the restructuring, the
Company also evaluated the value of certain contracts based on a number of
factors including business plans, budgets, economic projections and market
analysis. Based on a review of these factors, the Company determined to cancel
certain contracts. The termination costs associated with those contracts
amounted to approximately $200,000 and was included in the restructuring charge.
48
<PAGE> 49
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
14. LINE OF CREDIT
On June 6, 1996, the Company amended and restated its revolving credit
agreement with a bank to borrow up to $4,000,000, increasing to $5,000,000 upon
achievement of profitability. The term of such agreement extends through October
5, 1996. The loan is contingent upon meeting certain financial and operating
covenants at the time of any borrowing and over the life of the loan, including
a profit of $250,000 in the fourth quarter of fiscal 1996 for which the Company
has obtained a waiver of compliance. The loan is secured by all of the assets of
the Company and any borrowing amounts are tied to a percentage of qualified
accounts receivable outstanding at the time of any borrowing. The financial
covenants include the attainment of certain specified levels of consolidated net
income (loss) at the end of each quarter, tangible net worth (generally defined
as the excess of tangible net assets of the Company over total liabilities
(excluding any outstanding redeemable preferred stock)) at the end of each
quarter and month, and liquidity (generally defined as cash and cash equivalents
plus eligible domestic accounts receivable and eligible international accounts
receivable less any indebtedness to the bank) at the end of each month. The
Company was in compliance with all covenants, as waived, at June 30, 1996. At
June 30, 1996, the borrowing base under the revolving credit agreement was
approximately $1,723,000 of which $1,500,000 was committed in connection with
the merger between the Company and Cadre, as discussed in Note 7. The Company is
concluding negotiations with the bank to amend and extend its credit agreement
through October 5, 1997, to establish certain of the financial and operating
covenants as well as the borrowing base thereunder similar to those set forth
above and to set the borrowing limit at $5,000,000.
15. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which is effective for the Company's fiscal year 1997. This statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company believes the effect of adopting this statement will not
be material.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" which is effective for the Company's fiscal year 1997. The Company
has determined that it will elect the disclosure-only alternative. The Company
will be required to disclose the pro forma net income or loss and per share
amounts in the notes to the financial statements using the fair value based
method beginning in fiscal 1997 with comparable disclosures for fiscal 1996. The
Company has not determined the impact of these pro forma adjustments.
16. SUBSEQUENT EVENT
On July 18, 1996, the Company received shareholder approval to merge
with Cadre Technologies Inc. of Providence, Rhode Island, and issued 4,716,442
shares of Cayenne common stock in exchange for all of the capital stock of
Cadre. The transaction is expected to be accounted for as a pooling-of-interests
for accounting purposes beginning in the first quarter of fiscal year 1997.
Cadre develops, markets and supports software tools for the creation of
complex computer software. Cadre products aid in automating the process of
requirements analysis and software design by groups of software engineers.
Unaudited, pro forma results of the combined company including revenue,
net loss and related per share amounts are presented in the following table. The
Company's fiscal 1996 results have been combined with Cadre's results for the
twelve months ended June 30, 1996. The Company's fiscal 1995 and 1994 results
have been combined with Cadre's calendar year end results for 1995 and 1994. In
this presentation Cadre's financial data for the period July 1, 1995 to December
31, 1995 is included in both the twelve month periods ended June 30, 1995 and
1996. This six month period includes revenue of $19,278,000 and a net loss of
$3,156,000. Results
49
<PAGE> 50
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
of operations include certain charges related to restructuring, purchased
research and development and other merger related costs amounting to $2,977,000
in 1996, $12,783,000 in 1995, and $1,736,000 in 1994.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
--------------------------------------------------
Dollar amounts in thousands, except per share data
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue.......................... $ 65,886 $ 72,789 $ 77,078
Cost of Revenue.................. 16,909 22,058 19,416
Operating Expenses............... 58,569 75,560 71,022
Net Loss......................... $(11,347) $(24,890) $(13,202)
Net Loss per common share........ $ (0.71) $ (1.86) $ (1.06)
</TABLE>
The pro forma results exclude an estimated $6-7 million charge expected to be
incurred in the first quarter of fiscal 1997. Included in the estimated charge
is approximately $1.6 million of employee related termination expenses, $1.5
million of legal, accounting, broker and other professional fees, $1.5 million
of facility closure and consolidation expenses, and $2.4 million of other
miscellaneous expenses associated with the consolidation of the two companies
and the company name change.
These disclosures are included for comparative purposes only and do not purport
to be indicative of what would have occurred had the acquisiton been made on
July 1, 1993 or of results which may occur in the future.
50
<PAGE> 51
CAYENNE SOFTWARE, INC.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Directors and Executive
Officers" appearing in the Company's definitive Proxy Statement for the Special
Meeting in Lieu of Annual Meeting of Stockholders to be held on November 20,
1996, and which will be filed with the Securities and Exchange Commission not
later than 120 days after June 30, 1996 is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the Caption "Executive Compensation"
appearing in the Company's definitive Proxy Statement for the Special Meeting in
Lieu of Annual Meeting of Stockholders to be held on November 20, 1996, and
which will be filed with the Securities and Exchange Commission not later than
120 days after June 30, 1996, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Holders of
Voting Securities" and "Election of Directors" appearing in the Company's
definitive Proxy Statement for the Special Meeting in Lieu of Annual Meeting of
Stockholders to be held on November 20, 1996, and which will be filed with the
Securities and Exchange Commission not later than 120 days after June 30, 1996,
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" appearing in the Company's definitive proxy statement for
the Special Meeting in Lieu of Annual Meeting of Stockholders to be held on
November 20, 1996 and which will be filed with the Securities and Exchange
Commission no later than 120 days after June 30, 1996, is incorporated herein by
reference.
51
<PAGE> 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The financial statements filed as part of this report are listed on the
Index to Consolidated Financial Statements on page 34.
(2) FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants
Schedule II: Valuation and Qualifying Accounts
(3) EXHIBITS
Documents listed below, except for documents identified by footnotes,
are being filed as exhibits herewith. Documents identified by asterisks
are not being filed herewith and, pursuant to Rule 12b-32 of the
General Rules and Regulations promulgated by the Commission under the
Securities Exchange Act of 1934 (the "Act") reference is made to such
documents as previously filed as exhibits with the Commission. The
Company's file number under the Act is 0-19682.
2.1(4) Asset Purchase Agreement among CSI Acquisition Corporation,
Cayenne and Cooperative Solutions, Inc. dated November 16,
1993
2.2(5) Agreement and Plan of Merger by and among Cayenne, BI
Acquisition Corp. and WindTunnel Software, Inc. dated April
27, 1993
2.3(11) Agreement and Plan of Merger among Cayenne, B.C.
Acquisition Corp. and Cadre Technologies Inc. dated as of
March 25, 1996
3.1 Amendment to Restated Articles of Organization of Cayenne
3.2(2) Restated Articles of Organization of Cayenne
3.3(1) Amended and Restated By-Laws of Cayenne
4.1(1) Specimen Certificate for Common Stock of Cayenne
4.2(8) Statement of Rights and Preferences of Series A Convertible
Preferred Stock
4.3(8) Form of Warrant Agreement dated as of November 21, 1994 by
and among Cayenne and purchasers of Series A Convertible
Preferred Stock
4.4(7) Warrant Agreement dated as of October 28, 1994 by and
between Cayenne and Silicon Valley Bank
10.1(1) General License and Maintenance Agreement dated January 30,
1987 between Cayenne and American Telephone & Telegraph
Communications, Inc.
10.2(1) Lease with New England Mutual Life Insurance Company
10.3(3) Lease dated August 12, 1992 between Cayenne and Spaulding
Investment Co.
10.4(2) Agreement for Partial Sale of Going Concern dated as of
October 25, 1992 between Pro Systems and Bachman France
S.A.R.L.
10.5(2) Sale and Purchase Agreement relating to Bachman Information
Systems Limited, dated November 16, 1991, among Abacus
Trustees (Jersey) Limited, Cayenne and others, as amended
by Amendment Consent dated February 18, 1992
10.6(2) Agreement dated as of November 1, 1991, between Cayenne and
Bachman Italia S.r.l., as amended by letter dated December
9, 1991 and as further amended by amendment dated December
31, 1991
10.7(3) Fiscal Year 1993 Bonus Pool Plan
10.8(1) Amended and Restated 1986 Incentive and Nonqualified Stock
Option Plan of Cayenne
10.9(2) 1992 Employee Stock Purchase Plan
10.10(1) Savings/Retirement Plan and Trust of Cayenne
10.11(6) Employment agreement dated as of January 1, 1994 by and
between Cayenne and Charles W. Bachman
52
<PAGE> 53
10.12(6) Employment Agreement dated as of August 4, 1993 by and
between Cayenne and Peter J. Boni
10.13(6) 1994 Bonus Pool Plan of Cayenne, as amended
10.14(7) 1995 Bonus Pool Plan of Cayenne, as amended.
10.15(7) Revolving Credit Agreement and Warrant Agreement dated as
of October 28, 1994 by and between Cayenne and Silicon
Valley Bank
10.16(8) Series A Convertible Preferred Stock Purchase Agreement
dated as of November 21, 1994 by and among Cayenne and
purchasers of Series A Convertible Preferred Stock
10.17(8) Registration Rights Agreement dated as of November 21, 1994
by and among Cayenne and purchasers of Series A Convertible
Preferred Stock
10.18(9) Form of Common Stock Purchase Agreement dated as of
September 15, 1995 by and among Cayenne and certain
purchasers of Common Stock
10.19(9) Form of Registration Rights Agreement dated as of September
15, 1995 by and among Cayenne and certain purchasers of
Common Stock
10.20(10)1996 Bonus Plan of Cayenne
10.21 Amendment No. 1 to Employment Agreement dated as of
August 4, 1993 by and between Cayenne and Peter J. Boni
10.22 Amended and Restated Revolving Credit Agreement dated as of
June 6, 1996 by and between Cayenne and Silicon Valley Bank
21.1 List of Subsidiaries of Cayenne
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedules
- -----------------------------
(1) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-43401, as
amended.
(2) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-45841, as
amended.
(3) Incorporated by reference to the exhibits filed with Cayenne's
Annual Report on Form 10-K for the year ended June 30, 1992,
File No. 0-19682.
(4) Incorporated by reference to the exhibit filed with Cayenne's
Current Report on Form 8-K dated November 16, 1993, as
amended.
(5) Incorporated by reference to Cayenne's Registration Statement
on Form S-4, File No. 33-62650, as amended.
(6) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated May 13, 1994.
(7) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated November 11, 1994.
(8) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated February 13, 1995, as
amended.
(9) Incorporated by reference to the exhibits filed with Cayenne's
Annual Report on Form 10-K, as amended, for the year ended
June 30, 1995, File No. 0-19682
(10) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated February 13, 1996.
(11) Incorporated by reference to exhibits filed with Cayenne's
Registration Statement on Form S-4, File No. 333-6087, as
amended.
53
<PAGE> 54
(b) REPORTS ON FORM 8-K:
A Current Report on Form 8-K was filed by the Company on April 2, 1996. The
Company reported that on March 25, 1996, it entered into an Agreement and
Plan of Merger with B.C. Acquisition Corp., a wholly-owned subsidiary of
the Company, and Cadre Technologies Inc. The Merger Agreement provided that
upon the terms and subject to the conditions specified therein that,
effective on the closing, Acquisition Corp. would be merged with and into
Cadre, the separate corporate existence of Acquisition Corp. would cease,
and Cadre would continue as the surviving corporation in the merger and as
a wholly-owned subsidiary of the Company. The Merger closed on July 18,
1996.
54
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Burlington,
Commonwealth of Massachusetts on the 27th day of September, 1996.
CAYENNE SOFTWARE, INC.
By: /S/ Peter J. Boni
-------------------------------------
Peter J. Boni
President and Chief Executive Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ Peter J. Boni President, Chief Executive Officer
- ---------------------------------- and Director September 27, 1996
Peter J. Boni
/S/ Frederick H. Phillips Vice President, Finance
- ---------------------------------- and Administration, Treasurer
Frederick H. Phillips and Chief Financial and Accounting
Officer September 27, 1996
/S/ Charles W. Bachman Chairman of the Board of
- ---------------------------------- Directors September 22, 1996
Charles W. Bachman
/S/ John J. Alexander Director September 27, 1996
- ----------------------------------
John J. Alexander
/S/ R. John Fletcher Director September 27, 1996
- ----------------------------------
R. John Fletcher
/S/ William H.D. Goddard Director September 20, 1996
- ----------------------------------
William H.D. Goddard
/S/ Allyn C. Woodward, Jr. Director September 27, 1996
- ----------------------------------
Allyn C. Woodward, Jr.
</TABLE>
55
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Cayenne Software, Inc.
Our report on the consolidated financial statements of Cayenne
Software, Inc. (formerly Bachman Information Systems, Inc.) is included in
Item 8 of this Form 10-K. In connection with the audits of such financial
statements, we have also audited the related financial statement schedule
listed in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
August 20, 1996
<PAGE> 57
CAYENNE SOFTWARE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
----------------------------
Balance at Charged to Charged to
beginning costs and other accounts Deductions Balance at
Description of period expenses - describe* -describe end of period
----------- ---------- ---------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1994
Allowance for sales returns $1,355 $232 $(325)** $1,262
Allowance for doubtful accounts $145 $145
Year ended June 30, 1995
Allowance for sales returns $1,262 $122 $(811)*** $573
Allowance for doubtful accounts $145 $145
Year ended June 30, 1996
Allowance for sales returns $573 $350 $(352) $571
Allowance for doubtful accounts $145 $145
</TABLE>
* Charged to revenue accounts
** Deductions to allowance for sales returns represent returns of software
products under license
*** Includes a reduction of approximately $550,000 of the allowance for sales
returns based on management's assessment of the Company's sales returns
history and trends
<PAGE> 58
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
2.1(4) Asset Purchase Agreement among CSI Acquisition
Corporation, Cayenne and Cooperative Solutions, Inc. dated
November 16, 1993
2.2(5) Agreement and Plan of Merger by and among Cayenne, BI
Acquisition Corp. and WindTunnel Software, Inc. dated
April 27, 1993
2.3(11) Agreement and Plan of Merger among Cayenne, B.C.
Acquisition Corp. and Cadre Technologies Inc. dated as of
March 25, 1996
3.1 Amendment to Restated Articles of Organization of Cayenne
3.2(2) Restated Articles of Organization of Cayenne
3.3(1) Amended and Restated By-Laws of Cayenne
4.1(1) Specimen Certificate for Common Stock of Cayenne
4.2(8) Statement of Rights and Preferences of Series A
Convertible Preferred Stock
4.3(8) Form of Warrant Agreement dated as of November 21, 1994 by
and among Cayenne and purchasers of Series A Convertible
Preferred Stock
4.4(7) Warrant Agreement dated as of October 28, 1994 by and
between Cayenne and Silicon Valley Bank
10.1(1) General License and Maintenance Agreement dated January
30, 1987 between Cayenne and American Telephone &
Telegraph Communications, Inc.
10.2(1) Lease with New England Mutual Life Insurance Company
10.3(3) Lease dated August 12, 1992 between Cayenne and Spaulding
Investment Co.
10.4(2) Agreement for Partial Sale of Going Concern dated as of
October 25, 1992 between Pro Systems and Bachman France
S.A.R.L.
10.5(2) Sale and Purchase Agreement relating to Bachman
Information Systems Limited, dated November 16, 1991,
among Abacus Trustees (Jersey) Limited, Cayenne and
others, as amended by Amendment Consent dated February 18,
1992
10.6(2) Agreement dated as of November 1, 1991, between Cayenne
and Bachman Italia S.r.l., as amended by letter dated
December 9, 1991 and as further amended by amendment dated
December 31, 1991
10.7(3) Fiscal Year 1993 Bonus Pool Plan
10.8(1) Amended and Restated 1986 Incentive and Nonqualified Stock
Option Plan of Cayenne
10.9(2) 1992 Employee Stock Purchase Plan
10.10(1) Savings/Retirement Plan and Trust of Cayenne
10.11(6) Employment agreement dated as of January 1, 1994 by and
between Cayenne and Charles W. Bachman
10.12(6) Employment Agreement dated as of August 4, 1993 by and
between Cayenne and Peter J. Boni
10.13(6) 1994 Bonus Pool Plan of Cayenne, as amended
10.14(7) 1995 Bonus Pool Plan of Cayenne, as amended.
10.15(7) Revolving Credit Agreement and Warrant Agreement dated as
of October 28, 1994 by and between Cayenne and Silicon
Valley Bank
10.16(8) Series A Convertible Preferred Stock Purchase Agreement
dated as of November 21, 1994 by and among Cayenne and
purchasers of Series A Convertible Preferred Stock
10.17(8) Registration Rights Agreement dated as of November 21,
1994 by and among Cayenne and purchasers of Series A
Convertible Preferred Stock
10.18(9) Form of Common Stock Purchase Agreement dated as of
September 15, 1995 by and among Cayenne and certain
purchasers of Common Stock
10.19(9) Form of Registration Rights Agreement dated as of
September 15, 1995 by and among Cayenne and certain
purchasers of Common Stock
10.20(10) 1996 Bonus Plan of Cayenne
2
<PAGE> 59
10.21 Amendment No. 1 to Employment Agreement dated as of
August 4, 1993 by and between Cayenne and Peter J. Boni
10.22 Amended and Restated Revolving Credit Agreement dated as
of June 6, 1996 by and between Cayenne and Silicon Valley
Bank
21.1 List of Subsidiaries of Cayenne
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedules
- ----------------------------
(1) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-43401, as
amended.
(2) Incorporated by reference to the exhibits filed with Cayenne's
Registration Statement on Form S-1, File No. 33-45841, as
amended.
(3) Incorporated by reference to the exhibits filed with Cayenne's
Annual Report on Form 10-K for the year ended June 30, 1992,
File No. 0-19682.
(4) Incorporated by reference to the exhibit filed with Cayenne's
Current Report on Form 8-K dated November 16, 1993, as
amended.
(5) Incorporated by reference to Cayenne's Registration Statement
on Form S-4, File No. 33-62650, as amended.
(6) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated May 13, 1994.
(7) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated November 11, 1994.
(8) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated February 13, 1995, as
amended.
(9) Incorporated by reference to the exhibits filed with Cayenne's
Annual Report on Form 10-K, as amended, for the year ended
June 30, 1995, File No. 0-19682
(10) Incorporated by reference to the exhibits filed with Cayenne's
Quarterly Report on Form 10-Q dated February 13, 1996.
(11) Incorporated by reference to exhibits filed with Cayenne's
Registration Statement on Form S-4, File No. 333-6087, as
amended.
3
<PAGE> 1
EXHIBIT 3.1
FEDERAL IDENTIFICATION
NO. 04-2784094
/s/ Jim ----------
- --------
Examiner
reserved
/s/ PD
- ------------
Name Approved
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Peter J. Boni, *President/*******
------------------------------------------------
and John D. Patterson, Jr., *Clerk/*******
-------------------------------------------------
of Bachman Information Systems, Inc.
-----------------------------------------------------------------
(Exact name of corporation)
located at: 8 New England Executive Park, Burlington, MA 01803
----------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
1 and 3
- ----------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on
July 18, 1996, by vote of:
- ------- --
9,605,763 shares of Common Stock of 12,742,120 shares outstanding,
- --------- ------------ ----------
(type, class & series, if any)
with respect to the amendment of Article 1;
8,468,638 shares of Common Stock of 12,742,120 shares outstanding
- --------- ------------ ----------
(type, class & series, if any)
with respect to the amendment of Article 3;
shares of of shares outstanding.
--------- ------------ ----------
(type, class & series, if any)
(1)**Being at least a majority of each type, class or series outstanding and
entitled to vote thereon/or ************************************************
****************************************************************************.
See Continuation Sheet A
*Delete the inapplicable words. **Delete the inapplicable clause.
(1) For amendments adopted pursuant to Chapter 156B, Section 70.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate 8 1/2 x
11 sheets of paper with a left margin of at least 1 inch. Additions to more
than one article may be made on a single sheet so long as each article
requiring each addition is clearly indicated.
C []
P []
M []
R.A. []
5
- ----
P.C.
<PAGE> 2
To change the number of shares and the par value (if any) of any type, class or
series of stock with the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
<S> <C> <C> <C> <C>
Common: Common: 26,200,000 $0.1
Preferred: Preferred: 1,600,000 $1.00
(Series A - 5,000)
</TABLE>
Change the total authorized to:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
<S> <C> <C> <C> <C>
Common: Common: 52,400,000 $0.1
Preferred: Preferred: 1,600,000 $1.00
(Series A - 5,000)
</TABLE>
<PAGE> 3
CONTINUATION SHEET A
Article 1 is amended as follows:
VOTED: To change the Company's name to Cayenne Software, Inc.
Article 3 is amended as follows:
VOTED: To increase the number of shares of Common Stock, par value
$.01 per share, that Bachman shall have the authority to issue
by 26.2 million shares.
<PAGE> 4
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:_________________________________________
SIGNED UNDER THE PENALTIES OF PERJURY, this 18th day of July, 1996.
/s/ Peter J. Boni, *President/*****.
- -------------------------------------
/s/ John D. Paterson, *Clerk/*****.
- -------------------------------------
*Delete the inapplicable words.
<PAGE> 5
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
================================================================================
I hereby approve the within Articles of Amendment, and the filing fee in the
amount of $26,300 having been paid, said article is deemed to have been filed
with me this 18th day of July, 1996.
Effective date:___________________________________
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
John D. Patterson, Jr., Esquire
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1
This Agreement is made as of the 30th day of April, 1996, and amends
the Employment Agreement between Bachman Information Systems, Inc., a
Massachusetts corporation (the "Company"), and Peter J. Boni of Falmouth,
Massachusetts (the "Employee").
In consideration of the premises and the mutual promises hereinafter
set forth, the Company and the Employee agree as follows:
1. The Employment Agreement is hereby amended by deleting paragraph 3 in its
entirety and by substituting therefor the following new paragraph 3:
3. TERM OF EMPLOYMENT. Subject to Section 10 of this Agreement, this
Agreement shall terminate on August 3, 1999.
2. All other terms of the Employment Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement on the date first above written.
BACHMAN INFORMATION SYSTEMS, INC.
By: /s/ Eugene DiDonato
------------------------------
/s/ Peter J. Boni
------------------------------
Peter J. Boni
<PAGE> 1
EXHIBIT 10.22
Execution Copy
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT is entered into as of June 5, 1996 by
and between BACHMAN INFORMATION SYSTEMS, INC., a Massachusetts corporation (the
"Borrower") and SILICON VALLEY BANK, a California-chartered bank, with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at Wellesley Office Park, 40 William
Street, Suite 350, Wellesley, Massachusetts 02181 doing business under the name
"Silicon Valley East" (hereinafter, together with its successors in title and
assigns, the "Bank").
WITNESSETH:
WHEREAS, the Borrower and the Bank have previously entered into a
certain Revolving Credit Agreement, dated as of October 28, 1994, as amended
pursuant to that certain Loan Modification Agreement dated as of May 18, 1995
(the "Prior Credit Agreement") pursuant to which the Bank established for the
Borrower a credit facility of up to $4,000,000 subject to the terms, conditions
and limitations set forth therein;
WHEREAS, the Borrower has requested the Bank to make available to
Borrower an amended and restated revolving credit facility and the Bank is
willing to make such amended and restated credit facility available on the
following terms and conditions; and
WHEREAS, this Amended and Restated Revolving Credit Agreement amends,
restates, and supersedes the Prior Credit Agreement in its entirety;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Borrower and the Bank hereby
agree as follows:
SECTION 1 - DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, unless otherwise specifically defined herein, the following terms
shall have the following meanings for all purposes when used in this Agreement,
and in the Bank Agreements:
"ACCOUNTS RECEIVABLE" shall mean accounts, as defined in the Uniform
Commercial Code, as adopted in the Commonwealth of Massachusetts, drafts,
acceptances, contracts with customers, and other instruments representing or
evidencing the right to payment for goods sold or for services rendered (or for
maintenance services to be rendered pursuant to the relevant maintenance
agreement), including the right to any insurance premium refunds.
<PAGE> 2
"AFFILIATE" shall mean, as applied to an individual, a spouse of such
individual, or any relative of such individual, any member, director, officer
or employee of a Person, any corporation, association, firm or other entity of
which such Person is a member, director, officer of employee, and any other
Person, directly or indirectly controlling, controlled by or under direct or
indirect common control with such Person.
"AFFILIATE ACCOUNTS" shall mean all accounts, accounts receivable,
notes or other amounts due to the Borrower from any Affiliate.
"AGREEMENT" shall mean this Amended and Restated Revolving Credit
Agreement (including Schedules and Exhibits annexed hereto), as amended or
supplemented from time to time. References to Sections, Exhibits, Schedules and
the like refer to the Sections, Exhibits, Schedules and the like of this
Agreement unless otherwise indicated.
"AUTHORIZED OFFICER" shall mean an officer of the Borrower who has been
duly authorized by the Borrower to execute and deliver to the Bank on behalf of
the Borrower Borrowing Requests, Compliance Certificates, Borrowing Base
Certificates, and other certifications, each of whom is listed on SCHEDULE
1.1(a) hereto, as such Schedule may be amended from time to time by notice to
the Bank in accordance with Section 13.2 hereof.
"BANK AGREEMENTS" shall mean this Agreement, the Revolving Credit Note,
the Security Documents, the Guaranty Agreement, and any other present or future
agreement from time to time entered into between the Borrower and/or any
Subsidiary and the Bank relating to this Agreement or which is stated to be a
Bank Agreement, each as from time to time amended or modified, and all
statements, reports and certificates delivered by the Borrower to the Bank in
connection herewith or therewith.
"BANKING DAY" shall mean any day, excluding Saturday and Sunday and
excluding any other day which shall be in the City of Santa Clara or in the
State of California a legal holiday or a day on which banking institutions are
authorized by law to close.
"BORROWING BASE" shall mean an amount, subject to decrease as hereafter
provided, equal to (as shown on the Bank's records at any time) the sum of (a)
seventy-five percent (75%) of all Eligible Domestic Accounts Receivable of the
Borrower for which invoices have been issued and are payable, and (b)
seventy-five percent (75%) of all Eligible International Accounts Receivable of
the Foreign Subsidiaries for which invoices have been issued and are payable;
PROVIDED, HOWEVER, that for purposes of determining the Borrowing Base
hereunder, the Accounts Receivable of each of Bachman Asia Pte. Ltd., a
Singapore Corporation and Bachman Spain S.L., a Spanish Corporation, shall not
be included in the calculation of Eligible International Accounts Receivable
until such time as the Bank has received a valid and perfected pledge or lien
on all of the outstanding capital stock of each such Foreign Subsidiary; and,
provided, further that the Accounts Receivable of Bachman Italia, S.r.l. shall
not be included in the determination of Eligible International Accounts
Receivable to the extent
- 2 -
<PAGE> 3
such Accounts Receivable have been given as collateral to Banca Commerciale
Italiana to secure the loans of up to one billion Lira by such bank to Bachman
Italia, S.r.l. Upon and after the Effective Date of the Merger, the Borrowing
Base shall be decreased to an amount equal to (as shown on the Bank's records
at any time) the sum of (a) sixty percent (60%) of all Eligible Domestic
Accounts Receivable of the Borrower for which invoices have been issued and are
payable, and (b) sixty percent (60%) of all Eligible International Accounts
Receivable of the Foreign Subsidiaries for which invoices have been issued and
are payable; provided, however, in the event the Borrower reports Consolidated
Net Income for any fiscal quarter following the Merger of at least $200,000
(excluding restructuring charges related to the Merger), then, upon receipt by
the Bank of either such quarterly financial statements evidencing such positive
Consolidated Net Income or the public announcement of such positive
Consolidated Net Income, such decreased Borrowing Base shall be increased to an
amount equal to (as shown on the Bank's records at any time) the sum of (a)
seventy-five percent (75%) of all Eligible Domestic Accounts Receivable of the
Borrower for which invoices have been issued and are payable, and (b)
seventy-five percent (75%) of all Eligible International Accounts Receivable of
the Foreign Subsidiaries for which invoices have been issued and are payable.
"BORROWING BASE CERTIFICATE" shall mean a certificate executed by an
Authorized Officer of the Borrower in substantially the form of EXHIBIT C
hereto.
"BORROWING REQUEST" shall mean a request for a borrowing hereunder
executed by an Authorized Officer of the Borrower in substantially the form of
EXHIBIT B hereto.
"CAPITAL LEASE" shall mean any lease of property (real, personal or
mixed) which is or should be capitalized on the lessee's balance sheet in
accordance with GAAP and Statement of Financial Accounting Standards No. 13.
"COLLATERAL" shall mean all assets of the Borrower, now owned or
hereafter acquired, in which the Bank is granted a Lien to secure any of the
Obligations pursuant to the Security Documents.
"COMPLIANCE CERTIFICATE" shall mean a certificate executed by an
Authorized Officer of the Borrower in substantially the form of EXHIBIT D
hereto.
"CONSOLIDATED" shall mean, when used with reference to any term, that
term is applied to the accounts of the Borrower and all of its Subsidiaries (or
other specified Person), in accordance with GAAP.
"CONSOLIDATED NET INCOME (LOSSES)" means for any period, the aggregate
net income (or loss) of the Borrower and all of its Subsidiaries on a
Consolidated basis for such period from operations (taken as a cumulative
whole), after deduction for all operating expenses, taxes, charges and other
reserves (including reserves for deferred income taxes) paid or
- 3 -
<PAGE> 4
accrued. Consolidated Net Income (Losses) shall be determined on a Consolidated
basis in accordance with GAAP, as reflected in the most recently available
financial statements of the Borrower and its Subsidiaries, as certified by the
chief financial officer of the Borrower.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, as to any Person, at any
date as of which the amount thereof shall be determined, the excess of the
Consolidated Total Tangible Assets of such Person over the Consolidated Total
Liabilities (without taking into account any outstanding redeemable preferred
stock of the Borrower) of such Person.
"CONSOLIDATED TOTAL TANGIBLE ASSETS" shall mean, as to any Person, at
any particular date, all items which, in accordance with GAAP, would be
included in determining total assets as shown on the asset side of a balance
sheet of such Person (including long term deferred tax benefits) at the date
which Consolidated Total Tangible Assets is to be determined, excluding,
however, from the determination thereof (a) all loans to any stockholder,
employee or officer of such Person, and all amounts payable to such Person from
any of the aforesaid persons, (b) all assets which would be classified as
intangible assets under GAAP, including, without limitation, goodwill (whether
representing the excess of cost over book value of assets acquired or
otherwise), patents, trademarks, trade names, copyrights, franchises and
deferred charges (including, without limitation, unamortized debt discount and
expense, organization costs, and research and development costs), (c) treasury
stock and minority interests in other corporations or business organizations,
(d) cash set apart and held in a sinking or other analogous fund established
for the purpose of redemption or other retirement of capital stock, and (e) to
the extent not already deducted from Consolidated Total Tangible Assets,
reserves for depreciation, depletion, obsolescence and/or amortization of
properties and all other reserves or appropriations of retained earnings which,
in accordance with GAAP, should be established in connection with the business
conducted by such Person.
"CONSOLIDATED TOTAL LIABILITIES" shall mean, as to any Person, at any
particular date, without limitation, (a) all items (except items of capital
stock, partnership interests, capital and capital accounts or paid-in surplus
or of retained earnings or prepaid items or deposits) which, in accordance with
GAAP, would be included in determining total liabilities as shown on the
liabilities side of a balance sheet of such Person at the date as of which
Consolidated Total Liabilities is to be determined, including, without
limitation, all Indebtedness for borrowed money and any lease which in
accordance with GAAP would constitute Indebtedness, (b) all Indebtedness at
such date secured by any mortgage, pledge, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed, (c) all outstanding reimbursement obligations at such date of
such Person in respect of amounts drawn or available to be drawn on letters of
credit, acceptances or similar obligations issued or created for the account of
such Person, (d) any withdrawal liability of such Person at such date, whether
direct or indirect, absolute or contingent, to a Multi-employer Plan, as that
term is defined in the Pension Reform Act and (e) all Indebtedness of others
which such Person has directly or indirectly guaranteed, endorsed (otherwise
than for collection or deposit in the
- 4 -
<PAGE> 5
ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock or equity purchase, capital contribution or otherwise) or
otherwise to become directly or indirectly liable.
"DEFAULT" shall mean any event which, with the giving of notice or
expiration of any applicable grace period, or both, would constitute an Event
of Default.
"DISTRIBUTION" shall mean (a) the declaration or payment of any
dividend on or in respect of any shares of any class of capital stock of any
Person, other than dividends payable solely in shares of capital stock of the
Person involved, (b) the purchase or other retirement of any shares of any
class of capital stock of any Person directly or indirectly, (c) any other
distribution on or in respect of any shares of any class of capital stock of
any Person, and (d) any payment of principal on or any retirement of
Indebtedness which now or hereafter is subordinated to the prior payment of the
Obligations or any portion thereof.
"EFFECTIVE DATE" shall have the meaning ascribed to it in that certain
Agreement and Plan of Merger by and among the Borrower, B.C. Acquisition Corp.
and Cadre Technologies, Inc., dated as of March 25, 1996.
"ELIGIBLE DOMESTIC ACCOUNTS RECEIVABLE" shall mean the sum of Accounts
Receivable owing to any Person, each of which meets all of the following
specifications at the time it came into existence and continues to meet the
same until it is collected in full:
(a) The account is not more than 90 days from the date of the invoice
thereof.
(b) The account is bona fide, valid and constitutes an enforceable
order or contract, written or oral, for services performed (or for
maintenance services to be performed pursuant to the relevant
maintenance agreement) or products delivered, and the same were or
are to be performed, as the case may be, or delivered in accordance
with such order or contract.
(c) The account is not subject to any prior assignment, claim, lien,
or security interest created by such Person, and such Person will
not make any further assignment thereof or create any further
security interest therein, nor permit such Person's right therein
to be reached by attachment, levy, garnishment or other judicial
process.
(d) The account is not subject to notice to Borrower of any claim of
reduction, counterclaim, setoff, recoupment, or other defense in
law or equity, or any claim for credits, contractual allowances,
discounts, or other credit adjustments by the account debtor for
any reason (except discount allowed for prompt payment) unless
reflected in the Borrowing Base Certificate delivered to the
- 5 -
<PAGE> 6
Bank or in any invoice, certificate, schedule or other statement
delivered to the Bank (prior to any advance against such account,
the amount of any given account eligible for advances shall be net
of any credits, contractual allowances, discounts, other credit
adjustments, counterclaims or other claims for reduction or
deduction of any nature whatsoever), and the account debtor has not
given notice of a dispute with respect thereto nor has returned any
of the goods from the sale from which the account arose which can
be returned pursuant to the terms of the contract with the account
debtor.
(e) The account arose in the ordinary course of such Person's business
and did not arise from the performance of services or a sale of
goods to a supplier of the Borrower or any Subsidiary or any
Affiliate of the Borrower or any Subsidiary.
(f) No notice of bankruptcy or insolvency of the account debtor has
been received by or is known to such Person.
(g) The Bank has not notified the Borrower that the account or account
debtor is unsatisfactory on the basis of the account debtor's
financial condition, operating performance or credit history.
(h) Not more than 50% of the aggregate receivables from the account
debtor are over ninety (90) days from invoice; all accounts
receivable from any account debtor shall be excluded if more than
50% of the accounts receivable from such account debtor are more
than ninety (90) days from invoice.
(i) The aggregate accounts receivables from the account debtor do not
exceed 25% of the total Eligible Domestic Accounts Receivable; that
portion of the account over the 25% level will be disqualified.
(j) The account debtor is not (i) a Subsidiary of the Borrower or
(ii) an officer or employee of any Subsidiary of the Borrower or
(iii) otherwise an Affiliate of the Borrower or any Subsidiary.
(k) The account contract does not arise out of a contract with, or
order from, an account debtor that, by its terms, forbids or makes
void or unenforceable the assignment of such account to the Bank
or the granting of a lien or security interest therein.
(l) The account debtor is not any agency, department or instrumentality
of the United States of America.
(m) The account debtor is a person or entity located in the United
States or Canada and the account arose out of services rendered
(or maintenance services to be
- 6 -
<PAGE> 7
rendered pursuant to the relevant maintenance agreement) or goods
delivered in the United States or Canada.
"ELIGIBLE INTERNATIONAL ACCOUNTS RECEIVABLE" shall mean the sum of
Accounts Receivable owing to any Person with respect to an Account Receivable
for which the account debtor is not a resident of the United States or Canada
PROVIDED, THAT, (i) the Account Receivable meets the specifications identified
in clauses (a)-(l) of the definition of Eligible Domestic Accounts Receivable at
the time it came into existence and continues to meet the same until it is
collected in full, and (ii) the account debtor (x) has been reviewed by the Bank
and is deemed sufficiently creditworthy by the Bank, in the exercise of the
Bank's reasonable judgment as a lender, or (y) has supplied the Borrower with an
irrevocable letter of credit, issued by a financial institution reasonably
satisfactory to the Bank, sufficient to cover the receivable and in form and
substance reasonably satisfactory to the Bank or (z) the account is insured with
a foreign insurance agency reasonably satisfactory to the Bank and the Bank is
named as a loss payee in respect of such insured account.
"ENVIRONMENTAL LAWS" shall mean all foreign, federal, state and local
laws, regulations, rules and ordinances relating to pollution or protection of
the environment and worker health and safety, including, without limitation,
laws relating to releases or threatened releases of hazardous waste or
materials (and permits, licenses and approvals which may be required under such
laws, regulations, rules and ordinances) into the indoor or outdoor environment
(including, without limitation, ambient air, surface water, groundwater, land,
surface and subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, release, transport or
handling of hazardous waste or materials and all laws and regulations with
regard to record keeping, notification, disclosure and reporting requirements
respecting hazardous waste or materials.
"EVENT OF DEFAULT" shall have the meaning given in Section 10.1 hereof.
"FOREIGN SUBSIDIARIES" shall mean the following Subsidiaries of the
Borrower, collectively: Bachman France S.A.R.L., a French corporation; Bachman
Information Systems Canada Ltd., a Canadian corporation; Bachman Information
Systems Limited, a United Kingdom corporation; Bachman Information Systems,
GmbH, a German corporation; Bachman Italia S.r.l., an Italian corporation;
Bachman Asia Pacific Pte. Ltd., a Singapore corporation; and Bachman Spain
S.L., a Spanish corporation.
"GAAP" shall mean generally accepted accounting principles, as defined
by controlling pronouncements of the Financial Accounting Standards Board, as
from time to time supplemented and amended, consistency applied on the basis
used by the Person in prior years unless such prior practice is deemed by
Borrower's independent auditors to be inconsistent with GAAP.
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<PAGE> 8
"HAZARDOUS WASTE OR HAZARDOUS MATERIAL" shall include any hazardous,
toxic, infectious, or radioactive substances, including petroleum products,
including without limitation those substances regulated pursuant to the federal
Comprehensive Environmental Response, Compensation and Liability Act, 42 USC
Section 9601 et seq., the federal Resource Conservation and Recovery Act, 42
USC Section 6901 et seq., the Federal Water Pollution Control Act, 33 USC
Section 1251 et seq., the federal Clean Air Act, 42 USC Section 7401 et seq.,
the Toxic Substances Control Act, 15 USC Section 2601, et seq., the
Massachusetts Oil and Hazardous Material Release Prevention Act, M.G.L. c. 21E,
all present and future amendments to such statutes, and all regulations
promulgated thereunder.
"INDEBTEDNESS" shall mean, as applied to any Person, (i) all
obligations (except items of capital stock or capital or paid-in surplus or of
retained earnings), whether contingent or otherwise, which in accordance with
GAAP would be included in determining total liabilities as shown on the
liability side of the balance sheet of such Person as of the date of which
Indebtedness is to be determined, including any Capital Lease, (ii) all
indebtedness secured by any mortgage, pledge, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed, (iii) all indebtedness of others which such Person has directly
or indirectly guaranteed, endorsed (other than endorsements for collection or
deposit in the ordinary course of business), discounted or sold with recourse
or agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock purchase, capital contributions or
otherwise) or otherwise to become directly or indirectly liable, and (iv) all
outstanding reimbursement obligations at such date of such Person in respect of
amounts drawn or available to be drawn on letters of credit, acceptances or
similar obligations issued or created for the account of such Person
(excluding, however, long term deferred tax liabilities).
"INVESTMENT" shall mean (a) any stock, evidence of Indebtedness or
other security of another Person, (b) any loan, advance, contribution to
capital, extension of credit (except for current trade and customer accounts
receivable for inventory sold or services rendered in the ordinary course of
business and payable in accordance with customary trade terms) to another
Person, and (c) any purchase of (i) stock or other securities of another Person
or (ii) any business or undertaking of another Person (whether by purchase of
assets or securities), any commitment or option to make any such purchase if,
in the case of an option, the aggregate consideration paid for such option was
in excess of $100,000, or (d) any other investment, and whether existing on the
date of this Agreement or thereafter made.
"LOANS" shall mean all Revolving Credit Loans, collectively.
"MAXIMUM AVAILABLE FUNDS" shall mean, at any time, the lessor of (a)
the Maximum Revolving Credit Amount, and (b) the Borrowing Base in effect at
such time.
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<PAGE> 9
"MAXIMUM REVOLVING CREDIT AMOUNT" shall mean, subject to an increase as
hereinafter provided, Four Million and 00/100 Dollars ($4,000,000.00). In the
event following the Effective Date of the Merger the Borrower reports positive
Consolidated Net Income (excluding restructuring charges related to the Merger)
for any fiscal quarter, as evidenced to the Bank by the Borrower's financial
statements for such quarter, then, upon receipt by the Bank of either such
quarterly financial statements evidencing such positive Consolidated Net Income
or the public announcement of such positive Consolidated Net Income, the Bank
will by notice to the Borrower increase the Maximum Revolving Credit Amount to
Five Million and 00/100 Dollars ($5,000,000.00).
"MERGER" shall mean the merger of B.C. Acquisition Corp., a wholly
owned subsidiary of the Borrower, with and into Cadre Technologies, Inc.
("Cadre"), with Cadre being the surviving corporation pursuant to the Agreement
and Plan of Merger (the "Merger Agreement") by and among the Borrower, B.C.
Acquisition Corp. and Cadre, dated as of March 25, 1996.
"OBLIGATIONS" shall mean all present and future obligations and
Indebtedness of the Borrower owing to the Bank under this Agreement or any
other Bank Agreement, including, without limitation, the obligations
to pay the Indebtedness from time to time evidenced by the Revolving Credit
Note and obligations to pay interest, commitment and other fees, and all other
expenses and charges from time to time owed by Borrower under any Bank
Agreement.
"PENSION PLAN" shall mean an employee benefit plan or other plan
maintained for the employees of any of the Borrower as described in Section
4021(a) of Title IV of the Employee Retirement Income Security Act of 1974, as
amended.
"PENSION REFORM ACT" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"PLEDGED SHARES" shall mean the shares of capital stock pledged to the
Bank under the Pledge Agreement, together with an undated stock power executed
in blank for each such certificate.
"PERSON" shall mean an individual, corporation, partnership, joint
venture, association, estate, joint stock company, trust, organization,
business, or a government or agency or political subdivision thereof.
"PRIME RATE" at any time shall mean the rate per annum of interest then
most recently announced and made effective by the Bank as its "Prime Rate."
Such rate is used for reference purposes only and is not necessarily the best
or lowest rate charged by the Bank to its most substantial or creditworthy
customers and serves only as the basis upon which effective rates of interest
are calculated for obligations making reference thereto.
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<PAGE> 10
"REPORTABLE EVENT" shall mean an event reportable to the Pension
Benefit Guaranty Corporation under Section 4043 of Title IV of the Employee
Retirement Income Security Act of 1974, as amended.
"REVOLVING CREDIT FACILITY TERMINATION DATE" shall mean the earlier of
(a) the occurrence of an Event of Default, or (b) October 5, 1996.
"REVOLVING CREDIT LOANS" shall mean any loan or extension of credit
from the Bank to the Borrower pursuant to the revolving credit facility
established pursuant to this Agreement.
"SECURITY DOCUMENTS" shall mean (i) the Security Agreement, dated as of
October 28, 1995, by the Borrower in favor of the Bank (the "Security
Agreement"), (ii) the Pledge Agreement, dated as of October 28, 1994, by the
Borrower in favor of the Bank (the "Pledge Agreement"), (iii) the Trademark and
License Security Agreement, dated as of October 28, 1994, by the Borrower in
favor of the Bank (the "Trademark Security Agreement"), (iv) the Patent and
License Security Agreement, dated as of October 28, 1994, by the Borrower in
favor of the Bank (the "Patent Security Agreement"), and (v) the Lockbox
Agreement, dated as of October 28, 1994, by the Borrower in favor of the Bank
(the "Lockbox Agreement").
"SUBORDINATED DEBT" shall mean any Indebtedness of the Borrower which
is expressly subordinate to the Obligations of the Borrower to the Bank
pursuant to a written subordination agreement in form and substance reasonably
acceptable to the Bank.
"SUBSIDIARY" shall mean any Person of which the Borrower or other
specified parent shall now or hereafter at the time own, directly or
indirectly, sufficient voting stock (or other beneficial interest) to entitle
it to elect at least a majority of the board of directors or trustees or
similar managing body.
"TAXES" shall mean any tax, levy, impost, duty, deduction, withholding
or other charge of whatever nature at any time required by any law or
regulation (as hereinafter defined) (i) to be paid by the Bank or (ii) to be
withheld or deducted from any payment otherwise required hereby to be made by
the Borrower to the Bank, other than taxes imposed upon the net income of the
Bank by the United States of America or any other jurisdiction in which an
office of the Bank is located or any political subdivision of any thereof.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as
adopted and amended from time to time by the Commonwealth of Massachusetts.
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<PAGE> 11
"U.S. SUBSIDIARIES" shall mean the following Subsidiaries of the
Borrower, collectively: B.C. Acquisition Corp.; Bachman Securities Corporation;
Bachman International Ltd.; WindTunnel Software, Inc.; and CSI Acquisition
Corporation.
1.2 ACCOUNTING TERMS. All accounting terms used and not defined in this
Agreement shall be construed in accordance with GAAP and all financial data
required to be delivered hereunder shall be prepared in accordance with GAAP.
SECTION 2 - REVOLVING CREDIT FACILITY
2.1 REVOLVING CREDIT. Subject to the terms and conditions of this
Agreement, and in reliance on the representations, warranties and covenants of
the Borrower made herein, the Bank hereby establishes a revolving credit
facility in favor of the Borrower pursuant to which, at any time prior to the
Revolving Credit Facility Termination Date, the Bank shall make Revolving
Credit Loans to the Borrower as the Borrower may from time to time request by
notice to the Bank in accordance with Section 2.3 hereof, provided that the
aggregate amount of all Revolving Credit Loans outstanding at any time shall
not exceed the Maximum Available Funds at such time. Subject to the terms and
limitations hereof, the Borrower shall have the right to make payments reducing
the outstanding balance of Revolving Credit Loans and to request further
Revolving Credit Loans by notice to the Bank in accordance with Section 2.3.
The Borrower shall execute and deliver to the Bank a Revolving Credit Note in
substantially the form attached hereto as EXHIBIT A evidencing the Revolving
Credit Loans. The Borrower hereby irrevocably authorizes the Bank to make or
cause to be made on a schedule attached to the Revolving Credit Note or on the
books of the Bank, at or following the time of making each Revolving Credit
Loan and of receiving payment of principal, an appropriate notation reflecting
such transaction and the then aggregate unpaid principal balance of the
Revolving Credit Loans. Failure of the Bank to make any such notation shall
not, however, affect any obligation of the Borrower hereunder or under the
Revolving Credit Note. The aggregate unpaid principal amount under each
Revolving Credit Loan, as recorded by the Bank from time to time on such a
schedule or on such books shall constitute presumptive evidence of such amount;
provided, however, that the obligations of the Borrower hereunder or under the
Revolving Credit Note will not be increased due to recording errors made by the
Bank.
2.2 INTEREST ON REVOLVING CREDIT LOANS. The interest rate, subject to
increase or decrease as hereinafter provided, for any portion of the
outstanding principal balance of the Revolving Credit Note shall be computed at
a per annum rate equal to the Prime Rate plus one percent (1%). Immediately
upon and after the Effective Date of the Merger, the interest rate for any
portion of the outstanding principal balance of the Revolving Credit Note shall
be computed at a per annum rate equal to the Prime Rate plus two percent (2%);
provided, however, that in the event the Borrower reports Consolidated Net
Income for any fiscal year following the Merger of at least $200,000 (excluding
restructuring charges related to the Merger), then, upon receipt by the Bank
of either such quarterly financial statements evidencing such positive
Consolidated Net Income or the public announcement of such positive
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<PAGE> 12
Consolidated Net Income, the interest rate for any portion of the outstanding
principal balance of the Revolving Credit Note shall be computed at a per annum
rate equal to the Prime Rate plus one percent (1%). In all cases, interest
under the Revolving Credit Note shall be payable in arrears on the fifth day of
each month in which the Revolving Credit Note is outstanding and shall be
computed on the basis of a 360-day year for the number of days actually
elapsed. Any increase or decrease in the interest rate on the Revolving Credit
Note resulting from a change in the Prime Rate shall be effective immediately
from the date of such change.
2.3 REQUESTS FOR LOANS. Each request for a Revolving Credit Loan shall
be made by the Borrower to the Bank by delivery to the Bank no later than one
(1) Banking Day prior to any Banking Day that the Borrower desires to borrow
hereunder, a completed and signed Borrowing Request, substantially in the form
attached hereto as Exhibit B, which request shall be irrevocable and shall
specify the proposed amount of the requested Revolving Credit Loan and proposed
borrowing date. At the time of the initial request for a Revolving Credit Loan,
the Borrower shall have provided the Bank with signed copies of a properly
completed Borrowing Base Certificate and a Compliance Certificate substantially
in the forms of Exhibit C and Exhibit D hereto, respectively. The Borrower
hereby agrees that the Bank shall be entitled to rely upon the Borrowing Base
Certificate and Compliance Certificate in its possession until superseded by a
more recent Borrowing Base Certificate and Compliance Certificate.
2.4 USE OF PROCEEDS. The Borrower agrees to use the proceeds of the
Revolving Credit Loans exclusively for working capital purposes and for general
corporate purposes.
2.5 ADDITIONAL PAYMENTS.
(a) In addition to the payments of interest on the Revolving
Credit Note, the Borrower shall, on demand, pay to the Bank interest on any
overdue installments of principal and, to the extent permitted by law, on any
overdue installments of interest, at a rate per annum equal to two percent (2%)
in excess of the rate otherwise applicable to the principal portion of such
payments compounded monthly.
(b) All agreements between the Borrower and the Bank are hereby
expressly limited so that in no contingency whatsoever, whether by reason of
acceleration of the maturity of this Agreement or the Revolving Credit Note or
otherwise, shall the amount paid or agreed to be paid to the Bank for the use,
forbearance, loaning or retention of the Revolving Credit Loans made under this
Agreement exceed the maximum permissible rate under applicable law. If, for any
circumstances whatsoever, fulfillment of any provisions hereof or of the
Revolving Credit Note, or of any of the Bank Agreements, at any time shall
involve transcending the limit of validity prescribed by law, then the
obligation to be fulfilled shall automatically be reduced to the limit of such
validity, and if under any circumstances the Bank should ever receive as
interest an amount which would exceed the highest lawful rate of interest, such
amount in excess of the lawful rate of interest shall be applied to the
reduction of
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<PAGE> 13
the principal balance then outstanding of the Revolving Credit Note and not to
the payment of interest thereon. This provision shall control every other
provision of all agreements between the Borrower and the Bank and shall also be
binding upon and available to any subsequent holder of the Revolving Credit
Note.
2.6 REQUEST TO DEBIT ACCOUNTS. The Borrower hereby authorizes and
requests the Bank to charge against any account of the Borrower with the Bank
an amount equal to the accrued interest and unpaid principal and other fees and
charges from time to time due and payable to the Bank hereunder and under all
other Bank Agreements. The Bank will furnish notice to Borrower of such
charges. The Borrower acknowledges and agrees that debits and charges against
Borrower's amounts under this Section 2.6 shall in no way be deemed a set-off.
2.7 EXAMINATION FEE. The Bank reserves the right to have performed
twice annually, upon reasonable notice and at reasonable times, an examination
of the books and records of the Borrower by an agent of the Bank solely for the
purposes of determining compliance with the Bank Agreements. The Borrower
agrees to pay for the reasonable cost of each such examination. If a default
occurs under the Bank Agreements, the Bank reserves the right to make
additional examinations at the reasonable expense of the Borrower.
2.8 CLOSING FEE. As a condition precedent to the Bank's initial
advance under the revolving credit facility hereunder, the Borrower shall pay
to the Bank a closing fee of $15,000, which shall be paid on or before the date
hereof.
2.9 ADDITIONAL COSTS; CHANGES IN CIRCUMSTANCES; ETC.
Anything hereinbefore in Section 2 of this Agreement to the contrary
notwithstanding, if, after the date hereof, the Bank shall have determined in
good faith and reasonably that compliance with any applicable law, governmental
rule, regulation or order, or any change therein (including without limitation
any change according to a prescribed schedule of increasing requirements,
whether or not in effect or known on the date hereof), or any change in the
interpretation or administration thereof, or compliance by the Bank with any
guideline, request or directive (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) of any such
authority, central bank or comparable agency which, in each instance, is of
general application to banking institutions in the United States of America or
to types of institutions similar to the Bank in terms of charter, has or would
have the effect of reducing the rate of return on the Bank's capital with
respect to, or as a consequence of, its unfunded commitments to extend credit
hereunder to a level below that which the Bank would have achieved but for such
change or compliance, then, within twenty (20) days after demand therefor, the
Borrower shall pay to the Bank as from time to time specified by the Bank such
additional amounts as shall be sufficient to compensate the Bank for each
reduced return relating to its commitments to make such loans hereunder,
together with interest on each such amount from the date required to be paid
until payment in full thereof at the rate set forth in Section 2.5(a). A
certificate of an officer of the Bank setting forth the
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<PAGE> 14
amount to be paid to it hereunder and setting forth the basis for the
calculations shall, in the absence of manifest error, be prima facie evidence
thereof. Anything in this Section 2.9 to the contrary notwithstanding, the
foregoing provisions hereof shall not apply in the case of any additional cost,
reduction, payment or foregone interest or other sum resulting from or arising
as a consequence of any taxes charged upon or by reference to the overall net
income, profits or gains of the Bank.
SECTION 3 - PAYMENT AND PREPAYMENT
3.1 SCHEDULE PAYMENTS. The Borrower agrees to pay all amounts due
under the Revolving Credit Note on the dates when due.
3.2 MANDATORY PREPAYMENT OF REVOLVING CREDIT NOTE. If at any time at
the end of any week the Maximum Available Funds at such time shall be less than
the aggregate outstanding principal balance of all Revolving Credit Loans then
outstanding hereunder, the Borrower shall immediately repay to the Bank an
amount equal to such difference within five (5) days after the end of such week.
3.3 VOLUNTARY PREPAYMENT. The Borrower may, at its option, prepay the
Revolving Credit Note in whole or in part at any time and from time to time
without premium or penalty. Any prepayment in full of the Note shall be made
together with accrued interest on the amount prepaid to the date of such
prepayment and all costs and expenses chargeable by the Bank in respect of
Obligations of the Borrower hereunder or under the Bank Agreements. Unless the
Borrower otherwise indicates to the Bank the manner of application of any
prepayment or other payment by written instruction signed by an Authorized
Officer, the Bank may apply any payments received hereunder to the Obligations
in such order and manner as the Bank shall determine.
3.4 CURRENCY. All payments and prepayments provided for under this
Agreement shall be made in lawful United States of America currency in
immediately available funds or in such other manner as the Bank may agree upon
in writing.
3.5 FORM AND TERMS OF PAYMENT. All payments by the Borrower of
principal or interest on the Revolving Credit Note shall be made without set-off
or counterclaim at the office of the Bank located at 3003 Tasman Drive, Santa
Clara, California 95054 or at such other address as the Bank may from time to
time appoint. All payments of principal (whether at maturity or upon
acceleration) and interest shall be made in immediately available, freely
transferable funds not later than 12:00 p.m., Santa Clara, California time on
the date that such payment is due. If any payment of principal or interest on
the Revolving Credit Note shall become due on any date which is not a Banking
Day, such payment shall be made on the next preceding Banking Day and such
extension of time shall in such case be included in computing interest in
connection with such payment.
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<PAGE> 15
SECTION 4 - REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and make the
Revolving Credit Loans as contemplated hereby, the Borrower hereby makes the
following representations and warranties, which shall survive the execution and
delivery hereof and of the Bank Agreements:
4.1 EXISTENCE, GOOD STANDING, ETC. The Borrower and each of its
Subsidiaries is validly organized, legally existing and in good standing under
the laws of its jurisdiction of organization set forth on SCHEDULE 4.1 hereto
and has the power to own its properties and conduct its business as now
conducted and as proposed to be conducted by it. Certified copies of the
charter documents and By-Laws of the Borrower and each of its Subsidiaries have
been previously delivered to the Bank and are true, accurate and complete as of
the date hereof.
4.2 PRINCIPAL PLACE OF BUSINESS; LOCATION OF RECORDS. The principal
place of business and chief executive office of the Borrower is 8 New England
Executive Park, Burlington, Massachusetts 08103. The principal place of
business and chief executive office of each of the Borrower's Subsidiaries is
set forth on SCHEDULE 4.2 hereto. All of the books and records or true and
complete copies thereof relating to the accounts and contracts of the Borrower
and its Subsidiaries are at such locations and will be kept at such locations
until such time as the Borrower has provided the Bank fifteen (15) days prior
written notification of a change of such location.
4.3 QUALIFICATION. The Borrower and each of its Subsidiaries is duly
qualified, licensed and authorized to do business and is in good standing as a
foreign corporation in each jurisdiction where its ownership or leasing of
properties or the conduct of its business requires it to be qualified, except
where a failure to so qualify will not have a material adverse affect on the
Borrower or any Subsidiary, and all of such jurisdictions are listed on SCHEDULE
4.3.
4.4 SUBSIDIARIES. Except as set forth on SCHEDULE 4.4, the Borrower is
not engaged in any joint venture or partnership with any other person, firm or
corporation, and has no Subsidiaries. All Subsidiaries listed on SCHEDULE 4.4
are wholly-owned by the Borrower.
4.5 CORPORATE AUTHORITY. The execution, delivery and performance of
this Agreement, the Revolving Credit Note, the Security Documents, all other
Bank Agreements and other documents delivered or to be delivered by the
Borrower to the Bank, and the occurrence of Indebtedness to the Bank hereunder
or thereunder, now or hereafter owing,
(a) are within the corporate powers of the Borrower having been duly
authorized by its Board of Directors and, if required by law, by its charter
documents, by its officers, and/or by its stockholders;
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<PAGE> 16
(b) do not require any approval or consent of, or filing (other than
filing financing statements and filing with the United States Patent and
Trademark Office) with, any governmental agency or other Person (or such
approvals and consents have been obtained and delivered to the Bank) and are
not in contravention of the terms of the charter documents or by-laws of the
Borrower or any amendment thereof;
(c) do not and will not (i) result in a breach of or constitute a
material default under any indenture or loan or credit agreement or any other
material agreement, lease or instrument to which the Borrower is a party or by
which the Borrower or its properties are bound or affected; (ii) result in, or
require, the creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any nature on any
property now owned or hereafter acquired by the Borrower except as provided in
the Bank Agreements; or (iii) result in a material violation of or material
default under any law, rule, regulation, order, writ, judgment, injunction,
decree, determination, award, indenture, agreement, lease or instrument now in
effect having applicability to the Borrower or to its properties.
4.6 Valid and Binding Obligations. This Agreement, the Revolving
Credit Note, the Security Documents and all the other Bank Agreements executed
by the Borrower in connection herewith and therewith constitute, or will
constitute when delivered, the valid and binding obligations of the Borrower,
enforceable against it in accordance with their respective judgment.
4.7 Intentionally Omitted.
4.8 Payment of Taxes. The Borrower and each of its Subsidiaries has
filed all federal tax returns required by law to be filed by it and all state
tax returns required by law to be filed in the state of organization in which
it is qualified or licensed to do business. The Borrower and each of its
Subsidiaries has paid all taxes, assessments and other governmental charges
shown with respect to any such tax returns or otherwise levied upon any of
their properties, assets, income or franchises, other than those not yet
delinquent and those not substantial in aggregate amount, being or about to be
contested as provided in Section 9.2(b). The proceedings or other actions which
are still pending or open have been taken for the assessment or collection of
any taxes for any period for which federal or state income tax returns have been
filed. The charges, accruals and reserves on the books of the Borrower and all
of its Subsidiaries in respect of taxes for all fiscal periods are adequate
under GAAP, and neither the Borrower nor any Subsidiary knows of any unpaid
assessment for additional taxes in any fiscal period.
4.9 Financial Statements.
(a) The Borrower has furnished the Bank with (i) the Consolidated
balance sheets of the Borrower and its Subsidiaries for the annual fiscal
years ended June 30, 1993,
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<PAGE> 17
1994 and 1995 and the Consolidated statements of operations, shareholders'
equity and changes in cash flow for the years then ended, together with the
supporting schedules listed in the index accompanying such financial
statements, such Consolidated statements having been audited by the Borrower's
independent certified public accountants, and (ii) Consolidated unaudited
balance sheets of the Borrower and its Subsidiaries and unaudited income and
cash flow statements for the nine-month period ended March 31, 1996. A copy of
such financial statements is attached hereto as SCHEDULE 4.9.
(b) Such financial statements present the cash flow of Borrower and its
Subsidiaries as of such dates and the results of operations and the changes in
cash flow for the years then ended, and the balance sheets included in such
audited Consolidated financial statements reflect all material liabilities at
such dates, all in conformity with GAAP.
(c) The Borrower has filed all forms, reports and documents with the
Securities and Exchange Commission ("SEC") required to be filed by it pursuant
to the federal securities laws and the SEC rules and regulations thereunder,
all of which complied in all material respects with all applicable requirements
of the Securities Exchange Act of 1934 (collectively, the "SEC Reports"). None
of the SEC Reports which are subject to Section 10(b) of the Securities and
Exchange Act of 1934, including, without limitation, any financial statements
or schedules included therein, at the time filed contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.10 Capitalization. SCHEDULE 4.10 lists the total number of shares of
capital stock of the Borrower currently outstanding together with a list of all
of the record and beneficial owners of more than 5% of the Borrower's issued
and outstanding capital stock (including the number of shares and percentage
interest held by each such owner) as well as a list of the record and
beneficial owners (and the number of shares and percentage ownership interest
held by each such owner) of all of the presently issued and outstanding shares
of capital stock of the each of the Borrower's Subsidiaries. The Borrower and
each such Subsidiary, as the case may be, has received the consideration for
which such stock was authorized to be issued and has otherwise complied with
all legal requirements relating to the authorization and issuance of shares of
stock and all such shares are validly issued, fully paid and non-assessable.
Neither the Borrower nor any of its Subsidiaries has any other capital stock of
any class outstanding. As of the date hereof, and except as set forth on
SCHEDULE 4.10, (i) there are no outstanding commitments, warrants, options or
other obligations which require the Borrower to issue any shares of its capital
stock or any security exchangeable for or convertible into shares of such
capital stock, and (ii) neither the Borrower nor any of its Subsidiaries has
any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof.
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<PAGE> 18
4.11 CHANGES IN CONDITION. Except as set forth on SCHEDULE 4.11 hereto,
since March 31, 1996, there has been no material adverse change in the business
or assets or in the condition, financial or otherwise, of the Borrower and its
Subsidiaries and the Borrower has not entered into any transaction outside of
the ordinary course of business which is material to the Borrower. Neither the
Borrower nor any Subsidiary has any known contingent liabilities of any
material amount which are not referred to in the financial statements attached
as Schedule 4.9.
4.12 ASSETS. The Borrower and each of its Subsidiaries has good and
marketable or merchantable title to all of its respective properties and
assets, including the properties and assets reflected in the financial
statements listed on SCHEDULE 4.9 hereto, and such properties and assets are
not subject to any lien, charge, mortgage, pledge, security interest or
encumbrances, except for (i) liens, charges and encumbrances described on
SCHEDULE 4.12 and permitted by Section 9.2 hereof, and (ii) assets sold,
abandoned or otherwise disposed of in the ordinary course of business.
4.13 LITIGATION. Except as set forth on SCHEDULE 4.13 hereto, there is no
action, proceeding or investigation pending, or to the knowledge of the
Borrower, threatened before any federal, state, provincial or municipal board
or other governmental regulatory body or administrative agency, which involves
a material risk of any judgment or liability not fully covered by insurance
which may have a material adverse effect on the business or assets or in the
prospects or condition (financial or otherwise) of the Borrower or any of its
Subsidiaries, or which questions the validity of this Agreement or the
Revolving Credit Note or any action taken or to be taken pursuant hereto or
thereto, and no judgment, decree, or order of any federal, state, provincial or
municipal court, board or other governmental or administrative agency has been
issued against the Borrower or any Subsidiary which has, or in the Borrower's
opinion in the exercise of its reasonable business judgment, may have a
material adverse effect on the business or assets or on the prospects or
condition (financial or otherwise) of the Borrower or any of its Subsidiaries.
4.14 PENSION PLANS. As of the date hereof, except as described on
SCHEDULE 4.14, neither the Borrower nor any of its Subsidiaries has any Pension
Plan subject to the minimum funding or termination insurance provisions of the
Pension Reform Act.
4.15 OUTSTANDING INDEBTEDNESS; AFFILIATE TRANSACTIONS.
(a) The outstanding amount (in excess of $500,000) of (i) all
Investments and (ii) Indebtedness for borrowed money, including Capital Lease
obligations, of the Borrower and each of its Subsidiaries and as of the date
hereof, is correctly set forth on Schedule 4.15 hereto, and said Schedule
correctly describes all security interests securing such indebtedness.
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(b) Except as otherwise set forth on Schedule 4.15, none of the
officers, directors, or employees of the Borrower or any of its Subsidiaries is
presently a party to any transaction with any Affiliate of the Borrower or any
of its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Borrower, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
4.16 Patents, Trademarks, Copyrights and Licenses. The Borrower and each
of its Subsidiaries owns, licenses or has rights to all material licenses,
patents, patent applications, copyrights, service marks, trademarks, trademark
applications, and trade names necessary to continue to conduct its business as
heretofore conducted by it, now conducted by it and proposed to be conducted by
it. Each patent, patent application or registered trademark or copyright is
listed, together with Patent and Trademark Office application or registration
numbers, on Schedule 4.16 hereto. The Borrower and each of its Subsidiaries
conducts its respective business without knowing infringement or known claim of
infringement of any license, patent, copyright, service mark, trademark, trade
name, trade secret or other intellectual property right of others that would
have a material adverse effect on the business or assets of the Borrower. To the
best knowledge of the Borrower, there is no claim of infringement by others of
any license, patent, copyright, service mark, trademark, trade name, trade
secret or other intellectual property right of the Borrower or any of its
Subsidiaries.
4.17 Environmental Matters. Except as disclosed on Schedule 4.17:
(a) (i) Neither the Borrower nor any of its Subsidiaries has ever
generated, transported, used, stored, treated, disposed of, or managed any
hazardous waste; (ii) to the Borrower's knowledge upon due inquiry, no
Hazardous Material has ever been or is threatened to be spilled, released, or
disposed of at any site presently or formerly owned, operated, leased, or used
by the Borrower or any of its Subsidiaries, or has ever come to be located in
the soil or groundwater at any such site; (iii) to the Borrower's knowledge
upon due inquiry, no Hazardous Material has ever been transported from any site
presently or formerly operated, leased, or used by the Borrower or any of its
Subsidiaries for treatment, storage, or disposal at any other place; (iv) to
the Borrower's knowledge upon due inquiry, neither the Borrower nor any of its
Subsidiaries presently owns, operates, leases, or uses, nor has the Borrower or
any of its Subsidiaries previously owned, operated, leased, or used any site on
which underground storage tanks are or were located; and (v) to the Borrower's
knowledge upon due inquiry, no lien has ever been imposed by any governmental
agency on any property, facility, machinery, or equipment owned, operated,
leased, or used by the Borrower or any of its Subsidiaries in connection with
the presence of any Hazardous Material.
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(b) (i) Neither the Borrower nor any of its Subsidiaries has any
liability under, nor has the Borrower or any of its Subsidiaries ever violated,
any Environmental Laws; (ii) to the Borrower's knowledge upon due inquiry, the
Borrower, each of the Borrower's Subsidiaries, any property owned, operated,
leased, or used by the Borrower or any of its Subsidiaries and any facilities
and operations thereon are presently in compliance with all applicable
Environmental Laws; (iii) neither the Borrower nor any of its Subsidiaries has
ever entered into or been subject to any judgment, consent decree, compliance
order, or administrative order with respect to any environmental or health and
safety matter or received any request for information, notice, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect
to any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) neither the Borrower nor any of its Subsidiaries
has any knowledge that any of the items enumerated in clause (iii) of this
paragraph will be forthcoming.
(c) To the Borrower's knowledge upon due inquiry, no site owned,
operated, leased, or used by the Borrower or any of its Subsidiaries contains
any asbestos or asbestos-containing material, any polychlorinated biphenyls
("PCBs") or equipment containing PCBs, or any urea formaldehyde foam
insulation.
(d) The Borrower has provided to the Bank copies of all documents,
records, and information available to the Borrower and/or any of its
Subsidiaries concerning any environmental or health and safety matter relevant
to the Borrower and/or any of its Subsidiaries, whether generated by the
Borrower, any of Borrower's Subsidiaries, or others, including, without
limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans and reports, correspondence, permits, licenses, approvals,
consents, and other authorizations related to environmental or health and
safety matters issued by any governmental agency.
4.18 Intentionally Omitted.
4.19 Regulation U, etc. The Borrower does not own, nor does it have any
present intention of acquiring, any "margin stock" within the meaning of
Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve
System (herein called "margin stock"). None of the proceeds of the Revolving
Credit Loan will be used, directly or indirectly, by the Borrower for the
purpose of purchasing or carrying, or for the purpose of reducing or retiring
any indebtedness which was originally incurred to purchase or carry, any margin
stock or for any other purpose which might constitute the transactions
contemplated hereby a "purpose credit" within the meaning of said Regulation U,
or cause this Agreement to violate Regulation U, Regulation T, Regulation X, or
any other regulation of the Board of Governors of the Federal Reserve System or
under the Securities Exchange Act of 1934. If requested by the Bank, the
Borrower agrees that it will promptly furnish the Bank with a statement in
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conformity with the requirements of Federal Reserve Form U-1 referred to in
said Regulation U.
4.20 Foreign Credit Restraints. Neither the Revolving Credit Loan, nor the
use directly or indirectly of all or any portion of the proceeds thereof, will
violate or result in a violation of any provision of any applicable statute,
regulation or order of, or any restriction imposed by, the United States of
America or by any unauthorized official, board, department, instrumentality or
agency thereof relating to the control of foreign or overseas lending or
investment.
4.21 Employee Retirement Income Security Act of 1974. All plans ("Plans")
of a type described in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), in respect of which the Borrower or any of
its Subsidiaries is an "Employer," as defined in Section 3(5) of ERISA, are in
substantial compliance with ERISA, and none of such Plans is insolvent or in
reorganization, has an accumulated or waived funding deficiency within the
meaning of Section 412 of the Internal Revenue Code of 1986, as amended, and
neither the Borrower nor any of its Subsidiaries has incurred any material
liability (including any material contingent liability) to or on account of any
such Plan pursuant to sections 4062, 4063, 4064, 4201 or 4204 of ERISA; and no
proceedings have been instituted to terminate any such Plan, and no condition
exists which presents a material risk to the Borrower or any of its
Subsidiaries of incurring a liability to or on account of any such Plan
pursuant to any of the foregoing Sections of ERISA.
4.22 Compliance with Applicable Laws and Regulations. The Borrower and
each of its Subsidiaries is in compliance with all federal, state and local
laws and regulations and all requirements of all governmental bodies or
agencies having jurisdiction over it, the conduct of its business, the use of
its properties and assets, and all premises occupied by it except where the
failure so to comply would not have a material adverse effect upon the
business, operations, affairs, condition (financial or other), properties or
prospects of the Borrower or any of its Subsidiaries. Without limiting the
foregoing, the Borrower and each of its Subsidiaries has all franchises,
licenses, permits, certificates and other authorizations as are necessary in
order to conduct its respective business and use its properties and all
premises occupied by it (as now conducted, owned and used or as proposed to be
conducted, owned and used) without incurring any material liability. Neither
the Borrower nor any of its Subsidiaries has received any notice, not
heretofore complied with, from any federal, state or local authority or any
insurance or inspecting body that any of its properties, facilities, equipment
or business procedures or practices fails to comply with any applicable law,
ordinance, regulation, license, permit, authorization or any other requirement
of any such authority or body.
4.23 No Violation. Neither the Borrower nor any of its Subsidiaries is in
violation of any term of its respective charter or by-laws, or of any
instrument, contract, or agreement to which it is a party or of any judgment,
decree, order, statute, rule or governmental
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<PAGE> 22
regulation which is applicable to it and which violation may have a material
adverse effect upon its condition (financial or other) business, operations,
properties or prospects.
4.24 Disclosure. This Agreement does not contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements
contained herein, in light of the circumstances under which they are made, not
misleading. There is no fact known to the Borrower and not disclosed to the
Bank which materially, adversely affects, or could, in the Borrower's opinion
in the exercise of its reasonable business judgment, materially, adversely
affect, the business, operations, affairs, prospects or condition (financial or
other ) of the Borrower or any of its properties or assets.
4.25 Security Documents. Each of the Security Documents is in full force
and effect and all necessary continuation statements with respect to all
financing statements have been filed as required by law in order to maintain
the validity and enforceability of the security interest covered by each of the
Security Documents.
SECTION 5 - CONDITIONS PRECEDENT
5.1 Conditions Precedent to Initial Revolving Credit Loan. The obligations
of the Bank to enter into and carry out the terms of this Agreement are subject
to the following conditions, and on or before the date of execution hereof, all
of the following conditions precedent shall have been satisfied:
(a) Documents. The Bank shall have received each of the following
documents, in form and substance reasonably satisfactory to the Bank and its
counsel or in the form attached hereto as an Exhibit, as the case may be:
(i) Note. The Revolving Credit Note, duly executed by the
Borrower;
(ii) Security Documents. Each of the Security Documents shall
be in full force and effect, it being acknowledged and
agreed that, except as set forth below in (iii), nothing
contained herein shall modify, amend, restrict, or limit
in any respect the validity and continued enforceability
of each of the Security Documents.
(iii) Amendment to Pledge Agreement. Schedule I to the Pledge
Agreement is hereby amended by adding each of B.C.
Acquisition Corp. and Bachmann Spain S.L. as a Subsidiary
of the Borrower, and all of the outstanding shares of
capital stock of each of the foregoing shall constitute
"Subsidiary Shares" and "Pledged Collateral" for purposes
of the Pledge Agreement.
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<PAGE> 23
(iv) Certificate of Corporate Action. Certificate of the Clerk
or Assistant Clerk of the Borrower, dated the date
hereof, certifying as to the resolutions of the Board of
Directors of the Borrower authorizing the consummation of
the transactions contemplated hereby and the execution
and delivery of the Bank Agreements to which the Borrower
is a party and the other documents to be delivered by the
Borrower pursuant to this Agreement and the names and
true signatures of the officers of the Borrower
authorized to do so;
(v) Corporate Documents. Copies of the Articles of
Organization of the Borrower certified as true and
correct by the Secretary of State of its jurisdiction of
incorporation, and the By-Laws of the Borrower certified
as true and correct by the Clerk or Assistant Clerk of
the Borrower;
(vi) Good Standing Certificate. Long-Form Good Standing
Certificate with respect to the Borrower from the
Secretary of State of its jurisdiction of incorporation
and from the Secretary of State of jurisdictions in which
the Borrower is qualified to do business as a foreign
corporation, each of which shall be dated as of a recent
date;
(vii) Tax Payment Certificate. A Certificate as to the Tax Good
Standing of the Borrower from the taxing authority in the
state of the Borrower's jurisdiction of incorporation
within thirty (30) days of the Closing. At the Closing,
the Treasurer of the Borrower shall deliver a certificate
certifying as to the payment of all taxes in the
Borrower's jurisdiction of incorporation and in each
jurisdiction in which the Borrower is qualified to do
business;
(viii) Insurance. Evidence of all insurance required to be
obtained by the Borrower hereunder and under the Security
Agreement;
(ix) Lien Searches. The Bank shall have received the results
of a UCC, bankruptcy, tax lien and docket search for the
Borrower in its jurisdiction of incorporation and in the
jurisdiction where Borrower maintains its principal place
of business and from the U.S. Patent and Trademark
Office, indicating no liens other than liens permitted
under Section 9.2 hereof; and
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<PAGE> 24
(c) No Default, etc. On the date of each Revolving Credit Loan
hereunder, after giving effect to the Revolving Credit Loan or Loans to be made
on any date, no Event of Default specified in Section 10.1 hereof, nor any
event which with the giving of notice or lapse of time or both would constitute
such an Event of Default, shall have occurred and be continuing.
(d) Legality. The making of the requested Revolving Credit Loan shall
not be prohibited by any law or governmental order or regulation applicable to
the Bank or to the Borrower and all necessary consents, approvals and
authorizations of any Person for any such Revolving Credit Loan shall have been
obtained.
(e) Supplementary Opinions. With respect to any Revolving Credit Loan
made hereunder subsequent to the first such Revolving Credit Loan, if requested
by the Bank, the Bank shall have received at its address set forth in Section
13.2, an opinion, in form and substance reasonably satisfactory to the Bank and
special counsel for the Bank, of counsel for the Borrower, dated the date of
such subsequent borrowing as to such matters reasonably requested by the Bank.
(f) Other Information and Action. All other information which the Bank
or special counsel for the Bank may reasonably have requested in connection
with the transactions contemplated by this Agreement (such information to be
certified by the proper officers of the Borrower or governmental authority) and
all actions the Bank may deem reasonably desirable in order to perfect and
protect any pledge, assignment or security interest granted in favor of the
Bank or to enable the Bank to exercise its rights and remedies hereunder shall
have been only provided or taken.
SECTION 6 - REPORTING REQUIREMENTS
6.1 Financial Statements.
(a) As soon as available, but in any event within thirty (30) days
after the end of each fiscal month of the Borrower, the Borrower shall deliver
to the Bank duplicate original copies of a Consolidated balance sheet of the
Borrower and its Subsidiaries, together with an income statement and cash flow
statement of the Borrower and its Subsidiaries for such monthly period and for
the period commencing at the beginning of the then current fiscal year and
ending with the end of such month, together with a certification by the
chief financial officer of the Borrower that such financial statements fairly
represent the financial condition of the Borrower and its Subsidiaries as at
the dates indicated.
(b) As soon as available, but in any event within one hundred twenty
(120) days after the end of each fiscal year of the Borrower, the Borrower
shall furnish to the Bank duplicate originals of the Consolidated audited
balance sheet of the Borrower and its
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<PAGE> 25
(x) Guaranty Agreement. A Guaranty Agreement in
substantially the form attached hereto as Exhibit F (the
"Guaranty Agreement") pursuant to which the Borrower
shall guarantee the obligations of Cadre Technologies,
Inc. to the Bank.
(b) Bank Expenses. The Borrower shall have paid all of the Bank's
reasonable attorney's fees and reasonable disbursements incurred in connection
with this Agreement, the Security Documents, the Note and all other Bank
Agreements, and the transactions contemplated hereby and thereby.
(c) Accounts Receivable Examination. The Bank or its agents or
representatives shall have conducted and completed an examination of the
Accounts Receivable of the Borrower and the results of such examination shall
be reasonably satisfactory to the Bank.
(d) Filings, Registration and Recordings:
(i) Any documents (including, without limitation, financing
statements) required to be filed, and any other actions
required to be taken, under or in connection with any of
the Security Documents in order to create, in favor of the
Bank, a perfected security interest in the Collateral
thereunder shall have been properly filed or taken, as the
case may be, and the Bank shall have received evidence
satisfactory to it of each such filing, registration,
recordation or other action and satisfactory evidence of
the payment of any necessary fee, tax or expense relating
thereto.
(ii) It is acknowledged that, upon and subject to the Merger,
the Borrower intends to change its corporate name to
"Cayenne Software, Inc." The Borrower hereby covenants and
agrees that, in accordance with the Security Documents, and
prior to effecting such name change, the Borrower will
arrange for the preparation, execution, delivery, filing
and recordation of such documents as may be required in
order to continue the perfection of the Bank's security
interest in the collateral under the Security Documents
(including, without limitation, UCC-3 Financing Statements
and amendments to the patent License Agreement and the
Trademark License Agreement, for filing in the appropriate
UCC filing offices, the U.S. Patent Office, and the U.S.
Copyright Office) and the Bank shall have received evidence
satisfactory to it of
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such filing, registration, recordation, or other action, as
well as satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto.
(e) Valid Pledge. The Bank shall have received certificates
representing all of the outstanding capital stock of each of B.C. Acquisition
Corp. and Bachman Spain S.L. in pledge to the Bank under and in accordance with
the Pledge Agreement, together with an undated stock power executed in blank
for each such certificate. The Borrower hereby covenants and agrees to use its
reasonable best efforts to effect the perfection of the pledge to the Bank
under the Pledge Agreement of the shares of capital stock of Bachman Spain S.L.
within forty-five (45) days from the date hereof.
5.2 Conditions Precedent to All Revolving Credit Loans. The obligations of
the Bank to make Revolving Credit Loans to the Borrower hereunder (including
the initial Revolving Credit Loan) are subject to the following conditions, and
on or before the date of making such Revolving Credit Loans, all of the
following conditions precedent shall have been satisfied:
(a) BORROWING DOCUMENTS. The Bank shall have received each of the
following documents, in form and substance reasonably satisfactory to the Bank
and its counsel or in the form attached hereto as an Exhibit, as the case may
be:
(i) A Borrowing Request, dated as of such date, substantially
in the form attached hereto as Exhibit b;
(ii) A Borrowing Base Certificate, dated as of such date,
substantially in the form attached hereto as Exhibit C;
(iii) A Compliance Certificate, dated as of such date,
substantially in the form attached hereto as Exhibit D;
(b) Representations and Warranties. As of the date of making such
Revolving Credit Loan or Loans, (i) the representations and warranties herein
and those made for and on behalf of the Borrower herein or in any other Bank
Agreement shall be true and correct in all respects as of such date with the
same force and effect as if made at and as of such time, and (ii) the Borrower
shall be in compliance with all of the terms and provisions set forth herein on
its part to be observed or performed on or prior to such date. Each request for
a Revolving Credit Loan hereunder shall be accompanied by a Borrowing Request
in accordance with Section 2.3 and shall constitute a representation and
warranty by the Borrower to the Bank that all of the conditions specified in
Section 5 have been satisfied as of the date of each such Revolving Credit Loan.
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<PAGE> 27
Subsidiaries as of the end of such fiscal year and the related statements of
operations and shareholders' equity and changes in cash flow of the Borrower
and its Subsidiaries for such fiscal year and setting forth in comparative form
the figures for the previous fiscal year, all in form reasonably acceptable to
the Bank and in each case accompanied by an opinion of an independent certified
public accountant reasonably acceptable to the Bank (it being acknowledged that
Coopers & Lybrand, the Borrower's current auditors, are acceptable to the
Bank), such opinion to be without material adverse qualification or comment and
shall state that such financial statements have been prepared in accordance
with GAAP applied on a basis consistent with that of the preceding fiscal year
and that the audit by such accountants in connection with such financial
statements has been made in accordance with GAAP relating to reporting.
(c) Promptly upon receipt thereof, the Borrower shall deliver to
the Bank duplicate copies of all financial statements and auditors' reports
thereon submitted to the Borrower by independent public accountants in
connection with each interim or special financial audit of the Borrower made by
such accountants.
6.2 Accounts Receivable Aging Reports.
As soon as available, but in any event within five (5) business days of
the end of each week, the Borrower shall deliver to the Bank an accounts
receivable aging report setting forth the Eligible Domestic Accounts Receivable
and Eligible International Accounts Receivable, in form and substance
satisfactory to Bank.
6.3 Borrowing Base Certificate.
As soon as available, but in any event within five (5) business days
after the end of each week, the Borrower shall deliver to the Bank duplicate
original copies of a Borrowing Base Certificate in the form of Exhibit C
hereto, for the Borrower for the then previous week as of the end of such week;
the Eligible Domestic Accounts Receivable and Eligible International Accounts
Receivable to be used in the calculation of the Borrowing Base which in turn
will be used as the basis for determining the amount of Revolving Credit Loans,
if any, for the next succeeding week or until the Bank shall have received
another Borrowing Base Certificate in the form of Exhibit C, whichever is
sooner. The Borrowing Base Certificate shall be appropriately completed and
duly signed and certified by the chief financial officer as being complete and
correct with respect to the amount of, and payments on, the Eligible Domestic
Accounts Receivable and the Eligible International Accounts Receivable, and the
calculations of the Borrowing Base, all in such detail, and accompanied by such
supporting information and certifications as the Bank may from time to time
reasonably request.
6.4 Compliance Certificate. Together with the financial statements
delivered pursuant to Section 6.1(a) and (b) above, the Borrower shall deliver
to Bank duplicate original copies of a Compliance Certificate substantially in
the form of Exhibit D hereto executed and
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<PAGE> 28
completed by the chief financial officer of the Borrower, in form and substance
reasonably satisfactory to the Bank: (1) stating that the signer has reviewed
the terms of this Agreement and the Bank Agreements, and has made, or caused to
be made under their supervision, a review in reasonable detail of the
transactions and condition of the Borrower during the accounting period covered
by such financial statements, and that such review has not disclosed the
existence during or at the end of such accounting period, and that the signer
does not have knowledge of the existence as at the date of the Compliance
Certificate, of any condition or event which constitutes an Event of Default,
or, if any such condition or event existed or exists, specifying the nature and
period of existence thereof and what action the Borrower has taken, is taking
and proposes to take with respect thereto; (2) demonstrating in reasonable
detail compliance during and at the end of the applicable accounting period
with the provisions set forth in Section 7, Section 8 and Section 9, and (3)
stating that such financial statements present fairly the financial position of
the Borrower and its Subsidiaries as at the dates indicated and the results of
their operations and changes in their financial position for the periods
indicated in conformity with GAAP.
6.5 Notice of Defaults. As soon as possible, and in any event within
five (5) business days after the Borrower has knowledge of the occurrence of
any and each Default, the Borrower shall furnish the Bank with the statement of
an Authorized Officer setting forth details of such Default and the action
which the Borrower has taken or proposes to take with respect thereto.
6.6 Notice of Litigation. Promptly after the commencement thereof, the
Borrower shall furnish the Bank written notice setting forth full particulars
of any action, suit, proceeding or investigation threatened or pending before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the borrower or any Subsidiary,
which, if adversely determined, could materially adversely affect the condition
(financial or other), business, operations or prospects of the borrower or any
of its subsidiaries; and, if any material developments, not previously
disclosed by the Borrower to the Bank in writing, shall occur in any such
action, suit, proceeding or investigation, the Borrower will (in each such
case) promptly furnish or cause to be furnished to the Bank a written notice
setting forth full particulars of each such development.
6.7 Reportable Events. At any time that the Borrower has a Pension
Plan, the Borrower shall furnish to the Bank, as soon as possible, but in any
event within thirty (30) days after the Borrower knows or has reason to know
that any Reportable Event with respect to any Pension Plan has occurred, the
statement of the president or treasurer of the Borrower setting forth the
details of such Reportable Event and the action which the Borrower has taken
or proposes to take with respect thereto, together with a copy of the notice of
such Reportable Event to the Pension Benefit Guaranty Corporation.
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<PAGE> 29
6.8 Annual Pension Reports. At any time that the Borrower has a
Pension Plan, the Borrower shall furnish to the Bank, promptly after the filing
thereof with the Secretary of Labor or the Pension Benefit Guaranty
Corporation, copies of each annual report which is filed with respect to each
such Pension Plan for each such plan year, including:
(a) a statement of assets and liabilities of such Pension Plan
as of the end of such plan year and statements of changes in fund balance and
in financial position, or a statement of changes in net assets available for
plan benefits, for such plan year,
(b) an opinion of an independent certified public accountant
of recognized standing acceptable to the Bank relating to such Pension Plan to
the extent that any such opinion for the Pension Plan is required by law, and
(c) an actuarial statement of such Pension Plan applicable to
such plan year, together with an opinion of an enrolled actuary of recognized
standing acceptable to the Bank, to the extent that any such statement and/or
opinion for the Pension Plan is required by law.
6.9 Public Reporting. promptly upon their becoming available, the
Borrower shall provide to the Bank duplicate copies of all financial
statements, reports, notices and proxy statements sent by the Borrower to
shareholders, and of all annual, periodic or special reports or registration
statements filed by the Borrower with any securities exchange or with the
Securities and Exchange Commission or any governmental authority succeeding to
any of its functions.
6.10 Notice of Amendment to Corporate Documents. In the event that
any amendment to the Articles of Organization, other charter documents or
by-laws (as the case may be) of the Borrower shall be proposed to be adopted,
the Borrower shall, within fifteen (15) days prior to the proposed date of the
adoption of such amendment, furnish or ???? to be furnished to the Bank a
true and complete copy of such amendment.
6.11 Place of Business. The Borrower will notify the Bank (i) at
least fifteen (15) days prior to the occurrence of any changes in the place of
business of the Borrower or any of its Subsidiaries from the places of business
disclosed pursuant hereto or in the Bank Agreements and (ii) of any additional
places of business which may arise hereafter.
6.12 Change in Officers or Directors. The Borrower will notify the
Bank in writing if there occur any changes in the present officers or directors
of the Borrower.
6.13 Miscellaneous. The Borrower shall provide the Bank with such
other information as the Bank may from time to time reasonably request
respecting the business, properties, condition or operations, financial or
otherwise, of the Borrower.
SECTION 7 - FINANCIAL COVENANTS
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<PAGE> 30
On and after the date hereof, until all of the Obligations shall have
been paid in full and so long as the Revolving Credit Loans shall remain
available to the Borrower, the Borrower hereby agrees to comply, in addition to
all other covenants contained herein, on a Consolidated basis, with the
following covenants:
7.1 Profitability (tested and reported quarterly). Borrower shall
report Consolidated Net Losses of not more than ($1,400,000) for the third
fiscal quarter ending 3/31/96 and (i) in the event the Merger has not yet been
consummated, Consolidated Net Income of at least $250,000 for the fourth fiscal
quarter ending 6/30/96; or (ii) in the event the Merger has been consummated,
Consolidated Net Losses of not more than ($7,000,000) for the fourth fiscal
quarter ending 6/30/96.
7.2 Tangible Net Worth. [Intentionally Omitted].
7.3 Liquidity (tested and reported monthly). The Borrower shall
maintain, on a Consolidated basis, minimum Liquidity of at least $7,500,000,
tested at each month end. "Liquidity" shall mean cash and cash equivalents
(which shall mean and refer to the items listed in Section 9.3(a) hereof) plus
any Accounts Receivable less Indebtedness to the Bank; provided, however, that
the following shall be excluded for purposes of this Section 7.3: any Accounts
Receivable purchased, or subject to purchase, by the Bank under a factoring
agreement with the Borrower or any subsidiary; and any Indebtedness of the
Borrower or any Subsidiary to the Bank in respect of obligations under a
factoring agreement with the Bank.
SECTION 8 - AFFIRMATIVE COVENANTS
On and after the date hereof, until all of the Obligations shall have
been paid in full and so long as the Revolving Credit Loans shall remain
available to the Borrower, the Borrower covenants that it will comply with the
following covenants and provisions:
8.1 Taxes: ERISA and Other Obligations. The Borrower will (and will
cause each of its Subsidiaries to) (i) duly pay and discharge, or cause to be
paid and discharged, before the same shall become in arrears, all material
taxes, assessments and other governmental charges imposed upon it and its
properties, sales and activities, or upon the income or profits therefrom, as
well as any material claims for labor, materials, or supplies which if unpaid
might by law become alien or charge upon its properties; provided, however,
that the Borrower (and its Subsidiaries) shall not be required to pay and
discharge any such tax, assessment or other governmental charges so long as the
validity thereof shall be contested in good faith by appropriate proceedings,
an adequate reserve for the payment thereof is established on its books in
accordance with GAAP, and the Borrower shall (and shall cause its Subsidiaries
to) pay such tax, assessment or other governmental charges before any taxing
authority files any liens with respect thereto and (ii) promptly pay or cause
to be paid when due or in conformance with customary trade terms (but not later
than one-hundred twenty
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(120) days from the due date in the case of trade debt unless there exists
between the Borrower (or its Subsidiaries, as the case may be) and the trade
creditor an agreement which, without creating a default thereunder, provides for
a longer payment term), all material lease obligations, and all other material
Indebtedness incident to the operations of the Borrower (or its Subsidiaries,
as the case may be ). The Borrower shall (and shall cause its Subsidiaries to)
cause all applicable tax returns and all amounts due thereunder to be filed and
paid when due, as the case may be, in order to maintain its good standing with
the Internal Revenue Service, state and local and foreign tax authorities.
Without limiting the scope of the foregoing, the Borrower will satisfy, or
cause to be satisfied, the minimum annual funding standard, within the meaning
of ERISA, for any employee benefit plan established or maintained by the
Borrower which is subject to such act and the Borrower will not permit any tax
or penalty to be incurred by it as a result of any failure to satisfy any such
minimum funding requirement or as a result of any violation of the provisions
of Section 4975 of the Internal Revenue Code of 1986, as amended, or of any
regulations thereunder.
8.2 Maintenance of Property; Leases. The Borrower shall (and shall
cause its Subsidiaries to) maintain its properties in good repair and working
order, ordinary wear and tear and damage by insured casualty excepted, and in
compliance with applicable laws and regulations. The Borrower shall (and shall
cause its Subsidiaries to) replace and improve its properties as necessary for
the conduct of its business and to maintain compliance with applicable laws.
The Borrower shall (and shall cause its Subsidiaries to) comply in all material
respects with all leases naming it as lessee.
8.3 Insurance. The Borrower at all times will (and will cause its
Subsidiaries to) maintain insurance with such insurance companies, in such
amounts (including, without limitation, so-called "all-risk" coverage at
replacement value and "broad form" liability coverage), against such hazards
and liabilities and for such purposes as is reasonably satisfactory to the Bank
and as is customary in the industry for a business of established reputation
engaged in the same or similar business and owning or operating similar
properties. The Bank shall be named as loss payee and additional insured under
the Borrower's insurance pertaining to the Collateral and shall be given twenty
(20) days' advance notice of any modification or cancellation of insurance.
Upon request of the Bank from time to time, the Borrower will furnish to the
Bank certificates or other evidence satisfactory to the Bank of compliance with
the foregoing insurance provisions. If the Borrower fails to provide or cause
to be provided such insurance, the Bank, in its sole discretion, may provide
such insurance and charge the cost as a Revolving Credit Loan or to the
Borrower's deposit accounts with the Bank. Any payment not recovered from the
Borrower shall bear interest at the then rate of interest under the Revolving
Credit Note. The Bank shall not, by the fact of approving, disapproving, or
accepting any such insurance, incur any liability for the form or legal
sufficiency of insurance contracts, solvency of insurance companies or payment
of lawsuits, and the Borrower herby expressly assumes full responsibility
therefor and liability, if any, thereunder.
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<PAGE> 32
8.4 Records and Accounts. The Borrower shall maintain records and
accounts that are complete and accurate in all material respects. The Borrower
shall (and shall cause its Subsidiaries to) maintain adequate and proper
accounts and reserves for all taxes, depreciation, depletion, obsolescence and
amortization of its properties, all contingent obligations and other reserves
in accordance with GAAP.
8.5 Inspection. At any reasonable time and from time to time during
normal business hours after reasonable notice, the Borrower shall permit the
Bank and any of the Bank's agents or representatives to examine and make copies
of and abstracts from the records and books of account of, and visit the
properties of, the Borrower, and to discuss the affairs, finances and accounts
of the Borrower and its Subsidiaries with the Borrower's officers or directors
and independent accountants, solely for the purposes of determining compliance
with the Bank Agreements, all of whom are hereby authorized and directed to
cooperate with the Bank in carrying out the intent of this Section 8.5. Without
limiting the generality of the foregoing, the Bank shall have the right to
conduct field examinations of the books and records of the Borrower, subject to
the provisions hereof, at the Borrower's expense. In addition, the Borrower
will, upon request, arrange for the Bank to have access to (and facilities for
obtaining copies of) all electronically stored data and all papers and files
of any kind relating to Accounts Receivable of the Borrower and the Foreign
Subsidiaries.
8.6 Existence and Business. The Borrower will preserve and maintain
its existence, remain in good standing in its jurisdiction of incorporation,
and comply in all material respects with all valid and applicable statutes,
rules and regulations. The Borrower will continue to engage only in the
business which it is conducting on the date of this Agreement.
8.7 Maintenance of Accounts. The Borrower shall maintain the Bank as
its principal depository for the Borrower's depository accounts.
8.8 Compliance with Laws, etc. The Borrower shall in the conduct of
its business comply, and cause each of its Subsidiaries to so comply, in all
material respects with all applicable laws, rules, regulations and the orders
of any court or other tribunal or governmental or administrative authority or
agency applicable to it or its business, properties or assets.
SECTION 9 - NEGATIVE COVENANTS
On and after the date hereof, until all of the Obligations shall have
been paid in full and so long as the Revolving Credit Loans shall remain
available to the Borrower, the Borrower covenants that it will comply with the
following covenants and provisions:
9.1 Restrictions on Indebtedness. The Borrower will not (and will not
permit its Subsidiaries to) create, incur, suffer or permit to exist, or assume
or guarantee, either directly
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<PAGE> 33
or indirectly, or otherwise become or remain liable with respect to, any
Indebtedness, except the following:
(a) Obligations to the Bank.
(b) Current Liabilities (other than for money borrowed or
reimbursement obligations in connection with letters of credit issued for the
account of Borrower or any Foreign Subsidiary except as otherwise permitted
hereunder incurred in the ordinary course of business and in accordance with
customary trade practices of the Borrower or its Foreign Subsidiaries.
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and supplies to
the extent that payment thereof shall not at the time be required to be made in
accordance with the provisions of Section 8.1 hereof.
(d) Indebtedness of the Borrower of its Foreign
Subsidiaries in respect of purchase money liens and capitalized leases as
permitted under Section 9.2(e) hereof.
(e) Unsecured Indebtedness of one or more Foreign
Subsidiaries to one or more foreign banks; provided the same shall never exceed
$1,600,000 in the aggregate at any one time, and each Foreign Subsidiary,
individually, shall not incur Indebtedness greater than the amount set forth
opposite its name on Schedule 9.1(e) hereto.
(f) Unsecured Indebtedness of the Borrower which is
formally subordinated to the Bank pursuant to a written subordination agreement
in form and substance acceptable to the Bank.
(g) Indebtedness of the Borrower or its Subsidiaries
existing on the date hereof to the extent listed on Schedule 4.15.
(h) The Borrower will not make, directly or indirectly, any
optional or voluntary prepayment or purchase of Subordinated Debt or any
long-term debt to any Person (other than the Bank), nor make any payment of any
Subordinated Debt except to the extent expressly permitted in the
subordination agreement entered into with the Bank.
9.2 Restriction on Liens. The Borrower will not (and will not permit
its Subsidiaries to) create or incur or suffer to be created or incurred or to
exist any encumbrance, pledge, lien, charge or other security interest of any
kind (a "Lien") upon any of their respective properties or assets of any
character, whether now owned or hereafter acquired, or transfer any such
property or assets for the purposes of subjecting the same to the payment of
indebtedness or performance of any other obligation in priority to payment of
its general creditors, or acquire or agree or have an option to acquire any
property or assets upon conditional sale or other title retention agreement,
devise or arrangement (including Capital
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<PAGE> 34
Leases) or suffer to exist for a period of more than sixty (60) days after the
same shall have been incurred any Indebtedness against it which if unpaid,
might by law or upon bankruptcy or insolvency, or otherwise, be given any
priority whatsoever over its general creditors, or sell, assign, pledge or
otherwise transfer for security any of its accounts, contract rights, general
intangibles, or chattel paper (as those terms are defined in the Uniform
Commercial Code) with or without recourse; provided, however, that the Borrower
and its Foreign Subsidiaries may create or incur or suffer to be created or
incurred or to exist:
(a) Liens in favor of the Bank.
(b) Deposits or pledges made in connection with, or to secure payment
of, workers' compensation, unemployment insurance, old age pensions and other
social security; and liens for taxes, assessments or governmental charges or
levies and liens to secure claims for labor, material or supplies to the extent
that payment thereof shall not at the time be required to be made in accordance
with Section 8.1.
(c) Encumbrances in the nature of zoning restrictions, easements, and
rights or restrictions of record on the use of real property which do not
materially detract from the name of such property or impair its use in the
business of the owner or lessee.
(d) Liens arising by operation of law to secure landlords, lessors or
renters under leases or rental agreements made in the ordinary course of
business and confined to the premises or property rented.
(e) Liens in respect of Capital Leases and Liens securing the purchase
price of property to be used in the business of Borrower or its Foreign
Subsidiaries, provided that (i) each such Lien shall at all times be confined
solely to the property so acquired, (ii) such property shall secure no
Indebtedness other than the purchase price thereof, and (iii) the aggregate
principal amount of Indebtedness secured by all such Liens and in respect of
Capital Leases shall in the future not exceed $1,000,000 (or $2,000,000 after
the Merger) in excess of the aggregate amount outstanding on the date hereof
and disclosed on Schedule 4.15 hereto, as amended.
(f) Liens listed on Schedule 4.15, as amended.
9.3 Investments and Loans. The Borrower will not (and will not permit
its Subsidiaries to) have outstanding or hold or acquire or make or commit
itself to acquire or make any Investment in or loans to any Person except (a)
Investments having a maturity of one year or less from the date thereof in: (i)
obligations of the Bank; (ii) obligations of the United States of America or
any agency or instrumentality thereof; (iii) certificate of deposit, notes,
acceptances and repurchase agreements involving securities described in clauses
(i) and (ii) with the Bank or any commercial bank organized in the United
States which has capital and surplus of at least $50,000,000; and (iv)
commercial paper which is rated not less than
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<PAGE> 35
prime-two or A-2 or their equivalents by Moody's Investor Service, Inc. or
Standard & Poor's Corporation, respectively or their successors, (b) loans and
advances to any employees of the Borrower and any Subsidiaries which shall not
exceed $350,000 in the aggregate in any fiscal year, (c) Investments in and
loans to Subsidiaries of the Borrower existing on the date hereof and described
on Schedule 4.15 hereto, (d) Investments and loans hereafter made in or to the
Foreign Subsidiaries, but only to the extent that as a result of such
Investment or loan the Borrower will not suffer or permit the Tangible Net
Worth of the Borrower alone (exclusive of its interests in Subsidiaries and
also exclusive of all amounts due to the Borrower from any Subsidiary) at any
time to be less than seventy percent (70%) of the Consolidated Tangible Net
Worth of the Borrower and its Subsidiaries, and (e) Investments in and loans
listed on Schedule 4.15.
9.4 Dispositions of Assets. Except as otherwise provided for herein,
the Borrower will not (and will not permit its Subsidiaries to) sell, lease or
otherwise dispose of any assets except for the sale, lease or other disposition
of inventory or other property in the ordinary course of business.
9.5 Assumptions, Guaranties, etc. of Indebtedness of Other Persons. The
Borrower will not (and will not permit its Subsidiaries to) assume, guarantee,
endorse or otherwise become directly or contingently liable (including, without
limitation, by way of agreement, contingent or otherwise, to purchase, provide
funds for payment, supply funds to or otherwise invest in any Person or
otherwise assure the creditors of any such Person against loss) in connection
with any Indebtedness of any other Person, except for guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business of the Borrower and the Foreign Subsidiaries and
guaranties of the Indebtedness permitted under Section 9.1.
9.6 Mergers, etc. Except for the Merger, the Borrower will not (and,
except with respect to the Merger, will not permit its Subsidiaries to) without
the prior written consent of the Bank, which will not be unreasonably withheld
or delayed:
(a) Enter into any merger or consolidation with or acquire all or
substantially all of the assets of any Person; or
(b) Sell, assign, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired to any Person.
9.7 Pension Reform Act. At any time while the Borrower has a Pension
Plan, permit any accumulated funding deficiency to occur with respect to any
Pension Plan or other employee benefit plans established or maintained by the
Borrower or its Subsidiaries or to which contributions are made by the Borrower
(the "Plans"), and which are subject to the Pension Reform Act" and the rule and
regulations thereunder or to Section 412 of the Code,
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<PAGE> 36
and at all times comply in all material respects with the provisions of the Act
and Code which are applicable to the Plans. The Borrower will not permit the
Pension Benefit Guaranty Corporation to cause the termination of any Pension
Plan under circumstances which would cause the lien provided for in Section
4068 of the Pension Reform Act to attach to the assets of the Borrower.
9.8 Corporate Document Amendments. The Borrower will not and (except
as provided in the Merger Agreement) will not permit any of its Subsidiaries
to, amend its articles of organization, or its bylaws if any such amendment
could reasonably be expected to adversely affect the interest or rights of the
Bank in any manner; it being acknowledged that: (a) an increase in Borrower's
authorized capital (with the rights, terms and privileges in effect on the date
hereof, subject to the restrictions on redemptions, dividends and other
covenants set forth in the Bank Agreements for the benefit of the Bank) shall
not be deemed to adversely affect the interests or rights of the Bank; and (b)
an increase in Borrower's authorized capital with rights, terms or privileges
different from those in effect on the date hereof shall not be deemed to
adversely affect the interest or rights of the Bank so long as the terms of
such capital make an express reference to the restrictions on redemption,
dividends and other negative covenants set forth in the Bank Agreements for the
benefit of the Bank.
9.9 Distributions. The Borrower will not (and will not permit its
subsidiaries to) make any Distribution or make any payment on account of the
purchase, acquisition, redemption, or other retirement of any shares of stock,
whether now or hereafter outstanding except that Subsidiaries of the borrower
may declare and make payment of cash and stock dividends, return capital and
make distributions of assets to the Borrower.
9.10 Transactions with Affiliates. The Borrower will not enter into
(or permit any Subsidiary to enter into) any transaction, including, without
limitation, the purchase, sale or exchange of any property, or the rendering of
any service, with any present or former affiliate, except in the ordinary
course of business and pursuant to the reasonable requirements of its business
and upon fair and reasonable terms no less favorable to the Borrower or such
Subsidiary, as the case may be, than would be obtained in a comparable
arms'-length transaction with any Person not an Affiliate. As used herein,
"Affiliate" includes (i) any officer or director of the Borrower or any
Subsidiary, or (ii) any Person which, directly or indirectly, through one or
more intermediaries, controls or is controlled by or is under common control
with the Borrower or (iii) any Person which beneficially owns or holds five
(5%) percent or more of any class of equity or debt securities of the Borrower.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of any Person,
whether through the ownership of voting securities, by contract or otherwise.
9.11 Accounting Changes. The Borrower will not make or permit, or
permit any of its Subsidiaries to make or permit, any change in accounting
policies or reporting practices including, without limitation, any change
in its fiscal year), unless, prior to such change, the
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<PAGE> 37
Borrower shall have informed the Bank of such change and shall have entered
into an amendment to this Agreement, in form and substance satisfactory to the
Bank, in order to preserve unimpaired the rights of the Bank and the
obligations of the Borrower.
SECTION 10 - EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. Each of the following events shall be deemed
to be an Event of Default hereunder:
(a) The Borrower shall fail to make any payment in respect of
the principal of any of the Obligations as the same shall become due, whether
at the stated payment dates or by acceleration or otherwise, or interest or
other fees on or in respect of any of the Obligations as the same shall become
due.
(b) The Borrower shall fail to perform or observe any
covenant, agreement or provision contained in (i) Sections 6.1 through 6.7,
6.10 and 6.11 hereof; (ii) Section 7 hereof; (iii) Section 8.1, 8.3, 8.6 or 8.8
hereof; (iv) Section 9 hereof; or (v) the Revolving Credit Note.
(c) The Borrower shall fail to perform or observe any
covenant, agreement or provision contained in this Agreement (other than those
specified in paragraphs (a) and (b) above) or in any other Bank Agreement, and
such failure shall continue for fifteen (15) days after the earlier of the
Bank's notice thereof to the Borrower or the date the Bank is or should have
been notified of such default under the Bank Agreements.
(d) Any representation or warranty of the Borrower herein or
in any other Bank Agreement or any amendment thereof shall have been false or
misleading in any material respect at the time made or intended to be effective.
(e) The Borrower or any of its Subsidiaries shall fail to make
any payment of Indebtedness for money borrowed in excess of $25,000 when such
payment is due (whether by schedule maturity, required prepayment,
acceleration, demand or otherwise) or shall fail to perform or observe any
provision of any agreement or instrument relating to such indebtedness, and
such failure shall permit the holder thereof to accelerate such Indebtedness.
(f) The Borrower or any of its Subsidiaries shall be involved
in financial difficulties as evidenced by: (i) its commencement of a voluntary
case under Title 11 of the United State Code as from time to time in effect, or
by its authorizing, by appropriate proceedings of its board of directors or
other governing body, the commencement of such a
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<PAGE> 38
voluntary case; (ii) by its filing an answer or other pleading admitting or
failing to deny the material allegations of a petition filed against it
commencing an involuntary case under said Title 11, or seeking, consenting to
or acquiescing in the relief therein provided, or by its failing to controvert
timely the material allegations of any such petition; (iii) by the entry of an
order for relief in any involuntary case commenced under said Title 11; (iv) by
its seeking relief as a debtor under any applicable law, other than said
Title 11, of any jurisdiction relating to the liquidation or reorganization of
debtors or to the modification or alteration of the rights of creditors, or by
its consenting to or acquiescing in such relief; (v) by the entry of an order
by a court of competent jurisdiction (x) finding it to be bankrupt or
insolvent, (y) ordering or approving its liquidation, reorganization or any
modification or alteration of the rights of its creditors, or (z) assuming
custody of, or appointing a receiver or other custodian for all or a
substantial part of its property and such order shall not be vacated or stayed
on appeal or otherwise stayed within thirty (30) days; (vi) by filing of a
petition against the Borrower under said Title 11 which shall not be vacated
within (30) days; or (vii) by its making an assignment for the benefit of, or
entering into a composition with, its creditors, or appointing or consenting to
the appointment of a receiver or other custodian for all or a substantial part
of its property.
(g) Any judgment, writ, attachment, execution or similar
process shall be issued or levied against the Borrower, any of its property or
any of its Subsidiaries or their respective property and such judgment, writ,
attachment, execution or similar process shall not be paid, stayed, released,
vacated or fully bonded within ten (10) days after its issue or levy.
(h) With respect to any Pension Plan, a Reportable Event shall
have occurred and the Bank shall have reasonably determined that such event
reasonably could be expected to result in liability of the Borrower or any of
its Subsidiaries to the PBGC or such Pension Plan in an aggregate amount
exceeding $25,000 (individually or in the aggregate) and such event in the
circumstances occurring reasonably could constitute grounds for the termination
of such Pension Plan by the PBGC or for the appointment by the appropriate
United States District Court of a trustee to administer such Pension Plan; or a
trustee shall have been appointed by the United States District Court to
administer such Plan, or the PBGC shall have instituted proceedings to
terminate such Pension Plan.
(i) Any Person (other than a current stockholder of Borrower)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended), directly or indirectly, of 25% or more of the issued and
outstanding capital stock (or other securities convertible into such
voting stock) of Borrower.
(j) Borrower shall at any time for any reason cease to be the
record and beneficial owner of 100% of the outstanding capital stock of each of
its Subsidiaries
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<PAGE> 39
(k) Any "Event of Default" under any other Bank Agreement
shall have occurred.
10.2 Remedies. Upon the occurrence of any Event of Default as defined
in Section 10.1 hereof, and at any time thereafter, in addition to any other
rights and remedies available to the Bank hereunder or otherwise, the Bank (i)
will have no further obligation to make future advances and (ii) may declare
the entire unpaid principal balance of and accrued interest on the Revolving
Credit Note, together with all Obligations under this Agreement and all
Indebtedness owing to the Bank, to be forthwith due and payable, whereupon the
principal of and accrued interest in respect of the Revolving Credit Note and
all such Obligations and Indebtedness shall become forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Borrower (and provided, further, that such
acceleration shall occur automatically upon the occurrence of any Event of
Default described in Section 10.1(f).
10.3 Set-Off. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default hereunder, the Bank is hereby authorized at
any time or from time to time, without presentment, demand, protest or notice
of any kind to the Borrower or to any other Person, all of which are hereby
expressly waived, to setoff and to appropriate and apply any and all deposits
(general or special) and any other Indebtedness at any time held by or owing to
the Bank to or for the credit or the account of the Borrower against and on
account of the Obligations of the Borrower to the Bank under this Agreement and
the Bank Agreements, irrespective of whether or not the Bank shall have made
any demand hereunder and all of said obligations, liabilities or claims, or
any of the, may then be contingent or unmatured, and without regard to the
availability or adequacy of other collateral. The Bank shall give notice to the
Borrower following any such setoff or application of funds; provided, however,
that the failure to give such notice shall not affect the validity of such set
off and application.
SECTION 11 - WAIVERS: AMENDMENTS: REMEDIES
No delay or omission on the Bank's part in exercising its rights and
remedies against the Borrower or any other interested party shall constitute a
waiver hereof. A breach by the Borrower of its obligations under this Agreement
may be waived only by a written waiver executed by the Bank. the Bank's waiver
of any breach in one or more instances shall not constitute or otherwise be an
implicit waiver of subsequent breaches. The Borrower hereby agrees to waive,
and does hereby absolutely and irrevocably waive (a) all presentments, demands
for performance, notices or nonperformance, protests, notices of protest and
notices of dishonor in connection with any of the Indebtedness evidenced by the
Revolving Credit Note, (b) any requirement of diligence or promptness on the
Bank's part in the enforcement of its rights under the provisions of this
Agreement or any Bank Agreement, and (c) to the maximum extent permitted by
applicable law, any and all notices of every kind and description which may be
required to be given by any statute or rule of law with respect to its
liability (i)
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<PAGE> 40
under this Agreement or in respect of the Indebtedness evidenced by the
Revolving Credit Note, or any other Obligation or (ii) under any other Bank
Agreement. No course of dealing between the Borrower and the Bank shall operate
as a waiver of any of the Bank's rights under this Agreement or any Bank
Agreement or with respect to any of the Obligations. This Agreement or any Bank
Agreement or with respect to any of the Obligations. This Agreement shall be
amended only by a written instrument executed by the parties hereto making
explicit reference to this Agreement. The Bank's rights and remedies under this
Agreement and under all subsequent agreements between the Bank and the Borrower
shall be cumulative and any rights and remedies expressly set forth herein
shall be in addition to, and not in limitation of, any other rights and
remedies which may be applicable to the Bank in law or at equity.
SECTION 12 - INDEMNIFICATION
Without limitation of any other obligation or liability of the Borrower
or right or remedy of the Bank contained herein, the Borrower hereby covenants
and agrees to indemnify and hold the Bank and the shareholders, directors,
agents, officers, partners, subsidiaries and affiliates of the Bank harmless
from and against any and all damages, losses (other than loss of profit),
settlement payments, obligations, liabilities, claims, including, without
limitation, claims for finder's or broker's fees, actions or causes of action,
and reasonable costs and expenses incurred, suffered, sustained or required to
be paid by an indemnified party in each case by reason of or resulting from any
claim relating to the transactions contemplated hereby other than any such
claims which arise or are incurred as a result of the Bank's gross negligence
or willful misconduct. In any investigation, proceeding or litigation, or the
preparation therfor, the Bank shall be entitled to select one counsel of its
own and, in addition to the foregoing indemnity, the Borrower agrees to pay
promptly the reasonable fees and expenses of such counsel, except that such
counsel fees and expense shall not be paid with respect to any claims which
arise or are incurred as a result of the Bank's gross negligence or willful
misconduct. The Bank shall give the Borrower prior written notice of its intent
to settle or compromise any claim. The foregoing notice having been given, the
Bank may settle or compromise any claim, action or cause of action referred to
above, whether prior to or after the commencement of litigation; provided, that
any such settlement shall include only claims, actions or causes of action
against the Bank and not any such claims, actions or causes of action which
claimant may have directly against the Borrower.
SECTION 13 - MISCELLANEOUS
13.1 Survival of Agreements, etc. This Agreement shall inure to the
benefit of the Bank and its successors and assigns, including any
subsequent holder or holders of the Note, and the term "Bank" shall include any
such holder or holders whenever the context permits. All agreements,
covenants, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the making of the Revolving
Credit Loans hereunder.
- 41 -
<PAGE> 41
13.2 Notices. All notices and other communications made or required
to be given pursuant to this Agreement, or in any of the Bank Agreements, shall
be in writing and shall be mailed by first-class mail, postage prepaid; or sent
by overnight courier, or sent by facsimile, in each case addressed as follows:
If to the Borrower, at the following adddress, or at such other address
as the Borrower shall have furnished to the Bank in writing:
Chief Financial Officer
Bachman Information Systems, Inc.
8 New England Executive Park
Burlington, Massachusetts 01803
Facsimile: 617-229-9864
with a copy to:
John D. Patterson, Jr., Esq.
Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02109
Facsimile: 617-482-7347
If to the Bank, at the following address, or at such address as the
Bank shall have furnished to the Borrower in writing:
David B. Fischer
Senior Vice President
Silicon Valley Bank
Loan Production Office
Wellesley Office Park
40 William Street, Suite 350
Wellesley, MA 02181
Facsimile: 617-431-9906
with a copy to:
Harry A. Hanson, III, Esq.
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Streeet
Boston, Massachusetts 02110
- 41 -
<PAGE> 42
Facsimile: 617-951-1295
All such notices and communications shall be deemed to have been duly
given three (3) business days after being deposited in the mail, postage
prepaid, if mailed; one (1) business day after being sent by overnight courier;
when receipt acknowledged, if telecopied.
13.3 Entire Agreement etc. This Agreement and the documents and
other materials contemplated hereby constitute the entire agreement of the
Borrower and the Bank and express their entire understanding with respect to
credit advanced or to be advanced by the Bank to the Borrower. This Agreement
shall be amended only by a written instrument executed by the Bank making
explicit reference to this Agreement.
13.4 Governing Law: Consent to Jurisdiction. This Agreement, the
Security Documents, the Note and the other Bank Agreements, including the
validity thereof and the rights and obligations of the parties hereunder and
thereunder, shall be construed in accordance with and governed by the internal
laws of the commonwealth of Massachusetts, without giving effect to the
conflicts of law principles thereof. The Borrower hereby consents to service of
process, and to be sued, in the Commonwealth of Massachusetts or the State of
California and consents to the jurisdiction of any federal or state court of
competent jurisdiction in the Commonwealth of Massachusetts or the State of
California, as well as to the jurisdiction of all courts from which an appeal
may be taken from such courts, for the purpose of any suit, action or other
proceeding arising out of any of its obligations hereunder, under the Security
documents, under the Note or under the other Bank Agreements or with respect to
the transactions contemplated hereby or thereby, and expressly waives any and
all objections, it may have as to venue in any such courts, or to any claim as
to inconvenient forum.
The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in the preceding paragraph of
this Section 13.4 either (i) by mailing a copy thereof by registered or
certified mail, postage prepaid, return receipt requested, to it at its address
set forth in Section 13.2 or (ii) by serving a copy thereof upon it at its
address set forth in Section 13.2. The Borrower irrevocably waives, to the
fullest extent permitted by law, all claims of error by reason of any service
as contemplated herein and agrees that such service shall (x) be deemed in
every respect effective service upon the Borrower in any such suit, action or
proceeding and (y) to the fullest extent permitted by law, be taken and held to
be valid personal service upon and personal delivery to the Borrower.
13.5 Severability; Headings; Counterparts; etc. The invalidity or
unenforceability of any term or provision hereof shall not affect the
validity or enforceability of any other term or condition hereof. The headings
in this Agreement are for convenience of reference only and will not alter or
otherwise affect the meaning hereof. This Agreement may be executed in a number
of counterparts which together shall constitute one instrument and shall bind
and inure to the benefit of the parties hereto and their respective successors
and assigns. The
- 42 -
<PAGE> 43
interpretation of the provisions of this Agreement shall not be construed
against any party hereto based upon the fact that such party may have drafted,
or caused to be drafted, such provisions.
13.6 Bank Holidays. Whenever any payment to be made under this
Agreement shall become due on a day on which the Bank is required or permitted
by law to remain closed, such payment may be made on the next succeeding
Banking Day on which the Bank is open, and such extension shall be included in
computing the interest in connection with such payment.
13.7 Expenses. The Borrower agrees to pay on demand, all the Bank's
reasonable expenses in preparing, executing, delivering and administering this
Agreement and related instruments and documents, including, without limitation,
the reasonable fees and out-of-pocket expenses of the Bank's special counsel,
Hutchins, Wheeler & Dittmar (subject to the terms hereof), and (subject to the
terms hereof) the expenses of the Bank in conducting field examinations of the
books and records of the Borrower. The Borrower also agrees to pay on demand,
all reasonable out-of-pocket expenses incurred by the Bank, including, without
limitation, legal and accounting fees, in connection with the collection of
amounts upon the occurrence of an Event of Default described in Section 10
hereof, the revision, protection or enforcement of any of the Bank's rights
against the Borrower under the Agreement, the Revolving Credit Note and all
other Bank Agreements and the administration of special problems that may arise
under this Agreement or any other Bank Agreement. The Borrower also agrees to
pay all stamp and other taxes in connection with the execution and delivery of
this Agreement and related instruments and documents. Any fees, expenses or
other charges which the Bank is entitled to receive from the Borrower hereunder
shall bear interest from the date of demand for payment until paid at the
lesser of (i) the rate specified in Section 2.5(a) hereof or (ii) the maximum
rate permitted by then applicable law.
13.8 Participation. The Borrower acknowledges and agrees that the
Bank shall, upon thirty (30) Banking Days prior notice to the Borrower, be
entitled to sell one or more participations to other banks or financial
institutions in the Revolving Credit Loan and the Revolving Credit Note on such
terms as the Bank in its sole discretion shall deem appropriate. Any such
participating lender shall be deemed to have the same right of set-off
established under this Agreement on behalf of the Bank to the extent of its
participation in the obligations of the Borrower under this Agreement as it
would have if it were a direct lender.
13.9 Termination. This Agreement may be terminated by the Borrower
at any time by not less than ten (10) days' prior written notice of such
termination to the Bank; provided, however, that, unless and until all
Obligations of Borrower to Bank existing (whether or not due) as of the time of
the receipt of such notice by the Bank shall have been paid in full, such
termination shall in no way affect the rights and powers granted to the Bank in
connection with this Agreement, and until such payment in full all rights and
powers hereby
- 43 -
<PAGE> 44
granted to the Bank hereunder shall be and remain in full force and effect; and
provided, further, that if the Borrower, upon termination of this Agreement,
fails to maintain the Bank as its principal depository institution and maintain
its operating account with the Bank, then the Borrower shall pay to the Bank a
termination fee of five thousand dollars ($5,000.00).
13.10 Reproduction of Agreement. This Agreement and all other
instruments, documents and papers which relate thereto which have been or may
be hereafter furnished to the Bank may be reproduced by the Bank by any
photographic, photostatic, micro-card, miniature photographic, xerographic or
similar process, and the Bank may destroy the original from which any document
was so reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not
the original is in existence and whether or not such reproduction was made in
the regular course of business). However, to the extent that such reproduction
conflicts with the original, the original shall control.
13.11 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY WITH
RESPECT TO ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF ARISING OUT OF, THIS
AGREEMENT, THE REVOLVING CREDIT NOTE AND THE OTHER BANK AGREEMENTS AND
TRANSACTIONS CONTEMPLATED HEREBY AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN
THE BORROWER, AND THE BANK. The Borrower hereby certifies that neither the Bank
nor any of its representatives, agents or counsel has represented, expressly or
otherwise, that the Bank would not, in the event of any suit, action or
proceeding, seek to enforce this waiver of right to trial by jury. The Borrower
acknowledges that the Bank has been induced to enter into this agreement by,
among other things, this waiver. The Borrower acknowledges that it has read the
provisions of this Agreement and, in particular, this section, has consulted
legal counsel, understands the rights it is granting in this agreement and is
waiving in this section in particular, and makes the above waiver knowingly,
voluntarily and intentionally.
* * * * * *
- 44 -
<PAGE> 45
Counterpart Signature Page
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amended
and Restated Revolving Credit Agreement to be executed as a sealed instrument by
their duly authorized officers as of the date first above written.
CORPORATE SEAL BACHMAN INFORMATION SYSTEMS, INC.
Attest: /s/ Eugene DiDonato By: /s/ Peter J. Boni
-------------------------- --------------------------
Clerk Name: Peter J. Boni
Its: President
SILICON VALLEY BANK SILICON VALLEY EAST
(signed at Santa Clara, CA)
By: /s/ Julie Haga By: /s/ David Fischer
----------------------------- --------------------------
Name: Julie Haga Name: David Fischer
Its: Its: S.V.P
S-1
<PAGE> 46
LIST OF EXHIBITS
EXHIBITS
Exhibit A Form of Revolving Credit Demand Note
Exhibit B Form of Borrowing Request
Exhibit C Form of Borrowing Base Certificate for
Domestic Accounts Receivable
Exhibit C-1 Form of Borrowing Base Certificate for
International Accounts Receivable
Exhibit D Form of Compliance Certificate
Exhibit E Form of guaranty Agreement
<PAGE> 47
LIST OF SCHEDULES
SCHEDULES
Schedule 1.1(a) List of Authorized Officers
Schedule 4.1 List of Jurisdictions Where Organized
Schedule 4.2 Principal Places of Business For Subsidiaries
Schedule 4.3 List of Jurisdictions where Qualified
Schedule 4.4 List of Subsidiaries
Schedule 4.9 Financial Statements
Schedule 4.10 Schedule of Issued and Outstanding Stock
Schedule 4.11 Changes in Condition
Schedule 4.12 Schedule of Liens, Encumbrances, and
Capitalized Lease Obligations
Schedule 4.13 Schedule of Litigation
Schedule 4.14 Schedule of Pension Plans
Schedule 4.15 Outstanding Indebtedness, Liens and
Investments
Schedule 4.16 Schedule of Patents, Trademarks, Etc.
Schedule 4.17 Schedule of Environmental Matters
Schedule 9.1(e) Indebtedness Limits of Foreign Subsidiaries
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
Name of Jurisdiction of
Subsidiary Incorporation
- ---------- ---------------
Bachman Information Systems GmbH Germany
Bachman Information Systems Canada, Ltd. Canada
Bachman International Ltd. Delaware
Bachman France S.A.R.L. France
Bachman S.R.L. Italy
Bachman Information Systems Limited United Kingdom
Bachman Securities Corporation Massachusetts
WindTunnel Software, Inc. Delaware
CSI Acquisition Corporation Massachusetts
Bachman Asia Pacific Pte. LTD Singapore
Bachman Spain S.L. Spain
Cadre Technologies, Inc. Delaware
Cadre Technologies, International Oregon
Cadre Technologies S.A. Switzerland
Cadre Technologies, France S.A. France
Cadre Technologies, GMBH Germany
Cayenne Software Pty Limited Australia
Cadre Technologies, Limited United Kingdom
Westmount Technologies B.V. Netherlands
Westmount U.S.A., Inc. Delaware
Micro Case, Inc. Delaware
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Cayenne Software, Inc. (formerly Bachman Information Systems,
Inc.) on Forms S-8 (File Nos. 33-87314, 33-53298, 33-45766, 33-71964 and
333-12139) and Forms S-3 (File Nos. 33-99956 and 33-89940) of our reports dated
August 20, 1996, on our audits of the consolidated financial statements and
financial statement schedule of Cayenne Software, Inc. as of June 30, 1996 and
1995, and for each of the three years in the period ended June 30, 1996, which
reports are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF CAYENNE SOFTWARE, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<CIK> 0000880229
<NAME> CAYENNE SOFTWARE, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 11,549
<SECURITIES> 0
<RECEIVABLES> 8,726
<ALLOWANCES> 716
<INVENTORY> 0
<CURRENT-ASSETS> 21,579
<PP&E> 4,746
<DEPRECIATION> 3,431
<TOTAL-ASSETS> 23,316
<CURRENT-LIABILITIES> 12,608
<BONDS> 0
<COMMON> 128
0
0
<OTHER-SE> 10,521
<TOTAL-LIABILITY-AND-EQUITY> 23,316
<SALES> 12,658
<TOTAL-REVENUES> 31,952
<CGS> 1,216
<TOTAL-COSTS> 8,846
<OTHER-EXPENSES> 28,266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> (4,750)
<INCOME-TAX> 1,083
<INCOME-CONTINUING> (5,833)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,833)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.47)
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