<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT TO FORM 10-K ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from July 1, 1996 through December 31, 1996
AMENDMENT NO. 1
CAYENNE SOFTWARE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 0-19682 04-2784044
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
8 New England Executive Park, Burlington, MA 01803
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 273-9003
--------------
The undersigned registrant hereby amends the following items, financial
statements, exhibits or portions of its Annual Report on Form 10-K (Date of
Report: March 29, 1997) as set forth in the pages attached hereto.
<PAGE> 2
The Registrant hereby amends "Part III. Item 10. Directors and Executive
Officers of the Registrant" by inserting the following Item 10 in its place and
stead:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
The following table sets forth certain information concerning each Director
of the Company continuing in office, each nominee for election as Director and
each executive officer of the Company:
<CAPTION>
NAME AGE POSITION
-------------------------- --- -----------------------------------------
<S> <C> <C>
Charles W. Bachman(1)..... 72 Chairman of the Board of Directors
Peter J. Boni............. 51 President, Chief Executive Officer and
Director
Eugene J. DiDonato........ 40 Vice President, General Counsel
Ronald H. Imbriale........ 50 Senior Vice President, Worldwide Field
Operations
Frederick H. Phillips..... 48 Vice President, Finance and
Administration, Chief Financial Officer
and Treasurer
Vincent Stango............ 42 Vice President, North American Field
Operations
William F. Winslow........ 57 Vice President, Human Resources
Massood Zarrabian......... 48 Senior Vice President, Product Operations
John J. Alexander(3)...... 62 Director
R. John Fletcher(1)(2)(3) 51 Director
William H. D. Goddard..... 54 Director
Roland D. Pampel.......... 62 Director
Allyn C. Woodward, Jr.(2). 56 Director
<FN>
- ---------------
(1) Member of the Nominating Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
</TABLE>
The business experience during at least the last five years of each of the
Directors and the executive officers of the Company is as follows:
CHARLES W. BACHMAN has been the Chairman of the Board of Directors of the
Company since 1988. From 1983, when he founded the Company, through April 1988,
he was President, Chief Executive Officer and a Director of the Company. Before
founding the Company, he was employed by Cullinet Software, Inc. from 1981 to
1983, by
<PAGE> 3
Honeywell from 1970 to 1981, by General Electric Company from 1960 to 1970, and
by The Dow Chemical Company from 1950 to 1960.
PETER J. BONI has been the President and Chief Executive Officer and a
Director of the Company since August 4, 1993. From 1990 to March 1993, he served
as President of the Software & Information Services Group of Paramount
Communications, a conglomerate with interests in information services,
publishing and entertainment. From 1989 to 1990, he served as President and
Chief Operating Officer of On-Line Software International, Inc., a software,
consulting and educational services firm. From 1987 until 1989, he served as a
Turnaround Consultant and the President Pro-Tem of several companies while a
principal of Potential Dynamics, a consulting company specializing in the
turnaround, repositioning and restructuring of troubled firms.
EUGENE J. DIDONATO has been Vice President and General Counsel since
November 1993. For the period from November 1995 through July 1996, he was also
Chief Financial Officer and Treasurer. He joined the Company in August 1993 as
General Counsel. From 1986 to 1993, he was a corporate-securities attorney at
Foley, Hoag & Eliot LLP, a law firm in Boston, Massachusetts. From 1984 to 1986
he was a corporate-securities attorney at Wertheimer and Fredman, P.C., a law
firm in New York, New York.
RONALD H. IMBRIALE has been Senior Vice President, Worldwide Field
Operations since July 1996. From September 1995 to July 1996, he was Chief
Operating Officer of Cadre Technologies Inc. ("Cadre"), a software company which
was acquired by the Company in July 1996. From June 1991 to August 1995, Mr.
Imbriale was Vice President of Sales for Cadre.
FREDERICK H. PHILLIPS has been Vice President, Finance and Administration,
Chief Financial Officer and Treasurer since July 1996. From February 1996 to May
1996, Mr. Phillips operated his own financial management consulting business,
and from July 1995 to January 1996 he was a principal of Siegel & Dunn Inc., a
financial management consulting business. From June 1988 to February 1995, Mr.
Phillips was Assistant Treasurer of Lotus Development Corporation.
VINCENT STANGO has been Vice President, North American Field Operations
since July 1996. From May 1994 to July 1996, he was Cadre's Director of Sales --
North America and from January 1988 to April 1994, he was Cadre's Director of
Sales -- Eastern Region.
WILLIAM F. WINSLOW has been Vice President, Human Resources since July 1996.
From March 1992 to July 1996, he was Vice President, Human Resources of Cadre.
From June 1991 to March 1992, Mr. Winslow operated his own human resources
consulting business, W. Winslow & Associates.
<PAGE> 4
MASSOOD ZARRABIAN has been Senior Vice President, Product Operations since
July 1996. From July 1995 to July 1996, he was Vice President, Product
Operations. From February 1994 to June 1995, he was Vice President, Development.
From 1992 to 1994, he was Vice President Core Technology and Product Development
of the Software Business Unit of Computervision Corp., a software company. From
1989 to 1992, he was that company's Vice President of Product Marketing for
CAD/CAM products, from 1985 to 1989, he was its Vice President of Mechanical
Product Development, and from 1983 to 1985 he was its Vice President of the
Technology Division.
JOHN J. ALEXANDER has been a Director of the Company since December 1993.
Since October 1993, he has been President of Business Technology Consulting,
Inc., a consulting company which provides venture capital to start-up companies,
consults in marketing and strategy and provides expertise in reengineering
business processes. From January 1987 to October 1993, he was Senior Vice
President and Chief Information Officer with UNUM, a life insurance company.
R. JOHN FLETCHER has been a Director of the Company since November 1994.
Since June 1990, he has been Chief Executive Officer of Fletcher Spaght, Inc., a
strategic marketing consulting firm. Mr. Fletcher is also a director of
AutoImmune, Inc. and Nitinol Medical Technologies, Inc.
WILLIAM H. D. GODDARD has been a Director of the Company since July 1996.
From 1982 to 1989, he served as a Director, Chairman, and Chief Executive
Officer of Cadre and rejoined the Board of Directors of Cadre in 1992. He is
President and Treasurer of the Warwick Land Company, a company engaged in
investment in and management and development of real and intellectual property,
and a Partner of Brown & Ives, an office management partnership, holding these
positions since 1974 and 1970, respectively.
ROLAND D. PAMPEL has been a Director of the Company since November 1996.
From March 1994 to January 1997, he was President and Chief Executive Officer of
Microcom Inc. From September 1991 to December 1993, he was President and Chief
Executive Officer of Nicolet Instrument Corp. Mr. Pampel is also a Director of
Microcom Inc. and Infinium Software, Inc.
ALLYN C. WOODWARD, JR. has been a Director of the Company since April 1995.
Since June 1995, he has been president of Adams, Harkness & Hill, Inc., an
investment banking firm. From June 1990 to March 1995, he was Chief Operating
Officer of Silicon Valley Bank. Mr. Woodward is also a director of Viewlogic
Systems, Inc.
There are no family relationships among the executive officers and directors
of the Company.
<PAGE> 5
Based solely upon a review of the forms and written representations received by
the Company pursuant to Section 16(a) of the Securities Exchange Act of 1934
(the "Exchange Act"), the Company believes that during the six month period
ended December 31, 1996 (the "Transition Period"), the Directors and executive
officers complied with all applicable Section 16 filing requirements; except
that the Company cannot confirm such belief with respect to Joan E. Cohen, a
former executive officer, since it neither received a copy of Form 5 from such
individual for the Transition Period nor a written representation that no such
Form 5 was required to be filed.
<PAGE> 6
The Registrant hereby amends "Part III. Item 11. Executive Compensation"
by inserting the following Item 11 in its place and stead:
ITEM 11. Executive Compensation
In July 1996, the Company adopted a plan to compensate its outside Directors by
means of $10,000 per year retainer, $1,000 per Board meeting attended and
reimbursement for expenses incurred in attending Board and Committee meetings.
In addition, under such plan each outside Board member will be granted an
initial stock option grant of 20,000 shares upon election to the Board (other
than by contract or in connection with corporate transactions) and an annual
grant of 10,000 shares. Also, each outside Director that is a member of a
Committee will receive an annual stock issuance equal to the number of shares of
Common Stock obtained by dividing the number of meetings attended times $500 by
the fair market value of one share of the Company's Common Stock on the date of
issuance. Messrs. Alexander, Fletcher, Pampel and Woodward were each granted
options to purchase 20,000 shares of the Company's Common Stock on December 17,
1993, November 3, 1994, December 2, 1996 and April 25, 1995, respectively, as
compensation for their service as Directors. On July 18, 1996, Messrs.
Alexander, Fletcher, Goddard and Woodward were each granted options to purchase
10,000 shares of the Company's Common Stock. Such options vest and become
exercisable one year from the date of grant. Directors who are employees of the
Company are not paid any separate fees for serving as Directors.
<PAGE> 7
EXECUTIVE COMPENSATION
<TABLE>
The following table presents information concerning the annual and long-term
compensation for services in all capacities to the Company for the Transition
Period and the fiscal years ended June 30, 1996, 1995 and 1994 (In October
1996, the Company changed its fiscal year from June 30 to December 31.), of
those persons who were the Chief Executive Officer and the other four most
highly compensated executive officers of the Company at December 31, 1996 (the
"Named Officers"):
<CAPTION>
LONG-
TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------- NUMBER ALL
FISCAL OF OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION
- ------------------------------------ ---------- -------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Peter J. Boni (3), President and Transition $132,500 $ 27,875 250,000 --
Chief Executive Officer Period
1996 250,000 -- 100,000 --
.................................... 1995 225,000 112,500 110,000 --
.................................... 1994 204,375 112,500 544,946 --
Massood Zarrabian (4) Sr. Vice Transition $112,500 $ 8,363 125,000 --
President, Product Operations Period
.................................... 1996 200,000 -- 50,000 --
.................................... 1995 175,000 20,590 30,000 --
.................................... 1994 70,265 12,501 80,000 --
Vincent Stango,(5) Vice President, Transition $ 89,823 $ 1,394 85,000 --
North American Field Operations Period
Ronald H. Imbriale (5), Sr. Vice Transition $ 89,716 $ 4,951 125,000 --
President, Worldwide Sales Period
Eugene J. DiDonato (6), Vice Transition $ 70,000 $ 5,620 30,000 --
President, General Counsel Period
.................................... 1996 130,000 -- 25,000 --
.................................... 1995 115,000 7,200 15,000 --
1994 72,311 20,700 20,000 --
<FN>
- ---------------
(1) See "Report of the Compensation Committee of the Board of Directors on Executive Compensation -- Bonus Arrangements."
(2) See "Report of the Compensation Committee of the Board of Directors on Executive Compensation -- Option Plans."
(3) Mr. Boni was elected as President and Chief Executive Officer effective August 4, 1993.
(4) Mr. Zarrabian was elected Vice President, Development in February 1994. He was elected Vice President, Product Operations
effective July 1, 1995 and Senior Vice President, Product Operations effective July 18, 1996.
(5) Messrs. Stango and Imbriale were elected Vice President, North American Field Operations and Senior Vice President, Worldwide
Sales, respectively, on July 18, 1996. Prior to that date, they were employed by CADRE, and, therefore, no information is
included in the table for the fiscal years ended June 30, 1996, 1995 and 1994. The table includes information with respect to
Messrs. Stango and Imbriale while employed by CADRE for the period from July 1, 1996 through July 17, 1996.
(6) Mr. DiDonato was elected Vice President, General Counsel in November 1993.
</TABLE>
<PAGE> 8
OPTION GRANTS
<TABLE>
The following table presents information concerning grants of stock options
to the Named Officers during the Transition Period.
<CAPTION>
PERCENTAGE POTENTIAL
OF REALIZABLE
TOTAL VALUE AT
OPTIONS ASSUMED ANNUAL
GRANTED EXERCISE RATE OF
TO OR STOCK PRICE
EMPLOYEES BASE APPRECIATION
IN THE PRICE FOR OPTION
OPTIONS TRANSITION (PER EXPIRATION TERM
NAME GRANTED(1)(2) PERIOD SHARE) DATE 5% 10%
---------------------- ---------- ---------- -------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Boni........ 250,000 20% $5.625 7/18/06 $884,383 $2,241,200
Massood Zarrabian(3). 125,000 10% $5.625 7/18/06 $442,192 $1,120,600
Vincent Stango....... 85,000 7% $5.625 7/18/06 $300,690 $ 762,008
Ronald H. Imbriale 125,000 10% $5.625 7/18/06 $442,192 $1,120,600
Eugene J. DiDonato(3) 30,000 2% $5.625 7/18/06 $106,126 $ 268,944
<FN>
- ---------------
(1) All of these options were granted with an exercise price equal to the market
price on the date of grant for the Company's Common Stock on the NASDAQ
National Market System.
(2) All of these options were granted on July 18, 1996 and are exercisable
at a rate of 28% on the first anniversary of grant and 2% per month
thereafter subject to acceleration based upon the Company's achievement of
certain levels of Company profitability (as defined).
(3) A portion or all of these options would become immediately exercisable upon
the occurrence of a "change of control" as defined in the employment
agreements between the Company and certain of the Named Officers. See
"Remuneration of Executive Officers and Directors -- Employment and
Severance Compensation Agreements."
</TABLE>
During the Transition Period, the Company granted options to purchase a
total of 815,000 shares of Common Stock at a weighted average exercise price of
$5.625 per share to its current executive officers, as a group, and options to
purchase a total of 424,424 shares of Common Stock at a weighted average
exercise price of $5.29 per share to its employees, including current officers
who are not executive officers, as a group.
<PAGE> 9
OPTION EXERCISES AND TRANSITION PERIOD OPTION VALUES
<TABLE>
The following table presents information for Named Officers with respect to
options exercised during the Transition Period and outstanding options to
purchase the Company's Common Stock held by them at December 31, 1996:
<CAPTION>
NUMBER
OF
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE HELD AT DECEMBER 31, 1996(1) HELD AT DECEMBER 31, 1996(2)
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- -------- -------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Boni...... -0- -0- 510,556 494,390 $457,755 $87,191
Massood Zarrabian.. -0- -0- 73,800 211,200 $ 47,250 $20,250
Vincent Stango -0- -0- 6,034 87,516 $ 6,254 $ 0
Ronald H. Imbriale -0- -0- 43,540 125,000 $ 64,994 $ 0
Eugene J. DiDonato. -0- -0- 13,800 67,200 $ 12,675 $ 5,200
<FN>
- ---------------
(1) See "Remuneration of Executive Officers and Directors -- Employment and
Severance Compensation Agreements" regarding acceleration of vesting of certain
options upon the occurrence of certain events.
(2) "In-the-money options" are options outstanding at the end of the fiscal year
for which the fair market value at December 31, 1996 of $4.25 exceeded the
exercise price of the options.
</TABLE>
<PAGE> 10
EMPLOYMENT AND SEVERANCE COMPENSATION AGREEMENTS
The Company entered into a three year employment contract with Peter J. Boni as
of August 4, 1993 as the Company's President and Chief Executive Officer. That
contract was extended for an additional three years pursuant to an agreement
dated as of April 30, 1996. Under the terms of his agreement, Mr. Boni receives
an annual base salary of at least $225,000, an automobile allowance, and
reimbursement for the reasonable costs of housing for the first six months of
his employment and relocation costs. He was entitled to participate in the
Company's bonus plan for the Transition Period and received a bonus of $27,875
thereunder. For all subsequent fiscal years, Mr. Boni will receive a bonus
of at least fifty percent (50%) of his base salary if he meets all his
financial and management objectives established by the Compensation Committee.
He also initially received options under the Company's Amended and Restated
1986 Incentive an Nonqualified Stock Option Plan to acquire 544,946 shares
of the Company's Common Stock at an exercise price of $3.25 per share.
Twenty-eight percent (28%) of those options vested on the first anniversary
of his employment and the remainder vest at the rate of two percent
(2%) per month thereafter, except that the options will vest immediately upon
consummation of certain transactions involving a change in control of the
Company. In February 1994, the Compensation Committee approved an amendment to
Mr. Boni's options to provide that in the event of the termination of his
employment without cause, because of retirement for reasons of age or disability
or because of death, Mr. Boni may exercise the nonqualified portion of such
options vested through the date of termination of his employment at any time
prior to the option termination date. Under the terms of Mr. Boni's contract, if
his employment is terminated due to a change in control of the Company or
without cause, he is entitled to termination payments equal to his base salary,
automobile allowance and fringe benefits for twelve months after termination and
a pro rata portion of his incentive compensation for the fiscal year in which
such termination occurs. Under the terms of the contract, Mr. Boni is prohibited
from engaging in certain activities competitive with those of the Company for a
period of one year after termination of his employment unless he is terminated
without cause or due to a change in control in which case such prohibition shall
only continue while the Company is paying his base salary, automobile allowance
and fringe benefits.
Effective January 1994, the Company entered into an employment contract with
Charles W. Bachman for an initial term of eighteen months. The contract term is
automatically renewed for successive eighteen month periods unless either party
gives the other party at least twelve months notice prior to the expiration of
the initial or any renewal term. The contract provided for payment of base
salary of $95,000 from January 1, 1994 through June 30, 1994; $76,000 from July
1, 1994 through December 31, 1994; $57,000 from January 1, 1995 through June 30,
1995; and $114,000 per annum thereafter, with increases to be determined by the
Board, fringe benefits and participation in the Company's bonus pool plan. Under
the terms of Mr. Bachman's contract, he was required to work full-time through
June 30, 1994, the equivalent of four days per week through December 31, 1994,
and the equivalent of three days per week thereafter. The Company and Mr.
Bachman have agreed to amend his contract to provide that commencing October 1,
1996, Mr. Bachman will be required to work 36 days per year (approximately three
days per month) at a per annum rate of $32,500 plus expenses. Additional days
will be paid at a rate of $1,000 per day plus expenses.
Under the terms of the contract, as amended, for the period from October 1, 1996
through December 31, 1996, Mr. Bachman received the payments calculated at a
rate of $114,000 per
<PAGE> 11
annum minus any payments received under the amended contract. Under the terms of
the contract, Mr. Bachman is prohibited from engaging in certain activities
competitive with those of the Company for a period of two years after
termination of his employment unless he is terminated without cause in which
case such prohibition shall only continue while the Company is paying his base
salary and fringe benefits.
The Company entered into agreements with Ronald H. Imbriale, Vincent Stango,
and Massood Zarrabian providing them with 52, 26, and 52 weeks of payment
of base salary, respectively, in the event of the termination of their
employment by the Company without cause. The payments to Mr. Stango expire
upon obtaining other employment and the payments to Mr. Zarrabian are
subject to offset by any employment compensation he receives during
the severance period. Mr. Imbriale's payments expire upon obtaining other
employment after the first 26 weeks of payments. The agreement with Mr.
Zarrabian also provides for acceleration of vesting of his options granted at
the time of his employment during such 52 week periods. The Company has adopted
certain Employment Agreements with Messrs. DiDonato and Zarrabian that commence
on the effective date of any "change in control" (as defined) in the ownership
or management of the Company and end on a date eighteen months thereafter, plus
three additional months for each whole or partial year employed by the Company
(the "Expiration Date") unless employment is sooner terminated as described
below. The agreements shall not extend for a period of more than three years
from the change in control date. The agreements provide for, among other things,
severance payments payable to each executive officer in an amount equal to such
officer's annual base salary and fringe benefits from the date of termination
until the Expiration Date plus any targeted bonus for the first year after such
termination. Such payments are triggered by (i) the termination of employment by
the Company without cause or (ii) upon termination by the employee for "good
reason" (as defined). In addition, if an executive officer's employment is
terminated for any reason after the Expiration Date, the foregoing severance
payments will be paid for a period of twelve months after termination. The
Agreements also provide that the Company shall make disability payments to an
executive officer equal to such executive officer's base salary (subject to
adjustments) from the date of termination of employment due to disability until
the Expiration Date. Under the Agreements, any shares subject to options under
the Option Plans granted to an executive officer shall immediately vest on a
change in control to the extent such shares would have vested prior to the
Expiration Date.
STOCK PRICE PERFORMANCE
The following chart assumes $100 invested in shares of the Company's Common
Stock beginning November 26, 1991 (the date of the Company's initial public
offering) at the initial offering price of $15.00 per share and ending December
31, 1996, compared with $100 invested in The NASDAQ Stock Market-US Index and in
The NASDAQ Computer and Data Processing Index:
COMPARISON OF 60 MONTH CUMULATIVE TOTAL RETURN*
AMONG CAYENNE SOFTWARE, INC., THE NASDAQ STOCK MARKET-US INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
<PAGE> 12
<TABLE>
<CAPTION>
CAYENNE NASDAQ STOCK
MEASUREMENT PERIOD SOFTWARE, INC. MARKET-US
------------------ -------------- ------------
<S> <C> <C>
11/26/91 100 100
6/92 77 108
6/93 19 136
6/94 13 137
6/95 53 183
6/96 48 236
Transition Period 25 256
</TABLE>
<TABLE>
<CAPTION>
(TABLE CONTINUED) NASDAQ COMPUTER &
MEASUREMENT PERIOD DATA PROCESSING
------------------ -----------------
<S> <C>
11/26/91 100
6/92 102
6/93 130
6/94 130
6/95 212
6/96 282
Transition Period 299
</TABLE>
* INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDED JUNE 30 THROUGH JUNE 30, 1996 AND 6 MONTH TRANSITION
PERIOD ENDED DECEMBER 31, 1996.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
Policies on compensation of the Company's executive officers are subject to the
approval of the Compensation Committee of the Board. The members of the
Compensation Committee are R. John Fletcher and John J. Alexander. Each member
of the Compensation Committee is a non-employee Director. Decisions about awards
to executive officers under the Company's Option Plans and Stock Purchase Plan
are made by the Compensation Committee. Set forth below is a report submitted by
the Board of Director's Compensation Committee. This report addresses the
Company's compensation policies for the Transition Period, as such policies
affected (i) Peter J. Boni as Chief Executive Officer, and (ii) Messrs.
Zarrabian, Stango, Imbriale and DiDonato who were
<PAGE> 13
the four executive officers other than Mr. Boni who, at December 31, 1996, were
the Company's next most highly paid executives (collectively, such five
executives are referred to in this report as the "Senior Executives"), and (iii)
the Company's executive officers which include the Senior Executives.
Compensation Policies Toward Executive Officers
The Compensation Committee's executive compensation policies are designed to
provide competitive compensation based on the achievement of the Company's
strategic and operational goals, reward for positive corporate performance,
and recognition of individual initiative and achievements. In general, the
Company strives for fair but not excessive compensation of its executive
officers in order to assist the Company in attracting and retaining highly
qualified executives.
Executive officers' overall compensation levels are intended to be consistent
with other companies in the Company's industry, to reflect the Company's
performance and to attract and retain highly qualified executives. Also, the
Senior Executives' bonus plans typically include operating performance targets,
below which either no bonus or a reduced bonus is paid or above which an
increased bonus is paid, and management objectives to be met before all or any
part of a bonus is paid. Compensation to Senior Executives under the Option
Plans is intended to reward exceptional competence, to attract and retain such
Senior Executives and furnish an additional incentive to increase performance,
generally. Executive officers have also been provided with severance agreements
with varying terms. See "Executive Compensation -- Employment and Severance
Compensation Agreements" above.
Executive officers and officers and employees other than the Senior Executives
may also participate in the Company's Option Plans provided they meet certain
eligibility requirements, but typically receive a larger percentage of their
compensation in the form of base salary than do Senior Executives.
The Compensation Committee believes that stock ownership by management and
stock-based performance compensation arrangements are beneficial as ways to
align management's interests and incentives with shareholders' interests toward
the enhancement of shareholder value. The Compensation Committee further
believes that stock option programs with future exercise dates and/or
accelerated vesting provisions upon the occurrence of certain specified events
are an effective means to retain key executives. As a result, the Compensation
Committee has used stock-based elements in the Company's compensation packages
for its executive officers.
Relationship of Company Performance to Executive Compensation
Compensation paid the Company's executive officers in the Transition Period, as
reflected in the Tables included in Item 11 above regarding the Senior
Executives, primarily consisted of base salary and bonus. In addition, as
reflected in the above Tables, the Compensation Committee awarded stock
options to the Senior Executives during the Transition Period under the
Company's Amended 1996 Incentive and Nonqualified Stock Option Plan (the "1996
Plan").
Measures of performance which are taken into account in determining the
Company's executive compensation may include: (1) the Company's revenue and
operating income, (2) target versus
<PAGE> 14
actual operating performance, generally in terms of revenue, operating income,
contribution margin or expense reduction, (3) the market value of the Company's
Common Stock, (4) the success of any special projects or goals, or (5)
subjective considerations of performance including individual initiative and
effort, managerial ability and undertaking and completing special projects or
goals.
Bonus Arrangements
The Company's bonuses to its executive officers are based generally on both
objective and subjective performance criteria. Objective criteria include
realization of individual strategic goals, and the attainment of certain
levels of operating performance by the Company as compared to targeted figures.
As noted above, the performance bonuses for executive officers are typically
tied to achievement of certain minimum performance thresholds, with no bonus,
or a reduced bonus, being paid in the event that minimum targets are not
achieved or an increased bonus paid if targets are exceeded. Target operating
objectives utilized for purposes of determining bonuses (including revenue
and/or operating income and/or contribution margin and/or expense reduction
quotas) are based on business plans developed by the Chief Executive Officer
with input derived from individual executive officers, subject to review by
the Compensation Committee and, if it so chooses, by the Company's full Board
of Directors. Performance under the objective criteria for the Transition
Period was determined after the end of the 1996 fiscal year, after discussions
among the members of the Compensation Committee.
Subjective performance criteria encompass evaluation of each executive officer's
initiative and contribution to overall corporate performance, expense reduction,
the officer's managerial ability, and the officer's performance and effort on
special projects or strategic objectives that the officer may have undertaken.
Executive officers' target bonus amounts were established early in the
Transition Period following a review of compensation to ascertain the
compensation levels which were necessary, or desirable, to maintain the
Company's compensation structure on a competitive basis with others in the
industry, and to provide appropriate incentives for achieving desired Company
performance. For the Transition Period, bonuses for executive officers were
based on objective criteria. The Compensation Committee truncated the 1997
fiscal year bonus plan effective December 31, 1996 and payments were made
thereunder based on a six month period in order to synchronize the Company's
executive bonus plan with the Company's fiscal year ending December 31.
In October 1996, the Company changed its fiscal year from June 30 to
December 31.
Option Plan
The other major incentive component of the Executive Officers' compensation in
the Transition Period was under the Company's 1996 Plan. The Company's Option
Plans are intended to promote the Company's interests by encouraging ownership
of its Common Stock by participants in order to help the Company attract and
retain qualified individuals and to motivate them to improve their performance.
The 1996 Plan is administered by the Compensation Committee. The Compensation
Committee meets at least four times each fiscal year, and at other times if it
chooses or at the request of the Chief Executive Officer, to determine the
type, amount, and dates of option grants to eligible participants. The
Compensation Committee determines specific grants subject to the annual
limitations permitted under Section 422A of the Internal Revenue Code
(pertaining to Incentive Stock Options).
<PAGE> 15
Participation in the 1996 Plan may be in the form of (a) Incentive Stock Options
as defined in Section 422A of the Internal Revenue Code, (b) options not
qualifying under Section 422A of the Internal Revenue Code as Incentive Stock
Options (i.e., Nonqualified Options), or (c) any combination thereof. Incentive
Stock Options can be granted only to persons who are employees (including
officers) of the Company when the options are granted. The 1996 Plan does not
impose any limitation on the number of shares of Common Stock with respect to
which options may be granted to any individual under the 1996 Plan.
During the Transition Period, the Compensation Committee made the following
grants of options to purchase Common Stock to the Senior Executives: 250,000 to
Mr. Boni, 125,000 to Mr. Zarrabian, 85,000 to Mr. Stango, 125,000 to
Mr. Imbriale and 30,000 to Mr. DiDonato. During the Transition Period, options
to purchase 785,000 shares of Common Stock were granted to all current executive
officers, as a group, including the shares to Messrs. Boni, Zarrabian, Stango,
Imbriale and DiDonato. The options which were granted in the Transition Period
were Incentive Stock Options to the extent allowable under the I.R.S. $100,000
annual limitation, and Non-Qualified Stock Options for any remainder, where
applicable, and were all granted with an exercise price equivalent to fair
market value as of the date of grant. Generally, the options granted to
executive officers in the Transition Period become exercisable at the rate of
twenty eight percent (28%) on the first anniversary date of grant and two
percent (2%) per month thereafter, subject to acceleration of vesting in the
event of achievement by the Company of certain performance goals. The
Compensation Committee believes that the staggered exercisability of option
grants, together with the lapsing of options following termination of
employment, help motivate optionees to remain with the Company over the
long-term, one of the primary objectives of the Option Plans. The Compensation
Committee also believes that the acceleration of vesting of options for
executives based on Company performance or if they are terminated without
cause or if there is a change in control of the Company helps attract and
retain them.
The Compensation Committee also believes that option grants to Company
executives will motivate optionees to generate potential gains by working to
increase the Common Stock's price over the long term. (See the Table elsewhere
in Item 11 above for potential future values of Senior Executive options,
assuming various rates of growth in the Company's stock price.) While the value
realizable from exercisable options is dependent upon the extent to which the
Company's performance is reflected in the market price of the Company's Common
Stock, whether such value will be realized in any specific year is primarily
determined by each individual executive's decision with respect to the
disposition of the shares underlying the options. Accordingly, the Compensation
Committee determined that the option grants in the Transition Period and other
Company incentives were appropriate, notwithstanding gains, if any, realized by
certain Company executives as a result of their individual decisions to
exercise during the Transition Period stock options granted in previous years
(see the Table included in this Item 11 above, indicating amounts realized by
the Senior Executives from option exercises in the Transition Period and the
value inherent in unexercised options as of the end of the Transition Period).
Other Compensation Plans
The Company has adopted certain broad-based employee benefit plans in which the
Senior Executives are permitted to participate on substantially the same terms
as non-executive employees who meet applicable eligibility criteria, subject to
any legal limitations on the amounts that may be
<PAGE> 16
contributed or the benefits that may be payable under these Company plans. Most
significant among these, is the Company's 401(k) plan.
Chief Executive Compensation for The Transition Period, and Relationship to
Company Performance
Current regulations of the Securities and Exchange Commission ("SEC") require
the Compensation Committee to discuss the Committee's basis for the compensation
reported for the Company's Chief Executive Officer, Mr. Boni, in the Transition
Period.
The Compensation Committee's general approach in setting the Chief Executive
Officer's compensation is to seek to be competitive with other companies in the
Company's industry, and to tie a large percentage of the Chief Executive
Officer's total compensation package to Company performance and to achievement
of individual goals. While this results in some variation in the level of
compensation, the Compensation Committee believes that such an arrangement
motivates the Company's Chief Executive Officer toward Company performance
goals, while acknowledging the importance of having some certainty in the level
of compensation through its non-performance based elements. In addition, the
Chief Executive Officer's compensation is set to retain a highly qualified
individual in that position especially in light of the Company's losses in the
Transition Period and fiscal 1996.
Mr. Boni's base salary for the Transition Period was $265,000 with a bonus
potential calculated at a rate equal to 4% of net income before taxes
(excluding restructuring charges) achieved by the Company. Mr. Boni received
a bonus of $27,875 in the Transition Period. During the Transition Period, Mr.
Boni also received options to purchase 250,000 shares of Common Stock. The
Compensation Committee believes that such compensation helped retain Mr. Boni
as President and Chief Executive Officer. Mr. Boni continued to guide the
Company in its transition into the client/server and object-oriented
marketplace and the development and launch of new products, devoted
substantial time and effort to seeking strategic and other relationships on
behalf of the Company, and oversaw the acquisition of Cadre Technologies, Inc.
which closed in July 1996.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS.
John J. Alexander, R. John Fletcher
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No person serving on the Compensation Committee at any time during the
Transition Period is or has been an officer or employee of the Company or had
any relationship required to be disclosed under item 404 of Regulation S-K
promulgated by the Securities and Exchange Commission.
The Registrant hereby amends "Part III. Item 12. Security Ownership of Certain
Beneficial Owners and Management" by inserting the following Item 12 in its
place and stead:
<PAGE> 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has two issued and outstanding class of voting securities, Common
Stock and Series B Convertible Preferred Stock (the "Series B Preferred"). The
holders of Common Stock are entitled to one vote for each share held. Series B
Preferred holders are entitled to that number of votes equal to the number of
shares into which the Series B Preferred is convertible.
<TABLE>
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned by all persons known by the Company to be the
beneficial owners of more than 5% of the Company's Common Stock, by each of the
Company's current Directors and nominees for Director, by each of the Company's
executive officers and by all officers and Directors of the Company, as a group,
as of March 31, 1997:
<CAPTION>
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS SHARES BENEFICIALLY OWNED
NUMBER(1) PERCENT(2)
<S> <C> <C>
Associated Capital, L.P.(3) 2,428,100 13.6%
477 Madison Avenue, 14th Floor
New York, NY 10022
Vanguard Explorer Fund, Inc. (4) 1,000,000 5.6%
One Liberty Plaza, 51st Floor
New York, NY 10006
Wellington Management Company, LLP(5) 1,000,000 5.6%
75 State Street
Boston, MA 02109
Southbrook International Investments, Ltd. (6) 997,794 5.6%
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Peter J. Boni 576,050(7) 3.1%
Cayenne Software, Inc.
8 New England Executive Park
Burlington, MA 01803
Charles W. Bachman 154,210(8) *
Cayenne Software, Inc.
8 New England Executive Park
Burlington, MA 01803
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C>
William H. D. Goddard 141,102(7) *
Ramallah Capital Corporation
5 Brown St
Providence, RI 02906
Massood Zarrabian 84,800(7) *
Cayenne Software, Inc.
8 New England Executive Park
Burlington, MA 01803
Ronald H. Imbriale 55,524(7) *
Cayenne Software, Inc.
8 New England Executive Park
Burlington, MA 01803
Eugene J. DiDonato 17,300(7) *
Cayenne Software, Inc.
8 New England Executive Park
Burlington, MA 01803
John J. Alexander 17,200(7) *
Business Technology Consulting, Inc.
75 Market Street
Portland, ME 04101
Allyn C. Woodward, Jr., 15,300(7) *
Adams, Harkness & Hill, Inc.
60 State Street
Boston, MA 02109
R. John Fletcher 15,242(7) *
Fletcher Spaght, Inc.
222 Berkeley Street
Boston, MA 02116
William F. Winslow 8,901(7) *
Cayenne Software, Inc.
8 New England Executive Park
Burlington, MA 01803
Vincent Stango 7,807(7) *
Cayenne Software, Inc.
8 New England Executive Park
Burlington, MA 01803
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C>
Frederick H. Phillips 1,750(7) *
Cayenne Software, Inc.
8 New England Executive Park
Burlington, MA 01803
Roland D. Pampel -0- *
P.O. Box 879
Essex, CT 06426
All officers and Directors as a group (13 persons) 1,095,186(9) 5.9%
<FN>
* Less than 1.0%.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them
including shares of Common Stock into which the Series B Preferred is
convertible subject to community property laws where applicable and the
information contained in the footnotes to this table. Amounts shown also
included all shares subject to stock options and warrants to purchase Common
Stock exercisable within 60 days of March 31, 1997.
(2) The number of shares of Common Stock deemed outstanding as of March 31, 1997
was 19,662,549 shares, which includes 872,689 shares subject to stock options
exercisable within sixty days of March 31, 1997, 262,500 shares subject to
warrants exercisable within sixty days of March 31, 1997 and 735,294 shares of
Common Stock issuable upon conversion of the Series B Preferred within 60 days
of March 31, 1997.
(3) Based upon a Schedule 13D dated January 16, 1997 and other information
provided by Associated Capital, L.P. for it and Associated Capital Offshore,
L.P., A. Cap, Inc., Jay H. Zises, Selig A. Zises and Nancy J. Frankel-Zises.
Represents shares beneficially owned by various entities and persons.
(4) Based upon a Schedule 13G dated February 11, 1997 provided by Vanguard
Explorer Fund, Inc. Vanguard is an Investment Company registered under Section 8
of the Investment Company Act of 1940.
(5) Based upon a Schedule 13G dated February 11, 1997 provided by Wellington
Management Company, LLP ("WMC") in its capacity as an investment advisor
registered under the Investment Advisors Act of 1990. In its capacity as
investment advisor, WMC may be deemed to have beneficial ownership of the shares
that are owned by its investment advisors' clients.
(6) Includes 735,294 shares of Common Stock issuable upon conversion of the
Series B Preferred and 262,500 shares issuable upon exercise of warrants to
purchase Common Stock. Southbrook International Investments, Ltd. holds 150,000
shares of the Company's Series B Preferred, which may be converted to shares of
Common Stock from time to time at a rate determined by the lower of the average
quoted market price of the Common Stock for either (i) the ten trading days
preceding the date of issuance or (ii) any five trading days during the period
of thirty days before the conversion. The amount of Common Stock shown in the
table reflects the amount into which the full 150,000 shares of Preferred Stock
under clause (i) above. Because the number of shares of Common Stock that will
be ultimately issued to Southbrook upon conversion of the Series B Preferred
is dependent upon the conversion formula described above, that amount (and
therefore the amount of Common Stock offered hereby) cannot be determined at
this time.
</TABLE>
<PAGE> 20
(7) Represents shares issuable upon exercise of stock options exercisable within
sixty days of March 31, 1997. For Messrs Alexander, Fletcher, Goddard, Imbriale,
Stango, Winslow and Woodward, the number of shares includes 4,800, 12,800,
8,955, 29,644, 6,101, 8,646, and 10,800 shares, respectively, issuable upon
exercise of stock options within sixty days of March 31, 1997. For Mr. Goddard,
the number of shares includes 1,236 held by him as custodian for Charlotte Ives
Goddard under the Rhode Island UTMA, as to which he disclaims any beneficial
ownership. For Mr. Phillips, the number of shares includes 350 shares held by
Mr. Phillips wife and 1,000 shares held jointly with his wife.
(8) Includes 8,760 shares held by Mr. Bachman's wife and 112,793 shares issuable
upon exercise of stock options. Excludes shares held by four of Mr. Bachman's
children; Mr. Bachman disclaims beneficial ownership of those shares.
(9) Includes 872,689 shares issuable upon exercise of stock options within sixty
days of March 31, 1997, 1,236 held by Mr. Goddard as custodian for Charlotte
Ives Goddard, 350 shares held by Mr. Phillips wife and 1,000 shares held
jointly by Mr. Phillips and his wife and 8,760 shares held by Charles W.
Bachman's wife. Excludes shares held by Mr. Bachman's four children.
<TABLE>
The following table sets forth the number of shares of Series B
Preferred beneficially owned by all persons known by the Company to be the
beneficial owners of more than 5% of the Company's Series B Preferred. The
holders of Series B Preferred are entitled to that number of votes equal to the
number of shares into which the Series B Preferred is convertible.
<CAPTION>
5% Stockholders Shares Beneficially Owned
- --------------- -------------------------
Number(1) Percent(2)
--------- ----------
<S> <C> <C>
Southbrook International Investments, Ltd........ 150,000 100%
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
<FN>
(1) The person named in the table has sole voting and investment power with
respect to all shares of Series B Preferred shown as beneficially owned
by it subject to community property laws where applicable and the
information contained in the footnotes to this table.
(2) The number of shares of Series B Preferred outstanding as of March 31,
1997 was 150,000.
</TABLE>
The Registrant hereby amends "Part III. Item 13 "Certain Relationships and
Related Transactions" by inserting the following Item 13 in its place and stead:
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MARKETING
The Company and IBM were parties to Marketing Agreements for Cooperative
Software Supplier Programs ("CSSP") giving IBM the non-exclusive right to market
and solicit orders for the Company's products in the United States, Puerto Rico
and Canada. The percentage varied over the terms of the CSSP Agreements. The
CSSP Agreement with respect to the United States and
<PAGE> 21
Puerto Rico was terminated as of October 31, 1992 and with respect to Canada
expired on June 30, 1993. The CSSP Agreements were terminated pursuant to the
terms of the Settlement Agreement.
A subsidiary of IBM, IBM World Trade Corporation, was the exclusive distributor
of the Company's products in sixteen countries in the Far East, including
Australia and Japan. IBM was also the exclusive distributor of the Company's
products in Austria. This arrangement terminated on June 30, 1993. IBM continues
as a non-exclusive sales agent in certain Asia/Pacific countries and
Switzerland.
OTHER TRANSACTIONS
For a description of the Employment Agreements between the Company and Charles
W. Bachman and Peter J. Boni and other severance and employment agreements with
named executive officers, see Item 11. "Executive Compensation--Employment and
Severance Compensation Agreements" above.
FUTURE TRANSACTIONS
All future transactions, including loans, between the Company and executive
officers, Directors, principal stockholders and their affiliates will be on
terms no less favorable to the Company than could reasonably have been obtained
in arm's-length transactions with independent third parties, and such
transactions will be subject to approval by a majority of the disinterested
outside Directors of the Company.
<PAGE> 22
SIGNATURES
Pursuant to the requirements 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.
CAYENNE SOFTWARE, INC.
Dated: April 30, 1997 By: /S/ Frederick H. Phillips
-------------------------------------------
Frederick H. Phillips
Vice President, Finance and Administration,
Treasurer and Chief Financial and
Accounting Officer
(Principal Financial and Accounting
Officer)
