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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM JULY 1, 1996 THROUGH DECEMBER 31, 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
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
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 March 26, 1997, there were 17,741,616 shares outstanding of the
registrant's common stock, $0.01 par value. As of that date, the aggregate
market value of common stock held by non-affiliates of the registrant was
approximately $65,308,796.
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CAYENNE SOFTWARE, INC.
FORM 10-K FOR THE TRANSITION PERIOD ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business................................................................. 3
Item 2. Properties............................................................... 16
Item 3. Legal Proceedings........................................................ 16
Item 4. Submission of Matters to a Vote of Security Holders...................... 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ... 17
Item 6. Selected Financial Data.................................................. 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 20
Item 8. Financial Statements and Supplementary Data.............................. 36
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................................... 56
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 56
Item 11. Executive Compensation.................................................. 56
Item 12. Security Ownership of Certain Beneficial Owners and Management ......... 57
Item 13. Certain Relationships and Related Transactions.......................... 57
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ....... 57
Signatures....................................................................... 61
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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 workgroup-to-enterprise analysis
and design solutions for the real-world challenges software developers face
every day. 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 computer aided
software engineering and structured modeling in addition to client/server
modeling and database design and object-oriented modeling 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.
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.
In October 1996, the Company elected to change its year end to December
31st. As a result, the period from July 1, 1996 through December 31, 1996 was
designated as the "Transition Period."
As the Company continues its migration toward providing customers a
more open and flexible set of solutions, it faces many challenges. The Company
has addressed some of these challenges over the past several years by
introducing additional products through internal development and acquisitions
targeted at the client/server and object-oriented markets. 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 the transition period from July 1, 1996 through
December 31, 1996 and prior fiscal years ended June 30, 1996, 1995 and 1994,
respectively, and may continue to adversely affect operating results in the
future.
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. Cadre is now a wholly-owned subsidiary of the Company. The acquisition was
accounted for as a "pooling of interests" during the six-month transition period
ended
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December 31, 1996. 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.
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 specific user constituencies. 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 scaleable, meaning they can be sized to meet the
small or large demands of the organizational units they support. Scaleable
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 1970s, 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.
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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 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. In 1993
when market momentum began to build around a related method called the Object
Modeling Technique ("OMT"), Cadre entered the market by reselling an OMT
product. This was later 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.
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
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different sizes or technologies. But Cayenne and many of Cayenne's customers see
significant value in creating a scaleable 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 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 mainframe, structured, object-oriented and client/server
technologies.
As the Company continues its migration toward providing customers a more
open and flexible set of solutions aimed at the growing object-oriented and
client/server markets, it faces many challenges. To address some of these
challenges the Company has introduced a suite of additional products targeted at
the object-oriented and client/server markets. 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 the six-month transition period ended December 31, 1996, and
during fiscal years ended June 30, 1996, 1995 and 1994, respectively.
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
-- 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.
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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.
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 scaleable
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 its client/server,
object-oriented mainframe and structured analysis solutions, recognizing that
many organizations will need to maintain multiple types of environments for some
time to come. The Company is positioned in the midst of several industry
megatrends. Trends towards data warehousing, the internet and intranet, the use
of the object-oriented software
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development approach, and year 2000 data field initiatives are fueling market
demand for the Company's products that address these trends.
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;
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.
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, scaleable 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,
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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.
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
scaleable 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 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
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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.
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. The Company no longer actively sells and markets Serveyor.
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 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 time required to fix the problems. It can also correct certain date
dependency problems in the COBOL source code.
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.
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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. The Company has also
developed a Java code generator for ObjectTeam. In August 1996, the Company
entered into a strategic alliance with Project Technology, Inc., a provider of
Schlaer Mellor based object technology for software development in order to
provide current ObjectTeam for Schlaer Mellor customers an upgrade path to
Project Technology's Bridgepoint tool set.
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 51%, 52%, 50% and 48% of Cayenne's revenues during the
six-month transition period ended December 31, 1996 and 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.1., 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 marketing and sales 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. In connection with
the Cadre merger, the Company has acquired subsidiaries in the Netherlands and
Australia.
Approximately 4%, 7%, 6% and 5%, of Cayenne's revenue during the six-month
transition period ended December 31, 1996 and fiscal 1996, 1995 and 1994,
respectively, 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.
- 11 -
<PAGE> 12
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. 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. As of December 31, 1996, Cayenne had over 52,000
installations worldwide, and a customer base of nearly 2,000 large enterprises
worldwide that include businesses in a wide variety of industries.
Historically, Cayenne relied significantly on its relationship with IBM for
development and marketing of Cayenne's products. IBM was Cayenne's single
largest customer during the transition period ended December 31, 1996 and in
each of fiscal 1996, 1995 and 1994 when revenue from IBM (including license 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 16%,
15%, 9% and 6% 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 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.
The Company offers three types of maintenance support at three price
points. Basic Support provides customers who do not desire "hot line" access
only with periodic product upgrades and feature/function enhancements.
Additionally, Basic Support includes access to all services delivered through
Cayenne's computer bulletin board and internet site. Call Plus, available to
those customers who purchase basic support, provides specified personnel access
to the Company's "Hot Line" for an additional annual fee. In addition to
including all of the benefits of the Company's Basic Support and Call Plus
maintenance, Premium Support subscribers are provided access to Cayenne's "Hot
Line" support and shipment of unscheduled, emergency patches for documented
errors or defects in the latest unmodified release. In addition, Premium Support
customers receive discounts off the list price of Cayenne's annual user
conference, public training courses, and on-site training (based on
availability).
TRAINING AND CONSULTING
Cayenne provides conceptual and product-oriented training courses for
customers at education facilities in the United States in Atlanta, Burlington
(Massachusetts) and New York City as well as in Toronto, Canada;
Boulogne-Billancourt, France; Turin, Italy; Munich and Wiesbaden, Germany;
Delft, Netherlands 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.
- 12 -
<PAGE> 13
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 subsidiaries in Australia, Canada,
Germany, Italy, France, the Netherlands, Singapore, Spain and the United
Kingdom. Distributors, agents and other resellers market Cayenne's products in
over 60 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 and object-oriented
development marketplace and in an effort to promote distribution through
alternate channels, Cayenne has been actively engaged in building alternate
distribution channels such as value-added resellers ("VARs") and system
integrators worldwide.
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. During the transition
period ended December 31, 1996 and in fiscal 1996 and 1995, Cayenne pursued a
focused marketing campaign to increase awareness of the value of Cayenne's
solutions in client/server and object-oriented 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. In connection with the Cadre acquisition, the Company also supports
development staff in the Netherlands.
- 13 -
<PAGE> 14
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. 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 the six-month transition period ended December 31, 1996, and in fiscal
1996, 1995, and 1994, Cayenne spent $5.4 million, $14.4 million, $17.1 million
and $20.1 million respectively, on internal product development. Also during
fiscal 1995 and 1994, the Company recorded charges for purchased research and
development of $7.3 million and $1.7 million upon the closing of the
acquisitions of Westmount Technology B.V. and Cooperative Solutions, Inc.,
respectively.
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 Aonix (formerly, Interactive
Development Environments, Inc.) In the object-oriented market, Cayenne's primary
competitors are Rational Software Corp., Platinum Technology, Inc. and Aonix.
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
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<PAGE> 15
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 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.
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 year, with traditionally its lowest product license revenues
occurring in the third quarter of each 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.
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<PAGE> 16
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 February 28, 1997, Cayenne employed 344 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 62,000 square feet of space in 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;
Wiesbaden and 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
On November 20, 1996, the Company held a special meeting of stockholders in lieu
of annual meeting (the "Special Meeting"). The matters to be voted upon at the
Special Meeting included the election of two members of the Board of Directors
to serve as the Class B Directors of the Company and the approval of the
Company's Amended 1996 Incentive and Nonqualified Stock Option Plan. R. John
Fletcher and Peter J. Boni were elected as the Class B Directors at the Special
Meeting. John J. Alexander, Allyn C. Woodward. Charles W. Bachman and William
H.D. Goddard were the Company's other directors whose term of office continued
after the meeting.
Voting on the matters considered by the security-holders was as follows:
<TABLE>
<CAPTION>
Broker Withheld
For Against Abstain Non-Vote Authority
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Approval of Amended 1996 Incentive and
Non-qualified Stock Option Plan 3,041,297 963,277 40,996 8,105,864 -
Approval of Election of Class B Directors:
Peter J. Boni 11,571,668 - - - 579,766
R. John Fletcher 11,572,953 - - - 578,481
</TABLE>
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<PAGE> 17
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. In October 1996, the Company changed its fiscal year from June 30
to December 31. Accordingly, the transition period only includes stock prices
for the first and second quarters.
<TABLE>
<CAPTION>
Transition Period
Ended December 31, 1996 Fiscal Year 1996 Fiscal Year 1995
----------------------- ---------------- ----------------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter $7.125 $4.00 $ 7.875 $5.75 $2.75 $1.75
Second Quarter 5.6875 3.8125 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 March 26, 1997, there were 622 stockholders of record of the
Company's common stock.
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<PAGE> 18
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:
Statement of Operations Data (in thousands, except per share data)
<TABLE>
<CAPTION>
Transition
period Prior period Year ended June 30,
ended ended
December 31, December 31,
1996 1995 1996 1995 1994 1993 1992
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license $ 10,131 $ 15,951 $ 26,282 $ 29,849 $ 36,171 $ 39,780 $ 64,729
Consulting and education
services 4,684 5,915 12,367 14,306 13,590 13,473 10,389
Maintenance 13,161 14,366 27,237 28,634 27,317 24,245 19,609
Other -- -- -- -- -- 798 3,807
-------------------------------------------------------------------------------
Total revenues 27,976 36,232 65,886 72,789 77,078 78,296 98,534
Costs and expenses:
Cost of revenues
Cost of software licenses 1,521 2,241 3,999 6,105 5,688 4,464 5,886
Cost of consulting and education
services and maintenance 4,975 7,044 12,910 15,953 13,728 13,219 9,900
Sales and marketing 12,488 16,978 32,614 37,656 41,375 47,055 51,394
Research and development 5,411 7,957 14,448 17,059 20,128 14,790 16,832
General and administrative 3,307 4,370 8,530 8,062 7,783 9,946 9,620
Restructuring and other costs 6,300 1,694 2,819 5,483 -- 9,744 1,495
Charge for purchased
research and development -- 158 158 7,300 1,736 -- --
-------------------------------------------------------------------------------
Total Costs and expenses 34,002 40,442 75,478 97,618 90,438 99,218 95,127
-------------------------------------------------------------------------------
Income (loss) from operations (6,026) (4,210) (9,592) (24,829) (13,360) (20,922) 3,407
Interest income (expense), net (225) (77) (547) 202 485 669 688
Other income (expense), net 282 (111) (84) 34 80 273 (76)
-------------------------------------------------------------------------------
Income (loss) before provision for income
taxes and extraordinary item (5,969) (4,398) (10,223) (24,593) (12,795) (19,980) 4,019
Provision for income taxes 399 404 1,124 297 407 94 1,758
-------------------------------------------------------------------------------
Income (loss) before extraordinary item (6,368) (4,802) (11,347) (24,890) (13,202) (20,074) 2,261
Extraordinary item - reduction of income
taxes due to utilization of prior years' net
operating losses -- -- -- -- -- 41 909
-------------------------------------------------------------------------------
Net income (loss) $ (6,368) $ (4,802) $(11,347) $(24,890) $(13,202) $(20,033) $ 3,170
-------------------------------------------------------------------------------
Income (loss) per common share:
Income (loss) before extraordinary
item $ (0.36) $ (0.32) $ (0.71) $ (1.86) $ (1.06) $ (1.72) $ 0.20
Extraordinary item -- -- -- -- -- -- 0.08
-------------------------------------------------------------------------------
Net income (loss) per common share $ (0.36) $ (0.32) $ (0.71) $ (1.86) $ (1.06) $ (1.72) $ 0.28
===============================================================================
Weighted average number of common
and common equivalent shares
outstanding 17,590 15,103 15,914 13,350 12,484 11,647 11,506
===============================================================================
</TABLE>
BALANCE SHEET DATA
(in thousands)
<TABLE>
<CAPTION>
Transition Period
Ended Year Ended June 30,
December 31, ------------------------------------------------------
1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Working capital $ (3,940) $ 499 $ (1,638) $ 8,193 $21,334 $37,233
Total assets 22,236 34,099 35,384 46,439 62,481 81,094
Long-term obligations 106 2,096 2,534 -- 2,551 3,049
Redeemable Series A
Convertible Preferred Stock -- -- 5,493 -- -- --
Stockholders' equity (deficit) (655) 2,624 (2,753) 17,336 28,229 47,420
</TABLE>
- --------------------
- 18 -
<PAGE> 19
(1) The above tables reflect the results of the combined company. The Company's
fiscal 1996 results have been combined with Cadre's results for the twelve
months ended June 30, 1996. The Company's results for fiscal 1995, 1994, 1993
and 1992 have been combined with Cadre's calendar year end results for the same
period. In this presentation, Cadre's financial data for the period July 1, 1995
to December 31, 1995 is included in both the periods ended June 30, 1996 and
1995.
- 19 -
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cayenne Software, Inc. is one of the largest global suppliers of
analysis and design solutions for commercial and technical application and
database development. Cayenne offers development teams a scaleable,
workgroup-to-enterprise product family for object-oriented, data driven and
structured application development approaches.
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 acquired all of the outstanding capital stock of Cadre in exchange
for 4,716,442 shares of Cayenne common stock (the "merger"). The merger was
accounted for as a pooling-of-interests during the transition period ended
December 31, 1996. 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 as well as to expand its customer base.
In October 1996, the Company changed its fiscal year end from June 30th
to December 31st. As a result the period from July 1, 1996 through December 31,
1996 was designated as "the transition period."
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 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."
- 20 -
<PAGE> 21
RESULTS OF OPERATIONS
Cayenne's operating results for the transition period ended December
31, 1996 and prior fiscal periods ended June 30 1996, 1995 and 1994,
respectively, were significantly adversely affected by the market trends of the
Company's customers moving from mainframe development and structured analysis
towards client/server and object-oriented solutions, together with Cayenne's
efforts to respond to those trends. Additionally, the contraction of federal
defense programs has led to industry consolidation thereby reducing the
Company's customer base for its technical embedded products.
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 heavily on its relationship
with IBM for development and marketing of its products. Prior to fiscal 1993,
Cayenne's products were designed primarily for organizations that employed IBM
and IBM-compatible mainframe computers, 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.
IBM was Cayenne's single largest customer during the transition period ended
December 31, 1996 and in the previous fiscal years ended June 30, 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 16%, 15%, 9%, and 6%
of Cayenne's total revenue, respectively.
While Cayenne expects its broadened focus will benefit Cayenne in the long-term,
there can be no assurance that the foregoing trends 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.
- 21 -
<PAGE> 22
REVENUES
As the Company continues its migration to providing customers a more
open and flexible set of solutions aimed at the growing client/server and
object-oriented market, it faces many challenges. The Company has addressed some
of these challenges through the acquisition of Cadre which provides the Company
with broader product offerings and a significantly larger customer base from
which to solicit new and additional business. Additionally, the Company has
introduced several new products during the past three years through both
internal development and acquisitions that are targeted at the client/server and
object-oriented markets. 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 performance
during the six month transition period ended December 31, 1996 and fiscal years
ended June 30, 1996, 1995 and 1994, respectively.
The Company's revenues are currently derived from three sources: (i)
fees for the perpetual license of the company'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 the
Company's software products.
THE SIX MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1996 COMPARED TO 1995
SOFTWARE LICENSES. Software license revenue during the six month
transition period ended December 31, 1996 amounted to $10.1 million compared to
$16.0 million for the comparable period of 1995. The $5.9 million or 36%
decrease in license revenues during the transition period resulted primarily
from migration by the Company's customers from structured analysis and mainframe
solutions toward object-
- 22 -
<PAGE> 23
oriented and client/server solutions. This migration resulted in a reduction of
revenues from the Company's Analyst and Teamwork products. Additionally,
contraction of federal defense programs led to industry consolidation,
contributing to a reduction in the Company's technical embedded customer base
and specifically reduced revenues from the Company's Teamwork and
Teamwork-related products. As a result, the Company's worldwide revenue
decreased from the comparable six months of the prior year. Also, a series of
significant orders were received 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 15% of total software license revenue
for the six months ended December 31, 1995 and were not duplicated during the
transition period.
Client/server and object-oriented products accounted for 50% of new
license revenue during the six month transition period ended December 31, 1996,
compared to 24% for the comparable period of the prior year. The Company expects
this trend to continue during 1997 as both client/server and object-oriented
solutions continue to gain global acceptance and installed customers elect to
follow market trends and migrate from mainframe and structured tools to
client/server and object-oriented solutions. Total license revenues in the
United States and the United Kingdom declined 14% and 31%, respectively, due to
the aforementioned migration trends. Total license revenue in Italy declined 59%
during the period primarily due to a series of significant orders booked in the
comparable period of 1995. No similar orders were booked during the transition
period.
CONSULTING AND EDUCATION SERVICES. Consulting and education services
revenue during the six month transition period ended December 31, 1996 amounted
to $4.7 million compared to $5.9 million for the comparable period of the prior
year. The $1.2 million or 21% decrease in consulting and education service
revenues is attributable to reduced software license revenue, lower customer
demand and reduced staffing in this area. Consulting and education revenue in
Italy increased by $0.2 million or 5%, while United States and United Kingdom
revenues declined by $1.2 million or 57% and $0.2 million or 40% , respectively.
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, consulting and education revenue during the transition period as
compared to the same period ended 1995 has followed the decline in license
revenue experienced in the United States and United Kingdom. The increase in
consulting and education revenue in Italy is attributable to several long-term
consulting contracts signed during fiscal 1996.
MAINTENANCE. Maintenance revenue for annual maintenance contracts is
deferred and recognized ratably over the term of the agreement. Maintenance
revenue for the six month transition period ended December 31, 1996 amounted to
$13.2 million compared to $14.4 million for the comparable period of the prior
year. Maintenance revenue in Italy and the United Kingdom increased by $0.5
million and $0.2 million or 54% and 10%, respectively. Increased maintenance
revenue in Italy and the United Kingdom resulted from increased penetration of
international markets in the prior year combined with an increased portion of
the customer base that renewed maintenance contracts. Maintenance revenue in the
United States declined $1.4 million or 17% due to industry consolidation in the
technical embedded market place, and the aforementioned market place migration
to client/server and object-oriented tools and fewer
- 23 -
<PAGE> 24
customers renewing their maintenance contracts on mainframe and structured
analysis tools. Although maintenance revenue from the Company's client/server
and object-oriented tools has not fully offset the decline in maintenance
revenue from its mainframe and structured analysis and design tools to date,
maintenance revenue from those products has grown in the transition period ended
December 31, 1996 as compared to the comparable period of the prior year and the
renewal rate has remained relatively constant.
COST OF REVENUES. The Company's cost of software licenses includes
product packaging, documentation, media and royalties to third parties, as well
as the amortization of capitalized software development costs. Costs of
consulting and education services and maintenance includes personnel, travel and
occupancy costs connected with providing such services.
Cost of software licenses were $1.5 million or 5% of revenue during the
six month transition period ended December 31, 1996 compared with $2.2 million
or 6% of revenue in the comparable period of 1995. The $.7 million decrease in
1996 expenses reflects reduced sales of third party product for which the
Company pays a royalty to resell as well as reduced manufacturing costs
consistent with lower revenues. Additionally, amortization related to WindTunnel
was $0 in the transition period compared to $.2 million in the same period of
the prior year. This reduction is directly related to the Company's
determination in June 1996 that the WindTunnel product was no longer consistent
with the Company's objectives.
Cost of consulting, education and maintenance were $5.0 million or 18%
of revenue during the six month transition period ended December 31, 1996
compared with $7.0 million or 19% of revenue in the comparable period of 1995.
The $2.0 million decrease in 1996 expenses generally reflects reduced staffing
levels as a result of company efforts to better align staffing with demand,
attrition and the merger.
SALES AND MARKETING. Sales and marketing expenses were $12.5 million or
45% of revenue during the six month transition period ended December 31, 1996
compared with $17.0 million or 47% of revenue in the comparable period of 1995.
The $4.5 million decrease in expenses during the transition period primarily
reflects reduced marketing expenses including trade show attendance and
advertising together with reduced staffing in North America and international
subsidiary operations as a result of attrition and the merger.
- 24 -
<PAGE> 25
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 research and development. During the transition period ended
December 31, 1996, the Company focused the majority of its research and
development efforts on the release of new products and the refreshing of the
existing product lines to prolong their lives. Research and development expenses
were $5.4 million or 19% of revenue during the six month transition period ended
December 31, 1996 compared with $8.0 million or 22% of revenue in the comparable
period of 1995. The $2.6 million decrease in expenses during the transition
period primarily reflects reduced staffing as a result of attrition and the
merger. Additionally, during the quarter ended June 30, 1996, and in conjunction
with the merger, the Company reviewed its product strategy and determined that
several products including WindTunnel were no longer consistent with the
Company's objectives. These efforts shifted resources toward developing and or
refining client/server and object-oriented products consistent with the
Company's objectives.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$3.3 million or 12% of revenue during the six month transition period ended
December 31, 1996 compared with $4.4 million or 12% of revenue in the comparable
period of 1995. The $1.1 million decrease in expenses during the transition
period primarily reflects lower levels of staffing which were the result of the
merger and the elimination of redundant positions.
RESTRUCTURING AND OTHER COSTS. On July 18, 1996, the Company acquired
Rhode Island-based Cadre in a merger transaction accounted for as a pooling of
interests. The Company acquired all of the outstanding capital stock of Cadre in
exchange for 4,716,442 shares of its common stock. In conjunction with the
merger, and to reflect costs associated with combining the operations of the two
companies, transaction fees, and other costs, the Company recorded a
restructuring charge of $6.3 million during the six month transition period
ended December 31, 1996. Included in the charge is $1.6 million of employee
related termination expenses, $1.3 million of legal, accounting, investment
banking and other professional fees, $1.4 million of facility closure and
consolidation expenses, and $2.0 million of other miscellaneous expenses
associated with the consolidation of the two companies and the company name
change. This compares to a $1.7 million charge recorded in the comparable period
of 1995 related to the Company's acquisition of Westmount Technologies B.V.
("Westmount") which included primarily employee related termination expenses.
EFFECT OF INTERNATIONAL OPERATIONS ON INCOME (LOSS) FROM OPERATIONS
<TABLE>
<CAPTION>
Transition Prior Period
Period Ended Ended Year Ended
December 31, December 31, June 30,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS
United States $(1,239) $(3,308) $ (3,497) $ (9,419) $ (8,771)
Italy 113 1,317 336 (540) (452)
United Kingdom (1,194) (481) (1,096) (2,044) (1,274)
Rest of World (3,706) (1,738) (5,335) (12,826) (2,863)
----------------------------------------------------------------------
$(6,026) $(4,210) $ (9,592) $(24,829) $(13,360)
======================================================================
</TABLE>
In addition to the factors listed above, the operations of the
Company's international subsidiaries significantly affected results of
operations during the six month transition period ended December 31, 1996 and
the comparable period of 1995.
- 25 -
<PAGE> 26
The loss from operations -- United States and Rest of World --remained
relatively flat during the transition period at $4.9 million compared to the
corresponding period of the prior year due to reduced spending in the sales and
marketing, research and development and general and administrative areas. These
savings were offset by the aforementioned restructuring charge of approximately
$5.6 million in the United States and $0.2 million in Rest of World. A similar
charge of $1.7 million was recorded in the comparable period of 1995.
The Company's Italian subsidiary reported income from operations of
$0.1 million during the transition period compared to $1.3 million in the
corresponding period in the prior year. The lower net income is principally due
to a series of significant orders received from a large systems integrator
during December 1995 which were not duplicated during the transition period.
The loss from operations in the Company's United Kingdom subsidiary
increased 148% during the six month transition period ended December 31, 1996 to
$1.2 million compared to the corresponding period in the prior year principally
due to lower software license, and consulting and education revenues during the
period. Additionally, the United Kingdom recorded a restructuring charge of
approximately $0.4 million during the transition period.
OTHER INCOME (EXPENSE), NET. Other income during the six-month
transition period ended December 31, 1996 increased slightly compared to the
same period of the prior year primarily due to lower debt levels combined with
reduced interest rates on outstanding balances.
PROVISION FOR INCOME TAXES. Due to operating losses during the
transition period ended December 31, 1996 and the comparable period of 1995, the
tax provision for those periods is composed primarily of foreign withholding
taxes and income taxes related to the profitability of certain foreign
subsidiaries. At December 31, 1996, the Company has a deferred tax asset of
approximately $39.0 million composed principally of net operating loss
carryforwards, which was offset fully by a valuation allowance due to the
uncertainty of realization.
1996 COMPARED TO 1995
SOFTWARE LICENSES. Software license revenue for fiscal 1996 amounted to
$26.3 million compared to $29.8 million for fiscal 1995. The $3.5 million or 12%
decrease resulted primarily from migration by the Company's customers from
structured analysis and mainframe solutions toward object-oriented and
client/server solutions. This migration resulted in a reduction of revenues from
the Company's Analyst and Analyst related products. Additionally, contraction of
federal defense programs led to industry consolidation, contributing to a
reduction in the Company's technical embedded customer base, and specifically
reducing revenues from the Company's Teamwork and related products. The decline
was partially offset by a series of significant orders received 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 9%
of total software license revenue for the fiscal year ended June 30, 1996.
Client/server and object-oriented product license revenue accounted for 28%
of license revenue for the year ended June 30, 1996, compared to 16% for the
year ended June 30, 1995. These results reflect the continued market trend in
the United States to migrate from structured and mainframe environments to
object-oriented and client/server environments. The Company's suite of
client/server products was available during the fourth quarter of fiscal 1995
and its own object-oriented products were introduced when the Company acquired
Westmount in May 1995. Total license revenues in the United States and United
Kingdom declined 24% and 36%, respectively due to the aforementioned migration
trends. Total license revenue in Italy increased by 100% during fiscal 1996 due
to a series of significant orders from a major systems integrator and increased
market penetration.
- 26 -
<PAGE> 27
CONSULTING AND EDUCATION SERVICES. Total consulting and education revenue in
fiscal 1996 amounted to $12.4 million compared to $14.3 million for the
comparable period of the prior year. The $1.9 million or 14% decrease in
consulting and education service revenue is attributable to reduced software
license sales, lower customer demand and reduced staffing. Consulting and
education revenue in Italy increased by $1.0 million or 19%, while United States
and United Kingdom revenues declined by approximately $1.0 million and $1.1
million or 18% and 44%, respectively, for the year ended June 30, 1996 compared
to the prior fiscal year. 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 and United Kingdom has caused the consulting
and education revenue also to decline in fiscal 1996 from fiscal 1995. 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.
MAINTENANCE. Maintenance revenue for annual maintenance contracts is
deferred and recognized ratably over the term of the agreement. Maintenance
revenue amounted to $27.2 million compared to $28.6 million for the comparable
period of the prior fiscal year. Maintenance revenue in Italy and the United
Kingdom increased by $0.5 million and $0.1 million or 42% and 2%, respectively.
The increase in maintenance revenue in Italy and United Kingdom resulted from
increased penetration of the international markets along with an increase in the
portion of the customer base that renewed maintenance contracts. Maintenance
revenue in the United States declined by $0.3 million or 2% primarily from the
aforementioned market place migration to client/server and object-oriented tools
and fewer customers renewing their maintenance contracts on mainframe and
structured analysis based tools. Maintenance revenue, rest of world, declined
$1.7 million or 22% due to a decrease in the portion of customers renewing
maintenance contracts and a decline in new license revenues. The aggressive
migration from mainframe and structured products to client/server and
object-oriented products has resulted in an increased number of customers not
renewing their maintenance contracts. The Company's client/server and
object-oriented products were introduced late in fiscal 1995 and have not offset
the declines in mainframe and structured revenues.
COST OF REVENUE. Costs of software licenses were $4.0 million or 6% of
revenue during fiscal 1996 compared with $6.1 million or 8% of revenue in the
comparable period of fiscal 1995. The $2.1 million decrease in expenses reflects
reduced sales of third party products for which the Company pays a royalty to
sell as well as reduced manufacturing costs consistent with lower revenues. Cost
of software licenses as a percentage of related software license revenue was 15%
and 20% for fiscal 1996 and 1995, respectively.
The cost of consulting, education and maintenance were $12.9 million or 20%
of revenue during fiscal 1996 compared with $16.0 million or 22% of revenue in
the comparable period of fiscal 1995. The $3.1 million 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. Sales and marketing expenses were $32.6 million or 50%
of revenue during fiscal 1996 compared with $37.7 million or 52% of revenue in
the comparable period of 1995. The $5.1 million decrease in sales and marketing
expenses during the year resulted primarily because of reduced marketing
activities and reduced headcount. During the fourth quarter of fiscal 1996, the
Company had increased marketing costs of approximately $0.6 million principally
related to advertising and promotion of the Company's new name and
- 27 -
<PAGE> 28
product strategy. This compares to $0.6 million 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. 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 and
object-oriented markets. Research and development expenses were $14.4 million or
22% of revenue during fiscal 1996 compared with $17.1 million or 23% in the
comparable period of 1995. The $2.7 million decrease in research and development
expenses is due primarily to the restructuring taken by the company in fiscal
1995 to reduce headcount and consolidate facilities. Additionally, reduced
spending on the Company's Paradigm Plus product, which was replaced by
ObjectTeam together with reduced spending on Ellipse and WindTunnel products,
which are no longer considered strategic to the Company, contributed to lower
expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $8.5
million or 13% or revenue during fiscal 1996 compared with $8.1 million or 11%
or revenue in the comparable period of 1995.
RESTRUCTURING AND OTHER COSTS. During fiscal 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 $1.1 million principally related to the write-off of
the intangible asset acquired as part of its acquisition of WindTunnel Software,
Inc. ("WindTunnel"). (See, also, Note 13 to Notes to Consolidated Financial
Statements.)
In the quarter ended December 31, 1995, formal plans were adopted and
approved by executive management to restructure operations related to the
absence of Windows-based object-oriented products. After the Westmount
acquisition, the Company had planned to introduce and sell object-oriented
Windows 95 and NT-based products during the quarter ended December 31, 1995.
When it became apparent that the product was not going to become available
during the quarter, and as a result revenues would be less than expected, the
Company needed to reduce expenses to an appropriate level. A charge of $1.7
million principally related to a reduction in force (approximately 47 employees)
was recorded in December 1995. At December 31, 1996 the Company has met
substantially all obligations with regard to this restructuring.
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 $2.0 million during the
three months ended September 30, 1994. The restructuring included a charge of
approximately $1.5 million 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 $0.3
million 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. 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 $0.2 million and
are included in the restructuring charge. At December 31, 1996, the Company
believes it has met all obligations with regard to the restructuring.
- 28 -
<PAGE> 29
During the quarter ended June 1995, formal plans were adopted and approved
by executive management to restructure operations thereby eliminating redundant
capitalized software development costs and reducing company-wide expenses. The
purpose of the Westmount acquisition was to acquire Westmount's object-oriented
technology, which essentially replaced the Company's existing object-oriented
product line. The redundant software development cost write-off was $0.9 million
and consisted of internally developed and capitalized costs related to the
Company's old product. Additionally, the Company reduced expenses to better
align them with revenues. Restructuring costs during the quarter ended June 1995
amounted to $1.8 million and included the previously mentioned $0.9 million
write off of capitalized software development costs, $0.8 million of employee
related costs and $0.1 million for other costs related to the restructuring. At
December 31, 1996 the Company believes that it has met all obligations with
regard to the restructuring.
CHARGE FOR PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. On May 1, 1995, the
Company acquired Westmount Technology, B.V. ("Westmount") in a transaction
accounted for as a purchase for approximately 679,000 shares of common stock and
185,000 warrants to purchase additional shares. The purchase price was allocated
to assets and liabilities based on their estimated fair values as of the date of
acquisition. The cost in excess of net assets acquired of $8.1 million was
identified as purchased research and development. The software technology was
valued at $0.8 million and the technology in process was valued at $7.3 million.
This technology had not reached technological feasibility and had no future
alternative use, as a result, the technology in process was charged to earnings
during the fourth quarter of fiscal 1995.
EFFECT OF INTERNATIONAL OPERATIONS ON INCOME (LOSS) FROM OPERATIONS
In addition to the factors listed above, the operations of Cayenne's
international subsidiaries significantly affected its results of operations in
fiscal 1996 and 1995.
The loss from United States and Rest of World operations decreased by $13.4
million or 60% to $8.8 million primarily due to charges related to the 1995
acquisition of Westmount combined with reduced headcount and other cost control
measures implemented by the Company. The loss from operations in the United
Kingdom decreased by $0.9 million during fiscal 1996 to $1.1 million primarily
due to headcount reductions and other cost control measures. For fiscal 1996,
Italian operations reported a $0.3 million profit compared to a loss of $0.5
million 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 income (loss) from operations in 1996 are $2.8 million of
restructuring and other costs, $2.3 million in the United States and $0.5
million in rest of world. Results for 1995 include $5.5 million of restructuring
and $7.3 million of in-process R&D charges, $4.1 million in the United States,
$0.1 million in Italy, $0.1 million in United Kingdom and $8.5 million in Rest
of World (primarily Netherlands).
OTHER INCOME (EXPENSE), NET
Interest expense, net increased in fiscal 1996 compared to fiscal 1995
primarily due to increased borrowings under a factoring agreement which was
terminated at the time of the merger and lower levels of average invested cash.
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.
1995 COMPARED TO 1994
SOFTWARE LICENSES. Software license revenue during fiscal 1995 amounted to
$29.8 million compared to $36.2 during the comparable period of 1994. The $6.4
million or 17% decrease in license revenues during fiscal
- 29 -
<PAGE> 30
1995 resulted primarily from migration by the Company's customers from
structured analysis and mainframe solutions toward object-oriented and
client/server solutions. The Company's suite of client/server solutions was
available in late fiscal 1995 and was not a significant portion of the Company's
revenue in 1995. The lack of a set of client/server solutions impacted the
Company's ability to attract new customers and retain existing customers
contributing to the decline. Additionally, during 1995, the Company's transition
from selling third party object-oriented tools to internally developed tools was
delayed and resulted in the Company's inability to offer certain object-oriented
solutions for several months.
Client/server and object-oriented product license revenue accounted for 16%
of license revenue for the year ended June 30, 1995, compared to 8% for the year
ended June 30, 1994. The increase in Client/server and object-oriented product
license revenue is primarily attributable to the release in late 1995 of the
Company's client/server products. Total license revenues in the United States
and United Kingdom declined 13% and 25% , respectively, due to the
aforementioned market trends. Total license revenue in Italy declined 16% due to
lower than expected revenues from large customers.
CONSULTING AND EDUCATION SERVICES. Total consulting and education services
revenue in fiscal 1995 amounted to $14.3 million compared to $13.6 million for
the comparable period of the prior fiscal year. The $0.7 million or 5% increase
in consulting and education service revenue is primarily attributable to the
increased number and use of courses and services available to Cayenne's large
customer base in the Company's international subsidiaries combined with the
addition of several long-term consulting contracts. Consulting and education
revenue in Italy and the United Kingdom increased by $1.7 million and $1.1
million or 45% and 84%, respectively while United States revenues declined $1.5
million or 22% during the fiscal year. Typically, consulting and education
revenue follows the trend of software license revenue and, therefore, the
decline in the consulting and education revenue in fiscal 1995 from fiscal 1994
has followed the decline in software license revenue during such periods.
MAINTENANCE. Maintenance revenue for annual maintenance contracts is
deferred and recognized ratably over the term of the agreement. Maintenance
revenue for fiscal year 1995 amounted to $28.6 million compared to $27.3 million
for the comparable period of 1994. Maintenance revenue in Italy and United
Kingdom increased $0.5 million and $0.7 million or 60% and 23% , respectively.
These increases resulted from increased penetration of the international markets
along with an increase in the portion of the customer base that renewed
maintenance contracts. Maintenance revenue in the United States remained flat
due to an increased customer base which was offset by a reduction in the
percentage of customers renewing maintenance contracts.
COST OF REVENUE. Costs of software licenses were $6.1 million or 8% of
revenue during fiscal 1995 compared with $5.7 million or 7% of revenue in the
comparable period of 1994. The $0.4 million increase in Fiscal 1995 expenses
reflects increased sales of third party products for which the Company pays a
royalty to resell. Included in the cost of licenses during fiscal 1995 and 1994
is amortization of approximately $0.5 million and $0.4 million of purchased
software related to the September 1993 acquisition of WindTunnel. Fiscal 1994,
included the write-off of $0.3 million of certain prepaid software royalties.
Included in cost of software licenses was amortization of capitalized software
development costs of $0.7 million and $1.0 million for fiscal 1995 and 1994,
respectively. Cost of software licenses as a percentage of related software
license revenue was 20% and 16% for fiscal 1995 and 1994, respectively.
- 30 -
<PAGE> 31
The cost of consulting, education and maintenance were $16.0 million or 22%
of revenue during the fiscal year ended June 1995 compared with $13.7 million or
18% of revenue in the comparable period of 1994. The $2.3 million increase in
expenses 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. Sales and marketing expenses were $37.7 million or 52%
of revenue during fiscal 1995 compared with $41.4 million or 54% in the
comparable period of 1994. The $3.7 million decrease in sales and marketing
expenses during the year was due principally to reduced headcount effected
through the restructuring 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. In fiscal 1995, the 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 object-oriented and client/server markets. Research
and development expense were $17.1 million or 23% of revenue during fiscal 1995
compared with $20.1 million or 26% of revenue in the comparable period of 1994.
The $3.0 million decrease is due primarily to actions taken by the Company to
reduce the value of capitalized software development costs associated with a
technology license. This action resulted in a $1.1 million charge to research
and development expense in fiscal 1994. No similar charge was recorded in
fiscal 1995. In addition, the Company reduced spending on the Ellipse product,
and entered into agreements with certain development partners whose funding
offset approximately $0.5 million 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 expenses were $8.1
million or 11% of revenue during fiscal 1995 compared with $7.8 million or 10%
of revenue during the comparable period of 1994. The increase is due primarily
to additional staffing from the Westmount transaction. These expenses have been
partially offset by a decrease in goodwill amortization of approximately $0.4
million, along with expense controls in the Company's administrative areas.
RESTRUCTURING AND OTHER 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 million during the three months ended September 30,
1994. The restructuring included a charge of approximately $1.5 million 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 $0.3 million 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. 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 $0.2 million and are included in the restructuring
charge.
During the quarter ended June 1995, formal plans were adopted and approved
by executive management to restructure operations thereby eliminating redundant
capitalized software development costs and reducing company-wide expenses. The
purpose of the Westmount acquisition was to acquire Westmount's object-oriented
technology, which essentially replaced the Company's existing object-oriented
product line. The redundant software development cost write-off was $0.9 million
and consisted of internally developed and capitalized costs related to the
Company's old product. Additionally, the Company reduced expenses to better
align them with revenues. Restructuring costs during the quarter ended June 1995
amounted to $1.8 million and included the previously mentioned $0.9 million
write-off of capitalized software development costs, $0.8 million of
- 31 -
<PAGE> 32
employee related costs and $0.1 million for other costs related to the
restructuring.
In the quarter ended December 31, 1995, formal plans were adopted and
approved by executive management to restructure operations related to the
absence of Windows-based object-oriented products. After the Westmount
acquisition, the Company had planned to introduce and sell object-oriented
Windows 95 and NT-based products during the quarter ended December 31, 1995.
When it became apparent that the product was not going to become available
during the quarter, and as a result revenues would be less than expected, the
Company needed to reduce expenses to an appropriate level. A charge of $1.7
million principally related to a reduction in force (approximately 47 employees)
was recorded in December 1995.
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.
EFFECT OF INTERNATIONAL OPERATIONS ON INCOME (LOSS) FROM OPERATIONS
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.
The loss from operations -- United States and Rest of World increased by
approximately 91% to $22.2 million compared to the corresponding period of the
prior year. The $10.6 million increase in loss from operations is primarily due
to costs associated with the acquisition of Westmount and various restructuring
actions taken by the Company during fiscal 1995. The loss from Italian
operations increased by $0.1 million to $0.5 million during fiscal 1995. This
increase is attributable to reduced software license revenue and start up costs
associated with several long-term consulting contracts. The loss from operations
in the United Kingdom increased by $0.7 million to $2.0 million during fiscal
1995. This increase is attributable to among other things increased sales and
marketing expenses.
Included in income (loss) from operations in 1995 are $5.5 million of
restructuring and $7.3 million of in-process R&D charges, $4.1 million in the
United States, $0.1 million in Italy, $0.1 million in United Kingdom, and $8.5
million in Rest of World (primarily in Netherlands). Results for 1994 include a
$1.7 million in-process research and development charge.
OTHER INCOME (EXPENSE), NET
Interest income, net decreased in fiscal 1995 compared to fiscal 1994 due
primarily to increased borrowings. These costs were somewhat offset by 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 December 31, 1996 the Company's principal sources of liquidity
included cash and cash equivalents aggregating $4.2 million and a secured bank
line of credit in the amount of $5.0 million discussed below. At December 31,
1996, cash and cash equivalents decreased by $10.5 million from the end of
fiscal 1996. During the six month transition period ended December 31, 1996,
cash flows were principally affected by the loss from
- 32 -
<PAGE> 33
operations and a decline in the number of maintenance contracts renewed. The
Company's principal long-term cash commitments are for office space operating
leases.
On December 31, 1996, Cayenne had no material commitments for capital
expenditures.
On November 6, 1996, the Company amended and restated its revolving credit
agreement with a bank to borrow up to $5.0 million. The Company extended the
term of such agreement through October 4, 1997 and revised certain of the
financial and operating covenants as well as the borrowing base thereunder. In
connection with the amendment, the Company issued the bank a three-year warrant
to purchase 25,000 shares of the Company's Common Stock at an exercise price of
$4.25 per share. 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 $0.25 million during the quarter ended December 31,
1996 and $1.0 million during the quarter ending June 30, 1997. 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 amended at
December 31, 1996. At December 31, 1996, the borrowing base under the revolving
credit agreement was approximately $4.5 million.
On July 18, 1996, the Company completed its merger 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 the outstanding capital stock of Cadre. The
transaction was accounted for as a pooling-of-interests for accounting purposes
beginning in the transition period. The Company recorded charges to operations
of $6.3 million during the transition period to reflect costs associated with
combining the operations of the two companies, transaction fees and other costs
incident to the merger.
Cash expenditures for restructuring activities were approximately $5.2
million during the six-month transition period ended December 31, 1996,
including $0.5 million related to restructurings effected by Cadre prior to the
merger. The Company currently estimates that cash expenditures for restructuring
actions for 1997 will be approximately $1.4 million. The Company believes that
it has adequately provided for all restructuring actions taken to date.
On January 2, 1997, the Company raised approximately $3.0 million in a
private placement of 150,000 shares of Redeemable Series B Convertible Preferred
Stock and issuance of warrants. Each share of Series B Convertible Preferred
Stock is convertible into shares of common stock 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 any period of thirty days before the conversion. In conjunction with the
closing of the private placement, the Company issued the investors warrants to
purchase 350,000 shares of the Company's common stock at exercise prices ranging
from 120% to 150% of the price set forth in clause (i) above and having varying
expiration dates from three to five years.
With the additional $3.0 million the Company raised in its January 1997
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, and projected
capital expenditures through 1997. Thereafter, the Company's cash requirements
will depend upon the results of future operations, 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.
- 33 -
<PAGE> 34
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 during the six month transition period ended December 31, 1996 or
in fiscal 1996, 1995 or 1994. No assurance can be given, however, that it will
not experience such material affects subsequent to December 31, 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 during the December quarter.
The September quarter is traditionally Cayenne's slowest. In the normal course
of events, Cayenne may realize lower revenue in the September quarter than in
the preceding quarter and also could realize lower revenue in the March quarter
than in the preceding 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. 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.
- 34 -
<PAGE> 35
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.
- 35 -
<PAGE> 36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CAYENNE SOFTWARE, INC.
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants ..................................... 37
Report of Independent Accountants ..................................... 38
Consolidated Balance Sheets as of December 31, 1996 and June 30,
1996 and 1995 ......................................................... 39
Consolidated Statements of Operations for the transition period
from July 1, 1996 to December 31, 1996, the six-month period ended
December 31, 1995 and for the years ended June 30, 1996, 1995 and
1994 .................................................................. 40
Consolidated Statements of Stockholders' Equity (Deficit) for the
transition period from July 1, 1996 to December 31, 1996, and for
the years ended June 30, 1996, 1995 and 1994 .......................... 41
Consolidated Statements of Cash Flows for the transition period
from July 1, 1996 to December 31, 1996, the six-month period ended
December 31, 1995 and for the years ended June 30, 1996, 1995 and
1994 .................................................................. 42
Notes to Consolidated Financial Statements ............................ 43
- 36 -
<PAGE> 37
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 December 31,
1996 and June 30, 1996 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the six month period ended
December 31, 1996 and the year 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 December 31, 1996 and June 30, 1996 and the consolidated
results of its operations and its cash flows for the six month period ended
December 31, 1996 and the year ended June 30, 1996 in conformity with generally
accepted accounting principles.
The financial statements give retroactive effect to the merger of Cayenne
Software, Inc. and Cadre Technologies Inc. on July 18, 1996, which has been
accounted for as a pooling of interests as described in Note 2 of notes to the
consolidated financial statements. We previously audited and reported on the
consolidated balance sheet of Cayenne Software, Inc. as of June 30, 1995 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years ended June 30, 1995 and 1994, prior to their
restatement for the 1996 pooling of interests. The contribution of Cayenne
Software, Inc. to total assets represented 60 percent of the restated total as
of June 30, 1995 and to total revenues represented 46 percent and 47 percent and
to net loss represented 41 percent and 87 percent of the respective restated
totals for the years ended June 30, 1995 and 1994. Separate financial statements
of Cadre Technologies Inc. included in the restated consolidated balance sheet
as of June 30, 1995 and the restated consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended June 30, 1995
and 1994 were audited and reported on separately by other auditors. We also
audited the combination of the accompanying consolidated balance sheet as of
June 30, 1995 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended June 30, 1995
and 1994, after restatement for the 1996 pooling of interests, and, in our
opinion, such consolidated statements have been properly combined on the basis
described in Note 2 of notes to the consolidated financial statements.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 25, 1997
- 37 -
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders' of
Cadre Technologies Inc.:
We have audited the consolidated balance sheets of Cadre Technologies Inc. and
its subsidiaries (the "Company") as of December 31, 1995 and the related
consolidated statements of operations, stockholders' (deficiency) equity, and
cash flows for each of the two years in the period ended December 31, 1995 (none
of which are presented herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Cadre Technologies Inc. and its
subsidiaries at December 31, 1995 and the results of their operations
and their cash flows for each of the two years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's recurring losses from
operations, cash used in operating activities, deficiency in working capital and
stockholders' deficiency raise substantial doubt about its ability to continue
as a going concern. Management's plans concerning these matters are outlined in
Note 16. The financial statements do not include any adjustments that might
result from the outcome on this uncertainty.
Boston, Massachusetts DELOITTE & TOUCHE LLP
February 2, 1996
- 38 -
<PAGE> 39
CAYENNE SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1995
----------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (including securities purchased under
agreements to resell of $700, $699 and $2,148 at December 31, 1996,
June 30, 1996 and 1995, respectively) $ 4,150 $ 14,690 $11,170
Trade accounts receivable, less allowance for sales returns and
doubtful accounts of $820, $868 and $942 at December 31, 1996 and
June 30, 1996 and 1995, respectively 13,320 12,445 15,299
Prepaid expenses and other current assets 1,375 2,743 2,003
---------------------------------------
Total current assets 18,845 29,878 28,472
Property and equipment, less accumulated depreciation and amortization 2,256 2,723 3,916
Capitalized software costs, less accumulated amortization of $266, $186
and $3,265 at December 31, 1996 and June 30, 1996 and 1995,
respectively 534 614 2,134
Other assets 601 884 862
---------------------------------------
Total assets $ 22,236 $ 34,099 $35,384
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short term debt $ 2,820 $ 3,852 $ 3,000
Accounts payable 2,363 3,093 3,804
Accrued expenses 1,422 2,077 2,202
Accrued compensation and benefits 3,415 3,317 3,747
Accrued restructuring costs (Note 13) 1,703 779 1,580
Income and other taxes payable 909 1,967 1,113
Obligations under capital lease 561 580 490
Deferred revenue 9,592 13,714 14,070
---------------------------------------
Total current liabilities 22,785 29,379 30,006
Convertible long term debt -- 1,789 2,110
Redeemable Series A Convertible Preferred Stock, $1.00 par value;
5.000 shares authorized; 0,0, and 1.787 shares outstanding at
December 31, 1996, June 30, 1996 and 1995, respectively (aggregate
liquidation preference of $5,493 at June 30, 1995) -- -- 5,493
Obligations under capital lease 106 307 528
Commitments and contingencies (Note 7)
Stockholders' equity (deficit):
Common stock, $.01 par value 52,400 shares authorized; 17,695, 17,225
and 13,812 shares issued and outstanding at December 31 and June 30, 1996
and 1995, respectively 177 172 138
Additional paid-in capital 102,935 100,301 86,972
Accumulated deficit (103,706) (97,338) (89,151)
Accumulated translation adjustments (61) (511) (712)
--------------------------------------
Stockholders' equity (deficit) (655) 2,624 (2,753)
--------------------------------------
Total liabilities and stockholders' equity (deficit) $ 22,236 $ 34,099 $ 35,384
======================================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
- 39 -
<PAGE> 40
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Transition
Period Prior Period
Ended Ended Year Ended June 30,
December 31, December 31, -------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license $10,131 $15,951 $ 26,282 $ 29,849 $ 36,171
Consulting and education
services 4,684 5,915 12,367 14,306 13,590
Maintenance 13,161 14,366 27,237 28,634 27,317
----------------------------------------------------------------------
Total revenues 27,976 36,232 65,886 72,789 77,078
Costs and expenses:
Cost of revenues
Cost of software licenses 1,521 2,241 3,999 6,105 5,688
Cost of consulting and education
services and maintenance 4,975 7,044 12,910 15,953 13,728
Sales and marketing 12,488 16,978 32,614 37,656 41,375
Research and development 5,411 7,957 14,448 17,059 20,128
General and administrative 3,307 4,370 8,530 8,062 7,783
Restructuring and other costs (Note 13) 6,300 1,694 2,819 5,483 --
Charge for purchased research and
development (Note 2) -- 158 158 7,300 1,736
----------------------------------------------------------------------
Total costs and expenses 34,002 40,442 75,478 97,618 90,438
----------------------------------------------------------------------
Loss from operations (6,026) (4,210) (9,592) (24,829) (13,360)
Interest income 71 212 596 758 809
Other income (expense) 282 (111) (84) 34 80
Interest expense 296 289 1,143 556 324
----------------------------------------------------------------------
Loss before provision for income taxes (5,969) (4,398) (10,223) (24,593) (12,795)
Provision for income taxes 399 404 1,124 297 407
----------------------------------------------------------------------
Net loss $(6,368) $(4,802) $(11,347) $(24,890) $(13,202)
======================================================================
Loss per common share (Note 1) $ (0.36) $ (0.32) $ (0.71) $ (1.86) $ (1.06)
----------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding 17,590 15,103 15,914 13,350 12,484
======================================================================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements
-40-
<PAGE> 41
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TRANSITION PERIOD ENDED DECEMBER 31, 1996
AND THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid-In Translation Accumulated Stockholders'
Shares Amount Capital Adjustments Deficit Equity (Deficit)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 11,798 $ 118 $ 79,317 $ (147) $ (51,059) $28,229
Stock options exercised 288 3 295 298
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 (361) (361)
Net loss for the year (13,202) (13,202)
--------------------------------------------------------------------------------
Balance, June 30, 1994 12,775 128 81,977 (508) (64,261) 17,336
Stock options exercised 331 3 888 891
Issuance of common stock under
Employee Stock Purchase Plan 35 76 76
Issuance of warrants in conjunction
with the preferred stock 348 348
Proceeds from Section 16(b) profits 352 352
Repurchase of stock/warrants (8) (42) (42)
Issuance of common stock in
acquisition of business 679 7 3,373 3,380
Currency translation adjustment (204) (204)
Net loss for the year (24,890) (24,890)
--------------------------------------------------------------------------------
Balance, June 30, 1995 13,812 138 86,972 (712) (89,151) (2,753)
Stock options exercised 311 3 1,509 1,512
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
Pooling adjustment (Note 2) 3,160 3,160
Currency translation adjustment 201 201
Net loss for the year (11,347) (11,347)
--------------------------------------------------------------------------------
Balance, June 30, 1996 17,225 172 100,301 (511) (97,338) 2,624
Stock options exercised 95 1 342 343
Issuance of common stock under
Employee Stock Purchase Plan 9 35 35
Exercise of warrants 144 2 470 472
Conversion of convertible long
term debt 222 2 1,787 1,789
Currency translation adjustment 450 450
Net loss for the year (6,368) (6,368)
--------------------------------------------------------------------------------
Balance, December 31, 1996 17,695 $ 177 $102,935 $ (61) $(103,706) $ (655)
================================================================================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements
-41-
<PAGE> 42
CAYENNE SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Transition Period Prior Period
Ended Ended
December 31, December 31, Year Ended June 30,
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,368) $(4,802) $(11,347) $(24,890) $(13,202)
Adjustments to reconcile net
loss to net cash used in operating
activities:
Charge for purchased research
and development -- 158 158 7,300 1,736
Depreciation and amortization 1,262 1,552 3,142 4,431 6,001
Write-down of intangible asset -- -- 986 945 1,150
Loss on disposal of equipment 201 -- 10 -- 14
Change in operating assets
and liabilities, net of effects of
acquisitions,
Trade accounts receivable (875) (1,318) 3,831 900 1,367
Prepaid expenses and other current assets 1,368 (164) (762) 590 227
Accrued expenses (655) (188) (442) (2,387) (750)
Accrued restructuring costs 924 601 (333) 255 (4,354)
Accounts payable (730) (1,384) (1,978) (1,849) 1,672
Accrued compensation and benefits 98 (496) (102) (639) 349
Income and other taxes payable (1,058) 377 806 397 (306)
Deferred revenue (4,122) (2,896) (2,261) 61 (2,402)
-----------------------------------------------------------------------
Net cash used in operating activities (9,955) (8,560) (8,292) (14,886) (8,498)
Cash flows from investing activities:
Purchases of property and equipment (777) (330) (786) (1,392) (3,105)
Proceeds from sale of property -- -- 56 -- --
Acquisition of businesses -- -- -- (508) (1,511)
Software development costs -- -- -- (420) (1,025)
Other, net -- -- -- (114) (160)
-----------------------------------------------------------------------
Net cash used in investing activities (777) (330) (730) (2,434) (5,801)
Cash flows from financing activities:
Proceeds from issuance of common stock, net 850 6,896 7,925 925 395
Proceeds from issuance of preferred stock and
warrants (net of issuance costs) -- -- -- 5,812 --
Proceeds from Section 16(b) profits -- -- -- 352 --
Proceeds from line of credit facility 1,321 600 2,100 3,200 --
Proceeds from sale-leaseback transaction -- 933 987 -- --
Proceeds from factoring agreement 82 -- 9,195 -- --
Proceeds from repayment of employee loans 200 -- -- -- --
Payments under factoring agreement (2,431) -- (7,471) -- --
Payment under line of credit facility -- -- (2,480) (720) --
Payments under capital lease obligations (280) (30) (169) (174) (356)
-----------------------------------------------------------------------
Net cash provided by (used in) financing activities (258) 8,399 10,087 9,395 39
Effect of foreign exchange rates on cash
and cash equivalents 450 108 353 93 110
-----------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (10,540) (383) 1,418 (7,832) (14,150)
Adjustment to conform fiscal year of Cadre -- 2,102 2,102 -- --
Cash and cash equivalents at beginning of period 14,690 11,170 11,170 19,002 33,152
-----------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,150 $12,889 $ 14,690 $ 11,170 $ 19,002
=======================================================================
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements
-42-
<PAGE> 43
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 consolidated financial statements and all
financial data contained herein include the accounts of Cadre Technologies Inc.
("Cadre") for all periods presented (Note 2).
In October 1996, the Company changed its fiscal year end from June 30th to
December 31st. As a result the period from July 1, 1996 through December 31,
1996 was designated as "the transition period."
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
The local currencies of the Company's foreign subsidiaries are predominantly
determined to be the functional 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." Transaction gains and losses,
primarily related to foreign currency denominated intercompany payables and
receivables recorded in the financial statements of the Company's foreign
subsidiaries, are reflected in income.
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.
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful accounts
and sales returns of approximately $820,000, $868,000 and $942,000 at December
31, 1996 and June 30, 1996 and 1995, respectively. The provisions charged to the
statement of operations were $0, $350,000, $122,000 and $232,000 in the six
month transition period ended December 31, 1996 and the fiscal years ended June
30, 1996, 1995 and 1994, respectively, and deductions against the allowances
were $48,000, $424,000, $839,000 and $360,000 in the six month transition period
ended December 31, 1996 and the fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
COST OF REVENUE
Cost of software licenses includes capitalized software amortization expense
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.
-43-
<PAGE> 44
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
DEFERRED REVENUE
Maintenance revenue which is not yet earned is included in deferred revenue.
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 December 31, 1996, and June 30, 1996 and 1995, respectively, are
$700,000, $699,000 and $2,148,000 in United States Treasury Securities under
agreement to resell in January 1997, and 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 approximately $275,000, $246,000 and $188,000 at
December 31, 1996, and June 30, 1996 and 1995, respectively.
-44-
<PAGE> 45
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
INCOME TAXES
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. A valuation reserve against
deferred assets is required 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.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is computed based on the weighted average
number of common shares and dilutive common equivalent shares outstanding during
each period except in loss years. Dilutive common equivalent shares consist of
preferred stock, warrants and stock options (calculated using the treasury stock
method). For the transition period ended December 31, 1996, prior period ended
December 31, 1995 and fiscal years ended June 30, 1996, 1995 and 1994, common
equivalent shares are excluded from the primary earnings per share calculation
as they are antidilutive.
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 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
has been accounted for as a pooling-of-interests beginning in the first quarter
of the transition period ended December 31, 1996. Accordingly, all financial
data contained herein include the accounts of Cadre for all periods presented.
The Company's fiscal 1996 results have been combined with Cadre's results for
the twelve months ended June 30, 1996. The Company's results for fiscal 1995 and
1994 have been combined with Cadre's calendar year end results for the same
period. In this presentation, Cadre's financial data for the period July 1, 1995
to December 31, 1995 is included in both the periods ended June 30, 1996 and
1995. The six month period includes a net loss of $3,160,000. 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.
-45-
<PAGE> 46
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
During the transition period ended December 31, 1996 the Company incurred a
$6.3 million charge to operations to reflect costs associated with combining the
operations of the two companies, transaction fees, and other costs. The Board of
Directors of the Company approved a restructuring plan to terminate certain
specified employees and close certain facilities. Such plan was communicated to
the employees prior to the end of the quarter and such employees were
specifically identified and terminated. Included in the charge is $1.6 million
of employee related termination expenses, $1.3 million of legal, accounting,
investment banking and other professional fees, $1.4 million of facility closure
and consolidation expenses, and $2.0 million of other expenses associated with
the consolidation of the two companies and the name change.
On May 1, 1995, the Company acquired Westmount Technology, B.V.
("Westmount") in a transaction accounted for as a purchase. The Company acquired
Westmount for approximately 679,000 shares of common stock and a warrant to
purchase an additional 185,000 shares. The purchase price for Westmount was
approximately $3.8 million. In conjunction with this transaction, the Company
recorded assets purchased of approximately $8.1 million and liabilities assumed
of $4.3 million. $7.3 million of the recorded assets were attributed to
in-process research and development and was charged to operations during 1995.
The software had not reached technological feasibility and had no future
alternative use. In connection with the purchase of Westmount, a shareholder
trust of former Westmount shareholders granted the Company a $1.6 million
subordinated, convertible loan. The note accrued interest at a simple rate of
10%, payable annually in arrears. Effective upon the merger and resulting
change of control, the debt and accrued interest were automatically converted
into 220,000 common shares of the Company.
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.
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
$2.5 million, 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. (See,
also, Note 13.)
-46-
<PAGE> 47
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30 JUNE 30
1996 1996 1995
---- ---- ----
<S> <C> <C> <C>
Property and Equipment
Computer and related equipment $12,415 $16,642 $24,565
Equipment under capital leases 1,241 1,179 97
Office furniture and fixtures 2,838 2,745 3,321
Leasehold improvements 507 506 713
------- ------- -------
Total 17,001 21,072 28,696
Less accumulated depreciation and amortization 14,745 18,349 24,780
------- ------- -------
$ 2,256 $ 2,723 $ 3,916
======= ======= =======
</TABLE>
Accumulated amortization for equipment under capital leases was $0.6
million, $0.4 million and $0 as of December 31, 1996, June 30, 1996 and 1995,
respectively. During the transition period ended December 31, 1996 and fiscal
1996, the Company wrote-off $4.4 million and $8 million of fully depreciated
assets.
4. CAPITALIZED SOFTWARE COSTS
Amortization expenses for previously capitalized software costs for the
transition period ended December 31, 1996, and the fiscal years ended June 30,
1996, 1995, and 1994 was approximately $80,000, $160,000 $723,000 and
$1.0 million respectively. The Company also amortized $0, $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>
December 31 June 30,
1996 1996
----------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 29,979 $ 27,953
Tax credit carryforwards 3,789 3,619
Other 5,290 5,050
--------- --------
Gross deferred tax asset 39,058 36,622
Valuation allowance (39,058) (36,622)
--------- --------
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 taxable income sufficient to ensure usage of the deferred tax
asset.
At December 31, 1996, the Company had remaining tax net operating loss
("NOL") carryforwards of approximately $76,000,000, including approximately
$5,800,000 for international operations, currently available
-47-
<PAGE> 48
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
to offset future taxable income and unused federal tax credits of approximately
$3,800,000. If not utilized, these credits and carryforwards will expire between
the years 2001 and 2011. Due to the Company's issuances of stock, the Tax Reform
Act of 1986 has restricted the Company's use of approximately $19,300,000 of its
existing NOL carryforwards.
The provision for income taxes recorded in the transition period ended
December 31, 1996, and the years ended June 30, 1996, 1995 and 1994 consists of
the following:
<TABLE>
<CAPTION>
TRANSITION
PERIOD
ENDED YEAR ENDED JUNE 30,
DEC. 31, 1996 1996 1995 1994
------------- ---- ---- ----
<S> <C> <C> <C> <C>
Federal-current -- -- -- --
State -- $ 120 -- --
Foreign taxes $399 1,004 $297 $407
---- ------ ---- ----
Total provision $399 $1,124 $297 $407
==== ====== ==== ====
</TABLE>
The effective tax rates for the transition period ended December 31, 1996 and
fiscal 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 during the
transition period ended December 31, 1996 or in the years ended June 30, 1996,
1995, and 1994. Cadre also had a qualified defined contribution plan and made
matching contributions of $213,000, $213,000 and $290,000 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 December 31, 1996, 400,000 shares were reserved
for issuance under the Plan of which approximately 191,000 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 transition period ended December 31, 1996
and the fiscal years ended June 30, 1996, 1995 and 1994 under such arrangements
totaled $1,483,000, $4,664,000, $4,848,000, and $4,466,000, respectively.
-48-
<PAGE> 49
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
December 31, 1996, long-term lease commitments were as follows:
<TABLE>
<CAPTION>
EQUIPMENT
OPERATING CAPITAL
LEASES LEASES
------ ------
<S> <C> <C>
Year ended December 31, 1997......... $2,846 $691
Year ended December 31, 1998......... 1,243 72
Year ended December 31, 1999......... 537 44
Year ended December 31, 2000......... 235 17
Year ended December 31, 2001......... 114 --
------ ----
Total........................... $4,975 824
Less amount representing interest.... 157
----
Present value of minimum lease
payments............................. 667
Less current portion................. 561
----
Long-term portion.................... $106
----
</TABLE>
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 include a research and
development center together with numerous sales and customer service
organizations. Geographic information for the transition period ended December
31, 1996, and fiscal years ended June 30, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
TRANSITION
PERIOD YEAR ENDED JUNE 30,
ENDED -------------------
DECEMBER 31, 1996 1996 1995 1994
----------------- ---- ---- ----
<S> <C> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS
United States $13,641 $ 31,696 $36,634 $ 40,198
Italy 6,118 13,937 9,519 7,913
United Kingdom 3,108 7,748 10,224 9,801
Rest of World 3,879 7,802 12,274 14,943
Export sales from United States 1,230 4,703 4,138 4,223
Intra-company transfers 2,649 10,278 9,603 10,715
Intra-company eliminations (2,649) (10,278) (9,603) (10,715)
------------------------------------------------------
$27,976 $ 65,886 $72,789 $ 77,078
======================================================
</TABLE>
-49-
<PAGE> 50
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TRANSITION PERIOD
ENDED DECEMBER 31, YEAR ENDED JUNE 30,
1996 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS
United States $(1,239) $(3,497) $ (9,419) $ (8,771)
Italy 113 336 (540) (452)
United Kingdom (1,194) (1,096) (2,044) (1,274)
Rest of World (3,706) (5,335) (12,826) (2,863)
------------------------------------------------------
$(6,026) $(9,592) $(24,829) $(13,360)
======================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
IDENTIFIABLE ASSETS
United States $ 23,655 $ 36,797 $ 34,449 $ 46,390
Italy 6,645 7,894 7,502 5,895
United Kingdom 3,528 4,428 4,537 4,247
Rest of World 6,159 4,438 3,989 4,723
Eliminations (17,751) (19,458) (15,093) (14,816)
--------------------------------------------------------
$ 22,236 $ 34,099 $ 35,384 $ 46,439
========================================================
</TABLE>
Revenues from a major customer as a percentage of total revenue for the
transition period ended December 31, 1996, and in fiscal years ended June 30,
1996, 1995 and 1994 were 16%, 15%, 9% and 6%, respectively. Included in the
results of operations for the transition period ended December 31, 1996 is $6.3
million of merger and other costs, approximately $5.6 million in the United
States, $0.1 million in Italy, $0.5 million in the United Kingdom, and $0.1
million in rest of world. Additional restructurings during fiscal 1996 and 1995
together with a $7.3 million write-off of in-process research and development
related to the Westmount purchase adversely impacted the results of operations.
Fiscal 1996 results include charges of $2.8 million allocated primarily to the
United States. Fiscal 1995 results include charges of $5.5 million of which
approximately $4.1 million was allocated to the United States, $0.1 million to
the United Kingdom, $0.1 million to Italy and $1.2 million to rest of world. The
$7.3 million write-off related to Westmount was charged to rest of world
operations during 1995.
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 December 31, 1996, all
shares of Series A Convertible Preferred Stock have been converted to common
stock. During the transition period ended December 31, 1996 and in fiscal year
1996, the Company received $472,000 and $500,000 in connection with the exercise
of warrants. Warrants for 60,976 shares of common stock remain outstanding at
December 31, 1996.
-50-
<PAGE> 51
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
10. STOCK OPTIONS
Under the Company's amended 1996 incentive and nonqualified stock option
plan (the "1996 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 December 31, 1996, the
number of shares issuable under the 1996 Plan is 2,000,000.
Employees of the Company currently hold stock options under three additional
plans: the Amended and Restated 1986 Incentive and Non Qualified Stock Option
Plan, the Cadre 1988 Incentive and Non-Statutory Stock Option Plan, and the
Cadre 1989 Non-Statutory Stock Option Plan. For the future, the Company expects
to grant additional options only under the 1996 Plan.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 is effective for periods beginning after December 15,
1995. SFAS 123 requires that companies either recognize compensation expense for
grants of stock, stock options, and other equity instruments based on fair
value, or provide pro forma disclosure of net income and earnings per share in
the notes to the financial statements. The Company adopted the disclosure
provisions of SFAS 123 in 1996 and has continued to apply APB Opinion 25 and
related Interpretations in accounting for its plans. Had compensation cost for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates as calculated in accordance with SFAS 123, the
Company's net loss and earnings per share for the transition period ended
December 31, 1996 and the fiscal year ended June 30, 1996 would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
TRANSITION PERIOD 1996
----------------- ----
EARNINGS EARNINGS
NET LOSS PER SHARE NET LOSS PER SHARE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
As Reported $(6,368) $(0.36) $(11,347) $(0.71)
Pro Forma $(6,975) $(0.40) $(11,568) $(0.73)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
likely to be representative of effects on reported net income for future years.
SFAS 123 does not apply to awards prior to 1996 and additional awards in future
years are anticipated.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of five years, expected volatility of 67%, a
dividend yield of 0% and a risk-free interest rate between 5.2% and 7.6%.
In management's opinion existing stock option valuation models do not
provide a reliable single measure of the fair value of employee stock options
that have vesting provisions and are not transferable. In addition, option
pricing models require the input of highly subjective assumptions, including
expected stock price volatility. Management has elected to project expected
volatility based upon the stock's actual historical performance to date.
-51-
<PAGE> 52
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
A summary of the status of the Company's stock option plans as of
December 31, 1996 and June 30, 1996, 1995 and 1994 and changes during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER PRICE
OF SHARES PER SHARE
--------- ---------
<S> <C> <C>
Options outstanding on June 30, 1993 2,023,651 $2.89
---------- -----
Options granted ............... 2,025,869 3.66
Options exercised ............. (288,414) 1.43
Options canceled .............. (879,500) 5.84
---------- -----
Options outstanding on June 30, 1994 2,881,606 2.68
Options granted ............... 662,052 4.62
Options exercised ............. (330,518) 2.77
Options canceled .............. (641,519) 3.18
---------- -----
Options outstanding on June 30, 1995 2,571,621 3.04
Options granted ............... 810,973 6.32
Options exercised ............. (310,870) 3.60
Options canceled .............. (454,803) 4.50
---------- -----
Options outstanding on June 30, 1996 2,616,921 3.73
Options granted ............... 1,239,424 5.51
Options exercised ............. (95,270) 3.69
Options canceled .............. (550,803) 5.27
---------- -----
Options outstanding on Dec. 31, 1996 3,210,272 4.90
Shares exercisable at Dec. 31, 1996 1,326,910 4.16
</TABLE>
The weighted-average fair value of options granted during the six month
transition period ended December 31, 1996 and the fiscal year ended June 30,
1996 was $3.39 and $3.94, respectively.
The following summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------------
Weighted Average
Remaining
Range of Number Contractual Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.20 - $3.00 185,588 4.18 $1.81 150,217 $1.70
$3.25 - $5.18 1,338,646 4.95 4.07 953,059 4.00
$5.625 - $7.75 1,662,314 9.13 5.86 221,534 6.34
$8.75 - $9.19 23,724 9.16 9.05 2,100 8.75
- -------------- --------- ---- ---- --------- ----
$1.20 - $9.19 3,210,272 7.10 $4.90 1,326,910 $4.16
</TABLE>
-52-
<PAGE> 53
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
TRANSITION PRIOR
PERIOD PERIOD
ENDED ENDED YEAR ENDED JUNE 30,
DEC. 31, 1996 DEC. 31, 1995 1996 1995 1994
------------- ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash Paid For:
Interest $ 276 $269 $1,121 $402 $237
Income Taxes 1,457 -- 395 432 350
Non Cash Investing and Financing Activity:
Increase in capital lease obligations 61 -- 81 97 --
Conversion of Redeemable Series A
Preferred Stock -- -- 5,493 -- --
Disposal of Property included in
restructuring accrual -- -- -- -- 222
</TABLE>
-53-
<PAGE> 54
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
TRANSITION PERIOD
ENDED
DECEMBER 31, 1996
--------------------
FIRST SECOND
QUARTER QUARTER
--------------------
<S> <C> <C>
Revenues $13,198 $14,778
Cost of Revenues 3,279 3,217
Income (loss) from operations (6,746) 720
Net income (loss) (6,860) 492
Net income (loss) per
common share $(0.39) $0.03
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR
1996
----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $16,437 $19,795 $14,832 $14,822
Cost of Revenues 4,790 4,495 4,031 3,593
Income (loss) from operations (3,220) (990) (2,731) (2,651)
Net income (loss) (3,471) (1,331) (3,131) (3,414)
Net income (loss) per
common share $(0.24) $(0.08) $(0.19) $(0.20)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1995
-----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $16,139 19,410 18,128 19,112
Cost of Revenues 5,474 5,933 5,284 5,367
Income (loss) from operations (8,822) (11,542) (2,257) (2,208)
Net income (loss) (8,702) (11,572) (2,309) (2,307)
Net income (loss) per
common share (0.68) (0.87) (0.17) (0.17)
</TABLE>
13. RESTRUCTURING AND OTHER COSTS
On July 18, 1996, the Company completed its acquisition of Cadre
Technologies, Inc. ("Cadre") and effective upon the merger, the Company changed
its name to Cayenne Software, Inc.
-54-
<PAGE> 55
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
During the transition period ended December 31, 1996, the Company incurred
a $6.3 million charge to operations to reflect costs associated with combining
the operations of the two companies, transactions fees, and other costs. The
Board of Directors of the Company approved a restructuring plan to terminate
certain specified employees and close certain facilities. Such a plan was
communicated to the employees prior to the end of the quarter and such employees
we specifically identified and terminated. Included in the charge is $1.6
million of employee related termination expenses, $1.3 million of legal,
accounting, investment banking and other professional fees, $1.4 million of
facility closure and consolidation expenses, and $2.0 million of other expenses
associated with the consolidation of the two companies and the name change.
Based on the results of fiscal 1996 and in conjunction with the
contemplated merger with 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 $1.1 million principally related to the write-off of the
intangible asset acquired as part of its acquisition of WindTunnel. Also during
fiscal 1996, the Company restructured its operations to reduce costs and utilize
resources more effectively.
During 1995, following the Westmount Technology, B.V. acquisition and the
completion of certain significant development efforts and associated product
introduction, the Company restructured its operations and wrote off redundant
software investments. The Company recorded restructuring charges of $2.0
million, $1.8 million and $1.7 million during the quarters ended September 30,
1994, June 30, 1995 and December 31, 1995. The aggregate $5.5 million charge to
operations reflects costs associated with termination benefits, the write off of
redundant software investments and facility restructuring. Prior to the
execution of this restructuring, the Board of Directors of the Company approved
a restructuring plan to terminate certain specified employees and close certain
facilities. Such a plan was communicated to the employees prior to the end of
the quarter and such employees we specifically identified and terminated.
Included in the charge is $3.9 million of employee related termination expenses,
$0.9 million of redundant software investments and $0.7 million of facilities
and other expenses associated with the restructurings.
At December 31, 1996, the Company believes that it has adequately provided
for all restructuring actions taken to date. Additionally, except for the Cadre
merger, for which the Company maintains a $1.7 million obligation at December
31, 1996, the Company has met substantially all obligations with regard to the
restructurings.
14. BORROWINGS
On November 6, 1996, the Company amended and restated its revolving credit
agreement with a bank to borrow up to $5.0 million, to extend its term through
October 4, 1997 and to amend certain of the financial and operating covenants
and other provisions thereunder. In connection with the amendment, the Company
issued to the bank a three-year warrant to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $4.25 per share. The loan is
contingent upon meeting certain financial and operating covenants at the time of
any borrowing and over the life of the loan. 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 at the end of each quarter including profitability of
$1.0 million for the quarter ending June 30, 1997, and liquidity (generally
defined as cash and cash equivalents plus eligible domestic and international
accounts receivable less any indebtedness to the bank) at the end of each month.
The Company was in compliance with all covenants as amended at December 31,
1996. At December 31, 1996, the borrowing base under the revolving credit
agreement was approximately $4.5 million. The Company had approximately $2.8
million and $1.5 million outstanding against the line of credit at December 31,
1996 and June 30, 1996, respectively.
-55-
<PAGE> 56
CAYENNE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
The Company also had a bank agreement that consisted of a $3.0 million
revolving line loan which was outstanding at June 30, 1995. The loan was
collateralized by general intangibles, accounts receivable and inventory. A new
financing arrangement ("Factoring Agreement") was used to repay the loan of $3.0
million in 1996. The factoring agreement had a financing limit of $5.6 million
based on qualified accounts receivable. At June 30, 1996, the Company had
approximately $2.4 million outstanding under the factoring agreement. The
Company repaid the entire amount during the transition period and terminated the
agreement.
15. SUBSEQUENT EVENTS
On January 2, 1997, the Company raised approximately $3.0 million in a
private placement of 150,000 shares of Redeemable Series B Convertible Preferred
Stock and issuance of warrants. Each share of Series B Convertible Preferred
Stock is entitled to earn dividends at a rate of 5% per annum, payable upon
conversion, in cash or stock, at the option of the Company. Each share of Series
B Convertible Preferred Stock is convertible into shares of Common Stock 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 any period of thirty days before the conversion. In
conjunction with the closing of the private placement, the Company issued the
investors warrants to purchase 350,000 shares of the Company's Common Stock at
exercise prices ranging from 120% to 150% of the price set forth in clause (i)
above and having varying expiration dates from three to five years. The shares
of Common Stock underlying the Series B Convertible Preferred stock and warrants
are entitled to registration rights under terms of the registration rights
agreement dated January 3, 1997.
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
This information will either be incorporated by reference to a proxy
statement filed by the Company not later than 120 days after December 31, 1996
or be included in an amendment to this form 10-K within such period.
ITEM 11. EXECUTIVE COMPENSATION
This information will either be incorporated by reference to a proxy
statement filed by the Company not later than 120 days after December 31, 1996
or be included in an amendment to this form 10-K within such period.
-56-
<PAGE> 57
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will either be incorporated by reference to a proxy
statement filed by the Company not later than 120 days after December 31, 1996
or be included in an amendment to this form 10-K within such period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will either be incorporated by reference to a proxy
statement filed by the Company not later than 120 days after December 31, 1996
or be included in an amendment to this form 10-K within such period.
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 36.
(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted as they are either not required, not
applicable or otherwise included in this Form 10-K.
(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(1)2 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
3.4 Statement of Rights and Preferences of Series B
Convertible Preferred Stock
4.1(1) Specimen Certificate for Common Stock of Cayenne
4.2(8) Statement of Rights and Preferences of Series A
Convertible Preferred Stock
-57-
<PAGE> 58
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
4.5 Convertible Preferred Stock Purchase Agreement dated as
of January 2, 1997 between the Company and Southbrook
International Investments, Ltd.
4.6 Registration Rights Agreement dated as of January 2,
1997
4.7 Form of Warrant Agreement dated as of January 2, 1997
4.8 Warrant Agreement dated as of December 20, 1996 between
the Company 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 Cayenne France
10.5(2) Sale and Purchase Agreement relating to Cayenne
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 Cayenne 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 10.92 1992 Employee Stock
Purchase Plan
10.10(1) Savings/Retirement Plan and Trust of Cayenne 10.116
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 Pool Plan of Cayenne
10.21(12) Amendment No. 1 to Employment Agreement dated as of
August 4, 1993 by and between Cayenne and Peter J. Boni
10.22(12) Amended and Restated Revolving Credit Agreement dated as
of June 6, 1996 by and between Cayenne and Silicon
Valley Bank
10.23 1997 Bonus Plan of Cayenne
10.24(13) Amended 1996 Incentive and Nonqualified Stock Option
Plan
21.1 List of Subsidiaries of Cayenne
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedules
- -----------------
-58-
<PAGE> 59
(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.
(12) Incorporated by reference to exhibits filed with Cayenne's Annual Report
on Form 10-K dated September 27, 1996.
(13) Incorporated by reference to Cayenne's Proxy Statement dated November 20,
1996.
-59-
<PAGE> 60
(b) REPORTS ON FORM 8-K:
A Current Report on Form 8-K was filed by the Company on October 23, 1996. The
Company reported that its Board of Directors approved a change in its fiscal
year from June 30 to December 31.
-60-
<PAGE> 61
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 29 day of March, 1997.
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 March 29, 1997
- -------------------------- Office and Director
Peter J. Boni
/s/ Frederick H. Phillips Vice President, Finance and March 29, 1997
- -------------------------- Administration, Treasurer
Frederick H. Phillips and Chief Financial and
Accounting Officer
/s/ Charles W. Bachman Chairman of the Board March 23, 1997
- -------------------------- of Directors
Charles W. Bachman
* Director March , 1997
- --------------------------
John J. Alexander
* Director March , 1997
- --------------------------
R. John Fletcher
/s/ William H.D. Goddard Director March 21, 1997
- --------------------------
William H.D. Goddard
/s/ Roland D. Pampel Director March 23, 1997
- --------------------------
Roland D. Pampel
/s/ Allyn C. Woodward, Jr. Director March 29, 1997
- --------------------------
Allyn C. Woodward, Jr.
</TABLE>
-61-
<PAGE> 1
EXHIBIT 3.4
STATEMENT OF RIGHTS AND PREFERENCES OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
CAYENNE SOFTWARE, INC.
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as the Series B Convertible Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be 150,000
(which shall not be subject to increase). Each share of Preferred Stock shall
have a par value of $1.00 per share and a stated value of $20 per share (the
"Stated Value").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors of the Company (the
"Board of Directors") out of funds legally available therefor, and the Company
shall pay, cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) equal to 5% per annum, payable, at the Company's option,
in cash or shares of Common Stock, in arrears at such time as the Company shall
determine, but in no event later than the Conversion Date (as hereinafter
defined). Dividends on the Preferred Stock shall accrue daily commencing the
Original Issue Date (as defined in Section 7), and shall be deemed to accrue on
such date whether or not earned or declared and whether or not there are
profits, surplus or other funds of the Company legally available for the payment
of dividends. The party that holds the Preferred Stock on an applicable record
date for any dividend payment will be entitled to receive such dividend payment
and any other accrued and unpaid dividends which accrued prior to such dividend
payment date, without regard to any sale or disposition of such Preferred Stock
subsequent to the applicable record date but prior to the applicable dividend
payment date. Except as otherwise provided herein, if at any time the Company
pays less than the total amount of dividends then accrued on account of the
Preferred Stock, such payment shall be distributed ratably among the holders of
the Preferred Stock based upon the number of shares held by each holder. Payment
of dividends on the Preferred Stock is further subject to the provisions of
Section 5(c)(i).
(b) Notwithstanding anything to the contrary contained
herein, the Company may not issue shares of Common Stock in payment of dividends
on the Preferred Stock if:
(i) the number of shares of Common Stock at the
time authorized, unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to issue such dividends to be paid in shares of Common
Stock;
(ii) the shares of Common Stock to be issued in
respect of such dividends are not registered for resale pursuant to an effective
registration statement that names the recipient of such dividend as a selling
stockholder thereunder;
E-2
<PAGE> 2
(iii) the shares of Common Stock to be issued in
respect of such dividends are not listed on the Nasdaq National Market, and any
other exchange on which the Common Stock is then listed for trading; or
(iv) the issuance of such shares would result in
the recipient thereof beneficially owning more than 4.9% of the issued and
outstanding shares of Common Stock.
(c) So long as any Preferred Stock shall remain
outstanding, neither the Company nor any subsidiary thereof shall redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities (as
defined in Section 7), nor shall the Company directly or indirectly pay or
declare any dividend or make any distribution (other than a dividend or
distribution described in Section 5) upon, nor shall any distribution be made in
respect of, any Junior Securities, nor shall any monies be set aside for or
applied to the purchase or redemption (through a sinking fund or otherwise) of
any Junior Securities unless all dividends on the Preferred Stock for all past
dividend periods shall have been paid.
Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, each holder of Preferred Stock shall be
entitled to vote on all matters submitted to the shareholders of the Corporation
for their consideration and shall be entitled to cast that number of votes equal
to the largest number of whole shares of Common Stock into which such holder's
shares of Preferred Stock could be converted, pursuant to the provisions of
Section 5 hereof, at the record date for the determination of shareholders
entitled to vote on such matter. Except as otherwise required by law or
expressly provided herein, the holders of shares of Preferred Stock, Series A
Preferred Stock and Common Stock shall vote together as a single class on all
matters submitted to the shareholders of the Corporation for their
consideration. So long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a majority of
the shares of the Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Preferred Stock or (b)
authorize or create any class of stock ranking as to dividends or distribution
of assets upon a Liquidation (as defined in Section 4) senior to, prior to or
pari passu with the Preferred Stock.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of Preferred Stock shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value plus all accrued but unpaid
dividends per share, whether declared or not, before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed shall be distributed among the holders of Preferred
Stock ratably in accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. A sale, conveyance
or disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
E-3
<PAGE> 3
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each record holder of Preferred Stock.
Section 5. Conversion.
(a) (i) Each share of Preferred Stock shall be convertible into
shares of Common Stock (subject to reduction pursuant to Section 5(a)(iv)) at
the Conversion Ratio (as defined in Section 7) at the option of the holder in
whole or in part at any time after the Original Issue Date. The holder shall
effect conversions by surrendering the certificate or certificates representing
the shares of Preferred Stock to be converted to the Company, together with the
form of conversion notice attached hereto as Exhibit A (the "Holder Conversion
Notice"). Each Holder Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion is to be
effected, which date may not be prior to the date the holder delivers such
Holder Conversion Notice by facsimile (the "Holder Conversion Date"). If no
Holder Conversion Date is specified in a Holder Conversion Notice, the Holder
Conversion Date shall be the date that the Holder Conversion Notice is deemed
delivered pursuant to Section 5(h). Subject to Sections 5(b) and 5(a)(iv) and,
as to the original holder (or its designee), subject to Section 4.13 of the
Purchase Agreement (as defined in Section 7), each Holder Conversion Notice,
once given, shall be irrevocable. If the holder is converting less than all
shares of Preferred Stock represented by the certificate or certificates
tendered by the holder with the Holder Conversion Notice, the Company shall
promptly deliver to such holder a certificate for such number of shares as have
not been converted.
(ii) Subject to the conditions set forth in this Section 5(a)(ii),
all outstanding and unconverted shares of Preferred Stock may be converted, at
the option of the Company, into shares of Common Stock at the Conversion Ratio
(subject to reduction pursuant to Section 5(a)(iv)) on or after the second
anniversary of the date on which the Underlying Shares Registration Statement
(defined in Section 7) has been declared effective by the Securities and
Exchange Commission (the "Commission"), provided, that such Underlying Shares
Registration Statement is effective on the Company Conversion Date (defined
below) and that the Underlying Shares are then listed on the Nasdaq National
Market, Nasdaq SmallCap Market and each other securities exchange or market on
which the Common Stock is then listed. The conversion date for any conversion
pursuant to this Section 5(a)(ii) (the "Company Conversion Date") shall be not
earlier than 20 days nor later than 5 days prior to the date on which the
Company shall deliver to the holders of such outstanding and unconverted shares
of Preferred Stock a notice of such conversion in the form attached hereto as
Exhibit B (the "Company Conversion Notice"). A Holder Conversion Date and a
Company Conversion Date are sometimes collectively referred to herein as the
"Conversion Date" and a Holder Conversion Notice and a Company Conversion
Notice are sometimes collectively referred to as a "Conversion Notice." Any
conversion pursuant to this Section 5(a)(ii) shall be subject to Section 5(b)
with respect to consequences of the Company's failure to deliver shares of
Common Stock in respect of a conversion under this Section, to Section
5(a)(iv), and, as to the original holder (or its designee), Section 4.13 of the
Purchase Agreement.
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<PAGE> 4
(iii) (A) If the Company has satisfied the conditions set forth in
(B) below, then upon the first closing of a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the primary offer and sale of Common Stock for the account of the
Company to the public, which closing is at a price of at least $7.00 per share
and which public offering results in net proceeds to the Company of at least
$10,000,000, each share of Preferred Stock shall automatically be converted
into the number of shares of Common Stock at the Conversion Ratio, provided,
however, that for purposes of determining the Conversion Ratio, the Conversion
Price shall be determined as of the date of the first closing of the public
offering hereunder.
(B) Conversion under Section 5(a)(iii)(A) shall only be
permitted if (I) the Company shall have provided all of the holders of
Preferred Stock with written notice of the filing of the registration statement
contemplated under Section 5(a)(iii)(A); (II) such registration statement shall
not have been declared effective (and the Company shall not have filed an
acceleration request with the Commission requesting such effectiveness) for a
period not less than sixty (60) days from the date the Company delivers the
notice set forth in (I) above; and (III) at all times from the date the Company
delivers the notice set forth in (I) above until the date of conversion
hereunder, an Underlying Shares Registration Statement covering all Underlying
Shares and Warrant Shares shall be effective.
(iv) Certain Regulatory Approval. If on the Conversion Date
applicable to any conversion under this Section 5(a), (A) the Common Stock is
then listed for trading on the Nasdaq National Market and (B) the Conversion
Price then in effect is such that the aggregate number of shares of Common
Stock that would then be issuable upon conversion of all outstanding shares of
Preferred Stock, together with any shares of Common Stock previously issued
upon conversion of Preferred Stock, would exceed 20% of the number of shares of
Common Stock outstanding on the Original Issue Date (the "Issuable Maximum"),
and the Company has not previously obtained "Shareholder Approval" (as defined
below), then the Company shall issue to the converting holder of the Preferred
Stock an amount of shares of Common Stock equal to the Issuable Maximum and,
with respect to any shares of Common Stock that would be issuable to such
holder in respect of the Conversion Notice at issue in excess of the Issuable
Maximum, (I) if the Conversion Price is equal to or less than $1.00 per share,
the Company shall have the option or (II) if the Conversion Price is greater
than $1.00 per share, the converting holder shall have the option to require
the Company, to either (1) as promptly as possible, but in no event later than
60 days after such Conversion Date, convene a meeting of the holders of the
Common Stock and obtain the Shareholder Approval or (2) redeem, from funds
legally available therefor at the time of such redemption, the balance of the
Preferred Stock subject to such Conversion Notice at a price per share equal to
the product of (i) the average Per Share Market Value for the ten (10) Trading
Days immediately preceding (1) the Conversion Date or (2) the date of payment
in full by the Company of such redemption price, whichever is greater, and (ii)
the Conversion Ratio calculated on (1) the Conversion Date or (2) calculated as
if the Conversion Date (for purposes of determining the Conversion Price) were
the date of payment by the Company of such redemption price, whichever date
yields a lower Conversion Price denominator for the determination of the
Conversion Ratio;
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provided, however, that if the Company shall elect to obtain Shareholder
Approval under paragraph (1) above and the Company fails for any reason to
obtain such Shareholder Approval within the time period set forth in (1) above,
the Company shall be obligated to redeem the Preferred Stock not converted as a
result of the provisions of this Section in accordance with the provisions of
paragraph (2) above, and in such case the interest contemplated by the
immediately succeeding sentence shall be deemed to accrue from the Conversion
Date. If the Company shall elect to redeem shares of Preferred Stock pursuant to
this Section and fails for any reason to pay the redemption price under (2)
above within seven days after the Conversion Date, the Company will pay interest
on such redemption price at a rate of 15% per annum to the converting holder of
Preferred Stock, accruing from the Conversion Date until the redemption price
plus any accrued interest thereon is paid in full. The entire redemption price,
including interest thereon, shall be paid in cash. "Shareholder Approval" means
the approval by a majority of the total votes cast on the proposal, in person or
by proxy, at a meeting of the shareholders of the Company held in accordance
with the Company's Articles of Organization and by-laws, of the issuance by the
Company of shares of Common Stock exceeding the Issuable Maximum as a
consequence of the conversion of Preferred Stock into Common Stock at a price
less than the greater of the book or market value on the Original Issue Date as
and to the extent required pursuant to Rule 4460(i) of the Nasdaq Stock Market
(or any successor or replacement provision thereof).
(b) Not later than three Trading Days after the Conversion
Date, the Company will deliver to the holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those then required by law and as set forth in the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Preferred Stock (subject to reduction pursuant to
Section 5(a)(iv)) and (ii) one or more certificates representing the number of
shares of Preferred Stock not converted; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of any shares of Preferred Stock until
certificates evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred Stock or
Common Stock, or the holder of such Preferred Stock notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond (or
other adequate security reasonably acceptable to the Company) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the holder of the
Preferred Stock, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section. If such certificate
or certificates are not delivered by the date required under this Section 5(b),
the holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
If the Company fails to deliver to the holder such certificate or certificates
pursuant to this Section, including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, by the 7th Trading Day after the Conversion Date, the
Company shall pay to such holder, in cash, as liquidated damages and not as a
penalty, $1,500 for each such Subsequent Trading Day after the Conversion Date
until such certificates are delivered. If the Company fails to deliver to the
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<PAGE> 6
holder such certificate or certificates pursuant to this Section prior to the
30th day after the Conversion Date, the Company shall, at the holder's option
(i) redeem, from funds legally available therefor at the time of such
redemption, such number of shares of Preferred Stock then held by such holder,
as requested by such holder, and (ii) pay all accrued but unpaid dividends on
account of the Preferred Stock for which the Company shall have failed to issue
Common Stock certificates hereunder, in cash. The redemption price per share
shall be equal to the product of (A) the average Per Share Market Value for the
ten (10) Trading Days immediately preceding (1) the Conversion Date or (2) the
date of payment in full by the Company of such redemption price, whichever is
greater, and (ii) the Conversion Ratio calculated on (1) the Conversion Date or
(2) calculated as if the Conversion Date (for purposes of determining the
Conversion Price) were the date of payment by the Company of such redemption
price, whichever date yields a lower Conversion Price denominator for the
determination of the Conversion Ratio. If the holder has requested that the
Company redeem shares of Preferred Stock pursuant to this Section and the
Company fails for any reason to pay the redemption price under (2) above within
seven days after such notice, the Company will pay interest on the redemption
price at a rate of 15% per annum, in cash to such holder, accruing from such
seventh day until the redemption price and any accrued interest thereon is paid
in full.
(c) (i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be the lesser of (a)
the average Per Share Market Value for the ten (10) Trading Days immediately
preceding the Original Issue Date (the "Initial Conversion Price") and (b) the
average of the five (5) lowest closing bid prices of the Common Stock for the
thirty (30) consecutive Trading Day period immediately preceding the Conversion
Date.
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities payable in
shares of Common Stock, (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Initial Conversion Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this
Section 5(c)(ii) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall issue rights or warrants to all holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value of Common Stock at the
record date mentioned below, the Initial Conversion Price shall be multiplied
by a fraction, of which the denominator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance
of such rights or warrants plus the number
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of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share Market Value.
Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Initial Conversion Price pursuant to this
Section 5(c)(iii), if any such right or warrant shall expire and shall not have
been exercised, the Initial Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the provisions of
this Section 5 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to
holders of Preferred Stock) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security (excluding those referred
to in Sections 5(c)(ii) and (iii) above), then in each such case the Initial
Conversion Price at which each share of Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common Stock determined as
of the record date mentioned above, and of which the numerator shall be such
Per Share Market Value of the Common Stock on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest of
the shares of Preferred Stock then outstanding; and provided, further, that the
Company, after receipt of the determination by such Appraiser shall have the
right to select an additional Appraiser, in good faith, in which case the fair
market value shall be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a statement
provided to the holders of Preferred Stock of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
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(v) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Initial Conversion Price is adjusted pursuant to
Section 5(c)(ii),(iii) or (iv), the Company shall promptly mail to each holder
of Preferred Stock, a notice setting forth the Initial Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(vii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person pursuant to
which the Company will not be the surviving entity, the sale or transfer of all
or substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, the holders of the Preferred Stock then outstanding shall
have the right thereafter to, at their option, (A) convert such shares only
into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange, and
the holders of the Preferred Stock shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock
of the Company into which such shares of Preferred Stock could have been
converted immediately prior to such reclassification, consolidation, merger,
sale, transfer or share exchange would have been entitled. The terms of any
such consolidation, merger, sale, transfer or share exchange shall include such
terms so as to continue to give to the holder of Preferred Stock the right to
receive the securities, cash or property set forth in this Section 5(c)(vii)
upon any conversion following such consolidation, merger, sale, transfer or
share exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any
class or of any rights; or
D. the approval of any stockholders of the Company shall
be required in connection with any reclassification
of the Common Stock of the Company, any consolidation
or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of
the Company, of any
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<PAGE> 9
compulsory share of exchange whereby the Common Stock
is converted into other securities, cash or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs
of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Preferred Stock during
the 30-day period commencing the date of such notice to the effective date of
the event triggering such notice.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock and payment of
dividends on Preferred Stock, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
holders of Preferred Stock, such number of shares of Common Stock as shall be
issuable (taking into account the adjustments and restrictions of Section 5(c))
upon the conversion of all outstanding shares of Preferred Stock and payment of
dividends hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and freely tradeable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that
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<PAGE> 10
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the holder of such shares of
Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(g) Shares of Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
undesignated stock.
(h) Any and all notices or other communications or deliveries
to be provided by the holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed to
the attention of the Chief Financial Officer of the Company at the facsimile
telephone number or address of the principal place of business of the Company as
set forth in the Purchase Agreement. Any and all notices or other communications
or deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each holder of Preferred Stock at the facsimile telephone number or
address of such holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (Eastern
Time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 4:30 p.m. (Eastern Time) on any date and
earlier than 11:59 p.m. (Eastern Time) on such date, (iii) four days after
deposit in the United States mails, (iv) the Business Day following the date of
mailing, if send by nationally recognized overnight courier service, or (v) upon
actual receipt by the party to whom such notice is required to be given.
Section 6. Redemptions.
(a) The Company shall have the right, exercisable at any time
upon 30 Trading Days notice to the holders of the Preferred Stock given at any
time on or after the third anniversary after the Original Issue Date, to redeem,
from funds legally available therefor at the time of such redemption, all or any
portion of the shares of Preferred Stock which have not previously been
converted or redeemed, at a price per share equal to the product of (i) the
average Per Share Market Value for the ten (10) Trading Days immediately
preceding (1) the date of the redemption notice referenced above or (2) the date
of payment in full by the Company of the redemption price hereunder, whichever
is greater, and (ii) the Conversion Ratio calculated as if the Conversion Date
(for purposes of determining the Conversion Price) were (1) the date of such
redemption notice or (2) the date of payment by the Company of such redemption
price, whichever date yields a lower
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Conversion Price denominator for the determination of the Conversion Ratio. The
entire redemption price shall be paid in cash. Holders of Preferred Stock may
convert any shares of Preferred Stock, including shares subject to a redemption
notice given under this Section, during the period from the date of such
redemption notice through the 30th Trading Day thereafter.
(b) The Company shall have the right, exercisable at any time
upon 30 Trading Days notice to the Purchaser, given at any time after the
Company has announced publicly a merger or consolidation in which the Company
will not be the surviving entity, to redeem, from funds legally available
therefor at the time of such redemption, all (but not less than all) of the then
outstanding and unconverted shares of Preferred Stock. The redemption price for
shares of Preferred Stock to be redeemed pursuant to this Section will be
determined in accordance with Section 6(a) above and the payment of such
redemption price shall be subject to the provisions of Section 6(c) below.
Holders of Preferred Stock may convert any shares of Preferred Stock, including
shares subject to a redemption notice given under this Section, during the
period from the date of such redemption notice through the 30th Trading Day
thereafter.
(c) If any portion of the redemption price under Section 6(a)
or (b) shall not be paid by the Company within 7 calendar days after the date
due under such Sections, such redemption price shall be increased by 15% per
annum until paid (which amount shall be paid as liquidated damages and not as a
penalty). In addition, if any portion of such redemption price remains unpaid
for more than 7 calendar days after the date due, the holder of the Preferred
Stock subject to such redemption may elect, by written notice to the Company
given within 45 days after the date due, to either (i) demand conversion in
accordance with the formula and the time frame therefor set forth in Section 5
of all of the shares of Preferred Stock for which such redemption price, plus
accrued liquidated damages thereof, has not been paid in full (the "Unpaid
Redemption Shares"), in which event the Per Share Market Value for such shares
shall be the lower of the Per Share Market Value calculated on the date such
redemption price was originally due and the Per Share Market Value as of the
holder's written demand for conversion, or (ii) invalidate ab initio such
redemption, notwithstanding anything herein contained to the contrary. If the
holder elects option (i) above, the Company shall within five Trading Days of
its receipt of such election deliver to the holder the shares of Common Stock
issuable upon conversion of the Unpaid Redemption Shares subject to such holder
conversion demand and otherwise perform its obligations hereunder with respect
thereto; or, if the Holder elects option (ii) above, the Company shall promptly,
and in any event not later than five Trading Days from receipt of holder's
notice of such election, return to the holder all of the Unpaid Redemption
Shares. If, upon a holder election under option (i) above, the Company fails to
deliver the shares of Common Stock issuable upon conversion of the Unpaid
Redemption Shares within the time period set forth in this Section, the Company
shall pay to the holder in cash, as liquidated damages and not as a penalty,
$1,500 per day until the Company delivers such Common Stock to the holder.
Section 7. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
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"Business Day" means any day of the year on which commercial
banks are not required or authorized to be closed in New York, New York.
"Common Stock" means shares now or hereafter authorized of the
class of Common Stock, par value $0.01 per share, of the Company and stock of
any other class into which such shares may hereafter have been reclassified or
changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon), and of which the denominator is the
Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company, except the Series A Convertible Preferred
Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange on which the Common Stock has been
listed or if there is no such price on such date, then the closing bid price on
such exchange on the date nearest preceding such date, or (b) if the Common
Stock is not listed on the Nasdaq National Market or any stock exchange, the
closing bid price for a share of Common Stock in the over-the-counter market, as
reported by the Nasdaq Stock Market at the close of business on such date, or
(c) if the Common Stock is not quoted on the Nasdaq Stock Market, the closing
bid price for a share of Common Stock in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), or (d) if the Common Stock is
not reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the holder, or (e) if the Common Stock is not
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holders of a majority in interest
of the shares of the Preferred Stock; provided, however, that the Company, after
receipt of the determination by such Appraiser, shall have the right to select
an additional Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, between the Company and
the original holder of the Preferred Stock.
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"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Original Issue Date, by and between the Company and the
original holder of Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq National Market or principal national securities exchange
or market on which the Common Stock has been listed, or (b) if the Common Stock
is not listed on the Nasdaq National Market or any stock exchange or market, a
day on which the Common Stock is traded in the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted on
the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
"Underlying Shares" means the number of shares of Common Stock
into which the Shares are convertible in accordance with the terms hereof and
the Purchase Agreement.
"Underlying Shares Registration Statement" means the
registration statement filed by the Company, pursuant to the Registration Rights
Agreement, covering the Underlying Shares and the Warrant Shares.
"Warrant Shares" means the number of shares of Common Stock
issuable upon the exercise in full of the Warrants.
"Warrants" means the Common Stock purchase warrants issued by
the Company to Southbrook International Investments, Ltd. ("Southbrook"), who
intends to assign a portion of such Warrants to Brown Simpson, LLC ("Brown
Simpson") simultaneously with the closing of the purchase of Preferred Stock
under the Purchase Agreement, pursuant to which the holders of the Warrants
shall, collectively, have the right to acquire an aggregate of 350,000 shares of
Common Stock at the exercise price per share set forth in each of the Warrants.
Section 8. Waiver. Any right or power of the holders of
Preferred Stock may be waived with respect to any transaction by an instrument
in writing signed by the holders of not less than two-thirds (2/3) of the
then-outstanding shares of Preferred Stock (excluding any shares then held by
the Company or any subsidiary of the Company).
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EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series B Convertible Preferred Stock indicated below, into shares of Common
Stock, par value $[ ] per share (the "Common Stock"), of Cayenne Software, Inc.
(the "Company") according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name:
Address:
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Common
Stock outstanding on such date and the number of shares of Common Stock which
would be issuable to the holder if the conversion requested in this conversion
notice were effected in full, whereupon, the holder hereby consents to the
revocation of the conversion requested hereby to the extent that it determines
that such conversion would result in it owning in excess of 4.9% of the
outstanding shares of Common Stock on such date, and the Company shall issue to
the holder one or more certificates representing shares of Preferred Stock which
have not been converted as a result of this provision.
E-15
<PAGE> 15
EXHIBIT B
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Cayenne Software, Inc. (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to convert [ ] shares of its Series B Convertible
Preferred Stock (the "Preferred Stock") held by the Holder into shares of Common
Stock, par value $[ ] per share (the "Common Stock") of the Company according to
the terms hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations:
Date to effect Conversion
Number of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Name of Holder:
Address of Holder:
E-16
<PAGE> 1
EXHIBIT 4.5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
CAYENNE SOFTWARE, INC.
and
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
------------------------------
Dated as of January 2, 1997
------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I CERTAIN DEFINITIONS..................................................1
Section 1.1. Certain Definitions.........................................1
ARTICLE II PURCHASE OF SHARES...................................................3
Section 2.1. Purchase of Shares; Closing.................................3
ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................4
Section 3.1. Representations and Warranties of the Company...............4
Section 3.2. Representations and Warranties of the
Purchaser...................................................9
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES.................................... 11
Section 4.1. Transfer Restrictions..................................... 11
Section 4.2. Stop Transfer Instruction................................. 12
Section 4.3. Furnishing of Information................................. 12
Section 4.4. Notice of Certain Events.................................. 13
Section 4.5. Copies and Use of Disclosure Materials.................... 13
Section 4.6. Modification to Disclosure Materials...................... 13
Section 4.7. Blue Sky Laws............................................. 14
Section 4.8. Integration............................................... 14
Section 4.9. Furnishing of Rule 144A Materials......................... 14
Section 4.10. Solicitation Materials.................................... 14
Section 4.11. Subsequent Financial Statements........................... 14
Section 4.12. Right of First Refusal; Certain
Corporate Actions......................................... 15
Section 4.13. Purchaser Ownership of Common Stock....................... 16
Section 4.14. Availability of Common Stock.............................. 16
Section 4.15. Listing of Underlying Shares and Warrant
Shares.................................................... 16
Section 4.16. Purchaser's Rights if Trading in Common
Stock is Suspended or Delisted............................ 17
Section 4.17. No Violation of Applicable Law............................ 17
Section 4.18. Redemption Restrictions................................... 17
Section 4.19. Notice of Breaches........................................ 18
Section 4.20. Conversion Procedures..................................... 18
Section 4.21. The Warrants.............................................. 18
ARTICLE V CONDITIONS PRECEDENT TO CLOSING.................................... 19
Section 5.1. Conditions Precedent to Obligations of
the Purchaser............................................. 19
Section 5.2. Conditions Precedent to Obligations of
the Company............................................... 21
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI TERMINATION........................................................ 22
Section 6.1. Termination by Mutual Consent............................. 22
Section 6.2. Termination by the Company or the
Purchaser................................................. 22
Section 6.3. Termination by the Company................................ 22
Section 6.4. Termination by the Purchaser.............................. 23
ARTICLE VII MISCELLANEOUS...................................................... 23
Section 7.1. Fees and Expenses......................................... 23
Section 7.2. Entire Agreement; Amendments.............................. 24
Section 7.3. Notices................................................... 24
Section 7.4. Amendments; Waivers....................................... 25
Section 7.5. Headings.................................................. 26
Section 7.6. Successors and Assigns.................................... 26
Section 7.7. No Third Party Beneficiaries.............................. 26
Section 7.8. Governing Law; Arbitration................................ 26
Section 7.9. Survival.................................................. 27
Section 7.10. Counterpart Signatures.................................... 27
Section 7.11. Publicity................................................. 27
Section 7.12. Severability.............................................. 27
Section 7.13. Remedies.................................................. 27
Exhibit A Form of Statement of Rights and Preferences
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Opinion of Foley, Hoag & Eliot, counsel
for the Company
Exhibit D Conversion Procedures
Exhibit E(1) Form of Southbrook Warrants
Exhibit E(2) Form of Brown Simpson Warrants
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(f) Required Consents and Approvals
</TABLE>
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<PAGE> 4
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of
January 2, 1997 (this "AGREEMENT"), by and among Cayenne Software, Inc., a
Massachusetts corporation (the "COMPANY"), and Southbrook International
Investments, Ltd., a corporation organized and existing under the laws of the
British Virgin Islands (the "PURCHASER").
WHEREAS, the Company desires to issue and sell to the
Purchaser and the Purchaser desires to acquire shares of the Company's Series B
Convertible Preferred Stock, par value $1.00 per share (the "PREFERRED STOCK").
IN CONSIDERATION of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
Section 1.1. CERTAIN DEFINITIONS. As used in this
Agreement and unless the context requires a different meaning,
the following terms have the meanings indicated:
"AFFILIATE" means, with respect to any Person, any Person
that, directly or indirectly, controls, is controlled by or is under common
control with such Person. For the purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise.
"BROWN SIMPSON WARRANTS" shall have the meaning set forth in
Section 4.21.
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York are authorized or required by law or other government actions
to close.
"CLOSING" shall have the meaning set forth in Section 2.1(b).
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<PAGE> 5
"CLOSING DATE" shall have the meaning set forth in Section
2.1(b).
"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder as in effect on the date hereof.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, par value
$0.01 per share.
"DISCLOSURE MATERIALS" means, collectively, the SEC Documents,
the disclosure package delivered to the Purchaser in connection with the
offering by the Company of the Shares and the Schedules to this Agreement
furnished by or on behalf of the Company pursuant to Section 3.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, encumbrance, right of first refusal, charge or security interest of any
kind in or on such asset or the revenues or income thereon or therefrom.
"MATERIAL ADVERSE EFFECT" shall have the meaning set forth in
Section 3.1(a).
"ORIGINAL ISSUE DATE" shall mean the first issuance of any
Shares, regardless of the number of transfers of any particular Share and
regardless of the number of certificates which may be issued to evidence any
particular Share.
"PERSON" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PREFERRED STOCK" shall have the meaning set forth in the
recitals hereto.
"PURCHASE PRICE" shall have the meaning set forth in Section
2.1(a).
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<PAGE> 6
"REGISTRATION RIGHTS AGREEMENT" means the registration rights
agreement, dated as of the date hereof, by and between the Company and the
Purchaser, substantially in the form of EXHIBIT B, as the same may be amended,
supplemented or otherwise modified in accordance with its terms.
"REQUIRED APPROVALS" shall have the meaning set forth in
Section 3.1(f).
"SEC DOCUMENTS" shall have the meaning set forth in Section
3.1(l).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the shares of Preferred Stock purchased by the
Purchaser pursuant to this Agreement.
"SOUTHBROOK WARRANTS" shall have the meaning set forth in
Section 4.21.
"STATED VALUE" shall have the meaning set forth in Section
2.1(a).
"STATEMENT OF RIGHTS AND PREFERENCES" shall have the meaning
set forth in Section 2.1(a).
"SUBSEQUENT FINANCING NOTICE" shall have the meaning set forth
in Section 4.11(a).
"SUBSEQUENT SALE" shall have the meaning set forth in Section
4.11(a).
"SUBSIDIARIES" shall have the meaning set forth in Section
3.1(a).
"TRADING DAY" shall have the meaning set forth in the
Statement of Rights and Preferences.
"UNDERLYING SHARES" means the shares of Common Stock into
which the Shares are convertible in accordance with the terms hereof and the
Statement of Rights and Preferences.
"UNDERLYING SHARES REGISTRATION STATEMENT" shall have the
meaning set forth in Section 3.1(f).
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<PAGE> 7
"WARRANTS" means, collectively, the Southbrook Warrants and
the Brown Simpson Warrants.
ARTICLE II.
PURCHASE OF SHARES
------------------
Section 2.1. Purchase of Shares; Closing.
---------------------------
(a) Subject to the terms and conditions herein set forth, the
Company shall issue and sell to the Purchaser, and the Purchaser shall purchase
from the Company on the Closing Date 150,000 Shares, which shall have the
respective rights, preferences and privileges set forth in EXHIBIT A (the
"STATEMENT OF RIGHTS AND PREFERENCES"), at a price per Share of $20 (the "STATED
VALUE"). The "PURCHASE PRICE" for the Shares shall equal $3,000,000.
(b) The closing of the purchase and sale of the Shares (the
"CLOSING") shall take place at the offices of Robinson Silverman Pearce
Aronsohn & Berman LLP ("RSPAB"), 1290 Avenue of the Americas, New York, New
York 10104, immediately following the execution hereof, or at such other time
and/or place as the Purchaser and the Company may agree, but not until the last
of the conditions listed in ARTICLE V is satisfied or waived by the appropriate
party. The date of the Closing is hereinafter referred to as the "CLOSING
DATE."
(c) At the Closing, (i) the Company shall deliver (1) to the
Purchaser (A) one or more stock certificates representing the Shares purchased
hereunder, registered in the name of the Purchaser (B) the Southbrook Warrants
and (C) all documents, instruments and writings required to have been delivered
at or prior to Closing by the Company pursuant to this Agreement and (2) to
Brown Simpson, LLC ("BROWN SIMPSON"), the Brown Simpson Warrants, and (ii) the
Purchaser shall deliver to the Company (A) the Purchase Price, less the fees and
disbursements of the Purchaser's counsel contemplated in Section 7.1, in United
States dollars in immediately available funds by wire transfer to an account
designated in writing by the Company prior to the Closing, and (B) all
documents, instruments and writings required to have been delivered at or prior
to Closing by the Purchaser pursuant to this Agreement.
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<PAGE> 8
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as follows:
(a) ORGANIZATION AND QUALIFICATION. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of The Commonwealth of Massachusetts, with the requisite corporate power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than as
set forth in the SEC Documents or in SCHEDULE 3.1(a) (collectively, the
"SUBSIDIARIES"). Each of the Subsidiaries is a corporation, duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualifica tion
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have, individually or in the aggregate, have a
material adverse effect on the results of operations, assets, prospects, or
financial condition of the Company and the Subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby, by the Warrants (as defined below), by the Statement of
Rights and Preferences and by the Registration Rights Agreement, Statement of
Rights and Preferences and otherwise to carry out its obligations hereunder and
thereunder. This Agreement, the Registration Rights Agreement and the Warrants
are collectively referred to as the "TRANSACTION DOCUMENTS". The execution and
delivery of the Transaction Documents by the Company and the consummation by it
of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company. Each of the Transaction Documents
has been duly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may
E-24
<PAGE> 9
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in violation of any of
the provisions of its respective articles of organization, bylaws or other
charter documents.
(c) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
SCHEDULE 3.1(c). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in SCHEDULE 3.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Shares and Warrants hereunder, securities, rights
or obligations convertible into or exchangeable for, or giving any person any
right to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
(d) ISSUANCE OF SHARES, WARRANTS, WARRANT SHARES AND
UNDERLYING SHARES. The Shares and the Warrants are duly authorized and, when
paid for in accordance with the terms hereof, shall be validly issued, fully
paid and nonassessable, free and clear of any Liens. The Company has and at all
times while the Shares and any Warrants are outstanding will maintain an
adequate reserve of shares of Common Stock to enable it to perform its
conversion and other obligations under this Agreement, the Warrants and the
Statement of Rights and Preferences, which reserve shall be no less than the sum
of (i) twice the number of shares of Common Stock issuable hereunder and
pursuant to the terms of the Statement of Rights and Preferences, assuming a
conversion in full of all of the Shares on the Original Issue Date and (ii) the
number of shares of Common Stock issuable upon the exercise in full of the
Warrants (the "WARRANT SHARES"). When issued in accordance with the terms hereof
and the Statement of Rights and Preferences, the Underlying Shares and the
Warrant Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated
E-25
<PAGE> 10
thereby do not and will not (i) conflict with or violate any provision of its
articles of organization or bylaws (each as amended through the date hereof) or
(ii) subject to obtaining the consents specified in Section 3.1(f), conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, or (iii) to the knowledge of the
Company result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or govern mental authority
to which the Company is subject (including Federal and State securities laws and
regulations), or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as could not, individually or in the aggregate, (x) adversely affect the
legality, validity or enforceability of the Transaction Documents, (y) have a
Material Adverse Effect or (z) adversely impair the Company's ability to perform
fully on a timely basis its obligations under the Transaction Documents. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, the violation of which
would have a Material Adverse Effect.
(f) CONSENTS AND APPROVALS. Except as specifically set forth
in SCHEDULE 3.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other govern
mental authority or other Person in connection with the execu tion, delivery and
performance by the Company of the Transaction Documents, except for (i) the
filing of the Statement of Rights and Preferences with respect to the Shares
with the Secretary of State of The Commonwealth of Massachusetts, which filing
shall be effected prior to the Closing Date, (ii) the filing of the registration
statement covering the Underlying Shares and the Warrant Shares (the "UNDERLYING
SHARES REGISTRATION STATEMENT") with the Commission and the making of the
applicable blue-sky filings under state securities laws, each as contemplated by
the Registration Rights Agreement and (iii) other than, in all other cases,
where the failure to obtain such consent, waiver, authorization or order, or to
give or make such notice or filing, could not, individually or in the aggregate,
(x) adversely affect the legality, validity or enforceability of the Transaction
Documents, (y) have a Material Adverse Effect or (z) adversely
E-26
<PAGE> 11
impair the Company's ability to perform fully on a timely basis its obligations
under the Transaction Documents (together with the consents, waivers,
authorizations, orders, notices and filings referred to in SCHEDULE 3.1(f), the
"REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. There is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) relates to or challenges the legality,
validity or enforceability of the Transaction Documents or the Shares (ii)
could, individually or in the aggregate, have a Material Adverse Effect or (iii)
could, individually or in the aggregate, adversely impair the ability of the
Company to perform fully on a timely basis its obligations under the Transaction
Documents.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or
by which it or any of its properties is bound, except such conflicts or defaults
as do not have a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, except for such violations as do not
have a Material Adverse Effect, or (iii) is in violation of any statute, rule or
regulation of any gover nmental authority which could (individually or in the
aggregate) (x) adversely affect the legality, validity or enforceability of the
Transaction Documents, (y) have a Material Adverse Effect or (z) adversely
impair the Company's ability or obligation to perform fully on a timely basis
its obligations under the Transaction Documents.
(i) CERTAIN FEES. No fees or commission will be payable by
the Company to any broker, finder, investment banker or bank with respect to
the consummation of the transactions contemplated hereby.
(j) DISCLOSURE MATERIALS. The Disclosure Materials do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
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<PAGE> 12
(k) PRIVATE OFFERING. Neither the Company nor any Person
acting on its behalf has taken or will take any action (including, without
limitation, any offering of any securities of the Company under circumstances
which would require the integration of such offering with the offering of the
Shares, the Underlying Shares or the Warrant Shares under the Securities Act)
which might subject the offering, issuance or sale of the Shares, the Underlying
Shares or the Warrant Shares to the registration requirements of Section 5 of
the Securities Act.
(l) SEC DOCUMENTS. The Company has filed all reports required
to be filed by it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the three years preceding the date hereof (or such shorter
period as the Company was required by law to file such material) (the foregoing
materials being collectively referred to herein as the "SEC DOCUMENTS") on a
timely basis, or has received a valid extension of such time of filing. As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when 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. The financial statements of the Company included
in the SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved, except as may be otherwise indicated in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal
year-end audit adjustments. Since the date of the financial statements included
in the Company's last filed Quarterly Report on Form 10-Q, there has been no
event, occurrence or development that has had a Material Adverse Effect which is
not specifically disclosed in any of the Disclosure Materials.
(m) SENIORITY. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation, dissolution
or otherwise.
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<PAGE> 13
(n) EXCLUSIVITY. The Company shall not issue and sell the
Preferred Stock to any Person other than the Purchaser.
(o) FORM S-3 ELIGIBILITY. The Company is, and at the Closing
Date will be, eligible to register securities for resale with the Commission
under Form S-3 promulgated under the Securities Act.
(p) INVESTMENT COMPANY. The Company is not and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a corporation
duly and validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Purchaser has the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and by the other Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The purchase of the Shares and the
Warrants by the Purchaser hereunder has been duly authorized by all necessary
action on the part of the Purchaser. Each of the Transaction Documents has been
duly executed and delivered by the Purchaser or on its behalf and constitutes
the valid and legally binding obligation of the Purchaser, enforceable against
the Purchaser in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Shares,
the Warrants, the Warrant Shares and the Underlying Shares for its own account
for investment purposes only and not with a view to or for distributing or
reselling such Shares, Warrants, Warrant Shares or Underlying Shares or any part
thereof or interest therein, without prejudice, however, to the Purchaser's
right, subject to the provisions of the Transaction Documents, at all times to
sell or otherwise dispose of all or any part of such Shares, Warrants, Warrant
Shares or Underlying Shares under an effective registration statement under the
Securities Act and in compliance with applicable State securities laws or under
an exemption from such registration.
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<PAGE> 14
(c) PURCHASER STATUS. The Purchaser was not formed for the
purpose of acquiring the Shares and the Warrants. At the time the Purchaser was
offered the Shares and the Warrants, it was, and at the date hereof, it is, and
at the Closing Date, it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(d) EXPERIENCE OF PURCHASER. The Purchaser has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Shares, the Warrants, the Underlying Shares and the Warrant Shares, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. The
Purchaser is able to bear the economic risk of an investment in the Shares, the
Warrants, the Underlying Shares and the Warrant Shares and is able to afford a
complete loss of such investment.
(f) PROHIBITED TRANSACTIONS. The Shares and the Warrants are
not being acquired, directly or indirectly, with the assets of any "employee
benefit plan", within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended.
(g) ACCESS TO INFORMATION. The Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Shares and the Warrants and the merits and
risks of investing in the Shares and the Warrants; (ii) access to information
about the Company and the Company's financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to
evaluate its investment in the Company; and (iii) the opportunity to obtain such
additional information that the Company possesses or can acquire without
unreasonable effort or expense and that is necessary to make an informed
investment decision with respect to the Shares and the Warrants and to verify
the accuracy and completeness of the information contained in the Disclosure
Materials.
(h) RELIANCE. The Purchaser understands and acknowledges that
(i) the Shares and the Warrants are being offered and sold, and the Underlying
Shares and the Warrant
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<PAGE> 15
Shares are being offered to it without registration under the Securities Act in
a private placement that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption depends in part on,
and that the Company will rely upon the accuracy and truthfulness of, the
foregoing representations and the Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes
no representation or warranty with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
Section 4.1. TRANSFER RESTRICTIONS. If the Purchaser should
decide to dispose of any of the Shares or any portion of the Warrants to be
purchased by it hereunder (and upon conversion or exercise thereof, any
Underlying Shares or Warrant Shares), the Purchaser understands and agrees that
it may do so only (i) pursuant to an effective the registration statement under
the Securities Act, (ii) pursuant to an available exemption from the
registration requirements of the Securities Act, (iii) to the Company or (iv)
pursuant to an available exemption from registration under the Securities Act.
In connection with any transfer of any Shares, Warrants, Underlying Shares or
Warrant Shares other than pursuant to an effective registration statement or to
the Company, the Company may require that the transferor provide to the Company
an opinion of counsel experienced in the area of United States securities laws
selected by the transferor, the form and substance of which opinion shall be
reasonably satisfactory to the Company, to the effect that such transfer does
not require registration of such Shares, Warrants, Underlying Shares or Warrant
Shares under the Securities Act or any state securities laws.
The Purchaser agrees to the imprinting, so long as is required
by applicable law, of the following legend on certificates representing the
Shares, Warrants, Underlying Shares or Warrant Shares:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION
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OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, (B) TO CAYENNE SOFTWARE, INC. OR (C)
PURSUANT TO AN AVAILABLE EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
The legend set forth above shall be removed upon the
conversion of Shares or exercise of Warrants represented by such certificates at
any time after the Underlying Shares Registration Statement has been declared
effective under the Securities Act or upon any resale of Underlying Shares or
Warrant Shares pursuant to an effective registration statement under the
Securities Act or sooner if, in the opinion of counsel to the Company
experienced in the area of United States securities laws such legend is no
longer required under applicable requirements of the Securities Act (including
judicial interpretations and pronouncements issued by the staff of the
Commission). The certificates representing the Shares, Warrants, Underlying
Shares or Warrant Shares shall also bear any other legends required by
applicable Federal or state securities laws, which legends may be removed when,
in the opinion of counsel to the Company experienced in the applicable
securities laws, such legends are no longer required under the applicable
requirements of such securities laws. The Company agrees that it will provide
the Purchaser, upon request, with a substitute stock certificate or certificates
or warrant certificates, free from such legend at such time as such legend is no
longer applicable. The Purchaser agrees that, in connection with any transfer of
Shares, Warrants, Underlying Shares or Warrant Shares by it pursuant to an
effective registration statement under the Securities Act, it will comply with
all prospectus delivery requirements of the Securities Act. The Company makes no
representation, warranty or agreement as to the availability of any exemption
from registration under the Securities Act with respect to any resale of Shares,
Warrants, Underlying Shares or Warrant Shares.
Section 4.2. STOP TRANSFER INSTRUCTION. The Purchaser agrees
that the Company shall be entitled to make a notation on its records and give
instructions to any transfer agent of the Company in order to implement the
restrictions on transfer set forth in Section 4.1 above.
Section 4.3. FURNISHING OF INFORMATION. For so long as the
Purchaser owns Shares, Warrants, Underlying Shares or Warrant Shares, the
Company covenants to timely file (or obtain
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valid extensions in respect thereof) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act and to promptly furnish the Purchaser with true and complete copies of all
such filings. If the Company is not at the time required to file reports
pursuant to such sections, it will prepare and furnish to the Purchaser annual
and quarterly financial statements, together with a discussion and analysis of
such financial statements in form and substance substantially similar to those
that would otherwise be required to be included in reports required by Section
13(a) or 15(d) of the Exchange Act in the time period that such filings would
have been required to have been made under the Exchange Act.
Section 4.4. NOTICE OF CERTAIN EVENTS. The Company shall (i)
advise the Purchaser promptly after obtaining knowledge thereof, and, if
requested by the Purchaser, confirm such advice in writing, of (A) the issuance
by any state securities commission of any stop order suspending the
qualification or exemption from qualification of the Shares, Warrant Shares or
Underlying Shares or the Common Stock for offering or sale in any jurisdiction,
or the initiation of any proceeding for such purpose by any state securities
commission or other regulatory authority, or (B) any event that makes any
statement of a material fact made in the Disclosure Materials untrue or that
requires the making of any additions to or changes in the Disclosure Materials
in order to make the statements therein, in the light of the circumstances under
which they are made, not misleading, (ii) use its best efforts to prevent the
issuance of any stop order or order suspending the qualification or exemption
from qualification of the Shares, Warrant Shares or Underlying Shares or the
Common Stock under any state securities or Blue Sky laws, and (iii) if at any
time any state securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption from qualification of the
Shares, Warrant Shares or Underlying Shares or the Common Stock under any such
laws, use its best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
Section 4.5. COPIES AND USE OF DISCLOSURE MATERIALS. The
Company shall furnish the Purchaser, without charge, as many copies of the
Disclosure Materials, and any amendments or supplements thereto, as the
Purchaser may reasonably request. The Company consents to the use of the
Disclosure Materials, and any amendments and supplements thereto, by the
Purchaser in connection with resales of the Shares, the Warrant Shares or the
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Underlying Shares other than pursuant to an effective registration statement.
Section 4.6. MODIFICATION TO DISCLOSURE MATERIALS. If any
event shall occur as a result of which, in the reasonable judgment of the
Company, it becomes necessary or advisable to amend or supplement the Disclosure
Materials in order to make the statements therein, in the light of the
circumstances at the time the Disclosure Materials were delivered to the
Purchaser, not misleading, or if it is necessary to amend or supplement the
Disclosure Materials to comply with applicable law, the Company shall promptly
prepare an appropriate amendment or supplement to the Disclosure Materials so
that (i) as so amended or supplemented the Disclosure Materials will not include
an untrue statement of material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to Purchaser, not misleading and (ii) the
Disclosure Materials will comply in all material respects with applicable law.
Section 4.7. BLUE SKY LAWS. In accordance with the
Registration Rights Agreement, the Company shall qualify the Shares, the
Warrants, the Warrant Shares and the Underlying Shares under the securities or
Blue Sky laws of such jurisdictions as the Purchaser may reasonably request and
to continue such qualification at all times through the third anniversary of the
Closing Date; PROVIDED, HOWEVER, that neither the Company nor its Subsidiaries
shall be required in connection therewith to qualify as a foreign corporation
where they are not now so qualified.
Section 4.8. INTEGRATION. The Company shall not and shall use
its best efforts to ensure that no Affiliate shall sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Shares, the Warrant Shares or the Underlying Shares in a
manner that would require the registration under the Securities Act of the sale
of the Shares, the Warrant Shares or Underlying Shares to the Purchaser.
Section 4.9. FURNISHING OF RULE 144A MATERIALS. The Company
shall, for so long as any of the Shares, Warrants, Warrant Shares or Underlying
Shares remain outstanding and during any period in which it is not subject to
Section 13 or 15(d) of the Exchange Act, make available to any registered holder
of Shares or Underlying Shares in connection with any sale thereof
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and any prospective purchaser of such Shares, Warrants, Warrant Shares or
Underlying Shares from such Person, the following information in accordance with
Rule 144A(d)(4) under the Securities Act: a brief statement of the nature of the
business of the Company and the products and services it offers and the
Company's most recent audited balance sheet and profit and loss and retained
earnings statements, and similar audited financial statements for such part of
the two preceding fiscal years as the Company has been in operation.
Section 4.10. SOLICITATION MATERIALS. The Company shall not
(i) distribute any offering materials in connection with the offering and sale
of the Shares, Warrants, Warrant Shares or Underlying Shares other than the
Disclosure Materials and any amendments and supplements thereto prepared in
compliance herewith or (ii) solicit any offer to buy or sell the Shares,
Warrants, Warrant Shares or Underlying Shares by means of any form of general
solicitation or advertising.
Section 4.11. SUBSEQUENT FINANCIAL STATEMENTS. The Company
shall furnish to the Purchaser, promptly after they are filed with the
Commission, a copy of all financial statements for any period subsequent to the
period covered by the financial statements included in the Disclosure Materials.
Section 4.12. RIGHT OF FIRST REFUSAL; CERTAIN CORPORATE
ACTIONS. (a) The Company shall not, directly or indirectly, without the prior
written consent of the Purchaser, offer, sell, grant any option to purchase or
otherwise dispose (or announce any offer, sale, grant or any option to purchase
or other disposition) of any of its or its Affiliates equity or equity
equivalent securities (a "SUBSEQUENT SALE") for a period of 180 days after the
Closing Date, except (i) upon conversion of any of the Preferred Stock or
exercise of any of the Warrants, (ii) as a stock dividend or upon any
subdivision of shares of Common Stock, provided that the securities issued
pursuant to such stock dividend or subdivision are limited to additional shares
of Common Stock, (iii) pursuant to subscriptions, warrants, options, convertible
securities or other rights which are outstanding on the Closing Date, (iv)
solely in consideration for the acquisition (whether by merger or otherwise) by
the Company or any of its Subsidiaries of all or substantially all of the stock
or assets of any other entity, (v) pursuant to a primary registered public
offering under the Securities Act, (vi) pursuant to the exercise of options or
purchase rights to purchase Common Stock granted to employees, consultants and
directors of the Company pursuant to any stock purchase, stock
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option or employee stock bonus plan approved by the Board of Directors, (vii)
securities issued to equipment lessors or institutional lenders in connection
with lease of corporate equipment or borrowings by the Company as approved by
the Company's Board of Directors, and (viii) upon the exercise of any right
other than a right to purchase securities which was not itself in violation of
the terms of this paragraph, unless (A) the Company delivers to the Purchaser a
written notice (the "SUBSEQUENT FINANCING NOTICE") of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the identity
of the Persons who proposes to provide such Subsequent Financing and the amount
of proceeds intended to be raised thereunder and (B) the Purchaser shall not
have notified the Company by 5:00 p.m. (Eastern Time) on the tenth Business Day
after its receipt of the Subsequent Financing Notice of its willingness to enter
into good faith negotiations to provide (or to cause its sole designee to
provide) financing to the Company on substantially the terms set forth in the
Subsequent Financing Notice. If the Purchaser shall fail to notify the Company
of its intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Financing substantially upon the terms and to
the Persons (or Affiliates of such Persons) set forth in the Subsequent
Financing Notice; provided, that the Company shall provide the Purchaser with a
second Subsequent Financing Notice, and the Purchaser shall again have the right
of first refusal set forth above in this paragraph (a), subject to the
exceptions set forth above in this paragraph (a), if the Subsequent Financing
subject to the initial Subsequent Financing Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within 90 days after the date of the initial Subsequent Financing Notice
with the Person (or an Affiliate of such Person) identified in the Subsequent
Financing Notice.
(b) For as long as Preferred Stock or Warrants outstanding,
the Company shall not and shall cause the Subsidiaries not to, without the
consent of the Purchaser, (i) amend its Restated Articles of Organization,
bylaws or other charter documents so as to adversely affect any rights provided
in the Transaction Documents to the Preferred Stock and the Warrants; (ii)
split, combine or reclassify its outstanding capital stock; (iii) redeem,
repurchase or offer to repurchase or otherwise acquire shares of its Junior
Securities (as defined in the Statement of Rights and Preferences); or (iv)
enter into any agreement with respect to any of the foregoing.
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Section 4.13. PURCHASER OWNERSHIP OF COMMON STOCK. The
Purchaser may not use its ability to convert Shares hereunder or under the terms
of the Statement of Rights and Preferences or to use its ability to acquire
Shares of Common Stock upon exercise of the Warrants to the extent that such
conversion or exercise would result in the Purchaser owning more than 4.9% of
the outstanding shares of the Common Stock. The Company shall, promptly upon its
receipt of a Holder Conversion Notice tendered by the Purchaser (or its
designee) under the Statement of Rights and Preferences, and upon its receipt of
a notice of exercise under the terms of the Warrants notify the Purchaser of the
number of shares of Common Stock outstanding on such date and the number of
Underlying Shares and Warrant Shares which would be issuable to the Purchaser
(or its designee, as the case may be) if the conversion requested in such
Conversion Notice and the exercise requested in such notice of exercise were
effected in full, whereupon, notwithstanding anything to the contrary set forth
in the Statement of Rights and Preferences, the Purchaser shall revoke such
conversion or exercise to the extent that it determines that such conversion or
exercise would result in the Purchaser owning in excess of 4.9% of such
outstanding shares of Common Stock.
Section 4.14. AVAILABILITY OF COMMON STOCK. The Company has
reserved 1,820,588 shares of authorized and unissued Common Stock at all times
to provide for converting all of the Shares and exercising all of the Warrants.
If at any time the Company does not have reserved 1,820,588 shares, the Company,
at the option of the holders of Preferred Stock, shall redeem all Shares and
Underlying Shares then held by such holders, pursuant to SECTION 4.16 hereto.
Section 4.15. LISTING OF UNDERLYING SHARES AND WARRANT SHARES.
Prior to the Closing, the Company shall have filed an additional listing
application with the Nasdaq National Market (and each other national securities
exchange on which the Common Stock is then listed) for the listing of the
Underlying Shares and the Warrant Shares. The Company shall, as promptly as
possible, take all steps necessary to cause the Underlying Shares and Warrant
Shares to be approved for listing in the Nasdaq National Market (and each other
national securities exchange or market on which the Common Stock is then
listed), and shall provide to the Purchaser evidence of such listing when
approved and shall maintain the listing of its Common Stock on such exchange.
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Section 4.16. PURCHASER'S RIGHTS IF TRADING IN COMMON STOCK IS
SUSPENDED OR DELISTED. In the event that at any time within the three-year
period after the Closing Date trading in the shares of the Common Stock is
suspended, or if the Common Stock shall not listed for trading, on the Nasdaq
National Market (other than as a result of the suspension of trading in
securities on such market or exchange generally or temporary suspensions pending
the release of material information and other than a suspension of trading on
the Nasdaq National Market if the Common Stock is listed for trading, and not
suspended, on the Nasdaq SmallCap Market within one Business Day after such
suspension) for more than ten days, at the Purchaser's option exercisable by
written notice to the Company, the Company shall redeem all Shares and all
Underlying Shares then held by such Purchaser, at an aggregate purchase price
equal to (A) the product of the average Per Share Market Value for the five
Trading Days immediately preceding the day of such notice multiplied by the
number of shares of Common Stock into which the Shares to be purchased are then
convertible and exercisable (or in the case of Underlying Shares, the number of
Underlying Shares to be purchased), plus (B) interest on such amount accruing
from the 7th day after such notice at the rate of 15% per annum.
Section 4.17. NO VIOLATION OF APPLICABLE LAW. Notwithstanding
any provision of this Agreement to the contrary, if any redemption of Shares or
Underlying Shares otherwise required under the Transaction Documents or the
Statement of Rights and Preferences would be prohibited by the relevant
provisions of the Massachusetts Business Corporation Law, such redemption shall
be effected as soon as it is permitted under such law; PROVIDED, however, that,
interest payable by the Company with respect to any such redemption shall
continue to accrue in accordance with Section 4.16 during any such period.
Section 4.18. REDEMPTION RESTRICTIONS. Notwith standing any
provision of this Agreement to the contrary, if any redemption of Shares or
Underlying Shares otherwise required under this Agreement would be prohibited in
the absence of consent from any lender of the Company or of any Subsidiary, or
by the holders of any class of securities of the Company, the Company shall use
its best efforts to obtain such consent as promptly as practicable after the
redemption is required. Interest payable by the Company with respect to any such
redemption shall continue to accrue in accordance with Section 4.16 until such
consent is obtained. Nothing contained in this Section shall be construed as a
waiver by the Purchaser of any rights it may have by virtue of any breach of any
representation
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or warranty of the Company herein as to the absence of any requirement to obtain
any such consent.
Section 4.19. NOTICE OF BREACHES. Each of the Company and the
Purchaser shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in the Transaction
Documents, as well as any events or occurrences arising after the date hereof
and prior to the Closing Date, which could reasonably be likely to cause any
representation or warranty or other agreement of such party, as the case may be,
contained herein or therein to be incorrect or breached as of such Closing Date.
However, no disclosure by either party pursuant to this Section shall be deemed
to cure any breach of any representation, warranty or other agreement contained
herein or in the other Transaction Documents. Neither the Company, any
Subsidiary nor the Purchaser will take, or agree to commit to take, any action
that is intended to make any representation or warranty of the Company or the
Purchaser, as the case may be, contained herein or in the other Transaction
Documents or in the Statement of Rights and Preferences inaccurate in any
respect at the Closing Date.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchaser of any notice or claim (written or oral) that it
receives from any lender of the Company to the effect that the consummation of
the transactions contemplated by the Transaction Documents violates or would
violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the holders of
the Shares and Warrants a copy of any written statement in support of or
relating to such claim or notice.
Section 4.20. CONVERSION PROCEDURES. EXHIBIT D attached hereto
sets forth the procedures with respect to the conversion of the Shares,
including the forms of conversion notice to be provided upon conversion,
instructions as to the procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchaser to exercise its right of conversion smoothly and expeditiously.
Section 4.21. THE WARRANTS. At the Closing, the Company will
issue warrants to purchase an aggregate of 350,000 shares of Common Stock as
follows: (i) to the Purchaser three Common Stock purchase warrants, each in the
form of EXHIBIT E(1)
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(the "SOUTHBROOK WARRANTS"), pursuant to which Purchaser shall have the right at
any time thereafter through the Expiration Date (as such term is defined in each
of the Southbrook Warrants) thereof, to acquire an aggregate of 262,500 shares
of Common Stock at the Exercise Price (as such term is defined in each of the
Southbrook Warrants) per share, and (ii) to Brown Simpson three Common Stock
purchase warrants, each in the form of EXHIBIT E(2) (the "BROWN SIMPSON
WARRANTS"), pursuant to which Brown Simpson shall have the right at any time
thereafter through the Expiration Date (as such term is defined in each of the
Brown Simpson Warrants) thereof, to acquire an aggregate of 87,500 shares of
Common Stock at the Exercise Price (as such term is defined in each of the Brown
Simpson Warrants) per share. The Brown Simpson Warrants represent a portion of
the aggregate warrants which will be issued to the Purchaser as contemplated
hereby and will be assigned and transferred simultaneously with the Closing by
the Purchaser to Brown Simpson. The Southbrook Warrants and the Brown Simpson
Warrants are collectively known as the "WARRANTS."
ARTICLE V.
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Section 5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
PURCHASER. The obligation of the Purchaser to purchase the Shares is subject to
the satisfaction or waiver by the Purchaser, at or prior to the Closing, of each
of the following conditions:
(a) LEGAL OPINION. The Purchaser shall have received the legal
opinion, addressed to it and dated the Closing Date, of Foley, Hoag & Eliot,
counsel for the Company, substantially in the form of EXHIBIT C;
(b) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained herein and in the
Registration Rights Agreement (except as such representations and warranties
relate to the Brown Simpson Warrants) shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made at
that time;
(c) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents and the
Statement of Rights and Preferences
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to be performed, satisfied or complied with by the Company at or
prior to the Closing;
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents;
(e) NO MATERIAL ADVERSE EFFECT. Since the date of the
financial statements included in the Company's last filed Quarterly Report on
Form 10-Q, no event which in the judgment of the Purchaser has or could have a
Material Adverse Effect and no material adverse change in the financial
condition or business of the Company shall have occurred which is not disclosed
in the Disclosure Materials (the Purchaser may consider changes in stock price
in determining whether any such event or change has occurred);
(f) NO PROHIBITIONS. The purchase of and payment for the
Shares (and upon conversion thereof, the Underlying Shares) hereunder (i) shall
not be prohibited or enjoined (temporarily or permanently) by any applicable law
or governmental regulation and (ii) shall not subject the Purchaser to any
penalty, or in its judgment, other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially reduce the
benefits to the Purchaser of the purchase of the Shares or the Underlying Shares
(PROVIDED, HOWEVER, that such regulation, law or onerous condition was not in
effect in such form at the date of this Agreement);
(g) COMPANY CERTIFICATES. The Purchaser shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (i) that attached thereto is a true,
correct and complete copy of (A) the Company's Restated Articles of
Organization, as amended to the date thereof, (B) the Company's By-Laws, as
amended to the date thereof, and (C) resolutions duly adopted by the Board of
Directors of the Company authorizing the execution and delivery of the
Transaction Documents, the Statement of Rights and Preferences and the issuance
and sale of the Shares, Warrants, Warrant Shares and the Underlying Shares and
(ii) the incumbency of officers executing the Transaction Documents;
(h) REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed the Registration Rights Agreement;
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(i) NO SUSPENSIONS OF TRADING IN COMMON STOCK. Trading in the
Common Stock shall not have been suspended by the Commission or the Nasdaq
National Market or any other national securities exchange or market on which the
Common Stock is listed or quoted (except for any suspension of trading of
limited duration at the direction of the Company solely to permit dissemination
of material information regarding the Company);
(j) LISTING OF COMMON STOCK. The Common Stock shall have at
all times between the date hereof and the Closing Date been, and on the Closing
Date be, listed for trading on the Nasdaq National Market;
(k) LISTING OF UNDERLYING SHARES AND WARRANT SHARES. An
additional listing application for the listing of 1,470,588 Underlying Shares
and 350,000 Warrant Shares for trading on the Nasdaq National Market shall have
been filed by the Company with the National Association of Securities Dealers;
(l) REQUIRED APPROVALS. All Required Approvals shall have been
obtained;
(m) DELIVERY OF STOCK CERTIFICATES AND WARRANTS. The Company
shall have (i) delivered to or at direction of the Purchaser the stock
certificate(s) representing the Shares and the Southbrook Warrants, registered
in the name of the Purchaser, each in form satisfactory to the Purchaser and
(ii) delivered to or at direction of Brown Simpson the Brown Simpson Warrants;
(n) SHARES OF COMMON STOCK. On the Closing Date, the Company
shall have duly reserved for issuance to the Purchaser 1,470,588 Underlying
Shares and 350,000 Warrant Shares;
(o) STATEMENT OF RIGHTS AND PREFERENCES. The Statement of
Rights and Preferences shall have been duly filed with the Secretary of State of
The Commonwealth of Massachusetts, and the Company shall have delivered proof of
such filing to the Purchaser, reasonably satisfactory to it; and
(p) FORM S-3 ELIGIBILITY. The Company shall be eligible to
register securities for resale under Form S-3 promulgated under the Securities
Act.
Section 5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY. The obligation of the Company to issue and sell the Shares hereunder is
subject to the satisfaction or waiver by the
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Company, at or prior to the Closing, of each of the following conditions:
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by the Transaction Documents to be performed,
satisfied or complied with by it at or prior to the Closing;
(c) NO PROHIBITIONS. The sale of the Shares (and upon
conversion thereof, the Underlying Shares) hereunder (i) shall not be prohibited
or enjoined (temporarily or permanently) by any applicable law or governmental
regulation and (ii) shall not subject the Company to any penalty, or in its
reasonable judgment, any other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially reduce the
benefits to the Company of the sale of Shares or the Underlying Shares to the
Purchaser (PROVIDED, HOWEVER, that such regulation, law or onerous condition was
not in effect in such form at the date of this Agreement); and
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.
ARTICLE VI.
TERMINATION
-----------
Section 6.1. TERMINATION BY MUTUAL CONSENT. This Agreement may
be terminated at any time prior to Closing by the mutual consent of the Company
and the Purchaser.
Section 6.2. TERMINATION BY THE COMPANY OR THE PURCHASER. This
Agreement may be terminated prior to Closing by
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either the Company or the Purchaser, by giving written notice of such
termination to the other party, if:
(a) there shall be in effect any statute, rule, law or
regulation that prohibits the consummation of the Closing or if the
consummation of the Closing would violate any non-appealable final judgment,
order, decree, ruling or injunction of any court of or governmental authority
having competent jurisdiction; or
(b) there shall have been an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, which, in the judgment
of the terminating party, would materially adversely affect the transactions
contemplated hereby and by the other Transaction Documents.
Section 6.3. TERMINATION BY THE COMPANY. This Agreement may be
terminated prior to Closing by the Company, by giving written notice of such
termination to the Purchaser, if the Purchaser has materially breached any
representation, warranty, covenant or agreement contained in the Transaction
Documents and such breach is not cured within five Business Days following
receipt by the Purchaser of notice of such breach.
Section 6.4. TERMINATION BY THE PURCHASER. This Agreement may
be terminated prior to Closing by the Purchaser, by giving written notice of
such termination to the Company, if:
(a) the Company has breached any representation, warranty,
covenant or agreement contained in the Transaction Documents or the Statement
of Rights and Preferences and such breach is not cured within five Business
Days following receipt by the Company of notice of such breach;
(b) there has occurred an event since the date of the
financial statements included in the Company's last filed Quarterly Report on
Form 10-Q which in the Purchaser's judgment has or could have a Material
Adverse Effect and which is not disclosed in the Disclosure Materials;
(c) trading in the Common Stock has been suspended by the
Commission or the Nasdaq National Market or other national securities exchange
or market on which the Common Stock is listed or quoted (except for any
suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company); or
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<PAGE> 29
(d) the Common Stock shall have failed to be
listed for trading on the Nasdaq National Market and the Purchaser shall have
exercised its termination right herein provided within 10 Business Days of
obtaining knowledge of such delisting.
ARTICLE VII.
MISCELLANEOUS
-------------
Section 7.1. FEES AND EXPENSES. Each party shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, except as
provided in the Registration Rights Agreement and except that the Company shall
reimburse the Purchaser $10,000 for its legal fees and disbursements. The
Company shall pay all stamp and other taxes and duties levied in connection with
the issuance of the Shares (and upon conversion thereof, the Underlying Shares)
and the Warrants (and upon exercise thereof, the Warrant Shares) pursuant
hereto. The Purchaser shall be responsible for its own tax liability that may
arise as a result of the investment hereunder or the transactions contemplated
by this Agreement. Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company shall pay
(i) all costs, expenses, fees and all taxes incident to and in connection with:
(A) the preparation, printing and distribution of the Disclosure Materials and
all amendments and supplements thereto (including, without limitation, financial
statements and exhibits), and all preliminary and final Blue Sky memoranda and
all other agreements, memoranda, correspondence and other documents prepared and
delivered in connection herewith (B) the issuance and delivery of the Shares and
the Warrants and, upon conversion of the Shares, the Underlying Shares and upon
exercise of the Warrants, the Warrant Shares, (C) the qualification of the
Shares and the Warrants and, upon conversion of the Shares, the Underlying
Shares and upon exercise of the Warrants, the Warrant Shares for offer and sale
under the securities or Blue Sky laws of the several states (including, without
limitation, the fees and disbursements of the Purchasers' counsel relating to
such registration or qualification), (D) furnishing such copies of the
Disclosure Materials and all amendments and supplements thereto, as may
reasonably be requested for use in connection with resales of the Shares and the
Warrants and, upon conversion of the Shares, the Underlying
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<PAGE> 30
Shares and upon exercise of the Warrants, the Warrant Shares, and (E) the
preparation of certificates for the Shares and the Warrants and, upon conversion
of the Shares, the Underlying Shares and upon exercise of the Warrants, the
Warrant Shares (including, without limitation, printing and engraving thereof),
(ii) all fees and expenses of the counsel and accountants of the Company and
(iii) all expenses and listing fees in connection with the application for
quotation of the Underlying Shares and the Warrant Shares in the Nasdaq National
Market.
Section 7.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement,
together with the Exhibits, and Schedules hereto, and the Registration Rights
Agreement, the Statement of Rights and Preferences and the Warrants contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
Section 7.3. NOTICES. Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been received (a) upon hand delivery (receipt acknowledged) or
delivery by telex (with correct answer back received), telecopy or facsimile
(with transmission confirmation report) at the address or number designated
below (if delivered on a Business Day during normal business hours where such
notice is to be received), or the first Business Day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second Business Day following the date
of mailing by express courier service, fully prepaid, addressed to such address,
or upon actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to the Company: Cayenne Software, Inc.
8 New England Executive Park
Burlington, MA 01803
Facsimile No.:
Attention: Frederick H. Phillips
With copies to: Foley, Hoag & Eliot
One Post Office Square
Boston, MA 02109
Facsimile No.: (617) 832-7000
Attention: David W. Walker
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<PAGE> 31
If to the Purchaser: Southbrook International
Investments, Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
Suite 2000
New York, New York 10111
Facsimile: (212) 332-3256
Attention: Robert L. Miller
With copies to: Robinson Silverman Pearce Aronsohn
& Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
-and-
Brown Simpson, LLC
Carnegie Hall Tower
152 West 57th Street, 40th Floor
New York, NY 10019
Facsimile: (212) 247-1329
Attention: James R. Simpson
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 7.4. AMENDMENTS; WAIVERS. No provision of this
Agreement may be waived or amended except in a written instrument signed, in the
case of an amendment, by both the Company and the Purchaser, or, in the case of
a waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
Section 7.5. HEADINGS. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.
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<PAGE> 32
Section 7.6. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
permitted assigns. Neither the Company nor the Purchaser may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other, except that the Purchaser may assign its rights hereunder
and under the Registration Rights Agreement to an Affiliate thereof, provided,
that such assignee demonstrates to the reasonable satisfaction of the Company
its satisfaction of the representations and warranties set forth in Section 3.2
herein. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 7.7. NO THIRD PARTY BENEFICIARIES. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person, except that the representations,
warranties and other agreements contained herein of the Company are intended for
the benefit of and may be relied upon and enforced by Brown Simpson to the
extent such representations, warranties and agreements relate to the Warrants.
Section 7.8. GOVERNING LAW; ARBITRATION. (a) This Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York without regard to the principles of conflicts of
law thereof.
(b) All disputes between the parties hereto arising under
the terms of this Agreement and the other Transaction Documents shall be
arbitrated in New York City under the rules of the American Arbitration
Association then in effect in the City of New York. Judgment on any award made
by the arbitrators hereunder may be rendered in any court having jurisdiction.
The parties consent to the nonexclusive jurisdiction of the State and Federal
Courts sitting in New York County, New York, in connection with the enforcement
of such award. The parties agree to keep confidential any materials, documents
and other information that is disclosed in connection with any arbitration
proceeding.
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<PAGE> 33
Section 7.9. SURVIVAL. The representations and warranties of
the Company and the Purchaser contained in ARTICLE III and the agreements and
covenants of the parties contained in ARTICLE IV and this ARTICLE VII shall
survive the Closing (or any earlier termination of this Agreement) and any
conversion of Shares and exercise of Warrants hereunder.
Section 7.10. COUNTERPART SIGNATURES. This Agreement may be
executed in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
Section 7.11. PUBLICITY. The Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other party with prior notice of such public
statement.
Section 7.12. SEVERABILITY. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section 7.13. REMEDIES. In addition to being entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, the Purchaser will be entitled to specific performance of the
obligations of the Company under this Agreement and the Company will be entitled
to specific performance of the obligations of the Purchaser hereunder with
respect to the subsequent transfer of Shares, Warrants, Warrant
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<PAGE> 34
Shares and Underlying Shares. Each of the Company and the Purchaser agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above.
Company:
CAYENNE SOFTWARE, INC.
By:
-----------------------------------
Name:
Title:
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By:
-----------------------------------
Name:
Title:
<PAGE> 36
Exhibit D
---------
[To be provided by Company prior to the Closing]
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<PAGE> 1
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made
and entered into as of January 2, 1997, by and among Cayenne Software, Inc., a
Massachusetts corporation (the "COMPANY"), and Southbrook International
Investments, Ltd. a corporation organized and existing under the laws of the
British Virgin Islands (the "PURCHASER").
This Agreement is made pursuant to the Convertible Preferred
Stock Purchase Agreement, dated as of the date hereof, by and among the Company
and the Purchaser (the "PURCHASE AGREEMENT"). The execution of this Agreement is
a condition to the closing of the transactions contemplated by the Purchase
Agreement.
The Company and the Purchaser hereby agree as follows:
8. DEFINITIONS
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"ADVICE" shall have meaning set forth in SECTION 3(O).
"AFFILIATE" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "CONTROL," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"BUSINESS DAY" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"CERTIFICATE OF VOTE" shall have the meaning set forth in
SECTION 4.
"CLOSING DATE" shall have the meaning set forth in the
Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, par value
$0.01 per share.
"EFFECTIVENESS DATE" means the 100th day following the Closing
Date.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in
SECTION 2(A).
"EVENT" shall have the meaning set forth in SECTION 4.
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<PAGE> 2
"EVENT DATE" shall have the meaning set forth in SECTION 4.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FILING DATE" means the 30th day following the Closing Date.
"HOLDER" or "HOLDERS" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"INDEMNIFIED PARTY" shall have the meaning set forth in
SECTION 6(C).
"INDEMNIFYING PARTY" shall have the meaning set forth in
SECTION 6(C).
"LOSSES" shall have the meaning set forth in SECTION 6(A).
"MANAGING UNDERWRITER" means any managing underwriter retained
by a Holder in connection with the offer and sale of Registrable Securities.
"PERSON" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"PREFERRED STOCK" means the shares of Series B Convertible
Preferred Stock, par value $1.00 per share, of the Company issued to the
Purchaser pursuant to the Purchase Agreement.
"PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"REGISTRABLE SECURITIES" means the shares of Common Stock
issuable upon conversion of all shares of Preferred Stock and shares of Common
Stock issuable upon exercise of the Warrants issued by the Company to the
Purchaser and Brown Simpson, LLC ("BROWN SIMPSON") in connection with the
transactions contemplated by the Purchase Agreement; PROVIDED, HOWEVER that in
order to account for the fact that the number of shares of Common Stock that are
issuable upon conversion of shares of Preferred Stock is determined in part upon
the market price of the Common Stock at the time of conversion, Registrable
Securities shall include a number of shares of Common Stock equal to no less
than the sum of (1) two times the number of shares of Common Stock issuable upon
conversion in full of the Preferred Stock, assuming such conversion occurred on
the Closing Date and (2) the number of shares of Common Stock issuable upon
exercise in full of the Warrants described herein, or such other number of
shares of Common Stock as agreed to by the
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<PAGE> 3
parties to the Purchase Agreement. Notwithstanding anything herein contained to
the contrary, if the actual number of shares of Common Stock issuable upon
conversion in full of the Preferred Stock and exercise in full of the Warrants
exceeds twice the number of shares of Common Stock issuable if such conversion
and exercise occurred on the Closing Date, the term "Registrable Securities"
shall be deemed to include such additional shares of Common Stock and the
Company shall promptly file appropriate amendments to the Registration Statement
to evidence such increase or the Company shall file one or more additional
Registration Statements covering such additional shares of Common Stock, in
either case, in the time contemplated herein for filing of appropriate
amendments or additional Registration Statements in accordance with the terms
hereof.
"REGISTRATION STATEMENT" means the registration statement,
contemplated by SECTION 2(A), including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference in such registration
statement.
"RULE 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"RULE 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" means any special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to SECTION 4.
"UNDERWRITER" means any underwriter retained by a Holder in
connection with the offer and sale of Registrable Securities.
"UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"WARRANTS" means the Common Stock purchase warrants issued to
the Purchaser and to Brown Simpson on the Closing Date.
IX. Shelf Registration
------------------
1. On or prior to the Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (or another
appropriate form approved by the Holders of a majority of the Registrable
Securities that permit registration of Registrable Securities for resale by the
Holders in the manner or manners
E-55
<PAGE> 4
designated by them (including, without limitation, public or private sales and
one or more Underwritten Offerings)). The Company shall (i) not permit any
securities other than the Registrable Securities and those securities
specifically listed on SCHEDULE 8 attached hereto, to be included in the
Registration Statement and (ii) use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act as promptly as
practicable after the filing thereof, but in any event prior to the
Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until the date which is three years after the
date that such Registration Statement is declared effective by the Commission or
such earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold pursuant to Rule 144 as determined by
the counsel to the Company pursuant to a written opinion letter, addressed to
the Holders, to such effect (the "EFFECTIVENESS PERIOD"); PROVIDED, HOWEVER,
that the Company shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holders not being able to
sell the Registrable Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is required under applicable law or
the Company has filed a post-effective amendment to the Registration Statement
and the Commission has not declared it effective.
2. If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the Managing Underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such Managing Underwriters can be sold, and such amount
shall be allocated PRO RATA among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
3. If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority of the Registrable Securities included in such offering. No Holder
may participate in any Underwritten Offering hereunder unless such Person (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
X. Registration Procedures
-----------------------
In connection with the Company's registration obligations
hereunder, the Company shall:
1. Prepare and file with the Commission on or prior to the
Filing Date a Registration Statement on Form S-3 in accordance with the method
or methods of distribution thereof as specified by the Holders, and cause the
Registration Statement to become effective and remain effective as provided
herein; PROVIDED, HOWEVER, that not less than five (5) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be
E-56
<PAGE> 5
incorporated therein by reference), the Company shall (i) furnish to the
Holders, their Special Counsel and any Managing Underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such Managing Underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such Underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any Managing Underwriters,
shall object.
2. (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective for the
applicable time period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities; (ii) cause the related Prospectus to be
amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424 (or any similar
provisions then in force) promulgated under the Securities Act; (iii) respond as
promptly as practicable to any comments received from the Commission with
respect to the Registration Statement or any amendment thereto; and (iv) comply
with the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Holders thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.
3. Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any Managing Underwriters immediately (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than 3
Business Days following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; and (B) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Pro spectus or
for additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that makes
any statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Pro spectus or other documents so that, in the case of the Registration
Statement or the Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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<PAGE> 6
4. Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness of
the Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
5. If requested by any Managing Underwriter or the Holders of
a majority of the Registrable Securities to be sold in connection with an
Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
Managing Underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; PROVIDED, HOWEVER, that the Company shall not be
required to take any action pursuant to this SECTION 3(E) that would, in the
opinion of counsel for the Company, violate applicable law.
6. Furnish to each Holder, their Special Counsel and any
Managing Underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
7. Promptly deliver to each Holder, their Special Counsel,
and any Underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any Underwriters in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
8. Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any Underwriters and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or Underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; PROVIDED, HOWEVER, that the Company shall not be
required to qualify to do business or to file a general consent to service of
process in any jurisdiction.
9. Cooperate with the Holders and any Managing Underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall be free of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Managing Underwriters or
Holders may request at least two Business Days prior to any sale of Registrable
Securities.
10. Upon the occurrence of any event contemplated by SECTION
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document
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<PAGE> 7
incorporated or deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
11. Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq National
Market and any other securities exchange, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then
listed.
12. Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any Managing Underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not an
underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such Underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when requested; (ii) obtain and deliver copies thereof to each Holder and
the Managing Underwriters, if any, of opinions of counsel to the Company and
updates thereof addressed to each selling Holder and each such Underwriter, in
form, scope and substance reasonably satisfactory to any such Managing
Underwriters and Special Counsel to the selling Holders covering the matters
customarily covered in opinions requested in Underwritten Offerings and such
other matters as may be reasonably requested by such Special Counsel and
Underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an Underwritten Offering, at the time of delivery
of any Registrable Securities sold pursuant thereto, obtain and deliver copies
to the Holders and the Managing Underwriters, if any, of "cold comfort" letters
and updates thereof from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public accountants
of any subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data is, or is required to be, included
in the Registration Statement), addressed to each selling Holder and each of the
Underwriters, if any, in form and substance as are customary in connection with
Underwritten Offerings; (iv) if an underwriting agreement is entered into, the
same shall contain indemnification provisions and procedures no less favorable
to the selling Holders and the Under writers, if any, than those set forth in
SECTION 7 (or such other provisions and procedures acceptable to the Managing
Underwriters, if any, and holders of a majority of Registrable Securities
participating in such Underwritten Offering); and (v) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any Managing
Underwriters to evidence the continued validity of the representations and
warranties made pursuant to clause 3(l)(i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
13. Make available for inspection by the selling Holders, any
representative of such Holders, any Underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or Underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, Underwriter, attorney or accountant in connection
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with the Registration Statement; PROVIDED, HOWEVER, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
14. Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to Underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to Underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of Rule 158.
15. Provide a CUSIP number for all Registrable Securities, not
later than the effective date of the Registration Statement.
The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the inclusion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the
ownership by such Holder of such securities is not to be construed as a rec
ommendation by such Holder of the investment quality of the Company's securities
covered thereby and that such ownership does not imply that such Holder will
assist in meeting any future financial requirements of the Company, or (ii) if
such reference to such Holder by name or otherwise is not required by the
Securities Act or any similar Federal statute then in force, the deletion of the
reference to such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such reference ceases to
be required.
The Purchaser covenants and agrees that (i) it will not offer
or sell any Registrable Securities under the Registration Statement until it has
received copies of the Prospectus as then amended or supplemented as
contemplated in SECTION 3(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by SECTION 3(c) and (ii) the Purchaser and its officers, directors
or Affiliates, if any, will comply with the prospectus delivery requirements of
the Securities Act as applicable to them in connection with sales of Registrable
Securities pursuant to the Registration Statement.
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Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in SECTION 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
SECTION 3(j), or until it is advised in writing (the "ADVICE") by the Company
that the use of the applicable Pro spectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
XI. LIQUIDATED DAMAGES. The Company acknowledges and agrees
that the Holders will suffer damages, and that it would not be feasible to
ascertain the extent of such damages with precision, if (a) a Registration
Statement shall not have been filed with the Commission on or prior to the
Filing Date, or (b) a Registration Statement is not declared effective by the
Commission on or prior to the Effectiveness Date, or (c) a Registration
Statement is filed with and declared effective by the Commission but thereafter
ceases to be effective at any time prior to the expiration of the Effectiveness
Period without being succeeded within 10 Business Days by a subsequent
Registration Statement filed with and declared effective by the Commission, or
(d) trading in the Common Stock shall be suspended for any reason for more than
three Trading Days (as such term is defined under the Certificate of Vote of
Directors Establishing A Series Of A Class Of Stock filed with the State of
Massachusetts in respect of the Preferred Stock (the "CERTIFICATE OF VOTE")) or
(e) if the conversion rights of the holders of the Preferred Stock as set forth
in the Certificate of Vote are suspended for any reason (any such failure being
referred to as an "EVENT," and for purposes of clauses (a), (b) and (e) the date
on which such Event occurs, or for purposes of clause (c) the date which such 10
Business Day-period is exceeded, or for purposes of clause (d) the date on which
such three Trading Day period is exceeded, being referred to as "EVENT DATE"),
then the Company shall pay the Purchaser in cash, as liquidated damages and not
as a penalty, 1.5% of the Purchase Price per month, payment thereof due on the
day after such Event Date and thereafter on each monthly anniversary date of
such Event Date, until such time as a subsequent Registration Statement is
declared effective by the Commission, or until any Event contemplated by clause
(d) or (e), as the case may be, is cured.
The Company shall notify each Holder within five days of each
Event and Event Date. The Company shall pay the liquidated damages due with
respect to the Registrable Securities to each Holder of record as at the Event
Date on a monthly basis, beginning with the date upon which such liquidated
damages first accrue.
XII. Registration Expenses
---------------------
1. All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Registration State ment is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the National Association of Securities Dealers, Inc. and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Underwriters or Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the Managing Underwriters, if any, or
Holders of a majority of Registrable Securities may designate)), (ii) printing
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expenses (including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the Managing Underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) reasonable
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, (v) fees and disbursements of all independent certified public
accountants referred to in SECTION 3(l)(iii) (including, without limitation, the
expenses of any special audit and "cold comfort" letters required by or incident
to such performance), (vi) Securities Act liability insurance, if the Company so
desires such insurance, and (vii) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange on which similar securities issued by the Company are then
listed.
2. In connection with the Registration Statement, the Company
shall reimburse the Holders for the fees and disbursements of one firm of
attorneys chosen by the Holders of a majority of the Registrable Securities.
XIII. Indemnification
---------------
1. INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding termination of this Agreement and without limitation as to time,
indemnify and hold harmless each Holder, the officers, directors, agents
(including any Underwriters retained by such Holder in connection with the offer
and sale of Registrable Securities), brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any failure
to perform under a margin call of Common Stock), investment advisors and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and reasonable attorneys' fees) and expenses
(collectively, "LOSSES"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by or on behalf of such Holder expressly for use therein, which
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this Agreement.
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2. INDEMNIFICATION BY HOLDERS. In connection with the
Registration Statement, each Holder shall furnish to the Company in writing such
information as the Company reasonably requests for use in connection with the
Registration Statement or any Prospectus and agrees, severally and not jointly,
to indemnify and hold harmless the Company, their directors, officers, agents
and employees, each Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the lia bility of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "INDEMNIFIED PARTY"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed to
pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly
to assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any
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settlement of any pending Proceeding in respect of which any Indemnified Party
is a party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of
such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the Indemnifying
Party (regard less of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnifica tion hereunder; PROVIDED, that the
Indemnifying Party may require such Indemnified Party to undertake to reimburse
all such fees and expenses to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnification hereunder).
4. CONTRIBUTION. If a claim for indemnification under SECTION
6(a) or 6(b) is unavailable to an Indemnified Party or is insufficient to hold
such Indemnified Party harmless for any Losses in respect of which this Section
would apply by its terms (other than by reason of exceptions provided in this
Section), then each Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions, statements or omissions that resulted in such Losses as well
as any other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in SECTION 6(c), any attorneys' or other fees or expenses incurred by such party
in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this SECTION 6(d) were determined by PRO
RATA allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this SECTION 6(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by the Purchaser from the
sale of the Registrable Securities subject to the Proceeding exceeds the amount
of any damages that the Purchaser has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
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XIV. Rule 144
--------
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and, if at any
time the Company is not required to file such reports, they will, upon the
request of any Holder, make publicly available other information so long as
necessary to permit sales of its securities pursuant to Rule 144. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144. Upon the
request of any Holder, the Company shall deliver to such Holder a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
XV. Miscellaneous
-------------
1. REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
com pensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
2. NO INCONSISTENT AGREEMENTS. Except as set forth in SCHEDULE
8 hereto, neither the Company nor any of its subsidiaries has, as of the date
hereof, nor shall the Company or any of its subsidiaries, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Neither the Company nor any of
its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person. Without
limiting the generality of the foregoing, without the written consent of the
Holders of a majority of the then outstanding Registrable Securities, the
Company shall not grant to any Person the right to request the Company to
register any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict or inconsistent with
the provisions of this Agreement.
3. NO PIGGYBACK ON REGISTRATIONS. Except as set forth in
SCHEDULE 8 hereto, neither of the Company nor any of its security holders (other
than the Holders in such capacity pursuant hereto) may include securities of the
Company in the Registration Statement other than the Common Stock to be issued
under the Purchase Agreement, and the Company shall not enter into any agreement
providing any such right to any of its securityholders.
4. PIGGY-BACK REGISTRATIONS. If at any time the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form S-4 or Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, the Company shall
send to each holder of Registrable Securities written notice of such
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determination and, if within twenty (20) days after receipt of such notice, any
such holder shall so request in writing, the Company shall include in such
registration statement all or any part of the Registrable Securities such holder
requests to be registered, except that if, in connection with any Underwritten
Offering for the account of the Company the managing underwriter(s) thereof
shall impose a limitation on the number of shares of Common Stock which may be
included in the registration statement because, in such underwriter(s)'
judgment, such limitation is necessary to effect an orderly public distribution
of securities covered thereby, then the Company shall be obligated to include in
such registration statement only such limited portion of the Registrable
Securities for to which such holder has requested inclusion hereunder. Any
exclusion of Registrable Securities shall be made pro rata among the holders
seeking to include Registrable Securities, in proportion to the number of
Registrable Securities sought to be included by such holders; PROVIDED, HOWEVER,
that the Company shall not exclude any Registrable Securities unless the Company
has first excluded all outstanding securities the holders of which are not
entitled by right to inclusion of securities in such registration statement; and
PROVIDED, FURTHER, HOWEVER, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in such registration statement. No right to registration of
Registrable Securities under this Section shall be construed to limit any
registration otherwise required hereunder. This SECTION 8(d) shall apply only at
such times when all of the Registrable Securities issued and outstanding cannot
be sold pursuant to an effective Registration Statement on Form S-3 and for a
period not to exceed three years after the date of this Agreement.
5. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; PROVIDED, HOWEVER, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; PROVIDED, HOWEVER, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
6. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: Cayenne Software, Inc.
8 New England Executive Park
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Burlington, MA 01803
Facsimile No.: (617) 229-8124
Attention: Eugene J. DiDonato
With copies to: Foley, Hoag & Eliot
One Post Office Square
Boston, MA 02109
Facsimile No.: (617) 832-7000
Attention: David W. Walker
If to the Purchaser: Southbrook International
Investments, Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
Suite 2000
New York, New York 10111
Facsimile No.: (212) 332-3256
Attention: Robert L. Miller
with copies to: Brown Simpson, L.L.C.
Carnegie Hall Tower
152 West 57th Street, 40th Floor
New York, New York 10019
Facsimile No.: (212) 247-1329
Attn: James R. Simpson
- and -
Robinson Silverman Pearce Aronsohn
& Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Eric L. Cohen
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books
of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
7. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder.
8. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which
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taken together shall constitute one and the same Agreement. In the event that
any signature is delivered by facsimile transmission, such signature shall
create a valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
9. GOVERNING LAW; ARBITRATION;. (A) This Agreement shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to principles of conflicts of law
thereof.
(B) All disputes between the parties hereto arising under
the terms of this Agreement shall be arbitrated in New York City under the
rules of the American Arbitration Association then in effect in the City of New
York. Judgment on any award made by the arbitrators hereunder may be rendered
in any court having jurisdiction. The parties consent to the nonexclusive
jurisdiction of the Federal and State Courts sitting in New York County, New
York, in connection with the enforcement of such award. The parties agree to
keep confidential any materials, documents or other information that is
disclosed in connection with any arbitration proceeding.
10. CUMULATIVE REMEDIES. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
11. SEVERABILITY. If any term, provision, covenant or
restriction of this Agree ment is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
12. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
13. SHARES HELD BY THE COMPANY AND ITS AFFILIATES.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by the
Company or its Affiliates (other than the Purchaser or transferees or successors
or assigns thereof if such Persons are deemed to be Affiliates solely by reason
of their holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
CAYENNE SOFTWARE, INC.
By:
--------------------------------
Name:
Title:
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By:
--------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.7
NEITHER THIS WARRANT NOR THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES REPRESENTED BY
THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION, AND NEITHER SUCH SECURITIES NOR ANY INTEREST OR PARTICIPATION
THEREIN MAY BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER
MANNER TRANSFERRED OR DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS THEREOF AND IN COMPLIANCE WITH THE REGISTRATION
PROVISIONS OF APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
CAYENNE SOFTWARE, INC.
WARRANT
Dated January 2, 1997
CAYENNE SOFTWARE, INC., a Massachusetts corporation (the "Company"),
hereby certifies that, for value received, Southbrook International Investments,
Ltd., a corporation organized and existing under the laws of the British Virgin
Islands, or its registered assigns ("Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company from time to time up to a total of
[ ](1) shares of Common Stock, par value $.01 per share (the "Common Stock"), of
the Company (each such share, a "Warrant Share" and all such shares, the
"Warrant Shares") at an exercise price equal to the lower of (a) [ ](2) per
share and (b) [120%, 125% and 150% for each Warrant issued, respectively] of the
average Per Share Market Value for the thirty (30) trading days immediately
following an announcement by or on behalf of the Company of an acquisition,
merger or consolidation following the date hereof, in which the Company or an
entity controlled by the Company will be the surviving entity; PROVIDED,
HOWEVER, that the price per share derived in the calculation of this clause (b)
shall only become the "Exercise Price" (defined below) upon the first such
announcement of acquisition, merger or consolidation where (x) such announcement
of acquisition, merger or consolidation occurs within one (1) year after the
Original Issue Date and (y) if such price per share is less than or equal to 90%
of the average Per Share Market Value for the thirty (30) trading days
immediately preceding such announcement (the lower of (a) and (b), as adjusted
from time to time as provided in SECTION 7, referred to herein as the "Exercise
Price"), at any time after the date hereof
- ----------------------------
(1) The number of shares per Warrant shall equal 75,000, 75,000, and 112,500,
respectively.
(2) Such exercise price shall equal [120%, 125% and 150% for each
Warrant issued, respectively] of the average Per Share Market Value (as such
term is defined in the Statement of Rights and Preferences, Exhibit A to the
Convertible Preferred Stock Purchase Agreement, dated as of the date hereof
between the Holder and the Company (the "Statement of Rights and Preferences"))
for the ten (10) Trading Days (as such term is defined in the Statement of
Rights and Preferences) immediately preceding the Original Issue Date (and in no
event less than the par value of the Common Stock).
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<PAGE> 2
and until and including January 2, [ ](1) (the "Expiration Date"), and in no
event less than the par value of the Common Stock and subject to the following
terms and conditions:
XVI. REGISTRATION OF WARRANT. The Company shall register
this Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
XVII. REGISTRATION OF TRANSFERS AND EXCHANGES.
---------------------------------------
1. The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the Company at
the office specified in or pursuant to SECTION 3(b). Upon any such registration
or transfer, a new warrant to purchase Common Stock, in substantially the form
of this Warrant (any such new warrant, a "New Warrant"), evidencing the portion
of this Warrant so transferred shall be issued to the transferee and a New
Warrant evidencing the remaining portion of this Warrant not so transferred, if
any, shall be issued to the transferring Holder.
2. This Warrant is exchangeable, upon the surrender hereof by
the Holder at the office of the Company specified in or pursuant to
SECTION 3(b) for one or more New Warrants, evidencing in the aggregate the
right to purchase the number of Warrant Shares which may then be purchased
hereunder. Any such New Warrant will be dated the date of such exchange.
XVIII. DURATION AND EXERCISE OF WARRANTS.
---------------------------------
1. This Warrant shall be exercisable by the registered Holder
on any business day before 5:00 P.M., New York time, at any time and from time
to time on or after the date hereof to and including the Expiration Date. At
5:00 P.M., New York time on the Expiration Date, the portion of this Warrant
not exercised prior thereto shall be and become void and of no value.
2. Subject to SECTIONS 2(b), 4 and 8, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its office at 8 New England Executive Park,
Burlington, MA 01803, Attention: Chief Financial Officer, or at such other
address as the Company may specify in writing to the then registered Holder,
and upon payment of the Exercise Price multiplied by the number of Warrant
Shares that the Holder intends to purchase hereunder, in lawful money of the
United States of America, in cash or by certified or official bank check or
checks, all as specified by the Holder in the Form of Election to Purchase, the
Company shall promptly (but in no event later than 3 days thereafter) issue and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends other than legends
that may be required in the opinion of the Company's counsel in the event at
such time there is not an effective Registration Statement. Any person so
designated by the Holder to receive Warrant Shares shall be deemed to have
become holder of record of such Warrant Shares as of the Date of Exercise of
this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such
- --------------------------
(1) 1999, 2000 and 2001 in each Warrant issued, respectively.
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<PAGE> 3
New Warrant) appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares so indicated by the holder
hereof to be purchased.
3. This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares so long as at
least 10,000 Warrant Shares are purchased in any one exercise. If less than all
of the Warrant Shares which may be purchased under this Warrant are exercised
at any time, the Company shall issue, at its expense, a New Warrant evidencing
the right to purchase the remaining number of Warrant Shares for which no
exercise has been evidenced by this Warrant.
XIX. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares in a name other than that
of the Holder, and the Company shall not be required to issue or deliver the
certificates for Warrant Shares unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.
XX. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen
or destroyed, the Company may in its discretion issue in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity,
if requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.
XXI. RESERVATION OF WARRANT SHARES. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of
this entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holders (taking into account the
adjustments and restrictions of SECTION 7). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issue, be
duly and validly authorized, issued and fully paid, nonassessable and freely
tradeable.
XXII. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this SECTION 7. Upon each such adjustment of the
Exercise Price pursuant to this SECTION 7, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(i) If the Company, at any time while this Warrant is
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Junior Securities (as such term is defined in the
Statement of Rights and Preferences) payable in shares of Common Stock, (b)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(c) combine outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding before such event and of which the denominator shall be the
number of shares of Common Stock outstanding after such event. Any adjustment
made pursuant to this Section shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
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<PAGE> 4
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(ii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company
or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, then the Holder shall have
the right thereafter to exercise this Warrant only into the shares of stock and
other securities and property receivable upon or deemed to be held by holders
of Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger,
sale, transfer or share exchange. The terms of any such consolidation, merger,
sale, transfer or share exchange shall include such terms so as to continue to
give to the Holder the right to receive the securities or property set forth in
this SECTION 7(b) upon any exercise following such consolidation, merger, sale,
transfer or share exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(iii) If the Company, at any time while outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in SECTIONS
7(a) and (b) above), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "APPRAISER") selected in good faith by the holders of a majority
in interest of the Warrants then outstanding.
(iv) For the purposes of this Section, the following
clauses shall also be applicable:
A. RECORD DATE. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (B) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
B. TREASURY SHARES. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by
or for the account of the Company, and the disposition of any such shares shall
be considered an issue or sale of Common Stock for the purposes of this
subsection (d).
(v) All calculations under this SECTION 7 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Exercise Price is adjusted pursuant
to SECTION 7(c) above, the Company, after receipt of the determination by the
Appraiser shall have the right to select an additional Appraiser, in good
faith, in which case the adjustment shall be equal to the average of the
adjustments recommended by each
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<PAGE> 5
Appraiser. The Company shall promptly mail to each Holder, a notice setting
forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such adjustment shall become
effective immediately after the record date mentioned above; PROVIDED, HOWEVER,
that no such adjustment of the Exercise Price shall be made which in the opinion
of the Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase of the Exercise Price to more than the Exercise Price then in effect.
All determinations with respect to adjustments by the Company hereunder shall be
made by the Board of Directors in good faith.
(vii) If:
A. the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
C. the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any shares
of capital stock of any class or of
any rights, or
D. the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company,
any consolidation or merger to which
the Company is a party, any sale or
transfer of all or substantially all
of the assets of the Company, or any
compulsory share exchange whereby
the Common Stock is converted into
other securities, cash or property,
or
E. the Company shall authorize the
voluntary or involuntary
dissolution, liquidation or winding
up of the affairs of the Company;
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; PROVIDED, HOWEVER, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
XXIII. FRACTIONAL SHARES. The Company shall not be required to issue
fractional Warrant Shares on the exercise of this Warrant. The number of full
Warrant Shares which shall be issuable upon the exercise of this Warrant shall
be computed on the basis of the aggregate number of Warrant Shares purchasable
on exercise of this Warrant so presented. If any fraction of a Warrant Share
would, except for the provisions of this SECTION 8, be issuable on the exercise
of this Warrant, the Company shall, at its option, (a) pay an amount in cash
equal to the Exercise Price multiplied by such fraction or (b) shall round the
number of Warrant Shares issuable, up to the next whole number of such shares.
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<PAGE> 6
XXIV. NOTICES. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be delivered personally, by
facsimile, sent by a nationally recognized overnight courier service or sent by
registered or certified mail, postage prepaid, addressed as follows: (1) if to
the Company, to CAYENNE SOFTWARE, INC., 8 New England Executive Park,
Burlington, MA 01803, Attention: Chief Financial Officer, or to facsimile no.
(617) 229-8124; or (ii) if to the Holder, to the Holder at the address or
facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this SECTION 9. Any notice or other communications or deliveries hereunder shall
be deemed given and effective on the earliest of (i) the date of transmission,
if delivered via facsimile at the facsimile number specified in this SECTION 9,
(ii) four (4) days after deposit in the United States mails, (iii) the date when
posted, if sent by nationally recognized overnight courier service or (iv) upon
actual receipt by the party to whom such notice is required to be given.
XXV. WARRANT AGENT.
-------------
1. The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company and the Holder
may appoint a new warrant agent.
2. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant
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<PAGE> 7
agent shall be a party or any corporation to which the Company or any new
warrant agent transfers substantially all of its corporate trust or shareholders
services business shall be a successor warrant agent under this Warrant without
any further act; provided that such corporation (i) would be eligible for
appointment as successor to the warrant agent under the provisions of this
SECTION 10 or (ii) is a wholly-owned subsidiary of the warrant agent. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed (by first class mail, postage prepaid) to the Holder at the
Holder's last address as shown on the register maintained by the warrant agent
pursuant to this Warrant.
XXVI. MISCELLANEOUS.
-------------
1. This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
This Warrant may be amended only in writing signed by the Company and the
Holder.
2. Subject to SECTION 11(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company,
the Holder and any registered holder of Warrant Shares any legal or equitable
right, remedy or cause under this Warrant; this Warrant shall be for the sole
and exclusive benefit of the Company, the Holder and any other registered holder
of Warrant Shares.
3. This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof.
4. The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
5. In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
CAYENNE SOFTWARE, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
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<PAGE> 8
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Cayenne Software, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), par value $.01 per share, of Cayenne
Software, Inc. and encloses herewith $________ in cash (or encloses herewith
evidence of payment of such sum), which sum represents the Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
______________________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: ______________, ____ Name of Holder:
(Print)_______________________________
(By:)_________________________________
(Title:)
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<PAGE> 9
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of CAYENNE SOFTWARE,
INC. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of CAYENNE SOFTWARE, INC. with full power of
substitution in the premises.
Dated:
______________, ____
__________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
__________________________________
Address
In the presence of:
__________________________________
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<PAGE> 1
EXHIBIT 4.8
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT
TO A REGISTRATION UNDER THE ACT OR AN EXEMPTION THEREFROM.
WARRANT AGREEMENT
CAYENNE SOFTWARE, INC.
Dated as of December 20, 1996 (the "Effective Date")
WHEREAS, CAYENNE SOFTWARE, INC. (f/k/a Bachman Information Systems,
Inc.) a Massachusetts corporation (the "Company"), has entered into a Letter
Amendment, dated as of October 4, 1996, (the "Letter Amendment") to the Amended
and Restated Revolving Credit Agreement (as amended, the "Revolving Credit
Agreement") dated as of June 5, 1996, with SILICON VALLEY BANK, a
California-chartered bank, with its principal place of business at 3003 Tasman
Drive, Santa Clara, CA 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" (the "Warrantholder");
and
WHEREAS, the Company desires to grant to the Warrantholder, in
consideration for the execution of the Letter Agreement and the loans to be
granted pursuant to the Revolving Credit Agreement, as amended, the right to
purchase shares of the Company's Common Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering the Revolving Credit Agreement, as amended, and providing the loans
to the Company thereunder and in consideration of the mutual covenants and
agreements contained herein, the Company and the Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, a
Warrant to subscribe to and purchase from the Company, an aggregate of 25,000
fully paid and non-assessable shares ("Warrant Shares") of the Company's Common
Stock, par value $.01 per share ("Common Stock"), at a purchase price of $4.25
per share, but in no event less than the par value per share of Common Stock
acquired (the "Exercise Price"). The number and purchase price of such Warrant
Shares are subject to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Warrant Shares as granted herein shall
commence on the Effective Date and shall be exercisable for a period of three
(3) years therefrom. The Company shall provide notice to the Warrantholder in
the form of Appendix I hereto within forty-five (45) days prior to the
expiration of the Warrant.
3. EXERCISE OF THE PURCHASE RIGHTS.
(a) The purchase rights set forth in this Warrant Agreement are
exercisable by the Warrantholder, in whole or in part, at any time, or from time
to time, prior to the expiration of the term set forth in Section 2 above, by
tendering to the Company at its principal office a notice of
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<PAGE> 2
exercise in the form attached hereto as APPENDIX II (the "Notice of Exercise"),
duly completed and executed. Promptly upon receipt of the Notice of Exercise and
the payment of the purchase price in accordance with the terms set forth below,
and in no event later than fifteen (15) days thereafter, the Company shall
instruct its transfer agent to issue to the Warrantholder a certificate for the
number of Warrant Shares purchased.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of all or a portion of the Warrant
("Net Issuance") as determined below. If the Warrantholder elects the Net
Issuance method, the Company will issue Warrant Shares in accordance with the
following formula:
X = (P)(A-B)
--------
A
Where: X = the number of Warrant Shares to be issued to the
Warrantholder for the portion of the Warrant being exercised.
P = the number of Warrant Shares requested to be exercised under
this Warrant Agreement.
A = the Fair Market Value (defined below) of one (1) share of
the Company's Common Stock multiplied by the number of shares of
Common Stock issuable upon conversion of one Warrant Share on
this date of exercise.
B = the Exercise Price.
As used herein, "Fair Market Value" of Common Stock shall mean with
respect to each share of Common Stock:
(i) if actively traded over-the-counter, the Fair Market Value
shall be deemed to be the average of the closing sale prices quoted on
the NASDAQ system (or similar system) over the ten (10) day period
ending the day before the Fair Market Value of the securities is being
determined;
(ii) if the Common Stock at any time becomes traded on a securities
exchange, the Fair Market Value shall be deemed to be the average of the
closing prices over a ten (10) day period ending the day before the day
the Fair Market Value of the securities is being determined; or
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the Fair Market Value of Common Stock shall be
the highest price per share which the Company could obtain from a
willing buyer (not a current employee or director) for shares of Common
Stock sold by the Company, from authorized but unissued shares, as
determined in good faith by its Board of Directors, unless the Company
shall become subject to a merger, acquisition or other consolidation
pursuant to which the Company is not the surviving party, in which case
the Fair Market Value of Common Stock shall be deemed to be the value
received by the holders of Common Stock pursuant to such merger or
acquisition. The foregoing notwithstanding, if the Warrantholder advises
the Board of Directors in writing that the Warrantholder disagrees with
such determination, then the Company and the Warrantholder shall
promptly agree upon a reputable investment banking firm to undertake
such valuation. If the valuation of such investment banking firm is
greater than that determined by the Board of Directors by at least ten
percent (10%), then all fees and expenses of such investment banking
firm shall be paid by the Company. In all other circumstances, such fees
and expenses shall be paid by the Warrantholder.
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<PAGE> 3
(b) Upon partial exercise by either cash or Net Issuance, the Company
shall promptly issue an amended Warrant Agreement representing the remaining
number of Warrant Shares purchasable hereunder. All other terms and conditions
of such amended Warrant Agreement shall be identical to those contained herein,
including, but not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) AUTHORIZATION AND RESERVATION OF SHARES. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights to purchase Warrant Shares as provided for herein.
(b) REGISTRATION OR LISTING. If any shares of Common Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or state law (other than any registration under the
Securities Act of 1933, as then in effect ("1933 Act"), or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon exercise of this Warrant, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant Agreement, but in lieu of such
fractional shares the Company shall make a cash payment therefor upon the basis
of the Exercise Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
this Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The Exercise Price per share and the number of Warrant Shares
purchasable hereunder are subject to adjustment, as follows:
(a) MERGER AND SALE OF ASSETS. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
Warrant Shares or other marketable securities of the successor corporation
resulting from such Merger Event, equivalent in rights and value to that which
would have been issuable if the Warrantholder had exercised this Warrant
immediately prior to the Merger Event. In any such case, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant Agreement with respect to
the rights and interest of the Warrantholder after the Merger Event to the end
that the provisions of this Warrant Agreement (including adjustments of the
Exercise Price and number of Warrant Shares purchasable) shall be applicable as
nearly as
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practicable in relation to any shares of stock, securities or assets thereafter
deliverable upon exercise thereof.
Notwithstanding the foregoing, at the election of the Warrantholder, the
Company shall purchase the unexercised portion of this Warrant for cash upon the
closing of any Merger Event in which the Warrantholder does not receive
securities which are either (i) immediately publicly saleable without further
registration or delay or (ii) immediately registrable on the same terms as set
forth in Section 9(e) hereof in an amount equal to (x) the Fair Market Value of
any consideration that would have been received by the Warrantholder had the
Warrantholder exercised the unexercised portion of this Warrant immediately
before the record date for determining the shareholders entitled to participate
in the proceeds of the Merger Event, less (y) the aggregate Exercise Price, but
in no event less than zero.
(b) RECLASSIFICATION OF SHARES. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
shall combine or subdivide its Common Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) STOCK DIVIDENDS. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of Warrant Shares (calculated to the
nearest whole share) obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares issuable
upon the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
(e) ANTI-DILUTION RIGHTS. Except in connection with the Company's up to
$5 million proposed private placement of Series B Preferred Stock and Warrants
on or before January 31, 1997, if the Company at any time while this Warrant is
outstanding shall grant to any holder of the Company's capital stock or to any
holder of any security exchangeable or convertible into or exercisable for
capital stock of the Company (each, a "Holder") any right (i) to adjust the
number of shares of capital stock owned by such Holder or to be acquired by such
Holder pursuant to any exchange, conversion or exercise, or (ii) to adjust the
exercise, conversion or exchange price for shares of capital stock of the
Company, upon the happening of certain events (the "Trigger Event") in order to
maintain and preserve, without dilution, the value of such Holder's shares and
the percentage of such Holder's ownership in the Company prior to the Trigger
Event ("Anti-Dilution Rights"), then the Company shall also grant Anti-Dilution
Rights to the Warrantholder on the same terms and conditions granted to such
Holder. In the event the Company grants Anti-Dilution Rights to more than one
Holder upon different terms and conditions, then the Company shall grant to
Warrantholder the Anti-Dilution Rights granted to the Holder with the terms and
conditions which the Warrantholder determines, in its sole discretion, to be
most favorable to the Warrantholder.
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(f) NOTICE OF ADJUSTMENTS. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription pro rata to the
holders of Common Stock or other stock any additional shares of stock of any
class or other rights; (iii) there shall be any Merger Event; or (iv) there
shall be any voluntary or involuntary dissolution, liquidation or winding up of
the Company; then, in connection with each such event, the Company shall send to
the Warrantholder: (A) at least twenty (20) days' prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution, subscription rights (specifying the date on
which the holders of Common Stock shall be entitled thereto) or for determining
rights to vote in respect of such Merger Event, dissolution, liquidation or
winding up; and (B) in the case of any such Merger Event, dissolution,
liquidation or winding up, at least twenty (20) days' prior written notice of
the date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such Merger Event, dissolution,
liquidation or winding up). In the case of a public offering, the Company shall
give the Warrantholder at least twenty (20) days written notice prior to the
effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) RESERVATION OF WARRANT SHARES. The Warrant Shares issuable upon
exercise of the Warrant granted under this Warrant Agreement have been duly and
validly reserved and, when issued in accordance with the provisions of this
Warrant Agreement, will be validly issued, fully paid and non-assessable, and
will be free of any taxes, liens, charges or encumbrances of any nature
whatsoever. The Company has made available to the Warrantholder true, correct
and complete copies of its Articles of Organization and Bylaws, as amended to
date. The issuance of certificates for shares of Common Stock upon exercise of
the Warrant granted under this Warrant Agreement shall be made without charge to
the Warrantholder for any issuance tax or transfer tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of Warrant Shares.
(b) DUE AUTHORITY. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
Warrant Shares upon exercise of the Warrant granted hereby, have been duly
authorized by all necessary corporate action on the part of the Company, and
this Warrant Agreement is not inconsistent with the Company's Articles of
Organization or Bylaws, each as amended to date, does not contravene any law or
governmental rule, regulation or order applicable to it, does not and will not
contravene any provision of, or constitute a default under, any material
indenture, mortgage, contract or other instrument to which it is a party or by
which it is bound, and this Warrant Agreement and the Warrant evidenced hereby
constitute legal, valid and binding agreements of the Company, enforceable
against it in accordance with their terms.
(c) CONSENTS AND APPROVALS. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement.
(d) ISSUED SECURITIES. All issued and outstanding shares of capital
stock and other securities of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. All outstanding shares of capital
stock and other securities of the Company were issued in full compliance with
all applicable Federal and state securities laws. In addition, in
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<PAGE> 6
accordance with the Company's Articles of Organization, no shareholder of the
Company has preemptive rights to purchase new issuances of the Company's capital
stock.
(e) REGISTRATION RIGHTS. The Company hereby acknowledges and agrees
that the Warrantholder shall have, with respect to the Warrant Shares, the
following registration rights:
(i) CERTAIN DEFINITIONS. As used in this Section 9(e), the
term "Registrable Securities" shall mean the Warrant Shares, and/or any
or all of the shares of Common Stock issued or issuable upon exercise of
this Warrant.
(ii) "PIGGYBACK" REGISTRATION. From the date hereof until the
expiration date of the Warrant set forth in Section 2 of this Warrant
Agreement, the Company shall advise the Warrantholder, whether the
Warrantholder holds this Warrant or has exercised this Warrant and
holds any of the Common Stock, by written notice at least four weeks
prior to the filing of any new registration statement or post-effective
amendment thereto under the 1933 Act (other than a registration
statement on Form S-8 or its counterpart), or any Notification on Form
1-A under the 1933 Act, covering any securities of the Company, whether
for its own account or for the account of others, and shall, upon the
request of the Warrantholder, include in any new registration statement
such information as may be required to permit a public offering of any
or all of the Registrable Securities of the Warrantholder subject to
cutbacks imposed by underwriters or the Company in the same manner and
to the same extent as applied to other selling securityholders, all at
no expense whatsoever to the Warrantholder, except that the
Warrantholder shall bear the fees of its own counsel and any
underwriting discounts or commissions applicable to the Common Stock
sold by it.
(iii) Demand Registration.
-------------------
(1) If the Warrantholder shall give notice to the Company,at
any time prior to the expiration date of the Warrant set forth in Section 2 of
this Agreement, to the effect that such Warrantholder desires to register under
the 1933 Act any Registrable Securities representing at least one third of the
Warrant Shares originally issuable hereunder under such circumstances that a
public distribution (within the meaning of the 1933 Act) of any such securities
shall be involved, then the Company shall promptly, but no later than ninety
(90) days after receipt of such notice, file a new registration statement under
the 1933 Act, to the end that Registrable Securities of such Warrantholder may
be publicly sold under the 1933 Act as promptly as practicable thereafter, and
the Company shall use its best efforts to cause such registration to become
effective as soon as possible; PROVIDED, HOWEVER, that the Warrantholder shall
furnish the Company with appropriate information in connection therewith as the
Company may reasonably request in writing; and provided further that the
Company shall then have available current financial statements (unless the
unavailability of current financial statements results from the Company's fault
or neglect).
(2) All costs and expenses (including without limitation,
legal, accounting, printing, mailing and filing fees) of such registration
effected under this Section 9(e)(iii) shall be borne by the Company, except that
the Warrantholder shall bear the fees of its own counsel and any underwriting
discounts or commissions applicable to the securities sold by it.
(3) The Company shall cause each registration statement
filed pursuant to this Section 9(e)(iii) to remain current under the 1933 Act
(including the taking of such steps as are necessary to obtain the removal of
any stop order) for a period of at least ninety (90) days (and for up to an
additional ninety (90) days if requested by Warrantholder) from the effective
date thereof, or until all the Registrable Securities included in such
registration have been sold, whichever is earlier.
(iv) FURTHER RIGHTS. The registration rights provided by this
Section 9 may be exercised by the Warrantholder either prior or
subsequent to its exercise of this Warrant. The Warrantholder may, at
its option, request registration pursuant to Section 9(e)(ii)
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<PAGE> 7
and/or pursuant to Section 9(e)(iii), and its request for registration
under one such Section shall not affect its right to request
registration under the other.
(v) FURTHER OBLIGATIONS OF COMPANy. With respect to all
registrations under this Section 9, the Company shall: (i) supply
prospectuses and such other documents as the Warrantholder may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities; (ii) use its best efforts to
register and qualify the Registrable Securities for sale in such states
as the Warrantholder designates (provided, however, that in no event
shall the Company be required to qualify as a foreign corporation or a
dealer in securities or to execute a general consent to service of
process); and (iii) do any and all other acts and things which may be
necessary to enable the Warrantholder to consummate the public sale or
other disposition of the Registrable Securities.
(f) EXEMPT TRANSACTION. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Warrant Shares upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act and (ii) the
qualification requirements of applicable state securities laws.
(g) COMPLIANCE WITH RULE 144. At the written request of the
Warrantholder who proposes to sell Warrant Shares issuable upon the exercise of
the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
(i) INFORMATION RIGHTS. So long as the Warrantholder holds this
Warrant and/or any of the Warrant Shares, the Company shall deliver to
the Warrantholder (a) promptly after mailing, copies of all annual
reports, notices or other written communications to the shareholders of
the Company; (b) within ninety (90) days after the end of each fiscal
year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized
standing and (c) within forty-five (45) days after the end of each of
the first three quarters of each fiscal year, the Company's quarterly,
unaudited financial statements.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) INVESTMENT PURPOSE. The right to acquire Warrant Shares or the
Warrant Shares issuable upon exercise of the Warrant granted hereby will be
acquired for investment and not with a view to the sale or distribution of any
part thereof in violation of applicable securities laws, and the Warrantholder
has no present intention of selling or engaging in any public distribution of
the same except pursuant to a registration or exemption.
(b) PRIVATE ISSUE. The Warrantholder understands (i) that the Warrant
Shares issuable upon exercise of this Warrant are not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) DISPOSITION OF WARRANTHOLDER'S RIGHTS. In no event will the
Warrantholder make a disposition of any of its rights to acquire Warrant Shares
or Warrant Shares issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an
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<PAGE> 8
opinion of counsel (which counsel may either be inside or outside counsel to the
Warrantholder) reasonably satisfactory to the Company and its counsel to the
effect that (A) appropriate action necessary for compliance with the 1933 Act
and applicable "blue sky" regulations has been taken, or (B) an exemption from
the registration requirements of the 1933 Act and applicable "blue sky"
regulations is available. Notwithstanding the foregoing, the restrictions
imposed upon the transferability of any of its rights to acquire Warrant Shares
or Warrant Shares issuable on the exercise of such rights do not apply to
transfers from the beneficial owner of any of the aforementioned securities to
its nominee or from such nominee to its beneficial owner, and shall terminate as
to any particular Warrant Share when (1) such security shall have been
effectively registered under the 1933 Act and sold by the holder thereof in
accordance with such registration or (2) such security shall have been sold
without registration in compliance with Rule 144 under the 1933 Act, or (3) a
letter shall have been issued to the Warrantholder at its request by the staff
of the Securities and Exchange Commission or a ruling shall have been issued to
the Warrantholder at its request by such Commission stating that no action shall
be recommended by such staff or taken by such Commission, as the case may be, if
such security is transferred without registration under the 1933 Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required. Whenever the restrictions imposed hereunder shall terminate, as
hereinabove provided, the Warrantholder or holder of a Warrant Share then
outstanding as to which such restrictions have terminated shall be entitled to
receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such Warrant Shares not bearing any
restrictive legend.
(d) FINANCIAL RISK. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as APPENDIX III (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) EFFECTIVE DATE. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement and the
Warrant granted hereunder and evidence hereby shall be binding upon any
successors or assigns of the Company.
(b) ATTORNEY'S FEES. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to reasonable attorneys' fees and expenses and all costs of
proceedings incurred in enforcing this Warrant Agreement.
(c) GOVERNING LAW; JURISDICTION. This Warrant Agreement shall be
governed by and construed for all purposes under and in accordance with the
internal laws of the Commonwealth of Massachusetts. The Company hereby submits
to the non-exclusive jurisdiction of any state or federal court of competent
jurisdiction of the Commonwealth of Massachusetts or the State of California for
the purpose of any suit, action or other proceeding arising out of, or with
respect to this Warrant Agreement, and expressly waives any and all objections
it may have as to venue in any of such courts or as to inconvenient forum.
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<PAGE> 9
(d) COUNTERPARTS. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery, upon
confirmed receipt if sent by facsimile transmission, three (3) days after
deposit in the United States mail, first class, postage prepaid or one (1) day
after delivery by overnight courier, addressed (i) to the Warrantholder at
Wellesley Office Park, 40 William Street, Suite 350, Wellesley, Massachusetts
02181, Attention: David B. Fischer, Senior Vice President (and/or, if by
facsimile, 617/431-9906) and (ii) to the Company at 8 New England Executive
Park, Burlington, Massachusetts 01803, Attention: Frederick H. Phillips (and/or
if by facsimile, 617/229-9864) or at such other address as any such party may
subsequently designate by written notice to the other party).
(f) REMEDIES. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where the Warrantholder will not have an adequate remedy at law and
where damages will not be readily ascertainable.
(g) NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of its
Articles of Organization or through any other means, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
(h) SURVIVAL. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) SEVERABILITY. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) AMENDMENTS. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
* * * * * * *
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<PAGE> 10
CAYENNE SOFTWARE, INC.
WARRANT AGREEMENT
SIGNATURE PAGE
--------------
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
CAYENNE SOFTWARE, INC.
By:
-------------------------------------
Its Chief Financial Officer
Warrantholder:
SILICON VALLEY EAST
By:
-------------------------------------
David B. Fischer,
Senior Vice President
SILICON VALLEY BANK
(signed at Santa Clara, CA)
By:
-------------------------------------
Name:
S-1
<PAGE> 11
APPENDIX I
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
--------------------------------------
Silicon Valley Bank
Wellesley Office Park
40 William Street, Suite 350
Wellesley, MA 02181
Attn: Chief Financial Officer
Dear:______________________
This is to advise you that the Warrant issued to you described below
will expire on ______________ __, ______.
Issuer: Cayenne Software, Inc.
Issue Date: December , 1996
Class of Security Issuable: Common Stock
Exercise Price per Share: ____________________
Number of Shares Issuable: ___________________
Procedure for Exercise: ______________________
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
Cayenne Software, Inc.
By:
------------------------------
Its:
<PAGE> 12
APPENDIX II
NOTICE OF EXERCISE
------------------
[Strike paragraph that does not apply.]
1. The undersigned hereby elects to purchase ________ shares of the
Common Stock of Cayenne Software, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant
into Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to of the Shares covered by the Warrant.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
__________________________________________________________________________
(Name)
__________________________________________________________________________
_____________________________________
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
_________________________ ____________________________________
(Date) (Signature)
<PAGE> 13
ACKNOWLEDGMENT OF EXERCISE
The undersigned ________, hereby acknowledges receipt of the "Notice of
Exercise" from Warrantholder, to purchase ________shares of the Common Stock of
Cayenne Software, Inc., pursuant to the terms of the Warrant Agreement, and
further acknowledges that ________ shares remain subject to purchase under the
terms of the Warrant Agreement.
Company: Cayenne Software, Inc.
By:_______________________________
Title:____________________________
Date:_____________________________
<PAGE> 14
APPENDIX III
TRANSFER NOTICE
---------------
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
_________________________________________
(Please Print)
whose address is ________________________
_________________________________________
Dated _______________________________________
Holder's Signature __________________________
Holder's Address ____________________________
____________________________
Signature Guaranteed: _______________________________________
NOTE: The signature to this Transfer Notice must correspond with the
name as it appears on the face of the Warrant Agreement, without
alteration or enlargement or any change whatever. Officers of
corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority
to assign the foregoing Warrant Agreement.
<PAGE> 1
Exhibit 10.23
Cayenne Software, Inc.
FY 97 Bonus Plan
A portion or all of each executive officer's bonus will be based on the
achievement of net income before taxes by Cayenne Software, Inc. (the
"Company"). The bonus will be paid as follows:
(A) For the Company's President: 4.0% of year-end total net income
before taxes.
(B) For the Company's Senior Vice President of Product Operations:
(i) 33.3% of base salary for achievement versus plan of total
worldwide software license and maintenance revenue (This
incentive will be computed and paid quarterly in increments of
1% over 90% (up to 100%), maximum quarterly payout is the
quarterly incentive target.), and (ii) 33.3% of base salary for
year-end net income before taxes (This will result in 3.33% of
base pay for every one (1) percentage of net income before taxes
and is payable at year end).
(C) For the Company's Senior Vice President of Worldwide Field
Operations: (i) 40.0% of base salary for achievement of
worldwide revenue versus plan will be computed and paid monthly,
(ii) 30% of base salary for achievement of worldwide operations
contribution margin versus plan will be computed and paid
quarterly, and (iii) 30% of base salary for achievement of
year-end company net income before taxes, wherein 3% of base pay
will be paid for each one (1) percentage point of net income
before taxes and is payable at year end.
(D) For the Company's Vice President of North American Sales: (i)
45% of base salary for achievement of North American sales
revenues versus plan will be computed and paid monthly, (ii) 34%
of base salary for achievement of North American operations
contribution margin versus plan will be computed and paid
quarterly, and (iii) 11% of base salary for achievement of
year-end company net income before taxes, wherein 1.1% of base
pay will be paid for each one (1) percentage point of net income
before taxes and is payable at year end.
(E) For the Company's Vice President of Marketing: (i) 20% of base
salary for achievement of worldwide license revenue achievement
versus plan will be computed and paid monthly, and (ii) 20% of
base salary for achievement of year-end company net income
before taxes, wherein 2% of base pay will be paid for each one
(1) percentage point of net income before taxes and is payable
at year end.
(F) For the Company's Vice President/General Counsel and Vice
President/Chief Financial Officer: 36% of base salary for
achievement of year-end company net income before taxes, wherein
3.6% of base pay will be paid for each one (1) percentage point
of net income before taxes and is payable at year end.
(G) For the Company's Vice President of Human Resources: 20% of base
salary for achievement of year-end company net income before
taxes, wherein 2.0% of base pay will be paid for each one (1)
percentage point of net income before taxes and is payable at
year end.
Net income before taxes will be calculated excluding any restructuring charges
taken for FY 1997.
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF JURISDICTION OF
SUBSIDIARY INCORPORATION
---------- ---------------
<S> <C>
Cayenne Software GmbH ............................... Germany
Bachman Information Systems Canada, Ltd. ............ Canada
Bachman International Ltd. .......................... Delaware
Cayenne Software S.A.R.L. ........................... France
Cayenne Software S.R.L. ............................. Italy
Bachman Information Systems Limited ................. United Kingdom
Bachman Securities Corporation ...................... Massachusetts
WindTunnel Software, Inc. ........................... Delaware
CSI Acquisition Corporation ......................... Massachusetts
Cayenne Software Asia Pacific Pte. LTD. ............. Singapore
Cayenne Software 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
Cayenne Software Limited ............................ United Kingdom
Westmount Technologies B.V. ......................... Netherlands
Westmount U.S.A., Inc. .............................. Delaware
Micro Case, Inc. .................................... Delaware
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
of Cayenne Software, Inc.
We consent to the incorporation by reference in the Registration
Statements of Cayenne Software, Inc. (formerly Bachman Information Systems,
Inc.) on Form S-8 (File Nos. 33-87314, 33-53298, 33-48766, 33-71964 and
333-12139) and Form S-3 (File Nos. 33-99956 and 33-89940) of our report, which
included an explanatory paragraph about the merger of Cayenne Software, Inc. and
Cadre Technologies Inc. which has been accounted for as a pooling of interests,
dated February 25, 1997, on our audits of the consolidated financial statements
of Cayenne Software, Inc. as of December 31, 1996 and June 30, 1996, and for the
six month period ended December 31, 1996 and the year ended June 30, 1996, which
report is included in this Annual Report on Form 10-K.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
March 28, 1997
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-87314, 33-53298, 33-48766, 33-71964 and 333-12139 of Cayenne Software, Inc.
on Form S-8 and Registration Statement No. 33-99956 and 33-89940 of Cayenne
Software, Inc. on Form S-3 of our report dated February 2, 1996 (relating to
the consolidated financial statements of Cadre Technologies Inc. and
subsidiaries) appearing in this Annual Report on Form 10-K of Cayenne Software,
Inc. for the transition period ended December 31, 1996.
Deloitte & Touche LLP
Boston, MA
March 28, 1997
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,150
<SECURITIES> 0
<RECEIVABLES> 14,140
<ALLOWANCES> 820
<INVENTORY> 0
<CURRENT-ASSETS> 18,845
<PP&E> 17,001
<DEPRECIATION> 14,745
<TOTAL-ASSETS> 22,236
<CURRENT-LIABILITIES> 22,785
<BONDS> 0
0
0
<COMMON> 177
<OTHER-SE> (832)
<TOTAL-LIABILITY-AND-EQUITY> 22,236
<SALES> 10,131
<TOTAL-REVENUES> 27,976
<CGS> 1,521
<TOTAL-COSTS> 6,496
<OTHER-EXPENSES> 27,506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> (5,969)
<INCOME-TAX> 399
<INCOME-CONTINUING> (6,368)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,368)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
