-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PaZYZaejmPceqgdBzcalzSBBJAVWSE3KbkuyY5ldThtzde9UQ2f+yF9ShHyeLkA0 0wz0LHrEK5Ns1po0CSxlQg== 0000950135-96-004180.txt : 19961001 0000950135-96-004180.hdr.sgml : 19961001 ACCESSION NUMBER: 0000950135-96-004180 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960930 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BACHMAN INFORMATION SYSTEMS INC /MA/ CENTRAL INDEX KEY: 0000880229 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 042784044 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19682 FILM NUMBER: 96637061 BUSINESS ADDRESS: STREET 1: 8 NEW ENGLAND EXECUTIVE PARK CITY: BURLINGTON STATE: MA ZIP: 01803 BUSINESS PHONE: 6172739003 10-K 1 CAYENNE SOFTWARE, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Fiscal Year Ended June 30, 1996 Commission File Number 0-19682 CAYENNE SOFTWARE, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-2784044 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8 New England Executive Park Burlington, Massachusetts 01803 Telephone Number (617) 273-9003 ------------------------------- 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 September 23 1996, there were 17,631,445 shares outstanding of the registrant's common stock, $0.01 par value. As of that date, the aggregate market value of voting stock held by non-affiliates of the registrant was approximately $64,770,746. DOCUMENTS INCORPORATED BY REFERENCE The information called for by Part III is incorporated by reference into the definitive Proxy Statement for the Special Meeting in Lieu of Annual Meeting of Stockholders of the Company to be held November 20, 1996, which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 1996. 1 2 CAYENNE SOFTWARE, INC. 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I
Page Item 1. Business ............................................................ 3 Item 2. Properties .......................................................... 17 Item 3. Legal Proceedings ................................................... 18 Item 4. Submission of Matters to a Vote of Security Holders ................. 18 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 19 Item 6. Selected Financial Data ............................................. 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................... 21 Item 8. Financial Statements and Supplementary Data ......................... 34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .............................. 51 PART III Item 10. Directors and Executive Officers of the Registrant .................. 51 Item 11. Executive Compensation .............................................. 51 Item 12. Security Ownership of Certain Beneficial Owners and Management ...... 51 Item 13. Certain Relationships and Related Transactions ...................... 51 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .... 52 Signatures ................................................................... 55
2 3 PART I ITEM 1. BUSINESS GENERAL Cayenne Software, Inc. (formerly Bachman Information Systems, Inc.) ("Cayenne(TM)" or the "Company"), organized as a corporation in 1983, develops, markets and supports a comprehensive suite of software products and services. Fortune 1000 companies and government agencies around the world use Cayenne products as they develop, implement, and maintain enterprise-wide, business-critical information systems. Cayenne's products are designed around an innovative open architecture that enables organizations to create applications that integrate diverse information sources into new high-performance computing environments, to modify applications as business and technology change, and to run those applications on a variety of platforms. Cayenne's approach to reusability and its open architecture directly support mainframe and client/server development and facilitates technology partnerships with other leading software vendors. Cayenne targets its products to Fortune 1000 companies, government agencies, and organizations of similar size throughout the world that use workstations, mid-range and mainframe computers and relational database management systems for data-intensive applications. As the Company continues to make the transition from providing tools focused solely on mainframe application development to supporting customers' needs for a more open and flexible set of solutions aimed at the growing client/server market, it faces many challenges. Since fiscal 1993, the Company has sought to address some of these challenges and, during fiscal 1995 and 1996, the Company introduced additional products targeted at the client/server market. The Company plans to continue to enhance its product offerings through development efforts, strategic alliances and acquisitions to improve its competitive position. The actions necessary to execute this transition have had an adverse effect on the Company's operating results during fiscal 1996, 1995 and 1994. In July, 1996, the Company acquired Cadre Technologies Inc. ("Cadre") thereby expanding its product offerings and customer base. Cadre develops, markets and supports software tools for the creation of complex computer software. Most of the products sold by Cadre help to automate the process of requirements analysis and software design by groups of software engineers. Customers use the tools to capture, traverse, and analyze abstract models of the system to be built. These models assist users, and sometimes their customers, in understanding a software system, planning its implementation and making engineering trade-offs. Additional Cadre products address document generation, model configuration management, software construction, and the "reverse engineering" (understanding) of existing software. Cadre's customers are generally developers of complex software systems, in both the information system ("IS") and the "technical" sectors. While most of Cadre's current customers consider themselves in the technical sector, the Company expects a shift toward IS customers as it concentrates on "object-oriented" ("OO") technology. The Company's strategy is to maintain Cadre's position as a leading provider of tools to the technical market, while introducing new products and enhancements for Cadre's OO product line. ACQUISITIONS On July 18, 1996, the Company completed its acquisition of Cadre under an Agreement and Plan of Merger (the "Merger Agreement") dated as of March 25, 1996 by and among the Company, Cadre and B.C. Acquisition Corp. ("Acquisition Corp"), a wholly-owned subsidiary of the Company. The Merger Agreement provided that upon the terms and subject to the conditions specified therein that, effective on the closing, Acquisition Corp. would be merged with and into Cadre, the separate corporate existence of Acquisition Corp. would cease, and Cadre would continue as the surviving corporation in the merger and as a wholly-owned subsidiary of the Company. The acquisition will be accounted for as a "pooling of interests" beginning the first quarter of fiscal 1997. Pursuant to the Merger Agreement, the amount of Company shares of common stock issued was 4,716,442 and the exchange ratio was determined to be 0.3088 Company share for each outstanding Cadre share. The fair market value of a share of the Company's common stock at the time of the merger was $5.625 per share. Stratagem Partnering Inc. acted as the Company's financial advisor in connection with the Cadre acquisition. 3 4 INDUSTRY BACKGROUND Organizations have found in recent years that good information systems supporting well-designed business processes can provide a substantial competitive edge. The growth of business process re-engineering is an attempt to re-think business processes and work flow from the ground up in order to achieve the dramatic improvements in productivity required to reduce costs, improve service to customers and gain competitive advantage. This re-thinking of the business process creates challenges for IS professionals by creating many new processes to support, and by rendering existing systems partially or completely obsolete. As a result, there is an increasing demand for new application development as well as a need for better integration among existing information resources. While in the past a majority of information-intensive applications were built using large, centralized mainframe computers (such as those built by IBM), with mainframe database management technology and very simple user interaction, the proliferation of personal computers, networks and related technology over the last ten to fifteen years has made a variety of new computing configurations possible. New technologies promise systems that are easier to use and provide better real-time access to information. After an initial investment, they also promise a more rational cost structure over time. Today, several very different types of technology coexist in large organizations, each serving the needs of a specific user constituency. This diversity of technology creates serious challenges for information systems professionals, as they work to build new applications, maintain older mainframe "legacy" applications, incorporate new client/server and communications technology, integrate a variety of databases and applications for improved access, and grow staff skills to meet overall requirements. To alleviate some of these pressures, recent technology developments have emphasized systems of hardware and software that are scalable, meaning they can be sized to meet the small or large demands of the organizational units they support. Scalable systems allow growing organizations to build on the investment they have made in infrastructure and staff development, adding capacity incrementally, rather than acquiring an entirely new system that might be very different from its predecessor. The primary goal of these changes is to make the organization more productive by making more information available to the people who need it. This improves the organization's ability to conduct its business. A related goal is to create a more flexible infrastructure in which incremental growth results in incremental cost, not a complete system redesign. With the acquisition of Cadre, the Company has entered into an additional industry segment focused on the creation and maintenance of complex software systems, the problem addressed by Computer Aided Software Engineering ("CASE") products. During the 1970's, a number of "structured" techniques and methods were invented to replace earlier ad-hoc approaches to software development. The analysis and design (as opposed to implementation) techniques emphasize the building of abstract models to assist in the understanding, planning, and implementation of a system. The rationale for modeling is the same in software as it is in any engineering discipline; money and effort are saved if problems are identified and dealt with early in the engineering process. STRUCTURED ANALYSIS AND STRUCTURED DESIGN. In the early eighties, networks of computer workstations made it feasible to partially automate the capture, traversal, and analysis of engineering models by work groups. This technology was rapidly adopted in the civil, mechanical, and electrical engineering domains. The CASE market expanded quickly in the mid-to late-eighties, as did the number of companies formed to service it. The high end of the market, with its multi-user networked UNIX engineering workstation solution, found a home in technically-oriented organizations, such as those in telecommunications, aerospace and defense. The other end of the market focused on single-user, personal computer ("PC") based products. These found early success in corporate IS organizations, where PCs were widely used. The IS CASE market declined in the early nineties for a number of reasons. While the IS software development market is large, commitment to structured methods (and the attendant engineering discipline) was 4 5 weak. Some CASE companies made claims which the products were unable to deliver and soured the market. Others were slow to respond to technology changes such as the shift to client-server application development and object orientation (discussed further below). The decline resulted in a number of market leaders closing or being acquired. The technical market, where Cadre derived the majority of its business, was affected by the contraction and consolidation in the defense industry. Consequently, Cadre diversified its product line into the software development process, including debugging, measurement and verification tools. OBJECT ORIENTED TECHNOLOGY. In the meantime, the software development community began to experiment with "object-oriented" technology, and in particular, OO analysis, design and implementation techniques. The structured techniques mentioned previously generally partition a system purely along functional lines, i.e. in terms of what the system does. The OO approach partitions a system into "objects," where each object encapsulates information and those functions that operate on that information. The benefit of the OO approach is that systems partitioned this way are more robust, more amenable to change, and the objects are easier to reuse in other systems. Cadre started selling its first OO analysis and design products (based on the method of developing software created by Shlaer-Mellor) in 1989. When market momentum began to build around a related method called the Object Modeling Technique ("OMT"), Cadre initially entered the market by reselling an OMT product in 1993. This was replaced by the OMT tool developed by Westmount Technology B.V., acquired by Cadre in 1995. As the structured tools market matures, the Company expects a transition to the OMT tool and related products. These products run on both UNIX-based platforms and Windows 95 and NT-based platforms. 5 6 THE TRANSITION TO CLIENT/SERVER COMPUTING New technology configurations combine personal computers, from which information or processing is requested by users or "clients", with small, medium, or large "server" machines that service those requests for information or processing, and often perform additional tasks that are triggered by these requests. The desired result is a network of information stores that contains the knowledge base of the business (sometimes called an "information warehouse"), and is queried and updated by a variety of applications that serve specific departments and goals. This type of configuration is loosely referred to as "client/server" computing. Centralized IS groups have become accustomed over time to the issues and strategies which arise when a large amount of data must be managed and a large number of users supported. Concerns about controlled access, controlled redundancy, management of application changes, large team development, application performance and system documentation have been part of the IS specialist's role for quite some time. Smaller departmental computing groups can sometimes be unaware of the implications of under managing these issues, and unaware of the techniques that can help control risk, if they have not had to confront the problems that can result when such controls are not in place. Today, forward-thinking organizations seek to combine the best of all worlds, and apply the new, productive tools that have been created for rapid development of small applications to larger, more ambitious, mission-critical projects. At the same time, IS specialists in these organizations want to ensure that applications, corporate data, and the infrastructure that supports them are treated as important corporate assets and managed with the necessary controls. APPLICATION DEVELOPMENT STRATEGIES In the past, companies that have worked to provide state-of-the art application development products have seemed to focus on one or the other of these worlds -- automation of the rapid application development ("code it and go") approach, or automation of the techniques pioneered by early methodologists in largely mainframe environments. Again, the trend had been toward diverse techniques being used in organizations and projects of different sizes or technologies. But Cayenne and many of Cayenne's customers see significant value in creating a scalable development approach, one that provides the productivity of rapid, visual development with the reliability of a robust environment. Some techniques commonly associated with mainframe-oriented development in the past, such as data and process modeling, automated database design, and performance analysis, can be applied with equal success to the development of client/server applications; they need only be adapted to the characteristics of specific technology environments. As IS organizations seek productivity tools that will help them make these difficult transitions, they prefer to work with vendors who understand their special challenges. In exploring the various tools available to them, they are confronted by a wide variety of claims, prices, and function. Cayenne believes it can provide a unique and critical service as a company that understands the challenges of both the traditional IS environment and the new technologies and methods. Many organizations have recently invested heavily in the hardware and connectivity infrastructures that will form the foundation of their new client/server systems. Components of these infrastructures include computers, network-related hardware and software, database management systems, gateways, and other enabling technologies. These organizations are now turning their attention to the applications that will be built using this new technology infrastructure, and which will support the newly-designed business processes. Applications fall into several different categories, based on their complexity and on the user constituency they serve. Cayenne focuses on solutions that enable development, deployment, and maintenance of the more complex applications that impact multiple departments or the entire enterprise. Many of these applications are considered to be "business-critical," meaning that their continued operation and effectiveness is critical to the execution of day-to-day business. Many other application development tools on the market today provide productivity benefits for smaller, less complex, applications, but these tools lack the 6 7 robust features that allow an organization to continue using those same tools to address more complex requirements for applications that are central to the business. Cayenne's strategy is to produce solutions to a number of different problems relating to the development of business-critical applications in both mainframe and client/server technologies. As the Company continues to make the transition from providing tools focused solely on mainframe application development to supporting customers' needs for a more open and flexible set of solutions aimed at the growing client/server market, it faces many challenges. To address some of these challenges, in fiscal 1995 and 1996, the Company introduced a suite of additional products targeted at the client/server market. The Company plans to continue to enhance its product offerings through development efforts, strategic alliances and acquisitions to improve its competitive position. The actions necessary to execute this transition have had an adverse effect on the Company's operating results during fiscal 1996, 1995 and 1994. In July 1996, the Company acquired Cadre thereby expanding its product offerings and customer base. CAYENNE'S APPROACH Cayenne provides products and services in the following solution areas: - Modeling business requirements - Designing and re-engineering databases - Developing and deploying applications - Work group support - Managing the process - Leveraging legacy systems - Structured Analysis and Design - Object Oriented Technology Cayenne takes the following unique approach to these areas, which provides a number of benefits to organizations seeking strategic solutions to their information systems challenges. SEPARATION BETWEEN CONCEPTUAL AND PHYSICAL CONCERNS. Cayenne solutions enforce a separation between conceptual business requirements, where organizations capture information about what data needs to be available and what happens to it, and physical implementation, where technology-specific concerns are addressed in an implementation design. This separation provides flexibility. Changes to the business requirements or policies and changes to the technology environment can be addressed independently, allowing organizations to leverage investments in each. The technology-independent approach helps organizations focus on business requirements, increasing the likelihood that the finished application will meet those requirements. FLEXIBILITY TO ENTER THE DEVELOPMENT PROCESS AT ANY STAGE. Cayenne solutions address the entire life cycle of application development, and many of them can be used at multiple stages of the life cycle. For example, database design products can capture existing database structures from applications that have already been developed, allowing database designers to view and optimize the data structures. Design can begin with a new project or with an existing system already in production. This flexibility supports an iterative development process, and allows incorporation of formal analysis and modeling where needed. INTEGRATION OF PRODUCTS ON MULTIPLE PLATFORMS. Used individually, Cayenne products provide users with sophisticated solutions to application development problems. Cayenne enhances their utility by offering total system integration across products on both Windows and OS/2 platforms. Product integration enhances communication, efficiency, and productivity, and it increases the return on the investment in time and effort expended throughout the application development life cycle. Using Cayenne products, systems analysts, application developers, and database designers can work in concert, using the same model from the conceptual phase through to physical database implementation. Over time, this cycle can be reversed as business requirements change or migration to new platforms requires redesign. 7 8 ABILITY TO ACHIEVE PRODUCTIVITY BY REUSING PREVIOUS WORK. The technology-independent approach, combined with the use of object-oriented techniques, allows for the reuse of valuable work -- a very important contributor to productivity. Cayenne supports reuse by: - Providing development tools that help build scalable applications, minimizing the need for redevelopment. - Modeling applications at a business level, so that requirements are implemented consistently across platforms and applications. - Employing object-oriented techniques such as inheritance and encapsulation in application development, business modeling, and database design. - Re-engineering legacy systems, so data structures and business rules can be captured from existing implementations and reused in models and new implementations. - Providing open interfaces, so information captured in Cayenne products can be reused with best-in-class tools or custom solutions. STRATEGIC DIRECTION Cayenne continues to invest in robust solutions that facilitate development of the most critical applications, are applicable across multiple platforms, can be used throughout the application development life cycle, and will stand the test of time, justifying customer investments. These solutions result from a combination of Cayenne-built software products, joint development efforts with partners, acquired technology, and services provided by Cayenne's highly experienced trainers and consultants. Cayenne has invested in both its mainframe and client/server solutions, recognizing that many organizations will need to maintain both types of environments for some time to come. In addition, through its acquisition of Cadre, the Company has expanded in the areas of structured analysis and design and oriented technology. CAYENNE'S SOLUTIONS Cayenne's diverse solutions, composed of software products and services, assisted information systems specialists in the following areas: modeling business requirements; designing and re-engineering databases; developing and deploying applications; work group support; designing for performance; managing the process; leveraging legacy systems; structured analysis and design; and object-oriented technology. The suite of products and services provided by Cayenne and its partners allows customers to choose from the wide variety of application development tools on the market that best meet their needs. Except for designing for performance, Cayenne offers products and services today in each of the following solution areas. MODELING BUSINESS REQUIREMENTS Cayenne offers tools on both Windows and OS/2 platforms that enable data analysts, system analysts, and other business analysts to model information systems more quickly and thoroughly than they can using conventional techniques. GROUNDWORKS for Windows and GroundWorks for OS/2 (formerly, the BACHMAN/Analyst) are tools for analysts that incorporate the data, logic, and process requirements into a unified model. Further, they can be used to generate implementation components for a variety of database and software environments. These data modeling tools incorporate a rule-based expert system that places Cayenne's modeling expertise in the hands of users, helping them to improve the quality and effectiveness of the resulting models. 8 9 GroundWorks integrates process and data models. This integration streamlines the modeling process, reduces opportunities for error, and promotes an object-oriented approach to analysis -- all of which facilitate reuse. One important goal of GroundWorks is to help user teams, analysts, and application developers communicate business requirements. Models created using one product are fully compatible with the other, providing organizations with greater platform flexibility. DESIGNING AND RE-ENGINEERING DATABASES Cayenne offers tools on both Windows and OS/2 platforms that allow data analysts, application developers, and database designers to design, implement, and maintain high-performance relational databases. TERRAIN is Cayenne's family of database design tools that offers a comprehensive, scalable database design environment for business-critical client/server databases. TERRAIN 500 provides graphical support for basic design tasks, such as object creation and maintenance, reporting, and database documentation. Open Connectivity tasks support Microsoft Open Database Connectivity (ODBC), allowing Terrain 500 users to import and export designs from over 40 popular Database Management Systems (DMBSs), including Microsoft and SYBASE SQL Server, ORACLE, Informix, and DB2/6000. TERRAIN 1000 was designed specifically for users of Microsoft and SYBASE SQL Server, with built-in expertise appropriate to users of Version 4.2, 4.9, and System 10. Terrain 1000 has all the functionality of Terrain 500, but with greater depth and breadth (version-specific Design task rules to help users evaluate their designs, advisors for performance optimization, and support for all SQL Server objects, for example). When used with the optional TERRAIN 100/S module, users can connect directly to a Microsoft or SYBASE SQL Server catalog in order to capture existing databases and generate DDL based on their Terrain designs. Another optional module, TERRAIN 100/O, provides similar functionality for ORACLE databases. Designs created using Terrain 1000 are compatible with Terrain 500, and vice versa. Terrain for OS/2 (formerly, the BACHMAN/DBA), is optimized through expert-systems technology for IBM's DB2 database management system. Terrain for OS/2, in combination with DDL GENERATOR products, allows database administrators to design relational databases and create data definitions for a number of different relational databases, including DB2, DB2/6000, SYBASE SQL Server, Microsoft SQL Server, ORACLE, Ingres, INFORMIX, ADABAS, and the OS/2 databases (Extended Services Database Manager (DBM) and DB2/2). These products also capture existing database designs to facilitate the re-engineering of database definitions to one or more technologies. Organizations seeking an integrated application development solution can use TERRAINMAP to translate GroundWorks data models into Terrain 1000 designs. Once in Terrain, the design can be implemented in any ODBC-compliant DBMS. This integration makes it possible to completely re-engineer existing production systems, and to maintain a single data model and deploy it across any number of database platforms. Organizations can start in either place --with an existing data model or an existing database-- and use TerrainMap to help ensure both optimal design and optimal performance. The illustration below demonstrates Cayenne's scalable solution for certain of its products. 9 10 [GRAPHIC OMITTED. The vertical axis charts functionality and the horizontal axis charts project dependency. The graph depicts the Company's scalable solution for its Terrain, GroundWorks, Shared Work Manager and TerrainMap products.] DEVELOPING AND DEPLOYING APPLICATIONS ELLIPSE provided a comprehensive solution for building and maintaining business-critical client/server applications. It combined a productive, visual development environment with a robust production system and integrated life cycle management. This combination allowed organizations to build reliable and scalable multi-platform client/server applications. Teams of developers on the Sun Solaris platform could use Ellipse to build small or large database applications, and deploy those applications to one or more production sites. Ellipse helped organizations take advantage of the special benefits of client/server computing by automatically partitioning the application between clients and servers. Ellipse's automatic recovery and restart features ensured that applications and information would be available when needed by business users, thereby reducing the risk of bringing run-the-business applications to new client/server technology. Ellipse was based on a shared object repository and incorporated configuration management and version control features which facilitate ease of maintenance and a smooth transition to new software releases. In July 1996, the Company entered into an agreement with Seer Technologies, Inc. ("Seer") providing for the sale of its Ellipse product in exchange for certain royalties payable under the terms of the joint development and distribution agreement described below if the Company's former Ellipse customers migrate to Seer's HPS product. GENERATOR FOR POWERBUILDER allows an organization that uses both GroundWorks or Terrain for DB2 and Powersoft Corporation's PowerBuilder to directly take advantage of modeling work in designing a new application. The Generator creates several different types of PowerBuilder application components using information specified in Groundworks or Terrain for DB2, offering time savings and improved application consistency and quality. Combined Cayenne-Netron solution. Cayenne's open architecture allows customers to take advantage of the implementation tools that meet their needs. Netron Inc.'s CAP/Link provides a link between Groundworks for OS/2 and Netron's multi-platform COBOL construction product, NETRON/CAP. This combined solution is used today by a number of organizations who are committed to COBOL development, want to evolve 10 11 toward a reusable code base, and want integration with high-level modeling in order to ensure that new applications meet business requirements. Cayenne sells Netron's application development products in Italy, Ireland and the United Kingdom. WORK GROUP SUPPORT REPORTS provides over 100 standard reports on CAYENNE model and design information. Taking advantage of easy-to-use database technology --Microsoft Access-- Reports provides Windows-based access to GroundWorks model information, and to Terrain design information. Reports are standard across all products, enhancing communication among members of application development teams. SHARED WORK MANAGER allows groups of analysts to share models and integrate the results of their work. Shared Work Manager is the first work group modeling product that takes an intelligent approach to resolving modeling conflicts that arise in a multi-user environment. It enables groups to interact in a manner consistent with their organization's culture and work-flow methods. The product helps users achieve a shortened development cycle without sacrificing application quality because it supports parallel development, increases consistency across applications, streamlines work flow, and simplifies and encourages teamwork. DESIGNING FOR PERFORMANCE WINDTUNNEL was a Windows-based performance modeling and prediction product for mainframe and client/server applications using DBMSs such as SYBASE SQL Server and IBM's DB2/VMS. WindTunnel helped application teams evaluate performance and predict system resource demands early in the application development life cycle. Traditional performance methods are used much later, usually after an application has been fully developed. Finding potential performance bottlenecks early can help organizations rework and redesign, thereby meeting their performance objectives in a more cost-effective way. At the end of fiscal 1996, the Company decided no longer to actively sell and market its WindTunnel product. MANAGING THE PROCESS SERVEYOR is a multi-platform client/server product that integrates process and project management to enable information systems development teams to work more efficiently and effectively. Organizations that have adopted a development methodology can use Serveyor to adapt that methodology for specific projects, assign tasks and deliverables, launch the tool appropriate for performing each task, track progress, and manage resources within and across projects. Serveyor incorporates a large knowledge base of information relevant to information systems processes and tasks, enabling staff members to learn on the job. Overall, this product serves as an umbrella over the other tools, tasks, and deliverables that make up the development process. Serveyor is distributed by Cayenne under the terms of a worldwide technology and marketing agreement with Rapid Systems Development, Inc. which owns certain rights to the technology for the product. LEVERAGING LEGACY SYSTEMS BUSINESS RULE CAPTURE lets users exploit the valuable information in legacy systems --their logic and objects-- and use that information to re-engineer applications as they migrate from traditional host-based systems to distributed systems. By enabling organizations to quickly summarize the business logic in legacy COBOL applications, Business Rule Capture shortens the cycle for maintenance, system integration, and new development. And once existing business rules are clearly understood, database managers can better understand how programs access data and then optimize the supporting data structures accordingly. LEGACY CAPTURE products facilitate the re-engineering of IMS data structures to create an implementation-independent model where they can be reused in new relational database structures. In addition, flat file data structures from existing COBOL applications can also be re-engineered using these products. Reverse engineering products support the needs of IS departments that manage multiple databases, and they also 11 12 help accelerate business process re-engineering projects by allowing organizations to take advantage of business information that is available in existing systems. PRODUCTION DBA provides a seamless interface between Cayenne's database modeling and design products and BMC Software's CHANGE MANAGER, a mainframe-based product which coordinates data structure changes among multiple DB2 subsystems. CAYENNE 2000 is a tool to help diagnose Year 2000 challenges. It can detect date dependencies in single or across multiple COBOL programs, generate reports on the changes needed and the impact of those changes, and provide an estimate of the cost to fix the problems. It can also correct certain simple date dependency problems. STRUCTURED ANALYSIS AND DESIGN TEAMWORK is a family of structured methods products, used by both C++ and Ada developers, which help software engineers improve software quality, streamline the software development process, and reduce development costs. Specific Teamwork tools address aspects of development including requirements analysis, real-time systems development, dynamic verification, structured design, testcase generation, and document generation. VANTAGETEAM is a family of structured method products that enable relational database developers to build and maintain enterprise client/server systems. Its integrated, model-driven environment offers developers a choice of either structured or object-oriented modeling approach. VantageTeam features extensive code-generation capabilities for popular 3GLs and 4GLs, and supports the leading relational database management systems, including CA-Ingres, Informix, Oracle and Sybase. OBJECT ORIENTED TECHNOLOGY OBJECTTEAM FOR OMT automates and manages software construction using the Object Modeling Technique (OMT). It provides a multi-user repository with version and configuration management, supports the Rumbaugh et al. Object Modeling Technique, and generates incremental code. INTERNATIONAL VERSIONS OF CAYENNE PRODUCTS The Cayenne product set is available worldwide. Products sold internationally typically include a hardware security key to prevent or reduce the use of illegally copied products. (Products for the domestic market use OEM software to enable concurrent licensing.) Many of Cayenne's products are enabled for double-byte character sets. This enablement is a prerequisite for translation into large-character-set languages such as Kanji. Kanji versions of Groundworks for OS/2, Groundworks Capture for COBOL, Groundworks Capture for IMS and Terrain for OS/2 have been created. RISKS OF INTERNATIONAL OPERATIONS Approximately 63%, 53% and 47% of Cayenne's revenues in fiscal 1996, 1995 and 1994, respectively, were attributable to international sales. Cayenne commenced operations of its German subsidiary, Bachman Information Systems, GmbH, in November 1990. Cayenne acquired the Cayenne-related business of Pro-Systems S.A., its distributor in France, in October 1991; all of the stock of its distributor in the United Kingdom, Bachman Information Systems Limited, in November 1991; and the Cayenne-related business of Bachman Italia, S.r.l., its distributor in Italy, in January 1992. The Company also commenced operations of its Spanish and Singapore subsidiaries in April 1996 and February 1995, respectively. The future contribution of sales from the foreign subsidiaries to Cayenne's results of operations depends on Cayenne's success in maintaining cost-effective direct marketing operations through these wholly-owned subsidiaries. In September 1994, as part of a restructuring to reduce expenses, Cayenne reorganized the operations of its German subsidiary. The Company is in the process of consolidating overlapping subsidiaries it acquired in connection with the Cadre merger and has acquired subsidiaries in the Netherlands and Australia in connection therewith. 12 13 Approximately 4%, 4% and 6%, of Cayenne's revenue in fiscal 1996, 1995 and 1994 was attributable to sales made to independent international distributors. Sales in countries in which Cayenne continues to use independent distributors will remain subject to the distributors' financial condition and success, which cannot be controlled by Cayenne. Risks inherent in Cayenne's international business generally include exposure to currency fluctuations, longer payment cycles, greater difficulties in accounts receivable collection and the requirement of complying with a wide variety of foreign laws. While Cayenne has not experienced any material delays, expenditures or other adverse consequences in complying with foreign laws to date, it has been necessary for Cayenne to take steps to protect its proprietary rights and license its products under local laws from country to country. 13 14 CUSTOMERS AND APPLICATIONS Cayenne's products are used worldwide by information systems specialists in a wide variety of business, government, and non-profit organizations. Generally, the customers are users of computing environments for data-intensive applications. As of June 30, 1996, Cayenne had licensed over 14,000 copies of its products to over 1,075 customers worldwide across a variety of industries. With the acquisition of Cadre, the Company has expanded its customer base to include customers that are generally developers of complex software systems, covering a wide range of applications in the IS and "technical" sectors. Historically, Cayenne relied significantly on its relationship with IBM for development and marketing of Cayenne's products. IBM was Cayenne's single largest customer in each of fiscal 1996, 1995 and 1994 when revenue from IBM (including license and maintenance fees paid by IBM in connection with its own use of Cayenne products, as well as amounts paid by IBM as a distributor and systems integrator) accounted for 31%, 20% and 13% of Cayenne's total revenue, respectively. In January 1993, Cayenne discontinued its membership in the IBM International Alliances for AD/Cycle, SystemView, and Information Warehouse. Cayenne and IBM entered into a settlement and release agreement dated June 30, 1993 (the "IBM Settlement Agreement") pursuant to which Cayenne and IBM severed certain of their remaining relationships. Each party released and discharged the other party from all known and unknown claims occurring on or prior to June 30, 1993. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further information. CUSTOMER SUPPORT AND SOFTWARE MAINTENANCE Cayenne believes that high-quality customer service and technical support are essential competitive factors in its marketplace. Through its training, consulting, maintenance, and support services, Cayenne listens to its customers' needs and provides services that will maximize the results achieved by customers using Cayenne's products. Maintenance, support, and training also provide valuable feedback that is used to refine, enhance, and develop Cayenne products. Customers receive maintenance support from a staff of highly experienced customer specialists via a telephone "hot line". In the past, software maintenance and support were generally provided without extra charge for ninety days following the initial licensing of a product. The Company has changed this practice and generally no longer provides maintenance and support without charge. Annual maintenance contracts are available for a fixed price per copy. These customers also receive periodic product upgrades and feature/function enhancements. TRAINING AND CONSULTING Cayenne provides conceptual and product-oriented training courses for customers at education facilities in the United States in Atlanta, Burlington (Massachusetts), Chicago, New York City and Rockville, Maryland as well as in Toronto, Canada; Boulogne-Billancourt, France; Turin, Italy; Munich, Germany; and Bracknell, England. Cayenne's international distributors provide training and consulting to customers in their territories. Courses are also available to be customized and delivered at customer sites. The Company provides professional services delivered by experienced consultants. These offerings are designed to promote customer success in the planning, implementation, and ongoing use of Cayenne's software products. Cayenne's consultants provide a number of services for organizations making transitions into client/server technology, including designing relational databases, establishing a client/server architecture, and facilitating the creation of productive development processes. MARKETING AND SALES Cayenne markets its products to Fortune 1000 companies, government agencies, and organizations of similar size worldwide that use computers and software for data-intensive and transaction-intensive applications. Cayenne seeks to promote acceptance of its products among technical personnel, as well as at the management level. Cayenne markets its products through a direct sales force in the United States and through wholly-owned 14 15 subsidiaries in Australia, Canada, France, Germany, Italy, the Netherlands, Singapore, Spain and the United Kingdom. Distributors, agents and other resellers market Cayenne's products in over 40 other countries. Cayenne promotes a team selling approach in which telemarketing, corporate sales, and field sales representatives work together to identify, qualify, inform, and sell to prospective customers. In conjunction with its expansion into the client/server development marketplace and in an effort to promote distribution through alternate channels, Cayenne has been actively engaged in evaluating alternate distribution channels such as value-added resellers ("VARs") and system integrators worldwide. At the end of fiscal 1995, Cayenne and Seer entered into a joint development and joint distribution agreement. Cayenne will integrate its modeling and database design tools with Seer's Freeway repository, and will resell the repository. Seer will resell Cayenne's database design tools. Cayenne's marketing program includes advertising, public relations, promotional materials, direct mail, seminars, consultant briefings, user meetings, trade shows and telemarketing. The focus of these efforts is to position Cayenne and the value of Cayenne's solutions to customers as well as industry influencers. Cayenne's senior technical personnel frequently participate in industry conferences that increase customer awareness of Cayenne's products and its technological innovations. In fiscal 1996 and 1995, Cayenne pursued a focused marketing campaign to increase awareness of the value of Cayenne's solutions in client/server environments. Cayenne has also joined Sybase, Inc.'s Warehouse WORKS data warehouse program and will maintain compatibility with Sybase data warehouse offerings and participate in joint marketing activities. Cayenne regards its customer service and support organization as an integral complement to its corporate strategy. Cayenne believes that its reputation for strong after-sale support has helped the Company achieve additional sales, as well as contributing to a high level of customer satisfaction. PRODUCT DEVELOPMENT AND MANUFACTURING To date, a significant majority of Cayenne's software products have been developed internally by its employees and consultants. As a result of the Company's acquisition of Cadre in July 1996, Cayenne now supports development and manufacturing for a family of structured analysis and design and object- oriented products. In developing new products and enhancements, Cayenne uses an integrated engineering approach that emphasizes market-driven quality and customer satisfaction. This approach incorporates the perspectives of customers and functional experts, as well as personnel in the areas of marketing, sales, software engineering, quality assurance, documentation, and customer support. Cayenne's research and development staff has significant expertise in the technologies bearing on development of software tools, including personal workstations, mainframe systems, graphics, expert systems, database design, enterprise modeling, systems analysis, code generators, interface design, operating systems, networks, and language/compiler skills. Cayenne uses its product set in the design of future product enhancements and in the development and deployment of the Company's own internal information systems. In fiscal 1995, Cayenne entered into an agreement to develop, maintain and enhance certain of Cayenne's products in India allowing Cayenne to realize savings in development costs while maintaining control over the product development process. The products developed and enhancements added by Cayenne are determined by Cayenne's assessment of market revenue, growth opportunity, and return on investment, tempered by the technical feasibility of the innovation, and the need to maintain the highest levels of product quality and customer satisfaction. Market opportunity is assessed by a combination of direct market and customer research, by access to opinion leaders in technology, by working along side customers to define their most productive development methodologies, and by working with customer development partners to manage projects involving substantial innovation and requiring supplementary funding. The Company's future financial performance will depend in part on the successful development and introduction of new products and enhancements to existing products, and customer acceptance of these products. 15 16 Many software companies have experienced delays in completing the development of new products and there can be no assurance that the Company will not encounter difficulties that could delay or prevent the successful introduction and marketing of new and enhanced versions of its products. During fiscal 1996, 1995, and 1994, Cayenne spent $7,665,000 $8,676,000 and $10,771,00 respectively, on internal product development, and did not capitalize any software costs. Also during fiscal 1994, a charge for purchased research and development of $1,736,000 was recorded upon the closing of the acquisition of Cooperative Solutions, Inc. COMPETITION The market for application design and development products is highly competitive and characterized by continual change and improvement in technology. The list of Cayenne's principal competitors in sales situations depends on several factors including the solution area, whether the focus is mainframe or client/server development, and whether the customer seeks strategic or tactical solutions. Cayenne's principal competitors in the modeling and database design market include LogicWorks, Inc., Intersolv, Inc., and Texas Instruments, Incorporated. In the process management market, LBMS, Inc. serves similar needs to the Company's Serveyor product. Cayenne faces additional competition with its entry into the CASE market occupied by Cadre. The CASE market is characterized by rapid change and frequent introduction of new products. In the Structured technical market, Cayenne's primary competitor is Interactive Development Environments, Inc. ("IDE"). In the object-oriented market, Cayenne's primary competitors are Rational Software Corp., Platinum Technology, Inc. and IDE. Many other companies produce products that compete with Cayenne and still others might become competitors in the future. As Cayenne expands its product line into new solution areas it is encountering additional competitors. Many of Cayenne's existing and potential competitors have substantially greater financial, marketing, and technological resources than Cayenne. The principal competitive factors that have affected the market for Cayenne's products include responsiveness to customer needs, product function, product reliability, product ease of use, product openness, quality of customer training and support, vendor reputation, relationships with other vendors, and price. A variety of external and internal events and circumstances could adversely affect Cayenne's competitive capacity in the future. Cayenne's ability to be competitive will depend, to a great extent, on performance in product development and in sales and marketing. To be successful in the future, Cayenne must respond promptly and effectively to the challenges of technological change and its competitors' innovations by continually enhancing its own product offerings and ensuring that the market is aware of the solutions Cayenne offers. PROPRIETARY RIGHTS PROTECTION Cayenne relies on a combination of copyright, trade secret, patent and trademark laws and license agreements to protect its proprietary rights in technology. Cayenne distributes its products under signed software license agreements which grant customers a perpetual, non-exclusive license to Cayenne's products subject to restrictions on copying, disclosure, usage, decompiling and transferability. The source code for all of Cayenne's products is protected as a trade secret and as an unpublished copyrighted work. In addition, Cayenne has entered into nondisclosure and invention agreements with each of its key technical employees. All products are delivered as object code. International products are usually delivered with the addition of an electronic hardware "key" to hinder the use of unauthorized copies. Charles W. Bachman has assigned to Cayenne a patent on certain technology used in its products, United States Patent 4,631,664, "Partnership Data Base Management System and Method." This patent covers the unique internal formats used to store design information in many of Cayenne's products. Mr. Bachman and other inventors have also assigned to Cayenne patents with respect to the systems used in certain Cayenne products for dynamically modeling organizational information systems (United States Patent 5,146,591, "Dynamic Information Management System Utilizing Entity-Relationship Information Model in which the Attribute is Independent of an Entity") and for processing complex information representative of business transactions (United States Patent 5,179,698, "System for Transforming User Data in Accordance with an Algorithm Defined by Design Data and for Evaluating the Transformed Data Against Logical Criteria"). Seven additional patents have been granted by the United States Patent and Trademark Office (the "PTO") pertaining to technology used in Cayenne's products. In addition, patent applications filed in April and December 1991 (derived from filings under the Patent Cooperation 16 17 Treaty) are pending before the Canadian, Japanese and European patent offices. These applications are directed to the subject matter of all of the above referenced Cayenne patents except U.S. Patent 4,631,664. In connection with its acquisition of WindTunnel Software, Inc. ("Windtunnel") Cayenne acquired rights to certain patent applications pending with the PTO pertaining to the technology used in the WindTunnel product. The PTO has rejected some of the claims of those applications on the bases, among others, of prior art with respect to the technology involved. In view of the probable expense and difficulty of overcoming the rejections, the uncertainty of the probable outcome, and the availability of other means such as copyright, trademark and trade secret law to protect the Company's rights in the technology, Cayenne has decided not to pursue prosecution of the WindTunnel patent applications. There can be no assurance that a patent will be issued in respect of any of that application or, if it is, that it will provide meaningful protection to Cayenne. Despite the steps taken by Cayenne to protect its proprietary rights, it may be possible for unauthorized third parties to copy aspects of Cayenne's products, to develop similar technology independently or to obtain and use information that Cayenne regards as proprietary. Cayenne believes that, because of the rapid pace of technological change in the software industry, patent, trade secret and copyright protection is less significant to Cayenne's competitive position than factors such as the knowledge, ability and experience of Cayenne's personnel, new product development, frequent product enhancements, name recognition and ongoing reliable product maintenance support. As of the date hereof, Cayenne has not received any claim alleging that any of Cayenne's products infringes proprietary rights of any third party seeking indemnification for such an infringement, and Cayenne does not know of any basis for such a claim. If any such claim were to be asserted, it might involve costly and protracted litigation. No assurance can be given that Cayenne would be successful in any such litigation or that, if it were not successful, it would be able to license the disputed proprietary rights on commercially reasonable terms. SEASONALITY AND BACKLOG The Company's quarterly results are subject to fluctuations resulting from a variety of factors, including the effects of domestic and international economic conditions, budgetary considerations and spending patterns of customers, the Company's sales compensation plan, the timing of large individual orders, new product introductions, and recognition of fees in connection with license, development and similar agreements. The Company typically realizes a larger percentage of its software product license revenues in the second and fourth quarters of each fiscal year, with traditionally its lowest product license revenues occurring in the first quarter of each fiscal year. This seasonality results in part from budgetary considerations and spending patterns of the Company's customer base and the Company's sales commission plan, which compensates sales personnel for achieving or exceeding annual quotas. In addition, a major portion of each quarter's product license revenues is typically realized in the last month of the quarter. As a result of the factors discussed above, the Company's operating results for any one quarter are not necessarily indicative of results for any future period. While the length of the sales cycle varies, Cayenne typically does not have a significant backlog, and substantially all of its product revenues in any quarter result from sales made in that quarter. EMPLOYEES As of August 31, 1996, Cayenne employed 375 people worldwide on a full time basis. No employees are represented by a labor union. Cayenne has not experienced any work stoppages and believes its relations with employees are good. Cayenne believes that its future success will depend in part on its continued ability to attract and retain highly qualified personnel in a competitive market for experienced and talented software developers and sales and marketing personnel. ITEM 2. PROPERTIES Cayenne's executive offices, principal research and development facilities, and principal marketing, customer service and support and production facilities are located in approximately 50,000 square feet of space in 17 18 an executive office park in Burlington, Massachusetts. Cayenne occupies that space under a lease expiring October 31, 1997. Cayenne maintains its primary sales and support offices in nine locations in the United States, and its distribution subsidiaries have offices in Toronto, Canada; Bracknell, England; Boulogne-Billancourt, France; Munich, Germany; Singapore; Madrid, Spain; Delft, Netherlands; Canberra, Australia; and Florence, Milan, Rome, and Turin, Italy. Cayenne believes that its current facilities are sufficient for its current operations and that those facilities will continue to provide adequate space for Cayenne's operations in the foreseeable future. ITEM 3. LEGAL PROCEEDINGS Cayenne is not aware of any material litigation or claim pending or threatened against Cayenne or any of its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 18 19 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.
Fiscal Year 1996 Fiscal Year 1995 ------------------ ---------------- High Low High Low ---- --- ---- --- First Quarter $ 7.875 $5.75 $2.75 $1.75 Second Quarter 10.25 4.625 4.1875 2.00 Third Quarter 11.875 8.25 5.375 3.50 Fourth Quarter 10.00 6.50 7.875 4.50
The Company has not declared or paid cash dividends on its common stock and does not plan to pay cash dividends to its stockholders in the near future. The Company presently intends to retain any earnings to finance further growth of its business. As of September 23, 1996, there were 527 stockholders of record of the Company's common stock. 19 20 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this form 10-K:
YEAR ENDED JUNE 30, ------------------------------------------------------------ STATEMENT OF OPERATIONS DATA 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Revenues: (in thousands, except per share data) Software license ....................................... $ 12,658 $ 11,264 $ 15,807 $ 18,257 $ 35,239 Consulting and education services ...................... 8,911 10,330 8,953 8,712 6,557 Maintenance ............................................ 10,383 11,728 11,742 9,053 6,201 -------- -------- -------- -------- -------- Total revenues(1) ................................ 31,952 33,322 36,502 36,022 47,997 Costs and expenses: Cost of revenues Cost of software licenses ........................... 1,216 2,050 2,021 2,020 1,784 Cost of consulting and education services and maintenance ................................... 7,630 9,810 8,224 6,907 4,516 Sales and marketing .................................... 15,205 17,007 20,307 24,363 27,335 Research and development ............................... 7,665 8,676 10,771 5,824 6,589 General and administrative ............................. 4,271 4,253 4,989 6,133 4,990 Restructuring and other costs .......................... 1,125 2,000 -- 6,316 -- Charge for purchased research and development .......... -- -- 1,736 -- -- -------- -------- -------- -------- -------- Total costs and expenses ......................... 37,112 43,796 48,048 51,563 45,214 -------- -------- -------- -------- -------- Income (loss) from operations ............................. (5,160) (10,474) (11,546) (15,541) 2,783 Interest income, net ...................................... 294 460 362 542 486 Other income .............................................. 116 -- -- 364 -- -------- -------- -------- -------- -------- Income (loss) before provision for income taxes and extraordinary item ..................... (4,750) (10,014) (11,184) (14,635) 3,269 Provision for income taxes ................................ 1,083 246 357 94 1,370 -------- -------- -------- -------- -------- Income (loss) before extraordinary item ................... (5,833) (10,260) (11,541) (14,729) 1,899 Extraordinary item--reduction of income taxes due to utilization of prior years' net operating losses ..... -- -- -- -- 909 -------- -------- -------- -------- -------- Net income (loss) ................................... $ (5,833) $(10,260) $(11,541) $(14,729) $ 2,808 ======== ======== ======== ======== ======== Income (loss) per common share: Income (loss) before extraordinary item ................... $ (.51) $ (1.12) $ (1.30) $ (1.81) $ 0.25 Extraordinary item ........................................ -- -- -- -- 0.12 -------- -------- -------- -------- -------- Net income (loss) per common share .................. $ (.51) $ (1.12) $ (1.30) $ (1.81) $ 0.37 ======== ======== ======== ======== ======== Weighted average number of common and common equivalent shares outstanding(2) ................. 11,478 9,181 8,844 8,125 7,501 ======== ======== ======== ======== ========
JUNE 30, ------------------------------------------------------------ BALANCE SHEET DATA 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Working capital ........................................... $ 8,971 $ 5,388 $ 6,865 $ 16,694 $ 28,363 Total assets .............................................. 23,316 21,209 26,040 37,345 52,265 Long-term obligations ..................................... 59 51 -- 151 668 Redeemable Series A Convertible Preferred Stock ........... -- 5,493 -- -- -- Stockholders' equity ...................................... 10,649 3,640 12,508 21,840 36,094
- -------------------- (1) Beginning in fiscal 1995 IBM is no longer considered a related party. The financial statements have been reclassified to conform to fiscal 1995 presentation. (2) For this computation, in fiscal 1992 previously outstanding preferred stock has been reflected at the beginning of the period issued as Cayenne common stock outstanding for all periods presented. All outstanding shares of Cayenne's preferred stock were converted into Cayenne common stock in the second quarter of fiscal 1992. 20 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On July 18, 1996, the Company completed its acquisition of Cadre Technologies Inc. ("Cadre") under an Agreement and Plan of Merger dated March 25, 1996, by and among the Company, Cadre and B.C. Acquisition Corp., whereby the Company agreed to acquire all of the outstanding capital stock of Cadre in exchange for 4,716,442 shares of Cayenne common stock (the "merger"). The merger is expected to be accounted for as a pooling-of-interests beginning in the first quarter of fiscal 1997. Additionally, effective upon the merger, the Company changed its name to Cayenne Software, Inc. The Company acquired Cadre to expand its product offerings to include structured analysis and design and object-oriented technology and to expand its customer base. During the quarter ended June 30, 1996, the Company incurred expenses of approximately $.6 million principally related to advertising and promotion of the Company's new name and product strategy and $1.1 million related to the discontinuance of products not strategic to the Company's core business. This Annual Report on Form 10-K may contain forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth below under the caption "Factors That May Affect Future Results." 21 22 RESULTS OF OPERATIONS The following table sets forth certain income and expense items in Cayenne's consolidated statements of operations as a percentage of total revenues and the percentage change in dollar amounts of such items for the fiscal periods indicated:
PERCENT CHANGE PERCENTAGE OF YEAR TO YEAR TOTAL REVENUES FOR ----------------------- YEAR ENDED JUNE 30, 1996 1995 -------------------------------- COMPARED COMPARED 1996 1995 1994 TO 1995 TO 1994 ---- ---- ---- ------- ------- Revenues: Software license .................. 39.6% 33.8% 43.3% 12.4% (28.7)% Consulting and education services . 27.9 31.0 24.5 (13.7) 15.4 Maintenance ....................... 32.5 35.2 32.2 (11.5) (0.1) ----- ----- ----- Total revenues .................. 100.0 100.0 100.0 (4.1) (8.7) Costs and Expenses: Cost of revenues Cost of software licenses ....... 3.8 6.2 5.5 (40.7) 1.4 Cost of consulting and education services and maintenance ..... 23.9 29.4 22.5 (22.2) 19.3 Sales and marketing ............... 47.5 51.0 55.6 (10.6) (16.3) Research and development .......... 24.0 26.0 29.5 (11.7) (19.5) General and administrative ........ 13.4 12.8 13.7 .4 (14.8) Restructuring and other costs ..... 3.5 6.0 -- (43.8) -- Charge for purchased research and development ........ -- -- 4.8 -- (100.0) ----- ----- ----- Total costs and expenses ...... 116.1 131.4 131.6 (15.3) (8.9) ===== ===== ===== Loss from operations ................. (16.1) (31.4) (31.6) (50.7) (9.3) Interest income, net ................. .9 1.3 1.0 (36.1) 27.1 Other income ......................... .3 -- -- -- -- ----- ----- ----- Loss before provision for income taxes ........................ (14.9) (30.1) (30.6) (52.6) (10.5) Provision for income taxes ........... 3.4 0.7 1.0 340.2 (31.1) ----- ----- ----- Net loss ............................. (18.3)% (30.8)% (31.6)% (43.1)% (11.1)% ===== ===== =====
Cayenne's operating results for the years ended June 30, 1996, 1995 and 1994 were significantly adversely affected by the continuing market trends of Cayenne customers moving from mainframe development towards client/server and similar computing platforms, together with Cayenne's efforts to respond to those trends. In particular, Cayenne's business operations in fiscal 1994 were significantly adversely affected by the severing of substantially all of its relationships with IBM. Cayenne historically relied significantly on its relationship with IBM for development and marketing of Cayenne's products. Prior to fiscal 1993, Cayenne's products were designed primarily for organizations that employ IBM and IBM-compatible mainframe computers, the MVS operating system and the DB2 relational database management system. As a result, the market for Cayenne's products has been directly affected by declines in the acceptance of those IBM and IBM-compatible products. Prior to January 1993, Cayenne was a member of IBM's International Alliances for AD/Cycle, SystemView and Information Warehouse. Cayenne also maintained a close technical relationship with IBM, which provided Cayenne with access to technical information concerning certain current and planned developments in IBM products and systems. IBM marketed Cayenne's products in the United States, Canada, Puerto Rico and Austria prior to July 1993, and continues to be a non-exclusive distributor of Cayenne's products in certain Asia-Pacific countries and Switzerland. 22 23 While Cayenne expects that its broadened focus will benefit Cayenne in the long-term, there can be no assurance that the foregoing events will not materially adversely affect either the success with which Cayenne develops, supports and sells products for use with IBM and IBM-compatible computers and systems or the extent to which IBM continues to be a customer of Cayenne. The foregoing events may limit Cayenne's ability to compete as effectively in the IBM and IBM-compatible market, particularly with companies that continue to be members of IBM's International Alliances. Historically, Cayenne relied significantly on its relationship with IBM for development and marketing of Cayenne's products. IBM was Cayenne's single largest customer in each of fiscal 1996, 1995 and 1994 when revenue from IBM (including license and maintenance fees paid by IBM in connection with its own use of Cayenne products, as well as amounts paid by IBM as a distributor and systems integrator) accounted for 31%, 20% and 13% of Cayenne's total revenue, respectively. REVENUES As the Company continues its migration from providing tools focused solely on mainframe application development to supporting customers' needs for a more open and flexible set of solutions aimed at the growing client/server market, it faces many challenges. The Company has addressed some of these challenges during the past two fiscal years by introducing additional products targeted at the client/server market. The Company plans to continue to enhance its product offerings through development efforts, strategic alliances and acquisitions to improve its competitive position. The actions necessary to execute this transition have had an adverse effect on the Company's operating results during fiscal 1996, 1995 and 1994. In July 1996, the Company acquired Cadre, thereby expanding its product offerings and customer base. Cayenne's revenues currently are derived from three sources: (i) fees for the perpetual license of Cayenne's proprietary software products, (ii) fees from sales of consulting and education services, and (iii) maintenance fees for maintaining, supporting and providing periodic upgrades of Cayenne's software products. 23 24 The following table sets forth the amount of revenue derived by Cayenne, by source, for each period indicated and the percentage change in such amounts as compared to the prior period:
PERCENT CHANGE YEAR TO YEAR --------------------- YEAR ENDED JUNE 30, 1996 1995 ---------------------------------- COMPARED COMPARED 1996 1995 1994 TO 1995 TO 1994 ---- ---- ---- ------- ------- (dollars in thousands) Software License United States ........................... $ 4,260 $ 5,010 $ 6,282 (15.0)% (20.2)% Italy ................................... 5,565 2,832 3,376 96.5 (16.1) Export Sales from United States ......... 806 803 1,153 0.4 (30.4) Rest of world ........................... 2,027 2,619 4,996 (22.6) (47.6) ------- ------- ------- Total software license ................ 12,658 11,264 15,807 12.4 (28.7) Consulting and education services United States ........................... 1,517 2,632 3,422 (42.4) (23.1) Italy ................................... 6,462 5,395 3,729 19.8 44.7 Rest of world ........................... 932 2,303 1,802 (59.5) 27.8 ------- ------- ------- Total consulting and education services 8,911 10,330 8,953 (13.7) 15.4 Maintenance United States ........................... 5,119 7,058 7,996 (27.5) (11.7) Italy ................................... 1,955 1,292 808 51.3 59.9 Rest of world ........................... 3,309 3,378 2,938 (2.0) 15.0 ------- ------- ------- Total maintenance ..................... 10,383 11,728 11,742 (11.5) (0.1) Total revenues ............................. $31,952 $33,322 $36,502 4.1% (8.7)% ======= ======= =======
1996 COMPARED TO 1995 SOFTWARE LICENSES. Software license revenue for fiscal 1996 amounted to $12,658,000 compared to $11,264,000 for fiscal 1995, an increase of 12%. This increase resulted primarily from a series of significant orders in the quarter ended December 31, 1995 from a major Italian systems integrator for the Company's mainframe based products. These orders accounted for approximately 19% of total software license revenue for the fiscal year ended June 30, 1996. Revenue continues to be impacted by aggressive efforts of Cayenne customers to move away from traditional, centralized mainframe development towards client/server and similar computing platforms. Client/server product license revenue accounted for 40% of license revenue for the year ended June 30, 1996, compared to 16% for the year ended June 30, 1995. Client/server product license revenue represented approximately 62% of software license revenue for the quarter ended June 30, 1996 versus 25% for the comparable period of the prior fiscal year. These results reflect the continued market trend in the United States to migrate from mainframe to client/server environments. The Company's client/server products were introduced during the fourth quarter of fiscal 1995. Cayenne typically does not grant to its customers a contractual right to return software products. Accordingly, no provision for estimated returns is generally recorded at the time of sale. When approved by management, however, Cayenne has accepted returns of certain software products and has provided an allowance for those specific products. Cayenne's return experience for fiscal 1996 and 1995 was approximately $350,000 and $261,000 respectively. Cayenne does not license its software products with any warranty provisions, and accordingly has not accrued any related warranty expense. 24 25 CONSULTING AND EDUCATION SERVICES. Total consulting and education revenue in fiscal 1996 decreased over the preceding year by $1,419,000 or 14%. Consulting and education revenue in Italy increased 20%, while United States revenue declined by approximately 42% for the year ended June 30, 1996 compared to the prior fiscal year. The increase in consulting and education revenue in Italy is attributable to increased demand for the Company's consulting services from its increased customer base and mainframe sales. The decrease in the United States consulting and education revenue is attributable to decreased demand together with reduced staffing in this area. Training courses are offered for each of Cayenne's major products. Typically, consulting and education revenue follows the trend of software license revenue and, therefore, the decline in license revenue experienced in the United States has caused the consulting and education revenue also to decline in fiscal 1996 from fiscal 1995. MAINTENANCE. Maintenance revenue for annual maintenance contracts is deferred and recognized ratably over the term of the agreement. The increase in maintenance revenue in Italy resulted from increased penetration of the international markets along with an increase in the portion of the customer base that renewed maintenance contracts. The decrease in maintenance revenue in the United States resulted primarily from the aforementioned market place migration to client/server tools and fewer customers renewing their maintenance contracts on mainframe based tools. The aggressive migration from mainframe to client/server products has resulted in an increased number of customers not renewing their maintenance contracts. The Company's client/server products were introduced late in fiscal 1995 and have not offset the mainframe decline. COSTS AND EXPENSES The following table sets forth statement of operations data of Cayenne and the percentage change in dollar amounts of such items for the periods indicated:
PERCENT CHANGE YEAR TO YEAR --------------------- YEAR ENDED JUNE 30, 1996 1995 ---------------------------------- COMPARED COMPARED 1996 1995 1994 TO 1995 TO 1994 ---- ---- ---- ------- ------- (dollars in thousands) Cost of revenues Cost of software licenses ... $ 1,216 $ 2,050 $ 2,021 (40.7)% 1.4% Cost of consulting, education and maintenance ........... 7,630 9,810 8,224 (22.2) 19.3 ------- ------- ------- Total cost of revenues ...... 8,846 11,860 10,245 (25.4) 15.8 End-of-period headcount ..... 67 76 77 (11.8) (1.3) Sales and marketing ............ 15,205 17,007 20,307 (10.6) (16.3) End-of-period headcount ..... 78 95 123 (17.9) (22.8) Research and development ....... 7,665 8,676 10,771 (11.7) (19.5) End-of-period headcount ..... 48 55 83 (12.7) (33.7) General and administrative ..... 4,271 4,253 4,989 .4 (14.8) End-of-period headcount ..... 25 23 27 8.7 (14.8) Restructuring and other costs .. 1,125 2,000 -- (43.8) -- Charge for purchased R&D ....... -- -- 1,736 -- (100.0) ------- ------- ------- Total costs and expenses ....... $37,112 $43,796 $48,048 (15.3) (8.9) ======= ======= ======= End-of-period headcount ..... 218 249 310 (12.4)% (19.7)%
25 26 COST OF REVENUE. Cayenne's cost of software licenses includes product packaging, documentation and media, as well as the amortization of capitalized software development costs. Cost of consulting and education services and maintenance includes personnel, travel and occupancy costs connected with providing such services. Costs of software licenses were $1,216,000 and $2,050,000 for fiscal 1996 and 1995, respectively. Included in cost of software licenses was amortization of capitalized internally developed software costs of $0 and $616,000 for fiscal 1996 and 1995, respectively. Fiscal year 1995 also included approximately $600,000 in software product royalties to third parties versus $452,000 in fiscal 1996. Royalties are paid on certain products which the Company distributes for third parties. Capitalized software expenses are amortized over the estimated useful life of the products capitalized (generally two years, five years in the case of WindTunnel). As a result, amortized amounts are generally not tied directly to software license revenue in any particular period, causing fluctuations in the cost of software license revenue as a percentage of related software license revenue. Cost of software licenses as a percentage of related software license revenue was 10% and 18% for fiscal 1996 and 1995, respectively. The cost of consulting, education and maintenance as a percentage of related revenue decreased to 40% in fiscal 1996 from 45% in fiscal 1995. The decrease in the cost of consulting, education and maintenance was principally caused by decreased costs in North America as the Company adjusted staffing levels to more closely align with demand. SALES AND MARKETING. For fiscal 1996, sales and marketing expense decreased by approximately $1,802,000 or 11% from fiscal 1995. In fiscal 1996, sales and marketing expense as a percentage of total revenues decreased to 48% from 51% the previous year primarily because of reduced marketing activities and reduced headcount. During the fourth quarter of fiscal 1996 the Company had increased marketing costs of approximately $600,000 principally related to advertising and promotion of the Company's new name and product strategy. This compares to $629,000 of costs incurred in fiscal 1995 related to the launch of the Company's new products together with the Company's user conference held in September 1994. RESEARCH AND DEVELOPMENT. Cayenne's belief that product and technical leadership are critical to its success has resulted in a high level of expenditures for product research and development. In fiscal 1996, the Company focused the majority of its research and development resources on porting its current products to new platforms and development of new products targeted at the client/server market. Research and development expense decreased by approximately $1,011,000 or 12% from fiscal 1995 to 1996 and also decreased as a percentage of revenue to 24% in fiscal 1996 versus 26% in fiscal 1995. This decrease is due primarily to reduced spending on the Ellipse and WindTunnel products, both of which are no longer considered strategic to the Company. The consolidation of the San Jose and Burlington facilities completed in late 1995 has also contributed to the lower expense base. GENERAL AND ADMINISTRATIVE. General and administrative expense as a percentage of total revenue amounted to 13% in both fiscal year 1996 and 1995. Expenses remained relatively flat for the year ended June 30, 1996 compared to the prior fiscal year. RESTRUCTURING AND OTHER COSTS. Based on the results of fiscal year 1996, and in conjunction with the contemplated merger between Cayenne and Cadre, the Company reviewed its product strategy and determined that several products including WindTunnel were no longer consistent with the Company's objectives. Accordingly, the Company evaluated the net realizable value of the related intangible assets and recorded a charge of approximately $1,125,000 principally related to the writeoff of the intangible asset acquired as part of its acquisition of WindTunnel Software, Inc. ("WindTunnel"). (See, also, Note 13.) Following the completion of certain significant development efforts and associated product introductions, the Company effected a restructuring on September 29, 1994 to streamline its operations and better align expenses with revenue. The Company recorded a restructuring charge of $2,000,000 during the three months ended 26 27 September 30, 1994. The restructuring included a charge of approximately $1,500,000 in termination charges resulting from a 20% reduction in staff (approximately 70 employees). Prior to the execution of this restructuring, the Board of Directors of the Company approved a plan to terminate certain specified employees and close certain facilities. Such plan was communicated to the employees of the Company prior to the end of the quarter and such employees were specifically identified and terminated. The termination benefits to such employees were consistent with the Company's written severance policy and agreements. The restructuring also included approximately $300,000 in related facilities expense associated with the closure of the Company's San Jose, California development facility. The Company also reorganized the operations of its German subsidiary by reducing its facilities and staff and is pursuing distribution arrangements in that territory. As part of the restructuring, the Company also evaluated the value of certain contracts based on a number of factors including business plans, budgets, economic projections and market analysis. Based on a review of these factors, the Company determined to cancel certain contracts. The termination costs associated with those contracts amounted to approximately $200,000 and are included in the restructuring charge. At June 30, 1996, the Company believes it has met all obligations with regard to the restructuring. EFFECT OF INTERNATIONAL OPERATIONS ON INCOME (LOSS) FROM OPERATIONS
YEAR ENDED JUNE 30, ------------------- 1996 1995 1994 ---- ---- ---- INCOME (LOSS) FROM OPERATIONS United States ...................... $(2,354) $ (6,025) $ (7,408) Italy .............................. 336 (540) (452) Rest of World ...................... (3,142) (3,909) (3,686) ------- -------- -------- $(5,160) $(10,474) $(11,546) ======= ======== ========
In addition to the factors listed above, the operations of Cayenne's international subsidiaries significantly affected its results of operations in fiscal 1996, 1995 and 1994. For fiscal 1996, the loss from United States and Rest of World operations decreased by approximately $3,671,000 and $767,000, respectively, primarily due to reduced headcount and other cost control measures implemented by the Company. For fiscal 1996, Italian operations were profitable by $336,000 compared to a loss of $540,000 in fiscal 1995. This increase in profitability of the Italian subsidiary is attributable to a series of significant orders from a large systems integrator received during the second quarter of fiscal year 1996. Included in the fiscal 1995 results of operations is $2,000,000 of restructuring charges, approximately $1,700,000 in the United States, $240,000 in Rest of World and $60,000 in Italy. INTEREST INCOME, NET Interest income, net decreased in fiscal 1996 compared to fiscal 1995 due primarily to lower rates earned on balances available for investment. PROVISION FOR INCOME TAXES Because of the operating losses for fiscal 1996 and 1995, the tax provision for those periods are composed mostly of foreign withholding taxes and income taxes related to the profitability of certain foreign subsidiaries. At June 30, 1996, the Company had a deferred tax asset of approximately $23,000,000, composed principally of net operating loss carryforwards, which was offset fully by a valuation allowance due to the uncertainty of realization. 27 28 1995 COMPARED TO 1994 SOFTWARE LICENSES. Software license revenue for fiscal 1995 amounted to $11,264,000 compared to $15,807,000 for fiscal 1994, a decrease of 29%. This decrease resulted primarily from continued aggressive efforts by Cayenne customers to move rapidly away from traditional, centralized mainframe development towards client/server and similar computing platforms. These efforts directly affected Cayenne's DB2/DBA and Analyst products worldwide, for which revenues in fiscal 1995 decreased by approximately $1,900,000 and $2,100,000, respectively, from fiscal 1994. These decreases in the Company's mainframe focused products were offset somewhat by approximately $1,000,000 contributed by the Company's GroundWorks and Terrain products which are two of the Company's new client/server products released in late fiscal 1995. Software license revenue for fiscal 1995 was also impacted by a reduction of approximately $550,000 in the Company's allowance for sales returns based on management's assessment of the Company's sales returns history and trends. Included in software license revenue for fiscal 1995 is a significant order of approximately $1,100,000 from an international customer. There were no similar large orders in the prior fiscal year. Cayenne typically does not grant to its customers a contractual right to return software products. Accordingly, no provision for estimated returns is generally recorded at the time of sale. When approved by management, however, Cayenne has accepted returns of certain software products and has provided an allowance for those specific products. Cayenne's return experience for fiscal 1995 and 1994 was approximately $261,000 and $325,000 respectively. Cayenne does not license its software products with any warranty provisions, and accordingly has not accrued any related warranty expense. CONSULTING AND EDUCATION. Total consulting and education revenue in fiscal 1995 increased over the preceding year by $1,377,000 or 15% due to the increased number and use of courses and services available to Cayenne's larger customer base in the Company's international subsidiaries. The increases in consulting and education revenue in Italy and Rest of World are also attributable to the addition of several long-term consulting contracts. Training courses are offered for each of Cayenne's major products. Typically, consulting and education revenue follows the trend of software license revenue and, therefore, the decline in license revenue experienced in the United States has caused the consulting and education revenue also to decline in fiscal 1995 from fiscal 1994. MAINTENANCE. Maintenance revenue for annual maintenance contracts is deferred and recognized ratably over the term of the agreement. The increase in maintenance revenue in Italy and Rest of World resulted from increased penetration of the international markets along with an increase in the portion of the customer base that renewed maintenance contracts. The decrease in maintenance revenue in the United States resulted primarily from the aforementioned market place migration to client/server tools and fewer customers renewing their maintenance contracts on mainframe based tools. The Company's client/server products were introduced late in fiscal 1995 and therefore there is minimal maintenance revenue from those products to offset the mainframe decline. 28 29 COST OF REVENUE. Cayenne's cost of software licenses includes product packaging, documentation and media, as well as the amortization of capitalized software development costs. Cost of consulting and education services and maintenance includes personnel, travel and occupancy costs connected with providing such services. Costs of software licenses were $2,050,000 and $2,021,000 for fiscal 1995 and 1994, respectively. Fiscal 1995 and 1994 included the amortization of approximately $455,000 and $379,000 of purchased software related to the September 1993 acquisition of WindTunnel Software, Inc. ("Windtunnel"). Fiscal 1994 included the write-off of $250,000 of certain prepaid software royalties. Included in cost of software licenses was amortization of capitalized software development costs of $616,000 and $1,044,000 for fiscal 1995 and 1994, respectively. Fiscal year 1995 also included approximately $600,000 in software product royalties to third parties versus $67,000 in Fiscal 1994. Royalties are paid on certain products which the Company distributes for third parties. Capitalized software expenses are amortized over the estimated useful life of the products capitalized (generally two years, five years in the case of WindTunnel). As a result, amortized amounts are generally not tied directly to software license revenue in any particular period, causing fluctuations in the cost of software license revenue as a percentage of related software license revenue. Cost of software licenses as a percentage of related software license revenue was 18% and 13% for fiscal 1995 and 1994, respectively. The cost of consulting, education and maintenance as a percentage of related revenue increased to 45% in fiscal 1995 from 40% in fiscal 1994. The increase in the cost of consulting, education and maintenance was principally caused by increased international costs as the international subsidiaries increased staff and the use of third party consultants to meet the demand from several long-term consulting contracts. SALES AND MARKETING. For fiscal 1995, sales and marketing expense decreased by approximately $3,300,000 or 16% from fiscal 1994. In fiscal 1995, sales and marketing expense as a percentage of total revenues decreased to 51% from 56% the previous year due to better alignment of sales and marketing staffing and projected revenues. This decrease was due principally to reduced headcount effected through the restructurings in the first quarter of fiscal 1995 along with a move in North America towards telesales and away from direct field sales efforts. In fiscal 1995 and 1994, Cayenne began promoting a team selling approach in which telemarketing, corporate sales, and field sales representatives work together to identify, qualify, inform, and sell to prospective customers. RESEARCH AND DEVELOPMENT. Cayenne's belief that product and technical leadership are critical to its success has resulted in a high level of expenditures for product research and development. In fiscal 1995, the 29 30 Company focused its research and development resources on porting its current products to new platforms, continued development of the WindTunnel and Ellipse products and development of new products targeted at the client/server market. Research and development expense decreased by approximately $2,100,000 or 19% from fiscal 1994 to 1995 and also decreased as a percentage of revenue to 26% in fiscal 1995 versus 30% in fiscal 1994. This decrease is due primarily to reduced spending on the Ellipse product, and the addition of agreements with certain development partners whose funding offset approximately $460,000 of development expense. During fiscal 1995, the Company closed its San Jose facility and consolidated all research and development in Burlington, Massachusetts. Expenses were also reduced in other areas of research and development effected through the restructuring in September 1994. GENERAL AND ADMINISTRATIVE. General and administrative expense decreased to $4,253,000 in fiscal 1995 from $4,989,000 in fiscal 1994, a decrease of $736,000 or 15%. The reduction is due primarily to a decrease in goodwill amortization of approximately $400,000, along with continued expense controls in the Company's administrative areas. RESTRUCTURING COSTS. Following the completion of certain significant development efforts and associated product introductions, the Company effected a restructuring on September 29, 1994 to streamline its operations and better align expenses with revenue. The Company recorded a restructuring charge of $2,000,000 during the three months ended September 30, 1994. The restructuring included a charge of approximately $1,500,000 in termination charges resulting from a 20% reduction in staff (approximately 70 employees). Prior to the execution of this restructuring, the Board of Directors of the Company approved a plan to terminate certain specified employees and close certain facilities. Such plan was communicated to the employees of the Company prior to the end of the quarter and such employees were specifically identified and terminated. The termination benefits to such employees were consistent with the Company's written severance policy and agreements. The restructuring also included approximately $300,000 in related facilities expense associated with the closure of the Company's San Jose, California development facility. The Company also reorganized the operations of its German subsidiary by reducing its facilities and staff and is pursuing distribution arrangements in that territory. As part of the restructuring, the Company also evaluated the value of certain contracts based on a number of factors including business plans, budgets, economic projections and market analysis. Based on a review of these factors, the Company determined to cancel certain contracts. The termination costs associated with those contracts amounted to approximately $200,000 and are included in the restructuring charge. The Company believes the accrued restructuring balance of $90,000 at June 30, 1995 represents its cash obligations, principally employee related and facilities costs, significantly all of which are expected to be disbursed by the end of fiscal 1996. CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT. In November 1993, the Company acquired substantially all the assets of Cooperative Solutions, Inc. ("CSI") of San Jose, California, including its product line, research and development efforts, and employee and customer bases in exchange for assuming certain liabilities. The purchase price, which was equal to the liabilities assumed, was approximately $2.2 million. The acquisition was accounted for as a purchase. The purchase price first was allocated to tangible assets based on their fair market values. The remaining purchase price was allocated to purchased research and development for software which has not reached technological feasibility and has no alternative future use. A charge for purchased research and development of $1.7 million was recorded upon the closing of the acquisition in the Company's fiscal quarter ended December 31, 1993. 30 31 In addition to the factors listed above, the operations of Cayenne's international subsidiaries significantly affected its results of operations in fiscal 1995 and 1994. For fiscal 1995, the loss from Rest of World operations increased by approximately $223,000 to $3,909,000. For fiscal 1995, the loss from Italian operations increased by $88,000, to $540,000 versus $452,000 in fiscal 1994. This increase is attributable to reduced software license revenue and start up costs associated with several long-term consulting contracts. Included in the results of operations for fiscal 1995 is $2,000,000 of restructuring charges, approximately $1,700,000 in the United States, $240,000 in Rest of World and $60,000 in Italy. INTEREST INCOME, NET Interest income, net increased in fiscal 1995 compared to fiscal 1994 due primarily to higher rates earned on balances available for investment. PROVISION FOR INCOME TAXES Because of the operating losses for fiscal 1995 and 1994, the tax provision for those periods are composed mostly of foreign withholding taxes and income taxes related to the profitability of certain subsidiaries. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996 the Company's principal sources of liquidity included cash and cash equivalents aggregating $11,549,000 and a secured bank line of credit in the amount of $4,000,000 discussed below. Cash and cash equivalents increased by $3,344,000 compared to fiscal 1995. For fiscal 1996, cash flows were principally affected by the loss from operations and were offset by proceeds of approximately $6.0 million from the Company's private placement in the first quarter of fiscal 1996. The Company's principal long-term cash commitments are for office space operating leases. On June 30, 1996, Cayenne had no material commitments for capital expenditures. On June 6, 1996, the Company amended and restated its revolving credit agreement with a bank to borrow up to $4,000,000, increasing to $5,000,000 upon achievement of profitability. The Company extended the term of such agreement through October 5, 1996 and revised certain of the financial and operating covenants as well as the borrowing base thereunder. The loan is contingent upon meeting certain financial and operating covenants at the time of any borrowing and over the life of the loan, including profitability of $250,000 in the fourth quarter of fiscal 1996, for which the Company obtained a waiver of compliance. The loan is secured by all of the assets of the Company and any borrowing amounts are tied to a percentage of qualified accounts receivable outstanding at the time of any borrowing. The financial covenants include the attainment of certain specified levels of consolidated net income (loss) at the end of each quarter, tangible net worth (generally defined as the excess of tangible net assets of the Company over total liabilities (excluding any outstanding redeemable preferred stock)) at the end of each quarter and month, and liquidity (generally defined as cash and cash equivalents plus eligible domestic accounts receivable and eligible international accounts receivable less any indebtedness to the bank) at the end of each month. The Company was in compliance with all covenants as waived at June 30, 1996. At June 30, 1996, the borrowing base under the revolving credit agreement was approximately $1,723,000. The Company is concluding negotiations with the bank to amend and extend its credit agreement through October 5, 1997, to establish certain of the financial and operating covenants as well as the borrowing base thereunder similar to those set forth above and to set the borrowing limit at $5,000,000. On July 18, 1996, the Company received shareholder approval to merge with Cadre of Providence, Rhode Island. In connection with the merger the Company issued 4,716,442 shares of Cayenne common stock for all of 31 32 the outstanding capital stock of Cadre. The transaction is expected to be accounted for as a pooling-of-interests for accounting purposes beginning in the first quarter of fiscal year 1997. The combined companies expect to incur charges to operations estimated between $6 million to $7 million during the first quarter of fiscal 1997 to reflect costs associated with combining the operations of the two companies, transaction fees and other costs incident to the merger. Included in the estimated charge is approximately $1.6 million of employee related termination expenses, $1.5 million of legal, accounting, broker and other professional fees, $1.5 million of facility closure and consolidation expenses, and $2.4 million of other miscellaneous expenses associated with the consolidation of the two companies and the Company name change. In conjunction with the merger, the Company guaranteed a $1,500,000 advance made to Cadre by Silicon Valley Bank which was applied against the Company's borrowing base under its credit agreement. With the additional $6.0 million the Company raised in its September 1995 private placement and its revolving credit agreement, the Company anticipates that existing cash balances and funds generated from operations will provide sufficient cash resources to finance its current operations, including Cadre, and projected capital expenditures through fiscal 1997. Thereafter, the Company's cash requirements will depend upon the results of future operations, including the impact of the Cadre acquisition, which cannot be foreseen. There can be no assurance that the Company will be able to meet its loan covenants, achieve its operating plan and return to profitability, and the failure to do so may have a material adverse impact on the Company's business and operations. The Company expects to incur a significant loss from operations in the first quarter of fiscal 1997 which will include an estimated $6 million to $7 million in charges discussed above associated with its acquisition of Cadre completed in July 1996. RECENTLY ISSUED ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which is effective for the Company's fiscal year 1997. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the effect of adopting this statement will not be material. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" which is effective for the Company's fiscal year 1997. The Company has determined that it will elect the disclosure-only alternative. The Company will be required to disclose the pro forma net income or loss and per share amounts in the notes to the financial statements using the fair value based method beginning in fiscal 1997 with comparable disclosures for fiscal 1996. The Company has not determined the impact of these pro forma adjustments. FOREIGN CURRENCY All of Cayenne's foreign sales, other than those of its foreign subsidiaries, are invoiced and collected in United States dollars. Cayenne experienced no significant gains or losses on foreign currency transactions or translations in fiscal 1996, 1995 or 1994. No assurance can be given, however, that it will not experience such material affects subsequent to June 30, 1996. INFLATION To date, inflation has not had a material impact on Cayenne's revenues or income. QUARTERLY PERFORMANCE Cayenne's revenues vary from quarter to quarter; historically, the largest portion of Cayenne's revenue has been recognized in the fourth quarter of a fiscal year. The first quarter is traditionally Cayenne's slowest quarter. In the normal course of events, Cayenne may realize lower revenue in the first quarter than in the preceding quarter and also could realize lower revenue in the third quarter than in the preceding second quarter. Cayenne has also frequently recognized more revenue in the last month of each quarter than in either of the preceding two months. Cayenne believes these quarterly and monthly patterns have been partly attributable to Cayenne's sales commission policies, which compensate sales personnel for meeting or exceeding annual quotas, and to the budgeting and purchasing cycles of customers. In addition, Cayenne's revenue and earnings have fluctuated historically, and may fluctuate in the future, due to the timing of large individual orders. In the second quarter of fiscal 1996, the Company had a series of significant orders from a major systems integrator totaling $2.4 million. 32 33 The Company completed an order for approximately $1.1 million from an international customer in the third quarter of fiscal 1995. FACTORS THAT MAY AFFECT FUTURE RESULTS From time to time, information provided by the Company or statements made by its employees may contain "forward-looking" information, as that term is defined in the Private Securities Litigation Reform Act of 1995 (the "Act"). The Company cautions investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including but not limited to the following: The Company's future operating results are dependent on its ability to develop product and market new and innovative products and services. There are numerous risks inherent in this complex process, including rapid technological change and the requirement that the Company bring to market in a timely fashion new products and services which meet customers' changing needs. Historically, the Company has generated a disproportionate amount of its operating revenues toward the end of each quarter, making precise prediction of revenues and earnings particularly difficult and resulting in risk of variance of actual results from those forecast at any time. In addition, the Company's operating results historically have varied from fiscal period to fiscal period; accordingly, the Company's financial results in any particular fiscal period are not necessarily indicative of results for future periods. The Company operates in a highly competitive environment and in a highly competitive industry, which include significant pricing pressures and intense competition for skilled employees. From time to time, the Company may experience unanticipated intense competitive pressure, possibly causing operating results to vary from those expected. The Company offers its products and services directly and through indirect distribution channels. Changes in the financial condition of, or the Company's relationship with, distributors and other indirect channel partners could cause actual operating results to vary from those expected. The Company does business worldwide. Global and/or regional economic factors and potential changes in laws and regulations affecting the Company's business, including without limitation, currency fluctuations, changes in monetary policy and tariffs, and federal, state and international laws could impact the Company's financial condition or future results of operations. The market price of the Company's securities could be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analysts' earnings estimates, market conditions in the information technology industry, as well as general economic conditions and other factors external to the Company. 33 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CAYENNE SOFTWARE, INC. INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Page Report of Independent Accountants.............................................................. 35 Consolidated Balance Sheets as of June 30, 1996 and 1995....................................... 36 Consolidated Statements of Operations for the years ended June 30, 1996, 1995 and 1994......... 37 Consolidated Statements of Stockholders' Equity for the years ended June 30, 1996, 1995 and 1994....................................................................................... 38 Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994......... 39 Notes to Consolidated Financial Statements..................................................... 40
34 35 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cayenne Software, Inc.: We have audited the accompanying consolidated balance sheets of Cayenne Software, Inc. (formerly Bachman Information Systems, Inc.) as of June 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cayenne Software, Inc. as of June 30, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts August 20, 1996 35 36 CAYENNE SOFTWARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, ------------------------ 1996 1995 ---- ---- ASSETS Current assets: Cash and cash equivalents (including securities purchased under agreements to resell of $699 and $2,148 at June 30, 1996 and 1995, respectively) .................. $ 11,549 $ 8,205 Trade accounts receivable, less allowance for sales returns and doubtful accounts of $716 and $718 at June 30, 1996 and 1995, respectively ................... 8,010 8,207 Prepaid expenses and other current assets ............................................. 2,020 1,001 -------- -------- Total current assets ............................................................ 21,579 17,413 Property and equipment, less accumulated depreciation and amortization ................... 1,315 1,887 Capitalized software costs, less accumulated amortization of $3,239 at June 30, 1995 ........................................................................ -- 1,441 Other assets ............................................................................. 422 468 -------- -------- Total assets ............................................................................. $ 23,316 $ 21,209 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ...................................................................... $ 1,564 $ 2,041 Accrued expenses ...................................................................... 1,725 1,244 Accrued compensation and benefits ..................................................... 2,161 2,081 Accrued restructuring costs (Note 13) ................................................. -- 90 Income and other taxes payable ........................................................ 1,967 988 Obligations under capital lease ....................................................... 59 34 Deferred revenue ...................................................................... 5,132 5,547 -------- -------- Total current liabilities ....................................................... 12,608 12,025 Obligations under capital lease .......................................................... 59 51 Commitments and contingencies (Note 7) ................................................... -- -- Redeemable Series A Convertible Preferred Stock, $1.00 par value; 5.000 shares authorized; 0 and 1.787 shares outstanding at June 30, 1996 and 1995, respectively (aggregate liquidation preference of $5,493 at June 30, 1995) .............. -- 5,493 Stockholders' equity: Common stock, $.01 par value; 26,200 shares authorized; 12,759 and 9,398 shares issued and outstanding at June 30, 1996 and 1995, respectively ............................. 128 94 Additional paid-in capital ............................................................ 68,366 55,653 Accumulated deficit ................................................................... (57,421) (51,588) Accumulated translation adjustments ................................................... (424) (519) -------- -------- Stockholders' equity ................................................................ 10,649 3,640 -------- -------- Total liabilities and stockholders' equity ............................................... $ 23,316 $ 21,209 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 36 37 CAYENNE SOFTWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JUNE 30, ------------------------------------ 1996 1995 1994 ---- ---- ---- Revenues: Software license ..................................... $ 12,658 $ 11,264 $ 15,807 Consulting and education services .................... 8,911 10,330 8,953 Maintenance .......................................... 10,383 11,728 11,742 -------- -------- -------- Total revenues .................................... 31,952 33,322 36,502 Costs and expenses: Cost of revenues Cost of software licenses ......................... 1,216 2,050 2,021 Cost of consulting and education services and maintenance ................................. 7,630 9,810 8,224 Sales and marketing .................................. 15,205 17,007 20,307 Research and development ............................. 7,665 8,676 10,771 General and administrative ........................... 4,271 4,253 4,989 Restructuring and other costs (Note 13) .............. 1,125 2,000 -- Charge for purchased research and development (Note 2) -- -- 1,736 -------- -------- -------- Total costs and expenses .......................... 37,112 43,796 48,048 -------- -------- -------- Loss from operations .................................... (5,160) (10,474) (11,546) Interest income ......................................... 358 499 459 Other income ............................................ 116 -- -- Interest expense ........................................ 64 39 97 -------- -------- -------- Loss before provision for income taxes .................. (4,750) (10,014) (11,184) Provision for income taxes .............................. 1,083 246 357 -------- -------- -------- Net loss ................................................ $ (5,833) $(10,260) $(11,541) ======== ======== ======== Loss per common share (Note 1) .......................... $ (0.51) $ (1.12) $ (1.30) ======== ======== ======== Weighted average number of common and common equivalent shares outstanding .................. 11,478 9,181 8,844 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 37 38 CAYENNE SOFTWARE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (IN THOUSANDS)
COMMON STOCK ADDITIONAL ACCUMULATED ---------------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT EQUITY ------ ------ ------- ----------- ------- ------------- Balance, June 30, 1993 ............ 8,191 $ 82 $ 51,480 $ 65 $(29,787) $ 21,840 Stock options exercised ........... 181 2 222 224 Issuance of common stock under Employee Stock Purchase Plan .... 39 97 97 Issuance of common stock in acquisition of business ......... 650 7 2,268 2,275 Currency translation adjustment ... (387) (387) Net loss for the year ............. (11,541) (11,541) -------- -------- -------- -------- -------- -------- Balance, June 30, 1994 ............ 9,061 91 54,067 (322) (41,328) 12,508 Stock options exercised ........... 302 3 839 842 Issuance of common stock under Employee Stock Purchase Plan .... 35 76 76 Issuance of warrants in conjunction with the preferred stock ........ 319 319 Proceeds from Section 16(b) profits 352 352 Currency translation adjustment ... (197) (197) Net loss for the year ............. (10,260) (10,260) -------- -------- -------- -------- -------- -------- Balance, June 30, 1995 ............ 9,398 94 55,653 (519) (51,588) 3,640 Stock options exercised ........... 259 3 893 896 Issuance of common stock under Employee Stock Purchase Plan .... 14 82 82 Conversion of Series A Preferred Stock ........................... 1,787 18 5,475 5,493 Exercise of Warrants .............. 187 2 498 500 Issuance of common stock through private placement ............... 1,114 11 5,765 5,776 Currency translation adjustment ... 95 95 Net loss for the year ............. (5,833) (5,833) -------- -------- -------- -------- -------- -------- Balance, June 30, 1996 ............ 12,759 $ 128 $ 68,366 $ (424) $(57,421) $ 10,649 ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 38 39 CAYENNE SOFTWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED JUNE 30, ---------------------------------------- 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net loss ........................................... $ (5,833) $(10,260) $(11,541) Adjustments to reconcile net loss to net cash used in operating activities: Charge for purchased research and development ...... -- -- 1,736 Depreciation and amortization ...................... 1,596 2,541 3,829 Write-down of intangible asset ..................... 986 -- -- Change in operating assets and liabilities, net of effects of acquisitions Trade accounts receivable ....................... 184 (93) 1,289 Prepaid expenses and other current assets ....... (1,028) 87 778 Accrued expenses ................................ 578 (790) (1,016) Accrued restructuring costs ..................... (90) (741) (1,297) Accounts payable ................................ (477) (498) 1,161 Accrued compensation and benefits ............... 30 (130) 566 Income and other taxes payable .................. 933 397 (306) Deferred revenue ................................ (461) 152 (1,945) -------- -------- -------- Net cash used in operating activities ................... (3,582) (9,335) (6,746) Cash flows from investing activities: Purchases of property and equipment ................ (432) (578) (1,456) Acquisition of businesses .......................... -- -- (1,511) -------- -------- -------- Net cash used in investing activities ................... (432) (578) (2,967) Cash flows from financing activities: Proceeds from issuance of common stock ............. 82 76 97 Proceeds from private placement .................... 5,776 -- -- Proceeds from exercise of warrants ................. 500 -- -- Proceeds from exercise of stock options ............ 896 842 224 Proceeds from issuance of preferred stock and warrants (net of issuance costs) ...... -- 5,812 -- Proceeds from Section 16(b) profits ................ -- 352 -- Payments under capital lease obligations ........... (48) (174) (327) Payments of notes payable .......................... -- -- (29) -------- -------- -------- Net cash provided by (used in) financing activities ..... 7,206 6,908 (35) Effect of foreign exchange rates on cash and cash equivalents .................................. 152 87 84 -------- -------- -------- Net increase (decrease) in cash and cash equivalents .... 3,344 (2,918) (9,664) Cash and cash equivalents at beginning of year .......... 8,205 11,123 20,787 -------- -------- -------- Cash and cash equivalents at end of year ................ $ 11,549 $ 8,205 $ 11,123 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 39 40 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABLES IN THOUSANDS EXCEPT PER SHARE DATA) 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements include the accounts of Cayenne Software, Inc. (formerly Bachman Information Systems, Inc.) ("the Company" or "Cayenne") and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s). Actual results could differ from those estimates. The Company develops, markets and supports an integrated suite of software products and services. Many Fortune 1000 companies and government agencies around the world use Cayenne products as they develop, implement, and maintain business-critical information systems. Cayenne's products are designed around an innovative open architecture that enables organizations to create applications that integrate diverse information sources into new high-performance computing environments, to modify applications as business and technology change, and to run those applications on a variety of platforms. Cayenne's approach to reusability and its open architecture directly support client/server initiatives and partnerships with other leading software vendors. TRANSLATION OF FOREIGN CURRENCIES Assets and liabilities of all foreign subsidiaries are translated at period-end rates of exchange, and income statement accounts are translated at average rates of exchange. Resulting translation adjustments are recorded as a separate component of stockholders' equity, "Accumulated Translation Adjustments." Gains and losses resulting from foreign currency transactions were immaterial for all periods presented. REVENUE RECOGNITION Revenue from product license fees is recognized upon shipment. At the time the Company recognizes revenue from the sale of software products, no significant vendor obligations remain and the costs of insignificant support obligations are accrued. The Company typically does not grant to its customers a contractual right to return software products. Accordingly, no provision for estimated returns is generally recorded at the time of the sale. When approved by management, however, the Company has accepted returns of certain software products and has provided an allowance for those specific products. Maintenance revenue for annual maintenance contracts is deferred and recognized ratably over the term of agreement. Revenue from consulting and education services is recognized as the related services are performed. COST OF REVENUE Cost of software licenses includes capitalized software amortization expense (see Notes 1 and 4) and other costs principally related to the duplication and distribution of licensed software products. Cost of consulting and education services and maintenance includes personnel, travel and occupancy costs connected with providing such services. DEFERRED REVENUE Maintenance revenue which is not yet earned is included in deferred revenue. 40 41 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA) CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with maturities of less than ninety days when acquired. These investments are stated at cost plus accrued interest, which approximates market value. Included in cash and cash equivalents at June 30, 1996 and 1995, respectively, are $699,000 and $2,148,000 in United States Treasury Securities under agreement to resell in July 1996 and 1995, respectively. Treasury securities purchased under agreements to resell are held in safekeeping by the Company's bank. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. At disposition, the cost of property and related accumulated depreciation are removed from the balance sheet and any gain or loss is included in the statement of operations. Depreciation and amortization are provided on the straight-line method over the estimated useful life of the related assets as follows: 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
SOFTWARE COSTS AND OTHER INTANGIBLE ASSETS In accordance with Statement of Financial Accounting Standards No. 86 ("SFAS 86"), "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed," the Company capitalizes certain software costs after technological feasibility of the product has been established. Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software costs are amortized, on a product by product basis, ratably over the estimated economic life of the product (generally two years, five years in the case of WindTunnel), or the ratio of current gross revenues to total current and expected future gross revenues of the product, whichever is greater. The Company evaluates the net realizable value of capitalized software costs in accordance with paragraph 10 of SFAS 86. The Company evaluates the net realizable value of capitalized software and other intangible assets on an ongoing basis relying on a number of factors including operating results, business plans, budgets and economic projections and undiscounted cash flows. In addition, the Company's evaluation considers non-financial data such as market trends, product development cycles and changes in management's market emphasis. Costs in excess of net assets of acquired companies are amortized on a straight-line basis over a ten-year period. Goodwill totaled $581,000 before accumulated amortization of $246,000 and $188,000 at June 30, 1996 and 1995, respectively. INCOME TAXES In fiscal 1994, the Company adopted the Financial Accounting Standards Board Statement No. 109 ("SFAS 109"), "Accounting for Income Taxes," which requires the use of the asset and liability approach for accounting for income taxes. Under SFAS 109, deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to reverse. SFAS 109 also requires a 41 42 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA) valuation reserve against deferred assets if based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. There was no material impact on the Company's results of operations and financial position when SFAS 109 was adopted in 1994. Prior fiscal years were not restated. LOSS PER COMMON SHARE Loss per common share is computed based on the weighted average number of common shares and dilutive common equivalent shares outstanding during each year except in loss years. Dilutive common equivalent shares consist of preferred stock, warrants and stock options (calculated using the treasury stock method). For the years ended June 30, 1996, 1995 and 1994, common equivalent shares are excluded from the primary earnings per share calculation as they are antidilutive. Fully diluted and primary earnings per share are the same amounts for fiscal 1995 and 1994. Fully diluted earnings per share is $(.47) in fiscal 1996 as the Company's redeemable Series A Convertible Preferred Stock is assumed to be converted at the beginning of the year. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist of temporary cash investments and trade receivables. The Company invests its cash in deposits with major banks and in money market investments and obligations of the United States Government and Federal agencies. The Company has not experienced any significant losses on its investments. Concentrations of credit risk with respect to trade receivables include receivables from a significant customer (see, also, Note 8.) and are otherwise limited due to the large number of customers comprising the Company's customer base and their dispersion across many different industries and geographies. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. Such losses to date have been within management's expectations. 2. BUSINESS COMBINATIONS On September 10, 1993, the Company acquired Chicago-based WindTunnel Software, Inc. ("WindTunnel") in a merger transaction accounted for as a purchase. The Company acquired WindTunnel in exchange for 650,000 shares of the Company's common stock. The purchase price of WindTunnel was approximately $2,500,000, based upon a stock price of $3.50 (which approximated the fair market value of the Company's common stock at the time of the merger) for each of the 650,000 shares of the Company's common stock issued in the merger and the direct costs of the acquisition. The net tangible assets of WindTunnel acquired by the Company were insignificant. The purchase price was allocated to the fair value of WindTunnel's software, and is being amortized over five years. The fiscal 1994 results reflect the allocation of the purchase price in accordance with generally accepted accounting principles and include the results of operations for WindTunnel since the acquisition date. (See, also, Note 13.) On November 16, 1993, the Company acquired substantially all the assets of Cooperative Solutions, Inc. ("CSI") of San Jose, California, including its product line, research and development efforts, and employee and customer bases in exchange for assuming certain liabilities. The acquisition was accounted for as a purchase. The purchase price, which was equal to the liabilities assumed, was approximately $2.2 million. The purchase price was first allocated to tangible assets based on their fair market values. The remaining purchase price was allocated to the fair value of purchased research and development for software which had not reached technological feasibility and had no alternative future use. A charge for purchased research and development of $1.7 million was recorded upon the closing of the acquisition in the Company's fiscal quarter ended December 31, 1993. The fiscal 1994 results reflect the allocation of the purchase price in accordance with generally accepted accounting principles and include the results of operations for CSI since the acquisition date. 42 43 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA) 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JUNE 30, --------------------- 1996 1995 ---- ---- Property and equipment Computer and related equipment ............... $ 3,918 $10,797 Equipment under capital leases ............... 179 97 Office furniture and fixtures ................ 478 999 Leasehold improvements ....................... 171 324 ------- ------- Total .................................... 4,746 12,217 Less accumulated depreciation and amortization 3,431 10,330 ------- ------- $ 1,315 $ 1,887 ======= =======
Accumulated amortization for equipment under capital leases was $69,000 and $26,000 as of June 30, 1996 and 1995, respectively. During fiscal 1996, the Company wrote-off $7,964,000 of fully depreciated assets. 4. CAPITALIZED SOFTWARE COSTS The Company did not capitalize costs related to internally developed software during any of the fiscal years ended June 30, 1996, 1995, and 1994 respectively. (See, also, Note 13.) Amortization expenses for previously capitalized software costs for the fiscal years ended June 30, 1996, 1995, and 1994 was approximately $0, $616,000 and $1,044,000, respectively. The Company also amortized $456,000, $456,000 and $379,000 of purchased software acquired in the WindTunnel transaction. 5. INCOME TAXES The components of net deferred tax assets were as follows:
JUNE 30 ------------------------ 1996 1995 ---- ---- Deferred tax assets: Net operating loss carryforwards $ 20,250 $ 18,367 Tax credit carryforwards 1,417 1,417 Other 1,351 1,038 -------- -------- Gross deferred tax asset 23,018 20,822 Valuation allowance (23,018) (20,822) -------- -------- Net deferred tax asset $ 0 $ 0 ======== ========
The entire deferred tax asset has been fully reserved with a valuation allowance due to the uncertainty of realization. The Company has historically not generated consistent taxable income sufficient to ensure usage of the deferred tax asset. At June 30, 1996, the Company had remaining tax net operating loss ("NOL") carryforwards of approximately $51,000,000, including approximately $4,800,000 for international operations, currently available 43 44 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA) to offset future taxable income and unused federal tax credits of approximately $1,400,000. If not utilized, these credits and carryforwards will expire between the years 2004 and 2011. Due to the Company's issuances of stock, the Tax Reform Act of 1986 has restricted the Company's use of approximately $7,000,000 of its existing NOL carryforwards. The provision for income taxes recorded in the years ended June 30, 1996, 1995 and 1994 consists of the following:
YEAR ENDED JUNE 30, -------------------------------- 1996 1995 1994 ------ ------ ------ Federal-current ........... -- -- -- State ..................... $ 120 -- -- Foreign taxes ............. 963 $ 246 $ 357 ------ ------ ------ Total provision ....... $1,083 $ 246 $ 357 ====== ====== ======
The effective tax rates for the years ended June 30, 1996, 1995 and 1994 are not meaningful, as the Company was in a net loss position. 6. EMPLOYEE BENEFIT PLANS The Company has a 401(k) defined contribution plan which is available to all U.S. employees. The Company made no contributions to the plan in the years ended June 30, 1996, 1995, and 1994. The Company's 1992 Employee Stock Purchase Plan (the "Plan") permits eligible employees to purchase up to a maximum of 625 shares of stock quarterly on October 31, January 31, April 30, and July 31 at a purchase price equal to 85% of the market price of the Company's common stock on either the first or last day of each quarterly period, whichever price is lower, through accumulation of payroll deductions of up to 20% of each participating employee's qualifying compensation during such quarterly period. The Plan commenced operations on May 1, 1992. At June 30, 1996, 300,000 shares were reserved for issuance under the Plan of which approximately 183,000 shares have been purchased by employees. 7. COMMITMENTS AND CONTINGENCIES The Company leases office space under cancelable and non-cancelable operating leases. Rent expense in the fiscal years ended June 30, 1996, 1995 and 1994 under such arrangements totaled $2,084,000, $2,194,000, and $2,198,000, respectively. 44 45 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA) The Company also leases certain equipment under long-term leases. At June 30, 1996, long-term lease commitments were as follows:
OFFICE SPACE EQUIPMENT OPERATING CAPITAL LEASES LEASES ------------ --------- Year ended June 30, 1997............................ $2,008 $ 64 Year ended June 30, 1998............................ 687 28 Year ended June 30, 1999............................ 645 21 Year ended June 30, 2000............................ 154 21 Year ended June 30, 2001............................ 122 7 ------ ---- Total........................................... $3,616 141 Less amount representing interest................... 23 ---- Present value of minimum lease payments............. 118 Less current portion................................ 59 ---- Long-term portion................................... $ 59 ====
Included in the table above are the effects of a non-cancelable facility sublease agreement for approximately $17,000 for fiscal year 1997. In connection with the merger between the Company and Cadre, the Company guaranteed a $1,500,000 advance provided to Cadre by the Company's bank which was applied against the Company's borrowing base. 8. BUSINESS SEGMENT AND GEOGRAPHIC DATA The Company operates in one business segment: development, marketing and support of an integrated suite of software products and services. The Company markets and services its products in the United States and in foreign countries through its direct sales organization and distributors (which are independent representatives). The Company's foreign operations are primarily sales and customer service organizations. Geographic information for the years ended June 30, 1996, 1995 and 1994 is as follows:
YEAR ENDED JUNE 30, ---------------------------------------- 1996 1995 1994 -------- -------- -------- SALES TO UNAFFILIATED CUSTOMERS United States ................. $ 10,896 $ 14,700 $ 17,700 Italy ......................... 13,982 9,519 8,020 Rest of World ................. 5,801 7,700 8,717 Export sales from United States 1,273 1,403 2,065 Intra-company transfers ....... 7,046 4,803 4,673 Intra-company eliminations .... (7,046) (4,803) (4,673) -------- -------- -------- $ 31,952 $ 33,322 $ 36,502 ======== ======== ======== INCOME (LOSS) FROM OPERATIONS United States ................. $ (2,354) $ (6,025) $ (7,408) Italy ......................... 336 (540) (452) Rest of World ................. (3,142) (3,909) (3,686) -------- -------- -------- $ (5,160) $(10,474) $(11,546) ======== ======== ========
45 46 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
JUNE 30, ------------------------------------------ 1996 1995 1994 -------- -------- -------- IDENTIFIABLE ASSETS United States.......................... $ 20,468 $ 18,971 $ 24,283 Italy.................................. 7,894 7,502 5,895 Rest of World.......................... 4,437 3,641 4,901 Eliminations........................... (9,483) (8,905) (9,039) -------- -------- -------- $ 23,316 $ 21,209 $ 26,040 ======== ======== ========
Revenues from a major customer as a percentage of total revenue for the years ended June 30, 1996, 1995 and 1994 were 31%, 20% and 13%, respectively. Included in the results of operations for the year ended June 30, 1995 is $2,000,000 of restructuring charges, approximately $1,700,000 in the United States, $240,000 in Rest of World and $60,000 in Italy. 9. CAPITAL STOCK The Company has 1,600,000 shares of $1.00 par value "blank check" preferred stock authorized. Such shares may be issued in one or more future series by the Board of Directors and, subject to certain limitations so as not to adversely effect other holders of preferred stock, if any, are to have such rights and preferences as the Board of Directors establishes before issuance. On November 21, 1994, the Company issued 1,787.073 shares of redeemable Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock is initially convertible into 1,000 shares of common stock and is entitled to cast votes equal to the number of shares of common stock into which such preferred stock is convertible. In connection with the issuance of the Series A preferred stock, the Company issued to the Series A preferred stockholders three-year warrants to purchase 357,415 shares of the Company common stock (with Registration Rights) at an exercise price of $3.28 per share. These warrants were valued at $319,000 and are included in additional paid in capital. As of June 30, 1996, all shares of Series A Convertible Preferred Stock have been converted to common stock. Also during fiscal year 1996, the Company received $500,000 in connection with the exercise of warrants. Warrants for 204,976 shares of common stock remain outstanding at June 30, 1996. 10. STOCK OPTIONS Under the Company's amended and restated incentive and nonqualified stock option plan, incentive stock options can be granted to employees and consultants entitling them to purchase shares of common stock within one to ten years from the date of grant at option prices equal to the fair market value at the date of grant. Nonqualified stock options are generally granted under the same terms. The vesting period for stock options is generally four years. The exercise price for incentive stock options may not be less than the fair market value of the common stock on the date of the grant (or 110% of fair market value in the case of employees or officers holding 10% or more of the total combined voting power of all classes of stock of the Company). At June 30, 1996, the number of shares issuable under the Plan is 4,250,000. 46 47 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA)
NUMBER PRICE OF SHARES PER SHARE --------- --------- Options outstanding on June 30, 1993 1,176,304 $ .30 -$7.50 Options granted .................. 1,419,386 1.88 - 3.50 Options exercised ................ (181,380) .75 - 3.00 Options canceled ................. (368,626) 1.20 - 7.50 --------- Options outstanding on June 30, 1994 2,045,684 .30 - 7.50 Options granted .................. 539,150 1.88 - 6.50 Options exercised ................ (301,624) .30 - 4.88 Options canceled ................. (586,728) .75 - 7.50 --------- Options outstanding on June 30, 1995 1,696,482 1.20 - 8.75 Options granted .................. 790,307 6.00 - 8.75 Options exercised ................ (259,263) 1.20 - 7.50 Options canceled ................. (317,878) 1.88 - 8.75 --------- Options outstanding on June 30, 1996 1,909,648 1.20 - 8.75 Shares exercisable at June 30, 1996 700,648 $1.20 -$8.75
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
YEAR ENDED JUNE 30, -------------------------------- 1996 1995 1994 ------ ------ ------ Cash Paid For: Interest............................................. $ 64 $ 39 $ 97 Income taxes......................................... 395 321 251 Non Cash Investing and Financing Activity: Increase in capital lease obligations................ 81 97 -- Conversion of Redeemable Series A Preferred Stock.... 5,493 -- --
47 48 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA) 12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL YEAR 1996 ---------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenues......................................... $ 6,707 $10,247 $ 7,028 $ 7,970 Cost of Revenue.................................. 2,228 2,403 2,203 2,012 Income (loss) from operations.................... (2,014) 640 (1,443) (2,343) Net income (loss)................................ (2,145) 499 (1,348) (2,839) Net income (loss) per common share............... $ (0.21) $ 0.04 $ (0.11) $ (0.23)
FISCAL YEAR 1995 ---------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- Revenues......................................... $ 6,584 $ 8,776 $ 8,398 $9,564 Cost of Revenue.................................. 2,705 3,158 2,722 3,275 Income (loss) from operations.................... (7,469) (1,376) (1,051) (578) Net income (loss)................................ (7,447) (1,353) (983) (477) Net income (loss) per common share............... $ (0.82) $ (0.15) $ (0.11) $(0.05)
13. RESTRUCTURING AND OTHER COSTS During fiscal 1996, the Company agreed to merge with Cadre Technologies Inc. and change its name to Cayenne Software, Inc. Based on the results of fiscal year 1996, and in conjunction with the contemplated merger between Cayenne and Cadre, the Company reviewed its product strategy and determined that several products including WindTunnel were no longer consistent with the Company's objectives. Accordingly, the Company evaluated the net realizable value of the related intangible assets and recorded a charge of approximately $1,125,000 principally related to the writeoff of the intangible asset acquired as part of its acquisition of WindTunnel. Following the completion of certain significant development efforts and associated product introduction, the Company effected a restructuring on September 29, 1994 to streamline its operations and better align expenses with revenue. The Company recorded a restructuring charge of $2,000,000 during the three months ended September 30, 1994. The restructuring included a charge of approximately $1,500,000 in termination charges resulting from a 20% reduction in staff (approximately 70 employees). Prior to the execution of this restructuring, the Board of Directors of the Company approved a plan to terminate certain specified employees and close certain facilities. Such plan was communicated to the employees of the Company prior to the end of the quarter and such employees were specifically identified and terminated. The termination benefits to such employees were consistent with the Company's written severance policy and agreements. The restructuring also included approximately $300,000 in related facilities expense associated with the closure of Company's San Jose, California development facility. The Company also reorganized the operations of its German subsidiary by reducing its facilities and staff and is pursuing distribution arrangements in that territory. As part of the restructuring, the Company also evaluated the value of certain contracts based on a number of factors including business plans, budgets, economic projections and market analysis. Based on a review of these factors, the Company determined to cancel certain contracts. The termination costs associated with those contracts amounted to approximately $200,000 and was included in the restructuring charge. 48 49 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA) 14. LINE OF CREDIT On June 6, 1996, the Company amended and restated its revolving credit agreement with a bank to borrow up to $4,000,000, increasing to $5,000,000 upon achievement of profitability. The term of such agreement extends through October 5, 1996. The loan is contingent upon meeting certain financial and operating covenants at the time of any borrowing and over the life of the loan, including a profit of $250,000 in the fourth quarter of fiscal 1996 for which the Company has obtained a waiver of compliance. The loan is secured by all of the assets of the Company and any borrowing amounts are tied to a percentage of qualified accounts receivable outstanding at the time of any borrowing. The financial covenants include the attainment of certain specified levels of consolidated net income (loss) at the end of each quarter, tangible net worth (generally defined as the excess of tangible net assets of the Company over total liabilities (excluding any outstanding redeemable preferred stock)) at the end of each quarter and month, and liquidity (generally defined as cash and cash equivalents plus eligible domestic accounts receivable and eligible international accounts receivable less any indebtedness to the bank) at the end of each month. The Company was in compliance with all covenants, as waived, at June 30, 1996. At June 30, 1996, the borrowing base under the revolving credit agreement was approximately $1,723,000 of which $1,500,000 was committed in connection with the merger between the Company and Cadre, as discussed in Note 7. The Company is concluding negotiations with the bank to amend and extend its credit agreement through October 5, 1997, to establish certain of the financial and operating covenants as well as the borrowing base thereunder similar to those set forth above and to set the borrowing limit at $5,000,000. 15. RECENTLY ISSUED ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", which is effective for the Company's fiscal year 1997. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company believes the effect of adopting this statement will not be material. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" which is effective for the Company's fiscal year 1997. The Company has determined that it will elect the disclosure-only alternative. The Company will be required to disclose the pro forma net income or loss and per share amounts in the notes to the financial statements using the fair value based method beginning in fiscal 1997 with comparable disclosures for fiscal 1996. The Company has not determined the impact of these pro forma adjustments. 16. SUBSEQUENT EVENT On July 18, 1996, the Company received shareholder approval to merge with Cadre Technologies Inc. of Providence, Rhode Island, and issued 4,716,442 shares of Cayenne common stock in exchange for all of the capital stock of Cadre. The transaction is expected to be accounted for as a pooling-of-interests for accounting purposes beginning in the first quarter of fiscal year 1997. Cadre develops, markets and supports software tools for the creation of complex computer software. Cadre products aid in automating the process of requirements analysis and software design by groups of software engineers. Unaudited, pro forma results of the combined company including revenue, net loss and related per share amounts are presented in the following table. The Company's fiscal 1996 results have been combined with Cadre's results for the twelve months ended June 30, 1996. The Company's fiscal 1995 and 1994 results have been combined with Cadre's calendar year end results for 1995 and 1994. In this presentation Cadre's financial data for the period July 1, 1995 to December 31, 1995 is included in both the twelve month periods ended June 30, 1995 and 1996. This six month period includes revenue of $19,278,000 and a net loss of $3,156,000. Results 49 50 CAYENNE SOFTWARE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (TABLES IN THOUSANDS EXCEPT PER SHARE DATA) of operations include certain charges related to restructuring, purchased research and development and other merger related costs amounting to $2,977,000 in 1996, $12,783,000 in 1995, and $1,736,000 in 1994.
UNAUDITED PRO FORMA -------------------------------------------------- Dollar amounts in thousands, except per share data 1996 1995 1994 -------- -------- -------- Revenue.......................... $ 65,886 $ 72,789 $ 77,078 Cost of Revenue.................. 16,909 22,058 19,416 Operating Expenses............... 58,569 75,560 71,022 Net Loss......................... $(11,347) $(24,890) $(13,202) Net Loss per common share........ $ (0.71) $ (1.86) $ (1.06)
The pro forma results exclude an estimated $6-7 million charge expected to be incurred in the first quarter of fiscal 1997. Included in the estimated charge is approximately $1.6 million of employee related termination expenses, $1.5 million of legal, accounting, broker and other professional fees, $1.5 million of facility closure and consolidation expenses, and $2.4 million of other miscellaneous expenses associated with the consolidation of the two companies and the company name change. These disclosures are included for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisiton been made on July 1, 1993 or of results which may occur in the future. 50 51 CAYENNE SOFTWARE, INC. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the caption "Directors and Executive Officers" appearing in the Company's definitive Proxy Statement for the Special Meeting in Lieu of Annual Meeting of Stockholders to be held on November 20, 1996, and which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 1996 is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the Caption "Executive Compensation" appearing in the Company's definitive Proxy Statement for the Special Meeting in Lieu of Annual Meeting of Stockholders to be held on November 20, 1996, and which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 1996, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Principal Holders of Voting Securities" and "Election of Directors" appearing in the Company's definitive Proxy Statement for the Special Meeting in Lieu of Annual Meeting of Stockholders to be held on November 20, 1996, and which will be filed with the Securities and Exchange Commission not later than 120 days after June 30, 1996, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Relationships and Related Transactions" appearing in the Company's definitive proxy statement for the Special Meeting in Lieu of Annual Meeting of Stockholders to be held on November 20, 1996 and which will be filed with the Securities and Exchange Commission no later than 120 days after June 30, 1996, is incorporated herein by reference. 51 52 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS The financial statements filed as part of this report are listed on the Index to Consolidated Financial Statements on page 34. (2) FINANCIAL STATEMENT SCHEDULES Report of Independent Accountants Schedule II: Valuation and Qualifying Accounts (3) EXHIBITS Documents listed below, except for documents identified by footnotes, are being filed as exhibits herewith. Documents identified by asterisks are not being filed herewith and, pursuant to Rule 12b-32 of the General Rules and Regulations promulgated by the Commission under the Securities Exchange Act of 1934 (the "Act") reference is made to such documents as previously filed as exhibits with the Commission. The Company's file number under the Act is 0-19682. 2.1(4) Asset Purchase Agreement among CSI Acquisition Corporation, Cayenne and Cooperative Solutions, Inc. dated November 16, 1993 2.2(5) Agreement and Plan of Merger by and among Cayenne, BI Acquisition Corp. and WindTunnel Software, Inc. dated April 27, 1993 2.3(11) Agreement and Plan of Merger among Cayenne, B.C. Acquisition Corp. and Cadre Technologies Inc. dated as of March 25, 1996 3.1 Amendment to Restated Articles of Organization of Cayenne 3.2(2) Restated Articles of Organization of Cayenne 3.3(1) Amended and Restated By-Laws of Cayenne 4.1(1) Specimen Certificate for Common Stock of Cayenne 4.2(8) Statement of Rights and Preferences of Series A Convertible Preferred Stock 4.3(8) Form of Warrant Agreement dated as of November 21, 1994 by and among Cayenne and purchasers of Series A Convertible Preferred Stock 4.4(7) Warrant Agreement dated as of October 28, 1994 by and between Cayenne and Silicon Valley Bank 10.1(1) General License and Maintenance Agreement dated January 30, 1987 between Cayenne and American Telephone & Telegraph Communications, Inc. 10.2(1) Lease with New England Mutual Life Insurance Company 10.3(3) Lease dated August 12, 1992 between Cayenne and Spaulding Investment Co. 10.4(2) Agreement for Partial Sale of Going Concern dated as of October 25, 1992 between Pro Systems and Bachman France S.A.R.L. 10.5(2) Sale and Purchase Agreement relating to Bachman Information Systems Limited, dated November 16, 1991, among Abacus Trustees (Jersey) Limited, Cayenne and others, as amended by Amendment Consent dated February 18, 1992 10.6(2) Agreement dated as of November 1, 1991, between Cayenne and Bachman Italia S.r.l., as amended by letter dated December 9, 1991 and as further amended by amendment dated December 31, 1991 10.7(3) Fiscal Year 1993 Bonus Pool Plan 10.8(1) Amended and Restated 1986 Incentive and Nonqualified Stock Option Plan of Cayenne 10.9(2) 1992 Employee Stock Purchase Plan 10.10(1) Savings/Retirement Plan and Trust of Cayenne 10.11(6) Employment agreement dated as of January 1, 1994 by and between Cayenne and Charles W. Bachman 52 53 10.12(6) Employment Agreement dated as of August 4, 1993 by and between Cayenne and Peter J. Boni 10.13(6) 1994 Bonus Pool Plan of Cayenne, as amended 10.14(7) 1995 Bonus Pool Plan of Cayenne, as amended. 10.15(7) Revolving Credit Agreement and Warrant Agreement dated as of October 28, 1994 by and between Cayenne and Silicon Valley Bank 10.16(8) Series A Convertible Preferred Stock Purchase Agreement dated as of November 21, 1994 by and among Cayenne and purchasers of Series A Convertible Preferred Stock 10.17(8) Registration Rights Agreement dated as of November 21, 1994 by and among Cayenne and purchasers of Series A Convertible Preferred Stock 10.18(9) Form of Common Stock Purchase Agreement dated as of September 15, 1995 by and among Cayenne and certain purchasers of Common Stock 10.19(9) Form of Registration Rights Agreement dated as of September 15, 1995 by and among Cayenne and certain purchasers of Common Stock 10.20(10)1996 Bonus Plan of Cayenne 10.21 Amendment No. 1 to Employment Agreement dated as of August 4, 1993 by and between Cayenne and Peter J. Boni 10.22 Amended and Restated Revolving Credit Agreement dated as of June 6, 1996 by and between Cayenne and Silicon Valley Bank 21.1 List of Subsidiaries of Cayenne 23.1 Consent of Coopers & Lybrand L.L.P. 27.1 Financial Data Schedules - ----------------------------- (1) Incorporated by reference to the exhibits filed with Cayenne's Registration Statement on Form S-1, File No. 33-43401, as amended. (2) Incorporated by reference to the exhibits filed with Cayenne's Registration Statement on Form S-1, File No. 33-45841, as amended. (3) Incorporated by reference to the exhibits filed with Cayenne's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 0-19682. (4) Incorporated by reference to the exhibit filed with Cayenne's Current Report on Form 8-K dated November 16, 1993, as amended. (5) Incorporated by reference to Cayenne's Registration Statement on Form S-4, File No. 33-62650, as amended. (6) Incorporated by reference to the exhibits filed with Cayenne's Quarterly Report on Form 10-Q dated May 13, 1994. (7) Incorporated by reference to the exhibits filed with Cayenne's Quarterly Report on Form 10-Q dated November 11, 1994. (8) Incorporated by reference to the exhibits filed with Cayenne's Quarterly Report on Form 10-Q dated February 13, 1995, as amended. (9) Incorporated by reference to the exhibits filed with Cayenne's Annual Report on Form 10-K, as amended, for the year ended June 30, 1995, File No. 0-19682 (10) Incorporated by reference to the exhibits filed with Cayenne's Quarterly Report on Form 10-Q dated February 13, 1996. (11) Incorporated by reference to exhibits filed with Cayenne's Registration Statement on Form S-4, File No. 333-6087, as amended. 53 54 (b) REPORTS ON FORM 8-K: A Current Report on Form 8-K was filed by the Company on April 2, 1996. The Company reported that on March 25, 1996, it entered into an Agreement and Plan of Merger with B.C. Acquisition Corp., a wholly-owned subsidiary of the Company, and Cadre Technologies Inc. The Merger Agreement provided that upon the terms and subject to the conditions specified therein that, effective on the closing, Acquisition Corp. would be merged with and into Cadre, the separate corporate existence of Acquisition Corp. would cease, and Cadre would continue as the surviving corporation in the merger and as a wholly-owned subsidiary of the Company. The Merger closed on July 18, 1996. 54 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Burlington, Commonwealth of Massachusetts on the 27th day of September, 1996. CAYENNE SOFTWARE, INC. By: /S/ Peter J. Boni ------------------------------------- Peter J. Boni President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /S/ Peter J. Boni President, Chief Executive Officer - ---------------------------------- and Director September 27, 1996 Peter J. Boni /S/ Frederick H. Phillips Vice President, Finance - ---------------------------------- and Administration, Treasurer Frederick H. Phillips and Chief Financial and Accounting Officer September 27, 1996 /S/ Charles W. Bachman Chairman of the Board of - ---------------------------------- Directors September 22, 1996 Charles W. Bachman /S/ John J. Alexander Director September 27, 1996 - ---------------------------------- John J. Alexander /S/ R. John Fletcher Director September 27, 1996 - ---------------------------------- R. John Fletcher /S/ William H.D. Goddard Director September 20, 1996 - ---------------------------------- William H.D. Goddard /S/ Allyn C. Woodward, Jr. Director September 27, 1996 - ---------------------------------- Allyn C. Woodward, Jr.
55 56 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cayenne Software, Inc. Our report on the consolidated financial statements of Cayenne Software, Inc. (formerly Bachman Information Systems, Inc.) is included in Item 8 of this Form 10-K. In connection with the audits of such financial statements, we have also audited the related financial statement schedule listed in Item 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Boston, Massachusetts August 20, 1996 57 CAYENNE SOFTWARE, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Additions ---------------------------- Balance at Charged to Charged to beginning costs and other accounts Deductions Balance at Description of period expenses - describe* -describe end of period ----------- ---------- ---------- -------------- ---------- ------------- Year ended June 30, 1994 Allowance for sales returns $1,355 $232 $(325)** $1,262 Allowance for doubtful accounts $145 $145 Year ended June 30, 1995 Allowance for sales returns $1,262 $122 $(811)*** $573 Allowance for doubtful accounts $145 $145 Year ended June 30, 1996 Allowance for sales returns $573 $350 $(352) $571 Allowance for doubtful accounts $145 $145
* Charged to revenue accounts ** Deductions to allowance for sales returns represent returns of software products under license *** Includes a reduction of approximately $550,000 of the allowance for sales returns based on management's assessment of the Company's sales returns history and trends 58 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 2.1(4) Asset Purchase Agreement among CSI Acquisition Corporation, Cayenne and Cooperative Solutions, Inc. dated November 16, 1993 2.2(5) Agreement and Plan of Merger by and among Cayenne, BI Acquisition Corp. and WindTunnel Software, Inc. dated April 27, 1993 2.3(11) Agreement and Plan of Merger among Cayenne, B.C. Acquisition Corp. and Cadre Technologies Inc. dated as of March 25, 1996 3.1 Amendment to Restated Articles of Organization of Cayenne 3.2(2) Restated Articles of Organization of Cayenne 3.3(1) Amended and Restated By-Laws of Cayenne 4.1(1) Specimen Certificate for Common Stock of Cayenne 4.2(8) Statement of Rights and Preferences of Series A Convertible Preferred Stock 4.3(8) Form of Warrant Agreement dated as of November 21, 1994 by and among Cayenne and purchasers of Series A Convertible Preferred Stock 4.4(7) Warrant Agreement dated as of October 28, 1994 by and between Cayenne and Silicon Valley Bank 10.1(1) General License and Maintenance Agreement dated January 30, 1987 between Cayenne and American Telephone & Telegraph Communications, Inc. 10.2(1) Lease with New England Mutual Life Insurance Company 10.3(3) Lease dated August 12, 1992 between Cayenne and Spaulding Investment Co. 10.4(2) Agreement for Partial Sale of Going Concern dated as of October 25, 1992 between Pro Systems and Bachman France S.A.R.L. 10.5(2) Sale and Purchase Agreement relating to Bachman Information Systems Limited, dated November 16, 1991, among Abacus Trustees (Jersey) Limited, Cayenne and others, as amended by Amendment Consent dated February 18, 1992 10.6(2) Agreement dated as of November 1, 1991, between Cayenne and Bachman Italia S.r.l., as amended by letter dated December 9, 1991 and as further amended by amendment dated December 31, 1991 10.7(3) Fiscal Year 1993 Bonus Pool Plan 10.8(1) Amended and Restated 1986 Incentive and Nonqualified Stock Option Plan of Cayenne 10.9(2) 1992 Employee Stock Purchase Plan 10.10(1) Savings/Retirement Plan and Trust of Cayenne 10.11(6) Employment agreement dated as of January 1, 1994 by and between Cayenne and Charles W. Bachman 10.12(6) Employment Agreement dated as of August 4, 1993 by and between Cayenne and Peter J. Boni 10.13(6) 1994 Bonus Pool Plan of Cayenne, as amended 10.14(7) 1995 Bonus Pool Plan of Cayenne, as amended. 10.15(7) Revolving Credit Agreement and Warrant Agreement dated as of October 28, 1994 by and between Cayenne and Silicon Valley Bank 10.16(8) Series A Convertible Preferred Stock Purchase Agreement dated as of November 21, 1994 by and among Cayenne and purchasers of Series A Convertible Preferred Stock 10.17(8) Registration Rights Agreement dated as of November 21, 1994 by and among Cayenne and purchasers of Series A Convertible Preferred Stock 10.18(9) Form of Common Stock Purchase Agreement dated as of September 15, 1995 by and among Cayenne and certain purchasers of Common Stock 10.19(9) Form of Registration Rights Agreement dated as of September 15, 1995 by and among Cayenne and certain purchasers of Common Stock 10.20(10) 1996 Bonus Plan of Cayenne 2 59 10.21 Amendment No. 1 to Employment Agreement dated as of August 4, 1993 by and between Cayenne and Peter J. Boni 10.22 Amended and Restated Revolving Credit Agreement dated as of June 6, 1996 by and between Cayenne and Silicon Valley Bank 21.1 List of Subsidiaries of Cayenne 23.1 Consent of Coopers & Lybrand L.L.P. 27.1 Financial Data Schedules - ---------------------------- (1) Incorporated by reference to the exhibits filed with Cayenne's Registration Statement on Form S-1, File No. 33-43401, as amended. (2) Incorporated by reference to the exhibits filed with Cayenne's Registration Statement on Form S-1, File No. 33-45841, as amended. (3) Incorporated by reference to the exhibits filed with Cayenne's Annual Report on Form 10-K for the year ended June 30, 1992, File No. 0-19682. (4) Incorporated by reference to the exhibit filed with Cayenne's Current Report on Form 8-K dated November 16, 1993, as amended. (5) Incorporated by reference to Cayenne's Registration Statement on Form S-4, File No. 33-62650, as amended. (6) Incorporated by reference to the exhibits filed with Cayenne's Quarterly Report on Form 10-Q dated May 13, 1994. (7) Incorporated by reference to the exhibits filed with Cayenne's Quarterly Report on Form 10-Q dated November 11, 1994. (8) Incorporated by reference to the exhibits filed with Cayenne's Quarterly Report on Form 10-Q dated February 13, 1995, as amended. (9) Incorporated by reference to the exhibits filed with Cayenne's Annual Report on Form 10-K, as amended, for the year ended June 30, 1995, File No. 0-19682 (10) Incorporated by reference to the exhibits filed with Cayenne's Quarterly Report on Form 10-Q dated February 13, 1996. (11) Incorporated by reference to exhibits filed with Cayenne's Registration Statement on Form S-4, File No. 333-6087, as amended. 3 EX-3.1 2 AMENDED AND RESTATED ARTICLES OF ORGANIZATION 1 EXHIBIT 3.1 FEDERAL IDENTIFICATION NO. 04-2784094 /s/ Jim ---------- - -------- Examiner reserved /s/ PD - ------------ Name Approved The Commonwealth of Massachusetts William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) We, Peter J. Boni, *President/******* ------------------------------------------------ and John D. Patterson, Jr., *Clerk/******* ------------------------------------------------- of Bachman Information Systems, Inc. ----------------------------------------------------------------- (Exact name of corporation) located at: 8 New England Executive Park, Burlington, MA 01803 ---------------------------------------------------------- (Street address of corporation in Massachusetts) certify that these Articles of Amendment affecting articles numbered: 1 and 3 - ---------------------------------------------------------------------- (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended) of the Articles of Organization were duly adopted at a meeting held on July 18, 1996, by vote of: - ------- -- 9,605,763 shares of Common Stock of 12,742,120 shares outstanding, - --------- ------------ ---------- (type, class & series, if any) with respect to the amendment of Article 1; 8,468,638 shares of Common Stock of 12,742,120 shares outstanding - --------- ------------ ---------- (type, class & series, if any) with respect to the amendment of Article 3; shares of of shares outstanding. --------- ------------ ---------- (type, class & series, if any) (1)**Being at least a majority of each type, class or series outstanding and entitled to vote thereon/or ************************************************ ****************************************************************************. See Continuation Sheet A *Delete the inapplicable words. **Delete the inapplicable clause. (1) For amendments adopted pursuant to Chapter 156B, Section 70. (2) For amendments adopted pursuant to Chapter 156B, Section 71. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. C [] P [] M [] R.A. [] 5 - ---- P.C. 2 To change the number of shares and the par value (if any) of any type, class or series of stock with the corporation is authorized to issue, fill in the following: The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE Common: Common: 26,200,000 $0.1 Preferred: Preferred: 1,600,000 $1.00 (Series A - 5,000)
Change the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE Common: Common: 52,400,000 $0.1 Preferred: Preferred: 1,600,000 $1.00 (Series A - 5,000)
3 CONTINUATION SHEET A Article 1 is amended as follows: VOTED: To change the Company's name to Cayenne Software, Inc. Article 3 is amended as follows: VOTED: To increase the number of shares of Common Stock, par value $.01 per share, that Bachman shall have the authority to issue by 26.2 million shares. 4 The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date:_________________________________________ SIGNED UNDER THE PENALTIES OF PERJURY, this 18th day of July, 1996. /s/ Peter J. Boni, *President/*****. - ------------------------------------- /s/ John D. Paterson, *Clerk/*****. - ------------------------------------- *Delete the inapplicable words. 5 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT (General Laws, Chapter 156B, Section 72) ================================================================================ I hereby approve the within Articles of Amendment, and the filing fee in the amount of $26,300 having been paid, said article is deemed to have been filed with me this 18th day of July, 1996. Effective date:___________________________________ /s/ William Francis Galvin WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION Photocopy of document to be sent to: John D. Patterson, Jr., Esquire Foley, Hoag & Eliot LLP One Post Office Square Boston, Massachusetts 02109 EX-10.21 3 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT 1 EXHIBIT 10.21 EMPLOYMENT AGREEMENT AMENDMENT NO. 1 This Agreement is made as of the 30th day of April, 1996, and amends the Employment Agreement between Bachman Information Systems, Inc., a Massachusetts corporation (the "Company"), and Peter J. Boni of Falmouth, Massachusetts (the "Employee"). In consideration of the premises and the mutual promises hereinafter set forth, the Company and the Employee agree as follows: 1. The Employment Agreement is hereby amended by deleting paragraph 3 in its entirety and by substituting therefor the following new paragraph 3: 3. TERM OF EMPLOYMENT. Subject to Section 10 of this Agreement, this Agreement shall terminate on August 3, 1999. 2. All other terms of the Employment Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement on the date first above written. BACHMAN INFORMATION SYSTEMS, INC. By: /s/ Eugene DiDonato ------------------------------ /s/ Peter J. Boni ------------------------------ Peter J. Boni EX-10.22 4 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.22 Execution Copy AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT This REVOLVING CREDIT AGREEMENT is entered into as of June 5, 1996 by and between BACHMAN INFORMATION SYSTEMS, INC., a Massachusetts corporation (the "Borrower") and SILICON VALLEY BANK, a California-chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at Wellesley Office Park, 40 William Street, Suite 350, Wellesley, Massachusetts 02181 doing business under the name "Silicon Valley East" (hereinafter, together with its successors in title and assigns, the "Bank"). WITNESSETH: WHEREAS, the Borrower and the Bank have previously entered into a certain Revolving Credit Agreement, dated as of October 28, 1994, as amended pursuant to that certain Loan Modification Agreement dated as of May 18, 1995 (the "Prior Credit Agreement") pursuant to which the Bank established for the Borrower a credit facility of up to $4,000,000 subject to the terms, conditions and limitations set forth therein; WHEREAS, the Borrower has requested the Bank to make available to Borrower an amended and restated revolving credit facility and the Bank is willing to make such amended and restated credit facility available on the following terms and conditions; and WHEREAS, this Amended and Restated Revolving Credit Agreement amends, restates, and supersedes the Prior Credit Agreement in its entirety; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower and the Bank hereby agree as follows: SECTION 1 - DEFINITIONS AND ACCOUNTING TERMS 1.1 DEFINITIONS. In addition to the terms defined elsewhere in this Agreement, unless otherwise specifically defined herein, the following terms shall have the following meanings for all purposes when used in this Agreement, and in the Bank Agreements: "ACCOUNTS RECEIVABLE" shall mean accounts, as defined in the Uniform Commercial Code, as adopted in the Commonwealth of Massachusetts, drafts, acceptances, contracts with customers, and other instruments representing or evidencing the right to payment for goods sold or for services rendered (or for maintenance services to be rendered pursuant to the relevant maintenance agreement), including the right to any insurance premium refunds. 2 "AFFILIATE" shall mean, as applied to an individual, a spouse of such individual, or any relative of such individual, any member, director, officer or employee of a Person, any corporation, association, firm or other entity of which such Person is a member, director, officer of employee, and any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such Person. "AFFILIATE ACCOUNTS" shall mean all accounts, accounts receivable, notes or other amounts due to the Borrower from any Affiliate. "AGREEMENT" shall mean this Amended and Restated Revolving Credit Agreement (including Schedules and Exhibits annexed hereto), as amended or supplemented from time to time. References to Sections, Exhibits, Schedules and the like refer to the Sections, Exhibits, Schedules and the like of this Agreement unless otherwise indicated. "AUTHORIZED OFFICER" shall mean an officer of the Borrower who has been duly authorized by the Borrower to execute and deliver to the Bank on behalf of the Borrower Borrowing Requests, Compliance Certificates, Borrowing Base Certificates, and other certifications, each of whom is listed on SCHEDULE 1.1(a) hereto, as such Schedule may be amended from time to time by notice to the Bank in accordance with Section 13.2 hereof. "BANK AGREEMENTS" shall mean this Agreement, the Revolving Credit Note, the Security Documents, the Guaranty Agreement, and any other present or future agreement from time to time entered into between the Borrower and/or any Subsidiary and the Bank relating to this Agreement or which is stated to be a Bank Agreement, each as from time to time amended or modified, and all statements, reports and certificates delivered by the Borrower to the Bank in connection herewith or therewith. "BANKING DAY" shall mean any day, excluding Saturday and Sunday and excluding any other day which shall be in the City of Santa Clara or in the State of California a legal holiday or a day on which banking institutions are authorized by law to close. "BORROWING BASE" shall mean an amount, subject to decrease as hereafter provided, equal to (as shown on the Bank's records at any time) the sum of (a) seventy-five percent (75%) of all Eligible Domestic Accounts Receivable of the Borrower for which invoices have been issued and are payable, and (b) seventy-five percent (75%) of all Eligible International Accounts Receivable of the Foreign Subsidiaries for which invoices have been issued and are payable; PROVIDED, HOWEVER, that for purposes of determining the Borrowing Base hereunder, the Accounts Receivable of each of Bachman Asia Pte. Ltd., a Singapore Corporation and Bachman Spain S.L., a Spanish Corporation, shall not be included in the calculation of Eligible International Accounts Receivable until such time as the Bank has received a valid and perfected pledge or lien on all of the outstanding capital stock of each such Foreign Subsidiary; and, provided, further that the Accounts Receivable of Bachman Italia, S.r.l. shall not be included in the determination of Eligible International Accounts Receivable to the extent - 2 - 3 such Accounts Receivable have been given as collateral to Banca Commerciale Italiana to secure the loans of up to one billion Lira by such bank to Bachman Italia, S.r.l. Upon and after the Effective Date of the Merger, the Borrowing Base shall be decreased to an amount equal to (as shown on the Bank's records at any time) the sum of (a) sixty percent (60%) of all Eligible Domestic Accounts Receivable of the Borrower for which invoices have been issued and are payable, and (b) sixty percent (60%) of all Eligible International Accounts Receivable of the Foreign Subsidiaries for which invoices have been issued and are payable; provided, however, in the event the Borrower reports Consolidated Net Income for any fiscal quarter following the Merger of at least $200,000 (excluding restructuring charges related to the Merger), then, upon receipt by the Bank of either such quarterly financial statements evidencing such positive Consolidated Net Income or the public announcement of such positive Consolidated Net Income, such decreased Borrowing Base shall be increased to an amount equal to (as shown on the Bank's records at any time) the sum of (a) seventy-five percent (75%) of all Eligible Domestic Accounts Receivable of the Borrower for which invoices have been issued and are payable, and (b) seventy-five percent (75%) of all Eligible International Accounts Receivable of the Foreign Subsidiaries for which invoices have been issued and are payable. "BORROWING BASE CERTIFICATE" shall mean a certificate executed by an Authorized Officer of the Borrower in substantially the form of EXHIBIT C hereto. "BORROWING REQUEST" shall mean a request for a borrowing hereunder executed by an Authorized Officer of the Borrower in substantially the form of EXHIBIT B hereto. "CAPITAL LEASE" shall mean any lease of property (real, personal or mixed) which is or should be capitalized on the lessee's balance sheet in accordance with GAAP and Statement of Financial Accounting Standards No. 13. "COLLATERAL" shall mean all assets of the Borrower, now owned or hereafter acquired, in which the Bank is granted a Lien to secure any of the Obligations pursuant to the Security Documents. "COMPLIANCE CERTIFICATE" shall mean a certificate executed by an Authorized Officer of the Borrower in substantially the form of EXHIBIT D hereto. "CONSOLIDATED" shall mean, when used with reference to any term, that term is applied to the accounts of the Borrower and all of its Subsidiaries (or other specified Person), in accordance with GAAP. "CONSOLIDATED NET INCOME (LOSSES)" means for any period, the aggregate net income (or loss) of the Borrower and all of its Subsidiaries on a Consolidated basis for such period from operations (taken as a cumulative whole), after deduction for all operating expenses, taxes, charges and other reserves (including reserves for deferred income taxes) paid or - 3 - 4 accrued. Consolidated Net Income (Losses) shall be determined on a Consolidated basis in accordance with GAAP, as reflected in the most recently available financial statements of the Borrower and its Subsidiaries, as certified by the chief financial officer of the Borrower. "CONSOLIDATED TANGIBLE NET WORTH" shall mean, as to any Person, at any date as of which the amount thereof shall be determined, the excess of the Consolidated Total Tangible Assets of such Person over the Consolidated Total Liabilities (without taking into account any outstanding redeemable preferred stock of the Borrower) of such Person. "CONSOLIDATED TOTAL TANGIBLE ASSETS" shall mean, as to any Person, at any particular date, all items which, in accordance with GAAP, would be included in determining total assets as shown on the asset side of a balance sheet of such Person (including long term deferred tax benefits) at the date which Consolidated Total Tangible Assets is to be determined, excluding, however, from the determination thereof (a) all loans to any stockholder, employee or officer of such Person, and all amounts payable to such Person from any of the aforesaid persons, (b) all assets which would be classified as intangible assets under GAAP, including, without limitation, goodwill (whether representing the excess of cost over book value of assets acquired or otherwise), patents, trademarks, trade names, copyrights, franchises and deferred charges (including, without limitation, unamortized debt discount and expense, organization costs, and research and development costs), (c) treasury stock and minority interests in other corporations or business organizations, (d) cash set apart and held in a sinking or other analogous fund established for the purpose of redemption or other retirement of capital stock, and (e) to the extent not already deducted from Consolidated Total Tangible Assets, reserves for depreciation, depletion, obsolescence and/or amortization of properties and all other reserves or appropriations of retained earnings which, in accordance with GAAP, should be established in connection with the business conducted by such Person. "CONSOLIDATED TOTAL LIABILITIES" shall mean, as to any Person, at any particular date, without limitation, (a) all items (except items of capital stock, partnership interests, capital and capital accounts or paid-in surplus or of retained earnings or prepaid items or deposits) which, in accordance with GAAP, would be included in determining total liabilities as shown on the liabilities side of a balance sheet of such Person at the date as of which Consolidated Total Liabilities is to be determined, including, without limitation, all Indebtedness for borrowed money and any lease which in accordance with GAAP would constitute Indebtedness, (b) all Indebtedness at such date secured by any mortgage, pledge, lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (c) all outstanding reimbursement obligations at such date of such Person in respect of amounts drawn or available to be drawn on letters of credit, acceptances or similar obligations issued or created for the account of such Person, (d) any withdrawal liability of such Person at such date, whether direct or indirect, absolute or contingent, to a Multi-employer Plan, as that term is defined in the Pension Reform Act and (e) all Indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the - 4 - 5 ordinary course of business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, stock or equity purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable. "DEFAULT" shall mean any event which, with the giving of notice or expiration of any applicable grace period, or both, would constitute an Event of Default. "DISTRIBUTION" shall mean (a) the declaration or payment of any dividend on or in respect of any shares of any class of capital stock of any Person, other than dividends payable solely in shares of capital stock of the Person involved, (b) the purchase or other retirement of any shares of any class of capital stock of any Person directly or indirectly, (c) any other distribution on or in respect of any shares of any class of capital stock of any Person, and (d) any payment of principal on or any retirement of Indebtedness which now or hereafter is subordinated to the prior payment of the Obligations or any portion thereof. "EFFECTIVE DATE" shall have the meaning ascribed to it in that certain Agreement and Plan of Merger by and among the Borrower, B.C. Acquisition Corp. and Cadre Technologies, Inc., dated as of March 25, 1996. "ELIGIBLE DOMESTIC ACCOUNTS RECEIVABLE" shall mean the sum of Accounts Receivable owing to any Person, each of which meets all of the following specifications at the time it came into existence and continues to meet the same until it is collected in full: (a) The account is not more than 90 days from the date of the invoice thereof. (b) The account is bona fide, valid and constitutes an enforceable order or contract, written or oral, for services performed (or for maintenance services to be performed pursuant to the relevant maintenance agreement) or products delivered, and the same were or are to be performed, as the case may be, or delivered in accordance with such order or contract. (c) The account is not subject to any prior assignment, claim, lien, or security interest created by such Person, and such Person will not make any further assignment thereof or create any further security interest therein, nor permit such Person's right therein to be reached by attachment, levy, garnishment or other judicial process. (d) The account is not subject to notice to Borrower of any claim of reduction, counterclaim, setoff, recoupment, or other defense in law or equity, or any claim for credits, contractual allowances, discounts, or other credit adjustments by the account debtor for any reason (except discount allowed for prompt payment) unless reflected in the Borrowing Base Certificate delivered to the - 5 - 6 Bank or in any invoice, certificate, schedule or other statement delivered to the Bank (prior to any advance against such account, the amount of any given account eligible for advances shall be net of any credits, contractual allowances, discounts, other credit adjustments, counterclaims or other claims for reduction or deduction of any nature whatsoever), and the account debtor has not given notice of a dispute with respect thereto nor has returned any of the goods from the sale from which the account arose which can be returned pursuant to the terms of the contract with the account debtor. (e) The account arose in the ordinary course of such Person's business and did not arise from the performance of services or a sale of goods to a supplier of the Borrower or any Subsidiary or any Affiliate of the Borrower or any Subsidiary. (f) No notice of bankruptcy or insolvency of the account debtor has been received by or is known to such Person. (g) The Bank has not notified the Borrower that the account or account debtor is unsatisfactory on the basis of the account debtor's financial condition, operating performance or credit history. (h) Not more than 50% of the aggregate receivables from the account debtor are over ninety (90) days from invoice; all accounts receivable from any account debtor shall be excluded if more than 50% of the accounts receivable from such account debtor are more than ninety (90) days from invoice. (i) The aggregate accounts receivables from the account debtor do not exceed 25% of the total Eligible Domestic Accounts Receivable; that portion of the account over the 25% level will be disqualified. (j) The account debtor is not (i) a Subsidiary of the Borrower or (ii) an officer or employee of any Subsidiary of the Borrower or (iii) otherwise an Affiliate of the Borrower or any Subsidiary. (k) The account contract does not arise out of a contract with, or order from, an account debtor that, by its terms, forbids or makes void or unenforceable the assignment of such account to the Bank or the granting of a lien or security interest therein. (l) The account debtor is not any agency, department or instrumentality of the United States of America. (m) The account debtor is a person or entity located in the United States or Canada and the account arose out of services rendered (or maintenance services to be - 6 - 7 rendered pursuant to the relevant maintenance agreement) or goods delivered in the United States or Canada. "ELIGIBLE INTERNATIONAL ACCOUNTS RECEIVABLE" shall mean the sum of Accounts Receivable owing to any Person with respect to an Account Receivable for which the account debtor is not a resident of the United States or Canada PROVIDED, THAT, (i) the Account Receivable meets the specifications identified in clauses (a)-(l) of the definition of Eligible Domestic Accounts Receivable at the time it came into existence and continues to meet the same until it is collected in full, and (ii) the account debtor (x) has been reviewed by the Bank and is deemed sufficiently creditworthy by the Bank, in the exercise of the Bank's reasonable judgment as a lender, or (y) has supplied the Borrower with an irrevocable letter of credit, issued by a financial institution reasonably satisfactory to the Bank, sufficient to cover the receivable and in form and substance reasonably satisfactory to the Bank or (z) the account is insured with a foreign insurance agency reasonably satisfactory to the Bank and the Bank is named as a loss payee in respect of such insured account. "ENVIRONMENTAL LAWS" shall mean all foreign, federal, state and local laws, regulations, rules and ordinances relating to pollution or protection of the environment and worker health and safety, including, without limitation, laws relating to releases or threatened releases of hazardous waste or materials (and permits, licenses and approvals which may be required under such laws, regulations, rules and ordinances) into the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, land, surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, release, transport or handling of hazardous waste or materials and all laws and regulations with regard to record keeping, notification, disclosure and reporting requirements respecting hazardous waste or materials. "EVENT OF DEFAULT" shall have the meaning given in Section 10.1 hereof. "FOREIGN SUBSIDIARIES" shall mean the following Subsidiaries of the Borrower, collectively: Bachman France S.A.R.L., a French corporation; Bachman Information Systems Canada Ltd., a Canadian corporation; Bachman Information Systems Limited, a United Kingdom corporation; Bachman Information Systems, GmbH, a German corporation; Bachman Italia S.r.l., an Italian corporation; Bachman Asia Pacific Pte. Ltd., a Singapore corporation; and Bachman Spain S.L., a Spanish corporation. "GAAP" shall mean generally accepted accounting principles, as defined by controlling pronouncements of the Financial Accounting Standards Board, as from time to time supplemented and amended, consistency applied on the basis used by the Person in prior years unless such prior practice is deemed by Borrower's independent auditors to be inconsistent with GAAP. - 7 - 8 "HAZARDOUS WASTE OR HAZARDOUS MATERIAL" shall include any hazardous, toxic, infectious, or radioactive substances, including petroleum products, including without limitation those substances regulated pursuant to the federal Comprehensive Environmental Response, Compensation and Liability Act, 42 USC Section 9601 et seq., the federal Resource Conservation and Recovery Act, 42 USC Section 6901 et seq., the Federal Water Pollution Control Act, 33 USC Section 1251 et seq., the federal Clean Air Act, 42 USC Section 7401 et seq., the Toxic Substances Control Act, 15 USC Section 2601, et seq., the Massachusetts Oil and Hazardous Material Release Prevention Act, M.G.L. c. 21E, all present and future amendments to such statutes, and all regulations promulgated thereunder. "INDEBTEDNESS" shall mean, as applied to any Person, (i) all obligations (except items of capital stock or capital or paid-in surplus or of retained earnings), whether contingent or otherwise, which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of the balance sheet of such Person as of the date of which Indebtedness is to be determined, including any Capital Lease, (ii) all indebtedness secured by any mortgage, pledge, lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed, (iii) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (other than endorsements for collection or deposit in the ordinary course of business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, stock purchase, capital contributions or otherwise) or otherwise to become directly or indirectly liable, and (iv) all outstanding reimbursement obligations at such date of such Person in respect of amounts drawn or available to be drawn on letters of credit, acceptances or similar obligations issued or created for the account of such Person (excluding, however, long term deferred tax liabilities). "INVESTMENT" shall mean (a) any stock, evidence of Indebtedness or other security of another Person, (b) any loan, advance, contribution to capital, extension of credit (except for current trade and customer accounts receivable for inventory sold or services rendered in the ordinary course of business and payable in accordance with customary trade terms) to another Person, and (c) any purchase of (i) stock or other securities of another Person or (ii) any business or undertaking of another Person (whether by purchase of assets or securities), any commitment or option to make any such purchase if, in the case of an option, the aggregate consideration paid for such option was in excess of $100,000, or (d) any other investment, and whether existing on the date of this Agreement or thereafter made. "LOANS" shall mean all Revolving Credit Loans, collectively. "MAXIMUM AVAILABLE FUNDS" shall mean, at any time, the lessor of (a) the Maximum Revolving Credit Amount, and (b) the Borrowing Base in effect at such time. - 8 - 9 "MAXIMUM REVOLVING CREDIT AMOUNT" shall mean, subject to an increase as hereinafter provided, Four Million and 00/100 Dollars ($4,000,000.00). In the event following the Effective Date of the Merger the Borrower reports positive Consolidated Net Income (excluding restructuring charges related to the Merger) for any fiscal quarter, as evidenced to the Bank by the Borrower's financial statements for such quarter, then, upon receipt by the Bank of either such quarterly financial statements evidencing such positive Consolidated Net Income or the public announcement of such positive Consolidated Net Income, the Bank will by notice to the Borrower increase the Maximum Revolving Credit Amount to Five Million and 00/100 Dollars ($5,000,000.00). "MERGER" shall mean the merger of B.C. Acquisition Corp., a wholly owned subsidiary of the Borrower, with and into Cadre Technologies, Inc. ("Cadre"), with Cadre being the surviving corporation pursuant to the Agreement and Plan of Merger (the "Merger Agreement") by and among the Borrower, B.C. Acquisition Corp. and Cadre, dated as of March 25, 1996. "OBLIGATIONS" shall mean all present and future obligations and Indebtedness of the Borrower owing to the Bank under this Agreement or any other Bank Agreement, including, without limitation, the obligations to pay the Indebtedness from time to time evidenced by the Revolving Credit Note and obligations to pay interest, commitment and other fees, and all other expenses and charges from time to time owed by Borrower under any Bank Agreement. "PENSION PLAN" shall mean an employee benefit plan or other plan maintained for the employees of any of the Borrower as described in Section 4021(a) of Title IV of the Employee Retirement Income Security Act of 1974, as amended. "PENSION REFORM ACT" shall mean the Employee Retirement Income Security Act of 1974, as amended. "PLEDGED SHARES" shall mean the shares of capital stock pledged to the Bank under the Pledge Agreement, together with an undated stock power executed in blank for each such certificate. "PERSON" shall mean an individual, corporation, partnership, joint venture, association, estate, joint stock company, trust, organization, business, or a government or agency or political subdivision thereof. "PRIME RATE" at any time shall mean the rate per annum of interest then most recently announced and made effective by the Bank as its "Prime Rate." Such rate is used for reference purposes only and is not necessarily the best or lowest rate charged by the Bank to its most substantial or creditworthy customers and serves only as the basis upon which effective rates of interest are calculated for obligations making reference thereto. - 9 - 10 "REPORTABLE EVENT" shall mean an event reportable to the Pension Benefit Guaranty Corporation under Section 4043 of Title IV of the Employee Retirement Income Security Act of 1974, as amended. "REVOLVING CREDIT FACILITY TERMINATION DATE" shall mean the earlier of (a) the occurrence of an Event of Default, or (b) October 5, 1996. "REVOLVING CREDIT LOANS" shall mean any loan or extension of credit from the Bank to the Borrower pursuant to the revolving credit facility established pursuant to this Agreement. "SECURITY DOCUMENTS" shall mean (i) the Security Agreement, dated as of October 28, 1995, by the Borrower in favor of the Bank (the "Security Agreement"), (ii) the Pledge Agreement, dated as of October 28, 1994, by the Borrower in favor of the Bank (the "Pledge Agreement"), (iii) the Trademark and License Security Agreement, dated as of October 28, 1994, by the Borrower in favor of the Bank (the "Trademark Security Agreement"), (iv) the Patent and License Security Agreement, dated as of October 28, 1994, by the Borrower in favor of the Bank (the "Patent Security Agreement"), and (v) the Lockbox Agreement, dated as of October 28, 1994, by the Borrower in favor of the Bank (the "Lockbox Agreement"). "SUBORDINATED DEBT" shall mean any Indebtedness of the Borrower which is expressly subordinate to the Obligations of the Borrower to the Bank pursuant to a written subordination agreement in form and substance reasonably acceptable to the Bank. "SUBSIDIARY" shall mean any Person of which the Borrower or other specified parent shall now or hereafter at the time own, directly or indirectly, sufficient voting stock (or other beneficial interest) to entitle it to elect at least a majority of the board of directors or trustees or similar managing body. "TAXES" shall mean any tax, levy, impost, duty, deduction, withholding or other charge of whatever nature at any time required by any law or regulation (as hereinafter defined) (i) to be paid by the Bank or (ii) to be withheld or deducted from any payment otherwise required hereby to be made by the Borrower to the Bank, other than taxes imposed upon the net income of the Bank by the United States of America or any other jurisdiction in which an office of the Bank is located or any political subdivision of any thereof. "UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as adopted and amended from time to time by the Commonwealth of Massachusetts. - 10 - 11 "U.S. SUBSIDIARIES" shall mean the following Subsidiaries of the Borrower, collectively: B.C. Acquisition Corp.; Bachman Securities Corporation; Bachman International Ltd.; WindTunnel Software, Inc.; and CSI Acquisition Corporation. 1.2 ACCOUNTING TERMS. All accounting terms used and not defined in this Agreement shall be construed in accordance with GAAP and all financial data required to be delivered hereunder shall be prepared in accordance with GAAP. SECTION 2 - REVOLVING CREDIT FACILITY 2.1 REVOLVING CREDIT. Subject to the terms and conditions of this Agreement, and in reliance on the representations, warranties and covenants of the Borrower made herein, the Bank hereby establishes a revolving credit facility in favor of the Borrower pursuant to which, at any time prior to the Revolving Credit Facility Termination Date, the Bank shall make Revolving Credit Loans to the Borrower as the Borrower may from time to time request by notice to the Bank in accordance with Section 2.3 hereof, provided that the aggregate amount of all Revolving Credit Loans outstanding at any time shall not exceed the Maximum Available Funds at such time. Subject to the terms and limitations hereof, the Borrower shall have the right to make payments reducing the outstanding balance of Revolving Credit Loans and to request further Revolving Credit Loans by notice to the Bank in accordance with Section 2.3. The Borrower shall execute and deliver to the Bank a Revolving Credit Note in substantially the form attached hereto as EXHIBIT A evidencing the Revolving Credit Loans. The Borrower hereby irrevocably authorizes the Bank to make or cause to be made on a schedule attached to the Revolving Credit Note or on the books of the Bank, at or following the time of making each Revolving Credit Loan and of receiving payment of principal, an appropriate notation reflecting such transaction and the then aggregate unpaid principal balance of the Revolving Credit Loans. Failure of the Bank to make any such notation shall not, however, affect any obligation of the Borrower hereunder or under the Revolving Credit Note. The aggregate unpaid principal amount under each Revolving Credit Loan, as recorded by the Bank from time to time on such a schedule or on such books shall constitute presumptive evidence of such amount; provided, however, that the obligations of the Borrower hereunder or under the Revolving Credit Note will not be increased due to recording errors made by the Bank. 2.2 INTEREST ON REVOLVING CREDIT LOANS. The interest rate, subject to increase or decrease as hereinafter provided, for any portion of the outstanding principal balance of the Revolving Credit Note shall be computed at a per annum rate equal to the Prime Rate plus one percent (1%). Immediately upon and after the Effective Date of the Merger, the interest rate for any portion of the outstanding principal balance of the Revolving Credit Note shall be computed at a per annum rate equal to the Prime Rate plus two percent (2%); provided, however, that in the event the Borrower reports Consolidated Net Income for any fiscal year following the Merger of at least $200,000 (excluding restructuring charges related to the Merger), then, upon receipt by the Bank of either such quarterly financial statements evidencing such positive Consolidated Net Income or the public announcement of such positive - 11 - 12 Consolidated Net Income, the interest rate for any portion of the outstanding principal balance of the Revolving Credit Note shall be computed at a per annum rate equal to the Prime Rate plus one percent (1%). In all cases, interest under the Revolving Credit Note shall be payable in arrears on the fifth day of each month in which the Revolving Credit Note is outstanding and shall be computed on the basis of a 360-day year for the number of days actually elapsed. Any increase or decrease in the interest rate on the Revolving Credit Note resulting from a change in the Prime Rate shall be effective immediately from the date of such change. 2.3 REQUESTS FOR LOANS. Each request for a Revolving Credit Loan shall be made by the Borrower to the Bank by delivery to the Bank no later than one (1) Banking Day prior to any Banking Day that the Borrower desires to borrow hereunder, a completed and signed Borrowing Request, substantially in the form attached hereto as Exhibit B, which request shall be irrevocable and shall specify the proposed amount of the requested Revolving Credit Loan and proposed borrowing date. At the time of the initial request for a Revolving Credit Loan, the Borrower shall have provided the Bank with signed copies of a properly completed Borrowing Base Certificate and a Compliance Certificate substantially in the forms of Exhibit C and Exhibit D hereto, respectively. The Borrower hereby agrees that the Bank shall be entitled to rely upon the Borrowing Base Certificate and Compliance Certificate in its possession until superseded by a more recent Borrowing Base Certificate and Compliance Certificate. 2.4 USE OF PROCEEDS. The Borrower agrees to use the proceeds of the Revolving Credit Loans exclusively for working capital purposes and for general corporate purposes. 2.5 ADDITIONAL PAYMENTS. (a) In addition to the payments of interest on the Revolving Credit Note, the Borrower shall, on demand, pay to the Bank interest on any overdue installments of principal and, to the extent permitted by law, on any overdue installments of interest, at a rate per annum equal to two percent (2%) in excess of the rate otherwise applicable to the principal portion of such payments compounded monthly. (b) All agreements between the Borrower and the Bank are hereby expressly limited so that in no contingency whatsoever, whether by reason of acceleration of the maturity of this Agreement or the Revolving Credit Note or otherwise, shall the amount paid or agreed to be paid to the Bank for the use, forbearance, loaning or retention of the Revolving Credit Loans made under this Agreement exceed the maximum permissible rate under applicable law. If, for any circumstances whatsoever, fulfillment of any provisions hereof or of the Revolving Credit Note, or of any of the Bank Agreements, at any time shall involve transcending the limit of validity prescribed by law, then the obligation to be fulfilled shall automatically be reduced to the limit of such validity, and if under any circumstances the Bank should ever receive as interest an amount which would exceed the highest lawful rate of interest, such amount in excess of the lawful rate of interest shall be applied to the reduction of - 12 - 13 the principal balance then outstanding of the Revolving Credit Note and not to the payment of interest thereon. This provision shall control every other provision of all agreements between the Borrower and the Bank and shall also be binding upon and available to any subsequent holder of the Revolving Credit Note. 2.6 REQUEST TO DEBIT ACCOUNTS. The Borrower hereby authorizes and requests the Bank to charge against any account of the Borrower with the Bank an amount equal to the accrued interest and unpaid principal and other fees and charges from time to time due and payable to the Bank hereunder and under all other Bank Agreements. The Bank will furnish notice to Borrower of such charges. The Borrower acknowledges and agrees that debits and charges against Borrower's amounts under this Section 2.6 shall in no way be deemed a set-off. 2.7 EXAMINATION FEE. The Bank reserves the right to have performed twice annually, upon reasonable notice and at reasonable times, an examination of the books and records of the Borrower by an agent of the Bank solely for the purposes of determining compliance with the Bank Agreements. The Borrower agrees to pay for the reasonable cost of each such examination. If a default occurs under the Bank Agreements, the Bank reserves the right to make additional examinations at the reasonable expense of the Borrower. 2.8 CLOSING FEE. As a condition precedent to the Bank's initial advance under the revolving credit facility hereunder, the Borrower shall pay to the Bank a closing fee of $15,000, which shall be paid on or before the date hereof. 2.9 ADDITIONAL COSTS; CHANGES IN CIRCUMSTANCES; ETC. Anything hereinbefore in Section 2 of this Agreement to the contrary notwithstanding, if, after the date hereof, the Bank shall have determined in good faith and reasonably that compliance with any applicable law, governmental rule, regulation or order, or any change therein (including without limitation any change according to a prescribed schedule of increasing requirements, whether or not in effect or known on the date hereof), or any change in the interpretation or administration thereof, or compliance by the Bank with any guideline, request or directive (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any such authority, central bank or comparable agency which, in each instance, is of general application to banking institutions in the United States of America or to types of institutions similar to the Bank in terms of charter, has or would have the effect of reducing the rate of return on the Bank's capital with respect to, or as a consequence of, its unfunded commitments to extend credit hereunder to a level below that which the Bank would have achieved but for such change or compliance, then, within twenty (20) days after demand therefor, the Borrower shall pay to the Bank as from time to time specified by the Bank such additional amounts as shall be sufficient to compensate the Bank for each reduced return relating to its commitments to make such loans hereunder, together with interest on each such amount from the date required to be paid until payment in full thereof at the rate set forth in Section 2.5(a). A certificate of an officer of the Bank setting forth the - 13 - 14 amount to be paid to it hereunder and setting forth the basis for the calculations shall, in the absence of manifest error, be prima facie evidence thereof. Anything in this Section 2.9 to the contrary notwithstanding, the foregoing provisions hereof shall not apply in the case of any additional cost, reduction, payment or foregone interest or other sum resulting from or arising as a consequence of any taxes charged upon or by reference to the overall net income, profits or gains of the Bank. SECTION 3 - PAYMENT AND PREPAYMENT 3.1 SCHEDULE PAYMENTS. The Borrower agrees to pay all amounts due under the Revolving Credit Note on the dates when due. 3.2 MANDATORY PREPAYMENT OF REVOLVING CREDIT NOTE. If at any time at the end of any week the Maximum Available Funds at such time shall be less than the aggregate outstanding principal balance of all Revolving Credit Loans then outstanding hereunder, the Borrower shall immediately repay to the Bank an amount equal to such difference within five (5) days after the end of such week. 3.3 VOLUNTARY PREPAYMENT. The Borrower may, at its option, prepay the Revolving Credit Note in whole or in part at any time and from time to time without premium or penalty. Any prepayment in full of the Note shall be made together with accrued interest on the amount prepaid to the date of such prepayment and all costs and expenses chargeable by the Bank in respect of Obligations of the Borrower hereunder or under the Bank Agreements. Unless the Borrower otherwise indicates to the Bank the manner of application of any prepayment or other payment by written instruction signed by an Authorized Officer, the Bank may apply any payments received hereunder to the Obligations in such order and manner as the Bank shall determine. 3.4 CURRENCY. All payments and prepayments provided for under this Agreement shall be made in lawful United States of America currency in immediately available funds or in such other manner as the Bank may agree upon in writing. 3.5 FORM AND TERMS OF PAYMENT. All payments by the Borrower of principal or interest on the Revolving Credit Note shall be made without set-off or counterclaim at the office of the Bank located at 3003 Tasman Drive, Santa Clara, California 95054 or at such other address as the Bank may from time to time appoint. All payments of principal (whether at maturity or upon acceleration) and interest shall be made in immediately available, freely transferable funds not later than 12:00 p.m., Santa Clara, California time on the date that such payment is due. If any payment of principal or interest on the Revolving Credit Note shall become due on any date which is not a Banking Day, such payment shall be made on the next preceding Banking Day and such extension of time shall in such case be included in computing interest in connection with such payment. - 14 - 15 SECTION 4 - REPRESENTATIONS AND WARRANTIES In order to induce the Bank to enter into this Agreement and make the Revolving Credit Loans as contemplated hereby, the Borrower hereby makes the following representations and warranties, which shall survive the execution and delivery hereof and of the Bank Agreements: 4.1 EXISTENCE, GOOD STANDING, ETC. The Borrower and each of its Subsidiaries is validly organized, legally existing and in good standing under the laws of its jurisdiction of organization set forth on SCHEDULE 4.1 hereto and has the power to own its properties and conduct its business as now conducted and as proposed to be conducted by it. Certified copies of the charter documents and By-Laws of the Borrower and each of its Subsidiaries have been previously delivered to the Bank and are true, accurate and complete as of the date hereof. 4.2 PRINCIPAL PLACE OF BUSINESS; LOCATION OF RECORDS. The principal place of business and chief executive office of the Borrower is 8 New England Executive Park, Burlington, Massachusetts 08103. The principal place of business and chief executive office of each of the Borrower's Subsidiaries is set forth on SCHEDULE 4.2 hereto. All of the books and records or true and complete copies thereof relating to the accounts and contracts of the Borrower and its Subsidiaries are at such locations and will be kept at such locations until such time as the Borrower has provided the Bank fifteen (15) days prior written notification of a change of such location. 4.3 QUALIFICATION. The Borrower and each of its Subsidiaries is duly qualified, licensed and authorized to do business and is in good standing as a foreign corporation in each jurisdiction where its ownership or leasing of properties or the conduct of its business requires it to be qualified, except where a failure to so qualify will not have a material adverse affect on the Borrower or any Subsidiary, and all of such jurisdictions are listed on SCHEDULE 4.3. 4.4 SUBSIDIARIES. Except as set forth on SCHEDULE 4.4, the Borrower is not engaged in any joint venture or partnership with any other person, firm or corporation, and has no Subsidiaries. All Subsidiaries listed on SCHEDULE 4.4 are wholly-owned by the Borrower. 4.5 CORPORATE AUTHORITY. The execution, delivery and performance of this Agreement, the Revolving Credit Note, the Security Documents, all other Bank Agreements and other documents delivered or to be delivered by the Borrower to the Bank, and the occurrence of Indebtedness to the Bank hereunder or thereunder, now or hereafter owing, (a) are within the corporate powers of the Borrower having been duly authorized by its Board of Directors and, if required by law, by its charter documents, by its officers, and/or by its stockholders; - 15 - 16 (b) do not require any approval or consent of, or filing (other than filing financing statements and filing with the United States Patent and Trademark Office) with, any governmental agency or other Person (or such approvals and consents have been obtained and delivered to the Bank) and are not in contravention of the terms of the charter documents or by-laws of the Borrower or any amendment thereof; (c) do not and will not (i) result in a breach of or constitute a material default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower is a party or by which the Borrower or its properties are bound or affected; (ii) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature on any property now owned or hereafter acquired by the Borrower except as provided in the Bank Agreements; or (iii) result in a material violation of or material default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination, award, indenture, agreement, lease or instrument now in effect having applicability to the Borrower or to its properties. 4.6 Valid and Binding Obligations. This Agreement, the Revolving Credit Note, the Security Documents and all the other Bank Agreements executed by the Borrower in connection herewith and therewith constitute, or will constitute when delivered, the valid and binding obligations of the Borrower, enforceable against it in accordance with their respective judgment. 4.7 Intentionally Omitted. 4.8 Payment of Taxes. The Borrower and each of its Subsidiaries has filed all federal tax returns required by law to be filed by it and all state tax returns required by law to be filed in the state of organization in which it is qualified or licensed to do business. The Borrower and each of its Subsidiaries has paid all taxes, assessments and other governmental charges shown with respect to any such tax returns or otherwise levied upon any of their properties, assets, income or franchises, other than those not yet delinquent and those not substantial in aggregate amount, being or about to be contested as provided in Section 9.2(b). The proceedings or other actions which are still pending or open have been taken for the assessment or collection of any taxes for any period for which federal or state income tax returns have been filed. The charges, accruals and reserves on the books of the Borrower and all of its Subsidiaries in respect of taxes for all fiscal periods are adequate under GAAP, and neither the Borrower nor any Subsidiary knows of any unpaid assessment for additional taxes in any fiscal period. 4.9 Financial Statements. (a) The Borrower has furnished the Bank with (i) the Consolidated balance sheets of the Borrower and its Subsidiaries for the annual fiscal years ended June 30, 1993, - 16 - 17 1994 and 1995 and the Consolidated statements of operations, shareholders' equity and changes in cash flow for the years then ended, together with the supporting schedules listed in the index accompanying such financial statements, such Consolidated statements having been audited by the Borrower's independent certified public accountants, and (ii) Consolidated unaudited balance sheets of the Borrower and its Subsidiaries and unaudited income and cash flow statements for the nine-month period ended March 31, 1996. A copy of such financial statements is attached hereto as SCHEDULE 4.9. (b) Such financial statements present the cash flow of Borrower and its Subsidiaries as of such dates and the results of operations and the changes in cash flow for the years then ended, and the balance sheets included in such audited Consolidated financial statements reflect all material liabilities at such dates, all in conformity with GAAP. (c) The Borrower has filed all forms, reports and documents with the Securities and Exchange Commission ("SEC") required to be filed by it pursuant to the federal securities laws and the SEC rules and regulations thereunder, all of which complied in all material respects with all applicable requirements of the Securities Exchange Act of 1934 (collectively, the "SEC Reports"). None of the SEC Reports which are subject to Section 10(b) of the Securities and Exchange Act of 1934, including, without limitation, any financial statements or schedules included therein, at the time filed contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.10 Capitalization. SCHEDULE 4.10 lists the total number of shares of capital stock of the Borrower currently outstanding together with a list of all of the record and beneficial owners of more than 5% of the Borrower's issued and outstanding capital stock (including the number of shares and percentage interest held by each such owner) as well as a list of the record and beneficial owners (and the number of shares and percentage ownership interest held by each such owner) of all of the presently issued and outstanding shares of capital stock of the each of the Borrower's Subsidiaries. The Borrower and each such Subsidiary, as the case may be, has received the consideration for which such stock was authorized to be issued and has otherwise complied with all legal requirements relating to the authorization and issuance of shares of stock and all such shares are validly issued, fully paid and non-assessable. Neither the Borrower nor any of its Subsidiaries has any other capital stock of any class outstanding. As of the date hereof, and except as set forth on SCHEDULE 4.10, (i) there are no outstanding commitments, warrants, options or other obligations which require the Borrower to issue any shares of its capital stock or any security exchangeable for or convertible into shares of such capital stock, and (ii) neither the Borrower nor any of its Subsidiaries has any obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. -17- 18 4.11 CHANGES IN CONDITION. Except as set forth on SCHEDULE 4.11 hereto, since March 31, 1996, there has been no material adverse change in the business or assets or in the condition, financial or otherwise, of the Borrower and its Subsidiaries and the Borrower has not entered into any transaction outside of the ordinary course of business which is material to the Borrower. Neither the Borrower nor any Subsidiary has any known contingent liabilities of any material amount which are not referred to in the financial statements attached as Schedule 4.9. 4.12 ASSETS. The Borrower and each of its Subsidiaries has good and marketable or merchantable title to all of its respective properties and assets, including the properties and assets reflected in the financial statements listed on SCHEDULE 4.9 hereto, and such properties and assets are not subject to any lien, charge, mortgage, pledge, security interest or encumbrances, except for (i) liens, charges and encumbrances described on SCHEDULE 4.12 and permitted by Section 9.2 hereof, and (ii) assets sold, abandoned or otherwise disposed of in the ordinary course of business. 4.13 LITIGATION. Except as set forth on SCHEDULE 4.13 hereto, there is no action, proceeding or investigation pending, or to the knowledge of the Borrower, threatened before any federal, state, provincial or municipal board or other governmental regulatory body or administrative agency, which involves a material risk of any judgment or liability not fully covered by insurance which may have a material adverse effect on the business or assets or in the prospects or condition (financial or otherwise) of the Borrower or any of its Subsidiaries, or which questions the validity of this Agreement or the Revolving Credit Note or any action taken or to be taken pursuant hereto or thereto, and no judgment, decree, or order of any federal, state, provincial or municipal court, board or other governmental or administrative agency has been issued against the Borrower or any Subsidiary which has, or in the Borrower's opinion in the exercise of its reasonable business judgment, may have a material adverse effect on the business or assets or on the prospects or condition (financial or otherwise) of the Borrower or any of its Subsidiaries. 4.14 PENSION PLANS. As of the date hereof, except as described on SCHEDULE 4.14, neither the Borrower nor any of its Subsidiaries has any Pension Plan subject to the minimum funding or termination insurance provisions of the Pension Reform Act. 4.15 OUTSTANDING INDEBTEDNESS; AFFILIATE TRANSACTIONS. (a) The outstanding amount (in excess of $500,000) of (i) all Investments and (ii) Indebtedness for borrowed money, including Capital Lease obligations, of the Borrower and each of its Subsidiaries and as of the date hereof, is correctly set forth on Schedule 4.15 hereto, and said Schedule correctly describes all security interests securing such indebtedness. -18- 19 (b) Except as otherwise set forth on Schedule 4.15, none of the officers, directors, or employees of the Borrower or any of its Subsidiaries is presently a party to any transaction with any Affiliate of the Borrower or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 4.16 Patents, Trademarks, Copyrights and Licenses. The Borrower and each of its Subsidiaries owns, licenses or has rights to all material licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, and trade names necessary to continue to conduct its business as heretofore conducted by it, now conducted by it and proposed to be conducted by it. Each patent, patent application or registered trademark or copyright is listed, together with Patent and Trademark Office application or registration numbers, on Schedule 4.16 hereto. The Borrower and each of its Subsidiaries conducts its respective business without knowing infringement or known claim of infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others that would have a material adverse effect on the business or assets of the Borrower. To the best knowledge of the Borrower, there is no claim of infringement by others of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of the Borrower or any of its Subsidiaries. 4.17 Environmental Matters. Except as disclosed on Schedule 4.17: (a) (i) Neither the Borrower nor any of its Subsidiaries has ever generated, transported, used, stored, treated, disposed of, or managed any hazardous waste; (ii) to the Borrower's knowledge upon due inquiry, no Hazardous Material has ever been or is threatened to be spilled, released, or disposed of at any site presently or formerly owned, operated, leased, or used by the Borrower or any of its Subsidiaries, or has ever come to be located in the soil or groundwater at any such site; (iii) to the Borrower's knowledge upon due inquiry, no Hazardous Material has ever been transported from any site presently or formerly operated, leased, or used by the Borrower or any of its Subsidiaries for treatment, storage, or disposal at any other place; (iv) to the Borrower's knowledge upon due inquiry, neither the Borrower nor any of its Subsidiaries presently owns, operates, leases, or uses, nor has the Borrower or any of its Subsidiaries previously owned, operated, leased, or used any site on which underground storage tanks are or were located; and (v) to the Borrower's knowledge upon due inquiry, no lien has ever been imposed by any governmental agency on any property, facility, machinery, or equipment owned, operated, leased, or used by the Borrower or any of its Subsidiaries in connection with the presence of any Hazardous Material. -19- 20 (b) (i) Neither the Borrower nor any of its Subsidiaries has any liability under, nor has the Borrower or any of its Subsidiaries ever violated, any Environmental Laws; (ii) to the Borrower's knowledge upon due inquiry, the Borrower, each of the Borrower's Subsidiaries, any property owned, operated, leased, or used by the Borrower or any of its Subsidiaries and any facilities and operations thereon are presently in compliance with all applicable Environmental Laws; (iii) neither the Borrower nor any of its Subsidiaries has ever entered into or been subject to any judgment, consent decree, compliance order, or administrative order with respect to any environmental or health and safety matter or received any request for information, notice, demand letter, administrative inquiry, or formal or informal complaint or claim with respect to any environmental or health and safety matter or the enforcement of any Environmental Law; and (iv) neither the Borrower nor any of its Subsidiaries has any knowledge that any of the items enumerated in clause (iii) of this paragraph will be forthcoming. (c) To the Borrower's knowledge upon due inquiry, no site owned, operated, leased, or used by the Borrower or any of its Subsidiaries contains any asbestos or asbestos-containing material, any polychlorinated biphenyls ("PCBs") or equipment containing PCBs, or any urea formaldehyde foam insulation. (d) The Borrower has provided to the Bank copies of all documents, records, and information available to the Borrower and/or any of its Subsidiaries concerning any environmental or health and safety matter relevant to the Borrower and/or any of its Subsidiaries, whether generated by the Borrower, any of Borrower's Subsidiaries, or others, including, without limitation, environmental audits, environmental risk assessments, site assessments, documentation regarding off-site disposal of Hazardous Materials, spill control plans and reports, correspondence, permits, licenses, approvals, consents, and other authorizations related to environmental or health and safety matters issued by any governmental agency. 4.18 Intentionally Omitted. 4.19 Regulation U, etc. The Borrower does not own, nor does it have any present intention of acquiring, any "margin stock" within the meaning of Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve System (herein called "margin stock"). None of the proceeds of the Revolving Credit Loan will be used, directly or indirectly, by the Borrower for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry, any margin stock or for any other purpose which might constitute the transactions contemplated hereby a "purpose credit" within the meaning of said Regulation U, or cause this Agreement to violate Regulation U, Regulation T, Regulation X, or any other regulation of the Board of Governors of the Federal Reserve System or under the Securities Exchange Act of 1934. If requested by the Bank, the Borrower agrees that it will promptly furnish the Bank with a statement in -20- 21 conformity with the requirements of Federal Reserve Form U-1 referred to in said Regulation U. 4.20 Foreign Credit Restraints. Neither the Revolving Credit Loan, nor the use directly or indirectly of all or any portion of the proceeds thereof, will violate or result in a violation of any provision of any applicable statute, regulation or order of, or any restriction imposed by, the United States of America or by any unauthorized official, board, department, instrumentality or agency thereof relating to the control of foreign or overseas lending or investment. 4.21 Employee Retirement Income Security Act of 1974. All plans ("Plans") of a type described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), in respect of which the Borrower or any of its Subsidiaries is an "Employer," as defined in Section 3(5) of ERISA, are in substantial compliance with ERISA, and none of such Plans is insolvent or in reorganization, has an accumulated or waived funding deficiency within the meaning of Section 412 of the Internal Revenue Code of 1986, as amended, and neither the Borrower nor any of its Subsidiaries has incurred any material liability (including any material contingent liability) to or on account of any such Plan pursuant to sections 4062, 4063, 4064, 4201 or 4204 of ERISA; and no proceedings have been instituted to terminate any such Plan, and no condition exists which presents a material risk to the Borrower or any of its Subsidiaries of incurring a liability to or on account of any such Plan pursuant to any of the foregoing Sections of ERISA. 4.22 Compliance with Applicable Laws and Regulations. The Borrower and each of its Subsidiaries is in compliance with all federal, state and local laws and regulations and all requirements of all governmental bodies or agencies having jurisdiction over it, the conduct of its business, the use of its properties and assets, and all premises occupied by it except where the failure so to comply would not have a material adverse effect upon the business, operations, affairs, condition (financial or other), properties or prospects of the Borrower or any of its Subsidiaries. Without limiting the foregoing, the Borrower and each of its Subsidiaries has all franchises, licenses, permits, certificates and other authorizations as are necessary in order to conduct its respective business and use its properties and all premises occupied by it (as now conducted, owned and used or as proposed to be conducted, owned and used) without incurring any material liability. Neither the Borrower nor any of its Subsidiaries has received any notice, not heretofore complied with, from any federal, state or local authority or any insurance or inspecting body that any of its properties, facilities, equipment or business procedures or practices fails to comply with any applicable law, ordinance, regulation, license, permit, authorization or any other requirement of any such authority or body. 4.23 No Violation. Neither the Borrower nor any of its Subsidiaries is in violation of any term of its respective charter or by-laws, or of any instrument, contract, or agreement to which it is a party or of any judgment, decree, order, statute, rule or governmental -21- 22 regulation which is applicable to it and which violation may have a material adverse effect upon its condition (financial or other) business, operations, properties or prospects. 4.24 Disclosure. This Agreement does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements contained herein, in light of the circumstances under which they are made, not misleading. There is no fact known to the Borrower and not disclosed to the Bank which materially, adversely affects, or could, in the Borrower's opinion in the exercise of its reasonable business judgment, materially, adversely affect, the business, operations, affairs, prospects or condition (financial or other ) of the Borrower or any of its properties or assets. 4.25 Security Documents. Each of the Security Documents is in full force and effect and all necessary continuation statements with respect to all financing statements have been filed as required by law in order to maintain the validity and enforceability of the security interest covered by each of the Security Documents. SECTION 5 - CONDITIONS PRECEDENT 5.1 Conditions Precedent to Initial Revolving Credit Loan. The obligations of the Bank to enter into and carry out the terms of this Agreement are subject to the following conditions, and on or before the date of execution hereof, all of the following conditions precedent shall have been satisfied: (a) Documents. The Bank shall have received each of the following documents, in form and substance reasonably satisfactory to the Bank and its counsel or in the form attached hereto as an Exhibit, as the case may be: (i) Note. The Revolving Credit Note, duly executed by the Borrower; (ii) Security Documents. Each of the Security Documents shall be in full force and effect, it being acknowledged and agreed that, except as set forth below in (iii), nothing contained herein shall modify, amend, restrict, or limit in any respect the validity and continued enforceability of each of the Security Documents. (iii) Amendment to Pledge Agreement. Schedule I to the Pledge Agreement is hereby amended by adding each of B.C. Acquisition Corp. and Bachmann Spain S.L. as a Subsidiary of the Borrower, and all of the outstanding shares of capital stock of each of the foregoing shall constitute "Subsidiary Shares" and "Pledged Collateral" for purposes of the Pledge Agreement. -22- 23 (iv) Certificate of Corporate Action. Certificate of the Clerk or Assistant Clerk of the Borrower, dated the date hereof, certifying as to the resolutions of the Board of Directors of the Borrower authorizing the consummation of the transactions contemplated hereby and the execution and delivery of the Bank Agreements to which the Borrower is a party and the other documents to be delivered by the Borrower pursuant to this Agreement and the names and true signatures of the officers of the Borrower authorized to do so; (v) Corporate Documents. Copies of the Articles of Organization of the Borrower certified as true and correct by the Secretary of State of its jurisdiction of incorporation, and the By-Laws of the Borrower certified as true and correct by the Clerk or Assistant Clerk of the Borrower; (vi) Good Standing Certificate. Long-Form Good Standing Certificate with respect to the Borrower from the Secretary of State of its jurisdiction of incorporation and from the Secretary of State of jurisdictions in which the Borrower is qualified to do business as a foreign corporation, each of which shall be dated as of a recent date; (vii) Tax Payment Certificate. A Certificate as to the Tax Good Standing of the Borrower from the taxing authority in the state of the Borrower's jurisdiction of incorporation within thirty (30) days of the Closing. At the Closing, the Treasurer of the Borrower shall deliver a certificate certifying as to the payment of all taxes in the Borrower's jurisdiction of incorporation and in each jurisdiction in which the Borrower is qualified to do business; (viii) Insurance. Evidence of all insurance required to be obtained by the Borrower hereunder and under the Security Agreement; (ix) Lien Searches. The Bank shall have received the results of a UCC, bankruptcy, tax lien and docket search for the Borrower in its jurisdiction of incorporation and in the jurisdiction where Borrower maintains its principal place of business and from the U.S. Patent and Trademark Office, indicating no liens other than liens permitted under Section 9.2 hereof; and -23- 24 (c) No Default, etc. On the date of each Revolving Credit Loan hereunder, after giving effect to the Revolving Credit Loan or Loans to be made on any date, no Event of Default specified in Section 10.1 hereof, nor any event which with the giving of notice or lapse of time or both would constitute such an Event of Default, shall have occurred and be continuing. (d) Legality. The making of the requested Revolving Credit Loan shall not be prohibited by any law or governmental order or regulation applicable to the Bank or to the Borrower and all necessary consents, approvals and authorizations of any Person for any such Revolving Credit Loan shall have been obtained. (e) Supplementary Opinions. With respect to any Revolving Credit Loan made hereunder subsequent to the first such Revolving Credit Loan, if requested by the Bank, the Bank shall have received at its address set forth in Section 13.2, an opinion, in form and substance reasonably satisfactory to the Bank and special counsel for the Bank, of counsel for the Borrower, dated the date of such subsequent borrowing as to such matters reasonably requested by the Bank. (f) Other Information and Action. All other information which the Bank or special counsel for the Bank may reasonably have requested in connection with the transactions contemplated by this Agreement (such information to be certified by the proper officers of the Borrower or governmental authority) and all actions the Bank may deem reasonably desirable in order to perfect and protect any pledge, assignment or security interest granted in favor of the Bank or to enable the Bank to exercise its rights and remedies hereunder shall have been only provided or taken. SECTION 6 - REPORTING REQUIREMENTS 6.1 Financial Statements. (a) As soon as available, but in any event within thirty (30) days after the end of each fiscal month of the Borrower, the Borrower shall deliver to the Bank duplicate original copies of a Consolidated balance sheet of the Borrower and its Subsidiaries, together with an income statement and cash flow statement of the Borrower and its Subsidiaries for such monthly period and for the period commencing at the beginning of the then current fiscal year and ending with the end of such month, together with a certification by the chief financial officer of the Borrower that such financial statements fairly represent the financial condition of the Borrower and its Subsidiaries as at the dates indicated. (b) As soon as available, but in any event within one hundred twenty (120) days after the end of each fiscal year of the Borrower, the Borrower shall furnish to the Bank duplicate originals of the Consolidated audited balance sheet of the Borrower and its -24- 25 (x) Guaranty Agreement. A Guaranty Agreement in substantially the form attached hereto as Exhibit F (the "Guaranty Agreement") pursuant to which the Borrower shall guarantee the obligations of Cadre Technologies, Inc. to the Bank. (b) Bank Expenses. The Borrower shall have paid all of the Bank's reasonable attorney's fees and reasonable disbursements incurred in connection with this Agreement, the Security Documents, the Note and all other Bank Agreements, and the transactions contemplated hereby and thereby. (c) Accounts Receivable Examination. The Bank or its agents or representatives shall have conducted and completed an examination of the Accounts Receivable of the Borrower and the results of such examination shall be reasonably satisfactory to the Bank. (d) Filings, Registration and Recordings: (i) Any documents (including, without limitation, financing statements) required to be filed, and any other actions required to be taken, under or in connection with any of the Security Documents in order to create, in favor of the Bank, a perfected security interest in the Collateral thereunder shall have been properly filed or taken, as the case may be, and the Bank shall have received evidence satisfactory to it of each such filing, registration, recordation or other action and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto. (ii) It is acknowledged that, upon and subject to the Merger, the Borrower intends to change its corporate name to "Cayenne Software, Inc." The Borrower hereby covenants and agrees that, in accordance with the Security Documents, and prior to effecting such name change, the Borrower will arrange for the preparation, execution, delivery, filing and recordation of such documents as may be required in order to continue the perfection of the Bank's security interest in the collateral under the Security Documents (including, without limitation, UCC-3 Financing Statements and amendments to the patent License Agreement and the Trademark License Agreement, for filing in the appropriate UCC filing offices, the U.S. Patent Office, and the U.S. Copyright Office) and the Bank shall have received evidence satisfactory to it of -25- 26 such filing, registration, recordation, or other action, as well as satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto. (e) Valid Pledge. The Bank shall have received certificates representing all of the outstanding capital stock of each of B.C. Acquisition Corp. and Bachman Spain S.L. in pledge to the Bank under and in accordance with the Pledge Agreement, together with an undated stock power executed in blank for each such certificate. The Borrower hereby covenants and agrees to use its reasonable best efforts to effect the perfection of the pledge to the Bank under the Pledge Agreement of the shares of capital stock of Bachman Spain S.L. within forty-five (45) days from the date hereof. 5.2 Conditions Precedent to All Revolving Credit Loans. The obligations of the Bank to make Revolving Credit Loans to the Borrower hereunder (including the initial Revolving Credit Loan) are subject to the following conditions, and on or before the date of making such Revolving Credit Loans, all of the following conditions precedent shall have been satisfied: (a) BORROWING DOCUMENTS. The Bank shall have received each of the following documents, in form and substance reasonably satisfactory to the Bank and its counsel or in the form attached hereto as an Exhibit, as the case may be: (i) A Borrowing Request, dated as of such date, substantially in the form attached hereto as Exhibit b; (ii) A Borrowing Base Certificate, dated as of such date, substantially in the form attached hereto as Exhibit C; (iii) A Compliance Certificate, dated as of such date, substantially in the form attached hereto as Exhibit D; (b) Representations and Warranties. As of the date of making such Revolving Credit Loan or Loans, (i) the representations and warranties herein and those made for and on behalf of the Borrower herein or in any other Bank Agreement shall be true and correct in all respects as of such date with the same force and effect as if made at and as of such time, and (ii) the Borrower shall be in compliance with all of the terms and provisions set forth herein on its part to be observed or performed on or prior to such date. Each request for a Revolving Credit Loan hereunder shall be accompanied by a Borrowing Request in accordance with Section 2.3 and shall constitute a representation and warranty by the Borrower to the Bank that all of the conditions specified in Section 5 have been satisfied as of the date of each such Revolving Credit Loan. -26- 27 Subsidiaries as of the end of such fiscal year and the related statements of operations and shareholders' equity and changes in cash flow of the Borrower and its Subsidiaries for such fiscal year and setting forth in comparative form the figures for the previous fiscal year, all in form reasonably acceptable to the Bank and in each case accompanied by an opinion of an independent certified public accountant reasonably acceptable to the Bank (it being acknowledged that Coopers & Lybrand, the Borrower's current auditors, are acceptable to the Bank), such opinion to be without material adverse qualification or comment and shall state that such financial statements have been prepared in accordance with GAAP applied on a basis consistent with that of the preceding fiscal year and that the audit by such accountants in connection with such financial statements has been made in accordance with GAAP relating to reporting. (c) Promptly upon receipt thereof, the Borrower shall deliver to the Bank duplicate copies of all financial statements and auditors' reports thereon submitted to the Borrower by independent public accountants in connection with each interim or special financial audit of the Borrower made by such accountants. 6.2 Accounts Receivable Aging Reports. As soon as available, but in any event within five (5) business days of the end of each week, the Borrower shall deliver to the Bank an accounts receivable aging report setting forth the Eligible Domestic Accounts Receivable and Eligible International Accounts Receivable, in form and substance satisfactory to Bank. 6.3 Borrowing Base Certificate. As soon as available, but in any event within five (5) business days after the end of each week, the Borrower shall deliver to the Bank duplicate original copies of a Borrowing Base Certificate in the form of Exhibit C hereto, for the Borrower for the then previous week as of the end of such week; the Eligible Domestic Accounts Receivable and Eligible International Accounts Receivable to be used in the calculation of the Borrowing Base which in turn will be used as the basis for determining the amount of Revolving Credit Loans, if any, for the next succeeding week or until the Bank shall have received another Borrowing Base Certificate in the form of Exhibit C, whichever is sooner. The Borrowing Base Certificate shall be appropriately completed and duly signed and certified by the chief financial officer as being complete and correct with respect to the amount of, and payments on, the Eligible Domestic Accounts Receivable and the Eligible International Accounts Receivable, and the calculations of the Borrowing Base, all in such detail, and accompanied by such supporting information and certifications as the Bank may from time to time reasonably request. 6.4 Compliance Certificate. Together with the financial statements delivered pursuant to Section 6.1(a) and (b) above, the Borrower shall deliver to Bank duplicate original copies of a Compliance Certificate substantially in the form of Exhibit D hereto executed and - 27 - 28 completed by the chief financial officer of the Borrower, in form and substance reasonably satisfactory to the Bank: (1) stating that the signer has reviewed the terms of this Agreement and the Bank Agreements, and has made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Borrower during the accounting period covered by such financial statements, and that such review has not disclosed the existence during or at the end of such accounting period, and that the signer does not have knowledge of the existence as at the date of the Compliance Certificate, of any condition or event which constitutes an Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower has taken, is taking and proposes to take with respect thereto; (2) demonstrating in reasonable detail compliance during and at the end of the applicable accounting period with the provisions set forth in Section 7, Section 8 and Section 9, and (3) stating that such financial statements present fairly the financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and changes in their financial position for the periods indicated in conformity with GAAP. 6.5 Notice of Defaults. As soon as possible, and in any event within five (5) business days after the Borrower has knowledge of the occurrence of any and each Default, the Borrower shall furnish the Bank with the statement of an Authorized Officer setting forth details of such Default and the action which the Borrower has taken or proposes to take with respect thereto. 6.6 Notice of Litigation. Promptly after the commencement thereof, the Borrower shall furnish the Bank written notice setting forth full particulars of any action, suit, proceeding or investigation threatened or pending before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the borrower or any Subsidiary, which, if adversely determined, could materially adversely affect the condition (financial or other), business, operations or prospects of the borrower or any of its subsidiaries; and, if any material developments, not previously disclosed by the Borrower to the Bank in writing, shall occur in any such action, suit, proceeding or investigation, the Borrower will (in each such case) promptly furnish or cause to be furnished to the Bank a written notice setting forth full particulars of each such development. 6.7 Reportable Events. At any time that the Borrower has a Pension Plan, the Borrower shall furnish to the Bank, as soon as possible, but in any event within thirty (30) days after the Borrower knows or has reason to know that any Reportable Event with respect to any Pension Plan has occurred, the statement of the president or treasurer of the Borrower setting forth the details of such Reportable Event and the action which the Borrower has taken or proposes to take with respect thereto, together with a copy of the notice of such Reportable Event to the Pension Benefit Guaranty Corporation. - 28 - 29 6.8 Annual Pension Reports. At any time that the Borrower has a Pension Plan, the Borrower shall furnish to the Bank, promptly after the filing thereof with the Secretary of Labor or the Pension Benefit Guaranty Corporation, copies of each annual report which is filed with respect to each such Pension Plan for each such plan year, including: (a) a statement of assets and liabilities of such Pension Plan as of the end of such plan year and statements of changes in fund balance and in financial position, or a statement of changes in net assets available for plan benefits, for such plan year, (b) an opinion of an independent certified public accountant of recognized standing acceptable to the Bank relating to such Pension Plan to the extent that any such opinion for the Pension Plan is required by law, and (c) an actuarial statement of such Pension Plan applicable to such plan year, together with an opinion of an enrolled actuary of recognized standing acceptable to the Bank, to the extent that any such statement and/or opinion for the Pension Plan is required by law. 6.9 Public Reporting. promptly upon their becoming available, the Borrower shall provide to the Bank duplicate copies of all financial statements, reports, notices and proxy statements sent by the Borrower to shareholders, and of all annual, periodic or special reports or registration statements filed by the Borrower with any securities exchange or with the Securities and Exchange Commission or any governmental authority succeeding to any of its functions. 6.10 Notice of Amendment to Corporate Documents. In the event that any amendment to the Articles of Organization, other charter documents or by-laws (as the case may be) of the Borrower shall be proposed to be adopted, the Borrower shall, within fifteen (15) days prior to the proposed date of the adoption of such amendment, furnish or ???? to be furnished to the Bank a true and complete copy of such amendment. 6.11 Place of Business. The Borrower will notify the Bank (i) at least fifteen (15) days prior to the occurrence of any changes in the place of business of the Borrower or any of its Subsidiaries from the places of business disclosed pursuant hereto or in the Bank Agreements and (ii) of any additional places of business which may arise hereafter. 6.12 Change in Officers or Directors. The Borrower will notify the Bank in writing if there occur any changes in the present officers or directors of the Borrower. 6.13 Miscellaneous. The Borrower shall provide the Bank with such other information as the Bank may from time to time reasonably request respecting the business, properties, condition or operations, financial or otherwise, of the Borrower. SECTION 7 - FINANCIAL COVENANTS - 29 - 30 On and after the date hereof, until all of the Obligations shall have been paid in full and so long as the Revolving Credit Loans shall remain available to the Borrower, the Borrower hereby agrees to comply, in addition to all other covenants contained herein, on a Consolidated basis, with the following covenants: 7.1 Profitability (tested and reported quarterly). Borrower shall report Consolidated Net Losses of not more than ($1,400,000) for the third fiscal quarter ending 3/31/96 and (i) in the event the Merger has not yet been consummated, Consolidated Net Income of at least $250,000 for the fourth fiscal quarter ending 6/30/96; or (ii) in the event the Merger has been consummated, Consolidated Net Losses of not more than ($7,000,000) for the fourth fiscal quarter ending 6/30/96. 7.2 Tangible Net Worth. [Intentionally Omitted]. 7.3 Liquidity (tested and reported monthly). The Borrower shall maintain, on a Consolidated basis, minimum Liquidity of at least $7,500,000, tested at each month end. "Liquidity" shall mean cash and cash equivalents (which shall mean and refer to the items listed in Section 9.3(a) hereof) plus any Accounts Receivable less Indebtedness to the Bank; provided, however, that the following shall be excluded for purposes of this Section 7.3: any Accounts Receivable purchased, or subject to purchase, by the Bank under a factoring agreement with the Borrower or any subsidiary; and any Indebtedness of the Borrower or any Subsidiary to the Bank in respect of obligations under a factoring agreement with the Bank. SECTION 8 - AFFIRMATIVE COVENANTS On and after the date hereof, until all of the Obligations shall have been paid in full and so long as the Revolving Credit Loans shall remain available to the Borrower, the Borrower covenants that it will comply with the following covenants and provisions: 8.1 Taxes: ERISA and Other Obligations. The Borrower will (and will cause each of its Subsidiaries to) (i) duly pay and discharge, or cause to be paid and discharged, before the same shall become in arrears, all material taxes, assessments and other governmental charges imposed upon it and its properties, sales and activities, or upon the income or profits therefrom, as well as any material claims for labor, materials, or supplies which if unpaid might by law become alien or charge upon its properties; provided, however, that the Borrower (and its Subsidiaries) shall not be required to pay and discharge any such tax, assessment or other governmental charges so long as the validity thereof shall be contested in good faith by appropriate proceedings, an adequate reserve for the payment thereof is established on its books in accordance with GAAP, and the Borrower shall (and shall cause its Subsidiaries to) pay such tax, assessment or other governmental charges before any taxing authority files any liens with respect thereto and (ii) promptly pay or cause to be paid when due or in conformance with customary trade terms (but not later than one-hundred twenty - 30 - 31 (120) days from the due date in the case of trade debt unless there exists between the Borrower (or its Subsidiaries, as the case may be) and the trade creditor an agreement which, without creating a default thereunder, provides for a longer payment term), all material lease obligations, and all other material Indebtedness incident to the operations of the Borrower (or its Subsidiaries, as the case may be ). The Borrower shall (and shall cause its Subsidiaries to) cause all applicable tax returns and all amounts due thereunder to be filed and paid when due, as the case may be, in order to maintain its good standing with the Internal Revenue Service, state and local and foreign tax authorities. Without limiting the scope of the foregoing, the Borrower will satisfy, or cause to be satisfied, the minimum annual funding standard, within the meaning of ERISA, for any employee benefit plan established or maintained by the Borrower which is subject to such act and the Borrower will not permit any tax or penalty to be incurred by it as a result of any failure to satisfy any such minimum funding requirement or as a result of any violation of the provisions of Section 4975 of the Internal Revenue Code of 1986, as amended, or of any regulations thereunder. 8.2 Maintenance of Property; Leases. The Borrower shall (and shall cause its Subsidiaries to) maintain its properties in good repair and working order, ordinary wear and tear and damage by insured casualty excepted, and in compliance with applicable laws and regulations. The Borrower shall (and shall cause its Subsidiaries to) replace and improve its properties as necessary for the conduct of its business and to maintain compliance with applicable laws. The Borrower shall (and shall cause its Subsidiaries to) comply in all material respects with all leases naming it as lessee. 8.3 Insurance. The Borrower at all times will (and will cause its Subsidiaries to) maintain insurance with such insurance companies, in such amounts (including, without limitation, so-called "all-risk" coverage at replacement value and "broad form" liability coverage), against such hazards and liabilities and for such purposes as is reasonably satisfactory to the Bank and as is customary in the industry for a business of established reputation engaged in the same or similar business and owning or operating similar properties. The Bank shall be named as loss payee and additional insured under the Borrower's insurance pertaining to the Collateral and shall be given twenty (20) days' advance notice of any modification or cancellation of insurance. Upon request of the Bank from time to time, the Borrower will furnish to the Bank certificates or other evidence satisfactory to the Bank of compliance with the foregoing insurance provisions. If the Borrower fails to provide or cause to be provided such insurance, the Bank, in its sole discretion, may provide such insurance and charge the cost as a Revolving Credit Loan or to the Borrower's deposit accounts with the Bank. Any payment not recovered from the Borrower shall bear interest at the then rate of interest under the Revolving Credit Note. The Bank shall not, by the fact of approving, disapproving, or accepting any such insurance, incur any liability for the form or legal sufficiency of insurance contracts, solvency of insurance companies or payment of lawsuits, and the Borrower herby expressly assumes full responsibility therefor and liability, if any, thereunder. - 31 - 32 8.4 Records and Accounts. The Borrower shall maintain records and accounts that are complete and accurate in all material respects. The Borrower shall (and shall cause its Subsidiaries to) maintain adequate and proper accounts and reserves for all taxes, depreciation, depletion, obsolescence and amortization of its properties, all contingent obligations and other reserves in accordance with GAAP. 8.5 Inspection. At any reasonable time and from time to time during normal business hours after reasonable notice, the Borrower shall permit the Bank and any of the Bank's agents or representatives to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower, and to discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with the Borrower's officers or directors and independent accountants, solely for the purposes of determining compliance with the Bank Agreements, all of whom are hereby authorized and directed to cooperate with the Bank in carrying out the intent of this Section 8.5. Without limiting the generality of the foregoing, the Bank shall have the right to conduct field examinations of the books and records of the Borrower, subject to the provisions hereof, at the Borrower's expense. In addition, the Borrower will, upon request, arrange for the Bank to have access to (and facilities for obtaining copies of) all electronically stored data and all papers and files of any kind relating to Accounts Receivable of the Borrower and the Foreign Subsidiaries. 8.6 Existence and Business. The Borrower will preserve and maintain its existence, remain in good standing in its jurisdiction of incorporation, and comply in all material respects with all valid and applicable statutes, rules and regulations. The Borrower will continue to engage only in the business which it is conducting on the date of this Agreement. 8.7 Maintenance of Accounts. The Borrower shall maintain the Bank as its principal depository for the Borrower's depository accounts. 8.8 Compliance with Laws, etc. The Borrower shall in the conduct of its business comply, and cause each of its Subsidiaries to so comply, in all material respects with all applicable laws, rules, regulations and the orders of any court or other tribunal or governmental or administrative authority or agency applicable to it or its business, properties or assets. SECTION 9 - NEGATIVE COVENANTS On and after the date hereof, until all of the Obligations shall have been paid in full and so long as the Revolving Credit Loans shall remain available to the Borrower, the Borrower covenants that it will comply with the following covenants and provisions: 9.1 Restrictions on Indebtedness. The Borrower will not (and will not permit its Subsidiaries to) create, incur, suffer or permit to exist, or assume or guarantee, either directly - 32 - 33 or indirectly, or otherwise become or remain liable with respect to, any Indebtedness, except the following: (a) Obligations to the Bank. (b) Current Liabilities (other than for money borrowed or reimbursement obligations in connection with letters of credit issued for the account of Borrower or any Foreign Subsidiary except as otherwise permitted hereunder incurred in the ordinary course of business and in accordance with customary trade practices of the Borrower or its Foreign Subsidiaries. (c) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment thereof shall not at the time be required to be made in accordance with the provisions of Section 8.1 hereof. (d) Indebtedness of the Borrower of its Foreign Subsidiaries in respect of purchase money liens and capitalized leases as permitted under Section 9.2(e) hereof. (e) Unsecured Indebtedness of one or more Foreign Subsidiaries to one or more foreign banks; provided the same shall never exceed $1,600,000 in the aggregate at any one time, and each Foreign Subsidiary, individually, shall not incur Indebtedness greater than the amount set forth opposite its name on Schedule 9.1(e) hereto. (f) Unsecured Indebtedness of the Borrower which is formally subordinated to the Bank pursuant to a written subordination agreement in form and substance acceptable to the Bank. (g) Indebtedness of the Borrower or its Subsidiaries existing on the date hereof to the extent listed on Schedule 4.15. (h) The Borrower will not make, directly or indirectly, any optional or voluntary prepayment or purchase of Subordinated Debt or any long-term debt to any Person (other than the Bank), nor make any payment of any Subordinated Debt except to the extent expressly permitted in the subordination agreement entered into with the Bank. 9.2 Restriction on Liens. The Borrower will not (and will not permit its Subsidiaries to) create or incur or suffer to be created or incurred or to exist any encumbrance, pledge, lien, charge or other security interest of any kind (a "Lien") upon any of their respective properties or assets of any character, whether now owned or hereafter acquired, or transfer any such property or assets for the purposes of subjecting the same to the payment of indebtedness or performance of any other obligation in priority to payment of its general creditors, or acquire or agree or have an option to acquire any property or assets upon conditional sale or other title retention agreement, devise or arrangement (including Capital - 33 - 34 Leases) or suffer to exist for a period of more than sixty (60) days after the same shall have been incurred any Indebtedness against it which if unpaid, might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors, or sell, assign, pledge or otherwise transfer for security any of its accounts, contract rights, general intangibles, or chattel paper (as those terms are defined in the Uniform Commercial Code) with or without recourse; provided, however, that the Borrower and its Foreign Subsidiaries may create or incur or suffer to be created or incurred or to exist: (a) Liens in favor of the Bank. (b) Deposits or pledges made in connection with, or to secure payment of, workers' compensation, unemployment insurance, old age pensions and other social security; and liens for taxes, assessments or governmental charges or levies and liens to secure claims for labor, material or supplies to the extent that payment thereof shall not at the time be required to be made in accordance with Section 8.1. (c) Encumbrances in the nature of zoning restrictions, easements, and rights or restrictions of record on the use of real property which do not materially detract from the name of such property or impair its use in the business of the owner or lessee. (d) Liens arising by operation of law to secure landlords, lessors or renters under leases or rental agreements made in the ordinary course of business and confined to the premises or property rented. (e) Liens in respect of Capital Leases and Liens securing the purchase price of property to be used in the business of Borrower or its Foreign Subsidiaries, provided that (i) each such Lien shall at all times be confined solely to the property so acquired, (ii) such property shall secure no Indebtedness other than the purchase price thereof, and (iii) the aggregate principal amount of Indebtedness secured by all such Liens and in respect of Capital Leases shall in the future not exceed $1,000,000 (or $2,000,000 after the Merger) in excess of the aggregate amount outstanding on the date hereof and disclosed on Schedule 4.15 hereto, as amended. (f) Liens listed on Schedule 4.15, as amended. 9.3 Investments and Loans. The Borrower will not (and will not permit its Subsidiaries to) have outstanding or hold or acquire or make or commit itself to acquire or make any Investment in or loans to any Person except (a) Investments having a maturity of one year or less from the date thereof in: (i) obligations of the Bank; (ii) obligations of the United States of America or any agency or instrumentality thereof; (iii) certificate of deposit, notes, acceptances and repurchase agreements involving securities described in clauses (i) and (ii) with the Bank or any commercial bank organized in the United States which has capital and surplus of at least $50,000,000; and (iv) commercial paper which is rated not less than - 34 - 35 prime-two or A-2 or their equivalents by Moody's Investor Service, Inc. or Standard & Poor's Corporation, respectively or their successors, (b) loans and advances to any employees of the Borrower and any Subsidiaries which shall not exceed $350,000 in the aggregate in any fiscal year, (c) Investments in and loans to Subsidiaries of the Borrower existing on the date hereof and described on Schedule 4.15 hereto, (d) Investments and loans hereafter made in or to the Foreign Subsidiaries, but only to the extent that as a result of such Investment or loan the Borrower will not suffer or permit the Tangible Net Worth of the Borrower alone (exclusive of its interests in Subsidiaries and also exclusive of all amounts due to the Borrower from any Subsidiary) at any time to be less than seventy percent (70%) of the Consolidated Tangible Net Worth of the Borrower and its Subsidiaries, and (e) Investments in and loans listed on Schedule 4.15. 9.4 Dispositions of Assets. Except as otherwise provided for herein, the Borrower will not (and will not permit its Subsidiaries to) sell, lease or otherwise dispose of any assets except for the sale, lease or other disposition of inventory or other property in the ordinary course of business. 9.5 Assumptions, Guaranties, etc. of Indebtedness of Other Persons. The Borrower will not (and will not permit its Subsidiaries to) assume, guarantee, endorse or otherwise become directly or contingently liable (including, without limitation, by way of agreement, contingent or otherwise, to purchase, provide funds for payment, supply funds to or otherwise invest in any Person or otherwise assure the creditors of any such Person against loss) in connection with any Indebtedness of any other Person, except for guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business of the Borrower and the Foreign Subsidiaries and guaranties of the Indebtedness permitted under Section 9.1. 9.6 Mergers, etc. Except for the Merger, the Borrower will not (and, except with respect to the Merger, will not permit its Subsidiaries to) without the prior written consent of the Bank, which will not be unreasonably withheld or delayed: (a) Enter into any merger or consolidation with or acquire all or substantially all of the assets of any Person; or (b) Sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired to any Person. 9.7 Pension Reform Act. At any time while the Borrower has a Pension Plan, permit any accumulated funding deficiency to occur with respect to any Pension Plan or other employee benefit plans established or maintained by the Borrower or its Subsidiaries or to which contributions are made by the Borrower (the "Plans"), and which are subject to the Pension Reform Act" and the rule and regulations thereunder or to Section 412 of the Code, - 35 - 36 and at all times comply in all material respects with the provisions of the Act and Code which are applicable to the Plans. The Borrower will not permit the Pension Benefit Guaranty Corporation to cause the termination of any Pension Plan under circumstances which would cause the lien provided for in Section 4068 of the Pension Reform Act to attach to the assets of the Borrower. 9.8 Corporate Document Amendments. The Borrower will not and (except as provided in the Merger Agreement) will not permit any of its Subsidiaries to, amend its articles of organization, or its bylaws if any such amendment could reasonably be expected to adversely affect the interest or rights of the Bank in any manner; it being acknowledged that: (a) an increase in Borrower's authorized capital (with the rights, terms and privileges in effect on the date hereof, subject to the restrictions on redemptions, dividends and other covenants set forth in the Bank Agreements for the benefit of the Bank) shall not be deemed to adversely affect the interests or rights of the Bank; and (b) an increase in Borrower's authorized capital with rights, terms or privileges different from those in effect on the date hereof shall not be deemed to adversely affect the interest or rights of the Bank so long as the terms of such capital make an express reference to the restrictions on redemption, dividends and other negative covenants set forth in the Bank Agreements for the benefit of the Bank. 9.9 Distributions. The Borrower will not (and will not permit its subsidiaries to) make any Distribution or make any payment on account of the purchase, acquisition, redemption, or other retirement of any shares of stock, whether now or hereafter outstanding except that Subsidiaries of the borrower may declare and make payment of cash and stock dividends, return capital and make distributions of assets to the Borrower. 9.10 Transactions with Affiliates. The Borrower will not enter into (or permit any Subsidiary to enter into) any transaction, including, without limitation, the purchase, sale or exchange of any property, or the rendering of any service, with any present or former affiliate, except in the ordinary course of business and pursuant to the reasonable requirements of its business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary, as the case may be, than would be obtained in a comparable arms'-length transaction with any Person not an Affiliate. As used herein, "Affiliate" includes (i) any officer or director of the Borrower or any Subsidiary, or (ii) any Person which, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the Borrower or (iii) any Person which beneficially owns or holds five (5%) percent or more of any class of equity or debt securities of the Borrower. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any Person, whether through the ownership of voting securities, by contract or otherwise. 9.11 Accounting Changes. The Borrower will not make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices including, without limitation, any change in its fiscal year), unless, prior to such change, the - 36 - 37 Borrower shall have informed the Bank of such change and shall have entered into an amendment to this Agreement, in form and substance satisfactory to the Bank, in order to preserve unimpaired the rights of the Bank and the obligations of the Borrower. SECTION 10 - EVENTS OF DEFAULT AND REMEDIES 10.1 Events of Default. Each of the following events shall be deemed to be an Event of Default hereunder: (a) The Borrower shall fail to make any payment in respect of the principal of any of the Obligations as the same shall become due, whether at the stated payment dates or by acceleration or otherwise, or interest or other fees on or in respect of any of the Obligations as the same shall become due. (b) The Borrower shall fail to perform or observe any covenant, agreement or provision contained in (i) Sections 6.1 through 6.7, 6.10 and 6.11 hereof; (ii) Section 7 hereof; (iii) Section 8.1, 8.3, 8.6 or 8.8 hereof; (iv) Section 9 hereof; or (v) the Revolving Credit Note. (c) The Borrower shall fail to perform or observe any covenant, agreement or provision contained in this Agreement (other than those specified in paragraphs (a) and (b) above) or in any other Bank Agreement, and such failure shall continue for fifteen (15) days after the earlier of the Bank's notice thereof to the Borrower or the date the Bank is or should have been notified of such default under the Bank Agreements. (d) Any representation or warranty of the Borrower herein or in any other Bank Agreement or any amendment thereof shall have been false or misleading in any material respect at the time made or intended to be effective. (e) The Borrower or any of its Subsidiaries shall fail to make any payment of Indebtedness for money borrowed in excess of $25,000 when such payment is due (whether by schedule maturity, required prepayment, acceleration, demand or otherwise) or shall fail to perform or observe any provision of any agreement or instrument relating to such indebtedness, and such failure shall permit the holder thereof to accelerate such Indebtedness. (f) The Borrower or any of its Subsidiaries shall be involved in financial difficulties as evidenced by: (i) its commencement of a voluntary case under Title 11 of the United State Code as from time to time in effect, or by its authorizing, by appropriate proceedings of its board of directors or other governing body, the commencement of such a - 37 - 38 voluntary case; (ii) by its filing an answer or other pleading admitting or failing to deny the material allegations of a petition filed against it commencing an involuntary case under said Title 11, or seeking, consenting to or acquiescing in the relief therein provided, or by its failing to controvert timely the material allegations of any such petition; (iii) by the entry of an order for relief in any involuntary case commenced under said Title 11; (iv) by its seeking relief as a debtor under any applicable law, other than said Title 11, of any jurisdiction relating to the liquidation or reorganization of debtors or to the modification or alteration of the rights of creditors, or by its consenting to or acquiescing in such relief; (v) by the entry of an order by a court of competent jurisdiction (x) finding it to be bankrupt or insolvent, (y) ordering or approving its liquidation, reorganization or any modification or alteration of the rights of its creditors, or (z) assuming custody of, or appointing a receiver or other custodian for all or a substantial part of its property and such order shall not be vacated or stayed on appeal or otherwise stayed within thirty (30) days; (vi) by filing of a petition against the Borrower under said Title 11 which shall not be vacated within (30) days; or (vii) by its making an assignment for the benefit of, or entering into a composition with, its creditors, or appointing or consenting to the appointment of a receiver or other custodian for all or a substantial part of its property. (g) Any judgment, writ, attachment, execution or similar process shall be issued or levied against the Borrower, any of its property or any of its Subsidiaries or their respective property and such judgment, writ, attachment, execution or similar process shall not be paid, stayed, released, vacated or fully bonded within ten (10) days after its issue or levy. (h) With respect to any Pension Plan, a Reportable Event shall have occurred and the Bank shall have reasonably determined that such event reasonably could be expected to result in liability of the Borrower or any of its Subsidiaries to the PBGC or such Pension Plan in an aggregate amount exceeding $25,000 (individually or in the aggregate) and such event in the circumstances occurring reasonably could constitute grounds for the termination of such Pension Plan by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Pension Plan; or a trustee shall have been appointed by the United States District Court to administer such Plan, or the PBGC shall have instituted proceedings to terminate such Pension Plan. (i) Any Person (other than a current stockholder of Borrower) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended), directly or indirectly, of 25% or more of the issued and outstanding capital stock (or other securities convertible into such voting stock) of Borrower. (j) Borrower shall at any time for any reason cease to be the record and beneficial owner of 100% of the outstanding capital stock of each of its Subsidiaries - 38 - 39 (k) Any "Event of Default" under any other Bank Agreement shall have occurred. 10.2 Remedies. Upon the occurrence of any Event of Default as defined in Section 10.1 hereof, and at any time thereafter, in addition to any other rights and remedies available to the Bank hereunder or otherwise, the Bank (i) will have no further obligation to make future advances and (ii) may declare the entire unpaid principal balance of and accrued interest on the Revolving Credit Note, together with all Obligations under this Agreement and all Indebtedness owing to the Bank, to be forthwith due and payable, whereupon the principal of and accrued interest in respect of the Revolving Credit Note and all such Obligations and Indebtedness shall become forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower (and provided, further, that such acceleration shall occur automatically upon the occurrence of any Event of Default described in Section 10.1(f). 10.3 Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default hereunder, the Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or notice of any kind to the Borrower or to any other Person, all of which are hereby expressly waived, to setoff and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held by or owing to the Bank to or for the credit or the account of the Borrower against and on account of the Obligations of the Borrower to the Bank under this Agreement and the Bank Agreements, irrespective of whether or not the Bank shall have made any demand hereunder and all of said obligations, liabilities or claims, or any of the, may then be contingent or unmatured, and without regard to the availability or adequacy of other collateral. The Bank shall give notice to the Borrower following any such setoff or application of funds; provided, however, that the failure to give such notice shall not affect the validity of such set off and application. SECTION 11 - WAIVERS: AMENDMENTS: REMEDIES No delay or omission on the Bank's part in exercising its rights and remedies against the Borrower or any other interested party shall constitute a waiver hereof. A breach by the Borrower of its obligations under this Agreement may be waived only by a written waiver executed by the Bank. the Bank's waiver of any breach in one or more instances shall not constitute or otherwise be an implicit waiver of subsequent breaches. The Borrower hereby agrees to waive, and does hereby absolutely and irrevocably waive (a) all presentments, demands for performance, notices or nonperformance, protests, notices of protest and notices of dishonor in connection with any of the Indebtedness evidenced by the Revolving Credit Note, (b) any requirement of diligence or promptness on the Bank's part in the enforcement of its rights under the provisions of this Agreement or any Bank Agreement, and (c) to the maximum extent permitted by applicable law, any and all notices of every kind and description which may be required to be given by any statute or rule of law with respect to its liability (i) - 39 - 40 under this Agreement or in respect of the Indebtedness evidenced by the Revolving Credit Note, or any other Obligation or (ii) under any other Bank Agreement. No course of dealing between the Borrower and the Bank shall operate as a waiver of any of the Bank's rights under this Agreement or any Bank Agreement or with respect to any of the Obligations. This Agreement or any Bank Agreement or with respect to any of the Obligations. This Agreement shall be amended only by a written instrument executed by the parties hereto making explicit reference to this Agreement. The Bank's rights and remedies under this Agreement and under all subsequent agreements between the Bank and the Borrower shall be cumulative and any rights and remedies expressly set forth herein shall be in addition to, and not in limitation of, any other rights and remedies which may be applicable to the Bank in law or at equity. SECTION 12 - INDEMNIFICATION Without limitation of any other obligation or liability of the Borrower or right or remedy of the Bank contained herein, the Borrower hereby covenants and agrees to indemnify and hold the Bank and the shareholders, directors, agents, officers, partners, subsidiaries and affiliates of the Bank harmless from and against any and all damages, losses (other than loss of profit), settlement payments, obligations, liabilities, claims, including, without limitation, claims for finder's or broker's fees, actions or causes of action, and reasonable costs and expenses incurred, suffered, sustained or required to be paid by an indemnified party in each case by reason of or resulting from any claim relating to the transactions contemplated hereby other than any such claims which arise or are incurred as a result of the Bank's gross negligence or willful misconduct. In any investigation, proceeding or litigation, or the preparation therfor, the Bank shall be entitled to select one counsel of its own and, in addition to the foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and expenses of such counsel, except that such counsel fees and expense shall not be paid with respect to any claims which arise or are incurred as a result of the Bank's gross negligence or willful misconduct. The Bank shall give the Borrower prior written notice of its intent to settle or compromise any claim. The foregoing notice having been given, the Bank may settle or compromise any claim, action or cause of action referred to above, whether prior to or after the commencement of litigation; provided, that any such settlement shall include only claims, actions or causes of action against the Bank and not any such claims, actions or causes of action which claimant may have directly against the Borrower. SECTION 13 - MISCELLANEOUS 13.1 Survival of Agreements, etc. This Agreement shall inure to the benefit of the Bank and its successors and assigns, including any subsequent holder or holders of the Note, and the term "Bank" shall include any such holder or holders whenever the context permits. All agreements, covenants, representations and warranties made herein shall survive the execution and delivery of this Agreement and the making of the Revolving Credit Loans hereunder. - 41 - 41 13.2 Notices. All notices and other communications made or required to be given pursuant to this Agreement, or in any of the Bank Agreements, shall be in writing and shall be mailed by first-class mail, postage prepaid; or sent by overnight courier, or sent by facsimile, in each case addressed as follows: If to the Borrower, at the following adddress, or at such other address as the Borrower shall have furnished to the Bank in writing: Chief Financial Officer Bachman Information Systems, Inc. 8 New England Executive Park Burlington, Massachusetts 01803 Facsimile: 617-229-9864 with a copy to: John D. Patterson, Jr., Esq. Foley, Hoag & Eliot One Post Office Square Boston, Massachusetts 02109 Facsimile: 617-482-7347 If to the Bank, at the following address, or at such address as the Bank shall have furnished to the Borrower in writing: David B. Fischer Senior Vice President Silicon Valley Bank Loan Production Office Wellesley Office Park 40 William Street, Suite 350 Wellesley, MA 02181 Facsimile: 617-431-9906 with a copy to: Harry A. Hanson, III, Esq. Hutchins, Wheeler & Dittmar A Professional Corporation 101 Federal Streeet Boston, Massachusetts 02110 - 41 - 42 Facsimile: 617-951-1295 All such notices and communications shall be deemed to have been duly given three (3) business days after being deposited in the mail, postage prepaid, if mailed; one (1) business day after being sent by overnight courier; when receipt acknowledged, if telecopied. 13.3 Entire Agreement etc. This Agreement and the documents and other materials contemplated hereby constitute the entire agreement of the Borrower and the Bank and express their entire understanding with respect to credit advanced or to be advanced by the Bank to the Borrower. This Agreement shall be amended only by a written instrument executed by the Bank making explicit reference to this Agreement. 13.4 Governing Law: Consent to Jurisdiction. This Agreement, the Security Documents, the Note and the other Bank Agreements, including the validity thereof and the rights and obligations of the parties hereunder and thereunder, shall be construed in accordance with and governed by the internal laws of the commonwealth of Massachusetts, without giving effect to the conflicts of law principles thereof. The Borrower hereby consents to service of process, and to be sued, in the Commonwealth of Massachusetts or the State of California and consents to the jurisdiction of any federal or state court of competent jurisdiction in the Commonwealth of Massachusetts or the State of California, as well as to the jurisdiction of all courts from which an appeal may be taken from such courts, for the purpose of any suit, action or other proceeding arising out of any of its obligations hereunder, under the Security documents, under the Note or under the other Bank Agreements or with respect to the transactions contemplated hereby or thereby, and expressly waives any and all objections, it may have as to venue in any such courts, or to any claim as to inconvenient forum. The Borrower hereby consents to process being served in any suit, action or proceeding of the nature referred to in the preceding paragraph of this Section 13.4 either (i) by mailing a copy thereof by registered or certified mail, postage prepaid, return receipt requested, to it at its address set forth in Section 13.2 or (ii) by serving a copy thereof upon it at its address set forth in Section 13.2. The Borrower irrevocably waives, to the fullest extent permitted by law, all claims of error by reason of any service as contemplated herein and agrees that such service shall (x) be deemed in every respect effective service upon the Borrower in any such suit, action or proceeding and (y) to the fullest extent permitted by law, be taken and held to be valid personal service upon and personal delivery to the Borrower. 13.5 Severability; Headings; Counterparts; etc. The invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of any other term or condition hereof. The headings in this Agreement are for convenience of reference only and will not alter or otherwise affect the meaning hereof. This Agreement may be executed in a number of counterparts which together shall constitute one instrument and shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. The - 42 - 43 interpretation of the provisions of this Agreement shall not be construed against any party hereto based upon the fact that such party may have drafted, or caused to be drafted, such provisions. 13.6 Bank Holidays. Whenever any payment to be made under this Agreement shall become due on a day on which the Bank is required or permitted by law to remain closed, such payment may be made on the next succeeding Banking Day on which the Bank is open, and such extension shall be included in computing the interest in connection with such payment. 13.7 Expenses. The Borrower agrees to pay on demand, all the Bank's reasonable expenses in preparing, executing, delivering and administering this Agreement and related instruments and documents, including, without limitation, the reasonable fees and out-of-pocket expenses of the Bank's special counsel, Hutchins, Wheeler & Dittmar (subject to the terms hereof), and (subject to the terms hereof) the expenses of the Bank in conducting field examinations of the books and records of the Borrower. The Borrower also agrees to pay on demand, all reasonable out-of-pocket expenses incurred by the Bank, including, without limitation, legal and accounting fees, in connection with the collection of amounts upon the occurrence of an Event of Default described in Section 10 hereof, the revision, protection or enforcement of any of the Bank's rights against the Borrower under the Agreement, the Revolving Credit Note and all other Bank Agreements and the administration of special problems that may arise under this Agreement or any other Bank Agreement. The Borrower also agrees to pay all stamp and other taxes in connection with the execution and delivery of this Agreement and related instruments and documents. Any fees, expenses or other charges which the Bank is entitled to receive from the Borrower hereunder shall bear interest from the date of demand for payment until paid at the lesser of (i) the rate specified in Section 2.5(a) hereof or (ii) the maximum rate permitted by then applicable law. 13.8 Participation. The Borrower acknowledges and agrees that the Bank shall, upon thirty (30) Banking Days prior notice to the Borrower, be entitled to sell one or more participations to other banks or financial institutions in the Revolving Credit Loan and the Revolving Credit Note on such terms as the Bank in its sole discretion shall deem appropriate. Any such participating lender shall be deemed to have the same right of set-off established under this Agreement on behalf of the Bank to the extent of its participation in the obligations of the Borrower under this Agreement as it would have if it were a direct lender. 13.9 Termination. This Agreement may be terminated by the Borrower at any time by not less than ten (10) days' prior written notice of such termination to the Bank; provided, however, that, unless and until all Obligations of Borrower to Bank existing (whether or not due) as of the time of the receipt of such notice by the Bank shall have been paid in full, such termination shall in no way affect the rights and powers granted to the Bank in connection with this Agreement, and until such payment in full all rights and powers hereby - 43 - 44 granted to the Bank hereunder shall be and remain in full force and effect; and provided, further, that if the Borrower, upon termination of this Agreement, fails to maintain the Bank as its principal depository institution and maintain its operating account with the Bank, then the Borrower shall pay to the Bank a termination fee of five thousand dollars ($5,000.00). 13.10 Reproduction of Agreement. This Agreement and all other instruments, documents and papers which relate thereto which have been or may be hereafter furnished to the Bank may be reproduced by the Bank by any photographic, photostatic, micro-card, miniature photographic, xerographic or similar process, and the Bank may destroy the original from which any document was so reproduced. Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business). However, to the extent that such reproduction conflicts with the original, the original shall control. 13.11 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF ARISING OUT OF, THIS AGREEMENT, THE REVOLVING CREDIT NOTE AND THE OTHER BANK AGREEMENTS AND TRANSACTIONS CONTEMPLATED HEREBY AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN THE BORROWER, AND THE BANK. The Borrower hereby certifies that neither the Bank nor any of its representatives, agents or counsel has represented, expressly or otherwise, that the Bank would not, in the event of any suit, action or proceeding, seek to enforce this waiver of right to trial by jury. The Borrower acknowledges that the Bank has been induced to enter into this agreement by, among other things, this waiver. The Borrower acknowledges that it has read the provisions of this Agreement and, in particular, this section, has consulted legal counsel, understands the rights it is granting in this agreement and is waiving in this section in particular, and makes the above waiver knowingly, voluntarily and intentionally. * * * * * * - 44 - 45 Counterpart Signature Page AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amended and Restated Revolving Credit Agreement to be executed as a sealed instrument by their duly authorized officers as of the date first above written. CORPORATE SEAL BACHMAN INFORMATION SYSTEMS, INC. Attest: /s/ Eugene DiDonato By: /s/ Peter J. Boni -------------------------- -------------------------- Clerk Name: Peter J. Boni Its: President SILICON VALLEY BANK SILICON VALLEY EAST (signed at Santa Clara, CA) By: /s/ Julie Haga By: /s/ David Fischer ----------------------------- -------------------------- Name: Julie Haga Name: David Fischer Its: Its: S.V.P S-1 46 LIST OF EXHIBITS EXHIBITS Exhibit A Form of Revolving Credit Demand Note Exhibit B Form of Borrowing Request Exhibit C Form of Borrowing Base Certificate for Domestic Accounts Receivable Exhibit C-1 Form of Borrowing Base Certificate for International Accounts Receivable Exhibit D Form of Compliance Certificate Exhibit E Form of guaranty Agreement 47 LIST OF SCHEDULES SCHEDULES Schedule 1.1(a) List of Authorized Officers Schedule 4.1 List of Jurisdictions Where Organized Schedule 4.2 Principal Places of Business For Subsidiaries Schedule 4.3 List of Jurisdictions where Qualified Schedule 4.4 List of Subsidiaries Schedule 4.9 Financial Statements Schedule 4.10 Schedule of Issued and Outstanding Stock Schedule 4.11 Changes in Condition Schedule 4.12 Schedule of Liens, Encumbrances, and Capitalized Lease Obligations Schedule 4.13 Schedule of Litigation Schedule 4.14 Schedule of Pension Plans Schedule 4.15 Outstanding Indebtedness, Liens and Investments Schedule 4.16 Schedule of Patents, Trademarks, Etc. Schedule 4.17 Schedule of Environmental Matters Schedule 9.1(e) Indebtedness Limits of Foreign Subsidiaries EX-21.1 5 LIST OF SUBSIDIARIES OF CAYENNE 1 Exhibit 21.1 LIST OF SUBSIDIARIES Name of Jurisdiction of Subsidiary Incorporation - ---------- --------------- Bachman Information Systems GmbH Germany Bachman Information Systems Canada, Ltd. Canada Bachman International Ltd. Delaware Bachman France S.A.R.L. France Bachman S.R.L. Italy Bachman Information Systems Limited United Kingdom Bachman Securities Corporation Massachusetts WindTunnel Software, Inc. Delaware CSI Acquisition Corporation Massachusetts Bachman Asia Pacific Pte. LTD Singapore Bachman Spain S.L. Spain Cadre Technologies, Inc. Delaware Cadre Technologies, International Oregon Cadre Technologies S.A. Switzerland Cadre Technologies, France S.A. France Cadre Technologies, GMBH Germany Cayenne Software Pty Limited Australia Cadre Technologies, Limited United Kingdom Westmount Technologies B.V. Netherlands Westmount U.S.A., Inc. Delaware Micro Case, Inc. Delaware EX-23.1 6 CONSENT OF COOPERS & LYBRAND L.L.P. 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Cayenne Software, Inc. (formerly Bachman Information Systems, Inc.) on Forms S-8 (File Nos. 33-87314, 33-53298, 33-45766, 33-71964 and 333-12139) and Forms S-3 (File Nos. 33-99956 and 33-89940) of our reports dated August 20, 1996, on our audits of the consolidated financial statements and financial statement schedule of Cayenne Software, Inc. as of June 30, 1996 and 1995, and for each of the three years in the period ended June 30, 1996, which reports are included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Boston, Massachusetts September 27, 1996 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 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. 0000880229 CAYENNE SOFTWARE, INC. 1,000 U.S. DOLLARS YEAR JUN-30-1996 JUL-01-1995 JUN-30-1996 1 11,549 0 8,726 716 0 21,579 4,746 3,431 23,316 12,608 0 128 0 0 10,521 23,316 12,658 31,952 1,216 8,846 28,266 0 64 (4,750) 1,083 (5,833) 0 0 0 (5,833) (.51) (.47)
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