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As filed with the Securities and Exchange Commission on April 2, 1997.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
TRIAD PARK, LLC
(Name of Small Business Issuer in Its Charter)
DELAWARE 94-3264115
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3055 TRIAD DRIVE
LIVERMORE, CALIFORNIA 94550
(Address of principal executive offices)
(510) 449-0606
(Issuer's telephone number, including area code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
Not applicable Not applicable
Securities to be registered under Section 12(g) of the Act:
Membership Interests
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
The information provided under the captions "Summary of Spin-Off Transaction,"
"Plan of Distribution," "Risk Factors," "Description of Properties of the
Company," "Business of the Company" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the information statement
attached to this Form 10-SB registration statement as Exhibit 12.1
("Information Statement") is incorporated by reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The information provided under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Information
Statement is incorporated by reference.
ITEM 3. DESCRIPTION OF PROPERTY.
The information provided under the captions "Summary of Spin-Off Transaction,"
"Plan of Distribution," "Risk Factors -- Real Estate Related Risks,"
"Description of Lease Agreement" and "Description of Properties of the Company"
in the Information Statement is incorporated by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information provided under the caption "Holdings of Principal Share Holders
and Security Holdings of Managing Member(s), Executive Officers and Advisory
Board Members" in the Information Statement is incorporated by reference.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The information provided under the captions "Summary of Spin-Off Transaction"
and "Management of the Company" in the Information Statement is incorporated by
reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information provided under the caption "Compensation of Management" in the
Information Statement is incorporated by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information provided under the captions "Summary of Spin-Off Transaction,"
"Transactions with Interested Parties" and "Relationships Between Triad and the
Company" in the Information Statement is incorporated by reference.
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ITEM 8. DESCRIPTION OF SECURITIES.
The information provided under the captions "Description of Shares" and
"Summary of Limited Liability Company Agreement" in the Information Statement
is incorporated by reference.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The information provided under the captions "Summary of Spin-Off Transaction,"
"Summary of Limited Liability Company Agreement -- Distribution" and "Trading
of Shares" in the Information Statement is incorporated by reference. Upon
completion of the Distribution, it is expected that there will be approximately
1100 holders of record of Triad Park, LLC's membership interests.
ITEM 2. LEGAL PROCEEDINGS.
Management of the Registrant is not aware of any legal proceedings, or pending
legal proceedings, to which the Registrant is a party or to which the property
of the Registrant is subject.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None of the events described in this Item has occurred within the past
twenty-four (24) months.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant was formed on February 10, 1997. All of the outstanding Shares
were issued by Registrant to Triad Systems Corporation and to 3055 Management
Corp. pursuant to the exemption provided by Section 4(2) of the Securities Act
of 1933. The information provided under the caption "Plan of Distribution --
Contribution Transactions" in the Information Statement is incorporated by
reference.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information provided in Section 4.9 of the Registrant's Limited Liability
Company Agreement filed as Exhibit 2.1 to this Form 10-SB is incorporated by
reference. Pursuant to this Section, members of the Advisory Board and
officers of the Registrant are indemnified to the fullest extent not prohibited
by Delaware law.
PART F/S
The financial statements listed in "Index to Financial Statements" in the
Information Statement are incorporated by reference.
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PART III
ITEM 1. INDEX TO EXHIBITS.
The exhibits filed herewith are listed in the "Index to Exhibits" on page 5 of
this Form 10-SB and are incorporated by reference.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: April 2, 1997
TRIAD PARK, LLC
By: 3055 MANAGEMENT CORP.,
its Manager
By: /s/ JAMES R. PORTER
-------------------------
James R. Porter
Vice President, Secretary and
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Item Page
- --- ---- ----
<S> <C> <C>
2 Charter and By-Laws
2.1 Limited Liability Company Agreement of Triad Park, LLC
2.2 By-Laws of Triad Park, LLC
3 Instruments defining the rights of security holders
3.1 Limited Liability Company Agreement of Triad Park, LLC (see Exhibit 2.1)
3.2 By-Laws of Triad Park, LLC (see Exhibit 2.2)
3.3 Form of Rights Plan of Triad Park, LLC
6 Material contracts
6.1 Real Estate Distribution Agreement, dated as of February 26, 1997, by and
between Triad Systems Corporation, 3055 Triad Dr. Corp., 3055 Management
Corp. and Triad Park, LLC
6.2 Project Lease Agreement, dated as of August 1, 1988, between 3055 Triad Dr.
Corp. and Triad Systems Corporation
6.3 First Amendment to Project Lease Agreement, dated as of February 26, 1997,
by and between Triad Park, LLC, 3055 Triad Dr. Corp. and Triad Systems
Corporation
12 Additional exhibits
12.1 Information Statement
12.2 Appraisal of: Triad Business Park, Livermore, California, Prepared for:
Triad Systems Corporation, November, 1996
27 Financial Data Schedule
27.1 Financial Data Schedule
</TABLE>
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LIMITED LIABILITY COMPANY AGREEMENT
OF
TRIAD PARK, LLC
This Limited Liability Company Agreement of Triad Park, LLC, a
Delaware limited liability company (the "COMPANY"), is entered into effective
as of the 26th day of February, 1997, among Triad Systems Corporation, a
Delaware corporation ("TRIAD") and 3055 Management Corp., a California
corporation, as the initial members of the Company, and the Persons who
subsequently become members of the Company in accordance with the provisions of
this Limited Liability Company Agreement.
RECITALS
A. Triad is the owner of certain real estate assets located in the
City of Livermore, State of California, commonly referred to as Triad Park.
Triad and 3055 Management Corp. desire to form the Company to acquire, own,
manage, develop and sell the real estate assets.
B. Following the formation of the Company and the transfer of the
real estate assets to the Company, Triad will transfer its membership interests
in the Company to its shareholders, as a dividend distribution. Upon receipt of
the dividend distribution, the shareholders of Triad shall become members of
the Company.
C. 3055 Management Corp. will contribute cash to the Company for its
membership interest and will be the initial manager of the Company.
Therefore, Triad and 3055 Management Corp., for themselves and on
behalf of the Share Holders (as defined below), agree to form a limited
liability company under the Delaware Limited Liability Company Act on the
following terms and conditions:
SECTION 1. FORMATION
1.1 FORMATION OF COMPANY. The Company has been organized as a
Delaware limited liability company by the filing of a Certificate of Formation
pursuant to the Delaware Limited Liability Company Act with the Delaware
Secretary of State.
1.2 NAME. The name of the Company is "Triad Park, LLC" and all
Company business shall be conducted under that name or such other names that
comply with applicable law as the Manager (as defined below) may select from
time to time.
1.3 PURPOSE AND SCOPE. Subject to the provisions of this
Agreement and the Certificate, the purposes of the Company are to acquire the
Property (as defined below) and to liquidate the Property, and in the course of
liquidating the Property to hold, maintain, operate, develop, improve,
subdivide, lease, finance, refinance, offer for sale and sell the Property and
any portion of the Property, and do any and all other acts or things that may
be necessary, appropriate, proper, advisable, incidental to or convenient for
the furtherance and accomplishment of these purposes,
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including but not limited to entering into joint venture arrangements with
third parties as deemed appropriate to accomplish these purposes.
1.4 TERM. The Company shall commence on the date the Certificate
is filed and shall continue until it is wound up and dissolved pursuant to the
provisions of Section 7 of this Agreement.
1.5 OFFICE; AGENT. The registered office of the Company required
by the Act to be maintained in the State of Delaware shall be located at 1209
Orange Street, Wilmington, Delaware 19801, or such other office (which need not
be a place of business of the Company) as the Manager may designate from time
to time in the manner provided by law. The name and address of the registered
agent of the Company shall be The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801. The Company may have such other offices as
the Manager may designate from time to time.
1.6 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
(a) ACT. The Delaware Limited Liability Company Act, as amended
from time to time.
(b) ADVISORY BOARD. The board described in Section 4.6 of this
Agreement.
(c) AFFILIATE. When used with reference to a specified Person,
(i) any Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the specified
Person, (ii) any Person that is an officer or director of, partner or trustee
of, or serves in a similar capacity with respect to, the specified Person or of
which the specified Person is an officer, director, partner, or trustee, or
with respect to which the specified Person serves in a similar capacity, (iii)
any Person that, directly or indirectly, is the beneficial owner of ten percent
(10%) or more of any class or voting securities of, or otherwise has a
substantial beneficial interest in, the specified Person or of which the
specified Person has a substantial beneficial interest, and (iv) any immediate
family member or spouse of the specified Person.
(d) AGREEMENT. This Limited Liability Company Agreement, as
originally executed and as amended, modified, supplemented or restated from
time to time in accordance with its terms.
(e) BANKRUPTCY. With respect to a Person, the Person (i) makes
an assignment for the benefit of creditors, (ii) files a voluntary petition in
bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has entered against
him an order for relief, in any bankruptcy or insolvency proceeding, (iv) files
a petition or answer seeking for himself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation, (v) files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against him in
any proceeding of this nature, or (vi) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the Person or of all or any
substantial part of his properties, or (vii) is the subject of any proceeding
against the Person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation, if the proceeding has not been dismissed within 90 days after
its commencement.
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(f) BYLAWS. Rules and regulations governing meetings of Share
Holders, voting procedures and similar matters, as adopted and amended from
time to time by the Advisory Board.
(g) CERTIFICATE. The Certificate of Formation of the Company, as
originally filed and as amended or restated from time to time in accordance
with this Agreement and the Act.
(h) CODE. The Internal Revenue Code of 1986 or any successor
statute, as amended from time to time.
(i) COMPANY. Triad Park, LLC, a Delaware limited liability
company.
(j) DISTRIBUTABLE CASH. Cash funds of the Company from any
source, less the sum of (i) an amount sufficient for the payment of all
expenses of the Company then due and payable, (ii) reasonable reserves for the
Company as determined by the Manager and approved by the Advisory Board and
(iii) amounts required to be retained by the Company under the terms of the
Distribution Agreement.
(k) DISTRIBUTION AGREEMENT. The Real Estate Distribution
Agreement among the Company, Triad, 3055 Management Corp. and 3055 Triad Dr.
Corp., a California Corporation, as amended from time to time.
(l) DISTRIBUTION DATE. The date on which Triad completes the
distribution of the Shares to those Persons who were shareholders of Triad on
the Record Date.
(m) FISCAL YEAR. The taxable year of the Company shall end
December 31 of each year.
(n) INITIAL MEMBERS. Triad and 3055 Management Corp.
(o) MAJOR DECISIONS. As defined in Section 4.6(b).
(p) MAJORITY VOTE. The vote of Share Holders holding more than
fifty percent (50%) of the Shares.
(q) MANAGER. 3055 Management Corp., and any Person or Persons
who succeed it as manager of the Company.
(r) PERSON. A natural person, partnership (whether general or
limited and whether domestic or foreign), limited liability company, trust,
estate, association, corporation, custodian, nominee, or any other individual
or entity, in its own or any representative capacity.
(s) PROPERTY. The land and improvements to be contributed to the
Company by Triad pursuant to the Distribution Agreement.
(t) RECORD DATE. The date as of which the Triad stockholders of
record who will receive the distributions of Shares are determined.
(u) RIGHTS AGREEMENT. As defined in Section 9.
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(v) SHARE. A Share Holder's rights as a member in the Company,
collectively, including the right to share in the income, gains, losses,
deductions, credit, or similar items of, and to receive distributions from, the
Company, any right to vote or participate in management, and any right to
information concerning the business and affairs of the Company.
(w) SHARE HOLDER. A Person who is a member in the Company by
being a holder of one or more Shares.
(x) SPINOFF DISTRIBUTION. The distribution by Triad of the
Shares to the Persons who were shareholders of Triad on the Record Date.
(y) TAX DISTRIBUTION. As defined in Section 3.1.
(z) TRANSFER AGENT. The company selected by the Manager, with
the approval of the Advisory Board, to serve as registrar and transfer agent
for the Shares, and any Person or Persons who succeed it as registrar and
transfer agent for the Shares.
(aa) TRANSFER APPLICATION. An application for transfer of Shares
in the form set forth on the back of a Share certificate, substantially in the
form attached to this Agreement as Exhibit A.
(bb) TRIAD. Triad Systems Corporation, a Delaware corporation.
SECTION 2. CAPITALIZATION OF THE COMPANY
2.1 TRIAD CONTRIBUTION. Prior to the Distribution Date, and
subject to terms and conditions of the Distribution Agreement, Triad shall
transfer title to its interest in the Property to the Company, subject only to
the liabilities, liens and encumbrances as are expressly permitted under the
Distribution Agreement, together with such other assets as may be required by
the Distribution Agreement. In exchange for its contribution, Triad shall be
admitted as an Initial Member and shall be issued a number of Shares equal to
the aggregate number of outstanding shares of stock of Triad as of the Record
Date. It is agreed that the fair market value of Triad's contribution shall be
determined based upon an appraisal and shall be consistent with the value used
for Triad's income tax returns.
2.2 3055 MANAGEMENT CORP. CONTRIBUTION. At the time Triad
transfers the Property to the Company, 3055 Management Corp. shall contribute
to the Company its promissory note in an amount equal to 1.01% of the fair
market value of Triad's contribution pursuant to Section 2.1. The promissory
note shall be due and payable 5 days after the Spinoff Distribution, shall be
interest-free if timely paid, and shall contain such other provisions as Triad
may reasonably require. In exchange for its contribution of the promissory
note, 3055 Management Corp. shall be admitted as an Initial Member and shall
be issued a number of Shares equal to 1.01% of the number of Shares issued to
Triad pursuant to Section 2.1.
2.3 ADDITIONAL CAPITAL. No Share Holder shall have any
obligation to contribute additional capital to the Company, other than as
required under Sections 2.1 and 2.2 of this Agreement. If Company capital and
revenues are insufficient to meet its cash requirements and the Company is
unable to obtain loans on terms the Advisory Board deems acceptable, the
Company may issue additional membership interests in exchange for additional
contributions to the capital of the
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Company, on such terms as are determined by the Advisory Board, which may
involve the issuance of more Shares or may involve the issuance of other
membership interests with priority over existing Shares as to distributions,
taxable income or loss, voting rights and participation in management.
Provided the additional membership interests have been issued in conformity
with the determination of the Advisory Board, this Agreement may be amended by
the Manager to reflect the sale of the additional membership interests, the
admission of additional members and any changes in allocations of
distributions, taxable income or loss, voting rights and participation in
management, and such amendment shall not require the approval of the Share
Holders.
2.4 LOANS. Subject to the approval of the Advisory Board, the
Manager, from time to time and in its reasonable judgment, may obtain loans
from third parties to meet operating expenses and capital expenditures of the
Company, which loans may be unsecured or secured by all or a portion of Company
assets. If loans from third parties are unavailable on terms and conditions
which the Manager deems reasonable, then any Share Holder may, but shall not be
obligated to, loan money to the Company. Any loan from a Share Holder shall
bear interest at such rate and be payable on such terms as the lending Share
Holder and the Manager may determine.
SECTION 3. DISTRIBUTIONS AND ALLOCATIONS
3.1 DISTRIBUTIONS. In general, the Company shall distribute
Distributable Cash to the Share Holders at such times and in such amounts as
the Advisory Board may determine. Notwithstanding the preceding sentence, for
each Fiscal Year of the Company in which the Company has taxable income (except
the Fiscal Year in which the Company is liquidated), and to the extent the
Company has sufficient Distributable Cash, the Company shall distribute not
less than an amount equal to the product of (i) the Company's taxable income
multiplied by (ii) the highest marginal federal income tax rate imposed on
individual taxpayers (the "TAX DISTRIBUTION"). The Tax Distribution shall be
completed not later than ninety (90) days after the end of the Fiscal Year in
which the Company has taxable income.
3.2 ALLOCATION OF DISTRIBUTIONS. Distributions of the Tax
Distribution and distributions of Distributable Cash shall be allocated and
distributed to the Share Holders in proportion to their record ownership of
Shares as of the date the distribution is declared. A declared distribution
shall be made as soon as practicable after the declaration date.
3.3 WITHHOLDINGS AS DISTRIBUTIONS. Any amounts withheld by the
Company pursuant to the Code or any other provision of state or local law with
respect to any allocation or distribution to a Share Holder shall be treated as
a distribution to the Share Holder for all purposes under this Agreement. If
withholding payments exceed the amount of distributions the Share Holder would
otherwise have received from the Company, the Share Holder shall be obligated
to return such excess payments to the Company, plus interest at the rate of 10%
per annum from the date(s) of such excess payments.
3.4 LIMITATIONS ON DISTRIBUTIONS. No Share Holder shall become
entitled to any distribution from the Company until such time as the
distribution is actually paid by the Company. No Share Holder has any right to
demand and receive any distribution from the Company in any form other than
money. No Share Holder may be compelled to accept from the Company a
distribution of any asset in kind in lieu of a proportionate distribution of
money being made to other
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Share Holders. No distribution shall be made by the Company if the
distribution is prohibited by Section 18-607(a) of the Act.
3.5 ALLOCATIONS OF INCOME OR LOSS.
(a) Within 45 days after the end of each calendar month, the
Company shall conduct an interim closing of the books as of the end of the last
day of that calendar month. On the basis of the closing of the books for each
calendar month, the Company shall determine the amounts of income, gain, loss,
deduction and credit attributable to that calendar month.
(b) Items of income, gain, loss, deduction or credit of the
Company for any calendar month shall be allocated among the Share Holders of
record as of the last day of that calendar month, in proportion to their
ownership of Shares on such date. For purposes of accounting for transfers of
Shares under this Section 3.5, transfers which are effective on or before the
15th day of a calendar month shall be deemed to be effective as of the first
day of the calendar month, and transfers which are effective after the 15th day
of a calendar month shall be deemed to be effective as of the first day of the
succeeding calendar month. The effective date of a transfer of Shares shall be
determined under Section 5.5 below. The allocations of income, gain, loss,
deduction and credit under this Section 3.5 shall not affect the allocation of
distributions under Sections 3.2 and 7.3.
3.6 REDEMPTION OF SHARES. Within 5 days after 3055 Management
Corp. pays the promissory note described in Section 2.2 of this Agreement, the
Company shall redeem Shares from the Share Holder or Share Holders who are the
stockholders of 3055 Management Corp. The redemption shall be for an amount of
cash equal to the capital contribution of 3055 Management Corp. and the number
of Shares to be redeemed shall be equal to the number of Shares issued to 3055
Management Corp. If 3055 Management Corp. has more than one stockholder, the
redemption shall be in proportion to their ownership of the stock of 3055
Management Corp.
SECTION 4. MANAGEMENT
4.1 MANAGEMENT. The business and affairs of the Company shall be
managed by the Manager. The Manager shall direct, manage, and control the
business of the Company to the best of its ability and shall devote such time
and effort to the business and affairs of the Company as may be necessary and
appropriate for the success of the Company. The Manager need not be a Share
Holder. The initial Manager shall be 3055 Management Corp. who shall continue
as the Manager until it resigns or is removed by the Advisory Board. The
Manager may resign upon 60 days prior written notice to the Advisory Board.
The Manager may be removed at any time, with or without cause, by the Advisory
Board and the Advisory Board may appoint the successor to any Manager who
resigns or is removed.
4.2 SPECIFIC AUTHORITY OF THE MANAGER. Except as otherwise
provided in this Agreement, the Manager shall have full and complete authority,
power, and discretion to manage and control the business, affairs, and
properties of the Company, to make all decisions regarding those matters and to
perform any and all other acts or activities customary or incident to the
management of the Company's business. Subject to the approval rights of the
Advisory Board for Major Decisions, the Manager shall have the power and
authority to take any of the following actions:
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(a) To operate, maintain, develop and improve the Property and to
apply for and obtain land use entitlements, building permits, zoning
designations and variances, as the Manager determines are necessary or
appropriate or in the best interests of the business of the Company;
(b) To borrow money and, to secure any such borrowings, to
mortgage, pledge or otherwise encumber any and all assets of the Company and
the rights of the Company under any agreements;
(c) To cause to be paid all amounts due and payable by the
Company to any person and to collect all amounts due to the Company;
(d) To lease any portion of the Property, and modify, terminate
or extend any lease of any portion of the Property;
(e) To employ such agents, employees, accountants, attorneys,
consultants and other Persons, including itself and its Affiliates, necessary
or appropriate to carry out the business and affairs of the Company, whether or
not any such persons so employed are affiliated or related to any Share Holder,
and to pay such fees, expenses, salaries, wages and other compensation to such
Persons as the Manager shall in its sole discretion determine, except that any
compensation paid to the Manager or any Affiliate of the Manager shall be
approved by the Advisory Board;
(f) To pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or compromise, upon such terms as it may determine and upon
such evidence as it may deem sufficient, any obligation, suit, liability, cause
of action or claim, including taxes, either in favor of or against the Company;
(g) To pay any and all reasonable fees and to make any and all
reasonable expenditures which it, in its sole discretion, deems necessary or
appropriate in connection with the organization of the Company, the management
of the affairs of the Company, and the carrying out of its obligations and
responsibilities under this Agreement and the Act, and to enforce all rights of
the Company;
(h) To offer for sale, sell, or otherwise dispose of any of any
part of or any interest in the assets owned by the Company;
(i) To file applications, to communicate and otherwise deal with
any and all governmental agencies having jurisdiction over, or in any way
affecting, the Company, the Property, or any aspect of the Company's business;
(j) To make or revoke any election permitted the Company by any
taxing authority;
(k) To maintain such insurance coverage for public liability,
fire and casualty, and any and all other insurance necessary or appropriate to
the business of the Company, in such amounts and of such types, as the Manager
shall determine from time to time, provided the insurance is available on terms
which the Manager deems reasonable;
(l) To apply, in accordance with the provisions of this
Agreement, any insurance proceeds to the restoration of the Property or to
distribute the proceeds;
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(m) To cause to be paid any and all taxes, charges and
assessments that may be levied, assessed or imposed upon the Company and any of
the assets of the Company, unless the same are contested by the Manager in good
faith;
(n) To establish and maintain such reserves as the Manager and
the Advisory Board determine are reasonably necessary or appropriate, and to
invest Company reserves in such liquid investments as the Manager may select
from time to time;
(o) To engage in any kind of activity and to perform and carry
out contracts of any kind necessary to, or in connection with or convenient or
incidental to, the accomplishment of the purposes of the Company, so long as
such activities and contracts may be lawfully carried on or performed by a
limited liability company under applicable law, including but not limited to
joint ventures or other business relationships for the joint development and
sale of the Property or any portion of the Property;
(p) To submit to the vote of the Advisory Board or the Share
Holders any matter which the Manager determines is appropriate for approval;
(q) To admit additional Share Holders or other members and
permit additional capital contributions as provided in Section 2.3 (and
appropriately amend this Agreement if necessary to reflect the admissions and
additional capital contributions and other terms); and
(r) Upon the dissolution of the Company, to liquidate and
terminate the Company in accordance with the provisions of this Agreement.
4.3 LIMITATION ON MANAGER'S AUTHORITY. The Manager shall not have
authority to:
(a) Do any act in contravention of this Agreement or knowingly
refrain from doing any act required by this Agreement;
(b) Perform any act that would subject the Share Holders to
liability for Company obligations in any jurisdiction, or refrain from
performing any act if such failure would subject the Share Holders to personal
liability for Company obligations in any jurisdiction;
(c) Confess a judgment against the Company which would make it
impossible to carry on the business of the Company;
(d) Acquire any real property, including any interest in real
property, or any other illiquid asset, other than the Property (except that
this limitation shall not be construed to prevent the Manager from entering
into lot line adjustments and similar arrangements with adjacent property
owners);
(e) Cause the Company to acquire any asset or enter into any
transaction if the effect of such acquisition or transaction will be the
receipt by the Company of income which is not "qualifying income" as that term
is defined in Section 7704 of the Code;
(f) Take any action that would cause the Company to be taxed
as a corporation for federal income tax purposes; or
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(g) Except as otherwise provided herein, amend this Agreement
without the approval of the Share Holders.
4.4 DUTIES OF THE MANAGER.
(a) Subject to the terms and conditions of this Agreement, the
Manager shall proceed to liquidate the Property.
(b) The Manager shall take all actions which may be necessary or
appropriate for the continuation of the Company's existence as a limited
liability company under the Act and to preserve the limited liability of the
Share Holders.
(c) The Manager shall cause to be prepared and timely filed each
year, at the expense of the Company, all federal, state or local tax or
information returns required of the Company, and shall cause the Company to pay
any and all taxes that may be imposed on the Company, or for which the Company
has a legal obligation to collect and/or remit, when and as the taxes are due.
(d) The Manager shall not be obligated to devote full time to the
affairs of the Company, but shall devote the amount of time reasonably
necessary to manage the Company's business and perform the Manager's duties.
4.5 COMPENSATION. As compensation for additional California tax
liability that the Share Holder-owners of 3055 Management Corp. will suffer,
3055 Management Corp. shall receive an annual fee equal to two percent (2%) of
the net income, if any, allocated to 3055 Management Corp. under Section 3.5
for the previous Fiscal Year. This fee shall be paid within 60 days following
the end of such Fiscal Year. 3055 Management Corp. or any successor Manager
shall be entitled to receive additional compensation from the Company only as
specified in a written agreement between the Manager and the Company, which
agreement and any modifications of the agreement shall require the approval of
the Advisory Board.
4.6 ADVISORY BOARD.
(a) Following the Spinoff Distribution, an advisory board (the
"ADVISORY BOARD") shall be formed. The Advisory Board shall be comprised of
not less than three nor more than five individuals. The exact number of
members of the Advisory Board shall be set from time to time by resolution of
the Advisory Board. The initial members of the Advisory Board shall be those
Persons who were members of the Board of Directors of Triad on the date of the
contribution by Triad contemplated by Section 2.1 and who agree to serve as
members of the Advisory Board. Those initial members of the Advisory Board
shall hold office until the first meeting of Share Holders. Subsequent members
of the Advisory Board shall be elected for two year terms. Members of the
Advisory Board must be at least 18 years of age, but need not be Share Holders.
Each member of the Advisory Board shall hold office until the expiration of the
term for which elected or until a successor has been elected. A member of the
Advisory Board may be removed at any time, with or without cause, by a Majority
Vote. If a vacancy on the Advisory Board exists other than by removal, the
vacancy may be filled by majority vote of the remaining members of the Advisory
Board. If a vacancy on the Advisory Board exists because of the removal of a
member, such vacancy may be filled only by Majority Vote.
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(b) The Advisory Board shall meet with the Manager from time to
time to consider Major Decisions and, in the discretion of its members, to
advise and comment on the Company's business plan. In addition, any member of
the Advisory Board may propose business strategies to the Manager. Except with
respect to Major Decisions, any actions taken by the Advisory Board shall be
advisory only and the Manager shall not be required or otherwise bound to act
in accordance with any recommendations made by the Advisory Board or any of its
members. The following proposed actions of the Company ("MAJOR DECISIONS")
shall require approval of a majority of those members of the Advisory Board
voting at a meeting at which a quorum is present:
(1) Any offer to sell additional Shares or other membership
interests and the rights, preferences and privileges of any additional
membership interests.
(2) The removal of the Manager, the engagement of a successor
Manager, any contract, agreement or transaction with the Manager or
any of its Affiliates and the payment of any compensation to the
Manager or any of its Affiliates pursuant to Section 4.5.
(3) Any contract, lease, agreement, or other transaction
which will or might obligate the Company to perform any duties or make
any payments for a period longer than three years, and the extension
of any contract, lease, agreement, or other transaction beyond three
years.
(4) All sales, leases, or other dispositions of the Property
or any portion of the Property, and the entering into any listing
agreement for the purpose of selling, leasing or disposing of the
Property or any portion of the Property.
(5) Entering into any partnership, joint venture, or similar
arrangement with any Person for the purpose of developing or marketing
the Property or any portion of the Property.
(6) Borrowing money or terminating, modifying, or amending any
agreement relating to Company borrowings.
(7) The construction of improvements to the Property or any
portion of the Property, and the entering into any contracts or
agreements to construct improvements to the Property, except those
improvements required by existing agreements with the City of
Livermore.
(8) Any amendment, modification or termination of the existing
agreements with the City of Livermore.
(9) The appointment and removal of officers of the Company and
the compensation, if any, to be paid to any officers.
(10) The selection and terms of engagement of any management
company to manage the Property and/or the liquidation of the Property.
(11) The amount of any reserves to be retained by the Company
in connection with the determination of Distributable Cash and the
decision to make any distribution of Distributable Cash.
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(12) The adoption of Bylaws and any amendment to the Bylaws.
(13) The filing on behalf of the Company of a voluntary
petition in bankruptcy or request for similar relief under any
statute, law or regulation.
(14) Entering into, and any amendment, modification or
termination of the Rights Agreement, and the exercise of any rights,
powers or elections under the Rights Agreement.
(15) Selection and the terms of engagement of the Company's
independent certified public accountants.
(c) Meetings of the Advisory Board shall be held whenever
called by the Manager or by any member of the Advisory Board. Notice of each
meeting shall be given to each member of the Advisory Board at least two
business days before the date on which the meeting is to be held. Members of
the Advisory Board may participate in a meeting of the Advisory Board by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear one another. A quorum shall
be at least one-half of the members of the Advisory Board. Participation in a
meeting shall be a waiver of the requirement of notice of the meeting.
(d) Any action required or permitted to be taken by the
Advisory Board may be taken without a meeting, if all the members of the
Advisory Board consent in writing to that action. Any action by written
consent shall have the same force and effect as a unanimous vote of the
Advisory Board. All written consents shall be filed with the minutes of the
proceedings of the Advisory Board.
(e) Members of the Advisory Board shall not possess or exercise
any power of a manager under the Act. No member of the Advisory Board is an
agent of the Company and no member of the Advisory Board (other than the
Manager or an officer) can bind or execute any instrument on behalf of the
Company.
(f) Members of the Advisory Board shall be entitled to receive
reimbursement of expenses and an annual retainer fee of $10,000 plus a fee of
$750 for each regular meeting and $250 for each telephonic meeting of the
Advisory Board which they attend, as compensation for their services as members
of the Advisory Board.
4.7 OFFICERS. The Advisory Board may, from time to time, appoint
one or more individuals to be officers of the Company. Any officers so
appointed shall have such authority and perform such duties as set forth in the
Bylaws or as the Advisory Board may, from time to time, delegate to them. Any
number of offices may be held by the same individual. The salaries or other
compensation, if any, of the officers and agents of the Company shall be fixed
from time to time by the Advisory Board. Any officer may be removed from
office, either with or without cause, by the Advisory Board.
4.8 LIABILITY OF MANAGER AND OTHERS. The Manager, an officer, or
a member of the Advisory Board shall not be liable to the Company or the Share
Holders for any mistake of fact or judgment or for the doing of, or failing to
do, any act in conducting the business, operations and affairs of the Company,
which may cause or result in any loss or damage to the Company or the
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Share Holders, unless such mistake, act or failure to act is the result of the
person's fraud, bad faith or willful misconduct. In performing his or her
duties, a Manager, an officer, or a member of the Advisory Board shall be
entitled to rely on information, opinion, reports, or statements, including
financial statements and other financial information, prepared or provided by
any attorney, independent accountant, officer, employee or other agent of the
Company, or other Person as to matters which the Manager, officer, or member of
the Advisory Board believes to be within such Person's professional or expert
competence. The Manager, any officer and the members of the Advisory Board
shall have only the duties imposed upon them by this Agreement.
4.9 INDEMNIFICATION. The Company shall indemnify and hold
harmless, to the fullest extent permitted by law, (i) each Manager, (ii) each
officer, (iii) each member of the Advisory Board, and (iv) each agent, partner,
employee, counsel and Affiliate of each Manager, officer, member of the
Advisory Board, or of any of their Affiliates (individually, an "Indemnified
Party"), as follows:
(a) The Company shall indemnify and hold harmless, to the fullest
extent permitted by law, any Indemnified Party from and against any and all
losses, claims, damages, liabilities, expenses (including legal fees and
expenses), judgments, fines, settlements and other amounts ("Indemnified
Costs") arising from all claims, demands, actions, suits or proceedings
("Actions"), whether civil, criminal, administrative or investigative, in which
the Indemnified Party may be involved, or threatened to be involved, as a party
or otherwise arising as a result of its status as (i) a Manager, (ii) an
officer, (iii) a member of the Advisory Board, or (iv) an agent, partner,
employee, counsel or Affiliate of a Manager, an officer, a member of the
Advisory Board, or any of their Affiliates, regardless of whether the
Indemnified Party continues in the capacity at the time the liability or
expense is paid or incurred, and regardless of whether the Action is brought by
a third party, a Share Holder, or by or in the right of the Company; provided,
however, no such Person shall be indemnified for any Indemnified Costs which
proximately result from the Person's fraud, bad faith or willful misconduct or
the Person's material breach of this Agreement.
(b) The Company shall pay or reimburse, to the fullest extent
allowed by law and consistent with Section 4.9(a) above, in advance of the
final disposition of the proceeding, Indemnified Costs incurred by the
Indemnified Party in connection with any Action that is the subject of Section
4.9(a) above.
(c) Notwithstanding any other provision of this Section 4.9, the
Company shall pay or reimburse Indemnified Costs incurred by an Indemnified
Party in connection with such Person's appearance as a witness or other
participation in a proceeding involving or affecting the Company at a time when
the Indemnified Party is not a named defendant or respondent in the proceeding.
(d) The Manager shall cause the Company to purchase and maintain
insurance or other arrangements on behalf of the Indemnified Parties against
any liability asserted against any Indemnified Party and incurred by any
Indemnified Party in that capacity, or arising out of the Indemnified Party's
status in that capacity, regardless of whether the Company would have the power
to indemnify the Indemnified Party against that liability under this Section
4.9. The indemnification provided by this Section 4.9 shall be in addition to
any other rights to which the Indemnified Parties may be entitled under any
agreement, any vote of the Share Holders, as a matter of law, or otherwise, and
shall inure to the benefit of the heirs, successors, assigns and administrators
of the Indemnified Party.
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(e) An Indemnified Party shall not be denied indemnification in
whole or in part under this Section 4.9 because the Indemnified Party had an
interest in the transaction with respect to which the indemnification applies
if the transaction was otherwise permitted by the terms of this Agreement.
4.10 OTHER ACTIVITIES. Nothing in this Agreement shall be deemed
to restrict or affect the freedom of any Share Holder, any Manager, or any
member of the Advisory Board (or any of their Affiliates) to conduct any
business or activity whatsoever, including real estate activities, or to own
any interest in any business or entity whatsoever without any liability or
accountability arising on the part of any Person to the Company or to any Share
Holder in respect of any income, profit, opportunity or other matter derived
from such business or activity. Neither a Share Holder, a Manager, a member of
the Advisory Board, nor any of their Affiliates shall be obligated to present
any particular investment opportunity to the Company even if such opportunity
is of a character which, if presented to the Company, could be exploited by the
Company, and each Share Holder, Manager and member of the Advisory Board and
any of their Affiliates shall have the right to take for his own account or to
recommend to others any such particular investment opportunity.
4.11 CONFLICTS OF INTEREST. No contract or transaction between
the Company and one or more of the members of the Advisory Board or an
Affiliate of one or more of the members of the Advisory Board shall be void or
voidable solely by reason of such contractual relationship, or solely because
the interested member(s) of the Advisory Board is (are) present at or
participate(s) in the meeting of the Advisory Board which authorizes the
contract or transaction, or solely because his or their votes are counted for
such purpose, if:
(a) The material facts as to his or their relationship and as to
the contract or transaction are disclosed or are known to the Advisory Board
and the Advisory Board in good faith authorizes the contract or transaction by
the affirmative votes of a majority of disinterested members of the Advisory
Board, even though the disinterested members be less than a quorum; or
(b) The material facts as to his or their relationship and as to
the contract or transaction are disclosed or are known to the Share Holders and
the contract or transaction is specifically approved in good faith by a
Majority Vote; or
(c) The contract or transaction is fair to the Company as of the
time it is authorized, approved or ratified by the Advisory Board.
SECTION 5. INTERESTS OF SHARE HOLDERS
5.1 ADMISSION OF SHARE HOLDERS.
(a) The Initial Members of the Company are the Persons
executing this Agreement, each of whom is admitted to the Company as a Share
Holder effective upon the execution by such Person of this Agreement. Upon
completion of the Spinoff Distribution, Triad shall cease to be a Share Holder
and shall have no further rights as a Share Holder under this Agreement or the
Act.
(b) Upon completion of the Spinoff Distribution and upon
registration of their names in the records of the Company, the Persons who
receive Shares from Triad shall be automatically admitted as Share Holders.
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(c) Persons who acquire Shares or other membership interests
pursuant to Section 2.3 of this Agreement shall become members upon execution
of this Agreement and upon registration of their names in the records of the
Company and such other conditions as the Manager may require for admission.
5.2 AUTHORITY OF SHARE HOLDERS. No Share Holder, acting solely
in the capacity of a Share Holder, is an agent of the Company and no Share
Holder (other than a Manager or an officer) can bind or execute any instrument
on behalf of the Company.
5.3 VOTING RIGHTS OF SHARE HOLDERS. The Share Holders shall have
the right to vote on the matters set forth in this Agreement, including the
matters listed in this Section 5.3. Except as otherwise provided in this
Agreement or in the Act, matters on which the Share Holders may vote shall
require approval by Majority Vote. Share Holders shall have the right to vote
on the following matters:
(a) The election and removal of members of the Advisory Board,
pursuant to Section 4.6;
(b) Any amendment of this Agreement; provided, however, (i) no
amendment may require a Share Holder to contribute additional capital to the
Company unless the Share Holder has approved the amendment, and (ii) the
Manager shall have the power to amend this Agreement without the vote of the
Share Holders to the extent permitted under Section 10.10(b);
(c) Any merger of the Company with or into another business
entity;
(d) The dissolution of the Company pursuant to Section 7.1(a);
and
(e) Such other matters as the Manager or the Advisory Board may
from time to time elect to submit to the vote of the Share Holders, it being
understood and agreed that the Manager and the Advisory Board shall not be
obligated to submit any other matters to the vote of the Share Holders.
5.4 WITHDRAWAL. A Share Holder who withdraws or resigns from the
Company, whether by assignment of his Shares or otherwise, shall not have the
right to receive the fair value of his Shares from the Company.
5.5 REGISTRATION AND TRANSFERS OF SHARES.
(a) The Company shall keep or cause to be kept on behalf of
the Company a register in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 5.5(b), the Company will
provide for the registration and transfer of Shares. The Transfer Agent is
appointed registrar and transfer agent for the purpose of registering Shares
and transfers of Shares as provided in this Agreement. The Company shall not
recognize transfers of Shares unless such transfers are effected in the manner
described in this Section 5.5. Upon surrender of a share certificate for
registration and transfer, and subject to the provisions of Section 5.5(b), the
appropriate officers of the Company or the Manager on behalf of the Company
shall execute and deliver, and the Transfer Agent shall countersign and
deliver, in the name of the holder or the designated transferee or transferees,
as required pursuant to the holder's instructions, one or more new certificates
evidencing the same aggregate number of Shares as was evidenced by the
certificate surrendered.
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(b) The Company shall not recognize any transfer of Shares
until the certificates evidencing the Shares are surrendered for registration
of transfer and the certificates are accompanied by a Transfer Application and
such other instruments and documents as are reasonably required by the Manager
duly executed by the transferee (or the transferee's attorney-in-fact duly
authorized in writing). No charge shall be imposed by the Company for the
transfer; provided, that as a condition to the issuance of any new certificate
under this Section 5.5, the Company may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed with respect
to the issuance.
(c) The Company and the Manager shall be entitled to treat the
record owner (as reflected on the books of the Company) of any Shares as the
absolute owner thereof in all respects, and shall incur no liability for
distributions made in good faith to the record owner until such time as a
Transfer Application has been received by the Company. The effective date of a
transfer shall be (i) the date of receipt and acceptance by the Transfer Agent
of the Transfer Application, or (ii) such later date as may be specified in the
Transfer Application.
(d) A transferee of Shares who has completed and delivered a
Transfer Application shall be deemed to have (i) agreed to comply with and be
bound by and to have executed this Agreement, and (ii) represented and
warranted that the transferee has the right, power and authority and, if an
individual, the capacity to enter into this Agreement.
(e) The Manager may impose restrictions on the transfers of
Shares if the Manager determines that restrictions are necessary to avoid a
significant risk of the Company becoming taxable as a corporation or otherwise
to be taxed as an entity for federal income tax purposes. The restrictions may
be imposed by making such amendments to this Agreement as the Manager may
determine to be necessary or appropriate to impose the restrictions; provided,
however, that any amendment that the Manager believes, in the exercise of its
reasonable discretion, could result in the delisting or suspension of trading
of Shares on the principal national securities exchange on which the Shares are
then traded must be approved, prior to the amendment being effected, by the
Advisory Board.
5.6 DECEASED, INCOMPETENT OR DISSOLVED SHARE HOLDER. The death,
incompetence, or dissolution of a Share Holder shall not cause dissolution of
the Company. If a Share Holder who is an individual dies or is adjudged by a
court of competent jurisdiction to be incompetent to manage the Share Holder's
person or property, the Share Holder's executor, administrator, guardian,
conservator, or other legal representative may exercise all of the Share
Holder's rights for the purpose of settling the Share Holder's estate or
administering the Share Holder's property. If a Share Holder is a corporation,
trust, or other entity and is dissolved or terminated, the powers of that Share
Holder may be exercised by its legal representative or successor.
SECTION 6. ACCOUNTING MATTERS
6.1 MAINTENANCE OF RECORDS. The Company shall maintain the
following records:
(a) A current list of the full name and last known business,
residence, or mailing address of each Share Holder and Manager.
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(b) A copy of the Certificate and all amendments, together
with any powers of attorney pursuant to which any amendment has been executed.
(c) Copies of the Company's federal, state and local income
tax or information returns for each Fiscal Year.
(d) Copies of this Agreement and any amendments to this
Agreement, together with any powers of attorney pursuant to which any amendment
has been executed.
(e) True and full information regarding the status of the
business and financial condition of the Company.
(f) True and full information regarding the amount of cash and
a description and statement of the agreed value of any other property or
services contributed by each Share Holder and which each Share Holder has
agreed to contribute in the future, and the date on which each became a Share
Holder.
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6.2 DELIVERY TO SHARE HOLDERS AND INSPECTION.
(a) Except as provided in Section 6.2(b), any Company records
are subject to inspection and copying for a proper purpose at the reasonable
request, and at the expense, of any Share Holder during ordinary business
hours. A Share Holder's agent or attorney has the same inspection and copying
rights as the Share Holder. The right to copy records includes, if reasonable,
the right to receive copies made by photographic, xerographic or other means.
The Company may impose a reasonable charge, not to exceed the estimated cost of
labor and material for production or reproduction, for copies of any
documentation provided to a Share Holder. Any demand by a Share Holder under
this Section shall be in writing and shall state the purpose of such demand.
(b) The Manager shall have the right to keep confidential from
the Share Holders, for such period of time as the Manager deems reasonable, any
information which the Manager reasonably believes to be in the nature of trade
secrets or other information the disclosure of which the Manager in good faith
believes is not in the best interest of the Company or its business or which
the Company is required by law or by agreement with a third party to keep
confidential.
6.3 REPORTS. The Company shall send or cause to be sent to each
Share Holder within 90 days after the end of each Fiscal Year such information
as is necessary to complete federal and state income tax or information returns
for the year.
6.4 TAX AND ACCOUNTING MATTERS.
(a) All accounting matters shall be determined in accordance with
generally accepted accounting practices and principles, consistently applied.
The revenues and expenses and the operations of the Company shall be reported
on the accrual method for both accounting and tax purposes.
(b) The Manager shall be the "tax matters partner" for purposes
of the Code. The tax matters partner shall act on behalf of the Company in the
event of an audit of the Company by the Internal Revenue Service, and may make
such decisions and take such actions in the course of any such audit as he
deems necessary or desirable.
(c) As soon as practicable after the end of each Fiscal Year,
the Company's financial statements shall be audited by a firm of independent
certified public accountants selected by the Manager and approved by the
Advisory Board.
(d) The Company shall elect to be taxed as a partnership for
federal income tax purposes, but shall elect to be taxed as a corporation for
California state income tax purposes.
SECTION 7. DISSOLUTION AND LIQUIDATION
7.1 EVENTS OF DISSOLUTION. Except as otherwise provided in this
Agreement, the Company shall be dissolved and its affairs shall be wound up
upon the happening of the first to occur of the following:
(a) Upon a Majority Vote to dissolve the Company.
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(b) Upon the sale or other disposition of all or substantially
all of the assets and properties of the Company and distribution to the Share
Holders of the proceeds of the sale or other disposition.
The Company shall not dissolve, but shall continue in the event of
the death, retirement, resignation, expulsion, bankruptcy or dissolution of any
Share Holder.
7.2 EFFECT OF DISSOLUTION. Upon any dissolution of the Company
under this Agreement or the Act, except as otherwise provided in this
Agreement, the continuing operation of the Company's business shall be confined
to those activities reasonably necessary to wind up the Company's affairs,
discharge its obligations, and liquidate its assets and properties in a
businesslike manner.
7.3 LIQUIDATION AND TERMINATION.
(a) If the Company is dissolved, then an accounting of the
Company's assets, liabilities and operations through the last day of the month
in which the dissolution occurs shall be made, and the affairs of the Company
shall thereafter be promptly wound up and terminated. Unless the Manager has
dissolved or entered into Bankruptcy, the Manager shall serve as the
liquidating trustee of the Company. If the Manager has dissolved or entered
into Bankruptcy, the Advisory Board shall appoint one or more Persons to serve
as the liquidating trustee of the Company. The liquidating trustee will be
responsible for winding up and terminating the affairs of the Company and will
determine all related matters (including, without limitation, the arrangements
to be made with creditors, to what extent and under what terms the assets of
the Company are to be sold, and the amount or necessity of cash reserves to
cover contingent liabilities) as the liquidating trustee deems advisable and
proper. The liquidating trustee will liquidate the assets of the Company as
promptly as is consistent with obtaining their fair market value, and the
proceeds, to the extent sufficient, will be applied and distributed in the
following order:
(1) To the payment and discharge of all of the Company's
debts and liabilities to creditors (including Share Holders) in the
order of priority as provided by law, other than liabilities for
distributions to Share Holders; and
(2) The balance, if any, to the Share Holders in proportion
to their ownership of Shares as of the date of distribution. All
distributions shall be made by the end of the Fiscal Year in which the
liquidation occurs or, if later, within ninety (90) days after the
date of liquidation.
(b) After all of the assets of the Company have been distributed,
the Company's legal existence shall terminate; however, if at any time
thereafter any funds in any cash reserve fund referred to in Section 7.3(a) are
released because the need for the cash reserve fund has ended, the funds shall
be distributed to the Share Holders in the same manner as if the distribution
had been made pursuant to Sections 7.3(a)(1) and (2) above.
(c) Notwithstanding anything to the contrary in this Agreement,
upon a liquidation within the meaning of Treasury Regulation section
1.704-1(b)(2)(ii)(g), if any Share Holder has a deficit or negative balance in
the Share Holder's capital account (after giving effect to all contributions,
distributions, allocations, and other capital account adjustments for all
taxable years, including the year during which such liquidation occurs), the
Share Holder shall have no obligation to make any capital contribution to the
Company, and the negative balance of the Share Holder's capital account
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shall not be considered a debt owed by the Share Holder to the Company or to
any other Person for any purpose whatsoever.
7.4 CERTIFICATE OF CANCELLATION. Upon the completion of the
winding up of the affairs of the Company, the Manager shall prepare, execute
and deliver to the Delaware Secretary of State a certificate of cancellation in
accordance with Section 18-203 of the Act.
7.5 RECOURSE TO ASSETS. The Share Holders shall look solely to
the assets of the Company for any profits or return of their capital
contributions. If the assets remaining after the payment or discharge of the
debts and liabilities of the Company are insufficient to return a Share
Holder's capital contributions or profits, the Share Holder shall have no
recourse against the Company or the other Share Holders.
SECTION 8. DISPUTE RESOLUTION
8.1 DISPUTE RESOLUTION. Any controversy, dispute or claim
("CLAIM") between any Share Holder and the Company or between the Manager and
the Company, arising out of or relating to this Agreement or the Company,
whether arising in contract or tort, law or equity, shall be subject to a
non-binding mediation, and if not then resolved, may be determined by
litigation, both subject to the provisions of this Section 8.
8.2 MEDIATION.
(a) Any Claim shall first be the subject of a non-binding
mediation ("MEDIATION"), conducted in the County of Alameda, State of
California, by a retired judge or other mediator who is a member of Judicial
Arbitration & Mediation Services, Inc./Endispute ("JAMS") or other agreed upon
mediator. Any Share Holder, Manager or the Company may initiate the Mediation
by written notice to the Company, Manager or the Share Holder(s) involved in
the Claim. The date the notice is given is referred to as the "MEDIATION
INITIATION DATE."
(b) The mediator ("MEDIATOR") shall be selected by mutual
agreement to the parties to the Claim or, if they cannot agree within thirty
(30) days after the Mediation Initiation Date, the Mediator shall be selected
through such procedures as JAMS regularly follows.
(c) The Mediation shall be held within thirty (30) days after
the Mediator is selected, or such longer period as the parties to the Claim and
the Mediator mutually decide.
(d) The Company shall bear the cost of the Mediator's fees and
expenses, but each party to the Claim shall pay its own attorneys' and expert
witness fees and any other related costs.
8.3 LITIGATION.
(a) If the Claim has not been resolved by Mediation as
provided in this Section 8 within one hundred eighty (180) days of the
Mediation Initiation Date, either party may initiate litigation upon ten (10)
days written notice to the other party; provided, however, that if one party
has requested the other to participate in the Mediation and the other has
failed to participate, the requesting party may initiate litigation before the
expiration of the above period.
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(b) The procedures specified in this Section 8 shall be the
sole and exclusive procedures for the resolution of Claims; provided, however,
that a party, without prejudice to the procedures of this Section 8, may file a
complaint for statute of limitations purposes or to seek a preliminary
injunction or other provisional relief judicial relief if in its sole judgment
such action is necessary to avoid irreparable damage or to preserve the status
quo. Despite such action, the parties shall continue to participate in good
faith in the procedures specified in this Section 8.
(c) All applicable statutes of limitation and defenses based
upon the passage of time shall be tolled while the procedures specified in this
Section 8 are pending. The parties will take such action, if any, required to
effectuate the tolling.
(d) Each Share Holder, Manager and the Company irrevocably
submit in any suit, action or proceeding arising out of a Claim to the
jurisdiction of the Superior Court of County of Alameda, State of California or
the United States District Court in the Northern District of California.
(e) In any suit, action or proceeding arising out of a Claim,
each party to the Claim shall pay its own attorneys' and expert witness fees
and any other related costs.
SECTION 9. RIGHTS AGREEMENT
At the discretion of the Advisory Board, the Company may enter
into the Rights Agreement in substantially the form attached to this Agreement
as Exhibit B (the "RIGHTS AGREEMENT") and may perform such acts and make such
elections as are required or permitted under the Rights Agreement.
SECTION 10. GENERAL PROVISIONS
10.1 GOVERNING LAW. This Agreement and the rights of the parties
under this Agreement will be governed by, interpreted, and enforced in
accordance with the laws of the State of Delaware.
10.2 BINDING EFFECT. This Agreement will be binding upon and
inure to the benefit of the Share Holders, and their respective distributees,
successors and assigns; provided, however, nothing contained in this Section
10.2 shall limit the effectiveness of any restriction on transfers of Shares.
10.3 TERMS. Any reference to the Act, the Code or other statutes
or laws will include all amendments, modifications, or replacements of the
specific sections and provisions concerned. In cases of uncertainty this
Agreement shall be construed without regard to which of the parties caused the
uncertainty to exist.
10.4 HEADINGS. All headings are inserted only for convenience
and ease of reference and are not to be considered in the construction or
interpretation of any provision of this Agreement.
10.5 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under the present or future laws effective
during the term of this Agreement, the provision will be fully severable; this
Agreement will be construed and enforced as if the illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of the illegal,
invalid or unenforceable provision, there will be added automatically as a part
of
20
<PAGE> 21
this Agreement a provision as similar in terms to the illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
10.6 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and
counterpart signature pages may be assembled to form a single original
document.
10.7 ADDITIONAL DOCUMENTS AND ACTS. Each Share Holder agrees to
execute and deliver such additional documents and instruments and to perform
such additional acts as may be necessary or appropriate to effectuate, carry
out and perform all of the terms, provisions and conditions of this Agreement
and the transactions contemplated by this Agreement.
10.8 NO THIRD PARTY BENEFICIARY. This Agreement is made solely
and specifically among and for the benefit of the parties, and their respective
successors and assigns subject to the express provisions relating to successors
and assigns, and no other Person will have any rights, interest or claims or be
entitled to any benefits under or on account of this Agreement as a third party
beneficiary or otherwise.
10.9 NOTICES. All notices, consents, requests, demands or other
communications to or upon the respective parties shall be in writing and shall
be effective for all purposes upon receipt on any business day before 5:00 PM
local time and on the next business day if received after 5:00 PM or on other
than a business day, including without limitation, in the case of (i) personal
delivery, (ii) delivery by messenger, express or air courier or similar
courier, (iii) delivery by United States first class certified or registered
mail, postage prepaid and (iv) transmittal by telecopier or facsimile. In this
section "business days" means days other than Saturdays, Sundays, and federal
and state legal holidays. Receipt of communications by United States first
class or registered mail will be sufficiently evidenced by return receipt.
Receipt of communications by facsimile shall be sufficiently evidenced by a
machine generated report of transmission without notation of error. In the
case of illegible or otherwise unreadable facsimile transmissions, the
receiving party shall promptly notify the transmitting party of any
transmission problem and the transmitting party shall promptly resend any
affected pages.
10.10 AMENDMENTS.
(a) AMENDMENTS TO AGREEMENT. Except to the extent the Manager
has the authority to amend this Agreement, it may be amended in whole or in
part only as provided in Section 5.3. Provided an amendment has been approved
as required by this Agreement, the amendment may be signed by the Manager on
behalf of the Share Holders. If any conflict arises between the provisions of
the amendment, or amendments, and the terms of this Agreement, the most recent
provisions shall govern and control.
(b) AMENDMENTS BY MANAGER. This Agreement may be amended by the
Manager without the consent of any of the Share Holders: (1) as provided in
Sections 2.3 and 4.2(q); (2) as provided in Section 5.5(e); (3) to cure any
ambiguity, to correct or supplement any provision of this Agreement which may
be inconsistent with any other provisions of this Agreement, or to make any
other provision with respect to matters or questions arising under this
Agreement not inconsistent with the intent of this Agreement; and (4) to change
any provision of this Agreement required to be
21
<PAGE> 22
so changed by the staff of the Securities and Exchange Commission or other
federal agency or a state "Blue Sky" commissioner, a listing agency, or similar
official, which change is deemed by the commissioner, agency, or official to be
for the benefit or protection of the Share Holders.
(c) AMENDMENTS TO CERTIFICATE. The Certificate shall be amended
whenever required by the provisions of this Agreement or by the Act. Any such
amended Certificate shall be filed for record by the Manager as required by the
Act, and this Agreement shall also be amended as necessary to reflect such
change.
10.11 TITLE TO COMPANY PROPERTY. Legal title to all property of
the Company will be held and conveyed in the name of the Company.
10.12 WAIVER. No waiver of any obligations under this Agreement
will be enforceable or admissible unless set forth in a writing signed by the
party against which enforcement or admission is sought. No delay or failure to
require performance of any provision of this Agreement shall constitute a
waiver of that provision as to that or any other instance. Any waiver granted
shall apply solely to the specific instance expressly stated.
10.13 ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the Share Holders and supersedes any prior written or
oral agreements between them regarding the same subject matter. There are no
representations, agreements, arrangements or understandings, oral or written,
between the Share Holders relating to the subject matter of this Agreement
which are not fully expressed in this Agreement.
10.14 NO STATE LAW PARTNERSHIP. The Share Holders intend that
the Company not be a partnership (including, without limitation, a limited
partnership) or joint venture, and that no Share Holder be an agent, partner or
joint venturer of any other Share Holder, for any purposes other than federal
and state tax purposes, and this Agreement shall not be construed to suggest
otherwise.
The Initial Members have executed this Agreement as of the date
set forth above.
<TABLE>
<S> <C>
TRIAD SYSTEMS CORPORATION, a Delaware corporation 3055 MANAGEMENT CORP., a California corporation
By /S/ JAMES R. PORTER By /s/ JAMES R. PORTER
-------------------- --------------------
Title: President Title: Vice President, Secretary, & CFO
</TABLE>
22
<PAGE> 1
BYLAWS
OF
TRIAD PARK, LLC
A DELAWARE LIMITED LIABILITY COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I MEETINGS OF MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 PLACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. BIANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03. MATTERS TO BE CONSIDERED AT BIANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.04. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.05. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.06. SCOPE OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.07. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.08. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.09. PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10. CONDUCT OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.11. TABULATION OF VOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.12. INFORMAL ACTION BY SHARE HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13. VOTING BY BALLOT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II ADVISORY BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.01. GENERAL POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.02. NUMBER, TENURE, QUALIFICATION, NOMINATION AND ELECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.03. BIANNUAL AND REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.04. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.05. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.06. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.07. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.08. CONDUCT OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.09. RESIGNATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.10. REMOVAL OF ADVISORY BOARD MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.11. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.01. NUMBER, TENURE AND QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.02. DELEGATION OF POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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(Continued)
<TABLE>
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3.03. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.04. CONDUCT OF MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.05. INFORMAL ACTION BY COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.01. POWERS AND DUTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.02. REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.03. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.04. CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.05. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.06. VICE PRESIDENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.07. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.08. TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.09. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.10. SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.01. SHARE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.02. SHARE REGISTRY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.03. RECORDING TRANSFERS OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.04. LOST CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.05. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VI DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.01. AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.02. CONTINGENCIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VII NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.01. SECRETARY TO GIVE NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.02. WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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ARTICLE VIII AMENDMENT OF BYLAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.01. BY ADVISORY BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
iii
<PAGE> 5
BY LAWS OF
TRIAD PARK, LLC
A Delaware limited liability company
("Company")
ARTICLE I
MEETINGS OF MEMBERS
1.01. PLACE. All meetings of the holders of the issued and
outstanding Shares of the Company (the "Share Holders") shall be held at 3055
Triad Drive, Livermore, California (or any subsequent address selected by the
Advisory Board) or at such other place within the United States as shall be
stated in the notice of the meeting.
1.02. BIANNUAL MEETING. Biannual meetings of the Share Holders for
the election of Advisory Board members and the transaction of any business
within the powers of the Company shall be held at 3055 Triad Drive, Livermore,
California (or any subsequent address selected by the Advisory Board) on the
last Thursday of March of each even numbered year, beginning with March 26,
1998, or at such other date and time during March of the even numbered years as
may be fixed by the Advisory Board. If the day fixed for the biannual meeting
shall be a legal holiday, such meeting shall be held at the same time on the
next succeeding business day.
1.03. MATTERS TO BE CONSIDERED AT BIANNUAL MEETING. At a biannual
meeting of Share Holders, only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been properly brought before the
biannual meeting (a) by, or at the direction of, a majority of the Advisory
Board or (b) by any Share Holder (both as of the time notice of such proposal
is given by the Share Holder as set forth below and as of the record date for
the biannual meeting in question) of the Company entitled to vote at such
biannual meeting who complies with the procedures set forth in this Section
1.03. For a proposal to be properly brought before a biannual meeting by a
Share Holder, the Share Holder must have given timely notice in writing to the
Secretary of the Company, and the Share Holder or his representative must be
present in person at the biannual meeting. For the first biannual meeting, a
Share Holder's notice shall be timely if delivered to, or mailed and received
at, the principal executive office of the Company not later than the close of
business on the twentieth (20th) calendar day (or if that day is not a business
day for the Company, on the next business day) following the date on which
notice of the date of the first biannual meeting is mailed or otherwise
transmitted to Share Holders. For all subsequent biannual meetings, notice
shall be timely, if delivered to, or mailed and received at, the principal
executive office of the Company (a) not less than thirty (30) days nor more
than one hundred eighty (180) days prior to the second anniversary date of the
immediately preceding biannual meeting of Share Holders or special meeting in
lieu thereof (the "Anniversary Date") or (b) in the event that the biannual
meeting of Share Holders is called for a date more than 10 calendar days prior
to the
<PAGE> 6
Anniversary Date, not later than the close of business on the 20th calendar day
(or if that day is not a business day for the Company, on the next business
day) following the date on which notice of the date of such meeting was mailed
or otherwise transmitted to Share Holders.
A Share Holder's notice to the Secretary shall set forth as to each
matter the Share Holder proposes to bring before the biannual meeting (a) a
brief description of the proposal desired to be brought before the biannual
meeting and the reasons for conducting such business at the biannual meeting,
(b) the name and address, as they appear on the Company's transfer books, of
the Share Holder proposing such business and of the beneficial owners (if any)
of the Shares registered in the Share Holder's name and the name and address of
other Share Holders known by the Share Holder to be supporting the proposal on
the date of the Share Holder's notice, (c) the number of shares of the Company
which are beneficially owned by the Share Holder and such beneficial owners (if
any) on the date of the Share Holder's notice and by any other Share Holders
known by the Share Holder to be supporting such proposal on the date of such
Share Holder's notice, and (d) any financial interest of the Share Holder or of
any beneficial owner in the proposal.
If the Advisory Board, or a designated committee, determines that any
Share Holder proposal was not timely made in accordance with the terms of this
Section 1.03, the proposal shall not be presented for action at the biannual
meeting in question. If the Advisory Board, or a designated committee,
determines that the information provided in a Share Holder's notice does not
satisfy the informational requirements of this section in any material respect,
the Secretary of the Company shall promptly notify the Share Holder of the
deficiency in the notice. The Share Holder shall have an opportunity to cure
the deficiency by providing additional information to the Secretary within such
a period of time, not to exceed five (5) days from the date the deficiency
notice is given to the Share Holder, as the Advisory Board or the committee
shall reasonably determine. If the deficiency is not cured within the period,
or if the Advisory Board or the committee determines that the additional
information provided by the Share Holder, together with the information
previously provided, does not satisfy the requirements of this Section 1.03 in
any material respect, then the proposal shall not be presented for action at
the biannual meeting in question.
Notwithstanding the procedure set forth in the preceding paragraph, if
neither the Advisory Board nor the committee makes a determination as to the
validity of any Share Holder proposal as set forth above, the presiding officer
of the biannual meeting shall determine and declare at the biannual meeting
whether the Share Holder proposal was made in accordance with the terms of this
Section 1.03. If the presiding officer determines that a Share Holder proposal
was made in accordance with the terms of this Section 1.03, the presiding
officer shall so declare at the biannual meeting. If the presiding officer
determines that a Share Holder proposal was not made in accordance with the
provisions of this Section 1.03, the presiding officer shall so declare at the
biannual meeting and such proposal shall not be acted upon at the biannual
meeting.
This provision shall not prevent the consideration and approval or
disapproval at the biannual meeting of reports of officers, Advisory Board
members and committees of the Advisory Board, but in connection with those
reports, no new business shall be acted upon at the biannual meeting except in
accordance with the provisions of this Section 1.03.
2
<PAGE> 7
1.04. SPECIAL MEETINGS. The Chairman of the Advisory Board or a
majority of the Advisory Board members may call special meetings of the Share
Holders. Special meetings of Share Holders shall also be called by the
Secretary upon the written request of the holders of Shares entitled to cast
not less than twenty-five percent (25%) of all the votes entitled to be cast at
the meeting. Such request shall state the purpose or purposes of the meeting
and the matters proposed to be acted upon.
1.05. NOTICE. Not less than ten (10) nor more than ninety (90) days
before the date of every meeting of Share Holders, written or printed notice of
the meeting shall be given, in accordance with the Limited Liability Company
Agreement of the Company (the "LLC Agreement"), to each Share Holder entitled
to vote or entitled to notice by statute, stating the time and place of the
meeting and, in the case of a special meeting or as otherwise may be required
by statute, the purpose or purposes for which the meeting is called.
1.06. SCOPE OF NOTICE. No business shall be transacted at a special
meeting of Share Holders except that specifically designated in the notice.
Any business of the Company may be transacted at the biannual meeting without
being specifically designated in the notice, except such business as is
required by statute to be stated in such notice.
1.07. QUORUM. At any meeting of Share Holders, the presence in
person or by proxy of Share Holders entitled to cast a majority of the votes
shall constitute a quorum; but this Section shall not affect any requirement
under any statute or the LLC Agreement, for the vote necessary for the adoption
of any measure. If, however, a quorum is not present at any meeting of the
Share Holders, the Share Holders present in person or by proxy shall have the
power to adjourn the meeting from time to time without notice other than
announcement at the meeting until a quorum is present and the meeting so
adjourned may be reconvened without further notice. At any adjourned meeting
at which a quorum is present, any business may be transacted that might have
been transacted at the meeting as originally notified. The Share Holders
present at a meeting which has been duly called and convened and at which a
quorum is present at the time counted may continue to transact business until
adjournment, notwithstanding the withdrawal of enough Share Holders to leave
less than a quorum.
1.08. VOTING. A majority of the votes cast at a meeting of Share
Holders duly called and at which a quorum is present shall be sufficient to
take or authorize action upon any matter which may properly come before the
meeting, unless more than a majority of the votes cast is specifically required
by statute, by the LLC Agreement or by these Bylaws. Unless otherwise provided
in the LLC Agreement, each outstanding share of the Company (a "Share"),
regardless of class, shall be entitled to one vote upon each matter submitted
to a vote at a meeting of Share Holders.
1.09. PROXIES. A Share Holder may vote the Shares owned of record
by him or her, either in person or by proxy executed in writing by the Share
Holder or by his or her duly authorized attorney in fact. Such proxy shall be
filed with the Secretary of the Company before or at the time of the meeting.
No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy.
3
<PAGE> 8
1.10. CONDUCT OF MEETINGS. The Chairman of the Advisory Board or,
in the absence of the Chairman, the President or a Vice President, or, in the
absence of the Chairman and the President and Vice Presidents, a presiding
officer elected at the meeting, shall preside over meetings of the Share
Holders (the "Presiding Officer"). The Secretary of the Company, or, in the
absence of the Secretary and Assistant Secretaries, the person appointed by the
Presiding Officer of the meeting shall act as secretary of the meeting.
1.11. TABULATION OF VOTES. At any biannual or special meeting of
Share Holders, the Presiding Officer shall be authorized to appoint a Teller
for such meeting. The Teller may, but need not, be an officer, employee or
agent of the Company. The Teller shall be responsible for tabulating or
causing to be tabulated shares voted at the meeting and reviewing or causing to
be reviewed all proxies. In tabulating votes, the Teller shall be entitled to
rely in whole or in part on tabulations and analyses made by personnel of the
Company, its counsel, its transfer agent, its registrar or such other
organizations that are customarily employed to provide such services. The
Teller shall be authorized to determine the legality and sufficiency of all
votes cast and proxies delivered under both the LLC Agreement and these Bylaws
and applicable law. The Presiding Officer may review all determinations made
by the Teller hereunder, and in doing so the Presiding Officer shall be
entitled to exercise his or her sole judgment and discretion and he or she
shall not be bound by any determinations made by the Teller.
1.12. INFORMAL ACTION BY SHARE HOLDERS. An action required or
permitted to be taken at a meeting of Share Holders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by the
owners of two thirds of the Shares. The consents may be signed by different
Share Holders on separate counterparts.
1.13. VOTING BY BALLOT. Voting on any question or in any election
may be by voice vote unless the Presiding Officer shall order or any Share
Holder shall demand that voting be by ballot.
ARTICLE II
ADVISORY BOARD
2.01. GENERAL POWERS. The Advisory Board shall have the powers and
duties set forth in the LLC Agreement.
2.02. NUMBER, TENURE, QUALIFICATION, NOMINATION AND ELECTION.
(a) The number of Advisory Board members shall be within
the minimum and maximum numbers set forth in the LLC Agreement, but the exact
number may be increased or decreased by a unanimous vote of the Advisory Board
then in office, with the nomination and election of additional Advisory Board
members to take place in accordance with the provisions below.
(b) The Share Holders shall, subject to the provisions of
Section 4.6 of the LLC Agreement, elect the number of Advisory Board members
fixed pursuant to Section 4.6 of the LLC Agreement or the number as may be
increased or decreased from time to time by the
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<PAGE> 9
Advisory Board as provided in Section 2.02(a) above, if and to the extent there
are nominees duly nominated in accordance with these Bylaws. Ballots bearing
the names of all the persons who have been duly nominated for election as
Advisory Board members at a biannual meeting of Share Holders in accordance
with the procedures set forth in this Section 2.02 shall be provided for use at
the biannual meeting.
(c) Nominations of candidates for election as Advisory
Board members at any biannual meeting of Share Holders at which Advisory Board
members are to be elected may be made (i) by, or at the direction of, a
majority of the Advisory Board or a duly authorized committee or (ii) by any
holder of record (both as of the time notice of such nomination is given by the
Share Holder as set forth below and as of the record date for the biannual
meeting in question) of any Shares entitled to vote at the biannual meeting who
complies with the notice procedures of this Section 2.02. Any Share Holder who
seeks to make such a nomination, or his representative, must be present in
person at the biannual meeting. Only persons nominated in accordance with the
procedures set forth in this Section 2.02 shall be eligible for election as
Advisory Board members at a biannual meeting.
Nominations, other than those made by, or at the direction of, the
Advisory Board or a duly authorized committee, shall be made pursuant to timely
notice in writing to the Secretary of the Company as set forth in this Section
2.02. For the first biannual meeting of the Company, notice shall be timely if
delivered to, or mailed and received at, the principal executive office of the
Company not later than the close of business on the twentieth (20th) calendar
day (or if that day is not a business day for the Company, the next business
day) following the date on which notice of the first biannual meeting is mailed
or otherwise transmitted to Share Holders. For all subsequent biannual
meetings of the Company at which Advisory Board members are to be elected,
notice shall be timely if delivered to, or mailed and received at, the
principal executive offices of the Company not less than sixty (60) days nor
more than one hundred fifty (150) days prior to the second anniversary of the
last biannual meeting of Share Holders. Each Share Holder notice shall set
forth (i) as to each person whom the Share Holder proposes to nominate for
election or reelection as an Advisory Board member and as to the Share Holder
giving the notice (a) the name, age, business address and residence address of
the person, (b) the principal occupation or employment of the person, (c) the
number of Shares which are beneficially owned by the person on the date of the
Share Holder notice and (d) any other information relating to the person that
is required to be disclosed in solicitations of proxies with respect to
nominees for election as may be deemed necessary or desirable by the Company's
counsel, in the exercise of his or her discretion; and (ii) as to the Share
Holder giving the notice (a) the name and address, as they appear on the
Company's books, of the Share Holder and any other Share Holders known by the
Share Holder to be supporting such nominees and (b) the number of Shares which
are beneficially owned by the Share Holder on the date of the Share Holder
notice and by any other Share Holders known by such Share Holder to be
supporting such nominees on the date of the Share Holder notice. At the
request of the Advisory Board or a committee appointed by it, any persons
nominated by, or at the direction of, the Advisory Board or the committee for
election as an Advisory Board member at a biannual meeting shall furnish to the
Secretary of the Company that information required to be set forth in a Share
Holder's notice of nomination which pertains to the nominee.
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<PAGE> 10
(d) If the Advisory Board, or a designated committee,
determines that any Share Holder nomination was not timely made in accordance
with the terms of this Section 2.02, or the information provided in a Share
Holder's notice does not satisfy the informational requirements of this Section
2.04 in any material respect, then the Advisory Board or the committee, as the
case may be, shall reject the Share Holder nomination and the nomination shall
not be considered at the biannual meeting in question; provided, however, if
the Share Holder's notice was duly received at least fifteen (15) days in
advance of the last date on which such notice could have been timely made, then
the Secretary of the Company shall, within ten (10) days after the Secretary's
receipt of such notice, notify such Share Holder of the deficiency in the
notice. The Share Holder receiving the notice from the Secretary shall have an
opportunity to cure the deficiency by providing additional information to the
Secretary within such a period of time, not to exceed five (5) days from the
date such deficiency notice is given to the Share Holder, as the Advisory Board
or such committee shall reasonably determine. If the deficiency is not cured
within the period, or if the Advisory Board or the committee reasonably
determines that the additional information provided by the Share Holder,
together with information previously provided, does not satisfy the
requirements of this Section 2.02 in any material respect, then the Advisory
Board shall reject the Share Holder's nomination and the nomination shall not
be considered at the biannual meeting in question.
(e) If neither the Advisory Board nor such committee
makes a determination as to the validity of any nominations by a Share Holder
as set forth above, the Presiding Officer of the biannual meeting shall
determine and declare at the biannual meeting whether a nomination was made in
accordance with the terms of this Section 2.02. If the Presiding Officer
determines that a nomination was made in accordance with the terms of this
Section 2.02, he shall so declare at the biannual meeting and ballots shall be
provided for use at the meeting with respect to such nominee. If the Presiding
Officer determines that a nomination was not made in accordance with the terms
of this Section 2.02, he shall so declare at the biannual meeting and the
nomination shall be disregarded.
2.03. BIANNUAL AND REGULAR MEETINGS. A biannual meeting of the
Advisory Board may be held immediately after and at the same place as the
biannual meeting of Share Holders, or such other time and place, either within
or without the States of Delaware or California, as is selected by resolution
of the Advisory Board, and no notice other than these Bylaws or such resolution
shall be necessary. The Advisory Board may provide, by resolution, the time
and place, either within or without the States of Delaware or California, for
the holding of regular meetings of the Advisory Board without other notice than
such resolutions.
2.04. SPECIAL MEETINGS. Special meetings of the Advisory Board may
be called as provided in the LLC Agreement. The person or persons authorized
to call special meetings of the Advisory Board may fix any place, either within
or without the States of Delaware or California, as the place for holding any
special meeting of the Advisory Board called by them.
2.05. NOTICE. Notice of any special meeting to be provided herein
shall be given, in accordance with the LLC Agreement. Neither the business to
be transacted at, nor the purpose of, any biannual, regular or special meeting
of the Advisory Board need be specified in the notice, unless specifically
required by statute or these Bylaws.
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2.06. QUORUM. One half of the Advisory Board members then in office
shall constitute a quorum for transaction of business at any meeting of the
Advisory Board.
2.07. VOTING. The action of the number of Advisory Board members
set forth in the LLC Agreement shall be the act of the Advisory Board.
2.08. CONDUCT OF MEETINGS. All meetings of the Advisory Board shall
be called to order and presided over by the Chairman of the Board, or in the
absence of the Chairman of the Board by the President (if a Share Holder of the
Advisory Board), or, in the absence of the Chairman of the Board and the
President, by a Share Holder of the Advisory Board selected by the members
present. The Secretary of the Company shall act as secretary at all meetings
of the Advisory Board, and in the absence of the Secretary and Assistant
Secretaries, the presiding officer of the meeting shall designate any person to
act as secretary of the meeting. Members of the Advisory Board may participate
in meetings of the Advisory Board by conference telephone or similar
communications equipment by means of which all Advisory Board members
participating in the meeting can hear each other at the same time, and
participation in a meeting in accordance herewith shall constitute presence in
person at such meeting for all purposes.
2.09. RESIGNATIONS. Any Advisory Board member may resign from the
Advisory Board or any committee thereof at any time. Such resignation shall be
made in writing and shall take effect at the time specified herein, or if no
time be specified, at the time of the receipt of notice of such resignation by
the President or the Secretary.
2.10. REMOVAL OF ADVISORY BOARD MEMBERS. Any Advisory Board member
may be removed from office only in the manner set forth in the LLC Agreement.
2.11. VACANCIES. Vacancies on the Advisory Board shall be filled in
the manner set forth in the LLC Agreement.
ARTICLE III
COMMITTEES
3.01. NUMBER, TENURE AND QUALIFICATION. The Advisory Board may
appoint from among its members one or more committees, composed of two or more
Advisory Board members, to serve at the pleasure of the Advisory Board.
3.02. DELEGATION OF POWER. The Advisory Board may delegate to these
committees in the intervals between meetings of the Advisory Board any of the
powers of the Advisory Board to manage the business and affairs of the Company,
except those powers which pursuant to the LLC Agreement require action by the
Advisory Board.
3.03. QUORUM. All of the members of any committee shall be present
in person at any meeting of the committee in order to constitute a quorum for
the transaction of business at the meeting, and the act of a majority of those
present shall be the act of the committee.
3.04. CONDUCT OF MEETINGS. Each committee shall designate a
presiding officer of the committee, and if not present at a particular meeting,
the committee shall select a presiding
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officer for the meeting. Members of any committee may participate in meetings
of the committee by conference telephone or similar communications equipment by
means of which all committee members participating in the meeting can hear each
other at the same time, and participation in a meeting in this manner shall
constitute presence in person at the meeting for all purposes. Each committee
shall keep minutes of its meetings, and report the results of any proceedings
at the next succeeding biannual or regular meeting of the Advisory Board.
3.05. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Advisory Board may
be taken without a meeting, if a written consent to such action is signed by
all members of the committee and the written consent is filed with the minutes
of proceedings of the committee. Consents may be signed by different members
on separate counterparts.
ARTICLE IV
OFFICERS
4.01. POWERS AND DUTIES. The officers of the Company shall be
elected biannually by the Advisory Board at the first meeting of the Advisory
Board held after each biannual meeting of Share Holders. If the election of
officers shall not be held at this meeting the election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until his
successor is duly elected and qualifies or until his death, resignation or
removal in the manner hereinafter provided. Any two or more offices except
President and Vice President may be held by the same person. Election or
appointment of an officer or agent shall not of itself create contract rights
between the Company and the officer or agent. The officers shall have such
powers and duties as are set forth in these Bylaws or as delegated by the
Advisory Board, provided, however, that the powers and duties of the officers
shall be subject and subordinate to the powers and duties of the manager of the
Company (the "Manager") as set forth in the LLC Agreement or in any written
agreement between the Manager and the Company. If the Advisory Board elects
not to appoint the officers authorized by these Bylaws, the duties delegated to
the officers in these Bylaws shall be performed by the Manager.
4.02. REMOVAL. Any officer or agent elected or appointed by the
Advisory Board may be removed by the Advisory Board whenever in its judgment
the best interests of the Company would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. The fact that a person is elected to an office, whether or not for a
specified term, shall not by itself constitute any undertaking or evidence of
any employment obligation of the Company to that person.
4.03. VACANCIES. A vacancy in any office may be filled by the
Advisory Board for the unexpired portion of the term.
4.04. CHAIRMAN OF THE BOARD. The Chairman of the Advisory Board
shall preside at all meetings of the Share Holders and of the Advisory Board.
The Chairman of the Advisory Board may sign and execute all authorized bonds,
contracts or other obligations in the name of the Company.
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4.05. PRESIDENT. Unless the Advisory Board shall otherwise
determine in favor of the Chairman of the Advisory Board or any other officer
of the Company, the President shall be the Chief Executive Officer of the
Company and, subject to the powers and duties of the Manager, shall in general
supervise and control all of the business and affairs of the Company. In the
absence of the Chairman of the Advisory Board, the President shall preside at
all meetings of the Share Holders and of the Advisory Board (if a Share Holder
of the Advisory Board). The President may sign any deed, mortgage, bond,
contract or other instruments on behalf of the Company except in cases where
the execution shall be expressly delegated by the Advisory Board or by these
Bylaws to some other officer or agent of the Company or shall be required by
law to be otherwise signed or executed. In general, the President shall
perform all duties incident to the office of President and such other duties as
may be prescribed by the Advisory Board from time to time.
4.06. VICE PRESIDENTS. The Advisory Board may appoint one or more
Vice Presidents. In the absence of the President or in the event of a vacancy
in that office, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated at the time of their
election, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President and when so acting shall
have all the powers of and be subject to all the restrictions upon the
President. Every Vice President shall perform such other duties as from time
to time may be assigned to him or her by the President or the Advisory Board.
4.07. SECRETARY. The Secretary shall (i) keep the minutes of the
proceedings of the Share Holders and Advisory Board in one or more books
provided for that purpose; (ii) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (iii) be
custodian of the records of the Company; (iv) unless a transfer agent is
appointed, keep a register of the post office address of each Share Holder that
shall be furnished to the Secretary by the Share Holder and have general charge
of the Share Registry of the Company; (v) when authorized by the Advisory Board
or the President, attest to or witness all documents as necessary; (vi) perform
all duties as from time to time may be assigned to him or her by the President
or by the Advisory Board; and (vii) perform all the duties generally incident
to the office of secretary of a corporation.
4.08. TREASURER. Subject to the powers and duties of the Manager,
the Treasurer shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Company and shall deposit all moneys and other valuable
effects in the name and to the credit of the Company in such depositaries as
may be designated by the Advisory Board. The Treasurer shall disburse the
funds of the Company as may be ordered by the Advisory Board, taking proper
vouchers for any disbursements, and shall render to the President and the
Advisory Board, at the regular meetings of the Advisory Board or whenever they
may require it, an account of all his or her transactions as Treasurer and of
the financial condition of the Company. The Advisory Board may engage a
Custodian to perform some or all of the duties of the Treasurer, and if a
Custodian is so engaged then the Treasurer shall be relieved of the
responsibilities set forth herein to the extent delegated to such Custodian
and, unless the Advisory Board otherwise determines, shall have general
supervision over the activities of such Custodian. The Custodian shall not be
an officer of the Company.
4.09. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Advisory
Board may appoint one or more Assistant Secretaries or Assistant Treasurers.
The Assistant
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Secretaries and Assistant Treasurers (i) shall have the power to perform and
shall perform all the duties of the Secretary and the Treasurer, respectively,
in such respective officer's absence and (ii) shall perform such duties as
shall be assigned to him or her by the Secretary or Treasurer, respectively, or
by the President or the Advisory Board.
4.10. SUBORDINATE OFFICERS. The Company shall have such subordinate
officers as the Advisory Board may from time to time elect. Each such officer
shall hold office for such period and perform such duties as the Advisory
Board, the President or any designated committee or officer may prescribe.
ARTICLE V
SHARES
5.01. SHARE CERTIFICATES. Each Share Holder shall be entitled to a
Share certificate in such form as may from time to time be prescribed by the
Advisory Board. The certificate shall be signed by the Chairman or the
President and by the Treasurer or the Secretary. The signatures by Company
officers may be facsimile if the certificate is manually countersigned by an
authorized person on behalf of a transfer agent or registrar other than the
Company or its employee. In case any officer, transfer agent or registrar who
has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer, transfer agent or registrar before the
certificate is issued, it may be issued by the Company with the same effect as
if he were such officer, transfer agent or registrar at the time of its issue.
Every certificate for Shares which are subject to any restriction on transfer
and every certificate issued when the Company is authorized to issue more than
one class or series of interests shall contain any legend as is required by
law.
5.02. SHARE REGISTRY. The Company shall maintain at 3055 Triad
Drive, Livermore, California (or any subsequent address selected by the
Advisory Board) or at the office of its counsel, accountants or transfer agent,
an original or duplicate Share Registry containing the names and addresses of
all the Share Holders and the number of shares of each class held by each of
them. The Share Registry shall be maintained pursuant to a system that the
Company shall adopt allowing for the issuance, recordation and transfer of its
Shares by electronic or other means that can be readily converted into written
form for visual inspection. The Company shall be entitled to treat the holder
of record of any Share or Shares as the holder in fact and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in any
Share on the part of any other person, whether or not it shall have express or
other notice, except as otherwise provided in the LLC Agreement. Until a
transfer is duly effected in accordance with the LLC Agreement, the Company
shall not be affected by any notice of any transfer, either actual or
constructive. Nothing herein shall impose upon the Company, the Advisory Board
or officers or their agents and representatives a duty, or limit their rights,
to inquire as to the actual ownership of Shares.
5.03. RECORDING TRANSFERS OF SHARES. If transferred in accordance
with any restrictions on transfer contained in the LLC Agreement, these Bylaws
or otherwise, Shares shall be recorded as transferred in the Share Registry
upon provision to the Company or the transfer agent of the Company of an
executed stock power duly guaranteed and any other documents reasonably
requested by the Company, and the surrender of the certificate or certificates,
if any, representing
10
<PAGE> 15
the Shares. Upon receipt of these documents, the Company shall issue as needed
a new certificate or certificates (if the transferred Shares were certificated)
to the persons entitled, cancel any old certificates and record the transaction
upon its books.
5.04. LOST CERTIFICATE. The Advisory Board may direct a new
certificate to be issued in the place of any certificate previously issued by
the Company alleged to have been stolen, lost or destroyed upon the making of
an affidavit of that fact by the person claiming the certificate to be stolen,
lost or destroyed. When authorizing the issue of a new certificate, the
Advisory Board may, in its discretion and as a condition precedent to the
issuance, require the owner of the stolen, lost or destroyed certificate or his
legal representative to advertise the same in such manner as it shall require
and/or to give bond, with sufficient surety, to the Company to indemnify it
against any loss or claim which may arise by reason of the issuance of a new
certificate.
5.05. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
(a) The Advisory Board may fix, in advance, a date as the
record date for the purpose of determining Share Holders entitled to notice of,
or to vote at, any meeting of Share Holders, or Share Holders entitled to
receive payment of any distribution or the allotment of any rights, or in order
to make a determination of Share Holders for any other proper purpose. Such
date, in any case, shall be not more than sixty (60) days, and in case of a
meeting of Share Holders not less than ten (10) days, prior to the date on
which the meeting or particular action requiring such determination of Share
Holders is to be held or taken.
(b) If, in lieu of fixing a record date, the Share
Registry is closed by the Advisory Board for the purpose of determining Share
Holders entitled to notice of or to vote at a meeting of Share Holders, the
Share Registry shall be closed for at least ten (10) days immediately preceding
such meeting.
(c) If no record date is fixed and the Share Registry is
not closed for the determination of Share Holders, (i) the record date for the
determination of Share Holders entitled to notice of, or to vote at, a meeting
of Share Holders shall be at the close of business on the day on which the
notice of meeting is mailed or the 30th day before the meeting, whichever is
the closer date to the meeting; and (ii) the record date for the determination
of Share Holders entitled to receive payment of a distribution or an allotment
of any rights shall be at the close of business on the day on which the
resolution of the Advisory Board, declaring the distribution or allotment of
rights, is adopted.
(d) When a determination of Share Holders entitled to
vote at any meeting of Share Holders has been made as provided in this section,
such determination shall apply to any adjournment of its meeting, except where
the determination has been made through the closing of the Share Registry and
the stated period of closing has expired.
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ARTICLE VI
DISTRIBUTIONS
6.01. AUTHORIZATION. Distributions upon the Shares may be
authorized and declared by the Advisory Board as set forth in the applicable
provisions of the LLC Agreement and any applicable law, at any meeting, limited
only to the extent of Section 18-607 of the Delaware Limited Liability Company
Act. Distributions upon the Shares may be paid in cash or property, subject to
the provisions of law and of the LLC Agreement.
6.02. CONTINGENCIES. Before payment of any distributions upon the
Shares, there may be set aside (but there is no duty to set aside) out of any
assets of the Company available for distributions such sum or sums as the
Advisory Board may from time to time, in its absolute discretion, think proper
as a reserve fund to meet contingencies, for repairing or maintaining any
property of the Company or for such other purpose as the Advisory Board shall
determine to be in the best interest of the Company, and the Advisory Board may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE VII
NOTICES
7.01. SECRETARY TO GIVE NOTICE. All notices required by law or
these Bylaws to be given by the Company shall be given by the Secretary of the
Company. If the Secretary and Assistant Secretary are absent or refuse or
neglect to act, the notice may be given by any person directed to do so by the
President or, with respect to any meeting called pursuant to these Bylaws upon
the request of any Share Holder or Advisory Board member, by any person
directed to do so by the Share Holder or Advisory Board member upon whose
request the meeting is called.
7.02. WAIVER OF NOTICE. Whenever any notice is required to be given
pursuant to the LLC Agreement or Bylaws of the Company or pursuant to
applicable law, a waiver of notice in writing, signed by the person or persons
entitled to notice, whether before or after the time for notice, shall be
deemed equivalent to the giving of notice. The waiver shall be filed with the
records of the meeting. Neither the business to be transacted at nor the
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any meeting
shall constitute a waiver of notice of meeting, except where such person
attends a meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or convened.
ARTICLE VIII
AMENDMENT OF BYLAWS
8.01. BY ADVISORY BOARD. The Advisory Board shall have the power,
at any biannual or regular meeting, or at any special meeting if notice thereof
be included in the notice of such special meeting, to alter or repeal any
Bylaws of the Company and to make new Bylaws, provided, however, the Advisory
Board may not alter, repeal or amend the Bylaws in any way in
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<PAGE> 17
which the Share Holders would be deprived of their right to grant consent or
approval under the terms of the LLC Agreement.
The foregoing are certified as the Bylaws of the Company adopted by the
Advisory Board on __________, 1997.
___________________________________________
_________________, Secretary
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<PAGE> 1
FORM OF RIGHTS AGREEMENT
TRIAD PARK, LLC
AND
[INSERT NAME OF RIGHTS AGENT],
RIGHTS AGENT
___________________________________
RIGHTS AGREEMENT
Dated as of [DATE], 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . 5
3. Issuance of Right Certificates . . . . . . . . . . . . . . . . . . . . 6
4. Form of Right Certificates . . . . . . . . . . . . . . . . . . . . . 7
5. Countersignature and Registration. . . . . . . . . . . . . . . . . . . 8
6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificates. . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Exercise of Rights; Purchase Price; Expiration Date of Rights. . . . . 10
8. Cancellation and Destruction of Right Certificates . . . . . . . . . . 12
9. Reservation and Availability of Shares . . . . . . . . . . . . . . . . 12
10. Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. Adjustments to Number and Kind of Shares, Number of Rights
or Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Certification of Adjustments. . . . . . . . . . . . . . . . . . . . . 24
13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power. . . . . . . . . . . . . . . . . . . . . . . . . . 24
14. Fractional Rights and Fractional Shares. . . . . . . . . . . . . . . . 29
15. Rights of Action. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
16. Agreement of Right Holders. . . . . . . . . . . . . . . . . . . . . . 30
17. Right Certificate Holder Not Deemed a Share Holder. . . . . . . . . . 31
18. Concerning the Rights Agent. . . . . . . . . . . . . . . . . . . . . . 32
19. Merger or Consolidation or Change of Name of Rights Agent. . . . . . . 32
20. Duties of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . 33
21. Change of Rights Agent. . . . . . . . . . . . . . . . . . . . . . . . 36
22. Issuance of New Right Certificates. . . . . . . . . . . . . . . . . . 37
23. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
24. Notice of Proposed Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
25. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
26. Supplements and Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
27. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
28. Benefits of this Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
29. Delaware Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
30. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
31. Descriptive Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
32. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
EXHIBIT A
EXHIBIT B
</TABLE>
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RIGHTS AGREEMENT
This RIGHTS AGREEMENT ("Rights Agreement"), dated as of
[DATE], 1997, between Triad Park, LLC, a Delaware limited liability company
(the "Company"), and [INSERT NAME OF RIGHTS AGENT] (the "Rights Agent").
W I T N E S S E T H:
WHEREAS, the Advisory Board of the Company on [DATE], 1997 (i)
authorized the issuance and declared a distribution of one right (a "Right")
for each Share (as defined herein) of the Company outstanding as of the Close
of Business on [DATE], 1997 (the "Record Date"), each Right representing the
right to purchase one Share of the Company upon the terms and subject to the
conditions hereinafter set forth, and (ii) further authorized the issuance of
one Right with respect to each Share of the Company that shall become
outstanding between the Record Date and the earlier of the Distribution Date
(as defined herein) and the Expiration Date (as defined herein);
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the Company and the Rights Agent hereby
agree as follows:
1. Certain Definitions.
For purposes of this Agreement, the following terms shall have
the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such
term is hereinafter defined) who or which, together with all Affiliates (as
such term is hereinafter defined) and Associates (as such term is hereinafter
defined) of such Person, without the prior approval of the Advisory Board,
shall be the Beneficial Owner (as such term is hereinafter defined) of 24% or
more of the outstanding Shares; provided, however, that in no event shall a
Person who or which, together with all Affiliates and Associates of such
Person, is the Beneficial Owner of less than 24% of the Company's outstanding
Shares, become an Acquiring Person solely as a result of a reduction of the
number of outstanding Shares, including repurchases of outstanding Shares by
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the Company, which reduction increases the percentage of outstanding Shares
beneficially owned by such person, provided, however, that any subsequent
direct or indirect acquisition or receipt of Shares by such Person or any
Affiliate or Associate of such Person shall cause such Person to become an
Acquiring Person if, after giving effect to such acquisition or receipt of
Shares, such Person (together with all Affiliates and Associates of such
Person) shall be the Beneficial Owner of 24% or more of the Shares then
outstanding and provided further, that an Acquiring Person shall not include an
Exempt Person (as such term is hereinafter defined).
(b) "Adjustment Shares" shall have the meaning set forth
in Section 11(a)(ii) hereof.
(c) "Advisory Board" shall have the meaning given such
term in the Company's LLC Agreement.
(d) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), as in effect on [DATE], 1997.
(e) A Person shall be deemed the "Beneficial Owner" of
any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding, or upon the exercise of conversion
rights, exchange rights, rights (other than these Rights), warrants or options,
or otherwise; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own", securities tendered pursuant
to a tender or exchange offer made by such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding (whether or not in writing); provided, however,
that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own", any securities if the
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agreement, arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations of the Exchange Act and (2) is not also then reportable
by such Person on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding
(whether or not in writing) for the purpose of acquiring, holding, voting
(except as described in clause (B) of subparagraph (ii) of Section 1(d)) or
disposing of any securities of the Company.
(f) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in the State of
California are authorized or obligated by law or executive order to close.
(g) "Close of Business" on any given date shall mean 5:00
p.m., San Francisco time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 p.m., San Francisco time, on the next
succeeding Business Day.
(h) "Common Stock" when used with reference to any Person
which is organized in corporate form shall mean the capital stock or other
equity security with the greatest per share voting power of such Person or, if
such Person is a Subsidiary of or is controlled by another Person, the Person
which ultimately controls such first-mentioned Person. "Common Stock" when
used with reference to any Person which is not organized in corporate form
shall mean units of beneficial interest which shall represent the right to
participate in profits, losses, deductions and credits of such Person and which
shall be entitled to exercise the greatest voting power per unit of such
Person.
(i) "Current Market Price" shall have the meaning set
forth in Section 11(d) hereof.
(j) "Distribution Date" shall have the meaning set forth
in Section 3(a) hereof.
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(k) "Equivalent Securities" shall have the meaning set
forth in Section 11(b) hereof.
(l) "Exchange Act" shall have the meaning set forth in
Section 1(d) hereof.
(m) "Exempt Person" shall mean the Company, any employee
benefit plan or employee equity plan of the Company, or any Person, organized,
appointed, established or holding Shares for or pursuant to the terms of any
such plan.
(n) "Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(o) "Final Expiration Date" shall have the meaning set
forth in Section 7(a) hereof.
(p) "LLC Agreement" shall mean the Limited Liability
Company Agreement of Triad Park, LLC, as amended, modified, supplemented or
restated from time to time.
(q) "Manager" shall mean the Person appointed as the
manager of the Company.
(r) "NASDAQ" shall have the meaning set forth in Section
9(b) hereof.
(s) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company or other entity.
(t) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
(u) "Purchase Price" shall have the meaning set forth in
Section 4(a) hereof.
(v) "Redemption Price" shall have the meaning set forth
in Section 23(a) hereof.
(w) "Right Certificate" shall have the meaning set forth
in Section 3(a) hereof.
(x) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii) (A), (B) or (C) hereof.
(y) "Section 13 Event" shall mean any event described in
clause (x), (y) or (z) of Section 13(a) hereof.
(z) "Securities Act" shall mean the Securities Act of
1933, as amended.
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(aa) "Share" shall mean a right to share in the income,
gains, losses, deductions, credit, or similar items of, and to receive
distributions from, the Company.
(bb) "Share Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such or such earlier date as a majority of the members of the
Advisory Board shall become aware of the existence of an Acquiring Person.
(cc) "Share Holder" shall mean a Person who holds one or
more Shares.
(dd) "Subsidiary" of a Person shall mean any corporation
or other entity of which securities or other ownership interests having
ordinary voting power sufficient to elect a majority of the board of directors
or other persons performing similar functions are beneficially owned, directly
or indirectly, by such Person and any corporation or other entity that is
otherwise controlled by such Person.
(ee) "Summary of Rights" shall have the meaning set forth
in Section 3(b) hereof.
(ff) "Trading Day" shall have the meaning set forth in
Section 11(d) hereof.
(gg) "Triggering Event" shall mean any event described in
Section 11(a)(ii)(A), (B), or (C) or Section 13 hereof.
(hh) "Voting Power" shall mean the voting power of all
securities of the Company then outstanding and generally entitled to vote for
the election of members of the Advisory Board.
Any determination required by the definitions contained in
this Section 1 shall be made by the Advisory Board in its good faith judgment,
which determination shall be binding on the Rights Agent and the holders of the
Rights.
2. Appointment of Rights Agent.
The Company hereby appoints the Rights Agent to act as agent
for the Company in accordance with the terms and conditions hereof, and the
Rights Agent hereby accepts such
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appointment. The Company may from time to time appoint such Co-Rights Agents
as it may deem necessary or desirable.
3. Issuance of Right Certificates.
(a) Until the earlier of (i) the Share Acquisition Date
or (ii) the tenth day (or such later date as may be determined by action of the
Advisory Board prior to such time as any Person becomes an Acquiring Person)
after the date of the commencement by any Person (other than an Exempt Person)
of, or of the first public announcement of the intent of any Person (other than
an Exempt Person) to commence (which intention to commence remains in effect
for five business days after such announcement), a tender or exchange offer
upon the successful consummation of which such Person, together with its
Affiliates and Associates, would be the Beneficial Owner of 24% or more of the
outstanding Shares (irrespective of whether any Shares are actually purchased
pursuant to any such offer) (including any such date which is after the date of
this Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the "Distribution Date"), (x) the Rights will
be evidenced (subject to the provisions of Section 3(c) hereof) by the
certificates for the Shares registered in the names of the holders of the
Shares (which certificates shall be deemed also to be certificates for Rights)
and not by separate Right certificates, and (y) each Right will be transferable
only in connection with the transfer of the underlying Shares. As soon as
practicable after the Distribution Date, the Rights Agent will mail, by
first-class, postage prepaid mail, to each record holder of the Shares, as of
the Close of Business on the Distribution Date, as shown by the records of the
Company, at the address of such holder shown on such records, a Right
certificate in substantially the form of Exhibit A hereto ("Right Certificate")
evidencing one Right for each Share so held, subject to adjustment as provided
herein. As of and after the Distribution Date the Rights will be evidenced
solely by such Right Certificates.
(b) Until the Distribution Date (or, if earlier, the
"Expiration Date" or the "Final Expiration Date"), the surrender for transfer
of any certificate representing Shares, with or
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without a copy of the Summary of Rights attached thereto, shall also constitute
the surrender for transfer of the Rights associated with the Shares represented
thereby.
(c) Rights shall be issued in respect of all Shares
issued after the Record Date but prior to the earlier of the Distribution Date
or the Expiration Date. Certificates representing such Shares (and
certificates representing Shares which are transferred after the Record Date
but prior to the earlier of the Distribution Date or the Expiration Date) shall
also be deemed to be certificates for Rights and shall bear the following
legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Rights Agreement between
Triad Park, LLC and [INSERT NAME OF RIGHTS AGENT], as Rights
Agent, dated as of [DATE], 1997 (as amended from time to time
in accordance with its terms, the "Rights Agreement"), the
terms of which are incorporated herein by reference and a copy
of which is on file at the principal executive office of Triad
Park, LLC. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this
certificate. Triad Park, LLC will mail to the holder of this
certificate a copy of the Rights Agreement without charge
within five days after receipt by it of a written request
therefor. Under certain circumstances as provided in the
Rights Agreement, Rights issued to or beneficially owned by
Acquiring Persons or their Associates or Affiliates (as
defined in the Rights Agreement) or any subsequent holder of
such Rights may be limited as provided in Section 11(a)(ii) of
the Rights Agreement.
With respect to such certificates containing the foregoing legend, the Rights
associated with the Shares shall, until the Distribution Date, be evidenced by
such certificates alone, and the surrender for transfer of any such certificate
shall also constitute the surrender for transfer of the Rights associated with
the Shares represented thereby.
4. Form of Right Certificates.
(a) The Right Certificates (and the forms of election to
purchase shares and of assignment to be printed on the reverse thereof), when,
as and if issued, shall be substantially in the form set forth in Exhibit A
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
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appropriate and as are not inconsistent with the provisions of this Rights
Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Sections 11 and 22 hereof, the Right
Certificates evidencing the Rights issued on [DATE], 1997, whenever issued,
shall be dated as of [DATE], 1997 and the Right Certificates evidencing Rights
to holders of record of Shares issued after [DATE], 1997 shall be dated as of
[DATE], 1997 but also be dated to reflect the date of issuance of such Right
Certificate and on their face Right Certificates shall entitle the holders
thereof to purchase one Share, or other securities or property as provided
herein, as the same may from time to time be adjusted as provided herein, at
the price of $0.63 set forth therein, as the same may from time to time be
adjusted as provided herein (the "Purchase Price").
(b) Notwithstanding any other provision of this Rights
Agreement, any Right Certificate that represents Rights that are or were at any
time on or after the earlier of the Share Acquisition Date or the Distribution
Date beneficially owned by an Acquiring Person or any Affiliate or Associate
thereof (or any transferee of such Rights) shall have impressed on, printed on,
written on or otherwise affixed to it (if the Company or the Rights Agent has
knowledge that such Person is an Acquiring Person or an Associate or Affiliate
thereof or transferee of such Persons or a nominee of any of the foregoing) the
following legend:
The beneficial owner of the Rights represented by this Right
Certificate is an Acquiring Person or an Affiliate or
Associate (as defined in the Rights Agreement) of an Acquiring
Person or a subsequent holder of such Right Certificates
beneficially owned by such Persons. Accordingly, under
certain circumstances as provided in the Rights Agreement,
this Right Certificate and the Rights represented hereby may
be limited as provided in Section 11(a)(ii) of the Rights
Agreement.
5. Countersignature and Registration.
(a) The Right Certificates may be executed on behalf of
the Company by its President or any Vice President, either manually or by
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facsimile signature, which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. In the
alternative, the Right Certificates may be executed in the same manner by the
corresponding officers of the Manager. The Right Certificates shall be
manually countersigned by the Rights Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery
by the Company, such Right Certificates, nevertheless, may be countersigned by
the Rights Agent, issued and delivered with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent
will keep or cause to be kept, at one of its offices designated for such
purposes, books for registration and transfer of the Right Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Right Certificates, the number of Rights evidenced on its face
by each of the Right Certificates, the date of each of the Right Certificates,
and the certificate numbers for each of the Right Certificates.
6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates.
(a) Subject to the provisions of Section 14(b) hereof, at
any time after the Close of Business on the Distribution Date and at or prior
to the Close of Business on the earlier of the Expiration Date or the Final
Expiration Date, any Right Certificate or Certificates may be (i) transferred
or (ii) split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of
Shares as the Right Certificate or Right Certificates surrendered then entitled
such holder to purchase. Any registered holder desiring to transfer any Right
Certificate shall surrender the Right Certificate at
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the office of the Rights Agent designated for such purposes with the form of
assignment on the reverse side thereof duly endorsed (or enclose with such
Right Certificate a written instrument of transfer in form satisfactory to the
Company and the Rights Agent), duly executed by the registered holder thereof
or his attorney duly authorized in writing, and with such signature duly
guaranteed. Any registered holder desiring to split up, combine or exchange
any Right Certificate shall make such request in writing delivered to the
Rights Agent, and shall surrender the Right Certificate or Right Certificates
to be split up, combined or exchanged at the principal office of the Rights
Agent. Thereupon the Rights Agent shall countersign (by manual signature) and
deliver to the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, if requested by
the Company, reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender to the Rights Agent and cancellation of the Right
Certificate if mutilated, the Company will execute and deliver a new Right
Certificate of like tenor to the Rights Agent for delivery to the registered
owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) The Rights shall become exercisable, and may be
exercised to purchase Shares, except as otherwise provided herein, in whole or
in part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed (with such signature duly guaranteed), to the Rights Agent at the
principal office of the Rights Agent in [INSERT CITY AND STATE] together with
payment of the Purchase Price with respect to each Right exercised, subject to
adjustment as hereinafter
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provided, at or prior to the Close of Business on the earlier of (i) [DATE],
2007 ("Final Expiration Date"), or (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (such date being herein referred to
as the "Expiration Date").
(b) The Purchase Price shall initially be $0.63 for each
Share issued pursuant to the exercise of a Right. The Purchase Price and the
number of Shares or other securities or consideration to be acquired upon
exercise of a Right shall be subject to adjustment from time to time as
provided in Sections 11 and 13 hereof. The Purchase Price shall be payable in
lawful money of the United States of America, in accordance with Section 7(c)
hereof.
(c) Except as provided in Section (d) hereof, upon
receipt of a Right Certificate with the form of election to purchase duly
executed, accompanied by payment of the Purchase Price or so much thereof as is
necessary for the Shares to be purchased and an amount equal to any applicable
transfer tax, by cash, certified check or official bank check payable to the
order of the Company or the Rights Agent, the Rights Agent shall thereupon
promptly (i) requisition from any transfer agent of the Shares certificates for
the number of Shares so elected to be purchased and the Company will comply and
hereby authorizes and directs such transfer agent to comply with all such
requests, (ii) requisition from the Company the amount of cash to be paid in
lieu of issuance of fractional Shares in accordance with Section 14(b) hereof,
and (iii) promptly after receipt of such Share certificates cause the same to
be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder, and, when appropriate, after receipt promptly deliver such cash to or
upon the order of the registered holder of such Right Certificate; provided,
however, that in the case of a purchase of securities, other than Shares,
pursuant to Section 13 hereof, the Rights Agent shall promptly take the
appropriate actions corresponding to the foregoing clauses (i) through (iii).
In the event that the Company is obligated to issue other securities of the
Company, pay cash and/or distribute other property the Company will make all
arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when
appropriate.
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(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced thereby, a new
Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of
such Right Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
or Affiliates or Associates thereof as the Rights Agent or the Company shall
reasonably request.
8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of
exercise, transfer, split up, combination or exchange shall, if surrendered to
the Company or to any of its agents, be delivered to the Rights Agent for
cancellation or in canceled form, or, if surrendered to the Rights Agent, shall
be canceled by it, and no Right Certificates shall be issued in lieu thereof
except as expressly permitted by any of the any of the provisions of this
Rights Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and retire,
any Right Certificate purchased or acquired by the Company otherwise than upon
the exercise thereof. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
9. Reservation and Availability of Shares.
(a) [INTENTIONALLY OMITTED]
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(b) The Company shall (i) use its best efforts to cause,
from and after such time as the Rights become exercisable, the Rights and all
Shares issued or reserved for issuance upon exercise thereof to be reported by
the National Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") or such other system then in use, and if the Shares shall
become listed on any national securities exchange, to cause, from and after
such time as the Rights become exercisable, the Rights and all Shares issued or
reserved for issuance upon exercise thereof to be listed on such exchange upon
official notice of issuance upon such exercise and (ii) if then necessary to
permit the offer and issuance of such Shares, register and qualify such Shares
under the Securities Act and any applicable state securities or "blue sky" laws
(to the extent exemption therefrom are not available), cause such registration
statement and qualifications to become effective as soon as possible after such
filing and keep such registration and qualifications effective until the
earlier of the Expiration Date or the Final Expiration Date of the Rights. The
Company may temporarily suspend, for a period of time not to exceed ninety (90)
days, the exercisability of the Rights in order to prepare and file a
registration statement under the Securities Act and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is
no longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement under the Securities Act (if required) shall have been
declared effective.
(c) The Company covenants and agrees that it will take
all such action as may be necessary to insure that all Shares delivered upon
exercise of Rights shall, at the time of delivery of the certificates for such
Shares (subject to payment of the Purchase Price in respect thereof), be duly
and validly authorized and issued and fully paid and non-assessable Shares in
accordance with applicable law.
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(d) The Company further covenants and agrees that it will
pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of the
Right Certificates or of any Shares upon the exercise of Rights. The Company
shall not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Right Certificates to a Person other
than, or the issuance or delivery of certificates for Shares upon exercise of
Rights in a name other than that of, the registered holder of the Right
Certificate, and the Company shall not be required to issue or deliver a Right
Certificate or certificate for Shares to a person other than such registered
holder until any such tax shall have been paid (any such tax being payable by
the holder of such Right Certificate at the time of surrender) or until it has
been established to the Company's satisfaction that no such tax is due.
10. Record Date.
Each person in whose name any certificate for Shares is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Shares represented thereby on, and such certificate
shall be dated, the date upon which the Right Certificate evidencing such
rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made.
11. Adjustments to Number and Kind of Shares, Number of Rights or
Purchase Price.
The number and kind of Shares subject to purchase upon the
exercise of each Right, the number of Rights outstanding and the Purchase Price
are subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after
the date of this Rights Agreement (A) declare or pay any dividend on Shares
payable in Shares, (B) subdivide or split the outstanding Shares into a greater
number of Shares, (C) combine or consolidate the outstanding Shares into a
small number of Shares or effect a reverse split of the outstanding Shares, or
(D) issue any equity securities in a reclassification of the Shares (including
any such
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reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving entity), except as otherwise provided in
this Section 11(a), the Purchase Price in effect at the time of the record date
for such dividend or on the effective date of such subdivision, combination or
reclassification, and the number and kind of Shares or equity securities, as
the case may be, issuable on such date, shall be proportionately adjusted so
that the holder of any Right exercised after such time shall be entitled to
receive, upon payment of the Purchase Price then in effect, the aggregate
number and kind of Shares or equity securities, as the case may be, which, if
such Right had been exercised immediately prior to such date, the holder
thereof would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification. If an
event occurs which would require an adjustment under both this Section 11(a)(i)
and Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii).
(ii) In the event
(A) any Acquiring Person or any Associate or
Affiliate of and any Acquiring Person, at any time after the date of
this Agreement, directly or indirectly, (1) shall consolidate with or
merge with and into the Company or otherwise combine with the Company
and the Company shall be the continuing or surviving entity of such
consolidation, merger or combination and the Shares shall remain
outstanding and no Shares shall be changed into or exchanged for
equity securities of the Company or of any other Person or cash or any
other property, or (2) shall, in one or more transactions, other than
in connection with the exercise of a Right or Rights and other than in
connection with the exercise or conversion of securities exercisable
for or convertible into securities of the Company, transfer any assets
or property to the Company in exchange (in whole or in part) for any
shares of any class of equity securities of the Company or any
securities exercisable for or convertible into shares of any class of
equity securities of the Company, or otherwise obtain from the
Company, with or without consideration, any
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additional shares of any class of equity securities of the Company or
any securities exercisable for or convertible into shares of any class
of equity securities of the Company (other than as part of a pro rata
offer or distribution by the Company to all holders of such shares),
or (3) shall sell, purchase, lease, exchange, mortgage, pledge,
transfer or otherwise acquire (other than as a pro rata dividend) or
dispose, to, from or with, as the case may be, in one transaction or a
series of transactions, the Company, assets (including securities) on
terms and conditions less favorable to the Company than the Company
would be able to obtain in arm's-length negotiation with an
unaffiliated third party, or (4) shall receive any compensation from
the Company for services other than compensation for employment as a
regular or part-time employee, or fees for serving as a director, at
rates in accordance with the Company's past practices, or (5) shall
receive the benefit, directly or indirectly (except proportionately as
a Share Holder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or tax advantage provided by
the Company or (6) shall engage in any transaction with the Company
involving the sale, license, transfer or grant of any right in, or
disclosure of, any patents, copyrights, trade secrets, trademarks or
know how (or any other intellectual or industrial property rights
recognized under any country's intellectual property laws) which the
Company owns or has the right to use on terms and conditions not
approved by the Advisory Board; or
(B) any Person, alone or together with its
Affiliates and Associates, shall become an Acquiring Person other than
pursuant to (1) any transaction set forth in Section 13(a) hereof, or
(2) a tender or exchange offer for all outstanding Shares at a price
and on terms determined by the Advisory Board to be both adequate and
otherwise in the best interests of the Company and its Share Holders
other than the Acquiring Person or an Affiliate or Associate thereof
on whose behalf the offer is being made (a "Permitted Offer"); or
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<PAGE> 20
(C) during such time as there in an Acquiring
Person, there shall be any reclassification of securities (including
any reverse split), or any recapitalization of the Company, or any
other transaction or series of transactions involving the Company
(whether or not with or into or otherwise involving an Acquiring
Person or any Affiliate or Associate of such Acquiring Person) which
has the effect, directly or indirectly, of increasing by more than 1%
the proportionate share of the outstanding shares of any class of
equity securities of the Company, or securities exercisable for or
convertible into equity securities of the Company, which is directly
or indirectly beneficially owned by any Acquiring Person or any
Affiliate or Associate of any Acquiring Person,
then except as otherwise provided in this Section 11, each holder of a Right
shall thereafter have a right to receive for each Right, upon exercise thereof
in accordance with the terms of this Rights Agreement and payment of the
Purchase Price, such number of Shares as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the then number of Shares for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event, and (y) dividing that product (such product, following
such first occurrence, shall be referred to as the "Purchase Price" with
respect to each Right for all purposes of this Agreement) by 50% of the Current
Market Price per Share on the date of such first occurrence (such number of
Shares is herein called the "Adjustment Shares"); provided that the Purchase
Price and the number of Adjustment Shares shall be further adjusted as provided
in this Agreement to reflect any events occurring after the date of such first
occurrence; and provided further that if the transaction that would otherwise
give rise to the foregoing adjustment is also subject to the provisions of
Section 13 hereof, then only the provisions of Section 13 hereof shall apply
and no adjustment shall be made pursuant to this Section 11(a)(i).
Notwithstanding the foregoing, the adjustment pursuant to this Section
11(a)(ii) shall not occur with respect to any Rights that are or were at any
time on or after the earlier of the Share Acquisition Date or the Distribution
Date beneficially owned by the Acquiring Person or any Associate or Affiliate
of the Acquiring Person which is or was involved in or which caused or
facilitated, directly or indirectly, the event
17
<PAGE> 21
or transaction or transactions listed above in this Section 11(a)(ii) in
respect of which such adjustment occurs (or any subsequent transferee of such
Rights), and upon exercise of such Rights, the holders thereof shall continue
to receive upon exercise the number of Shares otherwise provided for herein
without giving effect to such adjustment.
(b) In case the Company shall fix a record date for the
issuance of rights (other than the Rights), options or warrants to all holders
of Shares entitling them to subscribe for or purchase (for a period expiring
within forty-five calendar days after such record date) Shares, shares having
the same rights, privileges and preferences as the Shares ("equivalent
securities") or securities convertible into Shares or equivalent securities at
a price per Share or equivalent securities (or having conversion price per
Share, if a security convertible into Shares or equivalent securities) less
than the Current Market Price per Share on such record date, the Purchase Price
to be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of Shares outstanding on such record
date, plus the number of Shares which the aggregate offering price of the total
number of Shares and/or equivalent securities (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such Current Market Price, and the denominator of which shall be the number
of Shares outstanding on such record date, plus the number of additional Shares
and/or equivalent securities to be offered for subscription or purchase (or
into which the convertible securities so to be offered are initially
convertible). In case such subscription price may be paid by delivery of
consideration part or all of which may be in a form other than cash, the value
of such non-cash consideration shall be as determined in good faith by the
Advisory Board, whose determination shall be described in a statement filed
with the Rights Agent. Such adjustment shall be made successively whenever
such a record date is fixed, and in the event that such rights or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
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<PAGE> 22
(c) In case the Company shall fix a record date for a
distribution to all holders of Shares (including any such distribution made in
connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash, assets (other than
a dividend payable in Shares, but including any dividend payable in securities
other than Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the Current Market Price per Share on such record date, less the fair
market value (as determined in good faith by the Advisory Board, whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a Share
and the denominator of which shall be such Current Market Price per Share. Such
adjustments shall be made successively whenever such a record date is fixed,
and in the event that such distribution is not so made, the Purchase Price
shall be adjusted to be the Purchase Price which would have been in effect if
such record date had not been fixed.
(d) For the purpose of any computation hereunder, the
"Current Market Price" per Share on any date shall be deemed to be the average
of the daily closing prices per Share for the thirty consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the Current Market Price per Share is
determined during a period following the announcement of (i) any dividend or
distribution on the Shares (other than the Rights), (ii) any subdivision,
combination or reclassification of the Shares, and prior to the expiration of
the requisite thirty Trading Day period, as set forth above, after the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification occurs, then, and in each such
case, the Current Market Price shall be properly adjusted to take into account
ex-dividend trading. The closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the
19
<PAGE> 23
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange, or, if the Shares
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Shares are listed or admitted to trading or, if the Shares are not
listed or admitted to trading on any national securities exchange, the last
quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or such
other system then in use, or, if on any such date the Shares are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Shares selected
by the Advisory Board. If on any such date no market maker is making a market
in the Shares, the fair value of such shares on such date as determined in good
faith by the Advisory Board shall be used. The term "Trading Day" shall mean a
day on which the principal national securities exchange on which the Shares are
listed or admitted to trading is open for the transaction of business or, if
the Shares are not listed or admitted to trading on any national securities
exchange, a Business Day. If the Shares are not publicly held or not so listed
or traded, "Current Market Price" per share shall mean the fair value per share
as determined in good faith by the Advisory Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be conclusive
for all purposes.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be
made to the nearest cent or to the nearest ten-thousandth of a Share, as the
case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which mandates such
adjustment, or (ii) the Expiration Date.
20
<PAGE> 24
(f) If as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of equity securities
other than Shares, thereafter the number of such other shares so receivable
upon exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Shares contained in Section
11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m) hereof, and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the adjusted Purchase Price, the number of
Shares purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election
as provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
Shares (calculated to the nearest ten-thousandth) obtained by (i) multiplying
(x) the number of Shares covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price or any adjustment to the number of Shares for
which a Right may be exercised, to adjust the number of Rights, in lieu of any
adjustment in the number of Shares purchasable upon the exercise of a Right.
Each of the Rights outstanding after the adjustment in the number of Rights
shall be exercisable for the number of Shares for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the
21
<PAGE> 25
number of Rights shall become that number of Rights (calculated to the nearest
ten-thousandth) obtained by dividing the Purchase Price in effect immediately
prior to adjustment of the Purchase Price by the Purchase Price in effect
immediately after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of
the adjustment to be made. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least ten days later than the date
of the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein (and
may bear, at the option of the Company, the adjusted Purchase Price) and shall
be registered in the names of the holders of record of Right Certificates on
the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of Shares issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue
to express the Purchase Price per share and the number of shares which were
expressed in the initial Right Certificates issued hereunder.
(k) [INTENTIONALLY OMITTED]
(l) In any case in which this Section 11 shall require
that an adjustment in the Purchase Price be made effective as of a record date
for a specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised
22
<PAGE> 26
after such record date the Shares and other securities of the Company, if any,
issuable upon such exercise over and above the Shares and other securities of
the Company, if any, issuable upon such exercise on the basis of the Purchase
Price in effect prior to such adjustment; provided, however, that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional Shares and other
securities upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as to the extent that in their good faith judgment the Advisory
Board shall determine to be advisable in order that any (i) consolidation or
subdivision of the Shares, (ii) issuance for cash of any Shares at less than
the current market price, (iii) issuance for cash of Shares or securities which
by their terms are convertible into or exchangeable for Shares, (iv) share
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the company to holders of its Shares shall not be
taxable to such holders.
(n) The Company covenants and agrees that it shall not,
at any time after the Distribution Date, (i) consolidate with any other Person,
or (ii) merge with or into any other Person, if (x) at the time of or
immediately after such consolidation or merger there are any rights, warrants
or other instruments or securities outstanding or agreements in effect which
would substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately
after such consolidation or merger, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take any action if at the time
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<PAGE> 27
such action is taken it is reasonably foreseeable that such action will
diminish substantially or eliminate the benefits intended to be afforded by the
Rights.
12. Certification of Adjustments.
Whenever an adjustment is made as provided in Sections 11 and
13 hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment and a brief statement of the facts giving rise to such
adjustment, (b) promptly file with the Rights Agent and with each transfer
agent for the Shares a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate (or, if prior to the Distribution
Date, to each holder of a certificate representing Shares) in accordance with
Section 25 hereof. Notwithstanding the foregoing sentence, the failure of the
Company to give such notice shall not affect the validity of or the force or
effect of or the requirement for such adjustment. The Rights Agent shall be
fully protected in relying on any certificate prepared by the Company pursuant
to Sections 11 and 13 and on any adjustment therein contained. Any adjustment
to be made pursuant to Sections 11 and 13 of this Rights Agreement shall be
effective as of the date of the event giving rise to such adjustment.
13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power.
(a) In the event that, at any time on or after the
Distribution Date, directly or indirectly, (x) the Company shall consolidate
with, or merge with and into, any other Person or Persons and the Company shall
not be the surviving or continuing corporation of such consolidation or merger,
or (y) any Person or Persons shall consolidate with, or merge with and into,
the Company, and the Company shall be the continuing or surviving corporation
of such consolidation or merger and, in connection with such consolidation or
merger, all or part of the outstanding Shares shall be changed into or
exchanged for stock or other securities of any other Person or of the Company
or cash or any other property (other than in the case of the transactions
described in subparagraphs (x) or (y), a merger or consolidation which would
result in all of the Voting Power represented by the securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into
24
<PAGE> 28
securities of the surviving entity) all of the Voting Power represented by the
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation and the holders of such securities not
having changed as a result of such transactions), then, on the first occurrence
of any such event, proper provision shall be made so that (i) each holder of
record of a Right shall thereafter have the right to receive, upon the exercise
thereof and payment of the Purchase Price in accordance with the terms of this
Rights Agreement, such number of shares of validly issued, fully paid and
nonassessable Common Stock of the Principal Party (as defined herein) not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of Shares for which a Right was
exercisable immediately prior to the first occurrence of a Section 13 Event
(or, if a Section 11(a)(ii) Event hereof has occurred prior to the first
occurrence of a Section 13 Event, multiplying the Purchase Price in effect
immediately prior to the first occurrence of a Section 11(a)(ii) Event by the
number of Shares for which a Right was exercisable immediately prior to such
first occurrence of a Section 11(a)(ii) Event) and (2) dividing that product
(such product, following the first occurrence of a Section 13 Event, shall be
referred to as the "Purchase Price" for all purposes of this Agreement) by 50%
of the Current Market Price (determined as provided in Section 11(d) hereof
with respect to the Shares) per share of the Common Stock of such Principal
Party on the date of consummation of such Section 13 Event (or the fair market
value on such date of other securities or property of the Principal Party, as
provided for herein); provided that the Purchase Price and the number of shares
of Common Stock of such Principal Party issuable upon exercise of each Right
shall be further adjusted as provided in this Agreement to reflect any events
occurring after the date of the first occurrence of a Section 13 Event; (ii)
such Principal Party shall thereafter be liable for, and shall assume, by
virtue of such Section 13 Event, all the obligations and duties of the Company
pursuant to this Rights Agreement; (iii) the term "Company" for all purposes of
this Rights Agreement shall thereafter be deemed to refer to such Principal
Party, it being specifically intended that the provisions of Section 11 hereof
shall only apply to such Principal Party
25
<PAGE> 29
following the first occurrence of a Section 13 Event; and (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of
a sufficient number of shares of its Common Stock) in connection with the
consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its shares of Common Stock thereafter deliverable upon the
exercise of the Rights; provided, however, that, upon the subsequent occurrence
of any merger, consolidation, sale of all or substantially all assets,
recapitalization, reclassification of shares, reorganization or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price, such cash, shares, rights, warrants and other
property which such holder would have been entitled to receive had he, at the
time of such transaction, owned the shares of Common Stock of the Principal
Party purchasable upon the exercise of a Right, and such Principal Party shall
take such steps (including, but not limited to, reservation of shares of stock)
as may be necessary to permit the subsequent exercise of the Rights in
accordance with the terms hereof for such cash, shares, rights, warrants and
other property.
(b) "Principal Party" shall mean
(i) the Person that is the issuer of the securities
into which Shares are converted in such merger or consolidation, or,
if there is more than one such issuer, the issuer of Common Stock of
which has the greatest market value or (ii) if no securities are so
issued, (A) the Person that is the other party to the merger or
consolidation and that survives said merger or consolidation, or, if
there is more than one such Person, the Person the Common Stock of
which has the greatest market value or (B) if the Person that is the
other party to the merger or consolidation does not survive the merger
or consolidation, the Person that does survive the merger or
consolidation (including the Company if it survives);
provided, however, that in any such case described in the foregoing (A) or (B),
if the Common Stock of such Person is not at such time and has not been
continuously over the preceding 12-
26
<PAGE> 30
month period registered under Section 12 of the Exchange Act, and such Person
is a direct or indirect Subsidiary of another Person the Common Stock of which
is and has been so registered, the term "Principal Party" shall refer to such
other Person, or if such Person is a Subsidiary, directly or indirectly, of
more than one Person, the Common Stock of all of which are and have been so
registered, the term "Principal Party" shall refer to whichever of such Persons
is the issuer of the Common Stock having the greatest market value of shares
outstanding.
(c) The Company shall not consummate any consolidation,
merger, sale or transfer referred to in Section 13(a) unless prior thereto the
Company and the Principal Party involved therein shall have executed and
delivered to the Rights Agent an agreement confirming that the requirements of
Sections 13(a) and (b) hereof shall promptly be performed in accordance with
their terms and that such consolidation, merger, sale or transfer of assets
shall not result in a default by the Principal Party under this Rights
Agreement as the same shall have been assumed by the Principal Party pursuant
to Sections 13(a) and (b) hereof and further providing that, as soon as
practicable after executing such agreement pursuant to this Section 13, the
Principal Party at its own expense shall:
(i) prepare and file a registration statement
under the Securities Act, if necessary, with respect to the Rights and
the Securities purchasable upon exercise of the Rights on an
appropriate form, use its best efforts to cause such registration
statement to become effective as soon as practicable after such filing
and use its best efforts to cause such registration statement to
remain effective (with a prospectus at all times meeting the
requirements of the Act) until the date of expiration of the Rights,
and similarly comply with applicable state securities laws;
(ii) use its best efforts, if the Common Stock of
the Principal Party shall become listed on a national securities
exchange, to list (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on such securities
exchange and, if the Common Stock of the Principal Party shall not be
listed on a national
27
<PAGE> 31
securities exchange, to cause the Rights and the securities
purchasable upon exercise of the Rights to be reported by NASDAQ or
such other system in use;
(iii) deliver to holders of the Rights historical
financial statements for the Principal Party which comply in all
respects with the requirements for registration on Form 10 (or any
successor form) under the Exchange Act; and
(iv) obtain waivers of any rights of first refusal
or preemptive rights in respect of the shares of Common Stock of the
Principal Party subject to purchase upon exercise of outstanding
Rights.
In the event that any of the transactions described in Section 13(a) hereof
shall occur at any time after the occurrence of a transaction described in
Section 11(a)(ii) hereof, the Rights which have not theretofore been exercised
shall thereafter be exercisable in the manner described in Section 13(a). The
provisions of this Section 13 shall similarly apply to all successive Section
13 Events.
(d) Furthermore, in case the Principal Party which is to
be a party to a transaction referred to in this Section 13 has a provision in
any of its authorized securities or in its Certificate of Incorporation or
By-laws or other instrument governing its corporate affairs, which provision
would have the effect of (i) causing such Principal Party to issue, in
connection with, or as a consequence of, the consummation of a transaction
referred to in this Section 13, shares of Common Stock of such Principal Party
at less than the then Current Market Price per share (determined pursuant to
Section 11(d) hereof) or securities exercisable for, or convertible into,
Common Stock of such Principal Party at less than such then current market
price (other than to holders of Rights pursuant to this Section 13) or (ii)
providing for any special payment, tax or similar provisions in connection with
the issuance of the Common Stock of such Principal Party pursuant to the
provisions of Section 13; then, in such event, the Company hereby agrees with
each holder of Rights that it shall not consummate any such transaction unless
prior thereto the Company and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party shall
28
<PAGE> 32
have been cancelled, waived or amended, or that the authorized securities shall
be redeemed, so that the applicable provision will have no effect in connection
with, or as a consequence of, the consummation of the proposed transaction.
(e) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) or (y) of Section 13(a) if (i) such transaction is
consummated with a Person or Persons (or a wholly owned subsidiary of any such
Person) who acquired Shares pursuant to a Permitted Offer, (ii) the price per
Share offered in such transaction is not less than the price per Share paid to
all holders of Shares whose Shares were purchased pursuant to such Permitted
Offer and (iii) the form of consideration being offered to the remaining
holders of Shares pursuant to such transaction is the same as the form of
consideration paid pursuant to such Permitted Offer. Upon consummation of any
such transaction contemplated by this subsection (e), all Rights hereunder
shall expire.
14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions
of Rights or to distribute Right Certificates which evidence fractional Rights.
In lieu of such fractional Rights, there shall be paid to the holders of record
of the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the then
current market value of a whole Right. For the purposes of this Section 14(a),
the then current market value of a Right shall be determined in the same manner
as the Current Market Price of a Share shall be determined pursuant to Section
11(d) hereof.
(b) The Company shall not be required to issue fractions
of Shares upon exercise of the Rights or to distribute certificates which
evidence fractional Shares. In lieu of issuing fractions of Shares, there
shall be paid to the holders of record of Right Certificates at the time such
Right Certificates are exercised as herein provided an amount in cash equal to
the same fraction of the then current market value of a Share. For purposes of
this Section 14(b), the then current market value of a Share shall be the
Current Market Price thereof as determined pursuant to Section 11(d) hereof.
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<PAGE> 33
(c) The holder of a Right by the acceptance of a Right
expressly waives his right to receive any fractional Right or any fractional
Shares upon exercise of a Right.
15. Rights of Action.
All rights of action in respect of this Agreement are vested
in the respective holders of record of the Right Certificates (and, prior to
the Distribution Date, the holders of record of Shares); and any holder of
record of any Right Certificate (or, prior to the Distribution Date, of the
Shares), without the consent of the Rights Agent or of the holder of any other
Right Certificate (or, prior to the Distribution Date, of the Shares), may, in
his own behalf and for his own benefit, enforce, and may institute and maintain
any suit, action or proceeding against the Company or any other Person to
enforce, or otherwise act in respect of, his right to exercise the Rights
evidenced by such Right Certificate in the manner provided in such Right
Certificates and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and, accordingly, that they will be entitled to
specific performance of the obligations under, and injunctive relief against
actual or threatened violations of, the obligations of any Person subject to
this Agreement. Holders of Rights shall be entitled to recover the reasonable
costs and expenses, including attorneys' fees, incurred by them in any action
to enforce the provisions of this Agreement.
16. Agreement of Right Holders.
Every holder of a Right by accepting the same consents and
agrees with the Company and the Rights Agent and with every other holder of a
Right that:
(a) prior to the Distribution Date, the Rights will not
be evidenced by a Right Certificate and will be transferable only in connection
with the transfer of Shares;
(b) after the Distribution Date, the Right Certificates
will be transferable only on the registry books of the Rights Agent if
surrendered at the principal office of the Rights Agent, duly endorsed or
accompanied by a proper instrument of transfer;
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<PAGE> 34
(c) the Company and the Rights Agent may deem and treat
the person in whose name the Right Certificate (or, prior to the Distribution
Date, the associated Shares) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificate or the associated Share certificate made by
anyone other than the Company or the Rights Agent or the transfer agent of the
Shares) for all purposes whatsoever, and neither the Company nor the Rights
Agent shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission, or any statute, rule, regulation or executive order
promulgated or enacted by any governmental authority, prohibiting or otherwise
restraining performance of such obligation; provided, however, the Company must
use its best efforts to have any such order, decree or ruling lifted or
otherwise overturned as soon as possible.
17. Right Certificate Holder Not Deemed a Share Holder.
No holder of a Right, as such, shall be entitled to vote,
receive dividends in respect of or be deemed for any purpose to be the holder
of Shares or any other securities of the Company which may at any time be
issuable upon the exercise of the Rights, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a Share Holder or any right to vote
for the election of the Advisory Board or upon any matter submitted to Share
Holders at any meeting thereof, or to give or withhold consent to any Company
action, or to receive notice of meetings or other actions affecting Share
Holders, or to receive dividends or subscription rights in respect of any such
Shares or securities, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.
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<PAGE> 35
18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from
time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other disbursements incurred in the administration and
execution of this Rights Agreement and the exercise and performance of its
duties hereunder. The Company also agrees to indemnify the Rights Agent for,
and to hold it harmless against, any loss, liability or expense incurred
without gross negligence, bad faith or willful misconduct on the part of the
Rights Agent for anything done or omitted to be done by the Rights Agent in
connection with the acceptance and administration of this Rights Agreement,
including the cost and expenses of defending against any claim of liability in
the premises.
(b) The Rights Agent shall be protected and shall incur
no liability for or in respect of any action taken, suffered or omitted by it
in connection with its administration of this Rights Agreement in reliance upon
any Right Certificate, certificate for Shares or other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, guaranteed, verified or acknowledged, by the proper Person or
Persons.
19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any entity into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any entity resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any entity succeeding to the
corporate trust or stock transfer business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Rights
Agreement without the execution or filing of any paper or any further act on
the part of any of the parties hereto, provided that such entity would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Rights Agreement, any of the Right
Certificates shall have
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<PAGE> 36
been countersigned but not delivered, any such successor Rights Agent may adopt
the countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in this Rights Agreement.
(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not
have been countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name, and in all such
cases such Right Certificates shall have the full force provided in the Right
Certificates and in the Rights Agreement.
20. Duties of Rights Agent.
The Rights Agent undertakes the duties and obligations imposed
by this Rights Agreement upon the following terms and conditions, by all of
which the Company and the holders of Right Certificates, by their acceptance
thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to any
action taken or omitted to be taken by it in good faith and in accordance with
such opinion.
(b) Whenever in the performance of its duties under this
Rights Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter (including, without limitation, the identity of any Acquiring
Person) be proved or established by the Company prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and
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<PAGE> 37
established by a certificate signed by the President or any Vice President and
by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary of the Company (or the corresponding officers of the Manager, on
behalf of the Company) and delivered to the Rights Agent, and such certificate
shall be full authorization to the Rights Agent for any action taken or
suffered in good faith by it under the provisions of this Rights Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for
its own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this Rights Agreement
or in the Right Certificates (except its countersignature thereof) or be
required to verify the same, but all such statements and recitals are and shall
be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Rights Agreement or the
execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Rights
Agreement or in any Right Certificate; nor shall it be responsible for any
adjustment required under the provisions of Section 11 or 13 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after actual notice of any such adjustment); nor shall it by any act hereunder
be deemed to make any representation or warranty as to the authorization or
reservation of any Shares to be issued pursuant to this Rights Agreement or any
Right Certificate or as to whether any Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and
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<PAGE> 38
other acts, instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights Agent of the
provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder
from the Chairman of the Board, the President or any Vice President or
Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer of the Company (or the corresponding officers of the Manager, on
behalf of the Company), and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not the Rights Agent under this Rights Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the Company or
for any other entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent shall not
be answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of its rights if there shall be reasonable grounds for believing that repayment
of such funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
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(k) If, with respect to any Right Certificate surrendered
to the Rights Agent for exercise or transfer, the certificate contained in the
form of assignment or the form of election to purchase set forth on the reverse
thereof, as the case may be, has either not been completed or indicates an
affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not
take any further action with respect to such requested exercise of transfer
without first consulting with the Company.
21. Change of Rights Agent.
The Rights Agent or any successor Rights Agent may resign and
be discharged from its duties under this Rights Agreement upon 30 days' notice
in writing mailed to the Company and to each transfer agent of the Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent (with or without cause) upon 30 days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Shares by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. Notwithstanding the
foregoing provisions of this Section 21, in no event shall the resignation or
removal of a Rights Agent be effective until a successor Rights Agent shall
have been appointed and have accepted such appointment. If the Company shall
fail to make such appointment within a period of 30 days after such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by
the Company), then the incumbent Rights Agent or the holder of record of any
Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a corporation
organized and doing business under the laws of the United States or any State
thereof, in good standing, which is authorized under such laws to exercise
corporate trust or stock transfer powers
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<PAGE> 40
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000 or (b) an Affiliate controlled by a corporation
described in clause (a) of this sentence. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and
transfer to the successor Rights Agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Shares, and mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Rights Agreement
or of the Rights to the contrary, the Company may, at its option, issue new
Right Certificates evidencing Rights in such form as may be approved by the
Advisory Board to reflect any adjustment or change in the purchase price per
share and the number or kind or class of shares of stock or other securities or
property purchasable under the Right Certificates made in accordance with the
provisions of this Rights Agreement. In addition, in connection with the
issuance or sale of Shares following the Distribution Date and prior to the
redemption or expiration of the Rights, the Company, (a) shall, with respect to
Shares so issued or sold pursuant to the exercise of options or under any
employee plan or arrangement, or upon the exercise, conversion or exchange of
securities hereinafter issued by the Company, and (b) may, in any other case,
if deemed necessary or appropriate by the Advisory Board, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Right
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<PAGE> 41
Certificate shall be issued if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued, and (ii) no such Right Certificate shall be
issued, if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
23. Redemption.
(a) (i) The Advisory Board may, at its option, at any
time prior to the earlier of (x) the time that any person becomes an Acquiring
Person or (y) the Close of Business on the Final Expiration Date, redeem all
but not less than all the then outstanding Rights at a redemption price of
$0.01 per Right, as such amount may be appropriately adjusted to reflect any
Share split, Share dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price").
(ii) Notwithstanding anything contained in this
Agreement to the contrary, the Advisory Board may redeem all but not less than
all of the then outstanding Rights at the Redemption Price following the
occurrence of a Share Acquisition Date but prior to any Section 13 Event in
connection with a Section 13 Event in which all holders of Shares are treated
alike and not involving (other than as a holder of Shares being treated like
all other such holders) an Acquiring Person or an Affiliate or Associate of an
Acquiring Person or any other Person in which such Acquiring Person, Affiliate
or Associate has an interest, or any other Person or Persons acting directly or
indirectly on behalf of or in association with any such Acquiring Person,
Affiliate or Associate.
(b) Immediately upon the action of the Advisory Board
ordering the redemption of the Rights, and without any further action and
without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price, without any interest thereon. Within 10 days after the
action of the Advisory Board ordering the redemption of the Rights, the Company
will give notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such
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<PAGE> 42
notice to all such holders at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent(s) of the Shares. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made. The failure
to give notice required by this Section 23(b) or any defect therein shall not
affect the legality or validity of the action taken by the Company.
(c) In the case of a redemption permitted under Section
23(a), the Company may, at its option, discharge all of its obligations with
respect to the Rights by (i) issuing a press release announcing the manner of
redemption of the Rights and (ii) mailing payment of the Redemption Price to
the registered holders of the Rights at their last addresses as they appear on
the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent(s) of the Shares, and upon such
action, all outstanding Right Certificates shall be null and void without any
further action by the Company.
24. Notice of Proposed Actions.
(a) In case the Company, after the Distribution Date,
shall propose (i) to effect any of the transactions referred to in Section
11(a)(i) or to pay any dividend to the holders of record of its Shares payable
in securities of any class or to make any other distribution to the holders of
record of its Shares (other than a regular periodic cash dividend), or (ii) to
offer to the holders of record of its Shares options, warrants, or other rights
to subscribe for or to purchase Shares (including any security convertible into
or exchangeable for Shares) or shares of any class or any other securities,
options, warrants, convertible or exchangeable securities or other rights, or
(iii) to effect any reclassification of its Shares or any recapitalization or
reorganization of the Company, or (iv) to effect any consolidation or merger
with or into any other Person or Persons, or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of record of a Right Certificate, in accordance with
Section 25 hereof, notice of such proposed action, which shall specify the
record date for the
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purposes of such transaction referred to in Section 11(a)(i), or such dividend
or distribution, or the date on which such reclassification, recapitalization,
reorganization, consolidation, merger, sale or transfer of assets, liquidation,
dissolution, or winding up is to take place and the record date for determining
participation therein by the holders of record of Shares, if any such date is
to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of record of the Shares for purposes of such action,
and in the case of any such other action, at least 10 days prior to the date of
the taking of such proposed action or the date of participation therein by the
holders of record of Shares, whichever shall be the earlier. The failure to
give notice required by this Section 24 or any defect therein shall not affect
the legality or validity of the action taken by the Company or the vote upon
any such action.
(b) In case any of the transactions referred to in
Section 11(a)(ii) or Section 13 of this Rights Agreement are proposed, then, in
any such case, the Company shall give to each holder of Rights, in accordance
with Section 25 hereof, notice of the proposal of such transaction at least 10
days prior to consummating such transaction, which notice shall specify the
proposed event and the consequences of the event to holders of Rights under
Section 11(a)(ii) or Section 13 hereof, as the case may be, and, upon
consummating such transaction, shall similarly give notice thereof to each
holder of Rights.
25. Notices.
Notices or demands authorized by this Rights Agreement to be
given or made by the Rights Agent or by the holder of record of any Right
Certificate or Right to or on behalf of the Company shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:
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<PAGE> 44
Triad Park, LLC
3055 Triad Drive
Livermore, California 94550
Attention: Chief Financial Officer
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Rights Agreement to be given or made by the Company or by the holder of
record of any Right Certificate or Right to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company) as
follows:
[INSERT NAME OF RIGHTS AGENT]
___________________________________________________
___________________________________________________
Attention: _______________________________________
Notices or demands authorized by this Rights Agreement to be given or made by
the Company or the Rights Agent to the holder of record of any Right
Certificate or Right shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed to such holder at the address of such holder
as it appears upon the registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the Transfer Agent.
26. Supplements and Amendments.
The Company and the Rights Agent may from time to time
supplement or amend this Agreement without approval of any holders of Rights in
order (i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provision herein, (iii) prior to the time a Person becomes an Acquiring Person,
to change or supplement any of the provisions herein which the Company may deem
necessary or desirable (including, but not limited to, an amendment that
provides that the Rights shall become exercisable for Equivalent Securities) or
(iv) following the time a Person becomes an Acquiring Person, to change or
supplement the provisions hereunder in any manner which the company may deem
necessary or desirable and which shall not adversely affect the interests of
the holders of Right Certificates. Upon the delivery of a certificate from an
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<PAGE> 45
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 26, the Rights Agent
shall execute such supplement or amendment unless the Rights Agent shall have
determined in good faith that such supplement or amendment would adversely
affect its interests under this Agreement. Notwithstanding anything contained
in this Rights Agreement to the contrary, no supplement or amendment shall be
made which changes the Redemption Price. Prior to the Distribution Date, the
interests of the holders of Rights shall be deemed coincident with the
interests of the holders of Shares.
27. Successors.
All of the covenants and provisions of this Rights Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
28. Benefits of this Rights Agreement.
Nothing in this Rights Agreement shall be construed to give to
any person or corporation other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Shares) any legal or equitable right, remedy or claim under this
Rights Agreement; but this Rights Agreement shall be for the sole and exclusive
benefit of the Company, the Rights Agent and the holders of record of the Right
Certificates (and, prior to the Distribution Date, the Shares).
29. Delaware Contract.
The Rights Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such state applicable to contracts to be made and performed
entirely within such state; provided, however, that the rights and obligations
of the Rights Agent shall be governed by the laws of the State of
__________________(or state of incorporation of any successor Rights Agent).
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30. Counterparts.
This Rights Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
31. Descriptive Headings.
Descriptive headings of the several sections of this Rights
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
32. Severability.
If any term, provision, covenant or restriction of this Rights
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, illegal, or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Rights Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed, all as of the day and year first above written.
<TABLE>
<S> <C>
ATTEST: TRIAD PARK, LLC
By 3055 Management Corp., a California
corporation, Its Manager
By By
---------------------------------------- ---------------------------------------
Its Its
------------------------------------- -----------------------------------
ATTEST: [INSERT NAME OF RIGHTS AGENT]
By By
---------------------------------------- ---------------------------------------
Its Its
-----------------------------------
</TABLE>
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<PAGE> 47
EXHIBIT A
[Form of Right Certificate]
Certificate No. W - ____________ Rights
NOT EXERCISABLE AFTER [DATE], 2007 OR EARLIER IF REDEEMED.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $0.01 PER RIGHT ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT. IN THE EVENT THAT THE RIGHTS REPRESENTED BY
THIS CERTIFICATE ARE ISSUED TO A PERSON WHO IS AN ACQUIRING
PERSON OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON OR
A TRANSFEREE OF THE RIGHTS PREVIOUSLY OWNED BY SUCH PERSONS,
THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY
BE SUBJECT TO CERTAIN LIMITATIONS IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 11(a)(ii) OF THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
TRIAD PARK, LLC
This certifies that ____________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement dated as of [DATE], 1997 ("Rights
Agreement") between Triad Park, LLC, a Delaware limited liability company
("Company"), and [INSERT NAME OF RIGHTS AGENT] ("Rights Agent") to purchase
from the Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to 5:00 p.m. (San Francisco time) on
[DATE], 2007 at the office of the
Exhibit A
<PAGE> 48
Rights Agent, or its successors as Rights Agent, designated for such purpose
one fully paid and nonassessable share ("Share"), of the Company at a purchase
price of $0.63 as the same may from time to time be adjusted in accordance with
the Rights Agreement ("Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed.
As provided in the Rights Agreement, the Purchase Price and
the number of Shares which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events and, upon the happening of certain events,
securities other than Shares, or other property, may be acquired upon exercise
of the Rights evidenced by this Right Certificate, as provided by the Rights
Agreement.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are incorporated herein by reference and made a part hereof and to
which Rights Agreement reference is hereby made for a full description of the
rights, limitations of rights, obligations, duties and immunities of the Rights
Agent, the Company and the holders of record of the Right Certificates. Copies
of the Rights Agreement are on file at the principal executive office of the
Company.
This Right Certificate, with or without other Right
Certificates, upon surrender at the office of the Rights Agent designated for
such purpose, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder of
record to purchase a like aggregate number of Shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled
such holder to purchase. If this
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<PAGE> 49
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof, another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $0.01 per Right at any time prior to the earlier of (i) the
date on which a Person becomes an Acquiring Person (as such term is defined in
the Rights Agreement), or (ii) the Final Expiration Date.
No fractional Shares shall be issued upon the exercise of any
Right or Rights evidenced hereby, and in lieu thereof, as provided in the
Rights Agreement, fractions of Shares shall receive an amount in cash equal to
the same fraction of the then current market value of a Share.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
Shareholder of the Company or any right to vote for the Advisory Board, or upon
any matter submitted to Shareholders at any meeting thereof, or to give or
withhold consent to any company action or to receive notice of meetings or
other actions affecting Shareholders or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
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<PAGE> 50
WITNESS the facsimile signature of the proper officers of the
Company. Dated as of ____________________, _____.
<TABLE>
<S> <C>
ATTEST: TRIAD PARK, LLC
_________________________________ _________________________________
Secretary Title:
COUNTERSIGNED:
By:_____________________________
Authorized Signature
</TABLE>
4
<PAGE> 51
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder
if such holder desires to transfer any or all of the Rights
represented by this Right Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_____________________________________________________________________________
(Name, address and social security or other identifying number of transferee)
_______________________________________ (___________________) of the Rights
represented by this Right Certificate, together with all right, title and
interest in and to said Rights, and hereby irrevocably constitutes and appoints
________________________ attorney to transfer said Rights on the books of the
within-named Company with full power of substitution.
Dated:______________, _____ ___________________________________
(Signature)
Signature Guaranteed:
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the rights evidenced by this Right Certificate [ ]
are [ ] are not being sold, assigned and transferred by or on behalf of a
Person who is or was an Acquiring Person (as such capitalized terms are defined
in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this
Right Certificate from any Person who is or was an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or any transferee of such
Persons.
Dated:______________, _____ ___________________________________
(Signature)
Signature Guaranteed:
5
<PAGE> 52
Form of Reverse Side of Right Certificate
(continued)
NOTICE
The signatures to the foregoing Assignment and the foregoing
Certificate, if applicable, must correspond to the name as written upon the
face of this Right Certificate in every particular, without alteration or
enlargement or any change whatsoever, and must be guaranteed by a member firm
of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
having an office or correspondent in the United States.
In the event that the foregoing Certificate is not duly
executed, with signature guaranteed, the Company may deem the Rights
represented by this Right Certificate to be Beneficially Owned by an Acquiring
Person or an Affiliate or Associate of an Acquiring Person (as such capitalized
terms are defined in the Rights Agreement), and not issue any Right Certificate
or Right Certificates in exchange for this Right Certificate.
6
<PAGE> 53
Form of Reverse of Right Certificate
(continued)
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder
if such holder desires to exercise any or all of the Rights
represented by this Right Certificate)
To Triad Park, LLC:
The undersigned hereby irrevocably elects to exercise
______________________ (_________) of the Rights represented by this Right
Certificate to purchase the Shares of the Company, or other securities or
property issuable upon the exercise of said number of Rights pursuant to the
Rights Agreement.
The undersigned hereby requests that a certificate for any
such securities and any such property be issued in the name of and delivered
to:
_____________________________________________________________________________
(Name, address and social security or other identifying number of issuee)
The undersigned hereby further requests that if said number of
Rights shall not be all the Rights represented by this Right Certificate, a new
Right Certificate for the remaining balance of such Rights be issued in the
name of and delivered to:
_____________________________________________________________________________
(Name, address and social security or other identifying number of issuee)
Dated:______________, _____ _____________________________
(Signature)
Signature Guaranteed:
7
<PAGE> 54
Form of Reverse Side of Right Certificate
(continued)
CERTIFICATE
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Right Certificate [ ]
are [ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did
[ ] did not acquire the Rights evidenced by this Right Certificate from any
Person who is or was an Acquiring Person or an Affiliate or Associate of an
Acquiring Person or any transferee of such Persons.
Dated:______________, _____ _________________________
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and the
foregoing Certificate, if applicable, must correspond to the name as written
upon the face of this Right Certificate in every particular, without alteration
or enlargement or any change whatsoever, and must be guaranteed by a member
firm of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
having an office or correspondent in the United States.
In the event that the foregoing Certificate is not executed,
with signature guaranteed, the Company may deem the Rights represented by this
Right Certificate to be Beneficially Owned by an Acquiring Person or an
Affiliate or Associate of an Acquiring Person (as such capitalized terms are
defined in the Rights Agreement), and not issue any Right Certificate or Right
Certificates in exchange for this Right Certificate.
8
<PAGE> 55
EXHIBIT B
TRIAD PARK, LLC
SUMMARY OF RIGHTS TO PURCHASE
SHARES
On [DATE], 1997, the Advisory Board of Triad Park, LLC (the
"Company") declared a dividend distribution of one Share Purchase Right
(collectively, the "Rights") for each outstanding Share ("Share") of the
Company. The distribution was payable as of [DATE], 1997 to Shareholders of
record on that date. Each Right entitles the registered holder to purchase
from the Company one Share at a price of $0.63 per share (the "Purchase
Price"). The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and [INSERT NAME OF
RIGHTS AGENT], as Rights Agent (the "Rights Agent").
As discussed below, initially the Rights will not be
exercisable, certificates will not be sent to Shareholders and the Rights will
automatically trade with the Shares.
Until the earlier to occur of (i) a public announcement that a
person or group of affiliated or associated persons ("Acquiring Person"), other
than the Company, or any employee benefit plan or employee equity plan of the
Company ("Exempt Person") has acquired, or obtained the right to acquire,
without approval of the Advisory Board, beneficial ownership of securities of
the Company representing 24% or more of the outstanding Shares of the Company
(other than solely as a result of a reduction in the outstanding Shares of the
Company) or such earlier date as a majority of the Advisory Board shall become
aware of such acquisition of the Shares (the "Share Acquisition Date") or (ii)
the tenth day (subject to extension by the Board prior to the time a person
becomes an Acquiring Person) following the commencement of, or public
announcement of an intention to commence, a tender or exchange offer (other
than a tender or exchange offer by an Exempt Person), the consummation of which
would result in the ownership of 24% or more of the outstanding Shares (the
earlier of such dates being called the
Exhibit B
<PAGE> 56
"Distribution Date"), the Rights will be evidenced, with respect to the Shares
by Share certificates with a copy of this Summary of Rights attached thereto.
Rights shall be issued in respect of all Shares issued after [DATE], 1997 but
prior to the earlier of the Distribution Date or the Expiration Date. The
Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be represented by and
transferred with, and only with, the certificates of Shares registered in the
names of the holders thereof. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new certificates issued for Shares
(including, without limitation, certificates issued upon transfer or exchange
of Shares) after [DATE], 1997 will contain a legend incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any of the Company's
Share certificates, with or without the aforesaid legend or a copy of this
Summary of Rights attached thereto, will also constitute the transfer of the
Rights associated with the Shares represented thereby. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Company's
Shares, as of the close of business on the Distribution Date, and such separate
certificates alone will evidence the Rights from and after the Distribution
Date.
The Rights are not exercisable until the Distribution Date.
The Rights will expire at the close of business on [DATE], 2007, unless earlier
redeemed by the Company as described below.
The Purchase Price payable, and the number of Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a Share
dividend on, or a subdivision, combination or reclassification of the Shares,
(ii) upon the grant to holders of the Shares of certain rights or warrants to
subscribe for Shares or convertible securities at less than the current market
price of the Shares or (iii) upon the distribution to holders of the Shares of
evidences of indebtedness or assets (excluding dividends payable in Shares) or
of subscription rights or warrants (other than those referred to above).
ii
<PAGE> 57
Unless the Rights are earlier redeemed, in the event that,
after the Rights have become exercisable, the Company were to be acquired in a
merger or other business combination (in which any of the Company's Shares are
changed into or exchanged for other securities or assets) (other than a merger
or other business combination in which the voting power represented by the
Company's securities outstanding immediately prior thereto continues to
represent all of the voting power represented by the securities of the Company
thereafter and the holders of such securities have not changed as a result of
such transaction) (such transactions are collectively referred to herein as the
"Section 13 Events"), the Rights Agreement provides that proper provision shall
be made so that each holder of record of a Right will from and after such date
have the right to receive, upon payment of the Purchase Price, that number of
shares of common stock of the acquiring company having a market value at the
time of such transaction equal to two times the Purchase Price. This provision
would not apply to a Section 13 Event consummated with a person who acquired
shares pursuant to a Permitted Offer (as defined below) if the price per share
paid in such transaction is not less than that paid pursuant to the Permitted
Offer and the consideration paid is the same paid pursuant to the Permitted
Offer.
In the event (i) any Person (other than an Exempt Person)
becomes the beneficial owner of 24% or more of the then outstanding Shares
other than pursuant to a tender or exchange offer for all outstanding Shares at
a price and on terms determined by the Advisory Board to be both adequate and
otherwise in the best interests of the Company and its Shareholders other than
the Acquiring Person or an Affiliate or Associate thereof on whose behalf the
offer is being made (a "Permitted Offer"), or (ii) any Acquiring Person or any
of its Affiliates or Associates, directly or indirectly, (1) merges into the
Company or otherwise combines with the Company in a transaction in which the
Company is the continuing or surviving corporation of such merger or
combination and the Shares remain outstanding and no Shares shall be changed
into or exchanged for stock or other securities of any other person or of the
Company or cash or any other property, (2) transfers, in one or more
transactions, any assets to the Company in exchange for equity securities of
the Company or for securities exercisable for or convertible into equity
iii
<PAGE> 58
securities of the Company or otherwise obtains from the Company, with or
without consideration, any equity securities of the Company or securities
exercisable for or convertible into equity securities of the Company (other
than as part of a pro rata offer or distribution to all holders of such
securities), (3) sells, purchases, leases, exchanges, mortgages, pledges,
transfers or otherwise disposes to, from or with the Company, assets on terms
and conditions less favorable to the Company than the Company would be able to
obtain in arm's-length negotiation with an unaffiliated third party, (4)
receives any compensation from the Company for serving other than compensation
for employment as a regular or part-time employee, or fees for servicing as a
director at rates in accordance with the Company's past practice, (5) receives
the benefit (except proportionately as a Shareholder) of any loans, advances,
guarantees, pledges or other financial assistance or tax credit or advantage,
or (6) engages in any transaction with the Company involving the sale, license,
transfer or grant of any right in, or disclosure of, any patents, copyrights,
trade secrets, trademarks or knowhow (or any other intellectual or industrial
property rights recognized under any country's intellectual property rights
laws) which the Company owns or has the right to use on terms and conditions
not approved by the Advisory Board then, and in each such case, each holder of
record of a Right, other than the Acquiring Person, will thereafter have the
right to receive, upon payment of the Purchase Price, that number of Shares
having a market value at the time of the transaction equal to twice the
Purchase Price. This same right shall be available to each holder of record of
a Right, other than the Acquiring Person, if, while there is an Acquiring
Person, there shall occur any reclassification of securities (including any
reverse split), any recapitalization of the Company, or any merger or
consolidation of the Company or any other transaction or transactions involving
the Company (whether or not involving the Acquiring Person) which have the
effect of increasing by more than 1% of the proportionate share of the
outstanding shares of any class of equity securities of the Company which is
directly or indirectly owned or controlled by the Acquiring Person. Rights are
not exercisable following the occurrence of the events set forth in this
paragraph until the expiration of the period during which the Rights may be
redeemed as described below. The
iv
<PAGE> 59
holder of any Rights that are or were at any time, on or after the earlier of
the Share Acquisition Date or the Distribution Date, beneficially owned by an
Acquiring Person which is or was involved in or which caused or facilitated,
directly or indirectly, the event or transaction or transactions described in
this paragraph shall not be entitled to the benefit of the adjustment described
in this paragraph.
No fractional Shares will be issued upon exercise of the
Rights and, in lieu thereof, a payment in cash will be made to the holder of
such Rights equal to the same fraction of the current market value of a Share.
At any time until the time that any person becomes an
Acquiring Person, the Company may redeem the Rights in whole, but not in part,
at a price of $.01 per Right. The Company may also redeem the Rights in whole,
but not in part, at a price of $.01 per Right after the Share Acquisition Date
but prior to any Section 13 Event in connection with a Section 13 Event in
which all holders of Shares are treated alike and not involving (other than as
a holder of Shares being treated like all other holders) an Acquiring Person or
an Affiliate or Associate of an Acquiring Person or any other Person in which
such Acquiring Person, Affiliate or Associate has an interest or any other
Person or Persons acting directly or indirectly on behalf of or in association
with any such Acquiring Person, Affiliate or Associate. Immediately upon the
action of the Advisory Board of the Company authorizing redemption of the
Rights, the right to exercise the Rights will terminate, and the only right of
the holders of Rights will be to receive the Redemption Price without any
interest thereon.
The Company may, except with respect to the redemption price,
amend the Rights in any manner (including an amendment that provides that the
Rights shall become exercisable for shares or fractions of shares of securities
of the Company that are economically equivalents). After a person becomes an
Acquiring Person, the Company may amend the Rights in any manner that does not
adversely affect the interests of holders of the Rights.
Until a Right is exercised, the holder, as such, will have no
rights as a Shareholder of the Company, including, without limitation, the
right to vote or to receive dividends.
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<PAGE> 60
The issuance of the rights is not taxable to the Company or to
Shareholders under presently existing federal income tax law, and will not
change the way in which Shareholders can presently trade the Company's Shares.
If the Rights should become exercisable, Shareholders, depending on then
existing circumstances, may recognize taxable income.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Current Report on Form
8-K. A copy of the Rights Agreement is available free of charge from either
[INSERT NAME OF RIGHTS AGENT], _, Attention: , or the Company, 3055 Triad
Drive, Livermore, California 94550, Attention: Secretary. This summary
description of the Rights does not purport to be complete and is qualified in
its entirety by reference to the Rights Agreement which is incorporated in this
summary description herein by reference.
vi
<PAGE> 1
TRIAD SYSTEMS CORPORATION
REAL ESTATE DISTRIBUTION AGREEMENT
This Real Estate Distribution Agreement (this "AGREEMENT") is entered
into as of February 26, 1997 (the "EFFECTIVE DATE") among Triad Systems
Corporation, a Delaware corporation ("TRIAD"), 3055 Triad Dr. Corp., a
California corporation and a wholly-owned subsidiary of Triad ("3055"), 3055
Management Corp., a California corporation ("3055 MANAGEMENT"), and Triad Park,
LLC, a Delaware limited liability company ("PARK"), in the following factual
context:
A. Triad owns certain land located in Triad Park, Livermore,
California;
B. 3055 owns three (3) buildings (comprising 220,000 square feet)
and certain land situated in Triad Park, Livermore, California, which are
leased to Triad for use as its headquarters in Livermore, California;
C. Cooperative Computing, Inc., a Texas corporation ("CCI"), CCI
Acquisition Corp., a Delaware corporation ("CCI ACQUISITION"), and Triad are
parties to an Agreement and Plan of Merger, dated as of October 17, 1996 (as
the same may be amended from time to time, the "MERGER AGREEMENT"), pursuant to
which the parties thereto, among other things, agreed that, subject to the
terms and conditions specified therein, Triad would declare and pay a dividend
consisting of interests in an entity owning certain real property then held by
Triad, certain real property then owned by 3055, and certain related assets;
THE PARTIES NOW AGREE AS FOLLOWS:
SECTION 1: CERTAIN DEFINITIONS
As used herein, the following terms shall have the indicated meanings:
1.1 "AAA" shall mean the American Arbitration Association.
1.2 "After-tax basis" shall have the meaning given to such term in
Section 11.4 of this Agreement.
1.3 "American General Consent" shall mean the letter agreement
among 3055, Park and The Variable Annuity Life Insurance Company, an affiliate
of American General Insurance Company, in the form of Exhibit 1.3 to this
Agreement, relating to the termination of certain obligations under the 3055
Note and the 3055 Deed of Trust.
<PAGE> 2
1.4 "Assignment and Assumption Agreement" shall mean the
Assignment and Assumption Agreement, to be dated as of the Contribution Date,
among Triad, 3055 and Park, in the form attached as Exhibit 1.4 to this
Agreement.
1.5 "Assumed Obligations" shall mean all liabilities or
obligations of Triad or any of its subsidiaries (including, without limitation,
3055, but excluding Park) under the following:
(i) the Specified Secured Debt;
(ii) the 3055 Note;
(iii) the 3055 Deed of Trust;
(iv) the Dividend Expenses; and
(v) the Real Property Agreements.
In addition, "Assumed Obligations" shall mean all obligations of 3055 under the
Lease Agreement, as amended by the Lease Amendment.
1.6 "Code" shall have the meaning given to such term in Section
11.1 of this Agreement.
1.7 "Commission" shall mean the Securities and Exchange
Commission.
1.8 "Contribution Date" shall mean the date on which shares of
Triad Common Stock are purchased pursuant to the Offer to Purchase.
1.9 "Damages" shall mean any and all losses, liabilities, claims,
damages, obligations, payments, costs and expenses, including, without
limitation, costs and expenses of investigation and reasonable fees and
disbursements of counsel.
1.10 "Deemed Sales" shall have the meaning given to such term in
Section 11.1 of this Agreement.
1.11 "Designated Park Employees" shall have the meaning given to
such term in Section 9.1 of this Agreement.
1.12 "Distribution Agent" shall mean the existing transfer agent
and registrar for the Triad Common Stock or such other person as may be
selected by Park prior to the distribution of the Dividend, which will serve as
the distribution agent for the Dividend.
1.13 "Dividend" shall have the meaning set forth in Section 2 of
this Agreement.
1.14 "Dividend Expenses" shall mean all costs and expenses solely
attributable to the transactions contemplated hereby, whether incurred before
or after consummation of the Offer to Purchase, and including, without
limitation, any and all
2
<PAGE> 3
(i) necessary and reasonable fees and expenses of counsel,
accountants and advisors,
(ii) filing fees,
(iii) escrow fees charges by any title company engaged in
connection with the consummation of any of the transactions contemplated
hereby,
(iv) costs and expenses of obtaining current tax certificates
for any of the Triad Designated Assets and of recording the Triad Deed in the
County Records of Alameda County, California,
(v) costs and expenses of any title examination,
(vi) costs and expenses of obtaining a current, as-built
survey of the real property included in the Triad Designated Assets, and
(vii) costs and expenses of issuance of an Owner's Title
Policy, if any, insuring title in accordance with the terms of this Agreement.
1.15 "Environmental Costs and Liabilities" shall have the meaning
given to such term in the Merger Agreement.
1.16 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated by the Commission
thereunder.
1.17 "Indemnified Party" and "Indemnified Parties" shall have the
respective meanings given to such terms in Section 9.1 of this Agreement.
1.18 "Information Statement" shall mean the definitive information
statement, as amended or supplemented, mailed to the Record Holders in
connection with the Dividend.
1.19 "Lease Agreement" shall mean that certain Project Lease
Agreement, dated as of August 1, 1988, between Triad and 3055.
1.20 "Lease Amendment" shall mean that certain First Amendment to
Project Lease Agreement, to be dated as of the Contribution Date, among Triad,
3055 and Park.
1.21 "Mailing Date" shall mean the date the Information Statement
is first mailed to the stockholders of Triad.
3
<PAGE> 4
1.22 "Merger" shall have the meaning given to such term in
Section 4 of this Agreement.
1.23 "Net Proceeds" shall mean, with respect to the sale, transfer,
assignment or conveyance of any Triad Designated Asset, the net proceeds
received by Triad or 3055, as applicable, after deduction for all costs
incurred by Triad, 3055 or any of their respective subsidiaries, whether or not
at such time such costs have been paid, in connection with such sale, transfer,
assignment or conveyance.
1.24 "Offer to Purchase" shall mean the Offer to Purchase for Cash
all Outstanding Shares of Common Stock (Including the Associated Rights) of
Triad, dated October 23, 1996, by CCI Acquisition.
1.25 "Partnership Item Tax Contest" shall have the meaning given to
such term in Section 11.2 of this Agreement.
1.26 "Real Property" means all of the approximately 206 acres owned
by Triad or 3055 in Livermore, California, commonly known as Triad Park, and
which is particularly described upon SCHEDULE 1.26, including the three
buildings containing approximately 220,000 square feet (excluding cubicles,
furniture and office equipment).
1.27 "Real Property Agreements" means the agreements listed on
SCHEDULE 1.27.
1.28 "Record Holders" shall mean the record holders of Triad Common
Stock immediately preceding the acceptance of shares pursuant to the Offer of
Purchase.
1.29 "Registration Statement" shall mean the registration statement
on Form 10SB, if available, or Form 10 to be filed with the Commission under
the Exchange Act in connection with the Dividend, in the form declared
effective by the Commission, as amended or supplemented.
1.30 "Rules" shall have the meaning given to such term in Section
13.1 of this Agreement.
1.31 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.32 "Specified Claim" shall have the meaning given to such term in
Section 13.8 of this Agreement.
1.33 "Specified Secured Debt" shall mean any indebtedness of Triad
or any of its subsidiaries (other than the Triad Revolving Credit Agreement)
that is secured, in whole or in part, by any of the Triad Designated Assets,
including, without limitation, the 3055 Note.
4
<PAGE> 5
1.34 "Spin-Off Tax Contest" shall have the meaning given to such
term in Section 11.2 of this Agreement.
1.35 "Statement" shall have the meaning given to such term in
Section 11.6 of this Agreement.
1.36 "Taxes" shall have the meaning given to such term in the
Merger Agreement.
1.37 "Tax Returns" shall have the meaning given to such term in the
Merger Agreement.
1.38 "Third Party Claim" shall have the meaning given to such term
in Section 10.2 of this Agreement.
1.39 "3055 Deed of Trust" shall mean that certain First Deed of
Trust and Assignment of Rents, Security Agreement and Fixture Filing, by and
between 3055, as Trustor, Mason-McDuffie Financial Corporation, as Trustee, and
The Variable Annuity Life Insurance Company, as Beneficiary.
1.40 "3055 Management" shall mean 3055 Management Corp., a
California corporation.
1.41 "3055 Management Contribution Note" shall have the meaning set
out in Section 5.4.
1.42 "3055 Management Membership Interest" shall mean the limited
liability company interest (as defined in the Delaware Limited Liability
Company Act, as amended) in Park received by 3055 Management in exchange for
the contribution to Park of the 3055 Management Contribution Note pursuant to
Section 5.4 of this Agreement.
1.43 "3055 Note" shall mean that certain Promissory Note, dated as
of August 23, 1988, in the original principal amount of $15,500,000, by 3055,
as Maker, and The Variable Annuity Life Insurance Company, a Texas corporation,
as Payee.
1.44 "Transaction Documents" shall mean, collectively, this
Agreement and each other document, agreement or instrument contemplated by, or
otherwise executed and delivered in connection with, this Agreement.
1.45 "Triad Common Stock" shall mean shares of common stock, $.01
par value per share, of Triad.
1.46 "Triad Deed" shall have the meaning given to such term in
Section 5.3 of this Agreement.
5
<PAGE> 6
1.47 "Triad Designated Assets" shall mean all of the Real Property
and all related rights, privileges, easements, improvements, fixtures and
appurtenances, including but not limited to the following:
(i) All rights, subject to all obligations, under the Real
Property Agreements;
(ii) the Net Proceeds received by Triad upon the consummation of
any sale of any Triad Designated Asset from and after October 17, 1996 and
prior to the conveyance of the Triad Designated Assets to Park as described in
Section 5.3 of this Agreement;
(iii) all Triad Sales Agreements;
(iv) all of the landlord's interest under the Lease Agreement, as
amended by the Lease Amendment;
(v) all rights to Triad Park on and off site improvements and to
any reimbursements to be paid by the City of Livermore, any utility company or
any other property owner within the improvement district; and
(vi) Copies of all books and records related to any of the
foregoing or related to the 3055 Note and the 3055 Deed of Trust or the Assumed
Liabilities.
1.48 "Triad Excluded Assets" shall mean those Triad Designated
Assets sold, assigned, transferred or conveyed by Triad prior to the conveyance
of the Triad Designated Assets to Park as described in Section 5.3 of this
Agreement.
1.49 "Triad Membership Interest" shall mean the limited liability
company interest (as defined in the Delaware Limited Liability Company Act, as
amended) in Park received by Triad in exchange for the conveyance by Triad to
Park of the Triad Designated Assets pursuant to Section 5.3 of this Agreement.
1.50 "Triad Revolving Credit Agreement" shall mean that certain
Revolving Credit Loan Agreement, dated as of June 30, 1992, by and between
Triad and Comerica Bank-California.
1.51 "Triad Sales Agreement" shall mean any agreement to which
Triad is a party pursuant to which Triad has agreed or agrees to sell, assign,
transfer or convey any Triad Designated Asset.
1.52 "Waiver of Conflicts" shall mean the Conflict Agreement among
Triad, CCI, 3055, 3055 Management, Park and McCutchen, Doyle, Brown & Enersen,
LLP, dated as of the Contribution Date, in the form of Exhibit 1.51 to this
Agreement.
6
<PAGE> 7
SECTION 2: DECLARATION OF DIVIDEND
Subject to the terms and conditions of this Agreement, the Board of
Directors of Triad will declare a dividend of the Triad Membership Interest
(the "DIVIDEND") payable to the Record Holders on a pro rata basis upon the
satisfaction of the conditions set forth herein. Following the satisfaction of
the conditions to the payment of the Dividend, Triad shall deliver to the
Distribution Agent a certificate representing the Triad Membership Interest and
instruct the Distribution Agent to distribute, as soon as practicable, such
membership interest to the Record Holders.
SECTION 3: CONDITION PRECEDENT
The payment of the Dividend by Triad is conditioned in all respects
upon the following:
(a) The Triad Board of Directors shall have declared such Dividend
as provided in Section 2 of this Agreement.
(b) The transactions contemplated by Section 4 and Section 5 of
this Agreement, and the deliveries contemplated by Section 7 of this Agreement,
all to occur on the Contribution Date, shall have been consummated in all
respects and the Lease Amendment shall be in full force and effect.
(c) The Registration Statement shall have become effective under
the Exchange Act and shall continue to be effective as of the payment date for
the Dividend, and no stop order shall have been issued and no proceeding by the
Commission shall have been instituted to suspend the use of the Registration
Statement or the Information Statement.
(d) The Information Statement is ready to be distributed to the
holders of Triad Common Stock in accordance with the requirements of the
Exchange Act and the Commission.
(e) All authorizations, consents, approvals and clearances of all
federal, state, local and foreign governmental agencies or authorities required
to permit the valid consummation by the parties hereto of the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect.
(f) No preliminary or permanent injunction or other order, decree
or ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or authority, and no statute, rule,
regulation, or executive order promulgated or enacted by any governmental
agency or authority, shall be in effect preventing the payment of the Dividend.
(g) The Dividend shall be payable in accordance with applicable
law.
7
<PAGE> 8
(h) Coopers & Lybrand shall have issued to Triad a "cold comfort"
letter consistent in form and content with applicable professional standards,
regarding the historical financial information contained in the Registration
Statement and the Information Statement.
(i) Triad shall have received an opinion, dated as of the Mailing
Date and otherwise in form and substance reasonably acceptable to Triad, from
McCutchen, Doyle, Brown & Enersen, LLP, counsel to Park, as to the matters set
forth on Exhibit 3(i) to this Agreement.
SECTION 4: MERGER OF 3055
Upon the Contribution Date and immediately prior to the contributions
to Park under Section 5, Triad shall cause 3055 to be merged with and into
Triad.
SECTION 5: FORMATION OF TRIAD PARK, LLC
5.1 FORMATION OF PARK. Immediately prior to the execution and
delivery hereof, Triad and 3055 Management have formed Park. The limited
liability company agreement of Park and the Certificate of Formation of Park
are attached hereto as Exhibit 5.1A and Exhibit 5.1B, respectively. Each such
document is in full force and effect in the form attached hereto.
5.2 RELEASE OF CERTAIN LIENS, CONSENT. On or before the
Contribution Date, and without the payment or delivery of any consideration, or
the incurrence of any obligation to pay or deliver any consideration, by Triad
or any of its subsidiaries (other than Park), Triad shall obtain the American
General Consent.
5.3 CONVEYANCE BY TRIAD. Upon the Contribution Date, subject to
the terms and conditions hereof, Triad will sell, assign, transfer and convey
to Park all of Triad's right, title and interest in the Triad Designated Assets
(other than the Triad Excluded Assets) in exchange for the issuance to Triad of
the Triad Membership Interest, equal to 99% of the capital, profits and losses
of Park, and the assumption by Park of the Assumed Obligations. The conveyance
of the real property included in the Triad Designated Assets (other than the
Triad Excluded Assets) shall be effected through the execution and delivery by
Triad of a grant deed in the form of Exhibit 5.3 to this Agreement (the "TRIAD
DEED"). The conveyance of the remaining property included in the Triad
Designated Assets (other than the Triad Excluded Assets), and the assumption of
the Assumed Obligations, shall be effected through the execution and delivery
of the Assignment and Assumption Agreement by Triad and Park. The real
property included in the Triad Designated Assets shall be free and clear of
monetary liens and encumbrances granted or created under the Tender Facility or
the Interim Facility (as defined in the Offer to Purchase); otherwise the
recourse for breach of title
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warranties of Triad under the Triad Deed will be strictly limited to the extent
that Triad is insured therefor under its title insurance in effect prior to the
Effective Date.
5.4 CONTRIBUTION OF 3055 MANAGEMENT. Upon the Contribution Date,
3055 Management will contribute its recourse promissory note due in 120 days,
without interest, equal to 1.01 percent of the total value of the contributions
to Park by Triad (the "3055 MANAGEMENT CONTRIBUTION NOTE") in exchange for a
one percent (1%) interest in the capital, profits and losses of Park.
5.5 CONDITIONS TO CONVEYANCES. The conveyances described in
Section 5.3 and Section 5.4 of this Agreement are conditioned in all respects
upon the occurrence of the actions described in Section 4.
5.6 NO REPRESENTATIONS OR WARRANTIES. Park understands and agrees
that, except as specifically provided in Section 5.3, neither Triad nor 3055
is, in any Transaction Document, nor shall Triad or 3055 be deemed or implied
to be, making any representation or warranty as to the value of any Triad
Designated Asset, the absence of any encumbrance on any Triad Designated Asset,
the title to any Triad Designated Asset, the legal sufficiency to convey title
to any Triad Designated Asset, or as to any other matter regarding any Triad
Designated Asset, it being understood and agreed that each of Triad and 3055 is
merely conveying such person's right, title and interest, if any, in the Triad
Designated Assets to Park and that all such Triad Designated Assets are being
conveyed "AS IS, WHERE IS" and that Park shall bear the economic and legal risk
that any conveyances of any Triad Designated Assets shall prove to be
insufficient or that Triad's or 3055's title to any such assets shall be other
than good and marketable title free from encumbrances. Similarly, Park
understands and agrees that neither Triad nor 3055 is, in any Transaction
Document, nor shall Triad or 3055 be deemed or implied to be, making any
representation or warranty as to whether any consents, authorizations,
approvals, waivers, applications, filings or amendments are necessary in
connection with the execution, delivery or performance of, or the consummation
of the transactions contemplated by, any Transaction Document to satisfy the
requirements of any applicable agreements, laws, rules, regulations, judgments,
orders or decrees, it being understood and agreed that Park shall bear the
economic and legal risk that any necessary consents, authorizations, approvals,
waivers, applications, filings or amendments are not obtained or that the
requirements of any law, rule, regulation, judgment, order or decree are not
complied with.
5.7 SALE AGREEMENTS. Each Triad Sale Agreement entered into by
Triad from and after the date of this Agreement shall provide that, upon the
conveyance by Triad of the Triad Designated Assets to Park pursuant to this
Agreement, the purchaser agrees to an automatic novation substituting Park for
Triad in the Triad Sale Agreement.
5.8 LOAN BY TRIAD. Immediately prior to the payment of the
Dividend, Park shall deliver to Triad a balance sheet as of that time,
certified by a duly authorized
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officer of Park. In the event that, upon the payment of the Dividend, Park
shall not have cash and/or cash equivalent assets totaling at least $100,000,
Triad shall make a loan to Park in an amount equal to the difference between
$100,000 and total amount of cash and cash equivalent assets of Park, such loan
to be evidenced and governed by a promissory note which shall be due in one
year, shall bear interest at nine percent (9%) per annum, payable at maturity.
5.9 INSURANCE. Effective upon the Contribution Date, the
participation by Park in any insurance coverage of Triad or any of its
subsidiaries (including, without limitation, 3055) shall cease. Park shall
retain any claims under the pre-existing insurance coverage arising out of
events occurring before the Contribution Date.
5.10 APPRAISAL. Triad has commissioned Carneghi-Bautovich &
Partners, Inc., an independent qualified real estate valuation expert, to
prepare an appraisal of the real property included in the Triad Designated
Assets (the "APPRAISAL"). The Carneghi-Bautovich appraisal is the agreed-upon
appraisal to be used for the purposes described in Section 6.10 of the Merger
Agreement. The Appraisal shall also be used to determine the size of the
capital accounts of Triad and 3055 Management as follows:
(a) The capital account of Triad in Park shall be equal to the
value of the Triad Designated Assets and the value of the real property
included shall be determined by the Appraisal, less any indebtedness assumed by
Park;
(b) The capital account of 3055 Management in Park shall be equal
to the face amount of the 3055 Management Note.
SECTION 6: [INTENTIONALLY LEFT BLANK]
SECTION 7: CLOSING DELIVERIES
7.1 DELIVERIES BY TRIAD. On the Contribution Date, Triad shall
deliver the following:
(a) The Triad Deed;
(b) A counterpart of the Assignment and Assumption
Agreement;
(c) A counterpart of the Lease Amendment fully executed
by Triad;
(d) A copy of the resolutions of Triad's Board of
Directors, certified by its Secretary, declaring the Dividend, authorizing or
ratifying its execution and delivery of this Agreement, the Lease Amendment,
the actions of 3055 in connection with this
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Agreement and the Lease Amendment, and the consummation of the transactions
contemplated by this Agreement and the Lease Amendment;
(e) The American General Consent; and
(f) A counterpart of the Waiver of Conflicts.
7.2 DELIVERIES BY 3055. On the Contribution Date, 3055 shall
deliver the following:
(a) A copy of the resolutions of the Board of Directors,
certified by 3055's Secretary, authorizing or ratifying its execution and
delivery of this Agreement, the Merger and the consummation of the transactions
contemplated by this Agreement;
(b) A copy of the resolutions by Triad, as the sole
stockholder of 3055, certified by 3055's Secretary, authorizing or ratifying
the Merger;
(c) A counterpart of the Waiver of Conflicts.
7.3 DELIVERIES BY PARK. On the Contribution Date, Park shall
deliver the following:
(a) A counterpart of the Lease Amendment fully executed
by Park;
(b) Evidence of the Triad Membership Interests and the
3055 Management Membership Interests;
(c) A counterpart of the Assignment and Assumption
Agreement;
(d) A counterpart of the Waiver of Conflicts;
(e) Confirmation that 3055 Management is the sole manager
of Park and is authorized to execute and deliver this Agreement, the Lease
Amendment, the Assignment and Assumption Agreement and the Consummation of the
transactions contemplated by this Agreement.
7.4 DELIVERIES BY MANAGEMENT. On the Contribution Date,
Management shall deliver the following:
(a) A copy of the resolutions of the Board of Directors,
certified by Management's' Secretary, authorizing or ratifying Management's
execution and delivery of this Agreement, and as Manager of Park of the Lease
Amendment and the consummation of the transactions contemplated by this
Agreement and the Lease Amendment;
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(b) A counterpart of the Waiver of Conflicts.
SECTION 8: SECURITIES EXCHANGE ACT OF 1934 UNDERTAKING
Promptly following the Contribution Date, Park shall prepare and file
with the Commission the Registration Statement and Triad shall prepare and file
with the Commission the Information Statement.
SECTION 9: CERTAIN COVENANTS
9.1 SUPPORT. In order to facilitate the orderly management of
Park following the Spin-Off Transaction, for a period of one year following the
Contribution Date, Triad shall provide to Park at Triad's Livermore corporate
offices (at no cost to Park) the following:
(a) Two cubicles of office space, reasonable filing
space, and two telephones (provided, however, that all telephone service
charges for such telephones (including, without limitation, fees for basic
service, long distance charges, and repair and maintenance services) shall be
paid by Park); and
(b) During normal business hours, (i) reasonable access
to the cubicles and filing space referenced in clause (a) above by two Park
employees that may be designated from time to time by Park (the "DESIGNATED
PARK EMPLOYEES"), (ii) reasonable light and heating and air conditioning for
the immediate area in which the cubicles referenced in clause (a) above are
located, (iii) secretarial support for the Designated Park Employees, (iv)
reasonable access by the Designated Park Employees to two word processing
computers and such other office equipment and facilities as is reasonably
necessary for the performance of their duties.
Notwithstanding the foregoing, Park shall be liable for all damages to any
equipment or improvements provided by Triad in accordance with the foregoing
provisions to the extent such damages result from the conduct of any employees
or representatives of Park.
9.2 FURTHER ASSURANCES. From time to time after the Contribution
Date, each party to this Agreement shall, without further consideration, take
such actions as any other party hereto may reasonably request in order to more
effectively consummate the transactions contemplated hereby. Should any claim
be made against Triad by the holders of Specified Secured Debt, Park shall
obtain the complete and unconditional release of Triad from those claims.
9.3 CONTRACT SERVICES AGREEMENT. In order for Park to meet its
reporting requirements under the Securities Exchange Act of 1934 and to conduct
its real estate operations, Triad shall provide Park for a period of two years
after the Contribution Date, with administrative assistance from such members
of Triad's in-house legal staff
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and accounting staff who have experience with the particular matters as Triad
may reasonably designate from time to time with sales contracts, regulatory
filings, tax returns, and information management. Park shall reimburse Triad
for its fully burdened hourly cost of providing these services . Triad shall
have no liability to Park whatsoever arising out of the provision of services
by its employees pursuant to this Section 9.3.
9.4 PROPERTY MANAGERS. Following the Contribution Date, Triad and
Park shall jointly agree to the selection and/or replacement of property
managers who will act as the facilities managers for Triad and the development
mangers for Park as described in SCHEDULE 9.4 (the "PROPERTY MANAGERS"). On
the Contribution Date, the Property Managers shall be actively employed by
Triad for fifty percent (50%) of their time and by Park for fifty percent (50%)
of their time. Park shall reimburse Triad for fifty percent (50%) of the
Property Managers' salary and benefits listed on SCHEDULE 9.4. Triad shall
have no liability to Park whatsoever arising out of the provision of services
by its employees pursuant to this Section 9.4.
9.5 LIMITED LICENSE. Effective upon payment of the Dividend,
Triad grants Park a perpetual license, free of any royalty payments, to use the
name "Triad Park" or Triad Business Park in references to the real property
included in the Triad Designated Assets in connection with the operations of
Park related to the disposition of the Triad Designated Assets.
9.6 PARK NET WORTH REQUIREMENT. At all times following the
Contribution Date until the expiration of Park's indemnity obligations under
Section 11 in accordance with Section 11.8, Park shall not, directly or
indirectly, without the prior written consent of Triad, declare or pay any
dividend or distribution (whether in cash, property, securities or otherwise)
which after giving effect to the dividend or distribution would result in Park
have a Specified Net Worth less than the Minimum Worth. If at any time the
Specified Net Worth of Park drops below the Trigger Amount, then Triad may
elect to require the remaining Real Property of Park to be appraised with the
costs of appraisal shared equally by Triad and Park. In addition, Triad may
request an appraisal at any time at its sole cost. Any appraisal shall be
conducted by an independent appraiser mutually acceptable to Triad and Park.
The results of the appraisal shall be used to recalculate Park's Specified Net
Worth for the purposes of this Section.
As used in this Section 9.6, the following terms shall have the
following meanings:
"Specified Net Worth" is the net worth of Park determined in
accordance with generally accepted accounting principles consistently applied,
except that for the purposes of this calculation: (i) the value of the
remaining Real Property shall be included at the value determined by the
Appraisal, or if a subsequent appraisal has been performed in accordance with
this Section, by that more recent appraisal, each as adjusted by depreciation
since the appraisal date; and (ii) there shall be no liability
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attributable to Park's obligations under Section 11 included in the calculation
of Specified Net Worth.
"Minimum Worth" shall mean the greater of: (i) an amount equal to
$2,350,000 plus interest on $2,350,000 at the Interest Rate computed from the
75th day following the Contribution Date; or (ii) the amount of any deficiency
proposed in writing by the Internal Revenue Service which would be subject to
indemnification under Section 11 plus interest on that amount at the Interest
Rate computed from the date of the writing stating the proposed deficiency.
"Trigger Amount" shall mean $4,000,000 plus interest on $4,000,000 at
the Interest Rate from the Contribution Date.
"Interest Rate" shall mean ten percent (10%) per annum, compounded
annually.
SECTION 10. CERTAIN INDEMNIFICATION PROVISIONS
10.1 INDEMNIFICATION FOR CERTAIN MATTERS. From and after the
Contribution Date, Park shall indemnify, defend and hold harmless each of Triad
and 3055 and their respective officers, directors and affiliates, and each
person, if any, who controls any of the foregoing within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, and each of the
heirs, executors, successors and assigns of any of the foregoing (each an
"INDEMNIFIED PARTY" and, collectively, the "INDEMNIFIED PARTIES") from and
against any and all Damages arising out of, related to or based upon:
(a) Any untrue statement (or alleged untrue statement) of
a material fact contained in the Registration Statement as of the effective
date thereof, the Mailing Date or the payment date of the Dividend, or in the
Information Statement as of the Mailing Date or the payment date of the
Dividend;
(b) Any omission (or alleged omission) to state in the
Registration Statement, as of the effective date thereof, the Mailing Date or
the payment date of the Dividend, or in the Information Statement, as of the
Mailing Date or the payment date of the Dividend, a material fact required to
be stated therein or necessary to make the statements therein not misleading;
(c) The failure to register all or any portion of the
Triad Membership Interest under the Securities Act or any state securities or
"blue sky" laws;
(d) The Assumed Obligations;
(e) All Environmental Costs and Liabilities with respect
to any of the Triad Designated Assets;
(f) The Dividend Expenses; and
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(g) The breach by Park of any of its representations or
warranties under this Agreement or the failure by Park to perform any of its
covenants, agreements or obligations under this Agreement.
10.2 CERTAIN PROCEDURES. Any Indemnified Party will (i) give
prompt written notice to Park of any claim with respect to which it seeks
indemnification under this Section 10 (but the failure to so notify shall not
relieve Park from any liability which it may have under this Agreement except
to the extent such failure materially prejudices Park), and (ii) permit Park to
assume the defense of any claim made against such Indemnified Party by any
person other than Park or any affiliate or controlling person of Park (a "THIRD
PARTY CLAIM") with counsel reasonably satisfactory to the Indemnified Party.
Any Indemnified Party hereunder shall have the right to employ separate counsel
and to participate in the defense of such Third Party Claim, but the fees and
expenses of such separate counsel shall be at the expense of such Indemnified
Party unless (X) Park has agreed to pay such fees or expenses, (Y) Park shall
have failed to assume the defense of such Third Party Claim and employ counsel
reasonably satisfactory to such Indemnified Party, or (Z) the parties to such
action include both the Indemnified Party and Park and, in the reasonable
judgment of the Indemnified Party, a conflict of interest may exist between the
Indemnified Party and Park (in which case Park shall not have the right to
assume the defense of such action on behalf of the Indemnified Party). Park
shall not settle any pending or threatened claim in respect of which any
Indemnified Party is or could have been a party and in respect of which
indemnification could have been sought hereunder unless such settlement shall
provide for a complete and unconditional release of each of the Indemnified
Parties hereunder. If the defense of a Third Party Claim is not assumed by
Park as permitted hereunder, Park will not be subject to any liability for any
settlement made by the Indemnified Party without its consent (but such consent
will not be unreasonably withheld).
10.3 CONTRIBUTION. If the indemnification provided for in clause
(a), (b) or (c) of Section 10.1 is unavailable to an Indemnified Party in
respect of any Damages referred to therein, then Park, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages in such proportion as shall be
appropriate to reflect the relative fault of Park, on the one hand, and the
Indemnified Party, on the other hand, with respect to the facts and
circumstances that resulted in such Damages, as well as any other equitable
considerations. With respect to the indemnification provided in clauses (a)
and (b) of Section 10.1, the relative fault shall be determined by reference to
whether the untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by Park or persons acting on behalf of Park, on the one hand, or the
Indemnified Party, on the other hand, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission, but not by reference to Triad's ownership interest
in Park. With respect to the indemnification provided in clause (c) of Section
10.1, because Park is being advised by counsel with respect to the legal
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requirements of the transactions contemplated hereby, Park shall be deemed to
be solely at fault.
SECTION 11: TAX INDEMNITY
11.1 REPORTING. For income Tax purposes, Triad and Park shall
report the transactions contemplated by this Agreement based upon the following
principles: (i) Park is a partnership; (ii) the Liquidation is a liquidation
described in Section 332 of the Code; (iii) the conveyances of the Triad
Designated Assets by Triad and of the 3055 Management Contribution Note in
exchange for the Triad Membership Interest and the 3055 Management Membership
Interest, respectively, are transactions described in Section 721 of the
Internal Revenue Code of 1986, as amended (the "CODE"); (iv) the Dividend gives
rise to a sale or exchange of the Membership Interest pursuant to Section 311
of the Code (the "DEEMED SALES"); (v) the amount realized in the Deemed Sales
and the amount distributed to the stockholders of Triad shall be equal to the
appraised value of the Triad Designated Assets as set forth in the Appraisal
(adjusted as appropriate to reflect Park's liabilities and taking into account
any adjustments pursuant to Section 752 of the Code); (vi) the adjusted basis
of the Triad Membership Interest shall be equal to the adjusted basis of the
Triad Designated Assets on the date of contribution to Park as determined by
the accounting firm selected under the terms of Section 6.10 of the Merger
Agreement, adjusted in accordance with Sections 705, 722, 733 and 752 of the
Code; and (vii) the Dividend gives rise to a termination and reconstitution of
Park for purposes of Section 708(b)(1)(B) of the Code. Triad and Park shall
file all Tax Returns in a manner consistent with this Section 11.1 and neither
Triad nor Park shall amend its Tax Returns or file a claim for refund of Taxes
in a manner which is inconsistent with this Section 11.1 without the prior
written consent of Park or Triad, as the case may be, which consent shall not
be unreasonably withheld. For purposes of this Section 11, the term "Triad"
shall include all corporations which join with Triad in the filing of
consolidated or combined tax returns.
11.2 TAX CONTEST.
(a) Upon receipt of a formal written notification from a
taxing authority of an audit of any Tax Returns relating to the transactions
contemplated by this Agreement or of a proposed adjustment to the Tax reporting
of the transactions contemplated by this Agreement, Triad or Park, as the case
shall be, shall promptly notify Park or Triad, as applicable, of the audit or
the proposed adjustment.
(b) In the case of an audit of or proposed adjustment to a
Tax Return of Triad relating to the transactions contemplated by this
Agreement, Park shall be permitted to participate in and conduct, at Park's
expense and subject to Triad's right of supervision and review, those aspects
of an audit, examination or proceeding relating to Taxes for which Park would
be responsible under this Section 11 (a "SPIN-OFF TAX CONTEST"). Triad will
deliver to Park any limited power of attorney required to enable Park and its
representatives to participate in a Spin-Off Tax Contest. With respect to a
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Spin-Off Tax Contest, Park shall have the right to determine, subject to
Triad's consent which shall not be unreasonably withheld, (i) the attorneys,
accountants and/or experts to represent Triad in connection with the Spin-Off
Tax Contest, (ii) whether or not to protest or appeal any decision of any
administrative or judicial body, and (iii) whether or not to settle the
Spin-Off Tax Contest. Triad will not agree, without Park's written consent, to
any extension of the applicable statute of limitations with respect to taxable
periods which include the Tax consequences of transactions subject to
indemnification by Park hereunder, which consent will not be unreasonably
withheld; provided that such consent of Park will not be required if the
failure to agree to such extension may reasonably be expected to result in the
proposed assessment of a deficiency for material Taxes unrelated to the
transactions contemplated by this Agreement.
(c) In the case of an audit of or a proposed adjustment with
respect to Park pursuant to Sections 6221 to 6233 of the Code and relating to
the transactions contemplated by this Agreement (a "PARTNERSHIP ITEM TAX
CONTEST"), Park shall keep Triad fully informed of the progress of such
Partnership Item Tax Contest and shall permit the participation, supervision
and review of Triad in such matter, and Park shall not settle the Partnership
Item Tax Contest without the prior written consent of Triad, which consent
shall not be unreasonably withheld.
11.3 TAX INDEMNITY. Park shall indemnify and hold Triad harmless
from and against any Taxes (and any fees, costs, expenses and other damages
with respect to such Taxes or any dispute thereof) attributable to, arising out
of or relating to (i) any sale, exchange, dividend, distribution or other
disposition of Triad Designated Assets after October 17, 1996, (ii) Park, (iii)
the formation of Park, (iv) the transfer by Triad or any affiliate of the Triad
Designated Assets to Park, (v) the assumption or refinancing of any liabilities
(including the Assumed Obligations) with respect to the Triad Designated
Assets, (vi) the sale, exchange, distribution or other disposition of any
assets by Park, (vii) the sale, exchange, distribution, dividend or other
disposition of the Triad Membership Interest by Triad or any affiliate, (viii)
the Liquidation, and (ix) any steps which are attendant to or necessary in
connection with any of the foregoing transactions. Park's indemnification
obligations under this Section 11.3 shall be computed without reduction, offset
or credit for (i) any net operating loss carryforwards, capital loss
carryforwards, or tax credit carryforwards of Triad from taxable periods ending
before the date of the Dividend, or (ii) any net operating losses, capital
losses, or tax credits for the taxable period which includes the date of the
Dividend.
11.4 AFTER-TAX BASIS. Any indemnity payment under this Agreement
shall be made on an "after-tax basis." The term "after-tax basis" means any
indemnity payment shall be (i) decreased by any Tax reductions (net of any Tax
increases) actually realized by the indemnified party or any affiliate as a
result of the indemnified loss, and (ii) increased by any increase in Taxes
actually realized by the indemnified party or any affiliate as a result of the
receipt or accrual of an indemnity payment (including any additional payments
pursuant to this sentence).
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11.5 LIMITATIONS. Notwithstanding Section 11.3, Park shall not be
required to indemnify Triad for any interest or penalties caused by Triad's
failure to timely file any Tax Return.
11.6 DEMAND AND PAYMENT. In connection with each payment of
estimated Taxes, the filing of Tax Returns, the payment of any additional Taxes
due in connection with an audit, administrative or judicial proceeding, and at
the time any other indemnified matters relating to Taxes are due and payable,
Triad shall provide Park with a written statement setting forth the amount of
Taxes and other indemnified items due from Park under this Section 11 (the
"STATEMENT"). Unless Park disagrees with the calculation of the amount of its
indemnity obligation under this Section 11 reflected in the Statement, Park
shall pay to Triad the amount shown as due in the Statement within ten days
after receipt of such notice, but in no event, in the case of current period
and estimated Taxes, shall Park be required to pay any Taxes earlier than three
business days prior to the due date of such Taxes. Any payment which is not
timely paid by Park shall bear interest at the rate of 9 percent (9%) per
annum. If Park disagrees with the amount set forth in the Statement, Park and
Triad shall attempt to resolve such disagreement over a period of seven days.
If Park and Triad fail to resolve any dispute within such period, then any
computational disagreement shall be submitted to arbitration in accordance with
this Agreement, except that the arbitrator shall be a tax partner from a big
six accounting firm with offices in the San Francisco Bay Area agreed upon by
the parties or, if they cannot agree, selected by the AAA. Park shall pay to
Triad the amount determined to be due pursuant to such arbitration within five
business days of the arbitrator's written resolution thereof.
11.7 COOPERATION. Triad and Park agree to cooperate in regard to
the filing of all Tax Returns relating to this Agreement and any audit or
administrative or judicial proceeding with respect thereto, and each party
shall provide the other party with reasonable access to Tax and accounting
records which relate to such Taxes and Tax Returns.
11.8 SURVIVAL. Any indemnification pursuant to this Section 11
shall survive and remain in full force and effect thereafter until sixty days
after the expiration of all applicable statutes of limitations for the
assessment or collection of Taxes (including all periods of extension, whether
automatic or permissive).
SECTION 12: AMOUNTS TO BE PRORATED
12.1 On the Contribution Date, the following items shall be
prorated between Triad and Park as of the Contribution Date: (i) property
taxes for the year during which the Contribution Date occurs, (ii) interest on
the 3055 Note for the month in which the Contribution Date occurs, (iii)
rentals paid under the Lease Agreement attributable to the month in which the
Contribution Date occurs, including, without limitation, fixed or minimum rent,
additional rent and expense pass-throughs, (iv) utility expenses, and
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other costs and expenses attributable to the Property, and (v) any other items
listed on SCHEDULE 12.1 attached hereto.
12.2 If any of the prorations are based upon estimates as of the
Contribution Date, it is mutually agreed as a covenant to survive the closing
that an accurate adjustment shall be made by cash settlement between Triad and
Park within thirty (30) days after the estimated item is known for certain. In
the event that on the Contribution Date Triad shall not have received tax
statements for the calendar year during which the closing occurs, estimated tax
figures for that year based upon tax receipts for the immediately preceding
calendar year shall, by mutual consent, be used for the purpose of prorating
taxes at the closing. It is mutually agreed, as a covenant expressly to
survive the closing, that upon receipt of tax statements for the calendar year
during which the closing occurs, an accurate adjustment of such tax proration
shall be made by cash settlement between Triad and Park within thirty (30) days
after receipt of all such tax invoices.
SECTION 13: ARBITRATION OF DISPUTES
13.1 AGREEMENT TO ARBITRATE. (a) The parties specifically agree
that any controversy, claim or dispute arising out of or relating in any way to
this Agreement or any of the other Transaction Documents, or any alleged breach
thereof, shall be settled exclusively by arbitration. Subject to the
modifications set forth herein, any arbitration shall be administered by the
San Francisco, California office of the AAA in accordance with its Commercial
Arbitration Rules and the Supplementary Procedures for Large, Complex Disputes
in effect at the time the arbitration is initiated (collectively, the "RULES"),
unless all parties to the dispute agree in writing that the total amount in
controversy is less than one million dollars, in which case, the Commercial
Arbitration Rules in effect at the time the arbitration is initiated alone
shall govern.
13.2 NUMBER, SELECTION AND AUTHORITY OF ARBITRATORS.
(a) As soon as a demand for arbitration shall be made by any
party to this Agreement, the AAA shall proceed to provide a list of the Large,
Complex Case Panel (unless the agreement to use the Commercial Rules has been
made by all of the parties to the dispute as provided for in the preceding
paragraph, in which case arbitrators from the Commercial Panel shall be used)
from which the parties shall select a panel of three arbitrators in accordance
with the Rules and normal procedures of the San Francisco, California office of
the AAA. If necessary, the AAA shall select some or all of the arbitrators
when it is authorized to do so under the Rules.
(b) The arbitration panel shall be empowered to render full
and complete resolution of the dispute. The panel shall also have the
authority and discretion to order, as it sees fit, the payment of the parties'
attorneys' fees and any and all expenses of the arbitration, including payment
of the arbitrators' compensation. In the event the arbitration panel finds
that any party has abused or failed to comply with the
19
<PAGE> 20
applicable arbitration or discovery provisions in this contract or in the
Rules, the panel shall be empowered to render any sanction that would otherwise
be available under the Federal Rules of Civil Procedure, including without
limitation rendition of an award for complete relief (including attorneys' fees
and all arbitration expenses), in favor of the non-offending parties and
against the offending party. All arbitrations shall take place in San
Francisco, California.
13.3 SCHEDULE FOR ARBITRATION. The parties agree that the
expeditious conclusion of the arbitration is critical to all parties, and they
direct and agree that the arbitration panel shall so allocate time and impose
deadlines that the complete proceeding from the initial demand for arbitration
to the decision of the panel shall be completed within one hundred and eighty
(180) calendar days. In order to promote this expeditious resolution, the
following procedural sequence shall be followed by the parties and shall be
enforced by the panel:
(a) Any party who makes demand for arbitration (whether an
initial demand or by counterclaim or cross claim) shall specify and quantify
the remedies that it seeks, including all amounts of money claimed to be
payable, transfers of property, or undertakings of obligations (including,
without limitation, indemnity and assumption of the defense of litigation).
(b) Within ten calendar days after receipt (by fax, telecopy,
express delivery, certified mail, or otherwise) of a demand for arbitration,
each responding party shall deliver to the opposing party a written response
that states with specificity the portions of the relief that it does not
contest and that provides a narrative summary of all grounds for contesting
each claim for relief that is contested.
(c) Any relief that is not contested shall be provided
(including, without limitation, the payment of money admitted to be due or the
performance of other contractual obligations) within ten calendar days after a
responding party admits that it does not contest some aspect of an arbitration
demand, and the presence of continuing controversy about other requests for
relief shall not be the basis for failure to provide the relief that is not
contested during the pendency of the arbitration.
(d) The panel shall establish a schedule for discovery,
conferences, any written submissions, the hearing, and other matters that
permits it to hold a hearing and return its award within the one hundred
eighty-day period specified, and all parties agree to abide by directions of
the panel with regard to scheduling.
(e) If the panel finds that any party has failed to cooperate
in good faith with these scheduling provisions, or if any party fails to comply
with a scheduling order of the panel, the panel may award damages and impose
sanctions for all injuries caused by this delay or failure to comply with these
provisions, including, but not limited to, attorneys fees. If the panel finds
that actual damages arising from delay are impractical to estimate with
reasonable certainty, the parties agree that reasonable
20
<PAGE> 21
liquidated damages for delay shall be $5,000 per day, which may be assessed by
the panel as a part of its award.
13.4 CONSOLIDATION OF PENDING ARBITRATIONS.
(a) In the event that any subsequent or further controversy,
claim or dispute arising out of or relating in any way to this Agreement or any
of the other Transaction Documents, or any alleged breach thereof, arises while
any arbitration demand under any such document is pending but before the
arbitration panel appointed as a result thereof has rendered its final
decision, such panel shall have exclusive jurisdiction over the resolution of
such subsequent or further controversies, claims or disputes and shall
consolidate all such controversies, claims or disputes before the panel.
(b) In the event any arbitration panel created to resolve any
controversies, claims and disputes under this Agreement has already rendered a
final decision on the controversies, claims and disputes pending before it
prior to the initiation of arbitration for any subsequent or further
controversy, claim or dispute, such subsequent or further controversy, claim or
dispute shall be resolved by a new panel of arbitrators appointed pursuant to
the provisions of this Section. No arbitrator who previously served on an
arbitration panel appointed pursuant to an arbitration provision set forth in
the Agreement, shall be appointed to any subsequent arbitration panel without
the express agreement of all parties to the dispute.
13.5 DISCOVERY PROCEDURES. Unless otherwise agreed to by all
parties or ordered by the arbitration panel, discovery shall be limited in the
arbitration to the following:
(a) The number of depositions concerning any single or
consolidated arbitration shall be limited to four (4) depositions by each side
to the dispute, regardless of whether more than one party is allied on one side
of the dispute;
(b) Each deposition shall last no more than one business day
and may commence no earlier than 9:00 a.m. and continue no later than 5:00
p.m., as measured at the location of the deposition;
(c) The parties may exchange three (3) sets of requests for
documents, but the documents called for in each request shall be limited so as
not to exceed 100 pages unless a greater page limit is directed by the Panel;
(d) Unless a different time is specified by the arbitration
panel, production of requested documents for inspection and copying by all
other parties to the dispute shall occur within thirty days of actual receipt
of the request, whether served by U.S. mail, telecopy, fax, hand delivery or
overnight delivery;
21
<PAGE> 22
(e) Subject to other provisions hereof and the Rules, the
scheduling and conduct of depositions and document requests and production
shall be governed by the Federal Rules of Civil Procedure, as modified by the
local rules for the United States District Court for Northern District of
California; and
(f) All testimony, whether by deposition, at a hearing, or in
written submissions, must be submitted under oath or under penalty of perjury.
13.6 JUDICIAL DETERMINATION. With regard to this arbitration
provision, the parties intend that the proceeding may be initiated and continue
under the guidance of the AAA and the appointed arbitrators without the need
for judicial intervention, but, to the extent any party seeks a judicial
determination of the meaning of this arbitration provision or seeks to compel,
prevent, or limit a pending arbitration, all parties consent to exclusive
jurisdiction for any such controversy in any court of competent jurisdiction in
San Francisco, California.
13.7 ENFORCEMENT OF ARBITRATION AWARD. Any award or decision of an
arbitration panel appointed pursuant to this Section may be confirmed by any
court of competent jurisdiction.
13.8 THIRD PARTY CLAIMS. Notwithstanding any provision of this
Agreement or any of the other Transaction Documents to the contrary, in the
event a claim otherwise subject to arbitration hereunder (a "SPECIFIED CLAIM")
arises as a result of a Third Party Claim and such Third Party Claim is
asserted in a proceeding before a court or other governmental tribunal, the
party to this Agreement in whose favor such Specified Claim arises may, at its
option, assert such Specified Claim against a party hereto in such proceeding.
SECTION 14: REPRESENTATIONS AND WARRANTIES
Triad, Park, 3055 Management and 3055 each have the corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement, which have been duly authorized by
the Board of Directors of Triad, Park, 3055 Management and 3055; no other
corporate proceedings on the part of Triad, Park, 3055 Management or 3055 are
necessary to authorize Triad, Park, 3055 Management or 3055 to enter into this
Agreement or to consummate the transactions contemplated by this Agreement; and
this Agreement is the legal, valid, and binding obligation of Triad, Park, 3055
Management and 3055.
SECTION 15: MISCELLANEOUS PROVISIONS
15.1 ATTORNEYS' FEES. If any legal action or other proceeding is
commenced to enforce or interpret any provision of, or otherwise relating to,
this Agreement, the losing party shall pay the prevailing party's actual
expenses incurred in the investigation
22
<PAGE> 23
of any claim leading to the proceeding, preparation for and participation in
the proceeding, any appeal or other post judgment motion, and any action to
enforce or collect the judgment including contempt, garnishment, levy,
discovery and bankruptcy. For this purpose "expenses" include, without
limitation, court or other proceeding costs and experts' and attorneys' fees
and their expenses. The phrase "prevailing party" shall mean the party who is
determined in the proceeding to have prevailed or who prevails by dismissal,
default or otherwise.
15.2 CHOICE OF LAW. This Agreement shall be construed in
accordance with, and governed by, the internal laws of the State of Delaware,
without giving effect to the principle of conflicts of laws thereof.
15.3 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and counterpart
signature pages may be assembled to form a single original document.
15.4 NOTICES. All notices, consents, requests, demands or other
communications to or upon the respective parties shall be in writing and shall
be effective for all purposes upon receipt on any business day before 5:00 PM
local time and on the next business day if received after 5:00 PM or on other
than a business day, including without limitation, in the case of (i) personal
delivery, (ii) delivery by messenger, express or air courier or similar
courier, (iii) delivery by United States first class certified or registered
mail, postage prepaid and (iv) transmittal by telecopier or facsimile,
addressed as follows:
If to Triad or 3055, to:
Triad Systems Corporation
6207 Bee Cave Road
Austin, Texas 78746-5146
Attn: Glenn Staats
Telephone: (512) 328-2300
Telecopy: (512) 329-6461
With a copy to:
Triad Systems Corporation
3055 Triad Drive
Livermore, California 94550
Attn: Glenn Staats
Telephone: (510) 449-0606
Telecopy: (510) 455-6917
23
<PAGE> 24
Weil, Gotshal & Manges, LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201-6950
Attn: Thomas A. Roberts
Telephone: (214) 746-7748
Telecopy: (214) 746-7777
and
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201-6950
Attn: Lawrence D. Stuart, Jr.
Telephone: (214) 740-7365
Telecopy: (214) 740-7313
If to Park or to 3055 Management, to:
Triad Park, LLC
3055 Triad Drive
Livermore, California 94550
Attn: James Porter
Telephone: (510) 499-0606
Telecopy: (510) 455-6917
With a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
Three Embarcadero Center, 18th Floor
San Francisco, CA 94111-4066
Attn: Edward S. Merrill
Telephone: (415) 393-2112
Telecopy: (415) 393-2286
In this section "business days" means days other than Saturdays, Sundays, and
federal and state legal holidays. Either party may change its address by
written notice to the other in the manner set forth above. Receipt of
communications by United States first class or registered mail will be
sufficiently evidenced by return receipt. Receipt of communications by
facsimile will be sufficiently evidenced by a machine generated confirmation of
transmission without an error message. In the case of illegible or otherwise
unreadable facsimile transmissions, the receiving party shall promptly notify
24
<PAGE> 25
the transmitting party of any transmission problem and the transmitting party
shall promptly re-send any affected pages.
15.5 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns. No rights of any party
under this Agreement are assignable without the written consent of all other
parties, which any other party may withhold in its absolute discretion.
15.6 THIRD PARTIES. Except as expressly provided herein, nothing
in this Agreement shall be construed to give any person other than the express
parties to this Agreement any benefits, rights or remedies.
15.7 TERMS. Undefined capitalized terms used in this Agreement
have the meaning attributed to those terms as set forth in the Merger
Agreement.
15.8 WAIVER/MODIFICATION/AMENDMENT. No amendment of, or waiver of
any obligation under, this Agreement will be enforceable unless set forth in a
writing signed by the party against which enforcement is sought.
The parties have executed this Agreement as of the Effective Date.
Triad Systems Corporation
By: /s/ JAMES R. PORTER
-------------------
Its: President
3055 Triad Dr. Corp.
By: /s/ JAMES R. PORTER
-------------------
Its: President
Triad Park, LLC
By: Triad Systems Corporation
By: /s/ JAMES R. PORTER
-------------------
Its: President
25
<PAGE> 26
By: 3055 Management Corp.
By: /s/ JAMES R. PORTER
-------------------
Its: Vice President, Secretary, & CFO
3055 Management Corp.
By: /s/ JAMES R. PORTER
-------------------
Its: Vice President, Secretary, & CFO
26
<PAGE> 1
PROJECT LEASE AGREEMENT
BETWEEN
3055 TRIAD DR. CORP.
AS LANDLORD
AND
TRIAD SYSTEMS CORPORATION
AS TENANT
DATED AS OF AUGUST 1, 1988
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 Lease of Property - Term of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 3 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4 Payment of Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 5 Alterations and Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 6 Use, Maintenance, and Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 8 Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 9 Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 10 Assignment and Sublease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 11 Mortgage of the Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 12 Default Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 13 Landlord's Right To Perform; Cumulative Remedies; Waivers . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 14 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 15 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 16 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 17 Impairment of Landlord's Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 18 Tenant's Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 19 Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 20 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 21 Invalidity of Particular Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 22 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 23 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 24 Warranty of Peaceful Possession; Limitation of Landlord's Liability . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 25 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
ii
<PAGE> 4
PROJECT LEASE AGREEMENT
STATE OF CALIFORNIA Section
COUNTY OF ALAMEDA Section
THIS PROJECT LEASE AGREEMENT is made and entered into as of
the 1st day of August, 1988, by and between 3055 TRIAD DR. CORP., a California
corporation with its principal office in Livermore, Alameda County, California
(hereinafter called "Landlord"), and TRIAD SYSTEMS CORPORATION, a Delaware
corporation authorized to do business in California (hereinafter called
"Tenant").
W I T N E S S E T H:
ARTICLE 1
LEASE OF PROPERTY - TERM OF LEASE
SECTION 1.01. Landlord, in consideration of the rents,
covenants, agreements, and conditions herein set forth which Tenant hereby
agrees shall be paid, kept, and performed by Tenant, does hereby lease, let,
demise, and rent exclusively unto Tenant, and Tenant does hereby rent and lease
from Landlord, the following described premises:
A tract of land containing 15.0633 acres, and
being Parcel Two of Parcel
Map 5112, filed September 29, 1987 in Book
122 of Parcel Maps, Pages 11
through 14, inclusive, Alameda County
Records.
SECTION 1.02. This Lease is subject to:
(a) All present and future laws, ordinances, resolutions,
regulations and orders of all municipal, county, state,
federal or other governmental bodies, boards, agencies, or
other authority now or hereafter having jurisdiction; and
(b) The matters set forth in Exhibit "A" attached hereto and
incorporated by reference herein for all purposes, to the
extent, and only to the extent, that same may validly affect
the above described premises.
SECTION 1.03. TO HAVE AND TO HOLD the hereinabove described tract of
land subject to the matters as aforesaid, together with all and singular the
rights, privileges, and appurtenances thereunto attaching or in anywise belong,
unto Tenant, its legal representatives, successors and assigns, for a term
commencing August 1, 1988 and ending at midnight on August 31, 2003, subject to
earlier termination as herein provided, and upon and subject to the covenants,
agreements, terms,
<PAGE> 5
provisions and limitations hereinafter set forth, all of which Tenant covenants
and agrees to perform and observe.
ARTICLE 2
DEFINITIONS
SECTION 2.01. The terms defined in this Section shall, for all
purposes of this Lease, and all agreements supplemental hereto, have the
meanings herein specified, unless the context otherwise requires.
(a) The terms "Agreement," "Lease Agreement," and "this Lease"
shall mean and refer to this instrument.
(b) The term "Default Rate" shall mean the lesser of (a) the Prime
Rate plus five percent (5%) per annum or (b) the maximum non-
usurious rate permitted by law.
(c) The term "Demised Land" shall mean the tract of land described
in Section 1.01 hereof.
(d) The term "Demised Premises" shall mean the Demised Land and
the Improvements.
(e) The term "Event of Default" shall have the same meaning as
ascribed to it in Section 12.01 of this Agreement.
(f) The term "Impositions" shall mean all taxes, assessments, use
and occupancy taxes, transit taxes, water and sewer charges,
rates and rents, charges for public utilities, excises,
levies, license and permit fees and other charges, general and
special, ordinary and extraordinary, foreseen and unforeseen,
of any kind and nature whatsoever, which shall or may during
the term of this Lease be assessed, levied, charged, confirmed
or imposed upon or accrue or become due or payable out of or
on account of or become a lien on the Demised Premises or any
part thereof, the appurtenances thereto or the sidewalks or
streets adjacent thereto, or the rent and income received by
or for the account of Tenant from any subtenants or for any
use or occupation of the Demised Premises, and such
franchises, licenses and permits as may be appurtenant to the
use of the Demised Premises, or any documents to which Tenant
is a party, creating or transferring an interest or estate in
the Demised Premises payable to any governmental body; but
shall not include any income taxes, capital levy, estate,
succession, inheritance or transfer taxes or similar tax of
Landlord, or any franchise taxes imposed upon any owner of the
fee of the Demised Premises, or any income, profits or revenue
tax, assessment or charge imposed upon the rent or other
benefit received by Landlord under this Lease, by any
municipality, county or state, the United States of America or
any governmental body; provided, however, that if at any time
during the term of this Lease, the present method of taxation
or assessment shall be so changed that the whole or any part
of the taxes, assessments, levies, impositions or charges now
levied, assessed or imposed on real estate and improvements
thereon shall be discontinued and, as a substitute therefor,
taxes, assessments, levies, impositions, or charges shall be
levied, assessed and/or imposed wholly or partially as a
capital levy or otherwise on the rents received from
2
<PAGE> 6
said real estate or the rents reserved herein or any part
thereof, then such substitute taxes, assessments, levies,
impositions or charges, to the extent so levied, assessed
and/or imposed, shall be deemed to be included within the term
"Impositions" to the extent that such substitute tax would be
payable if the Demised Premises were the only property of
Landlord subject to such tax.
(g) The term "Improvements" shall mean the improvements presently
erected on the Demised Land which are owned by Landlord,
consisting of three (3) buildings containing approximately
219,818 square feet of rentable area with on-site parking for
710 automobiles, as well as any additions thereto or
alterations thereof installed by Tenant pursuant to the terms
of this Lease but excluding any personal property,
furnishings, and trade fixtures owned by Tenant.
(h) The term "Landlord's Mortgagee" shall mean the holder of any
"Landlord's Mortgage" (as defined in Section 11.01 hereof).
(i) The term "Prime Rate" shall mean the average of the annual
rates of interest announced or published, at the applicable
time, by the three largest (considering the capital and
surplus of such banks) national banks then doing business in
Livermore, Alameda County, California, as their "prime rate"
regardless of whether such rate is actually the lowest rate
actually charged by any such banks.
(j) The phrases "term of this Lease," "Lease term," "term" or
similar phrases shall mean the period of time set forth in
Section 1.03 hereof.
(k) The term "Tenant" shall mean Triad Systems Corporation or any
other corporation resulting from the merger, acquisition,
consolidation, or dissolution of Triad Systems Corporation or
an entity which acquires all or substantially all of the
assets of Triad Systems Corporation.
(l) The term "unavoidable delays" shall mean delays due to
strikes, lock-outs, acts of God, inability to obtain labor or
materials, governmental restrictions, enemy action, war, civil
commotion, fire, unavoidable casualty, construction delays due
to unusual weather, or other similar causes beyond the
reasonable control of Tenant.
SECTION 2.02. The captions and the Article numbers of this Lease are
for convenience and reference only and in no way define, limit, or describe the
scope or intent of this Lease nor in any way affect this Lease.
SECTION 2.03. The table of contents preceding this Lease, although
under the same cover, is for the purpose of convenience and reference only and
is not to be deemed or construed in any way as part of this Lease, nor as
supplemental thereto or amendatory thereof.
ARTICLE 3
RENT
SECTION 3.01. Tenant, in consideration of the leasing of the Demised
Premises to it by Landlord, hereby covenants and agrees to pay to Landlord at
the times and as and in the manner
3
<PAGE> 7
herein provided and subject to the terms, provisions, and conditions herein set
forth, without notice or demand and (except as referred to in Section 3.07
hereof) without any setoff or deduction whatsoever, the rental provided for in
this Article 3.
SECTION 3.02. The annual base rental (herein called "Annual Base
Rental") due hereunder shall be $2,505,720.00.
The Annual Base Rental shall be paid monthly in advance in twelve (12)
equal installments, one such installment to be payable on the first day of each
month during the term hereof.
SECTION 3.03. All payments of Annual Base Rental, additional rent and
other payments required to be made to Landlord shall be in funds which are
legal tender at the place of payment at the time of payment and shall be made
to Landlord, at the office of Landlord at 3055 Triad Drive, Livermore, Alameda
County, California, or to such other person and/or at such other place as
Landlord may designate from time to time in writing to Tenant; provided,
however, for purposes of establishing or laying venue in any proceeding
relating to this Lease, all such amounts shall be deemed payable in Livermore,
Alameda County, California, where exclusive venue shall lie. In addition to
other proper methods of payment, all payments of Annual Base Rental, additional
rent, and other sums payable to Landlord by Tenant under this Lease may be
made, and shall be deemed to have been properly made, by the mailing or
delivery to Landlord of Tenant's good and sufficient check or draft in the
amount of such payment, and shall be deemed timely made if received by Landlord
on or before the due date thereof; provided that if such check or draft be not
paid and honored upon presentation thereof, duly endorsed, for any reason
whatsoever, such check or draft shall not constitute payment.
No sale or transfer of ownership of Landlord's interest in the Demised
Premises shall be binding upon Tenant until Tenant shall have received written
notice from Landlord (or the successor assignor) of such sale or transfer,
together with a certified copy of the recorded deed or other instrument of
conveyance.
SECTION 3.04. This Lease shall be deemed and construed to be a "net
lease," and Tenant shall pay to Landlord, net throughout the term of this
Lease, the Annual Base Rental, additional rent and other payments due
hereunder, free of any Impositions and without abatement, deduction or set-off;
and under no circumstances or conditions, whether now existing or hereafter
arising, or whether or not beyond the present contemplation of the parties,
shall Landlord or Tenant be expected or required to make any payment of any
kind whatsoever or be under any other obligation or liability hereunder except
as herein otherwise expressly set forth.
SECTION 3.05. All additional rent and other charges and payments
provided for under this Lease shall constitute rent payable hereunder with the
same effect as if the same were the Annual Base Rental reserved and provided
for herein and, in the event of the non-payment by Tenant of any such
additional rent or other payments when due according to the terms of this
Lease, Landlord shall have the same rights and remedies in respect thereof as
Landlord shall or may have in respect of the Annual Base Rental herein reserved
and provided for. When used in this Lease the term "rent" means and includes
Annual Base Rent, additional rent and all other sums payable under this Lease.
4
<PAGE> 8
SECTION 3.06. No happening, event, occurrence or situation during the
term of this Lease, whether foreseen or unforeseen, and however extraordinary,
shall relieve Tenant from its liability to pay the Annual Base Rental,
additional rent and other charges and payments under this Lease, or shall
relieve Tenant from any of its other obligations under this Lease, and Tenant
waives any rights now or hereafter conferred upon it by statute, proclamation,
decree or order, or otherwise, to any abatement, diminution, reduction or
suspension of rent on account of any such event, happening, occurrence or
situation.
ARTICLE 4
PAYMENT OF IMPOSITIONS
SECTION 4.01. As additional rent during the term of this Lease Tenant
will pay or cause to be paid, as and when the same shall become due, all
Impositions as defined in Section 2.01(c), except that:
(a) All Impositions for the fiscal year or tax year in which this
Lease begins as well as during the year in which the term of
this Lease expires shall be apportioned so that Tenant shall
pay its proportionate share of the Impositions which are
payable in the year in which the term of this Lease begins and
in the year in which the term of this Lease expires, and
Landlord shall pay its proportionate part of such amounts.
(b) Where any Imposition is permitted by law to be paid in
installments, Tenant may pay such Imposition in installments
as and when such installments become due or the day any fine,
penalty, interest or costs may be added thereto or imposed, or
the day any lien may be filed, whichever is later; provided,
however, that the amount of all installments of any such
Impositions which are to become due and payable after the
expiration of the term of this Lease shall not be apportioned
(except as provided in subsection (a) hereof) but shall be and
become due and payable to Landlord or the taxing authority six
(6) months before the date of the expiration of the term of
this Lease.
SECTION 4.02. Tenant shall pay all such Impositions directly to the
taxing authority, and shall exhibit and deliver to Landlord photostatic copies
of the receipted bills or other evidence satisfactory to Landlord showing such
payment promptly after such receipts shall have been received by Tenant but in
all events at least thirty (30) days prior to the date of delinquency (subject
to Tenant's rights to contest such Impositions as set forth in Section 4.03,
below).
SECTION 4.03. Tenant may, if Tenant shall so desire, contest the
validity or amount of any Imposition, in which event, Tenant may defer the
payment thereof during the pendency of such contest; provided that, no later
than the date the same shall have become due, Tenant shall have deposited with
Landlord's Mortgagee (referred to in this Section 4.03 as the "Imposition
Trustee") an amount sufficient to pay such contested item together with the
interest and penalties thereon (as reasonably estimated by Landlord or the
Imposition Trustee if said amount be deposited with it), which amount shall be
applied to the payment of such item when the amount thereof shall be finally
fixed and determined. In lieu of such cash deposit, Tenant may deliver to
Landlord, a surety company bond in form and substance reasonably satisfactory
to Landlord, issued by a company reasonably acceptable to Landlord. Nothing
herein contained, however, shall be so construed, as to
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allow such items to remain unpaid for such length of time as shall permit the
Demised Premises, or any part thereof, to be sold by any governmental, city or
municipal authority for the non-payment of the same; and if at any time, in the
judgment of Landlord, reasonably exercised, it shall become necessary so to do,
Landlord, after written notice to Tenant, may, under protest if so requested by
Tenant, direct the application of the said moneys so deposited or so much
thereof as may be required to prevent the sale of the Demised Premises or any
part thereof, or foreclosure of the lien created thereon by such item. If the
amount so deposited as aforesaid shall exceed the amount of such payment, the
excess shall be paid to Tenant or, in case there shall be any deficiency, the
amount of such deficiency shall be promptly paid on demand by Tenant to
Landlord, or, at the election of Tenant, to the Imposition Trustee, and, if not
paid, shall be payable as additional rent with interest at the Default Rate
contemporaneous with the next installment or any subsequent installments of
Annual Base Rental and thereafter becoming due and shall be collectible as
rent.
SECTION 4.04. The certificate, advice, bill or statement issued or
given by the appropriate officials authorized or designated by law to issue or
give the same or to receive payment of any Impositions, of the existence,
non-payment or amount of such Imposition shall be prima facie evidence for all
purposes of the existence, non-payment or amount of such Imposition.
SECTION 4.05. Tenant may render the Demised Premises for all taxing
jurisdictions and may, if Tenant shall so desire, endeavor at any time or times
to obtain a lowering of the assessed valuation upon the Demised Premises for
the purpose of reducing taxes thereon and, in such event, Landlord will offer
no objection, and, at the request of Tenant, will cooperate with Tenant, but
without expense to Landlord, in effecting such a reduction. Tenant shall be
authorized to collect any tax refund payable as a result of any proceeding
Tenant may institute for that purpose and any such tax refund shall be the
property of Tenant to the extent to which it may be based on a payment made by
Tenant, subject, however, to an apportionment between Landlord and Tenant with
respect to taxes paid or contributed by Landlord in the year in which this
Lease began and the year in which the term of this Lease ends, after deducting
from such refund the costs and expenses, including reasonable legal fees,
incurred by Tenant in connection with obtaining such refund.
SECTION 4.06. Landlord shall not be required to join in any action or
proceeding referred to in Section 4.03 or Section 4.05 hereof unless required
by law or any rule or regulation in order to make such action or proceeding
effective, in which event, any such action or proceeding may be taken by Tenant
in the name of, but without expense to, Landlord, Tenant hereby agreeing to
save Landlord harmless from all costs, expenses, claims, loss or damage by
reason of, in connection with, on account of, growing out of, or resulting
from, any such action or proceeding.
SECTION 4.07. If Landlord is required by Landlord's Mortgagee to
escrow sums for Imposition, then in such event, Tenant shall deposit in escrow
with Landlord's Mortgagee an amount equal to one-twelfth (1/12th) of the amount
of the Impositions for such prior calendar year, on the 1st day of each
calendar month of the then-current calendar year. To the extent that the sums
thus deposited are sufficient therefor, Landlord's Mortgagee shall pay
therefrom all Impositions due for such calendar year at the time or times when
the payments thereof become due. In the event that the sums thus deposited by
Tenant are insufficient to pay the actual amount of Impositions for such
then-current year, then in such event, Tenant shall be obligated to pay the
amount of any such deficiency to the appropriate taxing authority; in the event
that the amount so deposited (including
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income accruing thereon) exceeds the amount of Impositions for such
then-current calendar year, the excess shall be refunded to Tenant.
ARTICLE 5
ALTERATIONS AND ADDITIONS
SECTION 5.01. Tenant shall have the right, from time to time, to make
during the term of this Lease at its sole cost and expense, additions,
alterations and changes (hereinafter sometimes referred to in this Section 5.01
as "alterations") in or to the Demised Premises, provided Tenant shall not then
be in default in the performance of any of Tenant's covenants or agreements in
this Lease, subject, however, in all cases to the following:
(a) no structural or exterior alterations shall be commenced
except upon prior written consent of Landlord;
(b) no alterations of any kind, shall be made which would tend (i)
to impair the structural soundness of the Improvements, (ii)
to decrease the total cubical volume of the Improvements,
(iii) to give to any owner, lessee or occupant of any other
property or to any other person or corporation any easement,
right-of-way or any other right over Landlord's interest in
the Demised Premises, or (iv) to modify the basic utility and
function of the Improvements;
(c) no alterations shall be undertaken until Tenant shall have
procured and paid for, so far as the same may be required from
time to time, all permits and authorizations of all municipal
departments and governmental subdivisions having jurisdiction.
Landlord shall join, but without expense to Landlord, in the
application for such permits or authorizations whenever such
action is necessary and is requested by Tenant;
(d) any alterations involving in the aggregate an estimated cost
of more than $100,000.00 shall be conducted under the
supervision of an architect or engineer selected by Tenant,
and no such alterations shall be made, except in substantial
accordance with detailed plans and specifications and cost
estimates prepared and approved in writing by such architect
or engineer;
(e) any alterations shall be made within a reasonable time
(subject to unavoidable delays) and in a good and workmanlike
manner and in compliance with all applicable permits and
authorizations and building and zoning laws and with all other
laws, ordinances, orders, rules, regulations and requirements
of all federal, state and municipal governments, departments,
commissions, boards and officers, and in accordance with the
orders, rules and regulations of the National Board of Fire
Underwriters, or any other body or bodies hereafter exercising
similar functions;
(f) if any involuntary liens for labor and materials supplied or
claimed to have been supplied to the Demised Premises shall be
filed, Tenant shall pay, bond or otherwise obtain the release
or discharge thereof with reasonable promptness but in all
events prior to foreclosure thereof;
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(g) a policy of workmen's compensation insurance covering all
persons employed in connection with the work and with respect
to whom death or bodily injury claims could be asserted
against Landlord, Tenant or the Demised Premises and, to the
extent that the insurance under subsection (b) of Section 7.01
hereof does not adequately protect Landlord with respect to
said alterations, comprehensive general liability insurance
for the mutual benefit of Landlord and Tenant in a minimum
amount of $5,000,000.00, which comprehensive general liability
insurance policy shall include (i) coverage for bodily injury
and death, property damage and product's liability coverage;
and (ii) contractual liability coverage insuring the
obligations of Tenant under the terms of this Lease shall be
maintained by Tenant at the Tenant's sole cost and expense at
all times when any work is in progress in connection with any
alterations. All such insurance policies shall be in standard
form and shall be in such responsible companies as Landlord
shall approve, which approval shall not be unreasonably
withheld. All policies of liability insurance and
certificates of workmen's compensation insurance therefor
issued by the respective insurers, bearing notations
evidencing the payment of premiums or accompanied by other
evidence reasonably satisfactory to Landlord of such payment,
shall be delivered to Landlord prior to the commencement of
any alterations;
(h) if the cost of any such alterations shall be in excess of
$100,000.00 as reasonably estimated by the architect, Landlord
may require Tenant to furnish to Landlord a surety company
bond in form reasonably satisfactory to Landlord, issued by a
company reasonably acceptable to Landlord, or other security
reasonably satisfactory to Landlord, in an amount at least
equal to the estimated cost of such alterations, guaranteeing
the completion and payment of the cost thereof free and clear
of all liens, conditional bills of sale and chattel mortgages
growing out of such alteration work other than Permitted
Mortgages.
In no event shall Tenant be entitled to any abatement, allowance,
reduction or suspension of the Annual Base Rental, additional rent and other
payment herein reserved or required to be paid by reason of such alterations
nor shall Tenant, by reason thereof, be released of or from any other
obligations imposed upon Tenant under this Lease.
Whether under the provisions of this Lease or otherwise, neither
Tenant nor any of Tenant's agents, employees, representatives, contractors or
subcontractors shall have any power or authority to do any act or thing or to
make any contract or agreement which shall result in the creation of any
mechanics' lien or other lien or claim upon or against Landlord's interest in
the Demised Premises, and Landlord shall have no responsibility to Tenant or to
any contractor, subcontractor, supplier, materialman, workman or other person,
firm or corporation who shall engage in or participate in any additions,
alterations, changes or replacements thereof unless Landlord shall expressly
undertake such obligation by an agreement in writing signed by Landlord and
made between Landlord and Tenant, or such contractor, subcontractor, supplier,
materialman, workman or other person, firm or corporation.
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ARTICLE 6
USE, MAINTENANCE, AND REPAIRS
SECTION 6.01. Tenant is presently occupying the Demised Premises
under the Existing Lease and is fully aware of the physical condition and state
thereof, and Tenant accepts the same on an "AS-IS, WHERE-IS basis in the
physical condition and state in which the Demised Premises now are without any
representation or warranty, express or implied in fact or by law, by Landlord
and without recourse to Landlord, as to the physical nature, condition or
usability thereof.
Landlord shall not be required to furnish any services or facilities
or to make any repairs or alterations in or to the Demised Premises, throughout
the term of this Lease, Tenant hereby assuming the full and sole responsibility
for the condition, demolition, construction, operation, repair, replacement,
maintenance and management of the Demised Premises, as herein stated.
SECTION 6.02. Tenant shall use the Demised Premises solely for
general office purposes as its corporate headquarters and for related purposes
incidental thereto including, but not limited to, manufacturing and warehousing
uses incidental thereto.
SECTION 6.03. Tenant shall not use or occupy or permit the Demised
Premises to be used or occupied, nor do or permit anything to be done in or on
the Demised Premises, in whole or in part, in a manner which would in any way
make void or voidable any insurance then in force with respect thereto, or
which would make it impossible to obtain fire or other insurance thereon
required to be furnished by tenant hereunder, or as will cause or be apt to
cause structural injury to the Improvements or any part thereof, or as will
constitute a public or private nuisance, and shall not use or occupy or permit
the Demised premises to be used or occupied, in whole or in part, in a manner
which violates any present or future, ordinary or extraordinary, foreseen or
unforeseen laws, regulations, ordinances or requirements of the federal, state
or municipal governments, or of any departments, subdivision, bureaus or
offices thereof, or of any other governmental, public or quasi-public
authorities now existing or hereafter created, having jurisdiction over the
Demised Premises; provides, however, that Tenant may, in good faith (and
wherever necessary, in the name of, but without expense to, Landlord) and after
having secured Landlord to its reasonable satisfaction by cash or by a surety
company bond in an amount, in a company and in substance reasonably
satisfactory to Landlord, against loss or damage, contest the validity of any
such laws, regulations, ordinances or requirements and, pending the
determination of such contest, may postpone compliance therewith, except that
Tenant shall not so postpone compliance therewith as to subject Landlord to any
fine or penalty or to prosecution for a crime, or to cause the Demised Premises
or any part thereof to be condemned or to be vacated. Tenant will indemnify
and save harmless Landlord against any recovery or loss to which Landlord may
be subject or which Landlord may sustain, including reasonable attorney's fees
and expenses incurred by Landlord arising or alleged to arise from any breach
of this covenant or by reason of any action or proceeding which may be brought
against Landlord or against the Demised Premises, or any part thereof, by
virtue of violation of any such laws, regulations, ordinances or requirements
relating to the use and occupancy of the Demised Premises, or by virtue of any
such present or future law of the United States of America, or of the State of
California, or the County of Alameda, City of Livermore, or other municipal,
public or quasi-public authority now existing or hereafter created, having
jurisdiction in the premises.
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SECTION 6.04. Tenant shall take good care of the Demised Premises,
make all repairs thereto, interior and exterior, structural and non-structural,
ordinary and extraordinary, foreseen and unforeseen, and shall maintain and
keep the Demised Premises and the sidewalks and curbs in first class order,
repair and condition, reasonable wear and tear excepted. Tenant shall also
keep the Common Areas of the Demised Premises free and clear from rubbish and
shall not encumber or obstruct the same or allow the same to be encumbered or
obstructed in any manner.
SECTION 6.05. Tenant shall have the right at any time and from
time to time to sell or dispose of any building equipment or personal property
subject to this Lease which may have become obsolete or unfitted for use or
which is no longer useful, necessary or profitable in the conduct of Tenant's
business, provided that if such equipment or property be necessary to the
operation of the Improvements, Tenant shall then or theretofore substitute for
the same other building equipment or personal property not necessarily of the
same character, but capable of performing the same function as that performed
by the property so disposed of, and of high quality and suitable for its
intended purpose.
SECTION 6.06. Tenant shall diligently comply with ;and execute at
its own expense during the term of this Lease, all present and future laws,
acts, rules, requirements, orders, directions, ordinances, and/or regulations,
ordinary and extraordinary, foreseen or unforeseen, concerning the condition or
use of the Demised Premises or any part thereof, or the streets adjacent
thereto of any federal, state, municipal or other public department, bureau,
officer or authority or of the National Board of Fire Underwriters, or other
body having similar functions, or of any liability, fire, or other insurance
company having policies outstanding with respect to the Demised Premises,
whether or not such laws, acts, rules, requirements, orders, directions,
ordinances and/or regulations required the ;making of structural alterations or
the use or application of portions of the Demised Premise for compliance
therewith or interfere with the use and enjoyment of the Demised Premises, and
shall protect, hold harmless and indemnify Landlord of and from all fines,
penalties, claim or claims for damages of every kind and nature arising out of
any failure to comply with any such laws, acts, rules, requirements, orders,
direction, ordinances and/or regulations; provided, further, that Tenant may,
in good faith (and wherever necessary, in the name of, but without expense to,
Landlord), and after having secured Landlord to its reasonable satisfaction by
cash or by a surety company bond in an amount, in a company and in substance
satisfactory to Landlord, against loss or damage, contest the validity of any
such law, act, rule, requirement, order, direction, ordinance and/or regulation
and, pending the determination of such contest, may postpone compliance
therewith, except that Tenant shall not so postpone compliance therewith, as to
subject Landlord to any fine or penalty or to prosecution for a crime, or to
cause the Demised Premises or any part thereof to be condemned or to be
vacated.
SECTION 6.07. Landlord shall not be responsible or liable for any
damage or injury to any property, fixtures, merchandise or decorations or to
any person or persons at any time on the Demised Premises from steam, gas or
electricity or from water, rain or snow, whether the same may leak into, issue
or flow from any part of the Improvements or from pipes or plumbing work of the
same, or from any other place or quarters, nor shall Landlord be in any way
responsible or liable in case of any accident or injury including death to any
of Tenant's employees, agents, or to any person or persons in or about the
Demised Premises or the streets or sidewalks adjacent thereto; and Tenant
agrees that it will not hold Landlord in any way responsible or liable therefor
and will further indemnify and hold Landlord harmless from and against any and
all claims, liability, penalties,
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damages, expenses and judgments arising from injury to persons or property of
any nature and also for any matter or thing growing out of the occupation of
the Demised Premises, or of the streets or sidewalks adjacent thereto.
Landlord shall not be liable for interference with light or incorporeal
hereditaments by anybody, or caused by the operation by or for any governmental
authority in the construction of any public or quasi-public work and Landlord
shall not be liable for any latent or any other defects in the Improvements or
any building or buildings now or hereafter erected upon the Demised Land.
Landlord here assigns to Tenant, without warranty, on a non-exclusive basis,
any and all warranties, guaranties, or other rights which Landlord may have
against any contractors constructing any portion of the Improvements.
SECTION 6.08. Landlord shall have the right to show the Demised
Premises at any time during the term hereof to any prospective purchasers or
mortgagees of the same, and may enter upon the Demised Premises, or any art
thereof, for the purpose of ascertaining the condition of said premises or
whether Tenant is observing and performing the obligations assumed by it under
this Lease, all without hindrance or molestation from Tenant. Landlord shall
also have the right to enter upon the Demised Premises for the purpose of
making any necessary repairs thereto and performing any work thereof that may
be necessary ;by reason of Tenant's failure to make any such repairs or perform
any such work. The above-mentioned rights of entry shall be exercisable only
at reasonable times, at reasonable hours, at reasonable intervals and on
reasonable notice. Nothing contained herein, however, shall impose or imply
any duty on the part of Landlord to make any such repairs or perform any such
work.
SECTION 6.09. Notice is hereby given that Landlord shall not be
liable for any labor or materials furnished or to be furnished to Tenant upon
credit, and that no mechanics' or other lien, for any such labor or materials
shall attach to or affect the reversionary or other estate or interest of
Landlord in and to the Demised Premises. Whenever and as often as any such
lien shall have been filed against the Demised Premises, if based upon any
action or interest of Tenant, any subtenant or of any one claiming through
Tenant or such subtenant, Tenant shall forthwith take such actin by bonding,
deposit or payment as will remove or satisfy the lien and, in default thereof
for thirty (30) days after notice to tenant, then in addition to any other of
Landlord's rights and remedies, Landlord may pay the amount of such mechanics'
lien, or discharge the same by bond or deposit, and the amount so paid or
deposited (including the premium on any such bond) with interest thereon at the
Default Rate from the date of such payment or deposit shall be deemed
additional rent reserved under this Lease and, at the option of Landlord, shall
be payable contemporaneously with the next installment of rent or with any
subsequent installment of rent thereafter becoming due.
SECTION 6.10. Upon the expiration of the term of this Lease or on
the sooner termination thereof, Tenant shall peaceably and quietly leave,
surrender and yield up unto Landlord all and singular the Demised Premises
broom-clean and free of occupants and shall repair all damage to the Demised
Premises caused by or resulting from the removal of any removable property of
Tenant. Any removable property of Tenant which shall remain on the Demised
Premises after the expiration of the term of this Lease or sooner termination
thereof and the removal of Tenant from the Demised Premises may, at the option
of Landlord, be deemed to have been abandoned, and either may be retained by
Landlord as its property or may be disposed of in such manner as Landlord may
see fit. If such personal property or any part thereof shall be sold, Landlord
may receive and retain the proceeds of such sale and apply the same, at its
option, against the expenses of the sale, the cost of
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moving and storage, any arrears of rent or additional rent payable hereunder
and any damages to which Landlord may be entitled under Article 12 hereof or
pursuant to law.
SECTION 6.11. If Tenant holds over and refuses to surrender
possession of the Demised Premises after the termination of this Lease by lapse
of time or otherwise, Landlord shall have the option to treat such holding over
as a tenancy at sufferance. During such tenancy the Annual Base Rental shall
be one hundred fifty percent (150%) of the amount in effect immediately prior
to the termination of this Lease, plus a prorated part of the Impositions.
SECTION 6.12. Tenant will indemnify, protect and save harmless
Landlord from and against each and every claim, demand, fine, penalty, cause of
action, liability, damage, judgment or loss, of whatsoever kind or nature, to
which Landlord may be subject or which Landlord may sustain, including without
limitation, reasonable attorneys' fees, reasonable costs and other reasonable
expenses incurred by Landlord in defending against the same, resulting or
alleged to result from any violation by Tenant or any failure of Tenant in the
performance of any of the covenants or agreements contained in this Article 6
or in any other Article of this Lease.
ARTICLE 7
INSURANCE
SECTION 7.01. During the term of this Lease, Tenant will, at its sole
cost and expense, keep and maintain policies of --
(a) insurance on the Improvements or any replacements or
substitutions therefor against loss or damage by fire and
against loss or damage by other risks now insured against by
"ALL RISKS" provisions of policies generally in force on
Improvements of like type in Livermore, California, in amounts
sufficient to provide coverage for the full insurable value of
the Improvements or any replacements or substitutions
therefor, the policy for which insurance shall have a
replacement cost endorsement or similar provision. The term
"full insurable value" shall mean actual replacement value
(exclusive of cost of excavation, foundations and footings).
Such "full insurable value" shall be determined from time to
time (but not more frequently than once in any twelve calendar
months) at the request of Landlord, by one of the insurers or,
at the option of Tenant, by an appraiser, engineer, architect
or contractor approved in writing by Landlord (which approval
shall not be unreasonably withheld) and paid by Tenant. No
omission on the part of Landlord to request any such
determination shall relieve Tenant of any of its obligations
under this Article;
(b) comprehensive general public liability insurance protecting
and indemnifying Tenant and Landlord against any and all
claims for damages to person or property or for loss of life
or of property occurring upon, in, or about the Demised
Premises and the adjoining streets, in a minimum amount of
$5,000,000.00;
(c) war risk insurance upon the Improvements as and when such
insurance is obtainable from the United States Government or
any agency or instrumentality thereof, and a state of war or
national or public emergency exists or threatens, in the
maximum amount obtainable up to the full insurable value
thereof;
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(d) boiler and pressure apparatus liability insurance to the limit
of not less than $100,000 in respect of any one accident,
provided, however, that if the Improvements shall be without a
boiler plant, no such boiler insurance will be required; and
(e) such other insurance on the Improvements or any replacements
or substitutions therefor and in such amounts as may from time
to time be reasonably required by Landlord against other
insurable hazards which at the time are commonly insured
against in the case of premises similarly situated, due regard
being given to the height and type of the Improvements, its
construction, location, use and occupancy, or any replacements
or substitutions therefor.
SECTION 7.02. All insurance provided for in subsections (a), (b),
(d), and (e) of Section 7.01 hereof shall be effected under policies, issued by
companies which are rated at least XII-A by Bests Rating Guide or other
national rating organizations.
Any policies of insurance of the character described in subsections (a), (c)
and (e) of Section 7.01 hereof shall expressly provide that any losses
thereunder shall be adjusted with and approved by Landlord, Tenant and
Landlord's Mortgagee. All such insurance shall be carried in the name of
Landlord, Tenant and Landlord's Mortgagee and loss thereunder shall be paid to
Landlord's Mortgagee and held pursuant to the terms of its mortgage.
SECTION 7.03. At the times required under the provisions of Section
7.01 and not less than thirty (30) days prior to the expiration dates of the
expiring policies theretofore furnished pursuant to this Article 7, originals
or certified copies of the policies bearing notations evidencing the payment of
premiums or accompanied by other evidence satisfactory to Landlord of such
payment shall be delivered by Tenant to Landlord, except that whenever there
shall be a Landlord's Mortgage, the originals of such policies of insurance may
be deposited with Landlord's Mortgagee until Landlord's Mortgage shall be paid,
in which event duplicate originals or certified copies of such policies shall
meanwhile be delivered to Landlord. If Tenant defaults in obtaining any
insurance as required in this Article 7, Landlord may at its option, but
without any obligation so to do, obtain such insurance and pay the premiums
therefor, and Tenant shall reimburse Landlord for any premiums so paid,
together with interest thereon at the Default Rate, and any premiums so paid by
Landlord shall be considered as additional rent due and owing by Tenant to
Landlord. In the event of the termination of this Lease, Landlord shall
succeed to all of the rights of tenant in and to any insurance policies then in
force and effect, including all unearned premiums.
SECTION 7.04. Tenant shall not take out separate insurance concurrent
in form or contributing in the event of loss with that required in this Article
7 to be furnished by, or which may reasonably be required to be furnished by
Tenant, unless Landlord is included therein as an insured, with loss payable as
in this Lease provided. Tenant shall immediately notify Landlord of the taking
out of any such separate insurance and shall deliver the policy or policies or
certified copies as provided in Section 7.03 hereof.
SECTION 7.05. Each policy delivered hereunder shall contain an
agreement by the insurer that such policy shall no be cancelled without at
least thirty (30) days' prior written notice to Landlord and any Landlord's
Mortgagee.
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SECTION 7.06. At the expiration of the term of this Lease, all
policies shall be transferred to Landlord free of all right, title and interest
of Tenant except as to Tenant's interest with respect to any prior casualty
loss and those claiming under Tenant, and Landlord shall pay to Tenant an
amount equal to the unearned premiums apportioned as of such expiration date.
SECTION 7.07. Notwithstanding any provision to the contrary contained
herein, during the term of the "Loan," provided that Tenant complies with all
the requirements o the "Beneficiary" under the "Deed of Trust" )as all such
quoted terms are defined in Section 25.12, below), with respect to insurance,
Tenant shall be deemed to be in compliance with the terms hereof.
ARTICLE 8
DAMAGE OR DESTRUCTION
SECTION 8.01. If, at any time during the term of this Lease, the
Demised Premises or any part thereof shall be damaged or destroyed by fire or
other casualty (including any casualty for which insurance coverage was not
obtained or obtainable) of any kind or nature, ordinary or extraordinary,
foreseen or unforeseen, Tenant, at its sole cost and expense, and whether or
not the insurance proceeds, if any, shall be sufficient for the purpose, shall
commence and thereafter proceed with reasonable diligence (subject to a
reasonable time allowance for the purpose of adjusting the insurance loss and
for unavoidable delay) to repair, alter, restore, replace or rebuild the same
as nearly as possible to its value immediately prior to such damage or
destruction, subject to such changes or alterations as Tenant may elect to make
in conformity with the provisions of Section 5.01 hereof. Such repair,
alteration, restoration, replacement or rebuilding, including such changes and
alterations as aforementioned and including temporary repairs for the
protection of other property pending the completion of any thereof, are
sometimes referred to in this Article 8 as the "Work."
SECTION 8.02. Except as otherwise provided in this Article 8, the
conditions under which any Work is to be performed and the method of proceeding
with and performing the same shall be governed by all of the provisions of
Section 5.01 hereof.
SECTION 8.03. Subject to the terms of Landlord's Mortgage, all
insurance proceeds paid to Landlord's Mortgagee (referred to in this Article 8
as the "Insurance Trustee") on account of such damage or destruction under the
policies of insurance provided for in Article 7 hereof, (sometimes referred to
in this Article 8 as the "Insurance Proceeds"), shall be applied by the
Insurance Trustee to the payment of the cost of the Work to the extent such
Insurance Proceeds shall be sufficient for that purpose, and shall be paid out
to or for the account of Tenant from time to time as such Work progresses. The
Insurance Trustee shall make such payments or disbursements upon the written
request by Tenant when accompanied by the following:
(a) a certificate, dated not more than fifteen (15) days prior to
such request, signed by Tenant or its duly authorized
representative and by a qualified architect of recognized
standing in charge of the Work who shall be selected by Tenant
setting forth that --
(i) the sum then requested either has been paid by Tenant
or is justly due to contractors, subcontractors,
materialmen, architects or other persons who have
rendered services or furnished materials in
connection with the Work,
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giving a brief description of the services and
materials and the several amounts so paid or due and
stating that no part thereof has been made the basis
of any previous or then pending request or has been
paid out of any proceeds of insurance received by
Tenant, and that the sum requested does not exceed
the cost of the services and materials described in
the certificate,
(ii) except for the amount stated in such certificate to
be due as aforesaid, there is no outstanding
indebtedness known to the persons signing such
certificate after due inquiry which might become the
basis of a vendor's, mechanic's or materialmens' or
similar lien upon such Work, the Demised Premises or
Tenant's leasehold interest, or any part thereof, and
(iii) the cost, as estimated by the persons signing such
certificate, of the Work required to be done
subsequent to the date of such certificate in order
to complete the same, does not exceed the amount of
Insurance Proceeds remaining in the hands of the
Insurance Trustee after the payment of the sum so
requested; and
(b) a certificate, dated not more than fifteen (15) days prior to
such request, of a title or abstract company satisfactory to
Landlord then doing business in the City of Livermore,
covering the period from the date of this Lease (or the date
of the last such certificate furnished pursuant to any of the
applicable provisions of this Lease) to the date of such
certificate, setting forth all liens and encumbrances, if any,
of record and reflecting that there are no involuntary liens
or encumbrances of record of any kind on the Demised Premises
except those permitted by the terms of this Lease and except
such as will be discharged by payment of the amount then
requested.
Subject to the terms of Landlord's Mortgage, upon compliance with the
foregoing provisions of this Section 8.03, the Insurance Trustee shall, out of
the Insurance Proceeds, pay or cause to be paid to Tenant or to the persons
named in the certificate the respective amounts stated therein to have been
paid by Tenant or to be due to them, as the case may be.
Upon receipt by the Insurance Trustee of evidence satisfactory to it
of the character required by subsections (a) and (b) of this Section 8.03 that
the Work has been completed and paid for in full and there are no liens of the
character referred to therein, and if Tenant is not then in default, the
Insurance Trustee shall pay any remaining balance of the Insurance Proceeds to
Landlord's Mortgagee, if there by any, and if not, to Tenant.
If the Insurance Proceeds received by the Insurance Trustee shall be
insufficient to pay the entire cost of the Work as reasonably estimated by
Landlord, Tenant shall supply the amount of any such deficiency and shall first
apply the same to the payment of the cost of the Work before calling upon the
Insurance Trustee for the disbursement of the Insurance Proceeds held by the
Insurance Trustee.
Under no circumstance shall Landlord be obligated to make any payment,
disbursement or contribution towards the cost of the Work.
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SECTION 8.04. In no event shall Tenant be entitled to any abatement,
allowance, reduction or suspension of rent because part or all of the Demised
Premises shall be untenantable owing to the partial or total destruction
thereof; and notwithstanding anything herein to the contrary, no such damage or
destruction shall affect in any way the obligation of Tenant to pay the Annual
Base Rental, additional rent and other payments herein reserved or required to
be paid, nor release Tenant of or from any obligation imposed upon Tenant under
this Lease.
ARTICLE 9
CONDEMNATION
SECTION 9.01. If, at any time during the term of this Lease, title to
the whole or substantially all of the Demised Premises shall be taken in
condemnation proceedings or by any right of eminent domain, this Lease shall
terminate and expire on the date of such taking and the Annual Base Rental and
additional rent reserved shall be apportioned and paid to the date of such
taking. For purposes of this Article 9, "substantially all of the Demised
Premises" shall be deemed to have been taken if the untaken portion cannot be
practically and economically used or converted for use by Tenant for the
purposes for which the Demised Premises are being used immediately prior to
such taking.
In the event of any such taking and the termination of this Lease:
(a) Landlord shall be entitled to receive
(i) the entirety of such portion of said award or awards
as shall represent compensation for the value of the
Demised Land, or the part thereof so taken,
considered as vacant and unimproved and such portion
of such award or awards with the interest, if any,
paid by the condemning authority as shall represent
consequential damages, if any, to the portion of the
Demised Land not so taken, considered as vacant and
unimproved; plus
(ii) such portion of said award or awards, with interest,
if any paid by the condemning authority as shall
represent compensation for the value which the
Improvements would have had at the expiration of the
term of this Lease, but for such taking;
(b) Tenant shall be entitled to receive the balance of said award
or awards, with interest, if any paid by the condemning
authority as shall represent compensation for the value of the
Improvements or portion thereof taken.
Tenant hereby assigns to Landlord all rights which Tenant may have by
virtue of this Lease or otherwise in and to any portion of said award or awards
described in item (a), above and grants to Landlord the exclusive right to
negotiate with the condemning authority with respect to such award or awards or
portions thereof.
SECTION 9.02. In the event of any such taking of less than the whole
or substantially all of the Demised Premises, the term of this Lease shall not
be reduced or affected in any way, and
(a) Landlord shall be entitled to receive and retain as its own
property such portion of the award or awards with the interest
thereon, if any, paid by the condemning
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authority as shall represent compensation for the value of the
Demised Land, or the part thereof, so taken considered as
vacant and unimproved, plus consequential damages to the
portion or portions of the Demised Land not so taken,
considered as vacant and unimproved.
(b) if the balance of said award or awards (including compensation
for the Improvements or portion thereof taken, and damages if
any to the Improvements not so taken) (herein sometimes
referred to as "Condemnation Proceeds") shall be paid to
Landlord's Mortgagee (who in this Article 9 is referred to as
the "Condemnation Trustee") and held pursuant to the terms of
Landlord's Mortgage and this Article 9;
(c) Tenant, at its sole cost and expense and whether or not the
Condemnation Proceeds payable under subsection (b) of this
Section 9.02 shall be sufficient for the purpose, shall
commence and thereafter proceed with reasonable diligence to
repair, alter and restore the remaining part of the Demised
Premises so as to constitute a complete, rentable project,
subject to such changes or alterations as Tenant may elect to
make in conformity with the provisions of Section 5.01 hereof.
Such repairs, alterations or restoration, including such
changes and alterations as above mentioned and including
temporary repairs, for the protection of other property
pending the completion of any thereof, are sometimes referred
to in this Section 9.02 as the "Work";
(d) the conditions under which the Work is to be performed and the
method of proceeding with and performing the same shall be
governed by all of the provisions of Section 5.01 hereof; and
(e) subject to the terms of Landlord's Mortgage, the Condemnation
Trustee shall hold, apply, make available and pay over to
Tenant the Condemnation Proceeds in the same manner as is
provided to be done by the Insurance Trustee with respect to
insurance proceeds under the provisions of Section 7.02
hereof, provided that the references in Section 7.02 to the
provisions of Sections 8.01, 8.02 and 8.03 shall be deemed to
be references to the provisions of subsections (c), (d) and
(e) respectively of this Section 9.02;
SECTION 9.03. If the whole or any part of the Demised Premises or of
Tenant's interest in this Lease shall be taken in condemnation proceedings or
by any right of eminent domain for a temporary use or occupancy, the term of
this Lease shall not be reduced or affected in any way and Tenant shall
continue to pay in full the Annual Base Rental, additional rent and other
payments herein reserved, without reduction or abatement in the manner and at
the times herein specified and, except only to the extent that Tenant is
prevented from so doing pursuant to the terms of the order of the condemning
authority, Tenant shall continue to perform and observe all of the other
covenants, agreements, terms and provisions of this Lease as though such taking
had not occurred.
SECTION 9.04. Landlord and Tenant each covenant and agree to seek
separate awards in all such condemnation proceedings and to use their
respective best efforts to see that such separate awards are made at all stages
of all such proceedings.
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SECTION 9.05. Tenant, Landlord and Landlord's Mortgagee shall each
have the right, at its own expense, to appear in any condemnation proceeding
and to participate in any and all hearings, trials and appeals therein.
SECTION 9.06. In the event Landlord or Tenant shall receive notice of
any proposed or pending condemnation proceeding affecting the Demised Premises,
the party receiving such notice shall promptly notify the other party and
Landlord's Mortgagee.
ARTICLE 10
ASSIGNMENT AND SUBLEASE
SECTION 10.01. Tenant shall not assign, transfer, pledge, mortgage or
sublease the Demised Premises or any portion thereof or any interest therein
without the prior written consent of Landlord which shall not be unreasonably
withheld.
SECTION 10.02. If this Lease be assigned with Landlord's consent,
Landlord may and is hereby empowered to collect Annual Base Rental and other
sums payable hereunder to accrue thereafter from the assignee. In such event,
Landlord may apply the net amount received by it to the Annual Base Rental,
additional rent and other payments herein reserved or provided for.
SECTION 10.03. The making of any assignment, mortgage, pledge,
encumbrance or subletting, in whole or in part, shall not operate to relieve
Tenant from Tenant's obligations under this Lease and, notwithstanding any such
assignment, mortgage, pledge, encumbrance or subletting, Tenant shall remain
liable for the payment of all Annual Base Rental, additional rent and other
charges and for the due performance of all the covenants, agreements, terms and
provisions of this Lease to the full end of the term of this Lease, whether or
not there shall have been any prior termination of this Lease by summary
proceedings or otherwise.
SECTION 10.04. Any consent by Landlord herein contained or hereafter
given to any act or acts for which Landlord's consent is by the terms hereof
required, shall be held to apply only to the specific transaction hereby or
thereby approved.
ARTICLE 11
MORTGAGE OF THE FEE
SECTION 11.01. Any first lien mortgage or deed of trust (a "Landlord's
Mortgage") hereafter covering Landlord's interest in the Demised Premises
including, without limitation, any such deed of trust in favor of The Variable
Annuity Life Insurance Company, shall be subject to the Tenant's interest under
this Lease; provided, however, upon request of any such Landlord's Mortgagee,
Tenant shall subordinate its interest hereunder to any such Landlord's Mortgage
so long as such Landlord's mortgagee agrees not to disturb Tenant's possession
provided Tenant is not in default hereunder.
ARTICLE 12
DEFAULT PROVISIONS
SECTION 12.01. This Lease and the term and estate hereby granted are
subject to the limitation that
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(a) whenever Tenant shall default in the payment of any
installment of Annual Base Rental, additional rent or any
other sum payable by Tenant to Landlord on any date upon which
the same ought to be paid, and if such default shall continue
for ten (10) days after Landlord shall have given to Tenant a
written notice specifying such default; or
(b) whenever Tenant shall do, or permit to be done, whether by
action or inaction, anything contrary to any covenant or
agreement on the part of Tenant herein contained or shall fail
in keeping or performance of any of the covenants, agreements,
terms or provisions contained in this Lease which on the part
or behalf of tenant are to be kept or performed (other than
those referred to in the foregoing subsection (a) of this
Section 12.01) and Tenant shall fail to commence (subject to
unavoidable delay) to take steps to remedy the same within
thirty (30) days after Landlord shall have given to Tenant a
written notice specifying the same, or having so commenced
shall thereafter fail to proceed diligently to remedy the
same, but, in all events, within ninety (90) days after such
notice; or
(c) whenever a decree or order for relief shall be entered by a
court having jurisdiction over Tenant in an involuntary case
under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
similar official) shall be appointed for any substantial part
of Tenant's property, or the winding-up or liquidation of
Tenant's affairs shall be ordered, and such situation under
this subsection (c) shall continue and shall not be remedied
by Tenant within one hundred twenty (120) days after the
happening of any such event; or
(d) whenever Tenant shall commence a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter
amended, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or Tenant shall consent t the
appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of any
substantial part of the property of Tenant, or to the taking
possession of any such property by any such functionary or the
making of any assignment for the benefit of creditors by
Tenant, or Tenant shall fail generally to pay its debts as
such debts become due, or any corporate Tenant shall take
corporate action in furtherance of any of the foregoing;
(any of the aforesaid occurrence being herein referred to as an "Event of
Default") then at any time thereafter Landlord may at its option, in addition
to all other rights and remedies given hereunder or by law or equity, do any
one or more of the following:
(a) Landlord shall be entitled to keep this Lease in full force
and effect and Landlord may enforce all of its rights and
remedies under this Lease, including the right to recover rent
and other sums as they become due, plus interest at the
highest rate then allowed by law, from the due date of each
installment of rent or other sum until paid; or
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(b) Landlord may terminate Tenant's right to possession by giving
Tenant written notice of termination, whereupon this Lease and
all of Tenant's rights in the Premises shall terminate. Any
termination under this paragraph shall not release Tenant from
the payment of any sum then due Landlord or from any claim for
damages or rent accrued.
Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Demised Premises by Tenant, whether by agreement or by operation of law, it
being understood that such surrender can be effected only by the written
agreement of Landlord and Tenant.
SECTION 12.02. Upon any such termination of this Lease or Tenant's
right to possession of the Demised Premises or upon expiration of this Lease,
Tenant shall peaceably quit and surrender the Demised Premises to Landlord, and
Landlord may without further notice enter upon, re- enter, possess and
repossess itself thereof, by force summary proceedings, ejectment or otherwise,
and may dispossess and remove Tenant and all other persons and property from
the Demised Premises and may have, hold and enjoy the Demised Premises and the
right to receive all rental and other income of and from the same.
SECTION 12.03. In the event Landlord exercises the remedies grant
pursuant to Section 12.01(b), Landlord may recover from Tenant all damages
incurred by Landlord by reason of Tenant's default, including, but not limited
to: (i) the cost of recovering possession of the Premises; (ii) expenses of
reletting, including necessary renovation and alteration of the Premises; (iii)
reasonable attorneys' fees, any real estate commissions actually paid and that
portion of any leasing commission paid by Landlord applicable to the unexpired
term of this Lease; (iv) the worth at the time of award of the unpaid rent
which had been earned at the time of termination; and (v) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform Tenant's obligations under this Lease, or which in
the ordinary course of things would be likely to result therefrom.
The "worth at the time of award" of the amounts referred to in
subparagraph (iv) of this Section 12.03 shall be computed by allowing interest
at the maximum rate then permitted by law. The term "rent" as used in this
paragraph shall include all sums required to be paid by Tenant to Landlord
pursuant to the terms of this Lease. Actions to collect amounts due by Tenant
provided for in this paragraph of Section 12.03 may be brought from time to
time by Landlord during the aforesaid period, on one or more occasions, without
the necessity of Landlord's waiting until expiration of such period; and in no
event shall Tenant be entitled to any excess of rent (or rent plus other sums)
obtained by reletting over and above the rent herein reserved.
Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the date when the term of this Lease would have expired if it had not been
terminated under the provisions of this Article 12, or under any provisions of
law or had Landlord not re-entered the premises.
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Nothing herein contained shall be construed as limiting or precluding
the recovery by Landlord against Tenant of any damages to which Landlord may
lawfully be entitled in any case other than those particularly provided for
above.
SECTION 12.04. To the extent permitted by law, Tenant, for Tenant,
and on behalf of any and all persons claiming through or under Tenant,
including creditors of all kinds, does hereby waive and surrender all right and
privilege which they or any of them might have under or by reason of any
present or future law, to redeem the Demised Premises or to have a continuance
of this Lease for the term hereby demised after being dispossessed or ejected
therefrom by process of law or under the terms of this Lease or after the
termination of this Lease as herein provided.
SECTION 12.05. The words "enter", "entry", "re-enter" or "reentry"
are not restricted to their technical legal meanings.
SECTION 12.06. In case of any default arising hereunder or holding
over or possession by Tenant after the expiration or termination of this Lease,
Tenant shall pay Landlord for all actual reasonable expenses incurred by
Landlord by reason thereof, including but not limited to reasonable attorneys'
fees.
SECTION 12.07. In the event of termination of this Lease or of
Tenant's right to possession of the Demised Premises or repossession of the
Demised Premises for an event of default, Landlord shall not have any
obligation to re-let or attempt to re-let the demised Premises, or any portion
thereof, or to collect rental after re-letting (if any); but Landlord shall
have the option to re-let or attempt to re-let and in the event of re-letting
Landlord may re-let the whole or any portion of the Demised Premises for any
period, to any tenant, and for any use and purpose.
SECTION 12.08. In the event of any default by Landlord, Tenant's
exclusive remedy shall be an action for damages (Tenant hereby waiving the
benefit of any laws granting it a lien upon the property of Landlord and/or
upon rent due Landlord), but prior to any such action Tenant will give Landlord
written notice specifying such default with particularity, and Landlord shall
thereupon have a reasonable period, but in no event less than thirty (30) days,
in which to commence to cure any such default. Unless and until Landlord fails
so to commence to cure any default after such notice or having so commenced
thereafter fails to exercise reasonable diligence to complete such curing,
Tenant shall not have any remedy or cause of action by reason thereof. All
obligations of Landlord hereunder will be construed as covenants, not
conditions; and all such obligations will be binding upon Landlord only during
the period of its possession of the Demised Premises and not thereafter.
ARTICLE 13
LANDLORD'S RIGHT TO PERFORM; CUMULATIVE REMEDIES; WAIVERS
SECTION 13.01. If Tenant shall fail to pay any Imposition or make any
other payment required to be made under this Lease or shall default in the
performance of any other covenant, agreement, term, provision or condition
herein contained, or shall default in the performance of any covenant,
agreement, term, provision or condition contained in any sublease of the
Demised Premises and shall not cure such default within the time permitted in
any such sublease, Landlord, without being under any obligation to do so and
without thereby waiving such default, may make
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such payment and/or remedy such other default for the account and at the
expense of Tenant (and enter the Demised Premises for such purposes)
immediately and without notice in the case of emergency, or, in any other case,
if Tenant shall fail to make such payment or remedy such default with all
reasonable dispatch after Landlord shall have notified Tenant in writing of
such default. Bills for any reasonable expense incurred by Landlord in
connection therewith, and bills for all reasonable costs, expenses and
disbursements of every kind and nature whatsoever, including reasonable counsel
fees, involved in collection or endeavoring to collect the Annual Base Rental
or additional rent or any part thereof, or enforcing or endeavoring to enforce
any right against Tenant, under or in connection with this Lease, or pursuant
to law, including (without being limited to) any such reasonable attorney's
fees and cost, expense and disbursements involved in instituting and
prosecuting summary proceedings, as well as reasonable bills for any property,
material, labor or services provided, furnished or rendered, or caused to be
furnished or rendered, by Landlord to Tenant, with respect to the Demised
Premises and other equipment and construction work done for the account of
Tenant (together with interest at the Default Rate from the respective dates of
Landlord's making of each such payment or incurring of each such cost or
expense), may be sent by Landlord to Tenant monthly, or immediately, at
Landlord's option, and shall be due and payable in accordance with the term of
said bills and if not paid when due the amount thereof shall immediately become
due and payable as additional rent under this lease.
SECTION 13.02. Landlord may restrain any breach or threatened breach
of any covenant, agreement, term, provision or condition herein contained, but
the mention herein of any particular remedy shall not, in any case other than
those particularly provided for above, preclude Landlord from any other remedy
it might have, either in law or in equity. The failure of Landlord to insist
upon the strict performance of any one of the covenants, agreements, terms,
provisions or conditions of this Lease or to exercise any right, remedy or
election herein contained or permitted by law shall not constitute or be
construed as a waiver or relinquishment for the future of such covenant,
agreement, term, provision, condition, right, remedy or election, but the same
shall continue and remain in full force and effect. Any right or remedy of
Landlord in this Lease specified or any other right or remedy that Landlord may
have at law, in equity or otherwise upon breach of any covenant, agreement,
term, provision or condition in this Lease contained upon the part of Tenant to
be performed, shall be distinct, separate and cumulative rights or remedies and
no one of them whether exercised by Landlord or not, shall be deemed to be in
exclusion of any other. No covenant, agreement, term, provision or condition
of this Lease shall be deemed to have been waived by Landlord unless such
waiver be in writing, signed by Landlord or Landlord's agent duly authorized in
writing. Consent of Landlord to any act or matter must be in writing and shall
apply only with respect to the particular act or matter to which such consent
is given and shall not relieve Tenant from the obligations wherever required
under this Lease to obtain the consent of Landlord to any other act or matter.
Receipt or acceptance of Annual Base Rent or additional rent by Landlord shall
not be deemed to be a waiver of any default under the covenants, agreements,
terms, provisions and conditions of this Lease, or of any right which Landlord
may be entitled to exercise under this Lease. In the event that Tenant is in
arrears in the payment of Annual Base Rent or additional rent, Tenant waives
Tenant's right, if any, to designate the items against which any payments made
by Tenant are to be credited and Tenant agrees that Landlord may apply any
payments made by Tenant to any items Landlord sees fit irrespective of and
notwithstanding any designation or request by Tenant as to the items against
which any such payments shall be credited. This Lease may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
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ARTICLE 14
INTENTIONALLY OMITTED
ARTICLE 15
INTENTIONALLY OMITTED
ARTICLE 16
INTENTIONALLY OMITTED
ARTICLE 17
IMPAIRMENT OF LANDLORD'S TITLE
SECTION 17.01. Nothing in this Lease shall be deemed or construed to
mean that Landlord has granted to Tenant any right, power or permission to do
any act or to make any agreement which may create, give rise to, or be the
foundation for, any right, title, interest, lien, charge or other encumbrance
upon the estate of Landlord in the Demised Premises other than to the extent of
the leasehold created hereunder or to be created under any new lease which
Landlord is obligated to execute hereunder.
ARTICLE 18
TENANT'S BANKRUPTCY
SECTION 18.01. Landlord and Tenant agree that if Tenant ever becomes
the subject of a voluntary or involuntary bankruptcy, reorganization,
composition, or other similar type proceeding under the Federal Bankruptcy
Laws, as now enacted or hereinafter amended, then "adequate protection" of
Landlord's interest in the Demised Premises pursuant to the provisions of
Sections 361 and 363 (or their successor sections) of the Bankruptcy Code 11
U.S.C. Paragraph 101, et seq. (such Bankruptcy Code as amended from time to
time being herein referred to as the "Bankruptcy Code") prior to assumption
and/or assignment of the Lease by Tenant shall included, but not be limited to
the continued payment by Tenant of all Annual Base Rental, additional rent and
all other sums due and owing under this Lease and the performance of all other
covenants and obligations under this Lease by Tenant.
SECTION 18.02. Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be deemed without
further act or deed to have assumed all of the obligations of Tenant arising
under this Lease on and after the effective date of such assignment. Any such
assignee shall, upon demand by Landlord, execute and deliver to Landlord an
instrument confirming such assumption of liability.
SECTION 18.03. Notwithstanding anything in this Lease to the
contrary, all amounts payable by Tenant to or on behalf of Landlord under this
Lease, whether or not expressly denominated as "rent" shall constitute "rent"
for the purposes of Section 502(b)(7) of the Bankruptcy Code.
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SECTION 18.04. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise to be delivered in connection with such
assignment shall be paid or delivered to Landlord, shall be and remain the
exclusive property of Landlord and shall not constitute property of Tenant or
of the Estate of Tenant within the meaning of the Bankruptcy Code. Any and all
monies or other considerations constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord shall be held in trust by
Tenant for the benefit of Landlord and shall be promptly paid to or turned over
to Landlord.
SECTION 18.05. If Tenant assumes this Lease and proposes to assign
the same pursuant to the provisions of the Bankruptcy Code to any person or
entity who shall have made a bona fide offer to accept an assignment of this
Lease on terms acceptable to the tenant, then notice of such proposed
offer/assignment, setting forth (i) the name and address of such person or
entity, (ii) all of the terms and conditions of such offer, and (iii) the
adequate assurance to be provided Landlord to assure such person's or entity's
future performance under the Lease, shall be given to Landlord by Tenant no
later than twenty (20) days after receipt by Tenant, but in any event no later
than ten (10) days prior to the date that Tenant shall made application to a
court of competent jurisdiction for authority and approval to enter into such
assumption and assignment, and Landlord shall thereupon have the prior right
and option, to be exercised by notice to Tenant given at an prior to the
effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if
any, as the bona fide offer made by such persons or entity, less any brokerage
commissions which may be payable out of the consideration to be paid by such
person for the assignment of this Lease.
ARTICLE 19
ESTOPPEL CERTIFICATE
SECTION 19.01. Landlord and Tenant shall execute and deliver to each
other, at such time or times as either Landlord or Tenant may request, a
certificate evidencing:
(a) whether or not the Lease is in full force and effect;
(b) whether or not the Lease has been modified or amended in any
respect, and submitting copies of such modifications or
amendments, if any;
(c) whether or not there are any existing defaults hereunder to
the knowledge of the party executing the certificate, and
specifying the nature of such defaults, if any; and
(d) such other matters as may be reasonably requested by the other
party.
ARTICLE 20
INTENTIONALLY OMITTED
ARTICLE 21
INVALIDITY OF PARTICULAR PROVISIONS
SECTION 21.01. If any term or provision of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the
24
<PAGE> 28
application of such term or provisions to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
ARTICLE 22
NOTICE
SECTION 22.01. Any notice, communication, request, reply or advice,
or duplicate thereof (in this Section 22.01 severally and collectively, for
convenience, called "Notice"), in this Lease provided or permitted to be given,
made or accepted by either party to any other party must be in writing, and
may, unless otherwise in this instrument expressly provided, be given or be
served by depositing the same in the United States mail, adequate postage
prepaid and registered or certified and addressed to the party to be notified,
with return receipt requested, or by delivering the same in person to such
party, or, if the party or parties to be notified be incorporated, to an
officer of such party, or by prepaid telegram, when appropriate, addressed to
the party, or by prepaid telegram, when appropriate, addressed to the party to
be notified. Notice deposited in the mail in the manner hereinabove described
shall be effective, unless otherwise stated in this Lease, from and after the
expiration of three (3) days after it is so deposited. Notice given in any
other manner shall be effective only if and when received by the party to be
notified. For purposes of Notice the addresses of the parties shall, until
changed as hereinafter provided, be as follows:
If to Landlord, to: 3055 Triad Dr. Corp.
3055 Triad Drive
Livermore, California 94550
If to Tenant, to: Triad Systems Corporation
3055 Triad Drive
Livermore, California 94550
With a copy to: Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301-1809
Attention: Jeff Trant
However, the parties hereto and their respective heirs, successors, legal
representatives and assigns shall have the right from time to time and at any
time to change their respective addresses and each shall have the right to
specify as its/their address any other address within the continental United
States of America by at least fifteen (15) days' written Notice to the other
party; provided, however, if at any one time more than one person or party owns
an interest in the Demised Premises, nevertheless such persons or parties may
not designate more than two places or addresses to receive Notice pursuant to
the terms hereof. Each party shall have the right to change such party's
address for purposes of Notice, by giving written Notice to the other party in
the manner herein set forth.
ARTICLE 23
NON-WAIVER
SECTION 23.01. No variations, modifications or changes herein or
hereof shall b binding upon any party hereto unless executed by it or by a duly
authorized officer or a duly authorized agent of
25
<PAGE> 29
the particular party. No waiver or waivers of any breach or default or any
breaches or defaults by either party of any term, condition or liability of or
performance by the other party of any duty or obligation hereunder, including
without limitation the acceptance by Landlord or payment by Tenant of any
rentals at any time or in any manner other than as herein provided, shall be
deemed a waiver thereof or of any waiver thereof in the future, nor shall any
such waiver or waivers be deemed or construed to be a waiver or waivers of
subsequent breaches or defaults of any kind, character or description under any
circumstances.
SECTION 23.01. The acceptance by Landlord of any performance, Annual
Base Rental, additional rent or other sum or sums of money or other charges
herein reserved to be paid or provided to be done by Tenant from any person,
firm or corporation other than Tenant shall not discharge Tenant or any others
liable with Tenant except to the extent of the performance and payment so
accepted by Landlord from liability to pay the Annual Base Rental herein
reserved, additional rent or other sum or sums of money and other charges
herein provided to be paid by Tenant or from liability to perform any of the
terms, covenants, conditions and agreements herein set forth.
ARTICLE 24
WARRANTY OF PEACEFUL POSSESSION; LIMITATION OF LANDLORD'S LIABILITY
SECTION 24.01. Landlord covenants and warrants that Tenant on paying
the rents herein provided and performing all of its covenants and agreements
herein contained, shall and may peaceably and quietly have, hold, occupy, use
and enjoy, and shall have the full, exclusive and unrestricted use and
enjoyment of, all of the Demised Premises during the entire term hereof, for
any and all lawful purposes subject to the other terms and provisions hereof;
and provided Tenant has fully performed all of its obligations hereunder,
Landlord agrees to warrant and forever defend the title to the Demised Land
against the claims of any and all persons whomsoever lawfully claiming or to
claim the same or any part thereof, subject only to the provisions of this
Lease.
SECTION 24.02. It is expressly understood and agreed that the term
"Landlord" as used in this Lease, means only the owner for the time being of
the Demised Premises, and in the event of the sale, assignment or transfer by
such owner of its interest in said premises, such owner shall thereupon be
released and discharged from all covenants and obligations of Landlord
thereafter accruing; but such covenants and obligations shall run with the land
and be binding upon each new owner or successor for the time being of the
Demised Premises. No such change in ownership shall be binding on Tenant until
notice thereof shall be given to Tenant, accompanied by a counterpart original
or certified copy of the instrument of conveyance which shall have effected
such change. Under no circumstances whatsoever shall Landlord ever be liable
hereunder for consequential damages or special damages; and all liability of
Landlord for damages for breach of any covenant, duty or obligation of Landlord
hereunder may be satisfied only out of the interest of Landlord in the Demised
Premises existing at the time any such liability is adjudicated in a
proceedings as to which the judgment adjudicating such liability is
non-appealable and not subject to further review.
26
<PAGE> 30
ARTICLE 25
MISCELLANEOUS
SECTION 25.01. This Lease Agreement has been negotiated in and shall
be construed and enforced in accordance with the laws of the State of
California.
SECTION 25.02. All personal pronouns used in this Agreement shall
include the other genders whether used in the masculine or feminine or neuter
gender and the singular shall include the plural whenever and as often as may
be appropriate. The words "hereof," "herein," "hereunder," "hereinafter" and
the like refer to this entire instrument, not just to the specific Article,
section or paragraph in which such words appear.
SECTION 25.03. This Lease shall constitute a real right and covenant
running with the Demised Premises, and this lease and all of its terms and
provisions shall be binding upon and inure to the benefit of the parties
hereto, their respective heirs, legal representatives, successors and assigns
(subject to the limitations on assignment by Tenant hereunder), and whenever in
this Lease a reference to either of the parties hereto is made, such reference
to either of the parties hereto is made, such reference shall be deemed to
include, wherever applicable, a reference to the heirs, legal representatives,
successors and assigns of said party.
SECTION 25.04. Intentionally Omitted.
SECTION 25.05. Tenant shall keep accurate books of account showing
all costs and expenses incurred and charges made and all credits and returns
made and received in connection with the management of the Demised Premises.
Upon written requests from Landlord, Tenant shall furnish to Landlord copies of
significant contracts and agreements relating to maintenance, operation and
upkeep of the Improvements.
SECTION 25.06. This Intentionally Omitted.
SECTION 25.07. In any circumstances where Landlord is permitted to
enter upon the Demised Premises during the term of this Lease, whether for the
purpose of curing any default of Tenant, repairing damage resulting from fire
or other casualty or an eminent domain taking or is otherwise permitted
hereunder or by law to go upon the Demised Premises, no such entry shall
constitute an eviction or disturbance of Tenant's use and possession of the
Demised Premises or a breach by Landlord of any of its obligations hereunder or
render Landlord liable for damages of loss of business or otherwise or entitle
Tenant to be relieved from any of its obligations hereunder or grant Tenant any
right of set-off or recoupment or other remedy; and in connection with any such
entry incident to performance of repairs, replacements, maintenance or
construction, all of the aforesaid provisions shall be applicable
notwithstanding that Landlord may elect to take building materials upon the
Demised Premises that may be required or utilized in connection with such entry
by Landlord.
SECTION 25.08. Landlord and Tenant stipulate and agree that in the
event of any breach or threatened breach of any covenant, duty or obligation of
Tenant contained in this Lease, damages would be inadequate and speculative,
and, therefore, Landlord shall be entitled, at Landlord's option, to the
appointment of a receiver, a temporary restraining order and/or a temporary
injunction, without the necessity of proving the inadequacy of any legal remedy
or irreparable harm. Tenant
27
<PAGE> 31
hereby waives any and all defenses to the application for a receive, temporary
restraining order and/or temporary injunction, and hereby consents to such
action in the event of any breach or threatened breach by Tenant. The
foregoing provisions of this Section 25.08 are express conditions which this
Lease is entered into by Landlord. The remedies of Landlord hereunder shall be
deemed cumulative and no remedy of Landlord, whether exercised by Landlord or
not, shall be deemed to be in exclusion of any other. Except as may be
otherwise herein expressly provided, in all circumstances under this Lease
where prior consent or permission of one party ("first party") is required
before the other party ("second party") is authorized to take any particular
type of acting, the matter of whether to grant such consent or permission shall
be within the sole and exclusive judgment and discretion of the first party;
and it shall not constitute any nature of breach by the first party hereunder
or any defense to the performance of any covenant, duty or obligation of the
second party hereunder that the first party delayed or withheld the granting of
such consent or permission, whether or not the delay or withholding of such
consent or permission was prudent or reasonable or based on good cause.
SECTION 25.09. In all instances where Tenant is required hereunder to
pay any sum or do any act at a particular indicated time or within an indicated
period, it is understood that time is of the essence.
SECTION 25.10. The obligation of Tenant to pay all rent and other
sums hereunder provided to be paid by Tenant and the obligation of Tenant to
perform Tenant's other covenants and duties hereunder constitute independent,
unconditional obligations to be performed at all times provided for hereunder,
save and except only when an abatement thereof or reduction therein is
hereinabove expressly provided for and not otherwise. Tenant waives and
relinquishes all rights which Tenant might have to claim any nature of lien
against or withhold, or deduct from or off-set against any rent and other sums
provided hereunder to be paid Landlord by Tenant. Tenant waives and
relinquishes any right to assert, either as a claim or as a defense, that
Landlord is bound to perform or is liable for the nonperformance of any implied
covenant or implied duty of Landlord not expressly herein set forth.
SECTION 25.11. All monetary obligations of Landlord and Tenant
(including, without limitation), any monetary obligation of Landlord or Tenant
for damages for any breach of the respective covenants, duties or obligations
of Landlord or Tenant hereunder) are performable exclusively in Livermore,
Alameda County, California.
SECTION 25.12. Reference is here made to that certain loan commitment
dated June 10, 1988, as amended by letters dated June 23, and July 8, 1988,
issued by American General Investment Corporation to Triad Systems Corporation
(the "Commitment"). As part of the consideration for funding the loan
contemplated under the Commitment (the "Loan"), Triad Systems Corporation has
assigned the Commitment to 3055 Triad Dr. Corp., and it is contemplated that
3055 Triad Dr. Corp., as maker, shall execute and deliver to The Variable
Annuity Life Insurance Company ("Beneficiary"), is payee, a promissory note in
the amount of $15,500,000.00, which promissory note shall be secured, inter
alia, by a First Deed of Trust and Assignment of Rents, Security Agreement and
Fixture Filing covering, inter alia, the Land (the "Deed of Trust"). Landlord
and Tenant hereby agree that this Lease may be terminated by Tenant upon the
occurrence of any of the following circumstances:
28
<PAGE> 32
(1) Prior to foreclosure of the Deed of Trust, by payment in full
of all sums payable under the Note and the Deed of Trust
(subject to and in accordance with the terms thereof,
including, without limitation, any provisions thereof limiting
prepayment rights); or
(2) Following foreclosure of the Deed of Trust, by payment of all
sums payable under the Note and Deed of Trust (subject to and
in accordance with the terms thereof, including, without
limitation, any provisions thereof limiting prepayment rights)
as if such foreclosure had not occurred, together with all
costs and expenses incurred by the holder of the Note in
connection with any such foreclosure.
The provisions of this Section 25.12 are not meant to be, and do not constitute,
any amendment or modification of the rights of the holder of the Note or the
Beneficiary under the Deed of Trust. The affidavit by Beneficiary of the
amounts due under items (1) or (2) preceding shall be conclusive and binding
upon Tenant with respect to such matters.
This Lease Agreement is hereby executed and delivered
effective as of the date and year first above written.
3055 TRIAD DR. CORP.
By: /s/ JEROME W. CARLSEN
---------------------
Name: Jerome W. Carlsen
Title: Vice President
"LANDLORD"
TRIAD SYSTEMS CORPORATION
By: /s/ JAMES R. PORTER
-------------------
Name: James R. Porter
Title: President
"TENANT"
29
<PAGE> 33
EXHIBIT "A"
3055 TRIAD DR. CORP.
PERMITTED EXCEPTIONS
PAGE 1 OF 1 PAGE
1. Agreement for Subdivision Improvement by and between Triad Systems
Corporation and the City of Livermore, recorded December 9, 1985 in
the Official Records of Alameda County under Series No. 85-261848.
2. Agreement for Development of Land by and between Triad Systems
Corporation, a California corporation, and the City of Livermore, a
municipal corporation, recorded December 9, 1985 in the Official
Records of Alameda County under Series No. 85-261849 and re-recorded
on November 19, 1986 under Series No. 86-290730, as amended by
Amendment to Development Agreement recorded September 29, 1987 in the
Official Records of Alameda County under Series No. 87-266894.
3. Public Utility Easement, Landscape Easement, Storm Drain Easement,
Sanitary Sewer Easement, Water Conservation Easement and Scenic Route
Easement filed in Parcel Map 3994 of Alameda County.
4. Limitations, covenants, conditions, restrictions, reservations,
exceptions, or terms, but deleting restrictions, if any, based on
race, color, religion or national origin contained in instrument
recorded September 29, 1987, in the Official Records of Alameda
County, under Series No. 87-266895.
5. Public Utilities Easement, Landscaping Easement, Storm Drainage
Easement and Emergency Vehicle Access Easement as shown on filed
Parcel Map 5112 of Alameda County.
6. Building set back line as shown on filed Parcel Map 5112 of Alameda
County.
30
<PAGE> 1
FIRST AMENDMENT
TO
PROJECT LEASE AGREEMENT
THIS FIRST AMENDMENT TO PROJECT LEASE AGREEMENT (this
"AMENDMENT") is effective as of the 26th day of February, 1997, by and between
Triad Park, LLC, a California limited liability company ("PARK"), intended
successor in interest to 3055 TRIAD DR. CORP., a California corporation ("3055
CORP") and TRIAD SYSTEMS CORPORATION, a Delaware corporation ("TRIAD") in the
following factual context:
A. On August 1, 1988, Triad, as Tenant and 3055 Corp.,
as Landlord, entered into that certain Project Lease Agreement (the "LEASE")
covering a tract of land containing 15.0633 acres, and being Parcel Two of
Parcel Map 5112, filed September 29, 1987 in Book 122 or Parcel Maps, Pages 11
through 14, inclusive, Alameda County Records (the "DEMISED LAND"), which Lease
also covered the improvements on the Demised Land Agreement consisting of three
(3) buildings containing approximately 219,818 square feet (the
"IMPROVEMENTS").
B. On August 23, 1988, 3055 Corp., as Trustor, and
Mason-McDuffie Financial Corporation, as Trustee, executed that certain First
Deed of Trust and Assignment of Rents, Security Agreement and Fixture Filing,
for the benefit of The Variable Annuity Life Insurance Company, as Beneficiary
(the "VARIABLE DEED OF TRUST"), pursuant to which 3055 Corp. agreed to obtain
Beneficiary's prior consent to any amendment to the Agreement; accordingly,
Beneficiary joins in this Amendment to acknowledge the terms and conditions of
and to give its consent to this Amendment.
C. On February 27, 1997, 3055 Corp. will merge up into
its parent Triad, who will succeed by operation of law to all of 3055 Corp.'s
assets and liabilities, including but not limited to all of its rights, title
and interest in and to the Demised Land and the Improvements, subject to the
Variable Deed of Trust, pursuant to the Real Estate Distribution Agreement
entered into among Triad Systems Corporation, 3055 Triad Dr. Corp. and Triad
Park, LLC, dated as of February 27, 1997 (the "REAL ESTATE DISTRIBUTION
AGREEMENT").
D. On February 27 1997, Triad will contribute certain
designated assets to Park, including but not limited to all of Triad's just
acquired rights, title and interest in and to
<PAGE> 2
the Demised Land and the Improvements, subject to the Variable Deed of Trust
pursuant to the Real Estate Distribution Agreement.
E. Subject to all of the terms and conditions of this
Amendment, 3055 Corp. and Triad desire to amend the Lease and to anticipate the
acquisition of the Landlord's interest by Park, as more particularly set forth
below.
In this factual context, the parties agree as follows:
SECTION 1. EFFECTIVE DATE.
This Amendment shall be effective on the date (the "EFFECTIVE
DATE") on which Triad contributes the Demised Land subject to the Variable Deed
of Trust to Park pursuant to the Real Estate Distribution Agreement.
SECTION 2. NO MERGER.
Upon the merger of 3055 Corp. into its parent Triad, the interests
of both the Landlord and the Tenant under the Lease shall be held by the same
entity, subject to the assignment for security purposes to The Variable Annuity
Life Insurance Company. The parties agree that the Lease shall not be effected
by Triad having title to both the estates of the Landlord and of the Tenant
under the Lease, that there shall be no merger and that the leasehold estate
shall continue to exist subject to the assignment for security purposes to The
Variable Annuity Life Insurance Company.
SECTION 3. NOVATION.
Upon the transfer by Triad to Park of all of Triad's rights, title
and interest in and to the Demised Land and the Improvements, there shall be a
automatic novation of the Lease resulting in Park being substituted for Triad
(who was the successor to 3055 Corp.) as the Landlord under the Lease and
thereafter Triad and 3055 Corp. shall have no further interest in or liability
for the interest of the Landlord under the Lease. Triad shall continue at all
times to be the Tenant under the Lease.
SECTION 4. TERM.
Subject to all of the terms and conditions as in the Lease, except
as hereinafter provided, the term of the Lease (the "PRIMARY TERM") is for a
period of five (5) years, commencing on the Effective Date and ending at
midnight on the date that is five (5) years after the Effective Date (the
"PRIMARY TERM ENDING DATE").
SECTION 5. RENEWAL OPTION.
Provided and on the condition that no Event of Default has
occurred and be continuing, and subject to all of the terms and conditions as
in the Lease, except as hereinafter provided, Tenant shall have an option (the
"RENEWAL OPTION") to renew the Lease for one (1) renewal term of five (5)
years. Tenant shall notify Landlord no less
2
<PAGE> 3
than two hundred seventy (270) days prior to the Primary Term Ending Date of
its intent to exercise the Renewal Option. If Tenant so elects to exercise the
Renewal Option, the Lease shall extend for a term (the "RENEWAL TERM")
commencing on the day after the Primary Term Ending Date and ending at midnight
on the day that is five (5) years after the Primary Term Ending Date. Tenant
shall have no further right to renew the Lease.
SECTION 6. RENT.
(a) During the first two (2) years of the Primary Term, the Annual
Base Rental payable to Landlord shall be $2,505,720.00, payable monthly in
advance in twelve (12) equal installments, one (1) such installment to be
payable on the first day of each month during the first two (2) years of the
Primary Term.
(b) During the final three (3) years of the Primary Term, the
Annual Base Rental payable to Landlord shall be an amount equal to the then
prevailing market rate ("MARKET RENTAL RATE") in the immediate Alameda County
market area as of the end of the second (2nd) year of the Primary Term (the
"ADJUSTMENT DATE"). At least one-hundred twenty (120) days prior to the end of
the second (2nd) year of the Primary Term, Tenant shall institute the Appraisal
Process (as hereinafter defined) to establish the Market Rate Rental for the
final three (3) years of the Primary Term. If the determination of the Market
Rental Rate is made after the start of the third (3rd) year of the Primary
Term, Tenant shall continue to pay rent at the rate applicable to the preceding
period until the Market Rental Rate is determined. Tenant shall, promptly
after the Market Rental Rate is determined, pay any difference for the period
affected by the adjustment. The Market Rental Rate shall be payable monthly in
advance in twelve (12) equal installments, one (1) such installment to be
payable on the first day of each month during the final three (3) years of the
Primary Term. The foregoing notwithstanding, in no event shall the Annual Base
Rental for the last three (3) years of the Primary Term be less than the rental
called for in Section 6(a) nor more than 1.2 times the rental called for in
Section 6(a).
(c) During the Renewal Term, the Annual Base Rental payable to
Landlord shall be an amount equal to the then prevailing market rate ("RENEWAL
RENTAL RATE") in the immediate Alameda County market area as of the
commencement of the Renewal Term. At least one-hundred twenty (120) days prior
to the end of the Primary Term, Tenant shall institute the Appraisal Process to
establish the Renewal Rental Rate for the Renewal Term. The Adjustment Date
for determining the Renewal Rental Rate shall be the Primary Term Ending Date.
If the determination of the Renewal Rental Rate is made after the start of the
Renewal Term, Tenant shall continue to pay rent at the rate applicable to the
preceding period until the Renewal Rental Rate is determined. Tenant shall,
promptly after the Renewal Rental Rate is determined, pay any difference for
the period affected by the adjustment. The Renewal Rental Rate shall be
payable
3
<PAGE> 4
monthly in advance in twelve (12) equal installments, one (1) such installment
to be payable on the first day of each month during the Renewal Term.
(d) The "Appraisal Process" is begun by Tenant's designation of an
appraiser (the "FIRST APPRAISER") to determine the Market Rental Rate or the
Renewal Rental Rate, as the case may be (collectively, the "APPRAISED RATE") of
the Demised Premises. The First Appraiser shall make and deliver to Tenant and
Landlord an appraisal of the Demised Premises Appraised Rate (the "FIRST
APPRAISED RATE") within twenty (20) business days of its appointment. At the
election of Landlord, an appraiser (the "SECOND APPRAISER") shall be appointed
within seven (7) days following delivery of the First Appraised Rate. The
Second Appraiser shall make and deliver to Tenant and Landlord a second
appraisal of the Demised Premises Appraised Rate (the "SECOND APPRAISED RATE")
within twenty (20) business days of its appointment. In the event that the
First Appraised Rate and the Second Appraised Rate do not differ by more than
ten percent (10%) of the lower value, the average of the First Appraised Rate
and Second Appraised Rate shall be deemed to be the Market Rental Rate or the
Renewal Rental Rate, as the case may be. In the event that the First Appraised
Rate and the Second Appraised Rate differ by more than ten percent (10%) of the
lower value, the First Appraiser and the Second Appraiser shall, within seven
(7) days following the delivery of the Second Appraised Rate, appoint a third
appraiser (the "THIRD APPRAISER"" and together with the First Appraiser and the
Second Appraiser, the "APPRAISERS"), who shall deliver to Tenant and Landlord
an appraisal of the Demised Premises Appraised Rate (the "THIRD APPRAISED
RATE") within fifteen (15) business days following its appointment by the First
Appraiser and the Second Appraiser. The one, if any, of the First Appraised
Rate, the Second Appraised Rate or the Third Appraised Rate which differs the
most from the other two shall not be considered, and the average of the two
remaining values shall be the Market Rental Rate or the Renewal Rental Rate, as
the case may be. Each of the Appraisers shall make their respective appraisals
as of the Adjustment Date. Each appraisal shall reflect the gross fair market
rental value of the Demised Premises. The Appraisers shall be disinterested,
independent and shall be qualified to appraise premises of the nature of the
Demised Premises, and such Appraisers shall have been actively engaged in the
appraisal of premises of the nature of the Demised Premises for a period of not
less than five (5) years immediately preceding their appointment under this
Amendment. The expenses and fees, including without limitation the fees of the
Appraisers and any legal and accounting fees, incurred in connection with the
appraisal(s) conducted pursuant to this Section 6(d) shall be shared equally by
Tenant and Landlord.
(e) The determination of "gross fair market rental value" shall be
the reasonable good faith estimate of the market rental rate per square foot of
the Demised Premises for office type rental space of comparable size, age,
location and quality.
4
<PAGE> 5
SECTION 7. ADDITIONAL RENT AND IMPOSITIONS.
In addition, during the Primary Term and the Renewal Term, Tenant
shall pay all other rent and other amounts due under the Lease, including
without limitation, additional rent and other charges described in Article 3 of
the Lease and the Impositions described under Article 4 of the Lease.
SECTION 8. RIGHT TO SUBLEASE.
Article 10 of the Lease is amended by adding the following Section
10.05:
Section 10.05. In the event Landlord consents to a
sublease of any portion of the Demised Premises, which consent
Landlord agrees shall not be unreasonably withheld, Tenant agrees
that if the rental rate agreed upon between Tenant and its
proposed sublessee is greater than the rental rate for such
allocable portion of the Demised Premises that Tenant must pay to
Landlord under this Amendment, all of such excess rent shall be
considered additional rent owed by Tenant to Landlord (less
brokerage commissions, attorneys' fees and other disbursements
reasonably incurred by Tenant for such subletting) and shall be
paid by Tenant to Landlord as, if, and when received from such
sublessee in the same manner that Tenant pays Annual Base Rental.
SECTION 9. CONTINUING EFFECT/DEFINED TERMS.
Except as expressly modified herein, the Lease shall continue in
full force and effect in accordance with its terms. All defined terms used
herein without definition shall have the meaning ascribed to such terms as set
forth in the Lease.
Section 10. Effectiveness.
This Amendment does not become effective as an amendment to the
Lease until executed and delivered by both Landlord and Tenant.
The undersigned parties have executed this Amendment as of the day
and year first above written.
LANDLORD:
3055 CORP., a California corporation
By: /s/ JAMES R. PORTER
-------------------
Name: James R. Porter
Title: President
5
<PAGE> 6
SUBSTITUTED LANDLORD
TRIAD PARK, LLC, a California limited
liability company
By 3055 MANAGEMENT CORP., a California
corporation; its sole manager
By: /s/ JAMES R. PORTER
-------------------
Name: James R. Porter
Title: Vice President, Secretary, & CFO
TENANT:
TRIAD SYSTEMS CORPORATION, a Delaware
corporation
By: /s/ JAMES R. PORTER
-------------------
Name: James R. Porter
Title: President
Acknowledged and Consented to,
this _____ day of __________, 1997.
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY, as Mortgagee
By: _______________________________________________
Name: _____________________________________________
Title: ____________________________________________
6
<PAGE> 1
INFORMATION STATEMENT
Concerning the Distribution
of 19,708,639 membership interests ("Shares")
of
TRIAD PARK, LLC
a Delaware limited liability company ("Company")
by
Cooperative Computing, Inc., a Delaware corporation,
formerly known as
Triad Systems Corporation ("Triad")
The Shares described in this Information Statement are being
distributed by Triad to the Triad stockholders of record as of the close of
trading on February 26, 1997 ("Distributees"). No consideration will be paid
by Distributees for the Shares, and there is no assurance that a trading market
will develop for trading of the Shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS
DISTRIBUTION. WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
The date of this Information Statement is __________, 1997.
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Summary of Spin-Off Transaction 5
Introduction 8
Reasons for the Distribution 8
Plan of Distribution 8
Risk Factors 11
Relationship between Triad and the Company 15
Description of Distribution Agreement 16
Description of Lease Agreement 17
Description of Properties of the Company 18
Summary of Appraisal Report on Properties of the Company 19
Business of the Company 20
Management of the Company 20
Compensation of Management 22
Transactions with Interested Parties 23
Holdings of Principal Share Holders and Security Holdings of Manager(s), Executive
Officers and Advisory Board Members 23
Description of Shares 24
Summary of Limited Liability Company Agreement 25
Tax Considerations 27
Ownership of Shares by Employee Benefit Plans 36
Trading of Shares 37
Legal Matters 37
Additional Information 37
Index to Financial Statements 38
Management's Discussion and Analysis of Results
of Operations and Financial Condition 39
Financial Statements 41
Notes to Financial Statements 45
Report of Independent Accountants 53
Pro Forma Statements of Operations 55
</TABLE>
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EXHIBITS
Exhibit A Real Estate Distribution Agreement
Exhibit B Project Lease Agreement
Exhibit C First Amendment to Project Lease Agreement
Exhibit D Appraisal of: Triad Business Park, Livermore, California
Exhibit E Limited Liability Company Agreement of Triad Park, LLC
Exhibit F Form of Transfer Application
Exhibit G Form of Triad Park, LLC Rights Plan
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS
INFORMATION STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES. NEITHER THE DELIVERY OF THIS INFORMATION
STATEMENT NOR THE ISSUANCE OF ANY SECURITIES IN CONNECTION HEREWITH SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH OR INCORPORATED HEREIN SINCE THE DATE HEREOF. SEE
"ADDITIONAL INFORMATION."
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SUMMARY OF SPIN-OFF TRANSACTION
This summary is a brief summary of certain information contained in
the body of this Information Statement. This summary does not purport to
contain all material information relating to the formation and spin-off of
Triad Park, LLC (the "Company"), and is qualified in its entirety by, the
information and financial statements (including the notes) appearing elsewhere
in this Information Statement. STOCKHOLDERS SHOULD READ CAREFULLY THIS
INFORMATION STATEMENT IN ITS ENTIRETY.
PRE-TENDER OFFER STATUS
Prior to the initiation of the spin-off transactions described below,
the real estate assets now owned by the Company were owned by Triad and its
wholly-owned subsidiary, 3055 Triad Dr. Corp., a California corporation ("3055
Triad Dr. Corp."). 3055 Triad Dr. Corp. was the owner of Triad's headquarters
consisting of three buildings and improvements (comprising 220,000 square feet)
situated on approximately 15 acres of land in Triad Park, Livermore, California
(the "Headquarters"). 3055 Triad Dr. Corp. also owned an additional 46 acres
of surrounding unimproved land, all of which was, and continues to be, subject
to certain encumbrances including a first deed of trust securing indebtedness
of approximately $9,749,000 at December 31, 1996. Triad was the owner of
approximately 257 acres of undeveloped land located in Triad Park. The
Headquarters and the 303 total acres of undeveloped land (the "Land", the Land
and the Headquarters, collectively the "Property") were, and continue to be,
encumbered by assessment bonds issued by the City of Livermore in the amount of
approximately $9,228,000 at December 31, 1996.
MERGER AGREEMENT AND TENDER OFFER
On October 23, 1996, Cooperative Computing, Inc., a Texas corporation
("CCI"), through its wholly owned subsidiary CCI Acquisition Corp., a Delaware
corporation ("CAC"), commenced a tender offer (the "Offer") to purchase all of
the outstanding shares of common stock, $.001 par value per share (the "Common
Stock"), of Triad. CAC made the Offer in accordance with the terms of the
Agreement and Plan of Merger, dated as of October 17, 1996 (the "Merger
Agreement"), among CCI, CAC and Triad, which provided, among other things, that
certain real property assets of Triad and 3055 Triad Dr. Corp. would be spun
off to the stockholders of Triad in a dividend to be declared prior to the
consummation of the Offer. The dividend was declared on February 26, 1997. On
February 27, 1997, the Offer was consummated with CAC obtaining over 98% of the
outstanding shares of Triad Common Stock in the tender process. For a
description of the distribution of membership interests of the Company (the
"Shares"), see "Summary of Spin-Off Transaction -- Transfer of Assets / Plan of
Distribution."
THE COMPANY
The Company was organized under the laws of the State of Delaware as a
limited liability company on February 10, 1997. Prior to the distribution of
the Shares discussed herein, the Shares of the Company have been owned 99% by
Triad and 1% by 3055 Management Corp., a California corporation ("Management
Corp."), all the stock of which is owned by William W. Stevens, James R. Porter
and Richard C. Blum, three current or former directors of Triad. The
Management Corp. is the exclusive operator of the Company's business except
that certain actions require the approval of its Advisory Board (the "Advisory
Board"). See "Management of the Company."
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At the time of the formation of the Company, 3055 Triad Dr. Corp., the
owner of the Headquarters, was merged with and into Triad, with Triad being the
surviving corporation.
TRANSFER OF ASSETS / PLAN OF DISTRIBUTION
Pursuant to that certain Real Estate Distribution Agreement dated as
of February 26, 1997 between Triad, 3055 Triad Dr. Corp., Management Corp. and
the Company (the "Distribution Agreement") Triad contributed to the Company
certain of its respective real estate assets located in Livermore, California,
consisting primarily of the Headquarters, subject to the existing first deed of
trust, and the Land, subject to existing assessment bonds, and the right to
certain refunds for infrastructure expenditures from the City of Livermore.
Pursuant to the Distribution Agreement, the Company assumed certain liabilities
of Triad related to the Headquarters and the Land, Triad agreed to provide
certain administrative support to the Company and the Company indemnified Triad
against all taxes, costs and expenses related to the formation of the Company,
the Property and the distribution of the Shares. See "Description of
Distribution Agreement."
Triad is distributing (the "Distribution") to its stockholders of
record as of the close of trading on February 26, 1997 (the "Distribution
Record Date"), in the form of a dividend, 99% of the issued and outstanding
Shares. The remaining 1% of the Shares will continue to be owned by Management
Corp. The Distribution is being made on the basis of one Share for each share
of Common Stock outstanding after the close of trading on the Distribution
Record Date. The former Triad shareholders entitled to receive the Shares are
referred to as the "Distributees" and the holders of Shares subsequent to the
Distribution Record Date are referred to as "Share Holders." See "Plan of
Distribution."
TAX CONSEQUENCES
The tax consequences of owning Shares in the Company to a particular
Share Holder will depend in part on the Share Holder's own tax circumstances.
Each Share Holder should consult his or her own tax advisor about the United
States federal, state and local tax consequences of owning Shares in the
Company. For a general discussion regarding certain tax consequences of
receiving shares of stock as a dividend, see Section 4 of the Offer to
Purchase, filed by CAC and CCI with the Securities and Exchange Commission (the
"Commission") on October 23, 1996.
The Company anticipates that it will be classified for federal income
tax purposes as a partnership and that the beneficial owners of Shares will
generally be considered partners in the Company. Accordingly, the Company will
pay no federal income taxes and a Share Holder will be required to report in
the Share Holder's federal income tax return their share of the Company's
income, gains, losses and deductions, regardless of whether or not the Company
makes cash distributions to the Share Holders. In general, cash distributions
to a Share Holder will be subject to federal income tax only if, and to the
extent that, they exceed the tax basis in Share Holder's Shares.
As a partnership for tax purposes, the Company and the Share Holders
will be subject to a number of complex tax rules limiting the deductibility of
losses, rules for the calculation of tax basis and special rules affecting tax
exempt Share Holders.
The Company will be classified (or will elect to be classified) as a
corporation for purposes of the California Revenue and Taxation Code. The
Company will pay corporate income taxes in California and any distributions by
the Company to the Share Holders will be subject to tax as dividends or
liquidating distributions, as the case may be, for purposes of the California
income tax laws.
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For a more detailed discussion of these issues, see "Tax Considerations."
NO ASSURANCE OF ANY MARKET FOR SHARES
Because the Company has been owned only by Triad and Management Corp.,
no trading market currently exists for the Shares. The Company has no present
intention of applying to any exchange or quotation service in order to obtain
trading or quotation privileges after the distribution of the Shares from
Triad. Therefore, there is no assurance that an active market will develop for
the trading of the Shares, and there is likewise no assurance as to any price
at which the Shares may trade at any future time. See "Trading of Shares."
CASH DISTRIBUTIONS
In general, the Company will distribute distributable cash to the
Share Holders at such times and in such amounts as the Advisory Board may
determine. The Company is required pursuant to the Distribution Agreement to
maintain a minimum net worth of $2,350,000 until 60 days after the expiration
of all statutes of limitation with respect to the assessment of any tax
deficiency related to the transactions contemplated by the Distribution
Agreement, which is estimated to be approximately four years. This obligation
to maintain a minimum net worth will affect the Company's ability to make
distributions. See "Description of Shares."
RISK FACTORS
The Company faces a number of real estate risks and risks related to
its relationship with Triad, as well as risks related to the Shares. See "Risk
Factors."
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INTRODUCTION
This Information Statement is furnished in connection with the
distribution by Triad Systems Corporation ("Triad") of 19,708,639 membership
interests ("Shares") of Triad Park, LLC ("Company") described herein
("Distribution").
The principal executive offices of the Company are located at 3055
Triad Drive, Livermore, California 94550. This Information Statement is being
sent to the Triad stockholders of record as of the close of trading on February
26, 1997 ("Distributees") on or about __________, 1997.
Pursuant to the terms of the Distribution Agreement, Triad will
distribute to the Distributees 99% of the issued Shares of the Company, all as
described under "Plan of Distribution" below.
Each Distributee will receive one Share for each share of Common Stock
held as of the close of trading on February 26, 1997. (See "Plan of
Distribution").
REASONS FOR THE DISTRIBUTION
During the negotiation of the Merger Agreement, Triad's Board of
Directors believed that the real property assets of Triad were being
undervalued and that the maximum value for Triad's stockholders with respect to
such real property assets would be achieved by effecting the Distribution and
liquidating such real property assets.
Pursuant to the Merger Agreement, CAC agreed to offer to purchase all
outstanding shares of Common Stock at a per share price of $9.25 per share, net
to the seller in cash. The Offer pricing contemplated that the land and
buildings owned by Triad and 3055 Triad Dr. Corp. in Livermore, California and
certain other related assets would not be subject to the Offer but instead
would be contributed to the Company, and substantially all of the Shares would
be distributed to Triad's stockholders of record as of the close of trading
immediately prior to the consummation of the Offer.
PLAN OF DISTRIBUTION
DESCRIPTION OF THE PLAN
CONTRIBUTION TRANSACTIONS.
Prior to Triad's contribution of any property to the Company, Triad,
3055 Triad Dr. Corp. and the Company entered into a First Amendment to Project
Lease Agreement dated as of February 26, 1997 (the "Lease Amendment") which
amended the term and rental rate of the subject lease and contemplated 3055
Triad Dr. Corp. merging into Triad and whereby upon the contribution of the
Property to the Company, the Company would automatically be substituted as the
landlord under the Project Lease Agreement dated as of August 1, 1988 between
3055 Triad Dr. Corp., as landlord, and Triad, as tenant (the "Lease
Agreement"). The Lease Agreement, as amended, continues the existing rent of
$2,505,720 per year for the first two years and provides for an adjustment to
market value for the remaining three years, but not to a rent less than the
current rent or more than 120% of the current rent. There is also an option in
favor of Triad to extend the term for five additional years.
At the time of formation of the Company, 3055 Triad Dr. Corp., the
owner of the Headquarters, was merged with and into Triad, with Triad being the
surviving corporation.
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3055 Management Corp. ("Management Corp.") was formed by James R.
Porter, William W. Stevens and Richard C. Blum who contributed to Management
Corp. promissory notes with a value equal in the aggregate to 1.01% of the
value of the real property assets to be contributed to the Company by Triad
pursuant to the Real Estate Distribution Agreement dated as of February 26,
1997 among Triad, 3055 Triad Dr. Corp., the Management Corp. and the Company
("Distribution Agreement").
Pursuant to the Distribution Agreement, Triad contributed all of the
assets associated with approximately 303 acres of unimproved land in Triad Park
owned by Triad (the "Land"), subject to all existing encumbrances including
approximately $9,228,000 in bonded indebtedness at December 31, 1996, and all
of the assets associated with three buildings and improvements (comprising
220,000 square feet) situated on approximately 15 acres of land in Triad Park
(the "Headquarters," and collectively with the Land, the "Property"), subject
to all existing encumbrances including a first deed of trust of approximately
$9,749,000 at December 31, 1996, in exchange for 99% of the Shares of the
Company (the "Contribution"). Management Corp. contributed a promissory note
equal to 1.01% of the value of the contribution of Triad in exchange for 1% of
the Shares of the Company.
At the time of these contributions, an aggregate of 19,708,639
Shares were issued to Triad and 199,077 Shares were issued to Management.
POST-CONTRIBUTION, PRE-DISTRIBUTION TRANSACTIONS.
For the period of time following the Contribution and up to the
Distribution, the Company has operated in a manner designed to maintain or
increase the value of its real estate assets.
Additional Encumbrances. The City of Livermore has entered into a
Bond Indenture and issued an Official Statement to raise a total of
$9,070,000 in new funds from the sale of Mello-Roos bonds. The sale of the
bonds closed March 24, 1997 and the proceeds are designated to
refinance the prior bonded indebtedness of approximately $2,300,000, to fund
reimbursements to the Company of approximately $2,050,000 arising from
previously completed improvements, to provide funds of approximately
$3,700,000 to complete improvements to the Land required by various
agreements with the City of Livermore and others, to pay financing expenses of
$620,000 and to create a bond reserve fund of approximately $400,000 held by
the City of Livermore. Of this new indebtedness, approximately $6,938,000
would encumber the Property owned by the Company. Thus, upon completion of
this bond offering, the total indebtedness encumbering the Property owned by
the Company will be approximately $14,382,000.
Operational Support. In order to facilitate the orderly management of
the Company following the Contribution, for a period of one year Triad has
agreed to provide (at no cost to the Company) at least two cubicles of office
space and telephone and secretarial support to two employees of the Company and
to give those employees access to such other office equipment as is reasonable
and necessary.
In addition, in order to assist the Company in meeting its reporting
requirements under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and to conduct its real estate operations for two years
following the Contribution, Triad has agreed to provide the Company with
certain in-house legal and accounting support and the Company has agreed to
reimburse Triad for its fully burdened cost of the personnel providing such
support. The Company has agreed that Triad will have no liability for the
actions of their personnel providing this support.
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Listing Agreement. The Company intends to enter into a listing
agreement with Grubb & Ellis on financial terms to be negotiated to sell the
Property for the Company.
DISTRIBUTION OF SHARES. The final step in the Plan of Distribution is
the distribution of the Shares to the Distributees. The conditions to the
Distribution having been fulfilled, Triad is transferring its 99% of the Shares
in the Company to the Distributees as a dividend distribution. The dividend
distribution was declared by Triad's Board of Directors on February 26, 1997.
Upon receipt of the dividend distribution, a Distributee will automatically
become a member of the Company (each a "Share Holder") and will own one Share
for each share of Triad Common Stock owned by such Distributee at the close of
trading on February 26, 1997. No consideration will be paid by the
Distributees in connection with the Distribution. Certificates representing
the Shares are being mailed to Distributees along with this Information
Statement.
One percent of the Shares have been issued to Management Corp., in
exchange for its contribution of a promissory note equal to 1% of the total
Company capital. Management Corp. serves as the manager of the Company (see
"Management of the Company"). The stock of Management Corp. is owned by three
of Triad's current or former directors. When Management Corp. pays its
promissory note to the Company, the Company will use the proceeds of the note
to redeem that number of Shares from the stockholders of Management Corp. that
will cause their aggregate percentage ownership interest in the Company to
equal their aggregate percentage ownership of Common Stock prior to the
consummation of the Offer) (see "Transactions with Interested Parties"). The
Company will pay Management Corp. an annual fee equal to 2% of the Company's
taxable income allocated to Management Corp. for the preceding taxable year, to
compensate Management Corp. for California state income taxes on its share of
the Company's income. In other words, Management Corp. will receive income
equal to 102% of the income that a Share Holder of equal ownership interest
would receive (see "Compensation of Management").
APPROVAL OF PLAN OF DISTRIBUTION NOT REQUIRED
Under the laws of Delaware, the Plan of Distribution is not required
to be submitted to the stockholders of Triad for their approval. Consequently,
the Triad stockholders did not have and do not have the right to approve or
disapprove the Plan of Distribution.
REASON FOR FURNISHING THIS INFORMATION STATEMENT
This Information Statement is being prepared by Triad solely in order
to provide information to the Distributees in connection with the Distribution.
It is not to be construed as an inducement or encouragement to buy or sell any
securities of the Company or any other business entity.
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RISK FACTORS
The Company's ability to dispose of its real estate assets and make
cash distributions to Share Holders is subject to many risks. These risks fall
into several categories, including, but not limited to, general economic risks
such as interest rate fluctuations, changes in gross domestic product, tax law
changes, and other macro-economic factors. In addition, the Company is subject
to certain risks relating to the real estate business, the Company's
relationship with Triad, the nature of the Shares and their illiquidity and the
Company's limited operating history.
REAL ESTATE RELATED RISKS
1. General Risks. The Company's investment in the Property is
subject to all the risks generally incident to the ownership of real property.
The ability of the Company to make distributions to Share Holders, and the
amounts and timing of any distributions, are dependent on the value of the
Property. The value of the Property and the amount the Company is able to
obtain in sales of such Property may be adversely affected by changes in
national economic conditions, changes in local market conditions due to changes
in general or local economic conditions and neighborhood characteristics,
changes in interest rates and in the availability, costs and terms of mortgage
funds, the impact of present or future environmental legislation and compliance
with environmental laws, the ongoing need for capital improvements, changes in
real estate tax rates and other operating expenses, changes in governmental
rules and fiscal policies, changes in zoning laws, acts of God, including
earthquake and other natural disasters (which may result in uninsured losses)
and other factors which are beyond the control of the Company.
2. Value and Illiquidity of Real Estate. The primary purpose of
the Company is to liquidate the Property as promptly and prudently as is
feasible. However, real estate investments are relatively illiquid. Therefore,
the ability of the Company to dispose of the Property in a prompt manner may be
limited. Consequently, the amount to be received from any sale of the Property
is heavily dependent upon the strength of the commercial real estate market in
the San Francisco East Bay Area in general, and the Pleasanton/Livermore/San
Ramon market in particular. This market has fluctuated widely during the past
10 years. There can be no assurance that the Company will be able to sell the
Property in a prompt manner. Further, there can be no assurance of the amount
of proceeds from any sale.
3. Payment Obligations and Dependence on Payments under Lease
Agreement. The Company will have fixed payment obligations in the form of (i)
monthly payments on a first deed of trust encumbering the Headquarters in the
amount of $165,381 and (ii) semi-annual payments on bonded indebtedness
encumbering all of the unsold Property in the estimated amount of $650,000. The
Headquarters is leased for five years at a rate which produces a small positive
cash flow above the mortgage payments. The Company's ability to make
distributions to Share Holders will depend, in part, upon the ability of the
Triad, as lessee, to make rental payments. Any failure or delay by Triad in
making rental payments may adversely affect the Company's ability to make
distributions to the Share Holders. Besides rental payments from Triad, the
Company is dependent on the sale of the Property to produce cash flow for
continued operations. Unless the Company has a sustained rate of sales, it may
not have sufficient cash for operations or distributions to Share Holders.
4. Lease Agreement. Under the terms of the Lease Amendment, the
expiration date of the Lease Agreement was changed to February 27, 2002, with
the current rental rate remaining effective for two years (1997 and 1998). The
rent for the remaining three years of the term of the Lease Agreement
(1999-2002) will be an amount equal to the prevailing market rate in the
Pleasanton/Livermore/San
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Ramon market area as of the time of negotiation but not less than the current
rent nor more than 120% of current rent. Although the Company currently
believes the rent will increase, there can be no assurances that the rent will
increase and there can be no assurances as to the amount of any such increases.
5. Governmental Entitlements. The sale of the undeveloped
property will depend upon the ability of the Company, or other developers who
contract to purchase property from the Company, to obtain necessary
entitlements from the City of Livermore and other governmental agencies with
jurisdiction. There can be no assurance that the Company or such other
developers will be able to obtain the necessary entitlements. The inability to
obtain entitlements or delays in obtaining entitlements could adversely affect
the timing of and amounts received in connection with sales of the Property by
the Company.
6. Reimbursement for Improvements. The Company is currently
obligated to undertake approximately an additional $7,000,000 in improvements
on the Property. The City of Livermore has indicated that it is willing to
reimburse the Company for improvements undertaken and paid for by the Company
by means of bond financings. Historically, the City of Livermore has fulfilled
such reimbursement commitments to Triad and has been able to successfully sell
related bond offerings. However, if for any reason the City of Livermore is
unsuccessful in completing a bond offering, the Company would not receive any
reimbursement for such improvements. In addition, there is a significant
chance the cost of the improvements undertaken by the Company will exceed the
amount of the bond financings and the Company would be responsible for paying
any such cost overruns.
7. Property Taxes. The Property is subject to real estate taxes.
The real estate taxes may decrease or increase as property tax rates change and
as the value of the properties are assessed or reassessed by taxing
authorities. There is a possibility that the spin-off transactions described
herein may be considered a change in ownership and trigger a reassessment of
the Property to current market value. However, based upon the Appraisal (see
the "Appraisal") the current market value is believed to be less than the value
currently used for property tax purposes. If property taxes increase as a
result of such reappraisals or reassessments, the Company's ability to make
expected distributions to Share Holders could be adversely affected.
8. Environmental Matters. The Company's financial condition may
be affected by the obligation to pay for the cost of complying with existing
environmental laws as well as future environmental legislation. Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous or toxic substances or petroleum
product releases at a property, and may be held liable to a governmental entity
or to third parties for property damage and for investigation and cleanup costs
incurred by such parties in connection with contamination. Such laws,
ordinances and regulations often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence or release of such
hazardous or toxic substances or petroleum products. In addition, the owner or
operator of a site may be liable under common law to third parties for damages
and injuries resulting from environmental contamination emanating from the
site. Further, a real estate owner may be required to make certain
accommodations in accordance with various endangered species laws and
regulations of the California Fish and Game Department. Although the Company
is not currently aware of any environmental liabilities which are expected to
have a material adverse effect on the Company's operations or financial
condition, there can be no guarantee that such liabilities will not arise in
the future.
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RISKS RELATED TO RELATIONSHIPS WITH TRIAD
1. Payments under Lease Agreement and Lease Amendment. The
Company's principal predictable revenue source is the lease of the Headquarters
to Triad pursuant to the Lease Agreement and Lease Amendment. As a result, in
the event that Triad is unable for any reason to continue to make its lease
payments in a timely manner, such inability or delay may have a material
adverse impact on the Company's revenues and the Company's ability to make
distributions to the Share Holders. Triad's financial performance may also
impact the value of the Headquarters in a sale transaction.
2. Indemnification. The Company has agreed to provide broad
indemnification to Triad for several matters, including, but not limited to,
any environmental claims, losses, damages, liabilities and costs, including
reasonable consultant's and attorneys' fees, any costs of expenses of the
Distribution, particularly income taxes, fees and any claims of violations of
state or federal securities laws, and any claims whatsoever arising out of the
Property. Therefore, the Company is financially responsible for all expenses
related to the formation of the Company and the Distribution, whether arising
out of Share Holder or third party claims, tax adjustments by federal or state
taxing authorities to the treatment of the spin-off transaction, environmental
problems, or claims of past violations under any of Triad's obligations related
to Property or similar problems. This indemnification obligation of the
Company could have a material adverse affect on the ability of the Company to
make distributions to Share Holders.
3. Management and Conflicts of Interests. James R. Porter serves
on the Board of Directors of Triad and also serves on the Board of Directors of
Management Corp. and the Advisory Board of the Company. William W. Stevens
serves on the Board of Directors of Management Corp. and the Advisory Board of
the Company. Stanley F. Marquis is employed by Triad as a senior officer and
also serves on the Advisory Board of the Company. Larry D. McReynolds is the
facilities manager for Triad and also serves as the President of the Company,
and is in charge of the Company's day to day operations. Messrs. Porter,
Stevens, Marquis and McReynolds are presently serving or are employed in the
above positions and may continue to do so for an indefinite period of time.
Messrs. Porter, Stevens, Marquis and McReynolds have extensive knowledge of the
Company's real property assets. Therefore, the Company believes that Messrs.
Porter, Stevens, Marquis and McReynolds will be important to the Company's
success in obtaining maximum value for its real property assets. However,
these individuals could develop conflicts of interest, particularly related to
the Lease Agreement or the provisions of the Distribution Agreement. Such
conflicts of interest could have a material adverse affect on the results of
operations and financial condition of the Company.
4. Relations with Third Parties. Triad will supply the Company
with certain legal and accounting help through Triad's legal and accounting
personnel. The Company will be required to reimburse Triad for the cost of
providing these services. However, unlike customary practice in third party
professional service relationships, Triad will have no liability related to the
services. Therefore, the Company may incur liability for which it would have
no recourse.
5. Dual Representation of Triad and the Company. The primary
agreements between Triad and the Company, including but not limited to the
Lease Agreement and the Distribution Agreement, were not negotiated at arms'
length and both Triad and the Company were represented by the same legal
counsel at the time of entering into these agreements. Triad and the Company
executed a Conflict Agreement related to these conflicts. The interests of CAC
and its parent, as the future shareholders of Triad, were represented by
separate legal counsel in the negotiation of these agreements. Consequently,
the terms of such agreements may not be as favorable to the Company as they
would have been if negotiated at arms' length.
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RISKS RELATED TO THE SHARES.
1. Trading of Shares. Because all Shares have been owned by
Triad and Management Corp., no trading market exists for the Shares. The
Company has not applied, and has no present intention of applying, to any
exchange or quotation service in order to obtain trading or quotation
privileges for the Shares. Therefore, there is no assurance that an active
market will develop for the trading of the Shares. There is likewise no
assurance as to any price at which the Shares may trade at any future time. If
an active market develops for the trading of the Shares, the Company believes
that, due to the illiquid nature of the Property, the Shares may trade at a
significant discount from their proportionate share of the fair market value of
the Property.
2. Share Holder Rights Plan. The Company has adopted a Share
Holder Rights Plan intended to achieve the highest value for all Share Holders
in the event of an attempt to acquire control of the Company. The Share Holder
Rights Plan may discourage certain buyers of the Shares, and therefore may
reduce the volume of Shares trading at any time and/or the price of such
Shares. There is no assurance that the Share Holder Rights Plan would not
reduce the volume of Shares trading at any time and/or the price of such
Shares.
RISKS RELATED TO LACK OF OPERATING HISTORY
Lack of Operating History. The business of the Company is to sell the
Property as expeditiously as possible and in the meantime to own, operate and
maintain it. Although certain executives of Management Corp. have some
experience in the business relating to the Property, Management Corp. has no
prior experience as a stand-alone business engaged in the real estate business.
Further, the key executives of Management Corp. will not be devoting their full
time or attention to the Company's business. The future success of the Company
depends in large part on its ability to sell the Property and realize a profit.
There can be no assurance that the Company will be able to sell the Property or
realize a profit and its inability to do so could have a material adverse
effect on the financial condition of the Company and the ability of the Company
to make distributions to Share Holders.
14
<PAGE> 15
RELATIONSHIP BETWEEN TRIAD
AND THE COMPANY
In connection with the transfer of the Land and the Headquarters to
the Company, Triad, 3055 Triad Dr. Corp., Management Corp. and the Company
entered into the Distribution Agreement, which includes agreements with respect
to services, indemnification, tax sharing and other matters. Because all
Shares of the Company were then owned by Triad and Management Corp., the
Distribution Agreement was not entered into on the basis of arm's length
negotiations between the parties. See "Description of Distribution Agreement."
Similarly, the Company and Triad entered into the Lease Amendment
which includes certain agreements with respect to a shortening of the lease
term, renegotiation of the annual rental rate and sublease rights. Because all
Shares of the Company were then owned by Triad and Management Corp., the Lease
Amendment was not entered into on the basis of arm's length negotiations
between the parties. See "Description of Lease Agreement."
In order to facilitate the management of the Company following the
Contribution, for a period of one year Triad has agreed to provide (at no cost
to the Company) at least two cubicles of office space and telephone and
secretarial support to two employees of the Company and to give those employees
access to such other office equipment as is reasonable and necessary.
In addition, in order to assist the Company in meeting its reporting
requirements under the Exchange Act and to conduct its real estate operations,
Triad will provide the Company with administrative assistance from Triad's
legal and accounting personnel who have experience with the particular matters.
The Company shall reimburse Triad for the fully burdened hourly cost of
providing these services. Triad shall have no liability to the Company arising
out of the performance of these services.
Triad and the Company have agreed that Larry D. McReynolds will act
both as a facilities manager for Triad and as a development manager for the
Company as further described in the Distribution Agreement (the "Property
Manager"). At the time of the Distribution, the Property Manager will be
actively employed by Triad for fifty percent of his time and by the Company for
fifty percent of his time.
Effective upon the Contribution, the Company has agreed in the
Distribution Agreement to indemnify Triad against any claims relating to
"Environmental Costs and Liabilities" (as defined in the Distribution
Agreement) associated with the Property prior to the Distribution. Subject to
certain limitations, the Company has also agreed in the Distribution Agreement
to indemnify Triad against certain taxes arising from, or relating to, among
other things, any sale of the Property after October 17, 1996, the Company, the
formation of the Company, the transfer by Triad or any affiliate of Triad of
the Property to the Company, the assumption or refinancing of any liabilities
with respect to the Property and the sale, exchange or distribution of
interests in the Company by Triad.
James R. Porter serves on the board of Triad and continues to be
employed by Triad as a senior officer while he serves as a member of the
Management Corp. board and the Advisory Board of the Company. William W.
Stevens serves as a member of the Management Corp. board and the Advisory Board
of the Company. Stanley F. Marquis is employed by Triad as a senior officer
and serves as a member of the Advisory Board of the Company. Larry D.
McReynolds is the facilities manager for Triad and also serves as the President
of the Company and is in charge of its day to day operations.
15
<PAGE> 16
Messrs. Porter, Stevens, Marquis and McReynolds are presently serving or are
employed in the above positions and may continue to do so for an indefinite
period of time. While the Company believes that these people with their
extensive knowledge of the Company's business will be important to its success
in obtaining maximum value for its real property assets, conflicts of interest
could develop, particularly related to the Lease Agreement or the provisions of
the Distribution Agreement. These potential conflicts arise from the loyalties
owed by the same person acting as a corporate fiduciary for two different
companies, under circumstances where the two companies may have adverse
interests. Where such conflicts arise, it is expected that any of the
foregoing persons who has a conflict will refrain from consideration of and
voting on any such matter.
DESCRIPTION OF DISTRIBUTION AGREEMENT
The following is a summary of certain terms of the Distribution
Agreement. This summary is not a complete description of the terms and
conditions and is qualified in its entirety by reference to the Distribution
Agreement, a copy of which without exhibits is attached as Exhibit A.
CONTRIBUTIONS TO THE COMPANY
On February 27, 1997 (the "Contribution Date") Triad transferred to
the Company, as a contribution, subject to all title defects, objections,
liens, pledges, claims, rights of first refusal, options, changes, security
interests, mortgages, or other encumbrances of any nature (collectively,
"Encumbrances") including but not limited to a first deed of trust securing
indebtedness in the approximate amount of $9,749,000 at December 31, 1996 and
bonded indebtedness in the approximate amount of $9,228,000 at December 31,
1996, the Land and the Headquarters, and all of the assets associated therewith
(but not promissory notes received in sales of property that occurred prior to
October 17, 1996), and including, without limitation, all right, title and
interest of Triad in (i) all proceeds arising out of sales of the Land after
October 17, 1996, and (ii) all rights to refunds and reimbursements from the
City of Livermore, California or other governmental agency or utility for
improvements installed and paid for by Triad.
Also on the Contribution Date, Management Corp. transferred to the
Company, as a contribution, its promissory note in the amount of $142,440.30.
In conjunction with the contribution of the Property, the Company
assumed the following liabilities related to the Property and the Distribution:
(i) all indebtedness of Triad or 3055 Triad Dr. Corp. secured, in whole or in
part, by any of the Property, (ii) all costs and expenses solely attributable
to the transactions related to the Distribution, whether before or after the
consummation of the Offer and (iii) certain other liabilities set forth in the
Distribution Agreement.
In exchange for their respective contributions, Triad and Management
Corp. became the initial members of the Company. Triad received Shares in the
Company in proportion to the value of the Property as shown in the Appraisal
Report (as defined herein) plus certain additional assets, less the dollar
amount of any liens against the Property. Management Corp. received Shares in
proportion to the face amount of its promissory note to the Company. Triad
received 99% of the Shares issued by the Company and Management Corp. received
1% of the Shares issued by the Company.
DISTRIBUTION OF SHARES. A Form 10-SB Registration Statement filed by
the Company with the Commission having been declared effective, Triad is
distributing its Shares to the Distributees together with copies of this
Information
16
<PAGE> 17
Statement. The distributions of the Shares to the Distributees will be in the
form of a dividend from Triad.
INDEMNITIES. Effective upon the Contribution, the Company has agreed
in the Distribution Agreement to indemnify Triad against any claims relating to
"Environmental Costs and Liabilities" (as defined in the Distribution
Agreement) associated with the Land or the Headquarters prior to the
Distribution. Subject to certain limitations, the Company has also agreed in
the Distribution Agreement to indemnify Triad against certain taxes arising
from, or relating to, among other things, any sale of the Property after
October 17, 1996, the Company, the formation of the Company, the transfer by
Triad or any affiliate of Triad of the Property to the Company, the assumption
or refinancing of any liabilities with respect to the Property and the sale,
exchange or distribution of interests in the Company by Triad.
NET WORTH COVENANT. To support its ability to fund the
above-referenced indemnity, the Company has agreed to maintain a net worth of
at least $2,350,000, such net worth to be calculated based upon the most recent
appraised value of the Company's then existing real property assets, until 60
days after the expiration of all statutes of limitation related to the
assessment of any tax deficiency related to the transactions contemplated by
the Distribution Agreement. The Company estimates that the duration of such
time period will be approximately four years. Triad may cause the real
property to be appraised at any time and the Company must pay one half of the
expense if the most current calculation of net worth is less than $4,000,000.
POST-CONTRIBUTION CONTRACT SERVICES AGREEMENT. Triad has agreed to
supply certain office space, secretarial support and legal and accounting
support as describe above in "Relationship Between Triad and the Company."
DESCRIPTION OF LEASE AGREEMENT
The following is a summary of certain terms of the Lease Agreement, as
amended by the Lease Amendment. This summary is not a complete description of
the terms and conditions thereof and is qualified in its entirety by reference
to the Lease Agreement and the Lease Amendment, copies of which are attached as
Exhibit B and Exhibit C, respectively.
PARTIES AND TERM. The Lease Agreement was entered into as of August
1, 1988 by and between 3055 Triad Dr. Corp., as landlord, and Triad, as tenant,
and pertains to a lease of the Headquarters. By virtue of the Lease Amendment,
the Company has succeeded 3055 Triad Dr. Corp. as landlord. The primary term
provided for in the Lease Agreement expires on February 27, 2002, subject to
earlier termination in accordance with the terms thereof. Triad has an option
to renew the lease for one additional term of five years.
RENT. The Lease Agreement calls for an annual rent of $2,505,720,
payable monthly in advance in twelve equal installments, for the two year
period from February 27, 1997 through February 26, 1999. The rental rate for
the remaining three years of the primary term of the Lease Agreement is to be
in an amount equal to the prevailing market rate in the immediate Alameda
County market area as of the end of the second year of the primary term. The
rental rate for the remaining three years of the primary term cannot be less
than the rental rate for the first two years of the primary term and no greater
than 120% of that rental rate. Payments under the Lease Agreement are on a
"triple net lease" basis, free of any impositions and without abatement,
deduction, or set-off. The tenant is required to pay all impositions (e.g.,
taxes, assessments, maintenance, insurance, repairs, security, utilities, water
and sewer charges, excises, levies, etc.) in addition to the annual rent.
17
<PAGE> 18
USE OF PROPERTY. Triad accepted and occupies the Property on an
"as-is, where-is" basis without any representation or warranty, express or
implied in fact or by law, and without recourse to the landlord (the Company)
as to the physical nature, condition or usability of the Property. As
landlord, the Company is not required to furnish any services or facilities or
to make any repairs or alterations in or to the Property, it being understood
that Triad assumed the full and sole responsibility for the condition,
operation, repair, maintenance and management of the Property. Triad uses the
Property for general office purposes as its corporate headquarters, including
manufacturing and warehousing uses incidental thereto.
ASSIGNMENT. Triad may not assign, transfer, pledge, mortgage or
sublease the Property without the prior written consent of the Company.
EVENTS OF DEFAULT. Triad may be deemed to be in default under the
Lease Agreement in any of the following circumstances (each an "Event of
Default"): (i) whenever Triad is in default in the payment of any installment
of rent or any other sum payable to the Company, and if such default is not
cured within ten (10) days after the Company notifies Triad of such default,
(ii) whenever Triad fails in the keeping or performance of any covenant,
agreement, term or provision contained in the Lease Agreement to be kept or
performed by it and shall fail to commence to take steps (subject to
unavoidable delay) to remedy the same within thirty (30) days after the Company
notifies Triad of the same, or having commenced shall fail to remedy the same
within ninety (90) days, (iii) whenever Triad becomes subject to a decree by a
court having jurisdiction over it in an involuntary case under the federal
bankruptcy laws and such situation continues and is not remedied by Triad
within one hundred twenty (120) days after the entering of such decree and (iv)
whenever Triad commences a voluntary case under the federal bankruptcy laws or
fails generally to pay its debts when they come due.
At the time of any Event of Default, the Company may, at its option,
in addition to all other rights and remedies available to it under law or
equity, do any one or more of the following: (i) terminate the Lease
Agreement, in which case Triad must surrender possession of the Property to the
Company, or (ii) enter upon and take possession of the Property and remove
Triad from possession, with or without terminating the Lease Agreement.
DESCRIPTION OF PROPERTIES OF THE COMPANY
The Property consists of approximately 303 acres of unimproved land
and the 220,000 (approximate) square feet of office contained in three separate
buildings situated on 15 acres of land occupied by Triad. The Property is
located on the north side of Interstate 580 in the City of Livermore,
California. The City of Livermore is located approximately 40 miles southeast
of San Francisco.
All of the buildings are of concrete tilt-up construction and were
built in 1987. Building G is a two story office building containing
approximately 70,986 square feet. Building K is a 74,064 square foot single
story research and development building and Building F is a single story
industrial flex building of 74,768 square feet. The office build-out in
Buildings K and F is 90 percent and 40 percent, respectively. The Company's
management believes that the Headquarters is adquately insured. There are 689
parking spaces associated with the Headquarters. The parking area is
landscaped and the areas between the buildings are improved as open courtyards,
fenced with iron gates for controlled access. Although the buildings were
primarily designed for owner-occupancy, they were also designed to be flexible
to allow multi-tenant occupancy.
18
<PAGE> 19
The 303 acres of vacant land is divided into land use categories of
residential, industrial/office flex, retail and open space. The residential
portion consists of three lots comprising approximately 28.1 useable acres.
The industrial/office flex portion is divided into eight lots and contains
approximately 114.6 acres. The retail/commercial portion is divided into ten
lots and contains approximately 35.9 useable acres. The total useable area for
these lots is approximately 141 acres. In addition, there are two lots, one of
approximately 112 acres designated for open space or agricultural use and one
lot of 4.54 acres dedicated for transportation improvements. Finally,
approximately 7.8 acres are to be developed as public roadways. Approximately
half the required offsite improvements are in place, funded through a
combination of assessment bonds and community facility bonds. The construction
of the remaining offsite improvements are expected to be funded through
additional community facility bonds, as further described below in the final
paragraph of this section.
Several of the vacant land sites are in escrow and most of the
remaining sites are subject to a first right of refusal contract.
Two residential lots, comprising 19.4 acres, are in escrow to be sold
to a single purchaser for a total price of $2,900,000 plus current assessments
and up to approximately $1,500,000 of future assessments on these lots and an
adjacent lot. This transaction is subject to the satisfaction of several
material conditions, and the closing is not assured.
One 19.3 acre lot is subject to a seven day right of first offer held
by Lincoln Property Co., starting at $3.99 per square foot and increasing 5%
per year, plus assessments. In addition, Lincoln Property Co. has the right of
first offer on 8 lots plus the above mentioned lot. Finally, a previous
purchaser of a lot holds a three year option, commencing September 1996, on 3.4
to 6 acres of land adjacent to the lot it owns. The option price is $3.60 per
square foot plus assessments for two years, increasing to $5.50 for the third
year.
The Property is partially improved with infrastructure improvements,
including curbs, gutters, storm drains and typical utilities. A community
facilities bond issue was completed on March 24, 1997, the proceeds of
which will fund the reimbursement to the Company of $2,050,000 for completed
infrastructure and $3,700,000 for future infrastructure improvements. In
addition, there are $7,000,000 of new bonds which are planned to be sold in the
future to fund the remaining improvement required for completion of Triad Park.
The current cost estimates for the required improvements indicate that the
community facilities bond funding limits should be adequate to cover the
expenses of the remaining items of improvement. However, design and
engineering is not complete and there is a significant possibility that the
actual cost of the improvements may be greater than estimated and may exceed
the bond funding limit. Any shortfall in the bond funding will be borne by the
Company or by purchasers of lots, which may have an adverse impact on the value
of the Land. The remaining required improvements are scheduled to be completed
by 2000.
SUMMARY OF APPRAISAL REPORT ON PROPERTIES
OF THE COMPANY
The following is a brief summary of the contents of the Appraisal of:
Triad Business Park, Livermore, California, prepared by Carneghi-Bautovich &
Partners, Inc., dated November 18, 1996, as amended and qualified in a letter
dated February 18, 1997 (the "Appraisal Report"). This summary is not a
complete description of and is qualified in its entirety by reference to the
Appraisal Report, a copy of which is attached hereto as Exhibit D.
19
<PAGE> 20
The Appraisal Report contains detailed research, and a market value
appraisal, of the Property, and purports to utilize appropriate valuation
methods in accordance with Uniform Standards of Professional Appraisal
Practice. The Appraisal Report includes a survey of the local county and
subject neighborhood, research and analysis of market trends, discussion of
easements and zoning and other information specific to the Property. The
Appraisal Report also contains a description of existing and proposed
improvements, the appraisal methodology used and comparable building and land
sales to which the Property was compared.
Based on the research and analysis contained in the Appraisal Report
and subject to the assumptions and limitations contained therein, the
appraisers have opined that the cash equivalent market value of the fee simple
and leased fee interest in the Property, in as-is condition, assuming sale of
all of the Property in a single transaction, as of November 1, 1996, was
$31,800,000. Taking into account the current outstanding balance on the first
deed of trust of approximately $9,850,000 and the current outstanding balances
of assessment district bonds which encumber the Land of approximately
$9,500,000, less the proceeds from a post appraisal sale of $576,351, but
anticipated reimbursement of the cost of improvements by the City of Livermore
of approximately $2,000,000, the current market value of net equity in the
Property (appraised value plus reimbursements less encumbrances) is
approximately $14,103,000.
BUSINESS OF THE COMPANY
The Company intends to continue the efforts of Triad to liquidate its
investment in the Property. In the meantime, the Company will own, operate,
improve and maintain the Property. The Company may enter into joint ventures
with third parties for the purpose of disposing of the Property if the Advisory
Board determines that such arrangements are appropriate to the purposes of the
Company.
There can be no assurance that the Company will be successful in its
efforts to dispose of the Property or that the Company will realize a profit
from its activities. The Company will be subject to all of the market forces
which impact the ownership and operation of real property, including market
supply and demand, interest rates, local, regional and national economic
conditions, local land use policies and restrictions, construction costs,
competition from other sellers and landlords, and the effects of inflation (see
"Risk Factors -- Real Estate Related Risks"). The Company is unable to predict
the amount of time it will take to completely dispose of the Property and wind
up the Company. Share Holders will generally receive distributions, if at all,
at such times and in such amounts as the Advisory Board determines (see
"Summary of Limited Liability Company Agreement -- Distributions").
MANAGEMENT OF THE COMPANY
The manager of the Company (the "Manager") is Management Corp. The
Manager will be responsible for management and control of the business of the
Company, subject to certain required approvals of the Advisory Board. The
Share Holders, in their capacity as Share Holders, may elect or vote to remove
members of the Advisory Board but otherwise will not directly or indirectly
participate in the management or operation of the Company or have actual or
apparent authority to act for or bind the Company. The stock of Management
Corp. is owned in equal shares by Richard C. Blum, James R. Porter and William
W. Stevens, who have been or are members of the Board of Directors of Triad,
are members of the Advisory Board, and are Share Holders. See "Holdings of
Principal Share Holders and Security Holdings of Managing Member(s), Executive
Officers and Advisory Board Members."
20
<PAGE> 21
The Advisory Board will be comprised of not less than three and not
more than five individuals. The initial members of the Advisory Board are
Stanley F. Marquis, James R. Porter, William W. Stevens, and Martin W.
Inderbitzen, all of whom have served since the inception of the Company, except
for Mr. Inderbitzen, who joined the Advisory Board on March 26, 1997, with
one vacancy which may be filled by action of the remaining members. In 1998
and every two years thereafter, the Share Holders will elect the members of the
Advisory Board, with each Share being entitled to one vote. Advisory Board
members may be removed by the Share Holders at any time, with or without cause,
and Advisory Board members may resign. If a member of the Advisory Board is
removed, the Share Holders may elect a new Advisory Board member to fill the
vacancy. If an Advisory Board member resigns or otherwise ceases to be a
member, other than by removal, the remaining members of the Advisory Board may
fill the vacancy. The Advisory Board has the right to approve certain actions
and/or transactions of the Company as described in the LLC Agreement (as
defined herein) and defined as "Major Decisions." The Manager may not
undertake actions or transactions denominated as Major Decisions unless the
Advisory Board has approved the action or transaction.
The Advisory Board may appoint officers of the Company. It is
anticipated that the Company will employ Larry D. McReynolds to serve as the
President. As such, Mr. McReynolds will be in charge of the day to day
activities of the Company with many of the same duties he previously performed
for Triad. Mr. McReynolds will split his time equally between the Company and
as the facilities director for Triad.
The following table sets forth certain information with respect to
members of the Advisory Board and officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard C. Blum 63 Board member of Manager
Stanley F. Marquis 53 Advisory Board member
James R. Porter 61 Advisory Board member; Vice-President and Board member of
Manager
William W. Stevens 65 Advisory Board member; Chairman and Board member of
Manager
Martin W. Inderbitzen 45 Advisory Board member
Larry D. McReynolds 51 President of Company
</TABLE>
Mr. Blum was a director of Triad from 1992 to 1997. He is President
and Chairman of Richard C. Blum & Associates, L.P. He is also a director of
Northwest Airlines Corporation, URS Corporation and National Education
Corporation.
Mr. Marquis is Vice President, Finance, Corporate Secretary and
Treasurer of Triad. He joined Triad in January 1980 as Director of Triad
Systems Financial Corporation. In August 1983 he was elected President, Triad
Systems Financial Corporation, a position he continues to occupy, and in
September 1987 he was elected Treasurer of Triad. In December 1994 he was
promoted to Vice President, Finance, Chief Financial Officer and became
Corporate Secretary.
Mr. Porter is the Chairman of the Board of Triad. He was elected as a
director of Triad in September, 1985 and was its President and Chief Executive
Officer from September, 1985 until the consummation of the Offer. He is also a
director of Silicon Valley Bank and Brock International, Inc.
21
<PAGE> 22
Mr. Stevens was Chairman of the Board of Triad from 1972 until the
consummation of the Offer. He is the founder of Triad and was its President
and Chief Executive Officer from its inception until September 1985.
Mr. Inderbitzen has been a member of the State Bar of California since
1976, maintaining a general civil law practice since that time. His practice
has included the areas of title, easement and real estate transactions
including the negotiation and drafting of commercial leases, general contractor
and sub-contractor agreements. His practice has emphasized land use
entitlement and zoning work almost exclusively for the past 10 years.
Mr. McReynolds joined Triad in September 1984 as its Manager,
Facilities and became Manager, Real Estate and Facilities in June 1992. In
July 1994 he also assumed responsibility for Office Services. Prior to joining
Triad, he served as Director, Facilities and Engineering Services for Syva
Company from May 1980 to September 1984.
COMPENSATION OF MANAGEMENT
The Manager will be entitled to receive an annual fee from the Company
equal to 2% of the net income, if any, allocated to the Manager (in its
capacity as a Share Holder) for the preceding fiscal year. This fee is
intended to compensate the Manager for the additional California corporate
income tax it will pay on its share of the Company's income. The LLC Agreement
permits the payment of additional compensation to the Manager, with the
approval of the Advisory Board. No additional compensation has been approved
and none is contemplated at the present time.
Members of the Advisory Board will be entitled to receive
reimbursement of expenses and an annual retainer fee of $10,000, payable
quarterly, plus a fee of $750 for each meeting and $250 for each telephonic
meeting of the Advisory Board which they attend, as compensation for their
services as members of the Advisory Board.
The following table sets forth the compensation of the President of
the Company for 1996 while serving in a comparable position to that of
President. There are no other executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Position Year Salary Bonus
- ------------------------------ ---- -------- -------
<S> <C> <C> <C>
Larry D. McReynolds, President (1) 1996 $108,000 $37,116
</TABLE>
(1) Mr. McReynolds' compensation in a comparable position for the
year 1996 included a management incentive bonus of $7,116 and an incentive
bonus for real estate sales of $30,000.
Officers and employees of the Company shall be entitled to receive
compensation as determined by the Advisory Board. Future compensation is
expected to be structured with salary and incentive bonuses structured to be
compatible with similar job positions. All of Mr. McReynolds' salary and
management bonus will be paid by Triad while the Company will reimburse Triad
for 50% of his salary and will pay him 100% of any earned bonus based on real
estate sales.
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<PAGE> 23
TRANSACTIONS WITH INTERESTED PARTIES
To avoid subjecting the Share Holders to employment taxes as
member/managers, among other reasons, Triad decided that the Company needed to
have a manager. Stevens, Porter and Blum agreed to form a company (Management
Corp.) to serve as the Manager of the Company. In order to allow the Manager
to own 1% of the Shares and yet have the direct and indirect ownership of
Shares by Stevens, Porter and Blum remain unchanged, the Company has agreed to
redeem a number of Shares held individually by Stevens, Porter and Blum equal
to approximately 1% of the Shares at the same valuation ($142,440.30) used to
calculate the 1% of the Shares acquired by the Management Corp. (see "Plan of
Distribution -- Distribution of Shares"). After giving effect to the
redemption, Stevens, Porter and Blum will each own a number of Shares directly
and indirectly through their ownership of Management Corp. equal to the number
of shares of stock each held in Triad on the Distribution Record Date.
HOLDINGS OF PRINCIPAL SHARE HOLDERS AND SECURITY HOLDINGS OF
MANAGING MEMBER(S), EXECUTIVE OFFICERS AND ADVISORY BOARD MEMBERS
The following table sets forth certain information, as of immediately
after the Distribution (based upon holdings of Common Stock as of February 26,
1997), with respect to the beneficial ownership of Shares by (i) all persons
expected by the Company to become the beneficial owners of more than 5% of the
outstanding Shares upon completion of the Distribution, (ii) each director of
the Company, (iii) the President of the Company, and (iv) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Ownership
Beneficial Owner of Shares Percent of Class(1)
- ---------------------------------- --------------------- ------------------
<S> <C> <C>
Richard C. Blum 2,012,158 (2) 10.2%
909 Montgomery Street, Suite 400
San Francisco, CA 94133
Elliott Associates LP 1,257,260 6.4%
712 Fifth Avenue
New York, NY 10019
Pioneering Management Corporation 1,237,950 6.3%
60 State Street
Boston, MA 02109
Gabelli Funds, Inc. 1,031,200 (3) 5.2%
One Corporate Center
Rye, New York 10580-1434
James R. Porter 928,200 4.7%
3055 Triad Drive
Livermore, CA 94550
William W. Stevens 423,690 (4) 2.1%
3055 Triad Drive
Livermore, CA 94550
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C> <C>
Stanley F. Marquis 136,824 0.07%
3055 Triad Drive
Livermore, CA 94550
Larry D. McReynolds 18,317 0.009%
3055 Triad Drive
Livermore, CA 94550
Martin W. Inderbitzen 0 0%
3055 Triad Drive
Livermore, CA 94550
All Executive Officers and Directors as a Group 3,519,189 17.9%
</TABLE>
_______________
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all
Shares shown as beneficially owned by them, subject to community
property laws, where applicable.
(2) Richard C. Blum is a controlling person and Chairman of Richard C. Blum
& Associates Inc. ("Inc."), which is the general partner of Richard C.
Blum & Associates LP ("LP"). These Shares are directly owned by (a)
three limited partnerships for which LP is the general partner (BK
Capital Partners II, 111,111 Shares; BK Capital Partners III, 500,000
Shares; and BK Capital Partners IV, 275,936 Shares) and (b) a managed
account over which LP has voting and investment discretion (The Common
Fund, 1,111,111 Shares). Richard C. Blum disclaims beneficial ownership
of these securities except to the extent of his pecuniary interest
thereof.
(3) Includes 205,000 Shares held by GAMCO Investors, Inc., 169,900 Shares
held by Gabelli Performance Partnership L.P. and 656,300 Shares held by
Gabelli Associates Fund.
(4) Includes 423,690 Shares held as tenant-in-common with Virda J. Stevens.
DESCRIPTION OF SHARES
The following description of the Shares and certain provisions of the
Company's Limited Liability Company Agreement (the "LLC Agreement"). This
description is not intended to be complete and is qualified in its entirety by
reference to the LLC Agreement, a copy of which is attached as Exhibit E (see
"Summary of Limited Liability Company Agreement").
THE SHARES
The Shares represent membership interests in the Company, which
entitle the Share Holders to share in the income, gains, losses, deductions,
credit, or similar items of, and to receive distributions from, the Company,
the right to vote on certain specified matters, and the right to information
concerning the business and affairs of the Company. No Share Holder shall have
any obligation to contribute additional capital to the Company. For a
description of the rights and privileges of Share Holders under the LLC
Agreement, see "Summary of Limited Liability Company Agreement."
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TRANSFER AGENT AND REGISTRAR
________________________ will serve as registrar and transfer agent
(the "Transfer Agent") for the Shares and will receive a fee from the Company
for serving in those capacities. All fees charged by the Transfer Agent for
transfers of Shares will be borne by the Company and not by Share Holders,
except that fees similar to those customarily paid by stockholders for surety
bond premiums to replace lost or stolen certificates, taxes and other
governmental charges, special charges for services requested by a Share Holder
and other similar fees or charges will be borne by the affected Share Holder.
There will be no charge to Share Holders for disbursements of the Company's
cash distributions, if any. The Company will indemnify the Transfer Agent, its
agents and their respective agents and employees against all claims and losses
that may arise out of acts performed or omitted in respect of its activities as
Transfer Agent, except for any claim for any liability due to any
gross negligence, bad faith or intentional misconduct of the indemnified
person or entity.
TRANSFER OF SHARES
Transfers of Shares will be recorded by the Transfer Agent and
recognized by the Company when the transferee executes and delivers a Transfer
Application (the form of which is set forth as Exhibit F to this information
statement and which is also set forth on the reverse side of the certificates
representing the Shares) and delivers the certificate representing the Shares
to be transferred, duly endorsed for transfer. Shares are securities and are
transferable in accordance with the laws governing transfer of securities. A
purchaser or transferee of Shares becomes a member of the Company when the
transfer of the Shares is recorded by the Transfer Agent.
SUMMARY OF LIMITED LIABILITY COMPANY AGREEMENT
The following is a summary of the material provisions of the LLC
Agreement. This summary is not intended to be complete and is qualified in its
entirety by reference to the LLC Agreement, a copy of which is attached as
Exhibit E.
Certain provisions of the LLC Agreement are summarized elsewhere in
this Information Statement under various headings. With regard to management
of the Company, see "Management of the Company." With regard to allocations of
income and loss, see "Tax Considerations." Share Holders are urged to review
those sections of this Information Statement and the LLC Agreement carefully.
ORGANIZATION AND DURATION
The Company was organized as a Delaware limited liability company on
February 10, 1997. The initial Share Holders of the Company were Triad and
Management Corp. Following the Distribution, the Distributees and 3055
Management Corp. will be the Share Holders of the Company. The Company will
dissolve upon the earlier of the liquidation of all of the Property or the vote
of a majority in interest of the Share Holders to dissolve the Company.
PURPOSE
The purpose of the Company is to liquidate the Property, and in the
course of liquidating the Property to hold, maintain, operate, develop,
improve, subdivide, lease, finance, refinance, offer for sale and sell the
Property and any portion of the Property, and to do all other acts or things
that may be necessary or appropriate to accomplish the Company's purpose,
including entering into joint venture arrangements with third parties, subject
to any required Advisory Board approval.
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LIMITED LIABILITY
The liability of a member of a limited liability company is equivalent
to the liability of a stockholder of a corporation -- it is limited to the
member's share of the assets of the company. Thus, a Share Holder may lose his
or her investment in the Company, but generally will not be liable for the
obligations of the Company. Under Delaware law, a Share Holder who receives a
distribution knowing that the distribution causes the Company's liabilities to
exceed its assets is liable to the Company to return the distribution for three
years from the date of the distribution.
CAPITALIZATION OF THE COMPANY
On February 27, 1997, Triad contributed the Property, certain
receivables and $595,215 in cash to the Company. Concurrently, Management
Corp. contributed its promissory note in the amount of $142,440.30 to the
Company. The Management Corp. promissory note is due and payable on or before
the fifth (5th) calendar day following the date of the Distribution.
At the time the Management Corp. promissory note is paid, the Company
will redeem from the Management Corp. stockholders a number of Shares that is
equal, in the aggregate, to the Shares owned by Management Corp., at the
issuance price of the Shares. The purpose of the redemption is to maintain the
same relative ownership of Shares as existed among the Triad stockholders on
the Distribution Record Date. Consequently, the total capitalization of the
Company will be equal to the Triad contributions.
No Share Holder has any obligation to make additional contributions to
the Company. If the Company requires additional capital, it may issue
additional membership interests for such prices and on such terms as the
Advisory Board determines. Any such additional membership interests could have
priority over the Shares as to distributions, voting rights or participation in
management of the Company.
DISTRIBUTIONS
In general, the Company will make cash distributions to the Share
Holders at such times and in such amounts as the Advisory Board determines. To
the extent the Company has sufficient cash, the Company will distribute to the
Share Holders an amount of cash equal to the Company's taxable income
multiplied by the highest federal marginal tax rate imposed on individual
taxpayers.
There can be no assurance that the Company will make any distributions
to the Share Holders or that any distributions will be adequate to enable the
Share Holders to pay income taxes due on their shares of Company taxable
income. In particular, the Distribution Agreement requires the Company to
maintain a minimum net worth of $2,350,000 to ensure that the Company is able
to satisfy the indemnities given by the Company to Triad under the terms of the
Distribution Agreement. The limitations of the Distribution Agreement will
inhibit the Company's ability to make distributions to the Share Holders.
MEETINGS; VOTING
Meetings of Share Holders will be held biannually, beginning in 1998.
Under the Company's Bylaws, each Share is entitled to one vote upon each matter
submitted to a vote at a meeting of Share Holders. At each biannual meeting,
Share Holders will elect the members of the Advisory Board. The Share Holders
shall also have the right to vote on (i) amendments to the LLC Agreement
(except that no amendment may obligate a Share Holder to contribute additional
capital to the Company unless the
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Share Holder has approved the amendment and except to the limited extent that
the Manager may amend the LLC Agreement), (ii) any merger of the Company with
or into another business entity, and (iii) the dissolution of the Company.
The Manager or the Advisory Board may submit other matters to the vote of Share
Holders, but they are not obligated to submit any other matters to the vote of
Share Holders.
DISPUTE RESOLUTION
The LLC Agreement provides that disputes between a Share Holder and
the Company, or between the Manager and the Company must be submitted to
nonbinding mediation before the dispute may be litigated, except to the extent
litigation is necessary for statute of limitations purposes or to seek
injunctive or other provisional relief to avoid irreparable damage or to
preserve the status quo. Mediation is to be conducted in Alameda County,
California and any litigation must be brought in the state courts in Alameda
County or in the United States District Court in the Northern District of
California. The Company will bear the cost of the mediator's fees and
expenses, but the parties must pay their own attorneys' fees and any other
related costs of mediation or litigation.
RIGHTS PLAN
The Company has entered into a Rights Agreement. The following is a
brief summary of the Rights Agreement and is not intended to be complete and is
qualified in its entirety by reference to the Rights Agreement, a copy of which
is attached as Exhibit G. The Rights Agreement is similar to the rights plan
previously adopted by Triad. It provides that each Share Holder will have the
right to purchase additional Shares upon the commencement of a tender offer or
if any person acquires ownership of 24% or more of the outstanding Shares,
unless the Advisory Board has approved the tender offer or the acquisition. A
Share Holder will have the right to purchase a number of additional Shares
equal to (i) the product of the number of Shares he owns multiplied by $0.63
per Share, (ii) divided by 50% of the then current market price for the Shares.
The Rights Agreement will terminate ten years after it is adopted.
TAX CONSIDERATIONS
This section is a summary of certain federal income tax considerations
that may be relevant to Share Holders with respect to ownership and disposition
of Shares. This section is based upon current provisions of the Internal
Revenue Code of 1986, as amended ("Code"), existing and proposed regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Subsequent changes in such authorities may cause the
tax consequences to vary substantially from the consequences described below.
For a general discussion regarding tax consequences of receiving shares of
stock as a dividend, see Section 4 of the Offer to Purchase, filed by CAC and
CCI with the Commission on October 23, 1996.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting the Company or the Share Holders with
respect to ownership and disposition of Shares. Moreover, the discussion
focuses on Share Holders who are individual citizens or residents of the United
States and has only limited application to corporations, estates, trusts,
nonresident aliens or other Share Holders subject to specialized tax treatment
(such as tax-exempt organizations, foreign persons, employee benefit plans,
REITs or mutual funds). Accordingly, each Share Holder is advised to, and
should consult, and should depend upon, the Share Holder's own tax advisor in
analyzing the federal, state, local and foreign tax consequences of the
ownership or disposition of Shares.
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No ruling has been or will be requested from the Internal Revenue
Service (the "IRS") with respect to classification of the Company as a
partnership for federal income tax purposes, whether the Company's real estate
activities will generate "qualifying income" under Section 7704 of the Code, or
any other matter affecting the Company or Share Holders. Thus, no assurance
can be provided that the statements set forth in this discussion would be
sustained by a court if contested by the IRS. Furthermore, no assurance can be
given that the treatment of the Company or the Share Holders will not be
significantly modified by future legislative or administrative changes or court
decisions. Any such modification may or may not be retroactively applied.
PARTNERSHIP STATUS
Limited Liability Company Treated as Partnership
The tax benefits of partnership status will be available only if the
Company is classified as a partnership for federal income tax purposes and not
as an association taxable as a corporation. A limited liability company
generally is treated as a partnership for federal income tax purposes. A
partnership is not a taxable entity and incurs no federal income tax liability.
Instead, each partner is required to take into account the partner's allocable
share of items of income, gain, loss and deduction of the partnership in
computing the partner's federal income tax liability, regardless of whether
cash distributions are made. Distributions by a partnership to a partner are
generally not taxable unless the amount of a cash distribution exceeds the
partner's adjusted basis in the partner's partnership interest.
Effective January 1, 1997, the IRS issued new regulations for
determining whether an entity will be taxed as a partnership or as a
corporation. Unlike the prior regulations which made the determination based
on the presence or absence of certain corporate characteristics, the new
regulations permit certain business entities to elect to be taxed as
partnerships.
Under the new Regulations, a business entity that is formed under a
statute which describes or refers to the entity as incorporated, or as a
corporation, body corporate or joint-stock company, an insurance company, an
FDIC-insured banking entity, or an entity owned by a state or political
subdivision, will be a corporation for federal income tax purposes. Other
business entities having at least two members will be taxed as partnerships,
unless the entity affirmatively elects to be taxed as a corporation.
The Company was not formed under a statute which refers to it as
incorporated, a corporation, a body corporate or a joint stock company, nor is
the Company an insurance company or a bank. The Company has two or more
members and the Company will not elect to be taxed as a corporation.
Therefore, it is anticipated that the Company will be classified as a
partnership for federal income tax purposes under the new Regulations. There
can be no assurance, however, that the Regulations will not be revoked, revised
or overruled by administrative, judicial or legislative action in a manner
which causes the Company to be taxed as a corporation.
PUBLICLY TRADED PARTNERSHIPS
Section 7704 of the Code provides that publicly-traded partnerships
will, as a general rule, be taxed as corporations. In general, the Company is
potentially subject to Section 7704 of the Code if interests in the Company are
traded on an established securities market or are readily tradable on a
secondary securities market (or the substantial equivalent thereof). However,
an exception (the "Qualifying Income Exception") exists with respect to
publicly-traded partnerships of which 90% or
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more of the gross income for every taxable year consists of "qualifying
income." Qualifying income includes interest, dividends, real property rents,
and gain from the sale or other disposition of real property (including
property held primarily for sale to customers in the ordinary course of a trade
or business). The Company anticipates that at least 90% of its gross income
will constitute qualifying income.
If the Company fails to satisfy the Qualifying Income Exception (other
than a failure which is determined by the IRS to be inadvertent and which is
cured within a reasonable time after discovery) and interests in the Company
are publicly traded for purposes of Section 7704 of the Code, the Company will
be treated as if it had transferred all of its assets (subject to liabilities)
to a newly formed corporation (on the first day of the year in which it fails
to meet the Qualifying Income Exception) in return for stock in that
corporation, and then distributed that stock to the Share Holders in
liquidation of their interests in the Company. This contribution and
liquidation should be tax-free to Share Holders and the Company, so long as the
Company, at that time, does not have liabilities in excess of the basis of its
assets. Thereafter, the Company would be treated as a corporation for federal
income tax purposes.
If the Company were treated as a corporation for federal income tax
purposes in any taxable year, either as a result of a failure to meet the
Qualifying Income Exception or otherwise, its items of income, gain, loss and
deduction would be reflected only on its tax return rather than being passed
through to the Share Holders, and its net income would be taxed to the Company
at corporate rates. In addition, any distribution made to a Share Holder would
be treated as either taxable dividend income (to the extent of the Company's
current or accumulated earnings and profits), a nontaxable return of capital
(to the extent of the Share Holder's adjusted tax basis in the Share Holder's
Shares) or taxable capital gain (after the Share Holder's adjusted tax basis in
the Shares is reduced to zero). Accordingly, treatment of the Company as a
corporation likely would result in a material reduction in a Share Holder's
cash flow and after-tax return and thus would likely result in a substantial
reduction of the value of the Shares.
___________
The following discussion is based upon the assumption that the Company
will be classified as a partnership for federal income tax purposes.
TAX CONSEQUENCES OF SHARE OWNERSHIP
Flow-Through of Taxable Income
No federal income tax will be paid by the Company. Instead, each
Share Holder will be required to report on the Share Holder's income tax return
their allocable share of the income, gains, losses and deductions of the
Company without regard to whether corresponding cash distributions are received
by such Share Holder. Consequently, a Share Holder may be allocated income
from the Company even if he has not received a cash distribution. Each Share
Holder will be required to include in income the Share Holder's allocable share
of Company income, gain, loss and deduction for the taxable year of the Company
ending with or within the taxable year of the Share Holder.
Treatment of Company Distributions
Distributions by the Company to a Share Holder generally will not be
taxable to the Share Holder for federal income tax purposes to the extent of
the Share Holder's basis in their Shares
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immediately before the distribution. Cash distributions in excess of a Share
Holder's basis generally will be considered to be gain from the sale or
exchange of the Shares, taxable in accordance with the rules described under
"Disposition of Shares" below. Any reduction in a Share Holder's share of the
Company's liabilities for which no Share Holder bears the economic risk of loss
("nonrecourse liabilities") will be treated as a distribution of cash to that
Share Holder.
Basis of Shares
A Share Holder's initial basis for the Share Holder's Shares will be
the cost of the Shares plus the Share Holder's share of the Company's
liabilities, for which no member of the Company has personal liability. For
Shares received in the Distribution, a Share Holder's "cost" of the Share
Holder's Shares will be the fair market value of the Shares at the time of the
Distribution. The basis of the Shares will be increased by the Share Holder's
share of Company income and by any increases in the Share Holder's share of
Company nonrecourse liabilities. That basis will be reduced (but not below
zero) by distributions from the Company, by the Share Holder's share of Company
losses, by any decrease in the Share Holder's share of Company nonrecourse
liabilities and by the Share Holder's share of expenditures of the Company that
are not deductible in computing taxable income and are not required to be
capitalized.
Limitations on Deductibility of Company Losses
The deduction by a Share Holder of the Share Holder's share of Company
losses will be limited to the tax basis in the Share Holder's Shares and, in
the case of an individual Share Holder or a closely-held corporate Share Holder
(if more than 50% in the value of its stock is owned directly or indirectly by
five or fewer individuals or certain tax-exempt organizations), to the amount
which the Share Holder is considered to be "at risk" with respect to the
Company's activities, if that is less than the Share Holder's basis. A Share
Holder must recapture losses deducted in previous years to the extent that
Company distributions cause the Share Holder's at risk amount to be less than
zero at the end of any taxable year. Losses disallowed to a Share Holder or
recaptured as a result of these limitations will carry forward and will be
allowable to the extent that the Share Holder's basis or at risk amount
(whichever is the limiting factor) is subsequently increased. Upon the taxable
disposition of a Share, any gain recognized by a Share Holder can be offset by
losses that were previously suspended by the at risk limitation but may not be
offset by losses suspended by the basis limitation. Any excess loss (above
such gain) previously suspended by the at risk or basis limitations is no
longer deductible.
In general, a Share Holder will be at risk to the extent of the tax
basis of the Share Holder's Shares, excluding any portion of that basis
attributable to the Share Holder's share of Company nonrecourse liabilities. A
Share Holder's at risk amount will increase or decrease as the basis of the
Share Holder's Shares increases or decreases (other than basis increases or
decreases attributable to increases or decreases in the Share Holder's share of
Company nonrecourse liabilities).
The passive loss limitations generally provide that individuals,
estates, trusts and certain closely-held corporations and personal service
corporations can deduct losses from passive activities (generally, activities
in which the taxpayer does not materially participate) only to the extent of
the taxpayer's income from those passive activities. The passive loss
limitations are applied separately with respect to each publicly-traded
partnership. Consequently, assuming the Company is publicly traded for
purposes of the passive loss rules, any passive losses generated by the Company
will only be available to offset future income generated by the Company and
will not be available to offset income from other passive activities or
investments (including other publicly-traded partnerships), or salary or active
business
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income. Passive losses which are not deductible because they exceed a Share
Holder's income generated by the Company may be deducted in full when the Share
Holder disposes of the Share Holder's entire investment in the Company in a
fully taxable transaction to an unrelated party. The passive activity loss
rules are applied after other applicable limitations on deductions such as the
at risk rules and the basis limitation.
Tax-Exempt Organizations and Certain Other Share Holders
Ownership of Shares by employee benefit plans, other tax-exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to such persons and, as
described below, may have substantially adverse tax consequences. Employee
benefit plans and most other organizations exempt from federal income tax
(including individual retirement accounts and other retirement plans) are
subject to federal income tax on unrelated business taxable income ("UBTI"). A
substantial portion of the taxable income derived by such an organization from
the ownership of Shares will be UBTI and thus will be taxable to such a Share
Holder.
A regulated investment company or "mutual fund" is required to derive
90% or more of its gross income from interest, dividends, gains from the sale
of stocks or securities or foreign currency or certain related sources. It is
not anticipated that any significant amount of the Company's gross income will
include those types of income.
Non-resident aliens and foreign corporations, trusts or estates which
hold Shares will be considered to be engaged in business in the United States
on account of ownership of Shares. As a consequence, they will be required to
file federal tax returns in respect of their share of Company income, gain,
loss or deduction and pay federal income tax at regular rates on any net income
or gain. Generally, a partnership is required to pay a withholding tax on the
portion of the partnership's income which is effectively connected with the
conduct of a United States trade or business and which is allocable to the
foreign partners, regardless of whether any actual distributions have been made
to such partners. However, under rules applicable to publicly-traded
partnerships, the Company will withhold amounts (currently at the rate of
39.6%) on actual cash distributions made to foreign Share Holders. Each
foreign Share Holder must obtain a taxpayer identification number from the IRS
and submit that number to the Transfer Agent of the Company on a Form W-8 in
order to obtain credit for the taxes withheld.
Because a foreign corporation which owns Shares will be treated as
engaged in a United States trade or business, such a corporation may be subject
to United States branch profits tax at a rate of 30%, in addition to regular
federal income tax, on its allocable share of Company income and gain (as
adjusted for changes in the foreign corporation's "U.S. net equity") which are
effectively connected with the conduct of a United States trade or business.
That tax may be reduced or eliminated by an income tax treaty between the
United States and the country with respect to which the foreign corporate Share
Holder is a "qualified resident." In addition, such a Share Holder is subject
to special information reporting requirements under Section 6038C of the Code.
A foreign Share Holder will not be taxed upon the disposition of a
Share if that foreign Share Holder has held less than 5% in value of the Shares
during the five-year period ending on the date of the disposition and if the
Shares are regularly traded on an established securities market at the time of
the disposition (See "Risk Factors -- Risks Related to the Shares, Trading of
Shares"). A foreign Share Holder who holds more than 5% in value of the Shares
will be subject to the tax and withholding
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requirements of the Foreign Investment in U.S. Real Property Tax Act upon
disposition of such Share Holder's Shares.
ALLOCATION OF COMPANY INCOME, GAIN, LOSS AND DEDUCTION
In general, the LLC Agreement provides that Company income, gain, loss
and deduction will be allocated among the Share Holders in proportion to their
ownership of Shares. Section 704(a) of the Code provides generally that a
partner's share of partnership items of income, gain, loss and deduction will
be determined by the partnership agreement. However, if the allocations do not
have "substantial economic effect," Section 704(b) of the Code provides that
the allocations will be made in accordance with the partner's interest in the
partnership, taking into account all of the facts and circumstances.
The Regulations under Section 704(b) provide that a partnership
allocation will be considered to have "substantial economic effect" if it is
determined that the allocation has "economic effect" and the economic effect is
"substantial." An allocation to partners will be considered to have "economic
effect" if (i) the partnership maintains capital accounts in accordance with
specific rules set forth in the Regulations and the allocation is reflected in
adjustments to the partners' capital accounts, (ii) liquidating distributions
are required to be made in accordance with the partners' respective capital
account balances, and (iii) any partner with a deficit in the partner's capital
account following the distribution of liquidation proceeds is unconditionally
obligated to restore the amount of such deficit to the partnership. In order
for the economic effect of an allocation to be considered "substantial," the
Regulations require that the allocation must have a reasonable possibility of
substantially affecting the dollar amount to be received by the partners,
independent of tax consequences.
The determination of a partner's interest in a partnership is made by
taking into account all the facts and circumstances relating to the economic
arrangement of the partners. The Regulations list the following factors to
consider in determining a partner's interest in the partnership: (i) The
partners' relative contributions to the partnership; (ii) the interests of the
partners in economic profits and losses; (iii) the interests of the partners is
cash flow and other non-liquidating distributions; and (iv) the rights of the
partners to distributions of capital upon liquidation.
The LLC Agreement does not provide for the maintenance of capital
accounts; therefore the allocations of Company income, gain, loss and deduction
will not satisfy the "substantial economic effect" test of the Regulations.
However, the Share Holders will share in the economic profits and losses of the
Company in proportion to their ownership of Shares and each Share will
represent an equal contribution to the capital of the Company. Accordingly,
the Company believes that the allocations of income, gain, loss and deduction
in the LLC Agreement will be made in accordance with the Share Holders'
interests in the Company and, therefore, should be respected for purposes of
Section 704 of the Code.
TAX TREATMENT OF OPERATIONS
Initial Tax Basis, Holding Period, Depreciation and Amortization
The tax basis of the assets of the Company will be used for purposes
of computing depreciation and cost recovery deductions and, ultimately, gain or
loss on the disposition of such assets. The Property will initially have an
aggregate tax basis equal to the value determined by the Appraisal Report.
Although there is some uncertainty regarding the Company's holding period in
the Property, the Company's holding period in the Property should include the
period during which the Property was held by Triad or 3055 Triad Dr. Corp.
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If the Company disposes of depreciable property by sale, foreclosure,
or otherwise, all or a portion of any gain (determined by reference to the
amount of depreciation previously deducted and the nature of the property) may
be subject to the recapture rules and taxed as ordinary income rather than
capital gain. Similarly a Share Holder who has taken cost recovery or
depreciation deductions with respect to property owned by the Company may be
required to recapture such deductions as ordinary income upon a sale of the
Share Holder's Shares. See "Disposition of Shares -- Recognition of Gain or
Loss."
Costs incurred in organizing the Company may be amortized over any
period selected by the Company not shorter than 60 months. The costs incurred
in promoting the issuance of the Shares must be capitalized and cannot be
deducted currently, ratably, or upon termination of the Company. There are
uncertainties regarding the classification of costs as organization expenses,
which may be amortized, and as syndication expenses, which may not be
amortized.
Sales of Property
Upon the sale, exchange or other disposition of Company assets, gain
or loss at the Company level is measured by the difference between the amount
realized by the Company and its adjusted basis in the property. The amount
realized will generally equal the sum of the amount of cash received, the net
fair market value of any property received and the outstanding balance of any
indebtedness encumbering the property being disposed of and any other
indebtedness that is assumed. For this purpose, a foreclosure of a loan
secured by Company assets would be deemed to be a disposition of the assets.
It is possible that the net cash proceeds distributed to a Share Holder upon a
sale or disposition of the assets will not be sufficient to pay the Share
Holder's federal income tax liability resulting from the sale or disposition.
In general, any gain (or loss) to the Company arising from a sale of
the Land will be characterized as ordinary income (or loss), assuming the Land
is property held primarily for sale to customers in the ordinary course of the
Company's trade or business. If the Land is not held primarily for sale to
customers in the ordinary course of business, then gain or loss with respect
thereto will be capital gain or loss, long-term if held for more than one year.
Upon the sale of the Headquarters, any gain may be treated as gain described in
Section 1231 of the Code if the Headquarters are held by the Company for more
than one year from the date of the Distribution and if the Headquarters are not
held primarily for sale to customers in the ordinary course of business. A
Share Holder's share of the gain or loss from the disposition of Section 1231
assets will be combined with any Section 1231 gains or losses realized by that
Share Holder in that taxable year from sources other than the Company. The
Share Holder's net Section 1231 gain will generally be taxed as capital gain
except to the extent of the Share Holder's unrecaptured net Section 1231 losses
for the five most recent prior taxable years. For this purpose, the term
"unrecaptured net Section 1231 losses" means the excess of the aggregate amount
of the net Section 1231 losses during such five year period over previously
recaptured net Section 1231 losses. A Share Holder's net Section 1231 losses
will be treated as ordinary losses. If the Headquarters are not held for more
than one year or are held primarily for sale to customers in the ordinary
course of business, the gain or loss with respect to the sale of the
Headquarters will be ordinary income or loss.
Valuation of Company Property and Basis of Property
The federal income tax consequences of the ownership and disposition
of the Shares will depend in part on estimates by the Company of the relative
fair market values, and determination of the initial tax basis, of the Land and
the Headquarters. Although the Company has obtained a professional
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appraisal of the Property, the valuation of property is subject to challenge
and will not be binding on the IRS or the courts. If the estimates of the fair
market values or determinations of basis are subsequently found to be
incorrect, the character and amount of items of income, gain, loss or
deductions previously reported by Share Holders might change, and Share Holders
might be required to adjust their tax liability for prior years.
DISPOSITION OF SHARES
Recognition of Gain or Loss
Gain or loss will be recognized on a sale of Shares equal to the
difference between the amount realized and the Share Holder's tax basis for the
Shares sold. A Share Holder's amount realized will be measured by the sum of
the cash or the fair market value of other property received plus the Share
Holder's share of the Company's nonrecourse liabilities. Because the amount
realized includes a Share Holder's share of the Company's nonrecourse
liabilities, the gain recognized on the sale of Shares could result in a tax
liability in excess of any cash received from such sale.
Generally, gain or loss recognized by a partner (other than a
"dealer") on the sale or exchange of a partnership interest held for more than
one year will generally be taxable as long-term capital gain or loss. A
portion of this gain or loss, however, will be separately computed and taxed as
ordinary income or loss under Section 751 of the Code to the extent
attributable to assets giving rise to "unrealized receivables" or to
"substantially appreciated inventory" owned by the partnership. The term
"unrealized receivables" includes potential recapture items, including
depreciation recapture. Inventory is considered to be "substantially
appreciated" if its value exceeds 120% of its adjusted basis to the
partnership. It is possible, however, that this tax treatment will not apply
to the Shares received in the Distribution and that any gain on the sale or
exchange of Shares will be ordinary income, under the provisions of Section
735 of the Code.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those interests and maintain
a single adjusted tax basis. Upon a sale or other disposition of less than all
of such interests, a portion of that tax basis must be allocated to the
interests sold using an "equitable apportionment" method. The ruling is
unclear as to how the holding period of those interests is determined once they
are combined. If this ruling is applicable to the holders of Shares, a Share
Holder will be unable to select high or low basis Shares to sell as would be
the case with corporate stock. It is not clear whether the ruling applies to
the Company, because, similar to corporate stock, interests in the Company will
be evidenced by separate certificates. A Share Holder considering the purchase
of additional Shares or the sale of Shares in separate transactions should
consult the Share Holder's tax advisor as to the possible consequences of such
ruling.
Allocations Between Transferors and Transferees
In general, the Company's taxable income and losses will be determined
on a monthly basis and subsequently apportioned among the Share Holders in
proportion to the number of Shares owned by each of them prior to or after the
fifteenth day of each calendar month. As a result, a Share Holder transferring
Shares in the open market may be allocated income, gain, loss and deduction
accrued after the date of transfer.
The use of this method may not be permitted under existing Treasury
Regulations. If this method is not allowed under the Treasury Regulations (or
only applies to transfers of less than all of the
34
<PAGE> 35
Share Holder's Shares), taxable income or losses of the Company might be
reallocated among the Share Holders.
Notification Requirements
A Share Holder who sells or exchanges Shares is required by Section
6050K of the Code to notify the Company in writing of that sale or exchange
within 30 days after the sale or exchange and in any event by no later than
January 15 of the year following the calendar year in which the sale or
exchange occurred. The Company is required to notify the IRS of that
transaction and to furnish certain information to the transferor and
transferee. However, these reporting requirements do not apply with respect to
a sale by an individual who is a citizen of the United States and who effects
the sale or exchange through a broker. Additionally, a transferor and a
transferee of a Share will be required to furnish statements to the IRS, filed
with their income tax returns for the taxable year in which the sale or
exchange occurred, that set forth the amount of the consideration received for
the Share that is allocated to goodwill or going concern value of the Company.
Failure to satisfy these reporting obligations may lead to the imposition of
substantial penalties.
Constructive Termination
The Company will be considered to have been terminated if there is a
sale or exchange of 50% or more of the Shares within a 12-month period. A
termination results in the closing of a partnership's taxable year for all
partners and the partnership's assets are regarded as having been distributed
to the partners and reconveyed to a new partnership. However, under new
proposed regulations which are not yet effective, a terminating partnership
will be deemed to have conveyed all its assets and liabilities to a newly
formed partnership in exchange for all the interests in such new partnership
and then the terminating partnership will be deemed to have liquidated and to
have distributed to its partners the interests in the newly formed partnership.
A termination of the Company could also result in loss of certain tax elections
and certain basis adjustments.
In the case of a Share Holder reporting on a taxable year other than
the Company's taxable year, the closing of the tax year of the Company may
result in more than 12 months' taxable income or loss of the Company being
includable in the Share Holder's taxable income for the year of termination.
In addition, each Share Holder will realize taxable gain to the extent that any
money deemed as a result of the termination to have been distributed to the
Share Holder exceeds the adjusted basis of the Share Holder's Shares. New tax
elections required to be made by the Company must be made subsequent to a
constructive termination. Finally, a termination might either accelerate the
application of or subject the Company to any tax legislation enacted prior to
the termination.
STATE AND LOCAL TAX CONSIDERATIONS
In addition to federal income taxes, Share Holders will be subject to
other taxes, such as state and local income taxes. Although an analysis of
those various taxes is not presented here, each Share Holder should consider
their potential impact on the Share Holder's investment in the Company.
The Company will be (or will elect to be) taxed as a corporation for
purposes of the California Revenue and Taxation Code. Therefore, the Company
will be subject to California income tax on its taxable income and Share
Holders will be subject to state and local income tax on any distributions to
them with respect to their Shares. However, the Company's taxable income or
loss for California purposes will not pass through to the Share Holders (in
contrast to the federal income tax treatment).
35
<PAGE> 36
It is the responsibility of each Share Holder to investigate the legal
and tax consequences, under the laws of pertinent states, of the Share Holder's
investment in the Company. Accordingly, each Share Holder should consult, and
must depend upon, the Share Holder's own tax counsel or other advisor with
regard to those matters. Further, it is the responsibility of each Share
Holder to file all state and local, as well as United States federal, tax
returns that may be required of such Share Holder.
OWNERSHIP OF SHARES BY EMPLOYEE BENEFIT PLANS
Ownership of Shares by an employee benefit plan is subject to certain
additional considerations because the investments of such plans are subject to
the fiduciary responsibility and prohibited transaction provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
restrictions imposed by Section 4975 of the Code. As used herein, the term
"employee benefit plan" includes, but is not limited to, qualified pension,
profit-sharing and stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or Individual Retirement Accounts established
or maintained by an employer or employee organization. Among other things,
consideration should be given to (a) whether such investment is prudent under
Section 404(a)(1)(B) of ERISA; (b) whether in maintaining such investment, such
plan will satisfy the diversification requirement of Section 404(a)(1)(C) of
ERISA; and (c) whether such investment will result in recognition of unrelated
business taxable income by such plan and, if so, the potential after-tax
return. See "Tax Considerations--Tax Consequences of Share Ownership." The
person with investment discretion with respect to the assets of an employee
benefit plan (a "fiduciary") should determine whether maintaining an investment
in the Company is authorized by the appropriate governing instrument and is a
proper investment for such plan.
Section 406 of ERISA and Section 4975 of the Code (which also applies
to Individual Retirement Accounts that are not considered part of an employee
benefit plan) prohibit an employee benefit plan from engaging in certain
transactions involving "plan assets" with parties that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
the plan.
In addition to considering whether the ownership of Shares is a
prohibited transaction, a fiduciary of an employee benefit plan should consider
whether such plan will, by owning Shares, be deemed to own an undivided
interest in the assets of the Company, with the result that the Manager also
would be a fiduciary of such plan and the operations of the Company would be
subject to the regulatory restrictions of ERISA, including the prohibited
transaction rules, as well as the prohibited transaction rules of the Code.
The Department of Labor regulations provide guidance with respect to
whether the assets of an entity in which employee benefit plans acquire equity
interests would be deemed "plan assets" under certain circumstances. Pursuant
to these regulations, an entity's assets would not be considered to be "plan
assets" if, among other things, (a) the equity interests acquired by employee
benefit plans are publicly offered securities -- i.e., the equity interests are
widely held by 100 or more investors independent of the issuer and each other,
freely transferable and registered pursuant to certain provisions of the
federal securities laws, (b) the entity is an "operating company," including a
"real estate operating company," -- i.e., on specified valuation dates, at
least 50% of the entity's assets are invested in real estate which is managed
or developed directly by the entity, or (c) there is no significant investment
by benefit plan investors, which is defined to mean that less than 25% of the
value of each class of equity interest is held by the employee benefit plans
referred to above, Individual Retirement Accounts and other employee benefit
plans not subject to ERISA (such as government plans). The Company's assets
should not be considered "plan assets" under these regulations because it is
expected that the Company will satisfy the requirements in (a) and (b) above
and may also satisfy the requirements in (c).
36
<PAGE> 37
Plan fiduciaries who receive Shares in the Distribution should consult
with their own counsel regarding the consequences under ERISA and the Code in
light of the serious penalties imposed on persons who engage in prohibited
transactions or other violations.
TRADING OF SHARES
Because all Shares of the Company have been owned only by Triad and
Management Corp., no trading market currently exists for the Shares. The
Company has not applied, and has no present intention of applying to, any
exchange or quotation service in order to obtain trading or quotation
privileges. Therefore, there is no assurance that an active market will
develop for the trading of the Shares, and there is likewise no assurance as to
any price at which the Shares may trade at any future time. Additionally, due
to the illiquid nature of the Property, the future price at which the Shares
may trade will likely be at a significant discount from their proportionate
share of the fair market value of the Property.
LEGAL MATTERS
Certain legal matters in connection with the Distribution are being
passed upon for the Company by McCutchen, Doyle, Brown & Enersen, LLP, San
Francisco, California.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on
Form 10-SB under the Exchange Act, to which this Information Statement is
attached as an exhibit. All documents filed by the Company with the Commission
can be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and may be available at the following regional offices
of the Commission: Chicago Regional Office, Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Company is also required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering Analysis and Retrieval (EDGAR) system. The
Commission maintains a world wide web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
After the foregoing registration statement becomes effective, the
Company will be subject to the reporting requirements and other applicable
provisions of the Exchange Act.
37
<PAGE> 38
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Management's discussion and analysis of financial condition and
results of operations of Triad Park, LLC 39
Balance sheets as of September 30, 1995 and 1996
(and December 31, 1996, unaudited) 41
Statements of operations of the years ended September 30, 1995
and 1996 (and three months ended December 31, 1995 and 1996,
unaudited) 42
Statements of members' equity for the years ended September 30,
1995 and 1996, (and three months ended December 31, 1996,
unaudited) 43
Statements of cash flows for the years ended September 30, 1995
and 1996 (and three months ended December 31, 1995 and 1996,
unaudited) 44
Notes to financial statements 45
Report of independent accountants 53
Pro forma statements of operations 55
</TABLE>
38
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following Management's Discussion and Analysis is based upon and should be
read in conjunction with the Company's financial statements and notes thereto
included elsewhere in this Information Statement.
RESULTS OF OPERATIONS
Revenues generated from the leasing of the facilities located at 3055 Triad
Drive were $2.5 million in both fiscal 1995 and 1996. These revenues are
pursuant to a lease agreement in effect through 2001. Revenues from land sales
were $3.8 million during fiscal 1996. Revenues from land sales were $640,000
for the three months ended December 31, 1996 (first quarter of fiscal 1997)
with no sales during the comparable period in the prior year. There were no
land sales during fiscal 1995. Gross margin was $3.5 million in fiscal 1996, a
84% increase over the gross profit of $1.9 million in fiscal 1995. This
increase was directly attributed to the land sales during 1996. Gross margin
for the first quarter of 1996 was $491,000 compared to $678,000 for the first
quarter of 1997. The increase was directly attributed to land sales.
Net income was $521,000 in fiscal 1996 compared with a net loss of $548,000 in
fiscal 1995. The increase is due principally to the absence of any land sales
in 1995. Likewise, the increase from a loss of $130,000 for the first quarter
of fiscal 1996 to a loss of $8,000 for the first quarter of fiscal 1997 was due
to the absence of land sales in the earlier period.
LAND SALES
As of December 31, 1996, the Company had approximately 302.6 acres of
unimproved land remaining to be sold. Approximately 35.9 acres are zoned for
retail/commercial use, 28.1 acres for residential use, and 114.6 acres for
retail/light industrial/office use. The remaining acres are zoned for open
space/agricultural and transportation purposes. The Company sold four parcels
totaling 25.5 acres during fiscal 1996 for $3.8 million and one parcel of 4.1
acres for $600,000 during the first quarter of fiscal 1997. There were no land
sales during fiscal 1995 or the first quarter of fiscal 1996.
GROSS MARGIN
Land sale gross margins were 41% for fiscal 1996 and 28% for the first quarter
of fiscal 1997. Gross margins on rental income were 78% for all periods as the
properties are subject to a triple net lease whereby substantially all
operating expenses are paid by the tenant.
COSTS AND EXPENSES
Land-related sales expenses include broker commissions, escrow fees, etc., and
totaled $369,000 for fiscal 1996 and $64,000 for the first quarter of fiscal
1997.
39
<PAGE> 40
General and administrative expenses consists of property taxes and other
general management and operational costs including costs necessary to maintain
the appearance of the land in a marketable condition and personnel and overhead
expenses required for the development, management and marketing of the
properties. The expenses were $623,000 in fiscal 1995 and $723,000 in fiscal
1996 with the increase attributed to incremental management efforts associated
with the fiscal 1996 land sales. Operating expenses were similar for the first
quarters of 1996 and 1997.
Interest expense consists of mortgage interest on the buildings and the bonded
indebtedness incurred in connection with the development improvements and
community services. Interest expense was approximately $1.9 million for fiscal
1995 and 1996, decreasing slightly due to normal debt maturation. Likewise,
interest expense for the first quarters of 1996 and 1997 was relatively
unchanged at $472,000 and $449,000, respectively.
FUTURE OPERATING RESULTS
Future operating results will depend upon conditions in its market that may
affect demand for real estate. Seasonal trends, building trends, competing
developments and other external forces in the market could cause results to
fluctuate, especially on a quarterly basis.
LIQUIDITY AND CAPITAL RESOURCES
Triad Park, LLC's ability to continue funding its current business will depend
upon the timing and volume of land sales. Management expects that it will
likely continue to have sufficient borrowing capacity to finance any needs
which may arise in the ordinary course of business.
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS No. 121), "Accounting for the Impairment of Long- Lived Assets
and for Long-Lived Assets to be Disposed Of," which requires the review for
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In certain
situations, an impairment loss would be recognized. The Company does not
believe the adoption of SFAS No. 121, which is required in fiscal 1997, will
have a material impact on the Company's financial condition or operating
results.
40
<PAGE> 41
TRIAD PARK, LLC
(a Delaware limited liability company)
BALANCE SHEETS
(in thousands)
_______
<TABLE>
<CAPTION>
September 30,
---------------------- December 31,
ASSETS 1995 1996 1996
-------- -------- ------------
(unaudited)
<S> <C> <C> <C>
Land for resale $ 25,250 $ 22,850 $ 27,876
Property, plant and equipment 18,703 18,171 12,362
Assessments receivable 1,859 2,073 2,091
-------- -------- --------
Total assets $ 45,812 $ 43,094 $ 42,329
======== ======== ========
LIABILITIES AND MEMBERS' EQUITY
Debt $ 21,715 $ 19,464 $ 18,840
-------- -------- --------
Total liabilities 21,715 19,464 18,840
-------- -------- --------
Commitments and contingencies (Note 9).
Members' equity 24,097 23,630 23,489
-------- -------- --------
Liabilities and member's equity $ 45,812 $ 43,094 $ 42,329
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE> 42
TRIAD PARK, LLC
(a Delaware limited liability company)
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
________
<TABLE>
<CAPTION>
Year Ended Three Months Ended
September 30, December 31,
------------------- -------------------
1995 1996 1995 1996
------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 2,506 $ 2,506 $ 627 $ 627
Land sales - 3,795 - 640
------- ------- ------- -------
Total revenues 2,506 6,301 627 1,267
Depreciation of rental property 558 547 136 137
Cost of land sold - 2,231 - 452
------- ------- ------- -------
Gross margin 1,948 3,523 491 678
------- ------- ------- -------
Costs and expenses:
Sales expenses - 369 - 64
General and administrative 623 723 162 174
------- ------- ------- -------
Total costs and expenses 623 1,092 162 238
------- ------- ------- -------
Operating income 1,325 2,431 329 440
Interest expense 1,929 1,857 472 449
------- ------- ------- -------
Income (loss) before provision for
(benefit from) income taxes (604) 574 (143) (9)
Provision for (benefit from) income taxes (56) 53 (13) (1)
------- ------- ------ -------
Net income (loss) $ (548) $ 521 $ (130) $ (8)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE> 43
TRIAD PARK, LLC
(a Delaware limited liability company)
STATEMENTS OF MEMBERS' EQUITY
for the years ended September 30, 1995 and 1996
and the three months ended December 31, 1996
(in thousands)
_______
<TABLE>
<CAPTION>
Undistributed Total
Unallocated Earnings Members'
Capital (Losses) Equity
-------- -------- --------
<S> <C> <C> <C>
Balance, October 1, 1994 $ 27,741 $ (4,674) $ 23,067
Contributions 1,578 1,578
Net loss - (548) (548)
-------- -------- --------
Balance, September 30, 1995 29,319 (5,222) 24,097
Distributions (988) (988)
Net income 521 521
-------- -------- --------
Balance, September 30, 1996 28,331 (4,701) 23,630
Distributions (133) (133)
Net loss - (8) (8)
-------- -------- --------
Balance, December 31, 1996 (unaudited) $ 28,198 $ (4,709) $ 23,489
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE> 44
TRIAD PARK, LLC
(a Delaware limited liability company)
STATEMENTS OF CASH FLOWS
(in thousands)
_______
<TABLE>
<CAPTION>
Year Ended Three Months Ended
September 30, December 31,
------------------- -------------------
1995 1996 1995 1996
------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (548) $ 521 $ (130) $ (8)
Gain from sale of land - (1,194) - (124)
Depreciation 558 547 136 137
Amortization 20 20 5 6
------- ------- ------- -------
Net cash provided by (used in) operating
activities 30 (106) 11 (11)
------- ------- ------- -------
Cash flows from investing activities:
Land sales - 3,523 - 576
Investment in property, plant and equipment (36) (15) (3) -
Acquisition of land - (972) - -
Land improvements (187) (146) (38) (30)
Assessment district improvements (292) (214) (80) (18)
------- ------- ------- -------
Net cash provided by (used in) investing
activities (515) 2,176 (121) 528
------- ------- ------- -------
Cash flows from financing activities:
Repayment of debt (1,093) (1,082) (443) (406)
Members contribution (distribution) 1,578 (988) 553 (133)
------- ------- ------- -------
Net cash provided by (used in) financing
activities 485 (2,070) 110 (539)
------- ------- ------- -------
Net increase (decrease) in cash - - - -
Cash, beginning of period - - - -
------- ------- ------- -------
Cash, end of period $ - $ - $ - $ -
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,929 $ 1,857 $ 472 $ 449
======= ======= ======= =======
Income taxes $ - $ 53 $ - $ 5
======= ======= ======= =======
NONCASH INVESTING AND FINANCIAL ACTIVITY:
Land reclassified from property, plant and equipment
to land for resale $ 5,672
=======
Assessment district improvements and related debt
transferred upon sale $ 1,348 $ 224
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE> 45
TRIAD PARK, LLC
(a Delaware limited liability company)
NOTES TO FINANCIAL STATEMENTS
_______
1. Description of Business and Basis of Presentation:
Triad Park, LLC (the Company) is a Delaware limited liability company
organized to effect the spin-off of certain real estate assets and related
liabilities of Cooperative Computing, Inc., a Delaware Corporation,
formerly known as Triad Systems Corporation (Triad). On October 17, 1996
Triad signed a definitive merger agreement with Cooperative Computing,
Inc. (CCI), a Texas corporation, and its affiliate, CCI Acquisition Corp.
(CAC), a Deleware corporation, under which CCI, through CAC, would
acquire Triad. Pursuant to the terms of the merger agreement, CCI,
through CAC, commenced a cash tender offer for all outstanding shares of
Triad at a price of $9.25 per share on October 23, 1996. As a condition
precedent to completion of the merger, Triad arranged for the spin-off of
certain real estate assets and related liabilities (the Predecessor
Business) to Triad shockholders.
On February 27, 1997, immediately prior to completion of the tender offer,
Triad contributed such assets and related liabilities to the Company.
Under the terms of the Real Estate Distribution Agreement (the Agreement),
all indebtedness of Triad or any of its subsidiaries secured, in whole or
in part, by any of the contributed assets have been assumed by the Company.
Stockholders of Triad will receive one Triad Park membership interest for
each share of Triad common stock held as of February 26, 1997, the
Distribution Record Date.
The Company's operations will include the ownership and management of the
spun-off real estate assets, all of which are located in Livermore,
California, for their orderly liquidation and distribution of related net
proceeds to the holders of membership interests. The Company will be
dissolved upon the earlier of a majority vote to dissolve the Company or
upon the sale or other disposition of all or substantially all of the
assets and properties of the Company and distribution of the proceeds to
the members. The financial statements presented herein include the
financial position, results of operations and cash flows of the
Predecessor Business as if the Company had existed as a corporation
separate from Triad for all periods presented on a historical basis and
may not be indicative of actual results of operations and financial
position of the Company as an independent stand-alone entity. The
statements of operations reflect certain expense items incurred by Triad
which are allocated to the Company on a basis which management believes
represents a reasonable allocation of such costs. These allocations
consist primarily of corporate expenses such as management and accounting
services. Expenses related to the normal recurring management activities
of the Company have been allocated based on an estimate of Triad personnel
time dedicated to the operations and management of the Company.
Continued
45
<PAGE> 46
TRIAD PARK, LLC
(a Delaware limited liability company)
NOTES TO FINANCIAL STATEMENTS, Continued
_______
2. Summary of Significant Accounting Policies:
USE OF ESTIMATES:
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 dates of the
financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those
estimates.
REAL ESTATE HELD FOR RESALE:
Real estate held for resale includes developed lots, land underdeveloped
and raw land. Real estate held for resale is carried at the lower of cost
or market. The cost of development of building lots includes the land,
the related costs of development (planning, survey, engineering and other)
and interest costs during development, all of which are capitalized. The
carrying costs of property held for resale, interest expense, property
taxes and other are expensed. Common costs are allocated based on square
footage and relative market value.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized using the
straight-line method over their estimated useful lives or the lease term,
whichever is less. As property, plant and equipment are disposed of, the
asset related cost and related accumulated depreciation or amortization
are removed from the accounts, and the resulting gains or losses are
reflected in operations.
DEBT ISSUANCE COSTS:
The unamortized costs associated with the issuance of debt are recorded
with the associated liability. Amortization is computed according to the
interest method for debt issuance costs and is included in interest
expense. Upon retirement of remaining principal balances, the associated
unamortized costs are reflected in operations.
Continued
46
<PAGE> 47
TRIAD PARK, LLC
(a Delaware limited liability company)
NOTES TO FINANCIAL STATEMENTS, Continued
_______
2. Summary of Significant Accounting Policies, continued:
REVENUE RECOGNITION:
Profits on sale of developed lots, developed land and raw land are
recognized in accordance with standards established for the real estate
industry which generally provide for deferral of all or part of the profit
on a sale if the buyer does not meet certain down payment requirements or
certain other tests of the buyer's financial commitment to the purchase,
or the Company is required to perform significant obligations subsequent
to the sale.
Cost of sales include an allocated pro rata portion of acquisition and
development costs along with sales commissions, closing costs and other
costs specifically related to the sale.
INCOME TAXES:
The Company does not provide for income taxes as all income and losses are
allocated to the members for inclusion in their respective tax returns
except for the state of California for which the Company has elected to be
treated as a taxable entity. The tax basis of the Company's net assets is
estimated at approximately $14 million which is determined based on
appraised value under a bulk sale assumption. As a result, gains on future
sales as reported for tax purposes may be substantially higher than those
reported for financial statement purposes.
INTERIM FINANCIAL STATEMENTS:
In the opinion of management, the unaudited interim financial statements
as of December 31, 1996 and for the three month periods ended December 31,
1995 and 1996 and include all adjustments, consisting only of those of a
normal recurring nature, necessary to present fairly the Company's
financial position as of December 31, 1996 and the results of its
operations and cash flows for the three month periods ended December 31,
1995 and 1996. The results of operations for the three months ended
December 31, 1996 are not necessarily indicative of the results to be
expected for the full year.
Continued
47
<PAGE> 48
TRIAD PARK, LLC
(a Delaware limited liability company)
NOTES TO FINANCIAL STATEMENTS, Continued
_______
3. Related Party Agreement:
The Company's developed commercial property, consisting of three buildings
and improvements on approximately 15 acres, is occupied by Triad Systems
Corporation under a lease agreement that provides for annual rent of
$2,505,720 payable monthly in advance through February 1999 and prevailing
market rate thereafter, providing that annual rental shall not fall below
rate in effect at the date of renegotiation nor exceed 120% of such rental
rate. Payments under the lease are on a "net lease" basis, free of any
impositions and with out abatement, deduction or set-off. The tenant is
required to pay all impositions (e.g. taxes, assessments, water and sewer
charges, excises, levies, etc.) in addition to the annual rent.
4. Property, Plant and Equipment:
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
---------------------- December 31,
1995 1996 1996
-------- -------- ------------
(unaudited)
<S> <C> <C> <C>
Building and leasehold improvements $ 16,302 $ 16,317 $ 16,317
Less accumulated depreciation (4,248) (4,795) (4,932)
-------- -------- --------
12,054 11,522 11,385
Land 6,649 6,649 977
-------- -------- --------
Total property, plant and equipment $ 18,703 $ 18,171 $ 12,362
======== ======== ========
</TABLE>
The above facilities and land are all subject to a lease agreement with
Triad Systems Corporation for use as their headquarters (see Note 3).
During December 1996, certain land previously intended for use by Triad
Systems Corporation in their operations was reclassified as land for
resale in connection with the merger and spin-off (see Note 6).
Continued
48
<PAGE> 49
TRIAD PARK, LLC
(a Delaware limited liability company)
NOTES TO FINANCIAL STATEMENTS, Continued
_______
5. Debt:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
------------------------ December 31,
1995 1996 1996
-------- -------- ------------
(unaudited)
<S> <C> <C> <C>
Mortgage loan payable, bearing interest at 9.9%,
and maturing through 2003 $ 10,946 $ 10,004 $ 9,749
Assessment district improvement bonds, bearing
interest rates ranging from 4.75% to 7.25%, and
maturing through 2014 10,932 9,606 9,228
Unamortized debt issuance costs (163) (146) (137)
-------- -------- --------
Total debt $ 21,715 $ 19,464 $ 18,840
======== ======== ========
</TABLE>
The interest rate on the mortgage financing for the Livermore headquarters
facility may be adjusted at the option of the lender in 1998 and could
impact the interest rate from 1999 to its maturity in 2003. Borrowings
are collateralized by the land and buildings and are payable in monthly
installments.
A portion of the Company's land for resale and the parcel retained for its
facilities are part of assessment districts and are subject to bonded
indebtedness incurred in connection with the development of improvements
and community services. Semiannual principle and interest payments on the
bonds are required as long as the parcels are owned by the Company. As
the Company sells land, the corresponding obligation will be assumed by
the new owners.
Continued
49
<PAGE> 50
TRIAD PARK, LLC
(a Delaware limited liability company)
NOTES TO FINANCIAL STATEMENTS, Continued
_______
6. Land Held for Resale:
Real estate held for resale consists of property in Livermore, California,
classified by planned use as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1996
-------------------- --------------------
Use Classification Acreage Cost Acreage Cost
------------------ ------- -------- ------- --------
<S> <C> <C> <C> <C>
Residential 28.1 $ 4,015 28.1 $ 4,029
Retail/commercial 40.0 5,430 35.9 4,797
Retail/industrial/office 68.2 12,285 114.3 17,925
Open space/agricultural 112.0 - 112.0 -
Transportation 12.3 1,120 12.3 1,125
----- -------- ----- --------
261.6 $ 22,850 302.6 $ 27,876
===== ======== ===== ========
</TABLE>
The cost of land held for resale includes the cost of developments
financed with debt that transfers to the buyer upon sale amounting to
$7,838,000 and $9,800,000 at September 30 and December 31, 1996,
respectively. During the three months ended December 31, 1996,
approximately 34 acres of land previously held for future use by Triad
Systems Corporation was reclassified to land held for resale. As a
result, costs of approximately $5.7 million which include debt financed
amounts of approximately $2.2 million were reclassified from property and
equipment to land held for resale.
7. Members Equity:
Holders of membership interests (members) have the right to vote on
certain matters of the Company including the election and removal of
Advisory Board members, merger with or into another business entity and
dissolution of the Company.
All the issued and outstanding membership interests are fully paid and
nonassessable. Holders of membership interests do not have preemptive or
conversion rights, nor rights to redemption or sinking fund provisions by
the Company. In the event of any liquidation, dissolution or winding up
of the Company, the holders of the membership interests are entitled to
share ratably in proportion to their ownership as of the date of
distribution in any assets remaining after payment of all debts and
liabilities.
Continued
50
<PAGE> 51
TRIAD PARK, LLC
(a Delaware limited liability company)
NOTES TO FINANCIAL STATEMENTS, Continued
_______
8. Significant Customers:
The Company had land sales to the following significant customers in 1996
(in thousands):
<TABLE>
<S> <C>
Customer A $ 1,636
Customer B 1,389
Customer C 450
Customer D 320
--------
Total $ 3,795
========
</TABLE>
There were no land sales in 1995.
9. Contingencies:
Under the terms of the Distribution Agreement (see Note 1), all costs and
expenses solely attributed to the transactions related to the spin-off and
related dividend to Triad shareholders will be paid by the Company when
such amounts are due. The Company will indemnify and hold Triad and its
subsidiaries harmless from and against loss, cost, damage or expense
arising out of or related to any failure of the Company to discharge the
obligations specified in the Agreement. The Company will indemnify and
hold Triad and its subsidiaries harmless from and against any taxes
attributed to, arising out of or relating to the Company, its formation,
the transfer of contributed assets, the assumption or refinancing of
liabilities with respect to the contributed assets, the sale, exchange,
distribution, dividend or other disposition of interests of the Company by
Triad or its subsidiaries.
To support its ability to fund the indemnity commitment to Triad, the
Company has agreed to maintain net assets with a minimum market value of
$2,350,000 based upon the most recent appraised value of the Company's
then existing real property assets until 60 days after the expiration of
all statutes of limitation related to the collection of taxes related to
the transactions contemplated by the Agreement (estimated to be
approximately four years). Triad may cause the real property to be
appraised at any time and the Company must pay one half of the expense if
the most current calculation of net worth is less than $4,000,000.
Compliance with these requirements may limit the Company's ability to
make distributions to shareholders.
Continued
51
<PAGE> 52
TRIAD PARK, LLC
(a Delaware limited liability company)
NOTES TO FINANCIAL STATEMENTS, Continued
_______
The Company is obligated to undertake an estimated additional $7,000,000
in improvements to its land held for resale in connection with its
approved development plan. The City of Livermore has indicated that it is
willing to reimburse the Company for such improvements by means of a bond
financing. Historically, the City of Livermore has been able to
successfully sell its bond offerings and the current estimates for
required improvements indicate that bonded funding limits will be adequate
to cover the remaining items of improvement. However, the actual costs of
the improvements may be greater than estimated and may exceed the bond
funding limit. Alternatively, if the City of Livermore is unsuccessful
in completing a bond offering, it is possible the Company would not
receive any reimbursement for such improvements. Any shortfall in the
bond funding will be borne by the Company or by purchasers of lots, which
may have an adverse effect on the value of the land.
10. Subsequent Event:
The City of Livermore has entered into a Bond Indenture and issued an
Official Statement to raise a total of $9,070,000 in new funds from the
sale of Mello-Roos bonds. The sale of the bonds closed
March 24, 1997, and the proceeds are designated to refinance the prior
bonded indebtedness of approximately $2,300,000, to fund reimbursements to
the Company of approximately $2,050,000 arising from previously completed
improvements, to provide funds of approximately $3,700,000 to complete
improvements to the Land required by various agreements with the City of
Livermore and others, to pay financing expenses of $620,000 and to create
a bond reserve fund of approximately $400,000 held by the City of
Livermore. Of this new indebtedness, approximately $6,938,000 would
encumber the Property owned by the Company. Thus, upon completion of this
bond offering, the total indebtedness encumbering the Property owned by
the Company will be approximately $14,382,000.
52
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Triad Park, LLC:
We have audited the accompanying balance sheet of the Predecessor Business (See
Note 1) of Triad Park, LLC (a Delaware limited liability company) as of
September 30, 1996, and the related statements of operations, changes in
members' equity and cash flows for the years ended September 30, 1996 and 1995.
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 audit.
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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Predecessor Business of
Triad Park, LLC (a Delaware limited liability company) as of September 30, 1996
and the results of its operations and cash flows for the years ended September
30, 1996 and 1995, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
San Jose, California
March 14, 1997, except
for Note 10, Subsequent
Event, the date for which
is as of March 24, 1997
53
<PAGE> 54
TRIAD PARK, LLC
(a Delaware limited liability company)
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED STATEMENTS OF OPERATIONS
_______
The following unaudited pro forma condensed statements of operations give
effect to the spin-off of Triad Park, LLC by Triad Systems Corporation as if it
had occurred at the beginning of each period presented. The pro forma
information is based on the estimates and assumptions set forth below and in
the note to such statements.
This pro forma information has been prepared utilizing the historical financial
statements of the Predecessor Business of Triad Park, LLC. This information
should be read in conjunction with the historical financial statements and
notes thereto. The pro forma financial data have been included as required by
the rules and regulations of the Securities and Exchange Commission and are
provided for comparative purposes only. The pro forma financial data does not
purport to be indicative of the results which actually would have been obtained
if the spin-off had been effected on the dates indicated or of those results
which may be obtained in the future.
54
<PAGE> 55
TRIAD PARK, LLC
(a Delaware limited liability company)
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
_______
<TABLE>
<CAPTION>
Three Months Ended
Year Ended September 30, 1996 December 31, 1996
----------------------------------- -----------------------------------
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income $ 2,506 $ 2,506 $ 627 $ 627
Land sales 3,795 3,795 640 640
-------- -------- -------- ------- ------- --------
Total revenues 6,301 6,301 1,267 1,267
Depreciation of rental property 547 547 137 137
Cost of land sold 2,231 2,231 452 452
-------- -------- -------- ------- ------- --------
Gross margin 3,523 3,523 678 678
-------- -------- -------- ------- ------- --------
Costs and expenses:
Marketing 369 369 64 64
General and administrative 723 723 174 174
-------- -------- -------- ------- ------- --------
Total costs and expenses 1,092 1,092 238 238
-------- -------- -------- ------- ------- --------
Operating income 2,431 2,431 440 440
Interest expense (a) (1,857) $ (2,594) (4,451) (449) $ (635) (1,084)
-------- -------- -------- ------- ------- --------
Income (loss) before
provision for (benefit (9) (644)
from) income taxes 574 (2,594) (2,020) (635)
Provision for (benefit from) income taxes 53 (241) (188) (1) (59) (60)
-------- -------- -------- ------- ------- --------
Net income (loss) $ 521 $ (2,353) $ (1,832) $ (8) $ (576) $ (584)
======== ======== ======== ======= ======= ========
Pro forma net income (loss) per share $ (0.10) $ (0.03)
======== ========
Pro forma shares used in per share
calculation (b) 17,570 18,450
======== ========
</TABLE>
See accompanying note.
55
<PAGE> 56
TRIAD PARK, LLC
(a Delaware limited liability company)
NOTE TO PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
_______
1 Pro Forma Statements of Operations:
Prior to February 26, 1997, Triad Park, LLC ("the Company") was a
wholly-owned subsidiary of Triad Systems Corporation (Triad).
During February 1997 Triad transferred certain real estate assets and
related liabilities to the Company as a condition precedent to Triad's
merger with Cooperative Computing, Inc.
Effective February 26, 1996, Triad spun-off the Company as a dividend to
the shareholders. All membership interests in the Company will be
distributed to Triad shareholders on a pro rata basis on the Distribution
Date, as defined in the Real Estate Distribution Agreement. The
accompanying pro forma condensed statements of operations give effect to
the spin-off as if it had occurred at the beginning of the period
presented. The pro forma information is based on the estimates and
assumptions set forth below.
This pro forma information has been prepared utilizing the historical
financial statements of the Predecessor Business of the Company. This
information should be read in conjunction with the historical financial
statements and notes thereto and is included as required by the rules and
regulations of the Securities and Exchange Commission and is provided for
comparative purpose only. The pro forma financial data do not purport to
be indicative of the results which actually would have been obtained if
the acquisition had been effected on the date indicated or of those
results which may be obtained in the future.
Pro forma adjustments consist of the following:
(a) To record interest expense which would have been incurred by
the Company for working capital needs funded by intercompany
contributions at an estimated annual rate of 9%.
(b) The number of shares used to compute pro forma earnings per
share is based on the fully diluted average number of Triad
common shares outstanding for each period presented.
56
<PAGE> 1
[Carneghi-Bautovich & Partners, Inc. Letterhead]
November 18, 1996
Mr. Larry McReynolds
Manager Real Estate & Facilities
Triad Systems Corporation
3055 Triad Drive
Livermore, CA 94550-9559 Re: 96-ASF-359, Appraisal
Triad Business Park
Livermore, California
Dear Mr. McReynolds:
At your request and authorization, Carneghi-Bautovich & Partners, Inc. has made
an appraisal of the as-is fee simple interest in 27 vacant land sites in the
Triad Business Park and the as-is leased fee interest in the 219,818 square
feet of office and office/flex buildings occupied by Triad Systems, assuming
the entire holding is sold in a single transaction. The subject is located on
the north side of Interstate 580 at Airway Boulevard in the City of Livermore,
Alameda County, California. The subject is identified as Lots 1 through 25 and
the Triad Systems Corp. buildings shown on the Triad Park site plan presented
later in this report. The subject lots and building improvements are
identified by the Alameda County Assessor's office as portions of Assessor's
Parcel Numbers 905-9-2, 3, 7, 8, 9, 10, 11, 12, 18-1, 19, 21, 22-3, 29, 30, 31,
32, 33, 34, 35, 44, 47, and 48.
The vacant sites are divided into the planning and use categories of
residential, industrial/office flex, retail, and open space. The residential
portion is divided into three lots and contains approximately 25 usable acres.
The industrial flex portion is divided into 12 lots and contains approximately
92 usable acres. The retail/commercial oriented portion is divided into 10
lots and contains approximately 27 usable acres. The total usable area for
these 25 lots is approximately 144 acres. In addition, there are two lots, one
of approximately 110 acres designated for open space or agricultural use and
one of 4.54 acres planned to be dedicated for transportation improvements.
Approximately half the required offsite improvements are in place, funded
through a combination of assessment bonds and community facility bonds. The
construction of the remaining offsite improvements are expected to be funded
through additional community facility bonds and are planned with the sale of
the subject lots.
The building improvements consist of 3 buildings that contain a total area of
219,818 square feet on a 15-acre site. All of the buildings are of concrete
tilt-up construction and were built in 1987. Building G is a two-story office
building containing approximately 70,986 square feet. Buildings K and F are
single story industrial flex buildings with 74,064 and 74,768 square feet. The
office build-out in these buildings is 90 percent and 40 percent respectively.
<PAGE> 2
Mr. Larry D. McReynolds -2- November 18, 1996
This appraisal assumes that the buyer will succeed to the rights and
obligations of Triad under the existing Subdivision Improvements Agreement.
Further, relative to the building improvements, this appraisal assumes the
proposed lease amendment between Triad Systems as tenant and 3055 Triad Drive
Corp., as landlord has been executed and is in effect at the stated terms
therein.
The purpose of this appraisal is to estimate the as-is market value of the
subject property. The intended use (function) of this appraisal is for the
exclusive use by Triad Systems Corporation, for documentation as to market
value concerning a proposed transaction, for the calculation of taxable income
for the proposed transaction to be reported by the Internal Revenue Service,
for evaluation of possible offers as to fairness and will (at least in part) be
included as an exhibit to an information statement to be sent to all Triad
stockholders and filed with the Securities Exchange Commission.
This is a complete appraisal presented in a self-contained appraisal report. A
more complete description of the subject property as well as the research and
analysis leading to our opinion of value is contained in the attached report.
Chapter I provides a summary of the salient facts and conditions upon which
this appraisal is based and reviews the value conclusions.
Based on the research and analysis contained within the attached report and
subject to the assumptions and limiting conditions contained therein, it is the
opinion of the undersigned that the cash equivalent market value of the fee
simple and leased fee interest in the subject property, in as-is condition,
assuming the lease amendment is executed and sale in a single transaction, as
of November 1, 1996, is:
THIRTY ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
($31,800,000)
Further, it is our opinion that the property could be sold at the above market
value within a 12-month exposure period.
CERTIFICATION OF APPRAISERS
We, the undersigned, hereby certify that, to the best of our knowledge and
belief: the statements of fact contained in this report are true and correct;
the reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal, unbiased
professional analyses, opinions, and conclusions; we have no present or
prospective interest in the property that is the subject of this report, and we
have no personal interest or bias with respect to the parties involved; our
compensation is not contingent upon the reporting of a predetermined value or
direction in value that favors the cause of the client, the amount of the value
estimate, the attainment of a stipulated result, or the occurrence of a
<PAGE> 3
Mr. Larry D. McReynolds -3- November 18, 1996
subsequent event; the appraisal assignment was not based on a requested minimum
valuation, a specific valuation, or the approval of a loan; our analyses,
opinions and conclusions were developed, and this report has been prepared in
conformity with the Uniform Standards of Professional Appraisal Practice, Code
of Professional Ethics and the Standards of Professional Appraisal Practice of
the Appraisal Institute; and is in compliance with FIRREA; we have made a
personal inspection of the properties which are the subject of this report; no
one other than the undersigned provided significant professional assistance to
the persons signing this report. The use of this report is subject to the
requirements of the Appraisal Institute relating to review by its duly
authorized representatives. As of the date of this report Chris Carneghi and
Ronald Blum have completed the requirements under the continuing education
program of the Appraisal Institute. In accordance with the Competency
Provision in the USPAP, we certify that our education, experience and knowledge
are sufficient to appraise the type of property being valued in this report.
We are pleased to have had this opportunity to be of service. Please contact
us if there are any questions regarding this appraisal.
Sincerely,
CARNEGHI-BAUTOVICH & PARTNERS, INC.
/s/ CHRIS CARNEGHI
------------------
Chris Carneghi, MAI
Certified General Real Estate Appraiser
State of California No. AG001685
/s/ RONALD BLUM
---------------
Ronald Blum, MAI
Certified General Real Estate Appraiser
State of California No. AG009958
/s/ MARK A. WATTS
-----------------
Mark A. Watts
Certified General Real Estate Appraiser
State of California No. AG015362
/sl
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. REPORT SUMMARY 1
A. Property Appraised 1
B. Subject Property Identifications 2
C. Purpose and Function of Appraisal 2
D. Scope of Appraisal 2
E. Date of Appraisal and Date of Report 2
F. Definition of Terms 3
G. Valuation Summary 3
H. Specific Limiting Conditions 4
I. General Limiting Conditions 4
II. AREA AND NEIGHBORHOOD DESCRIPTION 6
A. Alameda County 6
B. The City of Livermore 6
C. Subject Neighborhood 7
III. MARKET TRENDS 9
A. Industrial Flex and Office Markets 9
B. Commercial/Retail Market 9
C. Residential Market 10
D. Conclusions 10
IV. PROPERTY IDENTIFICATION 12
A. Subject Property Description 12
B. Ownership 12
C. Easements and Restrictions 13
D. Zoning 14
E. Utilities 16
F. Environmental Observations 16
G. Flood Zone, Seismic, Census Tract and Map Page Grid
Information 16
H. Assessed Valuation and Real Estate Taxes 17
V. PROPERTY DESCRIPTION 18
A. Existing and Proposed Site Improvements 18
B. Site Layout and Description 19
C. Building Improvements 21
D. ADA Compliance 24
</TABLE>
<PAGE> 5
TABLE OF CONTENTS, CONTINUED
<TABLE>
<S> <C> <C>
VI. HIGHEST AND BEST USE AND APPRAISAL METHODOLOGY 25
A. Highest and Best Use 25
B. Methodology 27
VII. RETAIL VALUATION - FINISHED LAND 30
A. Comparable Sales - Industrial and Retail Sites 30
B. Analysis and Conclusions Industrial and Commercial Lots 33
C. Residential Lots 36
D. Open Space 37
E. Summary 37
VIII. DISCOUNTED (BULK) VALUE CONCLUSION 38
A. DCF Assumptions 38
B. Bulk Value Conclusion 42
C. As-Is Value 42
IX. VALUE OF TRIAD BUILDINGS - DIRECT SALES COMPARISON
APPROACH 43
A. Comparable Building Sales 43
B. Analysis 45
X. VALUATION BY THE INCOME APPROACH 47
A. Current Leasing Status 47
B. Lease Survey and Analysis 49
CC. Stabilized Income Statement 50
D. Value Conclusion 52
XI. RECONCILIATION AND CONCLUSION - BUILDING IMPROVEMENTS 53
XII. FINAL VALUE CONCLUSION 54
XIII. EXPOSURE/MARKETING PERIOD 55
A. Exposure Period 55
B. Marketing Time 55
</TABLE>
<PAGE> 6
TABLE OF EXHIBITS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
LIST OF TABLES
Table 1 - Site Number and Identification 12.1
Table 2 - Assessed Value and Taxes 17.1
Table 3 - Comparable Land Sales 30.1
Table 4 - Comparable Residential Land Sales 36.1
Table 5 - Comparable Open Space/Agricultural Land Sales 37.1
Table 6 - Summary of Aggregate Retail Values 37.2
Table 7 - Discounted Land Valuation 39.1
Table 8 - Comparable Building Sales 43.1
Table 9 - Comparable Leases 49.1
Table 10- Stabilized Net Operating Income Statement 50.1
</TABLE>
<PAGE> 7
TABLE OF EXHIBITS, CONTINUED
<TABLE>
<S> <C> <C>
LIST OF MAPS
Regional Map facing 6
Neighborhood Map facing 7
Site Plan facing 12
Zoning and Use Map facing 14
Site Plan facing 18
Building Site Plans facing 21
Floor Plans following 21, 22
Comparabe Land Sales facing 30.1, 30.2
Comparable Residential Land Sales facing 36.1
Comparable Open Sapce Land Sales facing 37.1
Comparable Building Sales facing 43.1
Comparable Rentals facing 49.1
</TABLE>
<PAGE> 8
ADDENDA
Title Report
Subject Building Photographs
Comparable Sale Photographs
Comparable Rent Photographs
Unbuildable Hillside Area Map
Building Synopsis
Assessment District cost Estimate Table
Qualifications of Appraisers
<PAGE> 9
Appraisal: Triad Business Park, Livermore, CA Page 1
- -----------------------------------------------------------------------------
I. REPORT SUMMARY
A. Property Appraised
The subject property appraised is the as-is fee simple interest in 27 vacant
land sites in the Triad Business Park and the as-is leased fee interest in the
219,818 square feet of office and office/flex buildings occupied by Triad
Systems, assuming the entire holding is sold in a single transaction. The
subject is located on the north side of Interstate 580 at Airway Boulevard in
the City of Livermore, Alameda County, California. The subject is identified
as Lots 1 through 25 and the Triad Systems Corp. buildings shown on the Triad
Park site plan presented later in this report. The subject lots and building
improvements are identified by the Alameda County Assessor's office as portions
of Assessor's Parcel Numbers 905-9-2, 3, 7, 8, 9, 10, 11, 12, 18-1, 19, 21,
22-3, 29, 30, 31, 32, 33, 34, 35, 44, 47, and 48.
The vacant sites are divided into the planning and use categories of
residential, industrial/office flex, retail, and open space. The residential
portion is divided into three lots and contains approximately 25 usable acres.
The industrial flex portion is divided into 12 lots and contains approximately
usable 92 acres. The retail/commercial oriented portion is divided into 10
lots and contains approximately usable 27 acres. The total usable area for
these lots is approximately 144 acres. In addition, there are two lots, one of
approximately 110 acres designated for open space or agricultural use and one
of 4.54 acres dedicated for transportation improvements. Approximately half
the required offsite improvements are in place, funded through a combination of
assessment bonds and community facility bonds. The construction of the
remaining offsite improvements are expected to be funded through additional
community facility bonds and are planned with the sale of the subject lots.
The building improvements consist of 3 buildings that contain a total area of
219,818 square feet on a 15-acre site. All of the buildings are of concrete
tilt-up construction and were built in 1987. Building G is a two-story office
building containing approximately 70,986 square feet. Buildings K and F are
single story industrial flex buildings with 74,064 and 74,768 square feet. The
office build-out in these buildings is 90 percent and 40 percent respectively.
This appraisal assumes that the buyer will succeed to the rights and
obligations of Triad under the existing Subdivision Improvements Agreement.
Further, relative to the building improvements, this appraisal assumes the
proposed lease amendment between Triad Systems as tenant and 3055 Triad Drive
Corp., as landlord has been executed and is in effect at the stated terms
therein.
<PAGE> 10
Appraisal: Triad Business Park, Livermore, CA Page 2
- -----------------------------------------------------------------------------
B. Subject Property Identifications
<TABLE>
<S> <C>
Zoning PUD. 108 (Business and Commercial)
PUD 116 (Service, Retail and Industrial)
PUD 117-94 (Residential)
Census Tract Number Tract 4507.21, Block 2
Earthquake Zone (Not in Alquist Priolo) N/A
Flood Zone (Insurance Not Required) X
Thomas Map References Page 39, Grid E4
</TABLE>
C. Purpose and Function of Appraisal
This appraisal was requested by Mr. Larry McReynolds, Manager Real
Estate and Facilities of Triad Systems Corporation. The purpose of
this appraisal is to estimate the as-is market value of the subject
property. The intended use (function) of this appraisal is for the
exclusive use by Triad Systems Corporation, for documentation as to
market value concerning a proposed transaction, for the calculation of
taxable income for the proposed transaction to be reported by the
Internal Revenue Service, for evaluation of possible offers as to
fairness and will (at least in part) be included as an exhibit to an
information statement to be sent to all Triad stockholders and filed
with the Securities Exchange Commission.
D. Scope of Appraisal
The scope of this appraisal report is to utilize the appropriate
approaches to value in accordance with Uniform Standards of
Professional Appraisal Practice (USPAP) to arrive at a market value
conclusion. Specific steps include the inspection of the subject
property and the research and analysis of comparable data to arrive at
value indications as put forth in the following report.
This is a complete appraisal in a self-contained report.
E. Date of Appraisal and Date of ReportDate of Appraisal and Date of
Report
The effective date of valuation is November 1, 1996, the last date of
inspection of the subject property.
<PAGE> 11
Appraisal: Triad Business Park, Livermore, CA Page 3
- ------------------------------------------------------------------------------
The date of the appraisal report is November 18, 1996.
F. Definition of Terms
1. Definition of Market Value (OCC 12 CFR 34.42 (f)) (OTS 12 CFR,
Part 564.2 (f)).
Market value means the most probable price which a property
should bring in a competitive and open market under all
conditions requisite to a fair sale, the buyer and seller,
each acting prudently, knowledgeably and assuming the price is
not affected by undue stimulus. Implicit in this definition
is the consummation of a sale as of a specified date and the
passing of title from seller to buyer under conditions
whereby:
a. Buyer and seller are typically motivated;
b. Both parties are well informed or well advised, and
acting in what they consider their own best interests;
c. A reasonable time is allowed for exposure in the open
market;
d. Payment is made in terms of cash in US dollars or in
terms of financial arrangements comparable thereto;
and
e. The price represents the normal consideration for the
property sold unaffected by special or creative
financing or sales concessions granted by anyone
associated with the sale.
G. Valuation Summary
Based on the research and analysis contained within this report and
subject to the assumptions and limiting conditions contained herein,
it is the opinion of the appraisers that the cash equivalent market
value of the fee simple and leased fee interest in the subject
property, in as-is condition, assuming sale in a single transaction,
as of November 1, 1996, is:
THIRTY ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
($31,800,000)
Further, it is our opinion that the property could be sold at
the above market value within a 12-month exposure period.
<PAGE> 12
Appraisal: Triad Business Park, Livermore, CA Page 4
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H. Specific Limiting Conditions
1. A current title report was not provided to the appraisers.
This report assumes no easements or restrictions have been
recorded which would affect the market value of the subject,
other than as noted in the report.
2. This appraisal assumes that the buyer will succeed to the
rights and obligations of Triad under the existing Subdivision
Improvements Agreement.
3. The appraisal report assumes the assessment bond projections
accurately reflect the necessary remaining costs to complete
the subject vacant lots.
4. This appraisal assumes the proposed lease amendment between
Triad Systems as tenant and 3055 Triad Drive Corp., as
landlord has been executed and is in effect at the stated
terms therein.
I. General Limiting Conditions
1. It is the client's responsibility to read this report and to
inform the appraiser of any errors or omissions of which
he/she is aware prior to utilizing this report or making it
available to any third party.
2. No responsibility is assumed for legal matters. It is assumed
that title of the property is marketable and it is free and
clear of liens, encumbrances and special assessments other
than as stated in this report.
3. Plot plans and maps are included to assist the reader in
visualizing the property. Information, estimates, and
opinions furnished to the appraiser, and contained in the
report, were obtained from sources considered reliable and
believed to be true and correct. However, no responsibility
for accuracy of such items furnished the appraiser is assumed
by the appraiser.
4. All information has been checked where possible and is
believed to be correct, but is not guaranteed as such.
5. The appraiser assumes that there are no hidden or unapparent
conditions of the property, subsoil, or structures, which
would render it more or less valuable. The appraiser assumes
no responsibility for such conditions, or for engineering
which might be required to discover such factors. It is
assumed that no soil contamination exists as a result of
chemical drainage
<PAGE> 13
Appraisal: Triad Business Park, Livermore, CA Page 5
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or leakage in connection with any production operations on or
near the property.
6. In this assignment, the existence (if any) of potentially
hazardous materials used in the construction or maintenance of
the improvements or disposed of on the site has not been
considered. These materials may include (but are not limited
to) the existence of formaldehyde foam insulation, asbestos
insulation, or toxic wastes. The appraiser is not qualified
to detect such substances; the client is advised to retain an
expert in this field.
7. Any projections of income and expenses in this report are not
predictions of the future. Rather, they are an estimate of
current market thinking of what future income and expenses
will be. No warranty or representation is made that these
projections will materialize.
8. The appraiser is not required to give testimony or appear in
court in connection with this appraisal unless arrangements
have been previously made.
9. Possession of this report, or a copy thereof, does not carry
with it the right of publication. It may not be used for any
purpose by any person other than the party to whom it is
addressed without the written consent of the appraiser, and in
any event only with the proper written qualification, only in
its entirety, and only for the contracted intended use as
stated herein.
10. Neither all nor part of the contents of this report shall be
conveyed to the public through advertising, public relations,
news sales, or other media without the written consent and
approval of the appraiser, particularly as to the valuation
conclusions, the identity of the appraisers, or any reference
to the Appraisal Institute or the MAI designation.
11. The Americans with Disabilities Act (ADA) became effective
January 26, 1992. We have not made a specific compliance
survey and analysis of this property to determine whether or
not it is in conformity with the various detailed requirements
of the ADA. It is possible that a compliance survey of the
property, together with a detailed analysis of the
requirements of the ADA, could reveal that the property is not
in compliance with one or more of the requirements of the Act.
If so, this fact could have a negative effect upon the value
of the property. Since we have no direct evidence relating to
this issue, we did not consider possible noncompliance with
the requirements of ADA in estimating the value of the
property, other than as noted in the report.
Facing Page 6 - "Regional Map"
Road map of the greater San Francisco Bay Area with location
of subject property marked with an arrow indicating "SUBJECT."
<PAGE> 14
Appraisal: Triad Business Park, Livermore, CA Page 6
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II. AREA AND NEIGHBORHOOD DESCRIPTION
A. Alameda County
Alameda County is one of the five counties of metropolitan San
Francisco, also known as the San Francisco-Oakland Standard
Metropolitan Statistical Area. The western portion of the
county, which contains most of the population and economic
activity, is situated on the flatland adjacent to San
Francisco Bay. The northwestern cities of Alameda including
Berkeley, Oakland and San Leandro, are older and most of the
growth in the 1980s and early 1990s has occurred in the
southern and central cities of Alameda County. The eastern
portion of the county is mountainous and largely undeveloped.
Alameda County is the traditional manufacturing,
transportation and warehousing center for the San Francisco
Bay Area. The county has an advantageous location on the
eastern side of San Francisco Bay. Transportation facilities
include three transcontinental railroads, the Port of Oakland,
extensive freeways, and the Bay Area Rapid Transit (BART)
system. The county is linked to San Francisco and the west
side of the bay by three bridges.
The population is slowly growing. The 1990 Census reported
the Alameda County population to be 1,279,182, an increase of
15.7 percent over the 1980 population. According to the
Association of Bay Area Governments (ABAG), the population is
expected to be 1,518,700 by the year 2005. The California
Department of Finance reported the population as of January 1,
1996 to be 1,356,100.
Total employment in Alameda County has grown steadily in
recent years. The leading employment sector in the county is
Service with nearly 36 percent of the jobs. Unemployment for
Alameda County has been between 4.0 and 6.0 percent over the
past year. According to the State Department of Employment
Development, the unemployment rate for Alameda County was 5.3
percent in February 1996, compared with 5.6 percent one year
earlier. Several military base closings are expected to
slightly offset net employment growth until the year 2000.
B. The City of Livermore
The City of Livermore, incorporated in 1969, is in Alameda
County, approximately 40 miles southeast of San Francisco.
Livermore is on the eastern perimeter of the Tri-Valley area,
roughly seven miles east of the cities of Pleasanton and
Dublin, along Interstate 580.
Facing Page 7 - "Neighborhood Map"
Road map of the Livermore Area with location of subject
property marked with an arrow indicating "SUBJECT."
<PAGE> 15
Appraisal: Triad Business Park, Livermore, CA Page 7
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According to the DOF, From a 1980 population of 49,612,
Livermore grew 14 percent to 56,400 residents as of 1990. The
community had a population of 65,400 as of January 1996, which
represents an approximate 16.0 percent increase from the 1990
population. By the year 2005, the population of Livermore is
projected to increase another 33.0 percent from current
levels, to 87,000.
Compared to other Tri-Valley cities, Livermore's growth has
been gradual. This is due in large part to its peripheral
location in the eastern Tri-Valley area, and the city's stated
goal to limit population growth to 2.5 percent annually.
According to the ABAG, employment in Livermore is projected to
increase 67 percent from 1990 to 2010. A major factor
contributing to Livermore's relatively high employment growth
rate is the city's two governmental research laboratories.
These facilities provide a relatively high proportion of the
area's total employment, and have remained relatively
unaffected by the current economic recession and governmental
budget cuts. The Lawrence Livermore Laboratory employs 9,000
people and the Sandia National Laboratory employs 1,100. Both
laboratories were established in Livermore after World War II
and have been major inducements for area development. Major
private sector employers in Livermore include Triad Systems,
Inc., Intel Corporation and Hexel Corporation.
Although population and employment growth has been gradual
within the city of Livermore, the growth of the industrial
segment of the market has expanded more rapidly. While the
communities of Pleasanton and San Ramon have captured the bulk
of the office space users, development in Livermore has
centered around industrial users, especially warehousing and
distribution.
C. Subject Neighborhood
The subject property is in a light industrial and commercial
area of Livermore, northeast of the Livermore Municipal
Airport in the northwestern portion of the city. The greater
subject neighborhood is generally bounded by Doolan Road and
the City of Livermore limits to the west, Airway Boulevard to
the south, the Chabot College Livermore Campus and the City of
Livermore Limits to the east and the hills of Alameda County
to the north. The boundaries of the immediate subject
environs are the boundaries of Triad Business Park. Downtown
Livermore is approximately two miles to the southeast of the
subject.
The subject neighborhood was developed in the late 1980s as
Triad Business Park. The master plan for the area at the time
of inception was for strictly light industrial uses. Due to
changed market conditions since its inception, a broader group
of uses have been developed and planned for the neighborhood.
In addition to light
<PAGE> 16
Appraisal: Triad Business Park, Livermore, CA Page 8
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industrial uses, service commercial/retail has been developed
and residential is planned.
The southern half of the neighborhood, below North Canyons
Parkway, has been developed with commercial oriented uses
including a gas station, hotel, and a Costco retail warehouse.
An additional hotel is currently under construction and a
motorcycle dealership is also planned for this area.
The northern half of the neighborhood abuts the hills of
Alameda County and is vacant except the Triad Headquarters
buildings. However, Microdental (a dental appliance
manufacturer) is planning a light industrial facility on North
Canyons Parkway at Triad Drive and Lincoln Properties is
planning a 150,000 square foot speculative flex industrial
building on North Canyons Parkway. Residential development is
planned for the northeast corner of the subject neighborhood.
The first phase is to be 176 townhouse-style residential units
followed by 54 duet-style residential units.
The area south of Interstate 580 is improved with the Las
Positas Golf Course, Livermore Municipal Airport and several
light industrial developments. The western portion of this
general neighborhood is improved with Las Positas Golf Course
and the Livermore Reclamation Plant. The Livermore Municipal
Airport adjoins the golf course to the east. The eastern and
southeastern portions of the neighborhood are improved with
several light industrial parks and developments.
The Livermore Airport is designated by the FAA as a reliever
airport with a class designation of "basis transport."
Constructed in 1965, it has a 4,000 foot runway with
instrument landing system, as well as hangars, a restaurant,
taxi ways and a parking lot. There is also an auxiliary
runway of 2,600 feet and plans for a future 1,200 foot
extension of the main runway.
The subject neighborhood is considered one of the superior
industrial locations in Livermore. Zoning is oriented toward
high end, or low intensity, light industrial uses. Good
freeway access from Airway Boulevard enhance its appeal. The
area also has good proximity to the Livermore Airport and is
the closest industrial area in Livermore to Pleasanton and the
greater San Francisco Bay Area.
<PAGE> 17
Appraisal: Triad Business Park, Livermore, CA Page 9
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III. MARKET TRENDS
A. Industrial Flex and Office Markets
Similar to most parts in the Bay Area, the Tri-Valley Area
experienced over building in the early 1980s. This led to
high vacancy rates that lasted from the late 1980s through the
early to mid-1990s. However, the lack of new construction,
coupled with a stronger local economy resulted in strong
absorption of all types of office and industrial space in the
Tri-Valley area. It appears the market reached its supply and
demand equilibrium in 1995. In 1996, the demand for space has
continued and there is an upward pressure on rental rates.
The Third Quarter 1996 market survey prepared by Grubb & Ellis
shows a total overall vacancy rate for office, industrial and
flex product of 4.7 percent and a year total absorption of
382,877 square feet.
Both real estate brokers and active investors are estimating
rental increases greater than 10 percent. This is supported
by pending and recent leases in the market at rates between 5
and 10 percent higher than leases signed in 1995. The
strength of the market has led developers to construct some
limited new speculative industrial and office product. An
example close to the subject is the Airport Business Center at
Wright Brothers Circle, which has constructed several
speculative industrial condominiums. Another example within
the subject business park is Lincoln Property's planned
150,000 square foot speculative flex building. The broker for
this property reports pro-forma rents of approximately $1.05
NNN for fully built-out office space. In the recent past
industrial space was typically rented on an industrial gross
basis, with rental rates ranging from $0.50 to $0.85 per
square foot.
B. Commercial/Retail Market
Livermore is a growing city which has significant freeway
frontage but has never had a large amount of retail space.
The only retail space in the city has been an older style
downtown and scattered community and neighborhood shopping
centers. During the late 1980s and early 1990s, several
ambitious shopping centers were planned for Livermore. The
largest proposed and constructed are adjoining Interstate 580.
The retail leasing market in the city of Livermore continues
to recover after several years of greater supply than demand.
Market rents declined in the early 1990s, but have stabilized.
The vestiges of overbuilding remain, such as the vacant and
boarded up Vineyard Factory Outlet Center at Greenville Road
and Interstate 580. The project was constructed on a
speculative basis and was not able to attract sufficient
tenants.
<PAGE> 18
Appraisal: Triad Business Park, Livermore, CA Page 10
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In contrast, stand-alone destination retail uses with freeway
frontage have been more successful during the last four years.
Examples include automobile dealerships, restaurants, hotels
and "big box" retailers such as Costco and Walmart. The uses
have a broader retail draw and depend on the high Interstate
580 traffic count.
C. Residential Market
In past years, Alameda County has been the beneficiary of
strong housing demand due to its proximity to major Bay Area
employment centers. This demand, coupled with a limited
supply of available land for residential development, has put
significant upward pressure on residential values within
Alameda County and has pushed growth outward into the east
county area. Even in eastern Alameda County, despite
relatively abundant vacant land, demand factors have
historically put upward pressure on residential values. After
1990, however, residential values in the east county have
declined. An abundant supply of new East County housing, a
slowdown in the residential resale market, and recessionary
factors, all contributed to the general market downturn
experienced over the past several years. More recent market
factors indicate that demand for single family residences in
the area is showing signs of improvement.
In summary, demand for housing has been historically strong
within both the County and City. However, recent recessionary
factors and past years' price increases have reduced
affordability. This led to declining finished unit absorption
and pricing from about 1990 through 1995. More recently, the
market has shown signs of improvement as reflected in
absorption and pricing.
D. Conclusions
The improved economy coupled with the lack of new construction
during the last four years has resulted in positive absorption
of nearly all types of real estate in 1995 and 1996. Rental
rates and sale prices for industrial, office, retail and
residential uses are trending upward. Investors and
developers are gaining confidence that current market
conditions are sustainable and improving. Speculative
construction of office and industrial space is being
considered; and, the Livermore market may have reached the
point where rental rates justify the cost of construction for
these uses.
The absorption rate for land and buildings appears to be
improving. Industrial and office leasing statistics combined
indicate a decline in vacancy rates from more Than 10 percent
to 4.7 percent as of the third quarter of 1996, according to
statistics compiled by Grubb & Ellis. In terms of land,
approximately 40 acres have been
<PAGE> 19
Appraisal: Triad Business Park, Livermore, CA Page 11
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sold in the subject business park during the last year. In
addition, much of the remaining land in the subject park has
been optioned by a first right of refusal.
The investment market for real estate is also improved. The
market is active and a variety of institutional and private
investors are seeking to purchase properties of all types.
Yield and capitalization rates appear to be trending downward
as investors anticipate increased rental rates.
Facing Page 12 - "Site Plan"
Engineers plan drawing labeled "Triad Park, City of Livermore,
California, September 1996" showing Subject Property and
neighboring lots.
<PAGE> 20
Appraisal: Triad Business Park, Livermore, CA Page 12
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IV. PROPERTY IDENTIFICATION
A. Subject Property Description
Legal description of the subject property is included in the
preliminary title report issued by Transamerica Title
Insurance Company, dated June 8, 1987, the most recent
available. A copy of this report is reproduced in the
Addenda. The title report Assessor's Parcels do not
correspond with the current Assessor's Parcels for the subject
and the legal description encompasses sites sold to others
that are not included in this appraisal. The subject lots and
building improvements are identified by the Alameda County
Assessor's office as portions of Assessor's Parcel Numbers
905-9-2, 3, 7, 8, 9, 10, 11, 12, 18-1, 19, 21, 22-3, 29, 30,
31, 32, 33, 34, 35, 44, 47, and 48. The subject property is
more specifically identified by the Site Numbers on the Triad
Park Site Plan presented later in this chapter. The site
number and corresponding tentative or final tract map number
is presented on the table on the following page.
B. Ownership
According to a review of public records, ownership in the
subject property is currently held by Triad Systems
Corporation. The subject property was purchased in 1984 as
vacant parcels and the existing improvements were constructed
by the current owner. No other transfers have occurred in the
past three years.
Several of the subject lots are in escrow in the subject park
and most of the remaining sites are under a first right of
refusal contract. Triad Park Lot Number 15 is under contract
to be sold. The buyer is Prakash and Subhash Patel. The
price was $625,000 if escrow closed prior to September 30,
1996 and is $669,735 if escrow closes prior to December 31,
1996. The price if escrow closes prior to March 31, 1997 is
$714,400. The buyer also assumes the obligation of the
current and future assessment bonds. The sale is contingent
upon the buyer obtaining the necessary approvals for a hotel.
The seller's representative reports the likely close of escrow
will not be until the March 31, 1997 date. The seller is
providing 75% financing at 2 percent above the prime rate,
amortized over 240 months and due in 84 months.
Lot 4 at the northeast corner of Triad Drive and North Canyons
Parkway is in escrow to J.S. Kendall for $900,385 or $3.90 per
square foot plus assessments. Escrow is scheduled to close
June 15, 1997. The terms are cash to the seller. The buyer
is a local contractor that plans an industrial flex building.
Following page 12, Table 1: "SITE NUMBER AND IDENTIFICATION"
Identification key to Site Plan map facing page 12 listing
Size, Usable percantage and zoning information by map location
number.
<PAGE> 21
Appraisal: Triad Business Park, Livermore, CA Page 13
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Lots 1 and 2 are in escrow to Gibson Speno Company with escrow
to close March 31, 1997. The purchase price is $1,662,000 for
Lot 1 and $1,238,000 for Lot 2. The total price is
$2,900,000. The purchaser has agreed to pay for the current
and future bond assessments for these lots as well as the bond
assessments for Lot 3. The total future bond assessments are
estimated at $1,488,706 and capped by the sales agreement at
$1,500,000.
In addition to the sites currently in escrow, Lincoln Property
has an option to purchase Lots 9 and 9A (adjacent to their
recently purchased site) at $3.99 per square foot plus current
and future bonded assessments. The option price increases 5
percent per year starting September 1996, and is pro-rated.
Lincoln Property also has the first right of refusal to
purchase Lots 7, 8, 9, 9A, 10, and Lots 21-24. This right is
for a term of 5 years. Lincoln is given the right to purchase
the lots encumbered at an equivalent price if a purchase offer
is made by another party.
An option to purchase Lot 7 on the Site Plan has been granted
to Micro Dental (the recent purchaser of an adjacent parcel)
at $3.60 per square foot plus assessments for a 24-month
period beginning September 1996. The option price increases
to $5.50 per square foot for months 24 to 36 of the option
period.
C. Easements and Restrictions
According to the preliminary title report and discussions with
the owner's representatives, the subject property is
encumbered by development and subdivision improvement
agreements with the City of Livermore, and Covenants,
Conditions and Restrictions (CC&Rs) for Triad Business Park.
CC&Rs are typical for industrial parks, and generally set
development standards to maintain the appeal of the park. The
subject development agreements and CC&Rs were reviewed and no
unusual items were noted. The subject park has also
relinquished access rights to the freeway, which is a common
requirement for sites adjacent to freeways. The current
access to the freeway is adequate and the relinquishment is
not considered significant. The unusual easements and
restrictions affecting the subject are discussed below.
The subject owners are required to dedicate Lot 14 to the City
of Livermore for transportation improvements as part of the
terms of granting approval. No other compensation was
negotiated. The owner's representative reports that if the
City does not continue to use the freeway interchange land
west of Lot 14 on the other side of Airway Boulevard, (shown
on the site plan as the freeway interchange), it would trade
the other property for Lot 14. However, it is considered
unlikely by the owner's representative and the appraisers that
the City will not use both parcels.
Facing Page 14 - "Zoning And Use Map"
Engineers plan drawing labeled "Triad Park, City of Livermore,
California, September 1996" showing Zoning of Subject Property
and neighboring lots.
<PAGE> 22
Appraisal: Triad Business Park, Livermore, CA Page 14
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The development of the southeast corner of the subject
property requires a stream to be put underground. The path of
the undergrounded stream will be along the southern edge of
Lots 25 and 24 and then along the western edge of Lots 23 and
22. The easement for the stream will be within the required
yard set back for the site and no impact is noted. The
development agreement also requires the construction of a
riparian greenbelt, referred to in the agreement as a "critter
path." The greenbelt is to be approximately 50 feet wide and
allow native wildlife a 7 foot deep waterway and a surface
path through the property. This greenbelt requirement affects
Lots 25, 23, and 22 on the Triad site plan. The greenbelt's
impact on the utility of these sites is considered later in
the valuation section of the report. The greenbelt is located
on the eastern periphery of these sites and is less than the
required yard setback on front or side streets of 70 feet. It
is only slightly greater in width than the required rear and
side yard landscaping setback in the park of 25 feet.
The tentative and final parcel maps were reviewed for other
easements and no unusual easements are noted. Tentative
Parcel Map 6577, which pertains to Lots 16 through 25, shows a
50-foot wide sewer and storm drain easement from North Canyons
Parkway to the Collier Canyon extension that affects Lot 24,
19 and 20. The easement is generally on the edge of these
sites and is only considered to have a slight negative impact
on the utility of these sites. Based on a review of the
Tentative Parcel Map 6577, several right of way and public
utility easements for paper streets (that are no longer
proposed) will be abandoned because of the most recent lot
configuration changes.
An important restriction that affects the subject lots along
the northern side of the property is the development limit
line, established by the Scenic Route Element Resolution
167-83 of the City of Livermore. This line follows the
contours of the hillside and restricts development to those
areas below the line. This development limit line
significantly impacts the net useable area of the subject
property and will be considered in the later valuation
sections of the report. The remaining easements shown on the
Parcel Maps for the subject sites are on the periphery of the
lots and are considered typical of other development sites.
D. Zoning
The subject properties have three zoning designations by the
City of Livermore, light industrial, retail/commercial and
residential. The lots above Collier Canyons Parkway, Lots 4
through 12 are within the Triad Park PUD #108. The permitted
uses include R&D facilities, professional and administrative
offices, experimental and testing laboratories, manufacturing
and distribution from previously prepared materials,
manufacturing of pharmaceuticals and manufacturing of electric
<PAGE> 23
Appraisal: Triad Business Park, Livermore, CA Page 15
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and electronic circuits and devices. Motels, restaurants and
convenience stores are allowed as Conditional Uses.
The height is limited to 35 feet and with a Conditional Use
Permit, a maximum of one hundred feet is allowed. The minimum
lot area is twenty thousand square feet with a minimum width
of one hundred feet. Front yards of 100 feet are required on
major streets, 70 feet on North Canyons Parkway and Collier
Canyon Road and 30 feet on other roads. The rear and side
yard setback is 25 feet. The maximum building coverage area
is forty five percent.
Landscaping is required on yards next to streets, allowing for
sidewalks and driveways. Landscaping is also required. The
subject building improvements appear to conform to all zoning
regulations.
The lots below North Canyons Parkway, Lots 13 through 25, are
within the Triad Park PUD #116 designation. This designation
is for retail, office and compatible light industrial uses.
The uses are restricted to a floor area of 5,000 square feet
or greater. A variety of retail uses are permitted. A
conditional use permit is required for fast food restaurants,
automobile related businesses, commercial amusement facilities
such as miniature golf, medical care facilities, hotels, and
institutional uses. The minimum site size is 150,000 square
feet for industrial uses, and 40,000 square feet for
commercial uses. The maximum coverage is 30 percent for
service commercial and retail uses, 40 percent for office uses
and 45 percent for light industrial uses. Setback
requirements are similar to those for the PUD #108. The
allowable height is based on protecting the scenic view
corridor and varies for each parcel according to elevation.
Lots 1, 2 and 3 are within the Triad Park PUD #117-94,
residential. This zoning designation is to "provide and
environment exclusively for and conductive to the development
and protection of condominium residential development."
Multiple family dwelling units are permitted at a density no
less than 18 units or greater than 22 dwelling units per net
site acre. A 30-foot front set back and 20 foot side and
rear yard set back is required. The maximum site coverage is
35 percent. The height limit is 45 feet. Parking is required
at a ratio of 2.25 stalls per unit. The site plan attached to
the PUD #117-94 shows the lower portion of Lot 1 dedicated to
a recreation facility including a pool, spa, and playing
courts. Given the narrow and irregular shape of this portion
of the site, the recreational use is considered a good
adaptation for this portion of the residential zone.
The Lot 3 property is relatively steep and affected by the
hillside building restriction. The owner's representative
reports that the Planning Department has given verbal approval
for a low density development on this portion of the subject
<PAGE> 24
Appraisal: Triad Business Park, Livermore, CA Page 16
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park as a buffer between the higher density townhouse and duet
developments planned for Lots 1 and 2, and the 110 acres of
open space above Lot 3. Based on the irregular shape and
steep terrain the appraisers estimate an effective useable
area of approximately 2 acres and a maximum of 8 units on this
site.
The open space 110 acre parcel is on the hillside directly
north of the residential sites. The use of this site is
restricted to low intensity agricultural uses and is currently
used for grazing cattle.
E. Utilities
The property is served with typical urban utilities, including
public water and sewer systems. Local companies supply
electricity, gas and telephone service. Conversations with
representatives of the subject owner indicate that the supply
of water and sewer facilities is currently inadequate for a
user with a high demand for water, such as in a manufacturing
process. However, the water and sewer capacity will be
increased with the construction of planned offsite
improvements proposed for the eastern side of the subject
park. These improvements are expected to occur in conjunction
with the absorption of the remaining lots in the park (the
subject property).
F. Environmental Observations
Inspection of the subject did not suggest the presence of any
toxic contamination. Further a representative of the owner did
not report any toxic contamination of the site. No other
environmental observations are made. However, the reader is
referenced to the Environmental Hazard Limiting Condition of
Chapter I of this report, which assumes the property is clean
of any contamination.
G. Flood Zone, Seismic, Census Tract and Map Page Grid Information
According to the flood insurance map Panel Number 060008-005A,
effective July 3, 1990, the subject is in Flood Zone X, which
are areas outside the 500-year flood plain. This flood
designation does not require flood insurance. According to
governmental geological evaluations, the entire San Francisco
Bay Area is in a seismic zone. No active faults, however, are
known to exist on the subject property. As similar seismic
conditions generally affect competitive properties, no adverse
impact on the subject property is considered. The subject
property is not in an Alquist Priolo Special Studies Zone.
The subject property is in Census Tract 4507.21, Block 2.
It is found on Thomas Map Grid 39, E4.
<PAGE> 25
Appraisal: Triad Business Park, Livermore, CA Page 17
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H. Assessed Valuation and Real Estate Taxes
The subject property has been assessed for ad valorem tax
purposes for the fiscal year 1996 - 1997 as shown on the table
on the following page. Under California law a real property
assessment can only be increased a maximum 2 percent per year.
Reassessment is permitted upon change of ownership, typically
based on the estimated market value multiplied by a tax rate
of 1 percent plus any outstanding bonded assessments. The tax
rate for fiscal year 1996 - 1997 for the subject is 1.1849
percent.
The total assessed value is $38,500,761. Base taxes including
minor special assessments total $595,206.88. Based on the
total appraised value in this report, the assessed value is
higher than the concluded market value for the subject.
The subject is also encumbered by an assessment district and
community facilities district obligations. The total current
obligations amount to approximately $1.20 per square foot. In
addition, the subject owner's representative estimates that an
additional $1.28 per square foot of total area will be spent
to complete the remaining required offsite improvements at the
subject property. The cost of the improvements are planned to
be paid by additional community facilities district funding.
For the purposes of this report, the assessments are
considered financing and the concluded values exclude
consideration of the bonds.
Following page 17, Table 2: "Assessed Value and Taxes"
Assessed valuation of Subject Propery and surroundings by APN number
Facing Page 18 - "Zoning And Use Map"
Engineers plan drawing labeled "Triad Park, City of Livermore,
California, September 1996" showing ownership of Subject
Property and neighboring lots.
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Appraisal: Triad Business Park, Livermore, CA Page 18
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V. PROPERTY DESCRIPTION
A. Existing and Proposed Site Improvements
The subject property consists of 27 vacant land parcels and a
parcel improved with the Triad Headquarters buildings. The
lots total 312.97 gross acres and range in size from
approximately 0.75 to 110.8 acres. The offsite improvements
are partially in place. The existing offsite improvements are
typical of industrial or business park and include curbs,
gutters and storm drains and typical utilities. The site plan
is shown on the facing page.
The streets on the northern side of the site need to be
improved, including North Canyons Parkway west of Airway
Boulevard, Doolan Road, Republic Drive, Constitution Drive
(cul-de-sac), and Independence Drive (cul-de-sac). These
improvements are relatively minor. The major improvements
required prior to developing the remaining lots are in the
southeast corner of the site. This portion of the site
requires extension of Collier Canyon Road around the
southeastern corner of the site, the extension of the southern
portion of Triad Drive and placing an existing stream
underground. Based on engineering and construction cost
estimates, the subject owner's representative has estimated
$14,650,000 in remaining offsite costs are required in the
subject park.
A copy of the Triad Park Assessment District and Community
Facilities District Cost Estimate table is reproduced in the
Addenda of this report. The table shows the original
principal amount of the existing and proposed indebtedness.
As shown in the Total District Bond Amount "Estimate" section,
the 1993 and 1990 bonds total $11,505,000 and $2,350,000, or
$1.00 and $0.20 per square foot respectively. The 1997, 1999,
and 2001 Community Facilities District bonds have not been
issued. These bonds are estimates by the owner of the
remaining required offsite construction cost of $14,650,000,
or $1.28 per square foot, based on the total 263.73 acres in
the Triad Park Assessment District.
The 110 acre parcel and the Lot 14 parcel are not included in
the assessment district. In addition, the assessment
district encompasses the other lots in the park that are not
part of this appraisal. The total offsite improvement costs
for the subject park are $28,505,000, or $2.48 per square foot
of gross land area. On a per square foot of land area basis,
the total costs are in-line with the offsite costs for other
business parks in the Pleasanton and Livermore area. The
owner's representative reports that the estimates are intended
to cover potential contingencies and that actual construction
costs might be lower. Nonetheless, in an improved economy,
construction costs may increase and this is also a
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Appraisal: Triad Business Park, Livermore, CA Page 19
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consideration. Overall, the remaining offsite construction
cost estimate of approximately $1.28 per square foot appears
reasonable and is used in this report.
In addition to this cost, Collier Canyon Road in the vicinity
of the residential lots needs to be widened and a slightly
less than 1 acre portion of a neighboring property owner's
land needs to be utilized for this purpose at a negotiated
price of $35,000.
The projected interest rate for the future community
facilities bonds is shown at 9.0 percent. Relative to current
interest rates, the future bond interest rate does not appear
to be favorable, but the Triad representative stated this
interest rate was conservative (i.e. high) for
disclosure/planning purposes. The columns on the lower half
of the table represent the principal and interest payoff
schedule during the life of the bonds. The far right columns
show the annual cost per square foot of land area and the
annual principal and interest cost per acre. As stated earlier
in the Assessed Value section of this report, for the purposes
of this report, the assessments are considered to be financing
and the concluded value excludes consideration of the bonds.
B. Site Layout and Description
As shown on the site plan, North Canyons Parkway bisects the
park in an east-west direction. Smaller streets and
cul-de-sacs connect with North Canyons Parkway in a
north-south direction. Collier Canyon Road surrounds the
property along the freeway frontage and on the eastern border
of the park. Access to the subject lots is from Airway
Boulevard.
The topography of the subject lots slopes upward from the
southern end to the north. The slope is gradual from the
freeway to North Canyons Parkway. The gradient increases to
the north and the northern portion of the subject lots is
legally unbuildable. A slope site plan is presented in the
addenda of the report that gives the reader a visual
representation of the unbuildable areas of the subject
property.
North Canyons Parkway curves within the subdivision and
creates some slightly irregular lot shapes. Further, some
lots in the southeastern portion of the park appear to be
configured for a retail shopping center and have irregular
shapes.
Lots 1, 2, and 3 are the residentially zoned sites. Lot 1 has
an irregular shape with a long and narrow portion on the
southern portion of this site. The long and narrow portion
contains approximately 2.6 acres and is planned for a
recreational use as part of the 176 residential unit
condominium development on the remainder of Lot 1. Lot 2 is
basically rectangular and contains approximately 5.5 acres.
It
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Appraisal: Triad Business Park, Livermore, CA Page 20
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is planned for a 54-unit duet residential development. Lot 3
is also basically rectangular shaped; however, approximately
61 percent of the site is unbuildable due to the slope
restriction. The remaining site shape is highly irregular and
relatively steep. It is considered inefficient for multiple
family development and a single family development is
considered to have greater physical and economic feasibility.
Lots 4 through 12 are zoned for light industrial use and are
located north of North Canyons Parkway. Lots 4 and 6 are in
the range of 5 acres and have good access, topography and site
shape. Lot 5 is situated on a plateau above the Triad Systems
Headquarters buildings. This site currently shares the same
Assessor's Parcel with Lots 7 and 8 and access to this site is
planned from a proposed easement over lots 7 and 8 if it is
sold separately. Although Lot 5 has a rectangular shape, only
45.2 percent of the site is buildable due to the slope
restriction. The remaining site shape is irregular and
considered to reduce the utility of this site somewhat.
Lot 7 has a regular shape and is slightly sloping. Lot 8 has
a slightly irregular shape, but the northern half of the site
is unbuildable due to the slope restriction. The estimated
usable area is 4.29 acres. Similar to Lot 5, if this lot is
sold separately from Lot 7, an access easement will be created
over Lot 7.
Lot 9A is a 5.6 acre site accessed from the end of the
Independence Drive cul-de-sac. This lot has a slightly
irregular shape and limited frontage. The topography slopes
upward to the north. Lot 9 is a larger parcel with frontage
on North Canyons Parkway and Constitution Drive. It is
approximately 98.5 percent usable with a net area of 13.57
acres.
Lots 10, 11 and 12 are in the northwest corner of the park and
are all impacted by the slope restriction. Lot 10 is
approximately 58.5 percent usable with a net area of 9.4
acres, Lot 11 is approximately 48.9 percent usable with a net
area of 9.89 acres. Lot 12 is approximately 79.5 percent
usable with a net area of 7.77 acres. The buildable area
remaining for these sites is generally regular in shape except
a small portion of Lot 10 and Lot 12.
The remaining subject lots are in the southern half of the
subdivision and are predominantly zoned for retail/commercial
use. Lot 13 is in the southwest corner of the park. It is a
regular shaped parcel with approximately 3.5 acres. The site
plan shows access from a freeway frontage road. This road
does not currently exist and is no longer planned. Access to
the site will be from the extension of North Canyons Parkway.
Following page 20: Overhead Plan Drawing of Landscape
Development Plan: "Phase One, The Triad Center"
Facing Page 21: Elevation Plan Drawing "Phase One, The Triad Center"
<PAGE> 29
Appraisal: Triad Business Park, Livermore, CA Page 21
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Lot 15 is on the east side of Constitution Drive between the
freeway and North Canyons Parkway. The site contains
approximately 4.1 acres and is generally level. Lots 16
through 20 are grouped on the east side of Independence Drive
across from the Costco retail warehouse and directly north of
the freeway. These sites have irregular shapes and ranges
from 0.75 acres to 3.0 acres. Based on the group
configuration, these sites appear to be planned for a shopping
center where each retailer would own its own site.
Lots 21, 22 and 23 are in the southeast corner of the park.
Lot 21 is a small parcel with freeway frontage. Lot 22 is an
irregular shaped parcel with limited freeway exposure. This
site also has the required green belt restriction and is
slightly impacted by a sewer easement in its southwestern
corner. Lot 23 is accessed from the extension of Collier
Canyon Road along the eastern side of the park. It does not
have any freeway frontage.
Lots 24 and 25 have frontage along North Canyons Parkway. Lot
24 is 10.5 acres and Lot 25 is 5.5 acres. These sites have
regular shapes and are generally level.
The Triad Systems headquarters buildings are situated on a
15.06 acre site that is rectangular in shape. The site slopes
slightly from North Canyons Parkway and is accessed from a
cul-de-sac from Triad Drive.
A soil survey prepared by Peter Kaldveer and Associates dated
February 10, 1987 indicates that the subject soils are
suitable or can be remedied for construction of a variety of
industrial and commercial developments. Overall, the subject
sites are functional for construction of standard building
improvements.
C. Building Improvements
The subject building improvements are the headquarters of
Triad Systems Corporation and consists of three buildings
totaling 219,818 square feet. The buildings are situated on a
15.06 acre site and are identified as Building G, Building K
and Building F. Building G is a 70,986 square foot
headquarters office building with a street address of 3055
Triad Drive. Building K is a 74,064 square foot research and
development building with a street address of 3077 Triad Drive
and Building F is a 74,768 square foot manufacturing and
warehouse building with an address of 3011 Triad Drive. A
synopsis of the building improvements provided by the owner's
representative is reproduced in the addenda of this report.
The site plan is shown on the facing page. As shown on the
site plan the buildings are situated toward the rear of the
site with parking in the front. There are a total of 689
parking spaces of which 209 are compact, 471 are full size
and 9 are
Following page 21: Overhead Interior Plan Drawings: "3055 Triad
Drive, First Floor, Building One" and "3055 Triad Drive,
Second Floor, Building One"
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Appraisal: Triad Business Park, Livermore, CA Page 22
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designated for disabled access. The parking ratio is 3.1
spaces for every 1,000 square feet of building area. The
parking area is attractively landscaped with mature trees and
special paving that leads to the headquarters office building,
Building G. The areas between the buildings are improved as
open courtyards, fenced with iron gates for controlled access.
The buildings have a similar exterior appearance characterized
by a clay tile mansard style roof that overhangs exterior
walls. Approximately 80 percent of the exterior walls are
improved with anodized aluminum frame windows. The office
building is two stories in height while the other buildings,
on either side of the office building, are single story. All
of the buildings are of tilt-up concrete construction with
wooden roof structures supported by glu-lam beams. The roofs
have built-up style coverings except the sloped area covered
by tile. Although the buildings were designed for owner
occupancy, their design is intended to be flexible to allow
multi-tenant occupancy. In general, the restrooms are
centrally located so the buildings can be divided into
quadrants. All of the buildings have fire sprinklers and all
of the buildings were constructed in 1987.
1. Building G
The headquarters office building is centrally located at the
rear of the site, flanked by the other buildings on the east
and west side. Schematic floor plans of the first and second
floors are shown on the facing pages. The main entrance to
the building is centrally located and leads to a reception
area. The ground floor of the building is divided in an east
west direction by a central hallway. A combination of offices
and open work areas are on either side of the central hallway.
The employees' cafeteria and kitchen are in the eastern side
of the ground floor. The second floor has a largely open floor
plan except for executive offices and central work areas.
Half height movable partitions create individual work
stations.
According to the building synopsis provided by the owner's
representative and verified with the building plans and
inspection, the space utilization breakdown is 1,150 square
foot lobby, 40,571 square foot open offices, corridors and
stairs, 3,330 square foot enclosed offices, 1,750 square foot
conference room, 1,000 square foot executive board room, 5,200
square foot class rooms, 3,500 square foot lab space with
additional electric, 1,070 square foot computer room with
raised floor and halon fire prevention system, 1,500 square
foot dispatch communications center, 1,260 square foot studio,
6,375 square foot cafeteria, 1,980 square foot restrooms and
950 square foot exercise room, and 1,350 square foot
mechanical room.
Following page 22: Overhead Interior Plan Drawings: "3011 Triad
Drive, Building 3" and "3077 Triad Drive, Building 2"
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Appraisal: Triad Business Park, Livermore, CA Page 23
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The interior is finished with acoustical tile ceilings,
painted sheetrock walls, and a combination of carpeting,
carpet squares and vinyl tile. Lighting is provided by
florescent fixtures and the building has air-conditioning.
Inspection of the building indicated the interior improvements
are in good condition for their age.
Overall, Building G appears to be of good quality construction
and design. The improvements appear to be functionally well
designed. While it is designed for a single user, it could
potentially be subdivided into quadrants, providing adequate
flexibility for a variety of office users.
2. Building K
The product development and marketing building is west of the
headquarters building. This building is nearly fully
built-out with office and work space. The floor plan is open
except for a few perimeter offices and central work areas.
The building is designed for flex/industrial use, but as of
the date of inspection the loading door was only used for
refuse collection. Although the building is improved with
dropped ceilings, the potential clear height is 35 feet.
Thus, there appears to be potential to add a mezzanine level
in the building if needed.
The interior tenant improvements are similar to the
headquarters building. It has dropped acoustical tile
ceilings, finished sheetrock walls, and a combination of
carpeting, carpet squares and vinyl tile. The space breakdown
is as follows: 770 square feet of lobby, 45,095 square feet of
open offices and corridors, 1,250 square feet of private
offices, 5,878 square feet of conference rooms, 15,275 square
feet of tiled lab space, 1,750 square foot computer room with
raised floor and halon fire prevention, 855 square foot
machine shop, 650 square foot break room, 1,670 square foot
rest rooms and shower, 861 square foot mechanical rooms.
3. Building F
The manufacturing and warehouse building is east of the
headquarters building. This building is basically identical
to Building K in construction, but its interior build-out is
only 40 percent improved. The interior improvements are
similar to the other buildings including acoustical tile
ceilings, painted sheet rocked walls and a combination of
carpeting and vinyl tile floors. The remainder is used for
warehousing. In addition, this building has 2 grade-level
doors and 5 truck doors, two with hydraulic dock
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Appraisal: Triad Business Park, Livermore, CA Page 24
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leveling ramps. The improved areas have air-conditioning and
the warehouse is cooled by evaporative coolers. The concrete
in the warehouse floor is designed for heavy loads and the
35-foot clear height allows 4 level pallet racks.
The specific area breakdown is 1,000 square foot lobby, 12,200
square foot open offices and corridors, 575 square foot
conference room, 15,200 square foot lab and assembly space,
1,100 square foot maintenance shop, 200 square foot break
room, 1,570 square foot restrooms and showers and 42,923
square foot warehouse area. The building improvements are of
good quality construction, and are in good condition.
4. Summary
In addition to the buildings, the sites are improved with
landscaping and parking. During inspection of the property,
no signs of deferred maintenance or physical deterioration
were noted.
The improvements appear to be functionally well designed,
providing adequate flexibility for a variety of industrial
users. Overall, the subject is considered typical of the
market in terms of functional utility, flexibility, design and
appearance.
D. ADA ComplianceADA Compliance
The subject property appears generally in compliance with ADA
standards. In as much as the comparables are also affected by
ADA compliance issues, no impact is noted. However, the
reader is directed to the ADA compliance limiting condition
presented in the beginning of the report.
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Appraisal: Triad Business Park, Livermore, CA Page 25
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VII. HIGHEST AND BEST USE AND APPRAISAL METHODOLOGY
A. Highest and Best Use (The Appraisal of Real Estate, 10th
Edition, 1992, p.275)
Highest and best use is that use, from among reasonably
probable and legal alternative uses, found to be physically
possible, appropriately supported, financially feasible, and
which results in the highest land value. The four criteria
utilized in determining the subject's highest and best use are
legal and political permissibility, physical possibility,
financial feasibility and maximum profitability.
1. As Vacant
a. Legal Permissibility
Under the subject property's current zoning,
it is divided into three PUD districts, that
generally allow industrial,
commercial/retail, and residential uses. The
City of Livermore is flexible in allowing
various uses, but the improvements are
required to have a good quality exterior
finishes. The hillside areas of the subject
are not legally buildable and decrease the
usable area of the subject sites. Further,
the 110 acre open space parcel is not legally
buildable. However, other than these
exceptions, a variety of uses are legally
permissible according to zoning.
b. Physical Possibility
The subject sites generally have regular
shapes except for some of the smaller retail
sites and the narrow portion of the
residential site. The utility of the
irregular shaped sites is decreased, but
development is not precluded. For example,
the narrow portion of the residential site is
planned for a recreational component to the
174 unit residential development. The
remaining offsite improvements can be
installed at the subject to allow for the
construction of improvements. Overall, a
variety of uses are physically possible on
the sites.
c. Financial Feasibility
The subject has a good location in Livermore,
east of the Pleasanton Office and light
industrial market. Its location benefits
from the strong market conditions in the
Tri-Valley area. Rental rates are increasing
and small scale speculative development is
beginning to
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Appraisal: Triad Business Park, Livermore, CA Page 26
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occur. Although the current demand does not
appear to justify large scale projects such
as the subject on a purely speculative basis,
rents have reached the level where new
construction is feasible. Therefore, after
the remaining offsite improvements are
constructed to complete Triad Park, the
construction of a light industrial or office
flex project with substantial pre-leased
space is considered financially feasible.
The subject lots on the southern side of the
site have freeway visibility. Further, the
retail potential of these sites is positively
impacted by the proximity of the Costco
retail warehouse and a freeway oriented
commercial or office use is considered
financially feasible on these sites.
The residential market in Livermore has also
improved. There has been a lack of much new
construction during the past three years.
The improved economy and strong job creation
has created increased demand for residential
projects. Absorption of new housing stock is
strong and a residential development is
considered financially feasible on the
residentially zoned portion of the subject.
The Livermore area is under served with
multi-family housing and the subject site
benefits from views of the valley below, and
proximity to employment, freeway access and
shopping. A residential use is considered
financially feasible on the subject site.
d. Maximum Productivity
The maximum productive use of the subject is
to first complete the remaining offsite
improvements. Thereafter, a largely
pre-leased light industrial or office flex
use is considered financially feasible on the
subject sites zoned for these uses. In
addition, a freeway oriented commercial use
is considered financially feasible on the
sites with this zoning. Therefore, the
maximally productive use of the subject site
is the construction of industrial or
office/flex industrial buildings on the
northern portion of the park and freeway
oriented commercial use on the southern
sites. The maximally productive use of the
residential zoned portion is construction of
a residential development to the density
allowed by the zoning.
e. Highest and Best Use Conclusion - As Vacant
Overall, based on these factors, the highest
and best use of the subject property as
vacant is to complete the remaining
offsite improvements, followed by the
development of industrial or
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Appraisal: Triad Business Park, Livermore, CA Page 27
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office/flex industrial buildings on the
northern sites, freeway oriented commercial
uses on the southern sites, and residential
uses on the residentially zoned sites.
2. As Improved
In considering the highest and best use of the
subject property as improved, the same tests are
applied and considered relative to the Triad Systems
campus. The improvements appear to be in conformance
with the general plan designation and existing zoning
regulations for the sites. The subject properties are
three well-designed office and flex light industrial
complexes completed in 1987. The improvements are in
good condition.
The subject properties are well located with good
freeway access close to the Livermore Airport. The
buildings are functional and well suited for their
existing use. They are also consistent with
surrounding uses. There are a variety of large
office and technology related users seeking space in
the subject market. These users are attracted by
existing technology firms in the Tri-Valley area and
by the relative affordability of the Livermore
market.
The concluded value of the subject building
improvements is substantially higher than the value
of the underlying land, indicating the improvements
have remaining economic life. The existing
improvements contribute value to the subject sites.
Demolition is therefore not warranted. The
improvements are well suited for their existing uses
and expansion or modification of the improvements is
not warranted.
Based on these factors, the highest and best use of
the subject properties as improved is considered
their existing uses. The most likely buyer of the
entire subject property is an investor.
B. Methodology
The valuation of any parcel of real estate is derived
principally through three approaches to the market value.
From the indications of these analyses, and the weight
accorded to each, an opinion of value is reached. Each
approach is more particularly described below.
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Appraisal: Triad Business Park, Livermore, CA Page 28
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1. Cost Approach
This approach is the summation of the estimated value
of the land, as if vacant, and the reproduction of
replacement cost of the improvements. From these are
deducted the appraiser's estimate of physical
deterioration, functional obsolescence and economic
obsolescence, as observed during inspection of the
property and its environs. The Cost Approach is
based on the premise that, except under most unusual
circumstances, the value of a property cannot be
greater than the cost of constructing a similar
building on a comparable site.
2. Direct Sales Comparison Approach
This approach is based on the principal of
substitution, i.e., the value of a property is
governed by the prices generally obtained for similar
properties. In analyzing the market data, it is
essential that the sale prices be reduced to common
denominators to relate the degree of comparability to
the property under appraisal. The difficulty in this
approach is that two properties are never exactly
alike.
3. Income Approach
An investment property is typically valued in
proportion to its ability to produce income. Hence
the Income Approach involves an analysis of the
property in terms of its ability to provide a net
annual income. This estimated income is then
capitalized at a rate commensurate with the risks
inherent in ownership of the property, relative to
the rate of return offered by other investments.
Land is typically valued by the Direct Sales Comparison
Approach. In the following chapters, the individual and
aggregate retail value of the subject lots are estimated,
followed by the discounted bulk value and the as-is value of
the subject lots. The discounted bulk value of the subject
lots is estimated using a residual analysis. A residual
analysis estimates the land value by discounting revenues
generated from selling finished lots, after deducting the cost
of sale and a profit. Further, the as-is value is estimated
by deducting the cost of the remaining lot improvements. The
first step in the analysis, presented in the following
chapter, is the estimation of the retail value of the subject
lots assuming all offsite improvements are in place.
The building improvements are valued by the Direct Sales
Comparison and Income Approaches. Due to the subjective
nature of estimating accrued depreciation on
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Appraisal: Triad Business Park, Livermore, CA Page 29
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three buildings constructed to suit the occupant, and because
the Cost Approach is not typically used by market
participants, the Cost Approach is not included. The market
value of the building improvements is correlated at the end of
the report.
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Appraisal: Triad Business Park, Livermore, CA Page 30
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VII. RETAIL VALUATION - FINISHED LAND
The subject vacant sites are divided into industrial, retail,
residential and open space use components. In this chapter, the
industrial and retail land values are concluded first. The retail
value of the residential and open space components are concluded
subsequently. The retail values for all of the subject sites are
summarized at the end of this chapter.
A. Comparable Sales - Industrial and Retail Sites
The tables on the following pages present comparable land
sales. The land sales are segmented between
commercial-oriented sales and industrial-oriented sales.
Combined, they show a wide range between approximately $4.79
and $7.95 per square foot. After adjusting for various
factors, including financing terms, conditions of sale, sale
date, location, shape/topography, size zoning and other
factors, an appropriate unit value can be selected for the
subject sites.
The primary factors affecting land value are physical
characteristics, zoning, location and access. Corner parcels
are typically worth more than interior ones, and smaller sites
typically sell for higher unit values than larger ones.
Visibility of the site from major thoroughfares also enhances
the values of sites. In addition, market conditions have been
steadily improving over the last two years. Older sales
require an upward adjustment for market conditions.
Comparable 1 is a 7.99 acre parcel at the southwest corner of
Kitty Hawk and Nissen Drive in the Airway Business Park,
across Interstate 580 from the subject. The comparable has
freeway frontage and visibility and is at street grade. The
California State Automobile Association purchased this
property in June 1996 for $7.75 per square foot and assumed
minor assessments of approximately $0.20 per square foot, for
a total purchase price of $7.95 per square foot. A claims
center is currently under construction. Relative to the
subject sites, this comparable is considered a good indicator
for the sites with freeway frontage.
Comparable 2 is on the east side of Constitution Drive south
of North Canyons Parkway. The site is part of the subject
property and is identified as Lot 15 on the site plan. It is
rectangular shaped except for a triangular shaped portion
along its southern border. It contains approximately 4.15
acres. The buyer is Prakash and Subhash Patel. The price was
$625,000 if escrow closed prior to September 30, 1996 and is
$669,735 if escrow closes prior to December 31, 1996. The
price if escrow closes prior to March 31, 1997 is $714,400.
The buyer also assumes the obligation of the current and
future assessment bonds. The sale is contingent upon the
buyer obtaining the necessary approvals for a hotel. The
seller's representative reports the likely close of escrow
will not be until the March 31, 1997 date. The
Following page 30:
1) Site Plan Map of Triad Park labled "Comparable Land Sales"
2) Table 3: Two page chart detailing Comparable Land Sales
Data for Triad Business Park.
3) Street Map of Livermore Area showing location of Subjetc
property and comparable sales outside of Triad Park.
<PAGE> 39
Appraisal: Triad Business Park, Livermore, CA Page 31
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seller is providing 75% financing at 2 percent above the Prime
rate, amortized over 240 months and due in 84 months. Based
on a close of escrow between December 1996 and March 1997, the
purchase price will be $3.95 per square foot plus current and
estimated future assessments of approximately $2.48 per square
foot. The total price will be approximately $6.43 per square
foot. This comparable is considered a good indicator for the
subject sites with moderate commercial potential.
Comparable 3 is on the east side of Constitution Drive at the
freeway frontage road. This is a triangular shaped site that
contains approximately 1.8 acres. The site has good freeway
frontage and visibility. In September 1996, Triad Systems
Corporation sold this property to the D'Ambrosio Brothers for
$4.06 per square foot. The buyer also assumed existing and
future assessments estimated at $2.48 per square foot. The
total cost to the buyer therefore equates to $6.54 per square
foot. The terms of the sale included $240,000 (75 percent)
seller financing at 9% amortized over a 20 year period and due
in 59 months. The buyer plans to construct a restaurant
building. This comparable is considered a good indicator for
the subject sites with retail potential.
Comparables 4 and 5 are two adjacent parcels that sold in May
of 1996. Comparable 4 is a 1.99 acre parcel that sold from
Boulangerie De France to Brahma Enterprises for $465,000. The
seller was reportedly motivated by a pending foreclosure
action. The seller paid the existing assessment district debt
of approximately $1.00 per square foot. The buyer assumed
approximately $0.20 per square foot in existing community
facilities bond debt and approximately $1.28 per square foot
in estimated future bond indebtedness. The total purchase
price is approximately $6.85 per square foot. The terms of
the sale included short term seller financing at rates
reported to be market oriented. The buyer is building a hotel
on the site. This comparable is considered to be a good
indicator for the comparables with retail potential.
Comparable 5 is a 2.42 acre site that sold for $575,000 to
Livermore Partners L.L.C.. The seller paid the existing The
seller was reportedly motivated by a pending foreclosure
action. The seller paid the existing assessment district debt
of approximately $1.00 per square foot. The buyer assumed
approximately $0.20 per square foot in existing community
facilities bond debt and approximately $1.28 per square foot
in estimated future bond indebtedness. The total purchase
price is approximately $6.94 per square foot. The buyer plans
to construct a motorcycle dealership on the site. The buyer
is currently marketing 1.4 acres at an asking price of $10.00
per square foot. This comparable is considered to be a good
indicator for the comparables with freeway visibility.
<PAGE> 40
Appraisal: Triad Business Park, Livermore, CA Page 32
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Comparable 6 is at the northwest corner of North Canyons
Parkway and Independence Drive. This is a 11.02 acre site
that has a curved shape along North Canyons Parkway, but is
generally regular in shape. In September 1996, Triad Systems
Corporation sold this site to Lincoln Properties for $3.41 per
square foot plus current and proposed assessments of
approximately $2.48 per square foot. The total purchase price
equates to $5.89 per square foot. The buyer plans to
construct a 150,000 square foot speculative industrial flex
building.
The terms of the sale also included the first right of refusal
to purchase Lots 7, 8, 9, 9A, 10, and Lots 21 through 24 for a
five year period. The terms also included the option to
purchase Lots 9 and 9A at $3.99 per square foot plus
assessments, or approximately $6.47 per square foot. The
option price increases 5 percent per year over a 5 year
period.
This comparable is considered a good indicator for the subject
lots north of North Canyons Parkway. A slight downward
adjustment is warranted for the terms of sale which included
the right of first right of refusal for most of the remaining
lots in the subject park.
Comparable 7 is on the east side of Constitution Drive and
south of North Canyons Parkway. The site is generally
rectangular and contains approximately 3.44 acres. The site
is adjacent to two hotels across Constitution Drive and close
to the Costco retail warehouse. The site does not have
freeway visibility. In August 1996, Triad Systems Corporation
sold this property to Duffel and Kendall for $3.00 per square
foot plus existing and estimated future assessments of $2.48
per square foot. The total price is $5.48 per square foot.
The terms of the sale included $337,155 (75 percent) seller
financing at 2 percent over the prime rate, amortized over a
30 year period and due in five years. The interest rate is
not considered favorable, but the terms were considered to
facilitate the sale. A downward adjustment is warranted for
the terms of the sale. This comparable is considered to
bracket the upper end of the range for many of the sites above
North Canyons Parkway.
Comparable 8 is a 9,916 square foot site at 171 Rickenbacker
Circle that sold in April 1995 for $4.79 per square foot. The
comparable is on the south side of Interstate 580 near the
airport and Airway Business Park. Although this site is
small, an upward adjustment is warranted for market
conditions.
Comparable 9 is at the northeast corner of Independence Drive
and North Canyons Parkway. This is a 9.18 rectangular shaped
site adjacent to the southwest corner of the Triad Systems
site. In September 1996, Triad Systems Corporation sold this
property to HHH Investments for $3.47 per square foot plus
estimated current and future assessments of $2.48 per square
foot, for a total of $5.95 per square foot.
<PAGE> 41
Appraisal: Triad Business Park, Livermore, CA Page 33
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The terms of the sale include $1,041,815 (75 percent) seller
financing at 2 percent over the prime rate amortized over 20
years and due in 5 years. The buyer also has an option to
purchase Lot 7 at $3.75 per square foot plus current and
estimated assessments of $2.48 per square foot for a total of
$6.23 per square foot, if exercised by September 1997. The
option price increases to $5.50 per square foot plus
assessments in 1998. This comparable is considered a good
indicator for the sites with good configuration above North
Canyons Parkway.
Comparable 10 is the current escrow of Lot 4 at the northeast
corner of Triad Drive and North Canyons Parkway to J.S.
Kendall for $900,385 or $3.90 per square foot plus
assessments. The total price is approximately $6.38 per
square foot. Escrow is scheduled to close June 15, 1997. The
terms are cash to the seller. This comparable is a good
indicator for Lot 6 which is similar in location and size.
Comparable 11 is a 2.79 acre site at the southeast corner of
Bennett and South Front in the eastern portion of Livermore.
The comparable site has good freeway access from First Street
and is close to the Plaza 580 shopping center. It sold in
June 1996 for $5.51 per square foot with the buyer assuming a
small assessment of approximately $0.23 per square foot. The
total cost the buyer is therefore approximately $5.74 per
square foot. The buyer plans to construct a 75,000 square
foot warehouse. The comparable location is slightly inferior
to the subject location, but the comparable zoning
classification allows a wider variety of uses including heavy
industrial. In addition, a higher density is allowed. The
planned building has a coverage ratio of approximately 62
percent compared to a maximum coverage at the subject park of
approximately 45 percent. This comparable is considered a
good indicator for the industrial/flex sites at the subject.
B. Analysis and Conclusions Industrial and Commercial Lots
The lots valued in this section are 4 through 25, except Lot
14 which is the freeway dedication parcel. Values are based on
net usable land area and are inclusive of all assessments for
offsite improvements. The lots located above North Canyons
Parkway have a light industrial zoning classification. The
comparable sales considered the best indicators for these lots
include Comparables 6 through 11. These comparables show a
per square foot sale price range from $4.79 to $6.38 per
square foot.
Lots 4 and 6 are adjacent to the Triad Systems headquarters
buildings and are relatively small sites with good
configuration. A unit value at the high end of the range of
the non-retail comparables is warranted. Lot 4 is currently
in escrow at $6.38 per square foot to a local contractor. The
current escrow price is considered
<PAGE> 42
Appraisal: Triad Business Park, Livermore, CA Page 34
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the best indicator for this site and an equivalent market
value is concluded. Lot 6 is slightly smaller and a unit
value of $6.40 per square foot is concluded for this site.
Lot 5 is behind the Triad Systems headquarters buildings. The
net buildable area of this site has a poor configuration
considering the development limit line. This site also has
relatively poor access compared to other sites in the park.
This site is also relatively large with a net area of 10.12
acres. For these reasons, a unit value slightly below the low
end of the range of $4.50 per net square foot is concluded for
Lot 5.
Lots 7, 8 and 9A are grouped at the end of Independence Drive.
The Micro Dental and Lincoln Property comparables are in front
of these parcels. Lot 7 has a good site shape and is behind
Micro Dental. Although Micro Dental has an option to purchase
Lot 7 for nearly $6.25 per square foot, it paid only $5.95 for
its site, Comparable 9. The Micro Dental site has superior
frontage and visibility and a lower unit value is warranted.
Based on the other comparables including Comparable 7 that
sold for $5.48 per square foot, a unit value of $5.50 per
square foot is concluded for Lot 7.
Lot 8 is located behind Lot 7 and lacks direct street access.
An easement will be required if it is sold separately. The
site shape has an irregular curve after slope restriction that
reduces its utility. In addition, the slope will require more
grading than the sites along North Canyons Parkway. Based on
these factors, a unit value of $5.00 per square foot is
concluded for this parcel.
Lots 9 and 9A are adjacent and behind the parcel purchased by
Lincoln Properties for $5.89 per square foot. The Lincoln
parcel has superior frontage and visibility than Lot 9A and is
not as deep a site as Lot 9. A lower unit value is warranted.
While it is acknowledged that Lincoln has an option to
purchase these sites at a price slightly less than $6.50 per
square foot, little weight is placed on the option price
because it has not been exercised. The Comparable 7 sale at
approximately $5.50 per square foot is considered to be a good
benchmark for Lots 9 and9A. The Comparable 7 property is
smaller and is considered to have a superior configuration. A
lower unit value is warranted for these subject sites and
$5.25 per square foot is concluded for both Lots 9 and 9A.
Lots 10, 11, and 12 are in the northwest corner of the park.
The slope restriction decreases the utility of the northern
side of these sites and these sites will require more grading
or foundation work because of their slightly greater slope.
These sites are considered similar in desireability to Lots 9
and 9A and a unit value of $5.25 per square foot is concluded
for these parcels.
<PAGE> 43
Appraisal: Triad Business Park, Livermore, CA Page 35
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Lots 13 through 25 have a retail/commercial/light industrial
zoning classification. The best comparables for the sites
with freeway visibility and/or commercial appeal are
Comparables 1 through 5. These comparables show a range from
$6.43 to $7.95 per square foot. The high end of the range is
Comparable 1. This property is outside the subject park and
relative to the recent sales in the subject park, appears to
be a market anomaly. A lower unit value is warranted for the
subject lots.
Lot 13 is on the southwest corner of the park. It has freeway
visibility, but access will be from North Canyons Parkway
rather than a freeway frontage road. Further, west bound
travelers will not see the comparable until after the freeway
exit and thus, it is considered to have inferior visibility
compared to the other freeway sites in the park. The unit
value of this comparable is considered to be bracketed between
Comparable 2 at $6.43 per square foot and Comparable 3 at
$6.54 per square foot. Based on the good site shape of Lot
13, $6.50 per square foot is concluded.
Lot 15 is the site currently in escrow with an expected sale
price of $6.43 per square foot based on close of escrow prior
to March 1997. The expected escrow price is bracketed by the
other sales with commercial potential in the park and appears
reasonable. The escrow unit value appears to be at market
levels and is concluded for this parcel.
Lots 16 through 21 are in a group along the east side of
Independence Drive at the freeway. These sites are relatively
small and benefit from freeway visibility and their proximity
to the Costco retail warehouse. Based on these factors, a
unit value toward the upper end of recent sales in the subject
park of $7.00 per square foot is concluded for these lots.
Lot 22 has some limited freeway frontage. However, it has an
irregular shape and is negatively impacted by the greenbelt
easement and by a sewer easement. A unit value of $6.50 per
square foot is concluded for this parcel.
Lot 23 is impacted by the greenbelt easement and lacks the
visibility of a North Canyons Parkway location. Lots 24 and 25
have commercial zoning classifications, but are considered to
have less retail potential. Lot 24 is relatively large at
more than 10 acres. The Comparable 7 sale at slightly less
than $5.50 per square foot is used as a benchmark for these
lots. A unit value of $5.50 per square foot is concluded for
Lots 23 and 24. Lot 25 is smaller than Lot 24 and is across
North Canyons Parkway from Lot 4 which is in escrow for $6.38
per square foot. This site is negatively impacted by the
underground stream easement and the greenbelt easement. A
unit value of $6.00 per square foot is concluded for this lot.
<PAGE> 44
Appraisal: Triad Business Park, Livermore, CA Page 36
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C. Residential Lots
The subject Lot 1 and Lot 2 parcels are currently in escrow to
the Gibson Speno Company with escrow to close March 31, 1997.
The purchase price is $1,662,000 for Lot 1 and $1,238,000 for
Lot 2. The total price is $2,900,000. The purchaser has
agreed to pay for the current and future bonded assessments
for these lots as well as the bonded assessments for Lot 3.
The total future bonded assessments are estimated at
$1,488,706 and capped by the sales agreement at $1,500,000.
Based on the current and estimated future assessments for Lot
1, the escrow price equates to $5.05 per square foot.
Similarly, the escrow price for Lot 2 equates to $11.12 per
square foot. Based on the number of units approved the Lot 1
escrow price is $17,374 per unit and the Lot 2 price is
$47,566 per unit. The wide variance in prices on a per square
foot and per unit basis is related to the difference in site
utility. The Lot 1 property includes the irregular narrow
appendage along its southern side that decreases its utility.
The table on the following page presents residential land
sales in Livermore and eastern Contra Costa County. It also
shows the current escrow price for the subject Lot 1 and Lot
2. Residential sites are most often considered on a price per
residential unit basis. The per unit prices paid typically
reflect differences in density. Developments with low density
typically sell for higher per unit prices and developments
with higher density typically sell for lower per unit prices.
The comparable sales show a wide range from $11,333 per unit
to $59,154 per unit. The wide range reflects the differences
in density, location and date of sale. The best indicators
for the subject Lot 1 are its current escrow price and the
comparables on the low end of the range. The comparables on
the low end of the range are Comparables 3 and 4. Comparable
4 is an older sale in Livermore with a similar density (net of
the 2.6 acre recreation parcel) as the subject Lot 1. This
property is considered to have a superior location. However,
market conditions have improved substantially since 1992.
Further, the comparable has a higher density than the subject
and a higher unit value is warranted for the subject Lot 1.
Comparable 4 sold for $13,462 per unit. It is in Brentwood,
which is considered inferior to the subject location. In
spite of its lower density, a higher unit value is warranted
for the subject. The current escrow price is considered the
best indicator for the subject Lot 1 and an equivalent market
value is concluded of $17,374 per unit, or $5.05 per square
foot.
The Lot 2 property is considered most similar to Comparables 1
and 2 which sold for $52,000 and $59,154 per unit
respectively. Comparable 1 has a much lower density and a
superior location relative to the subject and a downward
adjustment is warranted. Comparable 2 has a similar density
but a superior location. It also
Following page 36:
1) Street map of Livermore area labeled "Comparable
Residential Land Sales" showing location of subject property
and comparables. 2) Table 4: Chart detailing comparable
residential land sales data for Triad Business Park.
<PAGE> 45
Appraisal: Triad Business Park, Livermore, CA Page 37
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does not require the grading likely for Lot 2. A downward
adjustment is warranted. Similar to the Lot 1 property, the
current escrow price is considered to be the best indicator
for this property. An equivalent unit value is concluded of
$47,566 per lot, or $11.12 per square foot.
The Lot 3 property has a steep slope and is negatively
impacted by the slope restrictions. As shown on the Usable
Land Map presented earlier in this report, the remaining
buildable portion has a very irregular shape. The irregular
shape coupled with the steep topography is considered to
decrease the utility of the site substantially. As estimated
earlier in the zoning section of the report, a total of
approximately 8 units is estimated for this lot. While the
effective density is low, the grading and site preparation
costs will be higher than the comparable properties. The
Comparable 1 property had required grading and sold for
$52,000 per unit. The subject has a slightly inferior
location and utility and $50,000 per unit is concluded.
4. Open Space
The subject also has 110 acres of dedicated open space that is
north of the residential sites. The topography is relatively
steep and the use of the site is considered limited to
agricultural. The table on the following page presents three
sales of land purchased for open space. The high end of the
range, Comparable 1 at $4,429 per acre, is the sale of a
property with some future development potential. The subject
is considered most similar to the remaining two comparables
that sold for $1,400 and $1,874 per acre. The subject is
closest to Comparable 2 at the low end of the range and $1,400
per acre is concluded for this portion of the subject.
E. Summary
The unit values for the subject use components are summarized
on the Summary of Aggregate Retail Values table. The
aggregate retail value for the subject is shown at the bottom
of the table.
Following page 37:
1) Road map of Southern Contra Costa and Eastern Alameda
Counties centered on Dublin, California, area labeled
"Comparable Open Space Land Sales" showing location of subject
property and comparables
2) Table 5: Chart detailing data on Comparable Open Space /
Agricultural land sales for Triad Business Park.
3) Table 6: Chart labeled "Summary of Aggregate Retail
Values"
<PAGE> 46
Appraisal: Triad Business Park, Livermore, CA Page 38
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VIII. DISCOUNTED (BULK) VALUE CONCLUSION
The discounted (bulk) value is estimated by using a residual analysis.
In a land residual analysis, all costs and revenues associated with
selling the finished lots, as well as a profit factor, are taken into
account over the time projected to sell the subject parcels. The
present value of the net cash proceeds is then calculated by applying
a discount rate commensurate with the risk of development.
The projection of the net cash proceeds involves several steps. The
first is the projection of the retail value that could be achieved for
the subject parcels assuming retail sale, which was presented in the
preceding chapter. The absorption period for the property is then
estimated. Overhead and marketing costs, as well as a profit factor,
are then deducted from the gross revenue sales over the marketing
period to calculate the net cash proceeds. These net cash proceeds
are then discounted over the absorption period to an estimate of
present worth using a market derived yield rate.
The current as-is value of the subject property, is estimated by
deducting the remaining construction costs for the remaining offsite
improvements necessary to construct buildings on the subject lots. As
stated previously in this report, the existing assessment and
community facilities district bonds are considered a type of
financing.
A. DCF Assumptions
The DCF on the following page shows the calculation of the
present value of the subject net cash flows over the projected
absorption period. Assumptions concerning absorption,
appreciation, profit and the appropriate discount rate, are
discussed below.
1. Absorption Period
Absorption statistics have been reviewed from various
office parks in the Tri-Valley and Bay Area. The
absorption projections for the subject take into
account all components of demand for land including
owner/users and developers of speculative projects,
as well as that segment which buys and holds vacant
land for investment, inflation hedge, or future
expansion purposes.
The estimated absorption period for the subject
parcels is based on market factors as well as the
actual absorption experienced at the subject in the
past year. The subject owners have sold or placed in
escrow a total of nearly 35 acres during the last
year. An additional 4.4 acres have been sold by
<PAGE> 47
Appraisal: Triad Business Park, Livermore, CA Page 39
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other parties in the subject park. The absorption
rate for the 1996 year is therefore approximately
40 acres.
The absorption of land is closely tied to the
absorption of the existing office and office/flex
space. A total of 382,788 square feet has been
absorbed in the Tri-Valley market during the first
three quarters of 1996. The strong absorption trend
coupled with the limited of new construction during
the past three to four years suggests the existing
product can be leased in approximately 1 year.
Further, there are few large spaces available. Thus
it is possible that a large user would not be able to
find sufficient space presently.
There are approximately 144 usable acres of vacant
land in the subject property excluding the 110-acre
agricultural parcel. Of this total, approximately 29
acres are in escrow to be sold in early 1997. Thus,
if the escrows close as scheduled, there will be
approximately 115 acres remaining exclusive of the
agricultural parcel.
The owner's representative has prepared a 7-year plan
to sell the remaining lots in the subject park.
Based on the 144 usable acres, this represents an
average absorption rate of 20.6 acres per year.
Given the 29 acres already in escrow, the absorption
rate for the remaining 115 acres over the 7-year
period equates to an average of 16 acres per year.
Based on the most recent absorption trend, coupled
with improving land development conditions and market
oriented asking prices, a superior absorption rate
appears to be achievable.
Based on these considerations, a 5-year absorption
period is concluded. This indicates an absorption of
28.8 usable acres per year of the subject. This is
considered supportable given the projected
improvement in the economy and real estate markets,
realistic pricing, and aggressive marketing.
2. Cost of Sales
Costs related to the sale of the finished parcels
included marketing, overhead and real estate taxes.
The subject owners have paid commissions of
approximately 6 percent of the sale price net of the
existing $1.10 in assessments, and 4 percent of the
net sale price for the residential land excluding all
assessments. Based on the weighted average total
retail value of the residential, and commercial
portions of the subject including assessments, the
average commission is approximately 4 percent. The
Following page 39:
Table 7: Chart labled "Discounted Land Valuation" detailing
assumptions and Net Present Value analysis of vacant land
parcels.
<PAGE> 48
Appraisal: Triad Business Park, Livermore, CA Page 40
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owner's representative reports that with improved
market conditions, the commission structure will
likely be renegotiated.
Considering that many of the sales will be direct, a
total marketing and overhead expense of 3 percent
appears reasonable. Therefore, for purposes of this
analysis, three percent of gross annual sales has
been allocated for sale costs.
The land is assumed to be absorbed on a straight-line
basis over the term with property taxes and other
minor assessments deducted each year based on the
assessed value. The assessed value is the retail
value of the property.
3. Profit
Entrepreneurial profit is the compensation earned by
the developer for successful completion of a real
estate development venture. With land development,
profit is normally quantified in one of two ways.
Profit is either included in the discount rate, or as
a separate line item deduction. The latter is often
referred to as a bifurcated rate.
Residential subdivision investors/developers who use
a bifurcated rate typically use 15 to 20 percent of
gross sales revenues for profit. Office/industrial
land is a riskier investment than residential
subdivision land. These factors support a rate
toward the high end of the range. The marketing of
parcels requires time, effort and risk. The market
would therefore also anticipate an entrepreneurial
profit for such an undertaking.
Typically, developers require a profit level from 10
to 20 percent. The subject properties include
retail, industrial, residential and open space land
uses. In addition, not all of the offsites are in
place. Therefore, a developer would require a
sufficient profit level to compensate for the risk
involved. Also, the developer receives a greater
proportion of the return toward the end of the
absorption period. This increases the risk,
warranting a higher profit. Thus, a profit level at
the high end of the range of 20 percent of sales is
concluded.
4. Annual Sales Price Increases
The virtual absence of new construction during the
last five years has led to dramatic rental rate
increases in inner Bay Area locations. In
<PAGE> 49
Appraisal: Triad Business Park, Livermore, CA Page 41
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anticipation of continued increased demand,
developers and owner-users are acquiring land for
potential new development. Land values are showing
strong appreciation from 1994 and 1995 price levels.
Appreciation has been much greater than 10 percent
during the past two years. However, Livermore is on
the periphery of Bay Area and Tri-Valley development.
Appreciation in the Livermore market has historically
occurred subsequent to other markets closer to
Silicon Valley.
Land and rental rates have appreciated substantially
in closer-in markets and appreciation in Livermore is
expected to continue through 1997. The rate of
appreciation is projected to be slightly higher than
an inflation estimate of 5 percent annually.
5. Discount Rate
In order to estimate the price a knowledgeable
developer would be willing to pay for the subject
today, it is necessary to discount the net cash flow
results at a yield rate commensurate with the risks
of land development. This process adjusts for the
fact that money received at future dates is worth
less than corresponding amounts received today.
The net cash flow after holding costs is discounted
at 13.5 percent. The discount rate is based on the
weighted average cost of funds, assuming a 60 percent
first mortgage at slightly less than three points
over prime of 8.25 percent, or 11.0 percent. The
remaining 40 percent of the required purchase price
would be funded by a combination of second deed of
trust money, which is considerably more expensive,
and equity investment. Second trust deed money is
available in the market today for high risk
properties at a rate of approximately 15 percent.
However, only an estimated additional 20 percent of
the total cost could be financed through this
mechanism as even second trust deed lenders today
want equity contribution to projects. Finally, the
last 20 percent of the required funds would likely
come from equity money requiring an even higher yield
rate. The equity funds would most likely require a
return of 20 percent in order to attract an investor
to the property. The blended rate is 60 percent of
the funds at 11 percent, 20 percent of the funds at
15 percent and 20 percent of the funds at 20 percent.
The total blended discount rate is 13.6 percent,
which is rounded to 13.5 percent.
The selection of a discount rate is also sensitive to
the appreciation projection. The appreciation rate
used in the DCF is at the low end of growth rate
projections. Thus, a discount rate toward the low
end of the
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Appraisal: Triad Business Park, Livermore, CA Page 42
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range is indicated, and the concluded discount rate appears
reasonable and used in this analysis.
B. Bulk Value Conclusion
Discounting the net annual income stream for the sale of the
subject lots over the absorption period, results in the bulk
value of the subject property, which is rounded to a market
value conclusion of $20,460,000.
As a check of reasonableness, the IRR is calculated using the
above value conclusion as a cash outflow at time zero and the
net proceeds before profit over the next ten years, as cash
inflows. The result is an indicated IRR of 23.5 percent,
which is consistent with overall yields required by investors
for a comparatively risky venture like land development. It
therefore supports the discounted land valuation.
C. As-Is Value
In order to reach the current as-is value of the subject lots,
all remaining lot improvement costs must be deducted from the
discounted bulk value. As discussed previously in the report,
there are remaining offsite costs necessary for the
development of the subject lots that equate to approximately
$1.28 per gross square foot. This per square foot cost is
essentially the amount the owner plans to fund through four
future community funding districts.
This unit cost is multiplied by the 182.57 acres, or 7,952,749
square feet which results in a total remaining cost of
$10,179,519 for the subject lots. In addition, the cost of
utilizing the Collier Canyon 1 acre parcel for street widening
is included at the negotiated price of $35,000. The total
as-is deductions equate to $10,214,519. The as-is value is
calculated as follows:
<TABLE>
<S> <C>
Bulk Value Conclusion $20,460,000
Less Remaining Site Finishing Costs ($10,179,519)
Less Collier Canyon Road Parcel Cost ($35,000)
-----------
As-Is Value Conclusion $10,245,481
Rounded $10,250,000
</TABLE>
<PAGE> 51
Appraisal: Triad Business Park, Livermore, CA Page 43
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IX. VALUE OF TRIAD BUILDINGS - DIRECT SALES COMPARISON APPROACH
In this approach, the value of the subject property is established by
a comparison to other comparable properties which have sold in the
recent past. The table on the following page summarizes comparable
sales. The comparables are further discussed in the following
paragraphs. The comparable properties were selected primarily based
on their location and leased status. The subject is leased to Triad
Systems on an absolute net basis for a five-year term with a five-year
option. The lease is discussed in detail later in the Income
Approach. The first comparable was selected because it is a good
quality R&D facility in San Ramon that sold fully leased. The next
three comparables were selected because they are R&D facilities that
sold with a single tenant in place on a triple net basis. The
remaining comparable was selected because it is a good quality project
close to the subject that sold 90 percent leased.
A. Comparable Building Sales
COMPARABLE 1 is the Norris Tech Center at Bishop Ranch in San
Ramon. This property consists of two tilt-up concrete and one
steel frame office/flex buildings at 2300 Camon Ramon, 4550
Norris Canyon Road and 4600 Norris Canyon Road. The concrete
tilt-up buildings are two stories and the steel frame building
is three stories. The buildings contain a combined building
area of 260,480 square feet. The improvements were
constructed in 1990 and 1984 and 1985 and are improved with
approximately 72 percent office space. The improvements show
a coverage ratio of 35.4 percent. Parking is available at a
ratio of 4 spaces for every 1,000 square feet of building
area. The 2300 Camino Ramon building is 100 leased to AT&T
Network Systems until July 2000. The 4550 Norris Canyon Road
building is leased to three tenants with 10 years remaining
terms and the 4600 Norris Canyon Road building is leased to
two tenants for 10 years remaining terms.
In September of 1996, Highridge Partners sold this property to
William Wilson & Associates for a reported price of
$30,000,000 or $115.17 per square foot of building area.
Based on the combined pro-forma net income for the buildings,
and including a vacancy and collection loss of 5 percent, the
net operating income is $2,919,665. The indicated
capitalization rate is 9.7 percent.
COMPARABLE 2 is the sale of a building located at 1210
California Circle in Milpitas. This is a 120,576 square foot,
one story, concrete tilt up facility in average condition. It
was constructed in 1987 on a 411,642 square foot site,
reflecting a floor area ratio of 209 percent. The interior is
improved with approximately 40 percent office space. The
remainder of the space is warehouse which is access by 9 dock
high doors and 4 grade level doors, has a clear height of
Following page 43:
1) Road map of Greater San Francisco Bay Area labeled
"Comparable Building Sales" showing location of subject
property and comparables
2) Table 8: Chart detailing data on Comparable Building
Sales for Triad Business Park.
<PAGE> 52
Appraisal: Triad Business Park, Livermore, CA Page 44
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24 feet, and 4,000 amp power. Parking is provided at a ratio
of 3.7 spaces per 1,000 square feet of building area.
In June 1996, this comparable was sold for an all cash price
of $12,550,000. This is equivalent to a unit value of $104.08
per square foot of building area. At the time of sale, the
entire building was leased to LAM Research. This lease was
singed in February 1996 for a ten-year term with annual rent
escalations of four percent on a triple net basis. As of the
date of sale the reported net operating income was $1,159,170.
Compared to the sale price, this indicates an overall rate of
9.2 percent.
COMPARABLE 3 is the sale of 103,060 square foot R&D building
located at 45757 Northport Loop in Fremont. This one-story
concrete tilt up building was constructed in 1983 and is in
average condition. The underlying land area is 283,140 square
feet, indicated a floor area ratio of 36 percent. The
interior is built out with approximately 70 percent office
space. The remaining warehouse space includes one dock high
door and three grade level doors, a 16-foot clear height, and
2,000 amp power. Parking is provided at a ratio of 3.0 spaces
per 1,000 square feet of building area.
In April 1996, this building sold for an all cash price of
$9,278,000. This is equivalent to a unit value of $90.03 per
square foot of building area. At the time of sale the entire
building was leased to LAM Research. This lease was signed in
October 1995 for a ten-year term at an effective rental rate
of $0.72 per square foot per month on a triple net basis. Net
operating income at the time of sale was reported at $857,700.
Compared to the sale price, this indicates an overall rate of
9.2 percent. This building was on the market for
approximately 3 months prior to this transaction.
COMPARABLE 4 is located at 330-350 Twin Dolphin Drive in
Redwood City. This is a two-building 121,194 square foot,
good quality, concrete tilt-up office/R&D complex. There is
one, 45,792 square foot structure which contains nearly 100
percent finished office and one, 75,402 square foot structure
that contains approximately 50 percent office and 50 percent
manufacturing/warehouse with partial dropped ceiling. The
building improvements were constructed in 1994 and are in good
condition. The buildings are situated on a 9.274 acre site,
reflecting an FAR of 30 percent.
In February 1996, this property transacted for a
cash-equivalent purchase price of $17,364,0000, equivalent to
a unit value of $143.27 per square foot of building area. At
the time of sale, the property was 100 percent leased to
Harris Corporation who commenced on a 12 year triple net lease
in August 1995. The
<PAGE> 53
Appraisal: Triad Business Park, Livermore, CA Page 45
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initial contract rental rate was $1.12 per square foot per
month with annual $0.05 per square foot per month escalations.
The leased rate was based on a $25.00 per square foot tenant
improvement allowance to the building shell. Gross annual
income based on the first rent escalation equates to
$1,701,564. After deducting five percent for vacancy and two
percent for triple net expense, net operating income is
estimated at $1,584,156. The overall rate indicated by the
transaction is 9.1 percent.
COMPARABLE 5 is the Signature Center property located at 4900
and 5000 Hopyard Road just west of the Hacienda Business Park
in Pleasanton. This property consists of one, three-story and
one, four-story, steel frame office buildings, which were
constructed in 1985. They are of excellent quality and in
good condition. Also included is a two-story parking garage
on a separate parcel which provides parking at a ratio of 4.0
spaces per 1,000 square feet of rentable area. Total rentable
building area is approximately 255,000 square feet.
In August 1995, Principal Mutual Life Insurance Company
purchased the property from Calprop L.P. for a cash price of
$24,500,000, or $96.08 per square foot of building area. The
seller had previously purchased the property, with a portfolio
of other properties, early in 1994. The building had been
marketed for approximately 6 months, and had fallen out of
escrow with another buyer.
In addition to the purchase price, the purchaser assumed
approximately $3,000,000, or approximately $11.76 per square
foot of building area, in assessment bonds. At the time of
sale, the property was approximately 90 percent leased, with
the stabilized net operating income at the time of sale
approximately $2,352,320 including a deduction for the
assessment bond payments. Based on this net income, the
indicated capitalization rate from this transaction is 9.6
percent.
B. Analysis
The comparables show a range from $90.03 to $143.27 per square
foot of building area. They range in size from approximately
103,060 to 260,480 square feet. Adjustment for location,
quality, physical characteristics, income and terms of sale
result in appropriated unit value indication for the subject
property.
At the low end of the range is the 45757 Northport Loop
comparables at $90.03 per square foot. The comparable has a
superior Fremont location and a downward adjustment is
warranted for location. However, the comparable property has
a much lower level of interior buildout and an unattractive
exterior facade. The low build-out and inferior quality is
reflected in the lower rental rate for the comparable
property. A higher unit value is warranted for the subject.
<PAGE> 54
Appraisal: Triad Business Park, Livermore, CA Page 46
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The high end of the range is the 330-350 Twin Dolphin Drive
comparable at $143.27 per square foot. The comparable's
Redwood Shores location is significantly superior to the
subject's location. In terms of interior build-out, the
subject and the comparable are similar. The exterior finish
for the comparable is slightly superior. A significant
downward adjustment is warranted for superior leased status of
the comparable versus the subject. The comparable is
long-term leased to Harris Corporation at a rental rate
significantly higher than achievable at the subject. A lower
unit value is warranted for the subject.
The remaining comparables are in the middle of the range.
Comparable 1 at 4550 Norris Road in Bishop Ranch sold for
$115.17 per square foot. The comparable has a superior
location in Bishop Ranch along the 680 Corridor. The
comparable location was the first in the subject's greater
market to report improving market conditions. The comparable
also has a superior leased status with most of tenants having
remaining terms of at least 10 years. The quality of
improvements is considered similar to the subject
improvements. Overall, a lower unit value is warranted for
location and leased status.
Comparable 2 at 1210 California Circle in Milpitas sold for
$104.08 per square foot. The comparable location is
considered significantly superior to the subject location and
a downward adjustment is warranted. The comparable building
is slightly inferior in quality and interior build-out.
However, it is leased on a long term basis to LAM Research
with annual rent increases. A lower unit value is warranted
for the subject property.
Comparable 5 the Signature Center on Hopyard Road sold for
$107.84 per square foot. This is the oldest sale and an
upward adjustment is warranted for improved market conditions
subsequent to this sale. The comparable location in
Pleasanton is considered superior to the subject's location
and a downward adjustment is warranted. The comparable
improvements are superior in quality and build-out relative to
the subject and a downward adjustment is warranted for this
factor. Overall, a downward adjustment is warranted, which is
somewhat offset by improved market conditions.
In summary, the unit value of the subject is considered to be
significantly below the comparables on the high end of the
range. It is considered to be bracketed by Comparable 3 at
$90.03 per square foot and Comparables 2 and 5 at $104.08 and
$107.84 respectively. In reaching a final value conclusion,
the subject's superior build-out and quality relative to the
Comparable 3 property is considered and $100.00 per square
foot is concluded. The indicated value is as follows:
<TABLE>
<S> <C>
219,818 square feet x $100.00 per square foot = $21,981,800
Rounded $21,980,000
</TABLE>
<PAGE> 55
Appraisal: Triad Business Park, Livermore, CA Page 47
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X. VALUATION BY THE INCOME APPROACH
In the Income Approach, property is valued by estimating a stabilized
net operating income for the subject and then applying an overall
capitalization rate commensurate with the risk inherent in the
ownership of the property.
A. CURRENT LEASING STATUS
ORIGINAL LEASE TERMS AND TENANT SYNOPSIS
The subject property is fully leased by Triad Systems
Corporation, which primary business is to develop software
sales and inventory management systems for the automotive and
hardware industries. These systems and the related ongoing
support are then sold or leased to individual customers.
The Triad financial report for fiscal year 1996, that ended in
September 1996, shows that revenues in 1996 were relatively
flat at $175.7 million versus 175.1 million in 1995. The
report also notes that Triad is being purchased by a newly
formed and jointly owned company formed by Hicks Muse, a
private investment company and Cooperative Computing, a
company that provides information-management solutions to
large warehouse distributors.
An analysis prepared by Standard and Poor's of the company
shows a 1.3 percent decline in operating revenues over the
past year and notes a $9,000,000 writeoff related to an
automotive product issue and realignment of the automotive
aftermarket operations. However, the report also notes that
Triad, prior to the recent write off, had not recorded an
operating loss since the third quarter of 1989. Standard and
Poor's gives Triad's stock an average risk rating, a high
strength rating and a B- earnings/dividend ranking.
The landlord is 3055 Triad Drive Corp., which we are informed
by the owner's representative is a related entity of the
tenant. The original lease is dated August 1, 1988 with a
term through August 31, 2003. The rent is $2,505,720 per
year, flat for the entire term of the lease. The terms
require the tenant to pay for all expenses including
replacement if the buildings are destroyed.
PENDING LEASE AMENDMENT
The appraisers are in receipt of an unsigned document entitled
First Amendment to the Project Lease Agreement which is
included in the Addenda of the appraisal. The pending lease
amendment will change the expiration date of the lease to
December 31, 2001 and grant the tenant one - 5 year option to
renew. The rental
<PAGE> 56
Appraisal: Triad Business Park, Livermore, CA Page 48
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rate is also changed. Beginning January 1, 1997 through
December 31, 1998 it is $2,505,924 per year, or $0.95 per
square foot per month. The rent for the remaining three years
of the term is the "fair market rental value" but no less than
the rent at the time of negotiation and no greater than 120
percent more. If the parties cannot agree on the fair market
rental, the lease has provisions for retaining real estate
brokers in the market. If the real estate brokers cannot
agree to the rental rate, a third broker is retained. The
three brokers are unable to agree, the three opinions of the
fair market rental are added and averaged. The specific
language of the lease is as follows:
"Within (30) days after the selection of the third
Broker, a majority of the Brokers shall set the
Annual Base Rental for the remaining term. If a
majority of the Brokers is unable to set the Annual
Base Rental within the stipulated period of time,
Landlord's Broker shall arrange for simultaneous
exchange of written opinions of value from each of
the Brokers and the three (3) opinions of value shall
be added together and the total divided by (3); the
resulting quotient shall be the Annual Base Rental
for the Premises during the remaining term. If,
however, the low opinion of value and/or the high
opinion of value are/is more than ten percent (10%)
lower and/or higher than the middle opinion of value,
the low opinion of value and /or the high opinion of
value shall be disregarded. If only (1) opinion of
value is disregarded, the remaining two (2) opinions
of value shall be added together and their total
divided by two (2); the resulting quotient shall be
the Annual Base Rental for the Premises during the
remaining term. If both the low opinion of value and
the high opinion of value are disregarded as stated
in this Section, the middle opinion of value shall be
the Annual Base Rental for the Premises for the
remaining term."
The rent during the five year option period is established in
a similar manner but if the parties are unable to agree, real
estate appraisers instead of brokers are appointed to
establish the rental rate. As stated in the agreement, the
rental rate cannot be less than the rent at the time of the
option period. The remaining terms of the original lease are
not changed.
<PAGE> 57
Appraisal: Triad Business Park, Livermore, CA Page 49
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B. LEASE SURVEY AND ANALYSIS
The table on the following page presents comparable leases of
single tenant triple net leased research and development
projects. The subject is the only large single tenant
occupied research and development facility in Livermore and
the search for comparable properties was broadened to include
western Alameda County. As shown, the comparables are all on
a triple net expense basis. The leases typically include
escalations during the term.
The comparables indicate a range from $0.60 per square foot to
$1.10 per square foot on a triple net expense basis. Most of
the leases are relatively recent and thus reflect current
market conditions. The only dated comparable, Comparable 7,
Cellotape, is adjusted upward for market conditions. Rents
for R&D space have been increasing in this market during the
last 12 months.
Regarding quality of construction, condition, and appeal, the
comparables vary greatly in terms of the percentage office
improvements. In general, higher rents are paid for building
with greater office improvements. The high end of the range
are the leases to ProBusiness, a payroll service company,
Robert Half International, a recruiting company, and Pacific
Bell Communications. These leases were fully built-out for
the tenants and the relatively high rental rate reflects the
quality of the space and the comparables superior location in
Pleasanton. A lower rental rate is warranted for the subject.
The remaining comparables show rental rates from $0.60 to
$0.78 per square foot. These properties have superior
locations in Fremont, but have lower levels of office build
out. These comparables are considered more indicative of
the market rental rate for the subject property. The superior
office improvements at the subject property is considered to
be offset by the subject's location.
Overall, the comparable properties are similar to the subject
except for location. Based on the comparables identified
above, and with consideration for the subject's size, specific
location, interior build out, condition and appeal, market
rent is estimated at $0.80 per square foot per month, triple
net. This represents a starting rent for a typical five-year
term with no free rent nor other concessions.
The contract rent for the subject is currently equivalent to
$0.95 per square foot. Assuming 3.5 annual increases in
market rental rates it will take approximately 5 years for the
current contract rent to equal market rents. Thus, it is
unlikely that the rent will be increased as of the adjustment
date on January 1, 1999.
Following page 49:
1) Road map of Southern Contra Costa and Eastern Alameda
Counties, centered on Dublin, California Labeled "Comparable
Rentals" showing location of subject property and comparables.
2) Table 9: Chart detailing data on Comparable Leases for
Triad Business Park.
<PAGE> 58
Appraisal: Triad Business Park, Livermore, CA Page 50
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C. STABILIZED INCOME STATEMENT
A summary of the estimated stabilized income for the subject
property is presented on the table on the following page.
1. Income
The subject has five years remaining of its rental
term. Although the contract rental rate is
renegotiated after two years, the terms of the lease
do not allow the contract rent to be lowered from its
current level. Based on an annual rent appreciation
rate of 3.5 percent, the contract rent will continue
until the end of the first lease term. Therefore,
contract rent is used in this analysis. Gross
potential income is estimated on an annualized basis
at $2,505,924.
In estimating the stabilized value, a provision for
vacancy is considered appropriate to account for
tenant turnover, uncollectible rent and the
potentially unoccupied periods during the investment
term. The estimated loss of income due to vacancy
and collection loss is estimated at 5 percent, or
$125,296.
Subtracting vacancy and collection loss from gross
potential income results in an effective gross income
of $2,380,628.
2. Operating Expenses
The survey of leases in the area indicates that most
leases are on a triple net basis. The tenant is
responsible for all utilities, taxes, insurance and
maintenance expenses.
The only costs incurred by the lessor are management
fees and reserves. Management fees are estimated
based on 2.0 percent of effective gross income, and
reserves are estimated based on 1.0 percent of
effective gross income, for total expenses of
$71,419.
3. Net Operating Income
Subtracting operating expenses from the effective
gross income results in a net operating income of
$2,309,209.
Following page 50:
1) Table 10: Stabilized Net Operating Income Statement for
Triad Business Park showing Stabilized Net Operating Income
of $2,309,209.00, capitalized at 10.5% for a total stabilized
value of $21,990,000.
<PAGE> 59
Appraisal: Triad Business Park, Livermore, CA Page 51
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4. Capitalization Rate Selection
The appropriate rate of capitalization for the
subject is based on the quantity, quality, durability
and general risk associated with the estimated
stabilized net income. Also considered is the demand
for and supply of competing properties with regard to
the location, size and quality of the subject
relative to other buildings within the market area.
The most effective method of derivation of the
capitalization rate is abstraction from the
comparable sales data. The sales indicated
capitalization rates between 9.1 and 9.7 percent.
The low end of the range is represented by Comparable
4 at 330-350 Twin Dolphin Drive that sold with a 9.1
percent capitalization rate. The comparable location
is considered superior to the subject location and
the comparable lease terms are superior to the
subject lease terms. A higher capitalization rate is
warranted.
Comparable 3 at 45757 NorthPort Loop in Fremont is
also at the low end of the range at 9.2 percent.
This property also has a superior location with a
superior lease term. A higher capitalization rate is
warranted.
Comparable 2 at 1210 California Drive sold with a 9.2
percent capitalization rate. The superior lease term
and location of this comparable warrant a higher
capitalization rate for the subject.
The high end of the range is represented by
Comparables 1 and 5. These are both multi-tenant
properties that have a combination of triple net and
serviced tenants. This investment type is less
attractive than a single tenant net leased
investment. However, both comparables have a
superior location and the tenants in these complexes
have longer remaining terms to their leases.
Because the subject lease has only five years
remaining, a capitalization rate slightly above this
range is indicated. In spite of a recent loss due
to an expense write off, the tenant has shown steady
operations over the past several
years and is considered to be of average
creditworthiness. The building was constructed as
the tenant's headquarters and the evidence points to
the possibility of a tenancy beyond the initial term.
Based on these factors, a relatively high
capitalization rate of 10.5 percent is concluded for
the subject.
<PAGE> 60
Appraisal: Triad Business Park, Livermore, CA Page 52
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D. VALUE CONCLUSION
Applying the capitalization rate to the estimated net
operating income results in the following value conclusion:
<TABLE>
<S> <C>
Market Value: $21,992,466
Rounded: $21,990,000
</TABLE>
<PAGE> 61
Appraisal: Triad Business Park, Livermore, CA Page 53
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XI. RECONCILIATION AND CONCLUSION - BUILDING IMPROVEMENTS
The values indicated by the approaches used in this report were as
follows:
<TABLE>
<S> <C>
Sales Comparison Approach $21,980,000
Income Approach $21,990,000
</TABLE>
The Sales Comparison Approach used recent building sales. The
comparable sales were related to the subject on a price per square
foot basis. There was good market data for comparison. However, none
of the comparables were exactly like the subject. This factor was
adjusted for and this approach is considered valid.
The Income Approach relied on contract rental information. There was
good information regarding capitalization rates. Overall, there was
good information available for this approach. The subject property is
fully leased for the next five years with the potential of the tenant
renewing in five years. It is considered to have greatest appeal to
the investor market which considers the Income Approach as a primary
value indicator.
The subject is considered to most likely be purchased by an investor.
These purchasers often use the Sales Comparison Approach weight the
risk to the income stream. In reaching a final value conclusion for
the subject property, most weight is placed on the Income Approach.
The final value for the subject building improvements is:
$21,990,000
<PAGE> 62
Appraisal: Triad Business Park, Livermore, CA Page 54
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XII. FINAL VALUE CONCLUSION
The values concluded for the subject components are as follows:
<TABLE>
<S> <C>
As-Is Bulk Value - Vacant Land $10,250,000
As-Is Value - Headquarters Building $21,990,000
Total Value Conclusion $32,240,000
</TABLE>
The subject property consists of more than 185 acres of vacant land
that requires offsite improvements and a triple net leased
headquarters complex. The subject is appraised assuming it is sold in
a single transaction. The number of buyers that would seek to
purchase both property types in a single transaction is considered
limited. The vacant land would disinterest many potential purchasers
of the leased buildings. The likely buyer of the subject is
considered to be an entrepreneurial development firm that would
purchase the property and sell portions to another investor. A slight
discount from the total aggregate value is warranted to provide a
buyer with the impetus to purchase both property types. The brokerage
commission to resell the buildings is estimated in the range of 2
percent and this discount to the value of the office building is
considered appropriate for this analysis. The resulting as-is value
is shown as follows:
<TABLE>
<S> <C>
Aggregate Total Value $32,240,000
Less two percent of office value ($439,800)
As-is Value Conclusion $31,800,200
Rounded $31,800,000
</TABLE>
Based on the research and analysis contained within this report and
subject to the assumptions and limiting conditions contained herein,
it is the opinion of the appraisers that the cash equivalent market
value of the fee simple and leased fee interest in the subject
property, in as-is condition, assuming sale in a single transaction,
as of November 1, 1996, is:
THIRTY ONE MILLION EIGHT HUNDRED THOUSAND DOLLARS
($31,800,000)
<PAGE> 63
Appraisal: Triad Business Park, Livermore, CA Page 55
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XIII. EXPOSURE/MARKETING PERIOD
A. EXPOSURE PERIOD (UNIFORM STANDARDS OF APPRAISAL PRACTICE,
P.71, THE APPRAISAL STANDARDS BOARD OF THE APPRAISAL
FOUNDATION)
The estimated length of time that the property interest being
appraised would have been offered on the market prior to the
hypothetical consummation of a sale at market value on the
effective date of the appraisal; a retrospective estimate
based upon an analysis of past events assuming a competitive
and open market.
Based on discussions with brokers active in the subject's
immediate market area, the exposure period for the subject is
expected to be within twelve months. Specific examples of
exposure period vary from property to property. Properties
will sell relatively quickly at a market oriented price.
Peter F. Korpacz & Associates, Inc. prepares a quarterly
survey of real estate investors covering all types of
commercial real estate on a national basis. Their study shows
that all buildings surveyed require an average marketing
period of 9.9 months in order to sell, as of the second
quarter of 1996. The exposure period for the subject is
concluded to be within 12 months.
B. MARKETING TIME (THE DICTIONARY OF REAL ESTATE APPRAISAL, THIRD
EDITION, (CHICAGO: APPRAISAL INSTITUTE, 1993), PP. 220-221
1. "The time it takes an interest in real property to
sell on the market subsequent to the date of an
appraisal."
2. "Reasonable marketing time is an estimate of the
amount of time it might take to sell an interest in
real property at its estimated market value during
the period immediately after the effective date of
the appraisal; the anticipated time required to
expose the property to a pool of prospective
purchasers and to allow appropriate time for
negotiation, the exercise of due diligence, and the
consummation of a sale at a price supportable by
concurrent market conditions."
Based on the forecast stable market conditions, the marketing
time is also concluded to be within 12 months.
<PAGE> 64
February 18, 1997
Mr. Larry D. McReynolds
Manager Real Estate and Facilities
Triad Systems Corporation
3055 Triad Drive
Livermore, CA 94550-9559
Re: 97-ASF-68, Appraisal
Proposed LLC Per Share
Market Value
Dear Mr. McReynolds :
At your request and authorization, Carneghi-Bautovich & Partners, Inc. has
appraised the estimated market value per share of a proposed Limited Liability
Company (LLC). The LLC is being formed for the sole purpose of managing,
maximizing the value of, and liquidating certain real estate assets of Triad
Systems Corporation. The underlying real estate assets of the proposed LLC
were previously valued by Carneghi-Bautovich & Partners, Inc. in a complete
appraisal/self-contained report identified as 96-ASF-359 dated November 18,
1996. That appraisal concludes that the market value of the fee interest in the
real estate as of November 1, 1996 was $31,800,000. That appraisal report is
incorporated herein by reference and is an integral part of the LLC per share
valuation which follows.
Since the appraisal was completed, one parcel of the subject property land has
been sold and transferred. Parcel 15, a 4.15 acre parcel, was sold for
$576,351 net and closed in December 1996. The buyer also assumed $198,372 in
existing assessment bonds and is obligated to assume an additional $230,833 in
future assessment bonds for a gross price of $1,005,556. The gross retail
market value of the parcel in the appraisal was estimated at $1,161,537 (Table
6, page 37.2). The transfer price was 13.4 percent less than the appraised
value. The seller's representative stated that this is because a cash discount
was given in order to motivate a close of escrow by the end of the year. The
actual net proceeds of this sale are deducted from the appraised value in order
to adjust the value to reflect the remaining real estate assets of the LLC.
The future assessment bonds to be assumed by the buyer have already been
deducted from the $31,800.000 value conclusion of the appraisal while the
existing bond debt is deducted in the net asset value calculation discussed
below.
Ownership shares in the LLC are to be distributed to the existing Triad
Corporation shareholders. The total anticipated shares are 19,800,000 and the
date of issue is anticipated to be March 15, 1997, which is also the
prospective date of the per share value. The first step in the per share market
valuation is a calculation of the net asset value of the underlying assets.
The components of the valuation are the underlying real estate assets, less
existing debt, plus any other assets such as cash and receivables. The net
asset value per share can be calculated as follows:
<PAGE> 65
<TABLE>
<S> <C>
Market Value of the Real Estate - Based on Appraisal $31,800,000.
Less Net Proceeds from Parcel 15 (sold after the Appraisal Date) (576,351.)
------------
Gross Market Value of Real Estate $31,223,649.
Plus Receivables (Owed by the City Livermore) 2,100,000.
Plus Estimated Cash in the LLC 100,000.
Less Bond Assessment Debt (9,470,000.)
Less Real Estate Mortgage Debt (9,850,000.)
------------
Net Asset Value $14,103,649.
Net Asset Value Per Share (19,800,000 shares) $0.71
</TABLE>
The above calculations are purely mathematical and do not deal with the issue
of how the market would respond to the shares offered for sale in the LLC. The
vast majority of the assets in the LLC are real estate. Typically shares in
real estate based companies are valued relatively close to the net asset value.
Discounts or premiums in the market are based on the collective market
judgement as to how much risk versus upside potential the individual real
estate holding have. At the current time, REIT's typically sell at a slight
premium to the net asset value; presumably because the stock buyer believes
that management can increase the yields in the future. REIT's, however, are
by nature income focused vehicles intended for operation indefinitely. The LLC
which is the subject of this valuation is planned to operate for the next
several years but only for purposes of maximizing and then liquidating the
assets of the company to the shareholders. Further, the LLC is relatively
highly leveraged and a major portion of the real estate assets are vacant land,
which has inherently more risk than an improved property with an income stream.
Publicly traded real estate development firms with a large amount of vacant
land, including locally based Catellus and Newhall Land, are generally
acknowledged to trade at approximately 70% of the underlying asset value, in
part because there is less liquidity in the assets and greater risk in holding
and developing vacant land.
The LLC will have real estate valued in an independent appraisal at $31,800,000
gross before consideration of debt. The total debt including real estate
mortgages and assessment district bond debt is approximately $19,320,000.
Hence, the debt to equity ratio is 61%, which is high for a publicly traded
company. The real estate assets of the LLC are made up of vacant land and
improved income producing office and manufacturing buildings. The vacant land
makes up approximately 32% of the total. The vacant land has the potential to
appreciate but it does not generate income to pay the debt or for continuing
operations. Although the income from the improved properties will generate
operating income, using this income to carry the land debt will dilute the
market expected yield (capitalization rate) from the improved property. Also,
the LLC income producing property is
<PAGE> 66
Mr. Larry D. McReynolds 3 February 18, 1997
all in a single location and leased to a single tenant, thereby concentrating
exposure and eliminating the portfolio diversification that investors seek in
REIT and similar investments.
There is no way of measuring precisely how the market will respond to the LLC
shares. However, a discount to the net asset value per share is suggested by a
review of the factors affecting the LLC. These factors can be summarized as
follows:
1. The assets are made up of a large amount of vacant land which
the market recognizes as being more speculative and having
higher risk than the improved property. Although there is
improved income producing property it is concentrated in a
single location and leased to a single tenant thereby
eliminating portfolio diversification.
2. The LLC is relatively highly leveraged with a 61% debt to
equity ratio.
3. Although the improved property net income will fund debt
service and operations, this means a large portion of the
investors return is dependent on appreciation of the vacant
land.
4. The appraised value of the underlying vacant land is based on
a projected five year sell out period, a 13.5% discount rate
and other assumptions. Small changes in these assumptions
will result in differing value conclusions, again illustrating
the greater risk in the raw land portion of the subject.
5. Most stock market real estate investors in vehicles such as
REIT's are motivated by income considerations and as a mean of
diversifying a stock portfolio. While the improved portion of
the LLC real estate assets accomplishes this, the vacant land
portion does not.
Based on all these factors, it is my opinion that the LLC shares will likely
trade at a discount from the underlying asset value at least in the first 6
months to a year of the LLC operations as investors weigh the likely success of
the vacant land sell out. Given the overall strength of the real estate
markets at the current time, I am of the opinion that a 10 to 20 percent
discount is likely. Using the mid-point of 15, my opinion of the per share
value of the LLC at initial trading, estimated to be March 15, 1997 is as
follows:
<TABLE>
<S> <C> <C>
Net Asset Value Per Share (19,800,000 shares) $0.71
Discount 15%
Estimated Per Share Trading Price on March 15, 1997 $0.60
</TABLE>
The purpose of this appraisal is to estimate the initial per share trading
price of the LLC. The intended use of this appraisal is for income tax related
issues and possible review by the Internal
<PAGE> 67
Mr. Larry D. McReynolds 4 February 18, 1997
Revenue Service. IT IS NOT THE INTENDED THAT THE USE OF THIS APPRAISAL BE TO
PROVIDE INVESTMENT ADVICE TO ANY SHAREHOLDERS OR ANY OTHER PARTIES TO THE LLC
OR RELATED REAL ESTATE OR OTHER ASSETS. The above value conclusion is
predicated on the accuracy of the above accounting numbers for which the
appraiser takes no responsibility; namely the receivables, cash, bond
assessment debt and real estate mortgage debt. These accounting numbers were
obtained from Leon J. Moore, Director of Taxation with Triad Systems Corp. and
Karl D. Detweiler, Partner Tax, Coopers & Lybrand LLP.
I, the undersigned hereby certify that, to the best of my knowledge and belief:
the statements of fact contained in this report are true and correct; the
reported analyses, opinions, and conclusions are limited only by the reported
assumptions and limiting conditions, and are my personal, unbiased professional
analyses, opinions, and conclusions; I have no present or prospective interest
in the property that is the subject of this report, and I have no personal
interest or bias with respect to the parties involved; my compensation is not
contingent upon the reporting of a predetermined value or direction in value
that favors the cause of the client, the amount of the value estimate, the
attainment of a stipulated result, or the occurrence of a subsequent event; the
appraisal assignment was not based on a requested minimum valuation, a specific
valuation, or the approval of a loan; my analyses, opinions, and conclusions
were developed, and this report has been prepared in conformity with the
Uniform Standards of Professional Appraisal Practice, Code of Professional
Ethics and the Standards of Professional Appraisal Practice of the Appraisal
Institute; I have made a personal inspection of the property that is the
subject of this report; no one provided significant professional assistance to
the person signing this report. The use of this report is subject to the
requirements of the Appraisal Institute relating to review by its duly
authorized representatives. As of the date of this report Chris Carneghi has
completed the requirements under the continuing education program of the
Appraisal Institute. In accordance with the Competency Provision in the USPAP,
I certify that my education and knowledge is sufficient to appraise the type of
property being valued in this report.
I am pleased to have had this opportunity to be of service. Please contact me
if there are any questions regarding this appraisal.
Sincerely,
CARNEGHI-BAUTOVICH & PARTNERS, INC.
/s/ CHRIS CARNEGHI
------------------
Chris Carneghi, MAI
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1996 AND CONSOLIDATED STATEMENT OF
INCOME AND STATEMENT OF CASH FLOW FOR THE TWELVE MONTHS ENDED SEPTEMBER 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,966
<DEPRECIATION> 4,795
<TOTAL-ASSETS> 43,094
<CURRENT-LIABILITIES> 0
<BONDS> 19,464
0
0
<COMMON> 0
<OTHER-SE> 23,630
<TOTAL-LIABILITY-AND-EQUITY> 43,094
<SALES> 0
<TOTAL-REVENUES> 6,301
<CGS> 0
<TOTAL-COSTS> 2,778
<OTHER-EXPENSES> 1,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,857
<INCOME-PRETAX> 574
<INCOME-TAX> 53
<INCOME-CONTINUING> 521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 521
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
