<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of
The Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
TRIAD PARK, LLC
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
membership interests, no par value
2) Aggregate number of securities to which transaction applies:
19,705,623 shares
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $1.65125
per share purchased ($32,538,909)
4) Proposed maximum aggregate value of transaction: $32,538,909
5) Total fee paid: $1,836 (calculated as total transaction filing fee of
$6,508 offset by the amount previously paid as set forth below).
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: $4,672
2) Form, Schedule or Registration Statement No.: Schedule 13E-3
3) Filing Party: Joint - Triad Park, LLC, TPL Acquisition, LLC, and
Richard C. Blum & Associates, LP
4) Date Filed: October 14, 1997
<PAGE> 2
TRIAD PARK, LLC
3055 TRIAD DRIVE
LIVERMORE, CA 94550
FEBRUARY , 1998
DEAR SHAREHOLDER:
You are cordially invited to attend a special meeting of shareholders of
Triad Park, LLC (the "Company") to be held at the offices of the Company, 3055
Triad Drive, Livermore, California, on , March , 1998 at 9:00 a.m.
local time (the "Special Meeting"). A Notice of the Special Meeting, a Proxy
Statement, related information about the Company and a proxy card are enclosed.
All holders of the Company's outstanding membership interests (the "Shares") as
of February , 1998 are entitled to notice of and to vote at the Special
Meeting.
At the Special Meeting, you will be asked to consider and to vote upon a
proposal to approve an Agreement of Merger, dated February 1, 1998 and amended
as of February 12, 1998 (the "Merger Agreement"), by and among the Company, The
Kontrabecki Group, Inc., a California corporation ("TKG"), and TKG Acquisition
Company, LLC, a Delaware limited liability company whose sole and managing
member is TKG ("Acquisition LLC"), pursuant to which the Acquisition LLC will be
merged into the Company (the "Merger"). If the Merger Agreement is approved and
the Merger becomes effective, each outstanding Share will be converted into the
right to receive $1.65125 in cash. Approval of the Merger requires the
affirmative vote of the holders of a majority of the voting power of all
outstanding Shares. Details of the proposed Merger and other important
information are set forth in the accompanying Proxy Statement, which you are
urged to read carefully.
YOUR ADVISORY BOARD HAS APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. EVERY VOTE IS IMPORTANT.
FAILURE TO VOTE IS EQUIVALENT TO A VOTE AGAINST THE MERGER. Whether or not you
plan to attend the Special Meeting, please complete, sign and date the
accompanying proxy card and return it in the enclosed postage prepaid envelope.
If you attend the Special Meeting, you may revoke such proxy and vote in person
if you wish, even if you have previously returned your proxy card.
Thank you for your interest and participation.
Sincerely,
James R. Porter
Vice President, 3055 Management Corp.,
Manager of the Company
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 3
TRIAD PARK, LLC
3055 TRIAD DRIVE
LIVERMORE, CALIFORNIA 94550
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , MARCH , 1998
------------------------
To Shareholders of Triad Park, LLC:
The Advisory Board has called a special meeting of the shareholders of
Triad Park, LLC, a Delaware limited liability company (the "Company"), to be
held at the offices of the Company, 3055 Triad Drive, Livermore, California, on
, March , 1998 at 9:00 a.m. local time, including any adjournments
or postponements (the "Special Meeting"), to consider and act upon the following
matters:
1. To consider and vote upon a proposal to approve an Agreement of
Merger, dated February 1, 1998 and amended as of February 12, 1998 (the
"Merger Agreement"), by and among the Company, The Kontrabecki Group, Inc.,
a California corporation ("TKG"), and TKG Acquisition Company, LLC, a
Delaware limited liability company and whose sole and managing member is
TKG ("Acquisition LLC"), pursuant to which, among other things, (i)
Acquisition LLC will be merged into the Company (the "Merger"), and (ii)
each outstanding membership interest of the Company (the "Shares") will be
converted into the right to receive $1.65125 in cash (the "Merger
Consideration"). A copy of the Merger Agreement is attached as Exhibit A to
the accompanying Proxy Statement.
2. To consider and vote upon a proposal to adjourn the Special Meeting
to such date as the Advisory Board of the Company may fix to permit further
solicitation of proxies in the event there are not sufficient votes at the
time of the Special Meeting to approve and adopt the Merger Agreement.
3. To transact such other business as may properly come before the
Special Meeting.
Only holders of record of the Shares at the close of business on February
, 1998 are entitled to notice of and to vote at the Special Meeting. TKG,
which beneficially holds 2,500 Shares (representing less than 0.02% of the
voting power of the Shares) has notified the Company that it intends to vote its
Shares in favor of the Merger.
No appraisal or dissenters' rights are provided for the Company
shareholders under applicable law, nor will the Company or TKG be voluntarily
providing appraisal rights to the Company shareholders who object to the
transactions contemplated by the Merger Agreement. Therefore, if the Merger is
approved, shareholders who voted against the Merger will be required to accept
the Merger Consideration in exchange for their interests in the Company. See
"RIGHTS OF DISSENTING SHAREHOLDERS."
Your attention is directed to the Proxy Statement and its Exhibits and the
other materials relating to the Company that have been included in this mailing
for more complete information regarding the Merger Agreement and the Company.
THE ADVISORY BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT. EVERY
VOTE IS IMPORTANT. FAILURE TO VOTE IS EQUIVALENT TO A VOTE AGAINST THE MERGER.
By Order of the Advisory Board
James R. Porter
Vice President, 3055 Management Corp.,
Manager of the Company
Livermore, California
February , 1998
YOUR VOTE IS IMPORTANT. ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND
THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE MARK, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU MAY
NEVERTHELESS VOTE IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
<PAGE> 4
TRIAD PARK, LLC
------------------------
PROXY STATEMENT
------------------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , MARCH , 1998
------------------------
This Proxy Statement is being furnished to the shareholders of Triad Park,
LLC, a Delaware limited liability company (the "Company"), in connection with
the solicitation by the Advisory Board of the Company of proxies to be voted at
a special meeting of shareholders of the Company to be held at the offices of
the Company, 3055 Triad Drive, Livermore, California, on , March ,
1998 at 9:00 a.m. local time, including any adjournments or postponements (the
"Special Meeting"). At the Special Meeting, the shareholders of the Company will
consider and vote upon a proposal to approve an Agreement of Merger, dated
February 1, 1998 and amended as of February 12, 1998 (the "Merger Agreement"),
by and among the Company, The Kontrabecki Group, Inc., a California corporation
("TKG"), and TKG Acquisition Company, LLC, a Delaware limited liability company
whose sole and managing member is TKG ("Acquisition LLC"), pursuant to which,
among other things, (i) Acquisition LLC will be merged into the Company (the
"Merger"), with the result that the Company will become an affiliate of TKG, and
(ii) each membership interest of the Company which is outstanding as of the
Effective Time of the Merger (the "Shares"), will be converted into the right to
receive $1.65125 in cash. See "The Merger Agreement -- Consideration To Be
Received by Shareholders."
This Proxy Statement includes a copy of the Company's financial statements
for recent years. These materials are included to aid shareholders in their
consideration of the Merger.
Only holders of record of the Shares at the close of business on February
, 1998 are entitled to notice of and to vote at the Special Meeting. This
Proxy Statement is first being sent to shareholders on or about February ,
1998.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY............................................................................... 1
Date, Time and Place of Special Meeting............................................. 1
Record Date; Shareholders Entitled to Vote; Quorum.................................. 1
Purpose of the Special Meeting...................................................... 1
The Merger.......................................................................... 1
Effective Time of the Merger........................................................ 2
Certain Factors..................................................................... 2
Payment for Shares.................................................................. 3
Dissenters' Rights.................................................................. 3
Regulatory Approvals................................................................ 3
The Company......................................................................... 3
TKG................................................................................. 3
Acquisition LLC..................................................................... 4
Market Price and Dividend Data...................................................... 4
THE COMPANY........................................................................... 5
History............................................................................. 5
Business of the Company............................................................. 5
Properties of the Company........................................................... 5
THE SPECIAL MEETING................................................................... 8
General............................................................................. 8
Proposal to be Considered at the Special Meeting.................................... 8
Record Date; Shareholder Approval................................................... 8
Proxies............................................................................. 8
THE MERGER............................................................................ 9
Background of the Merger............................................................ 9
Contacts and Negotiations with TKG.................................................. 10
Purpose and Structure of the Merger................................................. 11
Recommendation of the Company's Advisory Board...................................... 12
Sedway Report....................................................................... 13
Plans for the Company After the Merger.............................................. 14
Certain Effects of the Merger....................................................... 14
Relationship Between the Company and TKG............................................ 15
Interests of Certain Persons in the Merger.......................................... 15
Sources and Uses of Funds........................................................... 15
Certain Federal Income Tax Consequences............................................. 15
Redemptions of Shares............................................................... 17
Regulatory Approvals................................................................ 17
THE MERGER AGREEMENT.................................................................. 18
General............................................................................. 18
Effective Time...................................................................... 18
Consideration To Be Received by Shareholders........................................ 18
Payment for Shares.................................................................. 18
Operations of the Company Prior to the Merger....................................... 19
Conditions to Consummation of the Merger............................................ 19
Termination......................................................................... 20
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Termination Fee..................................................................... 21
Accounting Treatment................................................................ 21
RIGHTS OF DISSENTING SHAREHOLDERS..................................................... 21
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS........................... 22
Share Ownership..................................................................... 22
Transactions by Certain Persons in the Shares....................................... 23
MANAGEMENT OF THE COMPANY, TKG AND ACQUISITION LLC.................................... 24
The Company......................................................................... 24
TKG................................................................................. 24
SHAREHOLDER PROPOSALS................................................................. 25
INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 25
AVAILABLE INFORMATION................................................................. 25
EXHIBIT A -- Agreement of Merger...................................................... A-1
EXHIBIT B -- Financial Statements..................................................... B-1
</TABLE>
ii
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. The following summary is not intended to be complete and
is qualified in its entirety by reference to the more detailed information
contained in this Proxy Statement, and in the materials accompanying this Proxy
Statement. All information in this Proxy Statement concerning TKG, Acquisition
LLC, Lehman Brothers Holdings Inc. ("Lehman Brothers") or their affiliates, or
actions or events with respect to them, was provided or received by TKG.
Shareholders are urged to review the entire Proxy Statement and accompanying
materials carefully.
DATE, TIME AND PLACE OF SPECIAL MEETING
A Special Meeting of Shareholders of Triad Park, LLC will be held on ,
March , 1998 at 9:00 a.m. local time at the offices of the Company, 3055 Triad
Drive, Livermore, California.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE; QUORUM; VOTE REQUIRED
Only holders of record of the Company's membership interests (the "Shares")
at the close of business on February , 1998 (the "Record Date") are entitled
to notice of and to vote at the Special Meeting. On that date, there were
approximately 19,708,123 Shares outstanding, held of record by approximately
1,396 shareholders. Each holder of Shares is entitled to one vote per Share on
the matters to be voted upon at the Special Meeting. See "THE SPECIAL
MEETING -- Record Date; Shareholder Approval." The presence, in person or by
proxy, at the Special Meeting of the holders of a majority of the voting power
of the outstanding Shares is necessary to constitute a quorum at the Special
Meeting. Approval of the Merger requires the affirmative vote of the holders of
a majority of the voting power of all outstanding Shares. See "THE SPECIAL
MEETING -- Record Date; Shareholder Approval."
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, shareholders will consider and vote upon a proposal
to approve the Merger Agreement, a copy of which is attached as Exhibit A to
this Proxy Statement. See "THE SPECIAL MEETING -- Proposal To Be Considered at
the Special Meeting." The Merger Agreement provides for the merger of the
Acquisition LLC into the Company. As a result of the Merger, the Company will
become an affiliate of TKG and each Share outstanding as of the Effective Time
of the Merger will be converted into the right to receive $1.65125 in cash.
THE MERGER
Pursuant to the Merger Agreement, Acquisition LLC will merge into the
Company, with the result that the Company, as the surviving company (the
"Surviving Company"), will become an affiliate of TKG. All of the Company's
liabilities, including contingent, environmental, tax and any other liabilities,
will become liabilities of the Surviving Company by operation of law. There are
no contractual arrangements which would cause the shareholders to have
post-closing exposure to these liabilities. See "THE MERGER
AGREEMENT -- General." Each outstanding Share will be converted into the right
to receive from Acquisition LLC or TKG $1.65125 in cash, without interest (the
"Merger Consideration"). See "THE MERGER AGREEMENT -- Consideration To Be
Received by Shareholders." Immediately after the Merger, TKG and Lehman Brothers
(which TKG expects will provide financing for the Merger) will own, either
directly or indirectly through one or more affiliates, all of the outstanding
membership interests of the Surviving Company. The Shares will no longer be
traded on the open market and the registration of the Shares under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will be
terminated. See "SPECIAL FACTORS -- Certain Effects of the Merger."
The Merger is subject to various closing conditions and the absence of any
event that would have a material adverse effect on the assets, properties,
liabilities, obligations, financial condition, results of operations or business
of the Company. See "THE MERGER AGREEMENT -- Conditions to Consummation of the
Merger."
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The Merger Agreement may, under specified circumstances, be terminated and
the Merger abandoned at any time prior to the filing of a Certificate of Merger
with the Delaware Secretary of State, notwithstanding approval of the Merger
Agreement by the shareholders of the Company. The Merger Agreement requires the
Company to pay the Acquisition LLC a termination fee of $1.3 million if the
Merger is not consummated and if (i) the Merger Agreement shall not have been
submitted for approval and adoption by the Company shareholders at a shareholder
meeting prior to March 31, 1998 (unless the meeting is held later solely due to
delays in obtaining approval of this proxy statement by the Securities and
Exchange Commission (the "Commission")), (ii) the Advisory Board of the Company
recommends to the Company's shareholders a third party proposal regarding a
merger, consolidation, sale of assets, issuance or other acquisition of
securities or similar transaction involving the Company (an "Acquisition
Proposal"), or (iii) on or prior to July 31, 1998, the Company (directly or
indirectly through Management Corp. or the Advisory Board) accepts, recommends,
consummates or enters into or announces an agreement with a third party
regarding an Acquisition Proposal. See "THE MERGER AGREEMENT -- Termination" and
"-- Termination Fee."
EFFECTIVE TIME OF THE MERGER
Unless otherwise agreed by the parties to the Merger Agreement or otherwise
provided by law, the Merger will become effective upon the acceptance for
recording of the Certificate of Merger by the Delaware Secretary of State (the
"Effective Time"). Subject to approval of the Merger at the Special Meeting and
the satisfaction or waiver of the terms and conditions in the Merger Agreement,
the Effective Time is expected to occur as soon as practicable after the Special
Meeting. See "THE MERGER AGREEMENT -- Effective Time."
CERTAIN FACTORS
In determining whether to vote in favor of the Merger, shareholders of the
Company should consider the following factors, as well as the other factors
discussed elsewhere in this Proxy Statement under the caption "THE MERGER":
PURPOSE AND STRUCTURE OF THE MERGER. The purpose of the Merger is to effect
the sale of the Company to TKG in a transaction that will provide the Company
shareholders cash for their Shares at a price that the Advisory Board of the
Company believes to be fair. The Advisory Board believes the Merger is the most
effective means of achieving the purpose of liquidating the shareholders'
investment in a reasonable time at a reasonable price. See "THE
MERGER -- Purpose and Structure of the Merger."
RECOMMENDATION OF THE COMPANY'S ADVISORY BOARD. The Advisory Board of the
Company has determined that the Merger is fair from a financial point of view to
and in the best interests of the Company's shareholders (other than TKG). The
Advisory Board has approved the Merger Agreement and recommends that the
Company's shareholders vote in favor of the proposal to approve and adopt the
Merger Agreement. See "THE MERGER -- Recommendation of the Company's Advisory
Board."
NO FAIRNESS OPINION. The Company has not received or requested an opinion
from an independent financial advisor regarding the fairness of the
consideration to be received by shareholders of the Company. See "THE
MERGER -- Recommendation of the Company's Advisory Board."
SEDWAY REPORT. On July 22, 1997, Sedway Group, a real estate and urban
economics firm ("Sedway Group") delivered a written report to the Company's
Advisory Board recommending a disposition strategy for maximization of the
Company's real estate assets. Sedway Group's report forecasted proceeds with a
net present value of $25.6 million if its disposition strategy was followed. See
"THE MERGER -- Sedway Report."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. In considering the
recommendation of the Advisory Board of the Company with respect to the Merger
Agreement and the transactions contemplated thereby, shareholders should be
aware that certain officers and Advisory Board members of the Company have
interests in connection with the consummation of the Merger that may conflict
with the interests of the Company's shareholders. See "THE MERGER -- Interests
of Certain Persons in the Merger."
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FEDERAL INCOME TAX CONSEQUENCES. For federal income tax purposes, the
Merger will be treated as a taxable sale or exchange of Shares for cash by each
holder of the Shares. The amount of gain or loss to be recognized by each
shareholder will be measured by the difference between the amount of cash
received by such shareholder in connection with the Merger plus such
shareholder's share of the Company's liabilities less such shareholder's tax
basis in the Shares at the Effective Time. See "THE MERGER -- Certain Federal
Income Tax Consequences."
PAYMENT FOR SHARES
As promptly as possible after the Effective Time, instructions will be
furnished to holders of Shares regarding procedures to be followed to surrender
their certificates and receive payment for their Shares. See "THE MERGER
AGREEMENT -- Payment for Shares."
DISSENTERS' RIGHTS
No appraisal or dissenters' rights are provided for the Company
shareholders under the Delaware limited liability company act or under the
Company's limited liability company agreement, nor will the Company or TKG be
voluntarily providing appraisal rights to the Company shareholders who object to
the transactions contemplated by the Merger Agreement. Therefore, if the Merger
is approved, shareholders who voted against the Merger will be required to
accept the Merger Consideration in exchange for their interests in the Company.
See "RIGHTS OF DISSENTING SHAREHOLDERS."
REGULATORY APPROVALS
No regulatory approval is required in connection with the proposed Merger.
State Attorneys General and private parties may bring legal actions under the
federal or state antitrust laws under certain circumstances; however, neither
the Company nor TKG believes that any ground for such an action exists. See "THE
MERGER -- Regulatory Approvals."
THE COMPANY
The Company was formed on February 10, 1997. The Company's manager is 3055
Management Corp., a California corporation ("Management Corp."). The Company's
primary assets consist of three buildings and improvements (comprising 220,000
square feet) situated on approximately 15 acres of land in Triad Park,
Livermore, California (the "Headquarters") and 303 acres (as of September 30,
1997) of undeveloped land located in Triad Park (the "Land", the Land and the
Headquarters, collectively the "Property"). The Company was formed to liquidate
its investment in the Property. In the absence of any liquidation, the Company's
principal business has been to own, operate, improve and maintain the Property.
The principal executive office of the Company is located at 3055 Triad
Drive, Livermore, California 94550, and the Company's telephone number is (510)
449-0606.
TKG
TKG is a commercial real estate investment and development company. Founded
in 1983, TKG and its predecessors have created over 1,500,000 square feet of
commercial property. TKG specializes in the acquisition, development, and
management of office, research and development, light manufacturing, and
warehouse buildings. TKG has experience in site identification, project
development, construction management, leasing, and property management. Clients
include publicly traded corporations, including Varian Associates, Maxell, SDL,
KLA Instruments, Robert Half International, Bristol-Myers Squibb, Michelin,
Whirlpool, Anixter, and Newark Electronics.
TKG has since its inception enjoyed the capital backing of Wells Fargo
Bank, one of the largest real estate development lenders in the United States.
Venture relationships have also been established with Heitman Financial,
Mitsubishi Corporation, Advent International, Copernicus Capital Management,
Japan International Development Organization, the European Bank for
Reconstruction and Development, and major
3
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life insurance companies in the United States and Canada. In addition, Lehman
Brothers is providing financing for a number of TKG transactions.
TKG began doing business as TKG International in 1995 to reflect the growth
of its business activities in Central Europe. Outside the United States, TKG is
midway through the development of the first Western-style planned industrial
park in Central Europe. The park is located in Poland near Warsaw's Okecie
International Airport. Development is underway and construction of 300,000
square feet is completed in a 600,000 square foot masterplanned industrial park
to furnish multi-national firms with offices, warehousing and manufacturing
facilities. Additionally, in January 1998, TKG announced a second industrial
park project in Warsaw with over 700,000 square feet to be developed over the
next two years. The financing for this project has already been arranged.
The principal executive office of TKG is located at 2755 Campus Drive,
Suite 100, San Mateo, California 94403, and its telephone number is (650)
372-1222.
ACQUISITION LLC
Acquisition LLC is a Delaware limited liability company. As of the date of
this Proxy Statement, Acquisition LLC's sole and managing member is TKG.
The principal executive office of Acquisition LLC is located at 2755 Campus
Drive, Suite 100, San Mateo, California 94403, and its telephone number is (650)
372-1222.
MARKET PRICE AND DIVIDEND DATA
The Shares are publicly traded, although the Shares are not registered for
trading on any exchange. The Company is aware that bid and asked prices have
been quoted over the Internet under the symbol "TDPK." The following table sets
forth the range of high and low bid quotations per Share as quoted on the OTC
Bulletin Board. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
BID QUOTATIONS
---------------
HIGH LOW
----- -----
<S> <C> <C>
1997
Third Quarter (July 31 through September 30)............... $1.26 $0.75
Fourth Quarter............................................. $1.30 $1.25
1998
First Quarter (through February 12)........................ $1.57 $1.23
</TABLE>
On January 30, 1998, the last full day of trading prior to the announcement
of execution of the Merger Agreement, such reported high and low bid quotations
per Share was $1.29 in both cases. On February , 1998, the last full day of
trading prior to the printing of this Proxy Statement, the reported high and low
bid quotations per Share were $ and $ , respectively.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THEIR SHARES.
The Company has never paid a cash distribution on the Shares and does not
anticipate paying any such distribution in the foreseeable future.
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<PAGE> 11
THE COMPANY
HISTORY
Prior to the Company's formation, the real estate assets now owned by the
Company were owned by Triad Systems Corporation, a Delaware corporation
("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 the
Headquarters as well as a certain portion of the Land, and Triad was the owner
of the remainder of the Land.
On October 23, 1996, Cooperative Computing, Inc., a Texas corporation
("CCI"), through a wholly owned subsidiary, commenced a tender offer (the
"Offer") to purchase all of the outstanding shares of common stock of Triad. The
Offer contemplated that, among other things, certain real property assets of
Triad and 3055 Triad Dr. Corp. would be spun off to the shareholders of Triad in
a dividend to be declared prior to the consummation of the Offer. The dividend
was declared on February 26, 1997.
The Company was organized under the laws of the State of Delaware as a
limited liability company on February 10, 1997 as a spin-off of Triad. 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. On February 27, 1997, the Offer was consummated, CCI merged with
Triad, and Triad became known as Cooperative Computing, Inc., a Delaware
corporation, aka CCI/Triad ("CCI/Triad").
BUSINESS OF THE COMPANY
The Company's Shares are owned 99% by the former shareholders of Triad and
1% by Management Corp. 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"). The Advisory Board was responsible for
considering, reviewing and analyzing the Merger Agreement and the other
competing offers. The members of the Company's Advisory Board are Stanley F.
Marquis, James R. Porter, William W. Stevens and Martin W. Inderbitzen.
Information regarding each member may be found under the caption "MANAGEMENT OF
THE COMPANY, TKG AND ACQUISITION LLC -- The Company."
The Company's main objective is 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. The
Company is unable to predict the amount of time it will take to completely
dispose of the Property and wind up the Company.
PROPERTIES OF THE COMPANY
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 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 (the "Contribution").
In conjunction with the Contribution, the Company agreed in the
Distribution Agreement to indemnify CCI/Triad against any claims relating to
"Environmental Costs and Liabilities" associated with the Land or the
Headquarters prior to the Contribution. These "Environmental Costs and
Liabilities" include all costs, liabilities, losses, claims and expenses arising
from or under any "environmental law." The term "environmen-
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<PAGE> 12
tal law" is defined to include any applicable law regulating or prohibiting
releases into any part of the natural environment, or pertaining to the
protection of natural resources, the environment and public and employee health
and safety including, among other law, the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act (RCRA), the Clean Water Act, the
Clean Air Act, the Toxic Substances Control Act, and the Occupational Safety and
Health Act, and any applicable state or local statutes.
Subject to certain limitations, the Company also agreed in the Distribution
Agreement to indemnify CCI/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 CCI/Triad.
As of September 30, 1997, the Property consisted 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 CCI/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 adequately 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.
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.
Since September 30, 1997 the Company has concluded a sale to Marina Square
Partners, a partnership sponsored by the unaffiliated developer Reynolds &
Brown, of a five acre parcel of the Property planned for industrial/office flex
development for approximately $781,000 plus the buyer's agreement to pay
approximately $43,000 towards the cost of developing a roadway to the property.
This equates to a price per square foot of approximately $3.78. In addition, the
Company concluded a sale to Lincoln Property Company of a 5.56 acre parcel of
the Property planned for industrial/office flex for $889,000 plus a contribution
to roadway construction of approximately $72,000. This equates to a price per
square foot of $3.97. Finally, the Livermore
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<PAGE> 13
City Council by resolution accepted the offer to dedicate the 4.54 acre parcel
for transportation improvements. Thus, the Company currently owns approximately
287.9 acres of unimproved land.
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
funded the reimbursement to the Company of $1,485,000 for completed
infrastructure, created a $600,000 security fund for future infrastructure
obligations, and will fund $3,700,000 for in-progress 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 improvements 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.
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<PAGE> 14
THE SPECIAL MEETING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Advisory Board of the Company for a Special Meeting of
Shareholders to be held on March , 1998 at 9:00 a.m. local time at the offices
of the Company, 3055 Triad Drive, Livermore, California, and as may be adjourned
to a later date. Shares represented by properly executed proxies received by the
Company will be voted at the Special Meeting in accordance with the terms of the
proxies, unless the proxies are revoked. See "-- Proxies" below.
PROPOSALS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the shareholders of the Company will consider and
vote upon a proposal to approve and adopt the Merger Agreement. Pursuant to the
Merger Agreement, Acquisition LLC will merge with and into the Company, the
separate corporate existence of Acquisition LLC will cease, and the Company will
be the Surviving Company. At the Effective Time, each outstanding Share will be
converted into the right to receive $1.65125 in cash. A copy of the Merger
Agreement is attached as Exhibit A to this Proxy Statement.
In addition to approval of the Merger Agreement and the Merger,
shareholders of the Company will consider and vote upon a proposal to adjourn
the Special Meeting to permit further solicitation of proxies in the event there
are not sufficient votes at the time of the Special Meeting to approve and adopt
the Merger Agreement. It is not anticipated that any other matters will be
brought before the Special Meeting. However, if other matters should come before
the Special Meeting, it is intended that the holders of proxies will vote upon
them in their discretion, unless that authority is withheld in the proxy.
RECORD DATE; SHAREHOLDER APPROVAL
Only holders of record of the Shares at the close of business on February
, 1998 are entitled to notice of and to vote at the Special Meeting. On that
date, there were 19,708,123 Shares outstanding, which were held of record by
approximately 1396 shareholders. Each Share entitles its holder to one vote
concerning all matters properly coming before the Special Meeting. A majority of
the voting power of the Shares entitled to vote, represented in person or by
proxy, will constitute a quorum. Abstentions and broker non-votes (i.e. Shares
held by brokers in street name, voting on certain matters due to discretionary
authority or instructions from the beneficial owner but not voting on other
matters due to lack of authority to vote on those matters without instructions
from the beneficial owner) are counted for the purpose of establishing a quorum
and will have the same effect as a vote against the approval of the Merger. The
Merger must be approved by the holders of at least a majority of the voting
power of all outstanding Shares. TKG, which beneficially owns 2,500 Shares
(representing less than 0.02% of the voting power of the Shares), has notified
the Company that it intends to vote its Shares in favor of the Merger. Because
TKG is entitled to vote substantially less than 50.0% of the voting power of all
outstanding Shares, approval of the Merger is not assured as a result of the
voting power held by TKG.
Although they have not specifically agreed to do so, the Company believes
that each of the Advisory Board members and executive officers of the Company
will vote the Shares with respect to which he has voting power in favor of the
Merger. Such Shares represent less than 8% of the Shares entitled to vote at the
Special Meeting. See "SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS."
PROXIES
Any Company shareholder entitled to vote at the Special Meeting may vote
either in person or by duly authorized proxy. All Shares represented by properly
executed proxies received prior to or at the Special Meeting and not revoked
will be voted in accordance with the instructions indicated in the proxies. IF
NO INSTRUCTIONS ARE INDICATED, THE PROXIES WILL BE VOTED FOR THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENT, FOR THE PROPOSAL TO ADJOURN
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THE SPECIAL MEETING TO PERMIT FURTHER SOLICITATION OF PROXIES IN THE EVENT THERE
ARE NOT SUFFICIENT VOTES AT THE TIME OF THE SPECIAL MEETING TO APPROVE AND ADOPT
THE MERGER AGREEMENT AND, IN THE DISCRETION OF THE PERSONS NAMED IN THE PROXY,
ON SUCH OTHER MATTERS AS MAY PROPERLY BE PRESENTED AT THE SPECIAL MEETING.
A shareholder may revoke his or her proxy at any time prior to its use by
delivering to the President of the Company a signed notice of revocation or a
later dated and signed proxy or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
Expenses in connection with the solicitation of proxies will be paid by TKG
or Acquisition LLC. Upon request, TKG or Acquisition LLC will reimburse brokers,
dealers and banks, or their nominees, for reasonable expenses incurred in
forwarding copies of the proxy material to the beneficial owners of the Shares
which such persons hold of record. Solicitation of proxies will be made
principally by mail. Proxies may also be solicited in person, or by telephone or
telegraph, by officers and regular employees of the Company.
THE MERGER
BACKGROUND OF THE MERGER
HISTORY OF THE COMPANY AND THE MANAGEMENT CORP. The Company was formed in
1997 as a spin-off of Triad.
When Management Corp. was formed in February, 1997, all of the outstanding
stock was issued in equal amounts to Richard C. Blum ("Mr. Blum"), William W.
Stevens ("Mr. Stevens") and James R. Porter ("Mr. Porter"), three former
directors of Triad. Mr. Blum was also a vice president and director of
Management Corp. On August 8, 1997, Mr. Blum resigned from the Board of
Directors and also resigned as vice president of Management Corp. On September
5, 1997, Mr. Blum assigned his shares in Management Corp. over to Mr. Stevens
and Mr. Porter. Mr. Blum was never a member of the Advisory Board.
REAL ESTATE LISTING AGENT. On June 1, 1997, the Company engaged the real
estate firm of Grubb & Ellis, the same real estate firm that had been previously
engaged by Triad to represent it in certain real estate matters, to act as its
exclusive listing agent in connection with the potential sale of the Property.
From time to time, representatives of Grubb & Ellis have had discussions with
senior management of the Company and the Company's Advisory Board concerning the
Company's potential strategic alternatives with respect to the sale of the
Property. Such discussions have been general in nature and did not result in any
formal actions by the Company's Advisory Board.
CONTACTS AND NEGOTIATIONS WITH RCBA. Prior to entering into the Merger
Agreement, the Company negotiated with a number of parties regarding their
potential interest in acquiring the Company or its assets and in September 1997
entered into a merger agreement with Richard C. Blum & Associates, L.P. ("RCBA")
which was later terminated by the Company on February 1, 1998. The sole general
partner of RCBA is Richard C. Blum & Associates, Inc., the majority shareholder
of which is Mr. Blum. In August 1997, RCBA initially offered to purchase all of
the outstanding Shares of the Company at a price of $1.20 per Share, inclusive
of the debt on the Property. The Company informed RCBA that such an offer was
inadequate but that the Company would be interested in continuing discussions
regarding a potential acquisition.
During the negotiation process with RCBA, several other parties submitted
offers for the acquisition of the Company's assets or the Shares. These other
offers were ultimately rejected because they were either lower in price and/or
did not contemplate assumption of the Company's contingent liabilities (as RCBA
had agreed to do). After several weeks of negotiations, RCBA and the Company
agreed that RCBA and its affiliate, TPL Acquisition, LLC ("TPL"), would acquire
all of the outstanding Shares of the Company at a price of $1.32 per Share. The
parties then executed an Agreement of Merger dated September 9, 1997 (the "RCBA
Merger Agreement"), which was ultimately terminated by the Company in accordance
with its terms on February 1, 1998.
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<PAGE> 16
CONTACTS AND NEGOTIATIONS WITH TKG
On November 7, 1997, after the Company had entered into the RCBA Merger
Agreement, the Company received a preliminary proposal from TKG dated November
6, 1997 at a price of $28.5 million or approximately $1.45 per Share ($0.13 per
Share in excess of the price in the RCBA Merger Agreement) without giving effect
to any termination fee to RCBA, or $1.38 per Share after payment of the RCBA
termination fee ($0.06 per Share in excess of the price in the RCBA Merger
Agreement). The Company entered into a confidentiality agreement with TKG on
November 25, 1997 and provided TKG detailed due diligence information regarding
the Company and its properties.
During the fall of 1997, the Company and RCBA prepared and filed a joint
Schedule 13E-3 Transaction Statement with the Commission in connection with the
proposed acquisition of the Company by RCBA.
On December 16, 1997 the Company received a revised proposal letter from
TKG with substantially different conditions. This revised proposal was
accompanied by a draft definitive merger agreement under separate cover. The
revised proposal remained subject to a condition precedent based upon further
satisfactory due diligence and one based upon the continued availability of
financing which TKG orally claimed to be available. The revised proposal
contained an additional condition that the proposal would cease to be effective
if the termination fee to RCBA under the RCBA Merger Agreement were triggered or
paid.
On December 29, 1997 the Company received another letter from TKG dated
December 26 which stated it was intended to clarify the December 16, 1997
letter. The December 26 letter expressed an expectation of the finalization of
all due diligence and financing arrangements prior to any meeting of the
shareholders. It also stated that if the RCBA Merger Agreement were terminated
without the Company paying or incurring any obligation to pay a termination fee,
TKG's financing and due diligence conditions would be automatically waived and
TKG's offer would be irrevocable. Upon acceptance by the Company, TKG would be
contractually bound, subject to an affirmative vote of the shareholders, to
acquire the Company by merger under the terms of its offer. The TKG proposal
continued the condition that it would cease to be effective if a termination fee
to RCBA was triggered or paid.
The Company and RCBA received and responded to a number of comments and
questions from the Commission but were unable to resolve all of these comments
and questions. On January 6, 1998, the Commission notified the Company and RCBA
by letter that the current draft of their joint Schedule 13E-3 Transaction
Statement required further revisions before the proxy statement regarding the
RCBA Merger Agreement could be mailed to the Company shareholders. Because of
certain notice and mailing requirements, this letter from the Commission
virtually assured that the merger contemplated by the RCBA Merger Agreement
could not and would not occur by January 31, 1998. The RCBA Merger Agreement
contained a provision that allowed either party to terminate the RCBA Merger
Agreement if the merger contemplated therein was not consummated by January 31,
1998, provided that the party seeking to terminate pursuant to this provision
had not failed to perform in any material respect any covenant under the RCBA
Merger Agreement which has been the cause of or resulted in the failure of the
merger to be consummated before such date. The Company believes it has performed
in all material respects with the covenants of the RCBA Merger Agreement.
Between January 6 and January 30, 1998, representatives of TKG visited the
Company's headquarters several times and conducted due diligence on the Company.
During the afternoon of Friday, January 30, 1998, RCBA advised the Company that
it planned to increase its offer to $1.47 per Share or approximately $0.02 more
than TKG's offer as then in effect. Representatives of the Company advised TKG
of RCBA's proposed increase. During the afternoon of January 30, shortly before
a scheduled meeting of the Company's Advisory Board, TKG transmitted a letter to
the Advisory Board stating that TKG would deliver a topping offer to the Company
following the expiration of the January 31 "drop dead" date under the RCBA
Merger Agreement. Following receipt of TKG's letter, representatives of the
Company and the Advisory Board held a telephonic discussion with representatives
of TKG to clarify TKG's offer. During that discussion, TKG advised the Company
that it was raising its offer to $1.50 per Share.
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<PAGE> 17
The Advisory Board discussed the new offers at its meeting and thereafter
advised TKG and RCBA of the level of the two sides' bids. On the morning of
Saturday, January 31, RCBA advised the Company by telephone that it would be
unable to respond to TKG's $1.50 per Share bid over the weekend. Later the same
day, RCBA advised the Company that it would be prepared to deliver a topping bid
to the Company on Sunday morning, February 1, 1998 and asked the Company to
provide assurance that it would not terminate the RCBA Merger Agreement. The
Company declined to provide the assurances requested by RCBA.
On the morning of February 1, 1998, the Company, with approval of the
Advisory Board, notified RCBA that it was terminating the RCBA Merger Agreement
pursuant to the above-referenced provision of the RCBA Merger Agreement. At 8
a.m. on February 1, representatives of RCBA and TKG met with representatives of
the Company and the Company's outside legal counsel in the offices of the
Company's outside legal counsel. The Company initiated a bidding process during
which both parties submitted bids for the Company's outstanding Shares. RCBA
initially bid $1.55 per Share, $0.05 more than TKG's previous bid. TKG advised
the Company that it was prepared to top RCBA's $1.55 bid. RCBA then increased
its bid to $1.60 per Share, or $0.10 more than TKG's last bid. TKG then advised
the Company that it was prepared to submit a bid in excess of $1.60 per Share,
but only on a "best and final" "blind-bid" basis. In addition, both RCBA and TKG
made a number of modifications in the terms and, in the case of TKG, the amount
of their proposed termination fees and "drop dead" dates, as a condition of
their higher bids. Both parties agreed to conclude the bidding process by
submitting "best and final" sealed bids. After reviewing both bids, the Company
and its legal counsel concluded that TKG's offer represented superior value to
the Company's shareholders. Representatives of the Company and TKG then
negotiated the final terms of the Merger Agreement and the Advisory Board
unanimously approved the Merger and the Merger Agreement.
PURPOSE AND STRUCTURE OF THE MERGER
The primary benefit of the Merger to the Company's shareholders is the
opportunity to sell all of their Shares at a price which represents a
substantial premium over trading prices in effect immediately prior to
announcement of the execution of the Merger Agreement. The structure of the
transaction as a cash merger provides a cash payment at a premium price to all
holders of outstanding Shares and ensures the acquisition of all the outstanding
Shares of the Company.
The primary reason for the Company entering into the Merger Agreement is
the Advisory Board's belief that the Merger is the most effective means of
achieving the purpose of liquidating the shareholders' investment in a
reasonable time at a reasonable price. The Advisory Board also believes that
since the contingent liabilities of the Company will remain with the Surviving
Company, the Merger is the most advantageous transaction for the Company's
shareholders, as opposed to an asset sale. The Company is obligated to indemnify
CCI/Triad for certain taxes arising from, among other things, any transfer of
the Property to the Company (see "THE COMPANY -- Properties of the Company").
Due to this indemnification obligation, the Company ordinarily would not be able
to make final distributions to shareholders until after CCI/Triad's audit was
complete, a process that could last up to three years after the date of its
filing of a tax return, not including extensions. Instead, the Surviving Company
will retain all liabilities, contingent or otherwise, of the Company in
conjunction with the Merger. As a result, the Company's shareholders will
receive their proceeds shortly after the consummation of the Merger without any
requirement to hold back contingency reserves.
In addition, 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. However, if the City of Livermore is unsuccessful in completing a bond
offering, the Company would not receive any reimbursement for such improvements.
Further, 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. Again, the Surviving
Company will retain this potential liability of the Company in conjunction with
the Merger, so the Company's shareholders will receive their full proceeds
shortly after the consummation of the Merger.
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<PAGE> 18
The Advisory Board also believes it significant that by entering into the
Merger at this time shareholders of the Company avoid ongoing operating expenses
of the Company such as taxes (which are currently in excess of $1 million
annually) and the costs of ongoing reporting requirements, including those
related to filings with the Commission under federal securities laws.
The Advisory Board believes that the Merger is the best available
opportunity to maximize shareholder value at the present time. The $1.65125 per
Share price to be received by the Company's shareholders represents a premium of
approximately 25% over the per share price offered by RCBA and approximately 27%
over the value estimated by Sedway Group without considering the impact of
contingent liabilities.
TKG's purpose and reasons for engaging in the transaction contemplated by
the Merger Agreement is to obtain ownership (together with Lehman Brothers
and/or one or more entities affiliated with Lehman Brothers, which TKG expects
will provide financing to TKG for the Merger) of the Company, thereby becoming
entitled to the benefits of ownership including management and investment
discretion with regard to the future of the real estate assets of the Company.
This includes execution of a business plan that combines strategic undeveloped
lots dispositions and developments of other lots for the Company's own account
or for third parties, depending on market conditions. TKG and Lehman Brothers
will receive the benefits, if any, of their decisions and will also bear the
risk of loss.
RECOMMENDATION OF THE COMPANY'S ADVISORY BOARD
On February 1, 1998, the Company's Advisory Board, by unanimous vote, at a
special board meeting held on that date, determined that the transactions
contemplated by the Merger are fair from a financial point of view to and in the
best interests of the shareholders of the Company other than (i) affiliates of
the Company and (ii) TKG and its affiliates (the "Unaffiliated Shareholders"),
approved the Merger Agreement and resolved to recommend that the Company's
shareholders approve the Merger Agreement.
In determining to approve and adopt the Merger Agreement, and in
determining the fairness of the terms of the Merger to the Unaffiliated
Shareholders, the Advisory Board considered the following factors, each of
which, in the view of the Advisory Board, supported the determination to
recommend the Merger:
(i) the net book value of the Company (based upon the financial
statements contained in its Form 10-QSB for the quarter ended September 30,
1997), which on a per Share basis is calculated at $1.65125 per Share,
significantly less than the $1.32 per Share being offered by TKG;
(ii) the liquidation value of the Company (based upon the cost basis
for the Distribution as determined by Triad Systems Corporation), which on
a per Share basis is calculated at $0.72 per Share, significantly less than
the $1.65125 per Share being offered by TKG;
(iii) the fact that, as discussed below in "-- Redemption of Shares,"
when the Company redeemed Shares from Mr. Porter and Mr. Stevens, the
redemption price was $0.72 per Share, and that the $1.65125 per Share being
offered by TKG constitutes a significant premium over the redemption price;
(iv) the historical market prices of the Shares, particularly the fact
that the Merger will enable the shareholders of the Company to realize a
significant premium over the prices at which the Shares traded prior to the
announcement of execution of the Merger Agreement;
(v) the conclusion contained in the Sedway Report that following a
three-and-one-half year disposition strategy could result in proceeds with
a net present value of $25.6 million and the fact that the Merger would
result in proceeds of over $32.5 million (inclusive of Shares beneficially
held by TKG);
(vi) the terms and conditions of the Merger Agreement, including the
provision negotiated by the Company which allowed the Company to consider
and respond to unsolicited offers after the date of the Merger Agreement;
the fact that the Company may terminate the Merger Agreement in certain
circumstances; the circumstances under which the termination fee is
payable; and the relatively few substantive closing conditions;
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<PAGE> 19
(vii) the fact that, as discussed above in "-- Purpose and Structure
of the Merger," the Surviving Company will retain all contingent
liabilities of the Company, including those related to tax matters and
construction of improvements on the Property and those relating to the
potential obligation to indemnify CCI/Triad against any claims relating to
environmental costs and liabilities associated with the Land or the
Headquarters prior to the Contribution (as discussed above in "THE
COMPANY -- Properties of the Company"); and
(viii) the fact that the offer from TKG, when considered on a net
basis, was higher than the firm offers received from the other potential
acquirors.
Management Corp., with the advice and consent of the Advisory Board,
determined that the transactions contemplated by the Merger are fair from a
financial point of view to and in the best interests of all
shareholders including the Unaffiliated Shareholders and recommends that the
Company shareholders approve the Merger Agreement. In determining to approve and
adopt the Merger Agreement, and in determining the fairness of the terms of the
Merger to the Unaffiliated Shareholders, Management Corp. adopted the analysis
undertaken by the Advisory Board in the preceding paragraphs.
The executive officers of the Company have made no recommendation with
respect to the Merger.
The Company has not received or requested an opinion from an independent
financial advisor regarding the fairness of the consideration to be received by
the Unaffiliated Shareholders in the Merger. It has compared the financial
results of the Merger with those projected as feasible from the continued
operation of the Company by an independent real estate and urban economics
advisor (see "-- Sedway Report" below).
If the Merger is not approved by the Company's shareholders and the Merger
does not occur, the Company will continue its current operations as an
independent company. However, for the reasons discussed above, it is possible
that the Company would seek a business combination with another company.
SEDWAY REPORT
SUMMARY. Shortly after its formation, the Company began considering various
methods in order to effectuate an orderly disposition of the Property.
Accordingly, on May 22, 1997, the Company's Advisory Board authorized Martin W.
Inderbitzen, a member of the Advisory Board, and Larry D. McReynolds, President
of the Company, to engage Sedway Group or a comparable firm for the purpose of
preparing a report exploring various disposition strategies. On July 22, 1997,
Sedway Group delivered its written report to the Company's Advisory Board (the
"Sedway Report").
THE SEDWAY REPORT DOES NOT RELATE TO THE MERGER CONSIDERATION OR THE
FAIRNESS OF THE MERGER CONSIDERATION, OR THE FAIRNESS OF THE MERGER TO THE
COMPANY, TKG OR SHAREHOLDERS WHO ARE NOT AFFILIATES. HOWEVER, THE SEDWAY REPORT
DOES RELATE TO THE VALUE OF THE COMPANY'S REAL ESTATE ASSETS IN A LIQUIDATION
SITUATION, AND AS SUCH, WAS GIVEN CONSIDERATION BY THE COMPANY'S ADVISORY BOARD
DURING ITS DECISION MAKING PROCESS.
In preparing its report, Sedway Group met with Company management and
reviewed the current status of Triad Park, inspected Triad Park and its
environs, read various documents related to Triad Park, including the listing
agreement with Grubb & Ellis and the lease pertaining to the Triad Park building
complex, held telephone interviews with members of the Company's Advisory Board,
held telephone discussions with brokers, developers, and land owners active in
the Livermore area and reviewed market information provided by Grubb & Ellis.
Sedway Group was asked to provide a strategy to maximize the value of the
Company's real estate assets.
The Sedway Report contains a history of Triad Park and a summary of the
current situation at Triad Park. The Sedway Report also contains a market
overview, including current market conditions for retail, office and R&D
properties. The Sedway Report recommends an "aggressive but orderly real estate
disposition program" including certain improvements to the Triad Park area and a
multi-faceted marketing program. According to the Sedway Report, the proposed
strategy should "result in proceeds with a net present value of
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<PAGE> 20
$25.6 million." The Sedway Report also includes a presentation of the financial
analysis of the disposition strategy and assumptions and limiting conditions.
GENERAL. Although the Company believes all material analyses performed by
and conclusions of Sedway Group are disclosed in the summary set forth above,
the summary does not purport to be a complete description of the analyses
performed by Sedway Group. The preparation of a report similar to the Sedway
Report involves various determinations and assumptions and therefore is not
readily susceptible to summary description. Accordingly, Sedway Group believes
that its report must be considered as a whole and that selected portions of its
report and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process underlying
its report. In preparing its report, Sedway Group made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of the Company.
Sedway Group is a nationally recognized full-service real estate and urban
economics consulting firm engaged, among other things, in market research and
analysis, real estate strategy and asset management (including acquisition and
disposition strategies), financial analysis and valuation services. Sedway Group
has substantial experience in major land uses (residential, retail, office,
industrial, hotel and mixed use) and in specialized areas such as entertainment
retail, public/private transactions and economic revitalization.
It was the opinion of the Advisory Board that Sedway Group was very
familiar and experienced with economic analysis in the Tri-Valley region of
Northern California. At the time that the Advisory Board was seeking a firm to
undertake the analysis, Sedway Group was conducting similar analyses in the City
of Livermore and in the Tri-Valley area. Members of the Advisory Board were also
personally familiar with Sedway Group, and all agreed that Sedway Group had a
positive business reputation in the community. All of these factors were
considered by the Advisory Board when it chose Sedway Group to prepare the
economic report.
The Company has paid Sedway Group approximately $15,000 for preparing the
Sedway Report. No portion of the fee payable to Sedway Group is contingent upon
consummation of the Merger or similar type of transaction.
PLANS FOR THE COMPANY AFTER THE MERGER
Effective upon consummation of the Merger, the manager of Acquisition LLC
will be the initial manager of the Surviving Company. The Surviving Company will
not have an Advisory Board.
Following the Merger, it is expected that the Surviving Company will pursue
the completion of the development of Triad Park. The Surviving Company's first
actions are expected to be directed toward completing the infrastructure
improvements for the Property. It is anticipated that the Surviving Company will
initiate a new marketing campaign that will promote the sale of individual lots,
the development of buildings for companies on a build-to-suit basis, and the
development of buildings without advance leasing to tenants on a speculative
basis. TKG presently expects that the sale of lots and the development of
buildings will be completed in approximately four years.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest of the Company will
be owned, directly or indirectly, by TKG and Lehman Brothers (which TKG expects
will provide financing to TKG for the Merger) (collectively "Lehman Brothers")
and one or more of their respective affiliates, and the current shareholders
will have no continuing interest in the Company. Therefore, following the
Merger, the shareholders of the Company other than TKG will no longer benefit
from any increases in the value of the Company and will no longer bear the risk
of any decreases in the value of the Company. Following the Merger, TKG and
Lehman Brothers, directly or indirectly, will own 100% of the Company and will
have complete control over the management and conduct of the Company's business,
all income generated by the Company and any future increase in the Company's
value. Similarly, TKG and Lehman Brothers, directly or indirectly, will also
bear the risk of any losses incurred in the operation of the Company and any
decrease in the value of the Company.
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<PAGE> 21
RELATIONSHIP BETWEEN THE COMPANY AND TKG
NO INTERCOMPANY BUSINESS RELATIONSHIP. Not including the Merger Agreement,
the transactions contemplated thereby, or as otherwise disclosed in this Proxy
Statement, there have been no business relationships between the Company and
either TKG or Acquisition LLC.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Advisory Board of the Company with
respect to the Merger Agreement and the transactions contemplated thereby,
shareholders should be aware that certain members of the Advisory Board and
management of the Company have certain interests in the Merger in addition to
the interests of shareholders of the Company generally. In connection with the
Advisory Board's determination that the Merger is fair to the Company's
shareholders (excluding TKG and its affiliates), the Advisory Board carefully
considered conflict of interest issues relating to the matters described below.
INDEPENDENT CONTRACTOR SERVICES AGREEMENT. Larry D. McReynolds, President
of the Company, has an Independent Contractor Services Agreement with the
Company, under which he is currently paid an annual base salary of approximately
$113,000, of which the Company is responsible for 50%. Mr. McReynold's
independent contractor agreement provides for bonus compensation in the event of
certain "changes in control" of the Company, including a merger involving the
Company. Upon consummation of the Merger, Mr. McReynolds is entitled to receive
a bonus of less than 1% of the net value paid to the Company's shareholders,
which is estimated to be approximately $250,000.
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Merger Agreement provides
that, for a period of not less than six years following the Effective Time, the
Surviving Company will maintain in effect all rights of indemnification of the
officers, directors or employees of the Company provided in its limited
liability company agreement or bylaws. TKG has also agreed to allow the Company,
with the Acquisition LLC's prior consent (such consent is not required if the
cost does not exceed $110,000), to purchase prior to the Effective Time
additional policies of directors' and officers' liability insurance of at least
the same coverage as currently maintained by the Company, such policies to be
pre-paid and in effect for a period of six years from the Effective Time.
SOURCES AND USES OF FUNDS
MERGER CONSIDERATION, FEES AND EXPENSES. TKG estimates that the total
consideration payable to shareholders other than TKG and its affiliates upon
consummation of the Merger will be approximately $32,538,910. The estimated fees
and expenses incurred or to be incurred by TKG in connection with the Merger
(including fees and expenses incurred or to be incurred by the Company in
connection with the Merger, which will be paid by TKG or Acquisition LLC) are
not expected to exceed $750,000.
Certain of the Company's officers will receive certain payments if the
Merger is consummated. See "-- Interest of Certain Persons in the Merger."
SOLICITATION FEES AND EXPENSES. Neither TKG nor the Company will pay any
fees or commissions to any broker or dealer or any other person for soliciting
Company shareholders with respect to the Merger. Brokers, dealers, commercial
banks and trust companies will, upon request, be reimbursed by TKG or the
Acquisition LLC for reasonable and necessary costs and expenses incurred by them
in forwarding materials to their customers.
SOURCES OF FUNDS. TKG plans to raise the funds required to complete the
Merger through a combination of equity contributed by TKG and Lehman Brothers to
Acquisition LLC and by borrowings from Lehman Brothers.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Under currently existing provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the Treasury Regulations promulgated thereunder,
applicable judicial decisions and administrative rulings, all of
15
<PAGE> 22
which are subject to change, the federal income tax consequences described below
are expected to arise in connection with the Merger. Due to the complexity of
the Code, the following discussion is limited to the material federal income tax
aspects of the Merger for a Company shareholder who is a citizen or resident of
the United States. The general tax principles discussed below are subject to
retroactive changes that may result from subsequent amendments to the Code. The
following discussion does not address potential foreign, state, local and other
tax consequences, nor does it address taxpayers subject to special treatment
under the federal income tax laws, such as insurance companies, tax-exempt
organizations, regulated investment companies, S corporations and taxpayers
subject to the alternative minimum tax. Neither the Company nor TKG has
requested either the Internal Revenue Service or counsel to rule or issue an
opinion on the federal income tax consequences of the Merger. ALL SHAREHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, FOREIGN,
STATE AND LOCAL TAX CONSEQUENCES OF THE DISPOSITION OF THEIR SHARES IN THE
MERGER.
Merger as Sale of Shares
Although the transaction will be in the form of the merger of the Company
with Acquisition LLC, for federal income tax purposes it is anticipated that the
Merger will be treated as a taxable sale of Shares by each holder of Shares.
Accordingly, each holder of Shares will recognize gain or loss by reason of the
consummation of the Merger.
Measure of Gain or Loss
A shareholder's gain or loss in the Merger will be equal to the difference
between the consideration received in the Merger and the shareholder's adjusted
basis in the shareholder's Shares. The consideration received will be equal to
the sum of the cash received plus the shareholder's allocable share of the
Company's liabilities.
A shareholder's initial basis in the Shares will be the cost of the Shares
plus the shareholder's allocable share of the Company's liabilities. For shares
received in the distribution from Triad, the shareholder's "cost" of the 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 shareholder's share of Company
income and by any increases in the shareholder's share of Company liabilities.
The basis will be reduced (but not below zero) by distributions from the
Company, by the shareholder's share of Company losses, by decreases in the
shareholder's share of Company liabilities and by the shareholder's share of
expenditures of the Company that are neither deductible in computing taxable
income nor required to be capitalized.
It will not be possible to determine the precise amount of gain or loss on
the sale of the Shares until after the Effective Time, because the calculation
of gain or loss requires a determination of the Company's liabilities as of the
Effective Time and the shareholder's share of the Company's income, gain, loss
and deduction for the taxable year in which the Merger occurs. Following the
Effective Time, the Company's books will be closed and the shareholders will
receive the information they require to determine the adjusted basis of their
Shares and the consideration received in the Merger.
Character of Gain or Loss
The Shares represent interests in the Company, which is taxed as a
partnership for federal income tax purposes. Generally, gain or loss on the sale
of a partnership interest is capital gain or loss under Section 741 of the Code.
An exception to this general rule is provided in Section 751 of the Code, which
treats as ordinary income or ordinary loss any gain or loss on unrealized
receivables or inventory items (including real property held for sale to
customers).
A substantial portion of the Property is land held by the Company for sale
to customers and any gain or loss attributable to such land will be ordinary
income or loss to the shareholders in the Merger. The precise amount cannot be
calculated until after the Effective Time because the activities of the Company
will affect the amount of such ordinary income. Following the Effective Time,
the shareholders will receive the
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<PAGE> 23
information they require to determine the ordinary income from the sale of the
Shares. The balance of gain, if any, will be capital gain.
If a shareholder who is an individual (and any individual who is a partner
in a partnership that is a shareholder) has held the Shares for more than 12
months but less than 18 months as of the Effective Time, any capital gain will
be long term capital gain and will be subject to federal tax at not more than a
28% tax rate. If the Shares have been held for more than 18 months as of the
Effective Time, any capital gain will be subject to federal tax at not more than
a 20% tax rate. Any capital gain on Shares held for 12 months or less will be
short term capital gain and will be subject to tax at the rates applicable to
ordinary income.
Company Income or Loss Prior to the Merger
Each shareholder will receive an allocation of the shareholder's share of
the Company's income or loss for the periods prior to the Merger. Shareholders
should review the discussion in the Company's Information Statement mailed to
shareholders on or about August 21, 1997 under "Tax Considerations" for a
summary of the federal income tax consequences of the Company's operations. If
the Company has taxable income during the periods prior to the Merger, it is not
anticipated that the Company will make any distributions to shareholders and
shareholders may be required to pay federal income taxes on Company income.
Reporting and Withholding
Cash payments made pursuant to the Merger will be reported to the extent
required by the Code to shareholders of the Company and the Internal Revenue
Service. The payments will ordinarily not be subject to withholding of federal
income tax. However, backup withholding of such tax at a rate of 31% may apply
to certain shareholders by reason of the events specified in Section 3406 of the
Code and related Treasury Regulations, which include failure of a shareholder to
supply the Company or its agent with the shareholder's taxpayer identification
number. Accordingly, each Company shareholder will be asked to provide the
shareholder's correct taxpayer identification number on a Substitute Form W-9
which is to be included in the letter of transmittal to be sent to shareholders
relating to their Shares. Withholding may also apply to Company shareholders who
are otherwise exempt from such withholding, such as a foreign person, if that
person fails to properly document its status as an exempt recipient.
REDEMPTIONS OF SHARES
In August, 1997, as part of the consummation of a transaction completed as
a part of the formation of the Company, the Management Corp. paid its promissory
note due the Company in full, Messrs. Porter and Stevens paid their respective
promissory notes due the Management Corp. in full, and the Company redeemed
99,536 Shares from each of Mr. Porter and Mr. Stevens at a price of $0.72 per
Share. The net effect of the transaction was to reduce the outstanding Shares of
the Company to 19,708,123, the same as the number of Triad Systems Corporation
shares which existed immediately prior to formation of the Company and to reduce
the number of Shares beneficially owned by Mr. Stevens and Mr. Porter to the
same number of Shares they owned in Triad Systems Corporation immediately prior
to formation of the Company.
REGULATORY APPROVALS
No regulatory approval is required in connection with the proposed Merger.
State Attorneys General and private parties may bring legal actions under the
federal or state antitrust laws under certain circumstances; however, neither
the Company nor TKG believes that any ground for such an action exists.
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<PAGE> 24
THE MERGER AGREEMENT
The information in this summary is qualified in its entirety by reference
to the full text of the Merger Agreement, a copy of which is attached as Exhibit
A to this Proxy Statement.
GENERAL
The Company, Acquisition LLC and TKG entered into the Merger Agreement
effective February 1, 1998. If the shareholders of the Company approve the
Merger Agreement, Acquisition LLC will be merged with and into the Company, with
the result that the separate corporate existence of Acquisition LLC will then
cease. The Company will be the Surviving Company and will be an affiliate of
TKG. All of the Company's liabilities, including contingent, environmental, tax
and any other liabilities, will become liabilities of the Surviving Company by
operation of law. There are no contractual arrangements which would cause the
shareholders to have post-closing exposure to these liabilities. At the
Effective Time, the Shares will be converted automatically into the right to
receive cash, as described below. See "-- Consideration to be Received by
Shareholders." The Shares will no longer be listed or traded in any public
market, and the registration of the Shares under the Exchange Act will be
terminated.
EFFECTIVE TIME
If the Merger Agreement is approved by the Company's shareholders, the
Merger will be consummated and become effective upon the filing of the
Certificate of Merger by the Delaware Secretary of State on a date as soon as
practicable after conditions to the Merger are satisfied (or waived to the
extent permitted), or such other date agreed on by the parties. It is currently
contemplated that the Effective Time will occur on or before March 31, 1998.
There can be no assurance that all conditions to the Merger will be satisfied.
See "-- Conditions to Consummation of the Merger."
CONSIDERATION TO BE RECEIVED BY SHAREHOLDERS
In connection with the Merger, each Share outstanding immediately prior to
the Effective Time will be converted into the right to receive $1.65125 in cash,
without interest (the cash consideration per share to be paid to the Company's
shareholders in the Merger being sometimes referred to herein as the "Merger
Consideration").
PAYMENT FOR SHARES
Payment for Shares. (the "Disbursing Agent") will act as the
paying agent for payment of the Merger Consideration to the holders of the
Shares. Instructions with regard to the surrender of certificates formerly
representing Shares, together with the letter of transmittal to be used for that
purpose, will be mailed to shareholders as soon as practicable after the
Effective Time. As soon as practicable following receipt from the shareholder of
a duly executed letter of transmittal, together with certificates formerly
representing Shares and any other items specified by the letter of transmittal,
the Disbursing Agent will pay the Merger Consideration to the shareholder, by
check or draft.
After the Effective Time, the holder of a certificate formerly representing
Shares will cease to have any rights as a shareholder of the Company, and the
holder's sole right will be to receive the Merger Consideration with respect to
the Shares. If payment is to be made to a person other than the person in whose
name the surrendered certificate is registered, it will be a condition of
payment that the certificates so surrendered be properly endorsed or otherwise
in proper form for transfer and that the person requesting the payment shall pay
any transfer or other taxes required by reason of the payment or establish to
the satisfaction of the Surviving Company that the taxes have been paid or are
not applicable. No transfer of Shares outstanding immediately prior to the
Effective Time will be made on the stock transfer books of the Surviving Company
after the Effective Time.
To the extent permitted by law, the appointment of the Disbursing Agent may
be terminated at any time by TKG upon notice to the Disbursing Agent, or by the
Disbursing Agent upon 30 days notice to TKG. Any
18
<PAGE> 25
portion of the Merger Consideration remaining undistributed one year after the
Effective Time will be returned to the Surviving Company, and any holders of
unsurrendered Share certificates may surrender them to the Surviving Company and
(subject to abandoned property, escheat or similar laws) receive the Merger
Consideration to which they are entitled.
SHAREHOLDERS OF THE COMPANY SHOULD NOT FORWARD THEIR SHARE CERTIFICATES TO
THE DISBURSING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND SHOULD NOT RETURN
THEIR SHARE CERTIFICATES WITH THE ENCLOSED PROXY.
No Interest on Payment Amounts. In no event will holders of Shares be
entitled to receive payment of any interest on the Merger Consideration.
OPERATIONS OF THE COMPANY PRIOR TO THE MERGER
The Company has agreed that, prior to the Effective Time, the business of
the Company will be conducted in accordance with certain restrictions set forth
in the Merger Agreement. Among other things, the Company has agreed that, except
as the Company and the Acquisition LLC may otherwise agree, the Company will
operate only in the ordinary course of business, and the Company will not do any
of the following: (a) take any action which would or could reasonably be
expected to jeopardize any of its material contracts or its good standing with
any applicable governmental agency with jurisdiction over the Company, or (b)
declare, set aside or pay any dividend or other distribution in respect of its
membership interests, whether in securities, cash, or other property, redeem,
repurchase or otherwise acquire any of its outstanding Shares, or issue any
membership interests or any right to acquire or convert into membership
interests.
In addition, the Company has agreed that until the earlier of the
termination of the Merger Agreement or the Effective Time, neither the Company
nor any of its employees or representatives will take any action to solicit,
initiate or encourage the submission of any Acquisition Proposal (as defined
below) or enter into any agreement for or relating to any Acquisition Proposal
(an "Acquisition Agreement"). Notwithstanding the foregoing, at any time prior
to obtaining the approval of the Company shareholders to the Merger, the Company
may, in response to an unsolicited written request for information made by a
third party to the Company, provide information to or have discussions or
negotiations with the third party if the Advisory Board of the Company, after
having considered the advice of outside counsel, has determined in good faith
that it is the fiduciary duty under applicable law of such Advisory Board
members to do so.
An Acquisition Proposal is defined in the Merger Agreement as a proposal
for any (i) merger, consolidation or similar transaction involving the Company,
(ii) sale, lease or other disposition directly or indirectly by merger,
consolidation, share exchange or otherwise of either (a) assets of the Company
representing 75% or more of the consolidated assets of the Company in one
transaction, or (b) all or substantially all of the undeveloped Property in one
transaction (but not including solicitation of sales of individual parcels of
the undeveloped Property), (iii) issuance, or other acquisition or disposition
of (including by way of merger, consolidation, share exchange or any similar
transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 20% or more of the
voting power of the Company, or (iv) transaction in which any person or group of
persons would acquire beneficial ownership or the right to acquire beneficial
ownership, or any group shall have been formed which beneficially owns or would
own or would have the right to acquire beneficial ownership of 20% or more of
the outstanding Shares, other than transactions contemplated by the Merger
Agreement.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger will occur only if the Merger Agreement is approved and adopted
by the holders of the Shares. Consummation of the Merger also is subject to the
satisfaction of the following conditions specified in the Merger Agreement,
unless the conditions are waived (to the extent waiver is permitted by law). The
failure of any of these conditions to be satisfied, if not waived, would prevent
consummation of the Merger.
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<PAGE> 26
The obligations of Acquisition LLC to consummate the Merger are subject to
satisfaction of the following conditions: (i) the Merger shall have been
approved by the requisite vote of the shareholders of the Company, (ii) no
temporary restraining order, preliminary or permanent injunction or other order
of any court or other judicial or administrative body of competent jurisdiction
(each, an "Injunction") which prohibits or prevents the consummation of the
Merger shall have been issued and remain in effect, (iii) the Company shall have
performed in all material respects its agreements contained in the Merger
Agreement required to be performed on or prior to the Effective Time, (iv) each
of the representations and warranties of the Company contained in the Merger
Agreement shall be true in all material respects when made on and as of the
Effective Time, and (v) the Company shall have obtained all consents, appeals,
releases or authorizations from, and shall have made all filings and
registrations to or with, any person necessary to be obtained or made in order
to consummate the transactions contemplated by the Merger Agreement.
The obligations of the Company to consummate the Merger are subject to
satisfaction of the following conditions: (i) the Merger shall have been
approved by the requisite vote of the shareholders of the Company, (ii) no
Injunction which prohibits or prevents the consummation of the Merger shall have
been issued and remain in effect, (iii) Acquisition LLC shall have performed in
all material respects its agreements contained in the Merger Agreement required
to be performed on or prior to the Effective Time, (iv) each of the
representations and warranties of Acquisition LLC contained in the Merger
Agreement shall be true in all material respects when made on and as of the
Effective Time, and (v) the Merger Consideration shall have been deposited with
the Disbursing Agent with irrevocable instructions to exchange the Shares for
the Merger Consideration in accordance with the terms of the Merger Agreement
immediately upon notification by the Company and Acquisition LLC of the
Effective Time.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the filing of Certificate of Merger with the Delaware Secretary of
State whether before or after action by the Company's shareholders and without
further approval by the Company's shareholders under any of the following
circumstances: (i) by mutual consent of the Board of Directors of Acquisition
LLC and the Company's Advisory Board; (ii) by either Acquisition LLC or the
Company, if the Merger shall not have been consummated on or before March 31,
1998; provided that this particular right to terminate shall not be available to
any party whose failure to perform in any material respect any covenant under
the Merger Agreement has been the cause of or resulted in whole or in part in
the failure of the Merger to be consummated before March 31, 1998; (iii) by
either Acquisition LLC or the Company, if there shall be any restraining order,
permanent injunction or other order by any court which is final and
nonappealable preventing the consummation of the Merger; (iv) by either
Acquisition LLC or the Company if the Company shareholders do not approve the
Merger Agreement and the transactions contemplated thereby; (v) by Acquisition
LLC if the Merger Agreement and the transactions contemplated thereby shall not
have been submitted for approval by the Company's shareholders by March 31, 1998
unless the meeting is held later solely due to delays in obtaining approval of
the proxy statement by the Commission; (vi) by Acquisition LLC, if the Advisory
Board withdraws, modifies in a manner adverse to Acquisition LLC, or refrains
from making its recommendation concerning the Merger, or the Advisory Board
shall have recommended to the Company shareholders any Acquisition Proposal or
the Company shall have entered into an Acquisition Agreement, or, other than in
connection with the Company's delivery of a Superior Proposal Notice (as defined
below), the Advisory Board shall have resolved to do any of the foregoing; or
(vii) by the Company, if by a good faith vote, with the advice of outside legal
counsel, in order to avoid breaching its fiduciary duties to Company
shareholders under applicable law, (a) the Advisory Board has delivered to
Acquisition LLC a Superior Proposal Notice, (b) the Company has paid the
Termination Fee (as defined below), and (c) five business days have passed since
Acquisition LLC received the Superior Proposal Notice.
A "Superior Proposal Notice" is written notice advising Acquisition LLC
that the Advisory Board has received a Superior Proposal (as defined below)
which the Advisory Board has authorized and intends to effect, specifying the
material terms and conditions of such Superior Proposal and identifying the
person
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<PAGE> 27
making the Superior Proposal. A "Superior Proposal" is a definitive
unconditioned agreement with a third party, with all due diligence
investigations completed, to acquire, directly or indirectly, more than 50% of
the membership interests of the Company, assets of the Company representing 75%
or more of the real estate assets of the Company in one transaction (but not
solicitation of sales of individual parcels of the Property) or all or
substantially all of the undeveloped Property in one transaction (but not
solicitation of sales of individual parcels of the undeveloped Property), and
otherwise on terms which the Advisory Board determines in its good faith
judgment to be more favorable from a financial point of view to the Company
shareholders than the Merger Agreement, the Merger and the transactions
contemplated thereby and for which financing, to the extent required, is then
committed.
TERMINATION FEE
The Merger Agreement requires the Company to pay Acquisition LLC a
termination fee of $1.2 million (the "Termination Fee") if the Board of
Directors of the Company takes the action described in clause (vii) above under
the caption "-- Termination," (but only if the Company executes the agreement
contemplating the Superior Proposal within three business days after the receipt
by Acquisition LLC of the Superior Proposal Notice) or the Merger Agreement is
terminated by Acquisition LLC for any of the reasons set forth in clauses (v) or
(vi) above under such caption. In addition, the Company is required to pay
Acquisition LLC the Termination Fee if, as long as Acquisition LLC has not
materially defaulted under Sections 1, 3 and 10 of the Merger Agreement, on or
prior to July 31, 1998 the Company (directly or indirectly through the
Management Corp. or the Advisory Board) accepts, recommends, consummates, or
enters into or announces an agreement with respect to, an Acquisition Proposal.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting
under which the total consideration paid in the Merger will be allocated among
the Surviving Company's consolidated assets and liabilities based on the fair
values of the assets acquired and liabilities assumed.
RIGHTS OF DISSENTING SHAREHOLDERS
No appraisal rights are provided for the Company shareholders under the
Delaware limited liability company act or under the Company's limited liability
company agreement. Neither the Company, TKG or Acquisition LLC will be
voluntarily providing appraisal rights to the Company shareholders who object to
the transactions contemplated by the Merger Agreement. Neither the Company nor
TKG is aware of any appraisal rights available to objecting shareholders under
applicable law.
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<PAGE> 28
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
SHARE OWNERSHIP
The following table sets forth certain information, as of September 30,
1997, with respect to the beneficial ownership of Shares by (i) all persons
known by the Company to beneficially own more than 5% of the outstanding Shares,
(ii) each Advisory Board member of the Company, (iii) each executive officer of
the Company, and (iv) all executive officers and directors of the Company as a
group. For purposes of this table, beneficial ownership of securities is defined
in accordance with the rules of the Commission and means generally the power to
vote or dispose of securities, regardless of any economic interest therein.
Except as otherwise indicated, the shareholders listed in the table have sole
voting and investment power with respect to the Shares indicated.
<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
Manchester Securities Corp.............................. 1,914,760(3) 9.7%
712 Fifth Avenue
New York, NY 10019
Farallon Capital Management, L.L.C...................... 1,569,900(4) 8.0%
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
Mentor Partners, L.P.................................... 1,384,563(5) 7.0%
500 Park Avenue
New York, NY 10022
Pioneering Management Corporation....................... 1,237,950 6.3%
60 State Street
Boston, MA 02109
Gabelli Funds, Inc...................................... 1,031,200(6) 5.2%
One Corporate Center
Rye, New York 10580-1434
James R. Porter......................................... 828,664 4.2%
3055 Triad Drive
Livermore, CA 94550
William W. Stevens...................................... 324,154(7) 1.6%
3055 Triad Drive
Livermore, CA 94550
3055 Management Corp.................................... 199,072(8) 1.0%
3055 Triad Drive
Livermore, CA 94550
Stanley F. Marquis...................................... 136,824 0.7%
3055 Triad Drive
Livermore, CA 94550
Larry D. McReynolds..................................... 19,317 0.1%
3055 Triad Drive
Livermore, CA 94550
Martin W. Inderbitzen................................... 0 0%
3055 Triad Drive
Livermore, CA 94550
All Executive Officers and Advisory Board Members as a
Group................................................. 1,508,031 7.7%
</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.
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<PAGE> 29
(2) Richard C. Blum ("Mr. 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 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, 1,387,047 Shares). Mr. Blum disclaims beneficial
ownership of these securities except to the extent of his pecuniary interest
thereof.
(3) Manchester Securities Corp. is wholly-owned by Elliott Associates, L.P.
("Elliott"). Paul E. Singer ("Singer") and Braxton Associates, L.P., a New
Jersey limited partnership, which is controlled by Singer, are the general
partners of Elliott.
(4) Includes 1,363,200 Shares held by Farallon Capital Partners, L.P. ("FCP")
and 206,700 Shares held by Tinicum Partners, L.P. ("Tinicum"). Farallon
Partners, L.L.C. ("FPLLC") is the General Partner of FCP and Tinicum. Thomas
F. Steyer is the senior managing member of FPLLC.
(5) Mentor Partners, L.P. is a limited partnership whose general partner is WTG
& Co., L.P. (the "General Partner"). The general partner of the General
Partner is D. Tisch & Co., Inc., all of the common stock of which is owned
by Daniel R. Tisch.
(6) 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. Mario J. Gabelli is the Chairman, Chief Executive Officer
and Chief Investment Officer of Gabelli Funds, Inc.
(7) Includes 324,154 Shares held as tenant-in-common with Virda J. Stevens.
(8) In addition to the totals shown in the above table, Messrs. Porter and
Stevens are deemed to be the beneficial owners of 199,072 Shares by virtue
of their respective 50% equity ownership in 3055 Management Corp.
TRANSACTIONS BY CERTAIN PERSONS IN THE SHARES
No transactions in the Company's Shares were effected by any Advisory Board
member or executive officer of the Company during the 60 day period preceding
the date of this Proxy Statement.
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MANAGEMENT OF THE COMPANY, TKG
AND ACQUISITION LLC
Certain information concerning the directors and executive officers of the
Company, TKG and Acquisition LLC, is set forth below. Unless otherwise
indicated, each such person is a citizen of the United States and the address of
each such person is that of the Company, TKG or the Acquisition LLC, as the case
may be. Such addresses are set forth under the caption "SUMMARY -- The Company,"
"-- TKG" and "-- Acquisition LLC".
THE COMPANY
The names, ages, principal occupations and employment history for the past
five years of the members of the Advisory Board and executive officers of the
Company, and the Board of Directors and executive officers of the Management
Corp. are set forth below.
James R. Porter, 61, has been a member of the Company's Advisory Board
since the Company's inception in February, 1997, and has been a director and
Vice President of the Management Corp. since its inception in February, 1997. He
is Chairman of the Board of CCI/Triad. He was President and Chief Executive
Officer of Triad from September, 1985 until its merger with Cooperative
Computing, Inc. in February, 1997. He is also a director of Silicon Valley Bank,
Brock International, Inc. and Cellular Technical Services, Inc.
William W. Stevens, 65, has been a member of the Company's Advisory Board
since the Company's inception in February, 1997, and has been a director and
Chairman of the Management Corp. since its inception in February, 1997. He was
Chairman of the Board of Triad from 1972 until its merger with Cooperative
Computing, Inc. in February, 1997. He is the founder of Triad and was its
President and Chief Executive Officer from its inception until September, 1985.
Stanley F. Marquis, 54, has been a member of the Company's Advisory Board
since the Company's inception in February, 1997. He is also Secretary of the
Company and Vice President of Management Corp. He was President of Triad Systems
Financial Corporation from August, 1983 until June 30, 1997. Mr. Marquis was
also Treasurer of Triad from September, 1987 until June 30, 1997, and was its
Vice President, Finance from December, 1994 until March, 1997.
Martin W. Inderbitzen, 45, has been a member of the Company's Advisory
Board since March, 1997. He has been a member of the State Bar of California
since 1976, maintaining a private general civil law practice since that time.
His practice has emphasized land use entitlement and zoning work almost
exclusively for the past ten years.
Larry D. McReynolds, 53, has been the President of the Company since its
inception in February, 1997. He 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 Triad's Office Services. He is
currently employed in similar capacities for CCI/Triad.
TKG
The names, principal occupations and employment history for the past five
years of the directors and executive officers of TKG are set forth below.
John T. Kontrabecki, 46, has been President and Chairman of the Board of
TKG since its inception in 1983. He is also the President and Chairman of the
Board of the Central European Industrial Development Company. Before this he was
the Chief Financial Officer of Berg & Berg Developers in Cupertino, California
and held executive positions with Richard Ellis, Inc. and Wells Fargo Bank in
San Francisco, California. He has been a member of the State Bar of California
since 1980.
Brian R. Burrough, 36 has been Vice President and Director of Development
for TKG since July 1995. Before this, he was with Paragon Group, Inc. for eight
years in Los Angeles and Orange County, California and in Dallas, Texas.
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<PAGE> 31
Steven Moriarty, 30, has been Vice President for Asset Management for TKG
since January 1995. Before this, he held a similar position with TransAmerica
Realty Corporation and Cushman & Wakefield in San Francisco and San Jose,
California.
Stephanie Hahn, 36, has been Vice President Marketing for TKG since July 1992.
Before this, she was Director of Marketing for Northern California with R & B
Properties, Inc.
ACQUISITION LLC. TKG is the Managing Member of Acquisition LLC. All
information regarding the directors and executive officers of TKG may be found
above under the heading "-- TKG.".
SHAREHOLDER PROPOSALS
In the event the Merger is not consummated for any reason, proposals of
shareholders intended to be presented at the 1998 annual meeting of shareholders
must be received by the Company at its principal executive offices not later
than April 1, 1998 for inclusion in the Company's proxy statement and form of
proxy relating to that meeting. Shareholders should mail any proposals by
certified mail return receipt requested.
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of the Company as of , 1997,
contained in Exhibit B and incorporated by reference in this Proxy Statement,
have been audited by Coopers & Lybrand LLP, independent public accountants.
A representative of Coopers & Lybrand LLP will be at the Special Meeting to
answer questions by shareholders and will have the opportunity to make a
statement if so desired.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copies made at the public reference facilities
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained from
the Public Reference Section of the Commission at its Washington, D.C. address
at prescribed rates. The Commission also maintains a Web site address,
http://www.sec.gov.
Copies of all documents filed by the Company pursuant to sections 13(a),
13(c), 14 or 15(d) or the Exchange Act after the date of this Proxy Statement
and prior to the date of the Special Meeting are available without charge upon
written or oral request from Larry D. McReynolds, President, Triad Park, LLC,
3055 Triad Drive, Livermore, California 94550 (telephone (510) 449-0606).
By Order of the Advisory Board
James R. Porter
Vice President, 3055 Management Corp.,
Manager of the Company
Livermore, California
February , 1998
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<PAGE> 32
EXHIBIT A
AGREEMENT OF MERGER
BY AND AMONG
THE KONTRABECKI GROUP, INC.
TKG ACQUISITION COMPANY, LLC
AND
TRIAD PARK, LLC
DATED AS OF FEBRUARY 1, 1998
AGREEMENT OF MERGER
AGREEMENT OF MERGER dated as of February 1, 1998 (this "Merger Agreement")
by and among THE KONTRABECKI GROUP, INC. (d/b/a/ TKG INTERNATIONAL) a California
corporation ("TKG"), TKG ACQUISITION COMPANY, LLC, a Delaware limited liability
company in the process of formation ("Acquisition"), and TRIAD PARK, LLC, a
Delaware limited liability company (the "Company").
WITNESSETH:
WHEREAS, Section 18-209 of the Delaware Limited Liability Company Act (the
"LLCA") authorizes the merger of one Delaware limited liability company with and
into another Delaware limited liability company;
WHEREAS, TKG, which will be the manager of Acquisition (the "Acquisition
Manager"), has determined, and the holders of membership interests in
Acquisition (the "Acquisition Share Holders") will determine that it is
advisable and in the best interests of Acquisition and the Acquisition Share
Holders, for Acquisition to merge with and into the Company with the result that
the Acquisition Share Holders shall acquire all of the membership interests in
the Company (the "Company Shares");
WHEREAS, in furtherance of such acquisition, TKG has approved a merger (the
"Merger") of Acquisition with and into the Company in accordance with the LLCA
upon the terms and subject to the conditions set forth herein, and the manager
(the "Company Manager") and advisory board (the "Advisory Board") of the Company
have approved the Merger in accordance with the LLCA, upon the terms and subject
to the conditions set forth herein, and recommend that the Merger be accepted by
the holders of the Company Shares (the "Company Share Holders");
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
SECTION 1. Merger
1.1. Merger. Upon the terms and subject to the conditions hereof, on the
Effective Time (as defined below in Section 1.2), Acquisition shall be merged
into the Company and the separate existence of Acquisition shall thereupon
cease, and the name of the Company, as the limited liability company surviving
in the Merger (the "Surviving LLC"), shall by virtue of the Merger remain "Triad
Park, LLC."
1.2. Effective Time of the Merger. The Merger shall become effective when
a properly executed Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware, or at such later date and time as may be
specified therein, which filing shall be made contemporaneously with (or as soon
as practicable after) the closing of the transactions contemplated by this
Merger Agreement in accordance with Section 3.6. When used in this Merger
Agreement, the term "Effective Time" shall mean the date and time at which such
filing shall have been made or such later date and time as may be specified in
such filing.
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1.3. Effects of the Merger. The Merger shall have the effects set forth in
the applicable provisions of the LLCA. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all of the property, rights, privileges, powers and franchises
of Acquisition and the Company shall vest in the Surviving LLC, and all debts,
liabilities and duties of Acquisition and the Company shall become the debts,
liabilities and duties of the Surviving LLC.
1.4. Certain Expenses. Subject to the requirements of this Section 1.4 and
beginning with the date of this Merger Agreement, Acquisition shall promptly pay
its and the Company's attorneys' fees and costs and all legitimate costs of the
transaction, including but not limited to printing and mailing fees and filing
fees with the Securities and Exchange Commission (the "Commission"), as
incurred, in connection with the preparation of documents and solicitation of
proxies required under the federal securities laws. In the event that the
Company retains its counsel for the solicitation of proxies, Acquisition's
obligations under this Section 1.4 shall be limited to $100,000 for attorney's
fees and costs, assuming one round of comments from the Commission to the
submitted documents. Acquisition shall pay actual time and expenses for work
arising out of additional rounds of comments.
SECTION 2. The Surviving LLC
2.1. Limited Liability Company Agreement. The limited liability company
agreement of Acquisition as in effect immediately prior to the Effective Time
shall be the limited liability company agreement of the Surviving LLC after the
Effective Time except that Section 1.2 thereof shall be amended to state that
the name of the company is Triad Park, LLC, and subject to Section 7.4(c),
thereafter may be amended in accordance with its terms and as provided by law
and this Merger Agreement.
2.2. By-Laws. The by-laws of Acquisition as in effect on the Effective
Time shall be the by-laws of the Surviving LLC.
2.3. Manager; Advisory Board. The Acquisition Manager immediately prior to
the Effective Time shall be the manager of the Surviving LLC. The Surviving LLC
shall not have an advisory board.
SECTION 3. Conversion of Securities
3.1. Conversion. As of the Effective Time, by virtue of the Merger and
without any action on the part of any Company Share Holder:
(a) All Company Shares that are held by the Company shall be canceled.
(b) Each remaining Company Share issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive a
cash amount equal to the quotient obtained by dividing $32,543,038.10 by
the sum of (i) the total number of Company Shares issued and outstanding as
of the Effective Time (other than Company Shares to be canceled pursuant to
this Agreement) and (ii) the total number of Company Shares issuable
pursuant to all options, warrants, rights, convertible debt instruments and
securities, and other equity or debt securities or obligations outstanding
as of the Effective Time, whether vested or unvested, which are
exerciseable for or convertible into Company Shares (hereafter referred to
as the "Merger Consideration" whether on a per share or per Share Holder
basis or in the aggregate, as the context may require). In no event shall
the Merger Consideration payable by TKG and Acquisition for the total
equity interest of the Company exceed $32,543,038.10.
(c) Each issued and outstanding membership interest in Acquisition
("Acquisition Share") shall be converted into and become one membership
interest in the Surviving LLC.
3.2. Disbursement of Merger Consideration.
(a) Pursuant to an irrevocable agreement to be entered into on or before
the Effective Time between Acquisition and a disbursing agent (the "Disbursing
Agent") for the benefit of the Company Share Holders (which shall be a
commercial bank or trust company with capital of at least $350,000,000 or
otherwise reasonably satisfactory to the Company and Acquisition), Acquisition
or the Surviving LLC shall deposit or cause to be deposited with the Disbursing
Agent, in trust for the benefit of the Company's Share Holders, at
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the Closing, the Merger Consideration consisting of the cash (in immediately
available funds) to which the Company Share Holders shall be entitled pursuant
to Section 3.1(b). Pending any payments of cash pursuant to Section 3.1(b) of
this Merger Agreement, such funds shall be held and invested by the Disbursing
Agent in interest bearing investments with minimal or no risk to capital as
directed by the Surviving LLC, and any earnings with respect to such funds shall
be paid to the Surviving LLC when requested by the Surviving LLC. Any funds
remaining with the Disbursing Agent one year after the Effective Time shall be
released by the Disbursing Agent to the Surviving LLC after which time persons
entitled thereto may look, subject to applicable escheat and other similar laws,
only to the Surviving LLC for delivery thereof.
(b) Promptly upon the Effective Time the Surviving LLC shall notify the
Disbursing Agent of the effectiveness of the Merger and shall cause the
Disbursing Agent, pursuant to the irrevocable instructions, to mail to each
person who was, immediately prior to the Effective Time, a record holder of an
outstanding certificate or certificates which prior thereto represented Company
Shares ("Certificates") a notice and transmittal form advising such holder of
the effectiveness of the Merger and the procedure for surrendering to the
Disbursing Agent Certificates for exchange for the Merger Consideration. Each
holder of Certificates, upon proper surrender thereof to the Disbursing Agent
together with such transmittal form, duly completed and validly executed in
accordance with the instructions thereto, shall be entitled to receive the
Merger Consideration evidenced by such Certificates, without any interest
thereon, in exchange for such Certificates and such Certificates shall forthwith
be canceled. Until properly surrendered and exchanged, Certificates shall, from
and after the Effective Time, be deemed for all purposes to evidence only the
right to receive the Merger Consideration. Notwithstanding the foregoing,
neither the Disbursing Agent nor any party hereto shall be liable to a holder of
Certificates for any amount which may be required to be paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(c) If delivery of the Merger Consideration in respect of canceled Company
Shares is to be made to a person other than the person in whose name a
surrendered Certificate is registered, it shall be a condition to such delivery
or payment that the Certificate so surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that the person requesting
such a delivery or payment shall have paid any transfer and other taxes required
by reason of such delivery or payment in a name other than that of the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving LLC and the Disbursing Agent that such tax
either has been paid or is not payable.
3.3. Company Share Holders' Meeting. Unless this Merger Agreement has been
terminated pursuant to Section 9.1, the Company shall take all action necessary,
in accordance with applicable law and its limited liability company agreement
and by-laws, to convene a special meeting of the Company Share Holders entitled
to vote thereat (the "Company Meeting") as promptly as practicable for the
purpose of considering and taking action upon this Merger Agreement. Subject to
Section 7.6(c), the Company Manager and Advisory Board will recommend that
Company Share Holders entitled to vote thereon vote in favor of and approve the
Merger and the adoption of this Merger Agreement at the Company Meeting. At the
Company Meeting, all of the Company Shares then owned by Acquisition, or with
respect to which Acquisition holds the power to direct the voting, shall be
voted in favor of approval of the Merger and adoption of this Merger Agreement.
3.4. Closing of the Company's Transfer Books. At the close of business on
the Effective Time, the Company Share transfer books shall be closed and no
transfer of any Company Shares shall be made thereafter. In the event that,
after the Effective Time, Certificates are presented to the Surviving LLC, they
shall be canceled and exchanged for the Merger Consideration as provided in
Sections 3.1(b).
3.5. Assistance in Consummation of the Merger. Each of Acquisition and the
Company shall provide all reasonable assistance to, and shall cooperate with,
each other to bring about the consummation of the Merger as soon as possible in
accordance with the terms and conditions of this Merger Agreement.
3.6. Closing. The closing of the transactions contemplated by this Merger
Agreement shall take place (i) at the offices of The Kontrabecki Group, Inc.,
2755 Campus Drive, Suite 100, San Mateo, CA 94403 at 10:00 A.M. local time or as
soon as practicable (but in any event within three business days) after the day
on which the last of the conditions set forth in Section 8 is fulfilled or
waived, but in no event later than
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March 31, 1998, unless extended by mutual agreement, or (ii) at such other time
and place as Acquisition and the Company shall agree in writing.
SECTION 4. Representations and Warranties of Acquisition & TKG
Acquisition and TKG represent and warrant to the Company as follows:
4.1. Existence; Good Standing; Authority. Acquisition is (or will prior to
the Effective Time be) a limited liability company organized, validly existing
and in good standing under the laws of the State of Delaware, and will be, by
the Effective Time, duly licensed or qualified to do business as a foreign
limited liability company in, and in good standing under the laws of, the State
of California, which constitutes all of the jurisdictions in which the character
of the properties owned or leased by it therein or in which the transaction of
its business makes such qualification necessary, except where the failure to be
so qualified would not materially and adversely affect the ability of
Acquisition to consummate the transactions contemplated by this Merger
Agreement. TKG is a corporation organized, validly existing and in good standing
under the laws of the State of California, and is in good standing under the
laws of California. Acquisition and TKG have all requisite power and authority
to own, operate and lease their respective properties and carry on their
respective business as and where conducted at the respective time of its
execution of this Merger Agreement. The copies of the limited liability company
agreement and by-laws of Acquisition to be delivered to the Company prior to the
Effective Time will be true and correct and are in full force and effect, and
there will not be any amendments or alterations to such documents.
4.2. Authorization, Validity and Effect of Agreements. TKG has, and
Aquisition will have, the requisite power and authority to execute and deliver
this Merger Agreement and to perform their respective obligations hereunder. The
execution and delivery of this Merger Agreement by Acquisition and TKG, and
consummation by Acquisition of the transactions contemplated hereby, have been
(or, in the case of Acquisition, will be) duly authorized by all requisite
action under Acquisition's limited liability company agreement, TKG's articles
of incorporation, their respective by-laws and applicable law. The Acquisition
Manager is (or prior to the Closing will be) authorized as it deems appropriate
to execute, acknowledge, verify, deliver, file and record, for and in the name
of Acquisition, the Certificate of Merger and any and all other documents and
instruments required to consummate the transactions contemplated hereunder. This
Merger Agreement constitutes (or will constitute) a valid and binding obligation
of Acquisition and TKG enforceable against Acquisition and TKG in accordance
with its terms. No other proceedings on the part of TKG (or, when this Agreement
is signed by Acquisition, on the part of Acquisition) are necessary to authorize
this Merger Agreement and the transactions contemplated hereby.
4.3. Proxy Statement. None of the information supplied in writing by
Acquisition and its affiliates specifically for inclusion in the proxy statement
of the Company (the "Proxy Statement") required to be mailed to the Company
Share Holders in connection with the Merger shall, at the time the Proxy
Statement is mailed, at the time of the Company Meeting or at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.4. Consents and Approvals; No Violation. Neither the execution and
delivery of this Merger Agreement by Acquisition nor the consummation of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the limited liability company agreement, articles of
incorporation or the respective by-laws of Acquisition or TKG, (ii) require any
consent, approval, authorization or permit of, or filing with or notification
to, any court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (each a "Governmental
Entity"), except (A) pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (B) the filing of the Certificate of Merger pursuant to
the LLCA or (C) where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not
prevent or delay consummation of the Merger or would not otherwise prevent
Acquisition from performing its obligations under this Merger Agreement; (iii)
result in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
license, agreement or other instrument or
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obligation to which Acquisition is a party or by which it or any of its assets
may be bound, except for such defaults (or rights of termination, cancellation
or acceleration) as to which requisite waivers or consents have been obtained or
which, in the aggregate, would not materially and adversely affect the ability
of Acquisition to consummate the transactions contemplated by this Merger
Agreement; or (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Acquisition, or any of its assets, except for
violations which would not materially and adversely affect the ability of
Acquisition to consummate the transactions contemplated by this Merger
Agreement.
4.5. Financing. Acquisition at the Effective Time will have or will have
deposited with the Disbursing Agent (as appropriate) the funds necessary to
consummate the Merger and the transactions contemplated hereby, and to pay
related fees and expenses.
SECTION 5. Representations and Warranties of the Company
Except as provided to the contrary in the attached disclosure schedule,
which shall be in a form mutually acceptable to the parties (the "Disclosure
Schedule") and the specific Schedules referenced in this Section 5, the Company
makes the representations and warranties to Acquisition in the following
subsections of this Section. For purposes of this Section 5, "to the best of the
Company's knowledge" or "known to the Company" or the like shall mean the actual
knowledge (without any obligation of further investigation and without any
personal liability) of James R. Porter, Stanley F. Marquis, Larry D. McReynolds
and Patrick J. Kernan.
5.1. Existence; Good Standing; Authority. The Company is a limited
liability company organized, validly existing and in good standing under the
laws of the State of Delaware, and is duly licensed or qualified to do business
as a foreign limited liability company in, and is or will be in good standing
under the laws of California which constitute all of the jurisdictions in which
the character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect (as defined
below). The Company has all requisite power and authority to own, operate and
lease its properties and carry on its business as and where now conducted. The
copies of the limited liability company agreement and by-laws of the Company
delivered to Acquisition are true and correct and are in full force and effect,
and there have not been any amendments or alterations to such documents. As used
in this Merger Agreement, "Material Adverse Effect" shall mean a material
adverse effect on the business, assets, liabilities, condition (financial or
otherwise), prospects or results of operations of the Company.
5.2. Authorization, Validity and Effect of Agreements. The Company has the
requisite power and authority to execute and deliver this Merger Agreement and
to perform its obligations hereunder. The execution and delivery of this Merger
Agreement by the Company, and consummation by the Company of the transactions
contemplated hereby, have been duly authorized by all requisite action under the
Company's limited liability company agreement, by-laws and the LLCA, subject
only, in the case of this Merger Agreement, to the requisite approval of this
Merger Agreement by the holders of a majority of the Company Shares. The Company
Manager is authorized as it deems appropriate to execute, acknowledge, verify,
deliver, file and record, for and in the name of the Company, the Certificate of
Merger and any and all other documents and instruments required to consummate
the transactions contemplated hereunder. This Merger Agreement constitutes a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms. Except for the requisite approval by the holders of
Company Shares, no other proceedings on the part of the Company are necessary to
authorize this Merger Agreement and the transactions contemplated hereby.
5.3. Consents and Approvals; No Violation. Neither the execution and
delivery of this Merger Agreement by the Company nor the consummation of the
transactions contemplated hereby will (i) conflict with or result in any breach
of any provision of the limited liability company agreement or by-laws of the
Company, (ii) require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity, except (A) pursuant to
the Exchange Act, (B) the filing of the Certificate of Merger pursuant to the
LLCA or (C) where the failure to obtain such consent, approval, authorization or
permit, or to
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make such filing or notification, would not cause a Material Adverse Effect;
(iii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, license, agreement or other instrument or obligation to which the
Company is a party or by which it or any of its assets may be bound, except for
such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which, in the
aggregate, would not materially and adversely affect the ability of the Company
to consummate the transactions contemplated by this Merger Agreement; or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its assets, except for violations which
would not cause a Material Adverse Effect.
5.4. Capitalization. As of the date hereof, 19,708,123 Company Shares were
validly issued and outstanding. As of the date hereof, there are no bonds,
debentures, notes, other indebtedness or any other interest having the right to
vote on any matters on which the Company's Share Holders may vote issued or
outstanding. As of the date hereof, there are no options, warrants, calls or
other rights, agreements or commitments presently outstanding obligating the
Company to issue, deliver or sell Company Shares or debt securities, or
obligating the Company to grant, extend or enter into any such option, warrant,
call or other such right, agreement or commitment, other than pursuant to the
Rights Agreement ("Rights Agreement") dated as of April 28, 1997, between the
Company and GEMISYS Corporation, as Rights Agent.
5.5. No Subsidiaries. The Company does not directly or indirectly own any
securities of or any other interest in any other corporation, partnership, joint
venture or other business association or entity.
5.6. Reports and Financial Statements. The Company has previously
furnished Acquisition with true and complete copies of (i) its Registration
Statement on Form 10-SB, as filed with the Commission, (ii) its Quarterly
Reports on Form 10-QSB for the quarters ended June 30, 1997 and September 30,
1997, as filed with the Commission, (and, if available, its Annual Report on
Form 10-KSB for the year ended December 31, 1997), and (iii) all other reports
or registration statements filed by the Company with the Commission that the
Company was required to file with the Commission (the documents listed in
clauses (i) through (iii) being referred to herein collectively as the "Company
SEC Reports"). As of their respective dates, the Company SEC Reports complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Company SEC Reports. As of their
respective dates, the Company SEC Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
the Company included in the Company SEC Reports comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the Commission with respect thereto, and the financial
statements included in the Company SEC Reports have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present in all material respects the financial position of the Company at the
dates thereof and the results of its operations and changes in financial
position for the periods then ended, subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments and any other
adjustments described therein.
5.7. Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed prior to the date hereof or in the Disclosure
Schedule, since February 10, 1997, the date the Company was organized, there has
not been (i) any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business), individually or in the aggregate, having a Material Adverse
Effect; (ii) any damage, destruction or loss, whether or not covered by
insurance, which, insofar as reasonably can be foreseen, in the future would be
likely to have a Material Adverse Effect; (iii) any declaration, setting aside
or payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the Company Shares; (iv) any material increase in the
benefits under, or the establishment or amendment of, any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing,
performance awards, Company Share purchase or other employee benefit plan, or
any increase in the compensation payable or to become payable to any of the
employees of the
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Company, except for increases in salaries or wages payable or to become payable
in the ordinary course of business and consistent with past practice; (v) any
change by the Company in its significant accounting policies; or (vi) any entry
into any commitment or transaction material to the Company (including, without
limitation, any borrowing or sale of assets) except in the ordinary course of
business consistent with past practice.
5.8. Properties.
(a) The title reports identified in the Disclosure Schedule list all real
property owned (the "Owned Property") or leased as lessor or lessee (the "Leased
Property" and collectively with the Owned Property, the "Property") by the
Company.
(b) Except as stated in the Disclosure Schedule, none of the Property is
subject to any purchase options, rights of first refusal or other preferential
purchase rights.
(c) The Leased Property has been leased by the Company on the terms and
conditions stated in the lease and amendments identified in the Disclosure
Schedule. All obligations towards the lessors arising from the lease agreements
referred to before have been complied with in all material respects. There are
no disputes regarding those agreements pending or, to the knowledge of the
Company, threatened.
(d) To the best of the Company's knowledge, except as set forth on the
Disclosure Schedule, no adjacent buildings or improvements extend across the
boundaries of the Owned Property and no buildings or improvements forming part
of the Owned Property extend onto any adjacent sites.
(e) Other than properties in the Triad Business Park which have been sold,
the Company has not owned or leased any Property except the Property.
(f) The Disclosure Schedule contains a true, correct and complete list of
all leases, subleases, tenancies, licenses and other rights of occupancy or use
for all or any portion of any Property, and all guarantees and other agreements
in respect thereof, all as amended, renewed and extended to the date thereof,
whether oral or written (the "Leases").
(g) The Company has heretofore delivered to Acquisition a true, correct and
complete copy of each Lease (or written summary thereof in the case of oral
Leases).
(h) Each current tenant (the "Tenant") is in actual possession of its
leased premises. No Rents violate any applicable law. For purposes of this
Section 5, the term "Rents" is defined to mean the basic, and additional and
percentage rents, all pass-throughs of taxes, expenses or other items, and all
other sums payable by the Tenant to the lessor (including, without limitation,
utility charges) during the original and any renewal terms thereof.
(i) The following is true with respect to each Lease:
(1) the Lease is valid and subsisting and in full force and effect
strictly in accordance with its terms and has not been modified, in writing
or otherwise, except as set forth on the Disclosure Schedule;
(2) no Lease contains any purchase or similar option;
(3) all obligations of the lessor thereunder which accrue prior to the
Effective Time shall have been performed and paid for in full by the
Company;
(4) to the best of the Company's knowledge, there has been no default
or event which, with the giving of notice or the lapse of time, or both,
would constitute a default, on the part of the Tenant or the lessor
thereunder, and the Tenant has not asserted and has no defense to, offset
or claim against, its Rent or the performance of its other obligations
under the Lease;
(5) the Tenant has not prepaid any Rent; and the Rents have been
assigned to the Company's lender as additional security.
There are no material construction, management, leasing, service,
equipment, supply, maintenance or concession agreements (oral or written, formal
or informal) with respect to or affecting all or any portion of
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the Property except as set forth on Schedule 5.21 (the "Property Contracts"). A
current, complete and correct copy of each Property Contract has been delivered
to Acquisition. Each Property Contract is valid and subsisting and all amounts
due thereunder have been paid. Except as set out in the Disclosure Schedule,
neither the Company nor any of its agents is in default under any Property
Contract or, to the best of the Company's knowledge, has received any notice
from any party to any Contract claiming the existence of any default or breach
hereunder and no event or omission has occurred which, with the giving of notice
or the lapse of time would constitute a default. Except as set out in the
Disclosure Schedule, all Property Contracts are terminable without cause on
thirty (30) days' notice or less without payment of any penalty or termination
payment.
(j) To the best of the Company's knowledge, the continued maintenance,
operation and use of any buildings, structures or other improvements on each
Property for their respective present purposes will not violate any federal,
state, county or municipal laws, ordinances, orders, codes, regulations or
requirements in certificates of occupancy relating to housing, building, safety,
health, fire or zoning (together "Applicable Laws") affecting all or any portion
of each improved Property.
(k) To the best of the Company's knowledge, no written or oral notice has
been given to the Company by any holder of any mortgage or deed of trust on any
Property, by any insurance company which has issued a policy with respect to any
of any Property, or by any board of fire underwriters (or other body exercising
similar functions), any of which notices claim any defect or deficiency or
request the performance of any repairs, alterations or other work to any
Property.
(l) All state, township, county, school district and other taxes levied or
assessed against any Property and any penalties or interest due and payable
thereon prior to the Effective Time, and all assessments of any kind levied
prior to the Effective Time, if any, will have been paid in full by the Company
and all appropriate tax returns relating to the same have been filed with the
proper authorities.
(m) The Company has no notice of any proposed increase in the assessed
valuation. To the best of the Company's knowledge, there is no proceeding
pending for the reduction of the assessed valuation of all or any portion of any
Property.
(n) The Company has not received any written or oral notice for assessments
for public improvements against any Property which remain unpaid, and to the
best of the Company's knowledge, no such assessment has been proposed.
5.9. Condemnation. There is no pending condemnation, expropriation,
eminent domain or similar proceeding affecting all or any portion of any
Property and, to the best of the Company's knowledge, no such proceeding is
contemplated.
5.10. Environmental Matters. For the purposes of this Merger Agreement:
"Environmental Matters" means any matter arising out of, relating to or
resulting from pollution, protection of the environment and human health or
safety, health or safety of the public or employees, sanitation, and any matters
relating to emissions, discharges, Releases or threatened Releases of
Environmentally Relevant Materials or otherwise arising out of, resulting from
or relating to the presence, manufacture, packaging, labeling, processing,
distribution, use, generation, treatment, storage, disposal, transport or
handling of or exposure to Environmentally Relevant Materials or arising out of,
resulting from, or relating to compliance with Environmental Laws.
"Environmental Costs" means, without limitation, any costs of
investigation, remediation, removal, or other response actions, losses,
liabilities, obligations, payments, damages (including, but not limited to,
bodily injury, death or property damage), civil or criminal fines or penalties,
costs of shutdown, diminution in operations, product withdrawals or
discontinuance of distribution of products (including, but not limited to,
direct or indirect damages), judgments, settlements, interest, costs and
expenses (including attorney's fees and costs) arising out of, relating to or
resulting from any Environmental Matter.
"Environmental Laws" means, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Sections 9601 et seq., the Emergency Planning and
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Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq., the
Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq., the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. Sections 136 et seq., the
Clean Air Act, 42 U.S.C., Sections 7401 et seq., the Clean Water Act (Federal
Water Pollution Control Act), 33 U.S.C. Sections 1251 et seq., the Safe Drinking
Water Act, 42 U.S.C. Sections 300f et seq., the Occupational Safety and Health
Act, 29 U.S.C., Sections 641 et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. Sections 1801 et seq., as any of the above statutes have been or
may be amended from time to time, all rules and regulations promulgated pursuant
to any of the above statutes, and any other federal, state or local law,
statute, ordinance, rule or regulation governing Environmental Matters, as the
same have been or may be amended from time to time, including any common law
cause of action providing any right or remedy with respect to Environmental
Matters, and all applicable judicial and administrative decisions, orders, and
decrees relating to Environmental Matters.
"Environmentally Relevant Materials" means any pollutants, contaminants, or
hazardous or toxic substances, materials, wastes, residual materials,
constituents or chemicals that are regulated by, or form the basis for liability
under any Environmental Laws, including but not limited to petroleum products,
asbestos and radioactive materials.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, injecting, discharging, escaping, leaching, dumping or disposing (or
threat of the same occurring) into the environment.
(a) To the best of the Company's knowledge, the Company is in material
compliance with all applicable Environmental Laws. There are no claims, notices,
civil, criminal or administrative actions, suits, hearings, investigations,
penalty assessments, inquiries or proceedings pending, asserted or, to the
knowledge of the Company, threatened by any governmental or other entity that
are based on or related to any Environmental Matters including, without
limitation, the violation of any Environmental Laws or the violation of or the
failure to have any required permits, licenses, authorizations, certificates,
registrations and other governmental consents and approvals related to the
handling, storage or disposal of Environmentally Relevant Materials
("Environmental Permits"). There are presently no outstanding judgments, decrees
or orders of any court or governmental or administrative agency against or
affecting the Company or Property arising from, relating to or resulting from
Environmental Matters.
(b) To the best of the Company's knowledge, the Company has obtained and is
in material compliance with all Environmental Permits required to be obtained by
it under applicable Environmental Laws in order for the Company to conduct its
business and operations, except where the failure to obtain any Environmental
Permit would not cause a Material Adverse Effect. All such Environmental Permits
are owned by or in the name of the Company, are in full force and effect and the
Company has made in a timely manner all appropriate filings for issuance or
renewal of such Environmental Permits. No application, action or proceeding is
pending for the renewal or modification of any Environmental Permit; and no
claim, application, complaint, action or proceeding is pending, asserted or, to
the knowledge of the Company, threatened that may result in the denial of an
application for renewal or transfer or the revocation, modification,
non-renewal, restriction, or suspension of any Environmental Permit. The
continued validity and existence of each of the Environmental Permits is only
subject to the conditions set forth in each such Environmental Permit, and no
additional expenditures are required to be made by the Company or any third
party to maintain or comply with such Environmental Permits (except as
specifically disclosed in such Environmental Permits and except for changes in
applicable Environmental Laws after Closing). The continued validity of such
Environmental Permits is not related to the continued association of one or more
individuals or corporations or other entities with the Company.
(c) To the best of the Company's knowledge, no Environmentally Relevant
Materials have been Released or are present in connection with, arising from or
relating to any of the Company's operations or businesses or at, on, about or
under any Property either (a) in violation of applicable Environmental Law or
(b) which require or would require investigation, remediation or other response
action under applicable Environmental Law. No Property is listed or, to the best
of the Company's knowledge, proposed for listing (for which any of the Company
or the Manager has received notice of such listing or such listing is otherwise
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publicly disseminated or a matter of public record) on the National Priority
List pursuant to CERCLA (NPL), CERCLIS or any similar foreign, federal or state
list of sites requiring investigation, remediation or other response action. To
the best of the Company's knowledge, there are no underground storage tanks,
polychlorinated biphenyls, asbestos-containing materials or surface impoundments
at, on, under or within any Property, and there have been no underground storage
tanks removed from or closed in place at any Property. The Company has not used
any treatment, storage or disposal site for Environmentally Relevant Materials,
or otherwise treated, stored, disposed of, transported, or arranged for the
treatment, storage or disposal of any Environmentally Relevant Materials used,
generated, handled, or managed by or on behalf of the Company or in connection
with the business or Property to any place or location which (a) is listed or,
to the best of the Company's knowledge, proposed for listing on the NPL, CERCLIS
or any similar foreign, federal or state list; (b) to the best of the Company's
knowledge, is in violation of any Environmental Laws; or (c) is the subject of
enforcement action or other investigations which could lead to Environmental
Costs to be incurred by any of the Company or the Surviving LLC. The Company has
not, nor, to the best of the Company's knowledge has any other person reported
or received any oral or written notice of a Release of any Environmentally
Relevant Material used, generated or handled by or for the Company or in
connection with the business or Property. Neither the Company, nor, to the best
of the Company's knowledge, any other person has received any notice, demand,
claim or request for information asserting that the Company is or may be a
potentially responsible party at any location used for the storage, treatment or
disposal of Environmentally Relevant Materials or where there has been a Release
of any Environmentally Relevant Materials.
(d) Except as listed in the Disclosure Schedule, there have been no
investigations, reports, studies, inspections, audits, tests, reviews or other
analyses conducted by the Company, the Manager, their respective employees or
outside contractors at the direction of any such person in relation to the
following matters: (i) Environmental Matters, including without limitation
potential or actual soil or groundwater conditions at any Property or business
now or previously owned, operated or leased by the Company; or (ii) the
compliance of the Company's business or Property with applicable Environmental
Laws ("Environmental Reports").
(e) To the best of the Company's knowledge, the Company is not aware of any
facts or circumstances related to Environmental Matters concerning the Company,
the business or operations of the Company or the Property which could reasonably
be expected to cause the Surviving LLC or the Company to incur Environmental
Costs.
5.11. Litigation. Except as listed in the Disclosure Schedule, there is no
suit, action or proceeding pending or, to the best of the Company's knowledge,
threatened against or affecting the Company which, either alone or in the
aggregate, is likely to have a Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against the Company having, or which, in the future is likely to have, either
alone or in the aggregate, any Material Adverse Effect.
5.12. Information in Disclosure Documents. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in the Proxy Statement or any amendments or supplements thereto, at
the time of the mailing of the Proxy Statement and any amendments or supplements
thereto and at the time of the Company Meeting, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder.
5.13. Labor Matters. No labor organization or group of employees of the
Company has made a pending demand for recognition or certification, and there
are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened to be brought or
filed, with the National Labor Relations Board or any other labor relations
tribunal or authority. There are no organizing activities, strikes, work
stoppages, slowdowns, lockouts, material arbitrations or material grievances, or
other material labor disputes pending or threatened against or involving the
Company.
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5.14. Employee Benefit Plans; ERISA. There are no employee benefit plans,
programs, policies, practices, and other arrangements providing benefits to any
employee or former employee (or beneficiary or dependent thereof) sponsored or
maintained by the Company to which the Company contributes or is obligated to
contribute ("Company Plans").
5.15. Company Action. The Company Manager and the Company Advisory Board
(at a meeting duly called and held) has by the requisite vote (i) determined
that the Merger is advisable and fair and in the best interests of the Company
and its Share Holders, (ii) approved the Merger in accordance with the
provisions of Section 18-209 of the LLCA, (iii) recommended the approval of this
Merger Agreement and the Merger by the Company Share Holders and directed that
the Merger be submitted for consideration by the Company's Share Holders
entitled to vote thereon at the Company Meeting and (iv) adopted any necessary
resolution having the effect of causing the Company not to be subject, to the
extent permitted by applicable law, to any state anti-takeover law that may
purport to be applicable to the Merger and the transactions contemplated by this
Merger Agreement.
5.16. No Fairness Opinion. The Company has not received an opinion of any
financial advisors to the Company to the effect that the consideration to be
received by the Company's Share Holders in the Merger is fair to the Share
Holders of the Company.
5.17. Financial Advisor. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Merger Agreement based
upon arrangements made by or on behalf of the Company.
5.18. Compliance with Applicable Laws. To the best of the Company's
knowledge, the Company holds all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities for the Properties in their
current condition (the "Company Permits"). However the real property development
business involves a continuous governmental permitting process and the Company
makes no representation or warranty that the Company holds all permits of
Governmental Entities (including discretionary permits and ministerial permits
such as building permits) that (a) are additional, supplemental, or ancillary to
approval that the Company currently holds for real property being developed and
that would ordinarily be required or obtained only from time to time as such
development proceeds or (b) would be required for the development of parts of
the Property not yet being developed. The Company is in compliance with the
terms of the Company Permits, except for such failures to comply which, singly
or in the aggregate, would not have a Material Adverse Effect. To the best of
the Company's knowledge, the businesses of the Company are not being, and have
not been, conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which, individually or in
the aggregate, do not and would not have a Material Adverse Effect. To the best
of the Company's knowledge, no investigation or review by any Governmental
Entity with respect to the Company is pending or threatened, nor has any
Governmental Entity indicated an intention to conduct the same, other than those
the outcome of which would not have a Material Adverse Effect.
5.19. Liabilities. Except as set forth in the Disclosure Schedule, as of
September 30, 1997, the Company did not have any liability or obligation
(absolute, accrued, contingent or otherwise, in contract, tort or otherwise and
whether or not required by GAAP to be reflected in the Company's balance sheet
or other books and records) (a "Liability"), other than such Liabilities which,
individually or in the aggregate, would not have a Material Adverse Effect. From
and after September 30, 1997, the Company has not incurred, suffered, permitted
to exist or otherwise become subject to any Liability, other than Liabilities
incurred in the ordinary course of business in accordance with past practice
which, individually or in the aggregate, would not have a Material Adverse
Effect.
5.20. Taxes. The Company has filed all material tax returns, declarations
and reports required to be filed by any of them (taking into account all valid
extensions of filing dates) and has paid, or has set up an adequate liability
reserve in accordance with GAAP for the payment of, all taxes required to be
paid in respect of the periods covered by such returns, declarations and
reports. The information contained in such tax returns, declarations and reports
is true, complete and accurate in all material respects. The Company is not
delinquent in the payment of any tax, assessment or governmental charge, except
where such delinquency has
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not had or would not reasonably be expected to have, a Material Adverse Effect.
No material deficiencies for any taxes have been proposed, asserted or assessed
against the Company that have not been finally settled or paid in full and no
requests for waivers of the time to assess any such tax are pending. No tax
return, declaration or report is currently under audit by any taxing authority,
and as of the date hereof no written notice of any such audit has been received.
For the purposes of this Merger Agreement, the term "tax" shall include all
federal, state, local and foreign income, profits, franchise, gross receipts,
payroll, sales, employment, use, property, withholding, excise and other taxes,
duties and assessments of any nature whatsoever together with all interest,
penalties and additions imposed with respect to such amounts.
5.21. Certain Agreements. Except as set forth on Schedule 5.21, the
Company is not a party or subject to any oral or written (i) agreement,
contract, indenture or other instrument relating to Indebtedness (as defined
below) in an amount exceeding $100,000; (ii) joint venture agreement or
arrangement or any other agreement which has involved or is expected to involve
a sharing of revenues; (iii) lease for real or personal property in which the
amounts of payments which the Company or any subsidiary is required to make on
an annual basis exceeds $25,000; (iv) agreement, contract, policy, license,
document, instrument, arrangement or commitment that limits in any material
respect the freedom of the Company to compete in any line of business or with
any person or in any geographical area or which would so limit the freedom of
the Company after the Effective Time; (v) employment, consulting, severance,
termination, or indemnification agreement, contract or arrangement providing for
future payments with any current or former officer, consultant or employee which
(A) exceeds $10,000 per annum or (B) requires aggregate annual payments or total
payments over the life of such agreement, contract or arrangement to such
current or former officer, consultant or employee in excess of $10,000 or
$25,000, respectively, and is not terminable before and after the Merger by it
on 30 days' notice or less without penalty or obligation to make payments
related to such termination; (vi) agreement, contract, arrangement, commitment
or obligation with or in favor of (or calling for any payment to) any member,
Share Holder, officer, manager, Advisory Board member or affiliate of the
Company or the manager thereof; or (vii) other agreement, contract, policy,
license, document, instrument, arrangement or commitment not made in the
ordinary course of business that is material to the Company. "Indebtedness"
means any liability in respect of (A) borrowed money, (B) capitalized lease
obligations, (C) the deferred purchase price of property or services (other than
trade payables in the ordinary course of business) and (D) guarantees of any of
the foregoing. The Company is not in default (or would be in default with notice
or lapse of time, or both) under any indenture, note, credit agreement, loan
document, lease, contract, policy, license, document, instrument, arrangement or
commitment (a "Contract") whether or not such default has been waived, which
default, alone or in the aggregate with other such defaults, would have a
Material Adverse Effect. The Company is not a party to or bound by any Contract
which upon execution of this Merger Agreement or consummation of the
transactions contemplated hereby will (either alone or upon the occurrence of
additional acts or events) result in the loss of any material benefit, the
termination thereof or any payment becoming accelerated or due from the Company
or the Surviving LLC which loss, termination or acceleration would have a
Material Adverse Effect.
SECTION 6. Conduct of Business Pending the Merger
6.1. Conduct of Business by the Company Pending the Merger. Prior to the
Effective Time, unless Acquisition shall otherwise agree in writing:
(a) the Company shall carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted,
and shall use its diligent efforts to preserve intact its present business
organizations, keep available the services of its present officers and
employees and preserve their relationships with customers, suppliers and
others having business dealings with them to the end that their goodwill
and ongoing businesses shall be unimpaired at the Effective Time. The
Company shall (A) maintain insurance coverages and its books, accounts and
records in the usual manner consistent with prior practices; (B) comply in
all material respects with all laws, ordinances and regulations of
Governmental Entities applicable to the Company; (C) maintain and keep its
properties and equipment in good repair, working order and condition,
ordinary wear and tear excepted; and (D) perform in all material respects
its obligations under all contracts and commitments to which it is a party
or by which it
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is bound, in each case other than where the failure to so maintain, comply
or perform, either individually or in the aggregate, would not result in a
Material Adverse Effect;
(b) except as required by this Merger Agreement, the Company shall not
and shall not propose to (A) sell or pledge or agree to sell or pledge any
membership interest; (B) amend its limited liability company agreement or
by-laws; (C) split, combine or reclassify its outstanding membership
interests or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
membership interests of the Company, or declare, set aside or pay any
dividend or other distribution payable in cash, securities or other
property; or (D) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any Company
Shares;
(c) the Company shall not (A) except as contemplated by this Merger
Agreement, issue, deliver or sell or agree to issue, deliver or sell any
additional shares of, or rights of any kind to acquire any shares of, its
membership interest of any class, any Indebtedness or any options, rights
or warrants to acquire, or securities convertible into membership
interests; (B) acquire, lease or dispose of, or agree to acquire, lease or
dispose of, any capital assets or any other assets other than in the
ordinary course of business; (C) incur additional Indebtedness or encumber
or grant a security interest in any asset or enter into any other material
transaction other than in each case in the ordinary course of business
(other than as set forth in Schedule 6.1); (D) acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial equity
interest in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, in each case in this clause (D) which are material, individually
or in the aggregate, to the Company; or (E) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(d) the Company shall not, except as required to comply with
applicable law, (A) adopt, enter into, terminate or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other Company Plan,
agreement, trust, fund or other arrangement for the benefit or welfare of
any current or former officer, employee or independent contractor; (B)
other than as set forth in Schedule 6.1, increase in any manner the
compensation or fringe benefit of any officer, employee or independent
contractor; (C) other than as set forth in Schedule 6.1, pay any benefit
not provided under any existing plan or arrangement; (D) other than as set
forth in Schedule 6.1, grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Company Plan
(including, without limitation, the grant of equity based or related
awards, performance units or restricted equity, or the removal of existing
restrictions or the acceleration of exerciseability in any Company Plan or
agreements or awards made thereunder); (E) take any action to fund or in
any other way secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or Company Plan; or (F)
adopt, enter into, amend or terminate any contract, agreement, commitment
or arrangement to do any of the foregoing;
(e) the Company shall not make any investments in non-investment grade
securities; and
(f) the Company shall not, except as required by law or GAAP, change
any of its significant accounting policies or make or rescind any express
or deemed election relating to taxes, settle or compromise any claim,
action, suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to taxes, or change any of its methods of reporting
income or deductions for federal income tax purposes from those employed in
the preparation of the federal income tax returns for the last taxable
year.
6.2. Notice of Breach. Each party shall promptly give written notice to
the other party upon becoming aware of the occurrence or, to its knowledge,
impending or threatened occurrence, of any event which would cause or constitute
a breach of any of its representations, warranties or covenants contained or
referenced in this Merger Agreement and will use its best efforts to prevent or
promptly remedy the same. Any such notification shall not be deemed an amendment
of any Schedule hereto.
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SECTION 7. Additional Agreements
7.1. Access and Information. Subject to the limitations imposed by third
party confidentiality agreements, the Company shall afford to Acquisition and
its accountants, counsel and other representatives full access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period prior to the Effective Time to all of its properties,
books, contracts, commitments, records and personnel and, during such period,
the Company shall furnish promptly to Acquisition (i) a copy of each report,
schedule and other document filed or received by it pursuant to the requirements
of federal or state securities laws, and (ii) all other information concerning
its business, properties and personnel as Acquisition may reasonably request.
The Company and Acquisition shall hold, and shall cause its employees and agents
to hold, in confidence all such information in accordance with the terms of the
Confidentiality Agreement, effective November 25, 1997, between Acquisition and
the Company (the "Confidentiality Agreement"). Acquisition shall indemnify and
hold the Company harmless from any and all claims, liens, losses or damage,
including attorneys' fees, arising out of the physical presence of employees,
agents or contractors of Acquisition or TKG at the Company and out of any tests
or inspections of the Company's Property by or on behalf of Acquisition or TKG.
7.2. Proxy Statement.
(a) As promptly as practicable after the execution of this Merger
Agreement, the Company and Acquisition shall prepare and the Company shall file
with the Commission preliminary proxy materials which shall constitute the
preliminary Proxy Statement. As promptly as practicable after comments are
received from the Commission with respect to the preliminary proxy materials and
after the furnishing by the Company and Acquisition of all information required
to be contained therein, the Company shall file with the Commission the
definitive Proxy Statement.
(b) Acquisition and the Company shall make all necessary filings with
respect to the Merger under the Securities Act and the Exchange Act and the
rules and regulations thereunder and under applicable blue sky or similar
securities laws and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto.
7.3. Meeting. As promptly as possible, the Company shall notice a Share
Holder's meeting for the purpose of approving the Merger. The Company shall
solicit management proxies to vote in favor of the Merger in connection with
this meeting.
7.4. Indemnification.
(a) All rights to indemnification existing in favor of the current or
former officers or employees of the Company as provided in the limited liability
company agreement or by-laws, as in effect as of the date hereof, with respect
to matters occurring through the Effective Time, shall survive the Merger and
shall continue in full force and effect for a period of not less than six years
from the Effective Time, provided, however, that, prior to the Effective Time
and with Acquisition's prior consent (such consent not required if the cost does
not exceed $110,000), the Company may purchase additional policies of directors'
and officers' liability insurance of at least the same coverage as currently
maintained by the Company, such policies to be pre-paid and in effect for a
period of six years from the Effective Time.
(b) In the event that any action, suit, proceeding or investigation
relating hereto or to the transactions contemplated by this Merger Agreement is
commenced, whether before or after the Effective Time, the parties hereto agree
to cooperate and use their respective reasonable efforts to vigorously defend
against and respond thereto.
(c) The provisions of the limited liability company agreement and by-laws
of the Surviving LLC pertaining to indemnification of current and former
directors, officers and employees shall not be amended, repealed or otherwise
modified for a period of six years after the Effective Time (or, in the case of
matters which are pending but which have not been resolved prior to the sixth
anniversary of the Effective Time, until such matters are finally resolved), in
any manner that would adversely affect the rights thereunder of individuals who
at any time on or prior to the Effective Time were directors, officers or
employees of the
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<PAGE> 46
Company in respect of actions or omissions occurring on or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Merger Agreement).
7.5. Additional Agreements.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Merger Agreement, including
using all reasonable efforts to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings (including, but not
limited to, filings with all applicable Governmental Entities) and to lift any
injunction or other legal bar to the Merger, subject to the appropriate vote of
the Share Holders. Notwithstanding the foregoing, Acquisition shall not be
required to take any action, and without Acquisition's prior written consent the
Company shall agree not to take any action, that would in any way restrict or
limit the conduct of business from and after the Effective Time by the Surviving
LLC of either (including, without limitation, any divestiture of any business,
product line or asset).
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Merger Agreement, the
proper officers and/or directors of the Surviving LLC shall take all such
necessary action.
7.6. No Solicitation.
(a) As used herein, the term "Acquisition Proposal" means any proposed (i)
merger, consolidation or similar transaction involving the Company, (ii) sale,
lease or other disposition directly or indirectly by merger, consolidation,
share exchange or otherwise of either (A) assets of the Company representing 75%
or more of the consolidated assets of the Company (based upon the valuations
contained in the confidential report of the Sedway Group dated July 22, 1997
(the "Sedway Report")) in one transaction (but not solicitation of unrelated
sales of individual parcels of the Property which are not material in amount
either individually or in the aggregate), or (B) all or substantially all of the
undeveloped Property in one transaction (but not solicitation of unrelated sales
of individual parcels of the undeveloped Property which are not material in
amount either individually or in the aggregate), or (C) any other material
amount of assets or Property of the Company, (iii) issue, or other acquisition
or disposition of (including by way of merger, consolidation, share exchange or
any similar transaction) securities (or options, rights or warrants to purchase,
or securities convertible into, such securities) representing 20% or more of the
voting power of the Company or (iv) transaction in which any person shall or
would acquire beneficial ownership (as such term is defined in Rule 13d-3 under
the Exchange Act), or the right to acquire beneficial ownership, or any "group"
(as such term is defined under the Exchange Act) shall have been formed which
beneficially owns or would own or has or would have the right to acquire
beneficial ownership of 20% or more of the outstanding Company Common Stock,
other than transactions contemplated by this Merger Agreement.
(b) The Company shall not, nor shall the Company authorize or permit its
officers, employees, representatives, investment bankers, attorneys, accountants
or other agents or affiliates to, take any action to solicit, initiate or
encourage the submission of any Acquisition Proposal; provided, however, that
if, at any time prior to the obtaining of Company Share Holder approval of the
Merger, the Advisory Board determines in good faith by a majority vote, with the
advice of outside counsel, that it is necessary to do so to avoid a breach of
its fiduciary duties to Share Holders under applicable law, the Company may, in
response to a written request for information, furnish information with respect
to the Company to any person pursuant to a customary confidentiality agreement
containing terms at least as favorable to the Company as those contained in the
confidentiality agreements in place between the Company and Acquisition. The
Company may discuss and negotiate terms with parties making unsolicited
Acquisition Proposals.
(c) The Company may continue marketing parcels of the Property as part of
its normal business operations. The Company shall provide Acquisition with a
copy of any proposed agreement for any sale, exchange or other disposition of
any part of the Property and consult with Acquisition before entering into any
binding agreement. After the approval of this Agreement by the Advisory Board of
the Company and except
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<PAGE> 47
as provided in Section 7.6(d), the Company will not, without the express written
consent of Acquisition, enter into any agreement for the disposition of any part
of the Property.
(d) Except as expressly permitted by this Section 7.6, neither the Advisory
Board nor the Company Manager shall (i) withdraw or modify, or propose publicly
to withdraw or modify, in a manner adverse to Acquisition, its approval or
recommendation of the adoption and approval of the matters to be considered at
the Company Meeting, (ii) approve or recommend, or propose publicly to approve
or recommend, any Acquisition Proposal, or (iii) cause the Company to enter into
any letter of intent, agreement in principle, acquisition agreement or other
similar agreement or understanding (written or otherwise) related to any
Acquisition Proposal (each, an "Acquisition Agreement"). Notwithstanding the
foregoing, in the event that prior to the obtaining of Company Share Holder
approval of the Merger, there exists a Superior Proposal (as defined herein),
the Advisory Board may, if it determines in good faith by a majority vote, with
the advice of outside counsel, that it is necessary to do so to avoid a breach
of its fiduciary duties to Company Share Holders under applicable law, approve
or recommend such Superior Proposal and terminate this Merger Agreement,
provided (x) the Company shall have given Acquisition written notice (a
"Superior Proposal Notice") at least five business days prior to such
termination advising Acquisition that the Advisory Board has received a Superior
Proposal which the Advisory Board has authorized and intends to effect,
specifying the material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal, and (y) the Company, prior
to terminating this Merger Agreement, makes irrevocable arrangements for
Acquisition to be paid the amounts contemplated by Section 9.2(b) upon the
termination of this Merger Agreement. For purposes of this Merger Agreement, a
"Superior Proposal" means a definitive unconditioned agreement with a third
party, with all due diligence investigations completed, to acquire, directly or
indirectly, more than 50% of the membership interests of the Company, assets of
the Company representing 75% or more of the real estate assets of the Company
(based upon the valuations contained in the Sedway Report) in one transaction
(but not solicitation of sales of individual parcels of the Property) or all or
substantially all of the undeveloped Property in one transaction (but not
solicitation of sales of individual parcels of the undeveloped Property), and
otherwise on terms which the Advisory Board determines in its good faith
judgment to be more favorable from a financial point of view to the Company
Share Holders than this Merger Agreement, the Merger and the transactions
contemplated hereby and for which financing, to the extent required, is then
committed.
(e) In addition to the obligations set forth in paragraphs (b) and (d) of
this Section 7.6, the Company will promptly communicate to Acquisition a copy of
any requests for information or proposals, including the identity of the person
and its affiliates making the same, that it may receive.
(f) Nothing contained in this Section 7.6 shall prohibit the Company from
taking and disclosing to the Company Share Holders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to the Company Share Holders if, in the good faith judgment of the Advisory
Board, with the advice of outside counsel, failure so to disclose would result
in a violation of applicable law; provided, however, that neither the Company,
the Company Manager nor the Advisory Board shall withdraw or modify, or propose
publicly to withdraw or modify, its position with respect to the matters to be
considered at the Company Meeting or approve or recommend, or propose publicly
to approve or recommend, an Acquisition Proposal, except as provided in Section
7.6(d).
7.7. Redemption of Rights. The Company shall, immediately prior to the
Effective Time, cause the redemption of the rights issued under the Rights
Agreement so that thereafter the holders of such rights shall have no rights
thereunder other than the right to receive the redemption price therefor. The
Company shall not amend the Rights Agreement in any manner that has the effect
of rendering the Rights Agreement inapplicable, in whole or in part, to any
third party unless, prior to or concurrently therewith, the Company takes
substantially equivalent action with respect to Acquisition and in addition
releases Acquisition from any limitations or restrictions imposed by the
Confidentiality Agreement, including without limitation, restrictions upon the
purchase of Company Shares, that prohibits Acquisition from purchasing Company
Shares to the same extent and upon substantially equivalent terms as such third
party.
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<PAGE> 48
SECTION 8. Conditions Precedent
8.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) This Merger Agreement and the transactions contemplated hereby
shall have been approved and adopted by the requisite vote of the Company
Share Holders.
(b) No temporary restraining order, preliminary or permanent
injunction or other order by any court or other judicial or administrative
body of competent jurisdiction (each, an "Injunction") which prohibits or
prevents the consummation of the Merger shall have been issued and remain
in effect (each party agreeing to use its best efforts to have any such
Injunction lifted), and there shall not be any action taken, or any
statute, rule, regulation or order (whether temporary, preliminary or
permanent) enacted, entered or enforced which makes the consummation of the
Merger illegal or prevents or prohibits the Merger.
8.2. Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by the Company:
(a) Acquisition shall have performed in all material respects its
agreements contained in this Merger Agreement required to be performed on
or prior to the Effective Time and the representations and warranties of
Acquisition contained in this Merger Agreement shall be true in all
material respects when made and on and as of the Effective Time as if made
on and as of such date, except for representations and warranties that are
by their express provisions made as of a specific date or dates, which were
or will be true in all material respects at such time or times as stated
therein, and the Company shall have received a certificate of the
Acquisition Manager to that effect.
(b) Intentionally Omitted.
(c) The Merger Consideration shall have been deposited with the
Dispersing Agent with irrevocable instructions to exchange the Company
Shares for the Merger Consideration in accordance with Section 3.2(b)
immediately upon notification by the Company and Acquisition of the
Effective Time.
8.3. Conditions to Obligations of Acquisition to Effect the Merger. The
obligation of Acquisition to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by Acquisition:
(a) The Company shall have performed in all material respects its
agreements contained in this Merger Agreement required to be performed on
or prior to the Effective Time and the representations and warranties of
the Company contained in this Merger Agreement shall be true in all
material respects (except for any such representations or warranties which
are qualified as to Material Adverse Effect, which shall be true and
correct in all respects) when made and on and as of the Effective Time as
if made on and as of such date, except for representations and warranties
that are by their express provisions made as of a specific date or dates
which were or will be true in all material respects (except for any such
representations or warranties which are qualified as to Material Adverse
Effect, which were or will be true and correct in all respects) at such
date or dates, and Acquisition shall have received a certificate of the
Company Manager to that effect.
(b) Intentionally Omitted.
(c) The Company shall have obtained all consents, appeals, releases or
authorizations from, and shall have made all filings and registrations to
or with, any person, including but not limited to any Governmental Entity,
necessary to be obtained or made in order to consummate the transactions
contemplated by this Merger Agreement.
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<PAGE> 49
SECTION 9. Termination, Amendment and Waiver
9.1. Termination. This Merger Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the Company
Share Holders:
(a) by mutual consent of the Board of Directors of Acquisition and the
Advisory Board;
(b) by either Acquisition or the Company, if the Merger shall not have
been consummated on or before March 31, 1998; provided that the right to
terminate this Agreement pursuant to this Section 9.1(b) shall not be
available to any party whose failure to perform in any material respect any
covenant under this Merger Agreement has been the cause of or resulted in
whole or in part in the failure of the Merger to be consummated before such
date;
(c) by either Acquisition or the Company, if there shall be any Order
which is final and nonappealable preventing the consummation of the Merger;
(d) by either Acquisition or the Company, if this Merger Agreement and
the transactions contemplated hereby shall fail to receive the requisite
vote for approval and adoption by the Company Share Holders at the Company
Meeting;
(e) by Acquisition if this Merger Agreement and the transactions
contemplated hereby shall not have been submitted for approval and adoption
by the Company Share Holders at the Company Meeting prior to March 31, 1998
unless the meeting is held later solely due to delays in obtaining approval
of the Proxy Statement by the Commission;
(f) by Acquisition, if the Advisory Board withdraws, modifies in a
manner adverse to Acquisition, or refrains from making its recommendation
concerning the Merger referred to in Section 3.3, or the Advisory Board
shall have recommended to the Company Share Holders any Acquisition
Proposal or the Company shall have entered into an Acquisition Agreement,
or, other than in connection with the Company's delivery of a Superior
Proposal Notice, the Advisory Board shall have resolved to do any of the
foregoing; or
(g) by the Company, if, pursuant to Section 7.6(d), (A) the Advisory
Board has delivered to Acquisition a Superior Proposal Notice, (B) the
Company has paid the Termination Fee (as defined in Section 9.2), and (C)
five business days have passed since Acquisition received the Superior
Proposal Notice.
9.2. Effect of Termination; Fees.
(a) In the event of termination of this Merger Agreement by either
Acquisition or the Company, as provided above, this Merger Agreement shall
forthwith become void and (except for the willful breach of this Merger
Agreement by any party hereto) there shall be no liability on the part of either
the Company or Acquisition or their respective officers or employees; provided
that the last sentence of Section 7.1 and Sections 9.2, 11.3 and 11.7 shall
survive the termination.
(b) The Company shall pay to Acquisition a Termination Fee (as defined
below) if: (i) Acquisition terminates this Merger Agreement pursuant to Section
9.1(e) or (f); or (ii) within three business days after the receipt by
Acquisition of the Superior Proposal Notice, the Company terminates this Merger
Agreement pursuant to Section 9.1(g) and executes the agreement contemplating
the Superior Proposal; or (iii) so long as Acquisition has not materially
defaulted under Sections 1, 3 and 10 of this Agreement, on or prior to July 31,
1998 the Company (directly or indirectly through the Company Manager or the
Advisory Board) accepts, recommends, consummates, or enters into or announces an
agreement with respect to, an Acquisition Proposal.
(c) The Termination Fee shall be equal to $1,200,000. The Termination Fee
shall be paid as promptly as practicable and in no event later than (A) in the
event of termination by the Company as described in clause (ii) of Section
9.2(b), upon termination of the Merger Agreement and the execution of the
Superior Proposal; or (B) in the event of termination by Acquisition as
described in clause (i) of Section 9.2(b), five business days after such
termination; or (C) in the event of any of the actions or events described in
clause (iii) of
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<PAGE> 50
Section 9.2(b), upon and (unless otherwise due pursuant to clause (A) or clause
(B) of this Section 9.2(c)) only upon consummation of the transaction
contemplated by the Acquisition Proposal.
9.3. Amendment. This Merger Agreement may be amended by the parties
hereto, by or pursuant to action taken by the Acquisition Manager and the
Advisory Board, at any time before or after approval hereof by the Company Share
Holders, but, after such approval, no amendment shall be made which changes the
amount or form of Merger Consideration or which in any way materially adversely
affects the rights of the Company Share Holders, without the further approval of
such Company Share Holders. This Merger Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
9.4. Waiver. At any time prior to the Effective Time, the parties hereto,
by or pursuant to action taken by the Acquisition Manager and Advisory Board,
may (i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any documents delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions contained herein; provided, however, that no such waiver shall
materially adversely affect the rights of the Company Share Holders and
Acquisition. Any agreement on the part of a party hereto to any such extension
or waiver shall be valid if set forth in an instrument in writing signed on
behalf of such party.
SECTION 10. Commitments of TKG
Promptly following the execution and delivery of this Merger Agreement, TKG
shall cause Acquisition to be formed and to ratify the execution and delivery of
this Merger Agreement. TKG shall cause Acquisition to be capitalized with all
funds necessary for Acquisition to fulfill its obligations under the Merger
Agreement and the transactions contemplated hereby. TKG shall indemnify and hold
the Company harmless from any and all claims, liens, losses or damage, including
attorneys' fees, arising out of the physical presence of employees, agents or
contractors of Acquisition or TKG at the Company, out of any tests or
inspections of the Company's Property by or on behalf of Acquisition or TKG or
out of a failure of Acquisition to pay the costs and expenses as provided for in
Section 1.4.
SECTION 11. General Provisions
11.1 Non-Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements in this Merger Agreement shall survive
the Merger, except for the agreements contained in Sections 3.1, 3.2 and 3.4 and
the agreements referred to in Sections 7.4, 7.5, 11.1, 11.3 and 11.7. No claims
for any breach of any representation or warranty may be brought by either party
after the Effective Time.
11.2. Notices. All notices or other communications under this Merger
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex,
telecopy or other standard form of telecommunications, or by registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company:
Mr. Stanley F. Marquis
Triad Park, LLC
3055 Triad Drive
Livermore, California 94550
Telecopy No.: 510-455-6917
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<PAGE> 51
With a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
3150 Porter Drive
Palo Alto, California 94304
Attention: Edward S. Merrill, Esq.
Telecopy No.: 650-849-4800
If to Acquisition or TKG:
TKG International, Inc.
2755 Campus Drive, Suite 100
San Mateo, California 94403
Attention: John Kontrabecki
Telecopy No.: 650-312-1333
With a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Rod J. Howard, Esq.
Telecopy No.: 650-327-3699
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 11.2.
11.3. Expenses. All costs and expenses incurred in connection with this
Merger Agreement and the transactions contemplated hereby (regardless of whether
the Merger is consummated) shall be paid by the party incurring such expenses,
and the incurrence and payment of transaction expenses by the Company shall not
affect the Merger Consideration.
11.4. Publicity. So long as this Merger Agreement is in effect,
Acquisition and the Company agree to consult with each other in issuing any
press release or otherwise making any public statement with respect to the
transactions contemplated by this Merger Agreement, and none of them shall issue
any press release or make any public statement prior to such consultation,
except as may be required by law.
11.5. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Merger
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Merger Agreement and
to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
11.6. Interpretation. The headings contained in this Merger Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Merger Agreement.
11.7. Miscellaneous. This Merger Agreement (including the documents and
instruments referred to herein) (a) constitute the entire agreement and
supersede all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
(other than as provided in the Confidentiality Agreement, as the same may be
amended); (b) except as provided in Section 7.4 of this Merger Agreement, are
not intended to confer upon any other person any rights or remedies hereunder;
(c) except for an assignment by Acquisition to one of its affiliates, shall not
be as assigned by operation of law or otherwise; and (d) shall be governed in
all respects, including validity, interpretation and effect, by the laws of the
State of Delaware (without giving effect to the provisions thereof relating to
conflicts of law). This Merger Agreement may be executed in two or more
counterparts which together shall constitute a single agreement.
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<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this Merger Agreement to
be signed by their respective officers thereunder duly authorized all as of the
date first written above.
TKG ACQUISITION COMPANY, LLC
(in formation)
By: THE KONTRABECKI GROUP, INC.,
its Manager
By: /s/ JOHN T. KONTRABECKI
-----------------------------
Name: John T. Kontrabecki
Title: President
TRIAD PARK, LLC
By: 3055 MANAGEMENT CORP.,
its Manager
By: /s/ STANLEY F. MARQUIS
-----------------------------
Name: Stanley F. Marquis
Title: Vice President THE KONTRABECKI GROUP, INC.
By: /s/ JOHN T. KONTRABECKI
----------------------------------
Name: John T. Kontrabecki
Title: President
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<PAGE> 53
EXHIBIT B
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's discussion and analysis of financial condition and results of
operations.......................................................................... B-2
Balance sheets as of September 30, 1995 and 1996 and December 31, 1996................ B-5
Statements of operations of the years ended September 30, 1995 and 1996 and the three
months ended December 31, 1995 and 1996............................................. B-6
Statements of members' equity for the years ended September 30, 1995 and 1996, and the
three months ended December 31, 1996................................................ B-7
Statements of cash flows for the years ended September 30, 1995 and 1996 and the three
months ended December 31, 1995 and 1996............................................. B-8
Notes to financial statements......................................................... B-9
Report of independent accountants..................................................... B-15
Pro forma statements of operations.................................................... B-17
Condensed balance sheets as of December 31, 1996 and September 30, 1997 (unaudited)... B-19
Condensed statements of operations for the three and nine month periods ended
September 30, 1996 and 1997 (unaudited)............................................. B-20
Condensed statements of cash flows for the nine month periods ended September 30, 1996
and 1997 (unaudited)................................................................ B-21
Notes to condensed financial statements............................................... B-22
</TABLE>
B-1
<PAGE> 54
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 the years ended September 30, 1995 and 1996. These
revenues are pursuant to a lease agreement in effect through 2001. Revenues from
land sales were $3.8 million during the year ended September 30, 1996. Revenues
from land sales were $640,000 for the three months ended December 31, 1996 with
no sales during the comparable period in the prior year. There were no land
sales during the year ended September 30, 1995. Gross margin was $3.5 million in
the year ended September 30, 1996, an 84% increase over the gross margin of $1.9
million in the year ended September 30, 1995. This increase was directly
attributed to the land sales during 1996. Gross margin for the three months
ended December 31, 1995 was $491,000 compared to $678,000 for the three months
ended December 31, 1996. The increase was directly attributed to land sales.
Net income was $521,000 for the year ended September 30, 1996 compared with
a net loss of $548,000 for the year ended September 30, 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 three months ended December 31, 1995 to a loss
of $8,000 for the three months ended December 31, 1996 was due to the absence of
land sales in the earlier period.
Revenues for the three months ended September 30, 1997 were $.6 million
compared to $4.4 million in the same quarter of the prior year when there were
land sales totaling $3.8 million. There have been no land sales to date in 1997
compared to the $3.8 million recognized in the nine months ended September 30,
1996. Rental revenues from the leasing of the facilities located at 3055 Triad
Drive were $.6 million for the quarters ended September 30, 1997 and 1996. These
revenues are generated under a lease agreement in effect through February 2002.
See "Management's Discussion and Analysis-Liquidity and Capital Resources."
Gross margin was $.5 million for the quarter ended September 30, 1997 compared
to $2.1 million for the same quarter in fiscal 1996. The gross margin for the
nine month period ended September 30, 1997 was $1.5 million compared to $3.0
million for the same period of 1996. The gross margin differences for the three
and nine month periods are directly attributed to land sales which occurred in
1996.
For the three and nine month periods ended September 30, 1997, there were
net losses of $.2 million and $.4 million respectively compared to net income of
$.9 million and $.7 million for the same periods of 1996. The difference is
principally due to the absence of any land sales in the current year. The net
loss per share was one cent for the three months ended September 30, 1997
compared to net income per share of five cents for the same period in the prior
year.
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 114.3 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 the year ended September 30, 1996 for $3.8 million
and one parcel of 4.1 acres for $640,000 during the three months ended December
31, 1996. There were no land sales during the year ended September 30, 1995 or
the three months ended December 31, 1995. Likewise, the Company had no land
sales during the three or nine month periods ended September 30, 1997.
B-2
<PAGE> 55
GROSS MARGIN
Land sale gross margins were 41% for the quarter and the year ended
September 30, 1996 and 29% for the three months ended December 31, 1996. Gross
margins on rental income were approximately the same 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 the nine months and year ended September 30, 1996 and
$64,000 for the three months ended December 31, 1996.
General and administrative expenses consist 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 requires for the development, management and marketing of the
properties. These expenses were $623,000 for the year ended September 30, 1995
and $723,000 for the year ended September 30, 1996 with the increase attributed
to incremental management efforts associated with the land sales for the year
ended September 30, 1996. Operating expenses were similar for the quarters
ending December 31, 1995 and 1996.
General and administrative expenses were $0.2 million for the quarter ended
September 30, 1997, and were approximately equal to those expenses for the same
quarter in the prior year. Operating expenses were $628,000 for the nine month
period ended September 30, 1997 compared to $561,000 for the same period the
prior year.
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 the
years ended September 30, 1995 and 1996, decreasing slightly due to normal debt
maturation. Likewise, interest expense for the quarters ending December 31, 1995
and 1996 was relatively unchanged at $472,000 and $449,000, respectively.
Interest expense was approximately the same for the quarter ended September
30, 1997 compared to the same quarter in the prior year. Year to date interest
expense was also relatively unchanged at $1.3 million compared to $1.4 million
for the nine months ended September 30, 1997 and 1996, respectively. The
reduction is due to normal debt maturation, as well as reduced debt in 1997 due
to land sales in the six months ended December 31, 1996, offset by interest
expense related to the bond issuance in March 1997. See "Management's Discussion
and Analysis -- Liquidity and Capital Resources."
FUTURE OPERATING RESULTS
Future operating results are dependent upon the Company's ability to
dispose of its real estate assets. Risks that affect real estate sales include,
but are not limited to, the relative illiquidity of real estate investments, the
ability to obtain entitlements from governmental agencies, changing tax
assessments, compliance with environmental requirements, and general risks such
as changes in interest rates and changes in local market conditions which affect
real estate values. The future operating results may also be affected by the
Company's relationship with Triad. These risks include, but are not limited to,
the indemnification agreement between the Company and Triad, potential conflicts
of interest within the management and representation of the Company and Triad,
and reliance upon Triad lease payments for the Company's financial performance.
On September 9, 1997, the Company entered into an Agreement of Merger with
TPL Acquisition, LLC and Richard C. Blum Associates, LP, a California limited
partnership ("RCBA"), subject to approval of the Members, in which TPL
Acquisition, LLC will acquire all outstanding shares of the Company from the
Members for $1.32 per share. Following such acquisition, TPL Acquisition, LLC,
which is affiliated with RCBA, will merge into Triad Park, LLC and will become
liable for all obligations of Triad Park, LLC. A copy of the Agreement of Merger
was included as Exhibit 2.1 to the Company's Form 8-K (Amendment No. 1) filed
with the Securities and Exchange Commission on September 15, 1997.
B-3
<PAGE> 56
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to continue funding its current business will depend
upon the timing and volume of land sales, without taking the merger of the
Company and TPL Acquisition into account. Receipts from rental of its buildings
under the existing lease agreements are expected to be sufficient to fund
mortgage obligations for the foreseeable future. Currently, there is a lease
agreement for the Company's buildings in effect through February 2002 with an
option to renew for an additional term of five years. All expenses related to
the buildings are paid by the tenant as required by the "triple net lease". The
Company's ability to repay the remaining assessment district debt and operating
expenses are dependent in part on making future land sales. To the extent
additional working capital is required, management expects that it will have
sufficient borrowing capacity to finance any needs which may arise in the
ordinary course of business.
On March 24, 1997, the City of Livermore completed the sale of Mello-Roos
bonds which raised a total of $9,070,000 in new funds, of which approximately
$6,944,000 encumbers property owned by the Company. The proceeds were designated
to refinance $2,255,000 of prior bonded indebtedness, to fund the reimbursement
to the Company of approximately $2,045,000 of previously completed improvements,
to provide funds of approximately $3,700,000 to complete improvements required
by various agreements with the City of Livermore and others, to pay financing
expenses of $610,000 and to create a reserve fund of approximately $673,000. Of
the indebtedness, approximately $5,218,000 is an additional encumbrance to the
property owned by the Company and $1,726,000 refinances existing debt. In the
quarter ended June 30, 1997, the Company received approximately $1,485,000 from
the City of Livermore as reimbursement for previously completed projects
totaling $2,085,000, net of a surety deposit of $600,000.
In addition, the Company is obligated to undertake an estimated additional
$7,000,000 in improvements to its land in connection with its approved
development plan. The City of Livermore is expected to issue bonds to reimburse
the Company for such improvements. Improvements are funded as projects are
completed. The current estimates for the required improvements indicate that
bonded funding limits are expected to 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. 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.
B-4
<PAGE> 57
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
<S> <C> <C> <C>
Land......................................................... $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.
B-5
<PAGE> 58
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)
======= ======= ======= =======
Net income (loss) per share....................... $ (0.03) $ 0.03 $ (0.01) $ --
======= ======= ======= =======
Shares used in per share calculation.............. 19,708 19,708 19,708 19,708
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-6
<PAGE> 59
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................................... $28,198 $(4,709) $23,489
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-7
<PAGE> 60
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.
B-8
<PAGE> 61
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 Delaware
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 stockholders.
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 received one Triad Park LLC membership interest for each share of Triad
common stock held as of February 26, 1997, the Distribution Record Date.
The Company's operations 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 ("Members"). The Company's shares are owned 99%
by the former shareholders of Triad and 1% by Management Corp ("the Manager").
The Manager is responsible for management and control of the business of the
Company, subject to certain required approvals of the Advisory Board. The
Members may elect or vote to remove members of the Advisory Board.
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.
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.
Land:
Land held for resale includes developed lots, land underdeveloped and raw
land. Land held for resale is carried at the lower of cost or market. The cost
of development of building lots includes the land, the related
B-9
<PAGE> 62
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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
December 31, 1996 to be 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.
Unaudited Interim Period Ended December 31, 1995:
The unaudited financial statements for the three months ended December 31,
1995 have been prepared on the same basis as the audited financial statements
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations in accordance with generally accepted
accounting principles. Results for interim periods are not necessarily
indicative of results for the entire year.
B-10
<PAGE> 63
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Fiscal Year:
As a limited liability corporation, the Company is treated as a partnership
for federal income tax purposes and is therefore required to use a calendar
based fiscal year end whereas Triad had a fiscal year based on the twelve months
ending on September 30 of each year. Accordingly, the accompanying financial
statements include audited financial statements for the three-month transition
period ending December 31, 1996. Unaudited financial statements are presented
for the three-month period ended December 31, 1995 for comparative purposes
only.
Net Income (Loss) Per Share:
The number of shares used to compute earnings per share assumes that shares
issued in connection with the spin-off were outstanding for all periods
presented.
3. RELATED PARTY AGREEMENT:
The Company's developed commercial property, consisting of three buildings
and improvements on approximately 15 acres, is occupied by Triad 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.
Certain officers of the Company are also officers or employees of Triad.
The stock of Management Corp. is owned by three of Triad's current or former
directors. In February 1997, in connection with the Company's capitalization, a
promissory note of $142,000 was received from Management Corp. for purchase of
1% of the membership interests.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- DECEMBER 31,
1995 1996 1996
-------- -------- ------------
<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 for use as their headquarters (see Note 3).
During December 1996, certain land previously intended for use by Triad in
their operations was reclassified as land for resale in connection with the
merger and spin-off (see Note 5).
B-11
<PAGE> 64
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LAND:
Land 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
----- ------- ----- -------
260.6 $22,850 302.6 $27,876
===== ======= ===== =======
</TABLE>
During the three months ended December 31, 1996, approximately 34 acres of
land previously held for future use by Triad was reclassified to land. As a
result, costs of approximately $5.7 million which include debt financed amounts
of approximately $2.2 million were reclassified from property, plant and
equipment to land.
6. DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
<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 principal 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.
On March 24, 1997, the City of Livermore entered into a Bond Indenture and
issued an additional $9,070,000 in new funds from the sale of community facility
bonds. The Company currently owns 76.56% of the property related to this
Issuance. The Company's portion of the bond issuance is designated for
approximately $5,218,000 of additional debt and $1,726,000 for refinancing of
existing debt. The Company has recorded the net additional debt as a liability.
Approximately $1,878,000 of this debt obligation is attributable to the
Company's portion of previously completed improvements which have been included
in the costs of property plant and equipment and land as appropriate.
Approximately $3,340,000, representing funds set aside by the City of Livermore
for reimbursement to the Company for future improvements, are recorded as
property development commitments.
B-12
<PAGE> 65
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. MEMBERS EQUITY:
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.
8. SIGNIFICANT CUSTOMERS:
The Company had land sales to four customers during the year ended
September 30, 1996 and one customer during the three months ended December 31,
1996.
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 members.
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.
B-13
<PAGE> 66
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENT (UNAUDITED):
On September 9, 1997, the Company entered into an Agreement of Merger with
TPL Acquisition, LLC and Richard C. Blum Associates, LP, a California limited
partnership ("RCBA"), subject to approval of the Members, in which TPL
Acquisition, LLC will acquire all outstanding shares of the Company from the
Members for $1.32 per share. Following such acquisition, TPL Acquisition, LLC,
which is affiliated with RCBA, will merge into Triad Park, LLC and will become
liable for all obligations of Triad Park, LLC.
B-14
<PAGE> 67
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, 1995 and 1996 and December 31, 1996, and the related statements of
operations, changes in members' equity and cash flows for the years ended
September 30, 1995 and 1996 and for the three months ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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, 1995
and 1996 and December 31, 1996 and the results of its operations and cash flows
for the years ended September 30, 1995 and 1996 and the three months ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND LLP
San Jose, California
March 14, 1997, except
for the matters discussed
in Note 6 for which
the date is
March 24, 1997
B-15
<PAGE> 68
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.
B-16
<PAGE> 69
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
UNAUDITED 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 from) income
taxes...................... 574 (2,594) (2,020) (9) (635) (644)
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......................... $ (0.09) $ (0.03)
======= =======
Pro forma shares used in per
share calculation(b).......... 19,708 19,708
======= =======
</TABLE>
See accompanying note.
B-17
<PAGE> 70
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
UNAUDITED 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
assumes that shares issuable in connection with the spinoff were
outstanding as of the beginning of the first period presented.
B-18
<PAGE> 71
TRIAD PARK, LLC
CONDENSED BALANCE SHEETS
(AMOUNTS SHOWN IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Cash............................................................... $ -- $ 1,111
Land............................................................... 27,876 29,620
Property, plant and equipment...................................... 12,362 12,202
Assessments receivable............................................. 2,091 1,164
Property development commitments................................... -- 3,340
Prepaid expenses and other assets.................................. -- 396
------ ------
Total assets............................................. $ 42,329 $47,833
====== ======
LIABILITIES
Debt............................................................... $ 18,840 $23,130
Other liabilities.................................................. -- 733
------ ------
Total liabilities........................................ 18,840 23,863
Commitments and contingencies
MEMBERS' EQUITY
Members' shares; no par value; 19,708,123 shares outstanding at
September 30, 1997............................................... -- --
Members' equity.................................................... 23,489 23,970
------ ------
Total liabilities and members' equity.................... $ 42,329 $47,833
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
B-19
<PAGE> 72
TRIAD PARK, LLC
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS SHOWN IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1996 1997 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Rental income................................... $ 626 $ 626 $ 1,879 $ 1,880
Land sales...................................... 3,795 -- 3,795 --
------- ------- ------- -------
Total revenues.......................... 4,421 626 5,674 1,880
Depreciation of rental property................. 139 137 411 420
Cost of land sold............................... 2,231 -- 2,231 --
------- ------- ------- -------
Gross Margin.................................... 2,051 489 3,032 1,460
------- ------- ------- -------
Costs and Expenses:
Sales expenses.................................. 369 -- 369 --
General and administrative...................... 237 235 561 628
------- ------- ------- -------
Total costs and expenses................ 606 235 930 628
------- ------- ------- -------
Operating income................................ 1,445 254 2,102 832
Interest expense................................ 449 450 1,385 1,278
------- ------- ------- -------
Income (loss) before provision for (benefit
from) income taxes........................... 996 (196) 717 (446)
Provision for (benefit from) income taxes......... 91 (18) 66 (36)
------- ------- ------- -------
Net Income (Loss)................................. $ 905 $ (178) $ 651 $ (410)
======= ======= ======= =======
Net Income (Loss) Per Share....................... $ 0.05 $ (0.01) $ 0.03 $ (0.02)
======= ======= ======= =======
Shares Used in Per Share Calculation(a)........... 19,708 19,708 19,708 19,708
======= ======= ======= =======
</TABLE>
- ---------------
(a) The number of shares used to compute earnings per share assumes that shares
issued in connection with the spin-off were outstanding for all periods
presented.
The accompanying notes are an integral part of these financial statements.
B-20
<PAGE> 73
TRIAD PARK, LLC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS SHOWN IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTH
PERIODS ENDED
SEPTEMBER 30,
------------------
1996 1997
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss)......................................................... $ 651 $ (410)
Gain from sale of land................................................ (1,195) --
Depreciation and amortization......................................... 425 465
Provision for doubtful accounts....................................... -- 65
Changes in assets and liabilities:
Increase in prepaid expenses and other assets...................... -- (425)
Increase in other liabilities...................................... -- 733
------
Net cash provided by (used in) operating activities........... (119) 428
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Land sales............................................................ 3,523 --
Investment in property, plant and equipment........................... (12) (113)
Acquisition of land................................................... (972) --
Land improvements..................................................... (108) (14)
Assessment district improvements...................................... (130) (623)
------
Net cash provided by (used in) investing activities........... 2,301 (750)
------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt..................................................... (638) (943)
Reimbursement for property improvements............................... 1,485
Members' contribution (distribution) net of note receivable........... (1,544) 891
------
Net cash provided by (used in) financing activities........... (2,182) 1,433
------
Net increase in cash.................................................. -- 1,111
Cash, beginning of period............................................. -- --
Cash, end of period................................................... $ -- $1,111
======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.............................................................. $ 1,385 $1,040
======
Income taxes.......................................................... $ 53 $ 5
======
NONCASH INVESTING AND FINANCIAL ACTIVITY:
Bond issuance resulting in increased assessment district improvements
and related debt................................................... $ -- $5,218
======
Assessment district improvements and related debt transferred upon
sale............................................................... $ 1,189 $ --
======
</TABLE>
The accompanying notes are an integral part of these financial statements
B-21
<PAGE> 74
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED 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 Delaware
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 (such assets
and liabilities hereinafter referred to as the Predecessor Business) to Triad
stockholders.
On February 26, 1997, 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 were entitled to receive one share of Triad Park,
LLC, membership interest for each share of Triad common stock held as of
February 26, 1997, the Distribution Record Date. Such shareholders (Members) are
entitled 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.
The Company's operations 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 manager of the Company, 3055 Management
Corp., (the Manager), is responsible for management and control of the business
of the Company, subject to certain required approvals of the Advisory Board. The
members 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 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. On September 9, 1997, the Company entered into
an Agreement of Merger with TPL Acquisition, LLC and Richard C. Blum &
Associates, LP (RCBA), subject to approval of the Members. TPL Acquisition, LLC
will acquire all outstanding shares of the Company from the Members for $1.32
per share. Following such acquisition, TPL Acquisition, LLC, which is affiliated
with RCBA, will merge into Triad Park, LLC and will become liable for all
obligations of Triad Park, LLC. A copy of the Agreement of Merger was included
as Exhibit 2.1 to the Company's Form 8-K (Amendment No. 1) filed with the
Securities and Exchange Commission on September 15, 1997.
The financial statements for periods prior to the Distribution Record Date
which are 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 for those periods 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.
B-22
<PAGE> 75
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
2. In the opinion of management, the unaudited interim financial statements
as of September 30, 1997 and for the periods ended September 30, 1997 and 1996
include all adjustments, consisting only of those of a normal recurring nature,
necessary for fair presentation. The results of operations for the three and
nine month periods ended September 30, 1997 are not necessarily indicative of
the results to be expected for the full year. The accompanying financial
statements should be read in conjunction with the audited financial statements
and notes thereto presented elsewhere in this proxy statement. The balance sheet
as of December 31, 1996 has been derived from the audited financial statements
as of and for the three months ended December 31, 1996, and includes all
information and footnotes required by generally accepted accounting principles
for interim financial statements.
3. Property, plant and equipment at December 31, 1996 and September 30,
1997 include accumulated depreciation of $4,932,000 and $5,353,000 respectively.
4. Land consists of property in Livermore, California, classified by
planned use as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
ACREAGE/COST SEPTEMBER 30,
----------------- 1997
USE CLASSIFICATION ACREAGE/COST
---------------------------------------- -----------------
<S> <C> <C> <C> <C>
Residential............................. 28.1 $ 4,029 28.1 $ 4,284
Retail/commercial....................... 35.9 4,797 35.9 5,123
Retail/industrial/office................ 114.3 17,925 114.3 18,976
Open space/agricultural................. 112.0 -- 112.0 --
Transportation.......................... 12.3 1,125 12.3 1,237
----- ------- ----- -------
302.6 $27,876 302.6 $29,620
===== ======= ===== =======
</TABLE>
5. On March 24, 1997, the city of Livermore entered into a Bond Indenture
and issued an additional $9,070,000 in funds from the sale of community facility
bonds for new debt financing as well as for refinancing existing debt. The
Company currently owns 76.56% of the property related to this issuance. The
Company's portion of the bond issuance is for approximately $5,218,000 of
additional debt and $1,726,000 for refinancing of existing debt. The Company has
recorded the net additional debt as a liability and the improvements as assets.
Of these assets, $3,340,000 are recorded as property development commitments and
represent funds set aside by the City of Livermore for reimbursement to the
Company for future improvements.
6. RECENT ACCOUNTING PRONOUNCEMENTS. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128 (SFAS 128), "Earnings Per Share", which specifies the computation,
presentation and disclosure requirements for earnings per share. SFAS 128
supersedes Accounting Principles Board Opinion No. 15 and is effective for
financial statements issued for periods ending after December 15, 1997. SFAS 128
requires restatement of all prior period earnings per share data presented after
the effective date. SFAS 128 will not have a material impact on the Company's
financial position, results of operations or cash flows.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This statement establishes requirements for disclosure of comprehensive
income and becomes effective for the Company for fiscal years beginning after
December 15, 1997, with reclassification of earlier financial statements for
comparative purposes. Comprehensive income generally represents all changes in
stockholders' equity except those resulting from investments or contributions by
stockholders. The Company is evaluating alternative formats for presenting this
information, but does not expect this pronouncement to materially impact the
Company's results of operations.
B-23
<PAGE> 76
TRIAD PARK, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
In June 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information." This statement establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. This statement supersedes Statement of Financial Accounting Standards
No. 14, Financial Reporting for Segments of a Business Enterprise. The new
standard becomes effective for fiscal years beginning after December 15, 1997,
and requires that comparative information from earlier years be restated to
conform to the requirements of this standard. The Company is evaluating the
requirements of SFAS 131 and the effects, if any, on the Company's current
reporting and disclosures.
B-24
<PAGE> 77
TRIAD PARK, LLC
3055 TRIAD DRIVE
LIVERMORE, CALIFORNIA 94550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS MARCH , 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE ADVISORY BOARD
The undersigned appoints Larry D. McReynolds and Stanley F. Marquis, and
each of them, with power to act without the other and with all the right of
substitution in each, the proxies of the undersigned to vote all shares of Triad
Park, LLC (the "Company") held by the undersigned on February , 1998, at the
Special Meeting of Shareholders of the Company, to be held on March , 1998 at
9:00 a.m. local time at the offices of the Company, 3055 Triad Drive, Livermore,
California 94550, and all adjournments thereof, with all powers the undersigned
would possess if present in person. All previous proxies given with respect to
the meeting are revoked.
Receipt of Notice of Special Meeting of Shareholders and Proxy Statement is
acknowledged by your execution of this proxy. Complete, sign, date, and return
this proxy in the addressed envelope -- no postage required. Please mail
promptly to save further solicitation expenses.
<TABLE>
<S> <C> <C> <C>
1. Approval of Merger Agreement, dated February 1, [ ] FOR THE MERGER [ ] AGAINST THE MERGER [ ] ABSTAIN
1998, by and among The Kontrabecki Group, Inc., TKG
Aquisition Company, LLC and Triad Park, LLC, as
amended
</TABLE>
(continued, and to be dated and signed, on other side)
<PAGE> 78
2. To adjourn the meeting to permit further solicitation of proxies in the event
there are not sufficient votes to approve and adopt the Merger Agreement.
[ ] APPROVED [ ] WITHHELD
3. To vote with discretionary authority upon such other matters as may come
before the meeting. (Discretionary authority will be only exercised with
respect to votes in favor or abstentions.)
[ ] APPROVED [ ] WITHHELD
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS PROVIDED BY THE
UNDERSIGNED SHAREHOLDER, THIS PROXY WILL BE VOTED "FOR" ITEM 1 LISTED HEREIN,
UPON ALL OTHER MATTERS, THE PROXIES SHALL VOTE AS THEY DEEM IN THE BEST
INTERESTS OF THE COMPANY.
SIGNATURE(S)
-----------------------------------
-----------------------------------
Dated: , 1998
INSTRUCTION: When shares are held
by joint tenants, all joint tenants
should sign. When signing as
attorney, executor, administrator,
trustee, custodian, or guardian,
please give full title as such. If
shares are held by a corporation,
this proxy should be signed in full
corporate name by its president or
other authorized officer. If a
partnership holds the shares
subject to this proxy, an
authorized person should sign in
the name of such partnership.
