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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 333-49389
COOPERATIVE COMPUTING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2160013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6207 BEE CAVE ROAD
AUSTIN, TEXAS 78746
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 512/328-2300
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. (The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing.)
No established published trading market exists for the Common Stock, par value
$0.01 per share, of Cooperative Computing, Inc. All of the outstanding shares of
Common Stock, par value $0.01 per share, of Cooperative Computing, Inc., are
held by Cooperative Computing Holding Company, Inc.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 29, 1999
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Common Stock 1,000 shares
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FORWARD-LOOKING STATEMENTS
INFORMATION SET FORTH IN THIS ANNUAL REPORT ON FORM 10-K REGARDING EXPECTED OR
POSSIBLE FUTURE EVENTS, INCLUDING STATEMENTS OF THE PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE GROWTH, OPERATIONS, PRODUCTS AND SERVICES AND STATEMENTS
RELATING TO FUTURE ECONOMIC PERFORMANCE, IS FORWARD-LOOKING AND SUBJECT TO RISKS
AND UNCERTAINTIES. FOR THOSE STATEMENTS, THE COMPANY CLAIMS THE PROTECTION OF
THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS PROVIDED FOR BY SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS
ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY, WHICH,
ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE
RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE
CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS WILL BE REALIZED AND IT IS
LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE
THE FOLLOWING: (1) INCREASED COMPETITION; (2) RAPID TECHNOLOGICAL CHANGE; (3)
INCREASED COSTS; (4) RISKS ASSOCIATED WITH THE INTRODUCTION OF NEW PRODUCTS AND
PRODUCT UPGRADES AND DEPENDENCE ON PROPRIETARY TECHNOLOGY; (5) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (6) INABILITY OF THE COMPANY TO
SUCCESSFULLY INTEGRATE BUSINESSES ACQUIRED IN THE FUTURE AND TO REALIZE
ANTICIPATED REVENUE AND COST SAVINGS OPPORTUNITIES; (7) INCREASES IN THE
COMPANY'S COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY
CAPITAL; AND (8) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH
THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH FACTORS WILL BE BEYOND
THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. IN ADDITION, OTHER FACTORS THAT
COULD AFFECT THE FUTURE RESULTS OF THE COMPANY AND COULD CAUSE THOSE RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS ARE
DISCUSSED AT GREATER LENGTH UNDER ITEM 1. "BUSINESS" AND ITEM 7. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
APPEAR ELSEWHERE IN THIS ANNUAL REPORT. THESE RISKS, UNCERTAINTIES AND OTHER
FACTORS SHOULD NOT BE CONSTRUED AS EXHAUSTIVE, AND THE COMPANY DOES NOT
UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS TO REFLECT OCCURRENCES OR UNANTICIPATED EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.
USE OF TRADEMARKS AND TRADENAMES
Several trademarks and tradenames appear in this Annual Report on Form 10-K.
Automotive Aftermarket Information Highway, J-CON, A-DIS, Triad Prism,
ServiceExpert, Series 12, The Paperless Warehouse, MarketPACE, RepairSource,
Telepart, InterChange, Telepricing, VISTA, Lasercat, Triad Servicewriter and CCI
Autobahn are federally registered trademarks of the Company. The Company has a
federal trademark application pending with respect to Lasercat 2000. Other
trademarks of the Company include CCI/Triad Ultimate, CCI/Triad Prism, Eclipse,
Triad Eagle, Pace, LaborGuide, True Start, CCI/Triad, CCI, Triad, PartInsight,
ePartExpert, LOADSTAR, Checkmate, Orion, Compass, Triad CSD, Triad Falcon, and
Triad Gemini. Other trademarks and tradenames are used in this Annual Report on
Form 10-K that identify other entities claiming the marks and names of their
products. The Company disclaims proprietary interest in such marks and names of
others. References herein to Snap-on, TruServ, Ace Hardware, AutoZone, Discount
Auto Parts, Pep Boys, Home Depot, Lowe's, Mitchell, Sears, Midas and Aamco mean,
respectively, Snap-on Incorporated, Cotter & Company, Ace Hardware Corporation,
AutoZone, Inc., Discount Auto Parts, Inc., The Pep Boys -- Manny, Moe & Jack,
The Home Depot, Inc., Lowe's Home Centers, Inc., Mitchell Repair Information
Company, Sears, Roebuck and Co., Midas International Corporation and Aamco
Transmissions, Inc.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Cooperative Computing, Inc., a Delaware corporation (hereinafter referred to as
the "Company" or "CCI"), is the leading designer and provider of management
information systems and services for the automotive parts aftermarket and the
hardlines and lumber industry. The automotive parts aftermarket consists of the
production, sale and installation of both new and remanufactured parts used in
the maintenance and repair of automobiles and light trucks. The hardlines and
lumber industry consists of the sale of products for residential and commercial
building construction, maintenance and repair, lawn and garden and agribusiness.
The Company's products are designed to improve the operating efficiency and
profitability of suppliers and retailers through enhanced information, control
and inventory management. The Company's products enable users to conduct
computerized identification, location and selection of parts, to manage
inventory and to obtain sales history and point-of-sale information. The system
offerings are enhanced by extensive information services featuring specialized
database products and by customer support and maintenance services. In the
automotive parts aftermarket industry, interconnectivity throughout the
distribution channel is provided by the Company's network of electronically
linked customers, which adds to the efficiency and functionality of the
Company's products and enhances customer profitability.
The Company is the leading provider of industry-specific management information
systems and solutions to every level of the wholesale distribution channel in
the automotive parts aftermarket, which includes manufacturers, warehouse
distributors, parts sales outlets ("PSOs") and service dealers. By servicing all
of these levels, the Company has acquired substantial industry knowledge to
improve and support the information products and services that are made
available to its customers.
COMPANY HISTORY AND OWNERSHIP
As used herein, unless the context otherwise requires, the "Company" represents
the combined businesses of Cooperative Computing, Inc., a Texas corporation
("Old CCI"), and Triad Systems Corporation, a Delaware corporation ("Triad").
Old CCI was founded in 1976 by Glenn E. Staats, Ph.D. Old CCI's original
customer focus was a diverse segment of businesses, including the automotive
parts aftermarket. As the automotive parts aftermarket began to experience
significant growth and moved toward computerization, the Company expanded its
automotive parts customer base and developed a wider range of products and
services.
Triad was founded in 1973 as a provider of business and management information
solutions. Over the years, Triad established a presence in the automotive parts
aftermarket throughout the United States, Canada, Puerto Rico, and the United
Kingdom. Triad also developed a significant presence in the hardlines and lumber
industry throughout the United States and Canada. From 1979 until February 27,
1997, Triad was a publicly held company, with its common stock quoted on the
Nasdaq National Market.
On February 27, 1997, Old CCI joined with Hicks, Muse, Tate & Furst Incorporated
("Hicks Muse") to acquire 100% of the stock of Triad (the "Triad Acquisition").
Prior to the Triad Acquisition, Old CCI maintained a strong relationship with
warehouse distributors and a growing relationship with PSOs and service dealers.
The Triad Acquisition was consummated, in part, to broaden Old CCI's
relationship with PSOs in order to provide a platform to further penetrate the
service dealer market and to establish a presence in the hardlines and lumber
industry. Since the Triad Acquisition, management of the Company has focused on
integrating the strengths of Old CCI and Triad.
On March 1, 1998, the Company acquired certain assets of ADP Claims Solutions
Group, Inc. for total consideration (including the assumption of certain
liabilities) of approximately $9.3 million (the "ARISB Acquisition"). These
assets provide products and services to the automotive recycling industry.
AUTOMOTIVE DIVISION
AUTOMOTIVE PARTS AFTERMARKET INDUSTRY OVERVIEW
The automotive aftermarket industry consists of the sale of automotive parts,
accessories, lubricants, chemicals, tires, and repair services. It is estimated
to generate approximately $217 billion in revenue for 1999 according to the
Automotive Aftermarket Industry Association.
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Distribution Channels. There are three distinct vertical distribution channels
through which auto parts distribution occurs: the traditional wholesale channel,
the retail channel and the new car manufacturer channel. Additionally, within
each of these three channels there are varying levels of distribution. In the
wholesale channel there are generally four primary levels of distribution:
manufacturers, warehouse distributors, PSOs (wholesale PSOs, retailers and new
car dealers) and service dealers. Manufacturers supply automotive parts to
warehouse distributors, which distribute automotive parts to PSOs, which stock
and sell the automobile parts used by service dealers and "do-it-yourself"
purchasers. The retail channel is similarly structured, but with fewer
intermediaries. In the retail channel, parts flow directly from the manufacturer
to the retailer. In turn, the retailer sells directly to the "do-it-yourself"
market, as well as to many service dealers. Parts in the new car manufacturer
channel are distributed directly from the manufacturer to new car dealers, often
through a feeder warehouse. Additionally, new car dealers sell parts to
independent service dealers.
o Wholesale Channel. The wholesale channel is the predominant
distribution channel in the automotive parts aftermarket. Warehouse
distributors sell to service dealers through PSOs. PSOs, which are
smaller than warehouse distributors and positioned geographically near
the service dealers they serve, are utilized due to the time-critical
nature of the repair business and the inability of the service dealer
to stock an extensive part selection.
Historically, the wholesale channel has involved the four distribution
levels described above in a three-step process. However, this channel
has various hybrid distribution methods with the predominant of these
hybrids being the two-step distribution process. The two-step process
consolidates the warehouse distributor and PSO into an operation that
sells directly to service dealers.
Apart from the shift toward a two-step distribution process in recent
years, many warehouse distributors have purchased and continue to
purchase PSOs both from independent owners and from small wholesale
chains. This consolidation improves warehouse distributors' buying
power with manufacturers and, therefore, strengthens their competitive
position in the market. The Automotive Division, as the leading
provider of systems and services to the U.S. and Canadian warehouse
distributor market, has benefited from the industry consolidation as
many warehouse distributors have replaced acquired PSOs' existing
systems with the Automotive Division's systems.
Service dealers consist of independent professional dealer/installers
and specialized shops affiliated with national chains, such as Midas
and Aamco. The service dealer segment has experienced slow
consolidation over the last 10 to 15 years. Throughout the 1970s, full
service stations providing gasoline, automotive accessories and
repairs, and independent repair garages had the largest share of the
service dealer market. During the early 1980s, service stations lost
market share to general repair national chainstores and specialized
shops. However, the Automotive Division believes that since the late
1980s, the market share of service stations and independent garages has
remained relatively stable.
o Retail Channel. The retail channel is highly fragmented. This market
has traditionally consisted of "mom and pop" stores and small regional
chains that sell to "do-it-yourself" customers. Larger specialty
retailers, such as AutoZone, Discount Auto Parts and Pep Boys, carry a
greater number of parts and accessories at more attractive prices than
traditional retail outlets and are gaining market share. The management
information systems used to communicate between levels in this channel
are generally developed internally for the large specialty retailers
and purchased from third parties for the smaller organizations.
o New Car Manufacturer Channel. New car manufacturers distribute parts
through a feeder warehouse to new car dealers. New car dealers purchase
information systems from a variety of third party system providers
including Reynolds and Reynolds Company, Automatic Data Processing,
Inc., Universal Computer Systems, Inc. and several car manufacturers
themselves.
AUTOMOTIVE RECYCLING INDUSTRY OVERVIEW
The automotive recycling industry consists of the sale of used auto parts that
have been reclaimed from wrecked automobiles. Buyers of these parts are auto
body and collision repair shops, service dealers and do-it-yourselfers.
Management estimates there to be approximately 10,000 auto salvage yards in the
United States that engage in recycling activity.
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PRODUCTS AND SERVICES
The Automotive Division's software and systems, together with its database
products, provide comprehensive business solutions targeted to the automotive
parts aftermarket. The Automotive Division provides standard application
programs that include user options allowing the selective structuring of
applications files and reports to meet customers' specific requirements. These
software products also allow the Automotive Division's customers to access the
Automotive Division's proprietary databases. Automotive Division supplied
hardware components include central processing units ("CPUs"), disk drives,
video display terminals, CD-ROM storage devices, point-of-sale terminals,
communication devices, printers and other peripherals. The Automotive Division's
systems also have communication capabilities allowing users to exchange purchase
orders and pricing and inventory information with suppliers and, in some cases,
customers.
AUTOMOTIVE PARTS AFTERMARKET SYSTEMS
The Automotive Division's automotive parts aftermarket products have been
designed to provide interconnectivity to all levels of the wholesale
distribution channel. This electronic network, which management calls the
"Automotive Aftermarket Information Highway," enables the automotive parts
aftermarket industry to efficiently market parts throughout the distribution
channel.
The Automotive Division's principal automotive parts aftermarket industry
products, based on the level of the distribution channel for which such products
are targeted, are as follows:
o Manufacturer. The Automotive Division has one product, the CCI AutoBahn
system, devoted to the needs of manufacturers. The CCI AutoBahn system
is designed to provide connectivity between manufacturers of auto parts
and warehouse distributors and enables warehouse distributors and
manufacturers to place and confirm orders electronically.
o Warehouse Distributor. The Automotive Division has five products
available to meet the needs of warehouse distributors. One of these
products, the A-DIS system, provides applications for the management of
large warehouse distributors, handling complex inventory management
issues, parts purchasing, product pricing, parts returns management,
sales history and complete financial management services. The A-DIS
product is fully connected to the CCI AutoBahn product, as well as to
the J-CON product, a PSO product, and to the ServiceExpert EZ product
for service dealers. In addition, the Series 11, 12, 14, CCI/Triad
Prism and Eclipse products have connectivity and limited integration
with A-DIS. A second product, CCI/Triad Ultimate, is designed and
targeted at regional and local warehouse distributors or at national
distributors that primarily service stores in a compact geographic area
that are looking to manage multiple locations and inventories on a
single system. For independent warehouse distributors that have
specialty products and services, the Automotive Division's third
product, Eclipse, offers the additional flexibility needed for these
customers. A fourth product is The Paperless Warehouse product which is
fully integrated to the A-DIS and CCI/Triad Ultimate products. This
product incorporates radio frequency wireless networking, barcode
scanning and handheld computing technology to improve the efficiency of
the receive, pick and ship functions of the warehouse. The last product
in this category is the PARTINSIGHT. The product can be connected to
all the Auto Division's warehouse and PSO applications as well as third
party applications. It provides a data hub capability to allow large
buying groups to have information on a virtual entity basis. In
addition to the active products the Automotive Division maintains the
DIS product which is no longer sold.
o Parts Sales Outlet. The Automotive Division currently markets four
products to PSOs: J-CON, Eclipse, CCI/Triad Prism and LaserCat 2000.
These products all operate on platforms that are assembled and
integrated by the Automotive Division. The J-CON product was developed
for the management of PSOs that are members of a national account
program, trade principally with a single warehouse and are connected to
that warehouse by an A-DIS system. The J-CON product also allows the
PSO to connect with service dealers through the ServiceExpert EZ
product. Much like A-DIS, the J-CON product serves as an inventory
management and electronic purchasing tool. The Eclipse product tracks
inventory, performs accounting functions and executes point-of-sale
operations such as invoicing and billing. The CCI/Triad Prism product,
the newest generation of PSO applications, is designed to meet the
needs of both national and independent PSOs as well as PSOs in a
two-step distribution process. The LaserCat 2000 product is a stand
alone CPU used by the PSO to access and use the Automotive Division's
various information services products. In addition to its active
product lines, the Automotive Division maintains and supports five
products that it no longer sells, the Series 11, Series 12 and Series
14, loadSTAR and LaserCat products, which account for a significant
portion of the Automotive Division's installed base of customers.
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o Service Dealer. The Automotive Division has two groups of products that
it markets to service dealers, ServiceExpert EZ and PACE, which are
focused to specific segments of the service dealer market. The
ServiceExpert EZ family of products offer a range of shop management
solutions which blends the Automotive Division's databases, software
applications, detailed labor estimates and recommended vehicle service
intervals with the latest in workstation technology, incorporating
easy-to-use pull-down windows. The ServiceExpert EZ products can create
printed repair estimates, automated work orders and maintain individual
vehicle records and histories, enabling users to notify customers of
required preventive maintenance and create other special promotions
tailored to the service dealers' individual customer base.
ServiceExpert EZ can be connected to the Automotive Division's PSO and
warehouse distributor products to allow parts inquiry and ordering
functions in the service dealer's parts supplier network. The
ServiceExpert EZ products can be configured from a simple estimator
product to a full shop management system that can be expanded to
include inventory management. The PACE product is specifically tailored
to the Canadian service dealer market and is exclusively marketed in
Canada. In addition to its active product lines, the Automotive
Division maintains the Triad ServiceWriter product, which accounts for
a significant portion of the installed base of service dealer
customers.
AUTOMOTIVE RECYCLING SYSTEMS
The Automotive Division's automotive recycling products provide yard management
and parts locator functionality that fits the needs of the smallest to the
largest automotive recycling yards as follows:
o Checkmate. The Checkmate system is a complete yard management system
that provides inventory control, point of sales and back office
accounting functions. This system is delivered with the industry
standard Hollander Interchange, which the Automotive Division licenses
from Automated Data Systems ("ADP"). The Checkmate system also
integrates the Orion satellite based parts locator system.
o Orion. The Orion system is sold either as a stand-alone terminal or is
integrated with the Checkmate yard management system. The Orion system
uses a publicly accessible Kband satellite to communicate with regional
and national yards that are also on the system to locate parts not in
their local inventory. Nightly, yards that are on the network are
polled for their yard's inventory by the Automotive Division's central
server creating a central database of parts that is available each day
for part sourcing by the network members.
o Compass. The Compass product is an open line "spoke and hub" telephone
system that yards within the same geographic area can join. This phone
network is used by yards to source recycled parts to meet customer
demands from other than their own yard inventory. The Automotive
Division provides monitoring and settlement services to each of the
Compass networks.
CUSTOMER SUPPORT SERVICES
The Automotive Division's customer support services organization provides
service, training and support to its customers. The Automotive Division's system
owners are principally small business proprietors without the internal staffing
or expertise to train users or to maintain computer systems on a consistent
basis. These customers generally require a high level of service, training and
support.
The Automotive Division typically provides a limited warranty on its systems
ranging from 30 to 90 days. The Automotive Division also sells a variety of
post-sale support programs through its system support agreements, including
on-site preventive and remedial maintenance, hardware engineering modifications,
depot repair services and daily system operating support by phone. The
Automotive Division's customers can call the Automotive Division's AdviceLine
service, which gives them access to trained personnel able to perform on-line
diagnostics or to field engineers if on-site service is necessary. Virtually all
new system customers enter into system support agreements, and most retain such
service agreements as long as they own the system. Monthly fees vary with the
system size and configuration. The agreements are generally one year in length
with 30 to 90 day cancellation notice periods.
The Automotive Division offers training for new and existing customers at the
facilities of both the Automotive Division and its customers. In addition to
training in system operations and software enhancements, the Automotive Division
offers seminars and workshops to assist customers in understanding the
capabilities of their systems.
For many of the Automotive Division's large automotive warehouse distributor
customers, the Automotive Division provides information facilities management
services. Many of these are facilitated through a limited partnership
arrangement. Through these
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arrangements the Automotive Division provides customers with on-site managers
and employees experienced in warehouse and store applications to operate the
customers' computer facilities.
INFORMATION SERVICES
The Company licenses its proprietary databases to its customers in return for a
license fee and monthly subscription fees entitling customers to periodic
updates. These database products generate recurring revenues through monthly
subscription fees and differentiate the Company's products from those of its
competitors. The Company currently offers databases to its automotive parts
aftermarket industry customers, retailers, national repair chains, and to eStore
customers as well as predictive parts sales analysis and recommended stock
levels by individual store.
o Electronic Catalog. The Company's electronic catalog products provide
access to a database of over 17 million automobile part applications
for 2,800 automotive product lines. These products virtually eliminate
the time consuming and cumbersome use of printed catalogs and are
designed to increase productivity and accuracy in parts selection and
handling. Proprietary software on the warehouse distributor, PSO and
service dealer systems enables the user to access the electronic
catalog database. Customers use the catalog feature within their
warehouse distributor, PSO or service dealer system to identify parts
associated with a specific vehicle. The Company charges a monthly
subscription fee for its electronic catalog database and provides
customers with periodic updates. At September 30, 1999, approximately
10,000 customer locations had licensed one of the Company's electronic
catalogs including customers with installed systems, value added
re-sellers and national retail customers.
o ePartExpert. The Company's electronic catalog database is available in
a format design for Internet use. Named ePartExpert, the database and
access software have been modified to enable consumers to look-up
automotive product applications for themselves, view diagrams and
select the parts for their vehicle.
o Interchange. The Interchange database allows the cross reference of
original equipment manufacturers part numbers to aftermarket
manufacturers part numbers and from one aftermarket supplier to another
for the same part. This product, which is sold on a monthly
subscription basis, enables the warehouse distributor, PSO or service
dealer to identify a suitable replacement part when only the part
number of the old part is known. Interchange replaces a cumbersome
paper-based process that can involve many different catalogs to
identify the correct part. Customers are provided updates to the
Interchange product monthly.
o Telepricing. The Telepricing service provides electronic price updates
directly to the warehouse distributor, PSO or service dealer system for
automotive parts following a manufacturer's price change, eliminating a
customer's need to input this data manually. Telepricing service
customers pay an initial license fee and a monthly subscription fee for
this updating service. Customers are provided updates to the
Telepricing service daily and weekly.
o LaborGuide Database. The Company has licensed from Mitchell the
LaborGuide database, which provides authorized guidance of labor hours
for car repairs. This database, which can be integrated with the
Company's PSO systems and the ServiceExpert EZ family of products, is
targeted to the approximately 340,000 service dealers in the United
States. LaborGuide permits users to comply more easily with regulations
in many states that require written estimates of repair costs. The
repair functions within the LaborGuide product have been mapped to the
appropriate parts in the electronic parts catalog database, providing
for a seamless, efficient process of gathering of parts and labor
information by the service dealer in preparing a repair estimate.
Customers are provided updates to the LaborGuide database monthly.
o RepairSource. The Company has a license for the integration and
distribution of Mitchell's "Mitchell on Demand" electronic automobile
repair information product. The Company has integrated this product
into its ServiceExpert EZ system and markets it under the name
RepairSource. The RepairSource electronic database includes original
equipment manufacturers' technical service bulletins, repair
information and wiring diagrams specific to each automobile model. This
information, coupled with the Company's parts and labor databases,
enables a service dealer to easily and quickly prepare a service
estimate and associated technical repair instructions for each job.
Customers are provided updates to the RepairSource database monthly.
o MarketPACE. Inventory is the most costly asset for automotive parts
distributors. The typical parts store can only afford to stock one of
every five parts offered by their primary suppliers. Deciding which
parts to stock to meet local market needs is a critical job. The
Company's MarketPACE service provides all the information needed to
pick an optimal assortment of parts to stock in any location in the
U.S. Using vehicle registration data licensed from Polk, plus part
replacement data base derived from sales activity in the customer base,
MarketPACE forecasts local demand for every part in a product line.
Stores can
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increase sales and inventory turns by stocking the parts with the best
forecasts. The MarketPACE process and products are protected by patents
owned by the Company.
SALES AND MARKETING
The Automotive Division markets its products to the automotive parts aftermarket
through a geographically-based direct sales force and a telesales/telemarketing
organization with approximately 135 employees. Incentive pay is a significant
portion of the total compensation package for all sales representatives and
sales managers. Additionally, the Automotive Division leverages its
relationships with large warehouse distributors through its National Account
Program, in which these accounts resell PSO systems to either company owned
stores or to other customers that are closely associated to the warehouse
distributor.
HARDLINES AND LUMBER DIVISION
INDUSTRY OVERVIEW
The hardlines and lumber industry consists of the sale of products for
residential and commercial building construction, maintenance and repair, lawn
and garden, and agribusiness. This industry is comprised primarily of hardware
retailers, home centers, lumber and building materials suppliers and
manufacturers, agribusiness retailers, lawn and garden retailers and paint
retailers. This market is segmented primarily into three groups:
o Top 10 Market. The ten largest retailers in the hardlines and lumber
industry (the "Top 10") represent over 2,600 stores and accounted for
approximately 40% of the annual industry sales volume. The Top 10
include mass merchandisers such as Home Depot, Lowe's and Sears. As a
result of their size, it is cost effective for the Top 10 to develop
and update their own systems, and, therefore, the Top 10 do not
purchase systems from the Hardlines and Lumber Division. The Hardlines
and Lumber Division believes that the Top 10 generally have driven the
need to reduce costs and pursue consolidation strategies throughout the
industry. The Top 10 have been able to reduce costs and improve
merchandising efficiency through economies of scale and the
implementation of automated retail systems. In order to remain
competitive, companies outside the Top 10 need to match the
merchandising efficiencies of the Top 10 and increase productivity.
o Top 10-500 Market. The 500 largest retailers in the hardlines and
lumber industry, excluding the Top 10, are estimated to account for
approximately 20% of the industry's annual sales volume. There are
approximately 4,200 stores in this market, of which a majority are
lumber and home center businesses. This market is fragmented and has
experienced consolidation as firms try to compete with the Top 10. In
addition, this market has been a significant source of revenues as
firms upgrade existing systems and shift from in-house systems to
turnkey systems produced by the Hardlines and Lumber Division. The
Hardlines and Lumber Division believes that retailers will continue to
upgrade systems as the industry continues to respond to competition and
innovation by the Top 10.
o Top 500+ Market. The hardlines and lumber retailers which do not rank
in the Top 500 (the "Top 500+") are typically smaller, independent
stores with a niche focus. Management believes that there are
approximately 34,000 stores in this market, which accounted for nearly
40% of the industry annual sales volume. This market is fragmented and
has experienced limited consolidation. The Hardlines and Lumber
Division believes the majority of this market is affiliated with
cooperatives, which encourage their members to install computerized
point-of-sale and store management systems to more effectively compete
with the rest of the industry. The Hardlines and Lumber Division
believes the larger stores in this segment will continue to represent a
large portion of the Hardlines and Lumber Division's revenue base as
firms computerize in order to protect their niche market positions.
Drivers of Computerization. Computerization within the hardlines and lumber
industry has been predominantly driven by the Top 10 which have expanded their
business throughout the United States by providing products and services by
using a mass merchandising format. As a result of this strategy, hardlines and
lumber consumers have been able to purchase products and services cheaper from
the Top 10 than was traditionally available. This has driven the Top 500 and the
Top 500+ to computerize in order to reduce costs and improve service to maintain
their market positions.
PRODUCTS AND SERVICES
The Hardlines and Lumber Division's software and systems, together with its full
range of services, provide comprehensive business solutions targeted to the
market. The Hardlines and Lumber Division provides standard application programs
that includes user options
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<PAGE> 9
allowing the selective structuring of applications files and reports to meet
customers' specific requirements. In addition, the Hardlines and Lumber Division
provides unit sales database services to manufacturers.
PRINCIPAL PRODUCTS
The Hardlines and Lumber Division's hardlines and lumber systems automate
inventory control, point-of-sale functions (such as invoicing and billing),
payroll, accounting and purchase orders. The Hardlines and Lumber Division's
principal industry products are as follows:
o Triad Eagle. The Triad Eagle system blends the power and flexibility of
the Hardlines and Lumber Division's management information systems with
applications and features created to meet the unique needs of hardware
stores and lumber and building materials operations. It manages the
flow of a typical transaction, including estimating, ordering,
inventory management, shipping, invoicing and tracking accounts
receivable.
o Triad CSD. The Triad CSD series of systems is designed for mid- to
large-sized hardlines and lumber dealers due to its greater power and
functionality. Triad CSD products allow for product offerings suitable
for hardlines and building materials chains with up to 20 stores and
$150 million in annual sales.
o Triad Falcon. The Triad Falcon system is the Hardlines and Lumber
Division's next generation product targeted at large multi-location
lumber and building material and home center retailers. Triad Falcon
provides flexibility in tailoring the system to meet the needs required
of individuals, groups, departments and single or multiple store
locations.
o Triad Gemini. The Triad Gemini system is designed for large hardlines
and lumber dealers. Triad Gemini customers represent some of the
largest companies in the hardlines and lumber industry. Gemini's
largest customer has over 160 locations with revenue exceeding $1
billion.
o True Start. The True Start product incorporates the TruServ database
product. It is designed as a stand-alone unit but may also be
integrated as part of a hardlines system for TruServ members.
CUSTOMER SUPPORT SERVICES
The Hardlines and Lumber Division's customer support services organization
provides service, training and support to the Hardlines and Lumber Division's
customers. The Hardlines and Lumber Division's system owners are principally
small and medium business proprietors without complete internal staffing or
expertise to train users or to maintain computer systems on a consistent basis.
These customers require a high level of service, training and support.
The Hardlines and Lumber Division typically provides a limited warranty on its
systems ranging from 30 to 90 days. The Hardlines and Lumber Division also sells
a variety of post-sale support programs through its system support agreements,
including on-site preventive and remedial maintenance, depot repair services and
daily system operating support by phone. The Hardlines and Lumber Division's
customers can call the Hardlines and Lumber Division's AdviceLine service which
gives them access to trained personnel able to perform on-line diagnostics or to
field engineers if on-site service is necessary. Virtually all new system
customers enter into system support agreements, and most retain such service
agreements as long as they own the system. Monthly fees vary with the system
size and configuration.
The Hardlines and Lumber Division offers training for new and existing customers
at the facilities of both the Hardlines and Lumber Division and its customers.
In addition to training in system operations and software enhancements, the
Hardlines and Lumber Division offers seminars and workshops to assist customers
in understanding the capabilities of their systems.
INFORMATION SERVICES
The Hardlines and Lumber Division markets database services to manufacturers
with a product called VISTA. VISTA information services provide product
manufacturers with ongoing measurement of brand and item movement with major
product classifications using point-of-sale business analysis data from
independent hardware stores, home centers and lumber and building materials
outlets. Information provided by VISTA services give manufacturers insight into
how a specific product or brand performs against its competitors and the market
in general.
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<PAGE> 10
SALES AND MARKETING
The Hardlines and Lumber Division markets its products and services to the
hardlines and lumber industry through a geographically-based direct and
telesales/telemarketing sales force of approximately 75 employees. Incentive pay
is a significant portion of the total compensation package for all sales
personnel.
The Hardlines and Lumber Division's marketing approach in the hardlines and
lumber industry has been to develop close relationships with key market
influencers. This strategy includes obtaining endorsements and developing
exclusive relationships, distributor partnerships and other alliances.
Currently, the Hardlines and Lumber Division enjoys over 20 such relationships
in the industry. The goal of this relationship program is to enhance the
productivity of the field sales team and create leveraged selling opportunities
for system sales, information services and support revenues.
In 1997, the Hardlines and Lumber Division entered into a seven year alliance
with TruServ that gives the Hardlines and Lumber Division an endorsement and
computerization responsibility for many of TruServ's then approximately 5,500
TruServ store locations. In October 1999, TruServ announced to its 10,500 store
locations that it had selected CCI to develop its next generation in-store
retail computer system. This system will be based on a Windows version of the
Triad Eagle System and will be available in mid-2000. Management believes that
this approach will accelerate computerization of noncomputerized stores while
converting and upgrading previously computerized stores to the new Triad Eagle
system. Ace Hardware and Do It Best Corporation also work closely with the
Hardlines and Lumber Division through a small team of national account managers.
CORPORATE SERVICES
CUSTOMER FINANCING
The Company believes that its ability to offer lease financing to its customers
shortens the sales cycle by eliminating the need for third party financing and
provides a competitive advantage in marketing and promoting the Company's
products. The Company offers such financing through its wholly owned subsidiary,
Triad Systems Financial Corporation ("Triad Financial"). These financing leases
are noncancelable with terms from one to six years. At September 30, 1999, Triad
Financial had a portfolio of outstanding leases to over 10,200 customers with a
balance of approximately $134.0 million.
Historically, the Company has sold lease receivables via lending agreements with
banks and other financial institutions. At the time of sale, the Company records
the newly-created servicing liabilities (lease servicing obligation and recourse
obligation) at their estimated fair value. Gains resulting from the sale of
lease receivables are reflected in finance revenue.
The financing agreements contain restrictive covenants, which allow the Company
to sell only while in compliance with covenants contained in the agreements. In
the event of non-compliance, the banks and lending institutions could assume
administrative control (servicing) of the lease portfolio and could discontinue
future transactions under the discounting programs. During the year ended
September 30, 1999, the Company was in compliance with such covenants, and
management believes that it will be able to maintain compliance with such
covenants in the foreseeable future.
Pursuant to the discounting agreements, the Company is contingently liable for
losses in the event of lessee nonpayment up to stated recourse limits (up to 10%
of the aggregate initial proceeds adjusted for certain expenses and payments
remitted on the leases) and full recourse on lease receivables discounted that
do not meet certain requirements established by the bank or lending
institutions. At September 30, 1999, the Company had $4.7 million of lease
receivables discounted that are subject to full recourse.
At September 30, 1999, the contingent liability for leases sold was
approximately $30.7 million. The Company provides for the fair value of the
recourse obligation based upon an analysis that considers among other things,
the creditworthiness of the lease receivable, the recourse provision the lease
receivable is subject to and the Company's historical experience, which includes
loss recoveries through resale of repossessed systems.
SYSTEM INTEGRATION AND ASSEMBLY
The Company does not manufacture the hardware components of its systems, but the
Company does assemble and integrate its products with hardware components and
software products of third party vendors. As of September 30, 1999, the Company
employed approximately 90 employees in its system integration operation.
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<PAGE> 11
The Company utilizes a just-in-time inventory system to help ensure that
efficient cost controls are in place. The commodity nature of the component
business ensures a consistent supply of required components. In addition to the
external customer base, the Company's manufacturing facility also produces
engineering workstations and personal computers for internal use.
SOFTWARE DEVELOPMENT AND TECHNOLOGY
The Company has approximately 200 copyrights and approximately 100 registered
trademarks. The Company attempts to protect its proprietary information in a
number of ways. First, the Company distributes its software through licensing
agreements, which require licensees to acknowledge the Company's ownership of
the software and the confidential nature of the Company's proprietary
information. Secondly, all Company personnel are required to assign all rights
of such personnel to inventions, patents and confidential information to the
Company and to agree to keep confidential and not disclose to third parties the
Company's proprietary information. Finally, the Company requires that all other
third parties producing or receiving proprietary information of the Company
execute an assignment, confidentiality and non-disclosure agreement.
CUSTOMERS AND SUPPLIERS
No single customer accounted for more than 10% of the Company's total sales in
fiscal 1999. The Company has a significant number of suppliers predominantly
associated with its assembly operations. The Company does not obtain more than
10% of its components from a single supplier.
EMPLOYEES
As of September 30, 1999, the Company had approximately 1,900 employees, none of
which were represented by unions. The Company has not experienced any labor
problems resulting in a work stoppage and believes it has good relations with
its employees.
ITEM 2. PROPERTIES.
Other than its Newton, New Jersey facility, the Company does not own any real
property. The Company's properties include assembly, software development and
data entry facilities and administrative, executive and sales offices. The
Company's principal executive offices are located at 6207 Bee Cave Road, Austin,
Texas. The Company considers its properties to be modern and well maintained and
suitable for their present and intended purposes and adequate for the Company's
current level of operations.
Listed below are the principal properties operated by the Company as of December
29, 1999.
<TABLE>
<CAPTION>
APPROX.
SIZE LEASE
LOCATION (SQ. FT.) DESCRIPTION OF USE TERMINATION
-------- --------- ------------------ -----------
<S> <C> <C> <C>
Owned:
Newton, New Jersey........... 28,000 Administrative; software development NA
Leased:
Livermore, California........ 220,000 Divisional executive offices; software 2002
development; data entry; sales; administrative
Austin, Texas................ 57,000 Divisional executive offices; software 2006
development; data entry; sales; administrative
Austin, Texas................ 49,000 Systems integration and assembly 2002
Austin, Texas................ 36,000 Principal executive offices; software development 2002
Denver, Colorado............. 25,000 Administrative; software development 2005
Longford, Ireland............ 21,000 Data entry 2027
Florence, Alabama............ 18,000 Administrative; sales; customer support 2001
Austin, Texas................ 18,000 Data entry 2000
Plymouth, Minnesota.......... 13,000 Administrative; sales and customer support 2000
Toronto, Canada.............. 8,600 Sales 2002
</TABLE>
In addition, the Company has short-term leases on over 100 offices and field
service locations in the United States, Canada, the United Kingdom, France and
Puerto Rico.
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<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various legal proceedings and administrative actions,
all of which are of an ordinary or routine nature incidental to the operation of
the Company. In the opinion of the Company's management, such proceedings and
actions should not, individually or in the aggregate, have a material adverse
effect on the Company's results of operations, financial condition or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the Company's securityholders in the
Company's fourth fiscal quarter in 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for any class of the Company's
common equity. All of the Company's common stock is held by Cooperative
Computing Holding Company, Inc., a Delaware corporation ("Holding"). Neither the
Company nor Holding paid any dividends in fiscal 1999, nor do they anticipate
paying any dividends in the foreseeable future. The Company's ability to pay
such dividends is limited by the terms of the Company's Restated Senior Credit
Facilities (as herein defined). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data of the Company for the
years ended November 30, 1995 and 1996, the ten-month period ended September 30,
1997, and the years ended September 30, 1998 and 1999. The balance sheet data as
of September 30, 1998 and 1999, and the statement of operations data for the
ten-month period ended September 30, 1997, and the years ended September 30,
1998 and 1999 set forth below are derived from the audited consolidated
financial statements of the Company included elsewhere herein. The consolidated
financial statements for the periods ended September 30, 1998 and 1999 include
the accounts of Holding and CCI. Holding has no assets or liabilities other
than (1) its investment in its wholly owned subsidiary CCI and (2) its
Redeemable Convertible Class A Common Stock, the net proceeds of which were
contributed in full to CCI (see Note 13 to audited financial statements);
accordingly, these consolidated financial statements represent the operations of
CCI and its subsidiaries. The balance sheet data as of November 30, 1995 and
1996 and the statement of operations data as of November 30, 1995 and 1996 set
forth below are derived from audited consolidated financial statements of Old
CCI and the Company not included herein. The selected financial data below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the audited consolidated
financial statements of the Company included elsewhere herein.
<TABLE>
<CAPTION>
OLD CCI CCI
-------------------------- ------------------------------------------------
TEN-MONTH PERIOD
YEAR ENDED ENDED YEAR ENDED
NOVEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------- ---------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------------- ---------- ----------
STATEMENT OF OPERATIONS DATA: (Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Revenues ...................................... $ 29,245 $ 36,734 $ 140,316 $ 227,221 $ 241,119
Cost of revenues .............................. 16,733 21,857 84,464 143,516 152,663
---------- ---------- ---------- ---------- ----------
Gross profit .................................. 12,512 14,877 55,852 83,705 88,456
Sales and marketing ........................... 2,061 2,038 28,161 49,196 63,005
Product development ........................... 7,485 8,347 11,890 15,401 14,962
General and administrative .................... 2,675 2,992 19,929 37,643 40,298
Write off of purchased in-process research
and development .............................. -- -- 23,100 -- --
---------- ---------- ---------- ---------- ----------
Total operating expenses ...................... 12,221 13,377 83,080 102,240 118,265
Operating income (loss) ....................... 291 1,500 (27,228) (18,535) (29,809)
Interest expense .............................. -- -- 8,403 15,868 18,512
Other income (expense), net ................... 414 4,231(1) 443 766 175
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary charge ......................... 705 5,731 (35,188) (33,637) (48,146)
Income tax benefit ............................ -- -- 1,001 8,731 11,120
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary charge ..... 705 5,731 (34,187) (24,906) (37,026)
Extraordinary charge, net of taxes ............ -- -- -- 3,017 --
---------- ---------- ---------- ---------- ----------
Net income (loss) ............................. 705 5,731 (34,187) (27,923) (37,026)
========== ========== ========== ========== ==========
Net income (loss) attributable to common stock $ 705 $ 5,731 $ (34,187) $ (27,923) $ (40,046)
========== ========== ========== ========== ==========
UNAUDITED PRO FORMA INFORMATION:(2)
Historical income (loss) before provision
for income taxes ............................. $ 705 $ 5,731 $ (35,188)
Pro forma income tax (provision) benefit ...... (157) (1,931) 2,392
---------- ---------- ----------
Pro forma net income (loss) ................... $ 548 $ 3,800 $ (32,796)
========== ========== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ..................... $ 1,415 $ 4,004 $ 1,633 $ 1,159 $ --
Working capital (deficit) ..................... (2,231) (3,490) 603 6,101 12,146
Total assets .................................. 16,115 18,763 307,940 300,849 286,803
Total debt, including current maturities ...... 5,089(3) 5,089(3) 144,967(4) 183,318(4) 181,848(4)
Stockholders' equity (deficit)................. 5,273 5,227 53,699 25,363 (14,494)
</TABLE>
- ---------------------------
(1) Included in other income, net, are net gains of $3.4 million related to
settlement of two breach of contract lawsuits recognized by Old CCI.
(2) Concurrent with the Triad Acquisition, Old CCI terminated its S
Corporation status. The unaudited pro forma (provision) benefit for
income taxes computes the tax as if Old CCI and CCI had been subject to
corporate income tax for the entire period.
(3) Consists of advances from stockholders repaid during fiscal 1997.
(4) Total debt does not include any amounts relating to lease receivables
that have been sold by the Company.
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<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the audited historical
consolidated financial statements and notes thereto, which are included
elsewhere herein.
On February 27, 1997, the Company consummated the Triad Acquisition. The Triad
Acquisition has been accounted for as a purchase and, accordingly, the results
of operations of Triad are included in the consolidated financial statements
from the date of the Triad Acquisition. In accounting for the Triad Acquisition,
certain intangible assets were assigned values greater than historic book
values, and the amortization of these assets impact the financial statements
since the date of the Triad Acquisition.
On February 10, 1998, the Company refinanced approximately $149.7 million of
indebtedness, primarily incurred in connection with the Triad Acquisition,
through the issuance of $100.0 million of 9% Senior Subordinated Notes (the
"Notes") due 2008 and the restructuring of an existing $170.0 million Senior
Credit Facility into a $50.0 million term loan facility and a $50.0 million
revolving credit facility ("Restated Senior Credit Facilities").
On March 1, 1998, the Company consummated the ARISB Acquisition for
approximately $9.3 million in total consideration (including the assumption of
certain liabilities). This acquisition was funded through the Restated Senior
Credit Facilities, and the results of operations from the ARISB Acquisition,
which are immaterial, are included in the consolidated financial statements from
the date of the acquisition.
As a result of the significant impact on operations of the Triad Acquisition,
the debt restructuring on February 10, 1998, the ARISB Acquisition, and the
Company changing its fiscal year end from November 30 to September 30 in 1997,
resulting in a ten-month fiscal year for 1997, the results of operations for
fiscal 1997 and fiscal 1998 are not directly comparable to corresponding future
and prior periods.
On October 1, 1998, the Company adopted SOP 97-2 (see Note 1 of Notes to
Consolidated Financial Statements) which resulted in the deferral of $4.8
million in revenues and $3.4 million in cost of revenues, reducing gross profit
by $1.4 million.
GENERAL
The Company is the leading designer and provider of management information
systems and services for the automotive parts aftermarket and the hardlines and
lumber industry. The automotive parts aftermarket industry consists of the
production, sale and installation of both new and remanufactured parts used in
the maintenance and repair of automobiles and light trucks. The hardlines and
lumber industry consists of the sale of products for residential and commercial
building construction, maintenance and repair and agribusiness. The Company's
system offerings are enhanced by extensive information services featuring highly
specialized database products and customer support and maintenance services.
These products and services are designed to significantly improve the
profitability of the Company's customers and, in turn, provide the Company with
a stable customer base as well as a receptive market for new products. The
revenues associated with customer support and information services are of a
recurring nature and represented approximately 62% of total revenues in fiscal
1999. The Company's total revenues for the year ended September 30, 1999 were
$241.1 million.
HISTORICAL RESULTS OF OPERATIONS
Year Ended September 30, 1999 Compared to Year Ended September 30, 1998
Revenues for the year ended September 30, 1999 were $241.1 million compared to
$227.2 million for the year ended September 30, 1998, an increase of $13.9
million, or 6%. For the year ended September 30, 1999, revenues for the
automotive division increased $11.1 million, or 8%, to $150.0 million as
compared to the year ended September 30, 1998. For the year ended September 30,
1999, revenues for the hardlines and lumber division increased $2.8 million, or
3%, to $91.1 million as compared to the year ended September 30, 1998. The
adoption of SOP 97-2 in October 1998 resulted in the deferral of $4.8 million in
revenues for the year ended September 30, 1999, $3.4 million and $1.4 million
from the automotive division and hardlines and lumber division, respectively.
Systems revenues for the year ended September 30, 1999 were $87.4 million
compared to $79.9 million for the year ended September 30, 1998, an increase of
$7.5 million, or 9%. Systems revenues for the automotive division for the year
ended September 30, 1999 increased $7.6 million to $49.7 million as compared to
the year ended September 30, 1998. This increase was primarily due to increases
in sales of systems to parts sales outlets as the result of continued industry
consolidation and to the service dealer market.
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<PAGE> 15
Systems revenues for the hardlines and lumber division for the year ended
September 30, 1999 decreased $0.1 million to $37.7 million as compared to the
year ended September 30, 1998. The decrease was primarily attributable to the
Company's decision to focus more efforts on lower volume but higher margin
systems sales.
Customer support and information services revenues were $149.0 million for the
year ended September 30, 1999 compared to $140.0 million for the year ended
September 30, 1998, an increase of $9.0 million, or 6%. Customer support and
information services revenues for the automotive division for the year ended
September 30, 1999 increased $5.1 million to $98.0 million as compared to the
year ended September 30, 1998. This increase is due to the results of operations
from the ARISB Acquisition being included for a full year and increases in
information services revenues, offset by a decline in customer support services
revenues. Customer support and information services revenues for the hardlines
and lumber division for the year ended September 30, 1999 increased $3.9 million
to $51.0 million as compared to the year ended September 30, 1998. This increase
in revenues is due to growth in the installed base of customers paying customer
support fees and the sale of point-of-sale information and data warehouse
products.
Revenues from financing activities for the year ended September 30, 1999 were
$4.7 million compared to $7.3 million for the year ended September 30, 1998, a
decrease of $2.6 million, or 36%. Revenues from financing activities for the
automotive division for the year ended September 30, 1999 declined $1.6 million
to $2.3 million as compared to the year ended September 30, 1998. Revenues from
financing activities for the hardlines and lumber division for the year ended
September 30, 1999 declined $1.0 million to $2.4 million as compared to the year
ended September 30, 1998. The decrease in finance revenues is primarily due to a
decline in the discounting gain realized when the leases are sold, a reduction
in leases originated due to lower capture rates and a reduction in the amount
of leases discounted.
Cost of revenues were $152.7 million for the year ended September 30, 1999
compared to $143.5 million for the year ended September 30, 1998, an increase of
$9.2 million, or 6%. For the year ended September 30, 1999, cost of revenues for
the automotive division increased $7.3 million or 9%, to $92.3 million as
compared to the year ended September 30, 1998. For the year ended September 30,
1999, cost of revenues for the hardlines and lumber division increased $1.9
million, or 3%, to $60.3 million as compared to the year ended September 30,
1998. The adoption of SOP 97-2 in October, 1998 resulted in the deferral of $3.4
million in cost of revenues for the year ended September 30, 1999, $2.1 million
and $1.3 million from the automotive division and the hardlines and lumber
division, respectively.
Cost of systems revenues were $58.7 million for the year ended September 30,
1999 compared to $54.3 million for the year ended September 30, 1998, an
increase of $4.4 million, or 8%. Cost of systems revenues for the automotive
division for the year ended September 30, 1999 increased $4.4 million to $31.5
million as compared to the year ended September 30, 1998, due to the increase in
systems revenues. Cost of systems revenues as a percentage of revenues for the
automotive division were 63% and 64% for the year ended September 30, 1999 and
1998, respectively. Cost of systems revenues for the hardlines and lumber
division for the year ended September 30, 1999 remained constant at $27.2
million compared to the year ended September 30, 1998. Cost of systems revenues
as a percentage of revenues for the hardlines and lumber division was 72% for
the year ended September 30, 1999 and 1998.
Cost of revenues for services and finance were $94.0 million for the year ended
September 30, 1999 compared to $89.2 million for the year ended September 30,
1998, an increase of $4.8 million, or 5%. Cost of revenues for services and
finance for the automotive division for the year ended September 30, 1999
increased $2.9 million to $60.8 million compared to the year ended September 30,
1998, primarily due to increases in revenues. As a percentage of services and
finance revenues, cost of revenues for services and finance for the automotive
division were 61% and 60% for the year ended September 30, 1999 and 1998,
respectively. Cost of revenues for services and finance for the hardlines and
lumber division for the year ended September 30, 1999 increased $1.9 million to
$33.2 million compared to the year ended September 30, 1998, primarily due to
increases in revenues. As a percentage of services and finance revenues, cost of
revenues for services and finance for the hardlines and lumber division were 62%
and 63% for the year ended September 30, 1999 and 1998, respectively. The
increase in cost of services and finance revenues as a percentage of revenue for
both the automotive and hardlines and lumber divisions primarily was due to the
decline in finance revenues which carry little or not cost of revenues.
13
<PAGE> 16
Sales and marketing expense for the year ended September 30, 1999 increased
$13.8 million to $63.0 million as compared to the year ended September 30, 1999.
The increase in sales and marketing expense is due to additional personnel and
variable marketing expenses associated with the increased revenue and an
approximately $7.5 million increase to reserves, all of which was taken in the
fourth quarter, due to a change in the Company's method of analyzing its
allowance for receivables and investments in leases. Sales and marketing expense
for the automotive division for the year ended September 30, 1999 increased $8.3
million to $34.6 million as compared to the year ended September 30, 1998. As a
percentage of revenue, sales and marketing expense for the automotive division
was 23% and 19% for the year ended September 1999 and 1998, respectively. Sales
and marketing expense for the hardlines and lumber division for the year ended
September 30, 1999 increased $5.5 million to $28.4 million as compared to the
year ended September 30, 1998. As a percentage of revenue, sales and marketing
expense for the hardlines and lumber division was 31% and 26% for the year ended
September 1999 and 1998, respectively.
Product development expenses for the year ended September 30, 1999 decreased
$0.4 million to $15.0 million as compared to the year ended September 30, 1998.
As a percentage of revenue, product development expenses were 6% and 7% for the
year ended September 30, 1999 and 1998, respectively. Product development
expenses for the automotive division for the year ended September 30, 1999
decreased $2.1 million to $10.0 million primarily due to a reduction in
personnel and a $0.6 million increase in the capitalization of software
development expenses as compared to the prior year. As a percentage of revenue,
product development expenses for the automotive division were 7% and 9% for the
year ended September 30, 1999 and 1998, respectively. Product development
expenses for the hardlines and lumber division for the year ended September 30,
1999 increased $0.9 million to $3.8 million primarily due to additional
personnel and a $0.3 million decrease in the capitalization of software
development expenses as compared to the prior year. As a percentage of revenue,
product development expenses for the hardlines and lumber division were 4% and
3% for the year ended September 30, 1999 and 1998, respectively. Corporate
product development expense associated with the development of internet related
products and services was $1.1 million, an increase of $0.7 million over the
prior year.
General and administrative expense for the year ended September 30, 1999 were
$40.3 million compared to $37.6 million, an increase of $2.7 million, or 7%. As
a percentage of revenues, general and administrative expense was 17% for the
years ended September 30, 1999 and 1998. The increase in general and
administrative expenses was primarily due to additional personnel and
professional services to address year 2000 issues with internal systems,
telecommunications expenses, and integration of the various administrative
systems of the Company.
Interest expense for the year ended September 30, 1999 was $18.5 million
compared to $15.9 million, an increase of $2.6 million, or 16%. The increase in
interest expense is due to the increase in debt levels. Other income for the
year ended September 30, 1999 was $0.2 million compared to $0.8 million, a
decrease of $0.6 million compared to the prior year.
The Company recorded an income tax benefit attributable to continuing operations
of $8.7 million and $11.1 million for the year ended September 30, 1998 and
September 30, 1999, respectively. On February 10, 1998, the Company refinanced
its existing debt resulting in an extraordinary charge of $3.0 million, net of a
tax benefit of $2.0 million, due to the write-off of debt issuance costs
associated with the original debt facilities. Such charge and the related tax
benefit is included in the results of operations for the year ended September
30, 1998.
As a result of the above factors, the Company experienced a net loss of $37.0
million for the year ended September 30, 1999, compared to a net loss of $27.9
million for the year ended September 30, 1998, an increase in loss of $9.1
million or 33%.
Year Ended September 30, 1998 Compared to Ten Months Ended September 30, 1997
Revenues for the year ended September 30, 1998 were $227.2 million compared to
$140.3 million for the ten months ended September 30, 1997, an increase of $86.9
million, or 62%. For the year ended September 30, 1998, revenues for the
automotive division increased $49.5 million to $138.9 million as compared to the
ten months ended September 30, 1997. For the year ended September 30, 1998,
revenues for the hardlines and lumber division increased $37.4 million to $88.3
million as compared to the ten months ended September 30, 1997. The majority of
this increase is attributable to the acquisition of Triad, which had total
revenues $66.4 million for the five months prior to the acquisition in 1997. The
ARISB Acquisition accounted for $7.3 million of the increase in the automotive
division. The remaining increase for the automotive and hardlines divisions was
due to increases in recurring customer services and information services
revenues and the effect of the shorter comparison period in 1997.
Systems revenues for the year ended September 30, 1998, increased $24.8 million
or 45% to $79.9 million as compared to the ten months ended September 30, 1997.
Systems revenues for the automotive division for the year ended September 30,
1998 increased $11.2 million to $42.2 million as compared to the ten months
ended September 30, 1997. Systems revenues for the hardlines division for the
year ended September 30, 1998 increased $13.6 million to $37.8 million as
compared to the ten months ended September 30, 1997. The increases in systems
revenues are primarily due to the Triad Acquisition and the effect of the
shorter comparison period in 1997. Triad had systems revenues of $21.1 million
during the five months prior to the acquisition.
Revenues from customer support and information services which are recurring in
nature increased $60.3 million or 76% to $140.0 million for the year ended
September 30, 1998 as compared to the ten months ended September 30, 1997.
Customer support and information services revenues for the automotive division
for the year ended September 30, 1998 increased $37.4 million to $92.9 million
as compared to the ten months ended September 30, 1997. Customer support and
information services revenues for the
14
<PAGE> 17
hardlines division for the year ended September 30, 1998 increased $23.0 million
to $47.1 million as compared to the ten months ended September 30, 1997. The
majority of this increase is due to the acquisition of Triad, which had customer
support services and information services revenues of $43.1 million for the five
months prior to the acquisition in 1997. Additionally, the ARISB Acquisition
accounted for $7.3 million of the increase in the automotive division. The
remaining increase in revenues primarily was due to the shorter comparison
period in 1997 and increases in hardlines customer support services and
information services revenues. The increase in customer support services
revenues was driven by systems sales to new customers, and the increase in
information services revenues was driven by increases in sales of point-of-sale
information within the hardlines industry.
Revenues from financing activities increased $1.7 million to $7.3 million for
the year ended September 30, 1998 as compared to the ten months ended September
30, 1997. Finance revenues for the automotive division for the year ended
September 30, 1998 increased $0.9 million to $3.9 million as compared to the ten
months ended September 30, 1997. Finance revenues for the hardlines division for
the year ended September 30, 1998 increased $0.9 million to $3.4 million as
compared to the ten months ended September 30, 1997. This increase is primarily
a result of the financing activities acquired in the Triad Acquisition being
included for the entire twelve month period ending September 30, 1998 versus
seven months in the previous year.
Cost of revenues were $143.5 million for the year ended September 30, 1998
compared to $84.5 million for the ten months ended September 30, 1997, an
increase of $59.0 million, or 70%. Cost of revenues for the automotive division
for the year ended September 30, 1998 increased $31.9 million to $85.1 million
as compared to the ten months ended September 30, 1997. Cost of revenues for the
hardlines division for the year ended September 30, 1998 increased $27.1 million
to $58.5 million as compared to the ten months ended September 30, 1997. The
majority of the increase was due to the acquisitions of Triad and ARISB, the
shorter comparison period for 1997, and increased revenues. Triad had cost of
revenues of $38.3 million for the five months prior to the acquisition in 1997.
Additionally, the additional five months of amortization of intangible assets
acquired in the Triad Acquisition and revalued through purchase accounting
increased cost of revenues by $6.3 million for the year ended September 30,
1998. The ARISB Acquisition accounted for $5.4 million of the increase in cost
of revenues for the automotive division.
Cost of systems revenues for the year ended September 30, 1998 increased $19.1
million to $54.3 million as compared to the ten months ended September 30, 1997.
Cost of systems revenues for the automotive division for the year ended
September 30, 1998 increased $7.8 million to $27.2 million as compared to the
ten months ended September 30, 1997. Cost of systems revenues for the hardlines
division for the year ended September 30, 1998 increased $11.3 million to $27.1
million as compared to the ten months ended September 30, 1997. The majority of
the increase was due to the Triad Acquisition and associated purchase accounting
and the shorter comparison period for 1997. Triad had cost of systems revenues
of $12.0 million during the five months prior to the acquisition, and the
additional five months of amortization of developed software acquired in the
Triad Acquisition and revalued through purchase accounting increased costs by
$5.1 million for the year ended September 30, 1998.
Cost of revenues for services and finance for the year ended September 30, 1998
increased $39.9 million to $89.2 million as compared to the ten months ended
September 30, 1997. Cost of revenues for services and finance for the automotive
division for the year ended September 30, 1998 increased $24.1 million to $57.9
million as compared to the ten months ended September 30, 1997. Cost of revenues
for services and finance for the hardlines division for the year ended September
30, 1998 increased $15.8 million to $31.3 million as compared to the ten months
ended September 30, 1997. The acquisitions of Triad and ARISB and the shorter
comparison period for 1997 accounted for the majority of the increase. Triad had
cost of revenues for services and finance of $26.4 million for the five months
prior to the acquisition in 1997. The additional five months of amortization of
intangible assets acquired during the Triad Acquisition and revalued through
purchase accounting entries increased costs by $1.2 million for the year ended
September 30, 1998. The ARISB Acquisition also increased cost of services
revenues by $5.4 million.
Cost of revenues for customer services and information services have increased
due to increased revenues, driven by the shorter comparison period in 1997 and
growth in the installed customer base, primarily within the hardlines industry.
As a percentage of revenues, cost of revenues for customer services has
increased as the Company has invested in additional headcount in the customer
services area in order to improve customer response times. Additionally, growth
in revenues from customer training and education services, which carry a lower
gross margin, have contributed to this increase as well.
Operating expenses for the year ended September 30, 1998 were $102.2 million, an
increase of $19.2 million over the ten months ended September 30, 1997. This
increase primarily is related to the Triad Acquisition. Triad had operating
expenses of $27.7 million for the five months prior to acquisition, and the
additional five months of amortization of intangible assets acquired and
revalued in the Triad Acquisition increased operating expenses by $5.9 million.
The operating expenses for the ten months ended September 30, 1998 include $23.1
million write-off of purchased in-process research and development acquired
during the Triad Acquisition. Product
15
<PAGE> 18
development expense associated with the creation of internet related products
and services was $0.4 million for the year ended September 30, 1998.
Sales and marketing expenses for the year ended September 30, 1998 increased
$21.0 million to $49.2 million as compared to the ten months ended September 30,
1998, primarily due to the Triad Acquisition and the shorter comparison period.
Triad had sales and marketing expenses of $18.8 million for the five months
prior to the acquisition in 1997. Sales and marketing expense for the automotive
division for the year ended September 30, 1998 increased $12.1 million to $26.2
million as compared to the ten months ended September 30, 1997. Sales and
marketing expense for the hardlines division for the year ended September 30,
1998 increased $8.9 million to $23.0 million as compared to the ten months ended
September 30, 1997.
Product development expenses for the year ended September 30, 1998 increased
$3.5 million to $15.4 million as compared to the ten months ended September 30,
1998, primarily due to the Triad Acquisition and the shorter comparison period.
Triad had product development expenses of $4.1 million for the five months prior
to the acquisition in 1997. Product development expense for the automotive
division for the year ended September 30, 1998 increased $2.1 million to $12.1
million as compared to the ten months ended September 30, 1997. Product
development expense for the hardlines division for the year ended September 30,
1998 increased $1.0 million to $2.9 million as compared to the ten months ended
September 30, 1997.
General and administrative expenses for the year ended September 30, 1998
increased $17.7 million to $37.6 million as compared to the ten months ended
September 30, 1997, primarily due to the Triad Acquisition and the shorter
comparison period. Triad had general and administrative expenses of $4.8 million
for the five months prior to the acquisition in 1997, and the amortization of
intangible assets acquired in the Triad Acquisition and revalued through
purchase accounting increased general and administrative costs by $5.9 million.
The remaining increase in general and administrative expenses is due to the
shorter comparison period in 1997 and expense increases due to a number of
factors, including the consolidation of the Triad and ARISB finance functions to
Austin, Texas, the acquisition of ARISB, an increase in rent expense on the
Livermore, California facility, and investments in staffing, infrastructure, and
communications to support the Company's internal information systems.
Interest expense for the year ended September 30, 1998 was $15.9 million, an
increase of $7.5 million from the ten months ended September 30, 1997. The
increase was due to the increased interest expense generated by the additional
five months of interest from the debt incurred from the Triad Acquisition and
the additional debt incurred during 1998. Other income for the year ended
September 30, 1998 was $0.8 million, a $0.4 million increase over the ten months
ended September 30, 1997.
The Company recorded an income tax benefit attributable to continuing operations
of $1.0 million and $8.7 million for the ten months ended September 30, 1997 and
year ended September 30, 1998, respectively. Additionally, the Company recorded
an income tax benefit of $2.0 million related to the extraordinary charge for
the year ended September 30, 1998. Prior to the Triad Acquisition, the Company
elected to be treated as an S Corporation. As such, the Company's taxable income
was included in the individual income tax returns of its stockholders. The
effect of the termination of S Corporation status was to recognize a
non-recurring charge of $2.4 million. The difference in benefit recognized for
the periods ended September 30, 1997 and 1998 was impacted primarily by the
$23.1 million write-off of in-process research and development associated with
the Triad Acquisition in 1997.
On February 10, 1998, the Company refinanced its existing debt resulting in an
extraordinary charge of $3.0 million, net of a tax benefit of $2.0 million, due
to the write-off of debt issuance costs associated with the original debt
facilities. Such charge is included in the results of operations for the year
ended September 30, 1998.
As a result of the above factors, the Company experienced a net loss of $27.9
million for the year ended September 30, 1998, an improvement of $6.3 million
from the loss recorded for the ten months ended September 30, 1997. Excluding
income tax benefits, the $3.0 million extraordinary charge in 1998, the
additional five months of amortization in 1998 of the intangible assets acquired
during the Triad Acquisition and revalued through purchase accounting, and the
$23.1 million write-off in 1997 of developed software acquired in the Triad
Acquisition, the Company's loss for the year ended September 30, 1998 would have
been $21.3 million compared to $12.1 million for the ten months ended September
30, 1997, primarily due to the $7.2 million increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had $181.8 million in outstanding
indebtedness, a decrease of $1.5 million from September 30, 1998. The Company's
outstanding indebtedness under its Restated Senior Credit Facilities at
September 30, 1999 included $21.7 million borrowed on the Company's $50.0
million senior secured revolving credit facility and $60.0 million of senior
secured term loans. Remaining debt consists of $100.0 million of subordinated
notes, due in 2008, bearing
16
<PAGE> 19
interest at 9%. Total annual interest expense, based on current debt levels is
estimated to be $16.5 million. During fiscal year 1999, the Company completed
two financings:
(i) On February 12, 1999, the Company amended its existing $100
million senior secured credit facilities by adding a new $30
million senior secured term loan B and prepaying $20 million
of the Company's existing $50 million senior secured term loan
A. The Company also paid approximately $8.1 million of the
amounts outstanding under its existing senior secured
revolving credit facility. After giving effect to the
amendment, the Company has $110 million of senior secured
credit facilities, consisting of the $30 million term loan B,
the remaining $30 million term loan A and the existing $50
million revolving credit facility.
(ii) On May 27, 1999, Holding sold $25 million of Class A Common
Stock to two existing stockholders that are Hicks Muse
affiliates and contributed the net proceeds of $23.9 million
to CCI as equity.
Repayment of the $60.0 million term loan facility begins on December 31, 1999 at
a beginning rate of $1.6 million per quarter. All borrowings under the senior
secured credit facilities, including the revolving credit facility, are
scheduled to be repaid by March 31, 2004. A portion of the Company's debt bears
interest at floating rates; therefore, its financial condition is and will be
affected by changes in prevailing rates.
In addition to servicing its debt obligations, the Company requires substantial
liquidity for capital expenditures and working capital needs. The Company
requires working capital as it funds its customer leasing operations and then
periodically liquidates its lease portfolio through discounting arrangements
with banks and lending institutions. For the year ended September 30, 1999, the
Company's capital expenditures were $22.1 million, which includes $12.7 million
for capitalized computer software costs and databases. Additionally, the Company
is obligated to a minimum annual commitment to $1.0 million through 2011 for a
software license which allows the Company to sublicense software to customers in
the automotive industry.
The Company's Restated Senior Credit Facilities impose certain restrictions on
the Company, the most significant of which include limitations on additional
indebtedness, liens, guarantees, payment or declaration of dividends, sale of
assets, investments, capital expenditures, and transactions with affiliates. The
Company must also meet certain tests relating to financial amounts and ratios
defined in the Restated Senior Credit Facilities. Because the Company expected
it would not be in compliance with the amounts and ratios as defined in the
Restated Senior Credit Facilities and measured quarterly as of December 31,
1999, on December 21, 1999, the Company amended its Restated Senior Credit
Facilities to reset and reduce specified financial amounts and ratios for the
fiscal year 2000.
The Company believes that, with the actions taken in 1999, cash flows from
operations, together with the amounts available under the Company's Restated
Senior Credit Facilities, should be sufficient to fund its working capital and
debt service requirements (including the funding of the customer leasing
operations) through the next fiscal year. The Company's ability to meet its
working capital and debt service requirements, however, is subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control. If the Company is not able to meet such
requirements, it may be required to seek additional financing. There can be no
assurance that the Company will be able to obtain financing from other sources
on terms acceptable to the Company, if at all.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has been working for over three years to prepare its customers and
itself for the Year 2000. The efforts have been organized into two areas of
focus: customer products and internal systems. With respect to customer
products, initially, each of the product development groups responsible for the
Company's customer products were responsible for making their products ready for
the Year 2000 as part of their on-going product development tasks, including
third-party systems imbedded in the Company's products.
17
<PAGE> 20
With respect to internal systems, the Company's Chief Information Officer was
responsible for ascertaining the readiness of both internal systems and key
external systems relied upon by the Company for communication, operation, and
operation. This task was undertaken in conjunction with efforts to consolidate
internal systems as a result of the Triad Acquisition.
In fiscal 1999, a Y2K Project Management Office ("PMO") was established to
centralize planning, communication, and coordination with respect to the Year
2000. The PMO established a consistent definition of "Y2K Ready," reviewed and
assessed the activities that had already been undertaken by the Company, tested
the results of the various customer product development groups, assessed the
risk of failures in the Year 2000 effort, and coordinated the development of
contingency plans for each of the product groups and the Company as a whole.
The Company has completed an assessment of the Year 2000 status of products that
it sells or has installed for customers. The Company believes that its current
products are Year 2000 Ready. Certain older products that the Company is no
longer marketing were determined not to be upgradeable for Year 2000 issues, due
either to third-party software vendor constraints or hardware incompatibility.
This affects a small number of the Company's customers. The customers were
notified of the situation in writing during 1998 and have been given an
opportunity to convert to newer Year 2000 Ready products.
While there can be no assurance, based on currently available information the
Company does not believe that the Year 2000 issue as it relates to the Company's
products will have a material adverse impact on the Company's business,
financial condition, or results of operations. The most likely worst case
scenario will be a higher than anticipated call volumes to the Company's Advice
Lines. These Advice Lines support the Company's customers by answering questions
about products sold by the Company, sending software updates, and assisting with
customer problems. These higher call volumes may arise from unforeseen problems
with the Company's products and by previous customers calling to sign up for
software support because of Year 2000 concerns. The Company has formulated
detailed contingency plans for each Advice Line. These contingency plans include
increasing the number of Advice Line personnel by temporarily shifting from
other positions in the Company those personnel capable of taking customer calls.
The Company has also reviewed its procedures for reinstating customers who are
not currently signed up for software support.
The Company also has completed its assessment of its internal systems and has
modified or replaced significant portions of its software and hardware so that
its internal computer systems will function properly with respect to dates in
the Year 2000 and thereafter. The Company has also communicated with its
significant suppliers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. Some third party software vendors notified the Company that
their products will not be compliant. In those cases, the Company purchased new
versions of software or hardware or replaced the third-party software or
hardware completely. The Company is utilizing internal resources to reprogram or
replace and test the systems for Year 2000 modifications.
The Company believes that the Year 2000 issue will not pose significant
operational problems for its internal computer systems, and believes that cost
related to this issue will not be material in relation to the Company's
operations and historical capital spending levels. The most likely worst case
scenario will be some aspect of an internal system that was missed during the
Company's Year 2000 testing. This testing was extensive and included rolling
mission critical systems forward in time past Year 2000 critical dates. The
Company believes any functionality that may have been missed will not be
critical to the operation of the Company. Contingency plans have been developed
to deal with such problems. These plans include the Information Technology staff
commencing testing Internal Systems shortly after the start of the New Year. The
Information Technology staff has also maximized its available staff to perform
this testing and quickly address any issues that may arise.
The Company has not established a separate budget for making either its products
or its internal systems Year 2000 Ready. Rather, these expenditures are part of
the Company's regular capital and operating budgets. These expenditures have not
been tracked separately. The Company does not believe that these expenditures
can be estimated with any degree of accuracy.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
At September 30, 1999, approximately $82.0 million of the Company's long-term
debt, specifically, borrowings outstanding under its Restated Senior Credit
Facilities, bears interest at variable rates. Accordingly, the Company's net
loss and after tax cash flow are affected by changes in interest rates. Assuming
the current level of borrowings at variable rates and assuming a two percentage
point change in the 1999 average interest rate under these borrowings, it is
estimated that the Company's 1999 interest expense would have
18
<PAGE> 21
changed by $1.6 million, resulting in a change in the Company's 1999 net loss.
In the event of an adverse change in interest rates, management would likely
take actions to further mitigate its exposure; however, due to the uncertainty
of the actions that would be taken and their possible effects, this analysis
assumes no such actions. Further, this analysis does not consider the effects of
the change in the level of overall economic activity that could exist in such an
environment.
At September 30, 1999, the Company had $100 million of outstanding Notes. The
Notes bear interest at a fixed rate of nine percent and are not subject to
changes in interest rates.
Foreign Currency Risk
The majority of the Company's operations are based in the U.S. and, accordingly,
the majority of its transactions are denominated in U.S. dollars; however, the
Company does have foreign based operations where transactions are denominated in
foreign currencies and are subject to market risk with respect to fluctuations
in the relative value of currencies. Currently, the Company has operations in
Canada, the United Kingdom and Ireland and conducts transactions in the local
currency of each location.
The Company monitors its foreign currency exposure and, from time to time, will
attempt to reduce its exposure through hedging. At September 30, 1999, the
Company had no foreign currency contracts outstanding.
19
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
Cooperative Computing Holding Company, Inc.
Audited Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditor.....................................................21
Consolidated Balance Sheets as of September 30, 1998 and 1999........................................22
Consolidated Statements of Operations for the ten-month period ended
September 30, 1997 and the years ended September 30, 1998 and 1999.................................23
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the
ten-month period ended September 30, 1997 and the years ended September 30,
1998 and 1999......................................................................................24
Consolidated Statements of Cash Flows for the ten-month period ended
September 30, 1997 and the years ended September 30, 1998 and 1999.................................25
Notes to Consolidated Financial Statements...........................................................26
</TABLE>
20
<PAGE> 23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cooperative Computing Holding Company, Inc.
We have audited the accompanying consolidated balance sheets of Cooperative
Computing Holding Company, Inc. as of September 30, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the ten-month period ended September 30, 1997 and each of the
two years ended September 30, 1998 and 1999. Our audits also include the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cooperative
Computing Holding Company, Inc. at September 30, 1998 and 1999, and the
consolidated results of its operations and its cash flows the ten-month period
ended September 30, 1997 and each of the two years ended September 30, 1998 and
1999, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Austin, Texas
December 17, 1999
21
<PAGE> 24
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,159 $ --
Trade accounts receivable, net 37,774 43,977
Inventories 6,005 9,095
Investment in leases 2,792 4,832
Deferred income taxes 1,818 6,608
Prepaid expenses and other current assets 7,742 6,201
---------- ----------
Total current assets 57,290 70,713
Service parts 3,605 3,664
Property and equipment 12,528 11,686
Long-term investment in leases 14,771 15,383
Capitalized computer software costs 25,174 15,435
Databases 16,824 13,820
Deferred financing costs 6,310 7,274
Other intangibles 153,689 137,187
Other assets 10,658 11,641
---------- ----------
Total assets $ 300,849 $ 286,803
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,249 $ 17,679
Payroll related accruals 9,362 11,110
Deferred revenue 6,269 10,551
Current portion of long-term debt 6,229 6,540
Accrued expenses and other current liabilities 13,080 12,687
---------- ----------
Total current liabilities 51,189 58,567
Long-term debt 177,089 175,308
Deferred income taxes 37,487 30,182
Other liabilities 9,721 10,279
---------- ----------
Total liabilities 275,486 274,336
Redeemable Convertible Class A Common Stock, including $3,020
in accretion
-- 26,961
Stockholders' equity:
Common Stock:
Par value $0.000125; authorized 50,000,000; issued and
outstanding 35,220,000 4 4
Additional paid-in capital 88,994 88,994
Retained deficit (63,635) (103,492)
---------- ----------
Total stockholders' equity (deficit) 25,363 (14,494)
---------- ----------
Total liabilities and stockholders' equity (deficit) $ 300,849 $ 286,803
========== ==========
</TABLE>
See accompanying notes.
22
<PAGE> 25
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands)
<TABLE>
<CAPTION>
TEN-MONTH
PERIOD
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER SEPTEMBER SEPTEMBER
30, 1997 30, 1998 30, 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Systems $ 55,085 $ 79,928 $ 87,425
Customer support and information services 79,654 139,990 148,991
Finance 5,577 7,303 4,703
---------- ---------- ----------
Total revenues 140,316 227,221 241,119
Cost of revenues:
Systems 35,169 54,315 58,696
Services and finance 49,295 89,201 93,967
---------- ---------- ----------
Total cost of revenues 84,464 143,516 152,663
---------- ---------- ----------
Gross margin 55,852 83,705 88,456
Operating expenses:
Sales and marketing 28,161 49,196 63,005
Product development 11,890 15,401 14,962
General and administrative 19,929 37,643 40,298
Write off of in-process research and development 23,100 -- --
---------- ---------- ----------
Total operating expenses 83,080 102,240 118,265
---------- ---------- ----------
Operating loss (27,228) (18,535) (29,809)
Interest expense (8,403) (15,868) (18,512)
Other income, net 443 766 175
---------- ---------- ----------
Loss before income taxes and extraordinary charge (35,188) (33,637) (48,146)
Income tax benefit:
Nonrecurring charge for termination of Subchapter S
election (2,382) -- --
C Corporation benefit 3,383 8,731 11,120
---------- ---------- ----------
Total income tax benefit 1,001 8,731 11,120
---------- ---------- ----------
Loss before extraordinary charge (34,187) (24,906) (37,026)
Extraordinary charge, net of income tax benefit of $1,969 -- 3,017 --
---------- ---------- ----------
Net loss (34,187) (27,923) (37,026)
Accretion of redeemable convertible stock -- -- 3,020
---------- ---------- ----------
Net loss attributable to common stock $ (34,187) $ (27,923) $ (40,046)
========== ========== ==========
Comprehensive income (loss):
Net loss $ (34,187) $ (27,923) $ (37,026)
Foreign currency translation adjustment 123 (413) 189
---------- ---------- ----------
Comprehensive loss $ (34,064) $ (28,336) $ (36,837)
========== ========== ==========
Unaudited pro forma information:
Historical income (loss) before provision for income
taxes $ (35,188)
Pro forma provision for income taxes 2,392
Pro forma net income (loss) $ (32,796)
</TABLE>
See accompanying notes.
23
<PAGE> 26
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------------------
Cooperative Computing Canadian
Holding Company, Inc. Applied Data Aftermarket
Specialties, Inc. Network, Inc.
-------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 1, 1996 16,000,000 $ 2 1,000 $ 1 1,000 $ 1
Shareholder distributions -- -- -- -- -- --
Merger of Applied Data
Specialties, Inc. and
Canadian Aftermarket
Network, Inc. into
Cooperative Computing -- -- (1,000) (1) (1,000) (1)
Holding Company
Issuance of Common Stock 19,220,000 2 -- -- -- --
Common Stock issuance costs -- -- -- -- -- --
Foreign currency translation
adjustments -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------ ------ ------ ------ ------
Balance, September 30, 1997 35,220,000 4 -- -- -- --
Foreign currency translation
adjustments, cumulative loss
of $290 -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------ ------ ------ ------ ------
Balance, September 30, 1998 35,220,000 4 -- -- -- --
Foreign currency translation
adjustments, cumulative loss
of $101 -- -- -- -- -- --
Accretion on Class A Common
Stock -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------ ------ ------ ------ ------
Balance, September 30, 1999 35,220,000 $ 4 -- $ -- -- $ --
========== ====== ====== ====== ====== ======
<CAPTION>
Additional Retained Total
Paid-in Earnings Stockholders'
Capital (Deficit) Equity (Deficit)
---------------------------------------------
<S> <C> <C> <C>
Balance, December 1, 1996 $ 249 $ 4,974 $ 5,227
Shareholder distributions -- (6,209) (6,209)
Merger of Applied Data
Specialties, Inc. and
Canadian Aftermarket
Network, Inc. into
Cooperative Computing 2 -- --
Holding Company
Issuance of Common Stock 96,098 -- 96,100
Common Stock issuance costs (7,355) -- (7,355)
Foreign currency translation
adjustments -- 123 123
Net loss -- (34,187) (34,187)
---------- ---------- ----------
Balance, September 30, 1997 88,994 (35,299) 53,699
Foreign currency translation
adjustments, cumulative loss
of $290 -- (413) (413)
Net loss -- (27,923) (27,923)
---------- ---------- ----------
Balance, September 30, 1998 88,994 (63,635) 25,363
Foreign currency translation
adjustments, cumulative loss
of $101 -- 189 189
Accretion on Class A Common
Stock -- (3,020) (3,020)
Net loss -- (37,026) (37,026)
---------- ---------- ----------
Balance, September 30, 1999 $ 88,994 $ (103,492) $ (14,494)
========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE> 27
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
TEN-MONTH PERIOD
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999
-----------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (34,187) $ (27,923) $ (37,026)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 4,585 8,337 9,445
Amortization 24,758 43,622 43,683
Write-off of in-process research and development 23,100 -- --
Extraordinary loss from early extinguishment of debt, net
of income tax benefit -- 3,017 --
Other, net 118 1,385 648
Changes in assets and liabilities, net of effects of
businesses acquired:
Trade accounts receivable (11,231) (10,856) (6,203)
Inventories 2,547 (1,974) (3,482)
Investment in leases 7,401 (1,616) (2,652)
Deferred income taxes (4,710) (9,231) (12,095)
Prepaid expenses and other assets 10,697 (1,120) 13
Accounts payable (1,102) 6,367 1,430
Taxes payable 1,803 -- --
Deferred revenue 3,027 1,895 4,280
Accrued expenses and other liabilities (1,773) (9,600) 2,763
------------- ------------- -------------
Net cash provided by operating activities 25,033 2,303 804
INVESTING ACTIVITIES
Acquisition of Triad, net of cash acquired (179,893) -- --
Purchase of property and equipment (3,347) (6,754) (5,760)
Capitalized computer software costs and databases (11,879) (13,623) (12,681)
Purchase of service parts (754) (2,199) (3,263)
Distributions received from partnerships 221 -- 24
Acquisition of businesses, net of cash acquired -- (10,206) (375)
Other -- (1,806) (387)
------------- ------------- -------------
Net cash used in investing activities (195,652) (34,588) (22,442)
FINANCING ACTIVITIES
Issuance of Class A Common Stock -- -- 25,000
Issuance of common stock 96,100 -- --
Stock issuance costs (7,355) -- (1,059)
Proceeds from long-term debt -- 100,000 --
Proceeds from debt facility 201,087 240,075 140,800
Payments on long-term debt facilities (103,844) (301,804) (142,270)
Debt issuance costs (6,442) (6,460) (1,992)
Shareholder distributions (6,209) -- --
Advances from stockholders 2,496 -- --
Repayments of advances from stockholders (7,585) -- --
------------- ------------- -------------
Net cash provided by financing activities 168,248 31,811 20,479
Decrease in cash and cash equivalents (2,371) (474) (1,159)
Cash and cash equivalents, beginning of period 4,004 1,633 1,159
------------- ------------- -------------
Cash and cash equivalents, end of period $ 1,633 $ 1,159 $ --
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,792 $ 13,484 $ 17,195
Income taxes $ 139 $ 344 $ 1,329
Non cash financing activity:
Accretion of Class A Common Stock $ -- $ -- $ 3,020
</TABLE>
See accompanying notes.
25
<PAGE> 28
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements for the periods ended September 30, 1998
and 1999 include the accounts of Cooperative Computing Holding Company, Inc.
("Holdings" or the "Company"), and its wholly owned subsidiary, Cooperative
Computing, Inc., a Delaware corporation ("CCI"). Holdings has no assets or
liabilities other than (1) its investment in its wholly owned subsidiary CCI and
(2) its Redeemable Convertible Class A Common Stock, the net proceeds of which
were contributed in full to CCI (see Note 13); accordingly, these consolidated
financial statements represent the operations of CCI and its subsidiaries. The
consolidated financial statements for the period ended September 30, 1998 and
1999 include the accounts of Holdings, Holdings' wholly owned subsidiary CCI and
the wholly owned subsidiaries of CCI, which include Triad Systems Financial
Corporation, after elimination of intercompany accounts and transactions.
Prior to February 27, 1997, the operations reflected in these financial
statements are those of Cooperative Computing, Inc., a Texas corporation ("Old
CCI"), Canadian Aftermarket Network, Inc. and Applied Data Specialty, Inc., all
of which were owned by the same individuals and are therefore presented on a
combined basis. All intercompany accounts and transactions between these
companies have been eliminated. Effective February 27, 1997, Canadian
Aftermarket Network, Inc. and Applied Data Specialty, Inc. merged into Old CCI.
Subsequent to February 27, 1997, these financial statements reflect the
consolidated operations and accounts of these entities after elimination of
intercompany accounts and transactions. For purposes of presentation,
"consolidated" refers to both consolidated and combined periods.
Also on February 27, 1997, Old CCI acquired substantially all of the outstanding
shares of Triad Systems Corporation ("Triad"). Concurrently, CCI Acquisition
Corporation, a wholly owned subsidiary of Old CCI, merged into Triad. Old CCI
contributed its operating assets and liabilities to Triad, and the resulting
company was renamed Cooperative Computing, Inc., a Delaware corporation, and Old
CCI was renamed Cooperative Computing Holding Company, Inc. As a result of the
significant impact of the Triad Acquisition, the debt restructuring in February
1998, the ARISB Acquisition (as defined in Note 2) and the change of the
Company's fiscal year end from November 30 to September 30 in 1997, resulting in
a ten-month fiscal year for 1997, the results of operations for fiscal 1997,
1998 and 1999 are not directly comparable.
DESCRIPTION OF BUSINESS
CCI is a leading provider of business and information management services to the
automotive aftermarket and the hardlines and lumber industry. CCI produces and
markets complex databases and software products, and designs, develops,
manufactures, markets, services and leases computer systems. Development and
assembly facilities are located in Austin, Texas; Livermore, California; Denver,
Colorado and Newton, New Jersey. Principal markets are located in the United
States, Canada, United Kingdom, Ireland and France.
CASH EQUIVALENTS
The Company considers all investments with maturities of ninety days or less
when purchased to be cash equivalents.
INVENTORIES
Inventories primarily consist of purchased parts and finished goods. Inventories
are stated at the lower of cost (first-in, first-out method) or market and
include amounts which ultimately may be transferred to equipment or service
parts.
SERVICE PARTS
Service parts used for servicing installed equipment are stated at cost and are
depreciated over a period not exceeding five years using the straight-line
method.
26
<PAGE> 29
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets (two
to ten years). Leasehold improvements are amortized using the straight-line
method over the life of the lease or the estimated useful life, whichever is
shorter.
INVESTMENT IN LEASES
At the inception of a lease, the gross lease receivable, the reserve for
potential losses, the estimated residual value of the leased equipment and the
unearned lease income are recorded. The unearned lease income represents the
excess of the gross lease receivable plus the estimated residual value over the
cost of the equipment leased. Certain initial direct costs incurred in
consummating the leases, included in the investment in leases, are amortized
over the life of the lease. Lease receivables sold pursuant to agreements with
banks or lending institutions that meet the sales criteria of Statement of
Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities are removed from
the balance sheet and the gains are reflected in operations.
During 1997, the Company adopted the requirements of SFAS No. 125, which applies
to all transactions occurring subsequent to December 31, 1996. Accordingly, the
Company modified several agreements to meet the new requirements to enable it to
continue recognizing transfers of certain receivables to a special-purpose
entity as sales. As a result, the impact of adoption on net loss in 1997 was
immaterial.
CAPITALIZED COMPUTER SOFTWARE COSTS
Costs relating to the conceptual formulation and design of software products are
expensed as product development. Costs incurred subsequent to establishing the
technological feasibility of software products are capitalized. Amortization of
capitalized software costs begins when the products are available for general
release to customers. Costs are amortized over the expected product lives and
are calculated using the greater of the straight-line method, generally over a
period of two to five years, or a cost per unit sold basis.
DATABASES
Database development costs consist primarily of direct labor costs associated
with the accumulation of data received from auto parts manufacturers and
converting that information to an electronic format. Costs are amortized using
the straight-line method over the approximate life cycle of the data (18 to 60
months). Management assesses the recoverability of its database costs
periodically based principally upon comparison of the net book value of the
asset to the expected future revenue stream to be generated by the asset. If
management finds evidence of asset impairment, its net book value is adjusted to
its fair value.
DEFERRED FINANCING COSTS
Financing costs are deferred and amortized to interest expense using the
interest method over the terms of the related debt. Amortization of such costs
for the ten-month period ended September 30, 1997 and the years ended September
30, 1998 and 1999 totaled approximately $1,000,000, $946,000 and $1,024,000,
respectively.
OTHER INTANGIBLES
Other intangibles consist of goodwill, trademarks and tradenames, assembled work
force and favorable lease. Goodwill represents the excess of cost over the fair
value of assets acquired and is amortized using the straight-line method over 15
years. Trademarks and tradenames are amortized over fifteen years, assembled
workforce is amortized over four years and favorable lease was amortized over
two years.
AMORTIZATION
Amortization of databases is included in services and finance cost of revenues
and amortization of capitalized software is included in systems cost of
revenues. Amortization of other intangibles is included in general and
administrative expense.
27
<PAGE> 30
LONG-LIVED ASSETS
The Company periodically reviews the carrying amounts of property, plant, and
equipment, indentifiable intangible assets and excess of cost over fair value
of net assets acquired both purchased in the normal course of business and
acquired through acquisition to determine whether current events or
circumstances, as defined in SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, warrant
adjustments to such carrying amounts by considering, among other things, the
future cash inflows expected to result from the use of the asset and its
eventual disposition less the future cash outflows expected to be necessary to
obtain those inflows. At this time, future cash inflows exceed future cash
outflows; thus, no impairment loss has been recognized. Management reviews the
valuation and amortization periods of excess of cost over fair value of net
assets acquired on a periodic basis, taking into consideration any events or
circumstances which might result in diminished fair value or revised useful
life. No events or circumstances have occurred to warrant a diminished fair
value or reduction in the useful life of excess of cost over fair value of net
assets acquired.
REVENUE RECOGNITION
During 1999, the Company adopted Statement of Position ("SOP") 97-2, Software
Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions. The impact of the
adoption resulted in the deferral of $4.8 million in revenues and $3.4 million
in cost of revenues, reducing gross profit by $1.4 million. Services revenue is
recognized in the period that the services are performed. Systems revenue is
recognized upon product shipment provided there are no remaining significant
obligations and collection is probable. Finance revenue is recognized ratably
over the lease term, except gains on sales of lease receivables, which are
recognized at the time of the sale. For system contracts with significant
modifications or implementation, revenue is recognized using the percentage of
completion method.
INCOME TAXES
Prior to February 27, 1997, Old CCI, Applied Data Specialty, Inc. and Canadian
Aftermarket Network, Inc. elected to be treated as Subchapter S Corporations,
under the Internal Revenue Code of 1986 as amended, whereby federal income taxes
are the responsibility of the individual stockholders. Accordingly, these
companies did not provide for federal income taxes. Effective February 27, 1997,
Canadian Aftermarket Network, Inc. and Applied Data Specialty, Inc. merged with
Old CCI, the surviving entity. Old CCI was renamed Cooperative Computing Holding
Company, Inc. and its Subchapter S status was terminated thus becoming subject
to corporate income taxes.
In accordance with SFAS No. 109, Accounting for Income Taxes, deferred income
taxes were provided for all temporary differences existing at the date of the
Company's termination of its Subchapter S status. Deferred taxes are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Income taxes are
provided on the undistributed earnings of foreign subsidiaries that are not
considered to be permanently reinvested.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable, and other
accrued liabilities approximate fair value because of their short maturities.
Lease receivables are stated at the present value using the internal rate of
return which approximates fair value.
The Company's long-term debt consists of obligations with both variable and
fixed interest rates. The carrying value of debt obligations with variable
interest rates is considered to approximate fair value. The fair value of debt
obligations with fixed interest rates is based on the market prices for such
debt obligations. The fair value of total long-term debt at September 30, 1999
with a carrying value of $100 million is $60 million.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CERTAIN RISKS AND CONCENTRATIONS
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral from its customers. Most of the Company's customers
are in the automotive aftermarket or the hardlines and lumber industry.
28
<PAGE> 31
No customers accounted for more than 10% of the Company's revenues during the
ten-month period ended September 30, 1997 or the years ended September 30, 1998
and 1999.
OFF BALANCE SHEET RISK
Pursuant to agreements with banks and lending institutions for the sale of lease
receivables, the Company is contingently liable for losses in the event of
lessee nonpayment up to stated recourse limits. At September 30, 1999, the
contingent liability for all leases sold to date was $30,746,718.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiary operations denominated in foreign
currencies are translated at the year-end rates of exchange and the income
statements have been translated at the average rates of exchange for the year.
Local currencies are considered to be the functional currencies.
COMPREHENSIVE INCOME
As of October 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components, however, the adoption of SFAS No. 130
had no significant impact on the Company's net loss or stockholder's equity.
SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported separately in stockholder's equity, to be
included in comprehensive loss. During 1998 and 1999, total comprehensive loss
was as follows (in thousands):
SEGMENT INFORMATION
In 1999, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 superseded SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, replacing the
"industry segment" approach with the "management" approach. The management
approach designates internal organization that is used by management for making
operating decision and assessing performance as the source of the Company's
reportable segments. SFAS No. 131 also requires disclosures about products and
services, geographic areas and major customers. The adoption of SFAS No. 131 did
not affect operations or financial position but did affect the disclosure of
segment information.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
NOTE 2. ACQUISITIONS
On February 27, 1997, the Company completed the acquisition of the outstanding
stock of Triad Systems Corporation ("Triad"). The total purchase price was
$182,715,000, including a cash payment of $182,140,000 and related acquisition
costs of $575,000. The transaction was accounted for as a purchase and,
accordingly, the operating results of Triad have been included in the Company's
consolidated financial statements since the date of acquisition.
In conjunction with the acquisition of Triad, the Company issued 9,600,000 new
shares of common stock for approximately $96,100,000, excluding related issuance
costs, and the Company entered into a $170,000,000 credit facility consisting of
a $135,000,000 term loan and a $35,000,000 revolving credit facility with a
consortium of financial institutions. The proceeds from the issuance of common
stock and the new credit facility were utilized to fund the acquisition of Triad
and refinance portions of Triad's existing debt.
29
<PAGE> 32
The purchase price, including related acquisition costs, was allocated based on
an independent valuation obtained by the Company to the tangible and intangible
assets acquired and liabilities assumed based upon their respective fair values
on the date of acquisition as follows (in thousands):
<TABLE>
<S> <C>
Tangible assets $ 77,855
Favorable lease 3,864
Computer software costs 38,700
Databases 15,900
Trademark and trade names 22,100
Assembled workforce 11,700
In-process research and development 23,100
Goodwill 132,093
-----------
Total assets 325,312
Liabilities assumed 142,597
-----------
Net assets acquired $ 182,715
===========
</TABLE>
Liabilities assumed include approximately $5,200,000 of costs to be incurred in
connection with the consolidation of Triad's management administration,
manufacturing and finance operations with the Company's. Such costs include the
involuntary termination of certain Triad employees ($4,100,000) and costs
associated with a leased building to be vacated as a result of the consolidation
($1,120,000). Substantially all of these costs were incurred as of September 30,
1998.
In-process research and development includes the value of products in the
development stage and not considered to have reached technological feasibility.
The $23,100,000 allocated to in-process research and development was determined
based on an independent valuation and was expensed at the time of the
acquisition.
Other intangible assets will be amortized on a straight-line basis over
estimated useful lives ranging from two to fifteen years.
The following summarized unaudited pro forma financial information assumes the
acquisition of Triad had occurred on December 1, 1996. Included in the amounts
for the ten months ended September 30, 1997 are the operations of Triad for the
five months ended February 27, 1997. This pro forma information is not
necessarily indicative of the results that would have occurred had the
transaction been completed at the beginning of the period indicated, nor is it
indicative of future operating results (in thousands):
<TABLE>
<CAPTION>
TEN-MONTH
PERIOD ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
Revenues $ 206,748
Net loss $ (41,201)
</TABLE>
In March 1998, the Company closed on an asset purchase agreement with ADP Claims
Solution Group, Inc. ("ADP") in which the Company agreed to purchase certain
assets and assume certain liabilities of ADP's ARISB Business (the "ARISB
Acquisition"). The purchase price ($9,000,000 in cash), related acquisition
costs ($199,405), and liabilities assumed ($151,443) have been allocated to the
tangible net assets acquired ($2,623,353) based on their respective fair values
at the date of acquisition. The resulting excess purchase price ($6,727,000) was
allocated to assembled network of Orion users ($4,278,000), purchased software
($1,833,000), trademarks and trade names ($323,000) and assembled workforce
($293,000). The acquired company is engaged in providing inventory and business
management systems for the automotive recycling industry. The operating results
of the acquired company are immaterial to the Company's consolidated financial
statements.
30
<PAGE> 33
NOTE 3. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable at September 30, 1998 and 1999 include allowances for
doubtful accounts of $6,101,000 and $9,626,000, respectively.
NOTE 4. SERVICE PARTS
Service parts consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1999
------------ ------------
<S> <C> <C>
Service parts $ 13,453 $ 15,938
Less accumulated depreciation (9,848) (12,274)
------------ ------------
Total service parts $ 3,605 $ 3,664
============ ============
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1999
---------- ----------
<S> <C> <C>
Land $ 138 $ 138
Furniture and equipment 23,757 27,912
Buildings and leasehold improvements 1,205 1,929
Less accumulated depreciation and amortization (12,572) (18,293)
---------- ----------
Total property and equipment $ 12,528 $ 11,686
========== ==========
</TABLE>
NOTE 6. INVESTMENT IN LEASES
The Company, through its wholly-owned finance subsidiary and special purpose
entity, leases hardware and software products to customers under direct
financing leases. Lease receivables are generally due in monthly installments
over a period of up to five years. Investment in leases is calculated as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1999
------------ ------------
<S> <C> <C>
Total minimum lease payments receivable $ 15,178 $ 18,963
Allowance for doubtful accounts (720) (1,975)
Initial direct costs 247 303
Estimated unguaranteed residual value 1,072 1,337
------------ ------------
Gross investment in leases 15,777 18,628
Unearned income (4,263) (5,085)
Leases pending acceptance 6,049 6,672
------------ ------------
Total investment in leases 17,563 20,215
Short-term investment in leases (2,792) (4,832)
------------ ------------
Long-term investment in leases $ 14,771 $ 15,383
============ ============
</TABLE>
A substantial portion of the lease receivables are sold prior to maturity.
Accordingly, a schedule of maturities for the next five years is not indicative
of future cash collections. Most of the Company's customers are in the
automotive aftermarket and the hardlines and lumber industry.
31
<PAGE> 34
NOTE 7. LEASE RECEIVABLES
Historically, the Company has sold lease receivables via lending agreements with
banks and other financial institutions. At the time of sale, the Company records
the newly-created servicing liabilities (lease servicing obligation and recourse
obligation) at their estimated fair value. Gains resulting from the sale of
lease receivables are reflected in finance revenue, and were $3,478,000,
$4,318,000 and $2,197,000 in 1997, 1998 and 1999. The fair value of the lease
servicing liability is based upon the present value of the costs required to
continue to service the leases sold for the remainder of the lease term.
The lease financing agreements contain restrictive covenants which allow the
Company to sell leases only while in compliance with such covenants. In the
event of non-compliance, the banks and lending institutions could assume
administrative control (servicing) of the lease portfolio and could prohibit
further sales under the available credit facilities. During the period ended
September 30, 1999, the Company was in compliance with the covenants.
Pursuant to the agreements, the Company is contingently liable for losses in the
event of lessee nonpayment up to stated recourse limits (up to 10% of the
aggregate initial proceeds adjusted for certain expenses and payments remitted
on the leases) and full recourse on lease receivables discounted that did not
meet the bank or lending institutions credit worthiness test. At September 30,
1999, the Company has $4,702,000 of lease receivables discounted that are
subject to the full recourse provision. Proceeds, including discounting gains,
from the sales of lease receivables were approximately $39 million, $44 million
and $36 million in 1997, 1998 and 1999.
At September 30, 1999, the contingent liability for leases sold was $30,746,718.
The Company provides for the fair value of the recourse obligation based upon an
analysis that considers among other things: the credit worthiness of the lease
receivable, the recourse provision the lease receivable is subject to, and the
Company's historical experience which includes loss recoveries through resell of
repossessed systems. The Company provides for the fair value of the lease
servicing obligation based upon an analysis that considers, among other things:
the quantity of sold leases that are being serviced, the time and cost
associated with administration of leases, and the Company's historical
experience relating to the length of time leases generally are outstanding.
Activity in the servicing liability accounts (recorded in other liabilities in
the Company's balance sheet) is as follows (amounts in thousands):
<TABLE>
<CAPTION>
LEASE SERVICING RECOURSE
OBLIGATION OBLIGATION
--------------- ------------
<S> <C> <C>
Balance at December 1, 1996 $ -- $ --
Liabilities assumed in acquisition of Triad 2,246 11,271
Newly-created liabilities 663 2,838
Recoveries -- 527
Charges and write-offs (703) (4,974)
------------ ------------
Balance at September 30, 1997 2,206 9,662
Newly-created liabilities 710 3,402
Recoveries -- 818
Charges and write-offs (1,135) (8,435)
------------ ------------
Balance at September 30, 1998 1,781 5,447
Newly-created liabilities 935 9,355
Recoveries -- 746
Charges and write-offs (947) (7,868)
------------ ------------
Balance at September 30, 1999 $ 1,769 $ 7,680
============ ============
</TABLE>
32
<PAGE> 35
NOTE 8. CAPITALIZED COMPUTER SOFTWARE COSTS
<TABLE>
<CAPTION>
TEN-MONTH PERIOD YEAR ENDED YEAR ENDED
ENDED SEPTEMBER SEPTEMBER 30, SEPTEMBER 30,
30, 1997 1998 1999
---------------- -------------- ------------
(amounts in thousands)
<S> <C> <C> <C>
Beginning balance $ -- $ 32,569 $ 25,174
Acquisition of assets 38,700 1,833 --
Capitalized computer software costs 1,427 5,020 5,361
Amortization of computer software costs (7,558) (14,248) (15,100)
------------ ------------ ------------
Ending balance $ 32,569 $ 25,174 $ 15,435
============ ============ ============
</TABLE>
NOTE 9. DATABASES
<TABLE>
<CAPTION>
TEN-MONTH PERIOD YEAR ENDED YEAR ENDED
ENDED SEPTEMBER SEPTEMBER 30, SEPTEMBER 30,
30, 1997 1998 1999
---------------- -------------- ------------
(amounts in thousands)
<S> <C> <C> <C>
Beginning balance $ 5,048 $ 20,688 $ 16,824
Acquisition of assets 15,900 -- --
Capitalized database costs 7,052 8,603 7,320
Amortization of database costs (7,312) (12,467) (10,324)
------------ ------------ ------------
Ending balance $ 20,688 $ 16,824 $ 13,820
============ ============ ============
</TABLE>
NOTE 10. OTHER INTANGIBLES
Activity in other intangibles during the ten-month period ended September 30,
1997 and the years ended September 30, 1998 and 1999 is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
TRADEMARKS ASSEMBLED
AND TRADE WORK FAVORABLE
GOODWILL NAMES FORCE LEASE TOTAL
------------ ------------ --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 1, 1996 $ -- $ -- $ -- $ -- $ --
Acquisition of assets 132,093 22,100 11,700 3,864 169,757
Amortization (5,159) (859) (1,365) (1,127) (8,510)
------------ ------------ ------------ ------------ ------------
Net balance at September 30, 1997 126,934 21,241 10,335 2,737 161,247
Acquisition of assets 7,413 323 293 -- 8,029
Amortization (9,793) (1,486) (2,375) (1,933) (15,587)
------------ ------------ ------------ ------------ ------------
Net balance at September 30, 1998 124,554 20,078 8,253 804 153,689
Acquisition of assets 727 -- -- -- 727
Adjustment of assets acquired from ADP (780) -- -- -- (780)
Amortization (10,769) (1,494) (3,382) (804) (16,449)
------------ ------------ ------------ ------------ ------------
Net balance at September 30, 1999 $ 113,732 $ 18,584 $ 4,871 $ -- $ 137,187
============ ============ ============ ============ ============
</TABLE>
33
<PAGE> 36
NOTE 11. DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1999
------------ ------------
(amounts in thousands)
<S> <C> <C>
Senior Subordinated Notes $ 100,000 $ 100,000
Term Loan Facility 50,000 60,000
Revolving Credit Facility 32,775 21,700
Other 543 148
------------ ------------
183,318 181,848
Current portion (6,229) (6,540)
============ ============
Long-term debt $ 177,089 $ 175,308
============ ============
</TABLE>
Concurrently with the Triad Acquisition, and in order to refinance certain of
Triad's indebtedness assumed in the acquisition, CCI entered into a credit
agreement dated as of February 27, 1997 with a syndicate of various banks,
insurance companies and other lenders, which includes a term loan facility and a
revolving credit facility (collectively, the "Old Credit Facilities").
On February 10, 1998, CCI consummated a private placement offering (the
"Offering") of $100 million of 9% Senior Subordinated Notes due 2008 (the "Old
Notes"). The Old Notes were issued subject to an exchange and registration
rights agreement, pursuant to which CCI filed a registration statement on April
4, 1998 and subsequently exchanged the Old Notes for identical registered 9%
Senior Subordinated Notes due 2008 (the "New Notes" and, together with the Old
Notes, the "Notes") of CCI.
Concurrently with the consummation of the Offering, CCI (i) amended and restated
its Old Credit Facilities by entering into a new $50 million term loan facility
and a new $50 million revolving credit facility (collectively, the "Restated
Senior Credit Facilities") and (ii) used the net proceeds from the Offering and
the Restated Senior Credit Facilities to repay the Old Credit Facilities. The
refinancing of the debt resulted in an extraordinary loss of approximately $3.0
million, net of tax, as a result of the write-off of existing financing costs.
On February 12, 1999, CCI amended its existing $100 million senior secured
credit facilities by adding a new $30 million senior secured term loan B and
prepaying $20 million of CCI's existing $50 million senior secured term loan A.
CCI also paid down approximately $8.1 million of the outstanding amounts under
the existing $50 million senior secured revolving credit facility. After giving
effect to the amendment, CCI now has $110 million in senior secured credit
facilities, consisting of the new $30 million term loan B, the remaining $30
million term loan A and the existing $50 million revolving credit facility.
Interest on the Notes is payable semiannually on February 1 and August 1. The
Notes are redeemable in whole or in part at the option of the Company on or
after February 1, 2003 at the redemption prices (expressed as a percentage of
the principal amount) of 104.5% in 2003, 103% in 2004, 101.5% in 2005 and 100%
in 2006 and thereafter. In addition, on or prior to February 1, 2002, CCI may
redeem up to 35% of the aggregate principal amount of the Notes with the net
cash proceeds of one or more private or public equity offerings at a redemption
price equal to 109% of the principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the date of redemption, provided that at
least 65% of the originally issued aggregate principal amount of the Notes
remains outstanding after each such redemption. Upon the occurrence of a change
of control, as defined by the Notes indenture, CCI will be required to make an
offer to repurchase the Notes at a price equal to 101% of the principal amount
thereof, together with the accrued and unpaid interest, if any. In addition, if
the change of control occurs prior to February 1, 2003, CCI will have the right
to redeem the Notes at a price equal to 100% of the principal amount thereof
plus a premium, as specified by the Notes indenture.
The amended term loan facility is payable in consecutive quarterly installments
on the dates and in a principal amount equal to the amount set forth below,
together with all accrued interest thereon:
<TABLE>
<CAPTION>
QUARTERS ENDING TRANCHE A QUARTERLY PRINCIPAL TRANCHE B QUARTERLY PRINCIPAL
PAYABLE PAYABLE
----------------------------------------- --------------------------------- --------------------------------
<S> <C> <C>
December 1999 through September 2000 $1,500,000 $100,000
December 2000 through September 2001 2,000,000 100,000
December 2001 through September 2002 2,500,000 100,000
December 2002 through March 2003 3,000,000 100,000
June 2003 through December 2003 - 100,000
March 2004 - 28,300,000
</TABLE>
34
<PAGE> 37
The revolving credit facility, which includes revolving credit notes, swing line
notes (maximum of $10 million), and letters of credit (maximum of $15 million),
provides for maximum borrowings of $50 million. Principal amounts under the
revolving credit facility are due on March 31, 2003.
The Restated Senior Credit Facilities bear interest at CCI's option either at
(i) a margin of 2% or 2.25% applied to the greater of lenders Prime Rate, the
base CD rate plus 1% or the Federal Funds Rate plus 0.5% or (ii) the eurodollar
rate plus 3% or 3.5%. The lower margins apply to Revolving Credit loans and
Tranche A term loans. The higher margins apply to the Tranche B Term Loan. Lower
margins may become available upon the attainment of certain financial ratios.
Interest on base rate loans is payable quarterly, and interest on eurodollar
loans is payable at the end of the applicable interest period or every three
months in the case of interest periods in excess of three months. A commitment
fee ranging from .375% to .5% per annum is charged on unused revolving loans and
is payable quarterly in arrears. The commitment fee at September 30, 1999 was
0.5%.
In connection with the letters of credit, CCI is required to pay a letter of
credit commission fee equal to 2.25% per annum on the amount of the letters of
credit outstanding. Each letter of credit bears a fee equal to 2.25%. As of
September 30, 1999, there was one letter of credit outstanding in the amount of
$300,000.
Substantially all of the assets of the Company and its subsidiaries are pledged
as collateral on the Restated Senior Credit Facilities. The New Notes are
general, unsecured obligations of the Company and are subordinated in right of
payment to all existing and future senior indebtedness of the Company.
The terms of the Restated Senior Credit Facilities restrict certain activities
of the Company, the most significant of which include limitations on additional
indebtedness, liens, guarantees, payment or declaration of dividends, sale of
assets, investments, capital expenditures, and transactions with affiliates. CCI
must also meet certain tests relating to financial amounts and ratios defined in
the agreement. As of September 30, 1999, CCI was in compliance with the
financial amounts and ratios as defined in the agreement and measured quarterly.
Contractual maturities of debt, exclusive of interest, are as follows (in
thousands):
<TABLE>
<S> <C>
2000 $ 6,540
2001 8,408
2002 10,400
2003 28,100
2004 28,400
Thereafter 100,000
</TABLE>
NOTE 12. INCOME TAXES
From commencement through February 27, 1997, the Company and its affiliates had
elected to be treated as S Corporations under Subchapter S of the Internal
Revenue Code of 1986, as amended. As such, federal income taxes were the
responsibility of the individual stockholders.
Concurrent with the Triad Systems Corporation acquisition on February 27, 1997,
the Company's Subchapter S status was terminated and the Company became subject
to federal income taxes. Additionally, the Company was required to change its
method of accounting from the cash basis to the accrual basis for income tax
reporting purposes.
The estimated tax effect of recording deferred taxes upon the termination of the
Company's Subchapter S status was $2,382,000.
The pro forma disclosures on the statements of operations reflect adjustments to
record a benefit for income taxes as if the Company had not been an S
Corporation. The pro forma benefit for income taxes attributable to continuing
operations is $2,392,000 for the ten-month period ended September 30, 1997.
35
<PAGE> 38
Significant components of the income tax benefit attributable to continuing
operations are as follows (in thousands):
<TABLE>
<CAPTION>
TEN-MONTH PERIOD
ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30 SEPTEMBER 30,
1997 1998 1999
---------------- ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ (1,531) $ -- $ (150)
State (374) (200) (375)
Foreign (247) (300) (450)
------------ ------------ ------------
Total current (2,152) (500) (975)
Deferred:
Federal 2,765 8,157 10,630
State 344 1,074 1,465
Foreign 44 -- --
------------ ------------ ------------
Total deferred 3,153 9,231 12,095
============ ============ ============
Income Tax Benefit $ 1,001 $ 8,731 $ 11,120
============ ============ ============
</TABLE>
A reconciliation between loss before income taxes and extraordinary charge at
the U.S. statutory rate and the benefit for income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA HISTORICAL HISTORICAL
------------------ --------------- -------------- ----------------
TEN-MONTH PERIOD TEN-MONTH
ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------- -------------- ----------------
1997 1997 1998 1999
------------------ --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Income tax benefit at U.S.
statutory income tax rate $ 12,191 $ 12,191 $ 11,773 $ 16,851
State taxes, net of U.S.
income tax benefit 375 265 1,048 1,307
Permanent differences,
primarily goodwill (2,008) (2,043) (3,361) (6,293)
Write-off in-process research
and development (8,085) (8,085) -- --
Nonrecurring charge due to
subchapter S termination (2,382) -- -- --
S-Corp. income not subject to
tax 844 -- -- --
Foreign losses not benefited -- -- -- (293)
Tax credits and other 66 64 (729) (452)
======== ======== ======== ========
Income tax benefit
$ 1,001 $ 2,392 $ 8,731 $ 11,120
======== ======== ======== ========
</TABLE>
36
<PAGE> 39
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory and sales return reserves $ 3,584 $ 5,398
Accrued expenses 5,059 4,927
Deferred income 2,352 4,061
Tax carryforwards 14,846 10,054
Depreciation 6,643 7,262
Other 105 108
-------- --------
Total deferred tax assets 32,589 31,810
Deferred tax liabilities:
Direct financing leases (41,938) (38,005)
Fixed and intangible assets (25,044) (16,925)
Accrual to cash adjustment (653) --
Other (623) (454)
-------- --------
Total deferred tax liabilities (68,258) (55,384)
-------- --------
Net deferred tax liabilities $(35,669) $(23,574)
======== ========
</TABLE>
Deferred taxes are included in the balance sheets of the Company as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1999
------------ ------------
<S> <C> <C>
Net current deferred tax asset $ 1,818 $ 6,608
Net noncurrent deferred tax liabilities (37,487) (30,182)
------------ ------------
Net deferred tax liabilities $ (35,669) $ (23,574)
============ ============
</TABLE>
Upon the consummation of the Triad Acquisition on February 27, 1997, the Company
recorded a net deferred tax liability of approximately $48,350,000 due to
differences between book and tax basis of acquired assets and assumed
liabilities.
As of September 30, 1999, the Company had federal net operating loss
carryforwards of approximately $12,667,000. The net operating loss carryforwards
will begin to expire in 2012 if not utilized. At September 30, 1999, the Company
had business tax credit carryforwards of $1,670,000, and alternative minimum tax
credit carryforwards of approximately $3,926,000. The business tax credit
carryforwards expire from 2000 through 2010 if not utilized and the alternative
minimum tax credits carryforward indefinitely. Utilization of the net operating
losses and tax credit carryforwards may be subject to an annual limitation due
to the "change in ownership" provisions of the Internal Revenue Code of 1986 as
amended. The annual limitation may result in the expiration of net operating
loss and tax credit carryforwards before utilization.
Substantially all of the Company's operating income was generated from domestic
operations during 1999. The Company has not provided for United States income
taxes on the earnings of certain foreign subsidiaries that are considered
invested indefinitely outside the United States. The cumulative earnings of the
foreign subsidiaries that are considered permanently invested outside the United
States amounted to $773,000 at September 30, 1999.
The U.S. Internal Revenue Service has selected the Company's 1996 federal income
tax return for examination. Management believes that the results of the
examination will not materially effect the financial position or results of
operations of the Company.
37
<PAGE> 40
NOTE 13. REDEEMABLE CONVERTIBLE CLASS A COMMON STOCK
On May 27, 1999, Holdings issued 25,000,000 shares of its Class A Common Stock,
par value $.000125 per share (the "Class A Common Stock"), for net proceeds of
$23.9 million, which were contributed to CCI and used primarily to pay amounts
outstanding under CCI's senior secured revolving credit facility. Two of
Holdings' existing shareholders purchased all of the Class A Common Stock. The
purchasers were Holding's majority shareholder, Hicks, Muse, Tate & Furst Equity
Fund III, L.P. ("Hicks Muse"), and one of Hicks Muse's affiliates. Another Hicks
Muse affiliate received a $1 million financial advisory fee in connection with
the transaction.
The Class A Common Stock is senior to Holdings' existing common stock upon
liquidation, but votes with the existing common stock as a class. Upon
dissolution of Holdings, holders of Class A Common Stock are to receive the
Stated Value (as hereinafter defined) of their shares before any distribution to
common stockholders. Once the holders of Class A Common Stock receive the Stated
Value, the remaining assets are distributed among the common stockholders pro
rata. The "Stated Value" of a share of Class A Common Stock is $1.00, plus
notional interest of 35% per annum, accrued daily and compounded annually. As
long as the Class A Common Stock is outstanding, there may be no dividends,
stock splits, or other distributions declared or paid on Holdings' common stock,
as well as no redemptions or other repurchases.
Each holder of Class A Common Stock may put any of its shares to Holdings, and
Holdings may redeem shares of Class A Common Stock at any time for the Stated
Value of those shares, subject to certain conditions, including the ability of
the Company to make advances to Holdings for such purpose. It is not anticipated
that CCI will be able to advance to Holdings funds to redeem the Class A Common
Stock under the current terms of CCI's senior secured credit facilities.
NOTE 14. COMMON STOCK OPTION PLAN
During 1998, the Company adopted the Cooperative Computing Holding Company, Inc.
1998 Stock Option Plan. The Plan provides for the grant of incentive and
non-qualified stock options to employees and key individuals associated with the
Company. The option price may not be less than the fair market value at the date
of grant as set by the Company's Board of Directors from time to time. Options
vest in varying amounts over a six year period and expire ten years from the
date of the grant. Information on stock option activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES WEIGHTED AVERAGE
EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Total options outstanding at September 30, 1997 -- $ --
Options granted 3,239,650 5.00
Options forfeited -- --
Options exercised -- --
--------- ----------
Total options outstanding at September 30, 1998 3,239,650 5.00
Options granted 931,200 5.00
Options forfeited (905,050) 5.00
Options exercised -- --
--------- ----------
Total options outstanding at September 30, 1999 3,265,800 $ 5.00
========= ==========
</TABLE>
The following is a summary of options outstanding and exercisable as of
September 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
SHARES SUBJECT REMAINING WEIGHTED-AVERAGE SHARES SUBJECT REMAINING
TO OPTIONS CONTRACTUAL EXERCISE TO OPTIONS CONTRACTUAL
OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE LIFE (IN YEARS)
RANGE OF ----------- --------------- ---------------- ----------- ---------------
EXERCISE PRICES
<S> <C> <C> <C> <C> <C>
$5.00 3,265,800 8.9 $5.00 234,495 8.5
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net loss is required by SFAS No. 123, Accounting
for Stock Based Compensation, which also requires the information be determined
as if the Company has accounted for its employee stock options granted under the
fair value method
38
<PAGE> 41
prescribed by SFAS 123. The fair value of these options was estimated at the
date of grant using the minimum value option pricing model with the following
assumptions for the year ended September 30, 1999:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1999
---------- ---------
<S> <C> <C>
Risk-free interest rate 6% 6%
Weighted-average expected life of the options 5 years 5 years
Dividend rate 0% 0%
Assumed volatility 0% 0%
</TABLE>
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1998 1999
--------------- --------------
<S> <C> <C>
Pro forma stock-based compensation expense $ 202,000 $ 474,000
Pro forma net loss (28,048,000) (37,334,000)
</TABLE>
The weighted average fair value of options granted during the year ended
September 30, 1999 was $1.30.
NOTE 15. STOCKHOLDERS' EQUITY (DEFICIT)
STOCK WARRANT
On September 10, 1997, the Company sold 20,000 shares of Common Stock and issued
a warrant to purchase 20,000 shares of Common Stock, at the then-fair value of
the Common Stock of $5.00 per share, for total proceeds of $100,000. The warrant
is immediately exercisable and will expire seven years from the date of
issuance.
STOCK SPLIT
On February 24 and September 15, 1997, the Board of Directors declared Common
Stock splits of 3,595.50562-for-one and two-for-one, respectively. An amount
equal to the par value of the aggregate common shares issued was transferred
from additional paid-in capital to the common stock account. All share
information within the financial statements and notes thereto have been restated
to reflect the effect of the stock splits.
RESERVED SHARES OF COMMON STOCK
At September 30, 1999, the Company had reserved 5,050,000 shares of its Common
Stock for issuance under the Company's 1998 Stock Option Plan. At September 30,
1999, another 20,000 shares of its Common Stock were reserved for exercise of a
warrant.
39
<PAGE> 42
NOTE 16. SAVINGS AND INVESTMENT PLANS
The Company has a savings and investment plan known as the Triad Systems
Corporation Savings and Investment Plan (the "Plan") as allowed under Sections
401(k) and 401(a) of the Internal Revenue Code. The Plan provides employees with
tax deferred salary deductions and alternative investment options. Employees are
eligible to participate the first day of hire and are able to apply for and
secure loans from their account in the Plan.
The Plan provides for contributions by the Company as determined annually by the
Board of Directors. The Company matches 50% of the first 6% of compensation
contributed by each employee and the deferred amount cannot exceed 25% of the
annual aggregate salaries of those employees eligible for participation. Highly
compensated executive participants are limited to a maximum of 10%.
Contributions to the Plan are allocated among eligible participants in the
proportion of their salaries to the total salaries of all participants and
amounted to $772,000, $1,663,000 and $1,613,000 in 1997, 1998 and 1999,
respectively.
NOTE 17. COMMITMENTS AND CONTINGENCIES
GUARANTEES
The Company has guaranteed various debt obligations under agreements with
certain affiliated companies. At September 30, 1999, these guarantees totaled
$1,944,000. No material loss is anticipated by reason of such agreements and
guarantees.
OPERATING LEASES
The Company rents office facilities and certain office equipment under
non-cancelable operating lease agreements. Certain lease agreements contain
renewal options and rate adjustments. The Company has leased office space from a
company owned by two of the Company's stockholders. Rental payments are $45,000
per month and this lease expires in May 2002. Rental expense related to all
operating leases was $3,779,000, $7,889,000 and $8,161,000 in 1997, 1998 and
1999, respectively. Future minimum rental commitments under all non-cancelable
operating leases are as follows:
<TABLE>
<S> <C>
2000 $7,638,000
2001 6,902,000
2002 4,519,000
2003 2,488,000
2004 2,184,000
Thereafter 3,360,000
</TABLE>
LEGAL MATTERS
The Company is involved in litigation arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the resolution of these matters will not have a material adverse effect on the
Company's results of operations or financial position.
NOTE 18. RELATED PARTY TRANSACTIONS
On February 27, 1997, the Company entered into a Financial Advisory Agreement
with an affiliate, the majority shareholder of the Company. The Company paid to
the affiliate approximately $4.9 million during fiscal 1997 for services
rendered in connection with the sale of the Company's Common Stock. The
Financial Advisory Agreement requires that the Company pay the affiliate
additional fees equal to 1.5% of the Transaction Value, as defined, whenever the
Company participates in an Add-on Transaction, as defined. In fiscal 1998, in
connection with the ARISB Acquisition the Company paid a fee of $135,000 for
services provided under the agreement.
Additionally, the Company entered into a ten-year Monitoring and Oversight
Agreement with the affiliate, pursuant to which the Company will pay the
affiliate an annual fee of no less than $350,000 for services provided to the
Company. The fee is due in quarterly installments, and upon the acquisition of
another business by the Company, the minimum fee is increased by an amount equal
to 0.2% of the consolidated annual net sales of the acquired entity for the
trailing twelve-month period. During fiscal 1997 the Company prepaid the annual
fee and is amortizing the amount over the service period. Amounts paid in fiscal
1998 and 1999 were $408,898 and $299,236, respectively.
40
<PAGE> 43
The Company's principal executive offices are leased from a corporation which is
wholly owned by two stockholders of the Company. The rental payments for such
facility were $450,000, $540,000 and $540,000 in fiscal 1997, 1998 and 1999,
respectively.
The Company leases an airplane for general corporate use from a corporation
which is wholly owned by a stockholder. Lease payments totaled $466,000,
$465,430 and $475,514 in fiscal 1997, 1998 and 1999, respectively. Subsequent to
September 30, 1999, the Company terminated such lease.
NOTE 19. SEGMENT REPORTING
As described in Note 1, in fiscal year 1999, the Company adopted SFAS No. 131,
which requires disclosure of business segment data in accordance with the
management approach. The management approach is based on the way segments are
organized within the Company for making operating decisions and assessing
performance. The Company's business operations are organized into two divisions,
automotive and hardlines and lumber, as shown below. Additionally, a breakdown
by geographic area of total revenues and total assets is disclosed. The Americas
geographic area covers the U.S. and Canada. The Europe geographic area covers
United Kingdom, Ireland and France.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Systems revenues:
Automotive $ 30,918 $ 42,168 $ 49,726
Hardlines and lumber 24,167 37,760 37,699
------------ ------------ ------------
Total systems revenues 55,085 79,928 87,425
Customer support and information services revenues:
Automotive 55,549 92,908 98,000
Hardlines and lumber 24,105 47,082 50,991
------------ ------------ ------------
Total customer support and information services revenues 79,654 139,990 148,991
Finance revenues:
Automotive 3,010 3,860 2,310
Hardlines and lumber 2,567 3,443 2,393
------------ ------------ ------------
Total finance revenues: 5,577 7,303 4,703
Systems costs of revenues:
Automotive 19,371 27,181 31,539
Hardlines and lumber 15,798 27,134 27,157
------------ ------------ ------------
Total systems cost of revenues: 35,169 54,315 58,696
Services and finance cost of revenues:
Automotive 33,777 57,871 60,781
Hardlines and lumber 15,518 31,330 33,186
------------ ------------ ------------
Total services and finance cost of revenues 49,295 89,201 93,967
Sales and marketing:
Automotive 14,131 26,239 34,565
Hardlines and lumber 14,030 22,957 28,440
------------ ------------ ------------
Total sales and marketing 28,161 49,196 63,005
Product development:
Automotive 9,980 12,120 10,018
Hardlines and lumber 1,910 2,883 3,800
Corporate -- 398 1,144
------------ ------------ ------------
Total product development 11,890 15,401 14,962
General and administrative 19,929 37,643 40,298
Write-off of in-process research and development 23,100 -- --
Interest expense (8,403) (15,868) (18,512)
Other income, net 443 766 175
------------ ------------ ------------
Loss before income taxes and extraordinary charge $ (35,188) $ (33,637) $ (48,146)
============ ============ ============
Revenues:
Americas $ 133,159 $ 220,071 $ 235,059
Europe 7,157 7,150 6,060
------------ ------------ ------------
Total revenues $ 140,316 $ 227,221 $ 241,119
============ ============ ============
Assets:
Americas $ 304,777 $ 294,284 $ 282,829
Europe 3,163 6,565 3,974
------------ ------------ ------------
Total assets $ 307,940 $ 300,849 $ 286,803
============ ============ ============
</TABLE>
41
<PAGE> 44
NOTE 20. UNAUDITED QUARTERLY RESULTS
The Company's quarterly results for 1997, 1998 and 1999 are presented below. The
quarterly results for the ten-month period ended September 30, 1997 have been
modified to include twelve months of operations to conform to the corresponding
quarters in the years ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Total Revenues $ 55,748 $ 58,558 $ 62,193 $ 64,620
Gross margin 20,503 20,536 24,131 23,286
Net loss (7,038) (7,424) (6,352) (16,212)(2)
1998
Total Revenues $ 51,915 $ 52,499 $ 59,250 $ 63,557
Gross margin 20,300 18,687 21,854 22,864
Loss before extraordinary charge (1) (6,790) (6,327) (6,157) (5,632)
Net loss (6,790) (9,344) (6,157) (5,632)
1997
Total Revenues $ 9,453 $ 27,805 $ 51,876 $ 57,947
Gross margin 5,374 12,983 19,740 22,008
Net income (loss) 2,771 (23,935) (5,357) (4,959)
</TABLE>
(1) See Note 11 for discussion concerning the extraordinary loss recorded in the
second quarter.
(2) In the fourth quarter of 1999, the Company recorded additional bad debt
reserves of approximately $7.5 million due to a change in the Company's
method of analyzing its allowance for receivables and investments in
leases.
42
<PAGE> 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below are the names, ages and positions of the respective directors
and executive officers of the Company and Holding as of December 29, 1999. All
directors hold office until the next annual meeting of stockholders of the
Company or Holding, as the case may be, and until their successors are duly
elected and qualified. Please refer to "Certain Relationships and Related
Transactions--Stockholder Agreement" for information concerning certain
agreements relating to the election of directors of the Company. All officers
hold office until the next annual meeting of directors of the Company or
Holding, as the case may be, and until their successors are duly elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------- ------ ----------------------------------------------------------
<S> <C> <C>
Glenn E. Staats 55 Chairman of the Board and Chief Executive Officer of
Holding and the Company
Preston W. Staats 57 Vice Chairman of the Board of Holding and the Company
Michael A. Aviles 39 President and Chief Operating Officer of Holding and the
Company
Edgar M. Frandle 59 Chief Information Officer of the Company
Paul D. Stone 38 Senior Vice President and Chief Administrative Officer of
Holding and the Company
Thomas O. Hicks 53 Director of Holding and the Company
Jack D. Furst 40 Director of Holding and the Company
Joe Colonnetta 38 Director of Holding and the Company
A. Laurence Jones 46 Director of Holding and the Company
James R. Porter 63 Director of the Company
</TABLE>
Mr. Glenn Staats founded Old CCI in 1976 and has been Chief Executive Officer
and a director of the Company since February 1997. Mr. Staats also served as
President of the Company from February 1997 until June 1999, at which time he
became Chairman of the Board. Mr. Staats has a Ph.D. in Engineering from the
University of Texas at Austin. Prior to founding Old CCI, Mr. Staats was a
Director of Graduate Studies in the College of Engineering at the University of
Missouri - Columbia. Mr. Staats is the brother of Preston W. Staats.
Mr. Preston Staats joined the Company in 1977 and has been Vice Chairman of the
Board since June 1999 and a director of the Company since February 1997. Mr.
Staats also served as Executive Vice President and Chief Operating Officer from
February 1997 until June 1999. Mr. Staats has a Ph.D. in Electrical Engineering
from Rice University in Houston, Texas. Prior to joining the Company, Mr. Staats
was a Nuclear Submarine Officer in the U.S. Navy and a private sector business
consultant. Mr. Staats is the brother of Glenn E. Staats.
Mr. Aviles joined the Company as President and Chief Operating Officer in June
1999. Prior to joining the Company, Mr. Aviles served as President and CEO of
Foster Grant Group, a marketer and distributor of consumer eyewear. Mr. Aviles
also served as Vice President, General Manager, of FOOTACTION USA, an athletic
specialty retailer, and as a Senior Manager with KPMG Peat Marwick. Mr. Aviles
has an M.B.A. from Stanford University, a B.B.A. from Pace University and is a
Certified Public Accountant in the State of New York.
Mr. Frandle has been Chief Information Officer of the Company since February
1998. Prior to joining the Company, Mr. Frandle served as Vice President of
Information Technology of AmeriData Corp., a value added computer reseller, from
December 1992 to
43
<PAGE> 46
November 1995 and as Vice President of Information Technology of OutBoard Marine
Corporation from November 1995 to January 1997. Mr. Frandle has both a B.A. and
M.B.A. from Minnesota Metropolitan State University.
Mr. Stone joined the Company as Senior Vice President and Chief Administrative
Officer in October 1999. Prior to joining the Company, Mr. Stone served as Chief
Financial Officer and Executive Vice President of Capstar Broadcasting from
January 1997 to September 1999. Prior to joining Capstar Broadcasting, he was an
Executive Vice President and the Chief Financial Officer of GulfStar
Communications, Inc. from April 1996 until January 1997. Prior to January 1997,
Mr. Stone was Vice President and Controller of Hicks Muse for six years. He is a
Certified Public Accountant.
Mr. Hicks has been a director of Holdings and the Company since February 1997.
Mr. Hicks has been Chairman and Chief Executive Officer of Hicks Muse since
co-founding the firm in 1989. Prior to forming Hicks Muse, Mr. Hicks co-founded
Hicks & Haas Incorporated in 1983 and served as its Co-Chairman and Co-Chief
Executive Officer through 1989. Mr. Hicks also serves as a director of several
portfolio companies in which Hicks Muse has invested, including CEI Citicorp
Holdings, S.A., AMFM Inc., Home Interiors & Gifts, Inc., International Home
Foods, Inc., LIN Television Corp., Olympus Real Estate Corporation, Teligent,
Inc., Triton Energy Limited, Viasystems Group Inc. and Sybron International
Corporation. Mr. Hicks is also the Chairman of the Board and owner of the Dallas
Stars Hockey Club, a member of the National Hockey League, and the Texas Rangers
baseball team, a member of Major League Baseball.
Mr. Furst has been a director of Holdings and the Company since February 1997.
Mr. Furst has served as a Partner and Principal of Hicks Muse since 1989, the
year in which it was formed. Mr. Furst has approximately 20 years of experience
in leveraged acquisitions and private investments. Mr. Furst is involved in all
aspects of Hicks Muse's business and has been actively involved in originating,
structuring and monitoring its investments. Prior to joining Hicks Muse, Mr.
Furst served as a Vice President and subsequently a Partner of Hicks & Haas from
1987 to 1989. From 1984 to 1986, Mr. Furst was a Merger and
Acquisitions/Corporate Finance Specialist for The First Boston Corporation in
New York. Before joining First Boston, Mr. Furst was a Financial Consultant at
PricewaterhouseCoopers. Mr. Furst serves on the Boards of Directors of American
Tower Corporation, Triton Energy Limited, Home Interiors & Gifts, Inc., Hedstrom
Holdings, Inc., International Wire Holding Company, LLS Corp. and Viasystems
Group, Inc.
Mr. Colonnetta has been a director of Holdings and the Company since June 1999.
Mr. Colonnetta has served as a Principal of Hicks Muse since January 1999. From
1995 to 1998, Mr. Colonnetta served as a Managing Principal of a management
affiliate of Hicks Muse. From 1994 to 1995, Mr. Colonnetta was an Operating
Partner and Chief Executive Officer of Triangle FoodService and StarMark Foods.
From 1989 to 1994, Mr. Colonnetta was the Chief Financial Officer of TRC, a
company specializing in repositioning and growing food-related companies. Mr.
Colonnetta is also a director of Home Interiors & Gifts, Inc., Regal Cinemas,
Inc. and The Grand Union Company.
Mr. Jones has been a director of Holding and the Company since July 1997. He is
currently President and Chief Executive Officer of MessageMedia, Inc. From
January 1998 until February 1999 Mr. Jones served as an Operating Affiliate of
McCown DeLeeuw & Co. From August 1993 to August 1997, Mr. Jones served as the
President and Chief Executive Officer of Neodata Services Inc., a provider of
marketing services. Prior to his employment by Neodata Services Inc., Mr. Jones
served as Chief Executive Officer of GovPX, a provider of U.S. Treasury data and
pricing services from 1991 to August 1993. Mr. Jones has an M.B.A. from Boston
College. He also serves as Chairman of the Board of SARCOM Inc., and as a
director of Exabyte, Inc. and RSP/EMS Manufacturing.
Mr. Porter has served as a director of the Company since September 1985. In
February 1998, Mr. Porter retired as an employee of the Company and is no longer
involved in the day-to-day management of the Company. He served as President and
Chief Executive Officer of Triad from September 1985 to February 1997. Mr.
Porter also serves as a director of Silicon Valley Bank, FirstWave Technologies,
Inc., Cardone Industries, Inc. and Cellular Technical Services.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the cash and noncash compensation earned by the
Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company and Holding during the fiscal
years ended September 30, 1997, 1998 and 1999. The Chief Executive Officer and
such executive officers are collectively referred to as the "Named Executive
Officers."
44
<PAGE> 47
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL
FISCAL ------------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY ($) BONUS ($) OPTIONS(2) COMPENSATION ($)(3)
- ----------------------------------------------- ------- ----------- ---------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
Glenn E. Staats........................... 1999 342,441 80,855(5) -- --
President and Chief Executive Officer 1998 321,532 58,777(5) -- --
of Holding and the Company (4) 1997 172,820 4,666(6) -- 5,330,924(7)
Preston W. Staats......................... 1999 231,409 55,599(9) -- --
Executive Vice President and Chief Operating 1998 217,279 40,630(9) -- --
Officer of Holding and the Company (8) 1997 138,240 4,750(6) -- 877,697(7)
Matthew Hale.............................. 1999 176,419 43,100(11) -- --
Vice President of Finance and Chief 1998 165,639 40,376(11) 220,000 --
Financial Officer of Holding
and the Company (10) 1997 129,520 38,562(11) -- --
Edgar M. Frandle.......................... 1999 172,478 41,195(12) -- 84,822(13)
Chief Information Officer 1998 103,385 56,350(12) 60,000 --
1997 -- -- -- --
Phillip L. Waters......................... 1999 150,479 37,203(15) - --
Vice President of Administration 1998 143,700 36,158(15) 145,000 --
of the Company (14) 1997 111,800 6,700(15) -- --
</TABLE>
- -----------------------
(1) Compensation for fiscal 1997 includes compensation for only the ten-month
period ended September 30, 1997.
(2) Represents grants of options to purchase shares of Holding's common stock.
See "1998 Stock Option Plan."
(3) For each of the periods reported, the aggregate amount of perquisites and
other personal benefits did not exceed the lesser of $50,000 or 10% of the
salary and bonus of each of the Named Executive Officers.
(4) Mr. Glenn E. Staats resigned as President of Holding and the Company in
June 1999. Mr. Staats continues to serve as Chairman of the Board and
Chief Executive Officer of Holding and the Company.
(5) Includes a 401(k) matching contribution of $3,000 and $3,089 for fiscal
years 1999 and 1998, respectively.
(6) Represents 401(k) matching contributions.
(7) Represents corporate distributions of Subchapter S Corporation taxable
income.
(8) Mr. Preston W. Staats resigned as an Executive Vice President and as the
Chief Operating Officer of Holding and the Company in June 1999. Mr. Staats
continues to serve as Vice Chairman of the Board of Holding and the
Company.
(9) Includes a 401(k) matching contribution of $3,000 for fiscal years 1999 and
1998, respectively.
(10) Through October 1999, Mr. Hale served as Vice President of Finance and
Chief Financial Officer of Holding and the Company. Since October 1999, Mr.
Hale has served as Vice President of Business Development of Holdings and
the Company.
(11) Includes 401(k) matching contribution of $3,000, $4,188, and $3,562 for
fiscal years 1999, 1998, and 1997, respectively
(12) Includes a 401(k) matching contribution of $3,000 for fiscal years 1999 and
1998, respectively.
(13) Represents relocation expenses.
(14) Mr. Waters resigned as Vice President of Administration of the Company in
December 1999.
(15) Includes 401(k) matching contribution of $3,000, $4,188, and $4,200 for
fiscal years 1999, 1998, and 1997, respectively.
EMPLOYMENT AGREEMENTS
Pursuant to an employment agreement with the Company, Michael A. Aviles is
employed as the President and Chief Operating Officer of the Company for an
initial term ending September 30, 2002 at an annual base compensation of
$350,000, plus a quarterly bonus of $43,750. In addition, the agreement provides
for a special cash incentive of $5 million, which can be earned during the
initial term upon the achievement of certain economic milestones or upon a
change of control of the Company. The agreement also requires the grant of a
stock option to Mr. Aviles to purchase 500,000 shares of the common stock of
Holding at an exercise price of $5.00 per share, which option vests in three
equal annual installments commencing in June 2000 or upon the change of control
of the Company.
Pursuant to an employment agreement with the Company, Paul D. Stone is employed
as a Senior Vice President and the Chief Administrative Officer of the Company.
The employment agreement is terminable by either the Company or Mr. Stone upon
prior written notice to the other party. Pursuant to the agreement, Mr. Stone
shall receive an annual base salary of $215,000 for the first year of his
employment and $265,000 for each year thereafter, plus a performance-based
quarterly bonus. In addition, the agreement requires the grant of a stock option
to Mr. Stone to purchase 300,000 shares of the common stock of Holding at an
exercise price of $5.00 per share, which option has not yet been granted.
45
<PAGE> 48
The Stockholders Agreement (as defined in "Certain Relationships and Related
Transactions--Stockholder Agreement") provides that Messrs. Glenn and Preston
Staats, for a period of five years from the date of the Stockholders Agreement,
shall diligently devote substantially all of their working time, attention and
knowledge and skills solely to the business and interest of Holding and shall
discharge the duties and assume the responsibilities assigned to each of them
from time to time by the Chief Executive Officer and Board of Directors of
Holding (or its Executive Committee, as the case may be). No other terms of
their employment with Holding or the Company is set forth in the Stockholders
Agreement.
Other than as described above, the Company does not currently have employment
agreements or other binding employment arrangements with any Named Executive
Officer.
1998 STOCK OPTION PLAN
The Plan
The Cooperative Computing Holding Company, Inc. 1998 Stock Option Plan, as
amended (the "Plan"), pursuant to which options may be granted to key employees
and eligible non-employees of Holding and its subsidiaries (including the
Company) for the purchase of shares of Holding's common stock, par value
$.000125 per share ("Holding Common Stock").
The employees and non-employees eligible for options under the Plan are those
persons who the Board of Directors (or a committee thereof) (in either case, the
"Committee") identifies as having a direct and significant effect on the
performance or financial development of Holding and its subsidiaries. The Plan
provides that, notwithstanding the foregoing, no grants of options may be made
under the Plan to any officer or employee who received "founder's shares" or any
officer or employee who is a member of Holding's Board of Directors. A total of
5,050,000 shares of Holding Common Stock are available in respect of options
granted under the Plan, and the maximum number of shares that may be granted to
any employee or eligible non-employee in respect of options granted under the
Plan is 500,000. Generally, options granted under the Plan may not have a term
in excess of ten years from the date the option is granted.
Although the Committee has discretion in determining the terms of any option, it
is expected that options will generally vest and become exercisable over a
six-year period beginning on the last day of the fiscal year in which the option
was granted, such that 0% would become vested on the first anniversary of the
end of the fiscal year of the date of grant, 10% would become vested on the
second anniversary, 20% would become vested on the third anniversary, 30% would
become vested on the fourth anniversary, 65% would become vested on the fifth
anniversary, and 100% would become vested on the sixth anniversary.
Notwithstanding the foregoing, in the event of a Public Offering (as defined in
the Plan) all options that were not exercisable at the time of the Public
Offering will vest ratably over a period of years equal to five minus the number
of complete years of vesting that had occurred prior to the Public Offering.
The Committee has the right, but not the obligation, to accelerate the vesting
of any outstanding options upon the occurrence of, or the entering into of an
agreement providing for, a Change of Control (as defined in the Plan). Both
incentive stock options and nonqualified stock options may be granted under the
Plan.
Holding has the right, under certain circumstances, to repurchase from any
optionee at the Fair Market Value (as defined in the Plan) any options held by
such optionee or any shares of Holding Common Stock issued on exercise of any
such options. The circumstances under which Holding may exercise this option
generally include (i) the termination of the optionee's employment or other
relationship with the Company, (ii) the occurrence of a Change of Control, or
(iii) Holding engages in a transaction (such as a merger or share exchange)
whereby such optionee would receive securities and such optionee is not
qualified as an "accredited investor" within the meaning of the Securities Act
of 1933, as amended. Holding's purchase option terminates on the consummation of
a Public Offering. In addition to the foregoing, if an optionee's employment or
other relationship terminates as a result of the death of such optionee, the
estate of such optionee or other person who inherits the right to exercise the
option or the shares of Holding Common Stock issued on exercise of options
granted under the Plan, shall be entitled to require the Company to purchase,
for Fair Market Value, all or any portion of the optionee's options or shares of
Holding Common Stock issued on exercise of such options. A deceased optionee's
repurchase, or "put," right may be exercised at any time prior to the first
anniversary of the optionee's death.
The Board of Directors may amend, modify, suspend or terminate the Plan without
the approval of Holding's stockholders, except that, without stockholder
approval, the Board of Directors will not have the power or authority to
increase the number of shares of Holding Common Stock that may be issued
pursuant to the exercise of options under the Plan, decrease the minimum
exercise price of any incentive stock option or modify requirements relating to
eligibility with respect to incentive options.
46
<PAGE> 49
Option Grants
None of the Named Executive Officers were granted options during the 1999 fiscal
year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions are made by the Board of Directors of the Company.
Messrs. Glenn and Preston Staats served both as officers and directors of the
Company during 1999. Messrs. Glenn and Preston Staats are expected to continue
to serve in such capacities in 2000. Mr. Porter retired as an employee of the
Company in February 1998 and no longer participates in the day-to-day management
of the Company.
Directors who are officers, employees or otherwise an affiliate of Holding or
the Company receive no compensation for their services as directors. Each
director of Holding and the Company who is not also an officer, employee or an
affiliate of Holding or the Company receives a fee of $3,000 for each meeting of
the Board of Directors at which the director is present. Directors of Holding
and the Company are entitled to reimbursement of their reasonable out-of-pocket
expenses in connection with their travel to and attendance at meetings of the
Board of Directors or committees thereof. Additionally, in consideration for his
services as a director, in 1997, Holding issued to Mr. A. Laurence Jones a
warrant to purchase 20,000 shares of Holding Common Stock at an exercise price
of $5.00 per share.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All of the issued and outstanding shares of capital stock of the Company are
held by Holding. The following table sets forth as of September 30, 1999,
certain information regarding the beneficial ownership of the voting securities
of Holding by each person who beneficially owns more than five percent of
Holding Common Stock, and by the directors and certain executive officers of
Holding and the Company, individually, and by the directors and executive
officers of Holding and the Company as a group.
<TABLE>
<CAPTION>
SHARES OF
HOLDING CLASS A SHARES OF
COMMON STOCK HOLDING COMMON STOCK
---------------- ---------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
NAME AND ADDRESS SHARES CLASS SHARES CLASS
- -------------------------------------------------- ----------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Hicks Muse Parties (1)......................... 25,000,000 100% 19,200,000 54.5%
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Glenn E. Staats................................ 13,333,334 37.9%
Preston W. Staats.............................. 2,666,666 7.6%
Thomas O. Hicks (1)............................ 25,000,000 100% 19,200,000 54.5%
Jack D. Furst (1).............................. 25,000,000 100% 19,200,000 54.5%
Joe Colonnetta (1)............................. 25,000,000 100% 19,200,000 54.5%
A. Laurence Jones.............................. 40,000(2) *
James R. Porter................................ -- --
All executive officers and directors as a
group (11 persons)........................... 25,000,000(1) 100% 35,282,500(1)(2)(3) 100%
</TABLE>
- ----------------------------
* Represents less than 1%.
(1) Includes (i) shares owned of record by Hicks, Muse, Tate & Furst Equity
Fund III, L.P. ("Fund III"), of which the ultimate general partner is
Hicks, Muse Fund III Incorporated, an affiliate of Hicks Muse, and (ii)
shares owned of record by HM3 Coinvestors, L.P., a limited partnership
of which the ultimate general partner is Hicks, Muse Fund III
Incorporated. Thomas O. Hicks is a controlling stockholder of Hicks Muse
and serves as Chairman of the Board, President, Chief Executive Officer
and Secretary of Hicks Muse. Accordingly, Mr. Hicks may be deemed to be
the beneficial owner of Holding Common Stock held by Fund III and HM3
Coinvestors, L.P. John R. Muse, Charles W. Tate, Jack D. Furst, Lawrence
D. Stuart, Jr., Michael J. Levitt, David B. Deniger and Dan H. Blanks
are principals and minority stockholders of Hicks Muse and as such may
be deemed to share with Mr. Hicks the power to vote or dispose of
Holding Common Stock held by Fund III and HM3 Coinvestors, L.P. Each of
Messrs. Hicks, Muse, Tate, Furst, Stuart, Levitt, Deniger and Blanks
disclaims the existence of a group and disclaims beneficial ownership of
Holding Common Stock not respectively owned of record by him.
47
<PAGE> 50
(2) Includes 20,000 shares of Holding Common Stock issuable to Mr. Jones
upon the exercise of a currently exercisable warrant.
(3) Includes 42,500 shares of Holding Common Stock issuable to executive
officers of the Company upon the exercise of currently exercisable stock
options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Monitoring and Oversight Agreement
In conjunction with the Triad Acquisition, Holding and the Company entered into
a ten-year agreement (the "Monitoring and Oversight Agreement") with Hicks, Muse
& Co. Partners, L.P., an affiliate of Hicks Muse ("Hicks Muse Partners"),
pursuant to which Holding and the Company pay Hicks Muse Partners an annual fee
payable quarterly for oversight and monitoring services to Holding and the
Company. The annual fee is adjustable on January 1 of each calendar year to an
amount equal to the (i) sum of (A) the fee in effect at the beginning of the
immediately preceding calendar year plus (B) the aggregate amount of all
Acquisition Increments (as defined) with respect to such immediately preceding
calendar year, multiplied by (ii) the percentage increase in the Consumer Price
Index during the immediately preceding calendar year, but in no event less than
$350,000. Upon the acquisition by the Company or any of its subsidiaries of
another entity or business, the fee is increased by an amount equal to 0.2% of
the consolidated annual net sales of the acquired entity or business and its
subsidiaries for the trailing twelve-month period (an "Acquisition Increment").
Thomas O. Hicks, Jack D. Furst and Joe Colonnetta, directors of Holding and the
Company, are each principals of Hicks Muse Partners. Hicks Muse Partners is also
entitled to reimbursement for any expenses incurred by it in connection with
rendering services allocable to Holding or the Company under the Monitoring and
Oversight Agreement. In addition, Holding and the Company have agreed to
indemnify Hicks Muse Partners, its affiliates and their respective directors,
officers, controlling persons, agents and employees from and against all claims,
liabilities, losses, damages expenses, and fees and disbursement of counsel
related to or arising out of or in connection with the services rendered by
Hicks Muse Partners under the Monitoring and Oversight Agreement and not
resulting primarily from the bad faith, gross negligence or willful misconduct
of Hicks Muse Partners. The Monitoring and Oversight Agreement makes available
the resources of Hicks Muse Partners concerning a variety of financial and
operational matters. The Company does not believe that the services that have
been and will continue to be provided to Holding and the Company pursuant to the
Monitoring and Oversight Agreement could otherwise be obtained by Holding and
the Company without the addition of personnel or the engagement of outside
professional advisors. In the Company's opinion, the fees provided for under the
Monitoring and Oversight Agreement reasonably reflect the benefits received and
to be received by Holding, the Company and their respective subsidiaries. In
fiscal 1999, the Company paid Hicks Muse Partners a fee of $299,236 for services
under the Monitoring and Oversight Agreement.
Financial Advisory Agreement
In conjunction with the Triad Acquisition, Holding and the Company entered into
a ten-year agreement (the "Financial Advisory Agreement") pursuant to which
Hicks Muse Partners receives a fee equal to 1.5% of the "Transaction Value" (as
defined in the Financial Advisory Agreement) for each "Add-on Transaction" (as
defined below) in which Holding or the Company is involved. The term
"Transaction Value" means the total value of the Add-on Transaction, including,
without limitation, the aggregate amount of the funds required to complete the
Add-on Transaction, including the amount of any indebtedness, preferred stock or
similar items assumed (or remaining outstanding). The term "Add-on Transaction"
means any respective subsidiaries, and any other person or entity, excluding,
however, any acquisition that does not involve the use of (or any waiver or
consent under) any debt equity financing and in which neither Hicks Muse
Partners nor any other person or entity provides financial advisory investment
on banking or similar services. In addition, Holding and the Company, jointly
and severally, have agreed to indemnify Hicks Muse Partners, its affiliates, and
their respective directors, officers, controlling persons, agents and employees
from and against all claims, liabilities, losses, damages, expenses and fees
related to or arising out of or in connection with the services rendered by
Hicks Muse Partners under the Financial Advisory Agreement and not resulting
primarily from the bad faith, gross negligence, or willful misconduct of Hicks
Muse Partners. The Financial Advisory Agreement makes available the resources of
Hicks Muse Partners concerning a variety of financial and operational matters.
The Company does not believe that the services that have been and will continue
to be provided by Hicks Muse Partners pursuant to the Financial Advisory
Agreement could otherwise be obtained by Holding and the Company without the
addition of personnel or the engagement of outside professional advisors. In the
Company's opinion, the fees provided for under the Financial Advisory Agreement
reasonably reflect the benefits received and to be received by Holding and the
Company. In fiscal 1999, the Company paid no fees to Hicks Muse Partners for
services provided by Hicks Muse Partners under the Financial Advisory Agreement.
48
<PAGE> 51
Issuance of Class A Common Stock
On May 27, 1999, Holding issued 25,000,000 shares of its Class A Common Stock,
par value $.000125 per share (the "Class A Common Stock"), to Hicks, Muse, Tate
& Furst Equity Fund III, L.P. and HM3 Coinvestors, L.P. for net proceeds of
$23.9 million, which were contributed to the Company and used primarily to pay
amounts outstanding under the Company's senior secured revolving credit
facility. Hicks Muse Partners received a $1 million financial advisory fee in
connection with the transaction.
The Class A Common Stock is senior to Holding's existing common stock upon
liquidation, but votes with the existing common stock as a single class. Upon
dissolution of Holding, holders of Class A Common Stock are to receive the
Stated Value (as defined below) of their shares before any distribution to
common stockholders. Once the holders of Class A Common Stock receive the Stated
Value, the remaining assets are distributed among the common stockholders pro
rata. The "Stated Value" of a share of Class A Common Stock is $1.00, plus
notional interest of 35% per annum, accrued daily and compounded annually. As
long as the Class A Common Stock is outstanding, there may be no dividends,
stock splits, or other distributions declared or paid on Holding's common stock,
as well as no redemptions or other repurchases.
Each holder of Class A Common Stock may put any of its shares to Holding, and
Holding may redeem shares of Class A Common Stock at any time, for the Stated
Value of those shares, subject to certain conditions, including the ability of
the Company to make advances to Holding for such purpose. It is not anticipated
that the Company will be able to advance to Holding funds to redeem the Class A
Common Stock under the current terms of the Company's senior secured credit
facilities.
Stockholders Agreement
Each holder of Holding Common Stock has entered into a stockholders agreement
(the "Stockholders Agreement"). The Stockholders Agreement, among other things,
grants preemptive rights and certain registration rights to the parties thereto
and contains provisions requiring the parties thereto to sell their shares of
Holding Common Stock in connection with certain sales of Holding Common Stock by
the HMC Group (as defined therein) and granting the parties thereto the right to
include a portion of their shares of Holding Common Stock in certain sales in
which other holders may engage. All parties to the Stockholders Agreement agreed
that (i) the HMC Group is entitled to designate four individuals to the Board of
Directors of Holding and the Company so long as the HMC Group owns at least ten
percent of the voting capital stock of Holding or one individual so long as the
HMC Group owns at least five percent but less than ten percent of the voting
capital stock of Holding; (ii) Messrs. Glenn and Preston Staats are entitled to
designate two individuals to the Board of Directors of Holding and the Company
so long as Messrs. Glenn and Preston Staats together own at least ten percent of
the voting capital stock of Holding or one individual so long as Messrs. Glenn
and Preston Staats together own at least five percent but less than ten percent
of the voting capital stock of Holding; and (iii) any remaining positions on the
Board of Directors of Holding and the Company would be independent directors
mutually acceptable to Hicks Muse and the HMC Group, and Messrs. Glenn and
Preston Staats. In addition, all parties to the Stockholders Agreement agreed to
vote any shares that they may vote on any particular matter that comes before
the Company's stockholders as a separate class or series, on such matter as
holders of a majority of the outstanding shares of Holding Common Stock voted
thereon.
Lease of Corporate Offices
The Company's principal executive offices are leased from a corporation that is
wholly owned by Messrs. Glenn and Preston Staats. In fiscal 1999, the rental
payments for such facility were $540,000.
Lease of Corporate Aircraft
The Company leased an airplane for general corporate use from a corporation that
is wholly owned by Mr. Glenn Staats. Lease payments, which the Company believes
reasonably reflect the benefits thereof, totaled $475,514 in fiscal 1999.
Subsequent to September 30, 1999, the Company terminated such lease.
Related Officers
Sharon W. Staats, the wife of Mr. Preston Staats, served as Vice President of
Special Projects during 1999, during which she earned compensation of $129,990.
Effective September 30, 1999, Ms. Staats retired from the Company. Subsequent to
September 30, 1999, Ms. Staats received final compensation of $127,578,
including accrued vacation.
49
<PAGE> 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements-- See index to Consolidated Financial
Statements in Item 8 hereof.
(2) Financial Statements Schedules -- See Schedule II - Valuation and
Qualifying Accounts. All other schedules have been omitted
because they are not applicable, not required under the
instructions, or the information requested is set forth in the
consolidated financial statements or related notes thereto.
(3) Exhibits:
EXHIBIT
NO.
- --------
2.1 -- Agreement and Plan of Merger, dated as of October 17, 1996,
among Cooperative Computing, Inc., CCI Acquisition Corp. and
Triad Systems Corporation. (1)
2.2 -- First Amendment to Agreement and Plan of Merger, dated as of
January 15, 1997. (1)
2.3 -- Second Amendment to Agreement and Plan of Merger, dated as of
February 19, 1997. (1)
3.1 -- Restated Certificate of Incorporation of the Company. (1)
3.2 -- Certificate of Amendment of Certificate of Incorporation of
the Company. (1)
3.3 -- Amended and Restated Bylaws of the Company. (2)
4.1 -- Indenture, dated as of February 10, 1998, between the Company
and Norwest Bank Minnesota, National Association. (1)
4.2 -- Form of Note. (1)
10.1 -- Credit Agreement, dated as of February 27, 1997, as amended
and restated as of February 10, 1998, among the Company,
Holding, the several banks and other financial institutions
parties thereto, and The Chase Manhattan Bank (the "Credit
Agreement"). (1)
10.2 -- First Amendment to the Credit Agreement, dated as of June 30,
1998. (3)
10.3 -- Second Amendment to the Credit Agreement, dated as of February
12, 1999. (4)
10.4 -- Third Amendment to the Credit Agreement, dated as of May 25,
1999. (5)
10.5 -- Fourth Amendment to the Credit Agreement, dated as of December
21, 1999.*
10.6 -- Guarantee and Collateral Agreement, dated as of February 27,
1997, as amended and restated as of February 6, 1998, made by
the Company; Holding, and certain of their subsidiaries in
favor of the Chase Manhattan Bank. (1)
10.7 -- Loan and Security Agreement, dated as of January 1, 1997,
between CCI/Triad Financial Holding Corporation and Heller
Financial, Inc. (1)
10.8 -- Amendment, dated March 31, 1999, among the Registrant, Triad
Systems Financial Corporation, CCI/Triad Financial Holding
Corporation, as Borrower, and Heller Financial Leasing, Inc.
(5)
10.9 -- Master Loan and Security Agreement, dated as of June 1, 1998,
between CCI/Triad Financial Holding Corporation and
NationsCredit Commercial Corporation (the "NCC Agreement").*
10.10 -- Amendment No. 1 to the NCC Agreement, dated as of September
28, 1999.*
10.11 -- Loan and Security Agreement, dated as of January 1, 1997,
between CCI/Triad Financial Holding Corporation and Metlife
Capital Corporation. (1)
10.12 -- Loan and Security Agreement, dated as of March 1, 1997,
between CCI/Triad Financial Holding Corporation and Sanwa
Business Credit Corporation. (1)
10.13 -- Loan and Security Agreement, dated as of September 25, 1997,
between Triad Systems Financial Corporation and Mellon U.S.
Leasing, A Division of Mellon Leasing Corporation. (1)
10.14 -- Purchase Agreement, dated as of February 1, 1999, between
Triad Systems Financial Corporation and Mellon US Leasing, A
Division of Mellon Leasing Corporation. (4)
10.15 -- Loan and Security Agreement, dated as of July 1, 1999, between
CCI/Triad Financial Holding Corporation and IFC Credit
Corporation.*
10.16 -- First Amendment to the IFC Agreement, dated as of September
23, 1999.*
10.17 -- Project Lease Agreement, dated as of August 1, 1988, between
3055 Triad Dr. Corp. and the Company. (1)
10.18 -- First Amendment to Project Lease Agreement, effective as of
February 26, 1997. (1)
50
<PAGE> 53
10.19 -- Lease Agreement, dated as of January 11, 1992, by and between
Computerized Properties, Inc. and the Company. (1)
10.20 -- Agreement between the Industrial Development Authority and
Triad Systems Ireland Limited, Triad Systems Corporation and
Tridex Systems Limited. (1)
10.21 -- Supplemental Agreement between the Industrial Development
Authority and Triad Systems Ireland Limited, Triad Systems
Corporation and Tridex Systems Limited. (1)
10.22 -- Real Estate Distribution Agreement, dated February 26, 1997,
among the Company, 3055 Triad Dr. Corp., 3055 Management
Corp., and Triad Park, LLC. (1)
10.23 -- Assignment and Assumption Agreement, dated February 27, 1997,
between the Company and Triad Park, LLC. (1)
10.24 -- Assignment and Assumption Agreement, dated February 27, 1997,
between the Company and Triad Park, LLC. (1)
10.25 -- Warrant of Cooperative Computing Holding Company, Inc., dated
September 10, 1997, issued to A. Laurence Jones. (1)
10.26 -- Stockholders Agreement, dated as of May 26, 1999, among the
Company, Holdings and the stockholders signatory thereto.*
10.27 -- Monitoring and Oversight Agreement, dated as of February 27,
1997, among Holding, the Company, and Hicks, Muse & Co.
Partners, L.P. (1)
10.28 -- Financial Advisory Agreement, dated as of February 27, 1997,
among Holding, the Company, and Hicks, Muse & Co. Partners,
L.P. (1)
10.29 -- Asset Purchase Agreement, dated as of November 20, 1997,
between ADP Claims Solutions Group, Inc. and the Company,
dated as of November 20, 1997. (1)
10.30 -- Employment Agreement, dated as of June 14, 1999, between the
Company and Michael A. Aviles. (5)
10.31 -- Stock Option Agreement, dated June 14, 1999, between Holding
and Michael A. Aviles.*
10.32 -- Employment Agreement, dated effective as of October 1, 1999,
between the Company and Paul D. Stone.*
10.33 -- Cooperative Computing Holding Company, Inc. 1998 Stock Option
Plan, as amended. (5)
10.34 -- Form of Non-Qualified Stock Option Agreement for Eligible
Employees. (2)
21 -- List of Subsidiaries.*
27 -- Financial Data Schedule.*
- -----------------
* Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-49389) filed on April 3, 1998.
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended September 30, 1998.
(3) Incorporated by reference to Pre-Effective Amendment No.1 to the
Registrant's Registration Statement on Form S-1 (File No. 333-49389)
filed on July 8, 1998.
(4) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the three months ended March 31, 1999.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the three months ended June 30, 1999.
(b) Reports on Form 8-K.
No Reports on Form 8-K have been filed during the three months ended
September 30, 1999.
51
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 29th day of
December, 1999.
COOPERATIVE COMPUTING, INC.
By: /s/ PAUL D. STONE
--------------------------------
Paul D. Stone
Senior Vice President and
Chief Administrative Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------- -----------------
<S> <C> <C>
/s/ MICHAEL A. AVILES President and Chief Operating December 29, 1999
- ------------------------------------- Officer (Principal
Michael A. Aviles Executive Officer)
/s/ PAUL D. STONE Senior Vice President and December 29, 1999
- ------------------------------------- Chief Administrative Officer
Paul D. Stone (Principal Accounting and
Financial Officer)
/s/ GLENN E. STAATS Chairman of the Board and December 29, 1999
- ------------------------------------- Chief Executive Officer
Glenn E. Staats and a Director
/s/ PRESTON W. STAATS Vice Chairman of the Board December 29, 1999
- ------------------------------------- and a Director
Preston W. Staats
/s/ THOMAS O. HICKS Director December 29, 1999
- -------------------------------------
Thomas O. Hicks
/s/ JACK D. FURST Director December 29, 1999
- -------------------------------------
Jack D. Furst
/s/ JOE COLONNETTA Director December 29, 1999
- -------------------------------------
Joe Colonnetta
/s/ A. LAURENCE JONES Director December 29, 1999
- -------------------------------------
A. Laurence Jones
/s/ JAMES R. PORTER Director December 29, 1999
- -------------------------------------
James R. Porter
</TABLE>
52
<PAGE> 55
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
TEN MONTHS ENDED SEPTEMBER 30, 1997:
Allowance for doubtful accounts and system
returns $ 1,949 $ 4,309(A) $ 790 $ 5,468
Inventory valuation 148 1,970(B) 48 2,070
Allowance for losses in investment in leases -- 3,089(C) 2,359 730
YEAR ENDED SEPTEMBER 30, 1998:
Allowance for doubtful accounts and system
returns 5,468 6,599 5,966 6,101
Inventory valuation 2,070 561 647 1,984
Allowance for losses in investment in leases 730 3,355 3,365 720
YEAR ENDED SEPTEMBER 30, 1999:
Allowance for doubtful accounts and system
returns 6,101 8,296 4,771 9,626
Inventory valuation 1,984 218 400 1,802
Allowance for losses in investment in 720 3,825 2,570 1,975
leases
</TABLE>
- ---------------------
(A) Includes $1,875 balance transferred from the acquisition of Triad
Systems Corporation.
(B) Includes $856 balance transferred from the acquisition of Triad Systems
Corporation.
(C) Includes $222 balance transferred from the acquisition of Triad Systems
Corporation.
53
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated as of October 17, 1996,
among Cooperative Computing, Inc., CCI Acquisition Corp. and
Triad Systems Corporation. (1)
2.2 -- First Amendment to Agreement and Plan of Merger, dated as of
January 15, 1997. (1)
2.3 -- Second Amendment to Agreement and Plan of Merger, dated as of
February 19, 1997. (1)
3.1 -- Restated Certificate of Incorporation of the Company. (1)
3.2 -- Certificate of Amendment of Certificate of Incorporation of
the Company. (1)
3.3 -- Amended and Restated Bylaws of the Company. (2)
4.1 -- Indenture, dated as of February 10, 1998, between the Company
and Norwest Bank Minnesota, National Association. (1)
4.2 -- Form of Note. (1)
10.1 -- Credit Agreement, dated as of February 27, 1997, as amended
and restated as of February 10, 1998, among the Company,
Holding, the several banks and other financial institutions
parties thereto, and The Chase Manhattan Bank (the "Credit
Agreement"). (1)
10.2 -- First Amendment to the Credit Agreement, dated as of June 30,
1998. (3)
10.3 -- Second Amendment to the Credit Agreement, dated as of February
12, 1999. (4)
10.4 -- Third Amendment to the Credit Agreement, dated as of May 25,
1999. (5)
10.5 -- Fourth Amendment to the Credit Agreement, dated as of December
21, 1999.*
10.6 -- Guarantee and Collateral Agreement, dated as of February 27,
1997, as amended and restated as of February 6, 1998, made by
the Company; Holding, and certain of their subsidiaries in
favor of the Chase Manhattan Bank. (1)
10.7 -- Loan and Security Agreement, dated as of January 1, 1997,
between CCI/Triad Financial Holding Corporation and Heller
Financial, Inc. (1)
10.8 -- Amendment, dated March 31, 1999, among the Registrant, Triad
Systems Financial Corporation, CCI/Triad Financial Holding
Corporation, as Borrower, and Heller Financial Leasing, Inc.
(5)
10.9 -- Master Loan and Security Agreement, dated as of June 1, 1998,
between CCI/Triad Financial Holding Corporation and
NationsCredit Commercial Corporation (the "NCC Agreement").*
10.10 -- Amendment No. 1 to the NCC Agreement, dated as of September
28, 1999.*
10.11 -- Loan and Security Agreement, dated as of January 1, 1997,
between CCI/Triad Financial Holding Corporation and Metlife
Capital Corporation. (1)
10.12 -- Loan and Security Agreement, dated as of March 1, 1997,
between CCI/Triad Financial Holding Corporation and Sanwa
Business Credit Corporation. (1)
10.13 -- Loan and Security Agreement, dated as of September 25, 1997,
between Triad Systems Financial Corporation and Mellon U.S.
Leasing, A Division of Mellon Leasing Corporation. (1)
10.14 -- Purchase Agreement, dated as of February 1, 1999, between
Triad Systems Financial Corporation and Mellon US Leasing, A
Division of Mellon Leasing Corporation. (4)
10.15 -- Loan and Security Agreement, dated as of July 1, 1999, between
CCI/Triad Financial Holding Corporation and IFC Credit
Corporation.*
10.16 -- First Amendment to the IFC Agreement, dated as of September
23, 1999.*
10.17 -- Project Lease Agreement, dated as of August 1, 1988, between
3055 Triad Dr. Corp. and the Company. (1)
10.18 -- First Amendment to Project Lease Agreement, effective as of
February 26, 1997. (1)
</TABLE>
<PAGE> 57
<TABLE>
<S> <C> <C>
10.19 -- Lease Agreement, dated as of January 11, 1992, by and between
Computerized Properties, Inc. and the Company. (1)
10.20 -- Agreement between the Industrial Development Authority and
Triad Systems Ireland Limited, Triad Systems Corporation and
Tridex Systems Limited. (1)
10.21 -- Supplemental Agreement between the Industrial Development
Authority and Triad Systems Ireland Limited, Triad Systems
Corporation and Tridex Systems Limited. (1)
10.22 -- Real Estate Distribution Agreement, dated February 26, 1997,
among the Company, 3055 Triad Dr. Corp., 3055 Management
Corp., and Triad Park, LLC. (1)
10.23 -- Assignment and Assumption Agreement, dated February 27, 1997,
between the Company and Triad Park, LLC. (1)
10.24 -- Assignment and Assumption Agreement, dated February 27, 1997,
between the Company and Triad Park, LLC. (1)
10.25 -- Warrant of Cooperative Computing Holding Company, Inc., dated
September 10, 1997, issued to A. Laurence Jones. (1)
10.26 -- Stockholders Agreement, dated as of May 26, 1999, among the
Company, Holdings and the stockholders signatory thereto.*
10.27 -- Monitoring and Oversight Agreement, dated as of February 27,
1997, among Holding, the Company, and Hicks, Muse & Co.
Partners, L.P. (1)
10.28 -- Financial Advisory Agreement, dated as of February 27, 1997,
among Holding, the Company, and Hicks, Muse & Co. Partners,
L.P. (1)
10.29 -- Asset Purchase Agreement, dated as of November 20, 1997,
between ADP Claims Solutions Group, Inc. and the Company,
dated as of November 20, 1997. (1)
10.30 -- Employment Agreement, dated as of June 14, 1999, between the
Company and Michael A. Aviles. (5)
10.31 -- Stock Option Agreement, dated June 14, 1999, between Holding
and Michael A. Aviles.*
10.32 -- Employment Agreement, dated effective as of October 1, 1999,
between the Company and Paul D. Stone.*
10.33 -- Cooperative Computing Holding Company, Inc. 1998 Stock Option
Plan, as amended. (5)
10.34 -- Form of Non-Qualified Stock Option Agreement for Eligible
Employees. (2)
21 -- List of Subsidiaries.*
27 -- Financial Data Schedule.*
</TABLE>
- -----------------
* Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 333-49389) filed on April 3, 1998.
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended September 30, 1998.
(3) Incorporated by reference to Pre-Effective Amendment No.1 to the
Registrant's Registration Statement on Form S-1 (File No. 333-49389)
filed on July 8, 1998.
(4) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the three months ended March 31, 1999.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the three months ended June 30, 1999.
<PAGE> 1
EXHIBIT 10.5
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of December 21, 1999 (this "Amendment"), to
the Credit Agreement, dated as of February 27, 1997, as amended and restated as
of February 10, 1998 and as further amended by the First Amendment, dated as of
June 30, 1998, the Second Amendment, dated as of February 12, 1999, and the
Third Amendment, dated as of May 25, 1999 (as further amended, supplemented or
modified from time to time, the "Credit Agreement"), among Cooperative
Computing, Inc., a Delaware corporation (the "Borrower"), Cooperative Computing
Holding Company, Inc., a Texas corporation, as guarantor ("CCI"), the several
banks and other financial institutions parties thereto (the "Lenders") and The
Chase Manhattan Bank, as the administrative agent for the Lenders (in such
capacity, the "Administrative Agent").
W I T N E S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make, and have made, certain loans and other extensions of credit to the
Borrower;
WHEREAS, the Borrower has requested that the Administrative Agent, with
the consent of the Required Lenders, amend certain provisions of the Credit
Agreement; and
WHEREAS, the Administrative Agent and the Lenders are willing to agree
to the requested amendments on the terms and conditions contained herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. Defined Terms. Terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement, as amended
hereby.
II. Amendments to Credit Agreement.
1. Amendments to Section 1. (a) Section 1.1 of the Credit Agreement is
hereby amended by deleting therefrom the definition of "Consolidated EBITDA" in
its entirety and substituting in lieu thereof the following:
"Consolidated EBITDA": for any period, with respect
to any Person, Consolidated Net Income of such Person for such period
(A) plus, without duplication and to the extent reflected as a charge
in the statement of such Consolidated Net Income for such period, the
sum of (i) total income and franchise tax expense, (ii) interest
expense, amortization or writeoff of debt discount and debt issuance
costs and commissions and discounts and other fees and charges
associated with Indebtedness, (iii) depreciation and amortization
expense, (iv) amortization of intangibles including, but not limited
to, goodwill and organization costs (including, with respect to the
Borrower, costs associated with the Offer to Purchase dated October 23,
1996 made by a subsidiary of CCI to
<PAGE> 2
2
purchase the common stock of the Borrower); (v) other extraordinary
noncash charges (in accordance with GAAP) (including non-cash currency
exchange losses); (vi) any extraordinary and unusual losses (including
losses on sales of assets other than inventory sold in the ordinary
course of business); (vii) any write-offs of accounts receivable booked
prior to October 1, 1999 (in accordance with GAAP) taken through the
period ending on September 30, 2000; (viii) any write-offs of accounts
receivable booked on or after October 1, 1999 (in accordance with GAAP)
taken through the period ending on September 30, 2000, provided that
the aggregate amount of all write-offs taken under this clause (viii),
minus any amounts recovered and applied in accordance with clause (iv)
below, shall not exceed $10,000,000; (ix) any cash restructuring
charges, provided that the aggregate amount of all charges taken under
this clause (ix) shall not exceed $10,000,000; and (x) any non-cash
restructuring charges taken through the period ending on September 30,
2000 and (B) minus, without duplication and to the extent reflected as
a credit or gain in the statement of such Consolidated Net Income for
such period, the sum of (i) any extraordinary and unusual gains
(including gains on the sales of assets, other than inventory sold in
the ordinary course of business), (ii) other extraordinary noncash
credits or gains (in accordance with GAAP) (including non-cash currency
exchange gains), (iii) any amounts recovered in respect of any
write-offs taken under clause (vii) above and (iv) any amounts
recovered in respect of any write-offs taken under clause (viii) above;
provided that for the purposes of calculating Consolidated EBITDA for
any period of four consecutive fiscal quarters (each, a "Reference
Period") for purposes of Section 8.1, (i) if at any time during such
Reference Period the Borrower or any Subsidiary shall consummate an
acquisition pursuant to Sections 8.9(k) or 8.9(l), the Consolidated
EBITDA for such Reference Period shall be calculated on a pro forma
basis (assuming the consummation of such acquisition and the incurrence
or assumption of any Indebtedness in connection therewith occurred on
the first day of such Reference Period) and (ii) if at any time during
such Reference Period the Borrower or any Subsidiary shall consummate
the Designated Asset Sale, the Consolidated EBITDA for such Reference
Period shall be reduced on a pro forma basis by an amount equal to the
Consolidated EBITDA (if positive) attributable to the property that is
the subject of the Designated Asset Sale (the "Reduced EBITDA").
(b) Section 1.1 of the Credit Agreement is hereby amended by
deleting therefrom the definition of "Asset Sale" in its entirety and
substituting in lieu thereof the following:
"Asset Sale": any sale, transfer or other disposition
(including any sale and leaseback of assets and any sale of accounts
receivable in connection with a receivable financing transaction) by
the Borrower or any of its Subsidiaries of any property of the Borrower
or any such Subsidiary (including property subject to any Lien under
any Security Document), other than as permitted pursuant to paragraphs
(a) through (k) of Section 8.6 (provided that, except with respect to
the loss or condemnation of all or substantially all of the assets of
the Borrower and its Subsidiaries, the proceeds from such casualty or
condemnation (including insurance) are used to replace or rebuild the
lost or condemned assets within the time period specified in Section
2.10(f)).
<PAGE> 3
3
(c) Section 1.1. of the Credit Agreement is hereby amended by
deleting the definition of "Interest Payment Date" in its entirety and
substituting in lieu thereof the following:
"Interest Payment Date": as to any Loan, the last day of each
month to occur while such Loan is outstanding and, if such Loan is a
Term Loan, the date of each payment of principal thereof.
(d) Section 1.1 of the Credit Agreement is hereby amended by
(i) deleting the word "and" appearing immediately before clause (i) of the
definition of "Permitted Issuance" and substituting in lieu thereof a ","; (ii)
deleting the "." at the end of clause (i) of such definition and substituting in
lieu thereof the word "and"; and (iii) adding the following new clause (j) to
the end of such definition:
(j) the issuance by CCI of the Additional Common Stock;
provided that the net proceeds thereof shall be contributed to the
Borrower and used for general corporate purposes or to repay the
Revolving Credit Loans (but not reduce the Revolving Credit
Commitments).
(e) Section 1.1 of the Credit Agreement is hereby amended by
adding thereto the following definitions in their proper alphabetical order:
"Additional Common Stock": the Class A Common Stock, par value
$.000125, issued by CCI to Hicks Muse in connection with the Additional
Hicks Muse Equity Investment.
"Additional Hicks Muse Equity Investment": the common stock
investment of up to $10,000,000 in CCI made by Hicks Muse by its
purchase of the Additional Common Stock.
"Designated Asset Sale": as defined in Section 8.6(l).
"Reduced EBITDA": as defined in the definition of
"Consolidated EBITDA."
2. Amendments to Section 2. (a) Section 2.4(a) of the Credit Agreement
is hereby amended by (i) deleting the word "quarterly" and substituting in lieu
thereof the word "monthly" and (ii) deleting the words "March, June, September
and December" and substituting in lieu thereof the word "month".
(b) Section 2.10(b) of the Credit Agreement is hereby amended
by deleting such Section 2.10(b) in its entirety and substituting in lieu
thereof the following:
(b) Unless the Required Lenders and the Borrower shall
otherwise agree, if CCI or any of its Subsidiaries (including the
Borrower) shall receive Net Cash Proceeds from any Asset Sale
(including the sale and leaseback of assets) 100% of such Net Cash
Proceeds (or, in the case of the Designated Asset Sale, 75% of such Net
Cash Proceeds)
<PAGE> 4
4
shall, on the first Business Day after receipt, be applied toward the
prepayment of the Loans and reduction of Commitments as set forth in
paragraph (d) of this Section 2.10.
(c) Section 2.10(d) of the Credit Agreement is hereby amended
by deleting such Section 2.10(d) in its entirety and substituting in lieu
thereof the following:
(d) (i) All mandatory prepayments shall be applied first to
the Tranche A Term Loans and the Tranche B Term Loans, pro rata based
on the respective outstanding principal amounts thereof, and second to
the permanent reduction of the Revolving Credit Commitments. The
application of prepayments referred to in the preceding sentence shall
be made first to Alternate Base Rate Loans and second to Eurodollar
Loans. The amount of each principal prepayment of Term Loans shall be
applied to reduce the then remaining installments of the Tranche A Term
Loans and the Tranche B Term Loans, as the case may be, pro rata based
upon the then remaining number of installments of Tranche A Term Loans
and Tranche B Term Loans, respectively, after giving effect to all
prior reductions thereto (i.e., each then remaining installment of such
Term Loans shall be reduced by an amount equal to the aggregate amount
to be applied to such Term Loans divided by the number of the then
remaining installments for such Term Loans); provided, that if the
amount to be applied to any installment as required by this Agreement
would exceed the then remaining amount of such installment, then an
amount equal to such excess shall be applied to the next succeeding
installment after giving effect to all prior reductions thereof
(including the amount of prepayments theretofore allocated pursuant to
the preceding portion of this sentence); and provided, further, that,
(1) with respect to any prepayment in connection with the Designated
Asset Sale, 37.5% of the Net Cash Proceeds from such Asset Sale shall
be applied to reduce the then remaining installments of the Tranche A
Term Loans and the Tranche B Term Loans, as the case may be, in direct
order of maturity, and (2) with respect to any prepayment made from
Excess Cash Flow for the fiscal year ending September 30, 2000 pursuant
to Section 2.10(c), in an aggregate amount not to exceed $7,500,000,
such prepayment shall be applied to reduce the then remaining
installments of the Tranche A Term Loans and the Tranche B Term Loans,
as the case may be, in direct order of maturity. Amounts prepaid on
account of the Term Loans may not be reborrowed.
(ii) Any Lender holding Tranche B Term Loans may, to the
extent Tranche A Term Loans are outstanding, elect on not less than one
Business Day's prior written notice to the Administrative Agent with
respect to any mandatory prepayment made pursuant to this Section 2.10,
not to have such prepayment applied to such Lender's Tranche B Term
Loans until all Tranche A Term Loans shall have been paid in full, in
which case the amount not so applied shall be applied to prepay Tranche
A Term Loans and shall reduce the then remaining installments of the
Tranche A Term Loans ratably based on the number of such installments.
3. Amendment to Section 3. Section 3.3(a) of the Credit Agreement is
hereby amended by (i) deleting the word "quarterly" and substituting in lieu
thereof the word "monthly"
<PAGE> 5
5
and (ii) deleting the words "March, June, September and December" and
substituting in lieu thereof the word "month".
4. Amendments to Section 8. (a) Section 8.1(a) of the Credit Agreement
is hereby amended by deleting the columns captioned "Quarter Ending" and "Ratio"
from Section 8.1(a) and substituting in lieu thereof the following:
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C> <C>
2000 December 31 2.25 to 1.00
2001 March 31 2.25 to 1.00
June 30 2.50 to 1.00
September 30 2.50 to 1.00
December 31 2.75 to 1.00
2002 March 31 2.75 to 1.00
June 30 3.00 to 1.00
and each
quarter
thereafter
</TABLE>
(b) (i) Section 8.1(c) of the Credit Agreement is hereby
amended by deleting the columns captioned "Quarter Ending" and "Amount" from
Section 8.1(c) and substituting in lieu thereof the following:
<TABLE>
<CAPTION>
Quarter Ending Amount
-------------- ------
<S> <C> <C>
1998 December 31 $32,500,000
1999 March 31 32,500,000
June 30 32,500,000
September 30 32,500,000
December 31 25,000,000
2000 March 31 23,500,000
June 30 27,000,000
September 30 27,500,000
December 31 37,500,000
2001 March 31 40,000,000
June 30 42,500,000
September 30 45,000,000
December 31 45,000,000
</TABLE>
<PAGE> 6
6
<TABLE>
<CAPTION>
Quarter Ending Amount
-------------- ------
<S> <C> <C>
2002 March 31 47,500,000
June 30 47,500,000
September 30 50,000,000
December 31 52,500,000
2003 March 31 55,000,000
June 30 57,500,000
September 30 60,000,000
and each
quarter
thereafter
</TABLE>
(ii) Section 8.1(c) is hereby further amended by adding the
following sentence to the end of such Section 8.1(c):
Notwithstanding anything to the contrary above, the amount set
forth opposite the immediately succeeding four consecutive fiscal
quarters above following the consummation of the Designated Asset Sale
(or, if the Designated Asset Sale is consummated on the last day of a
fiscal quarter, the amount set forth opposite such fiscal quarter and
the immediately succeeding three consecutive fiscal quarters) shall be
reduced in each case by an amount equal to the Reduced EBITDA.
(c) Section 8.1(d) of the Credit Agreement is hereby amended
by deleting the columns captioned "Quarter Ending" and "Ratio" from Section
8.1(d) and substituting in lieu thereof the following:
<TABLE>
<CAPTION>
Quarter Ending Amount
-------------- ------
<S> <C> <C>
2000 December 31 5.00 to 1.00
2001 March 31 4.75 to 1.00
June 30 4.50 to 1.00
September 30 4.25 to 1.00
December 31 4.00 to 1.00
2002 March 31 3.75 to 1.00
June 30 3.50 to 1.00
September 30 3.25 to 1.00
December 31 3.25 to 1.00
2003 March 31 3.00 to 1.00
and each
quarter
thereafter
</TABLE>
<PAGE> 7
7
(d) Section 8.1(e) of the Credit Agreement is hereby amended
by deleting the columns captioned "Quarter Ending" and "Ratio" from Section
8.1(e) and substituting in lieu thereof the following:
<TABLE>
<CAPTION>
Quarter Ending Amount
-------------- ------
<S> <C> <C>
1998 December 31 2.75 to 1.00
1999 March 31 2.75 to 1.00
June 30 2.75 to 1.00
September 30 2.75 to 1.00
December 31 4.00 to 1.00
2000 March 31 4.00 to 1.00
June 30 4.00 to 1.00
September 30 3.25 to 1.00
December 31 2.25 to 1.00
2001 March 31 2.25 to 1.00
June 30 2.00 to 1.00
September 30 2.00 to 1.00
December 31 1.75 to 1.00
and each
quarter
thereafter
</TABLE>
(e) Section 8.6(d) of the Credit Agreement is hereby amended
by deleting the "$1,000,000" therein and replacing it with "$1,500,000".
(f) Section 8.6 of the Credit Agreement is hereby amended by
(i) deleting the word "and" at the end of Section 8.6(j), (ii) deleting the "."
at the end of Section 8.6(k) and substituting in lieu thereof "; and" and (iii)
adding the following new Section 8.6(l) to the end of such Section 8.6:
(l) the sale of a line of business; provided that the
aggregate net cash proceeds of the sale made pursuant to this paragraph
(l) do not exceed $21,000,000 (the "Designated Asset Sale").
(g) Section 8.7(e) of the Credit Agreement is hereby amended
by deleting such Section 8.7(e) in its entirety and substituting in lieu thereof
the following:
(e) the Borrower may make Restricted Payments to CCI, and CCI
may simultaneously make corresponding Restricted Payments to Hicks Muse
or any other holder of the New Common Stock or the Additional Common
Stock, to allow CCI to redeem, in whole or in part, the New Common
Stock or the Additional Common Stock, as the case may be, in accordance
with its terms as long as (i) no Default or Event of Default
<PAGE> 8
8
has occurred or would result therefrom, (ii) the Total Debt Ratio on a
pro forma basis after giving effect to the amount of such redemption on
the date of making such Restricted Payments for the period ending on
the last day of each of the two immediately preceding fiscal quarters
(or, if the date of making such Restricted Payments is the last day of
a fiscal quarter, such fiscal quarter and the immediately preceding
fiscal quarter) is no greater than 4.00 to 1.00 and (iii) there shall
be at least $25,000,000 available under the Revolving Credit Facility
on the date of making such Restricted Payments and after giving effect
thereto.
III. Conditions to Effectiveness. This Amendment shall become effective
on the date (a) on which this Amendment shall have been (i) executed by the
Borrower, CCI, the Administrative Agent and the Required Lenders and (ii)
acknowledged and consented to by the other Credit Parties, each in accordance
with the terms of the Credit Agreement and (b) the Administrative Agent shall
have received, for the account of each Lender which executes and delivers this
Amendment by December 21, 1999, an amendment fee in an amount equal to12.5 basis
points of the sum of such Lender's (i) Revolving Credit Commitment and (ii)
outstanding Term Loans as of such date.
IV. General.
1. Representations and Warranties. The representations and warranties
made by the Borrower in the Loan Documents are true and correct in all material
respects on and as of the date hereof, after giving effect to the effectiveness
of this Amendment, as if made on and as of the date hereof, except for any
representation and warranty which is expressly made as of an earlier date which
representation and warranty shall have been true and correct in all material
respects as of such earlier date, and no Default or Event of Default has
occurred and is continuing.
2. Payment of Expenses. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with this Amendment, any other documents prepared in
connection herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
3. No Other Amendments; Confirmation. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement and the
Notes are and shall remain in full force and effect.
4. Affirmation of Guarantees. Each of the Guarantors hereby consents to
the execution and delivery of this Amendment and to the transactions
contemplated hereby or in any related document and reaffirms its obligations
under the Guarantee and Collateral Agreement executed by such Guarantor.
5. Governing Law; Counterparts. (a) This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
<PAGE> 9
9
(b) This Amendment may be executed by one or more of the parties to
this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Borrower and the Administrative Agent. This Amendment
may be delivered by facsimile transmission of the relevant signature pages
hereof.
[The remainder of this page is intentionally left blank]
<PAGE> 10
10
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
COOPERATIVE COMPUTING, INC.
By: /s/ CHRISTOPHER SPELTZ
-----------------------------------------
Name: Christopher Speltz
Title: Vice President
COOPERATIVE COMPUTING HOLDING
COMPANY, INC.,
as a Guarantor
By: /s/ PAUL D. STONE
-----------------------------------------
Name: Paul D. Stone
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK,
as Administrative Agent,
a Lender and Issuing Lender
By: /s/ WILLIAM E. ROTTINO
-----------------------------------------
Name: William E. Rottino
Title: Vice President
<PAGE> 1
EXHIBIT 10.09
---------------------------------------------
MASTER LOAN AND SECURITY AGREEMENT FORM
DATED AS OF JUNE 1,1998
BETWEEN
CCI/TRIAD FINANCIAL HOLDING CORPORATION
AS BORROWER
AND
NATIONSCREDIT COMMERCIAL CORPORATION
AS LENDER
---------------------------------------------
$5,000,000
DISCOUNT LOAN FACILITY
----------------------------------
LOANS SECURED BY
LEASE RECEIVABLES, LEASES, AND
LEASED EQUIPMENT
<PAGE> 2
This MASTER LOAN AND SECURITY AGREEMENT FORM is entered into as of the
Effective Date stated in the Schedule 1 document entered into between CCI/TRIAD
FINANCIAL HOLDING CORPORATION ("SPE"), a California corporation, as borrower,
and the entity shown in the Schedule 1 document, as Lender ("Lender").
INTRODUCTION
A. Both SPE and Triad Systems Financial Corporation ("TSFC"), a
California corporation are wholly owned subsidiaries of COOPERATIVE COMPUTING,
INC. dba TRIAD SYSTEMS CORPORATION ("CCI/Triad"), a Delaware corporation.
CCI/Triad manufactures and TSFC purchases from CCI/Triad and leases to TSFC's
customers computer systems and software, all in accordance with an Operating and
Support Agreement among CCI/Triad, TSFC, SPE and Lender.
B. TSFC has transferred by sale to SPE certain receivables due TSFC
under the leases and TSFC has by an agreement substantially in the form of the
Sales, Assignment and Security Interest Agreement attached hereto as Exhibit F
assigned to SPE certain of its rights and interests in the Leases, computer
systems, software and equipment.
C. Lender engages in the business of equipment lease financing.
D. Lender is willing to lend to SPE amounts equal to the discounted
value of payments receivable under certain of the customer leases of computer
systems and software, upgrades and add-ons or other equipment, and SPE is
willing to grant a security interest in the lease payments, the leased computer
systems and software or other equipment and the interest of TSFC in the leases,
all subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows;
1. DEFINITIONS
When used in capitalized form herein, the following terms shall have
the meanings indicated:
1.1. "Anniversary Date" - the date stated as the "Anniversary Date" in
the Schedule 1 document.
1
<PAGE> 3
1.2. "Business Day" - any day other than a Saturday, Sunday or a public
or bank holiday or the equivalent for banks generally under the laws of the
State of California.
1.3. "Closing Date" - with respect to any Loan, the date on which
Lender makes a Loan to SPE under this Agreement.
1.4. "Collateral" - as defined in Section 6.1.
1.5. "Discount Facility" - the credit facility provided by Lender to
SPE pursuant to Section 2.
1.6. "Discount Facility Loan" - a Loan made by Lender to SPE under the
Discount Facility.
1.7. "Discount Facility Rate" - with respect to a Discount Facility
Loan - will be determined from time to time by mutual agreement of SPE, and
Lender.
1.8. "Discount Facility Loan Value" - of a Lease at the time a Discount
Facility Loan is made, a percentage to be determined by mutual agreement between
the parties, of each payment of Rent remaining unpaid under the Lease at that
time (but excluding any past due Rent), discounted from the date each such
payment is due to such time at the Discount Facility Rate with respect to such
Discount Facility Loan.
1.9. "Effective Date" - the date of this Agreement.
1.10 "Eligible Equipment" - new or remanufactured Equipment, including
but not limited to, computer systems and related components, software and
accessories manufactured or sold by CCI/Triad or another manufacturer or seller,
having a Discount Facility Loan Value of not less than One Thousand Dollars
($1,000.00) subject to an Eligible Lease and not subject to a security interest
or other encumbrance in favor of any corporation, firm or other person other
than a security interest in favor of Lender arising under this Agreement or a
Security Supplement.
1.11 "Eligible Lease" - a full pay out net lease, substantially in the
form of Exhibit A-1, naming TSFC as lessor, that:
(a) has a noncancelable term of not less than 12
months nor more than 84 months excluding
renewals or extensions;
2
<PAGE> 4
(b) provides for (i) Rent and casualty payments
in amounts sufficient to repay to Lender the
Loan made in respect of such lease and
interest on such Loan at the Discount
Facility Rate, (ii) interest on late
payments under such lease at a rate not less
than the Late Payment Rate and (iii) all
payments to be made in United States
dollars;
(c) provides that the lessor's right to receive
payment is absolute and not contingent upon
the fulfillment of any condition whatsoever
other than the passage of time;
(d) covers only Eligible Equipment subject to a
security interest in favor of Lender and
includes all hardware and any other systems
required to operate any included software;
(e) is not subject to any conditions,
obligations of, or any right or offset,
counterclaim or defense by, the Lessee
thereunder;
(f) is a Lease under which the Lessee is not in
default, and;
(g) is in all other respects satisfactory to
Lender.
1.12 "Equipment" - any and all Eligible Equipment leased to a Lessee by
TSFC under a Lease, located in the United States and made subject to a security
interest in favor of Lender by the execution and delivery by SPE to Lender of a
Security Supplement specifically describing such Eligible Equipment, together
with (i) all accessions, replacements, parts, repairs, fixtures and accessories
incorporated therein or affixed thereto under the Lease, and (ii) all upgrades,
add-ons and additions incorporated therein or affixed thereto to the extent they
have been financed by Lender under this Agreement.
1.13 "Event of Default" - as defined in Section 11.1.
1.14 "Excess Proceeds" - of an item of Equipment - any excess of (i)
the Remarketing Proceeds thereof, over (ii) the outstanding Loan Repayment
Amount applicable to a Lease.
1.15 "Guaranty" - a guaranty, in the form of the guaranty which
comprises a part of Exhibit A-1, executed and delivered by a corporation, firm
or other person (a "Guarantor") satisfactory to Lender, assigned to Lender as
security by the execution and delivery by SPE of a Security Supplement
specifically describing such guaranty.
3
<PAGE> 5
1.16 "Invoice Price" - with respect to any Equipment - the aggregate
invoice prices of CCI/Triad, as manufacturer or seller, or any other
manufacturer or seller, net of taxes, transportation cost, delivery cost and any
acquisition or other fees payable by TSFC to CCI/Triad or any of its affiliates.
1.17 "Late Payment Rate" - with respect to a Discount Facility Loan -
two percent (2%) over the applicable Discount Facility Rate.
1.18 "Lease" - an Eligible Lease duly executed by the Lessee, approved
by Lender and assigned to Lender as security by the execution and delivery by
SPE to Lender of a Security Supplement specifically describing such Eligible
Lease.
1.19 "Lease Proceeds" - with respect to any Lease - all payments due
from or with respect to the Lessee, such Lease or the Equipment subject to such
Lease, including, but not limited to, all Rent and any security deposits held by
TSFC, all casualty, early termination, purchase option and indemnity payments,
and all insurance and sales or lease proceeds of and requisition payments for
the Equipment subject to such Lease.
1.20 "Lessee" - a United States-domiciled corporation, partnership or
sole proprietorship that is the obligor for payment of Rent under a Lease.
1.21 "Loan" - any advance of funds to SPE by Lender under this
Agreement as evidenced by a Security Supplement.
1.22 "Loan Repayment Amount" - with respect to a Loan at any time - the
aggregate unpaid principal of, and accrued interest (including any interest
accrued at the Late Payment Rate) on, such Loan.
1.23 "Loan Repayment Date" - with respect to any Loan - the twentieth
day of each calendar month, commencing with the first such day to occur after
the Closing Date for such Loan.
1.24 "Net Loss Pool" - as defined in Section 8.4.
1.25 "Obligations" - as defined in Section 6.1.
1.26 "Operating Agreement" - the Operating and Support Agreement
entered into among CCI/Triad, TSFC, SPE, and Lender, substantially in the form
of Exhibit "B" attached hereto.
1.27 "Operative Documents" - this Agreement, each Security Supplement
and the Operating Agreement.
4
<PAGE> 6
1.28 "Prepayment Fee" - a fee equal to two percent (2%) of then unpaid
principal amount due Lender under any Lease which is prepaid pursuant to Section
3.7.
1.29 "Proceeds" - of an item of Equipment - the sum of (i) the (a)
gross cash proceeds of sale of such item or (b) aggregate Rent obligation under
a re-lease of such item discounted at the applicable Discount Facility Rate, as
the case may be, plus (ii) any past due Rent and any other termination amount
paid by the Lessee, or by SPE on behalf of the Lessee, plus (iii) any security
deposit held by TSFC that reduces the Lessee's lease termination payment.
1.30 "Remarketing Expenses" - with respect to an item of Equipment -
the sum of (i) costs of repossessing, transporting, refurbishing and remarketing
the item pursuant to Section 10, plus (ii) any applicable sales, use or similar
taxes imposed in connection with the sale or re-lease of such item and not paid
by the purchaser or lessee, plus (iii) in the case of a Lease default,
enforcement and collection costs.
1.31 "Remarketing Proceeds" - with respect to an item of Equipment -
the Proceeds minus the Remarketing Expenses.
1.32 "Rent" - under a Lease, the periodic charges specified in the
Lease for the use of the Equipment, excluding casualty or early termination,
purchase option and indemnity payments and any amounts a Lessee may be required
to pay for taxes, license fees, assessments or maintenance.
1.33 "Security Supplement" - a supplement hereto substantially in the
form of Exhibit "C", executed and delivered to Lender by SPE, describing
Equipment and Leases and subjecting the same to the security interest in favor
of Lender arising under Section 6.
1.34 "Standard Cost" - with respect to an item of Equipment at any time
- - an amount equal to fifty percent (50%) of the Loan Repayment Amount of the
Lease calculated on the Loan Repayment Date.
1.35 "Tangible Net Worth" of TSFC - the gross book value of TSFC's
consolidated tangible assets less (a) reserves applicable thereto and (b) all of
TSFC's consolidated liabilities (including accrued and deferred income taxes)
other than indebtedness subordinated, in a manner satisfactory to Lender, to
TSFC's indebtedness to Lender. All determinations of the characterization of
assets and of the values comprising "Tangible Net Worth" shall be made in
accordance with generally accepted accounting principles consistently applied.
5
<PAGE> 7
1.36 "CCI/Triad" - Cooperative Computing, Inc. ("CCI/Triad"), a
Delaware corporation, or any successor entity resulting from the sale or
transfer of the stock of CCI/Triad to another corporation as a result of the
merger, acquisition, consolidation, or dissolution of CCI/Triad or resulting
from the transfer of all or substantially all of the assets of CCI/Triad.
2. THE DISCOUNT FACILITY
2.1 Total Facility. Subject to the terms and conditions hereof, from
time to time, from (and including) the Effective Date to and excluding the
Anniversary Date, Lender may with respect to each Lease, make a Loan to SPE in a
principal amount equal to the Discount Facility Loan Value; provided, however,
the aggregate principal amount of all Loans outstanding at any time shall not
exceed the "Aggregate Maximum Loan Amount" stated in the Schedule 1 document,
and provided further that none of TSFC, SPE nor CCI/Triad suffer a material
adverse financial change in its business or financial condition during the term
of this Agreement.
2.2 Interest Calculation. Interest on the Discount Facility Loans shall
be computed on the basis of a 360-day year of 12-30 day months.
2.3 Minimum Loan. The aggregate principal amount of the Loans made on
any Closing Date shall be not less than the "Minimum Loan Amount" stated in the
Schedule 1 document
2.4 Payments. Lender shall pay the proceeds of the Loans in immediately
available funds on the Closing Dates for such Loans. SPE shall make each payment
due under this Agreement to Lender or Lender's assignee in immediately available
funds to the account or address specified by Lender or such assignee.
3. THE LOANS
3.1 Requests for Loans. No later than ten (10) Business Days before the
Closing Date relating to a Discount Facility Loan requested by SPE, SPE shall
submit to Lender Eligible Leases together with lease schedules and other
supporting documentation, and the following:
(a) the name of each Lessee under such Eligible
Leases, together with (i) unless previously
submitted to Lender, financial statements,
to the extent available, of each such
Lessee, if the equipment value is over Fifty
Thousand Dollars ($50,000.00), as of the end
of such
6
<PAGE> 8
Lessee's most recent fiscal year, and any
interim financial statements of such Lessee
readily available to TSFC, SPE or CCI/Triad,
all in form and substance satisfactory to
Lender, (ii) the payment history of such
Lessee under other leases entered into
between such Lessee and TSFC, and (iii) such
additional financial information pertaining
to any Lessee as Lender may request;
(b) the Rent schedule for each such Eligible
Lease; and
(c) such other relevant information as Lender
shall reasonably require.
3.2 Approvals. Within ten (10) Business Days of receipt of all
information required to be submitted pursuant to Section 3.1, Lender shall
advise SPE in writing if, in its sole and unlimited discretion, Lender approves
the proposed Eligible Lease and, if Lender requires the credit support of a
Guarantor, the credit of the proposed Guarantor. If Lender fails to give such
advice within such ten (10) day period, Lender shall be deemed to have declined
such credit. Lender may revoke any credit approval prior to making the Discount
Facility Loan relating to a proposed Lease if, in Lender's judgment, the
proposed Lessee or Guarantor suffers a material adverse change in its business
or financial condition. Lender shall promptly return all credit packages to SPE
relative to any rejected lease transactions.
3.3 Disbursement of Discount Facility Loan. Subject to satisfaction of
the conditions precedent set forth in Section 4 and Section 5, Lender shall make
Discount Facility Loans on the Closing Date proposed in accordance with this
Section 3. The Discount Facility Loans made on the Closing Date shall be in an
aggregate principal amount equal to the aggregate Discount Facility Loan Values
of the Eligible Leases submitted by SPE pursuant to Section 3.1 and approved by
Lender pursuant to Section 3.2. If, for any reason, a Discount Facility Loan is
not made on a proposed Closing Date notwithstanding compliance by SPE with
Section 3.1, the Closing Date may be rescheduled to a date, within ten (10)
Business Days of such Closing Date, mutually agreed upon in writing by Lender
and SPE .
3.4 Loan Payments and Amortizations. Each Discount Facility Loan shall
bear interest at the Discount Facility Rate determined for such Loan and shall
be evidenced by a Security Supplement which shall set forth the repayment terms
with respect to such Discount Facility Loan in a manner satisfactory to Lender
and shall identify the Lease(s) with respect to which such Discount Facility
Loan is made. Principal of, and accrued interest on, the Discount Facility Loans
shall be payable in accordance with the Security
7
<PAGE> 9
Supplement for such Discount Facility Loan. Each Discount Facility Loan shall be
amortized by the Lease Proceeds received by Lender with respect to the Leases
financed by such Loan, with such Lease Proceeds applied first to accrued and
unpaid interest, then to any other amounts due under such Loan, and then to
principal.
3.5 Upgrades and Additions. TSFC may, from time to time, agree with a
Lessee under a Lease that the Equipment subject to such Lease shall be upgraded
or that additional Eligible Equipment should be added to such Lease. If TSFC and
such Lessee amend such Lease to increase the Rent payable thereunder in
consideration of such upgrade or addition, SPE may request that Lender finance
the additional Lease Proceeds arising under such amendment ( the "Lease
Amendment") attributable to such increase in Rent. Not later than ten (10)
Business Days after such request, Lender shall give SPE written advice as to
whether Lender, in its sole discretion, has elected to finance such additional
Lease Proceeds. If Lender fails to give such advice within such ten (10) day
period, Lender shall be deemed to have declined to finance such additional Lease
Proceeds and shall so advise SPE in writing. If Lender agrees to finance such
additional Lease Proceeds, Lender shall, subject to satisfaction of the
conditions precedent set forth in Sections 4 and 5, make a Discount Facility
Loan in an amount equal to the aggregate increase in Rent effected by the Lease
Amendment which remains unpaid as of the applicable Closing Date, but excluding
any such increase in Rent which is past due, discounted at the Discount Facility
Rate determined on the applicable Closing Date. The Closing Date with respect to
such Discount Facility Loan shall be a date agreed upon in writing by Lender and
SPE. If Lender agrees to make such a Discount Facility Loan, the Lease Amendment
shall be considered a "Lease" for all purposes of this Agreement (including,
without limitation, Section 5). If SPE finances such upgrades or additions
through a source other than Lender and does not prepay in accordance with
Section 3.6, SPE agrees that any security interest granted to a source other
than Lender shall not conflict with Lender's security interest.
3.6 Optional Prepayment: Lender Refusal to Finance Upgrades or
Additions. If Lender elects not to finance increased Lease Proceeds related to
upgrades or additions pursuant to Section 3.5, SPE may give Lender not less than
ten (10) days prior written notice of its intention to prepay the Discount
Facility Loan made to finance the Lease in respect of which an upgrade or
addition has been made. On the first Loan Repayment Date to occur after the ten
(10) day notice period has elapsed, SPE shall (i) prepay the outstanding
principal balance of such Discount Facility Loan made to finance such Lease and
(ii) pay all accrued and unpaid interest on such Discount Facility Loan to the
date of prepayment. No Prepayment Fee shall be payable in respect of an optional
prepayment made pursuant to this Section 3.6.
8
<PAGE> 10
3.7 Mandatory Prepayment: Termination of Lease. If a Lessee voluntarily
terminates a Lease before its scheduled expiration, SPE shall prepay the
Discount Facility Loan made to finance such Lease on the Loan Repayment Date
immediately following such termination. On such Loan Repayment Date, SPE shall
pay to Lender (i) the Loan Repayment Amount with respect to the Loan made to
finance such Lease and (ii) the Prepayment Fee.
3.8 Mandatory Prepayment: Casualty. If any Equipment subject to a Lease
is lost or damaged, and cannot be repaired or replaced with substantially
similar Equipment by the first Loan Repayment Date occurring not less than
thirty (30) days after such loss or damage, SPE shall prepay the Discount
Facility Loan made to finance such Lease on such Loan Repayment Date. On such
Loan Repayment Date, SPE shall pay to Lender the Loan Repayment Amount with
respect to the Loan made to finance such Lease. No Prepayment Fee shall be
payable in respect to a mandatory prepayment made pursuant to this Section 3.8.
3.9 Mandatory Prepayment: Rent Default. If any Rent under any Lease
financed or refinanced by a Discount Facility Loan shall remain unpaid for a
period of ninety (90) days from the date when due, SPE shall prepay such Loan up
to the Net Loss Pool in accordance with Section 8.4. No Prepayment Fee shall be
payable in respect to a mandatory prepayment made pursuant to this Section 3.9.
3.10 No Other Prepayments Permitted. No Discount Facility Loan may be
prepaid except as otherwise expressly provided in the Agreement unless SPE pays
together with the Loan Repayment Amount for such Discount Facility Loan the
Prepayment Fee.
3.11 Limited Recourse. Lender agrees that, except as provided in this
Section 3.11, Section 3.9, Section 3.12, Section 8, and Section 10 with respect
to Remarketing Expenses and Section 11, each Discount Facility Loan is
nonrecourse to SPE and that the repayment of each Discount Facility Loan shall
be obtained solely from the Lease Proceeds of the Leases, Proceeds of the
Equipment and the other collateral in which Lender has been granted a security
interest pursuant to Section 6; provided, however, that SPE shall be jointly and
severally liable (without any limitation on recourse) with TSFC (i) if (a)
either TSFC or SPE shall fail to pay over to Lender any Lease Proceeds received
by TSFC or SPE and due Lender hereunder, in which case SPE shall be liable for
the amount of the Lease Proceeds not so paid over plus interest accrued thereon
at the Late Payment Rate from the date the Lease Proceeds were required to be
paid over to Lender, or (b) the fees and payments paid by a Lessee to SPE or
TSFC upon termination of a Lease are less than the Loan Repayment Amount
relating to such Lease and (ii) for all payments required to be made pursuant to
Section 3.8, whether or not insurance proceeds received by SPE or TSFC are at
least equal to such payments.
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3.12 Full Recourse. Notwithstanding anything set forth herein,
including, without limitation, any limitation on recourse against SPE, Discount
Facility Loans in the aggregate principal amount of the "Maximum Full Recourse
Amount" stated in the Schedule 1 document at any one time outstanding may be
with recourse to SPE. Such Loans shall be secured by Leases which are Eligible
Leases except that the creditworthiness of the Lessee may not otherwise be
acceptable to Lender. A Discount Facility Loan with recourse shall be designated
as such by mutual written agreement of Lender and SPE, as the case may be, prior
to the Closing Date of such Loans. Upon occurrence at any time of any default
under such Leases, SPE shall repay the Discount Facility Loan made to finance
such Leases on the Loan Repayment Date occurring not more than thirty (30) days
after such default. On such Loan Repayment Date, SPE shall pay (i) the
outstanding principal balance of the Discount Facility Loan made to finance such
Leases, and (ii) all accrued and unpaid interest on such Discount Facility Loan
to the date of payment. No Prepayment Fee shall be payable in respect of any
such prepayment. The amounts paid to Lender by SPE pursuant to this paragraph
shall not be charged against the First Loss Provision defined in Section 8.4.
4. CONDITIONS PRECEDENT TO THE INITIAL LOAN
Lender will not make the initial Loan hereunder until it has received
all of the following, in form and substance satisfactory to Lender:
4.1 Evidence of Authority of SPE. Certified resolutions of the Board of
Directors of SPE, authorizing the execution, delivery and performance of each of
the Operative Documents to which SPE is a party and any other document required
hereunder together with an incumbency certificate with respect to the officer or
officers of SPE executing any of such Operative Documents and any document
required hereunder.
4.2 Evidence of Authority of CCI/Triad. Certified resolutions of the
Board of Directors of CCI/Triad authorizing the execution, delivery and
performance of the Operating Agreement and any other document required
thereunder together with an incumbency certificate with respect to the officer
or officers of CCI/Triad executing the Operating Agreement and any document
required thereunder.
4.3 Operating Agreement. The Operating Agreement, duly executed by
CCI/Triad, TSFC, SPE, and Lender.
4.4 Financial Statements. The most recent consolidated financial
statements of CCI/Triad and TSFC.
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4.5 SPE Officer's Certificate. A certificate from a duly authorized
officer of SPE, dated as of the first Closing Date, stating that:
(a) all representations and warranties made by
SPE under this Agreement and under the
Operating Agreement are true and correct as
of the date of the certificate;
(b) SPE is in compliance with all covenants made
under this Agreement; and
(c) no event has occurred and is continuing that
is, or with the passage of time or giving of
notice would be, an Event of Default or a
default under or breach of the Operating
Agreement; and containing an express
undertaking by SPE to give immediate notice
to Lender if at any time prior to the
Anniversary Date if any of the above
statements are no longer true.
4.6 CCI/Triad Officer's Certificate. A certificate from a duly
authorized officer of CCI/Triad, dated as of the first Closing Date, stating
that:
(a) all representations and warranties made by
CCI/Triad under the Operating Agreement are
true and correct as of the date of the
certificate;
(b) CCI/Triad is in compliance with all
covenants made under the Operating
Agreement;
(c) no event has occurred and is continuing that
is, or with the passage of time and/or
giving of notice would be, a default under
or breach of the Operating Agreement; and
(d) containing an express undertaking by
CCI/Triad to give immediate written notice
to Lender if at any time prior to the
Anniversary Date if any of the above
statements is no longer true.
4.7 Insurance. Evidence of the insurance required by Section 8.3.
4.8 Agreement of Admission of Additional Secured Parties. Evidence that
the Agreement of Admission of Additional Secured Parties, in the form previously
executed by Lender has been duly executed and delivered by all of the other
parties thereto.
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5. CONDITIONS PRECEDENT TO ALL LOANS
Lender will not make any Loan hereunder (including the initial Loan)
unless on the date thereof:
5.1 Notice. SPE shall have given Lender verbal notice of each Closing
Date no later than five (5) Business Days prior to such Closing Date.
5.2 Operating Agreement. The Operating Agreement shall be in full force
and effect and no defaults or breaches shall exist thereunder as of the
applicable Closing Date.
5.3 Receipt of Certain Documents. Lender shall have received the
following, in form and substance satisfactory to Lender:
(a) Lease. (i) A signed fax copy or original,
manually executed counterparts in the
possession of CCI/Triad or TSFC on such
Closing Date of each Lease financed on such
Closing Date and the related Lease Schedule
substantially in the form contained in
Exhibit "A-1", in each case duly executed by
TSFC as lessor and by the Lessee thereunder;
(b) Guaranty. If required by Lender, signed fax
copy or original, manually executed
counterparts in the possession of CCI/Triad
or TSFC on such Closing Date of each
Guaranty duly executed by the Guarantor;
(c) Financing Statements Filed Against Lessees.
Except in the case of Leases of Equipment
having an aggregate Invoice Price less than
Thirty-five Thousand Dollars ($35,000.00),
evidence of electronic filing receipts, a
search report (from Dun and Bradstreet or
comparable reporting entity) confirming the
existence or copies (any of such
documentation with filing numbers and filing
dates) of duly executed and filed Uniform
Commercial Code financing statements on form
UCC-1 naming TSFC as secured party and the
Lessees under the Leases to be financed on
the Closing Date as debtors, identifying as
collateral the Equipment subject to such
Leases.
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(d) Financing Statements to be Filed Against
SPE. Copies of duly executed Uniform
Commercial Code financing statements on form
UCC-1, naming SPE as debtor and Lender, as
secured party, and identifying as collateral
the Leases and any Guaranties and Equipment
to be assigned in sufficient number to be
filed in all jurisdictions as may be
necessary, in Lender's judgment, to perfect
Lender's security interest in such
collateral, including, without limitation,
jurisdictions where SPE has its chief
executive offices and maintain its records
in respect to the Leases;
(e) Supplement. A Security Supplement, duly
executed by SPE relating to and describing
the Lease, any Guaranty and the Equipment
covered thereby;
(f) Notice of Assignment. An original notice to
the relevant Lessee of the assignment to
Lender of the relevant Lease, signed by
TSFC, substantially in the form of Exhibit
"D";
(g) Acceptance Supplement. A copy of the
original executed counterpart of the
delivery and acceptance certificate with
respect to each Lease where the Invoice
Price exceeds Fifty Thousand Dollars
($50,000.00) ( substantially in the form
contained in Exhibit "A-1") containing a
complete description of the Equipment, duly
executed by the Lessee thereunder; and
(h) Other Documents. Such other documents,
instruments or agreements as Lender may
reasonably request.
6. SECURITY AGREEMENT
6.1 Granting Clause. In order to induce Lender to make Loans from time
to time to SPE, and in order to secure (i) the prompt repayment of the Loans and
payment of all interest accrued thereon and any applicable Prepayment Fee if
any, (ii) the strict performance and observance by SPE of the obligations to be
performed by it hereunder and (iii) all costs of litigation, collection,
reasonable attorneys' fees and other costs expended or incurred in connection
with the enforcement of Lender's rights hereunder and with respect to the Leases
and the Equipment (the obligations referred to in clauses (i) through (iii)
being collectively referred to as the "Obligations"), SPE hereby assigns,
pledges and grants a continuing security interest to Lender in all of its
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right, title and interest in and to the following described properties, assets
and rights (such properties, assets and rights collectively called the
"Collateral"):
(a) each Lease and all of SPE's rights
thereunder including the right to receive
payments (including Rent and security
deposits) due to SPE thereunder and the
right to exercise rights and remedies upon
default;
(b) every item or component of Equipment subject
to Leases, together with (i) all accessions,
replacements and substitutions thereto and
therefor and (ii) all upgrades, add-ons and
additions thereto and therefor to the extent
they have been financed by Lender under this
Agreement, and (iii) all of its rights in
the software and licenses related thereto;
(c) each and every Guaranty, security interest,
mortgage or other security securing the
payment and performance of the Lessee's
obligations under the Leases;
(d) all Lease Proceeds and Proceeds of items or
components of Equipment;
(e) all warranty and other rights SPE may have
with respect to the Leases against the
manufacturer of the Equipment, and
(f) the proceeds (whether cash or non-cash
proceeds), and products of all the
properties, assets and rights described in
paragraphs (a), (b),(c), (d) and (e) above
including without limitation, all insurance
payments, whether or not Lender is the loss
payee thereof; in each case whether now
owned or hereafter acquired.
6.2 Appointment of Lender. If Lender assumes administration of
collection of Rent pursuant to Section 11.2, SPE irrevocably appoints the Lender
as its attorney-in-fact (such power being coupled with an interest) to do, in
its sole and unlimited discretion, any or all of the following:
(a) to endorse or sign SPE's name on all checks,
collections receipts, UCCs or other
documents related to the Leases;
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(b) to take possession of and open mail
addressed to SPE or TSFC relating to such
collection and remove Rent and proceeds and
products of the Collateral;
(c) to ask, demand, collect, receive, sue for,
compound and give acquittance for any and
all payments assigned hereunder;
(d) to settle, adjust or compromise any claim
thereunder as fully as it could itself;
(e) to endorse its name on all checks and other
commercial paper given in payment or in part
payment thereof; and
(f) in its discretion, to file any claim or take
any other action or proceeding, either in
Lender's own name or in its name, or
otherwise, that Lender may deem necessary or
appropriate to collect any and all sums that
may be or become due or payable under the
Leases or that may be necessary or
appropriate to protect the right, title and
interest of Lender in and to the Collateral
and the security intended to be afforded
thereby and hereby.
6.3 Further Assurances. SPE will upon written direction from Lender and
at the expense of SPE, do, execute, acknowledge and deliver all and every
further acts, deeds, conveyances, instruments, transfers and assurances
reasonably necessary or proper for the better assuring, conveying, assigning and
confirming unto Lender all of the Collateral, whether now owned or hereafter
acquired and shall not provide further assurances to any other lender which may
conflict with Lender's security interest or provide such lender with a security
interest superior to Lender's without first giving to Lender the same further
assurances.
6.4 No Obligations Assumed by Lender. Lender does not assume, and its
interest herein shall not be subject to, any obligation or liability of TSFC
under any Lease or any other agreement between SPE, TSFC or CCI/Triad and a
lessee, any duty to collect money due thereunder or to enforce collection
thereof. Lender assumes no responsibility, obligation or liability for any
representation, warranty or obligation, express or implied, made by any agent or
employee of SPE, TSFC, or CCI/Triad to a Lessee in connection with any Lease.
6.5 Release of Security Interest. Upon payment in full of all amounts
due on a Loan and provided no Event of Default shall have occurred
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and be continuing, Lender agrees to (i) release its security interest in the
Lease financed by such Loan and the Equipment subject thereto; (ii) deliver to
SPE such other documents relating to released Leases and Equipment prepared by
SPE as SPE may reasonably request, and (iii) deliver the foregoing items within
ten (10) days to SPE after receipt of termination payment.
6.6 Final Release by Lender. Upon repayment in full to Lender of all
Loans, and performance of all other Obligations, Lender will release its
security interest in the Collateral in the manner provided in Section 6.5.
7. ADMINISTRATION
7.1 Authorization to Collect Rent. Until such time as there is an Event
of Default hereunder or SPE's authority to collect Rent is terminated pursuant
to Section 11, SPE is authorized to and shall collect Rent from Lessees.
7.2 Collections. SPE will undertake such collections as an independent
contractor and not as Lender's agent, and in connection therewith will at its
sole cost and expense, diligently perform all billing and collecting for Rent
due and to become due with respect to Leases and Equipment financed under
Discount Facility Loans. SPE shall bill Lessees in accordance with a standard
billing procedures provided that each invoice sent with respect to any Lease
subject to this Agreement shall segregate the amount due thereunder for rent,
taxes and any other amounts due.
7.3 Remittances. SPE shall, on or before the Loan Repayment Date of
each month, make payment to Lender of the amount due on each Discount Facility
Loan on such date regardless of whether or not any Rent under applicable Leases
shall have been collected by SPE. SPE's obligation to make remittances pursuant
to this Section 7.3 shall cease and be of no further effect at such time as SPE
shall have no further liability under the provisions of Section 8.4 of this
Agreement.
7.4 Financial Statements; Lease Receivables Statements. SPE shall
provide Lender with monthly financial statements relating to the immediately
preceding month. As soon as available, but no later than the twentieth day of
each month, SPE shall cause TSFC to deliver to Lender a list of all Leases then
outstanding, and a statement showing the aging of receivables under, payments
and collections received under, such Leases, both being complete and correct.
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7.5 First Loss Provision Statements. On the last Business Day of each
January, April, July and October, SPE shall cause TSFC to provide Lender with a
quarterly statement as of such date of the First Loss Provision described in
Section 8.4, in the form attached hereto as Exhibit E
7.6 Account Status Statements. As soon as available, SPE shall cause
TSFC to deliver to Lender any changes in account status for any Leases then
outstanding that TSFC becomes aware of from time to time. Account status shall
be defined, but not limited to, changes in Lessee billing address, equipment
locations, equipment, and/or legal name.
8. INDEMNITIES, INSURANCE, FIRST LOSS
8.1 Indemnities. Notwithstanding anything set forth herein, including,
without limitation, any limitation on recourse against SPE, SPE shall indemnify
Lender and hold it safe and harmless from and against any and all losses,
claims, actions, suits, proceedings, costs, expenses, damages and liabilities
("Indemnified Amount") (other than Indemnified Amounts arising from or
pertaining to the negligence or misconduct by Lender) that may at any time be
made, brought, incurred, assessed or adjudged against Lender arising from or
pertaining to:
(a) the use, maintenance or operation of the
Equipment;
(b) breach of any covenant or warranty made by
SPE, TSFC, or CCI/Triad relating to any
Equipment or Lease or maintenance of any
Equipment, including qualification of any
Equipment for any tax benefit;
(c) any claim, action or proceeding involving
patent or trademark infringement or
copyright or trade secret violations
relating to the Equipment (including any
interest or penalty) whether or not such
claim, action or proceeding involves a claim
of infringement or a combination or design
patent;
(d) failure of Lender, for whatever reason, to
have obtained a first priority perfected
purchase money security interest in and lien
on the Collateral, including, without
limitation, the Leases and the Equipment
whether or not (i) the Equipment is deemed
to be an asset of a Lessee as the result of
a Lease being held to be a security
agreement rather than a true lease or (ii)
Uniform Commercial Code financing statements
on form UCC-1 were filed against a Lessee
with respect to the Equipment under Section
5.3 (c);
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(e) any misrepresentation made by any agent or
employee of SPE, TSFC or CCI/Triad in the
course of negotiations regarding any Lease
or Equipment;
(f) any breach of any warranty or covenant, or
any misrepresentation, of SPE, TSFC or
CCI/Triad in any Lease, any Operative
Document or any certificate of an officer of
SPE, TSFC or CCI/Triad delivered in
accordance therewith;
(g) failure of any lease or Equipment to comply
with applicable laws, regulations or
contractual specifications or warranties, or
to be an Eligible Lease or Eligible
Equipment, as the case may be;
(h) any dispute, claim, offset, or defense of
any Lessee (other than payment by, or
discharge in bankruptcy of, such Lessee) to
the payment of any Rent;
(i) Lender having received from TSFC only a fax
copy (rather than the original, manually
executed copy) of any Lease or any Guaranty;
(j) failure of SPE, TSFC or CCI/Triad to pay
when due any taxes for which any of them is
liable; and
(k) any wrongful or negligent acts or omissions
of SPE, its agents or assigns, in carrying
out SPE's obligations under Section 7 or
Section 10.
All of the indemnities set forth in this Section 8.1 shall survive the
cancellation or termination of this Agreement.
8.2 Indemnity Payment. Upon the occurrence of any of the events set
forth in Section 8.1, SPE unconditionally agrees to pay Lender, upon written
demand, the Indemnified Amount.
8.3 Insurance. With respect to all Equipment, SPE shall cause TSFC to
maintain in full effect, and shall deliver to Lender evidence of, (a) liability
insurance, including all-risk insurance, with a combined single limit of at
lease Five Hundred Thousand Dollars ($500,000.00) per occurrence, naming Lender
as additional insured, (b) property damage insurance on all Equipment, naming
Lender as a loss payee, in an amount equal to actual cash value or
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replacement value, with a deductible of not more than Two Hundred Thousand
Dollars ($200,000.00) per year for all Equipment and (c) such other insurance as
is usual in the business carried on by SPE, TSFC and CCI/Triad which insurance
shall be satisfactory to Lender as to amount, form, nature and carrier.
8.4 First Loss Provision. If any Rent under any Lease financed or
refinanced by a Discount Facility Loan shall remain unpaid for a period of
ninety (90) days from the date when due, SPE shall, on the next succeeding Loan
Repayment Date, upon written demand by Lender, pay to Lender the Loan Repayment
Amount of such Discount Facility Loan. The liability of SPE under this Section
8.4 on any Loan Repayment Date shall not exceed (i) ten percent (10%) of the
aggregate initial principal amount of Loans made under this Agreement as of such
Loan Repayment Date plus (ii) the aggregate Standard Cost of all Equipment
remarketed pursuant to Section 10 as of such Loan Repayment Date minus (iii) the
aggregate Loan Repayment Amounts paid by SPE to Lender pursuant to this Section
8.4 with respect to Discount Facility Loans as of such Loan Repayment Date minus
(iv) the aggregate of all cure amounts paid by SPE to Lender on behalf of
Lessees with respect to Leases financed by Discount Facility Loans which Lender
has demanded to be repaid under this Section 8.4 on such Loan Repayment Date to
the extent SPE has been unable to collect such amounts from such Lessees as of
such Loan Repayment Date ( the "Net Loss Pool"). The method of determining this
amount is described in Exhibit "E". Lender's rights under this Section 8.4 shall
be cumulative and in addition to all other rights to receive payment of the
Discount Facility Loans pursuant to this Agreement. If, at any time, SPE's
liability under this Section 8.4 with respect to Leases financed by a Discount
Facility Loan shall have been reduced to zero, SPE shall thereafter have no
liability under this Section 8.4 with respect to that Discount Facility Loan.
8.5 Excess Proceeds. If, on any Loan Repayment Date, all or any portion
of any Loan Repayment Amount shall not have been paid to Lender pursuant to
Section 8.4 due to the limitation on the liability of SPE set forth in that
Section and SPE thereafter realizes Excess Proceeds with respect to any
Equipment, the previously unpaid portion of all such Loan Repayment Amounts
shall be promptly paid by SPE to Lender to the extent of such Excess Proceeds.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS
SPE represents, warrants and covenants that:
9.1 Due Organization. Both SPE and TSFC are a corporations duly
organized and validly existing in good standing under the laws of California,
and each is duly qualified or otherwise authorized to do business wherever
necessary to carry on its present business and operations and to perform its
respective obligations under each Operative Document and each Lease.
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9.2 Authority. Both SPE and TSFC have the full power, authority and
legal right to enter into and perform its obligations under each Operative
Document.
9.3 Principal Place of Business. As to each of SPE and TSFC,
respectively, its chief executive office and the office where it maintains its
records concerning payments under the Leases is in Livermore, California, and it
will not change such principal place of business or remove therefrom such
records, or any other records relating to the Collateral or any Loan, without at
least thirty (30) days prior written notice to Lender.
9.4 Binding Obligations. Each Operative Document has been duly
authorized and upon execution and delivery will constitute legal, valid and
binding obligations, enforceable against it, TSFC and CCI/Triad in accordance
with the terms thereof.
9.5 Approvals and Consents. No stockholder approval, or approval or
consent of any trustee or holder of any indebtedness or obligation, or
authorization, consent, approval or license by, exemption from or registration
with, any court or governmental department, commission, board, agency or
instrumentality, domestic or foreign, is necessary in connection with the
execution, delivery and performance of obligations other than Lender's under the
Operative Documents, and no consent of any owner, lessor or mortgagee of
premises where any Equipment is located is needed to permit Lender or the lessor
to enforce the rights of the lessor under the Leases or, if required, the same
have been obtained and certified copies have been delivered to Lender.
9.6 Compliance with Laws. There is no law, governmental rule,
regulation, judgment, decree or order binding on it that would be contravened by
the execution and delivery of, and performance under, the Operative Documents.
It will at all times comply with, or cause to be complied with, all laws,
statutes, rules, regulations, orders and directions of any governmental
authority having jurisdiction over it or its business which would materially
have an adverse impact upon SPE's business.
9.7 Clear Ownership. The interests of SPE and TSFC combined are, and
will continue to be, the record and beneficial ownership of 100% of each Lease
and all Equipment subject to Leases in which TSFC is named as Lessor, free and
clear of all mortgages, deeds of trust, pledges and other liens, security
interests, charges or encumbrances, except for liens for taxes due but not yet
payable and liens in favor of Lender, and shall promptly deliver to Lender any
executed counterparts of Leases which were not delivered to Lender pursuant to
Section 5.3(a) and which have subsequently come into
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TSFC's or CCI/Triad's possession. Notwithstanding the foregoing, TSFC and SPE
shall be entitled to transfer to CCI/Triad or a subsidiary corporation of
CCI/Triad record and beneficial ownership of any Equipment subject to Leases in
which TSFC is named as Lessor, provided that:
(a) SPE remains fully bound under this Agreement
with respect to all Obligations, including
the Obligations assumed by the assignee;
(b) the assignee assumes in writing the
Obligations of SPE under this Agreement and
recognizes the continuing validity and
priority of the lien of Lender in the
Equipment; and
(c) the assignee executes any documentation
reasonably required by Lender to facilitate
the foregoing provisions of this Section 9.7
and the Operating Agreement.
9.8 Filings. This Agreement and the Uniform Commercial Code filings
made pursuant hereto create in favor of Lender a valid and perfected first
priority security interest in the Collateral securing the Obligations.
9.9 Actions. There are no actions, suits, proceedings, claims or
disputes pending or, to its knowledge, threatened against or affecting it or
TFSC or their respective properties before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, that,
if determined adversely to either of them, would have a material adverse effect
on their respective condition (financial or other), business performance,
operations, properties or prospects, their respective ability to perform their
respective obligations under the Operative Documents or the Leases or Lender's
security interest in the Collateral.
9.10 Payment of Taxes. It has filed and will file all tax returns
(federal, state and local) required to be filed and has paid all taxes shown
thereon to be due, including interest and penalties, unless it is contesting the
payment of certain taxes in good faith and has established adequate reserves
therefore.
9.11 Notices. It will send to Lender copies of all significant notices,
including, but not limited to, any notices with respect to the terms of any
Lease, and other instruments or communications required or permitted to be given
by the Lessee under any Lease.
9.12 Further Assurances; Enforcement of Leases. TSFC will: (a) preserve
and maintain its corporate existence and all rights, privileges and
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franchises now enjoyed and conduct its business in an orderly, efficient and
customary manner; and (b) from time to time, at its own expense, take all
actions reasonably necessary to establish, preserve, protect and perfect the
rights created by this Agreement, including, without limitation, (i) the full
and punctual performance of all of its obligations under the Leases; (ii) the
enforcement of the Leases without waiver, amendment or modification; and (iii)
the exercise of any and all rights of the lessor under the Leases as may be
necessary or advisable to assure full compliance with the terms and provisions
thereof and to protect Lender's security interest in the Collateral.
9.13 Validity and Enforceability of Leases and Guaranties. Each
Eligible Lease and Guaranty submitted to Lender pursuant to Section 5.3 is
genuine, valid and enforceable and is not subject to any offset, deduction,
counterclaim or lien.
9.14 Leases Duly Entered Into. All parties to each Lease and Guaranty
have full authority and capacity to execute and deliver such Lease or Guaranty,
as the case may be. The entire agreement with each Lessee is embodied solely in
the executed counterparts of the applicable Lease and other documentation
furnished to Lender with respect to such Lease.
9.15 Equipment Description. Each Lease describes the Equipment leased
to the Lessee named in such Lease, the Rent required for such Equipment and any
applicable early termination payments.
9.16 Leases Comply with Laws. Each Lease complies with and does not
violate applicable laws, regulations or contractual specifications or
warranties, including without limitation, any applicable laws relating to
maximum rates of interest (whether or not imputed) or similar charges and all
required disclosures have been made with respect thereto under federal
truth-in-lending and truth-in-leasing regulations to the extent applicable.
9.17 No Impairment of Value or Rights. It will not do anything that
might impair the value of any Lease or Equipment or any of the rights or
obligations of the parties hereto under any Lease.
9.18 No Lessor Liens. No Lease submitted to Lender pursuant to Section
5.3, or any Equipment subject thereto, or any other of its rights therein, has
been assigned to, or be subject to, any lien or security interest in favor of,
any person other than Lender.
9.19 Notifications. It will promptly notify Lender of:
(a) any Event of Default or event which, upon
the lapse of time or giving of notice, or
both, would become an Event of Default, or
any event which is, or upon the lapse of
time or giving of notice, or both, would
become a default under or breach of the
Operating Agreement;
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(b) any and all litigation or other matters or
events concerning it or any Lessee that has
a reasonable possibility of materially and
adversely affecting its or any Lessee's
financial or other condition, its business
performance, operations, properties or
prospects or adversely affecting or Lender's
security interest in the Collateral.
9.20 Books and Records Financial and Other Information. SPE shall for
itself, and as to TSFC, shall cause TSFC to:
(a) maintain adequate books, accounts and
records and prepare all financial statements
required hereunder in accordance with
generally accepted accounting principles and
practices consistently applied and in
compliance with the regulations of any
governmental regulatory body having
jurisdiction over it;
(b) give Lender and its representatives, at all
reasonable times and upon reasonable notice,
access to all records, files and books of
accounting pertaining to all transactions
subject to this Agreement, and permit Lender
and its representatives to inspect, audit
and make extracts therefrom;
(c) upon the occurrence of an Event of Default
or an event which, upon the lapse of time or
giving of notice, or both, would become an
Event of Default, permit Lender to exercise
the inspection rights of TSFC under the
Leases, on a non-exclusive basis;
(d) deliver to Lender in form and detail
satisfactory to Lender, and in such
reasonable number of copies as Lender may
request:
(i) as soon as available, but no later
than thirty (30) days after the end
of each fiscal quarter, a quarterly
financial statement;
(ii) the lists of Lease receivables and
statements showing the aging of
receivables as required by Section
7.4;
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<PAGE> 25
(iii) the statement of first loss
provision required by Section 7.5;
(iv) such other information as Lender
may reasonably request; and
(e) Deliver to Lender, in such reasonable number
of copies as Lender may request, as soon as
available, but no later than ninety (90)
days after the end of each fiscal year, (I)
the audited annual financial statements of
CCI and (ii) the annual financial statements
of TSFC, audited or reviewed if available,
or unaudited but signed by the principal
financial officer of TSFC.
9.21 Audit. It shall permit Lender, from time to time, upon reasonable
request and at Lender's sole expense, to conduct an audit of SPE's and/or TSFC's
accounting and operating procedures as they relate to the Leases, provided such
audit does not unreasonably interfere with SPE's or TSFC's normal business
operation.
9.22 Charges and Taxes. SPE shall make or arrange for all filings in
respect of and pay (or reimburse Lender for, upon presentation of an invoice)
all charges and local, state or federal taxes (other than net income taxes of
the Lender or franchise taxes levied upon Lender's net income), license fees, or
other assessments, charges, fines and penalties, together with interest payable
with respect thereto, levied or imposed upon or in connection with this
Agreement, the Leases, the Equipment, the Rent and the Proceeds. Upon request of
Lender, SPE shall cause TSFC to furnish Lender written evidence of such payment.
9.23 Financial Covenants.
(a) the Tangible Net Worth of TSFC shall at all
times at or prior to the Anniversary Date be
at least $17,500,000.00;
(b) the ratio of TSFC's total consolidated debt
(including subordinated debt) to TSFC's
Tangible Net Worth shall at all times at or
prior to the Anniversary Date be no greater
than 3 to 1;
24
<PAGE> 26
Compliance with Section 9.23 shall be made in accordance with generally
accepted accounting principles, consistently applied, as to both classification
and amounts.
9.24 Maximum Requests for Loans Per Month. It will make no more than a
combined total of three (3) requests for Loans, under Section 3.1, during each
thirty day period.
10. REPOSSESSION AND REMARKETING
10.1 Request to Repossess; Remarketing. In the event that SPE does not
perform its obligations under Section 8.4 by reason of the limitation on its
liability set forth therein, upon Lender's determination that a default exists
under a Lease financed or refinanced by a Discount Facility Loan, either through
notification by SPE or TSFC pursuant to Section 9.19 or otherwise, and that such
default remains uncured within the time, if any, for curing the same permitted
by the Lease, Lender, as secured party under this Agreement, may request SPE to
cause TSFC to act as Lender's agent, and upon such request TSFC will, as such
agent, use diligent efforts to repossess the Equipment subject to such Lease as
promptly and efficiently as is legally permissible. Thereafter TSFC will
refurbish and update, as needed, and, for a period of one hundred twenty (120)
days or such other period as TSFC and Lender may agree upon in writing from the
date the Equipment is repossessed (the "Remarketing Period"), attempt to sell or
release such Equipment on a non-priority (but non-discriminatory) basis and on
such terms and conditions as reflect fair market value for similar equipment and
are acceptable to Lender, in its sole discretion. SPE shall cause TSFC to give
no less priority to remarketing Equipment pursuant to this Section 10.1 than it
would similar equipment owned, leased or managed by TSFC. The obligations of
TSFC to remarket such Equipment for sale or lease shall include, but not be
limited to, efforts to sell such Equipment, preparation and supervision of the
documentation of each transaction and an accounting of the activities referred
to in this Section 10.1, including information relative to the status of
negotiations for offers made in respect of such Equipment.
If TSFC has not remarketed any Equipment at the conclusion of the
Remarketing Period, upon notice from Lender, TSFC's exclusive right to remarket
shall terminate and Lender shall have the right to remarket such Equipment on
terms and conditions satisfactory to it. If Lender remarkets the Equipment, it
shall retain Proceeds in an amount equal to the Loan Repayment Amount applicable
to the Loan financing the Lease to which such Equipment was subject and any
Remarketing Expenses incurred by Lender and shall remit the Excess Proceeds to
SPE.
25
<PAGE> 27
Nothing contained in this Section 10.1 shall be deemed to constitute a
release by Lender of its security interest in any of the Collateral. Lender
shall release its security interest in Equipment which has been sold pursuant to
this Section 10.1.
10.2 Remarketing Expenses. Remarketing Expenses shall be for the
account of the party incurring such expenses and shall be recoverable from
Proceeds of such remarketing realized by the party remarketing the Equipment.
10.3 Assignment. The rights and obligations of any party under this
Section 10 may be assigned only with the written consent of all parties.
10.4 No Guaranty. Notwithstanding anything contained herein to the
contrary, the obligations and duties of SPE contained in this Section 10 shall
not be construed to include a guarantee by SPE that the Remarketing Proceeds
with respect to any Equipment will equal or exceed the Loan Repayment Amount
relating to such Equipment.
11. EVENTS OF DEFAULT, REMEDIES
11.1 Events of Default. Any one of the following events shall
constitute an "Event of Default" hereunder:
(a) SPE shall fail to remit to Lender when due
any Lease Proceeds or Proceeds of an item of
Equipment received by SPE or TSFC, or shall
fail to make any payment required hereunder,
in each case within five (5) days of the
date due thereof;
(b) SPE shall fail to observe or perform any
other obligation hereunder, or under any
other agreement between Lender and SPE,
which is not corrected or in the process of
being corrected within thirty (30) days of
written notice thereof from Lender;
(c) any covenant, representation or warranty
made by SPE, TSFC or CCI/Triad to Lender in
any Operative Document or in any certificate
delivered pursuant thereto shall be untrue
in any material respect when made or during
any period of time for which it is
enforceable or shall be breached by SPE,
TSFC or CCI/Triad. Notwithstanding the
foregoing, to the extent that such a breach
occurs, and such breach relates to an
individual Lease, SPE shall have thirty (30)
days from receipt of demand by Lender to
repurchase the
26
<PAGE> 28
Lease pursuant to the terms of the Mandatory
Prepayment clause set forth at Paragraph 3.7
herein. SPE's failure to repurchase such a
Lease within said thirty (30) day period
shall then constitute an Event of Default
under this subparagraph (c).
(d) an injunction, attachment or other legal
process shall issue against any material
part of SPE's or TSFC's property or a
material judgment or lien shall be filed
against SPE or TSFC which is not stayed,
vacated, bonded, or otherwise discharged
within ninety (90) days after the date of
entry thereof;
(e) SPE, TSFC or CCI/Triad shall cease to do
business as a going concern, shall become
bankrupt, shall make an assignment for the
benefit of creditors or otherwise take
advantage of the bankruptcy or any other law
for the relief of debtors; a trustee or
receiver for SPE, TSFC or CCI/Triad shall be
appointed or there shall be filed by or
against SPE, TSFC or CCI/Triad any petition
under any provision of the Federal
Bankruptcy Code, as amended, and such
petition shall not be dismissed, withdrawn,
or otherwise eliminated within ninety (90)
days after the filing thereof;
(f) any ERISA plan of CCI/Triad, SPE or TSFC
shall terminate, or CCI/Triad, SPE or TSFC
shall fully or partially withdraw from such
a plan or plan which could result in
liability of CCI/Triad, TSFC or SPE to the
Pension Benefit Guaranty Corporation or to
such plan or plans in the Aggregate amount
of One Million Dollars ($1,000,000) or more
(in excess of any applicable insurance).
11.2 Remedies. (a) If an Event of Default shall have occurred, and such
Event of Default had not been cured within an applicable cure period, and
further upon notice of such Event of Default to SPE ,Lender shall have the right
to do any or all of the following:
(i) complete and deliver to the Lessees
the notices received by Lender from
SPE pursuant to Section 5.3(f) and
to commence direct collection of
the Rents until such time as Lender
has received the total Loan
Repayment Amount of all Loans due
under the Agreement;
27
<PAGE> 29
(ii) (1) exercise of any of the Lessor's
rights under any of the Leases, or
(2) by written notice, require SPE
to exercise on behalf of Lender as
secured party under this Agreement
any and all of the rights available
to the Lessor under any Lease to
the extent not already exercised by
SPE, whereupon SPE shall
immediately take all requested
action;
(iii) discontinue making Loans; or
(iv) proceed against SPE, TSFC,
CCI/Triad or all of them, for all
rights and remedies Lender may have
in law or in equity under this
Agreement and/or the Operating
Agreement.
(b) Upon the occurrence of an Event of Default, or upon the failure of
a Lessee to perform its obligation under a Lease, Lender shall have and may
exercise all the rights and remedies of a secured party under the California
Uniform Commercial Code (expressly including, but not limited to, those granted
under 9-502(1) and 9-306 dealing with retention of cash proceeds); and any other
applicable laws (including but not limited to the right to assume direct
collection of any and all Leases and retain any and all cash proceeds collected
under the leases until such time that Lender has received the total Loan
Repayment Amount of all Loans due under this Agreement); provided, however, that
so long as Lessee under a Lease is not in default thereunder, Lender shall not
take any action or exercise any right that would disturb such Lessee's full and
quiet enjoyment of all of such Lessee's rights under that Lease. Lender will
give SPE reasonable notice of the time and place of any public sale of any
Collateral or of the time after which any public or private sale of such
Collateral or any other intended disposition thereof is to be made. Unless
otherwise provided by law, the requirement of reasonable notice shall be met if
such notice is delivered at least ten (10) days before or mailed, postage
prepaid, to SPE, at least twenty (20) days before the time of such sale or
disposition. Subject to applicable provisions of this Agreement, Collateral
proceeds including, but not limited to, the proceeds of any sale or disposition
of Collateral shall be applied: first, to the expense of settling all liens and
claims against such Collateral and all reasonable costs, charges and expenses
incurred by Lender in connection with the Event of Default, Lender's exercise of
remedies under this Section 11.2 (including without limitation those described
in Section 12.4), and in taking, removing, holding, preparing for sale and
selling the Equipment; second, to the payment of the remaining total Loan
Repayment Amount of all Loans; third, to any other unpaid obligations of SPE
hereunder; or of TSFC, or CCI/Triad under the Operating Agreement and fourth,
any remaining proceeds shall be paid to SPE.
28
<PAGE> 30
(c) Notwithstanding the foregoing, Lender shall have the right to
discontinue making Loans at any time in its sole discretion, whether or not an
Event of Default has occurred.
(d) Nothing contained in this Section 11.2 shall entitle Lender to
recourse against SPE with respect to payment of the Loans which is not expressly
granted to Lender by this Agreement.
12. MISCELLANEOUS
12.1 General. Waiver of any particular default shall not be a waiver of
any other default. All Lender's rights are cumulative and not alternative. No
waiver or change modification or amendment in this Agreement shall bind Lender
or SPE unless an officer of Lender and SPE, has agreed to such waiver or change
modification or amendment in writing. Any provision of this Agreement contrary
to, prohibited by or invalid under applicable laws or regulations shall be
inapplicable and deemed omitted herefrom, but shall not invalidate the remaining
provisions hereof. No oral agreement, guaranty or warranty shall be binding.
This Agreement shall be governed by the laws of California.
12.2 Notices. All notices, demands, directions, consents and approvals
hereunder shall be in writing and shall be delivered in person, by telecopy, by
overnight courier or by prepaid certified mail, addressed to the party for whom
it is intended, if to
CCI/Triad Financial Holding Corporation
3055 Triad Drive
Livermore, California, 94550
Attention: William Allen, President
Telecopy No. 510-455-6471
with a copy to Corporate Counsel;
if to Lender, the party stated in Section E. Of the Schedule 1 document,
and shall be deemed delivered on the day of actual receipt. Either
party may change its' address for the receipt of notices, demands, directions,
consents, and approvals by notice duly given to the other party pursuant to this
Section 12.2.
Notices may also effectively be given by transmitting over electronic
devices such as facsimile machine, if either party to whom such notice
29
<PAGE> 31
is being sent has such device in its office. Notices given by electronic
transmitting devices shall be deemed effective on the date of transmission.
12.3 Waivers. Lender and SPE hereby respectively waives demand,
presentment, protest and notice thereof with respect to any and all instruments,
notice of acceptance hereof, and all other demands and notices of any
description, except as expressly provided herein. No delay or omissions on the
part of either party in exercising any right, remedy, option, or notice of
default, except as any pertinent statute of limitations which may apply, on any
one occasion, shall be construed as a bar to or waiver of any other default,
right, remedy or option, or the same default, right, remedy or option on any
future occasion.
12.4 Costs and Expenses. In any case where Lender or SPE is entitled
hereunder to reimbursement of costs and expenses, such costs and expenses shall
include interest on any judgment and court costs, reasonable legal fees and
expenses (including allocated fees of internal counsel).
12.5 Successors; Assigns. This Agreement shall inure to the benefit of
and be binding upon Lender and SPE and their respective successors and permitted
assigns. Neither party may assign this Agreement without the other party's
consent, unless such assignment is to any wholly owned subsidiary, parent or
affiliate of the assigning party. If either party does not consent to such
proposed assignment, SPE shall have the option to prepay the outstanding
aggregate Loan Repayment Amount to Lender at a price to be determined by mutual
agreement of the parties.
12.6 Entire Agreement. The terms and conditions herein contained
constitute the entire agreement between Lender and SPE with respect to the
subject matter hereof, except to the extent other agreements are referred to
herein or contemplated hereby or executed contemporaneously herewith, and
supersede all previous communications whether oral or written between Lender and
SPE with respect to such subject matter. No agreement or understanding varying
or extending any rights or obligations hereunder of either of the parties shall
be binding unless in a writing signed by a duly authorized officer or
representative of the party against which such variance or extension is sought
to be enforced.
12.7 Headings; Titles. The cover, table of contents and titles for
Sections used in this Agreement are intended to be descriptive only and shall
not be deemed to limit, extend or in any way modify the meaning of the text of
this Agreement. References to integral sections without decimals include all
decimal sections within such integral sections.
12.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute but one and the same instrument.
<PAGE> 32
SCHEDULE 1.
-------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
DATED AS OF JUNE 1, 1999
BETWEEN
CCI/TRIAD FINANCIAL HOLDING CORPORATION
AS BORROWERS
AND
NATIONSCREDIT COMMERCIAL CORPORATION
AS LENDER
-------------------------------------------------------------
$5,000,000
DISCOUNT LOAN FACILITY
-------------------------------------------------------------
LOANS SECURED BY LEASES,
LEASE RECEIVABLES AND
LEASED EQUIPMENT
<PAGE> 33
SCHEDULE 1.
This LOAN AND SECURITY AGREEMENT is entered between CCI/TRIAD FINANCIAL
HOLDING CORPORATION ("SPE"), a California corporation, as borrower, and
NATIONSCREDIT COMMERCIAL CORPORATION ("Lender"), a Delaware corporation, as
Lender.
A. The "Anniversary Date" as defined in Section 1.1 shall be June 1, 1999.
B. The "Aggregate Maximum Loan Amount" of all loans, in accordance with Section
2.1, shall be Five Million Dollars ($5,000,000.).
C. Notices to Lender in accordance with Section 12.2 shall be addressed as
follows:
Nationscredit Commercial Corporation
1355 Windward Concourse
Alpharetta, GA 30005
Attn: William Zenallis
Senior Vice President
Wholesale Business Development
All the Terms and Conditions of THE MASTER LOAN AND SECURITY AGREEMENT FORM are
hereby incorporated by reference and made a part of this AGREEMENT, provided,
however the following Special Terms and Conditions (which supplement said MASTER
LOAN AND SECURITY AGREEMENT FORM Terms and Conditions) shall supersede and
replace any conflicting Terms and Conditions in THE MASTER LOAN AND SECURITY
AGREEMENT FORM. All Section numbers and references in this Schedule 1 document,
refer to (or supplement) section numbers and references in THE MASTER LOAN AND
SECURITY AGREEMENT FORM.
SPECIAL TERMS AND CONDITIONS
1. Notwithstanding the PROVISIONS OF Section 3.5 or any other provisions of
this agreement, SPE will not finance any additions or upgrades on or to any
Equipment with any person other than Lender. If Lender does not wish to
finance the same, SPE will either not finance the same or will first prepay
the applicable Discount Facility Loan pursuant to Section 3.6.
2. The lead-in phrase of Section 3.8 is hereby amended to read as follows: "If
any Equipment subject to a Lease is lost or damaged, and is not repaired or
replaced with similar Equipment of no less value, in which Lender has a
first priority security interest to secure all of the Obligations, by the
first Loan Repayment Date occurring not less than thirty (30) days after
such loss or damage,"
<PAGE> 34
3. Notwithstanding the provisions of Section 5.3, it shall be a condition
precedent to Lender's obligation to make any Loan that
(a) Lender shall have received at least one original manually
executed counterpart of the applicable Lease and Lease Schedules,
and all of the other counterparts in the possession, custody or
control of CCI/Triad, TSFC, the SPE, or any affiliate of any of
them; except that with respect to loans of $35,000 or less,
Lender will require only a faxed copy of the applicable Lease
Schedule, with the Lessee's faxed signature and Lessor's original
signature. In such case SPE will employ its best efforts to
deliver such original manually executed copy or copies to Lender
within 30 days after the applicable Loan is made.
1. The phrase "to the extent they have been financed by Lender under this
Agreement" is deleted from Section 6.1 (b) (ii).
2. The phrase "without first giving to Lender the same further assurances" is
deleted from Section 6.3.
3. The word "obtained" is deleted from Section 8.1 (d).
4. The following sentence is added to the end of Section 8.5: "Any amounts
recovered from a defaulting Lessee shall be disbursed in the same manner as
the Excess Proceeds."
5. The first four lines of Section 9.7 are hereby amended to read as follows:
"SPE has and will continue to have good and marketable title to each Lease
and, as to TSFC, a valid and perfected first security interest in all
Equipment, free and clear of all mortgages, deeds of trust, pledges"
6. A new subsection is added to Section 9.7, to read as follows: (d) Lender
shall be given at least 30 days prior written notice of any such transfer.
7. The phrase "or in the process of being corrected" is deleted from Section
11.1 (b).
8. SPE's representations and warranties shall be deemed to be remade each time
proceeds of a Loan are received by it and will survive the execution and
delivery of this Agreement and the making of such Loans.
9. This agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts to be performed
therein. Each party hereto consents to the jurisdiction of any state or
federal court located in the City of New York, agrees not to object to any
such forum and agrees that, to the extent permitted by law, service of
process may be made in the manner for the giving of notices herein. Each
party hereby waives the right to trial by jury in any action relating to
this Agreement.
<PAGE> 35
This LOAN AND SECURITY AGREEMENT is effective as of June 1, 1998.
CCI/TRIAD FINANCIAL HOLDING CORPORATION ("SPE"),
a California corporation
By: /s/ WILLIAM ALLEN
Title:
NATIONSCREDIT COMMERCIAL CORPORATION
a Delaware Corporation
By: /s/ WILLIAM ZENALLIS
Title: Vice President
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 1 TO
LOAN AGREEMENTS
This AMENDMENT NO. 1 ("Amendment") TO LOAN AGREEMENTS (as defined below)
is entered into as of September 28, 1999 between CCI/TRIAD FINANCIAL HOLDING
CORPORATION ("Borrower"), a California corporation with its principal office at
3055 Triad Drive, Livermore, CA 94550, and BANC OF AMERICA VENDOR FINANCE,
INC., a Delaware corporation, successor to NationsCredit Commercial Corporation
("Lender"), with an office at 1355 Windward Concourse, Alpharetta, GA 30005.
RECITALS
A. Borrower and Lender executed and delivered a certain MASTER LOAN AND
SECURITY AGREEMENT FORM dated as of June 1, 1998, herein referred to as the
"NCC Loan Agreement", which provides for a $5,000,000 discount loan facility
secured by Lease Receivables, Leases and Leased Equipment upon the terms and
conditions contained therein.
B. Borrower has requested that Lender amend certain sections of the Loan
Agreement dealing with the amount of the facility, loss pools, recourse and
other matters for any new Loans made after the date of this Amendment.
C. Borrower is the successor to the rights and obligations of Triad Systems
Financial Corporation ("TSFC") under a Loan and security Agreement dated as of
December 2, 1993 with Mitsui Vendor Leasing USA, Inc. as Lender, as amended
("Mitsui Loan Agreement"), and to the obligations of Orleans Leasing
Corporation under a Loan and Security Agreement dated as of March 22, 1991 with
SPCC, Inc. as Lender, as amended ("SPCC Loan Agreement"). Lender is the
successor to the rights and obligations of Mitsui Vendor Leasing USA, Inc. and
SPCC, Inc. under both the Mitsui Loan Agreement and the SPCC Loan Agreement.
The NCC Loan Agreement, the Mitsui Loan Agreement and the SPCC Loan Agreement
are referred to herein collectively as the "Loan Agreements".
D. Borrower and Lender each desire to amend the Loan Agreements as provided
herein. Capitalized terms are used with the meanings given in the Loan
Agreements.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereby agree as follows:
ARTICLE 1 - AMENDMENTS
1.1 New Loans. For any Loans made under the Discount Facility from and
after the date of this Amendment ("New Loans"), the NCC Loan Agreement is hereby
amended as provided herein and the NCC Loan Agreement as so amended will govern
all such New Loans.
-1-
<PAGE> 2
All terms and conditions of the NCC Loan Agreement in effect prior to this
Amendment will continue to govern all Loans made under the Discount Facility
prior to the date of this Amendment; provided that the parties agree that the
provisions of Sections 1.6 and 1.7 below apply to all Loans, including New
Loans, regardless of when or under which Loan Agreement such Loans were made.
1.2 Maximum Loan Amount. Each reference in the NCC Loan Agreement, and any
exhibits or Schedules attached thereto, to an "Aggregate Maximum Loan Amount" of
"$5,000,000", are hereby changed to read an "Aggregate Maximum Loan Amount" for
any Loans made on or after September 28, 1999 of "$4,500,000".
1.3 Restated Section 2.3. Section 2.3 of the NCC Loan Agreement is
amended to read as follows, with the changes from the previous Section 2.3
highlighted:
1.3 Closing Dates; Aggregate Maximum; Minimum Loan. Any Loans made on
or after September 28, 1999 shall be made on up to two Closing Dates, one
expected to be on or about September 30, 1999 and the other expected to be
on or prior to December 31, 1999. The aggregate principal amount of the
Loans made on or after September 28, 1999 shall not exceed $4,500,000. No
Loan shall be made after December 31, 1999, regardless of whether the
Aggregate Maximum Loan Amount has been disbursed to SPE by such date. The
aggregate principal amount of the Loans made on any Closing Date shall be
not less than the "Minimum Loan Amount" stated in the Schedule 1 document.
1.4 Insert to Section 3.1. Section 3.1 of the NCC Loan Agreement is amended
by adding the following sentence at the end thereof:
Lender shall have no obligation to consider any requests for Loans or
to make any additional Loans to SPE after December 31, 1999.
1.5 New Section 5.4. A new Section 5.4 is added to the NCC Loan Agreement
as follows:
5.4 Fee. Lender shall have received a fee of $50,000 by deducting that
amount from the first disbursement of any Loan made after September 28,
1999.
1.6 Restated Section 8.4. The second sentence of Section 8.4 of the NCC
Loan Agreement is amended to read as follows, with the changes from the previous
Section 8.4 highlighted:
The liability of SPE under this Section 8.4 on any Loan Repayment Date
shall not exceed (i) thirty (30%) of the aggregate initial principal amount
of Loans made under this Agreement as of such Loan Repayment Date and made
under this Agreement after September 28, 1999 plus (ii) the
-2-
<PAGE> 3
aggregate Standard Cost of all Equipment remarketed pursuant to Section
10 as of such Loan Repayment Date minus (iii) the aggregate Loan
Repayment Amounts paid by SPE to Lender pursuant to this Section 8.4
with respect to Discount Facility Loans as of such Loan Repayment Date
minus (iv) the aggregate of all cure amounts paid by SPE to Lender on
behalf of Lessees with respect to Leases financed by Discount Facility
Loans which Lender has demanded to be repaid under this Section 8.4 on
such Loan Repayment Date to the extent SPE has been unable to collect
such amounts from such Lessee as of such Loan Repayment Date.
1.7 Cross-Collateralization of Pools. The following is added as a
new Section 13 to each of the NCC Loan Agreement, the Mitsui Loan Agreement and
the SPCC Loan Agreement.
13. CROSS COLLATERALIZATION.
13.1 Grant of Security Interest. In
consideration of Lender's entering into an Agreement No. 1 dated as of
September 28, 1999 to a Loan Agreement dated as of June 1, 1998
between Lender as successor to NationsCredit Commercial Corporation
and CCI/Triad Financial Holding Corporation ("Borrower") pursuant to
which Lender has agreed to make additional Loans to Borrower ("New
Loans"), Borrower hereby grants Lender a continuing security interest
in all Collateral under each of the following Loan Agreements:
(i) Master Loan And Security Agreement
Form dated as of June 1, 1998 between NationsCredit Commercial
Corporation and Borrower, as amended (the "NCC Loan
Agreement");
(ii) Loan and Security Agreement dated
as of December 2, 1993 between Borrower as successor to Triad
Systems Financial Corporation and Mitsui Vendor Leasing USA,
Inc. as Lender, as amended ("Mitsui Loan Agreement"); and
(iii) Security Agreement dated as of
March 22, 1991 between Orleans Leasing Corporation as
Borrower and SPCC, Inc. as Lender, as amended ("SPCC Loan
Agreement")(the NCC Loan Agreement, the Mitsui Loan Agreement,
and the SPCC Loan Agreement, together, the "Loan Agreements").
13.2 Secured Obligations. The security
interests created hereby shall secure not only the obligations of the
specific Loan out of which such security interest arose but also all
transactions and obligations, whenever created, of Borrower to Lender,
including without limitation, past and future obligations under any of
the above Loan Agreements, and any future obligations under any of the
above Loan Agreements, and any future advances, renewals and
extensions, refinancings, and similar obligations or agreements
thereof or thereunder, and all costs and attorneys' fees related to
such agreements.
-3-
<PAGE> 4
13.3 Continuation of Security Interests. The security interests
creared hereby shall continue until all obligations of Borrower to Lender
under any Loans or present or future transactions between Lender and
Borrower under any of the Loan Agreements have been satisfied.
13.4 Cross-Default. Each Loan Agreement is hereby amended to provide
that an Event of Default in such agreement shall, at Lender's option,
constitute an Event of Default with respect to all obligations of Borrower
to Lender under any other Loan Agreement.
13.5 Additional Assurances. At any time and from time to time upon
the request of Lender, Borrower agrees to execute and deliver to Lender, in
form and substance satisfactory to Lender, such documents as Lender shall
deem reasonably necessary or desirable to perfect or maintain perfected
the security interests of Lender in the Collateral securing the Loans, the
additional Collateral granted hereby, or any future obligations between
Lender and Borrower, or which may be necessary to comply with the
provisions of the law of the jurisdiction in which Borrower may then be
conducting business or in which any of the Collateral may be located.
13.6 Increased Borrower Liability. Borrower's Liability under
Section 8.4 of the Mitsui Loan Agreement and Section 8.4 of the SPCC Loan
Agreement is hereby increased to equal the aggregate cumulative liability
of Borrower under the respective Sections 8.4 for all Loan Agreements.
13.7 Termination of Borrower Liability. Notwithstanding any
provision of any Loan Agreement to the contrary, Borrower's liability under
Section 8.4 of any Loan Agreement shall not be terminated until the earlier
of the date on which (i) all of Borrower's liability under all Loan
Agreements shall have been fully satisfied and performed by Borrower and
the repayment in full of all amounts due Lender under any and all Loan
Agreements, and (ii) the limit of Borrower's cumulative liability under
Section 8.4 of any Loan Agreement shall have been exhausted.
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES
2.1 Mutual Representations and Warranties. Borrower and Lender each
hereby represent and warrant to one another that the execution and delivery of
this Amendment and compliance by Borrower and Lender, respectively, with all of
the provisions of this Amendment (a) are within the powers and purposes of such
corporation; (b) have been duly authorized or approved by such corporation; (c)
when executed and delivered by or on behalf of Borrower and Lender,
respectively, will constitute valid and binding obligations of each,
enforceable in accordance with its terms; or (d) do not require any consents,
approvals, authorizations, registrations, declarations or filings by Borrower
or Lender, respectively, under any federal or
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<PAGE> 5
California statute, rule or regulation applicable to Borrower or Lender,
respectively or under any credit agreement to which Borrower or Lender is
a party. Borrower and Lender each reaffirms all of its obligations under
the Loan Agreement, as amended to date and by this Amendment.
2.2 Additional Borrower Representations and Warranties. Borrower
further represents and warrants to Lender that the execution and delivery
of this Amendment and the performance of the obligations of Borrower under
the Loan Documents as amended do not: (a) violate any federal or
California statute, rule or regulation applicable to Borrower, (b) violate
the provisions of any of Borrower's articles or bylaws, or (c) result in
the breach of or a default under any of the Loan Documents or any other
material agreements of Borrower.
ARTICLE 3 - GENERAL PROVISIONS
3.1 Other Provisions Unmodified. Except as specifically modified by
this Amendment, all terms and provisions of the Loan Agreement shall
remain unmodified and in full force and effect. Nothing contained in this
Amendment shall in any way impair the validity or enforceability of the
Loan Agreement, as modified hereby, or alter, waive, annul, vary, affect,
or impair any provision, condition, or covenant therein or any rights,
power, or remedy granted therein.
3.2 Construction; Modification and Amendment. Each party hereto has
cooperated in the drafting and preparation of this Amendment, and, as a
result, this Amendment shall not be construed against any party. This
Amendment may be amended or modified only by a written agreement signed
by the parties hereto. This Amendment may be executed in counterparts.
3.3 Severable Provisions. To the extent that any provision of this
Amendment is not enforceable under applicable law, such provision shall be
deemed null and void and shall have no effect on the remaining portions of
the Amendment or Loan Agreement.
3.4 Entire Agreement. This Amendment, and all other agreements
referred to herein or delivered in connection herewith, shall constitute
the entire agreement between the parties relating to the subject matter
hereof, and shall rescind all prior agreements and understandings between
the parties hereto relating to the subject matters hereof.
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<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first written above.
CCI/TRIAD FINANCIAL HOLDING CORPORATION
By /s/ MATTHEW HALE
Its Chief Financial Officer
BANC OF AMERICA VENDOR FINANCE, INC.
By /s/ STEPHANIE BONNER
Its Mgr., Documentation
<PAGE> 1
EXHIBIT 10.15
---------------------------------------------
LOAN AND SECURITY AGREEMENT
DATED AS OF JULY 1, 1999
BETWEEN
CCI/TRIAD FINANCIAL HOLDING CORPORATION
AS BORROWER
AND
IFC CREDIT CORPORATION
AS LENDER
---------------------------------------------
$15,000,000
DISCOUNT LOAN FACILITY
----------------------------------
LOANS SECURED BY
LEASE RECEIVABLES, LEASES, AND
LEASED EQUIPMENT
<PAGE> 2
This LOAN AND SECURITY AGREEMENT is entered into as of July 1, 1999
between CCI/TRIAD FINANCIAL HOLDING CORPORATION ("SPE"), a California
corporation, as borrower, and IFC CREDIT CORPORATION, an Illinois corporation,
as lender ("Lender").
INTRODUCTION
A. Both SPE and Triad Systems Financial Corporation ("TSFC"), a
California corporation, are wholly owned subsidiaries of COOPERATIVE COMPUTING,
INC. d/b/a Triad Systems and CCI/Triad ("CCI/Triad"), a Delaware corporation.
CCI/Triad manufactures and TSFC purchases from CCI/Triad and leases to TSFC's
customers computer systems and software, all in accordance with an Operating and
Support Agreement among CCI/Triad, TSFC, SPE, and Lender.
B. TSFC has transferred by sale to SPE certain receivables due TSFC
under the leases, and TSFC has by an agreement substantially in the form of the
Sales, Assignment, and Security Interest Agreement attached hereto as Exhibit F
("Sale and Assignment Agreement") assigned to SPE certain of its rights and
interests in the Leases, computer systems, software, and equipment.
C. Lender engages in the business of equipment lease financing.
D. Lender is willing to lend to SPE amounts equal to the discounted
value of payments receivable under certain of the customer leases of computer
systems and software, upgrades and add-ons, or other equipment, and SPE is
willing to grant a security interest in the lease payments, the leased computer
systems and software, or other equipment and the interest of TSFC in the leases,
all subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows;
1. DEFINITIONS
When used in capitalized form herein, the following terms shall have
the meanings indicated:
1.1 "Anniversary Date" - September 1, 2000.
1.2 "Business Day" - any day other than a Saturday, Sunday, or a
public or bank holiday or the equivalent for banks generally under the laws of
the State of Illinois.
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1.3 "Closing Date" - with respect to any Loan, the date on which
Lender makes a Loan to SPE under this Agreement.
1.4 "Collateral" - as defined in Section 6.1.
1.5 "Discount Facility" - the credit facility provided by Lender to
SPE pursuant to Section 2.
1.6 "Discount Facility Loan" - a Loan made by Lender to SPE under
the Discount Facility.
1.7 "Discount Facility Rate" - with respect to a Discount Facility
Loan, will be determined from time to time by mutual agreement of SPE and
Lender.
1.8 "Discount Facility Loan Value" - of a Lease at the time a
Discount Facility Loan is made, a percentage, to be determined by mutual
agreement between the parties, of each payment of Rent remaining unpaid under
the Lease at that time (but excluding any past due Rent), discounted from the
date each such payment is due to such time at the Discount Facility Rate with
respect to such Discount Facility Loan.
1.9 "Effective Date" - the date of this Agreement.
1.10 "Eligible Equipment" - new or remanufactured Equipment,
including but not limited to, computer systems and related components, software
and accessories manufactured or sold by CCI/Triad, having a Discount Facility
Loan Value of not less than One Thousand Dollars ($1,000.00), subject to an
Eligible Lease and not subject to a security interest or other encumbrance in
favor of any corporation, firm, or other person other than a security interest
in favor of Lender arising under this Agreement or a Security Supplement.
1.11 "Eligible Lease" - a full pay out net lease, substantially in
the form of Exhibit A, naming TSFC as lessor, that:
(a) has a noncancelable term of not less than 12 months
nor more than 84 months, excluding renewals or
extensions;
(b) provides for (i) Rent and casualty payments in
amounts sufficient to repay to Lender the Loan made
in respect of such lease and interest on such Loan at
the Discount Facility Rate, (ii) interest on late
payments under such lease at a rate not less than the
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Late Payment Rate, and (iii) all payments to be made
in United States dollars;
(c) provides that the lessor's right to receive payment
is absolute and not contingent upon the fulfillment
of any condition whatsoever other than the passage of
time;
(d) covers only Eligible Equipment subject to a security
interest in favor of Lender and includes all hardware
and any other systems required to operate any
included software;
(e) is not subject to any conditions, obligations of, or
any right or offset, counterclaim, or defense by, the
Lessee thereunder;
(f) is a Lease under which the Lessee is not in default;
and
(g) is in all other respects satisfactory to Lender.
1.12 "Equipment" - any and all Eligible Equipment leased to a Lessee
by TSFC under a Lease, located in the United States and made subject to a
security interest in favor of Lender by the execution and delivery by SPE to
Lender of a Security Supplement specifically describing such Eligible Equipment,
together with (i) all accessions, replacements, parts, repairs, fixtures, and
accessories incorporated therein or affixed thereto under the Lease and (ii) all
upgrades, add-ons, and additions incorporated therein or affixed thereto.
1.13 "Event of Default" - as defined in Section 11.1.
1.14 "Excess Proceeds" - of an item of Equipment, any excess of the
Remarketing Proceeds thereof over the sum of (i) the principal amount due on the
next Loan Repayment Date on the Discount Facility Loan applicable to the Lease
covering such Equipment plus (ii) all accrued and unpaid principal and interest
on such Loan plus (iii) the present value of all principal payments due on such
Loan after the next Loan Repayment Date, discounted at the same rate as Lender
has borrowed funds to make such Loan.
1.15 "Guaranty" - a guaranty, in the form of the guaranty that
comprises a part of Exhibit A, executed and delivered by a corporation, firm, or
other person (a "Guarantor") satisfactory to Lender and assigned to Lender as
security by the execution and delivery by SPE of a Security Supplement
specifically describing such guaranty.
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<PAGE> 5
1.16 "Invoice Price" - with respect to any Equipment, the aggregate
invoice prices of CCI/Triad, as manufacturer or seller, net of taxes,
transportation cost, delivery cost, and any acquisition or other fees payable by
TSFC to CCI/Triad or any of its affiliates.
1.17 "Late Payment Rate" - with respect to a Discount Facility Loan,
two percent (2%) over the applicable Discount Facility Rate.
1.18 "Lease" - an Eligible Lease duly executed by the Lessee,
approved by Lender and assigned to Lender as security by the execution and
delivery by SPE to Lender of a Security Supplement specifically describing such
Eligible Lease.
1.19 "Lease Proceeds" - with respect to any Lease, all payments due
from or with respect to the Lessee, such Lease, or the Equipment subject to such
Lease, including, but not limited to, all Rent and any security deposits held by
TSFC, all casualty, early termination, purchase option, and indemnity payments,
and all insurance and sales or lease proceeds of and requisition payments for
the Equipment subject to such Lease.
1.20 "Lessee" - a United States-domiciled corporation, partnership,
or sole proprietorship that is the obligor for payment of Rent under a Lease.
1.21 "Loan" - any advance of funds to SPE by Lender under this
Agreement as evidenced by a Security Supplement.
1.22 "Loan Repayment Amount" - with respect to a Loan at any time,
the aggregate unpaid principal of, and accrued interest (including any interest
accrued at the Late Payment Rate) on, such Loan.
1.23 "Loan Repayment Date" - with respect to any Loan, the 20th day
of each calendar month, commencing with the first such day to occur after the
Closing Date for such Loan.
1.24 "Net Loss Pool" - as defined in Section 8.4.
1.25 "Obligations" - as defined in Section 6.1.
1.26 "Operating Agreement" - the Operating and Support Agreement
entered into among CCI/Triad, TSFC, SPE, and Lender, substantially in the form
of Exhibit B attached hereto.
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<PAGE> 6
1.27 "Operative Documents" - this Agreement, each Security
Supplement, the Sale and Assignment Agreement, and the Operating Agreement.
1.28 "Prepayment Fee" - a fee equal to two percent (2%) of then
unpaid principal amount due Lender under any Lease that is prepaid pursuant to
Section 3.10. 1.29 "Proceeds" - of an item of Equipment, the sum of (i) the (a)
gross cash proceeds of sale of such item or (b) aggregate Rent obligation under
a re-lease of such item discounted at the applicable Discount Facility Rate, as
the case may be, plus (ii) any past due Rent and any other termination amount
paid by the Lessee, or by SPE on behalf of the Lessee, plus (iii) any security
deposit held by TSFC that reduces the Lessee's lease termination payment.
1.30 "Remarketing Expenses" - with respect to an item of Equipment,
the sum of (i) costs of repossessing, transporting, refurbishing, and
remarketing the item pursuant to Section 10, plus (ii) any applicable sales,
use, or similar taxes imposed in connection with the sale or re-lease of such
item and not paid by the purchaser or Lessee, plus (iii) in the case of a Lease
default, enforcement and collection costs.
1.31 "Remarketing Proceeds" - with respect to an item of Equipment,
the Proceeds minus the Remarketing Expenses.
1.32 "Rent" - under a Lease, the periodic charges specified in the
Lease for the use of the Equipment, excluding casualty or early termination,
purchase option and indemnity payments, and any amounts a Lessee may be required
to pay for taxes, license fees, assessments, or maintenance.
1.33 "Security Supplement" - a supplement hereto substantially in
the form of Exhibit "C", executed and delivered to Lender by SPE, describing
Equipment and Leases and subjecting the same to the security interest in favor
of Lender arising under Section 6.
1.34 "Standard Cost" - with respect to an item of Equipment at any
time, an amount equal to fifty percent (50%) of the Loan Repayment Amount of the
Lease calculated on the Loan Repayment Date.
1.35 "Tangible Net Worth" of TSFC - the gross book value of TSFC's
consolidated tangible assets less (a) reserves applicable thereto and (b) all of
TSFC's consolidated liabilities (including accrued and deferred income taxes),
other than indebtedness subordinated to TSFC's indebtedness to Lender in a
manner satisfactory to Lender. All determinations of the characterization of
assets and of the values comprising "Tangible Net Worth" shall be made in
accordance with generally accepted accounting principles consistently applied.
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<PAGE> 7
1.36 "CCI/Triad" - Cooperative Computing, Inc., a Delaware
corporation, or any successor entity resulting from the sale or transfer of its
stock to another corporation, resulting from its merger, acquisition,
consolidation, or dissolution, or resulting from the transfer of all or
substantially all of its assets.
2. THE DISCOUNT FACILITY
2.1 Total Facility. Subject to the terms and conditions hereof, from
time to time, from (and including) the Effective Date to and excluding the
Anniversary Date, Lender may with respect to each Lease make a Loan to SPE in a
principal amount equal to the Discount Facility Loan Value; provided, however,
the aggregate principal amount of all Loans outstanding at any time shall not
exceed $15,000,000, and provided further that none of TSFC, SPE, nor CCI/Triad
suffer a material adverse financial change in its business or financial
condition during the term of this Agreement.
2.2 Interest Calculation. Interest on the Discount Facility Loans
shall be computed on the basis of a 360-day year of 12-30 day months.
2.3 Minimum Loan. The aggregate principal amount of the Loans made
on any Closing Date shall be not less than $1,000,000.
2.4 Payments. Lender shall pay the proceeds of the Loans in
immediately available funds on the Closing Dates for such Loans. SPE shall make
each payment due under this Agreement to Lender or Lender's assignee in
immediately available funds to the account or address specified by Lender or
such assignee.
3. THE LOANS
3.1 Requests for Loans. No later than ten (10) Business Days before
the Closing Date relating to a Discount Facility Loan requested by SPE, SPE
shall submit to Lender Eligible Leases, together with lease schedules and other
supporting documentation and the following:
(a) the name of each Lessee under such Eligible Leases,
together with (i) unless previously submitted to
Lender, financial statements, to the extent
available, of each such Lessee, if the equipment
value is over Fifty Thousand Dollars ($50,000.00), as
of the end of such Lessee's most recent fiscal year,
and any interim financial statements of such Lessee
readily available to
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<PAGE> 8
TSFC, SPE, or CCI/Triad, all in form and substance
satisfactory to Lender, (ii) the payment history of
such Lessee under other leases entered into between
such Lessee and TSFC, and (iii) such additional
financial information pertaining to any Lessee as
Lender may request;
(b) the Rent schedule for each such Eligible Lease; and
(c) such other relevant information as Lender shall
reasonably require.
3.2 Approvals. Within ten (10) Business Days of receipt of all
information required to be submitted pursuant to Section 3.1, Lender shall
advise SPE in writing if, in its sole and unlimited discretion, Lender approves
the proposed Eligible Lease and, if Lender requires the credit support of a
Guarantor, the credit of the proposed Guarantor. If Lender fails to give such
advice within such ten (10) day period, Lender shall be deemed to have declined
such credit. Lender may revoke any credit approval prior to making the Discount
Facility Loan relating to a proposed Lease if, in Lender's judgment, the
proposed Lessee or Guarantor suffers a material adverse change in its business
or financial condition. Lender shall promptly return all credit packages to SPE
relative to any rejected lease transactions. Lender shall have no duty to
communicate rejections to proposed Lessees.
3.3 Disbursement of Discount Facility Loan. Subject to satisfaction
of the conditions precedent set forth in Section 4 and Section 5, Lender shall
make Discount Facility Loans on the Closing Date proposed in accordance with
this Section 3 to SPE with respect to Leases approved pursuant to Section 3.2.
The Discount Facility Loans made on the Closing Date shall be in an aggregate
principal amount equal to the aggregate Discount Facility Loan Values of the
Eligible Leases submitted by SPE pursuant to Section 3.1 and approved by Lender
pursuant to Section 3.2. If, for any reason, a Discount Facility Loan is not
made on a proposed Closing Date notwithstanding compliance by SPE with Sections
3.1, 4, and 5, the Closing Date may be rescheduled to a date, within ten (10)
Business Days of such Closing Date, mutually agreed upon in writing by Lender
and SPE.
3.4 Loan Payments and Amortizations. Each Discount Facility Loan
shall bear interest at the Discount Facility Rate determined for such Loan and
shall be evidenced by a Security Supplement that shall set forth the repayment
terms with respect to such Discount Facility Loan in a manner satisfactory to
Lender and shall identify the Lease(s) with respect to which such Discount
Facility Loan is made. Principal of, and accrued interest on, the Discount
Facility Loans shall be payable in accordance with the Security
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<PAGE> 9
Supplement for such Discount Facility Loan. Each Discount Facility Loan shall be
amortized by the Lease Proceeds received by Lender with respect to the Leases
financed by such Loan, with such Lease Proceeds applied first to accrued and
unpaid interest, then to any other amounts due under such Loan, and then to
principal.
3.5 Upgrades and Additions. TSFC may, from time to time, agree with
a Lessee under a Lease that the Equipment subject to such Lease shall be
upgraded or that additional Eligible Equipment should be added to such Lease. If
TSFC and such Lessee amend such Lease to increase the Rent payable thereunder in
consideration of such upgrade or addition, SPE may request that Lender finance
the additional Lease Proceeds arising under such amendment (the "Lease
Amendment") attributable to such increase in Rent. Not later than ten (10)
Business Days after such request, Lender shall give SPE written advice as to
whether Lender, in its sole discretion, has elected to finance such additional
Lease Proceeds. If Lender fails to give such advice within such ten (10) day
period, Lender shall be deemed to have declined to finance such additional Lease
Proceeds and shall so advise SPE in writing. If Lender agrees to finance such
additional Lease Proceeds, Lender shall, subject to satisfaction of the
conditions precedent set forth in Sections 4 and 5, make a Discount Facility
Loan in an amount equal to the aggregate increase in Rent effected by the Lease
Amendment that remains unpaid as of the applicable Closing Date, but excluding
any such increase in Rent that is past due, discounted at the Discount Facility
Rate determined on the applicable Closing Date. The Closing Date with respect to
such Discount Facility Loan shall be a date agreed upon in writing by Lender and
SPE. If Lender agrees to make such a Discount Facility Loan, the Lease Amendment
shall be considered a "Lease" for all purposes of this Agreement (including,
without limitation, Section 5). If Lender declines to finance a Lease Amendment
and if SPE elects to finance such upgrades or additions through a source other
than Lender, SPE shall either prepay Lender in accordance with Section 3.6 or
substitute an Eligible Lease satisfactory to Lender for such existing Lease. If
Lender declines to finance a Lease Amendment and SPE elects not to substitute
the existing Lease and to finance the Lease Amendment itself, SPE agrees that
any security interest granted to it by Lessee shall be subject to and
subordinate to Lender's security interest in the applicable Equipment, as
upgraded, and the applicable Lease, as amended.
3.6 Optional Prepayment: Lender Refusal to Finance Upgrades or
Additions. If Lender elects not to finance increased Lease Proceeds related to
upgrades or additions pursuant to Section 3.5 and SPE elects to finance with
another source, SPE shall give Lender not less than ten (10) days prior written
notice of its requirement to prepay the Discount Facility Loan made to finance
the Lease in respect of which the upgrade or addition has been made. On the
first Loan Repayment Date to occur after the ten (10) day notice period has
elapsed, SPE shall pay to the Lender the sum of (i) the principal amount due on
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such Loan Repayment Date on the Discount Facility Loan applicable to the Lease
covering such Equipment plus (ii) all accrued and unpaid principal and interest
on such Loan plus (iii) the present value of all principal payments due on such
Loan thereafter, discounted at the same rate as Lender has borrowed funds to
make such Loan.
3.7 Mandatory Prepayment: Voluntary Termination of Lease. If a
Lessee voluntarily terminates a Lease before its scheduled expiration, SPE shall
prepay the Discount Facility Loan made to finance such Lease on the Loan
Repayment Date immediately following such termination. On such Loan Repayment
Date, SPE shall pay to Lender the sum of (i) the principal amount due on such
Loan Repayment Date on such Loan plus (ii) all accrued and unpaid principal and
interest on such Loan plus (iii) the present value of all principal payments due
on such Loan thereafter, discounted at the same rate as Lender has borrowed
funds to make such Loan.
3.8 Mandatory Prepayment: Casualty. If any Equipment subject to a
Lease is lost or damaged and cannot be repaired or replaced with substantially
similar Equipment by the first Loan Repayment Date occurring not less than
thirty (30) days after such loss or damage, SPE shall prepay the Discount
Facility Loan made to finance such Lease on such Loan Repayment Date. On such
Loan Repayment Date, SPE shall pay to Lender the sum of (i) the principal amount
due on such Loan Repayment Date on such Loan plus (ii) all accrued and unpaid
principal and interest on such Loan plus (iii) the present value of all
principal payments due on such Loan thereafter, discounted at the same rate as
Lender has borrowed funds to make such Loan.
3.9 Mandatory Prepayment: Rent Default. If any Rent under any Lease
financed or refinanced by a Discount Facility Loan shall remain unpaid for a
period of ninety (90) days from the date when due, SPE shall pay to Lender the
sum of (i) the principal amount due on such Loan Repayment Date on such Loan
plus (ii) all accrued and unpaid principal and interest on such Loan plus (iii)
the present value of all principal payments due on such Loan thereafter,
discounted at the same rate as Lender has borrowed funds to make such Loan,
subject to the Net Loss Pool in Section 8.4.
3.10 No Other Prepayments Permitted. No Discount Facility Loan may
be prepaid except as otherwise expressly provided in the Agreement unless SPE
pays on the next Loan Repayment Date the sum of (i) the principal amount due on
such Loan Repayment Date on such Loan plus (ii) all accrued and unpaid principal
and interest on such Loan plus (iii) the present value of all principal payments
due on such Loan thereafter, discounted at the same rate as Lender has borrowed
funds to make such Loan, together with the Prepayment Fee.
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<PAGE> 11
3.11 Limited Recourse. Lender agrees that, except as provided in
this Section 3.11, Sections 3.6, 3.7, 3.8, 3.9, 3.12, 8, and 11, and Section 10
with respect to Remarketing Expenses, each Discount Facility Loan is nonrecourse
to SPE and that the repayment of each Discount Facility Loan shall be obtained
solely from the Lease Proceeds of the Leases, Proceeds of the Equipment, and the
other collateral in which Lender has been granted a security interest pursuant
to Section 6; provided, however, without limiting the foregoing exceptions, that
SPE shall be jointly and severally liable (without any limitation on recourse)
with TSFC (i) if (a) either TSFC or SPE shall fail to pay over to Lender any
Lease Proceeds received by TSFC or SPE and due Lender hereunder, in which case
SPE and TSFC shall be liable for the amount of the Lease Proceeds not so paid
over plus interest accrued thereon at the Late Payment Rate from the date the
Lease Proceeds were required to be paid over to Lender, or (b) the fees and
payments paid by a Lessee to SPE or TSFC upon termination of a Lease are less
than the sum of (1) the principal amount due on the next Loan Repayment Date on
the Discount Facility Loan applicable to such Lease plus (2) all accrued and
unpaid principal and interest on such Loan plus (3) the present value of all
principal payments due on such Loan thereafter, discounted at the same rate as
Lender has borrowed funds to make such Loan and (ii) for all payments required
to be made pursuant to Section 3.8, whether or not insurance proceeds received
by SPE or TSFC are at least equal to such payments.
3.12 Full Recourse. Notwithstanding anything set forth herein,
including, without limitation, any limitation on recourse against SPE, Discount
Facility Loans in the aggregate principal amount of $3,000,000 at any one time
outstanding may be with recourse to SPE. Such Loans shall be secured by Leases
that are Eligible Leases except that the creditworthiness of the Lessee may not
otherwise be acceptable to Lender. A Discount Facility Loan with recourse shall
be designated as such by mutual written agreement of Lender and SPE, as the case
may be, prior to the Closing Date of such Loans. Upon occurrence at any time of
any default under such Leases, SPE shall repay the Discount Facility Loan made
to finance such Leases on the Loan Repayment Date occurring not more than thirty
(30) days after such default. On such Loan Repayment Date, SPE shall pay the sum
of (i) the principal amount due on such Loan Repayment Date on such Loan plus
(ii) all accrued and unpaid principal and interest on such Loan plus (iii) the
present value of all principal payments due on such Loan thereafter, discounted
at the same rate as Lender has borrowed funds to make such Loan. The amounts
paid to Lender by SPE pursuant to this paragraph shall not be charged against
the Net Loss Pool.
4. CONDITIONS PRECEDENT TO THE INITIAL LOAN
Lender will not make the initial Loan hereunder until it has
received
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<PAGE> 12
all of the following, in form and substance satisfactory to Lender:
4.1 Evidence of Authority of SPE. Resolutions of the Board of
Directors of SPE certified by the secretary or assistant secretary of SPE
authorizing the execution, delivery, and performance of each of the Operative
Documents to which SPE is a party and any other document required hereunder,
together with an incumbency certificate with respect to the officer or officers
of SPE executing any of such Operative Documents and any document required
hereunder.
4.2 Evidence of Authority of CCI/Triad. Resolutions of the Board of
Directors of CCI/Triad certified by the secretary or assistant secretary of
CCI/Triad authorizing the execution, delivery, and performance of the Operating
Agreement and any other document required thereunder, together with an
incumbency certificate with respect to the officer or officers of CCI/Triad
executing the Operating Agreement and any document required thereunder.
4.3 Evidence of Authority of TSFC. Resolutions of the Board of
Directors of TSFC certified by the secretary or assistant secretary of TSFC
authorizing the execution, delivery, and performance of each Operative Document
to which TSFC is a party and any other document required thereunder, together
with an incumbency certificate with respect to the officer or officers of TSFC
executing any of such Operative Documents and any document required thereunder.
4.4 Legal Opinion. The legal opinion of the General Counsel of
CCI/Triad, in form and substance satisfactory to Lender.
4.5 Operating Agreement. The Operating Agreement, duly executed by
CCI/Triad, TSFC, SPE, and Lender.
4.6 Financial Statements. The most recent consolidated financial
statements of Cooperative Computing Holding Company, Inc., which shall include
the results of operations of CCI/Triad and TSFC.
4.7 Insurance. Evidence of the insurance required by Section 8.3.
4.8 Agreement of Admission of Additional Secured Parties. Evidence
that the Agreement of Admission of Additional Secured Parties, in the form
previously executed by Lender has been duly executed and delivered by all of the
other parties thereto.
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5. CONDITIONS PRECEDENT TO ALL LOANS
Lender will not make any Loan hereunder (including the initial Loan)
unless on the date thereof:
5.1 Notice. SPE shall have given Lender verbal notice of each
Closing Date no later than five (5) Business Days prior to such Closing Date.
5.2 Operating Agreement. The Operating Agreement shall be in full
force and effect and no defaults or breaches shall exist thereunder as of the
applicable Closing Date.
5.3 Receipt of Certain Documents. Lender shall have received the
following, in form and substance satisfactory to Lender:
(a) Lease. An original, manually executed counterpart of
(i) each Lease financed on such Closing Date and (ii)
the related Lease Schedule substantially in the form
contained in Exhibit A, in each case duly executed by
TSFC as lessor and by the Lessee thereunder;
(b) Guaranty. If required by Lender, an original,
manually executed counterpart of each Guaranty duly
executed by the Guarantor;
(c) Financing Statements Filed Against Lessees. Evidence
of electronic filing receipts, a search report (from
Dun and Bradstreet or comparable reporting entity)
confirming the existence or copies (any of such
documentation with filing numbers and filing dates)
of duly executed and filed Uniform Commercial Code
financing statements on Form UCC-1 naming TSFC as
secured party and the Lessees under the Leases to be
financed on the Closing Date as debtors, identifying
as collateral the Equipment subject to such Leases,
and Lender as assignee thereon;
(d) Financing Statements to be Filed Against SPE. Copies
of duly executed Uniform Commercial Code financing
statements on form UCC-1, naming SPE as debtor and
Lender as secured party, and identifying as
collateral the Leases and any Guaranties and
Equipment to be assigned in sufficient number to be
filed in all jurisdictions as may be necessary, in
Lender's judgment, to perfect Lender's security
interest in such collateral, including, without
limitation, jurisdictions
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where SPE has its chief executive offices and
maintain its records in respect to the Leases;
(e) Supplement. A Security Supplement, duly executed by
SPE, relating to and describing the Lease, any
Guaranty, and the Equipment covered thereby;
(f) DELETED.
(g) Acceptance Supplement. A copy of the original
executed counterpart of the delivery and acceptance
certificate with respect to each Lease where the
Invoice Price exceeds Fifty Thousand Dollars
($50,000.00) (substantially in the form contained in
Exhibit A) containing a complete description of the
Equipment, duly executed by the Lessee thereunder;
and
(h) Evidence of Authority of Lessee. Copies of any
evidence of the authority of signers on behalf of the
Lessee to execute the Lease, including without
limitation, certificates as to resolutions,
incumbency, and any legal opinions.
(i) SPE Officer's Certificate. A certificate from a duly
authorized officer of SPE, dated as of such Closing
Date, stating that:
(i) all representations and warranties made by
SPE under this Agreement and under the other
Operative Documents are true and correct as
of the date of the certificate;
(ii) SPE is in compliance with all covenants made
under this Agreement and the other Operative
Documents;
(iii) no event has occurred and is continuing that
is, or with the passage of time or giving of
notice would be, an Event of Default or a
default under or breach of the Operative
Documents;
(iv) no material adverse change in its financial
condition has occurred since the latest
financials delivered to Lender; and
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(v) containing an express undertaking to give
immediate written notice to Lender if at any
time prior to the Anniversary Date any of
the above statements is no longer true.
(j) TSFC Officer's Certificate. A certificate from a duly
authorized officer of TSFC, dated as of such Closing
Date, stating that:
(i) all representations and warranties made by
TSFC under the Operating Agreement and the
Sale and Assignment Agreement are true and
correct as of the date of the certificate;
(ii) TSFC is in compliance with all covenants
made under the Operating Agreement and the
Sale and Assignment Agreement;
(iii) no event has occurred and is continuing that
is, or with the passage of time or giving of
notice would be, an Event of Default or a
default under or breach of the Operating
Agreement and the Sale and Assignment
Agreement;
(iv) no material adverse change in its financial
condition has occurred since the latest
financials delivered to Lender; and
(v) containing an express undertaking to give
immediate written notice to Lender if at any
time prior to the Anniversary Date any of
the above statements is no longer true.
(k) CCI/Triad Officer's Certificate. A certificate from a
duly authorized officer of CCI/Triad, dated as of
such Closing Date, stating that:
(i) all representations and warranties made by
CCI/Triad under the Operating Agreement are
true and correct as of the date of the
certificate;
(ii) CCI/Triad is in compliance with all
covenants made under the Operating
Agreement;
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(iii) no event has occurred and is continuing that
is, or with the passage of time or giving of
notice would be, an Event of Default or a
default under or breach of the Operating
Agreement;
(iv) no material adverse change in its financial
condition has occurred since the latest
financials delivered to Lender; and
(v) containing an express undertaking to give
immediate written notice to Lender if at any
time prior to the Anniversary Date any of
the above statements is no longer true.
(l) Other Documents. Such other documents, instruments or
agreements as Lender may reasonably request.
6. SECURITY AGREEMENT
6.1 Granting Clause. In order to induce Lender to make Loans from
time to time to SPE, and in order to secure (i) the prompt repayment of the
Loans, (ii) the strict performance and observance by SPE of the obligations to
be performed by it hereunder and under the other Operative Documents, and (iii)
all costs of litigation, collection, reasonable attorneys' fees, and other costs
expended or incurred in connection with the enforcement of Lender's rights
hereunder, under the other Operative Documents, and with respect to the Leases
and the Equipment (the obligations referred to in clauses (i) through (iii)
being collectively referred to as the "Obligations"), SPE hereby assigns,
pledges, and grants a continuing security interest to Lender in all of its
right, title and interest in and to the following described properties, assets,
and rights, whether now existing or hereafter acquired, and wherever located
(such properties, assets and rights collectively called the "Collateral"):
(a) each Lease (including schedules) and all of SPE's
rights thereunder, including the right to receive
payments (including Rent and security deposits) due
to SPE thereunder and the right to exercise rights
and remedies upon default;
(b) every item or component of Equipment subject to
Leases, together with (i) all accessions,
replacements, and substitutions thereto and therefor,
(ii) all upgrades, add-ons, and additions thereto and
therefor, and (iii) all of its rights in the software
and licenses related thereto;
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(c) each and every Guaranty, security interest, mortgage,
or other security securing the payment and
performance of the Lessee's obligations under the
Leases;
(d) all Lease Proceeds and Proceeds of items or
components of Equipment;
(e) all warranty and other rights SPE may have with
respect to the Leases against the manufacturer of the
Equipment; and
(f) the proceeds (whether cash or non-cash proceeds), and
products of all the properties, assets and rights
described in paragraphs (a), (b), (c), (d), and (e)
above, including without limitation all insurance
payments, whether or not Lender is the loss payee
thereof.
6.2 Appointment of Lender. If Lender assumes administration of
collection of Rent pursuant to Section 11.2, SPE hereby irrevocably appoints the
Lender as its attorney-in-fact (such power being coupled with an interest) to
do, in its sole and unlimited discretion, any or all of the following:
(a) to endorse or sign SPE's name on all checks,
collections receipts, UCCs, or other documents
related to the Collateral;
(b) to take possession of and open mail addressed to SPE
or TSFC relating to such collection and remove Rent
and proceeds and products of the Collateral;
(c) to ask, demand, collect, receive, sue for, compound,
and give acquittance for any and all payments
assigned hereunder;
(d) to settle, adjust, or compromise any claim related to
the Collateral as fully as it could itself;
(e) to endorse its name on all checks and other
commercial paper given in payment or in part payment
thereof; and
(f) in its discretion, to file any claim or take any
other action or proceeding, either in Lender's own
name or in its name, or otherwise, that Lender may
deem
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necessary or appropriate to collect any and all sums
that may be or become due or payable in connection
with the Collateral or that may be necessary or
appropriate to protect the right, title, and interest
of Lender in and to the Collateral and the security
intended to be afforded thereby and hereby.
6.3 Further Assurances. SPE will upon written direction from Lender
and at the expense of SPE, do, execute, acknowledge, and deliver all and every
further acts, deeds, conveyances, instruments, transfers, and assurances
reasonably necessary or proper for the better assuring, conveying, assigning,
and confirming unto Lender all of the Collateral, whether now owned or hereafter
acquired, and shall not provide further assurances to any other lender that may
conflict with Lender's security interest or provide such lender with a security
interest superior to Lender's without first giving to Lender the same further
assurances. Notwithstanding the foregoing, the Lender shall reimburse SPE for
one-half of the costs of the Uniform Commercial Code financing statements
obtained pursuant to Section 5.3(c) relating to each Lease of Equipment
aggregating $10,000 or more. Such reimbursement shall occur concurrently with
the funding of the Discount Facility Loan relating to such Lease.
6.4 No Obligations Assumed by Lender. Lender does not assume, and
its interest in the Collateral shall not be subject to, any obligation or
liability of TSFC under any Lease or any other agreement between SPE, TSFC, or
CCI/Triad and a Lessee, any duty to collect money due thereunder or to enforce
collection thereof. Lender assumes no responsibility, obligation, or liability
for any representation, warranty, or obligation, express or implied, made by any
agent or employee of SPE, TSFC, or CCI/Triad to a Lessee in connection with any
Lease.
6.5 Release of Security Interest. Upon payment in full of all
amounts due on a Loan, and provided no Event of Default shall have occurred and
be continuing, Lender agrees to (i) release its security interest in the Lease
financed by such Loan and the Equipment subject thereto; (ii) deliver to SPE
such other documents relating to released Leases and Equipment prepared by SPE
as SPE may reasonably request, and (iii) deliver the foregoing items within ten
(10) days to SPE after receipt of termination payment.
6.6 Final Release by Lender. Upon repayment in full to Lender of all
Loans, and performance of all other Obligations, Lender will release its
security interest in the Collateral in the manner provided in Section 6.5.
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7. ADMINISTRATION
7.1 Authorization to Collect Rent. Until such time as there is an
Event of Default hereunder or SPE's authority to collect Lease Proceeds is
terminated pursuant to Section 11, SPE is authorized to and shall collect Lease
Proceeds from Lessees.
7.2 Collections. SPE will undertake such collections as an
independent contractor and not as Lender's agent, and in connection therewith
will at its sole cost and expense diligently perform all billing and collecting
of Lease Proceeds due and to become due with respect to Leases and Equipment
financed under Discount Facility Loans. SPE shall bill Lessees in accordance
with its standard billing procedures, provided that each invoice sent with
respect to any Lease subject to this Agreement shall segregate the amount due
thereunder for Rent, taxes, and any other amounts due. SPE shall not modify the
interest rate or lease term of any Lease without the prior written consent of
Lender.
7.3 Remittances. SPE shall, on or before the Loan Repayment Date of
each month, make payment to Lender of the amount due on each Discount Facility
Loan on such date regardless of whether or not any Rent under applicable Leases
shall have been collected by SPE. SPE's obligation to make remittances pursuant
to this Section 7.3 if all or a part of Rent is not received shall cease and be
of no further effect at such time as SPE shall have no further liability under
the provisions of Section 8.4 of this Agreement. Nothing herein shall limit
SPE's obligation to remit Lease Proceeds actually received on each Loan
Repayment Date to the extent that advance payments have not previously been made
prior to such Loan Repayment Date with respect to such Lease Proceeds.
7.4 Lease Receivables Statements. As soon as available, but no later
than the 20th day of each month, SPE shall cause TSFC to deliver to Lender a
list of all Leases then outstanding and a statement showing the aging of
receivables under and payments and collections received under such Leases, both
being complete and correct.
7.5 Net Loss Pool Statements. On the last Business Day of each
January, April, July, and October, SPE shall cause TSFC to provide Lender with a
quarterly statement as of such date of the Net Loss Pool described in Section
8.4, in the form attached hereto as Exhibit E.
7.6 Account Status Statements. As soon as available, but in any
event within 30 days of such change, SPE shall cause TSFC to deliver to Lender
any changes in account status for any Leases then outstanding that SPE or TSFC
becomes aware of from time to time. Account status shall be defined, but not
limited to, changes in Lessee billing address, equipment locations, equipment,
and legal name.
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8. INDEMNITIES, INSURANCE, FIRST LOSS
8.1 Indemnities. Notwithstanding anything set forth herein,
including, without limitation, any limitation on recourse against SPE, SPE shall
indemnify Lender and hold it safe and harmless from and against any and all
losses, claims, actions, suits, proceedings, costs, expenses (including
reasonable attorneys' fees), damages, and liabilities ("Indemnified Amount")
(other than Indemnified Amounts arising from or pertaining to the gross
negligence or willful misconduct by Lender) that may at any time be made,
brought, incurred, assessed, or adjudged against Lender arising from or
pertaining to:
(a) the use, maintenance, lease or operation of the
Equipment, including any bodily injury to persons or
damage or destruction of property;
(b) breach of any covenant or warranty made by SPE, TSFC,
or CCI/Triad relating to any Equipment or Lease or
maintenance of any Equipment, including qualification
of any Equipment for any tax benefit;
(c) any claim, action, or proceeding involving patent or
trademark infringement or copyright or trade secret
violations relating to the Equipment (including any
interest or penalty), whether or not such claim,
action, or proceeding involves a claim of
infringement or a combination or design patent;
(d) failure of Lender, for whatever reason, to have
obtained a first priority perfected purchase money
security interest in and lien on the Collateral,
including, without limitation, the Leases and the
Equipment, whether or not (i) the Equipment is deemed
to be an asset of a Lessee as the result of a Lease
being held to be a security agreement rather than a
true lease or (ii) Uniform Commercial Code financing
statements on form UCC-1 were filed against a Lessee
with respect to the Equipment under Section 5.3 (c);
(e) any misrepresentation made by any agent or employee
of SPE, TSFC, or CCI/Triad in the course of
negotiations regarding any Collateral;
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(f) any breach of any warranty or covenant, or any
misrepresentation, of SPE, TSFC, or CCI/Triad in any
Lease, any Operative Document or any certificate of
an officer of SPE, TSFC, or CCI/Triad delivered in
accordance therewith;
(g) failure of any Lease or Equipment to comply with
applicable laws, regulations or contractual
specifications or warranties, or to be an Eligible
Lease or Eligible Equipment, as the case may be;
(h) any dispute, claim, offset, or defense of any Lessee
(other than payment by, or discharge in bankruptcy
of, such Lessee) to the payment of any Lease
Proceeds;
(i) Lender having received from TSFC only a fax copy
(rather than the original, manually executed copy) of
any Lease or any Guaranty;
(j) failure of SPE, TSFC, or CCI/Triad to pay when due
any taxes for which any of them is liable; and
(k) any wrongful or negligent acts or omissions of SPE,
its agents or assigns, in carrying out SPE's
obligations under Section 7 or Section 10.
All of the indemnities set forth in this Section 8.1 shall survive
the cancellation or termination of this Agreement.
8.2 Indemnity Payment. Upon the occurrence of any of the events set
forth in Section 8.1, SPE unconditionally agrees to pay Lender, upon written
demand, the Indemnified Amount.
8.3 Insurance. With respect to all Equipment, SPE shall cause TSFC
to maintain in full effect, and shall deliver to Lender evidence of, (a)
liability insurance, including all-risk insurance, with a combined single limit
of at least Five Hundred Thousand Dollars ($500,000.00) per occurrence, naming
Lender as additional insured, (b) property damage insurance on all Equipment,
naming Lender as a loss payee, in an amount equal to actual cash value or
replacement value, with a deductible of not more than Two Hundred Thousand
Dollars ($200,000.00) per year for all Equipment and (c) such other insurance as
is usual in the business carried on by SPE, TSFC, and CCI/Triad, which insurance
shall be satisfactory to Lender as to amount, form, nature, and carrier.
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8.4 First Loss Provision. If any Rent under any Lease financed or
refinanced by a Discount Facility Loan shall remain unpaid for a period of
ninety (90) days from the date when due, SPE shall, on the next succeeding Loan
Repayment Date, upon written demand by Lender, pay to Lender the sum of (i) the
principal amount due on such Loan Repayment Date on such Loan plus (ii) all
accrued and unpaid principal and interest on such Loan plus (iii) the present
value of all principal payments due on such Loan thereafter, discounted at the
same rate as Lender has borrowed funds to make such Loan. The liability of SPE
under this Section 8.4 on any Loan Repayment Date shall not exceed (i) ten
percent (10%) of the aggregate initial principal amount of Loans (excluding full
recourse Loans made under Section 3.12) made under this Agreement as of such
Loan Repayment Date plus (ii) the aggregate Standard Cost of all Equipment
remarketed pursuant to Section 10 as of such Loan Repayment Date minus (iii) the
aggregate Loan Repayment Amounts paid by SPE to Lender pursuant to this Section
8.4 with respect to Discount Facility Loans as of such Loan Repayment Date minus
(iv) the aggregate of all cure amounts paid by SPE to Lender on behalf of
Lessees with respect to Leases financed by Discount Facility Loans that Lender
has demanded to be repaid under this Section 8.4 on such Loan Repayment Date to
the extent SPE has been unable to collect such amounts from such Lessees as of
such Loan Repayment Date ( the "Net Loss Pool"). The method of determining this
amount is described in Exhibit E. Lender's rights under this Section 8.4 shall
be cumulative and in addition to all other rights to receive payment of the
Discount Facility Loans pursuant to this Agreement. If, at any time, SPE's
liability under this Section 8.4 with respect to Leases financed by a Discount
Facility Loan shall have been reduced to zero, SPE shall thereafter have no
liability under this Section 8.4 with respect to that Discount Facility Loan.
8.5 Excess Proceeds. If, on any Loan Repayment Date, all or any
portion of the amount due with respect to any Discount Facility Loan shall not
have been paid to Lender due to the limitation on the liability of SPE set forth
in Section 8.4 and SPE thereafter realizes Excess Proceeds with respect to any
Equipment, the previously unpaid portion of the sum of (i) the principal amount
due on such Loan Repayment Date on such Loan plus (ii) all accrued and unpaid
principal and interest on such Loan plus (iii) the present value of all
principal payments due on such Loan thereafter, discounted at the same rate as
Lender has borrowed funds to make such Loan shall be promptly paid by SPE to
Lender to the extent of such Excess Proceeds.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS
SPE represents, warrants and covenants that:
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9.1 Due Organization. CCI/Triad, SPE and TSFC are corporations duly
organized and in good standing under the laws of the states of their respective
incorporations, and each is duly qualified or otherwise authorized to do
business wherever necessary to carry on its present business and operations and
to perform its respective obligations under each Operative Document and each
Lease to which it is a party.
9.2 Authority. Each of CCI/Triad, SPE and TSFC have the full power,
authority, and legal right to enter into and perform its obligations under each
Operative Document to which it is a party.
9.3 Principal Place of Business. As to each of SPE and TSFC,
respectively, its chief executive office is in Livermore, California and the
office where it maintains its records concerning the Collateral is in Austin,
Texas, and it will not change such principal place of business or remove from
such place where it maintains its records such records or any other records
relating to the Collateral or any Loan without at least thirty (30) days prior
written notice to Lender.
9.4 Binding Obligations. Each Operative Document has been duly
authorized and upon execution and delivery will constitute legal, valid, and
binding obligations enforceable against it, TSFC, and CCI/Triad in accordance
with the terms thereof.
9.5 Approvals and Consents. No stockholder approval, or approval or
consent of any trustee or holder of any indebtedness or obligation, or
authorization, consent, approval, or license by, exemption from or registration
with, any court or governmental department, commission, board, agency, or
instrumentality, domestic or foreign, is necessary in connection with the
execution, delivery, and performance of obligations other than Lender's under
the Operative Documents, and no consent of any owner, lessor, or mortgagee of
premises where any Equipment is located is needed to permit Lender or TSFC to
enforce the rights of TSFC under the Leases or, if required, the same have been
obtained and certified copies have been delivered to Lender.
9.6 Compliance with Laws. There is no law, governmental rule,
regulation, judgment, decree, or order binding on CCI/Triad, SPE or TSFC that
would be contravened by the execution and delivery of, and performance under,
the Operative Documents. The execution, delivery and performance of their
respective obligations under the Operative Agreements do not violate or
contravene any provisions of CCI/Triad's, SPE's or TSFC's articles of
incorporation, charter or bylaws, or any agreement or documents by which it or
its property is bound. Each of CCI/Triad, SPE, and TSFC will at all times comply
with, or cause to be complied with, all laws, statutes, rules, regulations,
orders, and directions of any governmental authority having jurisdiction over it
or its business that would have a materially adverse impact upon its business.
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9.7 Clear Ownership. The interests of SPE and TSFC combined are, and
will continue to be, the record and beneficial ownership of 100% of each Lease
and all Equipment subject to Leases in which TSFC is named as Lessor, free and
clear of all mortgages, deeds of trust, pledges, and other liens, security
interests, charges, or encumbrances, except for liens for taxes due but not yet
payable and liens in favor of Lender, and shall promptly deliver to Lender any
executed counterparts of Leases that were not delivered to Lender pursuant to
Section 5.3(a) and that have subsequently come into TSFC's or CCI/Triad's
possession. Notwithstanding the foregoing, TSFC and SPE shall be entitled to
transfer to CCI/Triad or a subsidiary corporation of CCI/Triad record and
beneficial ownership of any Equipment subject to Leases in which TSFC is named
as Lessor, provided that:
(a) SPE remains fully bound under this Agreement and the
other Operative Documents with respect to all
Obligations assumed by the assignee;
(b) the assignee assumes in writing the Obligations of
SPE under this Agreement and the other Operative
documents and recognizes the continuing validity and
priority of the lien of Lender in the Collateral; and
(c) the assignee executes any documentation reasonably
required by Lender to facilitate the foregoing
provisions of this Section 9.7.
9.8 Filings. This Agreement and the Uniform Commercial Code filings
made pursuant hereto create in favor of Lender a valid and perfected first
priority security interest in the Collateral securing the Obligations.
9.9 Actions. There are no actions, suits, proceedings, claims or
disputes pending or, to its knowledge, threatened against or affecting it or
TFSC or their respective properties before any court or governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign,
that, if determined adversely to either of them, would have a materially adverse
effect on their respective condition (financial or other), business performance,
operations, properties, or prospects, their respective ability to perform their
respective obligations under the Operative Documents or the Leases, or Lender's
security interest in the Collateral.
9.10 Payment of Taxes. It has filed and will file all tax returns
(federal, state, and local) required to be filed and has paid all taxes shown
thereon to be due, including interest and penalties, unless it is contesting the
payment of certain taxes in good faith and has established adequate reserves
therefore.
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9.11 Notices. It will send to Lender copies of all significant
notices, including, but not limited to, any notices with respect to the terms of
any Lease, and other instruments or communications required or permitted to be
given by the Lessee under any Lease.
9.12 Further Assurances; Enforcement of Leases. SPE will: (a)
preserve and maintain its corporate existence and all rights, privileges, and
franchises now enjoyed and conduct its business in an orderly, efficient, and
customary manner; and (b) from time to time, at its own expense (subject to the
provisions of Section 6.3), take all actions reasonably necessary to establish,
preserve, protect, and perfect the rights created by this Agreement and the
other Operative Documents, including, without limitation, (i) the full and
punctual performance of all of its obligations under the Leases; (ii) the
enforcement of the Leases without waiver, amendment, or modification; (iii) the
exercise of any and all rights of the lessor under the Leases as may be
necessary or advisable to assure full compliance with the terms and provisions
thereof and to protect Lender's security interest in the Collateral; and (iv)
Lender's security interest in the Collateral.
9.13 Validity and Enforceability of Leases and Guaranties. Each
Eligible Lease and Guaranty submitted to Lender pursuant to Section 5.3 is
genuine and valid and is not subject to any offset, deduction, counterclaim, or
lien. No Rents with respect to the Leases have been prepaid except as set forth
in any such Lease. No default, event of default, or similar event has occurred
and is continuing under the Leases.
9.14 Leases Duly Entered Into. All parties to each Lease and
Guaranty have full authority and capacity to execute and deliver such Lease or
Guaranty, as the case may be. The entire agreement with each Lessee is embodied
solely in the executed counterparts of the applicable Lease and other
documentation furnished to Lender with respect to such Lease.
9.15 Equipment Description. Each Lease describes the Equipment
leased to the Lessee named in such Lease, the Rent required for such Equipment,
and any applicable early termination payments.
9.16 Leases Comply with Laws. Each Lease and the Equipment related
thereto complies with and does not violate applicable laws, regulations, or
contractual specifications or warranties, including without limitation, any
applicable laws relating to maximum rates of interest (whether or not imputed)
or similar charges and all required disclosures have been made with respect
thereto under federal truth-in-lending and truth-in-leasing regulations to the
extent applicable. The Equipment has been manufactured in accordance with
applicable laws.
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9.17 No Impairment of Value or Rights. It will not do anything that
might impair the value of any Lease or Equipment or any of the rights or
obligations of the parties hereto under any Lease.
9.18 No Lessor Liens. No Lease submitted to Lender pursuant to
Section 5.3, or any Equipment subject thereto, or any other of its rights
therein, has been assigned to, or be subject to, any lien or security interest
in favor of any person other than Lender.
9.19 Notifications. It will promptly notify Lender of:
(a) any Event of Default or event that, upon the lapse of
time or giving of notice, or both, would become an
Event of Default, or any event that is, or upon the
lapse of time or giving of notice, or both, would
become a default under or breach of any Operative
Document;
(b) any and all litigation or other matters or events
concerning it or any Lessee that has a reasonable
possibility of materially and adversely affecting its
or any Lessee's financial or other condition, its
business performance, operations, properties, or
prospects or adversely affecting or Lender's security
interest in the Collateral.
9.20 Books and Records Financial and Other Information. SPE shall
for itself, and as to TSFC, shall cause TSFC to:
(a) maintain adequate books, accounts, and records and
prepare all financial statements required hereunder
in accordance with generally accepted accounting
principles and practices consistently applied and in
compliance with the regulations of any governmental
regulatory body having jurisdiction over it;
(b) give Lender and its representatives, at all
reasonable times and upon reasonable notice, access
to all records, files, and books of accounting
pertaining to all transactions subject to this
Agreement and the other Operative Documents, and
permit Lender and its representatives to inspect,
audit, and make extracts therefrom;
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(c) upon the occurrence of an Event of Default or an
event that, upon the lapse of time or giving of
notice, or both, would become an Event of Default,
permit Lender to exercise the inspection rights of
TSFC under the Leases, on a non-exclusive basis;
(d) deliver to Lender in form and detail satisfactory to
Lender, and in such reasonable number of copies as
Lender may request:
(i) as soon as available, but no later than
forty-eight (48) days after the end of each
fiscal quarter, a quarterly financial
statement;
(ii) the lists of Lease receivables and
statements showing the aging of receivables
as required by Section 7.4;
(iii) the statement of first loss provision
required by Section 7.5;
(iv) such other information as Lender may
reasonably request; and
(e) deliver to Lender, in such reasonable number of
copies as Lender may request, as soon as available,
but no later than one hundred (100) days after the
end of each fiscal year, (I) the audited annual
financial statements of Cooperative Computing Holding
Company, Inc, which shall contain the results of
operations of CCI, and (ii) the annual financial
statements of TSFC, audited or reviewed if available,
or unaudited but signed by the principal financial
officer of TSFC.
9.21 Audit. It shall permit Lender, from time to time, upon
reasonable request and at Lender's sole expense, to conduct an audit of SPE's
and TSFC's accounting and operating procedures as they relate to the Leases,
provided such audit does not unreasonably interfere with SPE's or TSFC's normal
business operation.
9.22 Charges and Taxes. SPE shall make or arrange for all filings in
respect of and pay (or reimburse Lender for, upon presentation of an invoice)
all charges and local, state, or federal taxes (other than net income taxes of
the Lender or franchise taxes levied upon Lender's net income), license
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fees, or other assessments, charges, fines, and penalties, together with
interest payable with respect thereto, levied or imposed upon or in connection
with this Agreement, the other Operative Documents, the Leases, the Equipment,
the Rent, and the Proceeds. Upon request of Lender, SPE shall cause TSFC to
furnish Lender written evidence of such payment.
9.23 Financial Covenants.
(a) the Tangible Net Worth of TSFC shall be at least
$17,500,000.00;
(b) the ratio of TSFC's total consolidated debt
(including subordinated debt) to TSFC's Tangible Net
Worth shall be no greater than 3 to 1;
Compliance with Section 9.23 shall be made in accordance with
generally accepted accounting principles, consistently applied, as to both
classification and amounts.
9.24 Maximum Requests for Loans Per Month. It will make no more than
a combined total of three (3) requests for Loans, under Section 3.1, during each
thirty day period.
9.25 Original Counterparts. The Leases and Lease Schedules delivered
to Lender are originals and all other originals thereof are marked "duplicate
original" or "copy".
10. REPOSSESSION AND REMARKETING
10.1 Request to Repossess; Remarketing. In the event that SPE does
not perform its obligations under Section 8.4 by reason of the limitation on its
liability set forth therein, upon Lender's determination that a default exists
under a Lease financed or refinanced by a Discount Facility Loan, either through
notification by SPE or TSFC pursuant to Section 9.19 or otherwise, and that such
default remains uncured within the time, if any, for curing the same permitted
by the Lease, Lender, as secured party under this Agreement, may request SPE to
cause TSFC to act as Lender's agent, and upon such request TSFC will, as such
agent, use diligent efforts to repossess the Equipment subject to such Lease as
promptly and efficiently as is legally permissible. Thereafter, TSFC will
repair, service, refurbish, and update, as needed, and, for a period of one
hundred twenty (120) days or such other period as TSFC and Lender may agree upon
in writing from the date the Equipment is repossessed (the "Remarketing
Period"), attempt to sell or release such Equipment on a non-priority (but
non-discriminatory) basis and on such terms and conditions as
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reflect fair market value for similar equipment and are acceptable to Lender, in
its sole discretion. SPE shall cause TSFC to give no less priority to
remarketing Equipment pursuant to this Section 10.1 than it would similar
equipment owned, leased, or managed by TSFC. The obligations of TSFC to remarket
such Equipment for sale or lease shall include, but not be limited to, efforts
to sell such Equipment, preparation and supervision of the documentation of each
transaction, and an accounting of the activities referred to in this Section
10.1, including information relative to the status of negotiations for offers
made in respect of such Equipment.
If TSFC has not remarketed any Equipment at the conclusion of the
Remarketing Period, upon notice from Lender, TSFC's exclusive right to remarket
shall terminate and Lender shall have the right to remarket such Equipment on
terms and conditions satisfactory to it. If Lender remarkets the Equipment, it
shall retain Proceeds in an amount equal to the sum of (i) the principal amount
due on the next Loan Repayment Date on the Discount Facility Loan applicable to
the Lease covering such Equipment plus (ii) all accrued and unpaid principal and
interest on such Loan plus (iii) the present value of all principal payments due
on such Loan thereafter, discounted at the same rate as Lender has borrowed
funds to make such Loan and any Remarketing Expenses incurred by Lender and
shall remit the Excess Proceeds to SPE.
Nothing contained in this Section 10.1 shall be deemed to constitute
a release by Lender of its security interest in any of the Collateral. Lender
shall release its security interest in Equipment which has been sold pursuant to
this Section 10.1 upon receipt of the amounts specified in the preceding
paragraph.
10.2 Remarketing Expenses. Remarketing Expenses shall be for the
account of the party incurring such expenses and shall be recoverable from
Proceeds of such remarketing realized by the party remarketing the Equipment.
10.3 Assignment. The rights and obligations of any party under this
Section 10 may be assigned only with the written consent of all parties.
10.4 No Guaranty. Notwithstanding anything contained herein to the
contrary, the obligations and duties of SPE contained in this Section 10 shall
not be construed to include a guarantee by SPE that the Remarketing Proceeds
with respect to any Equipment will equal or exceed the Loan Repayment Amount
relating to such Equipment.
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11. EVENTS OF DEFAULT, REMEDIES
11.1 Events of Default. Any one of the following events shall
constitute an "Event of Default" hereunder:
(a) SPE shall fail to remit to Lender when due any Lease
Proceeds or Proceeds of an item of Equipment received
by SPE or TSFC, or shall fail to make any payment
required hereunder or under the other Operative
Documents, in each case within five (5) days of the
date due thereof;
(b) SPE shall fail to observe or perform any other
obligation hereunder or the other Operative
Documents, or under any other agreement between
Lender and SPE, that is not corrected or in the
process of being corrected within thirty (30) days of
written notice thereof from Lender;
(c) any covenant, representation, or warranty made by
SPE, TSFC, or CCI/Triad to Lender in any Operative
Document or in any certificate delivered pursuant
thereto shall be untrue in any material respect when
made or during any period of time for which it is
enforceable or shall be breached by SPE, TSFC, or
CCI/Triad; provided, however, to the extent that such
a breach occurs, and such breach relates to an
individual Lease only, such event shall not
constitute an Event of Default hereunder if SPE,
within thirty (30) days from receipt of demand by
Lender, repurchases the Lease pursuant to the terms
of the Mandatory Prepayment clause set forth at
Paragraph 3.7 herein.
d) an injunction, attachment or other legal process
shall issue against any material part of SPE's or
TSFC's property or a material judgment or lien shall
be filed against SPE or TSFC that is not stayed,
vacated, bonded, or otherwise discharged within
ninety (90) days after the date of entry thereof;
(e) SPE, TSFC, or CCI/Triad shall cease to do business as
a going concern, shall become bankrupt, shall make an
assignment for the benefit of creditors, or otherwise
take advantage of the bankruptcy or any other law for
the relief of debtors; a trustee or receiver for SPE,
TSFC, or CCI/Triad shall be appointed or there shall
be filed by or against SPE, TSFC, or CCI/Triad any
petition under any provision of the Federal
Bankruptcy
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Code, as amended, and, in the case of involuntary
proceedings only, such petition shall not be
dismissed, withdrawn, or otherwise eliminated within
ninety (90) days after the filing thereof;
(f) any ERISA plan of CCI/Triad, SPE, or TSFC shall
terminate, or CCI/Triad, SPE, or TSFC shall fully or
partially withdraw from such a plan or plan that
could result in liability of CCI/Triad, TSFC, or SPE
to the Pension Benefit Guaranty Corporation or to
such plan or plans in the aggregate amount of One
Million Dollars ($1,000,000) or more (in excess of
any applicable insurance).
11.2 Remedies. (a) If an Event of Default shall have occurred, and
such Event of Default had not been cured within an applicable cure period,
Lender shall have the right to do any or all of the following:
(i) accelerate the Loans;
(ii) complete and deliver to the Lessees the notices
received by Lender from SPE pursuant to Section
5.3(f) and to commence direct collection of Lease
Proceeds until such time as Lender has received the
total Loan Repayment Amount of all Loans due under
this Agreement;
(iii) (1) exercise any of the Lessor's rights under any of
the Leases, or (2) by written notice, require SPE to
exercise on behalf of Lender as secured party under
this Agreement any and all of the rights available to
the Lessor under any Lease to the extent not already
exercised by SPE, whereupon SPE shall immediately
take all requested action;
(iv) discontinue making Loans; or
(v) proceed against SPE, TSFC, CCI/Triad, or all of them,
for all rights and remedies Lender may have in law or
in equity under this Agreement or the Operative
Documents.
(b) Upon the occurrence of an Event of Default, or upon the failure
of a Lessee to perform its obligation under a Lease, Lender shall have and may
exercise all the rights and remedies of a secured party under the Illinois
Uniform
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Commercial Code (expressly including, but not limited to, those granted under
9-502(1) and 9-306 dealing with retention of cash proceeds); and any other
applicable laws (including but not limited to the right to assume direct
collection of any and all Lease Proceeds and retain any and all cash proceeds
collected under the Leases until such time that Lender has received the total
Loan Repayment Amount of all Loans due under this Agreement); provided, however,
that so long as Lessee under a Lease is not in default thereunder, Lender shall
not take any action or exercise any right that would disturb such Lessee's full
and quiet enjoyment of all of such Lessee's rights under that Lease. Lender will
give SPE reasonable notice of the time and place of any public sale of any
Collateral or of the time after which any public or private sale of such
Collateral or any other intended disposition thereof is to be made. Unless
otherwise provided by law, the requirement of reasonable notice shall be met if
such notice is delivered at least ten (10) days before or mailed, postage
prepaid, to SPE, at least twenty (20) days before the time of such sale or
disposition. Subject to applicable provisions of this Agreement, Collateral
proceeds including, but not limited to, the proceeds of any sale or disposition
of Collateral shall be applied: first, to the expense of settling all liens and
claims against such Collateral and all reasonable costs, charges and expenses
incurred by Lender in connection with the Event of Default, Lender's exercise of
remedies under this Section 11.2 (including without limitation those described
in Section 12.4), and in taking, removing, holding, preparing for sale, and
selling the Equipment; second, to the payment of the remaining total Loan
Repayment Amount of all Loans; third, to any other unpaid obligations of SPE
hereunder; or of TSFC or CCI/Triad under the Operative Documents; and fourth,
any remaining proceeds shall be paid to SPE.
(c) Notwithstanding the foregoing, Lender shall have the right to
discontinue making Loans at any time in its sole discretion, whether or not an
Event of Default has occurred.
(d) Nothing contained in this Section 11.2 shall entitle Lender to
recourse against SPE with respect to payment of the Loans that is not expressly
granted to Lender by this Agreement.
12. MISCELLANEOUS
12.1 General. Waiver of any particular default shall not be a waiver
of any other default. All Lender's rights are cumulative and not alternative. No
waiver or change modification or amendment in this Agreement or any other
Operative Document shall bind Lender or SPE unless an officer of Lender and SPE,
has agreed to such waiver or change modification or amendment in writing. Any
provision of this Agreement contrary to, prohibited by or invalid under
applicable laws or regulations shall be inapplicable and deemed omitted
herefrom, but shall not invalidate the remaining provisions hereof. No
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oral agreement, guaranty or warranty shall be binding. This Agreement shall be
governed by the internal laws of the State of Illinois.
12.2 Notices. All notices, demands, directions, consents, and
approvals hereunder shall be in writing and shall be delivered in person, by
telecopy, by overnight courier or by prepaid certified mail, addressed to the
party for whom it is intended, if to
CCI/Triad Financial Holding Corporation
3055 Triad Drive
Livermore, California 94550
Attention: Matthew Hale, President
Telecopy No. 925/373-2068
with a copy to:
CCI/Triad Financial Holding Corporation
6207 Bee Cave Road
Austin, Texas 78746
Attention: Walter Earl Bissex, General Counsel
Telecopy No. 512/328-6461
if to Lender:
IFC Credit Corporation
8700 Waukegan Road, Suite 100
Morton Grove, Illinois 60053
Attention: Rudy Trebels
Telecopy No. 847/663-6704
and shall be deemed delivered on the day of actual receipt. Either party may
change its address for the receipt of notices, demands, directions, consents,
and approvals by notice duly given to the other party pursuant to this Section
12.2.
12.3 Waivers. Lender and SPE hereby respectively waives demand,
presentment, protest, and notice thereof with respect to any and all
instruments, notice of acceptance hereof, and all other demands and notices of
any description, except as expressly provided herein. No delay or omissions on
the part of either party in exercising any right, remedy, option, or notice of
default, except as any pertinent statute of limitations which may apply, on any
one occasion, shall be construed as a bar to or waiver of any other default,
right, remedy or option, or the same default, right, remedy or option on any
future occasion.
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12.4 Costs and Expenses. In any case where Lender or SPE is entitled
hereunder to reimbursement of costs and expenses, such costs and expenses shall
include interest on any judgment and court costs, reasonable legal fees, and
expenses (including allocated fees of internal counsel).
12.5 Successors; Assigns. This Agreement shall inure to the benefit
of and be binding upon Lender and SPE and their respective successors and
permitted assigns. Neither party may assign this Agreement without the other
party's consent, unless such assignment is to any wholly owned subsidiary,
parent, or affiliate of the assigning party
12.6 Entire Agreement. The terms and conditions herein contained
constitute the entire agreement between Lender and SPE with respect to the
subject matter hereof, except to the extent other agreements are referred to
herein or contemplated hereby or executed contemporaneously herewith, and
supersede all previous communications whether oral or written between Lender and
SPE with respect to such subject matter. No agreement or understanding varying
or extending any rights or obligations hereunder of either of the parties shall
be binding unless in a writing signed by a duly authorized officer or
representative of the party against which such variance or extension is sought
to be enforced.
12.7 Headings; Titles. The cover, table of contents, and titles for
Sections used in this Agreement are intended to be descriptive only and shall
not be deemed to limit, extend or in any way modify the meaning of the text of
this Agreement. References to integral sections without decimals include all
decimal sections within such integral sections.
12.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute but one and the same instrument.
12.9 Submission to Jurisdiction. To induce the Lender to make the
Loans, SPE irrevocably agrees that, subject to the Lender's sole and absolute
election, all suits, actions or other proceedings in any way, manner or respect,
arising out of or from or related to this Agreement, the Leases or any Operating
Document or any document executed in connection herewith or therewith, shall be
subject to litigation in courts having situs within Chicago, Illinois. SPE
hereby consents and submits to the jurisdiction of any local, state or federal
court located within said city and state. SPE hereby waives any right it may
have to trial by jury, to transfer or change the venue of any suit, action or
other proceeding brought against SPE by the Lender in accordance with this
Section, or to claim that any such proceeding has been brought in an
inconvenient forum.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunder duly authorized as of the
day and year first above written.
CCI/TRIAD FINANCIAL HOLDING CORPORATION
By: /s/ PRESTON W. STAATS
Its: Executive Vice President
IFC CREDIT CORPORATION
By: /s/ CARL J. CALANDRA
Its: EVP & CFO
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EXHIBIT 10.16
AMENDMENT
THIS AMENDMENT (this "Amendment") is entered into as of September 23,
1999, by and among CCI/Triad Financial Holding Corporation, a California
corporation ("SPE"), and IFC Credit Corporation, an Illinois corporation
("Lender").
INTRODUCTION
A. SPE and Lender are parties to that certain Loan and Security
Agreement, dated as of July 1, 1999 (the "Agreement").
B. SPE and Lender wish to amend the agreement to add a hold back
provision.
NOW THEREFORE, in consideration of the foregoing and other valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
The parties confirm that Section 5.3(f) and Exhibit D of the Agreement are
hereby included and a part of the Agreement, and Lender agrees that is shall
hold executed copies of the Notices of Assignment in its files unless an Event
of Default shall have occurred and be continuing.
1. Section 1 of the Agreement is hereby amended by adding the following
provisions:
1.1 "Holdback Account" - as defined in Section 8.4.1.
1.2 "Holdback Amount" - as defined in Section 8.4.1.
2. Section 3.3 of the Agreement is hereby amended by adding to the end
of the second sentence thereof the following: "provided, however, that an amount
equal to the Holdback Amount shall be deducted from each Discount Facility Loan
and put into the Holdback Account by Lender on the Closing Date rather than paid
to SPE."
3. Section 8.1 of the Agreement is hereby amended as of the dated
hereof by relettering clauses (j) and (k) thereof as clauses (k) and (l) and
adding a new clause (j) as follows:
"(j) to the extent such put option available to TSFC, SPE or CCI/Triad
under a Lease is included in the calculation of the Discount Loan Value
of a Lease financed with a Discount Facility Loan, the failure of TSFC,
SPE or CCI/Triad as applicable to exercise any put option under any
Lease and to collect the proceeds of such exercise and to remit them to
Lender or to
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<PAGE> 2
provide any applicable notice to Lessee in connection with such put
option;"
4. Section 8.4 of the Agreement is hereby amended by adding a new
sentence after the first sentence thereof as follows: "In the event that SPE
fails to make such payment within 24 hours of such demand, Lender may withdraw
the amount demanded from the Holdback Account, in which event Lender shall
notify SPE of such withdrawal, provided, that Lender may not withdraw more than
the Holdback Amount."
5. Section 8.4 of the Agreement is hereby amended by adding the
following provision:
8.4.1 Holdback. In order to provide a means of liquidity for the Net
Loss Pool, Lender shall establish a Holdback Account, into which Lender
shall deposit five percent (5%) of each Discount Facility Loan made on
each Closing Date (the "Holdback Amount"). The "Holdback Account" shall
be an account segregated on the books of the Lender which shall be
credited quarterly with interest at a rate per annum equal to 4% per
annum. Lender may withdraw funds from the Holdback Account as provided
in Section 8.4. SPE shall have no right to withdraw funds from the
Holdback Account. On the first Business Day of each calendar quarter
(each a "Calculation Date"), Lender shall (i) multiply the outstanding
principal balance of all Discount Facility Loans at the close of
business on the last Business Day of the previous calendar quarter by
5% (such product, the "Adjusted Holdback Amount") and (ii) if the
aggregate amount in the Holdback Account is greater than the Adjusted
Holdback Amount and no Event of Default shall have occurred and be
continuing, pay to SPE all funds in the Holdback Account in excess of
the Adjusted Holdback Amount. If on the Calculation Date the Adjusted
Holdback Amount exceeds the amount in the Holdback Account, SPE agrees
to immediately pay to Lender the amount of such shortfall in
immediately available funds and upon receipt of such funds, Lender
shall deposit them into the Holdback Account. In addition, in the event
Lender has made the maximum amount of Discount Facility Loans
contemplated in Section 2.1, if no Event of Default shall have occurred
and be continuing, SPE is otherwise in compliance with this Section
8.4.1 and in the event the liability of SPE under Section 8.4 is less
than the dollar amount in the Holdback Account, Lender agrees to remit
such excess from the Holdback Account on each Calculation Date to SPE.
6. To induce Lender to enter into this Amendment, SPE represents as
follows:
(a) SPE is duly authorized to execute and deliver this
Amendment and is and will continue to be duly authorized to
borrow monies under the
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Agreement, as amended hereby, and to perform its obligations
under the Agreement, as amended hereby.
(b) The execution and delivery of this Amendment, and the
performance by SPE of its obligations under the Agreement, as
amended hereby, do not and will not conflict with any
provision of law or of the charter or by-laws of SPE or of any
agreement binding upon SPE.
(c) The Agreement, as amended hereby, is a legal, valid, and
binding obligation of SPE, enforceable against SPE in
accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, or other similar laws of
general application affecting the enforcement of creditors'
rights or by general principles of equity limiting the
availability of equitable remedies.
7. This Amendment is subject to the satisfaction of each of the
following conditions precedent:
(a) SPE shall have delivered to Lender a fully executed
counterpart of this Amendment, duly executed by SPE's
president.
(b) As of the closing date hereof, no Event of Default under
the Agreement shall have occurred and be continuing.
(c) As of the closing date hereof, the warranties in Section 9
of the Agreement and in Section 6 of this Amendment shall be
true and correct as though made on such date, except for such
changes as are specifically permitted under the Agreement.
8. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
9. This Amendment shall be binding upon SPE and Lender and their
respective successors and assigns, and shall inure to the benefit of SPE and
Lender and the successors and assigns of Lender.
10. The Agreement, as amended hereby, shall remain in full force and
effect and is hereby ratified and confirmed in all respects.
11. Each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," or words of similar import in instruments or documents provided for in
the Agreement or delivered or to be delivered thereunder or in connection
therewith, shall, except where the context otherwise requires, be deemed a
reference to the Agreement as amended hereby.
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12. The parties intend and agree that a carbon copy, photocopy or
facsimile of this Amendment with their signature thereon and all counterparts
when taken together, shall be treated as an original, and shall be deemed to be
as binding, valid, genuine, and authentic as an original-signature document for
all purposes, including all matters of evidence and the "best evidence" rules.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Chicago, Illinois by their respective officers thereunto duly
authorized as of the date first written above.
CCI/TRIAD FINANCIAL HOLDING CORPORATION
By /s/ MATTHEW HALE
Its President
IFC CREDIT CORPORATION
By /s/
------------------------------
Its
------------------------------
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<PAGE> 1
EXHIBIT 10.26
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Stockholders Agreement") dated as of
May 26, 1999, is entered into by and among Cooperative Computing Holding
Company, Inc., a Delaware corporation (the "Company"), and the securityholders
listed on the signature pages hereof.
WHEREAS, Hicks, Muse, Tate & Furst Equity Fund III, L.P., a Delaware
limited partnership ("HMTF Fund III"), HM3 Coinvestors, L.P., a Delaware limited
partnership and affiliate of HMTF Fund III, Glenn E. Staats, Preston W. Staats,
Jr., A. Laurence Jones, and Cooperative Computing Holding Company, Inc., a Texas
corporation ("Parent"), are parties to that certain Stockholders Agreement dated
effective as of February 27, 1999 (the "Parent Stockholders Agreement");
WHEREAS, pursuant to the terms of a letter agreement, dated as of May
13, 1999, among HMTF Fund III, Glenn E. Staats and Preston W. Staats, Jr. and a
letter agreement, dated as of May 17, 1999, between HMTF Fund III and Parent
(such letter agreements being referred to collectively herein as the "Commitment
Letter"), HMTF Fund III has agreed to committed to make an equity investment in
Parent, subject to the terms and conditions set forth in the Commitment Letter;
WHEREAS, the Commitment Letter required, among other things, as a
condition precedent to the HMTF Fund III's obligation to make the referenced
equity investment in Parent that all existing documents pertaining to the
corporate governance of Parent (including, without limitation, Parent's articles
of incorporation and bylaws and the Parent Stockholders Agreement) be amended
to, among other things, (A) create an Executive Committee having sole authority
over the strategic, operating and financial decisions of the Company as well as
any sale or recapitalization of the Company and (B) modify certain minority
stockholder rights presently provided for therein;
WHEREAS, Parent, Messrs. Glenn Staats and Preston Staats, and HMTF Fund
III determined (i) that it is desirable to reincorporate Parent as a Delaware
corporation by merging Parent with and into the Company, with the Company being
the surviving corporation of such merger (the "Surviving Corporation"), (ii) to
effect the equity investment in Parent contemplated by the Commitment Letter by
means of an investment in the Surviving Corporation, and (iii) to effect the
referenced changes to the documents pertaining to the corporate governance of
Parent through the certificate of incorporation and bylaws of the Surviving
Corporation and by entering into this Stockholders Agreement as a novation of
the Parent Stockholders Agreement; and
WHEREAS, the Board of Directors of the Company has deemed this
Agreement to be advisable and in the best interests of the Company and its
stockholders;
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter contained and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 2
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions.
"ACCREDITED INVESTOR" means an "Accredited Investor," as defined in
Regulation D, or any successor rule then in effect.
"ACCREDITED OFFEREE" shall have the meaning provided in Section 4.1.1
hereof.
"ADVICE" shall have the meaning provided in Section 3.5 hereof.
"AFFILIATE" means, with respect to any Person, any Person who, directly
or indirectly, controls, is controlled by or is under common control with that
Person.
"AFFILIATED SUCCESSOR" shall have the meaning provided in Section 4.1.1
hereof.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"CCI" means Cooperative Computing, Inc, a Delaware corporation and
wholly-owned Subsidiary of the Company.
"CLASS A COMMON STOCK" means shares of the Class A Common Stock, par
value $.000125 per share, of the Company, and any capital stock into which such
Class A Common Stock thereafter may be changed.
"COMMON STOCK" means shares of the Common Stock, par value $.000125 per
share, of the Company, and any capital stock into which such Common Stock
thereafter may be changed.
"COMMON STOCK EQUIVALENTS" means, without duplication with any other
Common Stock or Common Stock Equivalents, any rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, exercisable for or convertible or exchangeable into, directly
or indirectly, Common Stock of the Company and securities convertible or
exchangeable into Common Stock of the Company, whether at the time of issuance
or upon the passage of time or the occurrence of some future event.
"COMPANY" shall have the meaning set forth in the introductory
paragraph hereof.
"DEMAND REGISTRATION" shall have the meaning set forth in Section 3.1.1
hereof.
"DEMAND REQUEST" shall have the meaning set forth in Section 3.1.1
hereof.
"DESIGNATED STOCKHOLDERS" means, collectively, Glenn E. Staats and
Preston W. Staats. Any action required to be taken or right which is exercisable
by the Designated Stockholders hereunder, unless otherwise specified, will be
determined by the Designated Stockholders owning a majority of the Common Stock
then owned by all Designated Stockholders.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"EXCLUDED REGISTRATION" means a registration under the Securities Act
of (i) securities pursuant to one or more Demand Registrations pursuant to
Section 3 hereof, (ii) securities registered on Form S-8 or any similar
successor form and (iii) securities registered to effect the acquisition of or
combination with another Person.
"FULLY-DILUTED COMMON STOCK" means, at any time, the then outstanding
Common Stock of the Company plus (without duplication) all shares of Common
Stock issuable, whether at such time or upon the passage of time or the
occurrence of future events, upon the exercise, conversion, or exchange of all
then-outstanding Common Stock Equivalents.
"HMC GROUP" means HMTF and its Affiliates and its and their respective
officers, directors, and employees (and members of their respective families and
trusts for the primary benefit of such family members).
"HMC GROUP DESIGNEE" shall have the meaning set forth in Section 2.1.1.
"HMTF" means Hicks, Muse, Tate & Furst Incorporated, a Texas
corporation.
"HMTF FUND III" shall have the meaning set forth in the recitals
hereto.
"HOLDER" means (i) a securityholder listed on the signature page hereof
and (ii) any direct or indirect transferee of any such securityholder who shall
become a party to this Stockholders Agreement.
"INDEPENDENT DIRECTOR" means a Person who is not (i) a member of the
HMC Group, (ii) a Designated Stockholder or (iii) an employee of the Company or
any of its Subsidiaries or a member of the family of any such employee.
"LEGAL HOLIDAY" shall have the meaning provided in Section 9.2 hereof.
"MATERIAL ADVERSE EFFECT" shall have the meaning provided in Section
3.1.4 hereof.
"NASD" shall have the meaning provided in Section 3.6 hereof.
"OFFERED SECURITIES" shall have the meaning provided in Section 4.1.1
hereof.
"OFFER NOTICE" shall have the meaning provided in Section 4.1.1 hereof.
"PARTICIPATION OFFER" shall have the meaning provided in Section 4.3.1
hereof.
"PERSON OR PERSON" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
"PREEMPTIVE RIGHTS OFFER" shall have the meaning provided in Section
4.1.1 hereof.
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"PREEMPTIVE RIGHTS TRANSACTION" shall have the meaning provided in
Section 4.1.1 hereof.
"QUALIFIED IPO" means a firm commitment underwritten public offering of
Common Stock pursuant to a registration statement under the Securities Act, the
proceeds of which to the Company (prior to deducting any underwriters' discounts
and commissions) exceed $30 million.
"REGISTRABLE SHARES" means at any time the Common Stock of the Company
owned by the Holders, whether owned on the date hereof or acquired hereafter;
provided, however, that Registrable Shares shall not include any shares (i) the
sale of which has been registered pursuant to the Securities Act and which
shares have been sold pursuant to such registration, or (ii) which have been
sold to the public pursuant to Rule 144 or 144A of the SEC under the Securities
Act.
"REGISTRATION EXPENSES" shall have the meaning provided in Section 3.6
hereof.
"REGULATION D" means Regulation D promulgated under the Securities Act
by the SEC.
"REQUIRED FILING DATE" shall have the meaning provided in Section
3.1.1(b) hereof.
"REQUIRED HOLDERS" means Holders who then own beneficially more than
66-2/3% of the aggregate number of shares of Common Stock subject to this
Stockholder Agreement.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means the Common Stock.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
"SELLER AFFILIATES" shall have the meaning provided in Section 3.7.1
hereof.
"STOCKHOLDERS AGREEMENT" means this Stockholders Agreement, as such
from time to time may be amended.
"SUBSIDIARY" of any Person means (i) a corporation a majority of whose
outstanding shares of capital stock or other equity interests with voting power,
under ordinary circumstances, to elect directors, is at the time, directly or
indirectly, owned by such Person, by one or more subsidiaries of such Person or
by such Person and one or more subsidiaries of such Person, and (ii) any other
Person (other than a corporation) in which such Person, a subsidiary of such
Person or such Person and one or more subsidiaries of such Person, directly or
indirectly, at the date of determination thereof, has (x) at least a majority
ownership interest or (y) the power to elect or direct the election of the
directors or other governing body of such Person.
"SUSPENSION NOTICE" shall have the meaning provided in Section 3.5
hereof.
"TRANSFER" means any disposition of any Security or any interest
therein that would constitute a "sale" thereof within the meaning of the
Securities Act.
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"TRANSFER NOTICE" shall have the meaning provided in Section 5.3
hereof.
SECTION 1.2 Rules of Construction.
Unless the context otherwise requires
(1) a term has the meaning assigned to it;
(2) "or" is not exclusive;
(3) words in the singular include the plural, and words in the
plural include the singular;
(4) provisions apply to successive events and transactions;
and
(5) "herein," "hereof" and other words of similar import refer
to this Agreement as a whole and not to any particular Article, Section
or other subdivision.
ARTICLE 2
MANAGEMENT OF THE COMPANY AND CERTAIN ACTIVITIES
SECTION 2.1 Board of Directors.
2.1.1 Board Representation. Subject to Section 2.1.4, the HMC Group
shall be entitled to designate to each of the Boards of Directors of the Company
and CCI (i) four individuals at all such times as the HMC Group owns, in the
aggregate, at least ten percent (10%) of the outstanding shares of the Company's
voting capital stock and (ii) one individual at all such times as the HMC Group
owns, in the aggregate, at least five percent (5%) but less than ten percent
(10%) of the outstanding shares of the Company's voting capital stock (such
designees being referred to herein individually as an "HMC Designee" and
collectively as the "HMC Designees"). Subject to Section 2.1.4., the Designated
Stockholders shall be entitled to designate to each of the Boards of Directors
of the Company and CCI (i) two individuals at all such times as the Designated
Stockholders own, in the aggregate, at least ten percent (10%) of the
outstanding shares of the Company's voting capital stock and (ii) one individual
at all such times as the Designated Stockholders own, in the aggregate, at least
five percent (5%) but less than ten percent (10%) of the outstanding shares of
the Company's voting capital stock (such designees being referred to herein
individually as a "Designated Stockholders Designee" and collectively as the
"Designated Stockholders Designees", and together with the HMC Designees, as the
"Designees"). The remaining positions on each of the Boards of Directors of the
Company and CCI shall be filled by Independent Directors mutually acceptable to
HMTF and the Designated Stockholders. Each Holder and the Company shall vote his
or its shares of Common Stock, Class A Common Stock or capital stock of CCI, as
the case may be, at any regular or special meeting of stockholders of the
Company or CCI, as the case may be, or in any written consent executed in lieu
of such a meeting of stockholders and shall take all other actions necessary to
give effect to the agreements contained in this Agreement (including, without
limitation, the election of Persons designated by the HMC Group or the
Designated Stockholders to be elected
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as directors as described in the preceding sentences) and to ensure that the
certificate of incorporation and bylaws of the Company and CCI do not at any
time conflict in any respect with the provisions of this Stockholders Agreement.
In order to effectuate the provisions of this Section 2, each Holder and the
Company hereby agree that when any action or vote is required to be taken by
such Holder or the Company pursuant to this Stockholders Agreement, such Holder
or the Company, as the case may be, shall use his or its best efforts to call,
or cause the appropriate officers and directors of the Company or CCI, as the
case may be, to call, a special or annual meeting of stockholders of the Company
or CCI, as the case may be, or execute or cause to be executed a consent in
writing in lieu of any such meetings pursuant to the applicable provisions of
the General Corporation Law of the State of Delaware.
2.1.2 Vacancies. If, prior to his election to the Board of Directors
of the Company pursuant to Section 2.1.1 hereof, any Designee shall be unable or
unwilling to serve as a director of the Company, the Holder or Holders who
nominated such Designee shall be entitled to nominate a replacement who shall
then be a Designee for purposes of this Section 2. If, following an election to
the Board of Directors of the Company pursuant to Section 2.1.1 hereof, any
Designee shall resign or be removed or be unable to serve for any reason prior
to the expiration of his term as a director of the Company, the Holder or
Holders who nominated such director shall, within 30 days of such event, notify
the Board of Directors of the Company in writing of a replacement Designee, and
either (i) the Holders shall vote their shares of Common Stock, at any regular
or special meeting called for the purpose of filling positions on the Board of
Directors of the Company or in any written consent executed in lieu of such a
meeting of stockholders, and shall take all such other actions necessary to
ensure the election to the Board of Directors of the Company of such replacement
Designee to fill the unexpired term of the Designee who such new Designee is
replacing or (ii) the Board of Directors shall elect such replacement Designee
to fill the unexpired term of the Designee who such new Designee is replacing.
If the HMC Group requests that any HMC Designee, or the Designated Stockholders
request that any Designated Stockholder Designee, be removed as a director (with
or without cause), by written notice thereof to the Company, then the Company
shall take all actions necessary to effect, and each of the Holders shall vote
all its or his capital stock in favor of, such removal upon such request.
2.1.3 Executive Committee. Subject to Section 2.1.1, the Company and
the Holders shall cause the Executive Committee of the Board of Directors of the
Company to be comprised of three HMC Designees and two Designated Stockholders
Designees.
2.1.4 Termination of Rights. The right of the HMC Group to designate
directors under Section 2.1.1, and the obligation of the Holders to vote their
shares as provided herein, shall terminate upon the first to occur of (i) the
termination or expiration of this Stockholders Agreement or this Article 2, (ii)
such time as the HMC Group elects in writing to terminate its rights under this
Article 2, or (iii) such time as the HMC Group ceases to own any shares of the
Company's capital stock. The right of the Designated Stockholders to designate
directors under Section 2.1.1, and the obligation of the Holders to vote their
shares as provided herein, shall terminate upon the first to occur of (i) the
termination or expiration of this Stockholders Agreement or this Article 2, (ii)
such time as a majority in interest of the Designated Stockholders elect in
writing to terminate their rights under this Article 2, or (iii) such time as
the Designated Stockholders cease to own any shares of Common Stock.
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2.1.5 Costs and Expenses. The Company will pay all reasonable
out-of-pocket expenses incurred by Designees in connection with their
participation in meetings of the Board of Directors (and committees thereof) of
the Company and the Boards of Directors (and committees thereof) of the
Subsidiaries of the Company.
SECTION 2.2 Voting of Capital Stock.
To the extent any Holder owns shares of any class or series of capital
stock of the Company or any Subsidiary of the Company which it may vote on any
particular matter which comes before such corporation's stockholders, as a class
or series separate from the common stock of such corporation ordinarily entitled
to vote for the election of directors, such Holder shall vote all such shares on
such matter in such separate class or series vote as holders of a majority of
the outstanding shares of common stock of such corporation vote thereon;
provided, however, that such Holder may nevertheless vote such shares as a
separate class or series without regard to the provisions of this Section 2.2 in
respect of (a) amendments to the certificate of incorporation of such
corporation, or the certificate of designation which created such class or
series, which change the provisions thereof expressly applicable to such
separate class or series, and (b) any matter as to which such class or series is
expressly entitled to vote as a separate class or series pursuant to such
corporation's certificate of incorporation or the certificate of designation
which created such class or series; provided further, however, that any
statement in such certificate of incorporation or certificate of designation
that such class or series may vote as a separate class or series "as required by
law" or similar language shall not permit such class or series to be voted
without regard to the provisions of this Section 2.2.
SECTION 2.3 Other Activities of the Holders; Fiduciary Duties.
It is understood and accepted that the Holders and their Affiliates
have interests in other business ventures which may be in conflict with the
activities of the Company and its Subsidiaries and that, subject to applicable
law and Article 8 of this Agreement, nothing in this Stockholders Agreement
shall limit the current or future business activities of the Holders whether or
not such activities are competitive with those of the Company and its
Subsidiaries. Nothing in this Agreement, express or implied, shall relieve any
officer or director of the Company or any of its Subsidiaries, or any Holder, of
any fiduciary or other duties or obligations they may have to the Company's
stockholders.
ARTICLE 3
REGISTRATION RIGHTS
SECTION 3.1 Demand Registration.
3.1.1 Request for Registration.
(a) At any time after the earlier of the consummation of a
Qualified IPO or February 27, 2002, either (i) members of the HMC Group owning
35% or more of the aggregate number of Registrable Shares then owned by the HMC
Group or (ii) Designated Stockholders owning a majority of the Registrable
Shares then owned by the Designated Stockholders may
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request the Company, in writing (a "Demand Request"), to effect the registration
under the Securities Act of all or part of its or their Registrable Shares (a
"Demand Registration"); provided, however, that the Designated Holders may not
make a Demand Request pursuant to this Section 3.1.1 until the HMC Group shall
have made a Demand Request.
(b) Each Demand Request shall specify the number of
Registrable Shares proposed to be sold. Subject to Section 3.1.6, the
Company shall file the Demand Registration within 90 days after
receiving a Demand Request (the "Required Filing Date") and shall use
all commercially reasonable efforts to cause the same to be declared
effective by the SEC as promptly as practicable after such filing;
provided, however, that the Company need effect only three Demand
Registrations at the request of the HMC Group and three Demand
Registrations at the request of the Designated Stockholders.
3.1.2 Effective Registration and Expenses. A registration will not
count as a Demand Registration until it has become effective (unless the
Requesting Holders withdraw all their Registrable Shares and the Company has
performed its obligations hereunder in all material respects, in which case such
demand will count as a Demand Registration unless the Requesting Holders pay all
Registration Expenses, as hereinafter defined, in connection with such withdrawn
registration); provided, however, that if, after it has become effective, an
offering of Registrable Shares pursuant to a registration is interfered with by
any stop order, injunction, or other order or requirement of the SEC or other
governmental agency or court, such registration will be deemed not to have been
effected and will not count as a Demand Registration.
3.1.3 Selection of Underwriters. The offering of Registrable Shares
pursuant to a Demand Registration shall be in the form of a "firm commitment"
underwritten offering. The Requesting Holders of a majority of the Registrable
Shares to be registered in a Demand Registration shall select the investment
banking firm or firms to manage the underwritten offering; provided, however,
that such selection shall be subject to the consent of the Company, which
consent shall not be unreasonably withheld.
3.1.4 Priority on Demand Registrations. No securities to be sold for
the account of any Person (including the Company) other than a Requesting Holder
shall be included in a Demand Registration unless the managing underwriter or
underwriters shall advise the Company or the Requesting Holders in writing that
the inclusion of such securities will not materially and adversely affect the
price or success of the offering (a "Material Adverse Effect"). Furthermore, in
the event the managing underwriter or underwriters shall advise the Company or
the Requesting Holders that even after exclusion of all securities of other
Persons pursuant to the immediately preceding sentence, the amount of
Registrable Shares proposed to be included in such Demand Registration by
Requesting Holders is sufficiently large to cause a Material Adverse Effect, the
Registrable Shares of the Requesting Holders to be included in such Demand
Registration shall equal the number of shares which the Company is so advised
can be sold in such offering without a Material Adverse Effect and such shares
shall be allocated pro rata among the Requesting Holders on the basis of the
number of Registrable Shares requested to be included in such registration by
each such Requesting Holder; provided, however, that if any Registrable Shares
of the HMC Group or the Designated Holders (as a group) (each of the foregoing,
a "Holder Group") requested to be registered pursuant to a Demand Request under
Section 3.1.1 are excluded from a registration pursuant to this Section 3.1.4,
such Holder Group
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having shares so excluded shall have the right to withdraw all, but not less
than all, such shares from such registration and such registration will not
count as a Demand Registration with respect to such Holder Group.
3.1.5 Rights of Nonrequesting Holders. Upon receipt of any Demand
Request, the Company shall promptly (but in any event within 10 days) give
written notice of such proposed Demand Registration to all other Holders
entitled to registration rights under this Section 3.1, who shall have the
right, exercisable by written notice to the Company within 20 days of their
receipt of the Company's notice, to elect to include in such Demand Registration
such portion of their Registrable Securities as they may request. All Holders
requesting to have their Registrable Shares included in a Demand Registration in
accordance with the preceding sentence shall be deemed to be "Requesting
Holders" for purposes of this Section 3.1 (other than Section 3.1.1); provided,
however, if any member of any Holder Group participates as a Requesting Holder
in a Demand Registration such Holder's participation shall be counted as a
Demand Request of such Holder's respective Holder Group.
3.1.6 Deferral of Filing. The Company may defer the filing (but not
the preparation) of a registration statement required by Section 3.1 until a
date not later than 180 days after the Required Filing Date (or, if longer, 180
days after the effective date of the registration statement contemplated by
clause (ii) below) if (i) at the time the Company receives the Demand Request,
the Company or any of its Subsidiaries are engaged in confidential negotiations
or other confidential business activities, disclosure of which would be required
in such registration statement (but would not be required if such registration
statement were not filed), and the Board of Directors of the Company determines
in good faith that such disclosure would be materially detrimental to the
Company and its stockholders or would have a material adverse effect on any such
confidential negotiations or other confidential business activities, or (ii)
prior to receiving the Demand Request, the Board of Directors had determined to
effect a registered underwritten public offering of the Company's securities for
the Company's account and the Company had taken substantial steps (including,
but not limited to, selecting a managing underwriter for such offering) and is
proceeding with reasonable diligence to effect such offering. A deferral of the
filing of a registration statement pursuant to this Section 3.1.6 shall be
lifted, and the requested registration statement shall be filed forthwith, if in
the case of a deferral pursuant to clause (i) of the preceding sentence, the
negotiations or other activities are disclosed or terminated, or, in the case of
a deferral pursuant to clause (ii) of the preceding sentence, the proposed
registration for the Company's account is abandoned. In order to defer the
filing of a registration statement pursuant to this Section 3.1.6, the Company
shall promptly (but in any event within 10 days), upon determining to seek such
deferral, deliver to each Requesting Holder a certificate signed by an executive
officer of the Company stating that the Company is deferring such filing
pursuant to this Section 3.1.6 and a general statement of the reason for such
deferral and an approximation of the anticipated delay. Within 20 days after
receiving such certificate, the holders of a majority of the Registrable Shares
held by the Requesting Holders and for which registration was previously
requested may withdraw such Demand Request by giving notice to the Company; if
withdrawn, the Demand Request shall be deemed not to have been made for all
purposes of this Agreement. The Company may defer the filing of a particular
registration statement pursuant to this Section 3.1.6 only once.
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SECTION 3.2 Piggyback Registrations.
3.2.1 Right to Piggyback. Each time the Company proposes to register
any of its equity securities (other than pursuant to an Excluded Registration)
under the Securities Act for sale to the public (whether for the account of the
Company or the account of any securityholder of the Company) and the form of
registration statement to be used permits the registration of Registrable
Shares, the Company shall give prompt written notice to each Holder of
Registrable Shares (which notice shall be given not less than 30 days prior to
the effective date of the Company's registration statement), which notice shall
offer each such Holder the opportunity to include any or all of its or his
Registrable Shares in such registration statement, subject to the limitations
contained in Section 3.2.2 hereof. Each Holder who desires to have its or his
Registrable Shares included in such registration statement shall so advise the
Company in writing (stating the number of shares desired to be registered)
within 20 days after the date of such notice from the Company. Any Holder shall
have the right to withdraw such Holder's request for inclusion of such Holder's
Registrable Shares in any registration statement pursuant to this Section 3.2.1
by giving written notice to the Company of such withdrawal. Subject to Section
3.2.2 below, the Company shall include in such registration statement all such
Registrable Shares so requested to be included therein; provided, however, that
the Company may at any time withdraw or cease proceeding with any such
registration if it shall at the same time withdraw or cease proceeding with the
registration of all other equity securities originally proposed to be
registered.
3.2.2 Priority on Registrations. If the Registrable Shares requested
to be included in the registration statement by any Holder differ from the type
of securities proposed to be registered by the Company and the managing
underwriter advises the Company that due to such differences the inclusion of
such Registrable Shares would cause a Material Adverse Effect, then (i) the
number of such Holder's or Holders' Registrable Shares to be included in the
registration statement shall be reduced to an amount which, in the judgment of
the managing underwriter, would eliminate such Material Adverse Effect or (ii)
if no such reduction would, in the judgment of the managing underwriter,
eliminate such Material Adverse Effect, then the Company shall have the right to
exclude all such Registrable Shares from such registration statement provided no
other securities of such type are included and offered for the account of any
other Person in such registration statement. Any partial reduction in the number
of Registrable Shares to be included in the registration statement pursuant to
clause (i) of the immediately preceding sentence shall be effected pro rata
based on the ratio which such Holder's requested shares bears to the total
number of shares requested to be included in such registration statement by all
Persons (including Requesting Holders) who have requested (pursuant to
contractual registration rights) that their shares be included in such
registration statement. If the Registrable Shares requested to be included in
the registration statement are of the same type as the securities being
registered by the Company and the managing underwriter advises the Company that
the inclusion of such Registrable Shares would cause a Material Adverse Effect,
the Company will be obligated to include in such registration statement, as to
each Requesting Holder, only a portion of the shares such Holder has requested
be registered equal to the ratio which such Holder's requested shares bears to
the total number of shares requested to be included in such registration
statement by all Persons (including Requesting Holders) who have requested
(pursuant to contractual registration rights) that their shares be included in
such registration statement. If as a result of the provisions of this Section
3.2.2 any Holder shall not be entitled to
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include all Registrable Securities in a registration that such Holder has
requested to be so included, such Holder may withdraw such Holder's request to
include Registrable Shares in such registration statement. No Person may
participate in any registration statement hereunder unless such Person (x)
agrees to sell such person's Registrable Shares on the basis provided in any
underwriting arrangements approved by the Company and (y) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements,
and other documents reasonably required under the terms of such underwriting
arrangements; provided, however, that no such Person shall be required to make
any representations or warranties in connection with any such registration other
than representations and warranties as to (i) such Person's ownership of his or
its Registrable Shares to be sold or transferred free and clear of all liens,
claims, and encumbrances, (ii) such Person's power and authority to effect such
transfer, and (iii) such matters pertaining to compliance with securities laws
as may be reasonably requested; provided further, however, that the obligation
of such Person to indemnify pursuant to any such underwriting arrangements shall
be several, not joint and several, among such Persons selling Registrable
Shares, and the liability of each such Person will be in proportion to, and
limited to, the net amount received by such Person from the sale of his or its
Registrable Shares pursuant to such registration.
SECTION 3.3 Holdback Agreement.
Unless the managing underwriter otherwise agrees, each Holder and the
Company agrees (and the Company agrees, in connection with any underwritten
registration, to use its reasonable efforts to cause its Affiliates to agree)
not to effect any public sale or private offer or distribution of any Common
Stock or Common Stock Equivalents during the ten business days prior to the
effectiveness under the Securities Act of any underwritten registration and
during such time period after the effectiveness under the Securities Act of any
underwritten registration (not to exceed 180 days) (except, if applicable, as
part of such underwritten registration) as the Company and be managing
underwriter may agree.
SECTION 3.4 Registration Procedures.
Whenever any Holder has requested that any Registrable Shares be
registered pursuant to this Stockholders Agreement, the Company will use its
commercially reasonable efforts to effect the registration and the sale of such
Registrable Shares in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
3.4.1 Prepare and file with the SEC a registration statement on any
appropriate form under the Securities Act with respect to such Registrable
Shares and use its commercially reasonable efforts to cause such registration
statement to become effective;
3.4.2 Prepare and file with the SEC such amendments, post-effective
amendments, and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days (or such lesser
period as is necessary for the underwriters in an underwritten offering to sell
unsold allotments) and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement during such period in
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accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
3.4.3 Furnish to each seller of Registrable Shares and the
underwriters of the securities being registered such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus),
any documents incorporated by reference therein and such other documents as such
seller or underwriters may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such seller or the sale of such
securities by such underwriters (it being understood that, subject to Section
3.5 and the requirements of the Securities Act and applicable state securities
laws, the Company consents to the use of the prospectus and any amendment or
supplement thereto by each seller and the underwriters in connection with the
offering and sale of the Registrable Shares covered by the registration
statement of which such prospectus, amendment or supplement is a part);
3.4.4 Use its commercially reasonable efforts to register or qualify
such Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the managing underwriter reasonably requests, use its
commercially reasonable efforts to keep each such registration or qualification
(or exemption therefrom) effective during the period in which such registration
statement is required to be kept effective, and do any and all other acts and
things which may be reasonably necessary or advisable to enable each seller to
consummate the disposition of the Registrable Shares owned by such seller in
such jurisdictions (provided, however, that the Company will not be required to
(A) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph or (B) consent to
general service of process in any such jurisdiction);
3.4.5 Promptly notify each seller and each underwriter and (if
requested by any such Person) confirm such notice in writing (A) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed and, with respect to a registration statement or any post-effective
amendment, when the same has become effective, (B) of the issuance by any state
securities or other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the Registrable Shares
under state securities or "blue sky" laws or the initiation of any proceedings
for that purpose, and (C) of the happening of any event which makes any
statement made in a registration statement or related prospectus untrue or which
requires the making of any changes in such registration statement, prospectus or
documents so that they will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and, as promptly as practicable
thereafter, prepare and file with the SEC and furnish a supplement or amendment
to such prospectus so that, as thereafter deliverable to the purchasers of such
Registrable Shares, such prospectus will not contain any untrue statement of a
material fact or omit a material fact necessary to make the statement therein,
in light of the circumstances under which they were made, not misleading;
3.4.6 Make generally available to the Company's securityholders an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act no later than 30 days after the end of the 12-month period beginning with
the first day of the Company's first fiscal quarter commencing after the
effective date of a registration statement, which earnings statement shall
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cover said 12-month period, and which requirement will be deemed to be satisfied
if the Company timely files complete and accurate information on Forms 10-Q,
10-K and 8-K under the Exchange Act and otherwise complies with Rule 158 under
the Securities Act;
3.4.7 If requested by the managing underwriter or any seller
promptly incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or any seller reasonably requests to be
included therein, including, without limitation, with respect to the Registrable
Shares being sold by such seller, the purchase price being paid therefor by the
underwriters and with respect to any other terms of the underwritten offering of
the Registrable Shares to be sold in such offering, and promptly make all
required filings of such prospectus supplement or post-effective amendment;
3.4.8 As promptly as practicable after filing with the SEC of any
document which is incorporated by reference into a registration statement (in
the form in which it was incorporated), deliver a copy of each such document to
each seller;
3.4.9 Cooperate with the sellers and the managing underwriter to
facilitate the timely preparation and delivery of certificates (which shall lot
bear any restrictive legends unless required under applicable law) representing
securities sold under any registration statement, and enable such securities to
be in such denominations and registered in such names as the managing
underwriter or such sellers may request and keep available and make available to
the Company's transfer agent prior to the effectiveness of such registration
statement a supply of such certificates;
3.4.10 Promptly make available for inspection by any seller, any
underwriter participating in any disposition pursuant to any registration
statement, and any attorney, accountant or other agent or representative
retained by any such seller or underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information requested
by any such Inspector in connection with such registration statement; provided,
however, that unless the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in the registration statement or the release
of such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, the Company shall not be required to provide any
information under this subparagraph (x) if (A) the Company believes, after
consultation with counsel for the Company, that to do so would cause the Company
to forfeit an attorney-client privilege that was applicable to such information
or (B) if either (1) the Company has requested and been granted from the SEC
confidential treatment of such information contained in any filing with the SEC
or documents provided supplementally or otherwise or (2) the Company reasonably
determines in good faith that such Records are confidential and so notifies the
Inspectors in writing unless prior to furnishing any such information with
respect to (A) or (B) such Holder of Registrable Securities requesting such
information agrees to enter into a confidentiality agreement in customary form
and subject to customary exceptions; provided further, however, that each Holder
of Registrable Securities agrees that it will, upon learning that disclosure of
such Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the
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Company at its expense, to undertake appropriate action and to provide
disclosure of the Records deemed confidential;
3.4.11 Furnish to each seller underwriter a signed counterpart of (A)
an opinion or opinions of counsel to the Company, and (B) a comfort letter or
comfort letters from the Company's independent public accountants, each in
Customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the sellers or managing
underwriter reasonably requests;
3.4.12 Cause the Registrable Shares included in any registration
statement to be (A) listed on each securities exchange, if any, on which similar
securities issued by the Company are then listed, or (B) authorized to be quoted
and/or listed (to the extent applicable) on the Nasdaq Stock Market's if the
Registrable Shares so qualify;
3.4.13 Provide a CUSIP number for the Registrable Shares included in
any registration statement not later than the effective date of such
registration statement;
3.4.14 Cooperate with each seller and each underwriter participating
in the disposition of such Registrable Shares and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD");
3.4.15 During the period when the prospectus is required to be
delivered under the Securities Act, promptly file all documents required to be
filed with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act;
3.4.16 Notify each seller of Registrable Shares promptly of any
request by the SEC for the amending or supplementing of such registration
statement or prospectus or for additional information;
3.4.17 Prepare and file with the SEC promptly any amendments or
supplements to such registration statement or prospectus which, in the opinion
of counsel for the Company or the managing underwriter, is required in
connection with the distribution of the Registrable Shares;
3.4.18 Enter into such agreements (including underwriting agreements
in the managing underwriter's customary form) as are customary in connection
with an underwritten registration; and
3.4.19 Advise each seller of such Registrable Shares, promptly after
it shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the SEC suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for such purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
SECTION 3.5 Suspension of Dispositions.
Each Holder agrees by acquisition of any Registrable Shares that, upon
receipt of any notice (a "Suspension Notice") from the Company of the happening
of any event of the kind described in Section 3.4.5(C), such Holder will
forthwith discontinue disposition of Registrable
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Shares until such Holder's receipt of the copies of the supplemented or amended
prospectus, or until it is advised in writing (the "Advice") by the Company that
the use of the prospectus may be resumed, and has received copies of any
additional or supplemental filings which are incorporated by reference in the
prospectus, and, if so directed by the Company, such Holder will deliver to the
Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Shares current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of registration statements
set forth in Section 3.4.2 hereof shall be extended by the number of days during
the period from and including the date of the giving of the Suspension Notice to
and including the date when each seller of Registrable Shares covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus or the Advice. The Company shall use its commercially
reasonable efforts and take such actions as are reasonably necessary to render
the Advice as promptly as practicable.
SECTION 3.6 Registration Expenses.
All expenses incident to the Company's performance of or compliance
with this Article 3 including, without limitation, all registration and filing
fees, all fees and expenses associated with filings required to be made with the
NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" as such term is defined in Schedule E of the By-Laws of
the NASD, and of its counsel), as may be required by the rules and regulations
of the NASD, fees and expenses of compliance with securities or "blue sky" laws
(including reasonable fees and disbursements of counsel in connection with "blue
sky" qualifications of the Registrable Shares), rating agency fees, printing
expenses (including expenses of printing certificates for the Registrable Shares
in a form eligible for deposit with Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by a holder of
Registrable Shares), messenger and delivery expenses, the Company's internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the fees and
expenses incurred in connection with any listing of the Registrable Shares, fees
and expenses of counsel for the Company and its independent certified public
accountants (including the expenses of any special audit or "cold comfort"
letters required by or incident to such performance), securities acts liability
insurance (if the Company elects to obtain such insurance), the fees and
expenses of any special experts retained by the Company in connection with such
registration, and the fees and expenses of other persons retained by the Company
and reasonable fees and expenses of one firm of counsel for the sellers (which
shall be selected by the holders of a majority of the Registrable Shares being
included in any particular registration statement) (all such expenses being
herein called "Registration Expenses") will be borne by the Company whether or
not any registration statement becomes effective; provided, however, that in no
event shall Registration Expenses include any underwriting discounts,
commissions, or fees attributable to the sale of the Registrable Shares or any
counsel, accountants, or other persons retained or employed by the Holders.
SECTION 3.7 Indemnification.
3.7.1 The Company agrees to indemnify and reimburse, to the fullest
extent permitted by law, each seller of Registrable Shares, and each of its
employees, advisors, agents, representatives, partners, officers, directors,
members and each Person who controls such seller
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(within the meaning of the Securities Act or the Exchange Act) and any agent or
investment advisor thereof (collectively, the "Seller Affiliates") (A) against
any and all losses, claims, damages, liabilities, and expenses, joint or several
(including, without limitation, attorneys' fees and disbursements except as
limited by 3.7.3) based upon arising out of, related to or resulting from any
untrue or alleged untrue statement of a material fact contained in any
registration statement, prospectus, or preliminary prospectus or any amendment
thereof or supplement thereto, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (B) against any and all loss, liability, claim, damage, and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon,
arising out of, related to or resulting from any such untrue statement or
omission or alleged untrue statement or omission, and (C) against any and all
costs and expenses (including reasonable fees and disbursements of counsel) as
may be reasonably incurred in investigating, preparing, or defending against any
litigation, or investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon, arising out of,
related to or resulting from any such untrue statement or omission or alleged
untrue statement or omission, to the extent that any such expense or cost is not
paid under subparagraph (A) or (B) above, except insofar as the same are made in
reliance upon and in strict conformity with information furnished in writing to
the Company by such seller or any Seller Affiliate for use therein or arise from
such seller's or any Seller Affiliate's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such seller or Seller Affiliate with a
sufficient number of copies of the same. The reimbursements required by this
Section 3.7.1 will be made by periodic payments during the course of the
investigation or defense, as and when bills are received or expenses incurred.
3.7.2 In connection with any registration statement in which a
seller of Registrable Shares is participating, each such seller will furnish to
the Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the fullest extent permitted by law, each such seller will
indemnify the Company and its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act or the Exchange
Act) against any and all losses, claims, damages, liabilities, and expenses
(including, without limitation, reasonable attorneys' fees and disbursements
except as limited by Section 3.7.3) resulting from any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, prospectus, or any preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission is contained in any information or
affidavit so furnished in writing by such seller or any of its Seller Affiliates
specifically for inclusion in the registration statement; provided, however,
that the obligation to indemnify will be several, not joint and several, among
such sellers of Registrable Shares, and the liability of each such seller of
Registrable Shares will be in proportion to, and limited to, the net amount
received by such seller from the sale of Registrable Shares pursuant to such
registration statement; provided further, however, that such seller of
Registrable Shares shall not be liable in any such case to the extent that prior
to the filing of any such registration statement or prospectus or amendment
thereof or supplement hereto, such seller has furnished in writing to the
Company
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information expressly for use in such registration statement or prospectus or
any amendment thereof or supplement thereto which corrected or made not
misleading information previously furnished to the Company.
3.7.3 Any Person entitled to indemnification hereunder will (A) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification (provided that the failure to give such notice
shall not limit the rights of such Person) and (B) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person unless (X) the
indemnifying party has agreed to pay such fees or expenses, or (Y) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person. If such defense is not
assumed by the indemnifying party as permitted hereunder, the indemnifying party
will not be subject to any liability for any settlement made by the indemnified
party without its consent (consent may not be unreasonably withheld). If such
defense is assumed by the indemnifying party pursuant to the provisions hereof,
such indemnifying party shall not settle or otherwise compromise the applicable
claim unless (1) such settlement or compromise contains a full and unconditional
release of the indemnified party or (2) the indemnified party otherwise consents
in writing. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the reasonable fees and
disbursements of such additional counsel or counsels.
3.7.4 Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 3.7.1 or Section 3.7.2 are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages, liabilities, or expenses (or actions in respect
thereof) referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, liabilities, or expenses (or actions in respect hereof) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and the indemnified party in connection with the actions which resulted in
the losses, claims, damages, liabilities or expenses as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 3.7.4 were determined by pro
rata allocation (even if the Holders or any underwriters or all of them were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 3.7.4. The amount paid or payable by an indemnified party as a result of
the losses,
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claims, damages, liabilities, or expenses (or actions in respect thereof)
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such indemnified party in connection with investigating
or, except as provided in Section 3.7.3, defending any such action or claim.
Notwithstanding the provisions of this Section 3.7.4, no Holder shall be
required to contribute an amount greater than the dollar amount by which the
proceeds received by such Holder with respect to the sale of any Registrable
Shares exceeds the amount of damages which such Holder has otherwise been
required to pay by reason of such statement or omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Holders' obligations in this
Section 3.7.4 to contribute shall be several in proportion to the amount of
Registrable Shares registered by them and not joint. If indemnification is
available under this Section 3.7, the indemnifying parties shall indemnify each
indemnified party to the full extent provided in Section 3.7.1 and Section 3.7.2
without regard to the relative fault of said indemnifying party or indemnified
party or any other equitable consideration provided for in this Section 3.7.4.
3.7.5 The indemnification and contribution provided for under this
Stockholders Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and will survive the
transfer of securities.
ARTICLE 4
TRANSFERS OF SECURITIES
SECTION 4.1 Preemptive Rights.
4.1.1 Rights to Participate in Future Sales. In case the Company or
any Affiliated Successor (as hereinafter defined) proposes to issue or sell any
shares of Common Stock or Common Stock Equivalents (the "Offered Securities"),
the Company shall, no later than twenty days prior to the consummation of such
transaction (a "Preemptive Rights Transaction"), give notice in writing (the
"Offer Notice") to each Holder of such Preemptive Rights Transaction. The Offer
Notice shall describe the proposed Preemptive Rights Transaction, identify the
proposed purchaser, and contain an offer (the "Preemptive Rights Offer") to sell
to each Holder who certifies (to the reasonable satisfaction of the Company)
that such Holder is an Accredited Investor (an "Accredited Offeree"), at the
same price and for the same consideration to be paid by the proposed purchaser,
all or part of such Accredited Offeree's pro rata portion of the Offered
Securities (which shall be the percentage ownership of the Fully-Diluted Common
Stock held by such Holder, excluding, for the purposes of such calculation, any
shares of Common Stock issuable upon exercise of any Common Stock Equivalents
granted pursuant to any employee, officer or director benefit plan or
arrangement). As used herein, the term "Affiliated Successor" means a successor
entity to the Company (whether by merger, consolidation, reorganization, or
otherwise) in which the HMC Group owns at least the same percentage of the
fully-diluted common stock of such entity (after giving effect to the merger,
consolidation, reorganization, or other transaction) as the HMC Group owns of
the Fully-Diluted Common Stock of the Company. If any such Holder fails to
accept such offer by written notice fifteen days after its receipt of the Offer
Notice, the Company or such Affiliated Successor may proceed
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with the proposed issue or sale of the Offered Securities, free of any right on
the part of any Holder under this Section 4.1.1 in respect thereof.
4.1.2 Exceptions to Preemptive Rights. This Section 4.1 shall not
apply to (i) issuances or sales of Common Stock or Common Stock Equivalents to
employees, officers, and/or directors of the Company and/or any of its
Subsidiaries pursuant to employee benefit or similar plans or arrangements of
the Company and/or its Subsidiaries, (ii) issuances or sales of Common Stock or
Common Stock Equivalents upon exercise of any Common Stock Equivalent which,
when issued, was subject to or exempt from the preemptive rights under this
Section 4.1, (iii) securities distributed or set aside ratably to all holders of
Common Stock and Common Stock Equivalents (or any class or series thereof) on a
per share equivalent basis, or (iv) issuances or sales of Common Stock or Common
Stock Equivalents pursuant to a registered underwritten public offering, a
merger of the Company or a subsidiary of the Company into or with another entity
or an acquisition by the Company of a subsidiary of the Company or another
business or corporation. In the event of any issuances or sales of Common Stock
or Common Stock Equivalents as a unit with any other security of the Company or
its Subsidiaries, the preemptive rights under this Section shall be applicable
to the entire unit rather than only the Common Stock or Common Stock Equivalent
included in the unit.
SECTION 4.2 Tag Along Rights.
4.2.1 Applicability. In the event the HMC Group or the Designated
Stockholders (or any one of the Designated Stockholders) desires to effect a
Transfer, then at least 30 days prior to such Transfer, the party or parties
desiring to effect the Transfer shall make an offer (the "Participation Offer")
to each non-selling Holder (each, a "Co-Seller") to include in the proposed
Transfer a portion of such Co-Seller's Common Stock which represents the same
percentage of such Co-Seller's Fully-Diluted Common Stock as the shares proposed
to be sold in the Transfer by the HMC Group or the Designated Stockholders (as
the case may be, the "Tag Seller Group") represent of the Tag Seller Group's
aggregate Fully-Diluted Common Stock; provided, however, that, if the HMC Group
is the Tag Seller Group and the consideration to be received by the HMC Group
includes any securities, only Co-Sellers who have certified to the reasonable
satisfaction of HMTF that they are Accredited Investors shall be entitled to
participate in such transfer, unless the transferee consents otherwise.
4.2.2 Terms of Participation Offer. The Participation Offer shall
describe the terms and conditions of the proposed Transfer and shall be
conditioned upon (i) the consummation of the transactions contemplated in the
Participation Offer with the transferee named therein, and (ii) each Co-Seller's
execution and delivery of all agreements and other documents that members of the
Tag Seller Group are required to execute and deliver in connection with such
Transfer (provided, however, that the Co-Seller shall not be required to make
any representations or warranties in connection with such sale or transfer other
than representations and warranties as to (A) such Co-Seller's ownership of his
Common Stock to be sold or transferred free and clear of all liens, claims and
encumbrances, (B) such Co-Seller's power and authority to effect such transfer
and (C) such matters pertaining to compliance with securities laws as the
transferee may reasonably require). If any Co-Seller shall accept the
Participation Offer, the Tag Seller Group shall reduce, to the extent necessary,
the number of shares of Common Stock it otherwise would have sold in the
proposed transfer so as to permit those Co-Sellers who have accepted the
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Participation Offer to sell the number of shares of Common Stock that they are
entitled to sell under this Section 4.2, and the Tag Seller Group and such
Co-Sellers shall transfer the number of shares Common Stock specified in the
Participation Offer to the proposed transferee in accordance with the terms of
such transfer as set forth in the Participation Offer.
SECTION 4.3 Certain Events Not Deemed Transfers.
In no event shall any exchange, reclassification, or other conversion
of shares into any cash, securities, or other property pursuant to a merger or
consolidation of the Company or any Subsidiary with, or any sale or transfer by
the Company or any Subsidiary of all or substantially all its assets to, any
Person constitute a Transfer of shares of Common Stock by the HMC Group or the
Designated Stockholders for purposes of Section 4.2. In addition, Section 4.2
hereof shall not apply to any transfer, sale, or disposition of shares of Common
Stock solely among members of the HMC Group.
SECTION 4.4 Transfer and Exchange.
When Securities are presented to the Company with a request to register
the transfer of such Securities or to exchange such Securities for Securities of
other authorized denominations, the Company shall register the transfer or make
the exchange as requested if the requirements of this Stockholders Agreement for
such transaction are met; provided, however, that the Securities surrendered for
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer in form satisfactory to the Company, duly executed by the
Holder thereof or its attorney and duly authorized in writing. No service charge
shall be made for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith.
SECTION 4.5 Replacement Securities.
If a mutilated Security is surrendered to the Company or if the Holder
of a Security claims and submits an affidavit or other evidence, satisfactory to
the Company, to the effect that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue a replacement Security if the
Company's requirements are met. If required by the Company, such Securityholder
must provide an indemnity bond, or other form of indemnity, sufficient in the
judgment of the Company to protect the Company against any loss which may be
suffered. The Company may charge such Securityholder for its reasonable
out-of-pocket expenses in replacing a Security which has been mutilated, lost,
destroyed or wrongfully taken.
ARTICLE 5
LIMITATION ON TRANSFERS
SECTION 5.1 Restrictions on Transfer.
The Securities shall not be Transferred or otherwise conveyed, assigned
or hypothecated before satisfaction of (i) the conditions specified in this
Section 5.1 and Sections 5.2 and 5.3, which conditions are intended to ensure
compliance with the provisions of the Securities Act
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with respect to the Transfer of any Security and (ii) if applicable, Article 4
hereof. Any purported Transfer in violation of this Article 5 and/or, if
applicable, Article 4 hereof shall be void ab initio and of no force or effect.
Other than Transfers subject to Section 4.2 hereof and other than Transfers to
the public pursuant to an effective registration statement or sales to the
public pursuant to Rule 144 under the Securities Act otherwise permitted
hereunder, each Holder shall cause any proposed transferee of any Security or
any interest therein held by it to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Stockholders
Agreement.
SECTION 5.2 Restrictive Legends.
5.2.1 Securities Act Legend. Except as otherwise provided in Section
5.4 hereof, each Security held by a Holder, and each Security issued to any
subsequent transferee of such Security, shall be stamped or otherwise imprinted
with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR
PURSUANT TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE.
SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED PLEDGED,
HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (1) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH
IS EFFECTIVE UNDER SUCH ACT, (2) RULE 144 UNDER SUCH ACT, OR
(3) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
5.2.2 Other Legends. Except as otherwise permitted by the last
sentence of Section 5.1, each Security issued to each Holder or a subsequent
transferee shall include a legend in substantially the following form:
THIS SECURITY IS SUBJECT TO RESTRICTIONS ON TRANSFER, VOTING
AND OTHER TERMS AND CONDITIONS SET FORTH IN THE STOCKHOLDERS
AGREEMENT DATED AS OF MAY 26, 1999 A COPY OF WHICH MAY BE
OBTAINED FROM COOPERATIVE COMPUTING HOLDING COMPANY, INC. AT
ITS PRINCIPAL EXECUTIVE OFFICE.
SECTION 5.3 Notice of Proposed Transfers.
Prior to any Transfer or attempted Transfer of any Security, the Holder
of such Security shall (i) give ten days' prior written notice (a "Transfer
Notice") to the Company of such Holder's intention to effect such Transfer,
describing the manner and circumstances of the proposed Transfer, and (ii)
either (A) provide to the Company an opinion reasonably satisfactory to the
Company from counsel to such Holder who shall be reasonably satisfactory to the
Company, (or supply such other evidence reasonably satisfactory to the
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Company) that the proposed Transfer of such Security may be effected without
registration under the Securities Act, or (B) certify to the Company that the
Holder reasonably believes the proposed transferee is a "qualified institutional
buyer" and that such Holder has taken reasonable steps to make the proposed
transferee aware that such Holder may rely on Rule 144A under the Securities Act
in effecting such Transfer. After receipt of the Transfer Notice and opinion (if
required), the Company shall, within five days thereof, so notify the Holder of
such Security and such Holder shall thereupon be entitled to Transfer such
Security in accordance with the terms of the Transfer Notice. Each Security
issued upon such Transfer shall bear the restrictive legend set forth in Section
5.2, unless in the opinion of such counsel such legend is not required in order
to ensure compliance with the Securities Act. The Holder of the Security giving
the Transfer Notice shall not be entitled to Transfer such Security until
receipt of the notice from the Company under this Section 5.3.
SECTION 5.4 Termination of Certain Restrictions.
Notwithstanding the foregoing provisions of this Section 5, the
restrictions imposed by Section 5.2.1 upon the transferability of the Securities
and the legend requirements of Section 5.2.1 shall terminate as to any Security
(i) when and so long as such Security shall have been effectively registered
under the Securities Act and disposed of pursuant thereto or (ii) when the
Company shall have received an opinion of counsel reasonably satisfactory to it
that such Security may be transferred without registration thereof under the
Securities Act and that such legend may be removed. Whenever the restrictions
imposed by Section 5.2 shall terminate as to any Security, the Holder thereof
shall be entitled to receive from the Company, at the Company's expense, a new
Security not bearing the restrictive legend set forth in Section 5.2.
ARTICLE 6
OPTION BY CERTAIN UNACCREDITED HOLDERS
SECTION 6.1 Grant of Option.
Each Holder acknowledges HMTF Fund III's desire that each holder of the
Securities of the Company qualify as an Accredited Investor so that no
disclosure document will be required in order to exempt (pursuant to Regulation
D) any future issuances of securities to the stockholders of the Company.
Accordingly, upon the occurrence of an Option Transaction (as defined in Section
6.2 hereof) with respect to the Company, each Holder (other than a transferee of
a Designated Stockholder that is an Accredited Investor) shall be deemed to have
granted to Hicks, Muse GP Partners, L.P., a Texas limited partnership ("HMGP"),
an option ( each an "Option") to purchase, upon the terms and conditions set
forth herein, all Securities held by such Holder and all shares, notes, or other
securities now or hereafter issued or issuable in respect of any such Securities
(whether issued or issuable by the Company or any other person or entity)
(collectively, the "Option Securities"), and each Holder that is a transferee,
directly or indirectly, of a Designated Stockholder that is an Accredited
Investor shall be deemed to have granted an Option to such Designated
Stockholder to purchase such Holder's Option Securities; provided, however, that
if such Designated Stockholder has not notified the optionor and HMGP at least
ten days prior to the Closing of the applicable Option Transaction of its intent
to exercise such
22
<PAGE> 23
Option (in which event such Option shall expire), then HMGP shall be deemed to
have an Option to purchase such Option Securities underlying such expired
Option. For purposes of this Article 6, each of HMGP and the Designated
Stockholders are sometimes referred to individually as an "Optionee."
SECTION 6.2 Option Transaction.
An Option may he exercised only if (a) the Company is engaged in or
proposes to engage in a transaction in which any shares, notes, or other
securities will be issued to such Holder in a transaction constituting a "sale"
within the meaning of Section 2(3) of the Securities Act (whether through a
merger, consolidation, exchange, or purchase), (b) the Holder is not an
Accredited Investor at the time of the respective transaction (an "Unaccredited
Holder"), (c) no security holder (except for such Unaccredited Holder or any
other person granting a similar option to an Optionee) of the Company involved
in the respective transaction fails at the time of such transaction to qualify
as an Accredited Investor, and (d) the issuer of the shares, notes, or other
securities involved in such transaction (as conclusively evidenced by any notice
signed in good faith by an Optionee or an executive officer or other authorized
representative thereof) has not prepared and is not expected to prepare in
connection with such transaction appropriate disclosure documents that are
sufficient to register such shares, notes, or other securities under the
Securities Act or to exempt such registration in accordance with Regulation D.
Each transaction for which an Option may be exercised as provided in this
Section 6.2 is herein referred to as an "Option Transaction."
SECTION 6.3 Exercise of Option.
An Optionee may exercise an Option solely with respect to all, but not
less than all, of an Unaccredited Holder's Option Securities involved in the
respective Option Transaction. An Option may be exercised with respect to such
Option Securities at any time before the consummation of the respective Option
Transaction for which the Option is then exercisable. The exercise of the Option
will be timely and effectively made if the Optionee provides written notice of
such exercise to such Unaccredited Holder before such consummation of the
respective Option Transaction. The earliest date on which such notice is so
mailed or delivered will constitute the respective exercise date of the Option
to which such notice relates.
SECTION 6.4 Closing.
Unless otherwise agreed by the Optionee and the Unaccredited Holder,
the closing of each exercise of an Option will take place at the principal place
of business of the Optionee, on the fifth business day after notice of the
Option's exercise is mailed or delivered in accordance with Section 6.3. At the
closing, the Optionee will pay the exercise price to such Unaccredited Holder in
cash (by certified or cashier's check) solely upon such Unaccredited Holder's
delivering to the Optionee valid certificates evidencing all Option Securities
then being purchased pursuant to the exercise of the Option. Such certificates
will be duly endorsed (with signature guaranteed) for transfer to the Optionee,
and upon delivery of such certificates to the Optionee, such Unaccredited Holder
will be deemed to represent and warrant to the Optionee that the transferred
Option Securities are owned by such Unaccredited Holder free and clear of all
liens, adverse claims, and other encumbrances other than as provided in this
Stockholders
23
<PAGE> 24
Agreement. Payment of the exercise price for the Option Securities is not
required in order to effect the timely exercise of the Option. In order to
ensure the transfer of the Option Securities purchased upon exercise of the
Option, each Unaccredited Holder hereby severally appoints the Optionee as his
or her attorney in fact for the purpose of effecting any such transfer, and each
Unaccredited Holder acknowledges and agrees that such power of attorney is
coupled with an interest and is irrevocable. Moreover, the Optionee and each
Unaccredited Holder will promptly perform, whether before or after any Option
closing, such additional acts (including, without limitation, executing and
delivering additional documents) as are reasonably required by either such party
to effect more fully the transactions contemplated hereby.
SECTION 6.5 Exercise Price.
The exercise price for each Option Security will equal the price per
share (or, in the case of securities other than capital stock, other applicable
denomination) to be paid in connection with the Option Transaction as determined
in good faith by the Board of Directors or such other governing body (or
authorized committee thereof) of either (a) the issuer of such Option Security
or (b) the Optionee if no such issuer determination is made, it being understood
that determinations made by the issuer or the Optionee pursuant to this Section
6.5 will be final and conclusive.
SECTION 6.6 Assignment of Option.
An Option may be assigned or transferred in whole or in part by HMGP
without any consent or other action on the part of any Holder and all references
herein to "the Optionee" will include without limitation each assignee or
transferee of all or any part of the Option.
ARTICLE 7
TERMINATION
The provisions of this Agreement shall terminate on February 27, 2007;
provided, however, that Sections 4.1, 4.2, Article 5 (other than Sections 5.2
and 5.4) and Article 6 of this Agreement shall terminate upon the earlier
consummation of a Qualified IPO.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Confidentiality; Covenant Not to Compete.
8.1.1 For a period of five years from the date hereof, each
Designated Stockholder shall hold in confidence and not directly or indirectly
disclosure or use or copy or make lists of any confidential information or
proprietary data of the Company or any of its Subsidiaries (including, without
limitation, trade secrets), except to the extent (i) authorized in writing by
the Board of Directors of the Company, (ii) required by any court or
administrative agency, or (iii) reasonably necessary or appropriate in
connection with the performance by the Designated Stockholder of his duties (if
any) as an officer or director, as the case may be, of the Company or any of its
24
<PAGE> 25
Subsidiaries. Confidential information shall not include any information known
generally to the public. All records, files, documents and materials, or copies
thereof, relating to the business of the Company and its Subsidiaries which the
Designated Stockholder shall prepare, or use, or come into contact with, shall
be and remain the sole property of the Company or its Subsidiaries, as the case
may be, and shall be promptly returned by the Designated Stockholder to the
owner upon termination of the Designated Stockholder's employment with the
Company.
8.1.2 Except with the prior written approval of the Board of
Directors, for a period of five years from the date hereof, each Designated
Stockholder agrees that it shall not, directly or indirectly:
(i) solicit, entice, persuade or induce any employee
of the Company or any of its Subsidiaries to terminate his employment by the
Company or any of its Subsidiaries or to become employed by any Person other
than the Company or any of its Subsidiaries; or
(ii) authorize or assist in the taking of such
actions by any third party.
8.1.3 For a period of five years from the date hereof, each
Designated Stockholder agrees that it shall not, directly or indirectly, engage,
participate, make any financial investment in, or become employed by or render
advisory or other services to or for any Person or other business enterprise
which is engaged, directly or indirectly, in competition with the Company or any
of its Subsidiaries; provided, however, that the foregoing covenant shall not
continue to apply to the Designated Stockholder from and after the sale of all
or substantially all of the capital stock of the Company or all or substantially
all of the assets of the Company unless the Company shall notify the Designated
Stockholder in writing at or prior to such sale that the Company has elected to
continue the application of such covenant (the "Noncompetition Election"). The
foregoing covenant shall not be construed to preclude the Designated Stockholder
from making any investments in the securities of any company, whether or not
engaged in competition with the Company or any of its Subsidiaries, to the
extent that such securities are actively traded on a national securities
exchange or in the over-the-counter market in the United States or any foreign
securities exchange and such investment does not exceed five percent of the
issued and outstanding shares of such company or give the Designated Stockholder
the right or power to control or participate directly in making the policy
decisions of such company.
8.1.4 If any court determines that any portion of this Section 8.1
is invalid or unenforceable, the remainder of this Section 8.1 shall not thereby
be affected and shall be given full effect without regard to the invalid
provisions. If any court construes any of the provisions of this Section 8.1, or
any part thereof, to be unreasonable because of the duration or scope of such
provision, such court shall have the power to reduce the duration or scope of
such provision and to enforce such provision as so reduced.
8.1.5 Each Designated Stockholder hereby acknowledges and agrees
that damages will not be an adequate remedy for his breach of any of his
covenants contained in this Section 8.1, and further agrees that the Company and
its Subsidiaries shall be entitled to obtain appropriate
25
<PAGE> 26
injunctive and/or other equitable relief for any such breach, without the
posting of any bond or other security.
8.1.6 For a period of five years from the date hereof, each
Designated Stockholder shall diligently devote substantially all his working
time, attention, knowledge and skills solely to the business and interest of the
Company and shall discharge the duties and assume the responsibilities assigned
to him from time to time by the Board of Directors of Company (or its Executive
Committee, as the case may be).
ARTICLE 9
SECTION 9.1 Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows (or at such other address as may be
substituted by notice given as herein provided):
If to the Company:
Cooperative Computing Holding Company, Inc.
6207 Bee Cave Road
Austin, Texas 78746
Attention: Glenn E. Staats
Copies to:
Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court, Suite 1600
Dallas, Texas 75201
Attention: Thomas O. Hicks
John R. Muse
Jack D. Furst
Lawrence D. Stuart, Jr.
Weil, Gotshal & Manges
100 Crescent Court, Suite 1300
Dallas, Texas 75201-6950
Attention: Glenn D. West, Esq.
Cooperative Computing Holding Company, Inc.
6207 Bee Cave Road
Austin, Texas 78746
Attention: Walter Earl Bissex, Esq.
If to any Holder, at its address listed on the signature pages hereof.
26
<PAGE> 27
Any notice or communication hereunder shall be deemed to have been
given or made as of the date so delivered if personally delivered; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and five calendar
lays after mailing if sent by registered or certified mail (except that a notice
of change of address shall not be deemed to have been given until actually
received by the addressee).
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 9.2 Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment is
a Saturday, a Sunday or a day on which banking institutions at such place are
not required to be open. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a Legal
Holiday, and no interest on the amount of such payment shall accrue for the
intervening period.
SECTION 9.3 Governing Law; Jurisdiction.
THIS PURCHASE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW.
SECTION 9.4 Successors and Assigns.
Whether or not an express assignment has been made pursuant to the
provisions of this Stockholders Agreement, provisions of this Stockholders
Agreement that are for the Holders' benefit as the holders of any Securities are
also for the benefit of, and enforceable by, all subsequent holders of
Securities, except as otherwise expressly provided herein. This Stockholders
Agreement shall be binding upon the Company, each Holder, and their respective
successors and assigns.
SECTION 9.5 Duplicate Originals.
All parties may sign any number of copies of this Stockholders
Agreement. Each signed copy shall be an original, but all of them together shall
represent the same agreement.
SECTION 9.6 Severability.
In case any provision in this Stockholders Agreement shall be held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and the
remaining provisions shall not in any way be affected or impaired thereby.
27
<PAGE> 28
SECTION 9.7 No Waivers; Amendments.
9.7.1 No failure or delay on the part of the Company or any Holder
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or farther exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein are cumulative
and are not exclusive of any remedies that may be available to the Company or
any Holder at law or in equity or otherwise.
9.7.2 Any provision of this Stockholders Agreement may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Company and the Required Holders; provided, however, that no such amendment
or waiver shall, (i) unless signed by all of the Holders, amend the provisions
of Section 2.1 and (ii) unless signed by all of the Holders affected, (A) amend
the provisions of this Section 9.7.2 or (B) change the number of Holders which
shall be required for the Holders or any of them o take any action under this
Section 9.7.2 or any other provision of this Stockholders Agreement.
9.7.3 Actions of Designated Stockholders.
Any action required to be taken or right which is exercisable by the
Designated Stockholders hereunder, unless otherwise specified, may be taken or
exercised by the Designated Stockholders owning a majority of the Common Stock
then owned by all Designated Stockholders on behalf of all the Designated
Stockholders.
9.7.4 Novation.
This Stockholders Agreement shall constitute a novation of the Existing
Stockholders Agreement.
28
<PAGE> 29
SIGNATURES TO STOCKHOLDERS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Stockholders
Agreement to be duly executed, all as of the date first written above.
COOPERATIVE COMPUTING HOLDING
COMPANY, INC
By: /s/ PETER S. BRODSKY
----------------------------------------
Name: Peter S. Brodsky
--------------------------------------
Title: Vice President
-------------------------------------
29
<PAGE> 30
SIGNATURES TO STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ GLENN E. STAATS
-------------------------------------------
GLENN E. STAATS
Address:
6207 Bee Cave Road
Austin, Texas 78746-5146
30
<PAGE> 31
SIGNATURES TO STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ PRESTON W. STAATS, JR.
------------------------------------------
PRESTON W. STAATS, JR.
Address:
6207 Bee Cave Road
Austin, Texas 78746-5146
31
<PAGE> 32
SIGNATURES TO STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
HICKS, MUSE, TATE & FURST EQUITY FUND III.
L.P.
By: HM3/GP Partners III, L.P., as General Partner
By: Hicks, Muse GP Partners, L.P., its General Partner
By: Hicks, Muse Fund III Incorporated, its
General Partner
By: /s/ MICHAEL D. SALIM
------------------------------------------
Michael D. Salim
Senior Vice President
HM3 COINVESTORS, L.P.
By: Hicks Muse GP Partners III, L.P., its General Partner
By: Hicks Muse Fund III Incorporated, its
General Partner
By: /s/ MICHAEL D. SALIM
----------------------------------------------
Michael D. Salim
Senior Vice President
Address: c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Fax: 214-740-7313
32
<PAGE> 33
SIGNATURES TO STOCKHOLDERS AGREEMENT
NAME OF HOLDER:
/s/ A. LAURENCE JONES
------------------------------------------------
A. Laurence Jones
Address:
6685 Gunpark Drive East
------------------------------------------------
Suite 240
------------------------------------------------
Boulder, CO 80301
------------------------------------------------
33
<PAGE> 1
EXHIBIT 10.31
STOCK OPTION AGREEMENT
June 14, 1999
Mr. Michael A. Aviles
Re: Grant of Stock Option
Dear Michael:
The Board of Directors of Cooperative Computing Holding Company, Inc.
(the "Company") has adopted the Company's 1998 Stock Option Plan (the "Plan")
for certain individuals, directors and key employees of the Company and its
Related Entities and certain non-employees. A copy of the Plan is being
furnished to you concurrently with the execution of this Option Agreement and
shall be deemed a part of this Option Agreement as if fully set forth herein.
Unless the context otherwise requires, all capitalized terms used but not
otherwise defined herein shall have the meanings given such terms in the Plan
and in that certain Executive Employment Agreement (the "Employment Agreement"),
dated June 14, 1999, between you and Cooperative Computing, Inc. ("CCI");
provided, however, that to the extent definitions in the Plan are different from
definitions in the Employment Agreement, the definitions in the Employment
Agreement will control.
1. The Grant.
Subject to the conditions set forth below, the Company hereby grants to
you, effective as of June 14, 1999 (the "Grant Date"), as a matter of separate
inducement and not in lieu of any salary or other compensation for your
services, the right and option to purchase (the "Option"), in accordance with
the terms and conditions set forth herein and in the Plan, an aggregate of
500,000 shares of Common Stock of the Company (the "Option Shares"), at the
Exercise Price (as hereinafter defined). As used herein, the term "Exercise
Price" shall mean a price equal to $5.00 per share, subject to the adjustments
and limitations set forth herein and in the Plan. The Option granted hereunder
is intended to constitute a Non-Qualified Option within the meaning of the Plan;
however, you should consult with your tax advisor concerning the proper
reporting of any federal or state tax liability that may arise as a result of
the grant or exercise of the Option.
2. Exercise.
(a) For purposes of this Option Agreement, the Option Shares shall be
deemed "Nonvested Shares" unless and until they have become "Vested Shares."
Notwithstanding anything to the contrary contained in Section 6(c) of the Plan,
the Option Shares shall become "Vested Shares" in three equal, consecutive
annual installments on June 14, 2000, June 14, 2001, and June 14, 2002, provided
that vesting shall cease upon your ceasing to be an employee of CCI or a Related
Entity as expressly provided in the Plan. In addition, notwithstanding anything
to the contrary contained in Section 8 of the Plan, all Nonvested
<PAGE> 2
Shares shall become Vested Shares upon the occurrence of a Change in Control
without the necessity of action by the Committee.
(b) Subject to the relevant provisions and limitations contained herein and
in the Plan, you may exercise the Option to purchase all or a portion of the
applicable number of Vested Shares at any time prior to the termination of the
Option pursuant to this Option Agreement and the Plan. In no event shall you be
entitled to exercise the Option for any Nonvested Shares or for a fraction of a
Vested Share.
(c) The unexercised portion of the Option, if any, will automatically, and
without notice, terminate and become null and void upon the expiration of ten
(10) years from the Grant Date.
(d) Any exercise by you of the Option shall be in writing addressed to the
Secretary of the Company at its principal place of business (a copy of the form
of exercise to be used will be available upon written request to the Secretary),
and shall be accompanied by a certified or bank check payable to the order of
the Company in the full amount of the Exercise Price of the shares so purchased,
or in such other manner as described in the Plan and established by the
Committee.
3. Miscellaneous.
(a) Except as provided in the last sentence of this Section 3(a), this
Option Agreement is subject to all the terms, conditions, limitations and
restrictions contained in the Plan, and in the event of any conflict or
inconsistency between the terms hereof and the terms of the Plan, the terms of
the Plan shall be controlling. Notwithstanding the foregoing, the terms of
Section 2(a) hereof shall control notwithstanding any conflict or inconsistency
between the terms thereof and the terms of the Plan.
(b) This Option Agreement is not a contract of employment, and the terms of
your employment shall not be affected by, or construed to be affected by, this
Option Agreement, except to the extent specifically provided herein. Nothing
herein shall impose, or be construed as imposing, any obligation (i) on the part
of the Company or any Related Entity to continue your employment or (ii) on your
part to remain in the employ of the Company or any Related Entity.
Please indicate your acceptance of all the terms and conditions of the
Option and the Plan by signing and returning a copy of this Option Agreement.
[The Remainder of this Page is Intentionally Left Blank]
2
<PAGE> 3
Very truly yours,
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
By: /s/ GLENN E. STAATS
Name: Glenn E. Staats
Title: Chairman of the Board
ACCEPTED:
/s/ MICHAEL A. AVILES
Michael A. Aviles
Date: June 14, 1999
<PAGE> 1
EXHIBIT 10.32
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and
entered into as of October 5, 1999, to be effective for all purposes as of
October 1, 1999 (the "EFFECTIVE DATE"), by and between Cooperative Computing,
Inc., a Texas corporation (hereinafter, together with its successors, referred
to as the "COMPANY"), Cooperative Computing Holding Company, Inc., a Delaware
corporation (hereinafter, together with its successors, referred to as
"HOLDINGS") and Paul D. Stone (hereinafter referred to as the "EXECUTIVE").
W I T N E S S E T H :
WHEREAS, the Company desires to employ the Executive in an
executive capacity with the Company, and the Executive desires to be employed by
the Company in said capacity; and
WHEREAS, the parties hereto desire to set forth in writing the
terms and conditions of their understandings and agreements.
NOW THEREFORE, in consideration of the foregoing, of the
mutual promises contained herein and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. DEFINITIONS.
"ACCRUED BENEFITS" means (i) all salary earned or accrued
through the date the Executive's employment is terminated, (ii)
reimbursement for any and all monies advanced in connection with the
Executive's employment for reasonable and necessary expenses incurred
by the Executive through the date the Executive's employment is
terminated, (iii) all other payments and benefits to which the
Executive may be entitled under the terms of any applicable
compensation arrangement or benefit plan or program of the Company
(including those arrangements, plans or programs contemplated by
Sections 4(e), (f) and (g)), including any earned and accrued, but
unused vacation pay and (iv) any earned but unpaid Quarterly Bonus in
respect of any full fiscal quarter ended prior to the date the
Executive's employment is terminated.
"ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"AFFILIATE" shall have the meaning given such term in Rule
12b-2 of the Act.
<PAGE> 2
"BOARD" shall mean the board of directors of the Company.
"CAUSE" means (a) a conviction of any crime (other than minor
traffic offenses and the like), (b) the Executive breaches any
obligations under Section 6 of this Agreement (and fails to cure the
breach within 30 days after notice), (c) the Executive engages in
dishonesty or fraud, (d) the Executive is physically able to perform
his duties and services but refuses to do so or (e) the Executive
engages in gross negligence or willful misconduct injurious to the
Company, Holdings, or their respective Subsidiaries.
"COBRA" means the Consolidated Omnibus Reconciliation Act of
1985.
"EFFECTIVE DATE" shall have the meaning set forth in the
introductory paragraph hereto.
"EMPLOYMENT PERIOD" shall mean the period during which the
Executive is employed by the Company.
"GOOD REASON" shall mean (a) any breach by the Company of its
obligations hereunder, (b) any significant reduction, approved by the
Board without the Executive's written consent, in the Executive's
title, duties or responsibilities other than for Cause (unless in the
case of either clause (a) or (b) the Executive has notified the Company
within 30 days after the occurrence of such event and the Company has
cured such event within 30 days after receipt of such notice) or (c)
Executive is required to relocate without his consent to an area that
is outside a 50 mile radius of Austin, Texas.
"OPTION AGREEMENT" shall mean the agreement between the
Executive and the Company pursuant to which any Option is granted to
the Executive.
"OPTION PLAN" shall mean the Cooperative Computing Holding
Company, Inc. 1998 Stock Option Plan, as amended from time to time, and
any successor thereto.
"OPTIONS" shall mean the stock options to be granted to the
Executive hereunder.
"PERSON" shall mean any "person", within the meaning of
Sections 13(d) and 14(d) of the Act, including a "group" as therein
defined.
"QUARTERLY BONUS" shall have the meaning set forth in Section
4(b) hereof.
"SUBSIDIARY" shall mean, with respect to any Person, any other
Person of which such first Person owns the majority of the economic
interest in such Person or owns or has the power to vote, directly or
indirectly, securities representing a majority of the votes ordinarily
entitled to be cast for the election of directors or other governing
Persons.
2
<PAGE> 3
"TARGET ANNUAL BONUS" shall mean, for any fiscal year, an
amount equal to one-half (1/2) of the difference obtained by
subtracting (i) Fifteen Thousand and No/100 Dollars ($15,000.00) from
(ii) the Base Salary for such fiscal year.
SECTION 2. TERM OF EMPLOYMENT. The Executive's Employment
Period shall commence on the Effective Date hereof and shall continue until
terminated by either party upon written notice delivered to the other party in
accordance herewith.
SECTION 3. DUTIES. During the Employment Period, the Executive
(i) shall serve as Senior Vice President and Chief Administrative Officer of the
Company, (ii) shall report directly to the President and Chief Operating Officer
of the Company, (iii) shall, subject to and in accordance with the authority and
direction of the Board and the President and Chief Operating Officer of the
Company have such authority and perform in a diligent and competent manner such
duties as may be assigned to him from time to time by the Board and the
President and Chief Operating Officer of the Company and (iv) shall devote his
best efforts and such time, attention, knowledge and skill to the operation of
the business and affairs of the Company as shall be reasonably necessary to
manage and supervise the Company and the other business and affairs of the
Company.
SECTION 4. COMPENSATION. During the Employment Period, the
Company shall compensate Executive as follows:
(a) the Executive shall receive, at such intervals and in
accordance with such Company policies as may be in effect from time to
time, an annual salary (pro rata for any partial year) equal to (i) for
the first year of the Employment Period, Two Hundred Fifteen Thousand
and No/100 Dollars ($215,000.00) and (ii) for the second year of the
Employment Period and each year thereafter, Two Hundred Sixty Five
Thousand and No/100 Dollars ($265,000.00) (collectively, the "BASE
SALARY"), which Base Salary shall be subject to appropriate increase,
as determined by the sole discretion of the Board;
(b) the Executive shall be eligible to receive a quarterly
bonus (the "QUARTERLY BONUS") for each full fiscal quarter of the
Company commencing with the fiscal quarter ending December 31, 1999.
The Executive's eligibility to receive any Quarterly Bonus will be
determined based on the Company's achievement during the applicable
fiscal quarter of budgeted earnings before income tax, depreciation and
amortization as approved by the Board at the beginning of each fiscal
year and adjusted from time to time. The Quarterly Bonuses earned
during any fiscal year shall, except as provided in Section 5(c)(iii)
hereof, be paid quarterly in arrears no later than forty-five (45) days
after the end of each fiscal quarter. Each Quarterly Bonus is expected
to equal twenty five percent (25%) of the Target Annual Bonus.
Notwithstanding the foregoing, in no event will the aggregate of the
Executive's Quarterly Bonuses with respect to the fiscal year ending
September 30, 2000 be less than Seventy Five Thousand and No/100
Dollars ($75,000.00).
3
<PAGE> 4
(c) Holdings will grant to the Executive, by October 15, 1999,
but effective as of the Effective Date, Options to purchase an
aggregate of 300,000 shares of Common Stock, par value $.000125 per
share, of Holdings. The Options will be evidenced by a separate Option
Agreement and will be granted pursuant to, and subject to the terms of
(except for those terms outlined below), the Option Plan. The Options
will be exercisable at $5.00 per share and, except as provided in the
next sentence, will vest and become exercisable in the manner and at
the times provided in the Option Plan. Notwithstanding the foregoing,
(i) the Options will fully vest and become exercisable upon the
occurrence of a Change of Control (as defined in the Option Plan) or
upon termination of the Executive's employment by the Company without
Cause or by the Executive for Good Reason and (ii) following any
termination of the Executive, the Executive shall be entitled to
exercise any then exercisable options at any time prior to the
expiration of such option. It is the present intention of Holdings to
reprice options outstanding as of the date hereof to more accurately
reflect the fair market value of the Common Stock. Holdings agrees that
the Options to be granted to Executive will be repriced in the same
manner as such outstanding options, if and when such repricing occurs.
(d) the Executive shall be reimbursed, upon submission of
proper vouchers, at such intervals and in accordance with such Company
policies as may be in effect from time to time, for any and all
reasonable business expenses incurred by him for the benefit of the
Company in connection with the Executive's responsibilities to the
Company;
(e) the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and
programs applicable generally to other executives of the Company as
determined by the Board from time to time;
(f) the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs
provided by the Company to similarly-situated executives of the Company
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent
applicable generally to other executives of the Company; and
(g) the Executive shall be entitled to receive (in addition to
the benefits described above) such perquisites and fringe benefits
appertaining to his position in accordance with any practice
established by the Board or applicable generally to other executives of
the Company.
SECTION 5. TERMINATION OF EMPLOYMENT.
(a) All Accrued Benefits to which the Executive (or his estate
or beneficiary) is entitled shall be payable by the Company in cash
promptly upon
4
<PAGE> 5
termination of his Employment Period, except as otherwise specifically
provided herein, or under the terms of any applicable policy, plan or
program.
(b) Any termination by the Company, or by the Executive, of
the Employment Period shall be communicated by written notice of such
termination to the Executive, if such notice is delivered by the
Company, and to the Company, if such notice is delivered by the
Executive, each in compliance with the requirements of Section 13
hereinbelow.
(c) If prior to the expiration of the Employment Period, the
Employment Period is terminated by the Executive for Good Reason or by
the Company for any reason other than Cause or the Executive's death,
permanent disability (as defined in the Company's Board-approved
disability plan or policy, as in effect from time to time or if no such
plan is then in effect as such term is normally defined in such plans)
or retirement (as defined in the Company's Board-approved retirement
plan or policy, as in effect from time to time or if no such plan is
then in effect as such term is normally defined in such plans), then,
as his exclusive right and remedy in respect of such termination:
(i) the Executive shall receive from the Company his
Accrued Benefits, except that, for this purpose, Accrued
Benefits shall not include any entitlement to severance under
any Company severance policy generally applicable to the
Company's salaried employees and shall not, in respect of any
Quarterly Bonus, be duplicative of any payment to be made
under Section 5(c)(iii) below;
(ii) the Executive shall receive from the Company, as
long as the Executive does not violate the provisions of
Section 6 hereof, severance pay equal to the Executive's then
current monthly Base Salary, payable in accordance with the
Company's regular pay schedule, for twelve (12) months from
the date of termination of employment;
(iii) the Executive shall receive from the Company
any earned but unpaid Quarterly Bonuses in respect of any full
fiscal quarter ended prior to such termination, payable to the
Executive in a lump sum payment to be made on or before ninety
(90) days after the date of termination; and
(iv) the Executive, and/or the Executive's family, as
the case may be, shall continue to be covered, upon the same
terms and conditions as described in Section 4(f) hereinabove,
by the same or equivalent medical, dental, and life insurance
coverages as in effect for the Executive, and/or the
Executive's family, as the case may be, immediately prior to
the termination of his employment, until the earlier of (A)
the expiration of the period for which he receives severance
pay pursuant to clause (c)(ii) above or (B) the date the
Executive has commenced new employment and has thereby become
eligible for comparable benefits, subject to the Executive's
rights under COBRA.
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<PAGE> 6
(e) Any amounts payable to the Executive in installments
pursuant to this Section 5 may, at the option of the Company, be paid
in a lump sum rather than in installments as provided above. In any
event, all such amounts (whether paid in installments or in a lump sum)
shall be considered severance payments and be in full and complete
satisfaction of the obligations of the Company to the Executive in
connection with the termination of the Executive.
(f) Notwithstanding anything else contained herein, if the
Executive voluntarily terminates his employment without Good Reason, or
the Company terminates the Executive for Cause or the Executive is
terminated by reason of death or permanent disability, all of his
rights to severance from the Company (including pursuant to any plan or
policy of the Company) shall terminate immediately, except the right to
payment for Accrued Benefits (other than severance) in respect of
periods prior to such termination.
SECTION 6. NONCOMPETE AND NONSOLICITATION.
(a) During and following the Executive's employment by the
Company, the Executive shall hold in confidence and not directly or
indirectly disclose or use or copy or make lists of any confidential
information or proprietary data of the Company, or any of its
Subsidiaries, except to the extent authorized in writing by the Board
or required by any court or administrative agency, other than to an
employee of the Company or any of its Subsidiaries, or a Person to whom
disclosure is reasonably necessary or appropriate in connection with
the performance by the Executive of his duties as an executive of the
Company. Confidential information shall not include any information
known generally to the public. All records, files, documents and
materials, or copies thereof, relating to the Company's or any of its
Subsidiaries' business which the Executive shall prepare, or use, or
come into contact with, shall be and remain the sole property of the
Company, Holdings or any of their respective Subsidiaries, as the case
may be, and shall be promptly returned by the Executive to the Company,
Holdings, or such Subsidiary (as applicable) upon termination of the
Executive's employment with the Company.
(b) Except with the Board's prior written approval, during the
Employment Period and for two (2) years after the termination of the
Employment Period, the Executive shall not, directly or indirectly:
(i) solicit, entice, persuade or induce any employee
of the Company, Holdings, or any of their respective
Subsidiaries to terminate his employment by the Company,
Holdings or any of their respective Subsidiaries or to become
employed by any Person other than the Company, Holdings, or
any of their respective Subsidiaries; or
(ii) approach any such employee for any of the
foregoing purposes; or
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<PAGE> 7
(iii) authorize, solicit or assist in the taking of
such actions by any third party.
(c) During the Employment Period and for two (2) years after
the termination of the Employment Period, the Executive shall not,
directly or indirectly, anywhere within the United States, engage,
participate, make any financial investment in, or become employed by or
render advisory or other services to or for any Person or other
business enterprise (other than the Company, Holdings, and their
Affiliates) providing or servicing management information systems and
solutions for the automotive parts aftermarket industry or the
hardlines and lumber industry (any of the foregoing activities being
referred to herein as "Competitive Activities"). The foregoing covenant
respecting Competitive Activities shall not be construed to preclude
the Executive from making any investments in the securities of any
company, whether or not engaged in competition the Company, Holdings or
any of their respective Subsidiaries, to the extent that such
securities are actively traded on a national securities exchange or in
the over-the-counter market in the United States or any foreign
securities exchange and such investment does not exceed one percent
(1%) of the issued and outstanding shares of such company or give the
Executive the right or power to control or participate directly in
making the policy decisions of such company.
(d) If any court determines that any portion of this Section 6
is invalid or unenforceable, the remainder of this Section 6 shall not
thereby be affected and shall be given full effect without regard to
the invalid provision. If any court construes any of the provisions of
this Section 6, or any part thereof, to be unreasonable because of the
duration or scope of such provision, such court shall have the power to
reduce the duration or scope of such provision and to enforce such
provision as so reduced.
(e) The Executive hereby acknowledges and agrees that damages
will not be an adequate remedy for the Executive's breach of any of his
covenants contained in this Section 6, and further agrees that the
Company shall be entitled to obtain appropriate injunctive and/or other
equitable relief for any such breach, without the posting of any bond
or other security.
SECTION 7. SUCCESSORS. The Company and Holdings may assign
their respective rights under this Agreement to any successor to all or
substantially all the assets of the Company or Holdings, by merger or otherwise,
and may assign or encumber this Agreement and its rights hereunder as security
for indebtedness of the Company or Holdings. Any such assignment by the Company
or Holdings shall remain subject to the Executive's rights hereunder, including
those under Section 5 hereof. The rights of the Executive under this Agreement
may not be assigned or encumbered by the Executive, voluntarily or
involuntarily, during his lifetime, and any such purported assignment shall be
void ab initio. However, all rights of the Executive under this Agreement shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, estates, executors, administrators, heirs and beneficiaries.
All amounts payable to the
7
<PAGE> 8
Executive hereunder shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs or representatives.
SECTION 8. THIRD PARTIES; PARTIES BOUND. Except for the rights
granted to the Company, Holdings, and their respective Subsidiaries pursuant
hereto (including, without limitation, pursuant to Section 6 hereof) and except
as expressly set forth or referred to herein, nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person
other than the parties hereto and their successors and permitted assigns any
rights or remedies under or by reason of this Agreement. Notwithstanding
anything to the contrary contained herein, neither Holdings nor any Subsidiary
shall be bound by, or otherwise responsible for the Company's compliance with,
Sections 2, 3, 4 (other than Section 4(c))or 5 hereof.
SECTION 9. ENFORCEMENT. The provisions of this Agreement shall
be regarded as divisible, and if any of said provisions or any part thereof is
declared invalid or unenforceable by a court of competent jurisdiction, the
validity and enforceability of the remainder of such provisions or parts hereof
and the applicability thereof shall not be affected thereby.
SECTION 10. AMENDMENT. This Agreement may not be amended or
modified at any time except by a written instrument approved by the Board, and
executed by the Company and the Executive; provided, however, that any amendment
to Section 4(c) hereof or this proviso shall also require the written consent of
Holdings; and provided further that any attempted amendment or modification
without the requisite approval and execution shall be null and void ab initio
and of no effect.
SECTION 11. WITHHOLDING. The Company shall be entitled to
withhold from any amounts to be paid to the Executive hereunder any federal,
state, local, or foreign withholding or other taxes or charges which it is from
time to time required to withhold. The Company shall be entitled to rely on an
opinion of counsel if any question as to the amount or requirement of any such
withholding shall arise.
SECTION 12. GOVERNING LAW. This Agreement and the rights and
obligations hereunder shall be governed by and construed in accordance with the
laws of the State of Texas, without regard to principles of conflicts of law of
Texas or any other jurisdiction.
SECTION 13. NOTICE. Notices given pursuant to this Agreement
shall be in writing and shall be deemed given when received and, if mailed,
shall be mailed by United States registered or certified mail, return receipt
requested, addressee only, postage prepaid:
8
<PAGE> 9
If to the Company or Holdings:
6207 Bee Cave Road
Austin, Texas 78746
Attention: President
If to the Executive:
3001 Chatelaine Drive
Austin, Texas 78746
With Copies to:
Munsch Hardt Kopf & Dinan, P.C.
4000 Fountain Place
1445 Ross Avenue
Dallas, Texas 75202
Attention: Sally Schreiber, Esq.
or to such other address as the party to be notified shall have given
to the other in accordance with the notice provisions set forth in this
Section 13.
SECTION 14. NO WAIVER. No waiver by either party at any time
of any breach by the other party of, or compliance with, any condition or
provision of this Agreement to be performed by the other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at any time.
SECTION 15. HEADINGS. The headings contained herein are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
in one or more counterparts, each of which shall be deemed one and the same
instrument, as of the day and year first written above.
COOPERATIVE COMPUTING, INC.
By: /s/ JOE COLONNETTA
------------------------------------
Name: Joe Colonnetta
----------------------------------
Title: Director
---------------------------------
COOPERATIVE COMPUTING HOLDING
COMPANY, INC.
By: /s/ JOE COLONNETTA
------------------------------------
Name: Joe Colonnetta
----------------------------------
Title: Director
---------------------------------
EXECUTIVE:
/s/ PAUL D STONE
----------------------------------------
Paul D. Stone
SIGNATURE PAGE TO
EXECUTIVE EMPLOYMENT AGREEMENT
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Incorporation
- ---------- -----------------------------
<S> <C>
Triad Systems Financial Corporation California
CCI/Triad Gem, Inc. Texas
TriFare, Inc. Delaware
CCI/Triad Financial Holding Corporation California
Triad Data Corporation California
Triad Systems Corporation Delaware
Triad Systems Ireland Limited Republic of Ireland
Tridex Data Services Limited United Kingdom
Tridex System Limited United Kingdom
Tridex Leasing Limited United Kingdom
Triad Systems France SARL France
Triad Systems Canada, Limited Canada
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 53,538
<ALLOWANCES> (9,561)
<INVENTORY> 9,095
<CURRENT-ASSETS> 70,713
<PP&E> 45,917
<DEPRECIATION> (30,567)
<TOTAL-ASSETS> 286,803
<CURRENT-LIABILITIES> 58,567
<BONDS> 175,308
26,961
0
<COMMON> 4
<OTHER-SE> (14,498)
<TOTAL-LIABILITY-AND-EQUITY> 286,803
<SALES> 87,425
<TOTAL-REVENUES> 241,119
<CGS> 58,696
<TOTAL-COSTS> 152,663
<OTHER-EXPENSES> 109,969
<LOSS-PROVISION> 8,296
<INTEREST-EXPENSE> 18,512
<INCOME-PRETAX> (48,146)
<INCOME-TAX> 11,120
<INCOME-CONTINUING> (37,026)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,026)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
