<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 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 78746
AUSTIN, TEXAS (Zip Code)
(Address of principal executive offices)
(512) 328-2300
(Registrant's telephone number,
including area code)
Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at August 15, 1999
----- ------------------------------
Common Stock 1,000 shares
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COOPERATIVE COMPUTING, INC.
INDEX
<TABLE>
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
Consolidated Balance Sheets as of June 30, 1999 and September 30, 1998 3
Consolidated Statements of Operations for the three months and nine months 4
ended June 30, 1999 and June 30, 1998
Consolidated Statements of Cash Flows for the nine months ended 5
June 30, 1999 and June 30, 1998
Notes to Consolidated Financial Statements 6
ITEM 2.- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 8
RESULTS OF OPERATIONS
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
</TABLE>
FORWARD-LOOKING STATEMENTS
INFORMATION SET FORTH IN THIS QUARTERLY REPORT ON FORM 10-Q 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 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" AND APPEAR ELSEWHERE IN THIS QUARTERLY 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.
2
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, September 30,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 343 $ 1,159
Trade accounts receivable, net 43,888 37,774
Inventories 6,833 6,005
Investment in leases 4,183 2,792
Deferred income taxes 1,818 1,818
Prepaid expenses and other current assets 9,793 7,742
------------ ------------
Total current assets 66,858 57,290
Service parts 4,381 3,605
Property and equipment, net 12,121 12,528
Long-term investment in leases 19,727 14,771
Capitalized computer software costs, net 18,016 25,174
Databases, net 14,759 16,824
Deferred financing costs 7,588 6,310
Other intangibles 141,419 153,689
Other assets 9,613 10,658
------------ ------------
Total assets $ 294,482 $ 300,849
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,490 $ 16,249
Payroll related accruals 11,450 9,362
Deferred revenue 9,357 6,269
Current portion of long-term debt 4,976 6,229
Accrued expenses and other current liabilities 15,619 13,080
------------ ------------
Total current liabilities 55,892 51,189
Long-term debt 173,668 177,089
Deferred income taxes 28,811 37,487
Other liabilities 7,685 9,721
------------ ------------
Total liabilities 266,056 275,486
Redeemable Class A Common Stock, par value $.000125,
25,000,000 shares authorized, issued and outstanding;
aggregate liquidation preference of $815,068; net of
issuance costs of $1,059,375 24,756 --
Stockholders' equity:
Common Stock, par value $.000125, authorized
50,000,000 shares, issued and outstanding 35,220,000 4 4
Additional paid-in capital 88,994 88,994
Retained deficit (85,328) (63,635)
------------ ------------
Total stockholders' equity: 3,670 25,363
------------ ------------
Total liabilities and stockholders' equity $ 294,482 $ 300,849
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
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COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Month Ended Nine Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Systems $ 24,204 $ 20,642 $ 63,014 $ 55,105
Customer support and information services 37,526 36,699 111,238 102,800
Finance 463 1,909 2,247 5,759
--------- --------- --------- ---------
Total revenues 62,193 59,250 176,499 163,664
Cost of revenues:
Systems 15,297 13,802 41,398 38,025
Services and finance 22,765 23,594 69,931 65,952
--------- --------- --------- ---------
Total cost of revenues 38,062 37,396 111,329 103,977
--------- --------- --------- ---------
Gross margin 24,131 21,854 65,170 59,687
Operating expenses:
Sales and marketing 14,771 12,276 40,444 35,533
Product development 3,643 3,684 11,072 11,757
General and administrative 10,221 10,347 29,288 28,530
--------- --------- --------- ---------
Total operating expenses 28,635 26,307 80,804 75,820
Operating loss (4,504) (4,453) (15,634) (16,133)
Interest expense (4,599) (4,108) (13,496) (11,458)
Other income (expense), net 138 81 261 335
--------- --------- --------- ---------
Loss before income taxes and extraordinary charge (8,965) (8,480) (28,869) (27,256)
Income tax benefit (2,613) (2,323) (8,055) (7,982)
--------- --------- --------- ---------
Loss before extraordinary charge (6,352) (6,157) (20,814) (19,274)
Extraordinary charge, net of tax of $1,969 -- -- -- 3,017
--------- --------- --------- ---------
Net loss $ (6,352) $ (6,157) $ (20,814) $ (22,291)
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
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COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (20,814) $ (22,291)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 6,613 5,171
Amortization 33,046 33,183
Loss on write-off of debt issuance costs -- 3,017
Other, net (239) 29
Changes in assets and liabilities, net of effects
of businesses acquired:
Trade accounts receivable (6,113) (6,592)
Inventories (4,203) (6,414)
Investment in leases (6,346) 2,282
Deferred income taxes (8,676) (10,482)
Prepaid expenses and other assets (1,448) 470
Accounts payable (1,759) 5,333
Deferred revenue 3,088 1,284
Accrued expenses and other current liabilities 2,591 (1,489)
--------- ---------
Net cash provided by (used in) operating activities (4,260) 3,501
INVESTING ACTIVITIES
Purchase of property and equipment (2,720) (2,347)
Capitalized computer software costs and databases (9,986) (9,986)
Equity in earnings (loss) of investments 51 131
Purchase of service parts (761) (390)
Acquisitions of businesses, net of cash acquired (375) (9,906)
Other, net (124) (1,391)
--------- ---------
Net cash used in investing activities (13,915) (23,889)
FINANCING ACTIVITIES
Issuance of Class A Common Stock 23,941 --
Proceeds from bond issuance -- 100,000
Proceeds from credit facility 100,050 207,250
Payment on debt facilities (104,654) (279,036)
Debt issuance costs (1,978) (6,082)
Other -- (251)
--------- ---------
Net cash provided by financing activities 17,359 21,881
Net increase (decrease) in cash and cash equivalents (816) 1,493
Cash and cash equivalents, beginning of period 1,159 1,633
--------- ---------
Cash and cash equivalents, end of period $ 343 $ 3,126
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 10,564 $ 7,553
========= =========
Income taxes $ 441 $ 188
========= =========
Non Cash Transactions:
Transfers from inventory to fixed assets $ 1,830 $ 2,427
========= =========
Transfers from inventory to spare parts $ 1,545 $ 758
========= =========
Accretion of redeemable Class A Common Stock
liquidation preference $ 815 $ 0
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
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COOPERATIVE COMPUTING HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Cooperative Computing Holding Company, Inc. ("Holding"), have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Holding was incorporated in Delaware in May 1999 and is the successor
to a Texas company that was incorporated in May 1976. Holding exchanged
35,220,000 shares of it's common stock, par value $.000125 per share, for
35,220,000 shares of its successor's common stock, par value $.000125 per
share. Operating results for the three months and nine months ended June 30,
1999 may not be indicative of the results for the full fiscal year ending
September 30, 1999. Holding has no assets or liabilities other than its
investment in its wholly owned subsidiary, Cooperative Computing, Inc. (the
"Company"), accordingly, these consolidated financial statements represent the
operations of the Company and its subsidiaries.
2. CHANGES IN ACCOUNTING PRINCIPLES
On October 1, 1998, the Company adopted the American Institute of
Certified Public Accountants ("AICPA") Statement of Position 97-2 ("SOP 97-2"),
"Software Revenue Recognition", and SOP 98-4, which was effective for the
transactions that the Company entered into on and after that date. In
accordance with SOP 97-2, prior period financial statements have not been
restated to reflect the change in accounting principle. The adoption of SOP
97-2 resulted in the deferral of approximately $3.7 million of revenues ($1.6
million of gross margin) for the nine months ended June 30, 1999.
Effective December 15, 1998, the AICPA issued SOP 98-9, "Modification
of SOP 97-2, "Software Revenue Recognition", With Respect to Certain
Transactions." SOP 98-9 amends SOP 97-2 and 98-4, extending the deferral of the
application of certain passages of SOP 97-2 provided by SOP 98-4 through fiscal
years beginning on or before March 15, 1999. All other provisions of SOP 98-9
are effective for transactions entered into in fiscal years beginning after
March 15, 1999. The Company does not believe that the adoption of SOP 98-9 will
have a material effect on the Company's financial condition or results of
operations.
As of October 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income". Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components, however, the adoption
of this Statement had no impact on the Company's net loss or stockholders'
equity. Statement 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 stockholders' equity, to be
included in comprehensive loss. During the first nine months of 1999 and 1998,
total comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Net loss $(20,814) $(22,291)
Foreign currency translation adjustment (65) (79)
-------- --------
Comprehensive loss $(20,879) $(22,370)
======== ========
</TABLE>
For the fiscal year ending September 30, 1999, the Company must adopt
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information". This statement establishes information about operating segments
in annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company has not yet determined the impact, if any, of adopting this
standard.
6
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3. SALE OF LEASE RECEIVABLES
Activity in the following servicing liability accounts (recorded in
other liabilities in the Company's balance sheet) was as follows (in
thousands):
<TABLE>
<CAPTION>
LEASE SERVICING RECOURSE
OBLIGATION OBLIGATION
-------------- ----------
<S> <C> <C>
Balance at September 30, 1998 ..... $ 1,781 $ 5,447
Newly-created liabilities ......... 472 4,354
Charges and lease write-offs ...... (770) (4,407)
------- -------
Balance at June 30, 1999 .......... $ 1,483 $ 5,394
======= =======
</TABLE>
4. LONG TERM DEBT
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 down approximately $8.1
million of the amounts outstanding under its existing $50 million senior
secured revolving credit facility. After giving effect to the amendment, the
Company now has $110 million 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. Other modifications included
revisions to the financial covenants and an increased interest rate.
5. INCOME TAXES
The Company recorded an income tax benefit for the nine months ended
June 30, 1999 at an effective rate of approximately 28%, which is based on the
Company's anticipated results for the full fiscal year. The amount of permanent
differences that impact the effective tax rate are approximately the same for
each of the periods presented.
The Company's benefit for income taxes differs from the amount
computed by applying the statutory rate to loss before income taxes due to the
impact of permanent differences, which consist primarily of goodwill
amortization.
6. STOCK ISSUANCE AND RELATED PARTY TRANSACTION
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"), 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. Two of Holding's 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 Holding's existing common stock
upon liquidation, but votes with the existing common stock as a class. Upon
dissolution of Holding, 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 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.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion of the financial condition and results of operations
of Cooperative Computing, Inc. (the "Company") should be read in conjunction
with the historical consolidated financial statements and the related notes
thereto included elsewhere herein.
The adoption of SOP 97-2 on October 1, 1998 (see Note 2 of Notes to
Consolidated Financial Statements) resulted in the deferral of $0.5 million in
revenues and $0.5 million in cost of revenues for the three months ended June
30, 1999. For the nine months ended June 30, 1999, the impact of SOP 97-2
resulted in the deferral of $3.7 million in revenues and $2.1 million in cost
of revenues, reducing gross profit by $1.6 million.
REVENUES
Revenues for the three months ended June 30, 1999 were $62.2 million, compared
to $59.3 million for the three months ended June 30, 1998, an increase of $2.9
million, or 5%. For the nine months ended June 30, 1999, revenues increased
$12.8 million, or 8%, to $176.5 million as compared to the corresponding period
in 1998. In March 1998, the Company acquired certain assets of the ADP Claims
Solutions Group (the "ARISB acquisition"), which marketed systems and services
to the automotive recycling industry. The ARISB acquisition accounted for $4.6
million of the increase in revenues for the nine months ended June 30, 1999,
over the comparable period in 1998 as a result of the acquired operations being
included for only four months in 1998.
Systems revenues for the three months ended June 30, 1999 increased $3.6
million, or 17%, to $24.2 million as compared to $20.6 million for the three
months ended June 30, 1998. For the nine months ended June 30, 1999, systems
revenues increased $7.9 million, or 14%, to $63.0 million as compared to $55.1
million for the nine months ended June 30, 1998. For the three months ended
June 30, 1999, automotive systems revenues increased $3.9 million, or 35%, to
$14.8 million, and hardlines systems revenues decreased $0.3 million, or 3%, to
$9.4 million as compared to the corresponding period in 1998. For the nine
months ended June 30, 1999, automotive systems revenues increased $7.6 million,
or 26%, to $36.3 million and hardlines systems revenues increased $0.3 million,
or 1%, to $26.7 million as compared to the corresponding period in 1998. The
growth in automotive systems revenues is due to increases in the sales of
systems to parts stores and service dealer customers.
Revenues from customer support and information services increased $0.8 million,
or 2%, to $37.5 million for the three months ended June 30, 1999, as compared
to $36.7 million for the three months ended June 30, 1998. For the nine months
ended June 30, 1999, revenues from customer support and information services
increased $8.4 million, or 8%, to $111.2 million as compared to the nine months
ended June 30, 1998. Recurring services revenues from the ARISB acquisition
accounted for $4.6 million of the increase for the nine months ended June 30,
1999, over the comparable period in 1998 as a result of the acquired operations
being included for only four months in 1998. Information services revenues
accounted for $1.6 million and $4.4 million of the increase for the three
months and nine months ended June 30, 1999, respectively, over the comparable
periods in 1998. The increase in information services revenues is primarily due
to growth in the automotive installed base of customers and increases in the
sale of point of sale information products to the hardlines industry.
Revenues from financing activities decreased $1.4 million, or 76%, to $0.5
million for the three months ended June 30, 1999, as compared to the three
months ended June 30, 1998. For the nine months ended June 30, 1999, revenues
from financing activities decreased $3.5 million, or 61%, to $2.2 million as
compared to the corresponding period in 1998. The decrease in financing
revenues was primarily due to the decrease in the amount of leases sold and a
decrease in the gain recorded at the time the leases are sold.
COST OF REVENUES
Cost of revenues were $38.1 million for the three months ended June 30, 1999,
compared to $37.4 million for the three months ended June 30, 1998, an increase
of $0.7 million, or 2%. For the nine months ended June 30, 1999, cost of
revenues increased $7.4 million, or 7%, to $111.3 million as compared to the
corresponding period in 1998. As a percentage of revenues, cost of revenues
decreased 2% and remained flat for the three months and nine months ended June
30, 1999, respectively, over the comparable periods in 1998.
Cost of systems revenues for the three months ended June 30, 1999 increased
$1.5 million, or 11%, to $15.3 million as compared to $13.8 million for the
three months ended June 30, 1998. For the nine months ended June 30, 1999, cost
of systems revenues
8
<PAGE> 9
increased $3.4 million, or 9%, as compared to the nine months ended June 30,
1998. This increase was due to the increase in revenues, partially offset by a
reduction in costs as a percentage of revenues.
Cost of revenues for services and finance for the three months ended June 30,
1999 decreased $0.8 million, or 4%, to $22.8 million, as compared to $23.6
million for the three months ended June 30, 1998. For the nine months ended
June 30, 1999, cost of revenues for services and finance increased $4.0
million, or 6%, to $69.9 million, as compared to the corresponding period in
1998. The ARISB acquisition accounted for $2.8 million of the increase for the
nine months ended June 30, 1999, over the corresponding period in 1998 as a
result of the acquired operations being included for only four months in 1998.
As a percentage of revenues, cost of revenues for services and finance
decreased 1% and increased 1% for the three months and nine months ended June
30, 1999, respectively, over the comparable periods in 1998. For the three
months ended June 30, 1999, the decrease in cost of revenues as a percentage of
revenues was primarily due to the low incremental costs associated with the
increased information services revenues. For the nine months ended June 30,
1999, the increase in cost of revenues as a percentage of revenues was due to
the implementation of SOP 97-2 and the decrease in revenues from financing
activities, which carry little or no cost of revenues. This increase was
partially offset by the improvement in cost of revenue as a percentage of
revenue for information services.
EXPENSES AND OTHER INCOME
Operating expenses for the three months ended June 30, 1999 were $28.6 million,
an increase of $2.3 million, or 9%, as compared to $26.3 million for the three
months ended June 30, 1998. For the nine months ended June 30, 1999, operating
expenses increased $5.0 million, or 7%, as compared to the corresponding period
in 1998. The inclusion of operations from the ARISB acquisition increased
operating expenses by $0.9 million for the nine months ended June 30, 1999,
over the comparable period in 1998 as a result of the acquired operations being
included for only four months in 1998. Operating expenses for the three months
and nine months ended June 30, 1998 include $0.5 million in severance and
related expenses associated with a right sizing which took place on June 1,
1998. Product development expense for the three months and nine months ended
June 30, 1999 was $3.6 million and $11.1 million, respectively, compared to
$3.7 million and $11.8 million for the corresponding periods of fiscal 1998.
Sales and marketing expense for the three months and nine months ended June 30,
1999 was $14.8 million and $40.4 million, respectively, compared to $12.3
million and $35.5 million for the corresponding periods of fiscal 1998. The
increase in sales and marketing expenses is due to increased headcount in both
the automotive and hardlines organizations, increased variable marketing
expenses associated with the increase in automotive systems sales, and
increased expenses for bad debt reserves for the Company's leasing activities.
General and administrative expenses for the three months and nine months ended
June 30, 1999 were $10.2 million and $29.3 million, respectively, compared to
$10.3 million and $28.5 million for the corresponding periods of fiscal 1998.
The increase in general and administrative expenses for the nine month
comparison periods primarily is due to investments in staffing, infrastructure,
and communications to support internal information systems.
Interest expense for the three months and nine months ended June 30, 1999 was
$4.6 million and $13.5 million, respectively, an increase of $0.5 million and
$2.0 million over the comparable periods in fiscal 1998 due to increased debt,
primarily associated with the growth in working capital and the ARISB
acquisition. Other income for the three months and nine months ended June 30,
1999 were $0.1 million and $0.3 million, respectively, no change as compared to
the corresponding periods in 1998.
The Company recorded a benefit from income taxes of $2.6 million and $8.1
million for the three months and nine months ended June 30, 1999, respectively,
compared to a benefit of $2.3 million and $8.0 million for the corresponding
periods in fiscal 1998. The effective tax rate used to record the benefit for
income taxes for the three months and nine months ended June 30, 1999 is based
on the Company's anticipated results for the full fiscal year. The amount of
permanent differences, which impact the effective tax rate, were approximately
the same for each of the periods presented.
As a result of the above factors, the Company experienced a net loss of $6.4
million, an increase of $0.2 million, or 3%, for the three months ended June
30, 1999, compared to a net loss of $6.2 million for the three months ended
June 30, 1998. For the nine months ended June 30, 1999, the Company experienced
a net loss of $20.8 million, a decrease of $1.5 million from the comparable
period in fiscal 1998. The net loss for the nine months ended June 30, 1998
includes 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 on February 10, 1998
associated with the refinancing of the Company's debt.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had $178.6 million in indebtedness, a decrease of
$20.1 million from March 31, 1998 and a decrease of $4.7 million from September
30, 1998. The decrease in indebtedness was due to $23.9 million in net proceeds
from the sale of Class A Common Stock discussed below, offset by increases in
working capital and capital expenditures.
For the nine months ended June 30, 1999, operating activities used
approximately $4.3 million of cash. Cash provided from operations was reduced
by a $6.3 million increase in investment in leases, a $6.1 million increase in
accounts receivable, and a $1.8 million reduction in accounts payable. The
Company periodically liquidates its lease portfolio through lease lending
arrangements with banks and other lease lending institutions. The $6.3 million
increase in investment in leases is net of $19.2 million in leases liquidated
during the nine months ended June 30, 1999.
The Company believes that its cash flow from operations has been negatively
impacted by several factors, the principal ones of which, together with the
Company's responses thereto, are described below:
(i) The Company has experienced substantial growth in the
sales of its automotive store systems, many of which are sold through
the Company's leasing programs. This higher level of system sales
outpaced the Company's system installation and training resources,
thereby extending the typical time period from the sale of a system to
the completion of the installation of, and customer training on, the
system. As a result, the Company has experienced an increase in its
accounts receivable and investment in leases because many customers
withhold payment or acceptance of their lease until the installation
and implementation is complete. In response, the Company has nearly
doubled the number of automotive implementation specialists.
(ii) The growth in sales of the Company's automotive store
systems was accompanied by the withdrawal of and/or curtailment of
lease lines of credit by certain of the Company's lease lenders as a
result of the consolidation of various lease lenders and the resulting
re-balancing of their lease lending portfolios and expressed caution
over increased leverage at the Company. This contributed to a higher
investment in leases as the Company's lease borrowings declined as
compared to historical levels. The Company is in discussions with its
existing lease funding sources, as well as with certain potential new
lease funding sources and was able to secure one additional funding
source during the three months ended June 30, 1999. While the Company
believes that it will be able to maintain its existing lease lending
arrangements and secure new lease funding relationships, there can be
no assurance that the Company will be able to do so. If the Company
cannot return lease funding to its historical levels, the Company may
be required to seek additional financing elsewhere. There can be no
assurance that such additional funding will be available.
(iii) The Company has experienced an increase in accounts
receivable related to systems and procedural problems that arose from
the consolidation of its billing and collection functions to Austin.
The Company has identified what it believes are the most important
areas of focus and has developed an action plan and timetable to solve
tactical issues and challenges currently faced in this area.
(iv) The Company's expenditures to meet Year 2000 issues have
limited its ability to reduce its overall capital and product
development expenditures in response to its financial situation.
Net cash used in investing activities totaled $13.9 million for the nine months
ended June 30, 1999. Net cash used in investing activities primarily represents
capital expenditures. For the nine months ended June 30, 1999, the Company's
capital expenditures were $16.8 million, which includes approximately $10.0
million in capitalized computer software and database costs.
Net cash provided by financing activities totaled $17.4 million for the nine
months ended June 30, 1999, which reflects $23.9 million contributed to the
Company by its parent company, Cooperative Computing Holding Company, Inc.
("Holding"), which is the net proceeds from the May 27, 1999 sale by Holding of
its 25,000,000 shares of Class A Common Stock. The Company estimates that,
based on expected debt levels, the Company's amended senior secured credit
facilities will require interest payments of $6.5 million over the next 12
months. Additionally, the Company pays semi-annual interest payments of $4.5
million on $100.0 million of its 9%
10
<PAGE> 11
Senior Subordinated Notes due 2008. The Company's revolving credit facility
allows the Company to borrow up to $50 million, of which approximately $18.4
million was outstanding as of June 30, 1999.
Repayment of the Company's $30 million term loan A begins on December 31, 1999,
starting at $1.5 million per quarter and increasing by $0.5 million per quarter
each fiscal year. All borrowings under the term loan A are scheduled to be
repaid by March 31, 2003. Repayment of the Company's $30 million term loan B
begins on December 31, 1999 at an amount of $0.1 million per quarter, which
remains constant until a final payment of $28.3 million due on March 31, 2004.
The 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 quarterly tests relating to certain financial covenants
and ratios. As of June 30, 1999, the Company was in compliance with the
financial tests required by the senior credit facilities.
The Company's ability to service its debt obligations is subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control.
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.
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 completed an assessment of the Year 2000 status of products
that it sells or has installed for customers. With the exceptions stated below,
the Company's products have been reprogrammed over the past year to make them
Year 2000 ready. This programming was completed by December 31, 1998 and has
been tested by the Company. Product releases with the Year 2000 corrections
were made available to customers during the first quarter of 1999 and had been
distributed to all customers with systems that are being made Year 2000 ready
by the end of the second quarter of 1999. The Company is in the process of
contacting the suppliers that provide the Company with significant goods or
services needed to produce the Company's products.
Certain older products that the Company was no longer marketing were determined
not to be upgradable 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. The Company has converted many of these customers to newer
Year 2000 ready products and continues to work with remaining customers to work
out viable options.
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 Company also has completed its assessment of its internal systems and has
determined that it was required to modify or replace 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 also
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 have notified the Company that their products will not be compliant. In
those cases, the Company has purchased new versions of software or hardware or
has 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 has completed a portion of the
modifications to its internal systems and expects to have all modifications
completed by September 1999, which is prior to any anticipated impact on its
operating systems.
11
<PAGE> 12
Contingency plans for dealing with the Year 2000 problem that arise are being
developed.
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.
The Company believes that with modifications to existing systems and
conversions to new systems, the Year 2000 issue will not pose significant
operational problems for its internal computer systems, the cost of which is
not expected to be material in relation to the Company's operations and
historical capital spending levels. If such modifications and conversions are
not successful, however, or are not completed in a timely manner, the Year 2000
issue could have a material impact on the operations of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Reference is made to Part II, Item 7A, "Quantitative and Qualitative
Disclosures About Market Risk," in the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1998.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 -- Third Amendment to Credit Agreement, dated as of May 25,
1999, among the Registrant, Cooperative Computing Holding
Company, Inc., the several banks and other financial
institutions parties thereto, and The Chase Manhattan Bank.
10.2 -- Cooperative Computing Holding Company, Inc. 1998 Stock
Option Plan (amended 6/14/99).
10.3 -- Amendment, dated March 31, 1999, among the Company, Triad
Systems Financial Corporation, CCI/Triad Financial Holding
Corporation, and Hellar Financial Leasing, Inc.
10.4 -- Employment Agreement, dated as of June 14, 1999, between
the Company and Michael A. Aviles.
27.1 -- Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
June 30, 1999.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COOPERATIVE COMPUTING, INC.
Dated: August 16, 1999 By: /s/ MATTHEW HALE
--------------------------------
Matthew Hale
Vice President of Finance and
Chief Financial Officer
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1 Third Amendment to Credit Agreement, dated as of May 25,
1999, among the Registrant, Cooperative Computing Holding
Company, Inc., the several banks and other financial
institutions parties thereto, and The Chase Manhattan Bank.
10.2 Cooperative Computing Holding Company, Inc. 1998 Stock Option
Plan (amended 6/14/99).
10.3 Amendment, dated as of March 31, 1999, among the Company,
Triad Systems Financial Corporation, CCI/Triad Financial
Holding Corporation, and Hellar Financial Leasing, Inc.
10.4 Employment Agreement, dated as of June 14, 1999, between the
Company and Michael A. Aviles
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
THIRD AMENDMENT
THIRD AMENDMENT, dated as of May 25, 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, and the Second Amendment, dated as of February 12, 1999 (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; and
WHEREAS, the Borrower has requested that the Credit Agreement be
amended to allow for a $25,000,000 equity investment in CCI by Hicks, Muse,
Tate & Furst and to effect certain other amendments to the Credit Agreement as
provided for in this Amendment;
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. Section 1.1 of the Credit Agreement is
hereby amended as follows:
(a) 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 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) and
(vii) any write-offs of accounts
<PAGE> 2
2
receivable (in accordance with GAAP) provided that the aggregate
amount of all write-offs taken under this clause (vii), minus any
amounts recovered and applied in accordance with clause (iii) below,
shall not exceed $10,000,000 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) and (iii) any
amounts recovered in respect of any write-offs taken under clause
(vii) above; provided that through the last day of the third full
fiscal quarter following the consummation of an acquisition pursuant
to Sections 8.9(k) or 8.9(l), the Borrower shall calculate
Consolidated EBITDA for purposes of Section 8.1 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 the relevant period).
(b) by adding thereto the following definitions in their
appropriate alphabetical order:
"Hicks Muse": Hicks, Muse, Tate & Furst Equity Fund III, LP.
"Hicks Muse Equity Investment": the $25,000,000 common stock
investment in CCI made by Hicks Muse by its purchase of the New Common
Stock.
"New Common Stock": the Series A Common Stock, par value
$.01, issued by CCI to Hicks Muse in connection with the Hicks Muse
Equity Investment.
"Total Debt Ratio": the ratio of Consolidated Total Debt of
the Borrower and its Subsidiaries to Consolidated EBITDA of the
Borrower and its Subsidiaries for a period of four consecutive fiscal
quarters.
(c) by (i) deleting the word "and" appearing immediately
before clause (h) of the definition of "Permitted Issuance" and substituting in
lieu thereof a ","; (ii) deleting the "." at the end of clause (h) of such
definition and substituting in lieu thereof the word "and"; and (iii) adding
the following new clause (i) to the end of such definition:
(i) the issuance by CCI of the New 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).
2. Amendment to Section 8. Section 8.7 of the Credit Agreement shall
be amended (i) by deleting the "." at the end of Section 8.7(d) and
substituting in lieu thereof "; and" and (ii) by adding the following new
Section 8.7(e) to the end of such Section 8.7:
(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, to allow CCI to
redeem, in whole or in part, the New Common Stock in accordance with
its terms as long as (i) no Default or Event of Default
<PAGE> 3
3
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.
3. Amendment to Section 11. Section 11.6 of the Credit Agreement shall
be amended by deleting clause (vi) in its entirety and substituting in lieu
thereof the following new clause (vi): "(vi) make any Restricted Payment except
as permitted by Sections 8.7(a)(i), 8.7(a)(v), 8.7(c), 8.7(d) and 8.7(e)".
III. Conditions to Effectiveness. This Amendment shall become
effective on the date 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.
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> 4
4
(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> 5
5
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/ MATTHEW HALE
Name: Matthew Hale
Title: CFO
COOPERATIVE COMPUTING HOLDING COMPANY, INC.,
as a Guarantor
By: /s/ PRESTON W. STAATS
Name: Preston W. Staats
Title: Chief Operating Officer
THE CHASE MANHATTAN BANK,
as Administrative Agent,
a Lender and Issuing Lender
By: /s/ WILLIAM J. CAGGIANO
Name: William J. Caggiano
Title: Managing Director
<PAGE> 1
EXHIBIT 10.2
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
1998 STOCK OPTION PLAN
(amended 6/14/99)
1. Purpose.
Cooperative Computing Holding Company, Inc., a Texas corporation
(herein, together with its successors, referred to as the "Company"), by means
of this 1998 Stock Option Plan (the "Plan"), desires to afford certain
individuals and key employees of the Company and any subsidiary corporation
thereof now existing or hereafter formed or acquired (such subsidiary
corporations sometimes referred to herein as "Related Entities") who are
responsible for the continued growth of the Company an opportunity to acquire a
proprietary interest in the Company, and thus to create in such persons an
increased interest in and a greater concern for the welfare of the Company and
any Related Entities.
The stock options described in Sections 6 and 7 (the "Options"), and
the shares of Common Stock (as hereinafter defined) acquired pursuant to the
exercise of such Options are a matter of separate inducement and are not in
lieu of any salary or other compensation for services. As used in the Plan, the
terms "parent corporation" and "subsidiary corporation" shall mean,
respectively, a corporation within the definition of such terms contained in
Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Administration.
The Plan shall be administered by the Option Committee, or any
successor thereto, of the Board of Directors of the Company (the "Board of
Directors"), or by any other committee appointed by the Board of Directors to
administer this Plan (the "Committee"); provided, the entire Board of Directors
may act as the Committee if it chooses to do so. The number of individuals that
shall constitute the Committee shall be determined from time to time by a
majority of all the members of the Board of Directors, and, unless that
majority of the Board of Directors determines otherwise, shall be no less than
two individuals. A majority of the Committee shall constitute a quorum (or if
the Committee consists of only two members, then both members shall constitute
a quorum), and subject to the provisions of Section 5,
<PAGE> 2
the acts of a majority of the members present at any meeting at which a quorum
is present, or acts approved in writing by all members of the Committee, shall
be the acts of the Committee. Whenever the Company shall have a class of equity
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), each member of the Committee shall be
required to be a "Non-Employee Director" within the meaning of Rule 16b-3, as
amended ("Rule 16b-3"), or other applicable rules under Section 16(b) of the
Exchange Act and the Committee shall administer the Plan so as to comply at all
times with the Exchange Act.
The members of the Committee shall serve at the pleasure of the Board
of Directors, which shall have the power, at any time and from time to time, to
remove members from or add members to the Committee. Removal from the Committee
may be with or without cause. Any individual serving as a member of the
Committee shall have the right to resign from membership in the Committee by
written notice to the Board of Directors. The Board of Directors, and not the
remaining members of the Committee, shall have the power and authority to fill
vacancies on the Committee, however caused. The Board of Directors shall
promptly fill any vacancy that causes the number of members of the Committee to
be less than two or, if the Company has a class of equity securities registered
pursuant to Section 12 of the Exchange Act, any other number that Rule 16b-3
may require from time to time.
3. Shares Available.
Subject to the adjustments provided in Section 11, the maximum
aggregate number of shares of common stock, par value $.000125 per share, of
the Company ("Common Stock") in respect of which Options may be granted for all
purposes under the Plan shall be 5,050,000 shares. The maximum aggregate number
of shares that may be granted under the Plan to any Key Employee or Eligible
Non-Employee shall be 500,000 shares. If, for any reason, any shares as to
which Options have been granted cease to be subject to purchase thereunder,
including the expiration of such Option, the termination of such Option prior
to exercise, or the forfeiture of such Option, such shares shall thereafter be
available for grants under the Plan. Options granted under the Plan may be
fulfilled in accordance with the terms of the Plan with (i) authorized and
unissued shares of the Common Stock, (ii) issued shares of such Common Stock
held in the Company's treasury, or (iii) issued shares of Common Stock
reacquired by the Company in each situation as the Board of Directors or the
Committee may determine from time to time.
2
<PAGE> 3
4. Eligibility and Bases of Participation.
Grants of Incentive Options (as hereinafter defined) and Non-Qualified
Options (as hereinafter defined) may be made under the Plan, subject to and in
accordance with Section 6, to Key Employees; provided, however, that no grants
may be made to any officer or employee who either directly or beneficially
received founders' shares and any officer or employee who is a member of the
Board of Directors. As used herein, the term "Key Employee" shall mean any
employee of the Company or any Related Entity, including officers and directors
of the Company or any Related Entity who are also employees of the Company or
any Related Entity, who are regularly employed on a salaried basis and who are
so employed on the date of such grant, whom the Committee identifies as having
a direct and significant effect on the performance of the Company or any
Related Entity.
Grants of Non-Qualified Options may be made, subject to and in
accordance with Section 7, to any Eligible Non-Employee. As used herein, the
term "Eligible Non-Employee" shall mean any person or entity of any nature
whatsoever, specifically including an individual, a firm, a company, a
corporation, a partnership, a trust, or other entity (collectively, a
"Person"), that the Committee designates as eligible for a grant of Options
pursuant to this Plan because such Person performs bona fide consulting,
advisory, or other services for the Company or any Related Entity (other than
services in connection with the offer or sale of securities in a
capital-raising transaction) and the Board of Directors or the Committee
determines that the Person has a direct and significant effect on the financial
development of the Company or any Related Entity.
The adoption of this Plan shall not be deemed to give any Person a
right to be granted any Options.
5. Authority of Committee.
Subject to and not inconsistent with the express provisions of the
Plan, the Code and, if applicable, Rule 16b-3, the Committee shall have plenary
authority to:
a. determine the Key Employees and Eligible Non-Employees to
whom Options shall be granted, the time when such Options
shall be granted, the number of Options, the purchase price
or exercise price of each Option, the period(s) during which
such Options shall be exercisable (whether in whole or in
part, including whether such Options shall become immediately
exercisable upon the consummation of a Change in Control),
the restrictions to be applicable to Options and all other
terms and provisions thereof (which need not be identical);
3
<PAGE> 4
b. require, as a condition to the granting of any Option, that
the Person receiving such Option agree not to sell or
otherwise dispose of such Option, any Common Stock acquired
pursuant to such Option, or any other "derivative security"
(as defined by Rule 16a-1(c) under the Exchange Act) for a
period of six months following the later of (i) the date of
the grant of such Option or (ii) the date when the exercise
price of such Option is fixed if such exercise price is not
fixed at the date of grant of such Option, or for such other
period as the Committee may determine;
c. provide an arrangement through registered broker-dealers
whereby temporary financing may be made available to an
optionee by the broker-dealer, under the rules and
regulations of the Board of Governors of the Federal Reserve,
for the purpose of assisting the optionee in the exercise of
an Option, such authority to include the payment by the
Company of the commissions of the broker-dealer;
d. provide the establishment of procedures for an optionee (i) to
have withheld from the total number of shares of Common Stock
to be acquired upon the exercise of an Option (other than an
Incentive Option) that number of shares having a Fair Market
Value which, together with such cash as shall be paid in
respect of fractional shares, shall equal the aggregate
exercise price under such Option for the number of shares then
being acquired (including the shares to be so withheld), and
(ii) to exercise a portion of an Option by delivering that
number of shares of Common Stock already owned by such
optionee having an aggregate Fair Market Value which shall
equal the partial Option exercise price and to deliver the
shares thus acquired by such optionee in payment of shares to
be received pursuant to the exercise of additional portions of
such Option, the effect of which shall be that such optionee
can in sequence utilize such newly acquired shares in payment
of the exercise price of the entire Option, together with such
cash as shall be paid in respect of fractional shares;
provided, however, that in the case of an Incentive Option, no
shares shall be used to pay the exercise price unless such
shares were not acquired through the exercise of an Incentive
Option or, if so acquired, have been held for more than two
years since the grant of such Option and for more than one
year since the exercise of such Option;
e. provide (in accordance with Section 14 or otherwise) the
establishment of a procedure whereby a number of shares of
Common Stock or other securities may be
4
<PAGE> 5
withheld from the total number of shares of Common Stock or
other securities to be issued upon exercise of an Option
(other than an Incentive Option) to meet the obligation of
withholding for income, social security and other taxes
incurred by an optionee upon such exercise or required to be
withheld by the Company or a Related Entity in connection
with such exercise;
f. prescribe, amend, modify and rescind rules and regulations
relating to the Plan;
g. make all determinations permitted or deemed necessary,
appropriate or advisable for the administration of the Plan,
interpret any Plan or Option provision, perform all other
acts, exercise all other powers, and establish any other
procedures determined by the Committee to be necessary,
appropriate, or advisable in administering the Plan or for
the conduct of the Committee's business. Any act of the
Committee, including interpretations of the provisions of the
Plan or any Option and determinations under the Plan or any
Option shall be final, conclusive and binding on all parties.
The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee or any Person to whom it has delegated duties as aforesaid may employ
one or more Persons to render advice with respect to any responsibility the
Committee or such Person may have under the Plan; provided, however, that
whenever the Company has a class of equity securities registered under Section
12 of the Exchange Act, the Committee may not delegate any duties to a member
of the Board of Directors who, if elected to serve on the Committee, would not
qualify as a "Non-Employee Director" to administer the Plan as contemplated by
Rule 16b-3, as amended, or other applicable rules under the Exchange Act. The
Committee may employ attorneys, consultants, accountants, or other Persons and
the Committee, the Company, and its officers and directors shall be entitled to
rely upon the advice, opinions, or valuations of any such Persons. No member or
agent of the Committee shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan and all members
and agents of the Committee shall be fully protected by the Company in respect
of any such action, determination or interpretation.
6. Stock Options for Key Employees.
Subject to the express provisions of this Plan, the Committee shall
have the authority to grant incentive stock options pursuant to Section 422 of
the Code ("Incentive Options"), to grant non-qualified stock options (options
which do not qualify under Section 422 of the Code) ("Non-Qualified
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<PAGE> 6
Options"), and to grant both types of Options to Key Employees. No Incentive
Option shall be granted pursuant to this Plan after the earlier of ten years
from the date of adoption of the Plan or ten years from the date of approval of
the Plan by the stockholders of the Company. Incentive Options may be granted
only to Key Employees. The terms and conditions of the Options granted under
this Section 6 shall be determined from time to time by the Committee;
provided, however, that the Options granted under this Section 6 shall be
subject to all terms and provisions of the Plan (other than Section 7),
including the following:
a. Option Exercise Price. Subject to Section 4, the Committee
shall establish the Option exercise price at the time any
Option is granted at such amount as the Committee shall
determine; provided, that, in the case of an Incentive
Option, such price shall not be less than the Fair Market
Value per share of Common Stock at the date the Option is
granted; and provided, further, that in the case of an
Incentive Option granted to a person who, at the time such
Incentive Option is granted, owns shares of the Company or
any Related Entity which possess more than 10% of the total
combined voting power of all classes of shares of the Company
or of any Related Entity, the option exercise price shall not
be less than 110% of the Fair Market Value per share of
Common Stock at the date the Option is granted. The Option
exercise price shall be subject to adjustment in accordance
with the provisions of Section 11 of the Plan.
b. Payment. The price per share of Common Stock with respect to
each Option exercise shall be payable at the time of such
exercise. Such price shall be payable in cash or by any other
means acceptable to the Committee, including delivery to the
Company of shares of Common Stock owned by the optionee or by
the delivery or withholding of shares pursuant to a procedure
created pursuant to Section 5.d. of the Plan (but, with
respect to Incentive Options, subject to the limitations
described in such Section 5.d.). Shares delivered to or
withheld by the Company in payment of the Option exercise
price shall be valued at the Fair Market Value of the Common
Stock on the day preceding the date of the exercise of the
Option.
c. Exercisability of Stock Option. Unless otherwise determined
by the Committee at the time of grant, on September 30 of
each succeeding Plan Year, Options granted hereunder shall
become exercisable according to the vesting schedule set
forth below:
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<PAGE> 7
(i) 10% of the Options shall have become exercisable
on the first anniversary of the last day of the Grant
Year and remain exercisable until the Options expire;
(ii) 20% of the Options shall have become exercisable
on the second anniversary of the last day of the
Grant Year and remain exercisable until the Options
expire;
(iii) 30% of the Options shall have become
exercisable on the third anniversary of the last day
of the Grant Year and remain exercisable until the
Options expire;
(iv) 65% of the Options shall have become exercisable
on the fourth anniversary of the last day of the
Grant Year and remain exercisable until the Options
expire; and
(v) 100% of the Options shall have become exercisable
on the fifth anniversary of the last day of the Grant
Year and remain exercisable until the Options expire.
Provided, however, that in the event of a Public Offering all
shares that were not exercisable at the time of the Public
Offering shall vest ratably over a period of years equal to
five (5) minus the number of complete years of vesting that
had occurred prior to the Public Offering.
No Option by its terms shall be exercisable after the
expiration of ten years from the date of grant of the Option,
unless, as to any Non-Qualified Option, otherwise expressly
provided in such Option; provided, however, that no Incentive
Option granted to a person who, at the time such Option is
granted, owns stock of the Company, or any Related Entity,
possessing more than 10% of the total combined voting power
of all classes of stock of the Company, or any Related
Entity, shall be exercisable after the expiration of five
years from the date such Option is granted.
d. Death. If any optionee's employment with the Company or a
Related Entity terminates due to the death of such optionee,
the estate of such optionee, or a Person who acquired the
right to exercise such Option by bequest or inheritance or by
reason of the death of the optionee, shall have the right to
exercise such Option in accordance with its terms at any time
and from time to time within 180 days after the date of death
unless a longer or shorter period is expressly provided in
such Option or established by the Committee pursuant to
Section 8 (but in no event after the expiration date of such
Option).
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<PAGE> 8
e. Disability. If the employment of any optionee terminates
because of such optionee's Disability (as defined in Section
19), such optionee or such optionee's legal representative
shall have the right to exercise the Option in accordance
with its terms at any time and from time to time within 180
days after the date of such termination unless a longer or
shorter period is expressly provided in such Option or
established by the Committee pursuant to Section 8 (but not
after the expiration date of the Option); provided, however,
that in the case of an Incentive Option, the optionee or such
optionee's legal representative shall in any event be
required to exercise the Incentive Option within one year
after termination of the optionee's employment due to such
optionee's Disability.
f. Termination for Cause; Voluntary Termination. Unless an
optionee's Option expressly provides otherwise, such optionee
shall immediately forfeit all rights under his Option, except
as to the shares of stock already purchased thereunder, if
the employment of such optionee with the Company or a Related
Entity is terminated by the Company or any Related Entity for
Good Cause (as defined below) or if such optionee voluntarily
terminates employment without the consent of the Company or
any Related Entity. The determination that there exists Good
Cause for termination shall be made by the Option Committee
(unless otherwise agreed to in writing by the Company and the
optionee).
g. Other Termination of Employment. If the employment of an
optionee with the Company or a Related Entity terminates for
any reason other than those specified in subsections 6(d),
(e) or (f) above, such optionee shall have the right to
exercise his Option in accordance with its terms, within 30
days after the date of such termination, unless a longer or
shorter period is expressly provided in such Option or
established by the Committee pursuant to Section 8 (but not
after the expiration date of the Option); provided, that no
Incentive Option shall be exercisable more than three months
after such termination.
h. Maximum Exercise. The aggregate Fair Market Value of stock
(determined at the time of the grant of the Option) with
respect to which Incentive Options are exercisable for the
first time by an optionee during any calendar year under all
plans of the Company and any Related Entity shall not exceed
$100,000.
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<PAGE> 9
i. Continuation of Employment. Each Incentive Option shall
require the optionee to remain in the continuous employ of
the Company or any Related Entity from the date of grant of
the Incentive Option until no more than three months prior to
the date of exercise of the Incentive Option.
7. Stock Option Grants to Eligible Non-Employees.
Subject to the express provisions of this Plan, the Committee shall
have the authority to grant Non-Qualified Options (and not Incentive Options)
to Eligible Non-Employees; provided, however, that whenever the Company has any
class of equity securities registered pursuant to Section 12 of the Exchange
Act, no Eligible Non-Employee then serving on the Committee (or such other
committee then administering the Plan) shall be granted Options hereunder if
the grant of such Options would cause such Eligible Non-Employee to no longer
be a "Non-Employee Director" as set forth in Section 2 hereof. The terms and
conditions of the Options granted under this Section 7 shall be determined from
time to time by the Committee; provided, however, that the Options granted
under this Section 7 shall be subject to all terms and provisions of the Plan
(other than Section 6), including the following:
a. Option Exercise Price. Subject to Section 4, the Committee
shall establish the Option exercise price at the time any
Non-Qualified Option is granted at such amount as the
Committee shall determine. The Option exercise price shall be
subject to adjustment in accordance with the provisions of
Section 11 of the Plan.
b. Payment. The price per share of Common Stock with respect to
each Option exercise shall be payable at the time of such
exercise. Such price shall be payable in cash or by any other
means acceptable to the Committee, including delivery to the
Company of shares of Common Stock owned by the optionee or by
the delivery or withholding of shares pursuant to a procedure
created pursuant to Section 5.d. of the Plan. Shares
delivered to or withheld by the Company in payment of the
Option exercise price shall be valued at the Fair Market
Value of the Common Stock on the day preceding the date of
the exercise of the Option.
c. Exercisability of Stock Option. Subject to Section 8, each
Option shall be exercisable in one or more installments as the
Committee may determine at the time of the grant. No Option
shall be exercisable after the expiration of ten years from
the date of grant of the Option, unless otherwise expressly
provided in such Option.
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<PAGE> 10
d. Death. If the retention by the Company or any Related Entity
of the services of any Eligible Non-Employee terminates
because of such Eligible Non-Employee's death, the estate of
such optionee, or a Person who acquired the right to exercise
such Option by bequest or inheritance or by reason of the
death of the optionee, shall have the right to exercise such
Option in accordance with its terms, at any time and from
time to time within 180 days after the date of death unless a
longer or shorter period is expressly provided in such Option
or established by the Committee pursuant to Section 8 (but in
no event after the expiration date of such Option).
e. Disability. If the retention by the Company or any Related
Entity of the services of any Eligible Non-Employee
terminates because of such Eligible Non-Employee's
Disability, such optionee or his legal representative shall
have the right to exercise the Option in accordance with its
terms at any time and from time to time within 180 days after
the date of the optionee's termination unless a longer or
shorter period is expressly provided in such Option or
established by the Committee pursuant to Section 8 (but not
after the expiration of the Option).
f. Termination for Cause; Voluntary Termination. If the
retention by the Company or any Related Entity of the
services of any Eligible Non-Employee is terminated (i) for
Good Cause, (ii) as a result of removal of the optionee from
office as a director of the Company or of any Related Entity
for cause by action of the stockholders of the Company or
such Related Entity in accordance with the by-laws of the
Company or such Related Entity, as applicable, and the
corporate law of the jurisdiction of incorporation of the
Company or such Related Entity, or (iii) as a result of the
voluntarily termination by optionee of optionee's service
without the consent of the Company or any Related Entity,
then such optionee shall immediately forfeit his rights under
his Option except as to the shares of stock already
purchased. The determination that there exists Good Cause for
termination shall be made by the Option Committee (unless
otherwise agreed to in writing by the Company and the
optionee).
g. Other Termination of Relationship. If the retention by the
Company or any Related Entity of the services of any Eligible
Non-Employee terminates for any reason other than those
specified in subsections 7(d), (e) or
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<PAGE> 11
(f) above, such optionee shall have the right to exercise his
or its Option in accordance with its terms within 30 days
after the date of such termination, unless a longer or shorter
period is expressly provided in such Option or established by
the Committee pursuant to Section 8 (but not after the
expiration date of the Option).
h. Ineligibility for Other Grants. Any Eligible Non-Employee who
receives an Option pursuant to this Section 7 shall be
ineligible to receive any Options under any other Section of
the Plan.
8. Change of Control.
If (i) a Change of Control shall occur, (ii) the Company shall enter
into an agreement providing for a Change of Control, or (iii) any member of the
Shareholder Group shall enter into an agreement providing for a Change in
Control, then the Committee may declare any or all Options outstanding under
the Plan to be exercisable in full at such time or times as the Committee shall
determine, notwithstanding the express provisions of such Options. Each Option
accelerated by the Committee pursuant to the preceding sentence shall
terminate, notwithstanding any express provision thereof or any other provision
of the Plan, on such date (not later than the stated exercise date) as the
Committee shall determine.
9. Purchase Option.
a. Except as otherwise expressly provided in any particular
Option, if (i) any optionee's employment (or, in the case of
any Option granted under Section 7, the optionee's
relationship) with the Company or a Related Entity terminates
for any reason at any time, or (ii) a Change of Control
occurs or (iii) (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 any optionee 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 optionee is not an "accredited
investor" as defined in Regulation D promulgated under the
Securities Act ("Regulation D") at the time of the respective
transaction and (C) the issuer of the shares, notes or other
securities involved in such transaction certifies in writing
to the Company that it 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 shares, notes or other securities from
registration
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<PAGE> 12
pursuant to Regulation D (each of the foregoing events being
a "Purchase Option Trigger Event"), the Company and/or its
designee(s) shall have the option (the "Purchase Option") to
purchase, and if the option is exercised, the optionee (or
the optionee's executor or the administrator of the
optionee's estate, in the event of the optionee's death, or
the optionee's legal representative in the event of the
optionee's incapacity (hereinafter, collectively with such
optionee, the "Grantor")) shall sell to the Company and/or
its assignee(s), all or any portion (at the Company's option)
of the shares of Common Stock and/or Options held by the
Grantor (such shares of Common Stock and Options collectively
being referred to as the "Purchasable Shares").
b. The Company shall give notice in writing to the Grantor of
the exercise of the Purchase Option within one year from the
date of the Purchase Option Trigger Event. Such notice shall
state the number of Purchasable Shares to be purchased and
the determination of the per share purchase price of such
Purchasable Shares. If no notice is given within the time
limit specified above, the Purchase Option shall terminate.
c. The purchase price to be paid for the Purchasable Shares
purchased pursuant to the Purchase Option shall be, in the
case of any Common Stock, the Fair Market Value per share as
of the date of the notice of exercise of the Purchase Option
times the number of shares being purchased, and in the case
of any Option, the Fair Market Value per share times the
number of vested shares subject to such Option which are
being purchased, less the applicable per share Option
exercise price; provided, however, that in the event that an
optionee's employment (or, in the case of any Option granted
under Section 7, the optionee's relationship) with the
Company is terminated in a manner contemplated by Section
6(f) (or, in the case of any Option granted under Section 7,
in the manner contemplated by Section 7(f)), then the
foregoing calculation shall be made using the lower of (i)
the Fair Market Value per share and (ii) the exercise price
per share in respect of the Purchasable Shares. The purchase
price shall be paid in cash. The closing of such purchase
shall take place at the Company's principal executive offices
within ten days after the purchase price has been determined.
At such closing, the Grantor shall deliver to the
purchaser(s) the certificates or instruments evidencing the
Purchasable Shares being purchased, duly endorsed (or
accompanied by duly executed stock powers) and otherwise in
good form for delivery, against payment of the purchase
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<PAGE> 13
price by check of the purchaser(s). In the event that,
notwithstanding the foregoing, the Grantor shall have failed
to obtain the release of any pledge or other encumbrance on
any Purchasable Shares by the scheduled closing date, at the
option of the purchaser(s) the closing shall nevertheless
occur on such scheduled closing date, with the cash purchase
price being reduced to the extent of all unpaid indebtedness
for which such Purchasable Shares are then pledged or
encumbered.
d. To assure the enforceability of the Company's rights under
this Paragraph 9, each certificate or instrument representing
Common Stock or an Option held by him or it shall bear a
conspicuous legend in substantially the following form:
"THE SHARES [REPRESENTED BY THIS CERTIFICATE] [ISSUABLE
PURSUANT TO THIS AGREEMENT] ARE SUBJECT TO AN OPTION TO
REPURCHASE PROVIDED UNDER THE PROVISIONS OF THE COMPANY'S
1998 STOCK OPTION PLAN AND A STOCK OPTION AGREEMENT ENTERED
INTO PURSUANT THERETO. A COPY OF SUCH OPTION PLAN AND OPTION
AGREEMENT ARE AVAILABLE UPON WRITTEN REQUEST TO THE COMPANY
AT ITS PRINCIPAL EXECUTIVE OFFICES."
The Company's rights under this Section 9 shall terminate upon the
consummation of a Qualifying Public Offering.
10. Decedent's Put Option.
a. If any optionee's employment (or, in the case of any Option
granted under Section 7, the optionee's relationship) with
the Company terminates due to the death of such optionee, the
estate of such optionee, or a Person who acquired the right
to exercise such Option by bequest or inheritance or by
reason of death of the optionee, shall have the option (a
"Decedent's Put Option") to sell to the Company, and the
Company shall purchase from such estate or other Person, all
or any portion of the shares of Common Stock and/or Options
acquired by such estate or other Person upon or as a result
of the optionee's death (any such shares of Common Stock and
Options collectively being referred to herein as "Decedent's
Shares").
b. The Person exercising a Decedent's Put Option shall give
notice in writing to the Company within one year from the
date of the optionee's death. Such notice shall state the
number of Decedent's Shares to be sold. If no notice is given
within the time limit specified above, the Decedent's Put
Option shall terminate.
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<PAGE> 14
c. The purchase price to be paid for the Decedent's Shares sold
pursuant to the Decedent's Put Option shall be, in the case
of any Common Stock, the Fair Market Value per share as of
the date of the notice of exercise of the Decedent's Put
Option times the number of shares being purchased, and in the
case of any Option, the Fair Market Value per share times the
number of vested shares subject to such Option which are
being purchased, less the applicable per share Option
exercise price. The purchase price shall be paid in cash. The
closing of such purchase shall take place at the Company's
principal executive offices within sixty days after the
receipt by the Company of the notice required pursuant to
Section 10(b). At such closing, the Person exercising the
Decedent's Put Option shall deliver to the Company the
certificates or instruments evidencing the Decedent's Shares
being sold, duly endorsed (or accompanied by duly executed
stock powers) and otherwise in good form for delivery and
free and clear of all pledges and other encumbrances, against
payment of the purchase price therefor by check.
11. Adjustment of Shares.
Unless otherwise expressly provided in a particular Option, in the
event that, by reason of any merger, consolidation, combination, liquidation,
reorganization, recapitalization, stock dividend, stock split, split-up,
split-off, spin-off, combination of shares, exchange of shares or other like
change in capital structure of the Company (collectively, a "Reorganization"),
the Common Stock is substituted, combined, or changed into any cash, property,
or other securities, or the shares of Common Stock are changed into a greater
or lesser number of shares of Common Stock, the number and/or kind of shares
and/or interests subject to an Option and the per share price or value thereof
shall be appropriately adjusted by the Committee to give appropriate effect to
such Reorganization. Any fractional shares or interests resulting from such
adjustment shall be eliminated. Notwithstanding the foregoing, (i) each such
adjustment with respect to an Incentive Option shall comply with the rules of
Section 424(a) of the Code, and (ii) in no event shall any adjustment be made
which would render any Incentive Option granted hereunder other than an
"incentive stock option" for purposes of Section 422 of the Code.
In the event the Company is not the surviving entity of a
Reorganization and, following such Reorganization, any optionee will hold
Options issued pursuant to this Plan which have not been exercised, cancelled,
or terminated in connection therewith, the Company shall cause such Options to
be assumed (or cancelled and replacement Options issued) by the surviving
entity or a Related Entity.
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<PAGE> 15
12. Assignment or Transfer.
Except as otherwise expressly provided in any Nonqualified Option, no
Option granted under the Plan or any rights or interests therein shall be
assignable or transferable by an optionee except by will or the laws of descent
and distribution, and during the lifetime of an optionee, Options granted to
him or her hereunder shall be exercisable only by the optionee or, in the event
that a legal representative has been appointed in connection with the
Disability of an optionee, such legal representative.
13. Compliance with Securities Laws.
The Company shall not in any event be obligated to file any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") or any applicable state securities law to permit exercise of
any Option or to issue any Common Stock in violation of the Securities Act or
any applicable state securities law. Each optionee (or, in the event of his
death or, in the event a legal representative has been appointed in connection
with his Disability, the Person exercising the Option) shall, as a condition to
his right to exercise any Option, deliver to the Company an agreement or
certificate containing such representations, warranties and covenants as the
Company may deem necessary or appropriate to ensure that the issuance of shares
of Common Stock pursuant to such exercise is not required to be registered
under the Securities Act or any applicable state securities law.
Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED
FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE
ISSUER (WHICH, IN THE DISCRETION OF THE ISSUER, MAY INCLUDE
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER) THAT SUCH
OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Common Stock issued
pursuant to an effective registration statement under the Securities Act and in
accordance with applicable state securities laws.
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<PAGE> 16
14. Withholding Taxes. By acceptance of the Option, the optionee will be
deemed to (i) agree to reimburse the Company or Related Entity by
which the optionee is employed for any federal, state, or local taxes
required by any government to be withheld or otherwise deducted by
such corporation in respect of the optionee's exercise of all or a
portion of the Option; (ii) authorize the Company or any Related
Entity by which the optionee is employed to withhold from any cash
compensation paid to the optionee or in the optionee's behalf, an
amount sufficient to discharge any federal, state, and local taxes
imposed on the Company, or the Related Entity by which the optionee is
employed, and which otherwise has not been reimbursed by the optionee,
in respect of the optionee's exercise of all or a portion of the
Option; and (iii) agree that the Company may, in its discretion, hold
the stock certificate to which the optionee is entitled upon exercise
of the Option as security for the payment of the aforementioned
withholding tax liability, until cash sufficient to pay that liability
has been accumulated, and may, in its discretion, effect such
withholding by retaining shares issuable upon the exercise of the
Option having a Fair Market Value on the date of exercise which is
equal to the amount to be withheld.
15. Costs and Expenses. The costs and expenses of administering the Plan
shall be borne by the Company and shall not be charged against any
Option nor to any employee receiving an Option.
16. Funding of Plan. The Plan shall be unfunded. The Company shall not be
required to make any segregation of assets to assure the payment of
any Option under the Plan.
17. Other Incentive Plans
The adoption of the Plan does not preclude the adoption by appropriate
means of any other incentive plan for employees.
18. Effect on Employment.
Nothing contained in the Plan or any agreement related hereto or
referred to herein shall affect, or be construed as affecting, the terms of
employment of any Key Employee except to the extent specifically provided
herein or therein. Nothing contained in the Plan or any agreement related
hereto or referred to herein shall impose, or be construed as imposing, an
obligation on (i) the Company or any Related Entity to continue the employment
of any Key Employee, and (ii) any Key Employee to remain in the employ of the
Company or any Related Entity.
19. Definitions.
In addition to the terms specifically defined elsewhere in the Plan,
as used in the Plan, the following terms shall have the respective meanings
indicated:
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<PAGE> 17
"Affiliate" shall mean, as to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person.
"Board of Directors" shall have the meaning set forth in Section 2
hereof.
"Change of Control" shall mean the first to occur of the following
events: (i) any sale, lease, exchange, or other transfer (in one
transaction or series of related transactions) of all or substantially
all of the assets of the Company to any Person or group of related
Persons for purposes of Section 13(d) of the Exchange Act, other than
one or more members of the Shareholder Group, (ii) a majority of the
Board of Directors of the Company shall consist of Persons who are not
Continuing Directors; or (iii) the acquisition by any Person or Group
(other than one or more members of the Shareholder Group) of the
power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the
election of directors of the Company.
"Code" shall have the meaning set forth in Section 1 hereof.
"Committee" shall have the meaning set forth in Section 2 hereof.
"Common Stock" shall have the meaning set forth in Section 3 hereof.
"Company" shall have the meaning set forth in Section 1 hereof.
"Continuing Director" shall mean, as of the date of determination, any
Person who (i) was a member of the Board of Directors of the Company
on the date of adoption of this Plan, (ii) was nominated for election
or elected to the Board of Directors of the Company with the
affirmative vote of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or
election, or (iii) is a member of the Shareholder Group.
"Disability" shall mean permanent disability as defined under the
appropriate provisions of the applicable long-term disability plan
maintained for the benefit of employees of the Company or any Related
Entity who are regularly employed on a salaried basis unless another
meaning shall be agreed to in writing by the Committee and the
optionee; provided, however, that in the case of an Incentive Option
"disability" shall have the meaning specified in Section 22(e)(3) of
the Code.
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<PAGE> 18
"Eligible Non-Employee" shall have the meaning set forth in Section 4
hereof.
"Exchange Act" shall have the meaning set forth in Section 2 hereof.
"Fair Market Value" shall, as it relates to the Common Stock, mean the
average of the high and low prices of such Common Stock as reported on
the principal national securities exchange on which the shares of
Common Stock are then listed on the date specified herein, or if there
were no sales on such date, on the next preceding day on which there
were sales, or if such Common Stock is not listed on a national
securities exchange, the last reported bid price in the
over-the-counter market, or if such shares are not traded in the
over-the-counter market, the per share cash price for which all of the
outstanding Common Stock could be sold to a willing purchaser in an
arms length transaction (without regard to minority discount, absence
of liquidity, or transfer restrictions imposed by any applicable law
or agreement) at the date of the event giving rise to a need for a
determination. Except as may be otherwise expressly provided in a
particular Option, Fair Market Value shall be determined in good faith
by the Committee.
"Good Cause", with respect to any Key Employee, shall mean (unless
another definition is agreed to in writing by the Company and the
optionee) termination by action of the Board of Directors because of:
(A) the optionee's conviction of, or plea of nolo contendere to, a
felony or a crime involving moral turpitude; (B) the optionee's
personal dishonesty, incompetence, willful misconduct, willful
violation of any law, rule, or regulation (other than minor traffic
violations or similar offenses) or breach of fiduciary duty which
involves personal profit; (C) the optionee's commission of material
mismanagement in the conduct of his duties as assigned to him by the
Board of Directors or the optionee's supervising officer or officers
of the Company; (D) the optionee's willful failure to execute or
comply with the policies of the Company or his stated duties as
established by the Board of Directors or the optionee's supervising
officer or officers of the Company, or the optionee's intentional
failure to perform the optionee's stated duties; or (E) substance
abuse or addiction on the part of the optionee. "Good Cause", with
respect to any Eligible Non-Employee, shall mean (unless another
definition is agreed to in writing by the Company and the optionee)
termination by action of the Board of Directors because of: (A) the
optionee's conviction of, or plea of nolo contendere to, a felony or a
crime involving moral turpitude; (B) the optionee's personal
dishonesty, incompetence, willful misconduct, willful violation of any
18
<PAGE> 19
law, rule, or regulation (other than minor traffic violations or
similar offenses) or breach of fiduciary duty which involves personal
profit; (C) the optionee's commission of material mismanagement in
providing services to the Company or any Related Entity; (D) the
optionee's willful failure to comply with the policies of the Company
in providing services to the Company or any Related Entity, or the
optionee's intentional failure to perform the services for which the
optionee has been engaged; (E) substance abuse or addiction on the
part of the optionee; or (F) the optionee's willfully making any
material misrepresentation or willfully omitting to disclose any
material fact to the board of directors of the Company or any Related
Entity with respect to the business of the Company or any Related
Entity.
"Grant Year" shall mean the Plan Year in which the Options are granted
and shall be deemed a full Plan Year.
"Grantor" has the meaning set forth in Section 9 hereof.
"Incentive Options" shall have the meaning set forth in Section 6
hereof.
The term "including" when used herein shall mean "including, but not
limited to".
"Key Employee" shall have the meaning set forth in Section 4 hereof.
"Marketable Securities" shall mean securities (i) of a class or series
listed or traded on the New York Stock Exchange, American Stock
Exchange, or NASDAQ National Market and (ii) which, as a matter of
law, shall at the time of acquisition be (or which at the date of
acquisition are legally committed to become within six months after
the date of acquisition) freely saleable in unlimited quantities by
the Shareholder Group to the public, either pursuant to an effective
registration statement under the Securities Act of 1933, as amended
(including a current prospectus which is available for delivery), or
without the necessity of such registration.
"Non-Qualified Options" shall have the meaning set forth in Section 6
hereof.
"Options" shall have the meaning set forth in Section 1 hereof.
"Person" shall have the meaning set forth in Section 4 hereof.
"Plan" shall have the meaning set forth in Section 1 hereof.
19
<PAGE> 20
"Plan Year" shall mean the twelve month period ending on September
30th.
"Public Offering" shall mean the sale of shares of Common Stock
through one or more underwriters pursuant to a registration statement
on Form S-1, Form SB-1, or Form SB-2 (or any form subsequently
promulgated by the Securities and Exchange Commission that may be used
for substantially the same purposes as any of the forms just
specified) filed and declared effective under the Securities Act of
1933, as amended, in which the aggregate net proceeds received from
the sale of such shares are at least $10,000,000.
"Purchasable Shares" shall have the meaning set forth in Section 9
hereof.
"Purchase Option" shall have the meaning set forth in Section 9
hereof.
"Qualifying Public Offering" shall mean a firm commitment underwritten
Public Offering of Common Stock the result of which is that the
Persons comprising the Shareholder Group shall own collectively less
than 10% of the fully diluted Common Stock.
"Related Entities" shall have the meaning set forth in Section 1
hereof.
"Reorganization" shall have the meaning set forth in Section 11
hereof.
"Rule 16b-3" shall have the meaning set forth in Section 2 hereof.
"Securities Act" shall have the meaning set forth in Section 13
hereof.
"Shareholder Group" shall mean (i) Hicks, Muse, Tate & Furst
Incorporated, its Affiliates and their respective employees, officers,
and directors (and members of their respective families and trusts for
the primary benefit of such family members) and (ii) Glenn E. Staats
and Preston W. Staats, Jr. (and members of their respective families
and trusts for the primary benefit of such family).
"Subsidiary" shall mean, with respect to any Person, any other Person
of which such first Person 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.
20
<PAGE> 21
20. Amendment of Plan.
The Board of Directors shall have the right to amend, modify, suspend
or terminate the Plan at any time; provided, that no amendment shall be made
which shall increase the total number of shares of the Common Stock which may
be issued and sold pursuant to Options granted under the Plan or decrease the
minimum Option exercise price in the case of an Incentive Option, or modify the
provisions of the Plan relating to eligibility with respect to Incentive
Options unless such amendment is made by or with the approval of the
stockholders. The Board of Directors shall be authorized to amend the Plan and
the Options granted thereunder (i) to qualify as "incentive stock options"
within the meaning of Section 422 of the Code or (ii) to comply with Rule 16b-3
(or any successor rule) under the Exchange Act (or any successor law) and the
regulations (including any temporary regulations) promulgated thereunder. No
amendment, modification, suspension or termination of the Plan shall alter or
impair any Options previously granted under the Plan, without the consent of
the holder thereof.
21. Effective Date.
The Plan shall be effective as of March 1, 1998, and shall be void
retroactively if not approved by the stockholders of the Company within twelve
months thereafter.
21
<PAGE> 1
EXHIBIT 10.3
AMENDMENT
THIS AMENDMENT (this "Amendment") is entered into as of March 31,
1999, by and among Cooperative Computing, Inc., a Delaware corporation formerly
known as Triad Systems Corporation ("CCI/Triad"), Triad Systems Financial
Corporation, a California corporation ("TSFC"), CCI/Triad Financial Holding
Corporation, a California corporation ("SPE"), and Heller Financial Leasing,
Inc., a Delaware corporation ("Lender").
INTRODUCTION
A. SPE and Lender's predecessor in interest are parties to that
certain Master Loan and Security Agreement Form dated as of January 1, 1997
(said Agreement as amended to date, the "SPE Loan Agreement").
B. TSFC and Lender's predecessor in interest are parties to that
certain Loan and Security Agreement dated as of September 1, 1994 (said
Agreement, as amended to date, the "TSFC Loan Agreement").
C. CCI/Triad, SPE, TSFC and Lender's predecessor in interest are
parties to that certain Operating and Support Agreement dated as of January 1,
1997 (the "SPE Support Agreement").
D. CCI/Triad, TSFC and Lender's predecessor in interest are parties to
that certain Operating and Support Agreement dated as of September 1, 1994 (the
"TSFC Support Agreement").
E. The respective parties desire to amend the SPE Loan Agreement and
the TSFC Loan Agreement as set forth below and to provide for a full recourse
Discount Facility Loan (as defined in the SPE Loan Agreement) to SPE by Lender
pursuant to Section 3.12 of the SPE Loan Agreement.
NOW THEREFORE, in consideration of the foregoing and other valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Section 1 of the SPE Loan Agreement is hereby amended by adding the
following defined terms at the end of that Section:
"1.38 "TSFC Loan Agreement" - the Loan and Security Agreement
dated as of September 1, 1994 between TSFC and Lender, as
amended from time to time."
1
<PAGE> 2
2. Section 1 of the SPE Loan Agreement and Schedule 1 thereto are
hereby amended by changing the Anniversary Date to be January 1, 2000.
3. The second sentence of Section 8.4 of the SPE Loan Agreement is
hereby amended in its entirety to read as follows:
"The liability of SPE under this Section 8.4 on any Loan Repayment
Date shall not exceed an amount equal to (i) ten percent (10%) of the
aggregate initial principal amount of Loans (excluding full recourse
Loans made under Section 3.12 of this Agreement) made under this
Agreement and all loans made to TSFC by Lender under the TSFC Loan
Agreement (excluding full recourse loans made under Section 3.12 of
the TSFC Loan Agreement), each as of such Loan Repayment Date plus
(ii) the aggregate Standard Cost of all Equipment remarketed pursuant
to Section 10 of this Agreement and the aggregate Standard Cost of all
Equipment (as such terms are defined in the TSFC Loan Agreement)
remarketed pursuant to Section 10 of the TSFC Loan Agreement, each 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 and the aggregate loans repaid by
TSFC to Lender under Section 8.4 of the TSFC Loan Agreement, each as
of such Loan Repayment Date minus (iv) without double counting the
amounts described in clause (iii), 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
and the aggregate amounts paid by TSFC to Lender described in clause
(iv) of the second sentence of Section 8.4 of the TSFC Loan Agreement,
each as of such Loan Repayment Date, plus (v) the aggregate initial
principal amount of all full recourse loans made to SPE under Section
3.12 of this Agreement and made to TSFC under Section 3.12 of the TSFC
Loan Agreement, minus (vi) without double counting any of the
foregoing amounts, the aggregate amount of principal repaid to Lender
as of such Loan Repayment Date with respect to full recourse loans
referenced in clause (v), which principal payments were required to be
made as a result of a lessee default under Section 3.12 of this
Agreement or Section 3.12 of the TSFC Loan Agreement (the "Net Loss
Pool"). Notwithstanding the foregoing, SPE shall not be liable for
loans made to TSFC."
The last sentence of Section 3.12 of the SPE Loan Agreement is hereby
deleted.
2
<PAGE> 3
4. Section 1 of the TSFC Loan Agreement is hereby amended by adding
the following defined terms at the end of that Section:
1.39 "SPE" - CCI/Triad Financial Holding Corporation, a California
corporation.
1.40 "SPE Loan Agreement" - the Master Loan and Security Agreement
form dated as of January 1, 1997, between Lender and SPE, as amended
from time to time."
5. The second sentence of Section 8.4 of the TSFC Loan Agreement is
hereby amended in its entirety to read as follows:
"The liability of TSFC under this Section 8.4 on any Loan Repayment
Date shall not exceed (i) ten percent (10%) of the aggregate initial
principal amount of all Loans (excluding full recourse Loans made
under Section 3.12 of this Agreement) made under this Agreement and
all loans made to SPE by Lender under the SPE Loan Agreement
(excluding full recourse loans made under Section 3.12 of the SPE Loan
Agreement), each as of such Loan Repayment Date plus (ii) the
aggregate Standard Cost of all Equipment remarketed pursuant to
Section 10 of this Agreement and the aggregate Standard Cost of all
Equipment (as such terms are defined in the SPE Loan Agreement)
remarketed pursuant to Section 10 of the SPE Loan Agreement, each as
of such Loan Repayment Date minus (iii) the aggregate Loan Repayment
Amounts paid by TSFC to Lender pursuant to this Section 8.4 with
respect to Discount Facility Loans and the aggregate loans repaid by
SPE to Lender under Section 8.4 of the SPE Loan Agreement, each as of
such Loan Repayment Date minus (iv) without double counting the
amounts described in clause (iii), the aggregate of all cure amounts
paid by TSFC 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 TSFC has been unable to collect such amounts from such Lessees
and the aggregate amounts paid by SPE to Lender described in clause
(iv) of the second sentence of Section 8.4 of this SPE Loan agreement,
each as of such Loan Repayment Date, plus (v) the aggregate amount of
all full recourse loans made to TSFC under Section 3.12 of this
Agreement and made to SPE under Section 3.12 of the SPE Loan
Agreement, minus (vi) without double counting any of the foregoing
amounts, the aggregate amount of principal repaid to Lender as of such
Loan Repayment Date with respect to full recourse loans referenced in
clause (v), which principal payments were required to be made as a
result of a lessee default under Section 3.12 of this Agreement or
Section 3.12 of the SPE Loan Agreement (the "Net Loss Pool")."
The last sentence of Section 3.12 of the TSFC Loan Agreement is hereby
deleted.
3
<PAGE> 4
6. Exhibit E of the SPE Loan Agreement is hereby deleted and replaced
with the Exhibit E attached hereto as Attachment 1.
7. Exhibit E to the TSFC Loan Agreement is hereby deleted and replaced
with the Exhibit E attached hereto as Attachment 2.
8. The Discount Facility Loan being made to SPE by Lender on or about
the date hereof in the principal amount of One Million Eight Hundred Twenty-One
Thousand Eight Hundred Twenty-Four and 07/100ths Dollars ($1,821,824.07) shall
constitute a full recourse Loan (as defined in the SPE Loan Agreement) under
Section 3.12 of the SPE Loan Agreement, and shall be further evidenced by a
Full Recourse Promissory Note in the form attached hereto as Attachment 3.
9. Section 12.2 of each of the SPE Loan Agreement and the TSFC Loan
Agreement are hereby amended by providing that copies of notices sent to SPE or
TSFC, respectively, under such agreements, shall also be sent to: Walter
Bissex, Cooperative Computing, Inc., 6207 Bee Cave Road, Austin, Texas 78746.
10. CCI/Triad, TSFC and SPE, as parties to the SPE Support Agreement,
and CCI/Triad and TSFC, as parties to the TSFC Support Agreement, agree and
consent to all of the foregoing amendments to the SPE Loan Agreement and the
TSFC Loan Agreement, respectively, and further agree that the SPE Support
Agreement and the TSFC Support Agreement continue in full force and effect with
Lender succeeding to all of the rights and obligations of Heller Financial,
Inc. thereunder.
11. As amended hereby, the SPE Loan Agreement and the TSFC Loan
Agreement each continue in full force and effect with Lender succeeding to all
of the rights and obligations of Heller Financial, Inc. thereunder.
12. This Amendment may be executed in any number of separately
executed counterparts, all of which taken together shall constitute a single
instrument.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their duly authorized officers as of the date
first above written.
COOPERATIVE COMPUTING, INC. TRIAD SYSTEMS FINANCIAL
CORPORATION
By /s/WALTER EARL BISSEX By /s/MATTHEW HALE
Its Vice President Its President
CCI/TRIAD FINANCIAL HOLDING HELLER FINANCIAL LEASING, INC.
By /s/MATTHEW HALE By /s/GARY W. LOMONACO
Its President Its Sr. Vice President
5
<PAGE> 1
EXHIBIT 10.4
Cooperative Computing, Inc.
6207 Bee Cave Road
Austin, Texas 78746
June 14, 1999
Michael Aviles
6106 Northwood
Dallas, Texas 75225
Dear Mike:
We are pleased to offer you employment as President and Chief
Operating Officer of Cooperative Computing, Inc. on the terms described on the
attached Term Sheet. If you desire to accept this offer, please sign and date
this letter in the space provided below, execute a copy of the
Noncompetition/Nonsolicitation Agreement included with this letter, and return
both documents to Joe Colonnetta at 200 Crescent Court, Suite 1600, Dallas,
Texas. This offer will expire and be of no force and effect if not accepted
today.
A form of option agreement evidencing the options to be granted to you
will be forwarded to you for signature promptly.
Very truly yours,
COOPERATIVE COMPUTING, INC.
By: /s/ J. D. FURST
Jack D. Furst, Director
By: /s/ JOE COLONNETTA
Joe Colonnetta, Director
AGREED AND ACCEPTED:
/s/ MICHAEL A. AVILES
Michael Aviles
Date: June 14, 1999
<PAGE> 2
PROJECT BRIGHT STAR
TERMS OF EMPLOYMENT
The following is a summary of the terms of employment between
Cooperative Computing, Inc. (the "Company") and Michael Aviles (the
"Executive").
TITLES: President and Chief Operating Officer
RESPONSIBILITIES: Reporting directly to the Executive
Committee of the Company (Tom Hicks, Jack
Furst, Glenn Staats and Joe Colonnetta),
with direct and primary responsibility over
the Automotive and Hard Lines Divisions
(which are the principal divisions of the
Company, excluding Europe), including
sales, marketing, manufacturing, logistics,
implementation and customer service.
TERM: From June 1999, through September 30, 2002
(the "Initial Term"), automatically renewed
on a year to year basis unless either party
elects not to renew at least 60 days prior
to the end of the then applicable term. For
the purposes of any renewal, unless
otherwise agreed, Executive's annual base
salary will equal that applicable at the
end of the prior term. Executive's bonus,
if any, will be as provided in any bonus
plan then applicable to executive officers
of the Company generally or as otherwise
agreed.
BASE COMPENSATION: $350,000 annually, payable monthly in
arrears
QUARTERLY BONUS: During the Initial Term, Executive will be
eligible to receive bonuses of up to 50% of
Executive's base salary in effect during
such quarter, with the actual amount to be
determined based upon the Company's
achievement of quarterly financial and
other objectives. Notwithstanding the
foregoing, the Executive will be entitled
to a bonus during the first four full
quarters of the Initial Term $43,750 for
each such quarter, to the extent Executive
remains employed by the Company during the
applicable quarter. The bonuses will be
payable quarterly in arrears.
SPECIAL CASH INCENTIVE: In addition to the base compensation and
quarterly bonus described above, Executive
will be entitled during the Initial Term to
receive a special cash bonus of (a) $1.5
million upon the achievement of the First
Hurdle (described below), (b) $2.0 million
upon the achievement of the Second Hurdle
(described below) and (c) $1.5 million upon
achievement of the Third Hurdle (described
below). The First Hurdle will be satisfied
as of the end
<PAGE> 3
of the first fiscal year in which the
Company achieves a $5.0 million increase in
Consolidated EBITDA (as defined in the
Company's indenture governing its 9% senior
subordinated notes due 2008, provided that
such Consolidated EBITDA will not be
impacted negatively or positively by SOP
97-2 or by write downs of accounts
receivable within the first 18 months of
employment) versus the Consolidated EBITDA
for the fiscal year ended September 30,
1999 ("Base Cash Flow"); the Second Hurdle
will be satisfied as of the end of the
first fiscal year in which the Company
achieves a $10.0 million increase in
Consolidated EBITDA versus the Base Cash
Flow; and the Third Hurdle will be
satisfied as of the end of the first fiscal
year in which the Company achieves a $15.0
million increase in Consolidated EBITDA
versus the Base Cash Flow. These bonuses
will be cumulative in the event the Company
achieves more than one hurdle as of the end
of any particular fiscal year (for example,
if Consolidated EBITDA for the fiscal year
ended September 30, 2000 is $10.0 million
greater than the Base Cash Flow, Executive
would be entitled to a $3.5 million bonus)
and once a bonus is paid as to a particular
hurdle, Executive will not be entitled to
any further bonus in respect of that hurdle
(for example, if the Company pays the $3.5
million bonus as provided in the prior
example, and the Consolidated EBITDA for
the next fiscal year is $15 million greater
than the Base Cash Flow, Executive will be
entitled to an additional one time bonus of
$1.5 million in respect of the Third
Hurdle, and no further special bonuses
would be payable). Any bonus payable
pursuant to this provision will be payable
within 30 days after approval by the Audit
Committee of the computation of
Consolidated EBITDA for the applicable
fiscal year (but in no event later than 120
after the end of such fiscal year).
Executive will also be entitled to a one
time cash bonus of $5.0 million (less any
bonuses previously paid pursuant to the
provisions of the first sentence above)
upon the occurrence during the Initial Term
of either of the events specified in
paragraphs (a) or (c) of the definition of
Change of Control set forth below under
"Stock Options" (to the extent Executive is
employed by the Company at the time of such
event). In addition, in the event the
Company has achieved the Second Hurdle or
is reasonably likely to achieve the Second
Hurdle, Executive is terminated during the
Initial
2
<PAGE> 4
Term without Cause (as defined) or
Executive terminates his employment for
Good Reason (as defined) while ongoing
discussions are taking place between the
Company and one or more other persons
relating to a transaction (the "Pending
Transaction") that will result in the
occurrence of one of the events specified
in clause (a) or (c) of the definition of
Change of Control, and such Pending
Transaction is consummated within 120 days
after the date of Executive's termination,
Executive shall be entitled to receive (in
addition to any other amounts payable to
Executive upon such termination) upon
consummation of the Pending Transaction a
one time cash bonus of $5.0 million (less
any bonuses previously paid pursuant to the
first sentence of this paragraph).
TERMINATION: If terminated for Cause, if the employee
resigns voluntarily without Cause, or if
Executive's employment terminates as a
result of his death or disability, the
employee is entitled to no further
consideration after the date of such
termination. If terminated by the Company
without Cause, by the Executive for Good
Reason, or if this Agreement is not renewed
by the Company upon expiration of the
Initial Term, Executive shall be entitled
to severance in an amount equal to 18
months' base salary (based upon the base
salary then in effect) payable monthly in
arrears, plus the pro rated portion of any
quarterly bonus that would be payable in
respect of the quarter during which
Executive is terminated, plus any Special
Cash Bonuses earned, but not paid, in
respect of any fiscal years ending prior to
the termination of employment, in each case
payable at the time such bonus otherwise
would have been payable in accordance with
past practice, plus accrued benefits (if
any). "Cause" means (a) a conviction of a
crime (other than minor traffic offenses
and the like), (b) the Executive breaches
any obligations under the
non-competition/non-solicitation agreement
entered into concurrently herewith (and
fails to cure the breach within 30 days
after notice), (c) the employee engages in
dishonesty or fraud, (d) the employee is
physically able to perform his duties and
services but refuses to do so, or (e) the
employee engages in gross negligence or
willful misconduct injurious to the
Company, Cooperative Computing Holding
Company, Inc. ("Holdings") or their
respective subsidiaries. "Good Reason"
shall mean (a) any breach by the Company of
its obligations hereunder, (b) any
significant reduction, approved by the
Board without Executive's written
3
<PAGE> 5
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.
RELOCATION: Executive will permanently relocate to
Austin, Texas prior to December 31, 1999
(the "Relocation Date"). The Company will
reimburse the Executive for normal and
customary relocation expenses, including
travel for housing searches, commuting to
Austin, Texas prior to relocation through
the earlier of his relocation or the
Relocation Date, closing costs on the sale
of Executive's existing residence, closing
costs on the purchase of the Executive's
residence in Austin, Texas, moving
expenses, and temporary living expenses
prior to closing on Executive's residence
in Austin, Texas. All expenses reimbursed
will be grossed up for United States
federal income tax purposes.
STOCK OPTIONS: Executive will be granted, as of the
effective time of Executive's employment
with the Company, options (the "Options")
to purchase an aggregate of 500,000 shares
of Common Stock, par value $.000125 per
share ("Common Stock"), of Holdings. The
Options will be evidenced by a separate
option agreement to be entered into and
will be granted pursuant to, and subject to
the terms of (except for those terms
outlined below), Holdings' 1998 Stock
Option Plan. The Options will be
exercisable at $5.00 per share and will
vest and become exercisable, except as
provided below, in three equal annual
installments commencing on the first
anniversary of the effective time of
Executive's employment. Notwithstanding the
foregoing, the Options will fully vest and
become exercisable upon the occurrence of a
Change of Control (as defined). "Change of
Control" shall have the meaning given that
term in the 1998 Stock Option Plan, which
as so defined generally means the first to
occur of the following events: (a) any
sale, lease, exchange, or other transfer
(in one transaction or a series of related
transactions) of all or substantially all
of the assets of Holdings to any Person or
group of related Persons for purposes of
Section 13(d) of the Securities Exchange
Act of 1934, other than to one or more
4
<PAGE> 6
members of the Shareholder Group (as
defined in the 1998 Stock Option Plan), (b)
a majority of the Board of Directors of
Holdings shall consist of Persons who are
not Continuing Directors (as defined in the
1998 Stock Option Plan), or (c) the
acquisition by any Person or group of
Persons (other than one or more members of
the Shareholder Group) of the power,
directly or indirectly, to vote securities
having more than 50% of the ordinary voting
power for the election of directors of
Holdings.
NO MITIGATION: Executive's severance payments will not be
subject to mitigation as a result of any
employment or other compensation received
by Executive after termination of his
employment.
GOVERNING LAW: Governed by Texas law, without regard to
principles of conflicts of laws.
5
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 343
<SECURITIES> 0
<RECEIVABLES> 43,888
<ALLOWANCES> 0
<INVENTORY> 6,833
<CURRENT-ASSETS> 66,858
<PP&E> 12,121
<DEPRECIATION> 0
<TOTAL-ASSETS> 294,482
<CURRENT-LIABILITIES> 55,892
<BONDS> 173,668
0
0
<COMMON> 23,945
<OTHER-SE> 4,481
<TOTAL-LIABILITY-AND-EQUITY> 294,482
<SALES> 63,014
<TOTAL-REVENUES> 176,499
<CGS> 41,398
<TOTAL-COSTS> 111,329
<OTHER-EXPENSES> 80,804
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,496
<INCOME-PRETAX> (28,869)
<INCOME-TAX> (8,055)
<INCOME-CONTINUING> (20,814)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,814)
<EPS-BASIC> 0
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</TABLE>
