<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 March 31, 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:
<TABLE>
<CAPTION>
Class Outstanding at May 15, 1999
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<S> <C>
Common Stock 1,000 shares
</TABLE>
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COOPERATIVE COMPUTING, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
Consolidated Balance Sheets as of March 31, 1999 and September 30, 1998 3
Consolidated Statements of Operations for the three months and six months 4
ended March 31, 1999 and March 31, 1998
Consolidated Statements of Cash Flows for the six months ended 5
March 31, 1999 and March 31, 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 11
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
</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 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND 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 THE OLD CCI AND TRIAD BUSINESSES OR 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
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 1,159
Trade accounts receivable, net 40,305 37,774
Inventories 6,880 6,005
Investment in leases 2,762 2,792
Deferred income taxes 1,818 1,818
Prepaid expenses and other current assets 9,930 7,742
------------ ------------
Total current assets 61,695 57,290
Service parts 4,224 3,605
Property and equipment, net 12,369 12,528
Long-term investment in leases 18,024 14,771
Capitalized computer software costs, net 20,574 25,174
Databases, net 15,536 16,824
Deferred financing costs 7,849 6,310
Other intangibles 145,004 153,689
Other assets 9,847 10,658
------------ ------------
Total assets $ 295,122 $ 300,849
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,578 $ 16,249
Payroll related accruals 8,753 9,362
Deferred revenue 8,884 6,269
Current portion of long-term debt 3,382 6,229
Accrued expenses and other current liabilities 13,293 13,080
------------ ------------
Total current liabilities 47,890 51,189
Long-term debt 195,363 177,089
Deferred income taxes 31,499 37,487
Other liabilities 9,071 9,721
------------ ------------
Total liabilities 283,823 275,486
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 (77,699) (63,635)
------------ ------------
Total stockholders' equity: 11,299 25,363
------------ ------------
Total liabilities and stockholders' equity $ 295,122 $ 300,849
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Systems $ 20,595 $ 16,977 $ 38,810 $ 34,463
Customer support and information services 37,070 33,718 73,712 66,101
Finance 893 1,804 1,784 3,850
------------ ------------ ------------ ------------
Total revenues 58,558 52,499 114,306 104,414
Cost of revenues:
Systems 13,548 12,203 26,101 24,489
Services and finance 24,474 21,609 47,166 42,092
------------ ------------ ------------ ------------
Total cost of revenues 38,022 33,812 73,267 66,581
------------ ------------ ------------ ------------
Gross margin 20,536 18,687 41,039 37,833
Operating expenses:
Sales and marketing 13,005 11,448 25,673 23,257
Product development 3,697 3,842 7,429 8,073
General and administrative 9,546 9,014 19,067 18,183
------------ ------------ ------------ ------------
Total operating expenses 26,248 24,304 52,169 49,513
Operating loss (5,712) (5,617) (11,130) (11,680)
Interest expense (4,459) (3,830) (8,897) (7,350)
Other income (expense), net 366 359 123 254
------------ ------------ ------------ ------------
Loss before income taxes and extraordinary charge (9,805) (9,088) (19,904) (18,776)
Income tax benefit (2,381) (2,761) (5,442) (5,659)
------------ ------------ ------------ ------------
Loss before extraordinary charge -- (6,327) -- (13,117)
Extraordinary charge, net of tax of $1,969 -- 3,017 -- 3,017
------------ ------------ ------------ ------------
Net loss $ (7,424) $ (9,344) $ (14,462) $ (16,134)
============ ============ ============ ============
</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>
Six Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (14,462) $ (16,134)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 4,501 2,931
Amortization 22,225 22,054
Loss on write-off of debt issuance costs -- 3,017
Other, net 278 (10)
Changes in assets and liabilities, net of effects of businesses
acquired:
Trade accounts receivable (2,531) (3,917)
Inventories (3,452) (7,104)
Investment in leases (3,223) 352
Deferred income taxes (5,989) (7,926)
Prepaid expenses and other assets (1,742) (1,178)
Accounts payable (2,671) 4,193
Deferred revenue 2,615 585
Accrued expenses and other current liabilities (1,046) (2,164)
------------ ------------
Net cash used in operating activities (5,497) (5,301)
INVESTING ACTIVITIES
Purchase of property and equipment (1,788) (1,318)
Capitalized computer software costs and databases (6,859) (6,328)
Equity in earnings (loss) of investments 104 131
Purchase of service parts (497) (242)
Acquisitions of businesses, net of cash acquired (375) (9,000)
Other, net 214 (1,021)
------------ ------------
Net cash used in investing activities (9,201) (17,778)
FINANCING ACTIVITIES
Proceeds from bond issuance -- 100,000
Proceeds from credit facility 72,600 148,350
Payment on debt facilities (57,130) (220,850)
Debt issuance costs (1,931) (5,801)
Other -- (251)
------------ ------------
Net cash provided by financing activities 13,539 21,448
Net decrease in cash and cash equivalents (1,159) (1,631)
Cash and cash equivalents, beginning of period 1,159 1,633
------------ ------------
Cash and cash equivalents, end of period $ 0 $ 2
============ ============
Supplemental disclosures of cash flow information
Cash paid (received) during the period for:
Interest $ 8,424 $ 5,794
============ ============
Income taxes $ 241 $ 188
============ ============
Non Cash Transactions:
Transfers from inventory to fixed assets $ 1,457 $ 2,040
============ ============
Transfers from inventory to spare parts $ 1,017 $ 590
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE> 6
COOPERATIVE COMPUTING HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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. Operating results for the three months and six months ended March 31,
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.
Reclassification
Certain prior period amounts have been reclassified to correspond with
current period classification.
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 $3.5 million of revenues ($1.8 million of gross
margin) for the six months ended March 31, 1999.
Effective December 15, 1998, 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 six months of 1999 and 1998,
total comprehensive loss was as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net loss $ (14,462) $ (16,134)
Foreign currency translation adjustment 398 (80)
------------ ------------
Comprehensive loss $ (14,064) $ (16,214)
============ ============
</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
<PAGE> 7
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 ............................. 348 2,617
Charges and lease write-offs .......................... (529) (2,141)
------------ ------------
Balance at March 31, 1999 ............................. $ 1,600 $ 5,923
============ ============
</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
outstanding amounts under the 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 six months ended March
31, 1999 at an effective rate of approximately 27%, which is based on the
Company's anticipated results for the full fiscal year. The amount of permanent
differences, which 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 consisting primarily of goodwill amortization.
6. SUBSEQUENT EVENT
On May 17, 1999, Holding's majority shareholder, Hicks Muse Tate & Furst,
Equity Fund III, L.P., provided to Holding a commitment to invest $25 million
for the purchase of a new Class A Common Stock of Holding. The Class A Common
Stock would be senior to Holding's existing common stock upon liquidation, but
would vote with the existing common stock as a class. The liquidation value of
the Class A Common Stock would increase over time at a contracted rate. The
holders thereof would have the right to put to Holding, and Holding would have
the right to call, the Class A Common Stock at any time at the liquidation value
thereof, subject to the applicable restrictions under the Company's credit
agreement and indenture. The consummation of this transaction is subject to the
amendment of the Company's credit agreement to permit the consummation of the
contemplated transaction (including the use of net proceeds from the sale of the
Class A Common Stock for working capital purposes, rather than to repay bank
debt) and to alter certain financial maintenance covenants.
7
<PAGE> 8
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 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 $0.7 million in customer
services revenues for the three months ended March 31, 1999 and the deferral of
$2.3 million in systems revenues and $0.9 million in customer services revenues
for the six months ended March 31, 1999. Gross profit was reduced by $0.3
million and $1.6 million for the three months and six months ended March 31,
1999, respectively. The future impact of SOP 97-2 is expected to be minimal,
since any deferrals in future quarters are anticipated to be offset by the
recognition of prior period deferrals.
REVENUES
Revenues for the three months ended March 31, 1999 were $58.6 million, compared
to $52.5 million for the three months ended March 31, 1998, an increase of $6.1
million, or 12%. For the six months ended March 31, 1999, revenues increased
$9.9 million, or 9%, to $114.3 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 $1.8
million and $4.6 million of the increase in revenues for the three months and
six months ended March 31, 1999, respectively, over the comparable periods in
1998 as a result of the acquired operations being included for only one month in
1998.
Systems revenues for the three months ended March 31, 1999 increased $3.6
million, or 21%, to $20.6 million as compared to $17.0 million for the three
months ended March 31, 1998. For the six months ended March 31, 1999, systems
revenues increased $4.3 million, or 13%, to $38.8 million as compared to $34.5
million for the six months ended March 31, 1998. For the three months ended
March 31, 1998, automotive systems revenues increased $2.6 million, or 31%, to
$11.1 million, and hardlines systems increased $1.0 million, or 11%, to $9.5
million as compared to the corresponding period in 1998. For the six months
ended March 31, 1999, automotive systems revenues increased $3.7 million, or
21%, to $21.5 million and hardlines systems revenues increased $0.7 million, or
4%, to $17.3 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, while the growth in hardlines systems
revenues is primarily due to increases in systems sales to new customers, which
were partially offset by decreases in the sales of add-ons and upgrades to the
existing customer base.
Revenues from customer support and information services increased $3.4 million,
or 10%, to $37.1 million for the three months ended March 31, 1999, as compared
to $33.7 million for the three months ended March 31, 1998. For the six month
ended March 31, 1999, revenues from customer support and information services
increased $7.6 million, or 12%, to $73.7 million as compared to the six months
ended March 31, 1998. Recurring services revenues from the ARISB acquisition
accounted for $1.8 million and $4.6 million of the increase for the three months
and six months ended March 31, 1999, respectively, over the comparable periods
in 1998. Information services revenues accounted for $1.9 million and $2.8
million of the for the three months and six months ended March 31, 1999,
respectively, over the comparable periods in 1998. The increase in information
services revenues is primarily due to growth in both the automotive and
hardlines installed base of customers. Revenues from customer support operations
have remained relatively constant.
Revenues from financing activities decreased $0.9 million to $0.9 million for
the three months ended March 31, 1999, as compared to the three months ended
March 31, 1998. For the six months ended March 31, 1999, revenues from financing
activities decreased $2.0 million, or 54%, to $1.8 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 during the period discussed
below.
8
<PAGE> 9
COST OF REVENUES
Cost of revenues were $38.0 million for the three months ended March 31, 1999,
compared to $33.8 million for the three months ended March 31, 1998, an increase
of $4.2 million, or 12%. For the six months ended March 31, 1999, cost of
revenues increased $6.7 million, or 10%, to $73.3 million as compared to the
corresponding period in 1998. As a percentage of revenues, cost of revenues were
65% and 64% for the three months and six months ended March 31, 1999,
respectively, which represented no change from the comparable periods in 1998.
Cost of systems revenues for the three months ended March 31, 1999 increased
$1.3 million, or 11%, to $13.5 million as compared to $12.2 million for the
three months ended March 31, 1998. For the six months ended March 31, 1999, cost
of systems revenues increased $1.6 million, or 7%, as compared to the six months
ended March 31, 1998. This increase was due to the increase in revenues,
partially offset by a reduction in costs as a percentage of revenues due to the
implementation of SOP 97-2.
Cost of revenues for services and finance for the three months ended March 31,
1999 increased $2.9 million, or 13%, to $24.5 million, as compared to $21.6
million for the three months ended March 31, 1998. For the six months ended
March 31, 1999, cost of revenues for services and finance increased $5.1
million, or 12%, to $47.2 million, as compared to the corresponding period in
1998. The ARISB acquisition accounted for $0.9 million and $2.8 million of the
increase for the three months and six months ended March 31, 1999, respectively,
over the corresponding periods in 1998. As a percentage of revenues, cost of
revenues for services and finance increased 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 improvements in
cost of revenue as a percentage of revenue for information services primarily
due to the low incremental costs associated with the increased revenues.
EXPENSES AND OTHER INCOME
Operating expenses for the three months ended March 31, 1999 were $26.2 million,
an increase of $1.9 million, or 8%, as compared to $24.3 million for the three
months ended March 31, 1998. For the six months ended March 31, 1999, operating
expenses increased $2.7 million, or 5%, as compared to the corresponding period
in 1998. The inclusion of operations from the ARISB acquisition increased
operating expenses by $0.4 million and $0.9 million for the three months and six
months ended March 31, 1999, respectively, over the comparable periods in 1998.
Product development expenses for the three months and six months ended March 31,
1999 were $3.7 million and $7.4 million, respectively, compared to $3.8 million
and $8.1 million for the corresponding periods of fiscal 1998. Sales and
marketing expenses for the three months and six months ended March 31, 1999 were
$13.0 million and $25.7 million, respectively, compared to $11.4 million and
$23.3 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 and the inclusion of expenses associated
with the ARISB acquisition. General and administrative expenses for the three
months and six months ended March 31, 1999 were $9.6 million and $19.1 million,
respectively, compared to $9.0 million and $18.2 million for the corresponding
periods of fiscal 1998. The increase in general and administrative expenses
primarily is due to investments in staffing, infrastructure, and communications
to support internal information systems and the additional expenses associated
with the ARISB acquisition.
Interest expense for the three months and six months ended March 31, 1999 was
$4.5 million and $8.9 million, respectively, an increase of $0.6 million and
$1.5 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 six months ended March 31,
1999 were $0.4 million and $0.1 million, respectively, no change and a decrease
of $0.1 million for the comparable periods in 1998.
The Company recorded a benefit from income taxes of $2.4 million and $5.4
million for the three months and six months ended March 31, 1999, respectively,
compared to a benefit of $2.8 million and $5.7 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 six months ended March 31, 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 $7.4
million, a decrease of $1.9 million, or 22%, for the three months ended March
31, 1999, compared to a net loss of $9.3 million for the three months ended
March 31, 1998. For the six months ended March 31, 1999, the Company experienced
a net loss of $14.5 million, a decrease of $1.7 million from the comparable
period in fiscal 1998. The net loss for the three months and six months ended
March 31, 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 March 31, 1999, the Company had $198.7 million in outstanding indebtedness,
an increase of $8.0 million from December 31, 1998 and an increase of $15.4
million from September 30, 1998.
For the six months ended March 31, 1999, operating activities used approximately
$5.5 million of cash. Cash provided from operations was reduced by a $3.2
million increase in investment in leases, a $2.5 million increase in accounts
receivable, a $2.7 million reduction in accounts payable, and a $3.5 million
increase in inventory. The increase in accounts receivable and investments in
leases is primarily due to a combination of the increase in automotive systems
sales which began during the fourth quarter of fiscal 1998 and the disruptions
which occurred as the Company consolidated the billing, collections and customer
relations activities to the Company's headquarters in Austin, Texas. The Company
periodically liquidates its lease portfolio through lease lending arrangements
with banks and other lease lending institutions. The $3.2 million increase in
investment in leases is net of $12.7 million in leases liquidated during the six
months ended March 31, 1999.
Net cash used in investing activities totaled $10.7 million for the six months
ended March 31, 1999. Net cash used in investing activities primarily represents
capital expenditures. For the six months ended March 31, 1999, the Company's
capital expenditures were $12.0 million, which includes approximately $6.9
million in capitalized computer software costs and databases.
Net cash provided by financing activities totaled $13.5 million for the six
months ended March 31, 1999, which reflects additional borrowings under the
Company's amended credit agreement, partially offset by certain debt repayments
and debt issuance costs. On February 12, 1999, the Company amended its existing
$100 million senior secured credit facility by adding a new $30 million senior
secured term loan B, which allowed the Company to prepay $20 million of the
existing $50 million senior secured term loan ("term loan A"). After paying
approximately $1.9 million in fees and expenses related to securing the
amendment and new issuance of debt, the Company used approximately $8.1 million
to pay down outstanding amounts under the existing $50 million revolving credit
facility. The Company estimates that, based on expected debt levels and
assuming the sale of Class A Common Stock discussed below, the amended senior
secured credit facilities will require annual interest payments of approximately
$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 9% Senior Subordinated
Notes due 2008. The revolving credit facility allows the Company to borrow up to
$50 million, of which approximately $38.4 million was outstanding as of March
31, 1999.
Repayment of the $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 $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 March 31, 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.
The Company believes that its short term liquidity 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 during the
quarter ended March 31, 1999 in order to reduce the time period for
installation and training and to continue to pursue this growth
opportunity in its business. However, the Company anticipates that it
will take at least two quarters to reduce the time period for
installation and training to its historical level. Short term liquidity
has been further impacted by the fact that the increase in automotive
implementation specialists resulted in an immediate increase in
operating expenses, while it will take time for their efforts to
generate cash.
(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. 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 it currently faces 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.
As a result of the negative impact of the foregoing factors on the Company's
short term liquidity, the Company believes that it may encounter a deficiency in
short term liquidity and, accordingly, that it may need additional funds as
early as the middle of June 1999. This belief is based on numerous estimates and
assumptions, including an assumption that the Company's initiatives described
above are not successful.
In order to address this potential deficiency in short term liquidity and to
provide additional working capital to fund continued growth in the automotive
store system sales, the Company's parent corporation, Cooperative Computing
Holding Company, Inc. ("Holding"), has secured a financing commitment (the
"Financing Commitment") from Hicks, Muse, Tate & Furst Equity Fund III, L.P.
("Hicks Muse"), which is the majority stockholder of Holding. Under the terms of
the Financing Commitment, Hicks Muse has agreed to purchase 25 million shares of
a new class of common stock of Holding ("Class A Common Stock") for an aggregate
purchase price of $25 million. The net proceeds from the issuance of the Class A
Common Stock will be contributed by Holding to the capital of the Company for
use for working capital purposes. Holding will have a right to call the Class A
Common Stock, and the holders thereof will have the right to put the Class A
Common Stock to Holding, at any time at the liquidation value thereof, subject
to the applicable restrictions under the Company's credit agreement and
indenture. The liquidation value of the Class A Common Stock will increase over
time at a contracted rate.
The Company believes that the net proceeds from the sale of the Class A Common
Stock as contemplated by the Financing Commitment will provide sufficient funds
to address the Company's potential short term liquidity deficiency, as well as
provide additional working capital to fund continued growth in automotive
systems sales. However, the consummation of the transaction contemplated by the
Financing Commitment is subject to certain conditions, including the following:
(i) the negotiation, execution and delivery of definitive documents; and (ii)
the amendment of the Company's credit agreement to permit the consummation the
contemplated transaction (including the use of the net proceeds from the sale of
the Class A Common Stock for working capital purposes, rather than to repay bank
debt) and to alter certain financial maintenance covenants. While the Company
believes that the conditions to the consummation of the transaction contemplated
by the Financing Commitment can be met, and that the Company's initiatives
described above can be successfully implemented, on a timely basis, there can be
no assurance that such will be the case. If those conditions are not timely met
and those initiatives are not successfully implemented on timely basis, the
Company will be forced to immediately pursue one or more alternative strategies,
such as restructuring or refinancing its indebtedness, selling assets, reducing
or delaying capital expenditures or seeking additional equity capital. There can
be no assurance that any of these strategies could be effected on a timely basis
or on satisfactory terms, if at all.
10
<PAGE> 11
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. The majority of 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.
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 the 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 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 has
also had formal communications with all of 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.
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 is in the process of
preparing estimates of its Year 2000 related expenditures; however, the Company
does not believe that they can be established 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 timely, the Year 2000 issue could have a material
impact on the operations of the Company. The Company intends to engage a third
party expert to verify the results of the Company's own tests of its products
and its internal systems.
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.
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 --Second Amendment to Credit Agreement, dated as of February 12,
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 --Purchase Amendment, dated as of February 1, 1999, between
Triad Systems Financial Corporation and Mellon US Leasing, A
Division of Mellon Leasing Corporation.
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 March
31, 1999.
12
<PAGE> 13
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: May 17, 1999 By: /s/ MATTHEW HALE
---------------------------
Matthew Hale
Vice President of Finance and Chief
Financial Officer
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.1 Second Amendment to Credit Agreement
10.2 Purchase Agreement
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDMENT
SECOND AMENDMENT, dated as of February 12, 1999 (this "Amendment"), to
the Credit Agreement, dated as of February 27, 1997, as amended and restated as
of February 10, 1998 and as further amended by the First Amendment, dated as of
June 30, 1998 (the "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 add a $30,000,000 senior secured term loan facility (the "Tranche B
Term Loan Facility") 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 definitions of the following defined
terms in their respective entireties: (i) Term Loan Facility, (ii) Term Loan,
(iii) Term Loan Commitment, (iv) Term Loan Commitment Percentage, (v) Term Loan
Lender and (vi) Term Note.
(b) by deleting therefrom the definition of "Applicable Margin" in its
entirety and substituting in lieu thereof the following:
"Applicable Margin": with respect to any Alternate Base Rate Loan
which is a Revolving Credit Loan or a Tranche A Term Loan, 2.00%, and which
is a Tranche B Term Loan, 2.50%; with respect to any Eurodollar Loan which
is a Revolving Credit Loan or a Tranche A Term Loan, 3.00% and which is a
Tranche B Term Loan, 3.50%; and with respect to any commitment fee, as
provided in Section 2.4; provided that in the event that the ratio of
Consolidated Total Debt of the Borrower and its Subsidiaries to
<PAGE> 2
2
Consolidated EBITDA of the Borrower and its Subsidiaries, as most recently
determined in accordance with Section 8.1(d), is as set forth in the
relevant column heading below for any quarterly period, any such Applicable
Margin (including in the case of Alternate Base Rate Loans, Swing Line
Loans) for Revolving Credit Loans and Tranche A Term Loans shall be as
provided in the relevant column heading below, but in no event shall any
such reductions be effective prior to February 10, 1999:
<TABLE>
<CAPTION>
Revolving Credit Loans
and Tranche A Term Loans
-------------------------------------------
Relevant Ratio Applicable Margin Applicable Margin for
of Consolidated Total Debt to For Eurodollar Alternate Base Rate
Consolidated EBITDA Loans Loans Commitment Fee
- ----------------------------- ----------------- --------------------- --------------
<S> <C> <C> <C>
4.75x and above 3.00% 2.00% 0.500%
3.75x to but excluding 4.75x 2.75 1.75 0.500
3.25x to but excluding 3.75x 2.50 1.50 0.500
2.75x to but excluding 3.25x 2.25 1.25 0.375
Below 2.75x 2.00 1.00 0.375
</TABLE>
(a) if the financial statements required to be delivered
pursuant to Section 7.1(a) or 7.1(b), as applicable, and the related
compliance certificate required to be delivered pursuant to Section
7.2(b), are delivered on or prior to the date when due (or, in the case
of the fourth quarterly period of each fiscal year of the Borrower, if
financial statements which satisfy the requirements of, and are
delivered within the time period specified in, Section 7.l(b) and a
related compliance certificate which satisfies the requirements of, and
is delivered within the time period specified in, Section 7.2(b), with
respect to any such quarterly period are so delivered within such time
periods), then the Applicable Margin for Revolving Credit Loans and
Tranche A Term Loans during the period from the date upon which such
financial statements were delivered shall be the Applicable Margin as
set forth in the relevant column heading above; provided, however, that
in the event that the financial statements delivered pursuant to
Section 7.1(a) or 7.1(b), as applicable, and the related compliance
certificate required to be delivered pursuant to Section 7.2(b), are
not delivered when due, then:
(i) if such financial statements and certificate are
delivered after the date such financial statements and
certificate were required to be delivered (without giving
effect to any applicable cure period) and the Applicable
Margin increases from that previously in effect as a result
of the delivery of such financial statements and certificate,
then the Applicable Margin (including in the case of
Alternate Base Rate Loans, Swing Line Loans) for Revolving
Credit Loans and Tranche A Term Loans during the period from
the date upon which such financial
<PAGE> 3
3
statements and certificate were required to be delivered
(without giving effect to any applicable cure period) until
the date upon which they actually are delivered shall, except
as otherwise provided in clause (iii) below, be the
Applicable Margin as so increased;
(ii) if such financial statements and certificate are
delivered after the date such financial statements and
certificate were required to be delivered (without giving
effect to any applicable cure period) and the Applicable
Margin for Revolving Credit Loans and Tranche A Term Loans
decreases from that previously in effect as a result of the
delivery of such financial statements and certificate, then
such decrease in the Applicable Margin shall not become
applicable until the date upon which such financial
statements and certificate actually are delivered;
(iii) if such financial statements and certificate are
not delivered prior to the expiration of the applicable cure
period, then, effective upon such expiration, for the period
from the date upon which such financial statements and
certificate were required to be delivered (after the
expiration of the applicable cure period) until two Business
Days following the date upon which they actually are
delivered, the Applicable Margin (including in the case of
Alternate Base Rate Loans, Swing Line Loans) shall be
determined as if the relevant ratio of Consolidated Total
Debt to Consolidated EBITDA was 4.75x (it being understood
that the foregoing shall not limit the rights of the
Administrative Agent and the Lenders set forth in Section 9);
and
(b) the Applicable Margin for Tranche B Term Loans shall not
be subject to adjustment based on the ratio of Consolidated Total Debt
to Consolidated EBITDA.
(c) by deleting therefrom the definition of "Commitment Letter" in its
entirety and substituting in lieu thereof the following definition:
"Commitment Letter": each of the commitment letters,
dated January 9, 1998 and January 20, 1999, respectively,
relating, among other things, to the Loans made hereunder,
addressed to the Borrower from Chase and CSI and all exhibits
thereto, as each of the same may be amended, supplemented or
otherwise modified from time to time.
(d) by deleting paragraph (3) of the definition of "Interest Period"
and replacing it with the following:
(3) no Interest Period with respect to the Tranche A
Term Loans or Tranche B Term Loans shall extend beyond any
date which repayment of principal thereof is required to be
made pursuant to Section 2.7 or Section 2.7A, as applicable,
if, after giving effect to the selection of such Interest
Period, the aggregate principal amount of Tranche A Term
Loans or Tranche B Term Loans,
<PAGE> 4
4
as the case may be, with Interest Periods ending after such
date would exceed the aggregate principal amount of such Term
Loans permitted to be outstanding after such scheduled
repayment; and
(e) by deleting therefrom the definition of "Commitment Percentage" in
its entirety and substituting in lieu thereof the following definition:
"Commitment Percentage": as to any Lender, at any time,
the percentage of the aggregate Revolving Credit Commitments,
Tranche A Term Loan Commitments and Tranche B Term Loan
Commitments constituted by such Lender's Revolving Credit
Commitment, Tranche A Term Loan Commitment and Tranche B Term
Loan Commitment.
(f) by adding thereto the following definitions in their appropriate
alphabetical order:
"Amendment Effective Date": as defined in the Second
Amendment to this Agreement, dated as of February 12, 1999.
"Term Loan Commitments": the Tranche A Term Loan Commitments
and the Tranche B Term Loan Commitments.
"Term Loan Lenders": the Tranche A Term Loan Lenders and the
Tranche B Term Loan Lenders.
"Term Loans": the Tranche A Term Loans and the Tranche B Term
Loans.
"Term Notes": the Tranche A Term Notes and the Tranche B Term
Notes.
"Tranche A Term Loan Facility": the term loan facility made
available to the Borrower pursuant to Section 2.6 of this Agreement.
"Tranche A Term Loan" and "Tranche A Term Loans": as defined
in Section 2.6.
"Tranche A Term Loan Commitment": as to any Tranche A Term
Loan Lender, its obligation to make a Tranche A Term Loan to the
Borrower pursuant to Section 2.6 of this Agreement in an aggregate
amount not to exceed the amount set forth opposite such Tranche A Term
Loan Lender's name in Schedule 1.1 under the heading "Term Loan
Commitment."
"Tranche A Term Loan Commitment Percentage": as to any
Tranche A Term Loan Lender, the percentage of the aggregate Tranche A
Term Loan Commitments constituted by its Tranche A Term Loan Commitment
or, following the Closing Date, the percentage of the aggregate
outstanding Tranche A Term Loans constituted by its Tranche A Term
Loan.
<PAGE> 5
5
"Tranche A Term Loan Lender": any Lender having a Tranche A
Term Loan Commitment hereunder or that holds outstanding Tranche A Term
Loans.
"Tranche A Term Note": as defined in Section 2.7(a).
"Tranche B Term Loan Facility": the term loan facility made
available to the Borrower pursuant to Section 2.6A of this Agreement.
"Tranche B Term Loan" and "Tranche B Term Loans": as defined
in Section 2.6A.
"Tranche B Term Loan Commitment": as to any Tranche B Term
Loan Lender, its obligation to make a Tranche B Term Loan to the
Borrower pursuant to Section 2.6A of this Agreement in an aggregate
amount not to exceed the amount set forth opposite such Tranche B Term
Loan Lender's name in Schedule 1.1 attached hereto under the heading
"Tranche B Term Loan Commitment".
"Tranche B Term Loan Commitment Percentage": as to any
Tranche B Term Loan Lender, the percentage of the aggregate Tranche B
Term Loan Commitments constituted by its Tranche B Term Loan Commitment
or, following the Amendment Effective Date, the percentage of the
aggregate outstanding Tranche B Term Loans constituted by its Tranche B
Term Loan.
"Tranche B Term Loan Lender": any Lender having a Tranche B
Term Loan Commitment hereunder or that holds outstanding Tranche B Term
Loans.
"Tranche B Term Note": as defined in Section 2.7A(a).
2. Amendments to Section 2. Section 2 of the Credit Agreement is hereby
amended as follows:
(a) by deleting therefrom each reference to "Term Loan", "Term Loans" and
"Term Loan Lenders" in Sections 2.6, 2.7 and 2.8(a) and substituting in lieu
thereof the phrase "Tranche A Term Loan", "Tranche A Term Loans" and "Tranche A
Term Loan Lenders", respectively, except that the reference to "Term Loan
Commitment" in Sections 2.6(a) and 2.7(a) shall remain unchanged.
(b) by deleting therefrom each reference to "Term Note" in Section 2.7 and
substituting in lieu thereof the phrase "Tranche A Term Note".
(c) by adding thereto the following:
2.6A Tranche B Term Loans. Subject to the terms and conditions
hereof, each Tranche B Term Loan Lender severally agrees to make a term
loan (a "Tranche B Term Loan", together the "Tranche B Term Loans"), on
the Amendment Effective Date in an
<PAGE> 6
6
aggregate principal amount set forth opposite such Lender's name in
Schedule 1.1 under the heading "Tranche B Term Loan Commitment". The
Tranche B Term Loans may from time to time be (i) Eurodollar Loans,
(ii) Alternate Base Rate Loans or (iii) a combination thereof, as
determined by the Borrower and notified to the Administrative Agent in
accordance with Section 2.8A.
2.7A Tranche B Term Notes. (a) The Borrower agrees that, upon
the request to the Administrative Agent by any Tranche B Term Loan
Lender, in order to evidence such Lender's Tranche B Term Loan the
Borrower will execute and deliver to such Lender a promissory note
substantially in the form of Exhibit A-4 (each, as amended,
supplemented, replaced or otherwise modified from time to time, a
"Tranche B Term Note"), with appropriate insertions therein as to
payee, date and principal amount, payable to the order of such Tranche
B Term Loan Lender and in a principal amount equal to the amount set
forth opposite such Tranche B Term Loan Lender's name on Schedule 1.1
under the heading "Tranche B Term Loan Commitments." Each Tranche B
Term Loan Lender is hereby authorized to record the date, Type and
amount of its Tranche B Term Loan, each continuation thereof, each
conversion of all or a portion thereof to another Type, the date and
amount of each payment or prepayment of principal of its Tranche B Term
Loan and, in the case of Eurodollar Loans, the length of each Interest
Period with respect thereto, on the schedules annexed to and
constituting a part of its Tranche B Term Note, and any such
recordation shall, in the absence of manifest error and to the extent
permitted by applicable law, constitute prima facie evidence of the
accuracy of the information so recorded, provided that the failure by
any Tranche B Term Loan Lender to make any such recordation, or any
error therein, shall not affect any of the obligations of the Borrower
under such Tranche B Term Note or this Agreement. Any Tranche B Term
Note shall (i) be dated the Amendment Effective Date, (ii) be payable
as provided in Section 2.7A(b) and (iii) provide for the payment of
interest in accordance with Section 4.1.
(b) The aggregate Tranche B Term Loans of all the Tranche B
Term Loan Lenders shall be payable in 18 consecutive quarterly
installments on the dates and in a principal amount equal to the amount
set forth below (together with all accrued interest thereon) opposite
the applicable installment date (or, if less, the aggregate amount of
the Tranche B Term Loan then outstanding):
Installment Amount
- ------------------- --------
December 31, 1999 $100,000
March 31, 2000 $100,000
June 30, 2000 $100,000
September 30, 2000 $100,000
December 31, 2000 $100,000
<PAGE> 7
7
Installment Amount
- ------------------- --------
March 31, 2001 $100,000
June 30, 2001 $100,000
September 30, 2001 $100,000
December 31, 2001 $100,000
March 31, 2002 $100,000
June 30, 2002 $100,000
September 30, 2002 $100,000
December 31, 2002 $100,000
March 31, 2003 $100,000
June 30, 2003 $100,000
September 30, 2003 $100,000
December 31, 2003 $100,000
March 31, 2004 $28,300,000
2.8A Procedure for Tranche B Term Loan Borrowing. The Borrower
shall give the Administrative Agent irrevocable notice (which notice
must be received by the Administrative Agent prior to 12:00 Noon, New
York City time, one Business Day prior to the Amendment Effective Date)
requesting that the Tranche B Term Loan Lenders make the Tranche B Term
Loans on the Amendment Effective Date and specifying the amount to be
borrowed. Upon receipt of such notice the Administrative Agent shall
promptly notify each Tranche B Term Lender thereof. On the Amendment
Effective Date each Tranche B Term Loan Lender shall make available to
the Administrative Agent at its office specified in Section 12.2 an
amount in immediately available funds equal to the Tranche B Term Loan
to be made by such Tranche B Term Loan Lender. The Administrative Agent
shall on such date credit the account of the Borrower on the books of
such office of the Administrative Agent with the aggregate of the
amounts made available to the Administrative Agent by the Tranche B
Term Loan Lenders.
(d) by deleting clause (iii) of Section 2.8(b) and the word "and" preceding
such clause and substituting in lieu thereof the following:
(iii) each Tranche A Term Loan Lender, such Tranche A Term Loan
Lender's Tranche A Term Loan Commitment Percentage of the amounts
specified in Section 2.7(b) (or, if less, the aggregate amount of the
Tranche A Term Loans of such Tranche A Term Loan Lender then
outstanding), on the dates specified in Section 2.7(b) (or such earlier
date on which the Tranche A Term Loans become due and payable pursuant
to Article 9); and (iv) each Tranche B Term Loan Lender, such Tranche B
Term Loan Lender's Tranche B Term Loan Commitment Percentage of the
amount specified in Section 2.7A(b) (or, if less, the aggregate amount
of the Tranche B Term Loans of such Tranche B Term Loan
<PAGE> 8
8
Lender than outstanding), on the date specified in Section 2.7A(b) (or
such earlier date on which the Tranche B Term Loans become due and
payable pursuant to Article 9).
(e) by adding at the end of Section 2.9(a) the following:
All prepayments of the Term Loans pursuant to this paragraph (a) shall
be applied to the Tranche A Term Loans, on the one hand, and the
Tranche B Term Loans, on the other, ratably based on the outstanding
principal amounts thereof.
(f) by deleting that portion of paragraph (b) of Section 2.9 which
appears before the proviso clause and substituting therefor the following:
(b) With respect to optional prepayments of the Term Loans,
the first $10,000,000 of such optional prepayments of the Term Loans
paid after the Amendment Effective Date shall be applied in such order
as the Borrower may elect and, with respect to optional prepayments in
excess of such $10,000,000, shall be applied to reduce the then
remaining installments of the Tranche A Term Loans or Tranche B Term
Loans, as the case may be, pro rata based upon the then remaining
number of installments of such Term Loans, after giving effect to all
prior reductions thereto (i.e., each then remaining installment of such
Term Loans shall be reduced by an amount equal to the aggregate amount
to be applied to such Term Loans divided by the number of the then
remaining installments for such Term Loans); provided, however, that
any prepayment of the Tranche A Term Loans with the proceeds of the
Tranche B Term Loans shall not be deemed a prepayment solely for
purposes of the first sentence of this Section 2.9(b);
(g) by deleting therefrom Section 2.10(d) in its entirety and
substituting in lieu thereof the following:
(d) (i) All mandatory prepayments shall be applied first to
the Tranche A Term Loans and the Tranche B Term Loans, pro rata based
on the respective outstanding principal amounts thereof, and second to
the permanent reduction of the Revolving Credit Commitments. The
application of prepayments referred to in the preceding sentence shall
be made first to Alternate Base Rate Loans and second to Eurodollar
Loans. The amount of each principal prepayment of Term Loans shall be
applied to reduce the then remaining installments of the Tranche A Term
Loans and the Tranche B Term Loans, as the case may be, pro rata based
upon the then remaining number of installments of Tranche A Term Loans
and Tranche B Term Loans, respectively, after giving effect to all
prior reductions thereto (i.e., each then remaining installment of such
Term Loans shall be reduced by an amount equal to the aggregate amount
to be applied to such Term Loans divided by the number of the then
remaining installments for such Term Loans); provided, that if the
amount to be applied to any installment as required by this Agreement
would exceed the then remaining amount of such installment, then an
amount equal to such excess shall be applied to the next succeeding
installment after giving effect to all prior reductions thereof
(including the amount of prepayments theretofore allocated pursuant to
the preceding portion of this sentence). Amounts prepaid on account of
the Term Loans may not be reborrowed.
<PAGE> 9
9
(ii) Any Lender holding Tranche B Term Loans may, to the
extent Tranche A Term Loans are outstanding, elect on not less than one
Business Day's prior written notice to the Administrative Agent with
respect to any mandatory prepayment made pursuant to this Section 2.10,
not to have such prepayment applied to such Lender's Tranche B Term
Loans until all Tranche A Term Loans shall have been paid in full, in
which case the amount not so applied shall be applied to prepay Tranche
A Term Loans and shall reduce the then remaining installments of the
Tranche A Term Loans ratably based on the number of such installments.
(h) by adding immediately before the phrase "Term Loan Lender" in
Section 2.11(a) the word "applicable".
3. Amendment to Section 4. Section 4.2(a) shall be amended by inserting
immediately before each occurrence of the phrase "Term Loan Lenders" the word
"applicable".
4. Amendment to Section 5. Section 5 shall be amended as follows:
(a) Section 5.15 shall be amended by (a) adding the phrase
"Tranche A" immediately before the phrase "Term Loans" and (b) adding
the following sentence at the end thereof:
The proceeds of the Tranche B Term Loans shall be
used by the Borrower to make (i) an optional
$20,000,000 prepayment of the Tranche A Term Loans
and (ii) an optional $10,000,000 repayment of the
Revolving Credit Loans, each on the Amendment
Effective Date.
(b) The following new Section 5.27 shall be added:
5.27 Year 2000 Compliance. On or before September 30, 1999,
the Borrower will complete any reprogramming and testing of major
computer systems and other major equipment containing embedded
microchips, in either case owned or operated by the Borrower or any of
its Subsidiaries or used or relied upon in the conduct of their
business, in order to enable their computer systems and equipment in
the aggregate to be year 2000 compliant in all material respects. The
costs to the borrower and its Subsidiaries that have not been incurred
as of the date hereof for such reprogramming and testing and for the
other reasonably foreseeable consequences to them of any improper
functioning of other computer systems and equipment containing embedded
microchips due to the occurrence of the year 2000 could not reasonably
be expected to result in an Event of Default or to have a Material
Adverse Effect.
<PAGE> 10
10
5. Amendment to Section 6. Section 6 shall be amended as follows:
(a) in Section 6.1(a) by deleting the words "a Term Note" and replacing
them with the words "a Tranche A Term Note".
(b) in Section 6.1(b) by deleting clause (ii) and substituting therefor
the following:
(ii) $85,000,000 of the principal of the Term Loans
outstanding under the Existing Credit Agreement shall have
been paid, with the result that $50,000,000 of principal of
the Tranche A Term Loans remain outstanding.
(c) in Section 6.1(b) by deleting the words "and Term Loans" and
replacing them with the words "and Tranche A Term Loans" and by deleting the
words "and Term Loan Commitment Percentages" and replacing them with the words
"and Tranche A Term Loan Commitment Percentages".
6. Amendment to Section 8. Section 8.1 shall be amended as follows:
(a) by deleting the columns captioned "Quarter Ending" and "Ratio" from
Section 8.1(a) and substituting in lieu thereof the following:
Quarter Ending Ratio
- ---------------------- ------------
1998 December 31 1.85 to 1.00
1999 March 31 1.85 to 1.00
June 30 1.85 to 1.00
September 30 1.85 to 1.00
December 31 1.85 to 1.00
2000 March 31 1.85 to 1.00
June 30 1.85 to 1.00
September 30 1.85 to 1.00
December 31 2.25 to 1.00
2001 March 31 2.25 to 1.00
June 30 2.50 to 1.00
September 30 2.50 to 1.00
December 31 2.75 to 1.00
<PAGE> 11
11
Quarter Ending Ratio
- ---------------------- ------------
2002 March 31 2.75 to 1.00
June 30 3.00 to 1.00
and each quarter thereafter
(b) by deleting the columns captioned "Quarter Ending" and "Amount" from Section
8.1(c) and substituting in lieu thereof the following:
Quarter Ending Amount
- ---------------- -----------
1998 December 31 $32,500,000
1999 March 31 32,500,000
June 30 32,500,000
September 30 32,500,000
December 31 33,500,000
2000 March 31 34,500,000
June 30 35,500,000
September 30 36,000,000
December 31 37,500,000
2001 March 31 40,000,000
June 30 42,500,000
September 30 45,000,000
December 31 45,000,000
2002 March 31 47,500,000
June 30 47,500,000
September 30 50,000,000
December 31 52,500,000
<PAGE> 12
12
Quarter Ending Amount
- ---------------- -----------
2003 March 31 55,000,000
June 30 57,500,000
September 30 60,000,000
and each quarter thereafter
(c) by deleting the columns captioned "Quarter Ending" and "Ratio" from
Section 8.1(d) and substituting in lieu thereof the following:
Quarter Ending Ratio
- ---------------------- ------------
1998 December 31 5.75 to 1.00
1999 March 31 5.75 to 1.00
June 30 5.75 to 1.00
September 30 5.75 to 1.00
December 31 5.50 to 1.00
2000 March 31 5.50 to 1.00
June 30 5.50 to 1.00
September 30 5.50 to 1.00
December 31 5.00 to 1.00
2001 March 31 4.75 to 1.00
June 30 4.50 to 1.00
September 30 4.25 to 1.00
December 31 4.00 to 1.00
2002 March 31 3.75 to 1.00
June 30 3.50 to 1.00
September 30 3.25 to 1.00
December 31 3.25 to 1.00
2003 March 31 3.00 to 1.00
and each quarter thereafter
<PAGE> 13
13
(d) by deleting the columns captioned "Quarter Ending" and "Ratio" from
Section 8.1(e) and substituting in lieu thereof the following:
Quarter Ending Ratio
- ---------------------- ------------
1998 December 31 2.75 to 1.00
1999 March 31 2.75 to 1.00
June 30 2.75 to 1.00
September 30 2.75 to 1.00
December 31 2.75 to 1.00
2000 March 31 2.75 to 1.00
June 30 2.75 to 1.00
September 30 2.75 to 1.00
December 31 2.25 to 1.00
2001 March 31 2.25 to 1.00
June 30 2.00 to 1.00
September 30 2.00 to 1.00
December 31
and each quarter thereafter 1.75 to 1.00
7. Amendment to Section 12. Section 12 shall be amended as follows:
(a) in the proviso to Section 12.1:
(i) by deleting clause (iii) in its entirety and substituting
in lieu thereof the following: "(iii) amend, modify or waive any
provision of (x) Section 2.6 or 2.7 without the written consent of the
Tranche A Term Loan Lenders, the Tranche A Term Loan Percentages of
which aggregate at least a majority, (y) Section 2.6A or 2.7A without
<PAGE> 14
14
the written consent of the Tranche B Term Loan Lenders, the Tranche B
Term Loan Percentages of which aggregate at least a majority and (z)
Section 4.4(a) without the written consent of the Tranche A Term Loan
Lenders or the Tranche B Term Loan Lenders, as applicable, the Tranche
A Term Loan Percentages or Tranche B Term Loans Percentages, as the
case may be, of which aggregate at least a majority"; and
(ii) by deleting the word "or" which appears before clause
(ix) and adding the following new clause (x) at the end of clause (ix):
"or (x) change the allocation of payments among the Tranche A Term
Loans and the Tranche B Term Loans, as applicable, specified in Section
4.4(b) or the allocation of payments between the Tranche A Term Loans
and the Tranche B Term Loans pursuant to Section 2.10(d), in each case
without the consent of Lenders holding at least a majority of the
adversely affected Tranche".
(b) in Section 12.6(e), (i) by deleting the words "or Term Note" in
each instance and replacing them with the words "Tranche A Term Note or Tranche
B Term Note" and (ii) by deleting the words "Term Loan" in each instance and
replacing them with the words "Tranche A Term Loan or Tranche B Term Loan".
8. Amendment to Schedule 1.1. Schedule 1.1 to the Credit Agreement will
be amended by adding thereto the information with respect to the Tranche B Term
Loan Commitments set forth on Schedule 1.1 hereto.
9. Amendment to Exhibits. The Credit Agreement is hereby amended by
adding thereto as Exhibit A-4, Exhibit 1 to this Amendment. Exhibit A-2 to the
Credit Agreement is hereby amended by deleting therefrom each reference to "Term
Note", "Term Notes", "Term Loan" and "Term Loan Commitment Percentage" in such
exhibit and substituting in lieu thereof the phrase "Tranche A Term Note",
"Tranche A Term Notes", "Tranche A Term Loan", "Tranche A Term Loan Percentage",
respectively.
10. Prepayment of Tranche A Term Loans and Revolving Credit Loans.
$20,000,000 of the proceeds of the Tranche B Term Loans will be applied on the
Amendment Effective Date to the prepayment of the Tranche A Term Loans, with the
first $6,000,000 of such proceeds to be applied to the installments of the
Tranche A Term Loans in the direct order of maturity and the remaining
$14,000,000 of such proceeds to be applied to the remaining installments pro
rata based on the number of such remaining installments. For reference, attached
hereto as Exhibit 2 is a revised schedule of installments for the Tranche A Term
Loans after giving effect to the prepayment thereof with the proceeds of the
Tranche B Term Loans as described above. The remaining $10,000,000 of the
proceeds of the Tranche B Term Loans will be applied on the Amendment Effective
Date to repay (but not reduce the Commitments under) the Revolving Credit
Facility.
11. Voting Agreement with respect to Section 12.1. Until the amendment
to Section 12.1 of the Credit Agreement set forth in Section II.7(a) above
becomes effective, each Lender which executes this Amendment agrees that it will
not consent to any amendment of the Credit
<PAGE> 15
15
Agreement which would require the consent of the holders of the Tranche A Term
Loans or the Tranche B Term Loans, as set forth in Section II.7(a) above,
without obtaining the consent of the requisite Tranche A Term Lenders or Tranche
B Term Loan Lenders as required thereby. The agreements set forth in this
Section 10 will apply to each assignee, transferee and successor of such Lender.
III. Conditions to Effectiveness. This Amendment shall become effective
on the date (the "Amendment Effective Date") on which all of the following
conditions precedent shall have been satisfied or waived; provided that the
amendment set forth in Section II.7(a) above shall become effective when this
Amendment has been executed by each Lender:
1. This Amendment shall have been (i) executed by the Borrower, CCI,
the Administrative Agent, the Required Lenders, Tranche A Term Lenders the
Tranche A Term Loan Percentages of which aggregate at least a majority and the
Tranche B Term Loan Lenders set forth in the signature pages hereto and (ii)
acknowledged and consented to by the other Credit Parties, each in accordance
with the terms of the Credit Agreement.
2. The Administrative Agent shall have received, with a counterpart for
each Lender, (i) an executed legal opinion of Weil, Gotshal & Manges LLP,
counsel to the Borrower, in form and substance satisfactory to the
Administrative Agent, (ii) a copy of the resolutions, in form and substance
satisfactory to the Administrative Agent, of the Board of Directors or duly
authorized committee of the Borrower and CCI authorizing this Amendment and
(iii) a certificate of the Secretary or an Assistant Secretary (or comparable
officer) of each of the Borrower and CCI, dated the Amendment, Effective Date,
as to the incumbency and signature of the Responsible Officers of such Person
executing this Amendment and any certificate or other document to be delivered
by it pursuant hereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary.
3. The Borrower shall have paid to the Administrative Agent all fees
and expenses in connection with this Amendment and the Tranche B Term Loans
required to be paid to the Administrative Agent and the Lenders on or prior to
the Amendment Effective Date.
IV. General.
1. Representations and Warranties. The representations and warranties
made by the Borrower in the Loan Documents are true and correct in all material
respects on and as of the date hereof, after giving effect to the effectiveness
of this Amendment, as if made on and as of the date hereof, except for any
representation and warranty which is expressly made as of an earlier date which
representation and warranty shall have been true and correct in all material
respects as of such earlier date, and no Default or Event of Default has
occurred and is continuing.
2. Payment of Expenses. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with this Amendment, any other documents prepared in
connection herewith and the
<PAGE> 16
16
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.
(a) Governing Law; Counterparts. 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.
(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> 17
17
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:___________________________________
Name:
Title:
COOPERATIVE COMPUTING HOLDING COMPANY, INC.,
as a Guarantor
By:___________________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Administrative Agent,
a Lender and Issuing Lender
By:___________________________________
Name:
Title:
<PAGE> 18
18
BANK UNITED
By:___________________________________
Name:
Title:
<PAGE> 19
19
BANKBOSTON, N.A.
By:___________________________________
Name:
Title:
<PAGE> 20
20
COMERICA BANK - CALIFORNIA
By:___________________________________
Name:
Title:
<PAGE> 21
21
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC.
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
<PAGE> 22
22
NATIONSBANK, N.A., SUCCESSOR IN INTEREST
BY MERGER WITH NATIONSBANK OF TEXAS N.A.
By:___________________________________
Name:
Title:
<PAGE> 23
23
UNION BANK OF CALIFORNIA, N.A.
By:___________________________________
Name:
Title:
<PAGE> 24
24
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital
Management, Inc., as Collateral
Manager
By:___________________________________
Name:
Title:
<PAGE> 25
25
IMPERIAL BANK
By:___________________________________
Name:
Title:
<PAGE> 26
26
COMMERCIAL LOAN FUNDING TRUST I
By: Lehman Commercial Paper Inc., not in
its individual capacity but solely
as administrative agent
By:___________________________________
Name:
Title:
<PAGE> 27
27
ROYALTON COMPANY
By: Pacific Investment Management
Company, as its investment adviser
By:___________________________________
Name:
Title:
<PAGE> 28
28
ALLSTATE LIFE INSURANCE COMPANY
By:___________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.2
_____________________________________________
PURCHASE AGREEMENT
dated as of February 1, 1999
between
TRIAD SYSTEMS FINANCIAL CORPORATION
as Seller
and
MELLON US LEASING, A DIVISION OF
MELLON LEASING CORPORATION
as Purchaser
_____________________________________________
$15,000,000.00
__________________________________
Purchase and Assignment
Leases
Lease Receivables
Leased Equipment
___________________________
i
<PAGE> 2
PURCHASE AGREEMENT entered into as of February 1, 1999, between TRIAD
SYSTEMS FINANCIAL CORPORATION, a California corporation ("TSFC"), as seller and
assignor, and MELLON US LEASING, A DIVISION OF MELLON LEASING CORPORATION, a
Pennsylvania corporation ("MUSL"), as purchaser and assignee.
I N T R O D U C T I O N
A. TSFC is a wholly owned subsidiary of COOPERATIVE COMPUTING, INC., a
Delaware corporation formerly known as TRIAD SYSTEMS CORPORATION ("CCI"). CCI
manufactures and TSFC purchases from CCI and leases to its customers computer
systems and software, all in accordance with an Operating and Support Agreement
dated February 1,1999 among CCI, TSFC and MUSL.
B. MUSL engages in the business of equipment lease financing.
C. MUSL is willing to purchase from TSFC and TSFC is will to sell to
MUSL certain of its customer leases and the related computer systems and
software, upgrades and add-ons and other equipment for purchase prices equal to
the discounted value of payments under the customer leases, all subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. DEFINITIONS
When used in capitalized form herein, the following terms shall have
the meanings indicated:
"Anniversary Date" - March 31, 2000.
"Assignment and Bill of Sale" - an assignment and bill of sale in the
form of Exhibit C.
"Business Day" - any day other than a Saturday, Sunday or a public or
bank holiday or the equivalent for banks generally under the laws of the State
of California.
"Closing Date" - with respect to any Purchase - the date on which MUSL
makes a Purchase from TSFC under this Agreement.
1
<PAGE> 3
"Commitment" - the purchase commitment of MUSL to TSFC pursuant to
Section 2.
"Credit Application" - a credit application in the form of Exhibit D
detailing certain information to be obtained by TSFC with respect to a
prospective lessee and as requested by MUSL.
"Effective Date" - the date of this Agreement.
"Eligible Equipment" - new or remanufactured Equipment, including but
not limited to, computer systems and related components, software and
accessories manufactured or sold by CCI or another manufacturer or seller,
having a Purchase Price of not less than One Hundred Thousand Dollars
($100,000.00) subject to an Eligible Lease and not subject to a security
interest or other encumbrance in favor of any corporation, firm or other person.
"Eligible Lease" - a full payout net lease in the form of Exhibit A-1,
naming TSFC as lessor, that:
(a) has a noncancellable term of not less than 24 months nor more
than 84 months excluding renewals or extensions;
(b) provides for (i) Rent and casualty payments in amounts
sufficient to repay to MUSL the Purchase Price made in
respect of such lease and interest on such Purchase Price at
the Rate, (ii) interest on late payments under such lease at
a rate not less than the Late Payment Rate and (iii) all
payments to be made in United States dollars;
(c) provides that the lessor's right to receive payment is
absolute and not contingent upon the fulfillment of any
condition whatsoever other than the passage of time;
(d) covers only Eligible Equipment and includes all hardware and
any other systems required to operate any included software;
(e) is not subject to any conditions, obligations of, or any
right or offset, counterclaim or defense by, the Lessee
thereunder;
2
<PAGE> 4
(f) is a Lease under which the Lessee is not in default; and
(g) is in all other respects satisfactory to MUSL.
"Enforcement Notice" - notice given by MUSL to TSFC pursuant to Section
3.9 of a Lessee Default.
"Equipment" - any and all Eligible Equipment leased to a Lessee by TSFC
under a Lease, located in the United States and purchased by MUSL by the payment
of the Purchase Price by MUSL and the execution and delivery by TSFC to MUSL of
an Assignment and Bill of Sale specifically describing such Eligible Equipment,
together with (i) all accessions, replacements, parts, repairs, fixtures and
accessories incorporated therein or affixed thereto under the Lease, and (ii)
all upgrades, add-ons and additions incorporated therein or affixed thereto to
the extent they have been purchased by MUSL under this Agreement.
"Funding Commitment" - a notice to TSFC from MUSL in the form of
Exhibit E.
"Guaranty" - a guaranty, in the form of the guaranty (or such other
form as requested by MUSL) which comprises a part of Exhibit A-1, executed and
delivered by a corporation, firm or other person (a "Guarantor") satisfactory to
MUSL, assigned to MUSL as security by the execution and delivery by TSFC of an
Assignment and Bill of Sale specifically describing such guaranty.
"Late Payment Rate" - with respect to a Purchase - two percent (2%)
over the applicable Rate.
"Lease" - an Eligible Lease duly executed by the Lessee, approved by
MUSL and purchased by and assigned to MUSL hereunder.
"Lessee" - a United States-domiciled corporation, partnership or sole
proprietorship that is the obligor for payment of Rent under a Lease.
"Name" - "Triad System Financial Corporation."
"Operating Agreement" - the Operating and Support Agreement dated as of
February 1, 1999 among CCI, TSFC, and MUSL, in the form of Exhibit "B" attached
hereto.
"Operative Documents" - this Agreement, each Assignment and Bill of
Sale and the Operating Agreement.
3
<PAGE> 5
"Proposal" - the offer to a prospective lessee developed by TSFC and
MUSL as provided in Section 3.1.
"Purchase" -With respect to a Lease and the related Equipment, the
payment by MUSL of the Purchase Price thereof and the execution and delivery of
the Assignment and Bill of Sale by TSFC therefor.
"Purchase Price" - of a Lease and related Equipment at the time a
Purchase is made - each payment of Rent remaining unpaid under the Lease at that
time (but excluding any past due Rent), discounted from the date each such
payment is due to such time at the Rate.
"Rate" - with respect to a Purchase - will be that rate determined by
mutual agreement of TSFC and MUSL with respect to such Purchase.
"Rent" - under a Lease, the periodic charges specified in the Lease for
the use of the Equipment, excluding casualty or early termination, purchase
option and indemnity payments and any amounts a Lessee may be required to pay
for taxes, license fees, assessments or maintenance.
"Repurchase Amount" - with respect to any Lease and related Equipment,
an amount equal to the sum of (i) all then due and unpaid Rent under such Lease
together with any interest or other amount due thereon at the Late Payment Rate;
(ii) all Rent not then due discount to the date of repurchase at the Rate; and
(iii) any other amounts due MUSL under such Lease, including sales, use, or
property taxes.
"Repurchase Date" - with respect to any Purchase - the twentieth day of
each calendar month, commencing with the first such day to occur after the
Closing Date for such Purchase.
"Tradestyle" -"TSFC."
"CCI" - Cooperative Computing, Inc., a Delaware corporation formerly
known as Triad Systems Corporation, or any successor entity resulting from the
sale or transfer of the stock of Cooperative Computing, Inc. to another
corporation as a result of the merger, acquisition, consolidation, or
dissolution of Cooperative Computing, Inc. or resulting from the transfer of all
or substantially all of the assets of Cooperative Computing, Inc.
2. THE COMMITMENT
2.1 Total Commitment. Subject to the terms and conditions hereof,
from time to time, from (and including) the Effective Date to and excluding the
Anniversary Date (unless extended by MUSL and TSFC), MUSL
4
<PAGE> 6
may make Purchases from TSFC with aggregate Purchase Prices not to exceed
$15,000,000.00; provided that neither TSFC or CCI suffers a material adverse
change in its business, condition (financial or other), performance, operations,
properties or prospects or in its ability to perform its obligations under the
Operative Documents to which it is a party or the Leases.
2.2 Payments. MUSL shall pay the Purchase Prices of the Purchases
and any other payment due under this Agreement in immediately available funds on
the Closing Dates for such Purchases. TSFC shall make any payment due under this
Agreement to MUSL or its assignee in immediately available funds to the account
or address specified by MUSL or such assignee.
3. THE PURCHASES
3.1 Proposal. When TSFC has identified a customer who would be
interested in considering a Lease, TSFC will advise MUSL in writing of such
customer, the type of contract desired and the terms on which such customer has
indicated an interest, including any terms and conditions at material variance
with the terms and conditions of an Eligible Lease to the extent such material
variances may be known to TSFC. MUSL will conduct a preliminary review of the
proposed transaction terms and within 24 hours thereafter will issue a written
quote to TSFC for the transaction. If TSFC determines that the quote is
acceptable, it will so advise MUSL, and TSFC and MUSL will together develop a
proposal for the transaction to submit to the customer (a "Proposal").
3.2 Credit Application and Approval. Upon receipt of acceptance of
a Proposal by a Lessee, TSFC will gather the information pertaining to such
Lessee and the transaction required by the Credit Application and forward it to
MUSL. TSFC will not be responsible for the accuracy or completeness of such
information, but it will forward to MUSL all such information it receives. Upon
receipt of a Credit Application and related information, MUSL shall promptly
conduct such credit investigation and financial analysis of the proposed
transaction and Lessee as it shall deem necessary. MUSL will use its best
efforts to inform TSFC of its approval or rejection of the proposed transaction
within 10 Business Days from the date of MUSL's receipt of all the information
set forth on the Credit Application. If, in a given instance, MUSL requires
additional time to complete its analysis, MUSL will so advise TSFC prior to the
end of the applicable period, whereupon TSFC may, in its sole discretion, grant
or deny such additional time. TSFC shall cooperate with and use reasonable
efforts to obtain promptly from the Lessee such additional credit information as
MUSL shall reasonably request.
3.3 Funding Commitment. If MUSL approves a transaction with a
Lessee, it will issue a funding commitment, the form of which is attached hereto
as Exhibit E (a "Funding Commitment"), with respect to such transaction. A
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<PAGE> 7
Funding Commitment shall be effective for 180 days from the date of its
issuance, unless otherwise specified therein. Unless otherwise stated in the
Funding Commitment, MUSL will finance a given transaction at the lease rate
applicable as of the date of the Funding Commitment, adjusted as therein
provided for changes in interest rate. In addition, the Funding Commitment shall
specify:
(i) the terms of the Lease (including any nonstandard terms and
conditions);
(ii) the Equipment subject to the Lease;
(iii) the Purchase Price of the Equipment;
(iv) the required documentation for completion of the
transaction; and
(v) any other special conditions or terms MUSL may require for
funding the transaction.
3.4 Cancellation of a Funding Commitment. MUSL reserves the right
to cancel a Funding Commitment at any time prior to the funding thereof if MUSL
determines, in its sole discretion, that any one or more of the following has
occurred:
(i) any representation made in the related Credit Application
(inclusive of all financial information) submitted is false
or misleading in any material respect;
(ii) an event has occurred or a condition or circumstance has
arisen which, in its judgment, could result in a material
adverse change in the business, condition (financial or
otherwise), performance, operations, properties or prospects
of Lessee or which, in its judgment, could impair in any
material respect Lessee's ability to perform its obligations
under the Lease or any guarantor under any related Guaranty;
(iii) an existing account of Lessee with MUSL has become past due
in payments owed, which past due payments are material in
amount; or
(iv) an event has occurred which would constitute a default under
this Agreement or the Lease or any related Guaranty.
MUSL shall provide written notice to TSFC of any cancellation of a Funding
Commitment.
3.5 Funding. In aggregate Purchase Prices of not less than
$100,000, but in any event, at least quarterly, MUSL shall close Purchases and
make payment of Purchase Prices for which Funding Commitments are outstanding
and for which the applicable conditions of Section 5.3 have been fulfilled.
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3.6 Notice to Lessees; Billing. MUSL shall direct the Lessee under
each Lease to send all Rent and other amounts due thereunder addressed to TSFC,
directly to a lockbox or post office box designated by MUSL and under MUSL's
control. If TSFC subsequently receives a payment of Rent on account of a Lease
or other amount due thereunder, TSFC agrees to hold the amount in trust for MUSL
and immediately forward it to MUSL. If MUSL receives a payment from a Lessee for
support, maintenance or other amounts not financed by MUSL hereunder under a
Lease, MUSL agrees to hold the amount in trust for TSFC and immediately forward
it to TSFC. TSFC hereby authorizes MUSL, in the Name and Tradestyle, or
otherwise, to take any and all actions provided for in subparagraphs (a) through
(f) below with respect to each Lease from the date the Purchase Price therefor
is paid. TSFC will furnish to MUSL the account information MUSL needs to
administer each Lease. TSFC irrevocably appoints MUSL as its agent and
attorney-in-fact to perform all aspects of billing, collection, administration
and enforcement of each Lease pursuant to this Agreement. TSFC will cooperate
with MUSL in taking such actions as may be necessary or appropriate to enable
MUSL to process and deposit checks, drafts, bills of exchange, orders and other
instruments received and wire transfers of funds made pursuant to the Leases and
otherwise to carry out MUSL's rights and responsibilities under this Agreement
using the Name and Tradestyle.
(a) to endorse or sign TSFC's name on all checks,
collections, receipts, UCC's or other documents related
to the Leases;
(b) to take possession of and open mail addressed to TSFC
relating to such collection and remove Rent and proceeds
and products of the Lease and related Equipment;
(c) to ask, demand, collect, receive, sue for, compound and
give acquittance for any and all payments assigned
hereunder;
(d) to settle, adjust or compromise any claim thereunder as
fully as TSFC could itself;
(e) to endorse its name on all checks and other commercial
paper given in payment or in part payment thereof; and
(f) in its discretion, to file any claim or take any other
action or proceeding, either in Lender's own name or in
TSFC's name or otherwise, that Lender may deem necessary
or appropriate to collect any and all sums that may be
or become due or payable under the Leases or that may be
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necessary or appropriate to protect the right, title and
interest of Lender in and to the Leases and related
Equipment.
3.7 Reports. MUSL will provide TSFC with periodic reports relative
to the Leases in a form and at times mutually agreed upon by TSFC and MUSL
(including a monthly report containing aging information pertaining to open
accounts under such Leases).
3.8 License. TSFC hereby grants to MUSL, and MUSL hereby accepts,
the nonexclusive, nontransferable, terminable right and license, to use the Name
and Tradestyle upon the terms and conditions set forth herein, solely in
connection with the billing, collection, administration, and enforcement of
Leases pursuant to this Agreement. Nothing in this Agreement shall be construed
as conveying to MUSL any right, title or interest in the Name and Tradestyle or
any trademarks, service marks or other intellectual property of TSFC.
3.9 Default by Lessees. If there shall occur a default by a Lessee
under a Lease, and MUSL has determined to commence the exercise of remedies
thereunder, MUSL shall give notice thereof (an "Enforcement Notice") to TSFC.
Thereupon TSFC shall have the option to either (i) purchase the Lease and
related Equipment on the Repurchase Date next occurring after receipt of such
notice by paying to MUSL the Repurchase Amount with respect to such Lease and
related Equipment or (ii) allow MUSL to proceed with the exercise of remedies in
connection with such default under the Lease, in MUSL's name (including
completing and delivering to the Lessee the Notice of Assignment received by
MUSL from TSFC pursuant to Section 5.3 (f)) and in accordance the collection and
enforcement procedures deemed appropriate by MUSL. In the event TSFC does not
repurchase a defaulted Lease and related Equipment, TSFC will cooperate with
MUSL in pursuing its collection and enforcement procedures and exercising its
remedies as provided hereunder, and, at MUSL's request, will cease providing
support services to a defaulted Lessee with respect to the leased Equipment
until such time as MUSL requests such services to be continued with respect to
such Equipment.
3.10 Upgrades and Additions. TSFC may, from time to time, agree
with a Lessee under a Lease that the Equipment subject to such Lease shall be
upgraded or that additional Eligible Equipment should be added to such Lease. If
TSFC and such Lessee agree to amend such Lease to increase the Rent payable
thereunder in consideration of such upgrade or addition, TSFC may
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request that MUSL purchase the upgrade or addition covered by such amendment (
the "Lease Amendment"). Not later than ten (10) Business Days after such
request, MUSL shall give TSFC written advice as to whether MUSL, in its sole
discretion, has elected to purchase such upgrade or addition. If MUSL fails to
give such advice within such ten (10) day period, MUSL shall be deemed to have
declined to purchase such upgrade or addition. If MUSL agrees to purchase such
upgrade or addition, MUSL shall, subject to satisfaction of the conditions
precedent set forth in Sections 4 and 5, Purchase Price therefor in an amount
equal to the aggregate increase in Rent effected by the Lease Amendment which
remains unpaid as of the applicable Closing Date, but excluding any such
increase in Rent which is past due, discounted at the Rate mutually agreed to by
MUSL and TSFC. The Closing Date with respect to such Purchase shall be a date
agreed upon in writing by MUSL and TSFC. If MUSL agrees to make such a Purchase,
the Lease Amendment shall be considered a "Lease" for all purposes of this
Agreement (including, without limitation, Section 5).
3.11 Optional Prepayment: MUSL Refusal to Purchase Upgrades or
Additions. If MUSL elects not to purchase an upgrade or addition pursuant to
Section 3.10, TSFC may give MUSL not less than ten (10) days prior written
notice of its intention to repurchase the Lease and related Equipment in respect
of which an upgrade or addition has been made. On the first Repurchase Date to
occur after the ten (10) day notice period has elapsed, TSFC shall pay to MUSL
the Repurchase Amount with respect to such Lease.
3.12 No Other Repurchase Permitted. No Lease and related Equipment
may be repurchased for any reason except as otherwise expressly provided in the
Agreement.
4. CONDITIONS PRECEDENT TO THE INITIAL PURCHASE
MUSL will not make the initial Purchase hereunder until it has
received all of the following, in form and substance satisfactory to MUSL:
4.1 Evidence of Authority of TSFC. Certified resolutions of the
Board of Directors of TSFC authorizing the execution, delivery and performance
of each of the Operative Documents to which it is a party and any other document
required hereunder together with an incumbency certificate with respect to the
officer or officers of TSFC executing any of such Operative Documents and any
document required hereunder.
4.2 Evidence of Authority of CCI. Certified resolutions of the
Board of Directors of CCI authorizing the execution, delivery and performance of
the Operating Agreement and any other document required thereunder together
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with an incumbency certificate with respect to the officer or officers of CCI
executing the Operating Agreement and any document required thereunder.
4.3 Operating Agreement. The Operating Agreement, duly executed by
CCI, TSFC, and MUSL.
4.4 Financial Statements. The most recent consolidated financial
statements of Cooperative Computing Holding Company, Inc., which include the
operating results of CCI and TSFC.
4.5 TSFC Officer's Certificate. A certificate from a duly
authorized officer of TSFC, dated as of the first Closing Date, stating that:
(a) all representations and warranties made by TSFC under
this Agreement and under the Operating Agreement are
true and correct as of the date of the certificate;
(b) TSFC is in compliance with all covenants made under this
Agreement; and
(c) no event has occurred and is continuing that is, or with
the passage of time or giving of notice or both would
be, an event of default or a default under or breach of
the Operating Agreement; and
(d) containing an express undertaking by TSFC to give
immediate notice to MUSL if at any time any of the above
statements are no longer true.
4.6 CCI Officer's Certificate. A certificate from a duly
authorized officer of CCI, dated as of the first Closing Date, stating that:
(a) all representations and warranties made by CCI under the
Operating Agreement are true and correct as of the date
of the certificate;
(b) CCI is in compliance with all covenants made under the
Operating Agreement;
(c) no event has occurred and is continuing that is, or with
the passage of time or giving of notice or both would
be, a default under or breach of the Operating
Agreement; and
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(d) containing an express undertaking by CCI to give
immediate written notice to MUSL if at any time any of
the above statements is no longer true.
5. CONDITIONS PRECEDENT TO ALL PURCHASES
MUSL will not make any Purchase hereunder (including the initial
Purchase) unless on the date thereof:
5.1 Notice. TSFC shall have given MUSL verbal notice of each
Closing Date no later than five (5) Business Days prior to such Closing Date.
5.2 Operating Agreement. The Operating Agreement shall be in full
force and effect and no defaults or breaches shall exist thereunder as of the
applicable Closing Date.
5.3 Receipt of Certain Documents. MUSL shall have received the
following, in form and substance satisfactory to MUSL:
a) Lease. (i) A signed fax copy or original, manually
executed counterparts in the possession of CCI or TSFC
on such Closing Date of each Lease financed on such
Closing Date and the related Lease Schedule
substantially in the form contained in Exhibit "A-1", in
each case duly executed by TSFC as lessor and by the
Lessee thereunder;
(b) Guaranty. If required by MUSL, signed fax copy or
original, manually executed counterparts in the
possession of CCI or TSFC on such Closing Date of each
Guaranty duly executed by the Guarantor;
(c) Financing Statements Filed Against Lessees. Either
evidence of electronic filing receipts, a search report
from Dun & Bradstreet listing, among other things,
filing numbers and filing dates or copy of duly executed
and filed Uniform Commercial Code financing statements
on form UCC-1 naming TSFC as secured party and the
Lessees under the Leases to be financed on the Closing
Date as debtors, identifying as collateral the Equipment
subject to such Leases.
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(d) Assignment and Bill of Sale. An Assignment and Bill of
Sale, in the form of Exhibit C, or other form
satisfactory to MUSL, duly executed by TSFC relating to
and describing the Lease, and Guaranty and the Equipment
covered thereby;
(f) Notice of Assignment. An original notice to the relevant
Lessee of the assignment to MUSL of the relevant Lease,
signed by TSFC, substantially in the form of Exhibit
"F";
(g) Acceptance Supplement. A copy of the original executed
counterpart of the delivery and acceptance certificate
with respect to each Lease containing a complete
description of the Equipment, duly executed by the
Lessee thereunder; and
(h) Releases. Releases in form and substance reasonably
acceptable to MUSL executed by secured lenders, if any,
of TSFC having a security interest in the Lease and
related Equipment.
(i) Other Documents. Such other documents, instruments or
agreements as MUSL may reasonably request.
5.4 No Obligations Assumed by MUSL. Except for TSFC's obligation
to permit lessee's quiet enjoyment of the Equipment subject to the Lease so long
as no event of default or breach of Lease has occurred and is continuing, MUSL
does not assume, and its interest herein shall not be subject to, any
obligations or liabilities of TSFC under any Lease or any duty to collect money
due thereunder or to enforce collection thereof. MUSL assumes no responsibility,
obligation or liability for any representation, warranty or obligation, express
or implied, made by any agent or employee of TSFC to a Lessee in connection with
any Lease.
6. INDEMNITIES
6.1 Indemnities. Notwithstanding anything set forth herein, TSFC
shall indemnify, protect and defend MUSL and hold it safe and harmless from and
against any and all losses, claims, demands, penalties, actions, suits,
proceedings, costs, expenses (including reasonable attorneys' fees), damages and
liabilities ("Indemnified Amount") (other than Indemnified Amounts arising from
or pertaining to the gross negligence or willful misconduct by MUSL) that
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may at any time be made, brought, incurred, assessed or adjudged against MUSL
arising from or pertaining to:
(a) the manufacture, purchase, license, subscription,
financing, ownership, delivery, rejection, nondelivery,
possession, use, operation, maintenance, or repair of
the Equipment and in the event TSFC agrees to remarket
any Equipment pursuant to Section 8, then with respect
such Equipment, any dismantling, transportation,
storage, return or other disposition thereof performed
by TSFC or at its direction;
(b) breach of any covenant or warranty made by TSFC or CCI
relating to any Equipment or Lease or maintenance of any
Equipment, including qualification of any Equipment for
any tax benefit;
(c) any claim, action or proceeding involving patent or
trademark infringement or copyright or trade secret
violations relating to the Equipment (including any
interest or penalty) whether or not such claim, action
or proceeding involves a claim of infringement or a
combination or design patent;
(d) failure of MUSL, for whatever reason, to have obtained a
first priority perfected purchase money security
interest in and lien on the Equipment in the event the
Equipment is deemed to be an asset of a Lessee as the
result of a Lease being held to be a security agreement
rather than a true lease regardless of whether of not
Uniform Commercial Code financing statements on form
UCC-1 were filed against a Lessee with respect to the
Equipment under Section 5.3 (c);
(e) any misrepresentation made by any agent or employee of
TSFC, or CCI in the course of negotiations regarding any
Lease or Equipment;
(f) any breach of any warranty or covenant, or any
misrepresentation, of TSFC, or CCI in any Lease, any
Operative Document or any certificate of an officer of
TSFC, or CCI delivered in accordance therewith;
(g) failure of any lease or Equipment to comply with
applicable laws, regulations or contractual
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specifications or warranties, or to be an Eligible Lease
or Eligible Equipment, as the case may be;
(h) any dispute, claim, offset, or defense of any Lessee
(other than payment by, or discharge in bankruptcy of,
such Lessee) to the payment of any Rent;
(i) MUSL having received from TSFC only a fax copy (rather
that the original, manually executed copy) of any Lease
or any Guaranty;
(j) failure of TSFC or CCI to pay when due any taxes for
which it is liable; and
(j) any wrongful or negligent acts or omissions of TSFC, its
agents or assigns, in carrying out TSFC's obligations,
if any, under Section 8.
TSFC shall assume, at its expense, full responsibility for the
defense and satisfaction of the foregoing, with counsel reasonably satisfactory
to MUSL. All of the indemnities set forth in this Section 6.1 shall survive the
cancellation or termination of this Agreement.
6.2 Indemnity Payment. Upon the occurrence of any of the events
set forth in Section 6.1, TSFC unconditionally agrees to pay MUSL, upon written
demand, the Indemnified Amount.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS
TSFC represents, warrants and covenants that:
7.1 Due Organization. It is a corporation duly organized and
validly existing in good standing under the laws of California, and is duly
qualified or otherwise authorized to do business wherever necessary to carry on
its present business and operations and to perform its respective obligations
under each Operative Document and each Lease.
7.2 Authority. It has the full power, authority and legal right to
enter into and perform its obligations under each Operative Document.
7.3 Principal Place of Business. Its chief executive office is in
Livermore, California, and the office where it maintains its records concerning
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payments under leases is in Austin, Texas, and it will not change such principal
place of business or remove from such place where it maintains its records, such
records or any other records relating to the Leases or related Equipment, or
change its name, identity or corporate structure, without at least thirty (30)
days prior written notice to Lender.
7.4 Binding Obligations. Each Operative Document has been duly
authorized and upon execution and delivery will constitute legal, valid and
binding obligations, enforceable against it in accordance with the terms
thereof.
7.5 Approvals and Consents. No stockholder approval, or approval
or consent of any trustee or holder of any indebtedness or obligation, or
authorization, consent, approval or license by, exemption from or registration
with, any court or governmental department, commission, board, agency or
instrumentality, domestic or foreign, is necessary in connection with the
execution, delivery and performance of its obligations under the Operative
Documents, and no consent of any owner, lessor or mortgagee of premises where
any Equipment is located is needed to permit MUSL or TSFC to enforce the rights
of the lessor under the Leases or, if required, the same have been obtained and
certified copies have been delivered to MUSL.
7.6 Compliance with Laws. There is no law, governmental rule,
regulation, judgment, decree or order binding on it that would be contravened by
the execution and delivery of, and performance under, the Operative Documents.
It will at all times comply with, or cause to be complied with, all laws,
statutes, rules, regulations, orders and directions of any governmental
authority having jurisdiction over it or its business if not complied with,
would have a material adverse effect on TSFC's business, condition (financial or
other), performance, operations, properties or prospects or on its ability to
perform its obligations under the Operative Documents or the Leases.
7.7 Clear Ownership. On the Closing Date, it is the record and
beneficial owner of 100% of each Lease and all Equipment subject to Leases in
which it is named as Lessor free and clear to all mortgages, deeds of trust,
pledges and other liens, security interests, charges or encumbrances, except for
liens for taxes due but not yet payable and shall promptly deliver to MUSL any
executed counterparts of Leases which were not delivered to MUSL pursuant to
Section 5.3(a) and which have subsequently come into its or CCI's possession.
7.8 Filings. The Uniform Commercial Code filings made against the
Lessee and assigned in favor of MUSL create a valid and perfected first priority
security interest in the Equipment.
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7.9 Actions. There are no actions, suits, proceedings, claims or
disputes pending or, to its knowledge, threatened against or affecting it or its
properties before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, that, if determined
adversely to it, would have a material adverse effect on its business, condition
(financial or other), performance, operations, properties or prospects, its
ability to perform its obligations under the Operative Documents or the Leases.
7.10 Payment of Taxes. It has filed and will file all tax returns
(federal, state and local) required to be filed and has paid all taxes shown
thereon to be due, including interest and penalties, unless it is contesting the
payment of certain taxes in good faith and has established adequate reserves
therefor.
7.11 Notices. It will send to MUSL copies of all significant
notices received by it, including, but not limited to, any notices with respect
to the terms of any Lease, and other instruments or communications required or
permitted to be given by the Lessee under any Lease.
7.12 Further Assurances; Enforcement of Leases. It will: (a)
preserve and maintain its corporate existence and all rights, privileges and
franchises now enjoyed and conduct its business in an orderly, efficient and
customary manner; and (b) from time to time, at its own expense, take all
actions reasonably necessary to establish, preserve, protect and perfect the
rights created by this Agreement, including, without limitation, (i) the full
and punctual performance of all of its obligations under the Leases; and (ii)
the exercise of any and all rights of the lessor under the Leases as may be
requested by MUSL in connection with its administration of the Leases to assure
full compliance with the terms and provisions thereof and to protect MUSL's
interest in the Leases and related Equipment.
7.13 Validity and Enforceability of Leases and Guaranties. Each
Eligible Lease and Guaranty submitted to MUSL pursuant to Section 5.3 is genuine
and valid and is not subject to any offset, deduction, counterclaim or lien.
7.14 Leases Duly Entered Into. All parties to each Lease and
Guaranty have full power, authority and legal right to enter into and perform
its obligations under such Lease or Guaranty, as the case may be and each Lease
and Guaranty will be duly authorized, executed and delivered by the parties
thereto; provided, however, TSFC shall not make the foregoing representation and
warranty with respect to each Lease and Guaranty for which TSFC submits pursuant
to Section 5.3 a duly executed incumbency certificate and certified corporate
resolutions in form and substance satisfactory to MUSL. Each Lease and Guaranty
will constitute legal, valid and binding obligations of the parties
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thereto and will be enforceable in accordance with their respective terms and
will be in full force and effect on the Closing Date relating thereto, and no
default thereunder shall exist on such Closing Date. The entire agreement with
each Lessee is embodied solely in the executed counterparts of the applicable
Lease and other documentation furnished to MUSL with respect to such Lease.
7.15 Equipment Description Each Lease describes the Equipment
leased to the Lessee named in such Lease, the Rent required for such Equipment
and any applicable early termination payments.
7.16 Leases Comply with Laws. Each Lease complies with and does
not violate applicable laws, regulations or contractual specifications or
warranties, including without limitation, any applicable laws relating to
maximum rates of interest (whether or not imputed) or similar charges and all
required disclosures have been made with respect thereto under federal
truth-in-lending and truth-in-leasing regulations to the extent applicable.
7.17 No Impairment of Value or Rights. It will not do anything
that might impair the value of any Lease or Equipment or any of the rights or
obligations of the parties hereto under any Lease.
7.18 No Lessor Liens; Good Title. No Lease submitted to MUSL
pursuant to Section 5.3, or any Equipment subject thereto, or any other of its
rights therein, has been assigned to, or shall be subject to, any lien or
security interest in favor of, any person other than MUSL. TSFC has and conveys,
assigns, transfers and sells to MUSL with respect to each Lease and the
Equipment purchased hereunder, good and marketable title, free and clear of all
liens, encumbrances or security interests except the interest of Lessee as
lessee under the Lease. TSFC MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO THE
EQUIPMENT'S MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE.
7.19 Notifications. It will promptly notify MUSL of:
(a) any event of default or event which, upon the lapse of
time or giving of notice, or both, would become an event
of default, or any event which is, or upon the lapse of
time or giving of notice, or both, would become a
default under or breach of the Operating Agreement;
(b) any and all litigation or other matters or events
concerning it or any Lessee that has a reasonable
possibility of materially and adversely affecting its or
any Lessee's business, condition (financial or other),
performance, operations, properties or prospects or
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adversely affecting MUSL's interest in the Lease or
related Equipment.
7.20 Books and Records Financial and Other Information. It shall:
(a) maintain adequate books, accounts and records and
prepare all financial statements required hereunder in
accordance with generally accepted accounting principles
and practices consistently applied and in compliance
with the regulations of any governmental regulatory body
having jurisdiction over it;
(b) give MUSL and its representatives, at all reasonable
times and upon reasonable notice, access to all records,
files and books of accounting pertaining to all
transactions subject to this Agreement, and permit MUSL
and its representatives to inspect, audit and make
extracts therefrom;
(c) upon the occurrence of an event of default or an event
which, upon the lapse of time or giving of notice, or
both, would become an event of default, permit MUSL to
exercise the inspection rights of TSFC under the Leases,
on a non-exclusive basis.
MUSL represents, warrants and covenants that:
7.21 Due Organization. It is a corporation duly organized and
validly existing in good standing under the laws of Pennsylvania, and is duly
qualified or otherwise authorized to do business wherever necessary to carry on
its present business and operations and to perform its respective obligations
under each Operative Document and each Lease.
7.22 Authority. It has the full power, authority and legal right
to enter into and perform its obligations under each Operative Document.
7.23 Binding Obligations. Each Operative Document has been duly
authorized and upon execution and delivery will constitute legal, valid and
binding obligations, enforceable against it in accordance with the terms
thereof.
7.24 Approvals and Consents. No stockholder approval, or approval
or consent of any trustee or holder of any indebtedness or obligation, or
authorization, consent, approval or license by, exemption from or registration
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with, any court or governmental department, commission, board, agency or
instrumentality, domestic or foreign, is necessary in connection with the
execution, delivery and performance of its obligations under the Operative
Documents.
7.25 Payment of Taxes. On and after the financing of a Lease and
Equipment hereunder, it will file all sale, use and property tax returns
required to be filed by it thereon and will pay all taxes shown thereon to be
due, including interest and penalties, unless it is contesting the payment of
certain taxes in good faith and has established adequate reserves therefor.
8. REPOSSESSION AND REMARKETING
8.1 Request to Repossess; Remarketing. Upon MUSL's determination
that a default exists under a Lease and that such default remains uncured within
the time, if any, for curing the same permitted by the Lease, MUSL may request
TSFC to act, on terms and conditions acceptable to TSFC, as MUSL's agent to use
diligent efforts to repossess the Equipment subject to such Lease as promptly
and efficiently as is legally permissible and to thereafter to repair, service,
refurbish and update, as needed, and attempt to sell or re-lease such Equipment
on a non-priority (but non-discriminatory) basis and on such terms and
conditions as reflect fair market value for similar equipment and are acceptable
to MUSL, in its sole discretion. TSFC shall promptly respond to MUSL's request
setting forth such terms and conditions.
9. MISCELLANEOUS
9.1 General. Waiver of any particular right or provision shall not
be a waiver of any other right or provision. The parties' rights are cumulative
and not alternative. No waiver or change, modification or amendment in this
Agreement shall bind MUSL or TSFC unless an officer of MUSL and TSFC, has agreed
to such waiver or change, modification or amendment in writing. Any provision of
this Agreement contrary to, prohibited by or invalid under applicable laws or
regulations shall be inapplicable and deemed omitted herefrom, but shall not
invalidate the remaining provisions hereof. No oral agreement, guaranty or
warranty shall be binding. This Agreement shall be governed by the laws of
California.
9.2 Notices. All notices, demands, directions, consents and
approvals hereunder shall be in writing and shall be delivered in person, by
telecopy, by overnight courier or by prepaid certified mail, addressed to the
party for whom it is intended, if to
Triad Systems Financial Corporation
3055 Triad Drive
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Livermore, CA 94550
Attn: Bill Allen, President
Telecopy: 925 455 6917
With copy to:
Cooperative Computing, Inc.
6207 Bee Cave Road
Austin TX 78746-5146
Attn: Walter Earl Bissex
Telecopy: 512 347 9914
and if to
Mellon US Leasing, a Division of
Mellon Leasing Corporation
525 Market Street, Suite 3500
San Francisco, California 94105
Attention: President
Telecopy No.: 415/538-9611
and shall be deemed delivered on the day of actual receipt. Either party may
change its address for the receipt of notices, demands, directions, consents,
and approvals by notice duly given to the other party pursuant to this Section
9.2.
Notices may also effectively be given by transmitting over
electronic devices such as facsimile machine, if either party to whom such
notice is being sent has such device in its office. Notices given by electronic
transmitting devices shall be deemed effective on the date of transmission.
9.3 Waivers. TSFC hereby waives demand, presentment, protest and
notice thereof with respect to any and all instruments, notice of acceptance
hereof, and all other demands and notices of any description, except as
expressly provided herein. No delay or omissions on the part of either party in
exercising any right, remedy, option, or notice of default, except as any
pertinent statute of limitations which may apply, on any one occasion, shall be
construed as a bar to or waiver of any other default, right, remedy or option,
or the same default, right, remedy or option any future occasion.
9.4 Costs and Expenses. In any case where MUSL or TSFC is entitled
hereunder to reimbursement of costs and expenses, such costs and
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<PAGE> 22
expenses shall include interest on any judgment and court costs, reasonable
legal fees and expenses (including allocated fees of internal counsel).
9.5 Successors; Assigns. This Agreement shall inure to the benefit
of and be binding upon MUSL and TSFC and their respective successors and
permitted assigns. Neither party may assign this Agreement without the other
party's consent, unless such assignment is to any wholly owned subsidiary,
parent or affiliate of the assigning party. If either party does not consent to
such proposed assignment, TSFC shall have the option to prepay the outstanding
aggregate Purchase Repayment Amount to MUSL at a price to be determined by
mutual agreement of the parties.
9.6 Entire Agreement. The terms and conditions herein contained
constitute the entire agreement between MUSL and TSFC with respect to the
subject matter hereof, except to the extent other agreements are referred to
herein or contemplated hereby or executed contemporaneously herewith, and
supersede all previous communications whether oral or written between MUSL and
TSFC with respect to such subject matter. No agreement or understanding varying
or extending any rights or obligations hereunder of either of the parties shall
be binding unless in a writing signed by a duly authorized officer or
representative of the party against which such variance or extension is sought
to be enforced.
9.7 Headings; Titles. The cover and titles for Sections used in
this Agreement are intended to be descriptive only and shall not be deemed to
limit, extend or in any way modify the meaning of the text of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their officers thereunto duly authorized as of the day
and year first above written.
TRIAD SYSTEMS FINANCIAL CORPORATION,
a California corporation
By: _______________________________
Its: Authorized Signatory
MELLON US LEASING, A DIVISION OF
MELLON LEASING CORPORATION,
a Pennsylvania corporation
By: ________________________________
Its: Authorized Signatory
21
<PAGE> 23
Exhibits
A. Eligible Lease, Guaranty
B. Operating Agreement
C. Assignment and Bill of Sale
D. Credit Application
E. Funding Commitment
F. Notice of Assignment
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 40,305
<ALLOWANCES> 0
<INVENTORY> 6,880
<CURRENT-ASSETS> 61,695
<PP&E> 12,369
<DEPRECIATION> 0
<TOTAL-ASSETS> 295,122
<CURRENT-LIABILITIES> 47,890
<BONDS> 195,363
0
0
<COMMON> 4
<OTHER-SE> 11,299
<TOTAL-LIABILITY-AND-EQUITY> 295,122
<SALES> 38,810
<TOTAL-REVENUES> 114,306
<CGS> 26,101
<TOTAL-COSTS> 73,267
<OTHER-EXPENSES> 52,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,083
<INCOME-PRETAX> (19,904)
<INCOME-TAX> (5,442)
<INCOME-CONTINUING> (14,464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,464)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
