SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark one)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended
September 30,1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934 [No Fee Required] For the transition period
from ______ to _______
Commission File Number 0-9505
TRIAD SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2160013
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3055 Triad Drive, Livermore, California 94550
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (510) 449-0606
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
(Title of Class)
Common Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements, incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $63,764,000 based on the closing sales
price of the Company's common stock, as reported on NASDAQ on November 30,
1995. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The number of outstanding shares of the Registrant's Common Stock as of
November 30, 1995 was 17,392,865.
This report, including all exhibits and attachments, contains 156 pages.
The Exhibit Index is located on pages 40-42.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in those Parts of
this Annual Report on Form 10-K as are set forth below, but only to the
extent specifically stated in such Parts hereof:
(1) Proxy Statement for Annual Meeting of Stockholders scheduled to be
held February 8, 1996. This proxy statement is referred to herein as the
"Proxy Statement" and is incorporated as provided in Part III.
Part I
ITEM 1. BUSINESS
Introduction
Triad Systems Corporation is a leading provider of business and
information management solutions for the Automotive Aftermarket and the
Hardlines and Lumber industry. Triad offers new and existing customers a
variety of proprietary database products with periodic updates, software and
hardware products, financing and ongoing support services.
Triad's installed base provides significant recurring revenues,
accounting for 73% of its annual revenues in fiscal 1995. In the year ended
September 30, 1995, 36% of Triad's total revenues were from service and
support agreements, 21% from sales of hardware and software upgrades and
add-ons to existing customers and 16% from subscription fees for Triad's
proprietary database products. Triad's principal strategy is to increase its
installed base by offering its database, hardware and software products in
its two key markets, by penetrating adjacent segments of those markets and
by geographic expansion.
Markets
The Company's markets consist of numerous independent businesses which
require management of large quantities of data. These businesses are
increasingly seeking information management products and services targeted
to their specific industries. Triad is providing a growing family of
database products and information management services to existing and new
customers in response to these market demands. See "BUSINESS-Information
Services." Triad continues to provide cost-effective software and hardware
products for these markets.
AUTOMOTIVE AFTERMARKET. The Automotive Aftermarket consists of four
principal levels of distribution: manufacturers, warehouse distributors,
parts stores ("jobbers and retailers") and auto repair shops ("service
dealers"). Manufacturers distribute automotive parts through warehouse
distributors to jobbers and retailers, who stock and sell the automobile
parts used by service dealers and consumers.
The Company had approximately 10,000 Automotive customers spanning
small and large businesses as of September 30, 1995. Triad's large installed
base of jobber customers provides a source of recurring revenue through
sales of applications software packages, peripherals, hardware upgrades,
information services, supplies and customer support services. Due to the
high level of automation in the traditional jobber market and the lower
per-unit cost of systems being sold to smaller Automotive Aftermarket
customers, the Company does not anticipate significant growth in revenues
from system sales in the domestic jobber market.
The Company has developed new products and approaches to expand its
customer base in adjacent markets. The Company typically offers its software
products and databases in conjunction with system sales, and also markets
selected software products and databases separately from its hardware
products. Triad has gained access to several leading retail chains, as
well as jobbers with competing systems, with these products. Further, the
Company has reached retail chains, service dealers and small jobbers
through products such as the LaserCat and ServiceCat workstations and
software and database products. See "BUSINESS-Triad Hardware Systems and
Software Products" and "-Information Services." The ServiceCat product is
directed at the 185,000 automotive repair businesses, while the Triad
ServiceWriter system is aimed at the 75,000 targeted segment of the larger,
more sophisticated businesses.
Triad markets its Automotive products in the United States, United
Kingdom, Ireland, Canada and Puerto Rico. See "BUSINESS-Marketing and
Sales." The Company's strategy is to expand its customer base through the
development and marketing of database products for the automotive parts
aftermarket in the United States, United Kingdom and selected European
Community countries. See "BUSINESS-Information Services."
Triad markets systems to the warehouse distributor segment of the
automotive parts aftermarket. The Paperless Warehouse and the UNIX-based
Warehouse System provide new levels of efficiency and productivity in
automotive parts warehouses. Approximately 70 mid-range and large warehouse
distributors have installed these systems. These installations are primarily
decentralized warehouses. Warehouses with company owned stores and multiple
locations that want to operate on a centralized system primarily use the
Triad Information System which operates on a UNIX-RISC based platform. There
are 49 customers installed on this platform. Additionally, there are 170
smaller warehouse distributors and larger jobbers who have purchased the
Company's Series 12 or Series 14 systems equipped with specialized
application software designed for the needs of the warehouse operations.
See "BUSINESS-Triad Hardware Systems and Software Products."
HARDLINES AND LUMBER. Triad's Hardlines and Lumber Division offers
integrated business systems to approximately 44,000 hardware stores and home
centers, lumber/building supplies stores and paint and decorating retailers
with annual sales of between $300,000 and $150 million. At September 30,
1995, the Company had approximately 4,000 customers in these markets.
Within the Hardlines and Lumber market, there is a lower level of
automation compared to the automotive parts aftermarket. The Company believes
that independent hardlines retailers are increasingly recognizing the
advantages of automation as they face increased competition. Hardlines and
Lumber trade journals have strongly favored automation, and major hardlines
wholesalers and cooperatives strongly endorse automation to their member
dealers. Approximately half of the top 60 hardware distributors endorse
Triad products and services, along with five of the seven leading lumber
and building materials groups. In addition, Triad has developed and
currently maintains strong relationships with the four major hardlines
cooperatives. See "BUSINESS-Marketing and Sales."
Technological advancements in Triad's interactive UNIX-based Eagle and
Eagle LS systems allow for product offerings suitable for hardlines and
building materials chains with up to 20 stores and $150 million in annual
sales. See "BUSINESS-Triad Hardware Systems and Software Products."
Information Services
Triad licenses its proprietary databases to its customers in return
for a license fee and monthly subscription fees entitling customers to
periodic updates. These database products generate recurring revenues for
Triad through the monthly subscription fees and differentiate the Company's
products from those of its competitors, contributing to new system sales.
The Company currently offers unique databases to its Automotive customers
and has a database catalog product for hardlines distribution chains
affiliated with Cotter & Company (True Value).
ELECTRONIC CATALOG. Triad's Electronic Catalog product provides over 17
million automobile parts applications. This database virtually eliminates the
time-consuming and cumbersome use of printed catalogs and is designed to
increase productivity and accuracy in parts selection and handling.
Proprietary software on Triad's jobber systems integrates information from
the Electronic Catalog and the Telepricing databases so that for a given
automotive repair, all parts required are identified, along with updated
prices and inventory levels. Additional prompts enable the jobber to
recommend related parts that the customer may need in addition to the parts
requested. Triad charges a monthly subscription fee for the Electronic
Catalog database and provides the customer with periodic updates. At
September 30, 1995, approximately 3,500 customers had licensed the
Electronic Catalog database.
TELEPRICING. The Telepricing service provides price updates for
automotive parts following a manufacturer's price change, eliminating a
customer's need to input this data manually. Telepricing service customers
pay an initial license fee and a monthly subscription fee for this updating
service. This database had more than 3,000 subscribers at September 30,
1995.
LABORGUIDE DATABASE. The LaborGuide database provides estimations of
labor hours for car repairs and is based on labor estimating data from
Mitchell International, Inc. There were more than 2,000 customers paying
monthly fees for this database at September 30, 1995. This database is
targeted to approximately 185,000 service dealers in the United States and
permits users to comply more easily with regulations in many states that
require written estimates of repair costs. During fiscal 1995, Triad added
a new dimension to this database with its introduction of Major Service
Intervals for domestic automobiles. The data includes detailed labor time
and parts recommendations as defined by the automobile manufacturer,
enabling subscribers to schedule regular maintenance appointments for their
customers.
LASERGUIDE. The LaserGuide database is a reconfiguration of Electronic
Catalog and allows a jobber to determine which automobiles (by make and year)
the identified automotive parts will fit. The database also assists the
jobber in making decisions on inventory levels. There were approximately 300
customers using this database at September 30, 1995.
WORKSTATION PRODUCTS. Triad offers several products which are designed
to make its proprietary databases available to businesses with or without
Triad systems. These products, including the LaserCat and ServiceCat, make
Triad's proprietary database products available through CD-ROM technology
and are designed to operate as stand-alone terminals or integrated as
terminals in Triad systems or many competitors' systems. See "BUSINESS-Triad
Hardware Systems and Software Products." The Company's Information Services
Division also markets the software and database products to new customers
separately from Triad's hardware systems.
DATABASES FOR RETAILERS. Triad markets its database products to large
automotive retail chains (i.e., Goodyear, Western Auto, Kmart and Sears) with
multiple national or regional sites. These chains use a variety of hardware
platforms and applications software on their systems. Triad's proprietary
databases are integrated into these systems. Triad's applications software
may, but need not, be included in these packages.
DATABASES FOR MANUFACTURERS. Triad markets database services utilizing
Triad's database products to auto parts manufacturers. In addition to the
full Telepricing database, manufacturers may select only certain categories
of parts, or may choose the Competitive Analysis service, which compares
price levels and number of applications to a competitor's product line.
Triad's new transaction analysis services, MarketPACE for the Automotive
Aftermarket and VISTA for the Hardlines and Lumber industry, reports product
movement information based on point of sale (POS) data collected at the
independent retail levels in the respective markets. MarketPACE services
supply comprehensive POS information and inventory analysis providing the
decision support tools required to increase sales, boost productivity,
improve distribution and enhance customer service for warehouses and auto
parts stores. VISTA information services provide product manufacturers
with ongoing measurement of brand and item movement with major product
classifications using POS business analysis data from independent
hardware stores, home centers and lumber and building materials outlets.
Information provided by the MarketPACE and VISTA services provide
manufacturers with insight into how a given product or brand performs
against its competitors and the market in general.
DATABASES FOR INTERNATIONAL MARKETS. Triad established a wholly-owned
subsidiary in Longford, Ireland, to create, maintain and distribute database
products for automotive business management systems marketed by Triad and
third parties in the United Kingdom and Ireland and subsequently for third
party systems marketed in selected European Community nations. This project
is supported, in part, by grants from the Industrial Development Authority
of Ireland ("IDA"), subject to maintaining minimum capitalization and
employment levels for the subsidiary. The facility began distributing
database products in 1993 and its Electronic Catalog product is marketed
in the United Kingdom and Ireland. Triad also markets automotive database
products in Canada and Puerto Rico and is developing a product for the
French market which was introduced in late 1995.
HARDLINES AND LUMBER. In addition to its Automotive Aftermarket
databases, the Company also markets databases to the Hardlines and Lumber
industry.
COTTER & COMPANY DATABASE. Triad introduced the Cotter & Company
database product in 1991 as a catalog of products available from the Cotter
& Company (True Value) cooperative warehouses. The database is marketed both
to Cotter affiliates and to independent outlets and outlets affiliated
with other cooperatives. See "BUSINESS-Triad Hardware Systems and Software
Products."
Triad Hardware Systems and Software Products
Triad's applications software and business computer systems, together
with its database products, provide comprehensive business solutions
targeted to its two key markets. The Company provides a different set of
standard applications programs for each market that include user options
allowing the selective structuring of applications files and reports to meet
customers' specific requirements. These software products also allow Triad
customers to access the Company's proprietary databases. See "BUSINESS
- -Information Services."
Systems developed for each specific market are generally field-
upgradable to meet customers' future growth needs. Hardware components
include central processing units (CPUs), disk drives, video display
terminals, CD-ROM storage devices, point of sale terminals, communication
devices, printers and other peripherals. Triad's systems also have
communication capabilities allowing users to exchange purchase orders and
pricing and inventory information with suppliers and, in some cases,
customers.
AUTOMOTIVE AFTERMARKET. Since the first phase of the Triad Prism
platform introduced in 1993, more than 600 Triad Prism systems have been
sold. Triad Prism is a powerful UNIX-based system featuring Intel Pentium
and other processors. Triad Prism was created specifically for the automotive
parts distributor, and it employs a "management-by-exception" capability.
Triad's Series 11, Series 12 and Series 14 product lines, and the Triad
Prism track inventory, perform accounting functions, and execute such point
of sale operations as invoicing and billing. Smaller warehouse distributors
also use these systems with applications software designed to serve their
particular information management requirements. Triad's Series 11 and Series
12 systems also use a microcomputer manufactured by Triad with a proprietary
operating system. The systems also enable customers to use the Electronic
Catalog database and Triad's other automotive database products. See
"BUSINESS-Information Services."
The Company also markets the TelePart terminal to its jobber customers,
who generally place the terminal on-site with their service dealer
customers. The TelePart terminal allows service dealers to electronically
order parts by communicating directly with that jobber's Triad system
equipped with the Electronic Catalog product. At September 30, 1995,
Triad had installed more than 2,300 TelePart terminals.
Triad ServiceWriter is the latest addition to its growing family of
information management solutions. Triad ServiceWriter blends Triad's unique
databases of 17 million parts, applications, detailed labor estimates and
recommended vehicle service intervals with the latest in workstation
technology and easy-to-use pull-down windows. Triad ServiceWriter also
creates printed work estimates, automated work orders and maintains
individual vehicle records and histories, enabling users to notify customers
of required preventive maintenance and create other special promotions.
Utilizing Triad's unique TelePart feature, Triad ServiceWriter electronically
orders required parts. Triad ServiceWriter can also be integrated with other
Triad services, including Triad's Service Accounting and ServiceTech for the
latest in technical bulletins and other repair information. ServiceWriter can
also be expanded to include inventory management, point of sale and general
accounting applications.
The ServiceCat workstation is marketed to the service dealer segment of
the automotive parts aftermarket. The ServiceCat product includes the
Electronic Catalog and LaborGuide databases and TelePart software. It permits
service dealers to estimate the cost of an entire repair job, including parts
and labor, for customers which is mandatory in several states. See "BUSINESS
- -Information Services." Triad's Information Services Division also markets
the ServiceCat software and databases separately from the workstation.
The Company also markets various terminals and workstations which
provide access to Triad's proprietary databases. Triad's LaserCat product is
marketed to customers requiring the complete Electronic Catalog database
product, regardless of whether they own a Triad jobber system, a
competitor's system or are not automated. The LaserCat product is an
independent PC-based workstation using CD-ROM technology to provide access
to Triad's Electronic Catalog database product, resulting in recurring
revenues from monthly subscription fees. See "BUSINESS- Information
Services." LaserCat workstations function as stand-alone units and also can
be integrated as a terminal with any Triad Jobber System or with numerous
competitors' jobber systems. Triad's Information Services Division also
markets the LaserCat software and databases separately from the
workstation. See "BUSINESS-Information Services."
Triad's warehouse systems have the potential for a larger number of
application enhancements and offer increased processor speed to serve
businesses with high transaction volumes. The enhanced database management
features allow the user flexibility in information retrieval. The Paperless
Warehouse from Triad eliminates manual entry of parts-related information
and enables warehouse operators to update inventory records, dramatically
changing the way warehouses manage the flow of parts. This product enables
employees to utilize hand-held computers equipped with bar-code scanners and
radio transmitters to perform every warehouse task from receiving to stocking
and from order picking to shipping, transmitting the data to the host Triad
computer. Triad's UNIX-based Warehouse System merges the latest UNIX/RISC
technology to provide users with total warehouse management capabilities and
gives users a powerful relational database to access any information they
require.
HARDLINES AND LUMBER INDUSTRY. Triad Hardlines and Lumber systems
automate inventory control, point of sale functions (such as invoicing
and billing), payroll, accounting and purchase orders to affiliated
cooperatives and distributors.
The UNIX-based Intel 486/Pentium driven Eagle series of systems is
designed for mid- to large sized Hardlines and Lumber dealers. These systems
have greater power and functionality and therefore have expanded access to
larger Hardlines and Lumber dealers. Existing Triad customers are able to
upgrade to an Eagle system and utilize the newly incorporated technological
advancements. More than 3,000 Eagle systems, including upgrades and new
systems, have been sold since 1991.
The Company's Eagle LS blends the power and flexibility of Triad's
UNIX-based business and information management system with applications and
features created to meet the unique needs of lumber and building materials
operations. The Eagle LS system manages the flow of a typical transaction,
including estimating, ordering and inventory management, shipping, invoicing
and tracking accounts receivable.
The LaserStation product includes the Cotter and Company database
product. It is designed as a stand-alone unit and may also be integrated as
part of a Triad hardlines system for Cotter and Company members.
BUSINESS PRODUCTS. Triad markets a wide line of business products to the
Automotive Aftermarket and Hardlines and Lumber industry through catalogs and
telemarketing services.
Customer Support and Services
The Company's Customer Support Services organization, representing
approximately 33% of the Company's full-time employees at September 30, 1995,
provides service, training and support to Triad's domestic and international
customers. System support agreements are a significant source of recurring
revenue for Triad. Triad system owners are principally small business
proprietors without the internal staffing or expertise to train users or to
maintain computer systems on a consistent basis. These customers require a
high level of service, training and support. Management believes its service
organization represents a major competitive advantage.
HARDWARE MAINTENANCE AND SOFTWARE SUPPORT. Triad typically provides a
limited warranty on its systems. Triad also sells a variety of post-sale
support programs through its system support agreements, including preventive
and remedial maintenance, hardware engineering modifications and daily system
operating support by phone. Triad's customers can call the Company's
AdviceLine service which gives them access to trained personnel able to
perform on-line diagnostics or to field engineers if on-site service is
necessary.
Quick Assist, introduced in October 1994, is an automated service that
connects customers directly with an Advice Line representative for high-
priority assistance. It provides an alternative to customers who, due to the
urgency of their support need, do not want to wait for a return call.
Virtually all new system customers enter into system support agreements
at the time of acquisition and most retain such service agreements as long
as they own the system. Monthly domestic fees vary with system size.
At September 30, 1995, the Company had 188 field engineers and managers,
and 83 customer education representatives (CERs) and managers in 114 domestic
and 17 foreign field service offices.
CUSTOMER TRAINING. Customer training is offered in Triad facilities,
including 44 education centers nationwide. The Company also provides on-site
training for new and existing customers. In addition to training in system
operations and software enhancements, Triad offers seminars and workshops to
assist customers in understanding the capabilities of their systems.
PRE-DELIVERY SERVICES AND INSTALLATION. Triad's sales representatives
provide a number of pre-delivery services to Triad's customers, including a
cost-justification analysis, visits to current Triad users, site planning and
preparation, training for management and employees and installation planning.
Triad's Zapstart product pre-loads an individual automotive customer's
inventory, pricing and parts applications data into its Triad system upon
installation, saving customers significant data-entry time. The Company also
offers hardware retailers a similar capability to preload inventory files
provided by certain cooperatives or distributors.
Marketing and Sales
- -------------------
The Company markets its automotive and hardlines products and services
through a 240-person direct sales organization as of September 30, 1995.
The Company's systems are marketed through direct sales calls, telephone
sales and by system demonstrations in customer facilities or in Company sales
offices. Sales prospects are generated by telemarketing, customer referrals,
trade publication advertising and trade show demonstrations. Triad's national
accounts sales force solicits endorsements and other marketing arrangements
with regional and national associations, distributors and cooperatives.
In addition, the Company markets its database products directly by
telemarketing and direct sales, or indirectly through value-added resellers,
to jobbers, service dealers and hardlines distribution chains. Triad reaches
potential customers who do not own Triad computer systems by marketing its
database information products through value-added resellers who offer other
systems or products in Triad's markets.
The Company began marketing certain products and services in the
Automotive Aftermarket in the United Kingdom and Canada in the early 1980s.
Marketing efforts were expanded to Ireland through the United Kingdom
subsidiary in 1989. In 1995 the Company began selling the Hardlines and
Lumber product in Canada. Sales in foreign countries are generally priced
in local currencies and are therefore subject to currency exchange
fluctuations.
For the years ended September 30, 1993, 1994 and 1995, no customer other
than Triad Systems Financial Corporation ("Triad Financial"), accounted for
10% or more of Triad's revenues, and no end user accounted for more than 10%
of Triad's revenues. Historically, the Company's business has been seasonal,
with the Company generally experiencing a decline in revenues in the first
quarter of each year from the final quarter of the preceding year, with
revenues usually building as the year progresses.
Triad Systems Financial Corporation
Triad formed Triad Systems Financial Corporation in August 1978 to
provide lease financing to the Company's customers. Leases are full-payout,
noncancellable leases with terms from one to six years. Triad Financial
provided lease financing for approximately 60% of domestic business systems
sales in the year ended September 30, 1995.
The Company believes that its ability to offer lease financing to its
customers through Triad Financial shortens the sales cycle and provides a
competitive advantage in marketing Triad products. From its inception through
September 30, 1995, Triad Financial purchased and leased $525 million of
Triad equipment, including $37 million during fiscal 1995. Triad Financial
also provides lease financing to independent third parties in the markets
that Triad serves, and since 1984 has financed $52 million under these
programs, including $16.5 million in 1995. It is actively pursuing additional
third party opportunities.
Triad Financial discounts most of its lease receivables on either a full
or limited recourse basis to banks and lending institutions under discounting
agreements. Under the agreements, Triad Financial is contingently liable for
losses in the event of lessee nonpayment for discounted leases. The
contingent liability for losses was $24.6 million at September 30, 1995. The
discounting agreements provide for limited recourse of up to 15% or full
recourse at 100% of discounted proceeds, depending on the credit risk
associated with specific leases. At September 30, 1995, the Company had
$18.5 million invested in its lease portfolio and, if needed, maintains
discounting lines to sufficiently liquidate the principal of this investment
into cash.
The discounting agreements contain restrictive covenants that must be
maintained in order to discount. In the event of non-compliance, the banks
and lending institutions could assume administrative control of the lease
portfolio and could prohibit further discounting under the available credit
facilities. The Company is in compliance with the restrictive covenants and
management believes that it will maintain compliance with such covenants in
the foreseeable future. The most restrictive covenant requires that both
Triad and Triad Financial be profitable every quarter. Under the terms of an
operating and support agreement with Triad Financial, the Company is
obligated, if required, to make equity contributions or subordinated loans to
enable Triad Financial to fulfill its obligations under the equipment
financing agreements.
Product Development
Triad's newest products are based on open systems design architecture.
This allows the use of latest technology hardware and industry standard
software for rapid development of products and services. Triad typically
integrates its application software with industry standard operating systems
and hardware platforms. Triad uses its system integration expertise to
deliver reliable systems with the appropriate performance and scalability
for future enhancements. The open design environment allows the Company to
focus its development efforts on applications that provide business solutions
for each market segment and custom design when current technology does not
offer a solution. During 1993, 1994 and 1995, Triad's respective product
development expenditures including capitalized costs were $10.9 million,
$11.2 million and $11.1 million.
The Company capitalized $2.8 million, $3.1 million and $2.9 million of
software development costs in 1993, 1994 and 1995, respectively. Amortization
of capitalized software costs begins when the products are available for
general release to customers. Costs are amortized over the expected product
lives and are calculated using the greater of the straight-line method,
generally over a three, five or seven year period, or a cost per unit sold
basis.
At September 30, 1995, the Company employed 120 persons in product
development. Separate teams of Company analysts and programmers are dedicated
to each of the Company's markets. Common hardware and operating system
expertise provides support to each market-oriented development team. In
addition, Triad uses industry-specific advisory councils, representing a
cross-section of its customers, to review its development plans and give
advice on software applications features and priorities as they relate to
their automation needs.
Manufacturing
Triad's Manufacturing operation consists primarily of systems
integration, including third party hardware and software with the Company's
application software. Triad assembles and tests systems or peripherals from
standard components and third party subassemblies at the Livermore facility.
In addition, Triad provides manufacturing and test services for third party
companies to optimize capacity and material planning operations.
Purchased parts and standard assemblies normally account for
approximately 95% of hardware overhead cost, with subassembly, assembly and
test costs representing the balance. The Company had 54 manufacturing
employees at September 30, 1995. Standard systems are typically shipped in
the same quarter the orders are received. The backlog of orders is not a
significant factor in understanding the Company's business.
Most of the components and peripherals used in the Company's systems
are available from a number of different suppliers, although the Company
generally purchases such major items as peripherals from a single source of
supply. The Company believes that alternative sources could be developed, if
required, without significant disruption or delay of shipments.
Product Protection
Triad regards its software and databases as proprietary and attempts to
protect them with copyrights, trade secret law and internal nondisclosure
safeguards, as well as restrictions on disclosure and transferability that
are incorporated into its license agreements. Despite these restrictions, it
may be possible for competitors or users to copy aspects of the Company's
products or to obtain information which the Company regards as trade secrets.
Triad has obtained software licenses from several sources covering
operating systems and applications programs used in its current and future
products. The Company is not aware that the manufacture and sale of its
current hardware, software and database products requires any licenses from
others not already secured.
Triad has four patents pending and may seek additional patent protection
related to new hardware or software products as appropriate.
Competition
Triad experiences competition for its applications software and database
products from a variety of firms, ranging from small, independent
applications software producers to partnerships of software producers and
computer systems manufacturers. Some of Triad's competitors customize general-
purpose business management software and market it for use on industry-
standard hardware. The Company also faces competition in both the Automotive
Aftermarket and Hardlines and Lumber segments from distributors and
cooperatives that market computer systems to their members. Competition for
the Company's higher-priced warehouse systems comes from both customers
developing their own systems in-house, and from large, well-established
businesses that offer general-purpose business computers and custom
programming. Entry into the markets for the Company's products is not
unusually difficult, and new competition is expected.
The Company believes that the key competitive factors in each of the
Company's markets are information management capability, product features and
functions, quality and quantity of data, price, ease of use, reliability,
technical support, customer service and financing. The Company believes that
it competes favorably with respect to these factors.
Litigation
The Company is involved in litigation arising in the ordinary course of
business and in litigation to protect its proprietary rights. Triad is party
to various legal proceedings, primarily in connection with deficiencies from
customer-financed leases for products and services and related contract
defenses such as breach of warranty. Alleged damages vary widely and some
actions involve claims against the Company for damages, including punitive
damages. In the opinion of management, after consultation with legal counsel,
these matters will be resolved without material adverse effect on the
Company's results of operations or financial position.
Employees
At September 30, 1995, Triad had 1,453 full-time employees. Persons
with programming skills and experience are in great demand in the
information management industry. The loss of a substantial number of these
personnel, or an inability in the future to obtain sufficient additional
qualified personnel, would have an adverse effect on the Company's business.
The Company considers its employee relations good and is not party to any
collective bargaining agreements.
ITEM 2. PROPERTIES
The Company owns substantially all of its real property and the
equipment used in its business. Corporate headquarters is located on a
portion of its Livermore, California properties. Operations are consolidated
in three buildings aggregating 220,000 square feet. Title to the headquarters
buildings and the land on which they sit is held by a wholly owned subsidiary
of the Company, which leases the premises to the Company for approximately
$209,000 per month. The property and the lease are pledged as security on a
15-year term loan made by an insurance company to the subsidiary in the
principal amount of $15.5 million with an initial interest rate of 9 7/8%
that may be adjusted at the option of the lender in 1998.
At September 30, 1995, the Company was leasing sales and service space
in 114 cities in the United States and 17 foreign sites.
In 1984 the Company purchased Triad Park, an aggregate of 398 contiguous
acres in the City of Livermore, for a total purchase price of $15.8 million.
The Company subsequently reconveyed approximately 10 acres of Triad Park to
the sellers under the terms of the original purchase agreement. Since 1984,
the Company has also conveyed approximately 12.8 acres to Livermore for
roadways which Triad developed in Triad Park. A portion of Triad Park
consisting of 110 acres is zoned "open space" and currently may not be
developed under an agreement with the City of Livermore.
The Company sold an aggregate of 39.6 acres of Triad Park from fiscal
years 1987 through 1995 for $8.5 million and intends to market 166 acres of
Triad Park for resale during the next several years. Approximately 50 acres
of property have been rezoned for retail use, 26.7 acres for residential
and the balance of the property is zoned for industrial and research and
development purposes. As part of this rezoning process, the Company entered
into an agreement with the City of Livermore canceling the former development
agreement for the Triad Park and eliminating any further obligations by the
Triad Park owners, including Triad, to construct or participate in any
assessment district to fund construction of two freeway interchanges and a
water storage facility. However, all future construction in the Triad Park
will require payment to the City of its current traffic impact fees required
in connection with issuance of building permits.
Improvements are financed through municipal bonds. Two series of
municipal bonds were sold by an assessment district from November 1985
through September 1988 to finance $11.5 million in improvements. A community
facilities district was formed in 1990 that replaced the function of the
assessment district under which $2.4 million in improvements were financed in
September 1990. The community facilities district is authorized to finance a
total of $17 million in bonds to provide funds to pay costs of the
acquisition and construction of certain public facilities and services
related to Triad Park. In 1993, the assessment district debt was refinanced
to take advantage of lower interest rates.
The liens of the assessment district and community facilities district
securing those bonds is segregated on a pro rata basis among all developable
parcels of Triad Park and thus, except with respect to parcels retained by
Triad for its own use, will be assumed by buyers of individual parcels.
Principal and interest payments are required to be made by Triad (or by
subsequent purchasers of parcels of Triad Park) as additional bonds up to the
$17 million authorized are sold. With respect to $10.9 million in assessments
outstanding, the Company made $1,033,000 in interest payments on the bonds in
fiscal 1993, $864,000 in fiscal 1994 and $789,000 in fiscal 1995.
The Company intends to sell those portions of the Livermore acreage
which are in excess of the Company's long-term facilities requirements. The
Company's ability to market this property is dependent upon interest rates,
general economic and market conditions, the prospective purchaser's ability
to develop the property and the purchaser's ability to obtain a variety of
governmental approvals, none of which is assured and all of which are subject
to objections from the public. Economic conditions continue to impact the
real estate market in Livermore, and throughout California, which has resulted
in reduced real estate activity.
ITEM 3. LEGAL PROCEEDINGS
See "Item 1-Litigation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders
during the fourth quarter of the fiscal year ended September 30, 1995.
ITEM E.O. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Executive Officers and Operating Management as of December
15, 1995 are as follows:
Name Age Position
James R. Porter 59 President, Chief Executive Officer, and
Director
Shane Gorman 52 Executive Vice President,
Automotive Operations
Dan F. Dent 48 Vice President and General Manager, Customer
Support Services Division
Thomas A. King 51 Vice President, Product Development and
Manufacturing
Stanley F. Marquis 52 Vice President, Finance,
Chief Financial Officer
Corporate Secretary and Treasurer;
President, Triad Systems Financial
Corporation
M. Edward Molkenbuhr 48 Vice President and General Manager,
Service Dealer Division
Thomas J. O'Malley 60 Vice President, Administration
Chad A. Schneller 54 Vice President,
Hardlines and Lumber Operations
Donald C. Wood 58 Vice President and General Manager,
Information Services Division
Bruce M. Blanco 46 Corporate Controller
Patrick J. Bormann 39 General Manager, Warehouse Division
Mr. James R. Porter joined the Company as President and Chief Executive
Officer and was elected a director of the Company in September 1985.
Mr. Shane Gorman joined the Company as a sales representative in 1972
and has held several progressive management positions, including General
Manager, Automotive Division, General Manager, Dental Division and Vice
President and General Manager, Automotive Division. He became Executive
Vice President in September 1992.
Mr. Dan F. Dent joined the Company in January 1993 as Director of Field
Operations and became General Manager, Customer Support Services Division in
October 1994. He was promoted as Vice President and General Manager, Customer
Support Services Division in October of 1995. Prior to joining Triad, he was
Vice President, Customer Support Services at Ultimate from July 1991 to
December 1992.
Mr. Thomas A. King joined the Company in April 1989 as Vice President,
Product Development and became Vice President, Product Development and
Manufacturing in October 1993.
Mr. Stanley F. Marquis joined the Company in January 1980 as Director
of Triad Systems Financial Corporation. In August 1983 he was elected
President, Triad Systems Financial Corporation and in September 1987 he was
elected Treasurer of Triad. In December 1994 he was promoted to Vice
President, Finance, Chief Financial Officer and became Corporate Secretary.
Mr. M. Edward Molkenbuhr joined the Company in September 1993 as Vice
President and General Manager of the Company's new Service Dealer Division.
Prior to joining Triad, he served as President and Chief Executive Officer of
Amicus Information Services from November 1992 to May 1993. From January 1983
to November 1992, he served in a number of key senior positions with ADP, Inc.
where his most recent position was Senior Vice President of Data Services.
Mr. Thomas J. O'Malley joined the Company in January 1981 as Director of
Administration and was elected Vice President, Administration in August 1983.
Mr. Chad A. Schneller joined the Company as Vice President and General
Manager, Hardlines and Lumber Division in July 1994. Prior to joining Triad,
he served as President and Chief Executive Officer of Harvest Software from
January 1991 to December 1993.
Mr. Donald C. Wood joined the Company in June 1990 as Vice President and
General Manager, Information Services Division.
Mr. Bruce M. Blanco joined the Company in April 1984 as Financial
Manager of Triad Systems Financial Corporation. In January 1985 he was
promoted to Revenue Systems Manager. He has been the Controller since May
1988 and assumed the additional responsibilities of Director of Leasing-
Triad Products in December 1994.
Mr. Patrick J. Bormann joined the Company in September 1978 as a
Marketing Applications Representative and has progressed through a
series of sales, support, marketing and customer service assignments. In
February 1991, he assumed complete responsibility for Warehouse Systems
operations and was promoted to General Manager in October 1995.
Officers serve at the discretion of the Board of Directors. There is
no understanding between any of the Company's officers and any other person
pursuant to which such officer is or was to be selected.
Part II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
Triad common stock is traded on the over-the-counter market under the
NASDAQ National Market System symbol TRSC. As of September 30, 1995, there
were 1,183 record holders of the Company's common stock. Below are the
quoted prices for the stock's high and low sales prices:
FY 1995 High Low
- -----------------------------------------------------------------
First Quarter $ 5 3/8 $ 4 5/8
Second Quarter 6 5
Third Quarter 7 5/8 5 5/8
Fourth Quarter 7 5/8 5 1/8
- -----------------------------------------------------------------
FY 1994 High Low
- -----------------------------------------------------------------
First Quarter $ 5 3/4 $ 4 1/2
Second Quarter 5 5/8 4 5/8
Third Quarter 5 1/4 4 3/8
Fourth Quarter 5 1/8 4 1/8
The Company has declared no dividends on its common stock since
incorporation and anticipates it will continue to retain its earnings for
use in its business.
ITEM 6. Selected Financial Data
FOR THE YEARS ENDED SEPTEMBER 30
- ----------------------------------------------------------------------------
(Amounts in thousands except
per share and employee data) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------
STATEMENTS OF INCOME DATA
Revenues
Systems $ 73,312 $ 72,910 $ 64,069 $ 63,820 $ 52,784
Customer support
services 62,429 59,733 59,509 61,063 62,127
Information services 28,092 24,436 20,586 18,127 15,338
Finance 11,244 10,199 8,654 9,562 7,270
- ----------------------------------------------------------------------------
Total revenues $175,077 $167,278 $152,818 $152,572 $137,519
Gross margins
Systems 51.4% 52.8% 52.1% 49.8% 50.0%
Services 42.3% 40.8% 41.8% 41.7% 41.8%
Total gross margins 49.4% 49.3% 49.4% 48.7% 48.0%
Operating income $ 20,532 $ 19,361 $ 15,822 $ 18,013 $ 15,781
Gain from sale of land - - 652 - 580
Income before
extraordinary charge 8,426 7,379 5,065 3,520 2,085
Net income 8,030 7,236 5,065 2,097 2,085
Primary earnings per share
Income before
extraordinary charge $ .48 $ .43 $ .31 $ .27 $ .18
Net income .46 .42 .31 .17 .18
Fully diluted earnings
per share
Income before
extraordinary charge .48 .43 .30 .27 .18
Net income .45 .42 .30 .17 .18
Balance Sheet Data
Total assets $132,709 $136,363 $131,379 $124,175 $124,279
Total debt 55,609 63,406 72,352 71,896 96,424
Stockholders' equity
(deficit) 14,221 12,141 3,114 (2,649) (25,395)
Other Data
Net income as a percent
of revenue 4.6% 4.3% 3.3% 1.4% 1.5%
Return on assets 6.3% 5.5% 4.0% 2.8% 1.6%
Product development costs
Capitalized software $ 2,930 $ 3,142 $ 2,840 $ 3,347 $ 3,677
Product development
expense 8,136 8,022 8,118 7,483 7,718
---------------------------------------------------------------------------
Total product development
costs $ 11,066 $ 11,164 $ 10,958 $ 10,830 $ 11,395
Capital expenditures $ 2,819 $ 3,416 $ 3,029 $ 3,116 $ 2,446
Depreciation and
amortization 8,793 8,087 8,423 9,912 8,521
Number of employees 1,453 1,449 1,391 1,409 1,356
Common shares outstanding 17,370 13,626 12,484 11,710 11,088
============================================================================
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Revenues reached record levels in 1995 at $175.1 million. The total was
5% above the $167.3 million in 1994 which was 9% above the $152.8 million in
1993. Revenues are primarily generated from the Automotive Aftermarket which
consists of warehouse distributors, parts stores and service dealers, and the
Hardlines and Lumber market comprised of hardware stores and home centers,
lumber and building supply stores and paint and decorating retailers. Gross
profit of $86.6 million showed a 5% increase or $4.1 million over 1994 which
was 9% or $7.0 million over 1993. Record operating profit of $20.5 million
was favorable to 1994 by $1.2 million after increasing $3.5 million from
1993 to 1994. Net income was $8.0 million in 1995 compared with $7.2 million
in 1994 and $5.1 million in 1993. Net income in 1995 and 1994 reflected a
net charge of $.4 million and $.1 million after taxes, respectively, related
to the early retirement of debt.(See Liquidity Section) There was no
extraordinary charge in 1993. Fully diluted earnings per share increased to
$.45 in 1995, from $.42 in 1994 and $.30 in 1993.
Systems Revenues
Systems revenues of $73.3 million in 1995 were comparable to 1994,
while from 1993 to 1994, Systems revenues increased 14% to $72.9 million.
Automotive Systems revenues in 1995 declined by $4.1 million or 9%
from 1994. Revenues in 1994 improved by $6.6 million or 17% over 1993. The
1994 improvement was due primarily to increased sales to customers
upgrading to the Triad Prism"A" jobber system, along with increased sales
of the Triad ServiceWriter product to service dealers. Soft Service Dealer
market conditions in the first half of the year and reduced jobber systems
sales accounted for most of the 1995 decline in revenues. The Company's
jobber system sales were affected by the implementation of a controlled
rollout of the second phase of the Triad Prism product around mid-year due
to certain software-related problems. Controls include closely monitoring
the product's performance and focusing sales activities on specific jobber
customers based on the size of their operations, product performance
user-training requirements and other factors. Management expects these
controls to continue into at least the first half of fiscal 1996.
Hardlines and Lumber Systems ("Hardlines") revenues reflected a
significant increase of 12% or $3.0 million to $29.2 million from 1994 to
1995, a record total. Hardlines' Systems revenues increased $.6 million to
$26.2 million from 1993 to 1994.
In 1995, the Company focused on reducing turnover in Hardlines
management and sales force. As a result, the sales of new systems units
increased by 24% to over 500 units which can generate annual customer
support revenues of $2.5 million. The 1994 increase primarily reflected
increased upgrade activity, while new systems revenues were consistent
with 1993.
Other Systems revenues, primarily from third-party manufacturing
activities, increased by $1.4 million in 1995 to $3.4 million and in
1994 increased by $1.6 million from $.4 million in 1993.
Customer Services Revenues
Customer Services revenues were $62.4 million in 1995, an increase of
5% or $2.7 million compared to 1994, which was comparable to 1993.
In 1995, Customer Services revenues from the Automotive Aftermarket
declined $.5 million compared to 1994. The decline from 1993 to 1994 was 4%
or $1.6 million. A reduction in the customer base as well as shifting
customers to lower priced service options and more reliable product
technology contributed to the 1995 decline. The reduction in the customer
base in the jobber market was primarily attributable to continued store
consolidations and closures. Growth in education revenues as the Triad
Prism customer base increased partially offset this decline.
Customer Services revenues in the Hardlines and Lumber market for 1995
increased 12% to $22.6 million from 1994 and 11% to $20.2 million from 1993.
Customer Service revenues have increased with growth in the Hardlines and
Lumber customer base.
Information Services Revenues
Information Services revenues achieved another year of record revenues
in 1995 at $28.1 million increasing 15% over 1994. Revenues grew 19% to
$24.4 million from 1993 to 1994.
Automotive Information Services revenues grew 13% to $26.8 million in
1995 and 17% to $23.8 million in 1994. Electronic Catalog and Telepricing
sales continue to grow, increasing 11% in 1995 and 17% in 1994. The number
of customers utilizing the parts and labor estimating systems database has
increased in both 1995 and 1994. In addition, national automotive chain
customers, with several locations, began service during 1994. Point of Sale
(POS) operations continued to develop. This emerging business inter-relates
with the Company's products and other services from manufacturer to end-user.
In 1994, subscriptions to the service dealer labor and parts estimating
databases increased from just under 2,000 in 1993 to approximately 5,700. In
1995, database subscriptions grew to more than 6,200, which can generate $4.0
million in annual recurring revenues. This growth reflects increasing market
penetration of Triad database products.
The Hardlines and Lumber market also experienced revenue growth in
Information Services for 1995 and 1994.
Finance Revenues
Triad Systems Financial Corporation (a wholly-owned subsidiary,
hereinafter ("Triad Financial") revenues were $11.2 million in 1995, up 10%
or $1.0 million over 1994. Finance revenues for 1994 were $10.2 million,
up 18% or $1.5 million over 1993. Leases discounted in 1995 were
$64.0 million, up from $57.4 million in 1994 and $37.9 million in 1993.
In 1995, the lease portfolio decreased following accelerated lease
discounting during the second quarter to help fund the March 31, 1995,
exchange of outstanding preferred shares and warrants for common stock.
(Refer to the Liquidity section for further explanation of the equity
exchange.) The Company, in 1994, took advantage of higher yields, which
normally decrease as interest rates rise. Third-Party Leasing, which
finances sales for other vendors in Triad's markets, has grown by 44% or
$5.0 million to $16.5 million in 1995 compared to $11.4 million in 1994.
Cost of Systems and Services
Cost of Systems and Services for 1995, as a percentage of revenue, was
51% similar to 1994 and 1993, as expected. Systems cost, as a percentage of
systems revenue, was 49% in 1995, 47% in 1994, and 48% in 1993. Services and
finance cost, as a percentage of revenue, was 52% in 1995 and 53% in 1994
and 1993.
As a percentage of revenue, Automotive Cost of Systems increased
slightly over 1994 and decreased by 3% from 1993 to 1994. In 1995, Triad
Prism B software required additional hardware for more efficient operation.
Cost of Information Services improved due to efficient utilization of labor
costs reflecting increased subscriber volumes. Cost of Customer Support in
the Automotive market was consistent with 1994.
In the Hardlines and Lumber market, Cost of Systems, as a percentage of
revenue, was consistent over the past three years at about 45%, while
Services expense steadily declined. As the new customer base expanded,
utilization of Customer Services labor became more efficient. In addition,
POS costs, as a percentage of revenue, have declined as revenue has grown
due primarily to the earlier placement of infrastructure to support the
increase in business.
Expenses
Marketing expense of $46.9 million increased slightly as a percentage
of revenue over the prior year due to an increase in the sales force and
continued investment in the Automotive and Hardlines and Lumber markets.
In 1994 and 1993, marketing expense was $44.0 million and $40.1 million,
respectively, remaining consistent at 26% of sales.
Product development expenses, after capitalization of software
development, remained relatively consistent with the prior years at $8.1
million. General, administrative and other operating expenses decreased
slightly to $11.0 million in 1995 and decreased in 1994 compared to 1993 by
3% to $11.1 million. The 1994 cost-reduction reflected a decline in legal
expenses to $.6 million from $1.6 million in 1993. Reductions in legal
expense were partially offset by higher recruiting costs in 1994.
Interest and other expense decreased by $.5 million to $6.9 million in
1995 and by $.2 million to $7.5 million in 1994 compared to 1993. The 1995
and 1994 cost-reduction was primarily the result of the Company's retirement
of debt. In 1995, the Company also refinanced $11.8 million in floating rate
notes at a lower interest cost.
Extraordinary charges reflect the reduction of debt in 1995 and 1994.
The early retirement of senior fixed rate notes in 1995 and 1994 generated
an extraordinary charge of $153,000 ($.01 per share) and $143,000 ($.01 per
share), respectively. This included a premium of $198,000 and $196,000,
unamortized debt costs of $49,000 and $35,000, less taxes of $94,000 and
$88,000, respectively. In addition, in 1995, the refinancing of floating
rate notes resulted in an extraordinary charge of $243,000 ($.02 per share),
including unamortized debt costs of $392,000, less taxes of $149,000.
The effective tax rate was 38% during 1995 and 1994 and 37.8% in 1993.
Future Operating Results
The Company's future results will depend upon conditions in its markets
that may affect demand for its products, and upon the Company's ability to
introduce products and enhancements on a timely basis. Results will also be
affected by seasonal changes in product demand, market acceptance of new
products and enhancements, the size and experience of the sales force and the
mix of products sold. All could cause operating results to fluctuate,
especially on a quarterly basis.
Liquidity and Capital Resources
Management believes available cash resources, primarily generated from
operations, lease discounting and credit lines, will provide adequate funds
to finance foreseeable operating needs. The Company maintains $16.0 million
in a bank line of credit and there were no borrowings at September 30, 1995.
The Company generally invests available cash resources in the lease
portfolio of Triad Financial due to the higher yields achieved. At September
30, 1995, the Company had $18.5 million invested in its lease portfolio and
maintains discounting lines to sufficiently liquidate the principal of this
investment into cash, if needed.
Triad Financial financed 60% of Triad's domestic business systems sales
during 1995, as well as $16.5 million in non-Triad equipment through client
lease programs. Triad Financial received $73.2 million of proceeds from
discounting leases in 1995.
Limited and full-recourse discounting agreements are maintained with
banks and lending institutions. Discounting agreements contain certain
restrictive covenants that allow Triad Financial to discount only while in
compliance with such covenants. In the event of non-compliance, the banks
and lending institutions could assume administrative control of the
Company's lease portfolio and prohibit further discounting under the
available credit facilities. The Company is in compliance with the
restrictive covenants and management believes that it will maintain
compliance with such covenants in the foreseeable future. Under the
discounting agreements, Triad Financial is contingently liable for losses
in the event of lessee nonpayment. The agreements provide for limited
recourse of up to 15% or full recourse at 100% of discounting proceeds,
depending on the credit risk associated with specific leases. At September
30, 1995, the contingent liability for discounted leases was $24.6 million.
Title to equipment discounted under the agreements is generally pledged as
collateral.
Capital equipment expenditures, excluding capitalized leases, were
$2.8 million during 1995.
During fiscal 1994, the Company established a Stock Ownership By
Management policy to further align the executive officers' interests with
those of the Corporation's shareholders. The stock ownership equivalent is
based upon 1993 compensation, ranging from 100% of base compensation to 200%
of total compensation, depending upon the position held within the Company.
Each officer must meet their respective stock ownership level within a three
to five year period.
During 1995, treasury stock valued at $1.9 million was reacquired by
the Company from officers exchanging common shares outstanding for stock
options exercised into common shares, resulting in 329,000 additional
treasury shares in 1995.
On March 31, 1995, the Company completed the exchange of 1 million
shares of preferred stock and associated warrants to purchase 3.5 million
shares of common stock for $10 million cash and approximately 2.2 million
shares of Triad common stock. The transaction resulted in a reduction in
preferred stock equity of approximately $20 million, offset by an increase
in common stock equity of approximately $10 million for a net reduction to
stockholder's equity of approximately $10 million. The Company financed the
exchange by discounting approximately $7.5 million of its portfolio and $2.5
million of cash. The exchange eliminated $400,000 in preferred shares
dividend payments over the second half of 1995 and up to $2 million
annually in future years. The Company obtained consent from a majority of
the senior fixed-rate noteholders; the sole senior floating-rate noteholder;
and the senior bank for the exchange and also negotiated certain changes in
the covenants that will provide the Company with increased flexibility in
certain circumstances in the future.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123(SFAS No. 123), "Accounting for Stock-Based Compensation."
This standard, which establishes a fair value-based method of accounting for
stock-based compensation plans also permits an election to continue,
following the requirements of APB Opinion No. 25, "Accounting for Stock
Issued to Employees" with disclosures of pro forma net income and earnings
per share under the new method. The Company is reviewing the alternatives
under SFAS No. 123 but does not expect there will be any effect on the
financial condition and results of operations of the Company. Disclosure
requirements of SFAS No. 123 will be effective for the Company's fiscal year
1997.
ITEM 8. Financial Statements and Supplementary Data
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30
(Amounts in thousands
except per share data) 1995 1994 1993
- ---------------------------------------------------------------------
Revenues
Systems $ 73,312 $ 72,910 $ 64,069
Customer support services 62,429 59,733 59,509
Information services 28,092 24,436 20,586
Finance 11,244 10,199 8,654
- ---------------------------------------------------------------------
Total revenues 175,077 167,278 152,818
- ---------------------------------------------------------------------
Costs and expenses
Systems 35,606 34,407 30,687
Services and finance 52,903 50,359 46,606
Marketing 46,929 44,030 40,149
Product development 8,136 8,022 8,118
General and administrative 10,221 10,515 9,810
Other operating expense 750 584 1,626
- ---------------------------------------------------------------------
Total costs and expenses 154,545 147,917 136,996
- ---------------------------------------------------------------------
Operating income 20,532 19,361 15,822
Interest and other expense 6,941 7,459 7,676
- ---------------------------------------------------------------------
Income before income taxes and
extraordinary charge 13,591 11,902 8,146
Provision for income taxes 5,165 4,523 3,081
- ---------------------------------------------------------------------
Income before extraordinary charge 8,426 7,379 5,065
Extraordinary charge on repurchase of
debt, net of taxes 396 143 -
- ---------------------------------------------------------------------
Net income $ 8,030 $ 7,236 $ 5,065
=====================================================================
Earnings per share
Primary
Income before extraordinary charge $ .48 $ .43 $ .31
Net income .46 .42 .31
Weighted average shares 17,774 17,418 16,937
Fully diluted
Income before extraordinary charge $ .48 $ .43 $ .30
Net income .45 .42 .30
Weighted average shares 17,973 17,421 16,948
======================================================================
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30
(Amounts in thousands
except share data) 1995 1994
- ------------------------------------------------------------
Assets
Current assets
Cash and equivalents $ 7,263 $ 7,963
Trade accounts receivable 13,175 14,090
Investment in leases 2,001 4,152
Inventories 5,636 6,113
Prepaid expenses and other
current assets 6,702 6,068
- ------------------------------------------------------------
Current assets 34,777 38,386
Service parts 3,316 2,434
Property, plant and equipment 27,017 27,033
Long-term investment in leases 16,540 21,836
Land for resale 25,250 25,063
Capitalized software and
intangible assets 16,222 13,870
Other assets 9,587 7,741
- ------------------------------------------------------------
Assets $ 132,709 $ 136,363
============================================================
Liabilities
Current liabilities
Notes payable and current
portion of long-term debt $ 3,032 $ 6,773
Accounts payable 9,373 8,940
Accrued employee compensation 7,908 8,090
Deferred income taxes 3,338 4,310
Other current liabilities and
accrued expenses 9,695 10,189
- ------------------------------------------------------------
Current liabilities 33,346 38,302
Long-term debt 52,577 56,633
Deferred income taxes 26,176 23,855
Other liabilities 6,389 5,432
- ------------------------------------------------------------
Liabilities 118,488 124,222
- ------------------------------------------------------------
Stockholders' Equity
Cumulative convertible preferred
stock $.01 par value; authorized
1,000,000 shares; no shares
issued and outstanding at
September 30, 1995 and 1,000,000
shares issued and outstanding
at September 30, 1994;
liquidation value $20 million - 10
Common stock
$.001 par value; authorized
50,000,000 shares; issued 17,969,000
shares at September 30, 1995 and
13,896,000 shares at
September 30, 1994 18 14
Treasury stock
599,000 shares at September 30,
1995 and 270,000 shares at
September 30, 1994 (3,204) (1,326)
Capital in excess of par value 28,201 31,680
Accumulated deficit (10,794) (18,237)
- -------------------------------------------------------------
Stockholders' equity 14,221 12,141
- -------------------------------------------------------------
Liabilities and stockholders'
equity $132,709 $136,363
=============================================================
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30
(Amounts in thousands) 1995 1994 1993
- -------------------------------------------------------------------------
Cash flows from operating activities
Income before extraordinary charge $ 8,426 $ 7,379 $ 5,065
Adjustments to reconcile income
before extraordinary charge to net
cash provided by operating activities
Extraordinary charge on repurchase of
debt, net of taxes (396) (143) -
Depreciation and amortization 8,793 8,087 8,423
Receivable and inventory loss
provisions 8,271 8,264 7,549
Gains from lease discounting (7,585) (5,923) (4,862)
Gain from sale of land - - (652)
Other 876 1,710 859
Changes in assets and liabilities
Trade accounts receivable (2,138) (6,548) (2,212)
Investment in leases 13,607 6,233 (5,062)
Inventories (207) (991) (475)
Deferred income taxes 1,349 3,401 950
Prepaid expenses and other
current assets (634) (1,512) 132
Accounts payable 433 (764) 521
Accrued employee compensation (182) 742 42
Other current liabilities and
accrued expenses (494) 513 2,907
- -------------------------------------------------------------------------
Net cash provided from
operating activities 30,119 20,448 13,185
- -------------------------------------------------------------------------
Cash flows from investing activities
Investment in property,
plant and equipment (2,819) (3,416) (3,029)
Capitalized software and databases (7,043) (5,282) (4,114)
Investment in service parts (1,887) (1,195) (1,067)
Proceeds from the sale of land - - 1,720
Other (1,116) (2,166) (1,614)
- -------------------------------------------------------------------------
Net cash used in investing
activities (12,865) (12,059) (8,104)
- -------------------------------------------------------------------------
Cash flows from financing activities
Issuance of debt 53,391 40,560 38,895
Repayment of debt (62,718) (50,536) (41,842)
Redemption of preferred stock (10,000) - -
Proceeds from sale of common
stock 3,998 2,834 1,893
Dividends paid (400) (800) (727)
Purchase of treasury stock (1,878) (734) (442)
Other (347) - (90)
- -------------------------------------------------------------------------
Net cash used in financing
activities (17,954) (8,676) (2,313)
- -------------------------------------------------------------------------
Net increase (decrease) in cash
and equivalents (700) (287) 2,768
Beginning cash and equivalents 7,963 8,250 5,482
- -------------------------------------------------------------------------
Ending cash and equivalents $ 7,263 $ 7,963 $ 8,250
=========================================================================
Supplemental disclosures of cash
flow information
Cash paid during the year for
Interest $ 6,644 $ 7,172 $ 7,763
Income taxes 557 881 1,517
Noncash investing and financing
activities
Conversion of preferred stock 11,195 - -
Leases capitalized 913 518 -
Purchase of lease portfolio - - 3,199
Assessment district refinancing - - 517
=========================================================================
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Stockholders' Equity
For the Years Ended September 30
---Number of Shares----
(Amounts in thousands) 1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------
Cumulative convertible
preferred stock
Beginning balance $ 10 $ 10 $ 10 1,000 1,000 1,000
Repurchase and
conversion (10) - - (1,000) - -
- ----------------------------------------------------------------------------
Ending balance 0 10 10 0 1,000 1,000
- ----------------------------------------------------------------------------
Common stock
Beginning balance 14 13 12 13,896 12,611 11,750
Common stock issuance 4 1 1 4,073 1,285 861
- ----------------------------------------------------------------------------
Ending balance 18 14 13 17,969 13,896 12,611
- ----------------------------------------------------------------------------
Treasury stock
Beginning balance (1,326) (592) (150) 270 127 40
Treasury stock
purchase (1,878) (734) (442) 329 143 87
- ----------------------------------------------------------------------------
Ending balance (3,204) (1,326) (592) 599 270 127
- ----------------------------------------------------------------------------
Capital in excess of
par
Beginning balance 31,680 27,626 24,399
Preferred stock
repurchase/
conversion (10,079) - -
Preferred stock
conversion dividend (151) - -
Common stock issuance 4,083 2,833 1,893
Market rate
adjustment on
dividend 435 870 867
Tax benefit of
options exercised 2,233 351 453
Preferred stock
issuance - - 14
- ---------------------------------------------------------------------------
Ending balance 28,201 31,680 27,626
- ---------------------------------------------------------------------------
Accumulated deficit
Beginning balance (18,237) (23,943) (26,920)
Net income 8,030 7,236 5,065
Translation gains
(losses) 97 140 (427)
Preferred stock
conversion dividend 151 - -
Dividends declared
on cumulative
convertible preferred
stock (400) (800) (794)
Market rate adjustment
on dividends (435) (870) (867)
- ---------------------------------------------------------------------------
Ending balance (10,794) (18,237) (23,943)
- ---------------------------------------------------------------------------
Stockholders' equity $ 14,221 $ 12,141 $ 3,114
===========================================================================
The accompanying notes are an integral part of these financial statements.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies.
Triad Systems Corporation ("Triad") is a leading provider of business and
information management services to the Automotive Aftermarket and the
Hardlines and Lumber industry. The Company produces and markets proprietary
databases and software products, and designs, develops, manufactures,
markets, services and leases computer systems. The following is a summary of
the Company's significant accounting policies.
Consolidation.
The Consolidated Financial Statements include the accounts of Triad and its
wholly-owned subsidiaries, including Triad Systems Financial Corporation
("Triad Financial"), after elimination of intercompany accounts and
transactions.
Foreign Currency Translation.
Assets and liabilities of subsidiary operations denominated in foreign
currencies are translated at the year-end rates of exchange and the income
statements have been translated at the average rates of exchange for the
year. Local currencies are considered to be the functional currencies.
Cash and Equivalents.
Cash equivalents are short-term interest bearing instruments with maturity
dates of ninety days or less at the time of purchase.
Inventories.
Inventories are stated at the lower of cost (first-in, first-out method) or
market and include amounts which ultimately may be capitalized as equipment
or service parts.
Service Parts.
Service parts used for servicing installed equipment are stated at cost and
are depreciated over a period not exceeding five years using the
straight-line method.
Property, Plant and Equipment.
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized using the straight-line
method over their estimated useful lives or the lease term, whichever is
less. As property, plant and equipment are disposed of, the asset cost and
related accumulated depreciation or amortization are removed from the
accounts, and the resulting gains or losses are reflected in operations.
Investment in Leases.
At the inception of a lease, the gross lease receivable, the reserve for
potential losses, the estimated residual value of the leased equipment and
the unearned lease income are recorded. The unearned lease income represents
the excess of the gross lease receivable plus the estimated residual value
over the cost of the equipment leased. Certain initial direct costs incurred
in consummating the leases, included in the investment in leases, are
amortized over the life of the lease. Leases discounted under the agreements
are removed from the balance sheet and the gains are reflected in operations.
Capitalized Software.
Costs relating to the conceptual formulation and design of software products
are expensed as product development, and costs incurred subsequent to
establishing the technological feasibility of software products are
capitalized. Amortization of capitalized software costs begins when the
products are available for general release to customers. Costs are amortized
over the expected product lives and are calculated using the greater of the
straight line method, generally over a three, five or seven year period, or
a cost per unit sold basis.
Debt and Equity Issuance Costs.
The unamortized costs associated with the issuance of debt and equity
instruments are recorded with the associated liability. Amortization is
computed according to the interest method for debt issuance costs and is
included in interest expense. Upon retirement of remaining principal
balances, the associated unamortized costs are reflected in operations.
Treasury Stock.
Purchases of the Company's common stock are valued at cost.
Revenue Recognition.
Services revenue is recognized over the period that the services are
performed. Systems revenue is recognized upon product shipment provided
there are no remaining significant obligations and collection is probable.
Finance revenue is recognized ratably over the lease term, except discounting
gains, which are recognized at the time of discounting.
Income Taxes.
Deferred income taxes reflect differences in reporting certain items for
financial statement and income tax purposes. Income taxes are provided on the
undistributed earnings of foreign subsidiaries that are not considered to be
permanently reinvested.
Earnings Per Share.
Primary and fully diluted earnings per share are based on the average common
shares outstanding, the dilutive effect of the stock options, and the assumed
conversion of the preferred stock and exercise of warrants during the periods
they were outstanding. Dilution from common equivalents has been further
limited under the modified treasury stock method through the second quarter
of 1995.
Reclassification.
Certain 1993 and 1994 amounts have been reclassified to conform to the 1995
presentations. These changes have no effect on the financial condition or
results of operations as previously reported.
Note 2. Finance Subsidiary.
Triad Financial is a wholly-owned subsidiary that purchases Triad systems and
other products and leases those products to third parties under full-payout
and direct financing leases. Triad Financial's purchases from Triad were
$36,984,000 in 1995, $39,624,000 in 1994 and $35,540,000 in 1993. Summarized
financial information of the Company's combined leasing operations, included
in the Consolidated Financial Statements, is as follows:
Condensed Combined Balance Sheets
September 30
(Amounts in thousands) 1995 1994
- ----------------------------------------------------------------------------
Assets
Cash $ 5 $ -
Net investment in leases 18,541 25,988
Residual value retained on leases
discounted, less unearned income
of $7,476 in 1995 and $6,584 in 1994 6,452 5,544
Receivable from parent company 50,262 25,633
Other assets 3,652 2,857
- ----------------------------------------------------------------------------
Assets $ 78,912 $ 60,022
============================================================================
Liabilities and Stockholder's Equity
Other liabilities and accrued expenses $ 8,367 $ 8,115
Deferred income 2,337 1,955
Debt 13,033 2,171
Stockholder's equity 55,175 47,781
- ----------------------------------------------------------------------------
Liabilities and stockholder's equity $ 78,912 $ 60,022
============================================================================
Condensed Combined Statements of Income
For the Years Ended September 30
(Amounts in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------
Revenues $ 11,244 $ 10,199 $ 8,654
Costs and expenses
Selling and administrative 1,882 2,148 2,110
Provision for doubtful
accounts and revaluation charges 3,232 2,317 3,235
- ----------------------------------------------------------------------------
Operating income 6,130 5,734 3,309
Intercompany income 5,678 3,148 2,726
- ----------------------------------------------------------------------------
Income before taxes 11,808 8,882 6,035
Provision for income taxes 4,413 3,430 1,690
- ----------------------------------------------------------------------------
Net income $ 7,395 $ 5,452 $ 4,345
============================================================================
Note 3. Discounting of Lease Receivables.
Limited and full recourse agreements are maintained with banks and lending
institutions under which available lines were $48,519,000 at September 30,
1995. As leases are discounted, a sale is recorded and gains, the difference
between proceeds received and the book value of the lease receivables, are
reflected in finance revenue. Proceeds from discounting of lease receivables
were $73,216,000 in 1995, $64,044,000 in 1994 and $42,460,000 in 1993. A
portion of discounting gains is deferred to offset future administration
costs for discounted leases and is amortized over the remaining lease term.
Under the discounting agreements, Triad Financial is contingently liable for
losses in the event of lessee nonpayment. The agreements provide for limited
recourse of up to 15% or full recourse at 100% of discounting proceeds,
depending on the credit risk associated with specific leases. At September
30, 1995, the contingent liability for discounted leases was $24,594,000.
Title to equipment discounted under the agreements is generally pledged as
collateral.
The discounting agreements contain restrictive covenants which
allow Triad Financial to discount only while in compliance with such
covenants. In the event of non-compliance, the banks and lending
institutions could assume administrative control of the lease portfolio
and could prohibit further discounting under the available credit facilities.
The Company is in compliance with the restrictive covenants, and management
believes that it will maintain compliance with such covenants in the
foreseeable future. The most restrictive covenant requires that both Triad
and Triad Financial be profitable each quarter. Under the terms of an
operating and support agreement with the finance subsidiary, Triad is
obligated, if necessary, to make equity contributions or subordinated
loans to enable Triad Financial to fulfill its obligations under the
agreements.
Note 4. Trade Accounts Receivable.
Trade accounts receivable at September 30, 1995 and 1994 include allowances
for doubtful accounts of $1,420,000 and $1,166,000, respectively. Most of
the Company's customers are in the Automotive Aftermarket or the Hardlines
and Lumber industry.
Note 5. Inventories.
- ----------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- ----------------------------------------------------------------------------
Purchased parts $ 2,189 $ 2,404
Work in process 391 448
Finished goods 3,056 3,261
- ----------------------------------------------------------------------------
Total inventories $ 5,636 $ 6,113
============================================================================
Note 6. Service Parts.
- ----------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- ----------------------------------------------------------------------------
Service parts $ 10,980 $ 10,095
Less accumulated depreciation 7,664 7,661
- ----------------------------------------------------------------------------
Total service parts $ 3,316 $ 2,434
============================================================================
Note 7. Property, Plant and Equipment.
- ----------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- ----------------------------------------------------------------------------
Furniture and equipment $ 21,269 $ 18,218
Field service and demonstration equipment 12,519 11,990
Buildings and leasehold improvements 17,210 17,524
- ----------------------------------------------------------------------------
50,998 47,732
Less accumulated depreciation and amortization 30,768 27,486
- ----------------------------------------------------------------------------
20,230 20,246
Land 6,787 6,787
- ----------------------------------------------------------------------------
Total property, plant and equipment $ 27,017 $ 27,033
============================================================================
Note 8. Investment in Leases.
- ----------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- ----------------------------------------------------------------------------
Total minimum lease payments receivable $ 17,226 $ 22,169
Allowance for doubtful accounts (233) (322)
Initial direct costs 287 343
Estimated unguaranteed residual value 1,211 1,544
- ----------------------------------------------------------------------------
Gross investment in leases 18,491 23,734
- ----------------------------------------------------------------------------
Unearned income (5,456) (6,533)
Leases pending acceptance 5,506 8,787
- ----------------------------------------------------------------------------
Total investment in leases 18,541 25,988
- ----------------------------------------------------------------------------
Short-term investment in leases 2,001 4,152
Long-term investment in leases $ 16,540 $ 21,836
============================================================================
Historically, a substantial portion of the lease receivables are discounted
prior to maturity. Accordingly, a schedule of maturities for the next five
years is not indicative of future cash collections. Most of Triad Financial's
customers are in the Automotive Aftermarket and the Hardlines and Lumber
industry.
Note 9. Capitalized Software.
- ----------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- ----------------------------------------------------------------------------
Beginning balance $ 8,114 $ 7,263
Capitalized software costs 2,930 3,142
Amortization of software costs (1,917) (2,291)
- ----------------------------------------------------------------------------
Ending balance $ 9,127 $ 8,114
============================================================================
Note 10. Land for Resale.
Triad currently holds 166 acres in Livermore, California that it intends to
sell over a period of years. Gains from the sale of land amounting to
$652,000 in 1993 are included as other income in interest and other expense.
Note 11. Debt.
- ----------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- ----------------------------------------------------------------------------
12.25% senior fixed rate notes,
due in 1999 $ 19,300 $ 22,200
Senior floating rate notes,
due in 1997 - 15,500
Warehousing credit agreement 11,916 -
Mortgage loan payable, bearing
interest at 9.9%, and maturing
through 2003 10,946 11,803
Assessment district improvement bonds,
bearing interest at rates ranging from
4.75% to 7.25%, and maturing
through 2014
Land for operations 2,432 2,485
Land for resale 8,500 8,683
Other, bearing interest at rates
ranging from 7% to 12%, and maturing
through 1998 3,290 4,134
Unamortized debt issuance costs (775) (1,399)
- ----------------------------------------------------------------------------
Total debt 55,609 63,406
- ----------------------------------------------------------------------------
Short-term debt 3,032 6,773
Long-term debt $ 52,577 $ 56,633
============================================================================
The Company retired $2,900,000 of the 12.25% senior fixed rate notes at
107% of principal plus accrued interest in October 1994. The remaining
$19,300,000 12.25% senior fixed rate notes ("fixed rate notes") mature in
1999 and can be redeemed at the option of the Company beginning in August
1997 at 101% of principal plus accrued interest and at 100% of principal
plus accrued interest after August 1998. Mandatory redemption of $8,334,000
of principal plus accrued interest is required annually beginning August
1997. Interest is payable semiannually.
The Company retired $3,750,000 of the floating rate notes in August 1995.
The remaining $11,750,000 in notes were paid in September 1995 utilizing
the Company's new $12,000,000 Warehousing Credit Agreement. The term of the
Warehousing Credit Agreement is a one year revolver with a three year term
out option. The Company intends to renew the revolver for the next two years.
Interest on this revolver is the LIBOR rate plus 1.85% (7.725% at September
30, 1995). The collateral for this facility is the non-discounted leases
receivables. The interest rate on the mortgage financing for the Livermore
headquarters facility may be adjusted at the option of the lender in 1998
and could impact the interest rate from 1999 to its maturity in 2003.
Borrowings are collateralized by the land and buildings, and are payable in
monthly installments.
A portion of the Company's land for resale and the parcels retained for its
facilities are part of assessment districts and are subject to bonded
indebtedness incurred in connection with the development of improvements and
community services. Semiannual principal and interest payments on the bonds
are required to be made by Triad as long as the parcels are owned by the
company. As the Company sells land, the corresponding obligation will be
assumed by the new owners.
The Company's $16,000,000 revolving line of credit with a bank bears
interest at prime rate plus .75% (8.75% at September 30, 1995), and is
collateralized by receivables and inventories. There were no bank borrowings
at September 30, 1995. The line of credit commitment decreases by
$750,000 each quarter through maturity in 1997. Commitment fees are 0.5% on
the average unused commitment.
The Company maintains an overdraft facility with a bank in Europe. The
maximum commitment available under the agreement is $405,000 and the
agreement provides that borrowings will bear interest at the United
Kingdom prime rate plus 1.8% (6.75% at September 30, 1995). There were no
borrowings at September 30, 1995.
The fixed rate notes and the line of credit agreements contain restrictive
covenants regarding payment of dividends, incurrence of additional debt and
maintenance of consolidated tangible net worth and certain financial ratios.
In the event the Company is unable to meet these covenants, accelerated
repayments could be required.
Annual maturities of long-term debt for each year from 1996 through 2000 are
$3,204,000, $10,235,000, $10,366,000, $16,530,000 and $1,922,000,
respectively.
Accruals for interest expense at the end of 1995 and 1994 were $533,000 and
$768,000, respectively.
Note 12. Equity.
Cumulative Convertible Preferred Stock.
On March 31, 1995, the company financed the exchange of the 1 million
preferred shares and the associated warrants to purchase 3.5 million shares
of common stock. The financial consideration given was $10,000,000 cash and
2,222,222 shares of Triad common stock.
Common Stock.
Triad has declared no dividends on its common stock since its incorporation
and anticipates it will continue to retain its earnings for use in its
business. The Company's loan agreements contain restrictions on the payment
of dividends on its common stock. The most restrictive covenant regarding
the payment of common stock cash dividends requires the ability to cover
interest expense three times from operating income.
Note 13. Employee Stock Plans.
Stock Options.
The Company has reserved shares of common stock for issuance under its
employee and outside director stock option plans for nonqualified or
incentive stock options. The option price may not be less than the fair
market value at the date of grant. Options become exercisable at various
dates as specified by the Board of Directors and expire ten years from the
date of grant.
Stock Option Activity
- ---------------------------------------------------------------------------
(Amount in
thousands Option
except per Price Exercisable Available
share data) Shares Per Share Amount Options for Grant
- ---------------------------------------------------------------------------
Options outstanding
at September
30, 1992 5,172 $1.47 to $6.25 $12,225 4,478 519
Granted 26 4.37 to 5.87 146
Exercised (720) 1.47 to 4.12 (1,266)
Cancelled (8) 4.12 to 5.87 (40)
- ---------------------------------------------------------------------------
Options outstanding
at September
30, 1993 4,470 1.47 to 6.25 11,065 4,138 501
Granted 337 4.62 to 5.50 1,757
Exercised (1,136) 1.47 to 4.12 (2,200)
Cancelled (15) 3.12 to 4.12 (61)
- ---------------------------------------------------------------------------
Options outstanding
at September
30, 1994 3,656 1.50 to 6.25 10,561 3,210 194
Granted 177 5.00 to 6.63 934
Exercised (1,702) 1.50 to 5.50 (3,534)
- ---------------------------------------------------------------------------
Options outstanding
at September
30, 1995 2,131 $1.78 to $6.63 $ 7,961 1,645 17
- ---------------------------------------------------------------------------
Stock Purchase Plan.
The Company has an Employee Stock Purchase Plan under which shares of common
stock have been reserved for issuance to all permanent employees who have
met minimum employment criteria. Employees who do not own 5% or more of the
outstanding shares of the Company are eligible to participate through
payroll deductions in amounts relating to their basic compensation. At the
end of an offering period, shares are purchased by the participants at 85%
of the lower of the fair market value at the beginning or the end of the
offering period, to a maximum of 500 shares per participant. The Company
has reserved 1,150,000 shares of common stock and at September 30, 1995,
712,000 shares have been issued and 438,000 shares are available for
issuance.
Note 14. Savings and Investment Plan.
The Company has a savings and investment plan known as the Triad Systems
Corporation Savings and Investment Plan (the "Plan") as allowed under
Sections 401(k) and 401(a) of the Internal Revenue Code. The Plan provides
employees with tax deferred salary deductions and alternative investment
options. Employees are eligible to participate the first day of the
calendar quarter following date of hire and are able to apply for and secure
loans from their account in the Plan.
The Plan provides for contributions by the Company as determined annually by
the Board of Directors. The Company matches 50% of the first 4% of
compensation contributed by each employee and cannot exceed 15% of the annual
aggregate salaries of those employees eligible for participation.
Contributions to the Plan are allocated among eligible participants in the
proportion of their salaries to the total salaries of all participants and
amounted to $985,000 in 1995, $933,000 in 1994 and $857,000 in 1993.
Note 15. Other Operating Expense.
Other operating expenses of $750,000 in 1995, $584,000 in 1994 and $1,626,000
in 1993 represent legal expenses for the Company's litigation, initiated by
the Company, to protect its intellectual property rights and changes in the
liability for bonuses associated with employee stock options.
Note 16. Extraordinary Charges.
Extraordinary charges resulted from the reduction of debt in 1995 and 1994.
The early retirement of the senior fixed rate notes in 1995 and 1994
generated extraordinary charges of $153,000 ($.01 per share) and $143,000
($.01 per share) that included premiums of $198,000 and $196,000, unamortized
debt costs of $49,000 and $35,000, less taxes of $94,000 and $88,000,
respectively. In addition, in 1995, the refinancing of floating rate notes
resulted in an extraordinary charge of $243,000 ($.02 per share), that
included unamortized debt costs of $392,000 less taxes of $149,000.
Note 17. Income Taxes.
Provision for Income Taxes.
- ----------------------------------------------------------------------------
(Amounts in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------
Current
Federal $ 1,433 $ 545 $ 1,578
State 523 503 500
Foreign 367 30 53
- ----------------------------------------------------------------------------
Current provision 2,323 1,078 2,131
- ----------------------------------------------------------------------------
Deferred
Federal 3,628 2,481 695
State (904) 983 233
Foreign (125) (107) 22
- ----------------------------------------------------------------------------
Deferred provision 2,599 3,357 950
- ----------------------------------------------------------------------------
Provision for income taxes $ 4,922 $ 4,435 $ 3,081
============================================================================
In 1995 and 1994, taxes of $5,165,000 and $4,523,000, respectively, were
provided on income from continuing operations. Respective tax benefits of
$243,000 and $88,000, related to extraordinary charges on the repurchases of
debt are included in the 1995 and 1994 total provision for income taxes.
The Company's effective tax rate from continuing operations differs from the
U.S. statutory income tax rate as set forth below:
- ----------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------
U.S. statutory income tax rate 35.0% 35.0% 35.0%
State taxes, net of Federal income
tax benefit (1.8) 8.1 5.9
Foreign income taxes (benefit) 3.8 - 1.0
Favorable tax settlements on prior years - - (15.2)
Adjustment of deferred tax assets and
liabilities for enacted changes in
tax laws and rates - - 8.8
Income tax credits (1.0) (1.3) -
Other 2.0 (3.8) 2.3
- ----------------------------------------------------------------------------
Effective tax rate 38.0% 38.0% 37.8%
============================================================================
Deferred Tax Assets and Liabilities.
- ----------------------------------------------------------------------------
(Amounts in thousands) 1995 1994
- ----------------------------------------------------------------------------
Deferred Tax Assets
Current gross deferred tax assets
Inventory and sales return reserves $ 2,771 $ 1,792
Accrued compensation 700 873
Other 1,036 1,056
- ----------------------------------------------------------------------------
Current gross deferred tax assets 4,507 3,721
- ----------------------------------------------------------------------------
Noncurrent gross deferred tax assets
Federal Tax credit 5,368 6,645
Depreciation 1,612 1,374
Other 1,424 1,843
- ----------------------------------------------------------------------------
Noncurrent gross deferred tax assets 8,404 9,862
- ----------------------------------------------------------------------------
Gross deferred tax assets 12,911 13,583
Less valuation allowance - (26)
- ----------------------------------------------------------------------------
Deferred tax assets 12,911 13,557
- ----------------------------------------------------------------------------
Deferred Tax Liabilities
Current gross deferred tax liabilities
Direct financing leases 7,595 7,659
Other 250 372
- ----------------------------------------------------------------------------
Current gross deferred tax liabilities 7,845 8,031
- ----------------------------------------------------------------------------
Noncurrent gross deferred tax liabilities
Direct financing leases 34,029 33,568
Other 551 123
- ----------------------------------------------------------------------------
Noncurrent gross deferred tax liabilities 34,580 33,691
- ----------------------------------------------------------------------------
Gross deferred tax liabilities 42,425 41,722
- ----------------------------------------------------------------------------
Net deferred tax liabilities $ 29,514 $ 28,165
============================================================================
At September 30, 1995, the Company had business tax credit carryforwards of
$1,341,000, which may be used to reduce future Federal income taxes, if any.
The business tax credit carryforwards expire from 1998 through 2009. Also
available to the Company to reduce future regular federal income taxes are
alternative minimum tax credits of approximately $4,027,000 with no
statutory expiration period.
Substantially all of the Company's operating income was generated from
domestic operations during 1995, 1994 and 1993. The Company has not provided
for United States income taxes on the earnings of certain foreign
subsidiaries that are considered invested indefinitely outside the United
States. The cumulative earnings of the foreign subsidiaries that are
considered permanently invested outside the United States amounted to
$2,904,000 at September 30, 1995.
Note 18. Commitments and Contingencies.
The Company rents office facilities and certain office equipment under
noncancellable operating lease agreements for periods of up to five years.
Certain lease agreements contain renewal options and provisions for
maintenance, taxes or insurance. Minimum future lease payments for each
year 1996 through 2000 are $1,932,000, $1,514,000, $1,126,000, $415,000 and
$116,000 respectively. Rental expense under operating leases was $3,445,000,
in 1995, $3,007,000 in 1994 and $3,009,000 in 1993.
The Company is involved in litigation arising in the ordinary course of
business. In the opinion of management, after consultation with legal
counsel, these matters will be resolved without material adverse effect on
the Company's results of operations or financial position.
Note 19. Segment Information.
The Company operates in one industry segment; it produces and markets
proprietary databases and software products, and designs, develops,
manufactures, markets, services and leases computer systems. The Company
markets its products in the United States, the United Kingdom, Canada and
Ireland and has no customer which accounts for 10% or more of its revenue.
Revenue, operating income and assets outside the United States were not
material to the consolidated financial statements of the Company.
Note 20. Selected Quarterly Financial Data (Unaudited).
- ----------------------------------------------------------------------------
(Amounts in thousands 1995 Fiscal Quarter Ended
except per share data) Dec. 31 March 31 June 30 Sept. 30
- ----------------------------------------------------------------------------
Revenues $ 41,969 $ 44,118 $ 41,183 $ 47,807
Operating income 4,287 5,379 4,409 6,457
Income before
extraordinary charge 1,583 2,291 1,594 2,958
Extraordinary charge,
net of taxes 153 - - 243
Net income 1,430 2,291 1,594 2,715
Earnings per share
Primary
Income before
extraordinary charge $ .09 $ .13 $ .09 $ .17
Net income .08 .13 .09 .16
Fully diluted
Income before
extraordinary charge $ .09 $ .13 $ .09 $ .17
Net income .08 .13 .09 .15
- ----------------------------------------------------------------------------
1994 Fiscal Quarter Ended
Dec. 31 March 31 June 30 Sept. 30
- ----------------------------------------------------------------------------
Revenues $ 37,476 $ 40,561 $ 41,391 $ 47,850
Operating income 3,642 4,132 5,387 6,200
Net income 1,044 1,396 2,058 2,738
Earnings per common and
common equivalent share $ .06 $ .08 $ .12 $ .16
- ----------------------------------------------------------------------------
Note 21. Recent Accounting Pronouncements.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
This standard, which establishes a fair value-based method of accounting for
stock-based compensation plans also permits an election to continue,
following the requirements of APB Opinion No. 25, "Accounting for Stock
Issued to Employees"' with disclosures of pro forma net income and earnings
per share under the new method. The Company is reviewing the alternatives
under SFAS No. 123 but does not expect there will be any effect on the
financial condition and results of operations of the Company. Disclosure
requirements of SFAS No. 123 will be effective for the Company's fiscal year
1997.
Corporate Responsibility Statement
The Company's management is responsible for the preparation and accuracy of
the financial statements and other information included in this report. The
financial statements have been prepared in conformity with generally accepted
accounting principles using, where appropriate, management's best estimates
and judgments. In meeting its responsibility for the integrity of financial
information, management has developed and relies upon the Company's system
of internal accounting control. The system is designed to provide reasonable
assurance that assets are safeguarded and that transactions are executed as
authorized and are properly recorded. The system is augmented by written
policies and procedures. The Board of Directors reviews the financial
statements and reporting practices of the Company through its Audit
Committee. The committee meets regularly with the independent accountants
and management to discuss audit scope and results and to consider internal
controls and financial reporting matters. The independent accountants have
unrestricted access to the Audit Committee.
James R. Porter
President and Chief Executive Officer
Stanley F. Marquis
Vice President Finance
Chief Financial Officer
Corporate Secretary and Treasurer
President, Triad Systems Financial Corporation
October 19, 1995
Livermore, California
Report of Independent Accountants
To The Board of Directors and Stockholders
Triad Systems Corporation
Livermore, California
We have audited the consolidated financial statements and the financial
statement schedule of Triad Systems Corporation and Subsidiaries listed
in Item 14A of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Triad
Systems Corporation and Subsidiaries as of September 30, 1995 and 1994,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1995, in
conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
San Jose, California Coopers & Lybrand L.L.P.
ITEM 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
There is incorporated herein by reference the information under the caption
"Election of Directors" in the definitive Proxy Statement to be filed by
Triad within 120 days of the end of Triad's fiscal year pursuant to
Regulation 14A. Information with respect to executive officers may be found
on pages 11 to 12, under the caption "Executive Officers of the
Registrant" in this Form 10-K.
ITEM 11. Executive Compensation
There is incorporated by reference the information under the captions
"Executive Compensation and Other Matters," "Compensation Committee Report
on Executive Compensation," and "Comparison of Stockholder Return" in the
definitive Proxy Statement to be filed by Triad within 120 days of the end
of Triad's fiscal year pursuant to Regulation 14A.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
There is incorporated by reference the information under the caption of
"Stock Ownership Of Certain Beneficial Owners And Management" in the
definitive Proxy Statement to be filed by Triad within 120 days of the
end of Triad's fiscal year pursuant to Regulation 14A.
ITEM 13. Certain Relationships and Related Transactions
There is incorporated by reference the information under the caption
"Executive Compensation And Other Matters" in the definitive Proxy
Statement to be filed by Triad within 120 days of the end of Triad's fiscal
year pursuant to Regulation 14A.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as
amended, the undersigned Registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into the Registrant's
Registration Statements on Form S-8, Nos. 33-52101 (filed January 31, 1994),
33-60320 (filed March 30, 1993), 33-40945 (filed May 30, 1991), 33-40875
(filed May 29, 1991), 33-38540 (filed January 7, 1991), 2-88436 (filed
December 15, 1983), 33-2427 (filed November 24, 1985), 33-15219 (filed June
19, 1987), 33-20239 (filed February 22, 1988), 33-33553 (filed February 21,
1990) and 33-33554 (filed February 21, 1990).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements, Schedules and Exhibits
(1) Consolidated Financial Statements
The following consolidated financial statements of Triad Systems
Corporation and subsidiaries (including Triad Financial), and related notes,
together with the report thereon of Coopers & Lybrand L.L.P., independent
accountants, included in Item 8 and are incorporated herein by reference.
Page Number
(2) Consolidated Financial Statement Schedule in Form 10K Report
II Valuation and Qualifying Accounts........................39
In accordance with the rules of Regulation S-X, the other required
schedules are not submitted because (a) they are not applicable or required,
or (b) the information required to be set forth therein is included in the
financial statements, or notes thereto.
Separate financial statements of the Registrant are omitted because the
Registrant is primarily an operating company and all consolidated
subsidiaries are totally held and are not indebted to any person, other than
the Registrant, in an amount that is in excess of 5% of total consolidated
assets.
(3) Exhibits
See Index to Exhibits, pages 40 to 42.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year ended September 30, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TRIAD SYSTEMS CORPORATION
December 20, 1995 By: /s/ JAMES R. PORTER
Date James R. Porter
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ JAMES R. PORTER President December 20, 1995
(James R. Porter) (Principal Executive Officer)
/s/ STANLEY F. MARQUIS Vice President December 20, 1995
(Stanley F. Marquis) (Principal Financial Officer)
/s/ BRUCE M. BLANCO Corporate Controller December 20, 1995
(Bruce M. Blanco) (Principal Accounting Officer)
/s/ WILLIAM W. STEVENS Chairman of the Board December 20, 1995
(William W. Stevens)
/s/ HENRY M. GAY Director December 20, 1995
(Henry M. Gay)
/s/ GEORGE O. HARMON Director December 20, 1995
(George O. Harmon)
/s/ RICHARD C. BLUM Director December 20, 1995
(Richard C. Blum)
TRIAD SYSTEMS CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
===========================================================================
COL A COL B COL C COL D COL E
- ---------------------------------------------------------------------------
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
- ---------------------------------------------------------------------------
Year ended
September 30, 1993:
Allowance for
doubtful accounts
and system returns $1,116 $6,806 $6,145 (A) $1,777
====== ====== ====== ======
Product warranty
costs (B) $386 $1,695 $1,519 $562
==== ====== ====== ====
Inventory valuation $1,303 $743 $1,108 $938
====== ==== ====== ====
Year ended
September 30, 1994:
Allowance for
doubtful accounts
and system returns $1,777 $6,819 $6,445 (A) $2,151
====== ====== ====== ======
Product warranty
costs (B) $562 $1,079 $1,380 $261
==== ====== ====== ====
Inventory valuation $938 $595 $875 $658
==== ==== ==== ====
Year ended
September 30, 1995:
Allowance for
doubtful accounts
and system returns $2,151 $7,590 $7,492 (A) $2,249
====== ====== ====== ======
Product warranty
costs (B) $261 $773 $835 $199
==== ==== ==== ====
Inventory valuation $658 $685 $784 $559
==== ==== ==== ====
- ---------------------------------
(A) Balances written off during year and transfer of reserves to other
liabilities to provide for recourse on discounted leases.
(B) The estimated cost of warranty repairs is added to the reserve at the
time the products are sold and actual costs deducted as incurred.
EXHIBIT INDEX FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1995
Exhibit Sequentially
Number Numbered Page
3.1 Restated Certificate of Incorporation.
3.2 Triad Systems Corporation, a Delaware corporation,
amended and restated Bylaws incorporated by
reference from Exhibit 3.4 to the Company's
Registration Statement on Form S-4 (33-53038)
(the "Form S-4").
4.1 Senior Floating Rate Note Indenture dated as of
August 1, 1992, between the Company and Security
Pacific National Trust Company (New York), as
Trustee, including form of Fixed Rate Notes,
incorporated by reference from Exhibit 4.1 to the
Company's Current Report on Form 8-K filed August
17, 1992.
4.2 Amended and Restated Rights Agreement dated as of
December 6, 1993, between the Company and Chemical
Bank of California, as Rights Agent (including as
exhibits the form of Rights Certificate and the
form of Summary of Rights to Purchase Common Stock).
4.3 Purchase Agreement dated July 2, 1992, between
the Company and purchasers of 12.25% Senior Notes
due 1999, as amended by the Amendment and Consent
to Documents dated as of August 3, 1992,
incorporated by reference from Exhibit 10.1 to the
Company's Current Report on Form 8-K filed August
17, 1992.
4.4 Purchase Agreement dated July 2, 1992, between the
Company and purchasers of Floating Rate Senior Notes
due 1997, incorporated by reference from Exhibit
10.2 to the Company's Current Report on Form 8-K
filed August 17, 1992.
4.5 Consent Agreement between Triad Systems Corporation
and certain holders of the Fixed Rate Notes dated
March 31, 1995, incorporated by reference from
Exhibit 2 to the Company's Current Report on
Form 8-K filed May 11, 1995.
4.6 Consent Agreement between Triad Systems Corporation
and the holder of the Floating Rate Notes dated
March 31, 1995, incorporated by reference from
Exhibit 3 to the Company's Current Report on Form
8-K filed May 11, 1995.
4.7 First Supplemental Indenture between Triad Systems
Corporation and BankAmerica National Trust Company
dated March 31, 1995, incorporated by reference from
Exhibit 4 to the Company's Current Report on Form
8-K filed May 11, 1995.
4.8 First Supplemental Indenture between Triad Systems
Corporation and Chase Manhattan Bank N.A. dated
March 31, 1995, incorporated by reference from
Exhibit 5 to the Company's Current Report on Form
8-K filed May 11, 1995.
4.9 Triad Systems Corporation Amended Senior Floating
Rate Note Due 1997 dated March 31, 1995,
incorporated by reference from Exhibit 7 to the
Company's Current Report on Form 8-K filed May 11,
1995.
* 10.1 Triad Systems Corporation Amended and Restated
1982 Stock Option Plan as amended on October
22, 1993, incorporated by reference from
Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended September
30, 1993.
10.2 Form of Indemnification Agreement, incorporated
by reference from Exhibit 10.4 to the Company's
Registration Statement on Form S-2 (File No.
33-2966) filed July 3, 1989 (the "1989 Form-2
Registration Statement").
* 10.3 Nonqualified Stock Option Agreement between the
Company and James R. Porter dated January 13, 1987,
incorporated by reference from Exhibit 10.5 to the
1987 Form S-2 Registration Statement, (File No.
33-13599) (the "1987 Company's Form S-2
Registration Statement").
10.4 Mortgage between Variable Annuity Life Insurance
Company and 3055 Triad Drive dated August 23,
1988, incorporated by reference from Exhibit 10.6
to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1988 (the "1988
Form 10-K").
* 10.5 Nonqualified Stock Option Agreement between the
Company and James R. Porter dated as of February 17,
1987, incorporated by reference from Exhibit 10.7
of the 1988 Form 10-K.
* 10.6 Nonqualified Stock Option Agreement between the
Company and James R. Porter dated November 12, 1988,
incorporated by reference from Exhibit 10.8 of the
1988 Form 10-K.
* 10.7 Triad Systems Corporation 1990 Stock Option Plan as
amended on October 22, 1993, incorporated by
reference from Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the fiscal year ended
September 30, 1993.
* 10.8 Triad Systems Corporation Amended and Restated
Outside Directors Stock Option Plan, incorporated
by reference from Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year
ended September 30, 1991.
10.9 Revolving Credit Loan Agreement dated as of June 30,
1992, as amended, between the Company and Plaza Bank
of Commerce, incorporated by reference from Exhibit
10.3 to the Company's Current Report on Form 8-K
filed August 17, 1992.
10.10 Unit Purchase Agreement dated as of July 2, 1992,
between the Company, Richard C. Blum & Associates,
Inc. and certain purchasers, together with the First
Amendment to Unit Purchase Agreement dated as of
August 3, 1992, and the form of irrevocable Proxy,
incorporated by reference from Exhibit 10.4 to the
Company's Current Report on Form 8-K filed August
17, 1992.
10.11 Registration Rights Agreement between the Company and
certain purchasers under the Unit Purchase Agreement
dated as of August 3, 1992, incorporated by reference
from Exhibit 10.5 to the Company's Current Report on
Form 8-K filed August 17, 1992.
10.12 Grant Agreement between the Industrial Development
Authority and Triad Systems Ireland Limited, Triad
Systems Corporation and Tridex Systems Limited and
related agreements, incorporated by reference from
Exhibit 10.15 to the 1992 Form S-4 Registration
Statement.
10.13 Cancellation of Development Agreement between the
Company and the City of Livermore dated July 15,
1993, incorporated by reference from Exhibit 10.16
to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
10.14 Amended and Restated Subdivision Improvement Agreement
between the Company and the City of Livermore dated
May 12, 1993, incorporated by reference from Exhibit
10.17 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1993.
* 10.15 Supplemental Deferred Compensation Plan between the
Company and a select group of Triad Key Employees and
their beneficiaries dated April 1, 1994, incorporated
by reference from Exhibit 10.18 to the Company's Form
10-Q for the fiscal quarter ended June 30, 1994.
* 10.16 Amendment to Amended and Restated 1982 Stock Option
Plan dated April 25, 1994, incorporated by reference
from Exhibit 10.19 to the Company's Form 10-Q for
the fiscal quarter ended June 30, 1994.
10.17 Amendment No. Three to Revolving Credit Loan Agreement
and Consent (to Exchange Agreement) between Triad
Systems Corporation, Triad Systems Financial
Corporation and Comerica Bank-California dated March
31, 1995, incorporated by reference from Exhibit 6 to
the May 11, 1995 Form 8-K.
10.18 Exchange Agreement and Second Amendment to Unit
Purchase Agreement by and among Triad Systems
Corporation, Richard C. Blum & Associates, L.P. and
certain holders dated March 31, 1995, incorporated
by reference from Exhibit 1 to the Company's Current
Report on Form 8-K filed May 11, 1995.
10.19 Warehousing Credit Agreement between Triad Systems 47-156
Financial Corporation and the First National Bank
of Boston dated August 29, 1995.
11.1 Computation of Earnings per share. 43
12.1 Statement regarding computation of ratio of earnings
fixed charges, incorporated by reference from Exhibit
12.1 to the 1992 Form S-4 Registration Statement.
21.1 Subsidiaries. 44
23.1 Consent of Independent Accountants. 45
27 Financial Data Schedule, filed by electronic
submission only.
-----------------------------------
* Compensatory or employment agreement.
Exhibit 11.1
TRIAD SYSTEMS CORPORATION
COMPUTATION OF EARNINGS PER SHARE
For The Three Years Ended September 30,
1993 1994 1995
----- ----- -----
(Amounts in thousands except per share data)
Calculation of number of shares entering
into computations
Weighted average shares outstanding 12,162 12,995 17,159
Assumed conversion of preferred stock and
exercise of warrants 3,137 3,137 -
------ ------ ------
15,299 16,132 17,159
Net effect of dilutive stock options and
warrants based on the average stock price 1,638 1,286 615
------ ------ ------
Average primary shares outstanding 16,937 17,418 17,774
Net effect of dilutive stock options and
warrants based on the ending stock price 11 3 199
------ ------ ------
Average fully diluted shares outstanding 16,948 17,421 17,973
====== ====== ======
Income before extraordinary charge $5,065 $7,379 $8,426
Net interest costs associated with
assumed retirement of debt 96 63 -
Preferred stock conversion dividend - - 151
------ ------ ------
Adjusted income before extraordinary charge 5,161 7,442 8,577
Extraordinary charge - 143 396
------ ------ -----
Adjusted net income $5,161 $7,299 $8,181
====== ====== ======
Earnings per share
Primary
Income before extraordinary charge $ .31 $ .43 $ .48
Net income .31 .42 .46
Fully diluted
Income before extraordinary charge $ .30 $ .43 $ .48
Net income .30 .42 .45
Exhibit 21.1
TRIAD SYSTEMS CORPORATION
SUBSIDIARIES
State or Other
Jurisdiction of
Incorporation or
Name Organization
- ------------------ -------------------
Triad Systems Financial Corporation California
Tridex Systems Ltd. United Kingdom
Tridex Leasing Ltd. United Kingdom
Triad Systems Ireland Ltd. Ireland
Triad Systems Canada, Ltd. Canada
Triad Systems France, S.A.R.L. France
3055 Triad Dr. Corp. California
Corporate Data Systems Corp., d/b/a loadSTAR Systems New Jersey
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Triad Systems Corporation and subsidiaries on Form S-8
(File Nos. 33-52101, 33-60320, 33-40945, 33-40875, 33-38540, 33-33554,
33-33553, 33-20239, 33-15219, 33-2427 and 2-88436) of our report dated
October 19, 1995, on our audits of the consolidated financial
statements and financial statement schedule of Triad Systems
Corporation and subsidiaries as of September 30, 1993, 1994 and 1995,
and for each of the years in the period ended September 30, 1995,
which report is included in the Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
San Jose, California
October 19, 1995
Triad and the stylized logo, LaserCat(R), ServiceCat(R),
LaserGuide(R), MarketPACE(R), TelePart(R), Telepricing(R),
Triad Prism(R) and Triad ServiceWriter(R) are registered
trademarks of Triad Systems Corporation.
LaserStation(TM), Electronic Catalog(TM), LaborGuide(TM),
Competitive Analysis(TM), AdviceLine(TM), Vista(TM),
Triad Service System(TM), Eagle(TM), Eagle LS(TM) and
Quick Assist(SM) are trademarks or service marks of
Triad Systems Corporation.
Interactive(TM) is a trademark of Sun Microsystems, Inc.
Pentium(TM) is a trademark of Intel Corporation.
The Paperless Warehouse(R) is a registered trademark of Management
Technology International, Inc.
True Value(R) is a registered trademark of Cotter & Company.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at September 30, 1995 and the Consolidated Statement
of Income and Statement of Cash Flow for the twelve months ended September 30, 1995, and
is qualified in its entirity by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,263
<SECURITIES> 0
<RECEIVABLES> 14,595
<ALLOWANCES> 1,420
<INVENTORY> 5,636
<CURRENT-ASSETS> 34,777
<PP&E> 57,785
<DEPRECIATION> 30,768
<TOTAL-ASSETS> 132,709
<CURRENT-LIABILITIES> 33,346
<BONDS> 52,577
<COMMON> 18
0
0
<OTHER-SE> 14,203
<TOTAL-LIABILITY-AND-EQUITY> 132,709
<SALES> 73,312
<TOTAL-REVENUES> 175,077
<CGS> 35,606
<TOTAL-COSTS> 88,509
<OTHER-EXPENSES> 750
<LOSS-PROVISION> 8,271
<INTEREST-EXPENSE> 6,941
<INCOME-PRETAX> 13,591
<INCOME-TAX> 5,165
<INCOME-CONTINUING> 8,426
<DISCONTINUED> 0
<EXTRAORDINARY> 396
<CHANGES> 0
<NET-INCOME> 8,030
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.45
</TABLE>
WAREHOUSING CREDIT AGREEMENT
BY AND BETWEEN
TRIAD SYSTEMS FINANCIAL CORPORATION,
as borrower
AND
THE FIRST NATIONAL BANK OF BOSTON,
as lender
AUGUST 29, 1995
TABLE OF CONTENTS
Section 1. Definitions.
SECTION 2. AMOUNT AND TERMS OF CREDIT
2.1 Commitment to Lend
(a) Commitment to Make Revolving Loans
(b) Commitment to Make Term Loans
(c) Increased Costs
(d) Illegality or Impossibility
(e) Capital Requirements
(f) Special Notice Requirements
(g) Conversion and Continuation of Loans
(h) Limitation on Types of Loans
2.2 Prepayment
(a) Voluntary Prepayment
(b) Payments Not at End of Interest Period
2.3 Fees and Commissions
(a) Commitment Fee
(b) Closing Fee
2.4 Calculation of Interest; Post-Default Interest
2.5 Payments
2.6 Payment on Non-Business Days
2.7 Application of Payments
2.8 Conditions Precedent to Loans
(a) First Loan
(b) All Loans
(c) Term Loans
2.9 Funding Sources
Section 3. Collateral Security
Section 4. Borrower's Representations And Warranties
4.1 Organization and Qualification
4.2 Corporate Authority
4.3 Valid Obligations
4.4 Consents or Approvals
4.5 Title to Properties; Absence of Encumbrances
4.6 Financial Statements
4.7 Changes
4.8 Defaults
4.9 Taxes
4.10 Litigation
4.11 Use of Proceeds
4.12 Subsidiaries
4.13 Investment Company Act
4.14 Compliance with ERISA
4.15 Environmental Matters
4.16 Solvency
4.17 Representations and Warranties With
Respect to Eligible Leases
Section 5. Borrower's Affirmative Covenants
5.1 Records and Reports
(a) Financial Statements of Triad
(b) Financial Statements of Borrower
(c) Compliance Certificates
(d) Borrowing Base Certificates
(e) Collateral Report
(f) Other Financial Reports
(g) Other Data
5.2 Corporate Rights; Facilities; Conduct
of Business.
5.3 Insurance
5.4 Taxes and Other Liabilities
5.5 Certain Notices
5.6 Inspection Rights
5.7 Conversations With Management
5.8 Periodic Audits
5.9 Use of Proceeds
5.10 Compliance With Laws
5.11 Punctual Payment
5.12 Agreements
5.13 Location of Collateral
5.14 Notices to and Consents from Lessees
Section 6. Borrower's Negative Covenants
6.1 Liens and Encumbrances
6.2 Employee Loans
6.3 Dividends
6.4 Restriction on Fundamental Changes
6.5 Transactions with Affiliates
6.6 Maintenance of Business
6.7 ERISA
6.8 No Use of FNBB's Name
6.9 Fiscal Year
6.10 Indebtedness
Section 7. Financial Covenants Of Borrower
7.1 Minimum Interest Coverage Ratio
7.2 Minimum Tangible Net Worth
7.3 Leverage Ratio
7.4 Profitability
Section 8. Events Of Default And Remedies
8.1 Events of Default
8.2 Waiver of Default
8.3 Remedies
(a) Exercise of Remedies
(b) Deficiency
(c) Set-Off
(d) Rights and Remedies Cumulative
Section 9. Expenses And Indemnities
9.1 Expenses
9.2 Taxes, etc.
9.3 Indemnification
SECTION 10. MISCELLANEOUS.
10.1 Survival
10.2 No Waiver by FNBB
10.3 Notices
10.4 Severability
10.5 Construction
10.6 Entire Agreement; Amendments and Waivers.
10.7 No Set-Offs by Borrower
10.8 Headings
10.9 Governing Law
10.10 Waiver of Jury Trial
10.11 Subsequent Holders
10.12 Assignability
10.13 Confidentiality
10.14 Counterparts
WAREHOUSING CREDIT AGREEMENT
THIS WAREHOUSING CREDIT AGREEMENT is entered into as of August 29,
1995, by and among TRIAD SYSTEMS FINANCIAL CORPORATION, a California
corporation with offices at 3055 Triad Drive, Livermore, California 94550
("Borrower"), THE FIRST NATIONAL BANK OF BOSTON, with offices at 100 Federal
Street, Boston, Massachusetts 02110 ("FNBB").
RECITALS
A. Borrower has requested FNBB to make secured revolving credit advances
to Borrower of up to Twelve Million Dollars ($12,000,000) in the aggregate
principal amount outstanding at any one time, which Borrower will use to
warehouse equipment leases prior to financing or sale with or to long-term
investors or lenders.
B. FNBB has agreed to make such secured revolving credit advances to
Borrower, but only upon the terms and subject to the conditions hereinafter
set forth and in reliance on the representations and warranties set forth
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants hereinafter set forth, and intending to be legally bound, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms have the following meanings:
"Adjusted LIBOR" means, for each Interest Period in respect of LIBOR
Loans, an interest rate per annum (rounded upward to the nearest 1/16th of
one percent (0.0625%)) determined pursuant to the following formula:
Adjusted LIBOR = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
The Adjusted LIBOR shall be adjusted automatically as of the effective date
of any change in the Eurodollar Reserve Percentage.
"Adjusted Loan Amount" means with respect to the portfolio of Eligible
Leases, an amount equal to the lesser of:
(i) eighty-five percent (85%) of the sum of, without duplication,
(A) the Net Asset Value of the Eligible Leases included in the "net asset
value" entry on the internal management statements and (B) the amount of
the "pending leases" entry on the internal management statements to the
extent that such "pending leases" are Eligible Leases; adjusted in each
case on the date of determination to reflect any leases added or removed
from the Collateral pool since the date of the last internal management
statements; and
(ii) eighty percent (80%) of the present value of the remaining firm
term periodic rental including the final put payment to the lessee (but
excluding residuals) for such Eligible Leases discounted at a rate equal
to the lower of (i) the then current Base Rate plus the Rate Spread, and
(ii) the then current Adjusted LIBOR (assuming an Interest Period of two
months) plus the Rate Spread, and
(iii) ninety percent (90%) of the original cost of the equipment
subject to such Eligible Leases.
"Advance" has the meaning given to such term in Section 2.1(a)(i)(A).
"Affiliate" means with respect to any Person (a) each Person that,
directly or indirectly, owns or controls, whether beneficially or as a
trustee, guardian or other fiduciary, ten percent (10%) or more of the Stock
having ordinary voting power in the election of directors of such Person,
(b) each Person that controls, is controlled by or is under common control
with such Person or any Affiliate of such Person or (c) each of such
Person's officers, directors, joint venturers and partners; provided,
however, that in no case shall FNBB be deemed to be an Affiliate of Borrower
for purposes of this Agreement. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of its management or policies,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Warehousing Credit Agreement, including all
amendments, modifications and supplements hereto and any appendices,
exhibits or schedules to any of the foregoing, and shall refer to the
Agreement as the same may be in effect at the time such reference
becomes operative.
"Base Rate" means at any time FNBB's floating commercial loan rate
publicly announced from time to time by FNBB at its head office as its
base rate, which rate may not be FNBB's lowest domestic rate.
"Base Rate Loan" in the singular and "Base Rate Loans" in the plural
means any and all Loans with respect to which Borrower elects an interest
rate based upon the Base Rate.
"Board of Directors" means the Board of Directors of Borrower or any
committee of the Board of Directors of Borrower authorized with respect to
any particular matter to exercise the power of the Board of Directors of
Borrower.
"Borrowing Base" means, at the relevant time of reference thereto, an
amount determined by FNBB which is equal to the aggregate Loan Amount with
respect to the portfolio of Eligible Leases which is Collateral for the
Loans.
"Borrowing Base Certificate" means a certificate with appropriate
insertions setting forth the components of the Borrowing Base, which
certificate shall be substantially in the form set forth in Exhibit F and
certified by a Responsible Officer, including, without limitation, a
schedule listing for each Eligible Lease included in the Borrowing Base,
the lease number, the lessee's name, the Net Asset Value of the lease, and
whether or not payments under the lease are current or delinquent.
"Business Day" means any day which is not a Saturday, Sunday or a legal
holiday under the laws of the States of Massachusetts, New York or California
or is not a day on which banking institutions located in the States of
Massachusetts, New York or California are authorized or permitted by law or
other governmental action to close; except that if any determination of a
"Business Day" shall relate to a LIBOR Loan, the term "Business Day" shall
in addition exclude any day which is not a Eurodollar Banking Day.
"Capital Requirement Change" has the meaning given to such term in
Section 2.1(e).
"Capital Requirement Change Effective Date" has the meaning given to such
term in Section 2.1(e).
"Closing Date" means the date on which all of the conditions precedent set
forth in Section 2.8 to making the first Loan hereunder shall have been duly
satisfied by Borrower.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations proposed or adopted thereunder, as the same may be in
effect from time to time.
"Collateral" means the "Collateral", as defined in the Security Agreement
and any other property, real or personal, tangible or intangible, now
existing or hereafter acquired, that at any time is or becomes subject to a
security interest or Lien in favor of FNBB to secure the full and complete
payment and performance of Borrower's Obligations hereunder and under the
other Loan Documents.
"Commitment" means the amount set forth on Schedule 1, as amended from time
to time upon the execution and delivery of an instrument of assignment
pursuant to Section 10.12.
"Commitment Fee" means the fee referred to in Section 2.3(a).
"Commitment Termination Date" means October 1, 1996.
"Compliance Certificate" means a certificate signed by a Responsible
Officer of Borrower, substantially in the form set forth in Exhibit D, with
such changes therein as FNBB may from time to time reasonably request for
the purpose of having such certificate disclose the matters certified
therein and the method of computation thereof.
"Consolidated Net Worth" means, on a consolidated basis, the common
stockholders' equity capital plus surplus plus retained earnings, as
determined and computed according to GAAP.
"Default" means a Potential Event of Default or an Event of Default.
"Default Rate" means the default rate of interest set forth in Section 2.4.
"Effective Date" has the meaning given to such term in Section 2.1(c).
"Eligible Lease" means any Lease that is a full payout net lease and for
which each of the representations and warranties in Section 4.17 is true and
which has been represented by Borrower to be an Eligible Lease on the
applicable Borrowing Base Certificate, excluding, however, each of the
following:
(a) all Leases with any lessee as to which payments are more than
ninety (90) days past due with respect to any such Lease;
(b) all Leases which, as of the date of determination, are financed
under, or are collateral under, any warehouse facility other than this
facility or which are currently discounted to a discount lender;
(c) all Leases as to which the lessee is subject to insolvency,
bankruptcy or receivership proceedings or has made an assignment for the
benefit of creditors;
(d) each Lease which FNBB in its reasonable discretion shall deem not
to qualify as an Eligible Lease and for which FNBB has provided an
explanation, in reasonable detail, for such failure to qualify;
(e) each Lease with respect to which (i) a Lease Default shall have
occurred and be continuing at the time a Schedule is executed by Borrower
to pledge such Lease as Collateral or (ii) a Lease Default shall have
occurred and be continuing for more than sixty (60) days;
(f) any Lease where either (i) the Lessee or (ii) the Equipment subject
to such Lease, is not located within the continental United States;
(g) any Lease where either (i) the Lessee or (ii) the Equipment subject
to such Lease, is located in Puerto Rico;
(h) all Leases with respect to a lessee, including subsidiaries and
affiliates, to the extent that the aggregate Loan Amount of such Leases
exceeds ten percent (10%) of the Borrowing Base;
(i) any Lease with respect to which the lessee is an Affiliate of
Borrower;
(j) any Lease with respect to which the lessee is a unit of government,
whether foreign or domestic, including without limitation, the United States
or any department, agency, or instrumentality of the United States;
(k) any Lease under which the residual value is greater than ten percent
(10%); and
(l) any Lease which is a rental agreement.
"Employee Plan" means all employee pension benefit plans within the meaning
of Section 3(2) of ERISA.
"Environmental Laws" means any and all applicable foreign, federal, state
and local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law (whether now existing or
hereafter enacted or promulgated) of all governmental agencies, bureaus or
departments which may now or hereafter have jurisdiction over Borrower or
any of its Subsidiaries and all applicable judicial and administrative and
regulatory decrees, judgments and orders, including common law rulings and
determinations, relating to injury to, or the protection of, real or personal
property or human health or the environment, including, without limitation,
all requirements pertaining to reporting, licensing, permitting,
investigation, remediation and removal of emissions, discharges, releases or
threatened releases of Hazardous Materials, chemical substances, pollutants
or contaminants, whether solid, liquid or gaseous in nature, into the
environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of such Hazardous
Materials, chemical substances, pollutants or contaminants.
"Equipment" means the equipment, fixtures, software and other property
covered by a particular Lease.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, as the same may be in effect from time to time.
"Eurodollar Banking Day" means any day on which dealings in dollar deposits
are conducted by and among banks in the London-Interbank Market.
"Eurodollar Reserve Percentage" means the reserve percentage, if any,
(expressed as a decimal, rounded upward to the nearest 1/100th of one percent
(0.01%)) in effect on the date LIBOR for such Interest Period is determined
by FNBB under regulations issued from time to time by the Federal Reserve
Board for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with respect
to Eurocurrency funding (currently referred to as "Eurocurrency liabilities")
having a term comparable to such Interest Period.
"Event of Default" means any of the events set forth in Section 8.1.
"Facility" means the revolving credit facility described in this Agreement
up to an aggregate principal amount outstanding at any one time of
$12,000,000.
"Financing Statements" means the UCC-1 financing statements to be executed
and delivered by Borrower pursuant to Section 2.8(b)(vi).
"First Funding Date" means the date funds are first advanced to Borrower for
the first Revolving Credit Loan hereunder.
"Funding Date" means with respect to any proposed borrowing the date funds
are advanced to Borrower for any Loan.
"GAAP" means generally accepted accounting principles as set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such
statements by such other entity as may be in general use by significant
segments of the U.S. accounting profession, as consistently applied. In the
event that GAAP changes during the term of this Agreement such that the
covenants contained in Section 7 would then be calculated in a different
manner or with different components, (a) the parties hereto agree to amend
this Agreement in such respects as are necessary to conform those covenants
as criteria for evaluating Borrower's financial condition to substantially the
same criteria as were effective prior to such change in GAAP and (b) Borrower
shall be deemed to be in compliance with the covenants contained in the
aforesaid Section during the ninety (90) day period following any such change
in GAAP if and to the extent that Borrower would have been in compliance
therewith under GAAP as in effect immediately prior to such change.
"Governmental Agency" means (a) any federal, state, county, municipal or
foreign government, or political subdivision thereof, (b) any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal or
(d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.
"Hazardous Material" means any substance, (i) the presence of which requires
or may hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "controlled industrial
waste" or "pollutant" or "contaminant" under any Environmental Law or any
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C.
Section 9601 et seq.); (iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and
is or becomes regulated by any governmental authority, agency, department,
commission, board, agency or instrumentality of any foreign country, the
United States, any state of the United States, or any political subdivision
thereof to the extent any of the foregoing has or had jurisdiction over
Borrower or any of its Subsidiaries; or (iv) without limitation, which
contains gasoline, diesel fuel or other petroleum products, asbestos or
polychlorinated biphenyls ("PCBs").
"Indebtedness" means all liabilities, obligations and indebtedness of any
and every kind and nature, including all liabilities and all obligations to
trade creditors, whether now or hereafter owing, arising, due or payable,
from Borrower to any Person and howsoever evidenced, created, incurred,
acquired or owing, whether primary, secondary, direct, contingent, fixed or
otherwise. Without in any way limiting the generality of the foregoing,
Indebtedness shall specifically include the following without duplication:
(i) all amounts outstanding under this Agreement, including amounts
outstanding under any and all Revolving Credit Loans or Term Loans;
(ii) all obligations or liabilities of any Person that are secured by
any Lien upon property owned by Borrower, even though Borrower shall not have
assumed or otherwise be liable for the payment thereof; and
(iii) all guaranty obligations, obligations under letters of credit,
then financially measurable recourse obligations in connection with a
securitization transaction, and other similar contingent obligations of
Borrower.
"Indemnitees" has the meaning set forth in Section 9.3.
"Intangible Assets" means the value, as stated on the consolidated balance
sheets of Borrower, of all intangible assets of Borrower as determined and
computed in accordance with GAAP.
"Intercompany Loan" has the meaning set forth in Section 5.9.
"Intercompany Loan Agreement" means that certain Intercompany Loan
Agreement in the form of Exhibit I hereto.
"Intercompany Note" means that certain Intercompany Note in the form of
Exhibit J hereto.
"Intercreditor Agreement" means that certain Subordination Agreement in
the form of Exhibit H hereto.
"Interest Coverage Ratio" means, on a consolidated basis, as measured
quarterly as of the last day of each fiscal quarter of Borrower for the
preceding four (4) fiscal quarters, including the quarter in which such
measurement date occurs, the quotient obtained by dividing (a) the sum of
Borrower's Net Income plus tax expense plus interest expense ("EBIT") by
(b) interest expense, as determined and computed in accordance with GAAP.
"Interest Period" means, as to any LIBOR Loan, the period commencing on
the date of such LIBOR Loan and ending on the numerically corresponding day
(or, if there is no numerically corresponding day, on the last day) in the
calendar month that is one (1), two (2) or three (3) months thereafter, in
each case as Borrower may elect; provided, however, that (a) no Interest
Period with respect to any LIBOR Loan shall end later than the date which
is three (3) months after the Commitment Termination Date in the case of
Revolving Credit Loans or the Term Loan Maturity Date in the case of Term
Loans, (b) if an Interest Period would end on a day that is not a Business
Day, such Interest Period shall be extended to the next succeeding Business
Day and (c) interest shall accrue from and including the first Business Day
of an Interest Period to but excluding the last Business Day of such Interest
Period.
"Interest Rate Determination Date" The Interest Rate Determination Date
shall be the second Business Day prior to the first day of the related
Interest Period for a LIBOR Loan.
"Lease" means a lease agreement (including any and all schedules,
supplements and amendments thereto and modifications thereof) between
Borrower as lessor and a third party as lessee, substantially in the form
of Exhibit E; provided, that any material changes in the form attached hereto
as Exhibit E must be approved by FNBB; or such other form as FNBB may approve
in their sole discretion; provided further, that if a lease agreement is a
"master lease agreement," the term "Lease" shall mean a particular equipment
schedule or supplement under such "master lease agreement" together with
such "master lease agreement" to the extent that it relates to such equipment
schedule or supplement.
"Lease Default" means an "Event of Default" as defined in each Lease against
which a Loan is made hereunder.
"Lessee Notification Letter" means a lessee notification letter in the form
of Exhibit K hereto.
"LIBOR" means, with respect to any LIBOR Loan, the London Inter-Bank Offered
Rate (determined solely by FNBB) at which United States Dollar deposits are
offered to FNBB by prime banks in London, England at or about 11:00 a.m.,
London Time, on the Interest Rate Determination Date with respect to such
LIBOR Loan in an aggregate amount approximately equal to the amount of such
LIBOR Loan and for a period of time comparable to the number of days in the
applicable Interest Period. The determination of LIBOR by FNBB shall be
conclusive in the absence of manifest error.
"LIBOR Loan" in the singular and "LIBOR Loans" in the plural means any and
all Loans with respect to which Borrower elects an interest rate based upon
Adjusted LIBOR.
"Lien" means any mortgage, pledge, security interest, encumbrance, deed of
trust, lien, levy or charge of any kind, whether voluntary or involuntary.
"Loan" or "Loans" means the Revolving Credit Loans and the Term Loans.
"Loan Amount" means with respect to the portfolio of Eligible Leases, an
amount equal to the lesser of:
(i) eighty-five percent (85%) of the sum of, without duplication,
(A) the Net Asset Value of the Eligible Leases included in the "net asset
value" entry on the internal management statements and (B) the amount of the
"pending leases" entry on the internal management statements to the extent
that such "pending leases" are Eligible Leases; adjusted in each case on the
date of determination to reflect any leases added or removed from the
Collateral pool since the date of the last internal management statements;
and
(ii) ninety percent (90%) of the original cost of the equipment
subject to such Eligible Leases.
"Loan Documents" mean this Agreement, the Security Agreement, the Schedules
executed under the Security Agreement, the Note, the Operating and Support
Agreement, the Financing Statements and any other agreements, documents or
instruments executed by Borrower to FNBB or its authorized designee
evidencing or otherwise relating to the Loans and/or the Liens granted to
FNBB with respect to the Loans, as the same may from time to time be amended,
modified, supplemented or renewed.
"Management Statements" has the meaning given to such term in
Section 5.1(b)(iii).
"Material Adverse Effect" means a material adverse change in, or a material
adverse effect upon, any of (a) the business, assets, operations, prospects
or financial or other condition of (i) Borrower and its Subsidiaries taken
as a whole or (ii) Triad and its Subsidiaries taken as a whole, (b)
Borrower's ability to pay the Obligations in accordance with the terms of
this Agreement and the other Loan Documents, (c) the legality, validity,
binding effect or enforceability of any Loan Document or (d) the Collateral
or FNBB's Liens on the Collateral or the priority of any such Lien.
"Net Asset Value" means, with respect to an Eligible Lease, the amount
set forth in the Borrowing Base Certificate equal to (a) the gross lease
receivables under such Eligible Lease, less (b) unearned income under such
Eligible Lease, plus (c) the residual value of the equipment under such
Eligible Lease, all based upon the figures set forth in the Management
Statements.
"Net Income" means, on a consolidated basis, as at any date of
determination, for any period, net income (or loss) as determined and
computed in accordance with GAAP; provided, however, that there shall be
excluded from the determination of Net Income the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Borrower or is
merged into or consolidated with Borrower or any of its Subsidiaries or that
Person's assets are acquired by Borrower or any of its Subsidiaries.
"New Equity" means the net cash proceeds of any sale of Stock of Borrower
by Borrower.
"Note" means the promissory note executed pursuant to Section 2.1(a)(i)(A),
and any and all replacements, extensions, substitutions and renewals thereof.
"Obligations" means all loans, advances, debts, liabilities and obligations,
for monetary amounts (whether or not such amounts are liquidated or
determinable) owing by Borrower to FNBB, arising under any of the Loan
Documents, including, without limitation, all covenants and duties regarding
such amounts, of any kind or nature, present or future, whether or not
evidenced by any note(s), agreement or other instrument. This term includes,
without limitation, all principal, interest, closing fees, prepayment fees,
charges, expenses, attorneys' fees and any other sum chargeable to Borrower
under any of the Loan Documents.
"Operating and Support Agreement" means that certain Operating and Support
Agreement in the form of Exhibit G hereto.
"Parent Loan Agreement" means, collectively, that certain Indenture, dated
as of August 1, 1992, by and between Triad and The Chase Manhattan Bank,
N.A., as trustee, dated as of August 1, 1992, together with the senior
floating rate notes issued thereunder, due 1997, in the original aggregate
principal amount of $15,500,000.
"Payment Date" means the last day of each calendar month.
"Payment Office" means the address for payments set forth on the signature
page hereto in relation to FNBB or such other address as FNBB may from time
to time specify in accordance with Section 10.3.
"Permitted Liens" has the meaning set forth in Section 6.1.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether
Federal, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).
"Potential Event of Default" means a condition or event which, after notice
or lapse of time or both, would constitute an Event of Default.
"Rate Spread" means:
(a) in the case of a Loan which is a Base Rate Loan, zero percent (0%);
and
(b) in the case of a Loan which is a LIBOR Loan, one and eighty-five
hundredths percent (1.85%).
"Regulatory Change" has the meaning given to such term in Section 2.1(c).
"Responsible Officer" means any of the President, Chief Financial Officer
or other employee of Borrower having authority to request Loans or execute
certificates on behalf of Borrower hereunder.
"Revolving Credit Loan" in the singular and "Revolving Credit Loans" when
used in the plural means any and all of the Revolving Credit Loans made
pursuant to Section 2.1(a).
"Schedule" means each Lease and Equipment Schedule executed by Borrower and
FNBB under the Security Agreement.
"Security Agreement" means the Security Agreement to be entered into as of
the date hereof by and between Borrower and FNBB, substantially in the form of
Exhibit B, including all amendments, modifications and supplements thereto,
and shall refer to the Security Agreement as the same may be in effect at the
time such reference becomes operative.
"Stock" means all shares, options, warrants, interests, participations or
other equivalents (regardless of how designated) of or in a corporation or
equivalent entity, whether voting or nonvoting, including, without limitation,
common stock, preferred stock, or any other "equity security" (as such term
is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended).
"Subsidiary" means, with respect to any Person, any corporation of which an
aggregate of more than fifty percent (50%) of the outstanding Stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned legally or beneficially by such Person and/or one or more
Subsidiaries of such Person.
"Tangible Net Worth" means, on a consolidated basis, Borrower's Consolidated
Net Worth, less all Intangible Assets.
"Term Loan" in the singular and "Term Loans" when used in the plural means
any and all of the Term Loans made pursuant to Section 2.1(b).
"Term Loan Conversion Date" has the meaning given to such term in
Section 2.1(b).
"Term Loan Maturity Date" has the meaning given to such term in
Section 2.1(b).
"Triad" means Triad Systems Corporation, a Delaware corporation, and sole
shareholder of Borrower, or any successor entity resulting solely from the
sale or transfer of the stock of Triad Systems Corporation to another
corporation as a result of the merger, acquisition, consolidation, or
dissolution of Triad Systems Corporation.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the
event that, by reason of mandatory provisions of law, any and all of the
attachment, perfection or priority of FNBB's security interest in the
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC" shall mean
the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection
or priority and for purposes of definitions related to such provisions.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with
GAAP consistently applied. That certain terms or computations are
explicitly modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the foregoing.
All other undefined terms contained in this Agreement shall, unless the
context indicates otherwise, have the meanings provided for by the UCC to
the extent the same are used or defined therein. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole, including the Exhibits and Schedules hereto, all of
which are by this reference incorporated into this Agreement, as the same
may from time to time be amended, modified or supplemented, and not to any
particular section, subsection or clause contained in this Agreement. Any
reference to a "Section," "Subsection," "Exhibit" or "Schedule" shall refer
to the relevant Section or Subsection of or Exhibit or Schedule to this
Agreement, unless specifically indicated to the contrary.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural, and
pronouns stated in the masculine, feminine or neuter gender shall include
the masculine, feminine and the neuter. The term "including" shall not be
limiting or exclusive, unless specifically indicated to the contrary.
SECTION 2. AMOUNT AND TERMS OF CREDIT.
2.1 Commitment to Lend.
(a) Commitment to Make Revolving Loans. Subject to the terms
and conditions of this Agreement and in reliance upon the representations
and warranties of Borrower set forth herein, FNBB hereby agrees to make
advances of immediately available funds to Borrower, on a revolving basis,
from the Closing Date until the Business Day immediately preceding the
Commitment Termination Date, in the aggregate principal amount outstanding
at any time not to exceed the lesser of (i) the Commitments or (ii) the
Borrowing Base (the "Maximum Availability"), as more fully set forth in
this Section 2.1(a).
(i) Advances by FNBB.
(A) From time to time, but not more frequently than
twice in any calendar week, on the Funding Date requested by Borrower in a
Borrowing Notice delivered to FNBB in accordance with Section 2.1(f), after
Borrower shall have satisfied all applicable conditions precedent set forth
in Section 2.8, FNBB shall make immediately available funds available to
Borrower (each such advance being an "Advance") of one or more Base Rate
Loans or LIBOR Loans specified in such Borrowing Notice, each of which
shall constitute a Revolving Credit Loan hereunder. FNBB shall immediately
advance such funds to Borrower at the place indicated by Borrower in the
Borrowing Notice on the Funding Date with respect to such Revolving Credit
Loan. The Revolving Credit Loans shall be evidenced by a promissory note
of Borrower in substantially the form of Exhibit A (the "Note"), dated as of
the Closing Date and completed with appropriate insertions.
(B) The obligation of FNBB to make the Revolving
Credit Loans hereunder shall be limited at any time to the Maximum
Availability. For the purpose of determining the amount of the Borrowing
Base available at any one time, the amount available shall be the total
amount of the Borrowing Base as of the date set forth in the most recent
Borrowing Base Certificate required to have been delivered pursuant to
Section 5.1(d). Nothing contained in this Agreement shall under any
circumstance be deemed to require FNBB to make any Advance which, in the
aggregate principal amount, taking into account the making of such Advance
exceeds the lesser of (A) FNBB's Commitment and (B) the Borrowing Base.
(C) If at any time and for any reason the aggregate
principal outstanding under Revolving Credit Loans shall exceed the Maximum
Availability (the amount of such excess, if any, being an "Overadvance"),
Borrower shall within two (2) Business Days (or five (5) Business Days in
the case of an Overadvance resulting from the removal of a Lease from the
Borrowing Base calculation upon the exercise by FNBB of its rights under
paragraph (d) of the definition of Eligible Lease) (i) repay the full
amount of such Overadvance, together with all interest accrued thereon or
(ii) pledge additional Eligible Leases to FNBB as Collateral for the Loans
so as to increase the Borrowing Base and eliminate the Overadvance,
provided, that in no event shall the aggregate principal outstanding under
Revolving Credit Loans exceed the aggregate Commitments and any remaining
Overadvance shall be immediately due and payable under clause (i) above.
All Overadvances shall be deemed to constitute Base Rate Loans.
(D) Amounts borrowed by Borrower hereunder may be
repaid and, prior to the Commitment Termination Date and subject to the
applicable terms and conditions precedent to borrowings set forth in
Section 2.8, reborrowed; provided, however, that Borrower may not repay
or reborrow more than twice in any calendar week.
(E) Each request for a Revolving Credit Loan hereunder
shall constitute a reaffirmation by Borrower and the Responsible Officer
requesting the same in his or her capacity as such Responsible Officer that
the representations and warranties contained in this Agreement are true and
correct in all material respects to the same extent as though made on and
as of the date of the request, except to the extent such representations
and warranties specifically relate to an earlier date, in which event they
shall be true and correct in all material respects as of such earlier date.
(ii) The Revolving Credit Loans. Subject to the terms and
conditions of this Agreement, Borrower may utilize the Commitments to
request one or more of the following types of Loans (except that no more
than six (6) LIBOR Loans shall be outstanding at any one time):
(A) Base Rate Loans. Each Base Rate Loan shall be in
the minimum principal amount of $100,000 and shall bear interest on the sum
of the unpaid principal balance thereof outstanding on each day until such
Base Rate Loan shall have been fully repaid at a rate per annum equal to
the sum of (1) the Base Rate plus (2) the Rate Spread, as each may
fluctuate from time to time.
(B) LIBOR Loans. Each LIBOR Loan shall be in the
minimum principal amount of at least $1,000,000 and shall bear interest
on the sum of the unpaid principal balance thereof outstanding on each day
until such LIBOR Loan shall have been fully repaid at a rate per annum
equal the sum of (1) Adjusted LIBOR applicable as at the Interest Rate
Determination Date with respect to such LIBOR Loan plus (2) the Rate Spread.
(C) Interest Payment. Interest on each Base Rate
Loan outstanding hereunder shall be due and payable monthly in arrears on
the last day of each calendar month with all accrued and unpaid interest
being due and payable on the Commitment Termination Date. Interest on each
LIBOR Loan shall be due and payable on the last day of the applicable
Interest Period.
All Revolving Credit Loans, all conversions and continuations of Loans
permitted under Section 2.1(g) and all repayments of principal with respect
to the Revolving Credit Loans shall be evidenced by notations made by FNBB
in its books and records regarding the date, amount and maturity of each
Revolving Credit Loan made by FNBB and the amount of each payment of
principal made by Borrower with respect thereto; provided, however, that
the failure by FNBB to make such notations shall not limit or otherwise
affect the obligations of Borrower with respect to the repayments of
principal or payments of interest on the Revolving Credit Loans. The
aggregate unpaid amount of the Revolving Credit Loans set forth on the books
and records of FNBB shall be presumptive evidence of the principal amount
owing and unpaid hereunder and under the Note.
(iii) Principal Repayment. The aggregate principal amount
outstanding as of the Commitment Termination Date under Revolving Credit
Loans shall be due and payable in full on such Commitment Termination Date,
unless Borrower exercises its option under Section 2.1(b) to convert the
Revolving Credit Loans to a Term Loan.
(b) Commitment to Make Term Loans.
(i) Option to Convert Revolving Loans to Term Loans.
Provided that no Default has occurred and is continuing and upon payment
in full of (i) all accrued interest on all Revolving Credit Loans then
outstanding and (ii) any Commitment Fee then due and payable, Borrower may
elect to convert on or prior to the Commitment Termination Date the entire
outstanding principal balance of the Revolving Credit Loans into a term loan
(the "Term Loan"), subject to the terms and conditions of this Section 2.1(b).
On the effective date of such conversion FNBB shall have no further
obligation to make Revolving Credit Loans hereunder. Borrower shall notify
FNBB in writing (the "Conversion Notice") at least ten (10) Business Days
prior to the date set forth therein as the "Term Loan Conversion Date" of
its election to convert the Revolving Credit Loans to Term Loans. The Term
Loans shall be evidenced by the Note. On the Term Loan Conversion Date the
maturity of the Note shall automatically be extended to the Term Loan
Maturity Date.
(ii) Designation of Term Loans as LIBOR Loans or Base Rate
Loans; Interest. Subject to the terms and conditions of this Agreement,
Borrower may request one or more of the following types of Term Loans
(except that no more than six (6) LIBOR Loans shall be outstanding at any
one time):
(A) Base Rate Loans. Each Base Rate Loan shall be in
the minimum principal amount of $100,000 and shall bear interest on the
sum of the unpaid principal balance thereof outstanding on each day until
such Base Rate Loan shall have been fully repaid at a rate per annum equal
to the sum of (1) the Base Rate plus (2) the Rate Spread, as each may
fluctuate from time to time.
(B) LIBOR Loans. Each LIBOR Loan shall be in the
minimum principal amount of at least $500,000 and shall bear interest on
the sum of the unpaid principal balance thereof outstanding on each day
until such LIBOR Loan shall have been fully repaid at a rate per annum
equal the sum of (1) Adjusted LIBOR applicable as at the Interest Rate
Determination Date with respect to such LIBOR Loan plus (2) the Rate
Spread.
(C) Interest Payment. Interest on each Base Rate
Loan outstanding hereunder shall be due and payable monthly in arrears on
the last day of each calendar month with all accrued and unpaid interest
being due and payable on the date which is thirty-six (36) months after
the Term Loan Conversion Date (the "Term Loan Maturity Date"). Interest
on each LIBOR Loan shall be due and payable on the last day of the
applicable Interest Period.
All Term Loans, all conversions and continuations of Loans permitted
under Section 2.1(g) and all repayments of principal with respect to the
Term Loans shall be evidenced by notations made by FNBB in its books and
records regarding the date, amount and maturity of each Term Loan made by
FNBB and the amount of each payment of principal made by Borrower with
respect thereto; provided, however, that the failure by FNBB to make such
notations shall not limit or otherwise affect the obligations of Borrower
with respect to the repayments of principal or payments of interest on the
Term Loans. The aggregate unpaid amount of the Term Loans set forth on
the books and records of FNBB shall be presumptive evidence of the
principal amount owing and unpaid hereunder and under the Note.
(iii) Principal. In addition to payments of interest and the
final payment on the Term Loan Maturity Date, Borrower promises to pay to
FNBB on the Payment Date thirty-six (36) consecutive monthly installments
each equal to one thirty-sixth of the original principal amount of the
Term Loan, commencing on the first Payment Date after the Term Loan
Conversion Date. Such scheduled payments of principal shall be applied
first to Base Rate Loans and then to LIBOR Loans.
(iv) Mandatory Prepayment. If at any time and for any reason
the aggregate principal outstanding under Term Loans shall exceed the
Maximum Availability, Borrower shall within two (2) Business Days (or
five (5) Business Days if the aggregate principal outstanding exceeds the
Borrowing Base as a result of the removal of a Lease from the Borrowing
Base calculation upon exercise by FNBB of its rights under paragraph (d) of
the definition of Eligible Lease) repay the full amount of such excess over
the Maximum Availability, together with all interest accrued thereon.
(v) Mandatory Prepayment Based on Results of Collateral
Audit. At any time when a Term Loan is outstanding, as part of the
semi-annual audit pursuant to Section 5.8, the auditor will calculate the
Borrowing Base using the Adjusted Loan Amount instead of the Loan Amount
for each Eligible Lease. If the aggregate principal outstanding under Term
Loans shall exceed the Maximum Availability calculated using the Adjusted
Loan Amount, Borrower shall within two (2) Business Days repay the full
amount of such excess over the Maximum Availability, together with all
interest accrued thereon, or pledge additional Eligible Leases to FNBB as
Collateral so as to increase the Borrowing Base and eliminate the
overadvance.
(c) Increased Costs. From time to time within thirty (30) days of
written notice, in reasonable detail, thereof from FNBB to Borrower,
Borrower shall pay to FNBB, such amounts as FNBB may determine to be
necessary to compensate FNBB for any costs incurred by FNBB which FNBB
determines are attributable to its making or maintaining its Pro Rata Share
of any LIBOR Loan, or any reduction in any amount receivable by FNBB under
this Agreement or the Note in respect of such Loans or such obligation
(such increases in costs and reduction in amounts receivable being the
"Additional Costs"), resulting from any change after the date of this
Agreement in any federal, state, local or foreign law or regulation
(including, without limitation, Regulation D), the adoption or making after
such date of any interpretation, directive or requirement applying to a
class of banks or financial institutions, including FNBB, of or under any
federal, state, local or foreign law or regulation (whether or not having
the force of law) by any monetary authority or Governmental Agency charged
with the interpretation or administration thereof or from any other such
regulatory development (collectively, a "Regulatory Change"), which
(a) adversely changes the basis of taxation of any amounts payable to FNBB
under this Agreement or the Note in respect of such LIBOR Loans (other than
taxes imposed on the overall net income of FNBB), (b) imposes or modifies
any reserve, special deposit or similar requirement relating to any
extension of credit or other assets of, or any deposits with or other
liabilities of, FNBB or (c) imposes any other condition affecting this
Agreement or the Note (or any of such extensions of credit or liabilities).
Such Additional Costs shall accrue commencing on the "Effective Date" which
shall be the earlier of (i) the date which is ten (10) Business Days prior
to the date of the written notice with respect to such Additional Costs
delivered from FNBB to Borrower under this section or (ii) the effective
date of any such Regulatory Change that is applied retroactively; provided,
that in no event shall Borrower be obligated for any Additional Costs under
this Section 2.1(c) (x) relating to a period prior to the Effective Date,
or (y) if such Additional Costs, or substantially the same type of costs,
are not also imposed on other borrowers of FNBB who entered into similar
credit facilities with a similar pricing, taken as a whole, who have agreed
to pay such costs, at the same time. Determinations by FNBB for purposes of
this Section 2.1(c) of the amount of such Additional Costs shall be
presumptive evidence of the same, provided that such determinations are
made in good faith and on a reasonable basis. Without affecting its rights
under this Section 2.1(c) or any other provision of this Agreement, FNBB
agrees that if there is any increase in any cost to or reduction in any
amount receivable by FNBB with respect to which Borrower would be obligated
to compensate FNBB pursuant to this Section 2.1(c), FNBB shall use
reasonable efforts to select an alternative lending office which would not
result in any such increase in any cost to or reduction in any amount
receivable by FNBB; provided, however, that FNBB shall not be obligated to
select an alternative lending office if FNBB determines that (A) as a
result of such selection FNBB would be in violation of any applicable law,
regulation, treaty, or guideline, or would incur additional costs or
expenses or (B) such selection would be inadvisable for regulatory reasons
or inconsistent with the interests of FNBB. In the event FNBB is unable to
select an alternative lending office which would not result in any such
increase in any cost to or a reduction in any amount receivable by FNBB,
and in the event FNBB demands additional compensation pursuant to this
Section 2.1(c), Borrower may (upon 30 days' prior written notice to FNBB)
elect (1) to terminate the Commitments of FNBB and prepay on the date of
such termination any outstanding Loans made by FNBB, together with accrued
interest on any such Loans, subject to payment of any amounts required
pursuant to Section 2.2(b), or (2) to cause FNBB to assign its Loans and
Commitments in full to an assignee (so long as FNBB receives payment in
full of the principal amount of all Loans outstanding, together with all
interest on such Loans and other amounts payable to FNBB hereunder to the
date of such assignment, and such assignee agrees (pursuant to
documentation in form and substance reasonably acceptable to FNBB) to
assume all of the obligations of FNBB hereunder and release FNBB from all
such obligations).
(d) Illegality or Impossibility. Notwithstanding any other
provision of this Agreement, in the event FNBB determines in good faith
that (a) the introduction of, any change in, or any change in the
interpretation or administration of any law or regulation after the date
hereof by any Governmental Agency charged with the interpretation or
administration thereof shall make it unlawful for FNBB to fund or maintain
or charge interest with respect to any LIBOR Loan, (b) by reason of
circumstances affecting the interbank markets, adequate and reasonable
methods do not exist for determining the LIBOR or (c) deposits of United
States Dollars in the relevant amount for the applicable term of a given
LIBOR Loan are not available in the relevant interbank markets
(collectively, the "Affected Loans"), then FNBB shall promptly give notice
of such determination to Borrower (which notice shall be and binding).
Upon such notification, FNBB shall have no obligation to make any further
Affected Loans unless the circumstances giving rise to such determination
no longer exist.
(e) Capital Requirements. Notwithstanding any other provision of
this Agreement, in the event that FNBB determines in good faith that either
(a) the introduction of, any change in, or any change in the interpretation
or administration of, any law or regulation by any governmental authority
charged with the interpretation or administration thereof or (b) compliance
with any guideline or request from any such governmental authority (whether
or not having the force of law) has or would have the effect of reducing
the rate of return on the capital of FNBB or any corporation controlling
FNBB as a consequence of or with reference to FNBB's making or maintaining
any commitment, credit, advance or other transaction hereunder below the
rate which FNBB or such other corporation could have achieved but for such
introduction, change or compliance (taking into account the policies of FNBB
or corporation with regard to capital) (collectively, a "Capital Requirement
Change"), then Borrower shall from time to time, within thirty (30) days
written notice from FNBB, in reasonable detail describing such Capital
Requirement Change, pay to FNBB, additional amounts sufficient to compensate
FNBB or such other corporation for such reduction ("Capital Charges"). FNBB
agrees that it will provide Borrower with written notice of any Capital
Charge with respect to FNBB arising under this Section 2.1(e). Such Capital
Charges shall accrue commencing on the "Capital Requirement Change Effective
Date" which shall be the earlier of (i) the date which is ten (10) Business
Days prior to the date of the written notice with respect to such Capital
Charges delivered from FNBB to Borrower under this section or (ii) the
effective date of any such Capital Requirement Change that is applied
retroactively; provided, that in no event shall Borrower be obligated for
any Capital Charges under this Section 2.1(e) (x) relating to a period
prior to the Capital Requirement Change Effective Date, or (y) if such
Capital Charges, or substantially the same type of charges, are not also
imposed on all borrowers of FNBB, who have agreed to pay such charges, at
the same time. Determinations by FNBB for purposes of this Section 2.1(e)
of the amount of such Capital Charges shall be presumptive evidence of the
same, provided that such determinations are made in good faith and on a
reasonable basis. Without affecting its rights under this Section 2.1(e) or
any other provision of this Agreement, FNBB agrees that if in its good
faith determination there is any increase in any cost to or reduction in
any amount receivable by FNBB with respect to which Borrower would be
obligated to compensate FNBB pursuant to this Section 2.1(e), FNBB shall
use reasonable efforts to select an alternative lending office which would
not result in any such increase in any cost to or reduction in any amount
receivable by FNBB; provided, however, that FNBB shall not be obligated to
select an alternative lending office if FNBB determines that (A) as a
result of such selection FNBB would be in violation of any applicable law,
regulation, treaty, or guideline, or would incur additional costs or
expenses or (B) such selection would be inadvisable for regulatory reasons
or inconsistent with the interests of FNBB. In the event FNBB is unable to
select an alternative lending office which would not result in any such
increase in any cost to or a reduction in any amount receivable by FNBB,
and in the event FNBB demands additional compensation pursuant to this
Section 2.1(e), Borrower may (upon 30 days' prior written notice to FNBB)
elect (1) to terminate the Commitments of FNBB and prepay on the date of
such termination any outstanding Loans made by FNBB, together with accrued
interest on any such Loans, subject to payment of any amounts required
pursuant to Section 2.2(b), or (2) to cause FNBB to assign its Loans and
Commitments in full to an assignee (so long as FNBB receives payment in
full of the principal amount of all Loans outstanding, together with all
interest on such Loans and other amounts payable to FNBB hereunder to the
date of such assignment, and such assignee agrees (pursuant to documentation
in form and substance reasonably acceptable to FNBB) to assume all of the
obligations of FNBB hereunder and release FNBB from all such obligations).
(f) Special Notice Requirements. Whenever Borrower desires to
utilize the Commitment hereunder, a Responsible Officer of Borrower shall
give written notice or telephonic notice promptly confirmed in writing (a
"Borrowing Notice") to FNBB at 435 Tasso Street, Suite 250, Palo Alto,
California 94301, Attention: Michelle Arellano or Sarabelle Hitchner
(phone: (415) 853-0404, fax: (415) 853-1425), and which notice shall comply
with the following requirements:
(i) For Base Rate Loans, a Borrowing Notice specifying that a
Base Rate Loan is requested, the amount thereof and the proposed Funding
Date, must be received by FNBB no later than 9:00 a.m., California time, on
the Funding Date for such Loan.
(ii) For LIBOR Loans, a Borrowing Notice must be received by
FNBB no later than 10:00 a.m., California time, three (3) Business Days
preceding the Funding Date for such Loan, specifying that a LIBOR Loan is
requested, the amount and Interest Period thereof and the proposed Funding
Date.
(iii) For all Loans, the Borrowing Notice may be accompanied
by, at Borrower's election, an updated Borrowing Base Certificate.
For purposes of this Section 2.1(f), notice received by FNBB from Borrower
after 9:00 a.m. in the case of Base Rate Loans or 10 a.m. in the case of
LIBOR Loans, California time, on any day shall be deemed to be received on
the next succeeding Business Day. Provided that the applicable conditions
precedent set forth in Section 2.8 have been satisfied, not later than
3:00 p.m. California time on such Funding Date, FNBB shall advance to the
place indicated in the Borrowing Notice, the amount of the Loan request.
(g) Conversion and Continuation of Loans. Borrower shall have the
right on prior irrevocable written notice to FNBB to (a) convert any LIBOR
Loan to a Base Rate Loan; (b) convert any Base Rate Loan, or a portion
thereof, to a LIBOR Loan, specifying the Interest Period applicable thereto;
(c) convert the Interest Period with respect to any LIBOR Loan to another
permissible Interest Period; and (d) continue any LIBOR Loan into a
subsequent Interest Period of the same or a different permitted duration,
in each case subject to the satisfaction of the following conditions:
(i) The notice required to be received by FNBB from Borrower
hereunder prior to the conversion or continuation of any Loan shall have
been received no later than the time required for receipt of notice by FNBB
for the making of the Loan (A) being continued or (B) into which another
Loan is being converted;
(ii) Accrued interest on a Loan (or portion thereof) being
converted or continued shall continue to be paid quarterly in arrears,
except that such amounts shall be paid by Borrower at the time of conversion
or continuation if FNBB shall so specify;
(iii) LIBOR Loans may be converted or continued only on the last
day of the applicable Interest Period except with the payment of such fees
as may be due pursuant to Section 2.2(b);
(iv) LIBOR Loans may not be converted or continued into an
Interest Period having a maturity date occurring after the date which is
three (3) months after the Commitment Termination Date;
(v) LIBOR Loans may not be converted or continued if more
than six (6) LIBOR Loans would be outstanding as a result of such conversion
or continuation;
(vi) Each Base Rate Loan being converted into a LIBOR Loan
and each Loan being continued into another LIBOR Loan shall be in the
minimum principal outstanding amount of at least $500,000; and
(vii) Any conversion or continuation of any Loan shall be
subject to the satisfaction of the conditions precedent to all Loans set
forth in Sections 2.8(b)(i), (ii), (iii), (iv), (vii) and (viii) at the time
of conversion or continuation.
The Interest Period applicable to any LIBOR Loan resulting from a
conversion shall be specified by Borrower in the notice delivered pursuant
to this Section; provided, however, that if no such Interest Period shall
be specified, Borrower shall be deemed to have selected an Interest Period
of one (1) month's duration.
(h) Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of an interest rate
for any LIBOR Loans for any Interest Period therefor, FNBB determines (which
determination shall be conclusive, provided that such determination shall be
made in good faith upon a reasonable basis) that the rates of interest
referred to in the definition of "LIBOR" upon the basis of which the rate of
interest on any LIBOR Loans for such period is determined do not accurately
reflect the cost to FNBB of making or maintaining such Loans for such period,
then FNBB shall give Borrower prompt notice thereof (and shall thereafter
give Borrower prompt notice of the cessation, if any, of such condition),
and so long as such condition remains in effect, FNBB shall be under no
obligation to make LIBOR Loans or to convert Base Rate Loans into LIBOR
Loans and Borrower shall, on the last day(s) of the then current Interest
Period(s) for the outstanding LIBOR Loans either prepay such LIBOR Loans
in accordance with Section 2.2(a) hereof (subject to Section 2.2(b) hereof)
or convert such LIBOR Loans into Base Rate Loans in accordance with
Section 2.1(g) hereof.
2.2 Prepayment.
(a) Voluntary Prepayment. Loans that are LIBOR Loans may be
prepaid without premium or penalty on the last day of any Interest Period
applicable thereto and, subject to payment of amounts required pursuant to
Section 2.2(b), may be prepaid at any other time, in each case upon three
Business Days' irrevocable notice. Loans that are Base Rate Loans may be
prepaid at any time, without premium or penalty, upon one Business Day's
irrevocable notice. If such notice is given by Borrower, Borrower shall
make such prepayment and the payment amount specified in such notice shall
be due and payable on the date specified therein, together with accrued
interest to each such date on the amount prepaid and any amounts required
pursuant to Section 2.2(b), in immediately available funds delivered to
FNBB not later than 11:00 a.m., California time.
(b) Payments Not at End of Interest Period. If Borrower for any
reason makes any payment of principal with respect to any LIBOR Loan on any
day other than the last day of an Interest Period applicable to such LIBOR
Loan, or fails to borrow or continue or convert to a LIBOR Loan after giving
a Borrowing Notice or notice of conversion pursuant to Section 2.1(g),
promptly upon written notice thereof from FNBB, Borrower shall pay to FNBB
an amount computed pursuant to the following formula:
L = (R - T) x P x D
----------------
360
L = amount payable to FNBB
R = interest rate on such Loan
T = effective interest rate per annum at which any
readily marketable bond or other obligation of the
United States, selected at FNBB's sole discretion,
maturing on or near the last day of the then
applicable Interest Period of such Loan and in
approximately the same amount as such Loan can be
purchased by FNBB on the day of such payment of
principal or failure to borrow or continue or
convert
P = the amount of principal prepaid or the amount of
the requested Loan
D = the number of days remaining in the Interest Period
as of the date of such payment or the number of days
of the requested Interest Period
Borrower shall pay such amount promptly upon presentation by FNBB of a
statement setting forth the amount and FNBB's calculation thereof pursuant
hereto, which statement shall be deemed true and correct absent manifest
error.
2.3 Fees and Commissions.
(a) Commitment Fee. In consideration of FNBB's agreement to
commit to make the Loans available to Borrower, Borrower agrees to pay to
FNBB a commitment fee from the Closing Date until the Commitment Termination
Date in an amount equal to thirty hundredths of one percent (0.30%) per
annum of the average daily difference between (a) the Commitments and
(b) the sum of the aggregate outstanding principal amount of Loans. All
such fees shall be due and payable each fiscal quarter in arrears,
commencing January 1, 1996, with the final such payment due and payable on
the earlier of the Commitment Termination Date or the Term Loan Conversion
Date.
(b) Closing Fee. In addition to the Commitment Fee above, Borrower
shall pay FNBB a one time Closing Fee in the amount of Twenty-five Thousand
Dollars ($25,000) on the Closing Date; provided, however, that FNBB shall
refund the Closing Fee to Borrower if Borrower prepays the Loans in full
within six (6) months of the date hereof as a result of a Capital
Requirement Change.
2.4 Calculation of Interest; Post-Default Interest. Interest on the
Loans shall be computed on the basis of a 360-day year and the actual
number of days elapsed in the period during which it accrues. In computing
interest on any Loan, the date of the making of such Loan shall be included
and the date of payment shall be excluded; provided, however, that if a
Loan is repaid on the same day on which it is made, such day shall be
included in computing interest on such Loan. Each change in the interest
rate of the Loans based on changes in the Base Rate or Adjusted LIBOR, as
the case may be, shall be effective on the effective date of such change
and to the extent of such change. FNBB shall give Borrower notice of any
such change in the Base Rate or Adjusted LIBOR; provided, however, that
any failure by FNBB to provide Borrower with notice hereunder shall not
affect FNBB's right to make changes in the interest rate applicable to the
Loans based on changes in the Base Rate or Adjusted LIBOR, as the case
may be. Upon the occurrence and during the continuation of an Event of
Default, the Loans shall thereafter bear interest payable upon demand at a
rate which is two percent (2.0%) above the rate of interest otherwise
applicable thereto (the "Default Rate").
2.5 Payments.
(a) All payments of principal, interest and fees hereunder and
under the Note shall be in lawful money of the United States of America in
immediately available funds. Borrower hereby authorizes FNBB, and
irrevocably constitutes and appoints FNBB (and any officer or agent thereof,
with full power of substitution) as its true and lawful attorney-in-fact
with full irrevocable power and authority in the place and stead of
Borrower and in the name of Borrower or in its own name (which appointment
is coupled with an interest), to debit directly from any deposit account,
the full amount (or any portion thereof) of the Obligations of Borrower to
FNBB hereunder (including all principal, accrued interest, commitment and
other fees, and other amounts chargeable to Borrower under this Agreement)
when and as the same shall become due and payable. FNBB shall provide
prompt notice to Borrower of any such debit.
(b) All payments by Borrower hereunder and under any of the other
Loan Documents shall be made without setoff or counterclaim and free and
clear of and without deduction for any taxes (except as set forth below),
levies, imposts, duties, charges, fees, deductions, withholdings (except as
set forth below), compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any
political subdivision thereof or taxing or other authority therein unless
Borrower is compelled by law to make such deduction or withholding. If any
such obligation is imposed upon Borrower with respect to any amount payable
by it hereunder or under any of the other Loan Documents, Borrower will pay
to FNBB on the date on which such amount is due and payable hereunder or
under such other Loan Document, such additional amount in dollars as shall
be necessary to enable FNBB to receive the same net amount which FNBB would
have received on such due date had no such obligation been imposed upon
Borrower. Borrower will deliver promptly to FNBB certificates or other
valid vouchers for all taxes or other charges deducted from or paid with
respect to payments made by Borrower hereunder or under such other Loan
Document. Borrower shall not be liable for taxes paid by FNBB which are
based upon FNBB's net income or for any withholding required to made
pursuant to applicable law which are credited against taxes based on
FNBB's net income. If FNBB shall obtain a credit with respect to all or
part of any tax indemnified by Borrower pursuant to this Section 2.5(b),
then, to the extent such items have not previously been taken into account
in computing the amount of any payment pursuant to this sentence or the
amount of indemnification payable under this Section 2.5(b), FNBB shall
promptly pay to Borrower an amount equal to the amount of such credit,
reduced by the amount of any prior payments by FNBB to, or for the benefit
of, Borrower arising from the same claim. All computations required
hereunder shall be made by FNBB, acting reasonably and in good faith and
the results of such computations shall be delivered to Borrower. At the
request and expense of Borrower the accuracy of such computations shall be
verified by FNBB's independent accountants. The computations of such
accounting firm shall be firmly binding and conclusive on Borrower and
FNBB. Borrower shall have no right to examine or otherwise have access to
the books and records of FNBB or otherwise have access to its tax returns.
2.6 Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a day which is
not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall in such case be included
in the computation of the payment of interest hereunder or under the Note.
2.7 Application of Payments. Borrower irrevocably waives the right to
direct the application of any and all payments at any time hereafter
received by FNBB from or on behalf of Borrower, and Borrower irrevocably
agrees that FNBB shall have the continuing exclusive right to apply any and
all such payments against the then due and owing Obligations of Borrower as
FNBB may deem advisable. In the absence of a specific determination by
FNBB with respect thereto, the same shall be applied in the following order:
(a) then due and payable fees and expenses; (b) then due and payable
interest payments and mandatory prepayments; and (c) then due and payable
principal payments and optional prepayments. FNBB is authorized to, and
at its sole option may, make advances on behalf of Borrower for payment of
all fees, expenses, charges, costs, principal and interest incurred
hereunder or under the other Loan Documents. To the extent permitted by
law, all amounts advanced by FNBB hereunder or under other provisions of
the Loan Documents shall be deemed for the purpose of accruing interest
thereon, as constituting a Base Rate Loan.
2.8 Conditions Precedent to Loans.
(a) First Loan. The obligation of FNBB to make the first Loan
hereunder is subject to the following conditions precedent:
(i) FNBB shall have received in form and substance
satisfactory to FNBB and its special counsel the following:
(A) A certified copy of the records of all actions taken
by each of Borrower and Triad including resolutions of each of Borrower and
Triad authorizing or relating to the execution, delivery and performance of
the Loan Documents to which it is a party and the consummation of the
transactions contemplated hereby;
(B) Articles of Incorporation and Bylaws and any other
charter or formation documents of each of Borrower and Triad certified by
an officer of Borrower or Triad, as the case may be, as in full force and
effect;
(C) Certificate of the Secretary of State of California
stating that each of Borrower and Triad is a corporation in good legal
standing under the laws of the State of California;
(D) Certificate of the California Franchise Tax Board as
to the tax good standing of each of Borrower and Triad; and
(E) Certificates of incumbency and signature with
respect to the authorized officers of each of Borrower and Triad executing
the Loan Documents.
(ii) FNBB shall have received the Note, duly executed by
Borrower, dated on or prior to the First Funding Date with appropriate
insertions.
(iii) FNBB shall have received an originally executed opinion
of counsel for Borrower and Triad, satisfactory to FNBB and its special
counsel, dated on or prior to the First Funding Date and addressed to FNBB,
which opinion shall be substantially in the form of Exhibit C.
(iv) Borrower shall have executed and delivered to FNBB a
Security Agreement substantially in the form of Exhibit B.
(v) FNBB shall have received a certificate of insurance of
Borrower with respect to such insurance as is required to be maintained by
Borrower pursuant to Section 5.3 of the Agreement.
(vi) FNBB shall have received financial statements of recent
date, in a form reasonably satisfactory to FNBB, of each of Borrower and
Triad, which fairly present the financial position of Borrower and Triad as
of such date and the results of Borrower's and Triad's operations for such
period then ended, but subject, however, to the absence of footnotes and to
normal, recurring year-end adjustments that shall not in the aggregate be
material in amount to Borrower or Triad, as the case may be.
(vii) FNBB shall have received a Borrowing Base Certificate.
(viii) FNBB shall have received a fully-executed Operating and
Support Agreement.
(ix) FNBB shall have received a fully-executed amendment to
the Intercreditor Agreement, in form and substance satisfactory to FNBB in
its sole discretion, including, without limitation, an acknowledgement from
each other lender to Borrower, that FNBB has a first priority lien and
security interest in each Lease financed by FNBB under this Agreement, the
Equipment subject to each such Lease, and all proceeds thereof.
(x) FNBB shall have possession of the original fully-executed
Intercompany Note.
(xi) Borrower shall have used its best efforts to obtain a
fully-executed release and waiver from Sanwa Business Credit Corporation
releasing and disclaiming any right, title, lien, security interest or
interest in each Lease financed by FNBB under this Agreement, the equipment
subject to each such Lease, and all proceeds thereof.
(xii) FNBB shall have received such other documents, information
and items from Borrower as reasonably requested by FNBB.
(b) All Loans. The obligation of FNBB to make any Loan is subject to
the following further conditions precedent hereunder that:
(i) Each of Borrower and Triad shall have performed all of its
respective agreements under the Loan Documents to which it is a party to be
performed on or before such Funding Date.
(ii) No event shall have occurred and be continuing or would
result from the consummation of any Loans to be made on such Funding Date
which constitutes an Event of Default or Potential Event of Default.
(iii) All representations and warranties contained in the Loan
Documents shall be true and correct with the same effect as though such
representations and warranties had been made on and as of such Funding Date
(except to the extent such representations and warranties specifically
relate to an earlier date, in which case they shall be true and correct as
of such earlier date).
(iv) The insurance required to be maintained by Borrower
pursuantto the Loan Documents shall be in full force and effect.
(v) FNBB shall have received the following documents
pertaining to each Eligible Lease which is included in the Borrowing Base
calculation:
(A) A Schedule (in the form of Schedule 1 to the
Security Agreement) describing such Lease and the Equipment covered
thereby, duly executed by Borrower;
(B) Upon FNBB's request, a copy of the Lease
(including, in the case of a master lease agreement, a copy of the
particular equipment schedule or supplement being financed and a copy of
the related master lease agreement unless previously delivered to FNBB),
certified as a true and complete copy of the original by a Responsible
Officer;
(C) As to any Lease for which any of the Equipment is
titled to the lessee prior to the time that title passes to Borrower, an
opinion of counsel to Borrower (or opinion of counsel for the lessee,
acceptable to FNBB) that such transfer does not constitute a fraudulent
conveyance or voidable transfer under the law of the relevant jurisdiction,
including without limitation, for Equipment located in California,
Section 3440 of the California Civil Code; provided, however, that this
clause (3) shall not apply to the funding of Leases in respect of which
the total obligations of lessee to Borrower thereunder will not exceed, in
the aggregate, $100,000; and
(D) An original Lessee Notification Letter signed by
Borrower, with the understanding that FNBB will not send such Lessee
Notification Letter to the lessee unless an Event of Default has occurred
and is continuing under this Agreement.
(vi) On or before the Funding Date, such UCC financing
statements, amendments, termination statements, and other documents or
instruments shall have been executed and delivered, as FNBB deems necessary
or appropriate to provide FNBB, a first priority, perfected security
interest in the particular Leases included in the Borrowing Base
calculation and the Equipment subject to such Leases.
(vii) FNBB shall have received such other instruments and
documents as FNBB may have reasonably requested from Borrower in connection
with the Loans to be made on such date.
(viii) There shall have occurred no event or circumstance
resulting in a Material Adverse Effect in the opinion of FNBB, in its sole
discretion, between the date of this Agreement and the Funding Date.
(c) Term Loans. As a further condition precedent to FNBB's
obligation to make the Term Loans on the Term Loan Conversion Date, Borrower
shall deliver to FNBB all original lessor's counterparts of each Lease which
is collateral for the Term Loans; provided, that in the case of a Lease
which is a "master lease agreement," Borrower shall be required to deliver
all original lessor's counterparts of the particular equipment schedule or
supplement which is Collateral, together with a true and complete copy of
each related master lease agreement certified as such by a Responsible
Officer, together with all supporting documentation, guaranties, other
credit support documentation, financing statements, certificates of
acceptance and other lease documentation.
2.9 Funding Sources. Nothing contained herein shall be deemed to
obligate FNBB to fund any Loan hereunder in any particular place or manner
and nothing contained herein shall be deemed to constitute a representation
of FNBB that it has funded or will fund any Loan hereunder in any
particular place or manner.
2.9 Funding Sources. Nothing contained herein shall be deemed to
obligate FNBB to fund any Loan hereunder in any particular place or manner
and nothing contained herein shall be deemed to constitute a representation
of FNBB that it has funded or will fund any Loan hereunder in any
particular place or manner.
SECTION 3. COLLATERAL SECURITY.
All of the Obligations of Borrower to FNBB arising hereunder and under
the other Loan Documents, including, without limitation, all Obligations
of Borrower arising in respect of the Loans, shall be secured by the
Collateral in accordance with the terms of the Security Agreement.
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES.
The Borrower hereby warrants and represents to FNBB as follows, and
agrees that each of said warranties and representations shall be deemed
to continue until full and complete payment and performance of the
Obligations and shall apply anew to each borrowing hereunder:
4.1 Organization and Qualification. Borrower and each of its
Subsidiaries (a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, (b) has
all requisite corporate power to own its property and conduct its business
as now conducted and (c) is duly qualified and in good standing as a
foreign corporation and is duly authorized to do business in each
jurisdiction where the nature of its properties or business requires such
qualification except where the failure to be so qualified would not have a
Material Adverse Effect.
4.2 Corporate Authority. The execution, delivery and performance of
this Agreement and the Loan Documents and the transactions contemplated
hereby are within the corporate power and authority of the Borrower and
have been authorized by all necessary corporate proceedings, and do not
and will not (a) require any consent or approval of the shareholders of
the Borrower, (b) contravene any provision of the organizational or charter
documents or by-laws of the Borrower or any law, rule or regulation
applicable to the Borrower presently in effect and the contravention of
which would result in the occurrence of a Material Adverse Effect,
(c) constitute an event of default or event that, but for the requirement
that time elapse or notice be given, or both, would constitute an event of
default under, any other agreement, instrument, order or undertaking
presently in effect and binding on the Borrower, which event of default
would have a Material Adverse Effect, or (d) result in or require the
imposition of any Liens on any of the properties, assets or rights of the
Borrower, other than pursuant to the Loan Documents.
4.3 Valid Obligations. This Agreement and the Loan Documents and all
of their respective terms and provisions are the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms, except as limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting the enforcement of creditors' rights
generally, and except as the remedy of specific performance or of injunctive
relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
4.4 Consents or Approvals. The execution, delivery and performance of
this Agreement and the Loan Documents and the transactions contemplated
herein do not require any approval or consent of, or filing or registration
with, any Governmental Agency, or any other party, the failure of which to
obtain would have a Material Adverse Effect.
4.5 Title to Properties; Absence of Encumbrances. Each of the Borrower
and its Subsidiaries has good and marketable title to all of the properties,
assets and rights of every name and nature now purported to be owned by it
and which are material to the business of Borrower and its Subsidiaries,
taken as a whole, as now conducted, including, without limitation, such
properties, assets and rights as are reflected in the financial statements
referred to in Section 4.6 (except such properties, assets or rights as
have been disposed of in the ordinary course of business since the date
thereof), free from all Liens except Permitted Liens or those Liens
disclosed on Schedule 4.5 hereto, and, except as so disclosed, free from
all defects of title that might materially adversely affect such properties,
assets or rights, taken as a whole.
4.6 Financial Statements. Borrower has furnished FNBB with Triad's
consolidated balance sheet as of September 30, 1994 and Triad's consolidated
statements of income, changes in shareholders' equity and cash flow for the
fiscal year then ended, and related footnotes, audited and certified by
Coopers & Lybrand. Borrower has also furnished FNBB with each of Triad's
and Borrower's consolidated balance sheet as of June 30, 1995 and its
consolidated statements of income, changes in stockholders' equity and cash
flow for the six months then ended, which are hereby certified by the
principal financial officer of Borrower to present fairly the financial
position of Triad and Borrower and their respective Subsidiaries as of such
dates and the results of the operations of Triad and Borrower and their
respective Subsidiaries for such period, but subject, however, to the
absence of footnotes and to normal, recurring year-end adjustments that
shall not in the aggregate be material in amount to Triad and Borrower and
their respective Subsidiaries taken as a whole. All such financial
statements were prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods specified
and present fairly the financial position of Triad and Borrower and their
respective Subsidiaries as of such dates and the results of the operations
of Triad and Borrower and their respective Subsidiaries for such periods.
There are no liabilities, contingent or otherwise, not disclosed in such
financial statements that involve an amount material to Triad and its
Subsidiaries, taken as a whole, or Borrower and its Subsidiaries, taken as a
whole.
4.7 Changes. Since the date of the most recent financial statements
referred to in Section 4.6, there have been no changes in the assets and
liabilities (taken as a whole), financial condition or business of (i) Triad
and its Subsidiaries, taken as a whole, or (ii) Borrower and its
Subsidiaries, taken as a whole, that have not been otherwise disclosed to
FNBB other than changes in the ordinary course of business, the effect of
which has not, in the aggregate, resulted in a Material Adverse Effect.
4.8 Defaults. As of the date of this Agreement and the Closing Date,
no Default exists.
4.9 Taxes. The Borrower and its Subsidiaries have filed all foreign,
federal, state and other tax returns required to be filed, and all taxes,
assessments and other governmental charges due from the Borrower and its
Subsidiaries have been fully paid or are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have
been established and are being maintained in accordance with GAAP, other
than where a failure to file or pay the same would not have a Material
Adverse Effect.
4.10 Litigation. There is no litigation, arbitration, proceeding or
investigation pending, or, to the knowledge of the Borrower, threatened,
against Borrower or any of its Subsidiaries that, if adversely determined,
could result in a forfeiture of all or any substantial part of the property
of Borrower or Borrower and its Subsidiaries, taken as a whole, or could
otherwise have a Material Adverse Effect.
4.11 Use of Proceeds. The Borrower does not own any "margin security",
as that term is defined in Regulations G and U of the Federal Reserve Board,
and the proceeds of the Loans under this Agreement will be used only for
purposes not prohibited hereunder. None of the Loans will be used, directly
or indirectly, for the purpose of purchasing or carrying any margin security,
for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose
which might cause any of the Loans under this Agreement to be considered a
"purpose credit" within the meaning of Regulations G, T, U and X. The
Borrower will not take or permit any agent acting on its behalf to take any
action which might cause this Agreement or any document or instrument
delivered pursuant hereto to violate any regulation of the Federal Reserve
Board.
4.12 Subsidiaries. Except as set forth on Schedule 4.12 hereto or as
permitted by Section 6.4, Borrower has no Subsidiaries. The stock owned by
Borrower is free and clear of all Liens. All shares of such stock have been
validly issued and are fully paid and nonassessable, and no rights to
subscribe to any additional shares of such stock have been granted, and no
options, warrants or similar rights with respect to such stock are
outstanding.
4.13 Investment Company Act. Neither of the Borrower nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of
1940, as amended.
4.14 Compliance with ERISA. Triad has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each
of its Employee Plans and is in compliance in all material respects with
the applicable provisions of ERISA and the Code, and has not incurred any
liability to the PBGC or an Employee Plan under Title IV of ERISA. No
"prohibited transaction" or "reportable event" (as such terms are defined
in ERISA) has occurred with respect to any of its Employee Plans. Borrower
has no Employee Plans.
4.15 Environmental Matters.
(i) Borrower and each of its Subsidiaries has obtained all permits,
licenses and other authorizations which are required under all Environmental
Laws, except to the extent failure to have any such permit, license or
authorization would not have a Material Adverse Effect. The Borrower and
each of its Subsidiaries are in compliance with the terms and conditions of
all such permits, licenses and authorizations, and are also in compliance
with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained
in any applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply
would not have a Material Adverse Effect.
(ii) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed and
served on Borrower or any Subsidiary, no penalty has been assessed and no
investigation or review is pending or, to the knowledge of Borrower,
threatened by any governmental or other entity with respect to any alleged
failure by the Borrower or any of its Subsidiaries to have any permit,
license or authorization required in connection with conduct of its business
or with respect to any Environmental Laws, including, without limitation,
Environmental Laws relating to the generation, treatment, storage, recycling,
transportation, disposal or release of any Hazardous Materials, except to
the extent that such notice, complaint, penalty or investigation did not or
could not result in the remediation of any property owned or used by the
Borrower or any of its Subsidiaries costing in excess of $100,000 per
occurrence or $100,000 in the aggregate.
(iii) To the knowledge of Borrower, no material oral or written
notification of a release of a Hazardous Material has been filed by or on
behalf of Borrower or any of its Subsidiaries and no real property now or
previously owned, leased or used by Borrower or any of its Subsidiaries is
listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, or on any similar state list of sites requiring
investigation or clean-up.
(iv) To the knowledge of Borrower there are no Liens arising under
or pursuant to any Environmental Laws on any of the real property or
properties owned, leased or used by Borrower or any of its Subsidiaries
and no governmental actions have been taken or are in process which could
subject any of such properties to such Liens or as a result of which
Borrower or any of its Subsidiaries would be required to place any notice
or restriction relating to the presence of Hazardous Materials at any
property owned by it in any deed to such property.
(v) Neither of the Borrower nor any of its Subsidiaries nor, to
the knowledge of Borrower, any previous owner, tenant, occupant or user
of any real property owned, leased or used by Borrower or any of its
Subsidiaries has (i) engaged in or permitted any operations or activities
upon or any use or occupancy of such property, or any portion thereof, for
the purpose of or in any way involving the handling, manufacture, treatment,
storage, use, generation, release, discharge, refining, dumping or disposal
(whether legal or illegal, accidental or intentional) of any Hazardous
Materials on, under, in or about such property, except to the extent
commonly used in the business conducted on such property and, in such case,
in compliance with all Environmental Laws except to the extent failure to
comply would not have a Material Adverse Effect, or (ii) transported any
Hazardous Materials to, from or across such property except to the extent
commonly used in the business conducted on such property and, in such case,
in compliance with all Environmental Laws except to the extent failure to
comply would not have a Material Adverse Effect; nor to the knowledge of
Borrower have any Hazardous Materials migrated from other properties upon,
about or beneath such property; nor, to the knowledge of Borrower, are any
Hazardous Materials presently deposited, stored or otherwise located on,
under, in or about such property except to the extent commonly used in the
business conducted on such property and, in such case, in compliance with
all Environmental Laws except to the extent failure to comply would not
have a Material Adverse Effect.
4.16 Solvency. As of the Closing Date and after giving effect to the
Intercompany Loan, as evidenced by the Intercompany Loan Agreement and the
Intercompany Note, the full funding of all Loans permitted hereunder, the
payment of all estimated legal, accounting and other fees and expenses
related hereto, (a) the fair market value of Borrower's assets will be in
excess of the amount that will be required to be paid on or in respect of
the existing debts and other liabilities (including contingent liabilities)
of Borrower as they mature; (b) Borrower shall not have unreasonably small
capital to carry out its business as conducted or as proposed to be
conducted; (c) Borrower does not intend to and does not believe that it
will incur debts beyond its ability to pay such debts as they mature (taking
into account the timing and amounts of cash to be received by it and the
amounts to be payable on or in respect of its obligations); (d) Borrower
does not intend to hinder, delay or defraud either present or future
creditors; and (e) Borrower will have received fair consideration and
reasonably equivalent value in exchange for incurring its Obligations under
the Loan Documents and Borrower will be the direct beneficiary of the full
proceeds of the credit made available by FNBB pursuant to this Agreement.
4.17 Representations and Warranties With Respect to Eligible Leases. As
to each Eligible Lease represented by Borrower to be an "Eligible Lease" on
a Borrowing Base Certificate, as of the date of each such Borrowing Base
Certificate:
(i) 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;
(ii) unless FNBB has possession of such Eligible Lease, Borrower
is holding, on behalf of FNBB, all original lessor's counterparts of such
Eligible Lease, including, without limitation, any related guaranties,
financing statements, certificates of acceptance and other lease
documentation;
(iii) FNBB has a first priority security interest in such Eligible
Lease and the Equipment subject to such Eligible Lease; and
(iv) such Eligible Lease is enforceable against the lessee
thereunder and is not subject to any conditions on the obligations of, or
any right or offset, counterclaim or defense by, the lessee thereunder.
SECTION 5. BORROWER'S AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any funds hereunder shall
be available for borrowing and until payment in full of the Note, unless
FNBB shall otherwise consent in writing, Borrower shall do all of the
following:
5.1 Records and Reports. Maintain a system of accounting in accordance
with GAAP and furnish to FNBB:
(a) Financial Statements of Triad.
(i) Audited Financial Statements. As soon as available and in
any event within ninety (90) days after the end of each fiscal year of Triad,
a copy of the audited financial statements of Triad, including a balance
sheet, a profit and loss statement, and statement of changes in stockholders'
equity and cash flow, as at the close of and for such fiscal year, all in
reasonable detail and in consolidated form, and stating in comparative form
the figures as at the close and for the previous fiscal year, together with
the unqualified opinion thereon of a nationally recognized accounting firm.
(ii) Unaudited Financial Statements. As soon as available, and
in any event within forty-five (45) days after the close of each fiscal
quarter which is not the end of a fiscal year, a balance sheet, profit and
loss statement and a statement of source and application of funds as at the
close of such quarter and covering operations for the portion of Triad's
fiscal year ending on the last day of such quarter, all in reasonable detail,
in consolidated form, all prepared in accordance with GAAP on a basis
consistently maintained by Triad and certified by a Responsible Officer,
subject, however, to year-end audit adjustments.
(b) Financial Statements of Borrower.
(i) Financial Statements. As soon as available and in any
event within ninety (90) days after the end of each fiscal year of Borrower,
a copy of the financial statements of Borrower, including a balance sheet
and a profit and loss statement, as at the close of and for such fiscal
year, all in reasonable detail and in consolidated form, and stating in
comparative form the figures as at the close and for the previous fiscal
year, as included in the management statements which are consolidated into
Triad's year end audited financial statements.
(ii) Unaudited Financial Statements. As soon as available,
and in any event within forty-five (45) days after the close of each fiscal
quarter which is not the end of a fiscal year, a copy of the financial
statements of Borrower included in Triad's Report on Form 10-Q, or if not
available, a balance sheet and profit and loss statement as at the close of
such quarter and covering operations for the portion of Borrower's fiscal
year ending on the last day of such quarter, all in reasonable detail, in
consolidated form, all prepared in accordance with GAAP on a basis
consistently maintained by Borrower and certified by a Responsible Officer,
subject, however, to year-end audit adjustments.
(iii) Reconciliation of Borrower and Triad Financial
Statements. Upon request of FNBB, together with the financial statements
described in Section 5.1(b)(i) and (ii) (collectively, the "Management
Statements"), a reconciliation of the Management Statements to Borrower's
internal management statements, in form and substance reasonably acceptable
to FNBB.
(c) Compliance Certificates. As soon as available and in any event
within forty-five (45) days of the end of each quarter and at such other
times as shall be required hereunder, (i) a Compliance Certificate (together
with a schedule of calculation of items reflected therein) in the form of
Exhibit D, certified by a Responsible Officer and (ii) a copy of any
compliance or no-default certificate sent by Triad to any of Triad's lenders.
(d) Borrowing Base Certificates. As soon as available and in any
event within fifteen (15) days of the end of each month and at such other
times as shall be required hereunder, a Borrowing Base Certificate (together
with a schedule of calculation of items reflected therein) in the form of
Exhibit F, certified by a Responsible Officer.
(e) Collateral Report. A "Collateral Report" detailing lease
portfolio statistics as of the end of each quarter, for the entire portfolio
of Borrower, within fifteen (15) days of the end of such quarter, consisting
of a report on (i) receivables aging and (ii) lease charge-offs.
(f) Other Financial Reports.
(i) Copies of the management letters, if any, submitted by
certified independent accountants to Triad in connection with any audit or
examination of Triad, annual, interim or otherwise, all promptly upon receipt
in final form by Borrower or Triad.
(ii) As soon as available and in no event later than fifteen
(15) days after the same shall have been filed with the Securities and
Exchange Commission, a copy of each Form 8-K Current Report, Form 10-K
Annual Report, Form 10-Q Quarterly Report, Annual Report to Shareholders,
and, when distributed to Triad's shareholders, each Proxy Statement and
Registration Statement of Triad.
(g) Other Data. Notices of any "prohibited transaction" or
"reportable event" (as such terms are defined in Section 4043 of ERISA) with
respect to any Employee Plan of Borrower that might constitute grounds for a
termination of such Employee Plan under Title IV of ERISA, and such other
information relating to the business, properties, condition, operations and
financial and other affairs of Borrower as FNBB may reasonably request from
time to time.
5.2 Corporate Rights; Facilities; Conduct of Business.
(i) Maintain and preserve in full force and effect its corporate
existence and all rights, licenses, leases, qualifications, privileges,
franchises and other authority (collectively, "Rights") adequate for the
conduct of its business, except where the lapsing of any such Right would not
have a Material Adverse Effect;
(ii) Maintain, preserve and protect its properties, assets,
equipment and facilities in working order and good repair and condition
(taking into consideration ordinary wear and tear) and from time to time
make, or cause to be made, all needful and proper repairs, renewals and
replacements thereto, except where the failure to do so would not have a
Material Adverse Effect;
(iii) Maintain, preserve and protect all of its rights to enjoy
and use trademarks, trade names, service marks, patents, copyrights,
licenses, leases, franchise agreements and franchise registrations where
the failure to do so would have a Material Adverse Effect; and
(iv) Conduct its business in an orderly manner without voluntary
interruption.
5.3 Insurance. Maintain with financially sound and reputable companies,
such insurance in such amounts and subject to such deductibles and other
terms as is usual in the business conducted by Borrower, covering, without
limitation, fire, theft, public liability, property damage, product
liability, worker's compensation and extended coverage insurance covering
Borrower's properties and assets.
5.4 Taxes and Other Liabilities. Promptly pay and discharge all taxes,
assessments, levies and other liabilities payable by Borrower when due and
payable except such as may be (a) paid thereafter without penalty or (b)
contested in good faith by appropriate proceedings and for which an adequate
reserve has been established and is maintained in accordance with GAAP.
Borrower shall promptly notify FNBB of any material challenge, contest or
proceeding pending by or against Borrower before any taxing authority.
5.5 Certain Notices. Give prompt written notice to FNBB of (a) the
occurrence of any Event of Default or Potential Event of Default, (b) the
occurrence of a material adverse change in Triad's or Borrower's business,
operations or financial condition or in any of those matters reflected in the
reports and records supplied to FNBB under Section 5.1, (c) the pendency or
institution of, or any adverse determination in, any litigation, arbitration
proceeding or governmental proceeding or investigation which would have a
Material Adverse Effect, and (d) institution of any proceeding to attach or
otherwise levy against any of the Collateral.
5.6 Inspection Rights. At any reasonable time and from time to time
during normal business hours, upon reasonable notice, permit FNBB or any
agent, representative or employee of any of them, to examine and make copies
of and abstracts from the financial records and books of account of, and
visit the properties of, Borrower, all at FNBB's cost, and provided further,
that such inspection does not unreasonably interfere with the conduct of
Borrower's business.
5.7 Conversations With Management. At any reasonable time upon
reasonable notice and from time to time during normal business hours,
permit FNBB or any agent, representative or employee thereof, to discuss
the affairs, finances and accounts of Borrower with any officer of any of
them to the extent any of the foregoing may be relevant to Borrower's
obligations under the Loan Documents.
5.8 Periodic Audits. At any reasonable time not to exceed twice per
year, upon reasonable notice and from time to time during normal business
hours, permit FNBB, or any agent, representative or employee thereof, to
conduct periodic audits at FNBB's expense of the Collateral and
documentation relating thereto, including, without limitation, all records
of payments received on account of the Collateral, provided such audit does
not unreasonably interfere with the conduct of Borrower's business.
5.9 Use of Proceeds. Use the proceeds of the Loans under the Facility
only for (a) funding the loan from Borrower to Triad (the "Intercompany
Loan") evidenced by the Intercompany Loan Agreement and the Intercompany
Note, the proceeds of which are to be used by Triad solely to pay in full
the amounts owing by Triad to the noteholders and all other indebtedness
under the Parent Loan Agreement, (b) then, to the extent not previously
paid, paying the purchase price of equipment leased by Borrower pursuant
to Eligible Leases which are Collateral for Loans, and (c) then for general
corporate purposes.
5.10 Compliance With Laws. Exercise all due diligence in order to comply
with the requirements of all applicable laws, rules, regulations, orders,
writs, judgments, decrees, determinations and awards of any Governmental
Agency, non-compliance with which would have a Material Adverse Effect;
provided, however, that Borrower may contest any act, regulation, order,
decree or direction in any reasonable manner which shall not, in the opinion
of FNBB, adversely affect FNBB's rights hereunder or adversely affect the
priority of FNBB's Liens in and on the Collateral.
5.11 Punctual Payment. Duly and punctually pay or cause to be paid the
Obligations, including, without limitation, the principal outstanding and
interest accrued on the Note and all other amounts from time to time owing
hereunder, all in accordance with the terms of this Agreement and the Note.
5.12 Agreements. Borrower shall perform, within all required time
periods (after giving effect to any applicable grace periods), all of its
obligations and enforce all of its rights under each agreement to which it
is a party, including any leases to which it is a party, where the failure
to so perform and enforce would have a Material Adverse Effect. Borrower
shall not terminate or modify any provision of any agreement to which it is
a party if such termination or modification could have a Material Adverse
Effect.
5.13 Location of Collateral. Borrower shall maintain the lessor's
original of each Lease at its office at 3055 Triad Drive, Livermore,
California, or such other location as FNBB shall approve in writing.
Borrower shall mark any duplicate original of a Lease provided to a lessee
after the date hereof as "duplicate," "lessee's original," or in a similar
fashion to distinguish it from the lessor's original.
5.14 Notices to and Consents from Lessees. Promptly after each Funding
Date, Borrower shall:
(i) be given to such lessee, and obtain the lessee's written
acknowledgement of such notice if required; and
(ii) obtain the written consent of the lessee under any Lease which
requires that consent to assignment of such Lease be obtained from
such lessee, other than a lease under which the lessee is the State
of California.
SECTION 6. BORROWER'S NEGATIVE COVENANTS.
From the date of execution of this Agreement and so long as funds
hereunder shall be available and until payment in full of the Loans, unless
FNBB shall otherwise consent in writing, Borrower covenants and agrees as
follows:
6.1 Liens and Encumbrances. Without the prior written approval of FNBB,
Borrower shall not create, assume or permit to exist any Lien on any of the
Collateral, on the Intercompany Loan Agreement, or on the Intercompany Note,
except (collectively, the "Permitted Liens"):
(1) Liens granted to FNBB on and in the Collateral;
(2) Liens for taxes, assessments or levies if payment shall not
at the time be required to be made in accordance with Section 5.4 and for
which proper reserves are established; and
(3) Liens for mechanics', laborers' and materialmen's and similar
Liens not then delinquent and for which proper reserves are established.
6.2 Employee Loans. Neither Borrower nor Triad shall make or accrue any
loans, investments or other advances of money to any officer or employee of
Borrower or Triad during the term of the Facility, other than (a)
reimbursable advances incurred in the ordinary course of Borrower's or
Triad's business, (b) promissory notes issued upon the exercise of stock
options, (c) in the case of Borrower, loans not to exceed $1,000,000 in the
aggregate amount at any time outstanding to key employees in connection with
the purchase of shares of common stock of Borrower, and (d) in the case of
Triad, loans not to exceed $5,000,000 in the aggregate amount at any time
outstanding to key employees in connection with the purchase of shares of
common stock of Triad.
6.3 Dividends. Borrower may declare but shall not make, pay or set
apart any funds for the payment of any dividends or any other distribution
with respect to its Stock, make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the purchase, redemption,
retirement or other acquisition of its Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of
Borrower, except:
(i) dividends payable solely in shares of Borrower's capital
Stock; and
(ii) dividends payable in cash and/or property other than
shares of Borrower's capital Stock to the extent that such dividends do not
exceed, in the aggregate, twenty-five (25%) of Borrower's net income in that
fiscal year.
6.4 Restriction on Fundamental Changes. Borrower shall not enter into
any transaction of merger or consolidation, directly or indirectly, whether
by operation of law or otherwise, if Borrower shall not be the continuing or
surviving corporation, or liquidate, wind up or dissolve itself (or suffer
any liquidation or dissolution), or convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or
substantially all of its business, property or assets, whether now owned or
hereafter acquired; provided, however, that notwithstanding the foregoing
(a) Borrower may reincorporate in Delaware, provided that (i) no Default has
occurred and is continuing or would occur, with the lapse of time or the
giving of notice or both, immediately after giving effect to such
reincorporation, (ii) Borrower gives FNBB at least thirty (30) days' prior
written notice of such reincorporation, (iii) such reincorporation does not
adversely affect the rights of FNBB under this Agreement, (iv) all of
Borrower's assets are transferred to the surviving corporation (the
"Survivor") in such reincorporation, (v) the Survivor assumes all of
Borrower's obligations under this Agreement and the other Loan Documents
pursuant to an agreement in form and substance reasonably satisfactory to
FNBB, and (vi) the Survivor executes any financing statements or amendments
thereto reasonably requested by FNBB to perfect FNBB's security interest and
(b) Borrower may create new wholly-owned Subsidiaries and sell, assign or
otherwise transfer equipment and leases to such Subsidiaries in connection
with securitization transactions, provided, that Borrower shall not sell,
assign or otherwise transfer any Equipment or Leases which are Collateral if
the effect of such sale, assignment or transfer would be to create an
Overadvance.
6.5 Transactions with Affiliates. Borrower shall not enter into or be a
party to any agreements or transactions with any Affiliate of Borrower having
a value in excess of $1,000,000 in the aggregate except (a) as otherwise
permitted hereunder, (b) with respect to the raising of new equity for
Borrower; provided, however, that any indebtedness incurred in connection
therewith be subordinated to the Obligations of Borrower to FNBB on terms and
conditions reasonably satisfactory to FNBB, (c) for securitization
transactions as contemplated by Section 6.4 or (d) in the ordinary course of
and pursuant to the reasonable requirements of Borrower's business and upon
fair and reasonable terms that are approved by Borrower's board of directors.
6.6 Maintenance of Business. Borrower shall not engage in any business
materially different than the business of providing equipment lease financing
and services to manufacturers and users of equipment.
6.7 ERISA.
(i) Except as set forth on Schedule 6.7, neither Borrower nor any
Affiliate shall incur any obligation to contribute to an employee pension
benefit plan as defined in Section 3(2) of ERISA or subject to the minimum
funding standards under Section 412 of the Code (a "Plan"), including a Plan
required by a collective bargaining agreement or as a consequence of the
acquisition of an Affiliate, unless (i) Borrower or the Affiliate shall
notify FNBB in writing that it intends to incur such obligation and
(ii) after FNBB's receipt of such notice, FNBB consent to the establishment,
maintenance, or Borrower's incurring an obligation to contribute to, the
Plan, which consent may not be unreasonably withheld or unreasonably
delayed, but may be subject to such reasonable conditions as FNBB may
require.
(ii) If Borrower or any Affiliate incurs any obligation to
contribute to any Plan, then Borrower shall not (i) terminate, or permit
any Affiliate to terminate, any Plan so as to result in any liability which
will have a Material Adverse Effect on Borrower or an Affiliate or (ii) make
or permit any Affiliate to make a complete or partial withdrawal (within
the meaning of Section 4201 of ERISA) from any multiemployer Plan so as to
result in any liability which will have a Material Adverse Effect on
Borrower or any Affiliate.
6.8 No Use of FNBB's Name. Borrower shall not use or authorize others
to use FNBB's name or marks in any publication or medium, including, without
limitation, any prospectus, without FNBB's advance written authorization;
provided, that Borrower or Triad may disclose the existence of this Agreement
in reports required to be filed with the Securities Exchange Commission.
6.9 Fiscal Year. Borrower shall not change its fiscal year end from
September 30 of each year unless required to do so by law or FNBB consents
to such change.
6.10 Indebtedness. Borrower shall not create, incur, assume or be or
remain liable with respect to any Indebtedness, other than (a) lease
discounting transactions in the ordinary course of business, including
lease securitization transactions; (b) Indebtedness not to exceed
$15,000,000 secured by existing leases described in (a) above; and
(c) inter-company guaranties entered into in the ordinary course of business
with Triad and its affiliates.
SECTION 7. FINANCIAL COVENANTS OF BORROWER.
Borrower covenants and agrees that, so long as the Commitment hereunder
shall be available, and until payment in full of the Note, unless FNBB shall
otherwise consent in writing, Borrower shall perform all of the following
financial covenants. In connection with performance of Borrower's
obligations under this Section 7, Borrower agrees and understands that all
covenants under this Section 7 shall be measured on the last day of each
fiscal quarter of Borrower, and in each case upon review by FNBB of the
respective quarter's (i) Management Statements in the case of covenants
relating to Borrower, or (ii) the financial statements delivered pursuant to
Section 5.1(a) in the case of covenants relating to Triad.
7.1 Minimum Interest Coverage Ratio. Maintain an Interest Coverage
Ratio in excess of the ratios set forth below:
Date Interest Coverage Ratio
August 29, 1995 1.3
September 30, 1995 1.3
December 31, 1995 1.3
March 31, 1995 1.4
June 30, 1995, and thereafter 1.5.
7.2 Minimum Tangible Net Worth. Maintain from and after the date hereof
a minimum Tangible Net Worth equal to or greater than the sum of
(a) $47,800,000, plus (b) seventy-five percent (75%) of Net Income (without
regard to net losses) after September 30, 1994, plus (c) one hundred percent
(100%) of New Equity issued after September 30, 1994.
7.3 Leverage Ratio. Maintain from and after the date hereof a ratio of
total liabilities to Tangible Net Worth not to exceed 1.5 to 1.
7.4 Profitability
(a) Borrower shall not have an operating loss and/or net loss on a
consolidated basis greater than $1 in any fiscal quarter;
(b) Triad shall not have an operating loss and/or net loss on a
consolidated basis greater than $1 in any fiscal quarter;
(c) Borrower shall not have an operating loss and/or net loss on a
consolidated basis, in any amount, in any fiscal year; and
(d) Triad shall not have an operating loss and/or net loss on a
consolidated basis, in any amount, in any fiscal year.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default:
(a) Failure to pay any installment of principal under this Agreement
or the Note on the date such installment shall become due and payable; or
(b) Failure to pay any installment of interest on the Loans or any of
the other Obligations of Borrower to FNBB arising under this Agreement, the
Note or any of the other Loan Documents when and as the same shall become due
and payable whether by acceleration or otherwise and such failure shall not
have been cured within five (5) calendar days; or
(c) Borrower defaults on the payment of any principal of or any
interest on any recourse Indebtedness or Indebtedness under which the lender
acquires recourse for any reason, or breaches any term of any evidence of
such recourse Indebtedness or of any loan agreement, mortgage, indenture or
other agreement relating thereto if (i) the amount of such Indebtedness
exceeds $1,000,000 in principal amount, and (ii) the effect of such breach
is to permit acceleration under the applicable instrument; or
(d) Borrower fails or neglects to perform, keep or observe any of
the financial covenants contained in Section 7 of this Agreement; or
(e) Subject to Sections 8.1(a), (b), (c) and (d), Borrower fails or
neglects to perform, keep or observe any covenant or provision of this
Agreement or of any of the other Loan Documents or any other document or
agreement executed by Borrower in connection therewith and the same has not
been cured to FNBB's satisfaction within ten (10) calendar days after
Borrower shall become aware thereof, whether by written notice from FNBB or
otherwise; or
(f) Any of Borrower's representations or warranties made in any Loan
Document or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in any
material respect when made; or
(g) Either Borrower or Triad shall become insolvent; or admit in
writing its inability to pay its debts as they mature; or make an assignment
for the benefit of creditors; or apply for or consent to the appointment of a
receiver, liquidator, custodian or trustee for it or for a substantial part
of its property or business, or such a receiver, liquidator, custodian or
trustee otherwise shall be appointed and shall not be discharged within
sixty (60) days after such appointment; or
(h) Bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against Borrower or Triad, or any
order, judgment or decree shall be entered against Borrower or Triad
decreeing its dissolution or division; provided, however, with respect to an
involuntary petition in bankruptcy, such petition shall not have been
dismissed within sixty (60) days after the filing of such petition; or
(i) There shall have been a change in the assets, liabilities,
financial condition, operations, or business of Borrower, other than changes
in the ordinary course of business, which in the reasonable determination of
FNBB has, either individually or in the aggregate, had a Material Adverse
Effect; or
(j) There shall be a money judgment, writ or warrant of attachment
or similar process entered or filed against Borrower which is not fully
covered by insurance in accordance with Section 5.3 or remains unvacated,
unbonded, unstayed or unpaid or undischarged for more than sixty (60) days
(whether or not consecutive) or in any event later than five (5) calendar
days prior to the date of any proposed sale thereunder, which, together with
all such other judgments or attachments against Borrower exceeds in the
aggregate $1,000,000; or
(k) Triad or any other subsidiary of Triad defaults on any third
party debt obligation in excess of $1,000,000; or
(l) Triad fails or neglects to perform, keep or observe any covenant
or provision of any Loan Document to which it is a party or any other
document or agreement executed by Triad in connection therewith and the same
has not been cured to FNBB's satisfaction within ten (10) calendar days
after Triad shall become aware thereof, whether by written notice from FNBB
or otherwise.
8.2 Waiver of Default. Any Event of Default may be waived only with the
written consent of FNBB. Any Event of Default so waived shall be deemed to
have been cured and not to be continuing; but no such waiver shall be deemed
a continuing waiver or extend to or affect any subsequent like default or
impair any rights arising therefrom.
8.3 Remedies.
(a) Exercise of Remedies. Upon the occurrence and continuance of
an Event of Default, FNBB may at the option of FNBB do any one or more of
the following, all of which are authorized by Borrower:
(i) Declare the Commitment of FNBB to make Loans to be
terminated, whereupon such Commitment shall forthwith be terminated;
(ii) Declare all or any of the Obligations of the Borrower
under this Agreement, the Note, the other Loan Documents and any other
instrument executed by Borrower pursuant to such Loan Documents to be
immediately due and payable, and upon such declaration such obligations so
declared due and payable shall immediately become due and payable and FNBB
may exercise from time to time any and all rights and remedies available to
them under applicable law, provided that if such Event of Default is under
part (g) or (h) of Section 8.1, then the Note shall become immediately due
and payable forthwith without the requirement of any notice or other action
by FNBB.
(iii) Without notice to or demand upon Borrower, make such
payments and do such acts as FNBB considers necessary or commercially
reasonable to protect its security interest in the Collateral;
(iv) Terminate this Agreement as to any future liability or
obligation of FNBB, but without affecting its rights and security interest
in the Collateral;
(v) Exercise all of FNBB's rights under the Security
Agreement; and
(vi) Exercise in addition to all other rights and remedies
granted hereunder, any and all rights and remedies granted under the Loan
Documents or otherwise available at law or in equity.
(b) Deficiency. Borrower shall remain liable for, and pay
immediately, any deficiency if the proceeds of any sale or other disposition
of the Collateral are insufficient to pay all of the Obligations, Borrower
also being liable for the reasonable fees and expenses of any attorneys
employed by FNBB to collect such deficiency; and
(c) Set-Off. In addition to any rights and remedies of FNBB provided
by law, if an Event of Default exists, FNBB is authorized at any time and
from time to time, without prior notice to Borrower, any such notice being
waived by Borrower to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional
or final) at any time held by, and other indebtedness at any time owing from,
FNBB to or for the credit or the account of Borrower against any and all
Obligations owing to FNBB, then existing, irrespective of whether or not FNBB
shall have made demand under this Agreement or any Loan Document. FNBB
agrees promptly to notify Borrower after any such set-off and application
made by FNBB; provided, however, that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of FNBB
under this Section 8.3(c) are in addition to the other rights and remedies
(including other rights of set-off) which FNBB may have.
(d) Rights and Remedies Cumulative. FNBB's rights and remedies
under this Agreement shall be cumulative. FNBB shall have all other rights
and remedies not inconsistent herewith as provided by law or in equity. No
exercise by FNBB of one right or remedy shall be deemed an election. No
delay by FNBB shall constitute a waiver, election or acquiescence by such
party.
SECTION 9. EXPENSES AND INDEMNITIES.
9.1 Expenses. Borrower agrees to pay:
(a) on the Closing Date, all actual and reasonable costs and expenses
(including, without limitation, all reasonable attorneys' fees and allocated
expenses of FNBB's in-house legal staff or outside counsel) of negotiation
and preparation of the Loan Documents, all costs of furnishing all opinions
of counsel for Borrower (including, without limitation, any opinions
requested by FNBB as to any legal matters arising hereunder) and of
Borrower's performance of and compliance with all agreements and conditions
contained herein on its part to be performed or complied with;
(b) promptly upon demand, all other actual and reasonable
out-of-pocket expenses (including, without limitation, all reasonable
attorneys' fees and allocated expenses of FNBB's in-house legal staff or
outside counsel) incurred by (i) FNBB in connection with the negotiation,
preparation, execution and enforcement of the Loan Documents and all
amendments, modifications and substitutions thereto and (ii) if an Event
of Default has occurred and is continuing, FNBB in connection with the
enforcement of the Loan Documents; and
(c) promptly upon demand, regardless of the existence of an Event of
Default, all legal, appraisal, audit, accounting, consulting or other fees,
costs or expenses incurred in connection with any litigation, contest,
dispute, suit, proceeding or action in which (i) Borrower is a party and
(ii) FNBB shall be the prevailing party (whether instituted by FNBB, Borrower
or any other Person) in any way relating to the Loan Documents, or any other
agreement to be executed or delivered in connection herewith.
Borrower shall be liable for all fees, costs and expenses listed in this
Section 9.1 whether or not the transactions contemplated by this Agreement
are completed, unless the failure to complete such transactions is due solely
to FNBB's failure to comply with the terms and conditions of this Agreement.
9.2 Taxes, etc. Borrower agrees to pay all governmental assessments,
charges or taxes (except income, gross receipts, ad valorem, intangibles,
franchise or other similar taxes imposed on FNBB), including any interest or
penalties thereon, at any time payable or ruled to be payable in respect of
the existence, execution or delivery of the Loan Documents or the issuance
of the Note by reason of any existing or hereafter enacted federal, state or
local statute, and to indemnify and hold FNBB and each and every other holder
of any Note harmless against liability in connection with any such
assessments, charges or taxes.
9.3 Indemnification. To the fullest extent permitted by law, Borrower
agrees to protect, indemnify, defend and hold harmless FNBB, each of its
Affiliates, assignees, directors, officers, employees, agents and any person
who controls any of them within the meaning of the Federal and State
securities laws ("Indemnitees") from and against any liabilities, losses,
damages or expenses of any kind or nature and from any suits, claims or
demands (including, without limitation, in respect of or for reasonable
attorney's fees and other expenses) arising on account of or in connection
with any matter or thing or action or failure to act by Indemnitees, or any
of them, arising out of or relating to the Loan Documents or any agreement or
instrument contemplated by the Loan Documents, except to the extent such
liability arises from the willful misconduct or gross negligence of any of
the Indemnitees. Upon receiving knowledge of any suit, claim or demand
asserted by a third party that FNBB believes is covered by this indemnity,
FNBB shall give Borrower notice of the matter and an opportunity to defend
it, at Borrower's sole cost and expense, with legal counsel reasonably
satisfactory FNBB. FNBB may also require Borrower to defend the matter.
This obligation on the part of Borrower shall survive the payment and
performance of the Obligations.
SECTION 10. MISCELLANEOUS.
10.1 Survival. All covenants, agreements, representations and warranties
made herein shall survive the execution and delivery of the Loan Documents
and the making of the Loans hereunder.
10.2 No Waiver by FNBB. No failure or delay on the part of FNBB in the
exercise of any power, right or privilege hereunder, under the Note or under
any of the other Loan Documents shall impair such power, right or privilege
or be construed to be a waiver of any default or acquiescence therein, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.
10.3 Notices. Except as otherwise provided in this Agreement, any notice
or other communication herein required or permitted to be given shall be in
writing and may be delivered in person, with receipt acknowledged, or sent
by telex, telecopy, computer transmission or by United States mail,
registered or certified, return receipt requested, postage prepaid and
addressed as set forth on the signature pages to this Agreement or at such
other address as may be substituted by notice given as herein provided. The
giving of any notice required hereunder may be waived in writing by the party
entitled to receive such notice. Every notice, demand, request, consent,
approval, declaration or other communication hereunder shall be deemed to
have been duly given or served on the date on which personally delivered,
with receipt acknowledged, or five (5) Business Days after the same shall
have been deposited in the United States mail. Failure or delay in
delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to the persons designated below (other
than the parties hereto) to receive copies shall in no way adversely affect
the effectiveness of such notice, demand, request, consent, approval,
declaration or other communication.
10.4 Severability. In case any provision or obligation under the Loan
Documents shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby.
10.5 Construction. This Agreement is the result of negotiations between
and has been reviewed by each of Borrower and FNBB and their respective
counsel; accordingly, this Agreement shall be deemed to be the product of
each party hereto, and no ambiguity shall be construed in favor of or against
either Borrower or FNBB.
10.6 Entire Agreement; Amendments and Waivers.
(a) This Agreement, the other Loan Documents and any other
agreement submitted in connection herewith, each dated as of the date hereof,
taken together, constitute and contain the entire agreement of Borrower and
FNBB and supersede any and all prior agreements, negotiations,
correspondence, understandings and communications between the parties,
whether written or oral, respecting the subject matter hereof. Borrower and
FNBB agree that they intend the literal words of this Agreement and the other
Loan Documents and that no parol evidence shall be necessary or appropriate
to establish either Borrower's or FNBB's actual intentions.
(b) No amendment or waiver of any provision of this Agreement or any
other Loan Document, and no consent with respect to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed
by FNBB and Borrower, and then such waiver shall be effective only in the
specific instance and for the specific purpose for which given. No notice to
or demand on Borrower in any case shall entitle Borrower to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, waiver or consent effected in accordance with this Section 10.6
shall be binding upon each holder of any Note at the time outstanding, each
future holder of any such Note, and, if signed by Borrower, on Borrower.
10.7 No Set-Offs by Borrower. All sums payable by Borrower pursuant to
this Agreement, the Note or any of the other Loan Documents shall be payable
without notice or demand and shall be payable in U.S. Dollars without set-off
or reduction of any manner whatsoever.
10.8 Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive
effect.
10.9 Governing Law. Except as otherwise expressly provided in any of the
Loan Documents, in all respects, including all matters of construction,
validity and performance, this Agreement and the Obligations arising
hereunder shall be governed by, and construed and enforced in accordance
with, the laws of the State of California applicable to contracts made and
performed in such state, without regard to the principles thereof regarding
conflict of laws, and any applicable laws of the United States of America.
10.10 Waiver of Jury Trial. FNBB AND BORROWER AGREE THAT
NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A
JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY
OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT,
ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR
THE RELATIONSHIP BETWEEN THEM, OR (B) SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL
CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS
PARAGRAPH HAVE BEEN FULLY DISCUSSED BY FNBB AND BORROWER,
AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER FNBB NOR BORROWER HAS AGREED WITH OR REPRESENTED TO
THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES.
10.11 Subsequent Holders. The terms and provisions of the Loan Documents
shall inure to the benefit of any assignee or transferee of the Note, and in
the event of such transfer or assignment, the rights and privileges conferred
in the Loan Documents upon FNBB shall automatically extend to and be vested
in such transferee or assignee, all subject to the terms and conditions
hereof.
10.12 Assignability. This Agreement, the Note and the other Loan Documents
shall be binding upon and shall inure to the benefit of the parties hereto
and thereto and their respective successors and assigns except that Borrower
may not assign its rights hereunder or thereunder or any interest herein or
therein, whether by operation of law or otherwise, without the prior written
consent of FNBB. FNBB shall, with the prior consent of Borrower, which
consent in each case shall not be unreasonably withheld, (i) have the right
in accordance with this Section 10.12 to sell and assign either (A) all of
its interest or (B) any portion of its interest equal to or greater than
Seven Million Five Hundred Thousand Dollars ($7,500,000), under this
Agreement, the Note and the other Loan Documents and (ii) to grant any
participation or other interest herein or therein; provided, that if FNBB
sells or assigns less than all of its interest under this Agreement and the
other Loan Documents, it shall continue to hold at a Four Million Dollar
($4,000,000) interest after such sale or assignment.
10.13 Confidentiality. FNBB agrees to hold in trust and confidence all
non-public information concerning the business or operation of Borrower
received from Borrower and clearly marked as confidential, and to use such
information only in connection with its administration of this Agreement,
except with the consent of Borrower. This Section 10.13 shall survive the
performance and repayment in full of the Obligations hereunder.
10.14 Counterparts. This Agreement and any amendments, waivers, consents,
or supplements hereto and thereto may be executed in any number of
counterparts, and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
Each such agreement shall become effective upon the execution of a
counterpart hereof or thereof by each of the parties hereto and telephonic
notification thereof has been received by Borrower and FNBB.
WITNESS the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
BORROWER TRIAD SYSTEMS FINANCIAL CORPORATION
By: STANLEY F. MARQUIS
------------------------------
Name: Stanley F. Marquis
------------------------------
Its: President
------------------------------
Notices to be sent to:
TRIAD SYSTEMS FINANCIAL CORPORATION
3055 Triad Drive
Livermore, CA 94550-9559
Attention: President
Telephone No.: (510) 449-0606
Telecopy No.:
FNBB THE FIRST NATIONAL BANK OF BOSTON
By: OSCAR JALDOWSKI
------------------------------
Name: Oscar Jaldowski
------------------------------
FNBB's Payment Office:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Notices to be sent to:
THE FIRST NATIONAL BANK OF BOSTON
The First National Bank of Boston
435 Tasso Street, Suite 250
Palo Alto, California 94301
Attention: High Technology Division
Telephone No.: (415) 853-0404
Telecopy No.: (415) 853-1425
With copies to:
COOLEY GODWARD CASTRO
HUDDLESON & TATUM
One Maritime Plaza, Suite 2000
San Francisco, California 94111
Attn: Joseph A. Scherer, Esq.
Telephone: (415) 981-5252
Telecopy: (415) 951-3699
INDEX OF
EXHIBITS AND SCHEDULES
Exhibit A Form of Note
Exhibit B Form of Security Agreement
Exhibit C Form of Opinion of Borrower's Counsel
Exhibit D Form of Compliance Certificate
Exhibit E Form of Lease
Exhibit F Form of Borrowing Base Certificate
Exhibit G Form of Operating and Support Agreement
Exhibit H Copy of Existing Intercreditor Agreement
Exhibit I Form of Intercompany Loan Agreement
Exhibit J Form of Intercompany Note
Exhibit K Form of Lessee Notification Letter
Schedule 1 Commitments
Schedule 4.5 Liens
Schedule 4.12 Subsidiaries
Schedule 6.7 ERISA Plans
EXHIBIT A
FORM OF PROMISSORY NOTE
$12,000,000 Livermore, California
Date: August 29, 1995
TRIAD SYSTEMS FINANCIAL CORPORATION, a California corporation ("Borrower"),
for value received, hereby promises to pay to the order of THE FIRST
NATIONAL BANK OF BOSTON ("FNBB"), in lawful money of the United States of
America on the later of October 1, 1996, or the Term Loan Maturity Date
(as defined in the Credit Agreement (defined below)), if applicable,
pursuant to that certain Warehousing Credit Agreement, dated as of
August 29, 1995, by and between Borrower and The First National Bank of
Boston, as lender (the "Credit Agreement"), the lesser of (i) the principal
amount of Twelve Million Dollars ($12,000,000) or (ii) the principal amount
of all Loans outstanding as of the maturity date hereof.
This Note is the Note referred to in the Credit Agreement. All terms
defined in the Credit Agreement shall have the same definitions when used
herein, unless otherwise defined herein.
1. Interest Rate
Borrower further promises to pay interest on each Loan hereunder
in like funds on the principal amount hereof from time to time outstanding
from the date hereof until paid in full, at a rate or rates per annum and
payable on the dates determined pursuant to the Credit Agreement.
2. Place of Payment
All amounts payable hereunder shall be payable in immediately
available funds to FNBB at 100 Federal Street, Boston, Massachusetts 02110.
3. Application of Payments; Prepayment; Acceleration
Payment on this Note shall be applied in the manner set forth in the
Credit Agreement. The Credit Agreement contains provisions for acceleration
of the maturity of Loans hereunder upon the occurrence of certain stated
events and also provides for optional and mandatory prepayments of principal
hereof prior to any stated maturity upon the terms and conditions therein
specified.
All Loans made by FNBB to Borrower pursuant to the Credit Agreement
shall be recorded by FNBB on the books and records of FNBB. The failure of
FNBB to record any Loan or any prepayment or payment made on account of the
principal balance hereof shall not limit or otherwise affect the obligation
of Borrower under this Note and under the Credit Agreement to pay the
principal, interest and other amounts due and payable under the Loans.
Any principal or interest payments on this Note not paid when due,
whether at stated maturity, by acceleration or otherwise, shall bear interest
at the Default Rate.
4. Default
Borrower's failure to timely pay any of the principal amounts
hereunder on the date the same shall become due and payable or any
installment of interest within five days after the same shall become due and
payable, shall constitute a default under this Note. Upon the occurrence of
a default hereunder or an Event of Default under the Credit Agreement, all
unpaid principal, accrued interest and other amounts owing hereunder shall,
at the option of FNBB, be immediately collectible by FNBB pursuant to the
Credit Agreement and applicable law.
5. Waivers
Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all
reasonable out-of-pocket costs of collection incurred, including reasonable
allocated costs of inhouse counsel and reasonable attorneys' fees, costs and
expenses in accordance with the terms of the Credit Agreement.
The right to plead any and all statutes of limitations as a defense
to any demand hereunder is hereby waived to the full extent permitted by law.
6. Secured Note
The amount of this Note is secured by the Collateral identified and
described as security therefor in the Security Agreement.
7. Governing Law
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of the laws of any other
jurisdiction.
8. Successors and Assigns
The provisions of this Note shall inure to the benefit of and be
binding upon any successor to Borrower and shall extend to any holder hereof.
TRIAD SYSTEMS FINANCIAL CORPORATION,
a California corporation
By: STANLEY F. MARQUIS
Printed Name: Stanley F. Marquis
Title: President,
Triad Systems Financial Corporation
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement, dated as of August 29, 1995 (the "Security
Agreement"), is made by TRIAD SYSTEMS FINANCIAL CORPORATION
("Grantor") in favor of THE FIRST NATIONAL BANK OF BOSTON ("FNBB").
Recital
A. Pursuant to that certain Warehousing Credit Agreement dated as of
August 29, 1995 (as the same may from time to time be amended, modified
or supplemented, the "Credit Agreement") by and among Grantor,
Lenders (as defined therein), and Agent, for the benefit of Lenders,
Lenders have agreed to make certain advances of money and to extend
certain financial accommodations to Grantor in the amounts and manner
set forth in the Credit Agreement. All capitalized terms used herein
without definition shall have the meanings ascribed to them in the
Credit Agreement.
B. Lenders are willing to make the Loans, but only upon the
condition, among others, that Grantor shall have executed and
delivered to Agent, for the benefit of Lenders, this Agreement
whereby Grantor shall have granted to Agent, for the benefit of
Lenders, a security interest in the Collateral (as hereinafter
defined) securing Grantor's obligations under the Credit Agreement.
Agreement
Now, therefore, in consideration of the premises and in order to
induce Lenders to make the Loans and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged and intending to be legally bound, Grantor hereby
represents, warrants, covenants and agrees as follows:
SECTION 1. Grant of Security. Grantor hereby assigns, pledges and
grants a security interest to Agent, for the benefit of Lenders, in
all of Grantor's right, title and interest to the following described
property (the "Collateral"):
(a) All of Grantor's right, title and interest in and to any
Leases and other agreements that shall be described on each Schedule
to be executed by FNBB and Grantor from time to time in the form of
Schedule 1 to this Agreement and all rentals thereunder and all
proceeds thereof, including, without limitation, all supporting
documentation, guaranties, other credit support documentation, financing
statements, certificates of acceptance and other lease documentation;
(b) All of the Equipment covered by such Leases, together with
all attachments, additions, accessories and accessions thereto, now
existing or hereafter acquired by Grantor, all replacements and
substitutions therefor and all proceeds thereof;
(c) All claims, rights and remedies which Grantor may now or
hereafter have with respect to the maintenance and storage of such
Equipment;
(d) All claims, rights and remedies which Grantor may now or
hereafter have against any vendor of Equipment, including, without
limitation, Triad and any third-party vendor;
(e) All governmental or other approvals, permits, licenses,
franchise agreements, authorities or certificates required or used in
connection with the ownership, operation and maintenance of such
Equipment;
(f) Any beneficial interest of Grantor under any trust created
with respect to such Equipment;
(g) All rights of the Grantor under any agreement relating to
such Equipment, including, without limitation, any agreement in which
Grantor or Grantor's predecessor in interest acquired, or is
acquiring, rights in the Equipment;
(h) Any agreement or commitment of a third party to purchase,
lend funds secured by, or otherwise provide financing with respect to
any such Lease or Equipment;
(i) All deposit accounts, cash, instruments, documents,
securities, chattel paper, contracts, or other property of Grantor at
any time in the possession of any FNBB; and
(j) All proceeds and products of the foregoing (and proceeds and
products of proceeds and products), in whatever form and whether such
proceeds arise before or after the commencement of any case under
Title 11 of the United States Code (the "Bankruptcy Code") by or
against Grantor, including, without limitation, all payments with
respect to such Equipment under insurance whether or not FNBB
is the loss payee thereof, all proceeds of any governmental
taking, and any indemnity, warranty, letter of credit (including the
right to draw on such letter of credit) or guaranty payable by reason
of any default under, loss of, or damage to or otherwise with respect
to any of the foregoing.
All of the property described in subsections (a) through (j),
above, is herein collectively called the "Collateral." References
below in this Agreement to "Lease," "Leases," or "Equipment" shall be
deemed to refer only to such of the same as are included as
Collateral under this Agreement.
SECTION 2. Security for Amounts Payable. This Agreement secures the
payment of all amounts payable by Grantor in connection with the
repayment of Loans made from time to time by FNBB, including,
without limitation, the amounts payable by Grantor under the Credit
Agreement, the Note issued pursuant to the Credit Agreement and any
note or notes issued in connection with the refunding or rollover of
such Note, and all amounts, whether for fees, expenses or otherwise,
of Grantor now or hereafter payable to FNBB or any of FNBB's
affiliates under the Credit Agreement, the Note, each Schedule, any
other credit or loan agreement or note, any of the Loan Documents
(including this Agreement) or any other security agreement (all such
amounts payable being the "Amounts Payable") and all other Obligations
under the Loan Documents.
SECTION 3. Liability under Leases. Anything herein to the contrary
notwithstanding, (a) Grantor shall remain liable under the Leases to
the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had
not been executed, (b) the exercise by FNBB of any of the rights hereunder
shall not release Grantor from any of its duties or obligations under the
Leases, and (c) FNBB shall not have any obligations or liability under the
Leases by reason of this Agreement, nor shall FNBB be obligated to perform
any of the obligations or duties of Grantor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder.
SECTION 4. Representations and Warranties. Upon the addition of any
Lease to the Collateral, Grantor shall make the representations,
warranties and covenants set forth in a Schedule in the form of
Schedule I hereto and shall deliver such Schedule to FNBB with respect
to such Lease.
SECTION 5. Documentation.
(a) Grantor shall from time to time, at the expense of Grantor,
promptly execute and deliver all further instruments and documents,
and take all further action, that FNBB may reasonably request, in order
to perfect with first priority and otherwise protect the security interest
granted hereby or to enable FNBB to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, Grantor shall: (i) duly note the
security interest of FNBB on each certificate of title
covering any of the Equipment and on any registration without
certification of title covering any of the Equipment, and (ii) execute
and file such financing or continuation statements, or amendments thereto,
and such other instruments or notices, and make such recordings, as FNBB
may reasonably request, in order to perfect and preserve the security
interests granted or purported to be granted hereby, including, without
limitation, execution and filing of such instruments and recordings as may
be necessary under state or federal law relating to the creation and
perfection of a security interest in any of the Leases and Equipment.
(b) To the best of its ability, Grantor shall furnish to FNBB
from time to time statements and schedules further identifying and
describing the Collateral (including, without limitation, the
locations and condition thereof and such other reports in connection
with the Collateral as FNBB may reasonably request, all in reasonable
detail.
(c) Promptly upon demand from FNBB, whether or not a Default has
occurred and is continuing, Grantor shall deliver to FNBB all original
lessor's counterparts of each Lease listed on any Schedule delivered to
FNBB pursuant to this Agreement, together with all original copies of all
related documentation, including, without limitation, any related
guaranties, financing statements, certificates of acceptance and other lease
documentation (collectively, the "Lease Documentation"). Until such time as
FNBB demands possession of the Lease Documentation or releases its lien
in such Lease Documentation, Grantor covenants and agrees that it shall
maintain possession, on behalf of FNBB, of all such Lease Documentation at
its premises located at 3055 Triad Drive, Livermore, California 94550.
SECTION 6. Equipment. Grantor shall:
(a) Cause the Equipment to be kept in jurisdictions where all
action required by Section 5 has been taken with respect to the
Equipment.
(b) Cause each lessee under the Leases to maintain and preserve
the Equipment covered by its Lease in accordance, in all material
respects, with the terms and provisions thereof and otherwise to
perform in a timely manner all obligations of the lessee under its
Lease. Without limitation of the foregoing, Grantor shall cause the
Equipment to be maintained and preserved, by the lessee or otherwise,
in the same condition, repair and working order as when delivered to
the lessee, ordinary wear and tear excepted, and in accordance with
any manufacturer's manual, and shall forthwith, or in the case of any
loss or damage to any of the Equipment as quickly as practicable
after the occurrence thereof, make or cause to be made, by the lessee
or otherwise, all repairs, replacements and other improvements in
connection therewith which are necessary or desirable to such end.
Grantor shall promptly furnish to FNBB a statement respecting any
material loss or damage to any of the Equipment.
(c) Pay promptly when due, or cause to be so paid in accordance
with the Leases or contest in good faith by appropriate proceedings
and with adequate reserves established and maintained in accordance
with GAAP, all property and other taxes, fees, assessments and
governmental charges or levies imposed upon or in respect of the
Equipment or this Agreement and all claims, including claims for
labor, materials and supplies, against the Equipment.
(d) Perform in a timely manner all obligations of Grantor under
the Leases.
(e) At the reasonable request of FNBB, at Grantor's own cost and
expense, cause each item of the Equipment (if not prevented by applicable
law or regulations or governmental authority, and if it will not adversely
affect the proper use thereof) to be legibly marked in a reasonably
prominent location with such a plate, disk or other marking of customary
size, and bearing such a legend, as shall be appropriate or desirable to
evidence the fact that it is subject to the lien and security interest of
FNBB hereunder. So long as FNBB shall retain a security interest in such
item of Equipment, Grantor shall not remove or deface, or permit to be
removed or defaced, any such plate, disk, or other marking or the
identifying manufacturer's serial number, and, in the event of such removal,
defacement or other disappearance thereof, Grantor shall promptly cause
such plate, disk or other marking or serial number to be promptly replaced.
SECTION 7. Insurance.
(a) Grantor shall cause the lessees under the Leases to maintain
insurance on the Equipment strictly in accordance with the terms and
provisions of the Leases. Without limitation of the foregoing,
Grantor shall at its own expense maintain such additional insurance
with respect to the Equipment in such amounts, against such risks, in
such form and with such insurers as provided by Section 5.3 of the
Credit Agreement. Each such policy of Grantor, whether obtained in
accordance with the terms and provisions of a Lease or in accordance
with this Section 7(a), shall (i) if for liability insurance, provide
for all losses to be paid on behalf of FNBB and Grantor
as their respective interests may appear and (ii) if for property
damage insurance, provide for all losses to be paid directly to
FNBB. Each such policy shall in addition (i) name FNBB as insured party
or loss payee thereunder, without any representation or warranty by or
obligation upon FNBB, as FNBB's interests may appear; (ii) provide that
there shall be no recourse against for payment of premiums or other amounts
with respect thereto and (iii) provide that at least ten (10) days' prior
written notice of cancellation or lapse shall be given to FNBB by the
insurer. Grantor shall, if so requested by FNBB, deliver to FNBB original
or duplicate policies of such insurance and, as FNBB may reasonably request,
a report of a reputable insurance broker with respect to such insurance.
(b) Reimbursement under any liability insurance maintained
pursuant to this Section 7 may be paid directly to the person who
incurred liability covered by such insurance. In case of any loss
involving damage to Equipment when Section 7(c) is not applicable,
Grantor shall make or cause to be made, by the lessee or otherwise,
the necessary repairs to or replacement of such Equipment, and any
proceeds of insurance maintained pursuant to this Section 7 shall be
paid to Grantor, the lessee or otherwise, as the case may be, as
reimbursement for the costs of such repairs or replacement.
(c) Upon the occurrence and during the continuance of any Event
of Default, all insurance payments in respect of such Equipment shall
be paid to and applied by FNBB as specified in Section 13(d) hereof,
except insofar as the Lease covering such Equipment provides for the
insurance payments to be paid to the lessee for purposes of repairing
the Equipment.
SECTION 8. Leases.
(a) Grantor shall keep its principal place of business and chief
executive office and the office where it keeps its records and files
concerning the Leases and its copies of the Leases at the location
specified in Section 16 or, upon thirty (30) days' prior written
notice to FNBB, at another location in a jurisdiction where all
action required by Section 5 shall have been taken with respect to
the Leases. Grantor shall hold and preserve such records and files
concerning the Leases and shall permit representatives of FNBB or
Lenders at any time during normal business hours to inspect and make
abstracts from such records and files.
(b) Grantor shall take such action as Grantor may deem necessary
or advisable to enforce collection of the Leases. FNBB shall have the
right at any time while an Event of Default is continuing and upon written
notice to Grantor of its intention to do so, at the expense of Grantor, to
enforce collection of any of the Leases in the same manner and to the same
extent as Grantor might have done.
(c) Grantor shall accept no prepayment from any lessee of amounts
due under any of the Leases if the same shall not be immediately
applied to prepay the principal amount advanced under this Agreement,
without obtaining the prior written consent of FNBB, except such amounts
as are required under any Lease to be paid in advance (including, without
limitation, a security deposit or a maintenance reserve account).
SECTION 9. Transfers and Other Liens. Grantor shall not:
(a) Except as expressly permitted by the Credit Agreement, sell,
assign (by operation of law or otherwise), lease, charter or
otherwise dispose of any of the Collateral without the prior written
consent of FNBB; or
(b) Create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of the
Collateral, except for Permitted Liens, for so long as such security
interests are permitted by the provisions of this Agreement.
SECTION 10. Attorney-In-Fact. Grantor hereby irrevocably appoints
FNBB Grantor's attorney-in-fact, with full authority in the place and stead
of Grantor and in the name of Grantor, FNBB, from time to time in FNBB's
discretion, and, with respect to (a) through (d) of this Section 10, from
time to time in FNBB's discretion upon the occurrence of an Event of
Default and so long as such Event of Default is continuing, to take any
action and to execute any instrument which FNBB may deem necessary or
advisable to accomplish the purposes of this Agreement, including,
without limitation:
(a) to obtain and adjust insurance required to be paid to FNBB
pursuant to Section 7;
(b) to ask, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral;
(c) to receive, indorse and collect any drafts or other
instruments and documents in connection with clauses (a) and (b),
above;
(d) to file claims or take any action or institute any
proceedings which FNBB may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce its rights with respect
to any of the Collateral; and
(e) to file one or more financing or continuation statements, and
amendments thereto, relative to all or any part of the Collateral
without the signature of Grantor where permitted by law.
SECTION 11. FNBB May Perform. If Grantor fails to perform any
agreement contained herein, FNBB may, upon notice to Grantor, or if an
Event of Default has occurred and is continuing, without notice, perform,
or cause performance of, such agreement, and the expenses of FNBB incurred
in connection therewith shall be payable by Grantor under Section 14(b).
SECTION 12. No Duties. The powers conferred on FNBB hereunder are solely
to protect their respective interests in the Collateral and shall not
impose any duty upon FNBB to exercise any such powers. Except for the safe
custody of any Collateral in their possession and the accounting for moneys
actually received by them hereunder, FNBB shall not have any duty as to any
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.
SECTION 13. Remedies. If any Event of Default shall have occurred
and be continuing and Grantor shall not have paid all Amounts
Payable:
(a) FNBB may, by notice to Grantor, declare all of the Amounts Payable
to be forthwith due and payable.
(b) FNBB, in lieu of or in addition to exercising any other power
hereby granted, may without notice, demand or declaration of default, which
are hereby waived by Grantor, proceed by an action or actions in equity or
at law for the seizure and sale of the Collateral or any part thereof, for
the specific performance of any covenant or agreement herein contained or in
aid of the execution of any power herein granted, for the foreclosure or
sale of the Collateral or any part thereof under the judgment or decree of
any court of competent jurisdiction, for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Collateral or any
part thereof or for the enforcement of any other appropriate equitable or
legal remedy.
(c) FNBB may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to
FNBB, all the rights and remedies (i) of Grantor under each Lease and other
agreement or commitment forming part of the Collateral and (ii) of a
secured party on default under the UCC, whether or not the UCC applies to
the affected Collateral, and also may (A) require Grantor to, and Grantor
hereby agrees that at its expense and upon request of FNBB it shall
forthwith, assemble all or part of the Collateral as directed by FNBB and
make it available to FNBB at such places reasonably convenient to all
parties as FNBB may designate and (B) without notice except as specified
below, sell the Collateral or any part thereof in one or more public or
private sales, at any of FNBB's offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such
other terms as FNBB may deem commercially reasonable. Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten (10)
days' notice to Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute
reasonable notification. FNBB shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. FNBB may
adjourn any public or private sale from time to time by public announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.
(d) All cash proceeds received by FNBB in respect of any sale of,
collection from or other realization upon all or any part of the Collateral
shall be applied as follows:
(i) First, to the payment of all reasonable out-of-pocket
costs and expenses incident to the enforcement of this Agreement,
including but not limited to compensation to the agents, contractors
and attorneys of FNBB and reasonable allocated costs of inhouse
counsel;
(ii) Second, to the payment of the Amounts Payable and
other Obligations; and
(iii) Finally, the remainder, if any, to Grantor or to
whomever may be lawfully entitled to receive such remainder;
provided, however, that Grantor shall remain liable to FNBB for any
deficiency in the Amounts Payable remaining after the application of such
proceeds as provided in this Section 13(d) and, provided, further, that
nothing herein contained shall in any way limit or restrict FNBB's right
to proceed directly against Grantor without first exhausting, or in any
manner exercising its rights in respect of, the Collateral.
(e) FNBB shall have the right to become the purchaser at any public
sale made pursuant to the provisions of this Section 13 and shall have the
right to credit against the amount of the bid made therefor the amount
payable to FNBB out of the net proceeds of such sale. Recitals contained
in any conveyance to any purchaser at any sale made hereunder shall, absent
manifest error, conclusively establish the truth and accuracy of the
matters therein stated, including, without limitation, nonpayment of the
Amounts Payable and advertisement and conduct of such sale in the manner
provided herein. Grantor does hereby ratify and confirm all legal acts that
FNBB may do in carrying out the provisions of this Agreement.
(f) Any sale of the Collateral or any part thereof pursuant to
the provisions of this Section 13 shall operate to divest all right,
title, interest, claim and demand of Grantor in and to the property
sold and shall be a perpetual bar against Grantor. Nevertheless, if
requested by FNBB to do so, Grantor shall join in the execution,
acknowledgment and delivery of all proper conveyances, assignments and
transfers of the property so sold. It shall not be necessary for FNBB to
have physically present or constructively in its possession any of the
Collateral at any such sale, and Grantor shall deliver all of the
Collateral to the purchaser at such sale on the date of sale and, if it
should be impossible or impractical then to take actual delivery of the
Collateral, the title and right of possession to the Collateral shall
pass to the purchaser at such sale as completely as if the same had
been actually present and delivered. Grantor agrees that, if Grantor
retains possession of the property or any part thereof subsequent to
such sale, Grantor shall be considered a tenant at sufferance of the
purchaser and shall, if Grantor remains in possession after demand to
remove, be guilty of forceful detainer and be subject to eviction and
removal, forcible or otherwise, with or without process of law, and
all damages by reason thereof are hereby expressly waived by Grantor.
(g) Subject to any requirements of applicable law, Grantor agrees
that neither Grantor nor any of its Affiliates shall at any time have
or assert any right, under any law pertaining to the marshaling of
assets, the sale of property in the inverse order of alienation, the
administration of estates of decedents, appraisement, valuation,
stay, extension or redemption now or hereafter in force in order to
prevent or hinder the rights of FNBB or any purchaser of the Collateral
or any part thereof under this Agreement, and Grantor, to the extent
permitted by applicable law, hereby waives the benefit of all such laws.
(h) Upon any sale made under the powers of sale herein granted
and conferred, the receipt of FNBB shall be sufficient discharge to the
purchaser or purchasers at any sale for the purchase money, and such
purchaser or purchasers and the heirs, devisees, personal representatives,
successors and assigns thereof shall not, after paying such purchase money
and receiving such receipt of FNBB, be obliged to see to the application
thereof or be in any way answerable for any loss, misapplication or
nonapplication thereof.
(i) Each and every right, power or remedy hereby granted to FNBB
is in addition to, and not in derogation of, any right, power or remedy
granted by the Credit Agreement and the Note and shall be cumulative and
not exclusive, and each and every right, power or remedy, whether
specifically hereby granted or otherwise existing, may be exercised from
time to time and as often and in such order as may be deemed expedient by
FNBB and the exercise of any such right, power or remedy shall not be
deemed a waiver of the right to exercise, at the same time or thereafter,
any other right, power or remedy. No delay or omission by FNBB in the
exercise of any right, power or remedy shall impair any such right, power
or remedy or operate as a waiver thereof or of any other right, power or
remedy then or thereafter existing. Any and all covenants in this instrument
may from time to time by instrument in writing signed by FNBB may be waived
to such extent and in such manner as FNBB may desire, but no such waiver
shall ever affect or impair FNBB's right hereunder, except to the extent
specifically stated in such written instrument.
(j) Notwithstanding the foregoing, FNBB agrees not to interfere with a
lessee's quiet enjoyment of Equipment under a Lease, so long, but only so
long, as no event of default or termination, and no event which with the
giving of notice or lapse of time, or both, would constitute such an event,
has occurred under such Lease.
SECTION 14. Indemnity and Expenses.
(a) Grantor agrees to indemnify FNBB from and against any and all
claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement),
except claims, losses or liabilities resulting from FNBB's gross negligence
or willful misconduct.
(b) Grantor shall upon demand pay to FNBB the amount of any and
all reasonable out-of-pocket expenses, including reasonable allocated
costs of inhouse counsel and the reasonable fees and disbursements of
its counsel and/or any experts and agents, which FNBB may incur in
connection with (i) the custody, preservation, use or operation of,
sale of, collection from or other realization upon any of the
Collateral, (ii) the exercise or enforcement of any of the rights of
FNBB hereunder or (iii) the failure by Grantor to perform or observe any
of the provisions hereof.
SECTION 15. Amendments; Etc. Any amendment or waiver of any
provision of this Agreement, and any consent to any departure by
Grantor herefrom, shall be effected in accordance with and shall be
governed by Section 11.6 of the Credit Agreement.
SECTION 16. Notices; Etc. All notices and other communications
provided for hereunder shall be in writing (including telegraphic,
telecopied or telex communication) and mailed, telegraphed,
telecopied, telexed or delivered to each party at its address set
forth in the Credit Agreement or, as to each party, at such other
address as shall be designated by such party in a written notice to
the other party complying as to delivery with the terms of this
section. All such notices and communications shall, when mailed,
telegraphed, telecopied or delivered, be effective on receipt or, if
sent by telex, when the telex is sent and the appropriate answer back
is received.
SECTION 17. Continuing Security Interest; Etc. This Agreement shall
create a continuing security interest in the Collateral and shall (a)
remain in full force and effect until payment in full of the Amounts
Payable and performance in full of all of Grantor's Obligations; (b)
be binding upon Grantor, its successors and assigns, provided,
however, that Grantor shall not have the right to assign its rights
or obligations hereunder or any interest herein without the prior
written consent of FNBB; and (c) inure to the benefit of FNBB and FNBB's
successors, transferees and assigns. In the event that (i) there is excess
capacity under the Borrowing Base and (ii) no Default has occurred
and is continuing, FNBB shall, upon the request of Grantor, release the
security interest granted herein in a particular Lease, in which case FNBB's
security interest therein shall terminate, and all rights in such portion of
the Collateral shall revert to Grantor; provided, that (A) in no
event shall Collateral be released if immediately after such release
the outstanding principal balance of the Loans would exceed the
Borrowing Base and (B) the particular Collateral to be released shall
be subject to the approval of FNBB, in its sole discretion. Upon payment
in full of the Amounts Payable and performance in full of all of Grantor's
Obligations, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Grantor. Upon any such termination,
FNBB shall, at Grantor's expense, execute and deliver to Grantor such
documents as Grantor shall reasonably request to evidence such termination.
SECTION 18. Governing Law; Terms. This Agreement shall be governed
by and construed in accordance with the laws of the State of
California, as applied to contracts entered into by California
residents and to be performed entirely within California, except to
the extent that the validity or perfection of the security interest
hereunder or remedies hereunder in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the
State of California, including federal law. Unless otherwise defined
herein, terms used in Division 9 of the UCC in the State of
California are used herein as therein defined.
SECTION 19. Severability. If any provision of this Agreement is
held to be unenforceable for any reason, it shall be modified rather
than voided, if possible, in order to achieve the intent of the
parties to the extent possible. In any event, all other provisions of
this Agreement shall be deemed valid and enforceable to the full
extent possible.
SECTION 20. Releases. No release from the lien of this Agreement of
any part of the Collateral by FNBB shall in any way alter, vary or diminish
the force, effect or lien of this Agreement on the balance of the
Collateral.
SECTION 21. Subrogation. This Agreement is made with full
substitution and subrogation of FNBB in and to all covenants and warranties
by others heretofore given or made in respect of the Collateral or any part
thereof.
SECTION 22. Nature of Agreement. This Agreement will be deemed to
be and may be enforced from time to time as an assignment, chattel
mortgage, contract, deed of trust, financing statement, or security
agreement, and from time to time as any one or more thereof as is
appropriate under applicable state law.
SECTION 23. Counterparts. This Agreement may be signed in any
number of counterparts, and by different parties hereto in separate
counterparts, with the same effect as if the signatures to each such
counterpart were upon a single instrument. All counterparts shall be
deemed an original of this Agreement.
SECTION 24. Headings. The section headings used in this Agreement
are intended principally for convenience and shall not, by
themselves, determine the rights and obligations of the parties to
this Agreement.
SECTION 25. Entire Agreement. This Agreement, the Credit Agreement,
the Note and each Schedule delivered under this Agreement and all
documents or instruments to be delivered to FNBB hereunder or thereunder
contain all of the terms and conditions agreed upon by the parties relating
to the subject matter of this Agreement and supersede any and all prior and
contemporaneous agreements, negotiations, correspondence, understandings and
communications of the parties, whether oral or written, respecting that
subject matter.
GRANTOR: Triad Systems Financial Corporation
By: STANLEY F. MARQUIS
------------------
Stanley F. Marquis, President
FNBB: The First National Bank of Boston
By: OSCAR JALDOWSKI
---------------
Oscar Jaldowski
Title: Managing Director
EXHIBIT C
Opinion of Borrower's Counsel
September 29, 1995
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Dear Sir/Madame:
I have acted as Counsel to Triad Systems Financial Corporation
("TSFC"), a California corporation and to Triad Systems Corporation
("Triad"), a Delaware corporation (collectively TSFC and Triad are
called "Borrowers" herein) and I am rendering this opinion pursuant
to the Warehouse Credit Agreement, the Promissory Note, the Security
Agreement and the Operating and Support Agreement, all dated as of
August 21, 1995 (collectively, the "Agreements"). The Agreements are
among The First National Bank of Boston, a national banking
association ("Lender"), TSFC and/or Triad. Capitalized terms in this
opinion, unless specifically defined herein, have the meanings
assigned in the Agreements. In that capacity I have examined executed
counterparts of the Agreements delivered to you August 21, 1995. I
have also examined and am familiar with each of Borrowers' Articles
of Incorporation and Bylaws and the respective Resolutions of each
Borrowers Board of Directors authorizing and approving, as the case
may be, the Agreements and the transactions contemplated thereby.
In addition to the foregoing, I have examined such matters of law,
and made such further inquiries, as was in my judgment necessary or
appropriate in connection with rendering the opinions set forth
herein.
In providing my opinion in Paragraph B hereof I have made the
following assumptions:
A. Assumptions Made. Whenever my opinion herein with respect to
the existence or absence of facts is indicated to be based on my
knowledge or awareness, it is intended to signify that during the
course of my representation of Borrowers as herein described, no
information has come to my attention that would give me actual
present knowledge of the existence or absence of facts should be
drawn from the fact of my representation of Borrowers.
1. That Lender has complied with all laws, regulations,
ordinances, and orders of public authority applicable to it, and
possesses all requisite power and authority to enter into and to
perform its obligations and to enforce its rights and remedies under
the Agreements;
2. That except for the Agreements, there are no other
documents or agreements between Lender and others which would expand
or otherwise modify the obligations of Borrowers contained in the
Agreements or would have an effect on the opinions hereinafter
rendered;
3. That in connection with the enforcement of the Agreements,
Lender will fully comply with all provisions of applicable procedural
law, to the extent the benefits of such applicable law have not been
validly waived, including, but not limited to, provisions regarding
notice, service, and the order in which actions will be taken,
notwithstanding any provisions in such documents to the contrary;
4. That Lender will seek to enforce its rights under the
Agreements in good faith and only in circumstances and in a manner in
which it is commercially reasonable to do so; and
5. That Lender is a duly and validly licensed and in good
standing as a "Personal Property Broker" as that term is defined in
Section 2209 of the California Financial Code.
In addition, I have assumed that the representations and warranties
as to factual matters (excepting such factual matters as to which
opinions are being expressed herein) made by the Borrowers in the
Agreements are true and correct. I have also assumed the due
execution and delivery of the Agreements by any party other than the
Borrowers when due effectiveness thereof and that the Agreements are
binding obligations of the Lender.
B. Opinions Rendered. Subject to all other provisions hereof, it
is my opinion as of the date hereof that:
1. Due Organization. TSFC is a corporation duly organized,
validly existing and in good standing under the laws of California.
Triad is a corporation duly organized, validly existing and in good
standing under the laws of Delaware, and is fully qualified and
authorized as a foreign corporation to transact business in
California.
2. Authority. Each Borrower has the full power, authority and
legal right to enter into and perform its obligations under each of
the Agreements to which it is a party and all other instruments
required thereunder.
3. Principal Place of Business. The chief executive office of
TSFC and the office where it maintains its records concerning
payments under the Leases is located at 3055 Triad Drive, Livermore,
California 94550.
4. Binding Obligations. Each of the Agreements has been duly
authorized by the Borrowers. Upon execution and delivery each of the
Agreements will constitute the legal, valid and binding obligations
of the respective Borrower, enforceable against it for the practical
realization of the principal benefits of and/or security intended to
be provided by such documents; provided, however, that certain
rights, remedies and waivers contained in he Agreements may be
rendered ineffective, or limited, by applicable California Laws or
judicial decisions governing such provisions generally including the
following:
(a) The effect of Section 1717 of the California Civil Code,
which provides for mutuality of attorneys' fee awards;
(b) I express no opinion as to the enforceability, under
certain circumstances, of any provisions in the Agreements which
provide that rights or remedies are not exclusive, that every right
or remedy is cumulative and may be exercised in addition to or with
any other right or remedy, and that the election of some particular
remedy does not preclude recourse to one or more others;
(c) I express no opinion with respect to the enforceability,
under certain circumstances, of contractual provisions in the
Agreements respecting various self-help or summary remedies without
notice or opportunity for a hearing or cure, especially if their
operation would constitute a breach of the peace, work a substantial
forfeiture or impose a substantial penalty upon the burdened party;
(d) express no opinion as to the enforceability of the
provisions of the Agreements which provide for penalties, late
charges, or additional interest in the event of default by Borrowers
under the Agreements in view of the factual determinations required
under California law in the evaluation of late payments and
liquidated damages provisions.
(e) I express no opinion with respect to the enforceability of
provisions in the Agreements by which Borrowers authorize Lender on
its behalf to execute in Borrowers' name financing statements,
chattel mortgages or other instruments or notices;
(f) The effect, if any, of the future course of dealing among
the parties on provisions in the Agreements which provide that a
waiver or waivers by Lender shall not be deemed a waiver in
connection with a subsequent transaction or occurrence;
(g) The effect of Section 1670.5 of the California Civil Code
with respect to the enforceability of provisions of the Agreements
which provide that if any provision of the Agreements is held to be
illegal, invalid or unenforceable, the remaining provisions shall not
be affected thereby; and
(h) Limitations imposed by California law upon the availability
of the remedy of specific enforcement or other equitable remedies.
(I) California statutory provisions and case law holds to the
effect that a surety may be exonerated if the creditor alters the
original obligation of the principal without the consent of the
guarantor, elects remedies for default that may impair the
subrogation rights of the guarantor against the principal, or
otherwise takes any action without notifying the guarantor which
materially prejudices the guarantor unless the guarantor validly
waives such rights. While I believe that a California court should
hold that the explicit language contained in the Operating and
Support Agreement waiving such rights is enforceable, I express no
opinion with respect to the effect of (i) any modifications to or
amendment of the obligations of the Borrowers which materially
increases any surety or guarantee obligations of any Borrower
contained in the Operating and Support Agreement; (ii) any election
of remedies following the occurrence of an Event of Default under the
Agreements; or (iii) any other action by Lender which materially
prejudices any Borrower, if such modification, election or action
occurs without notice to a Borrower and without granting to Borrower
an opportunity to cure any default by any other Borrower.
5. Governmental Actions. To the best of my knowledge there are
no actions, suits or proceedings, at law or in equity, and no
proceedings before any arbitrator or by or before any governmental
commission, board, bureau or other administrative agency pending,
threatened against or affecting the Borrower, any properties or
rights of the Borrower, if adversely determined, could materially
impair the right of the Borrower's business substantially as now
conducted or could have a material adverse effect upon the financial
condition of the Borrower.
6. Approvals and Consents. Except for the filing of required
financing statements or any other steps as may be required to perfect
the security interests being granted to Lender, no stockholder
approval or authorization by, consent of, approval or license by,
exemption from or registration with any court or governmental
department, commission, board, agency or instrumentality, domestic or
foreign, is or will be necessary in connection with the execution,
delivery and performance by each Borrower of its respective
obligations under the Agreements.
7. Compliance with Laws. There is no law, governmental rule or
regulation, or to the best of my knowledge, no judgment decree or
order binding on any Borrower that would be contravened by the
execution, delivery and performance by that Borrower of its
respective obligations under the Agreements.
8. Actions. To the best of my knowledge, there are no actions,
suits, claims or disputes pending or threatened against or affecting
any Borrower or its properties before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, that are likely to have a material adverse
effect on the aggregate financial condition of the Borrowers or their
aggregate business or operations, or their ability to perform their
obligations under the Agreements or the security interests and liens
of Lender in and on the collateral referred to therein.
9. Conflict with other Agreements. The provisions of the
Operating and Support Agreement do not contravene or conflict with
the provisions of any obligation of Triad arising under any agreement
for the borrowing of funds between Triad, as borrower, and any
lending institution, as lender. I express no opinion, however,
respecting whether any such conflict or contravention may exist or
hereinafter arise between the Agreements and any other agreement
between any of the Borrowers and any lending institution, including
without limitation any agreement the essential purpose of which is to
finance (by purchase, discount, loan or otherwise) lease receivables,
equipment and related collateral of TSFC.
10. ERISA. To the best of my knowledge, the Borrower has not
incurred any accumulated funding deficiency within the meaning of
ERISA (as defined in the Agreement) or incurred any liability to the
PBGC (as defined in the Agreement) in connection with any employee
benefit plan established or maintained by the Borrower and no
reportable event or prohibited transaction, as defined in ERISA, has
occurred with respect to such plans.
C. General Disclaimers.
1. I am admitted to practice in the State of California and,
except as provided below, I am opining herein only as to the effect
of the laws of the State of California on the Agreements, and only
with respect to Borrowers and Lender. Except as provided below, I
assume no responsibility as to the applicability thereto, or the
effect thereon, of the laws of any other jurisdiction. In connection
with my opinions with respect to Triad's due organization, valid
existence, good standing, full power, authority and legal right to
enter into and perform its obligations under each of the Agreements,
with respect to there being no approval, authorization consent
required for the consummation by Triad of the transaction contemplated by
the Agreements, and the Agreements and the transactions contemplated
thereby not contravening any law, governmental rule or regulation,
judgment, or order binding on Triad, I have based my opinions as to the
above matters related to Delaware law solely upon my examination of such
standard compilations of the laws of Delaware as I considered reasonably
necessary. I have not obtained opinions of counsel licensed to practice
in jurisdictions other than the State of California.
2. The opinions set forth herein is given as of the date hereof.
I disclaim any obligation to notify Lender or any other person after
the date hereof if any change in fact and/or law should change my
opinion with respect to any matter set forth herein.
3. The opinions expressed herein are subject to general
principles of equity.
4. The opinions expressed herein are subject to the effects of
federal and state bankruptcy, insolvency, reorganization, moratorium,
and other similar laws and court decisions of general application or
legal or equitable principles relating to, limiting or affecting the
enforcement of creditor's rights.
5. I express no opinion with respect to any of the Borrowers'
title to any of the property or the proper legal description of any
of the property comprising the collateral in which security interests
are being granted to Lender, or with respect to the proper and timely
execution and filing of all required financing statements, or with
respect to the perfection or priority of any security interest being
granted to Lender.
This opinion is being furnished to you by me as house counsel for
Borrowers and is solely for your benefit and may not be relied upon
by any other person , association, firm or corporation without my
prior written consent, which I agree not to unreasonably withhold in
the event you propose to assign to a third party lending institution
all or some portion of your interest in the Agreements.
Very truly yours,
PATRICK J. KERNAN
Patrick J. Kernan
Corporate Legal Counsel
EXHIBIT "D"
TRIAD SYSTEMS FINANCIAL CORPORATION
&
TRIAD SYSTEMS CORPORATION
OFFICER CERTIFICATE
This Certificate is furnished pursuant to Section 5.1(c) of the
Warehousing Credit Agreement (the "Credit Agreement") dated as of
August 29, 1995 by and between Triad Systems Financial Corporation, a
California corporation ("TSFC"), as borrower, and The First National
Bank of Boston ("FNBB"), as lender. Unless otherwise defined herein,
the terms used in this Certificate have the meanings given to them in
the Credit Agreement.
6.1 Liens and Encumbrances
6.2 Employee Loans
6.3 Dividends
6.4 Restriction on Fundamental Changes
6.5 Transactions with Affiliates
6.6 Maintenance of Business
6.7 ERISA
6.8 No Use of Lender's Name
6.9 Fiscal Year
6.10 Indebtedness
7.1 Minimum Interest Coverage Ratio
7.2 Minimum Tangible Net Worth
7.3 Leverage Ratio
7.4 Profitability
The undersigned, Stanley F. Marquis, the President of TSFC and the
Vice President of Finance, Chief Financial Officer and Secretary of
Triad Systems Corporation, a Delaware corporation ("Triad"), pursuant
to Section 5.1(c) of the Credit Agreement, states and certifies as
follows:
1. The undersigned has read the covenants, agreements and
conditions contained in the Credit Agreement and the definitions
therein relating thereto.
2. The undersigned has reviewed the activities and the records of
the TSFC and Triad during the preceding fiscal quarter (fiscal year)
as to compliance with such covenants, agreements or conditions. The
statements and opinions contained in this Certificate are based upon
such examination and review and upon information as to the matters
covered by this Certificate gained by the undersigned as an officer
of TSFC and Triad, or from consultation with other officers of TSFC
and/or Triad under his supervision.
3. In his opinion, the undersigned has made such examination or
investigation as is necessary to enable him to express an informed
opinion as to whether such covenants, agreements or conditions have
been complied with.
4. In his opinion, he has made such examinations or investigations
as are necessary to enable him to express the opinions set forth in
paragraphs 5, 6 and 7 below.
5. That TSFC and Triad were in compliance with the requirements of
Sections 6.1 through 7.4 at the end of the preceding fiscal quarter
(fiscal year) as evidenced by the computations set forth on Schedule
A attached hereto and made a part hereof. The figures set forth in
Schedule A for determining compliance by the Company with the
financial covenants contained in the Credit Agreement are true and
complete as of the date hereof.
6. In his opinion, and to the best of his knowledge:
(a) there is no Default or Event of Default which has occurred
under the Credit Agreement; and
(b) TSFC and Triad have kept, observed, performed and
fulfilled each and every covenant contained in the Credit Agreement.
7. All representations and warranties of the Company stated in
Section 4 of the Credit Agreement are true, accurate and complete in
all material respects as of the date hereof; provided, however, that
those representations and warranties expressly referring to another
date shall be deemed to be made as of such date. Any changes,
additions, deletions or modifications to information contained on any
schedule or exhibit to the Credit Agreement or Security Agreement are
set forth on Schedule B hereto.
8. Attached as Schedule C are true and complete copies of any
compliance certificates delivered by Triad or TSFC, as the case may
be, to any other lenders to Triad or TSFC with respect to the
preceding fiscal quarter (fiscal year).
IN WITNESS WHEREOF, the undersigned have executed this Officer
Certificate as of this 29th day of August, 1995.
Triad Systems Financial Corporation
STANLEY F. MARQUIS
Stanley F. Marquis
President
Triad Systems Corporation
STANLEY F. MARQUIS
Stanley F. Marquis
Vice President, Finance, Chief
Financial Officer and Secretary
SCHEDULE A
to
EXHIBIT D
NEGATIVE COVENANTS
Indebtedness (Section 6.10)
REQUIRED: Not to exceed $15,000,000
ACTUAL: _________________________
FINANCIAL COVENANTS
Minimum Interest Coverage (Section 7.1)
REQUIRED:
August 29, 1995 minimum of 1.30 to 1
==========
September 30, 1995 minimum of 1.30 to 1
==========
December 31, 1995 minimum of 1.30 to 1
==========
March 31, 1995 minimum of 1.40 to 1
==========
June 31, 1995, and thereafter minimum of 1.50 to 1
==========
ACTUAL:
(i) Net Income plus tax expense
plus interest expense ("EBIT") $_____________
(ii) Interest expense
$_____________
(iii) Interest Coverage:
Line (i) divided by line (ii) : 1.00
==========
Tangible Net Worth (Section 7.2)
REQUIRED: minimum of $47,800,000, plus 75% of Net Income plus 100%
of New Equity
ACTUAL:
(i) Consolidated Net Worth $_____________
(ii) Less: Intangible Assets
($_____________)
(iii) Tangible Net Worth $_____________
Leverage Ratio
(Section 7.3)
REQUIRED: maximum of 1.5 to 1
==========
ACTUAL:
(i) Total liabilities $______________
(ii) Tangible Net Worth $______________
(iii) Line (i) divided by line (ii) : 1.00
==========
Profitability (Section 7.4)
(a) REQUIRED: Borrower shall not have an operating loss and/or net
loss on a consolidated basis greater than $1 in any fiscal quarter.
ACTUAL: __________
(b) REQUIRED: Triad shall not have an operating loss and/or net
loss on a consolidated basis greater than $1 in any fiscal quarter.
ACTUAL: $_________
(c) REQUIRED: Borrower shall not have an operating loss and/or net
loss on a consolidated basis, in any amount, in any fiscal year.
ACTUAL: $_________
(d) REQUIRED: Triad shall not have an operating loss and/or net
loss on a consolidated basis, in any amount, in any fiscal year.
ACTUAL: $_________
SCHEDULE B
TO
EXHIBIT D
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
UPDATE OF SCHEDULED INFORMATION
[This Schedule is to be used to disclose any exceptions to
representations and warranties made in any Loan Document and to
update information contained on Schedules or Exhibits to Loan
Documents.]
EXHIBIT E
Triad Systems Financial Corporation
LEASE AGREEMENT
1. LEASE. We ("TSFC") agree to lease to you ("Customer"), and you
agree to lease from us, subject to the terms of this Lease, the
personal and intangible property (together with all attachments,
replacements, parts, substitutions, additions, repairs, and
accessories incorporated therein and/or affixed thereto and any
license or subscription rights associated therewith) described above
("Products"). To the extent the Products include intangible property
or associated services, such as periodic software licenses and
prepaid database subscriptions ("Intangibles"), you agree to comply
throughout the Lease Term with any license and/or subscription
agreements entered into with the Supplier ("Supplier License"). TSFC
and you agree that all Products (including the Intangibles) shall be
deemed "Goods" as that term is defined under Section 10103(h) of the
California Uniform Commercial Code ("UCC") and that this Lease shall
be subject to Article 2A of the UCC as adopted by California
beginning at Section 10101 of the California Code.
2. TERM. The Lease Term will begin on the Lease Commencement Date
indicated above and will continue from the first day of the following
month for the number of consecutive months indicated above. THIS
LEASE IS NON-CANCELABLE FOR ITS ENTIRE TERM and you have no right of
prepayment.
3. ASSIGNMENT. WITHOUT THE PRIOR WRITTEN CONSENT OF TSFC, CUSTOMER SHALL
NOT SELL, SUBLET, PLEDGE, SUBLICENSE, OR OTHERWISE ENCUMBER, OR PERMIT A
LIEN TO EXIST ON OR AGAINST ANY INTEREST IN EITHER THIS LEASE OR THE
PRODUCTS, NOR SHALL CUSTOMER REMOVE ANY OF THE PRODUCTS FROM THE LOCATION
IDENTIFIED ABOVE. TSFC MAY ASSIGN ITS INTERESTS IN THIS LEASE AND SELL OR
GRANT A SECURITY INTEREST IN ALL OR ANY PART OF THE PRODUCTS WITHOUT YOUR
CONSENT. YOU AGREE THAT IN ANY ACTION BROUGHT BY AN ASSIGNEE AGAINST YOU TO
ENFORCE TSFC'S RIGHTS UNDER THIS LEASE, YOU WILL NOT ASSERT AGAINST SUCH
ASSIGNEE (AND EXPRESSLY WAIVE AS AGAINST ANY ASSIGNEE) ANY BREACH OR DEFAULT
BY TSFC UNDER THIS LEASE OR ANY OTHER DEFENSE, CLAIM OR SET-OFF WHICH YOU
MAY HAVE AGAINST TSFC EITHER UNDER THIS LEASE OR OTHERWISE. NO SUCH ASSIGNEE
SHALL BE OBLIGATED TO PERFORM ANY OBLIGATION, TERM OR CONDITION REQUIRED TO
BE PERFORMED BY TSFC HEREUNDER. YOU ACKNOWLEDGE THAT ANY ASSIGNMENT OR
TRANSFER BY TSFC SHALL NOT MATERIALLY CHANGE YOUR DUTIES OR OBLIGATIONS
UNDER THIS LEASE NOR MATERIALLY INCREASE THE BURDENS OR RISKS IMPOSED ON
YOU.
4. DISCLAIMER OF WARRANTIES; CUSTOMER'S OBLIGATIONS. YOU ACKNOWLEDGE
THAT TSFC IS NOT THE MANUFACTURER, SUPPLIER, OR SERVICE PROVIDER OF THE
PRODUCTS NOR AN AGENT OR DEALER OF ANY OF THEM. YOU ACKNOWLEDGE THAT YOUR
SELECTION OF THE PRODUCTS IS BASED UPON YOUR OWN EVALUATION OF THE
REQUIREMENTS OF YOUR BUSINESS AND YOUR EVALUATION OF THE FUNCTIONS,
CAPACITIES, CAPABILITIES, MANUFACTURE AND SPECIFICATIONS OF THE PRODUCT.
YOU ARE SATISFIED THAT ALL OF THE PRODUCTS ARE SUITABLE AND FIT FOR THEIR
PURPOSES AND TSFC HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR
REPRESENTATION WHATSOEVER, EXPRESS OR IMPLIED, AS TO THE FITNESS,
CONDITION, MERCHANTABILITY, DESIGN, OPERATION OR SERVICEABILITY OF THE
PRODUCTS, THEIR FITNESS FOR ANY PARTICULAR PURPOSE, THE QUALITY,
ACCURACY, TIMELINESS OR CAPACITY OF THE MATERIALS OR INTANGIBLES IN, OR
SERVICES ASSOCIATED WITH, THE PRODUCTS OR WORKMANSHIP IN THE PRODUCTS,
TSFC'S TITLE TO THE PRODUCTS, NON-INFRINGEMENT OF ANY THIRD PARTY RIGHTS,
NOR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER. TSFC SHALL NOT BE
LIABLE TO CUSTOMER FOR ANY LOSS, DAMAGE OR EXPENSE OF ANY KIND OR NATURE
CAUSED, DIRECTLY OR INDIRECTLY, BY ANY PRODUCT, THE USE, MAINTENANCE, OR
FAILURE OF OPERATION OR SERVICE THEREOF OR UPDATES THERETO, OR THE
REPAIR, SERVICE, ACCURACY, CURRENTNESS OR ADJUSTMENT THEREOF, OR BY ANY
DELAY OR FAILURE TO PROVIDE ANY MAINTENANCE REPAIRS, SERVICE, UPGRADES,
OR ADJUSTMENT OR BY ANY INTERRUPTION OF SERVICE, LOSS OF DATA OR DATA
CORRUPTION, OR LOSS OF USE THEREOF OR FOR ANY LOSS OF BUSINESS HOWEVER
CAUSED. TSFC SHALL NOT BE LIABLE UNDER THIS LEASE FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES WHATSOEVER.
5. NON-CANCELABLE LEASE; OBLIGATIONS UNCONDITIONAL. EXCEPT AS
EXPRESSLY PROVIDED HEREIN, THIS LEASE CANNOT BE CANCELED OR
TERMINATED. YOU AGREE THAT YOUR OBLIGATION TO PAY ALL OF YOUR RENTAL
PAYMENTS AND TO PERFORM ALL OTHER OBLIGATIONS UNDER THIS LEASE SHALL
BE ABSOLUTE, IRREVOCABLE AND UNCONDITIONAL AND SHALL BE PAID OR
PERFORMED, AS THE CASE MAY BE, WITHOUT ABATEMENT, DEDUCTION OR OFFSET
OF ANY KIND OR NATURE WHATSOEVER.
6. FINANCE LEASE. TSFC and you agree, solely for the purposes
hereof, that this Lease is a "Finance Lease" as defined by
S10103(1)(g) of the California UCC. Such characterization shall draw
no tax or accounting inference. You acknowledge either: (a) that you
have reviewed and approved any written Supply Contract (as defined by
UCC S10103(1)(y)) covering the Products acquired from the "Supplier"
(as defined by UCC S10103(1)(x)) thereof for lease to Customer; or
(b) that TSFC has informed or advised you, in writing, either
previously or under this Lease of the following: (i) the identity of
the Supplier; (ii) that you may have rights under the Supply
Contract; and (iii) that you may contact the Supplier for a
description of any rights you may have under the Supply Contract. You
acknowledge that you have reviewed and approved the Supply Contract
and Supplier License covering the Products acquired from the
Supplier.
7. RENT. As rent for the Products, Customer shall pay TSFC the Total
Rent specified on the cover page of this Lease over the entire Lease
Term. The Security Deposit and Rental Payment (each as identified on
the cover page) for the first month of the Lease Term shall be due
with your execution of this Lease. Subsequent Rental Payments shall
be due on the first day of each subsequent month in advance for the
remainder of the Lease Term. In addition, you agree to pay an interim
rental payment for the period between the Lease Commencement Date and
the first full month of the Lease Term ("Interim Rent"). The Interim
Rent shall be calculated as a pro-rata portion of the first monthly
Rental Payment, to be paid by Customer using a thirty (30) day month.
We will invoice you for the Interim Rent, which shall be due and
payable on receipt. The Security Deposit, Interim Rent and all
Monthly Rent shall be paid in U.S. dollars to TSFC at its address set
forth above, or as otherwise directed by TSFC in writing. If any part
of a Rental Payment or other amount due to TSFC is more than ten (10)
days late, you agree to pay a late payment fee of five percent (5%)
of the total amount due.
8. DELIVERY AND ACCEPTANCE OF PRODUCTS. TSFC is not responsible
under any circumstances for the shipment of the Products to you or
the risk of loss or damage to the Products in shipment. You agree to
pay all charges and other costs and expenses incurred in connection
with the shipment and delivery of the Products and pay all lawful
claims, whether for labor, materials, supplies, rents or services,
which might or could if unpaid become a lien on the Products. Once
the Products (other than any subsequent Intangibles, such as software
updates) ("Initial Products") are "delivered, installed and
accepted," you agree to sign and mail to TSFC the Acknowledgment of
Delivery and Acceptance return postcard ("Acknowledgment"). You shall
be deemed to have irrevocably accepted the Products upon the earlier
of: (a) the date of the Acknowledgment; or (b) five (5) business days
after delivery of the Initial Products unless TSFC receives written
notice during that five (5) business day period of your rejection of
the Products, specifying the reasons for such rejection and
referencing this Lease. You agree that five (5) business days is a
reasonable and sufficient period of time for you to examine the
Products. If you reject the Products and notify TSFC as provided in
this paragraph, you and TSFC shall each be relieved of all
obligations and liabilities under this Lease, with the understanding
that TSFC may retain the Security Deposit, Interim Rent and any
Rental Payments paid to TSFC with regard to the Products as
liquidated damages for the loss of a bargain and not as a penalty.
Neither the validity of this Lease nor the Lease Commencement Date
shall be affected by any delay in installation of the Products
following delivery to you.
9. INTANGIBLES. Notwithstanding anything to the contrary in this
Lease, to the extent that the Products include Intangibles, you
understand and agree that: (a) TSFC has not had and does not have,
any right, title or interest in such Intangibles; (b) you are
responsible for entering into a Supplier License(s) by no later than
the Lease Commencement Date with respect to the Intangibles; (c) TSFC
shall not be a party to nor shall it have any responsibilities under
such Supplier License or otherwise with respect to the Intangibles;
and (d) your Rental Payments and other obligations under this Lease
shall in no way be diminished due to any lack of performance of any
of your or your Supplier's obligations, or for any other reason
whatsoever, under such Supplier License.
10. TITLE, USE AND MAINTENANCE. So long as no Event of Default (as
defined in Section 17 below) shall have occurred and subject to the
Supplier License, you are entitled to possession and use of the
Products for the Lease Term in your business in accordance with the
provisions of this Lease and the Supplier License (if any). Except
with respect to the Intangibles, the Products are and shall at all
times be and remain, the sole and exclusive property of TSFC. Those
Products are, and shall remain personal property even if those
Products or any part thereof are or become attached to real property.
You are required to keep the Products in good repair, condition and
working order, and furnish any and all parts, mechanisms, upgrades
and devices required to keep the Products in good repair, condition
and working order, at your cost and expense. The maintenance of the
Products must be sufficient to sustain the value of the Products to
TSFC during the Lease Term and therefore, if you elect to have the
Products maintained by a service provider other than the Supplier,
the scope and quality of the maintenance must be equivalent or better
than that offered by the Supplier. Except as necessary for such
maintenance, you are not permitted to make any changes or alterations
in or to the Products without the prior written consent of TSFC. You
will mark and identify the Products with all information and in such
manner as TSFC may request from time to time. You will grant TSFC
free access either in person (during business hours) or
electronically to enter upon the premises or system where the
Products are located or used and permit TSFC to inspect the Products.
You are not permitted to change the location of the Products from the
address indicated on the cover page of this Lease without the prior
written consent of TSFC. You will not create or allow any lien or
other encumbrance of any kind whatsoever upon the Products or this
Lease (or any of your interests in this Lease).
11. SECURITY DEPOSIT. TSFC may, at its option, apply your Security
Deposit to satisfy any amounts owed to TSFC, in which case you are
required to promptly replenish the Security Deposit to the amount
indicated on the cover page of this Lease. If you fulfill all of your
obligations under this Lease, TSFC will refund the Security Deposit
to you after the expiration of the Lease Term.
12. INSURANCE. TSFC at its own expense, will obtain or provide
insurance covering the loss of damage to the Products as a result of
theft, fire and such other risks TSFC deems prudent, with the
understanding that such coverage shall be subject to a Five Hundred
Dollar ($500) deductible for which you will be solely liable.
Coverage by TSFC does NOT include, without limitation, loss or
damages arising out of or resulting from: war, enemy attack or
invasion, civil war, riots and related hostile activities; nuclear
reaction, nuclear radiation or radioactive contamination; dishonesty
of customer's employees; power fluctuations or other electrical
injury caused by sources outside of the Products; software viruses or
programs not supplied as part of the Products; inherent vice,
temperature or atmosphere changes; latent defect, mechanical
breakdown, faulty materials or workmanship of the Products;
maintenance or attempted maintenance of the Products; business
interruption; loss of use; or mysterious disappearance
("Exclusions"). You agree, at your expense, to keep and maintain in
full force and effect comprehensive public liability insurance
throughout the Lease Term (or renewal or extension thereof) with
respect to the Products with an insurance company acceptable to TSFC.
Such coverage shall, at a minimum, insure against risk of bodily
injury, personal liability, and property damage with carriers and
coverage limits acceptable to TSFC.
13. LOSS OR DAMAGE TO PRODUCTS. Except when resulting from any of
the Exclusions, should loss or damage occur, TSFC shall, at its
option, repair or replace the affected Products; provided, however,
that TSFC shall have no obligation to you with respect to such claim
if, after or as a result of the loss or damage, your business does
not continue as a going concern. You are responsible for the first
Five Hundred Dollars ($500) of the claim. If the loss or damage to
the Products is due to an Exclusion, you are required to repair or
replace the Products to the satisfaction of TSFC. No loss or damage
to the Products (or any part thereof) shall impair any of your
obligations under this Lease and under such circumstances this Lease
shall continue in full force and effect.
14. TAXES. You are required to pay TSFC when due, all license fees,
assessments and sales, use, property, excise and other taxes now and
hereafter imposed by any governmental body or agency upon the
Products in connection with its use ("Taxes"). TSFC will pay on your
behalf such Taxes and file applicable returns. You agree to pay TSFC
a charge for TSFC's collection and handling of such Taxes.
15. FINANCIAL STATEMENTS. You agree to provide financial profit and
loss statements to TSFC during the Lease Term in such form and at
such times as TSFC may require.
16. INDEMNIFICATION. You agree to indemnify and hold TSFC, its
officers, directors and employees harmless from and against all
claims, losses, liabilities (including attorneys' fees) arising out
of or in any manner connected with the manufacture, purchase,
license, subscription, financing, ownership, delivery, rejection,
nondelivery, possession, use, dismantling, transportation, storage,
operation, maintenance, repair, return or other disposition of the
Products or otherwise under this Lease. You agree to give TSFC prompt
notice of any such claim or liability. You further agree to reimburse
TSFC for all charges, costs and expenses (including attorneys' fees)
incurred by TSFC in defending or protecting its interests in the
Products, this Lease or any Supplier Contract or Supplier License.
17. EVENTS OF DEFAULT. Any of the following shall constitute an
"Event of Default" under this Lease: (a) You fail to pay any Interim
Rent, Security Deposit, Rental Payment or other amount due under the
Lease to TSFC within ten (10) days of the applicable due date;
(b) You fail to perform or observe any other obligation due TSFC
under this Lease or under any related Supplier Agreement or Supplier
License, and such failure is not cured within ten (10) days after the
date of written notice from TSFC; (c) You or any guarantor of this
Lease dies, becomes insolvent or becomes generally unable to pay
debts when due or transfers all or substantially all of its assets,
makes an assignment for the benefit of creditors or undergoes a
substantial deterioration of financial condition; (d) You or any
guarantor of this Lease shall voluntarily file, or have filed against
it involuntarily, a petition for liquidation, reorganization,
adjustment of debts or similar relief under the Federal Bankruptcy
Code or any state insolvency law, or if any trustee, receiver or
liquidator shall be appointed over it or over all or part of its
assets; (e) You default under any other agreement at any time
executed with TSFC, Triad Systems Corporation ("Triad"), or any
subsidiary or affiliate of Triad; or (f) You cease all or
substantially all of your business operations, or the business
operations where the Products are being used.
18. REMEDIES. Upon the occurrence of an Event of Default, TSFC may
do any one or more of the following: (a) terminate the Lease and
accelerate all remaining Rental Payments due under the Lease in the
amount of "TSFC's Loss" (as defined below); (b) immediately terminate
your right to use the Products, including the disabling (on-site or
by remote communication) of any Intangibles and demand the immediate
return of all Products; (c) sell, re-lease and/or re-license any or
all of the Products at a public or private sale on such terms and
notice as TSFC shall deem reasonable and recover from you as damages
(and not as a penalty) an amount equal to the sum of (1) TSFC's Loss,
plus (2) all commercially reasonable costs and expenses incurred by
TSFC in any repossession, recovery, storage, repair or refurbishment,
sale, re-lease, re-license, or other disposition of the Products,
including reasonable attorneys' fees and costs incurred by TSFC
enforcing its rights under the Lease (reduced by the amount received
by TSFC upon such public or private sale, re-lease or re-license of
the Products, if any), and (d) exercise any other right or remedy
available to TSFC at law or in equity, including all of the remedies
of a "lessor" under Article 2A, and of a "secured party" under
Article 9, of the California UCC. You and TSFC agree that TSFC's
damages suffered by reason of your default are uncertain and not
capable of exact measurement at the time this Lease is executed
because the value of the Products and expiration of this Lease are
uncertain, and therefore the parties agree that "TSFC's Loss" as of
any date shall be the sum of the following: (i) the amount of the
Interim Rent, Rental Payments and other amounts due and payable by
Customer under this Lease but unpaid at the date of calculation; plus
(ii) the amount of all remaining unpaid Rental Payments for the
balance of the Lease Term discounted from the respective dates such
payments would be due at the rate of five percent 5% per annum; plus
(iii) the Purchase Option amount indicated on the cover page of this
Lease (if no Purchase Option amount is provided, the percentage for
purposes of this calculation shall be twenty (20%)), which represents
TSFC's anticipated end of Lease residual value.
19. RETURN OF PRODUCTS. Upon the expiration of the Lease Term
(including any renewal term) or upon the early termination pursuant
to Section 18 with respect to any Products, or any part or item
thereof, you shall, at your own risk and expense, immediately return
the Products to TSFC in the same condition as when originally
delivered, ordinary wear and tear excepted, to the location
designated by TSFC at your cost.
20. FURTHER ASSURANCES. You agree to cooperate with TSFC to protect
TSFC's interests in the Products, this Lease and the amounts due
under this Lease, including, without limitation, the execution of all
UCC financing statements requested by TSFC. You hereby authorize TSFC
(to the extent permitted by applicable law) to file one or more UCC
financing statements disclosing any security interests in the
Products, this Lease and the amounts due under this Lease, without
your signature or signed by TSFC as your attorney-in-fact. You agree
to pay all costs for filing any financing, continuation or
termination statements with respect to this Lease, including without
limitation, any related documentary stamp taxes.
21. NOTICE. Any notices or demands required or permitted under this
Lease must be in writing. They will be deemed given when received if
(a) delivered personally, (b) sent by confirmed telex or telecopy,
(c) sent by commercial overnight courier with written verification of
receipt, or (d) sent by regular mail. Such notices shall be treated
as having been received upon the earlier of actual receipt or five
(5) days after sending.
22. SEVERABILITY AND WAIVER. If any provision of this Lease shall be
deemed illegal or otherwise unenforceable, in whole or in part, that
provision shall be enforced only to the extent legally permitted, and
the remainder of the provision and this Lease shall remain in full
force and effect. TSFC's failure at any time to require your strict
performance of any of the provisions of this Lease shall not waive or
diminish TSFC's right thereafter to demand strict compliance with
such provision or with any other provision of the Lease. TSFC's
waiver of your breach of any provision of this Lease shall not
operate or be construed as a waiver of any subsequent breach by you.
23. NO AGENCY. You acknowledge and agree that neither the
manufacturer, Supplier, or service provider, nor any salesman,
representative or other agent of the manufacturer, Supplier or
service provider is an agent of TSFC. No salesman, representative or
agent of the manufacturer, Supplier or service provider is authorized
to waive or alter any term or condition of this Lease and no
representation as to the Products or any other matter by the
manufacturer, Supplier or service provider shall in any way affect
Customer's duty to pay rent and perform its other obligations as set
forth in this Lease.
24. CUSTOMER'S WAIVERS; LIMITATIONS. To the extent permitted by
applicable law, you hereby waive any and all rights and remedies
conferred upon a lessee/customer by SS10518 through 10522 of the
California UCC. Any action by Customer against TSFC for any default
by TSFC under this Lease shall be commenced within one (1) year after
any such cause of action accrues. In no event will TSFC's liability
in connection with the proper exercise of its rights upon the
occurrence of one or more Events of Default exceed, in the aggregate,
the Rental Payments paid by Customer to TSFC during the twelve (12)
month period immediately preceding such Event of Default. This
limitation is cumulative, with all payments to you for such claims or
damages being aggregated to determine satisfaction of this limit. The
existence of one or more claims will not enlarge this limitation on
amount.
25. GOVERNING LAW. This Lease shall in all respects be governed by,
and construed in accordance with, the laws of the State of
California, including all matters of construction, validity and
performance. You agree to submit to the jurisdiction of the state
and/or federal courts in the State of California. This Lease was
executed in the State of California (by TSFC having countersigned it
in California) and is to be performed in the State of California by
reason of the payments required to be made to TSFC in California.
26. MISCELLANEOUS. Time is of the essence with respect to this
Lease. This Lease constitutes the entire understanding or agreement
between TSFC and Customer and supersedes in its entirety all
simultaneous or prior oral or written agreements regarding the
subject matter of this Lease. A modification or amendment to this
Lease shall only be binding upon the parties if made in writing and
signed by both Customer and an authorized officer of TSFC in
California.
Guaranty
In consideration of Triad Systems Financial Corporation ("TSFC")
entering into the Lease Agreement on the face side with the Customer
identified thereon, the undersigned unconditionally guarantees to
TSFC, its successors and assigns, the prompt payment, observance, and
performance when due of all obligations of Customer under all leases
and other financial obligations ("Guaranteed Obligations").
Capitalized terms not otherwise defined have the meanings specified
in the above-referenced Lease between Customer and TSFC. TSFC shall
not be required to proceed against Customer or the Products or
enforce any other remedy before proceeding against the undersigned
under this guaranty. The undersigned agrees to pay TSFC all
attorneys' fees and expenses incurred by TSFC by reason of any
default by the Customer under any agreement relating to Guaranteed
Obligations and/or to enforce its rights against the undersigned
under the terms of this guaranty.
The undersigned waives any claim or other right which the
undersigned might now have or hereafter acquire against the Customer
or any person that is primarily or contingently liable on the
obligations guaranteed hereby.
The undersigned waives notice of acceptance hereof and all other
notices or demands of any kind to which it may be entitled and
consents that TSFC may, without affecting the undersigned's liability
under this guaranty, compromise or release, in terms satisfactory to
it or by operation of law or otherwise, any rights against Customer
and other obligors and guarantors, grant extensions of time of
payment to Customer; and to the transfer, sale or any other
disposition of the Products and the Lease.
Upon any default by Customer in the payment and performance of its
obligations under this lease with TSFC, the liabilities and
obligations of the undersigned hereunder shall, at the option of
TSFC, become forthwith due and payable to TSFC upon demand and
notice.
This is a continuing guaranty and shall not be discharged or
affected by death of the undersigned, shall bind the heirs,
administrators, representatives, successors and assignees of the
undersigned, and may be enforced by or for the benefit of, any
assignee or successor of TSFC to the same extent TSFC may, itself,
enforce it. THIS GUARANTY SHALL BE GOVERNED BY THE LAWS OF
CALIFORNIA.
Signature (No title) Print Name
__________________________ _________________________
Signature (No title) Print Name
__________________________ _________________________
EXHIBIT F
LEASE AND EQUIPMENT SCHEDULE
AND
BORROWING BASE CERTIFICATE
This Lease and Equipment Schedule and Borrowing Base
Certificate, dated as of August 29, 1995 (the "Schedule"), is
made by Triad Systems Financial Corporation, a California
corporation ("Grantor") in favor of The First National Bank of
Boston ("FNBB").
Recital
A. Pursuant to that certain Warehousing Credit Agreement dated as
of August 29, 1995 (as the same may from time to time be amended, modified
or supplemented, the "Credit Agreement") by and between Grantor and FNBB,
FNBB has agreed to make certain advances of money and to extend certain
financial accommodations to Grantor in the amounts and manner set forth in
the Credit Agreement.
B. Grantor has executed that certain Security Agreement, dated as of
August 29, 1995 in favor of FNBB (the "Security Agreement").
C. As a condition precedent to FNBB's obligation to make Loans to Grantor,
the Credit Agreement and the Security Agreement provide that FNBB must
receive (1) an executed Schedule substantially in this form covering each
Lease and the Equipment covered thereby which is Collateral for the Loans
and (2) a current Borrowing Base Certificate.
Now, Therefore, the parties agree as follows:
1. Definitions and Terms
The terms defined in the Credit Agreement and the
Security Agreement have the respective meanings set forth
therein and such definitions are incorporated herein by this
reference. The definitions are equally applicable to both the
singular and plural forms of the respective terms.
2. Borrowing Base Certificate
Grantor hereby certifies that:
(a) Attached hereto as Exhibit A and incorporated herein by
this reference is the Borrowing Base Certificate required pursuant
to Section 5.1(d) of the Credit Agreement.
(b) Such Borrowing Base Certificate includes a summary of the
Eligible Leases which are collateral for the Loans under the Credit
Agreement, including (a) the following information with respect to the
Eligible Leases: the names of lessees, the master lease numbers, the lease
schedule numbers (if applicable), the New Asset Value for such Eligible
Leases and/or the amount of any pending leases which are Eligible Leases,
and the Loan Amount with respect to such Leases, all calculated in
accordance with the definition of Borrowing Base set forth in the Credit
Agreement and (b) the sum of the Loan Amounts with respect to such Eligible
Leases. The figures used to calculate the amounts set forth in Exhibit A
for determining the Borrowing Base are true and complete as of the date
hereof.
(c) All of the Eligible Leases set forth in Exhibit A meet the
definition of Eligible Lease set forth in the Credit Agreement.
(d) All representations and warranties of the Company stated in
(i) Section 4 of the Credit Agreement and (ii) Section 4 of this Lease and
Equipment Schedule with respect to each Eligible Lease set forth in
Exhibit A, are true, accurate and complete in all material respects as of
the date hereof; provided, however, that those representations and
warranties expressly referring to another date shall be deemed to be made
as of such date.
3. Inclusion of Leases or Equipment Schedules and Equipment in
Collateral
Each of the Leases listed in Exhibit A hereto together with all
of the Equipment subject to each such Lease is hereby included as
"Collateral", as defined in Section 1 of the Security Agreement, to the
same effect as if such Lease and Equipment were expressly set forth in the
definition of collateral contained in such Security Agreement.
4. Representations and Warranties Respecting Collateral
Grantor hereby represents and warrants with respect to the Leases
and Equipment described in Section 3 above, as follows:
(a) The principal place of business and chief executive office
of Grantor and the office where Grantor keeps its records and files
concerning the Leases and its original executed copies of the Leases are
located at 3055 Triad Drive, Livermore, California 94550. Upon FNBB's
request, Grantor will deliver to FNBB a photocopy of each of the Leases.
(b) Grantor owns the Collateral described in Section 3 above free
and clear of any lien, security interest, charge or encumbrance, except for
(i) the security interest created by the Security Agreement, (ii) the
interests of the lessees under the Leases, and (iii) other Permitted Liens.
Grantor has paid, caused to be paid or will cause to promptly be paid, all
invoice prices, transportation and delivery costs, taxes and any
acquisition or other fees relating to the Equipment. Grantor has all
necessary authority to encumber and grant a security interest in the
Collateral.
(c) Each item of Equipment the ownership of which, under applicable
law, is or should be evidenced by a certificate of title, will be properly
titled in the name of Grantor no later than the next Funding Date after the
date of this Schedule.
(d) All information furnished or to be furnished FNBB by or on
behalf of Grantor in connection with the collateral is or will be complete
and accurate. Grantor shall defend and hold harmless FNBB against all
persons whomsoever claiming the Collateral or any part thereof.
(e) Grantor has received from the lessees under the Leases all such
documents, schedules, agreements, Certificates of Delivery and Acceptance,
certificates and other items as were required pursuant to each such Lease,
and each such Lease is in the form attached to the Credit Agreement as
Exhibit E, as may be modified pursuant to the Credit Agreement.
(f) This Schedule together with the Security Agreement create a
valid security interest of FNBB in the Collateral (subject only to the
security interests of others referred to in (b), for so long as such
security interests are permitted by the provisions of the Security
Agreement), securing the payment of the Obligations, and all filings and
other actions necessary to perfect and protect such security interest
have been duly taken, including, without limitation, the making of all
filings against the lessees under the Leases necessary to perfect
Grantor's interest in the Equipment.
(g) No consent, authorization, approval or other action by, and
no notice to or filing with, any Governmental Agency, lessee or other
person or entity is required either (i) for the grant by Grantor of the
security interest granted in the Security Agreement and hereby or for the
execution, delivery or performance of this Schedule by Grantor or
(ii) except for the filing of a financing statement in the appropriate
jurisdictions, for the perfection or exercise by FNBB of its rights and
remedies hereunder.
(h) Each Lease described in Exhibit A constitutes the valid and
enforceable obligation of the lessee thereunder, enforceable against such
lessee in accordance with its respective terms, except as the
enforceability thereof may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and except as
the remedy of specific performance or of injunctive relief is subject to
the discretion of the court before which any proceeding therefor may be
brought. Each item of Equipment subject to any such Lease has been
delivered to, and accepted by, the lessee under the respective Lease.
No event of default or termination, and no event which with the giving of
notice or lapse of time, or both, would constitute such an event, has
occurred on the part of any party under any such Lease. There does not
exist in respect of any such Lease any claim, offset, defense or other
right on the part of the lessee thereunder to reduce in any manner the
amounts payable under such Lease.
5. General Representations and Warranties
(a) The representations and warranties set forth in Section 4 of
the Credit Agreement are true and correct as of the date hereof, provided
that the representations and warranties set forth in Section 4.6 of the
Credit Agreement shall be deemed to be made with respect to the financial
statements most recently delivered to FNBB.
(b) As of the date hereof, there exists no Default under the
Credit Agreement.
6. Schedule
This Schedule shall be construed as supplemental to the Security
Agreement and shall form a part of the Security Agreement. The Security
Agreement is incorporated herein by this reference. The Security
Agreement, and each and every provision thereof, remain in full force and
effect and are hereby ratified, approved and confirmed.
7. Counterparts
This Schedule may be executed in separate counterparts, each of
which when executed and delivered is an original, but all such counterparts
shall together constitute the Schedule.
In Witness Whereof, Grantor has executed this Schedule as of the 22nd day
of November, 1995.
GRANTOR: Triad Systems Financial Corporation
By: RONALD D. LINDBERG
-------------------
Printed Name: Ronald D. Lindberg
Title: Assistant Treasurer
FNBB: The First National Bank of Boston
By: OSCAR JALDOWSKI
---------------
Printed Name: Oscar Jaldowski
Title: Managing Director
Triad Systems Financial Corporation
Borrowing Base Certification
$(000)
Gross lease receivables pledged to FNBB $________________________
less Unearned Income -________________
plus Residual Value +________________
= Net Asset Value of leases pledged to FNBB $________________________
less Aggregate Value of Leases pledged that
are > 90 days past due -________________
less Aggregate Value of Leases
otherwise ineligible -________________
plus Aggregate Value of Pending Leases +________________
= Total Eligible Leases =________________
times 85% Advance Rate x 0.85
= Borrowing Base Amount $________________
Eligible Loan Amount (lesser of Borrowing
Base or $12,000,000 $________________
Outstanding under FNBB Credit Agreement dated 8/29/95 $________________
Date: 11/22/95
EXHIBIT "G"
OPERATING AND SUPPORT AGREEMENT
OPERATING AND SUPPORT AGREEMENT entered into as of August 29, 1995
among TRIAD SYSTEMS CORPORATION, a Delaware corporation ("Triad"),
TRIAD SYSTEMS FINANCIAL CORPORATION, a California corporation
("TSFC"), and THE FIRST NATIONAL BANK OF BOSTON , a national banking
association ("Lender").
INTRODUCTION
1. Triad is in the business of manufacturing and marketing
computer systems ("System(s)"), and providing servicing therefor.
2. TSFC is in the business of purchasing Systems for the purpose
of leasing the same to the end-users thereof.
3. TSFC has entered into a Warehousing Credit Agreement dated as
of August 21, 1995, with Lender (the "Warehousing Credit Agreement")
pursuant to which Lender agrees to lend to TSFC the discounted value
of certain lease receivables and TSFC agrees, in order to secure
repayment of such loans, to grant to Lender a security interest in
such receivables, the related leased equipment and the related
leases.
NOW, THEREFORE, in consideration of the mutual covenants of the
parties, it is agreed as follows:
1. Definitions. As used herein, the following terms shall have
the meanings set forth below:
(a) "Lease" - as defined in Section 1 of the Warehousing
Credit Agreement.
(b) "Customer" - any person who leases a System under a Lease.
(c) "Triad" - shall have the same meaning as set forth in
Section 1 of the Warehousing Credit Agreement.
(d) "Obligations" - as defined in Section 1 of the
Warehousing Credit Agreement.
2. Marketing Opportunity. TSFC agrees that Triad may offer to its
Customers interested in leasing a System the alternative of entering
into a Lease with TSFC upon such terms as shall be fixed from time to
time by TSFC. TSFC shall have and retain the right to reject any
Customer interested in acquiring a System, but if TSFC and the
Customer enter into a Lease with respect to a System, then Triad
agrees to sell to TSFC such System on the terms and conditions
hereinafter set forth.
3. Sale of System. If TSFC and a Customer enter into a Lease with
respect to a System, then Triad agrees to sell such System to TSFC to
install the System at the location designated by Customer, and to
provide all installation and initial services required to obtain the
acceptance by Customer of said System.
4. Price. The sales price of any System sold by Triad to TSFC in
accordance with this Agreement shall be Triad's usual list price for
the System, less any discount, acceptable to Triad, agreed upon in
writing between TSFC and the Customer plus all insurance,
transportation, customs, license, registration, sales, use, excise,
or other taxes or assessments and, if applicable, all costs arising
from the exportation of a System from the United States of America
and its importation and sale or lease and installation into the
country of destination. Such price shall include all installation,
cables, instruments, and related services in connection with the
normal installation of a System by Triad.
5. Payment Terms. Triad will invoice TSFC for the sales price set
forth in Paragraph 4 within ten (10) days after the date of
acceptance of the System by the Customer. The invoice shall
conclusively establish the sale by Triad to TSFC of all Triad's
right, title and interest in and to the equipment described in the
invoice. The invoice shall further constitute confirmation by Triad
of the representation and warranty by Triad to TSFC and its
respective successors and assigns, that (i) Triad had good and valid
title to the equipment and software described in the invoice, free of
all liens, security interests, encumbrances, pledges, charges and
claims of any kind; (ii) Triad will defend the title to that
equipment and software against all claims and demands of all persons
whomsoever; and (iii) no consent by any person is required for the
assignment and other transfers made by the Agreement, or, if any such
consent is required, such consent has been duly obtained.
6. Warranty. Triad warrants to TSFC and Lender only that the
Systems to be delivered hereunder, at the time of delivery and for a
period of ninety (90) days thereafter, will be free from defects in
material and workmanship. Triad's liability under the foregoing
warranty shall be limited to the repair or replacement, at its option
and expense, of any defective or non conforming part of the System,
F.O.B. manufacture or repair site. Triad makes no other warranty or
representation to TSFC, Lender or any Customer, whether express or
implied, including any implied warranties of merchantability or
fitness for a particular purpose. TSFC is authorized to extend to
the Customer the foregoing warranty provision and agrees that no
Lease entered into by it shall contain any warranty other than the
foregoing.
7. Rescission under Triad Evaluation Agreement. Triad agrees that
TSFC may include as part of the Lease with the Customer a Triad
Evaluation Agreement in the form then currently in use by Triad in
the marketing of Systems. If a customer exercises its right to
return a System pursuant to a Triad Evaluation Agreement, the sale of
the System by Triad to TSFC hereunder shall be deemed rescinded. In
such event, Triad shall either pay to TSFC (or Lender, to the extent
of its security interest) the purchase price paid by TSFC therefor,
it being the intention of Triad and TFSC that such payment shall make
TSFC whole, as if the sale of said System had not occurred, or Triad
may remarket said System for TSFC (or Lender, to the extent of its
security interest) at no cost to TSFC (or Lender), as Triad shall in
its discretion elect.
8. Software. Triad grants to TSFC a non-exclusive license, with
the right to relicense any Customer, to use (and to assign a security
interest therein to Lender) any and all software required to operate,
a System sold hereunder.
9. Patents. Triad agrees and authorizes TSFC to agree on the
behalf and for the account of Triad that Triad will defend, at its
own expense, any action or proceeding brought against a Customer to
establish that all or part of a System (including software)
constitutes an infringement of or violation of any lawful patent or
copyright and will pay any damages or cost awarded therein against
any Customer by reason of any such infringement, including reasonable
legal fees and expenses incurred by Lender provided that Triad shall
be informed in writing of any such proceeding as soon as is
practicable after its commencement and given the right to control the
defense thereof. If any part of the System is found by final
judgment of any competent tribunal to infringe or violate any patent
or copyright, and the use thereof is enjoined, then Triad shall,
within ninety (90) days, at its sole election and expense, either
(i) obtain authorization for the Customer or Lender or its assignee to
continue using the part thereof so enjoined, or (ii) replace the part
thereof so enjoined with a comparable, non infringing part, or
(iii) modify the part thereof so enjoined to eliminate the infringement,
or (iv) remove the System and repurchase the System for the unpaid
portion of the purchase price or the unamortized portion of the
capitalized value of the Lease related thereto, whichever is
applicable. The foregoing states Triad's whole complete
responsibility or liability with respect thereto.
10. Insurance. Triad agrees to maintain adequate insurance on any
System sold hereunder for the full value thereof until such date as
TSFC acquires title to the System.
11. Support.
(a) Triad represents to Lender that it owns 100% of the stock of
TSFC and agrees that it will maintain its existing control of TSFC.
(b) Triad agrees that it will cause TSFC to comply in a timely
manner with its Obligations herein and under the Warehousing Credit
Agreement by making equity contributions or subordinated loans to
TSFC in amounts sufficient to enable TSFC to comply with such
Obligations.
(c) TSFC and Triad authorize Lender, without notice or demand,
and without affecting their respective liabilities hereunder, from
time to time, to:
(i) renew, compromise, extend, accelerate or otherwise change
the time for payment of, or otherwise change the terms of the
Obligations of Lessees under Leases assigned to Lender or the
Obligations or any part thereof;
(ii) take and hold security for such Obligations or the
Obligations, and exchange, enforce, waive and release any such
security; and
(iii) apply such security and direct the order and manner of
sale thereof as Lender, in its discretion, may determine. Lender
may, without notice, assign its rights in this Agreement in whole or
in part.
TSFC and Triad each waive any right to require Lender to (a)
proceed against any other party, or (b) proceed against or exhaust
any security held from TSFC or (c) pursue any other remedy in
Lender's power whatsoever. TSFC and Triad each waive any defense
arising by reason of the cessation from any cause whatsoever of the
liability of any other person. Until all the Obligations of
Customers under Leases assigned to Lender and the Obligations shall
have been paid in full, (a) neither TSFC nor Triad and (b) TSFC and
Triad waive any interest in the security held by Lender and any
benefit, and any right to participate in, any security now or
hereafter held by Lender.
TSFC and Triad each waive all presentments, demands for
performance, notices of non-performance, protests, notices of
dishonor, and notices of acceptance of this Agreement, and each
waives the benefit of any statute of limitations affecting its
liability hereunder or the enforcement thereof.
(d) Triad agrees that it shall assume all liability for, and
shall indemnify and hold harmless TSFC, Lender and their respective
assignees from any and all claims, actions, suits, proceedings,
costs, expenses, damages and liabilities, including attorneys' fees,
arising out of or relating to any negligent acts of TSFC claimed to
have been committed in connection with the sale or lease of Systems
to Customers or such assignees.
12. Term. This Agreement shall continue in effect until
terminated by mutual agreement of the parties; provided, however,
that any party may terminate this Agreement upon three (3) months'
written notice of such termination to the other parties, but no such
termination shall have the effect of terminating any of the rights,
obligations or liabilities of any party with respect to Systems
theretofore sold and purchased pursuant hereto. Notwithstanding the
foregoing, this Agreement shall remain in full force and effect, and
may not be terminated, as long as (i) any Lease assigned by TSFC to
Lender pursuant to the Warehousing Credit Agreement remains in
effect or (ii) Lender has an outstanding commitment to make loans or
advances to TSFC under the Wareshousing Credit Agreement.
13. Further Assurance. The parties hereto shall cooperate with
each other in the preparation and execution of such documents and the
taking of such actions as may be reasonably necessary to carry out
the provisions and purposes of this Agreement.
14. Compensation. Triad agrees to perform such services
(including billing, for the account of TSFC, of amounts due under
Agreements) and provide such facilities for TSFC as are reasonably
required to conduct the business of TSFC. TSFC agrees to compensate
Triad for its services at reasonable fees as mutually agreed from
time to time.
15. Remarketing Support. Triad agrees to provide remarketing
support to TSFC to enable them to perform their Obligations under the
Warehousing Credit Agreement.
16. Notices. All notices given or made hereunder shall be deemed
to have been given when made in writing and hand delivered to, or
deposited in the mail, first class postage prepaid, addressed to, the
other parties as follows (or such other address as any party hereto
may from time to time designate in writing to the others):
Triad Systems Corporation
3055 Triad Drive
Livermore, CA 94550
Attention: James R. Porter, President
Triad Systems Financial Corporation
3055 Triad Drive
Livermore, CA 94550
Attention: Stanley F. Marquis, President
The First National Bank of Boston
435 Tasso Street, Suite 250
Palo Alto, California 94301
Attention: C. Christipher McCabe, Vice President
17. Successors; Assigns. Triad shall not assign its obligations
hereunder without the consent of the other parties hereto. This
Agreement shall inure to the benefit of the successors and assigns of
TSFC and Lender.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of California.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunder duly authorized
as of the day and year first above written.
TRIAD SYSTEMS CORPORATION
By: JAMES R. PORTER
Its: President
TRIAD SYSTEMS FINANCIAL CORPORATION
By: STANLEY F. MARQUIS
Its: President
THE FIRST NATIONAL BANK OF BOSTON
By: OSCAR JALDOWSKI
Its: Managing Director
EXHIBIT H
AGREEMENT OF ADMISSION
OF
ADDITIONAL SECURED PARTY
AND
AMENDMENT TO SUBORDINATION AGREEMENT
Reference is made to that certain Subordination Agreement a copy of
which is attached hereto as Exhibit "A" ("Subordination Agreement").
Terms used herein shall have the same meaning as terms defined in the
Subordination Agreement.
WHEREAS, Triad Systems Financial Corporation ("TSFC") intends to
enter into a credit facility agreement ("Credit Facility") with The
First National Bank Of Boston, a national banking association
("FNBB"); and
WHEREAS, FNBB has required as a condition to entering into said
Credit Facility that the aforesaid Subordination Agreement be amended
to permit them to become parties thereto and to allow them to be
granted the status of a "Superior Secured Party" thereunder even
though TSFC may be holding physical possession of the Paper being
pledged to FNBB under the Credit Facility;
NOW, THEREFORE:
1. The undersigned Secured Parties hereby admit FNBB as an
additional Secured Party to the Subordination Agreement, with all the
rights and privileges thereto pertaining, subject, however, to the
express terms, conditions and provisions thereof.
2. Paragraph 4 (ii) of the Subordination Agreement is hereby amended
in full to read as follows:
" (ii) this subordination shall be or become effective in each
instance, and a Secured Party shall be or become a Superior Secured
Party, by virtue of, and only by virtue of (except in the case of The
First National Bank of Boston ("FNBB")), delivery (whether heretofore
or hereafter) to the Superior Secured Party by Triad or TSFC or
Orleans and possession (whether heretofore or hereafter) by such
Superior Secured Party of an executed form of assignment of an item
of the Paper of the Superior Secured Party and the single original
executed item of the Paper (whether heretofore or hereafter), so
marked, identifying or describing the property subject thereto.
Notwithstanding the foregoing, TSFC may hold the original Paper on
behalf of FNBB pertaining to all leases pledged as collateral to FNBB
pursuant to a Warehousing Credit Agreement dated as of August 29,
1995 between the parties. Regardless whether FNBB or TSFC holds the
original Paper, the parties hereto agree that FNBB shall be deemed a
Superior Secured Party hereunder."
3. The agreement of FNBB to the terms, conditions and provisions of
the Subordination Agreement is set forth below.
4. The assent of Triad and TSFC to this Agreement are also set forth
below.
5. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which shall constitute
a single agreement.
ASSENT:
TRIAD SYSTEMS FINANCIAL NORWEST EQUIPMENT FINANCE,
CORPORATION INC.
By: STANLEY F. MARQUIS By: JUDITH VAN OSDEL
Title: President Title: Vice President
TRIAD SYSTEMS CORPORATION SANWA BUSINESS CREDIT
CORPORATION
By: STANLEY F. MARQUIS By: JOHN STEINDORF
Title: Vice President Finance Title: Senior Vice President
B A CREDIT CORPORATION METLIFE CAPITAL CORPORATION
By: REBECCA S. MOLLET By: MANUEL G. MONTANEZ
Title: Vice President Title:____________________________
PITNEY BOWES CREDIT MITSUI VENDOR LEASING
CORPORATION (U.S.A.), INC.
By: ED O'KEEFE By: PAUL A. RENNER
Title: Vice President Title: President & CEO
CENTER CAPITAL CORPORATION HELLER FINANCIAL, INC.
By: MITCHELL D. WEISS By: KENNETH KATZ
Title: President & CEO Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: OSCAR JALDOWSKI
Title: Managing Director
EXHIBIT I
INTERCOMPANY LOAN AGREEMENT
THIS INTERCOMPANY LOAN AGREEMENT is entered into as of August 29,
1995, by and among Triad Systems Financial Corporation, a California
corporation with offices at 3055 Triad Drive, Livermore, California
94550 ("Lender") and Triad Systems Corporation, with offices at 3055
Triad Drive, Livermore, California 94550 ("Borrower").
Recitals
A. The Lender has entered into one certain Warehouse Credit
Agreement, as borrower, with The First National Bank of Boston, as
lender, on August 29, 1995 to establish a general working capital
facility in the amount of Twelve Million Dollars ($12,000,000)
B. The Lender now wishes to lend the sum of Twelve Million Dollars
($12,000,000) to its parent corporation, Triad Systems Corporation,
to enable Borrower to retire Twelve Million Dollars ($12,000,000) in
outstanding Senior Floating Rate Notes.
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants hereafter set forth, and intending to be legally
bound, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
As used herein, the following terms have the following meanings:
"Advance" has the meaning given to such term in Section 2.1.1(a)(1).
"Affiliate" means with respect to any Person (a) each Person that,
directly or indirectly, owns or controls, whether beneficially or as
a trustee, guardian or other fiduciary, ten percent (10%) or more of
the Stock having ordinary voting power in the election of directors
of such Person, (b) each Person that controls, is controlled by or is
under common control with such Person or any Affiliate of such Person
or (c) each of such Person's officers, directors, joint venturers and
partners; provided, however, that in no case shall LENDER be deemed
to be an Affiliate of Borrower for purposes of this Agreement. For
the purpose of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause
the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this Intercompany Loan Agreement, including all
amendments, modifications and supplements hereto and any appendices,
exhibits or schedules to any of the foregoing, and shall refer to the
Agreement as the same may be in effect at the time such reference
becomes operative.
"Base Rate" means at any time Comerica Bank's floating commercial
loan rate publicly announced from time to time by Comerica Bank at
its head office as its base rate, which rate may not be Comerica
Bank's lowest domestic rate.
"Base Rate Loan" in the singular and "Base Rate Loans" in the plural
means any and all Loans with respect to which Borrower elects an
interest rate based upon the Base Rate.
"Board of Directors" means the Board of Directors of Borrower or any
committee of the Board of Directors of Borrower authorized with
respect to any particular matter to exercise the power of the Board
of Directors of Borrower
"Business Day" means any day which is not a Saturday, Sunday or a
legal holiday under the laws of the State of California or is not a
day on which banking institutions located in the State of California
are authorized or permitted by law or other governmental action to
close.
"Closing Date" means the date on which all of the conditions
precedent set forth in Section 2.11 to making the first Loan
hereunder shall have been duly satisfied by Borrower.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations proposed or adopted thereunder, as the same may
be in effect from time to time.
"Commitment" means, with respect to LENDER, the amount set forth on
Schedule 1 and "Commitments" means, with respect to LENDER, all
such amounts collectively, as amended from time to time upon the
execution and delivery of an instrument of assignment pursuant to
Section 11.12.
"Commitment Termination Date" means August 21, 1996.
"Consolidated Net Worth" means, on a consolidated basis, the common
stockholders, equity capital plus surplus plus retained earnings, as
determined and computed according to GAAP.
"Default" means a Potential Event of Default or an Event of Default.
"Default Rate" means the default rate of interest set forth in
Section 2.4.
"Effective Date" has the meaning given to such term in Section 2.1.3.
"Employee Plan" means all employee pension benefit plans within the
meaning of Section 3(2) of ERISA.
"Environmental Laws" means any and all applicable foreign, federal,
state and local environmental, health or safety statutes, laws,
regulations, rules, ordinances, policies and rules or common law
(whether now existing or hereafter enacted or promulgated) of all
governmental agencies, bureaus or departments which may now or
hereafter have jurisdiction over Borrower or any of its Subsidiaries
and all applicable judicial and administrative and regulatory
decrees, judgments and orders, including common law rulings and
determinations, relating to injury to, or the protection of, real or
personal property or human health or the environment, including,
without limitation, all requirements pertaining to reporting,
licensing, permitting, investigation, remediation and removal of
emissions, discharges, releases or threatened releases of Hazardous
Materials, chemical substances, pollutants or contaminants, whether
solid, liquid or gaseous in nature, into the environment, or relating
to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of such Hazardous Materials,
chemical substances, pollutants or contaminants.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, as the same may be in effect from time to time.
"Event of Default" means any of the events set forth in Section 8.1.
"Facility" means the revolving credit facility described in this
Agreement up to an aggregate principal amount outstanding at any one
time of $12,000,000.
"First Funding Date" means the date funds are first advanced to
Borrower for the first Revolving Credit Loan hereunder.
"Funding Date" means with respect to any proposed borrowing the date
funds are advanced to Borrower for any Loan.
"GAAP" means generally accepted accounting principles as set forth
from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board, or in such statements by such other
entity as may be in general use by significant segments of the U.S.
accounting profession, as consistently applied. In the event that
GAAP changes during the term of this Agreement such that the
covenants contained in Section 7 would then be calculated in a
different manner or with different components, (a) the parties hereto
agree to amend this Agreement in such respects as are necessary to
conform those covenants as criteria for evaluating Borrower's
financial condition to substantially the same criteria as were
effective prior to such change in GAAP and (b) Borrower shall be
deemed to be in compliance with the covenants contained in the
aforesaid Section during the ninety (90) day period following any
such change in GAAP if and to the extent that Borrower would have
been in compliance therewith under GAAP as in effect immediately
prior to such change.
"Governmental Agency" means (a) any federal, state, county, municipal
or foreign government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body, (c) any court
or administrative tribunal or (d) with respect to any Person, any
arbitration tribunal or other non-governmental authority to whose
jurisdiction that Person has consented.
"Hazardous Material" means any substance, (i) the presence of which
requires or may hereafter require notification, investigation or
remediation under any Environmental Law; (ii) which is or becomes
defined as a "hazardous waste", "hazardous material" or "hazardous
substance" or "controlled industrial waste" or "pollutant" or
"contaminant" under any Environmental Law or any amendments thereto,
including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et
seq.); (iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is or becomes regulated by any governmental authority,
agency, department, commission, board, agency or instrumentality of
any foreign country,. the United States, any state of the United
States, or any political subdivision thereof to the extent any of the
foregoing has or had jurisdiction over Borrower or any of its
Subsidiaries; or (iv) without limitation, which contains gasoline,
diesel fuel or other petroleum products, asbestos or polychlorinated
biphenyls ("PCBs").
"Indebtedness" means all liabilities, obligations and indebtedness of
any and every kind and nature, including all liabilities and all
obligations to trade creditors, whether now or hereafter owing,
arising, due or payable, from Borrower to any Person and howsoever
evidenced, created, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed or otherwise. Without in any way
limiting the generality of the foregoing, Indebtedness shall
specifically include the following without duplication:
(a) all amounts outstanding under this Agreement, including amounts
outstanding under any and all Revolving Credit Loans or Term Loans;
(b) all obligations or liabilities of any Person that are secured by
any Lien upon property owned by Borrower, even though Borrower shall
not have assumed or otherwise be liable for the payment thereof; and
(c) all guaranty obligations, obligations under letters of credit,
then financially measurable recourse obligations in connection with a
securitization transaction, and other similar contingent obligations
of Borrower.
"Indemnitees" has the meaning set forth in Section 10.3.
"Intangible Assets" means the value, as stated on the consolidated
balance sheets of Borrower, of all intangible assets of Borrower as
determined and computed in accordance with GAAP.
"Interest Coverage Ratio" means, on a consolidated basis, as measured
quarterly as of the last day of each fiscal quarter of Borrower for
the preceding four (4) fiscal quarters, including the quarter in
which such measurement date occurs, the quotient obtained by dividing
(a) the sum of Borrower's Net Income pail tax expense plus interest
expense ("EBIT') by (b) interest expense, as determined and computed
in accordance with GAAP.
"Interest Period" means, as to any Loan, the period commencing on the
date of such Loan and ending on the numerically corresponding day
(or, if there is no numerically corresponding day, on the last day)
in the calendar month that is one (1), two (2) or three (3) months
thereafter, in each case as Borrower may elect; provided, however,
that (a) no Interest Period with respect to any Loan shall end later
than the date which is three (3) months after the Commitment
Termination Date in the case of Revolving Credit Loans or the Term
Loan Maturity Date in the case of Term Loans, (b) if an Interest
Period would end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day and (c)
interest shall accrue from and including the first Business Day of an
Interest Period to but excluding the last Business Day of such
Interest Period.
"Interest Rate Determination Date" The Interest Rate Determination
Date shall be the second Business Day prior to the first day of the
related Interest Period for a Loan.
"Loan" or "Loans" means the Revolving Credit Loans and the Term
Loans.
"Loan Documents" mean this Agreement, the Note, and any other
agreements, documents or instruments executed by Borrower to or its
authorized designee evidencing or otherwise relating to the Loans
and/or the Liens granted to LENDER with respect to the Loans, as the
same may from time to time be amended, modified, supplemented or
renewed.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects or financial or other
condition of Borrower and its Subsidiaries taken as a whole, or (b)
Borrower's ability to pay the Obligations in accordance with the
terms of this Agreement and the other Loan Documents. "Net Income"
means, on a consolidated basis, as at any date of determination, for
any period, net income (or loss) as determined and computed in
accordance with GAAP; provided, however, that there shall be excluded
from the determination of Net Income the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Borrower
or is merged into or consolidated with Borrower or any of its
Subsidiaries or that Person's assets are acquired by Borrower or any
of its Subsidiaries.
"New Equity" means the net cash proceeds of any sale of Stock of
Borrower by Borrower.
"Note" means the promissory note executed pursuant to Section
2.1.1(a)(1), and any and all replacements, extensions, substitutions
and renewals thereof.
"Obligations" means all loans, advances, debts, liabilities and
obligations, for monetary amounts (whether or not such amounts are
liquidated or determinable) owing by Borrower to LENDER, arising
under any of the Loan Documents, including, without limitation, all
covenants and duties regarding such amounts, of any kind or nature,
present or future, whether or not evidenced by any note(s), agreement
or other instrument. This term includes, without limitation, all
principal, interest, closing fees, prepayment fees, charges,
expenses, attorneys' fees and any other sum chargeable to Borrower
under any of the Loan Documents.
"Payment Date" means the fifteenth (15th) day of each calendar month.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, entity or
government (whether Federal, state, county, city, municipal or
otherwise, including any instrumentality, division, agency, body or
department thereof).
"Potential Event of Default" means a condition or event which, after
notice or lapse of time or both, would constitute an Event of
Default.
"Rate Spread" means:
(a) in the case of a Revolving Credit Loan which is a Base Rate Loan,
three quarters of one percent percent (.75%);
(b) in the case of a Term Loan which is a Base Rate Loan,three
quarters of one percent (.75%);
"Recourse Debt Ratio" means the quotient obtained by dividing the
total of Borrower's Indebtedness on a recourse basis by Tangible Net
Worth.
"Responsible Officer" means any of the President, Chief Financial
Officer or other employee of Borrower having authority to request
Loans or execute certificates on behalf of Borrower hereunder.
"Revolving Credit Loan" in the singular and "Revolving Credit Loans"
when used in the plural means any and all of the Revolving Credit
Loans made pursuant to Section 2.1.1.
"Stock" means all shares, options, warrants, interests,
participations or other equivalents (regardless of how designated) of
or in a corporation or equivalent entity, whether voting or
nonvoting, including, without limitation, common stock, preferred
stock, or any other "equity security" (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act
of 1934, as amended).
"Subsidiary" means, with respect to any Person, any corporation of
which an aggregate of more than fifty percent (50%) of the
outstanding Stock having ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether,
at the time, Stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of
any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more
Subsidiaries of such Person.
"Tangible Net Worth" means, on a consolidated basis, Borrower's
Consolidated Net Worth, less all (a) Intangible Assets and (b)
amounts receivable from shareholders of Borrower.
"Term Loan" in the singular and "Term Loans" when used in the plural
means any and all of the Term Loans made pursuant to Section 2.1.2.
"Term Loan Conversion Date" has the meaning given to such term in
Section Z.1.2.
"Term Loan Maturity Date" has the meaning given to such term in
Section 2.1.2.
Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given
such term in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided
herein, in accordance with GAAP consistently applied. That certain
terms or computations are explicitly modified by the phrase "in
accordance with GAAP" shall in no way be construed to limit the
foregoing.
All other undefined terms contained in this Agreement shall, unless
the context indicates otherwise, have the meanings provided for by
the UCC to the extent the same are used or defined therein. The words
"herein," "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole, including the Exhibits and
Schedules hereto, all of which are by this reference incorporated
into this Agreement, as the same may from time to time be amended,
modified or supplemented, and not to any particular section,
subsection or clause contained in this Agreement. Any reference to a
"Section," "Subsection," "Exhibit" or "Schedule" shall refer to the
relevant Section or Subsection of or Exhibit or Schedule to this
Agreement, unless specifically indicated to the contrary.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and plural,
and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and the neuter. The term "including"
shall not be limiting or exclusive, unless specifically indicated to
the contrary.
Section 2. Amount and Terms of Credit.
2.1 Commitment to Lend.
2.1.1 Commitment to Make Revolving Loans. Subject to the terms
and conditions of this Agreement and in reliance upon the representations
and warranties of Borrower set forth herein, LENDER hereby agrees to
make advances of immediately available funds to Borrower, on a
revolving basis, from the Closing Date until the Business Day
immediately preceding the Commitment Termination Date, in the
aggregate principal amount outstanding at any time not to exceed
Twelve Million Dollars ($12,000,000).
(a) Advances by LENDER.
(1) From time to time, but not more frequently than twice in
any calendar week, on the Funding Date requested by Borrower in a
Borrowing Notice delivered to LENDER in accordance with Section
2.1.6, after Borrower shall have satisfied all applicable conditions
precedent set forth in Section 2.11, LENDER shall make immediately
available funds available to Borrower (each such advance being an
"Advance") upon request, each of which shall constitute a Revolving
Credit Loan hereunder. LENDER shall immediately advance such funds to
Borrower at LENDER's Livermore, California office on the Funding Date
with respect to such Revolving Credit Loan. The Revolving Credit
Loans shall be evidenced by a promissory note of Borrower in
substantially the form of Exhibit A (the "Note"), dated as of the
Closing Date and completed with appropriate insertions.
(2) The obligation of LENDER to make the Revolving Credit
Loans hereunder shall be limited at any time to the Maximum Availability.
Nothing contained in this Agreement shall under any circumstance be
deemed to require LENDER to make any Advance which, in the aggregate
principal amount, taking into account the making of such Advance
exceeds the sum of Twelve Million Dollars ($12,000,000).
(3) Amounts borrowed by Borrower hereunder may be repaid
and, prior to the Commitment Termination Date and subject to the
applicable terms and conditions precedent to borrowings set forth in
Section 2.11, reborrowed; provided, however, that Borrower may not
repay or reborrow more than twice in any calendar week.
(4) Each request for a Revolving Credit Loan hereunder
shall constitute a reaffirmation by Borrower and the Responsible Officer
requesting the same in his or her capacity as such Responsible
Officer that the representations and warranties contained in this
Agreement are true and correct in all material respects to the same
extent as though made on and as of the date of the request, except to
the extent such representations and warranties specifically relate to
an earlier date, in which event they shall be true and correct in all
material respects as of such earlier date.
(b) The Revolving Credit Loans. Subject to the terms and conditions
of this Agreement, Borrower may utilize the Commitments to request
one or more of the following types of Loans (except that no more than
six (6) Loans shall be outstanding at any one time):
(1) Base Rate Loans. Each Base Rate Loan shall be in the
minimum principal amount of $400,000 and shall bear interest on the sum of
the unpaid principal balance thereof outstanding on each day until
such Base Rate Loan shall have been fully repaid at a rate per annum
equal to the sum of (l) the Base Rate plus (2) the Rate Spread, as
each may fluctuate from time to time.
(2) Interest Payment. Interest on each Base Rate Loan
outstanding hereunder shall be due and payable monthly in arrears on the
last day of each calendar month with all accrued and unpaid interest
being due and payable on the Commitment Termination Date. Interest on each
Loan shall be due and payable on the last day of the applicable Interest
Period.
All Revolving Credit Loans, all conversions and continuations of
Loans permitted under Section 2.1.7 and all repayments of principal
with respect to the Revolving Credit Loans shall be evidenced by
notations made by Agent in its books and records regarding the date,
amount and maturity of each Revolving Credit Loan made by LENDER and
the amount of each payment of principal made by Borrower with respect
thereto; provdded, however, that the failure by LENDER to make such
notations shall not limit or otherwise affect the obligations of
Borrower with respect to the repayments of principal or payments of
interest on the Revolving Credit Loans. The aggregate unpaid amount
of the Revolving Credit Loans set forth on the books and records of
LENDER shall be presumptive evidence of the principal amount owing
and unpaid hereunder and under the Note.
(c) Principal Repayment. The aggregate principal amount
outstanding as of the Commitment Termination Date under Revolving
Credit Loans shall be due and payable in full on such Commitment
Termination Date, unless Borrower exercises its option under
Section 2.1.2 to convert the Revolving Credit Loans to a Term Loan.
2.1.2 Commitment to Make Term Loans.
(a) Option to Convert Revolving Loans to Term Loans. Provided
that no Default has occurred and is continuing and upon payment in full
of (i) all accrued interest on all Revolving Credit Loans then
outstanding and (ii) any Commitment Fee then due and payable,
Borrower may elect to convert on or prior to the Commitment
Termination Date the entire outstanding principal balance of the
Revolving Credit Loans into a term loan (the "Term Loan"), subject to
the terms and conditions of this Section 2.1.2. On the effective date
of such conversion LENDER shall have no further obligation to make
Revolving Credit Loans hereunder. Borrower shall notify LENDER in
writing (the "Conversion Notice") at least thirty (30) days prior to
the date set forth therein as the "Term Loan Conversion Date" of its
election to convert the Revolving Credit Loans to Term Loans. The
Term Loans shall be evidenced by the Note. On the Term Loan
Conversion Date the maturity of the Note shall automatically be
extended to the Term Loan Maturity Date.
(b) Designation of Term Loans as Base Rate Loans; Interest.
Subject to the terms and conditions of this Agreement, Borrower may
request one or more of the following types of Term Loans (except that no
more than six (6) Loans shall be outstanding at any one time):
(1) Base Rate Loans. Each Base Rate Loan shall be in the
minimum principal amount of $400,000 and shall bear interest on the sum of
the unpaid principal balance thereof outstanding on each day until
such Base Rate Loan shall have been fully repaid at a rate per annum
equal to the sum of (1) the Base Rate plus (2) the Rate Spread, as
each may fluctuate from time to time.
(2) Interest Payment. Interest on each Base Rate Loan
outstanding hereunder shall be due and payable monthly in arrears on the
last day of each calendar month with all accrued and unpaid interest
being due and payable on the date which is thirty-six (36) months after
the Term Loan Conversion Date (the "Term Loan Maturity Date").
All Term Loans, all conversions and continuations of Loans permitted
under Section 2.1.7 and all repayments of principal with respect to
the Term Loans shall be evidenced by notations made by LENDER in its
books and records regarding the date, amount and maturity of each
Term Loan made by LENDER and the amount of each payment of principal
made by Borrower with respect thereto; provided, however, that the
failure by LENDER to make such notations shall not limit or otherwise
affect the obligations of Borrower with respect to the repayments of
principal or payments of interest on the Term Loans. The aggregate
unpaid amount of the Term Loans set forth on the books and records of
LENDER shall be presumptive evidence of the principal amount owing
and unpaid hereunder and under the Note.
(c) Principal. In addition to payments of interest and the final
payment on the Term Loan Maturity Date, Borrower promises to pay to
LENDER thirty-six (36) consecutive monthly installments each equal to
one thirty-sixth of the original principal amount of the Term Loan,
commencing on the first Payment Date after the Term Loan Conversion
Date.
2.2 Voluntary Prepayment. Loans may be prepaid without premium
or penalty on the last day of any Interest Period applicable thereto
and, subject to payment of amounts required pursuant to Section 2.2,
may be prepaid at any other time, in each case upon three Business
Days' irrevocable notice. Loans that are Base Rate Loans may be
prepaid at any time, without premium or penalty, upon one Business
Day's irrevocable notice. If such notice is given by Borrower,
Borrower shall make such prepayment and the payment amount specified
in such notice shall be due and payable on the date specified
therein, together with accrued interest to each such date on the
amount prepaid and any amounts required pursuant to Section 2.2, in
immediately available funds delivered to LENDER not later than 11:00
a.m., California time.
2.3 Calculation of Interest; Post-Default Interest. Interest on
the Loans shall be computed on the basis of a 360-day year and the actual
number of days elapsed in the period during which it accrues. In
computing interest on any Loan, the date of the making of such Loan
shall be included and the date of payment shall be excluded;
provided, however, that if a Loan is repaid on the same day on which
it is made, such day shall be included in computing interest on such
Loan. Each change in the interest rate of the Loans based on changes
in the Base Rate, shall be effective on the effective date of such
change and to the extent of such change. LENDER shall give Borrower
notice of any such change in the Base Rate; provided, however, that
any failure by LENDER to provide Borrower with notice hereunder shall
not affect LENDER's right to make changes in the interest rate
applicable to the Loans based on changes in the Base Rate. Upon the
occurrence and during the continuation of an Event of Default, the
Loans shall thereafter bear interest payable upon demand at a rate
which is two percent (2.0%) above the rate of interest otherwise
applicable thereto (the "Default Rate").
2.4 Payments.
(a) All payments of principal, interest and fees hereunder and
under the Note shall be in lawful money of the United States of
America in immediately available funds on the date the same shall
become due and payable.
(b) All payments by Borrower hereunder and under any of the other
Loan Documents shall be made without setoff or counterclaim and free
and clear of and without deduction for any taxes (except as set forth
below), levies, imposts, duties, charges, fees, deductions,
withholdings (except as set forth below), compulsory loans,
restrictions or conditions of any nature now or hereafter imposed or
levied by any jurisdiction or any political subdivision thereof or
taxing or other authority therein unless Borrower is compelled by law
to make such deduction or withholding.
2.5 Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Note shall be stated to be due on a day which
is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall in such case
be included in the computation of the payment of interest hereunder
or under the Note.
2.6 Application of Payments. Borrower irrevocably waives the right
to direct the application of any and all payments at any time
hereafter received by LENDER from or on behalf of Borrower, and
Borrower irrevocably agrees that shall have the continuing exclusive
right to apply any and all such payments against the then due and
owing Obligations of Borrower as LENDER may deem advisable. In the
absence of a specific determination by LENDER with respect thereto,
the same shall be applied in the following order: (a) then due and
payable fees and expenses; (b) then due and payable interest payments
and mandatory prepayments; and (c) then due and payable principal
payments and optional prepayments. LENDER is authorized to, and at
its sole option may, make advances on behalf of Borrower for payment
of all fees, expenses, charges, costs, principal and interest
incurred hereunder or under the other Loan Documents. To the extent
permitted by law, all amounts advanced by LENDER hereunder or under
other provisions of the Loan Documents shall be deemed for the
purpose of accruing interest thereon, as constituting a Base Rate
Loan.
2.7 Conditions Precedent to Loans.
2.7.1 First Loan. The obligation of LENDER to make the first Loan
hereunder is subject to the following conditions precedent:
(a) LENDER shall have received in form and substance satisfactory
to LENDER and its special counsel the following:
(1) A certified copy of the records of all actions taken by
Borrower including resolutions of Borrower authorizing or relating to the
execution, delivery and performance of the Loan Documents and the
consummation of the transactions contemplated hereby;
(2) Articles of Incorporation and Bylaws and any other charter
or formation documents of Borrower certified by an officer of Borrower
as in full force and effect;
(b) LENDER shall have received the Note, duly executed by
Borrower, dated on or prior to the First Funding Date with appropriate
insertions.
(c) LENDER shall have received such other documents, information
and items from Borrower as reasonably requested by LENDER.
2.7.2 All Loans. The obligation of LENDER to make any Loan is
subject to the following further conditions precedent hereunder that:
(a) Borrower shall have performed all of its agreements under the
Loan Documents to be performed on or before such Funding Date.
(b) No event shall have occurred and be continuing or would result
from the consummation of any Loans to be made on such Funding Date
which constitutes an Event of Default or Potential Event of Default.
(c) All representations and warranties contained in the Loan
Documents shall be true and correct with the same effect as though
such representations and warranties had been made on and as of such
Funding Date (except to the extent such representations and
warranties specifically relate to an earlier date, in which case they
shall be true and correct as of such earlier date).
(d) LENDER shall have received such other instruments and
documents as LENDER may have reasonably requested from Borrower in
connection with the Loans to be made on such date.
(e) There shall have been no material adverse change in the
financial condition, profits or business of Borrower, taken as a
whole, in the opinion of LENDER, in its sole discretion, between the
date of this Agreement and the Funding Date.
Section 3. Borrower's Representations and Warranties.
The Borrower hereby warrants and represents to LENDER as follows, and
agrees that each of said warranties and representations shall be
deemed to continue until full and complete payment and performance of
the Obligations and shall apply anew to each borrowing hereunder:
3.1 Organization and Qualification. Borrower and each of its
Subsidiaries (a) is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation, (b) has all requisite corporate power to own its
property and conduct its business as now conducted and (c) is duly
qualified and in good standing as a foreign corporation and is duly
authorized to do business in each jurisdiction where the nature of
its properties or business requires such qualification except where
the failure to be so qualified would not have a Material Adverse
Effect.
3.2 Corporate Authority. The execution, delivery and performance of
this Agreement and the Loan Documents and the transactions
contemplated hereby are within the corporate power and authority of
the Borrower and have been authorized by all necessary corporate
proceedings, and do not and will not (a) require any consent or
approval of the shareholders of the Borrower, (b) contravene any
provision of the organizational or charter documents or by-laws of
the Borrower or any law, rule or regulation applicable to the
Borrower presently in effect and the contravention of which would
result in the occurrence of a Material Adverse Effect, (c) constitute
an event of default or event that, but for the requirement that time
elapse or notice be given, or both, would constitute an event of
default under, any other agreement, instrument, order or undertaking
presently in effect and bonding on the Borrower, which event of
default would have a Material Adverse Effect, or (d) result in or
require the imposition of any Liens on any of the properties, assets
or rights of the Borrower, other than pursuant to the Loan Documents.
3.3 Valid Obligations. This Agreement and the Loan Documents and all
of their respective terms and provisions are the legal, valid and
binding obligations of the Borrower, enforceable in accordance with
their respective terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors, rights generally, and except as the remedy of specific
performance or of injunctive relief is subject to the discretion of
the court before which any proceeding therefor may be brought.
3.4 Consents or Approvals. The execution, delivery and performance
of this Agreement and the Loan Documents and the transactions
contemplated herein do not require any approval or consent of, or
filing or registration with, any Governmental Agency, or any other
party, the failure of which to obtain would have a Material Adverse
Effect.
3.5 Title to Properties; Absence of Encumbrances. Each of the
Borrower and its Subsidiaries has good and marketable title to all of
the properties, assets and rights of every name and nature now
purported to be owned by it and which are material to the business of
Borrower and its Subsidiaries, taken as a whole, as now conducted,
including, without limitation, such properties, assets and rights as
are reflected in the financial statements referred to in Section 3.6
(except such properties, assets or rights as have been disposed of in
the ordinary course of business since the date thereof), free from
all Liens except Permitted Liens or those Liens disclosed on Schedule
4.5 hereto, and, except as so disclosed, free from all defects of
title that might materially adversely affect such properties, assets
or rights, taken as a whole.
3.6 Financial Statements. Borrower has furnished LENDER its
consolidated balance sheet as of June 30, 1995(?) and its
consolidated statements of income, changes in shareholders' equity
and cash flow for the fiscal year then ended, and related footnotes,
audited and certified by Coopers & Lybrand. Borrower has also
furnished LENDER its consolidated balance sheet as of June 30, 1995
(?) and its consolidated statements of income, changes in
stockholders' equity and cash flow for the six months then ended,
which are hereby certified by the principal financial officer of
Borrower to present fairly the financial position of Borrower and its
Subsidiaries as of such dates and the results of the operations of
Borrower and its Subsidiaries for such period, but subject, however,
to the absence of footnotes and to normal, recurring year-end
adjustments that shall not in the aggregate be material in amount to
Borrower and its Subsidiaries taken as a whole. All such financial
statements were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the
periods specified and present fairly the financial position of
Borrower and its Subsidiaries as of such dates and the results of the
operations of Borrower and its Subsidiaries for such periods. There
are no liabilities, contingent or otherwise, not disclosed in such
financial statements that involve an amount material to Borrower and
its Subsidiaries, taken as a whole.
3.7 Changes. Since the date of the most recent financial statements
referred to in Section 3.6, there have been no changes in the assets
and liabilities (taken as a whole), financial condition or business
of the Borrower and its Subsidiaries, taken as a whole, that have not
been otherwise disclosed to Lenders other than changes in the
ordinary course of business, the effect of which has not, in the
aggregate, resulted in a Material Adverse Effect.
3.8 Defaults. As of the date of this Agreement and the Closing Date,
no Default exists.
3.9 Taxes. The Borrower and its Subsidiaries have filed all
foreign, federal, state and other tax returns required to be filed,
and all taxes, assessments and other governmental charges due from
the Borrower and its Subsidiaries have been fully paid or are being
contested in good faith by appropriate proceedings and with respect
to which adequate reserves have been established and are being
maintained in accordance with GAAP, other than where a failure to
file or pay the same would not have a Material Adverse Effect.
3.10 Litigation. There is no litigation, arbitration, proceeding or
investigation pending, or, to the knowledge of the Borrower,
threatened, against Borrower or any of its Subsidiaries that, if
adversely determined, could result in a forfeiture of all or any
substantial part of the property of Borrower or Borrower and its
Subsidiaries, taken as a whole, or could otherwise have a Material
Adverse Effect.
3.11 Use of Proceeds. The Borrower does not own any "margin
security", as that term is defined in Regulations G and U of the
Federal Reserve Board, and the proceeds of the Loans under this
Agreement will be used only for purposes not prohibited hereunder.
None of the Loans will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security, for the
purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other
purpose which might cause any of the Loans under this Agreement to be
considered a "purpose credit" within the meaning of Regulations G. T.
U and X. The Borrower will not take or permit any agent acting on its
behalf to take any action which might cause this Agreement or any
document or instrument delivered pursuant hereto to violate any
regulation of the Federal Reserve Board.
3.12 Subsidiaries. Except as set forth on Schedule 3.12 hereto or
as permitted by Section 6.4, Borrower has no Subsidiaries. The stock
owned by Borrower is free and clear of all Liens. All shares of such
stock have been validly issued and are fully paid and nonassessable,
and no rights to subscribe to any additional shares of such stock
have been granted, and no options, warrants or similar rights with
respect to such stock are outstanding.
3.13 Investment Company Act. Neither of the Borrower nor any of its
Subsidiaries is subject to regulation under the Investment Company
Act of 1940, as amended.
3.14 Compliance with ERISA. Triad has fulfilled its obligations
under the minimum funding standards of ERISA and the Code with
respect to each of its Employee Plans and is in compliance in all
material respects with the applicable provisions of ERISA and the
Code, and has not incurred any liability to the PBGC or an Employee
Plan under Title IV of ERISA. No "prohibited transaction" or
"reportable event" (as such terms are defined in ERISA) has occurred
with respect to any of its Employee Plans.
3.15 Environmental Matters.
(a) Borrower and each of its Subsidiaries has obtained all
permits, licenses and other authorizations which are required under all
Environmental Laws, except to the extent failure to have any such
permit, license or authorization would not have a Material Adverse
Effect. The Borrower and each of its Subsidiaries are in compliance
with the terms and conditions of all such permits, licenses and
authorizations, and are also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any
applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder, except to the extent
failure to comply would not have a Material Adverse Effect.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been
filed and served on Borrower or any Subsidiary, no penalty has been
assessed and no investigation or review is pending or, to the
knowledge of Borrower, threatened by any governmental or other entity
with respect to any alleged failure by the Borrower or any of its
Subsidiaries to have any permit, license or authorization required in
connection with conduct of its business or with respect to any
Environmental Laws, including, without limitation, Environmental Laws
relating to the generation, treatment, storage, recycling,
transportation, disposal or release of any Hazardous Materials,
except to the extent that such notice, complaint, penalty or
investigation did not or could not result in the remediation of any
property owned or used by the Borrower or any of its Subsidiaries
costing in excess of $100,000 per occurrence or $100,000 in the
aggregate.
(c) To the knowledge of Borrower, no material oral or written
notification of a release of a Hazardous Material has been filed by
or on behalf of Borrower or any of its Subsidiaries and no real
property now or previously owned, leased or used by Borrower or any
of its Subsidiaries is listed or proposed for listing on the National
Priorities List under the Comprehensive Environmental Response,
Compensation and Liability act of 1980, as amended, or on any similar
state list of sites requiring investigation or clean-up.
(d) To the knowledge of Borrower there are no Liens arising under
or pursuant to any Environmental Laws on any of the real property or
properties owned, leased or used by Borrower or any of its
Subsidiaries and no governmental actions have been taken or are in
process which could subject any of such properties to such Liens or
as a result of which Borrower or any of its Subsidiaries would be
required to place any notice or restriction relating to the presence
of Hazardous Materials at any property owned by it in any deed to
such property.
(e) Neither of the Borrower nor any of its Subsidiaries nor, to
the knowledge of Borrower, any previous owner, tenant, occupant or user
of any real property owned, Leased or used by Borrower or any of its
Subsidiaries has (i) engaged in or permitted any operations or
activities upon or any use or occupancy of such property, or any
portion thereof, for the purpose of or in any way involving the
handling, manufacture, treatment, storage, use, generation, release,
discharge, refining, dumping or disposal (whether legal or illegal,
accidental or intentional) of any Hazardous Materials on, under, in
or about such property, except to the extent commonly used in the
business conducted on such property and, in such case, in compliance
with all Environmental Laws except to the extent failure to comply
would not have a Material Adverse Effect, or (ii) transported any
Hazardous Materials to, from or across such property except to the
extent commonly used in the business conducted on such property and,
in such case, in compliance with all Environmental Laws except to the
extent failure to comply would not have a Material Adverse Effect;
nor to the knowledge of Borrower have any Hazardous Materials
migrated from other properties upon, about or beneath such property;
nor, to the knowledge of Borrower, are any Hazardous Materials
presently deposited, stored or otherwise located on, under, in or
about such property except to the extent commonly used in the
business conducted on such property and, in such case, in compliance
with all Environmental Laws except to the extent failure to comply
would not have a Material Adverse Effect.
Section 4. Borrower's Affirmative Covenants.
Borrower covenants and agrees that, so long as any funds hereunder
shall be available for borrowing and until payment in full of the
Note, unless LENDER shall otherwise consent in writing, Borrower
shall do all of the following:
4. Records and Reports. Maintain a system of accounting in
accordance with GAAP and furnish to LENDER:
4.1.1 Audited Financial Statements. As soon as available and in
any event within ninety (90) days after the end of each fiscal year of
Borrower, a copy of the audited financial statements of Borrower's
parent, Triad Systems Corporation ("Triad"), including a balance
sheet, a profit and loss statement, and statement of changes in
stockholders' equity and cash flow, as at the close of and for such
fiscal year, all in reasonable detail and in consolidated form, and
stating in comparative form the figures as at the close and for the
previous fiscal year, together with the unqualified opinion thereon
of a nationally recognized accounting firm. In addition, Borrower
shall provide Management financial statements within 90 days of year
end.
4.1.2 Unaudited Financial Statements. As soon as available, and
in any event within forty-five (45) days after the close of each quarter
which is not the end of a fiscal year, a balance sheet, profit and
loss statement and a statement of source and application of funds as
at the close of such quarter and covering operations for the portion
of Borrower's and Triad's fiscal year ending on the last day of such
quarter, all in reasonable detail, in consolidated form, all prepared
in accordance with GAAP on a basis consistently maintained by
Borrower and Triad and certified by a Responsible Officer, subject,
however, to year-end audit adjustments.
4.2 Corporate Rights; Facilities; Conduct of Business.
(a) Maintain and preserve in full force and effect its corporate
existence and all rights, licenses, leases, qualifications,
privileges, franchises and other authority (collectively, "Rights")
adequate for the conduct of its business, except where the lapsing of
any such Right would not have a Material Adverse Effect;
(b) Maintain, preserve and protect its properties, assets,
equipment and facilities in working order and good repair and condition
(taking into consideration ordinary wear and tear) and from time to time
make, or cause to be made, all needful and proper repairs, renewals
and replacements thereto, except where the failure to do so would not
have a Material Adverse Effect;
(c) Maintain, preserve and protect all of its rights to enjoy and
use trademarks, trade names, service marks, patents, copyrights,
licenses, leases, franchise agreements and franchise registrations
where the failure to do so would have a Material Adverse Effect; and
(d) Conduct its business in an orderly manner without voluntary
interruption.
4.3 Taxes and Other Liabilities. Promptly pay and discharge all
taxes, assessments, levies and other liabilities payable by Borrower
when due and payable except such as may be (a) paid thereafter
without penalty or (b) contested in good faith by appropriate
proceedings and for which an adequate reserve has been established
and is maintained in accordance with GAAP. Borrower shall promptly
notify Lenders of any material challenge, contest or proceeding
pending by or against Borrower before any taxing authority.
4.4 Compliance With Laws. Exercise all due diligence in order to
comply with the requirements of all applicable laws, rules,
regulations, orders, writs, judgments, decrees, determinations and
awards of any Governmental Agency, noncompliance with which would
have a Material Adverse Effect; provided, however, that Borrower may
contest any act, regulation, order, decree or direction in any
reasonable manner which shall not, in the opinion of LENDER,
adversely affect LENDER's rights hereunder or adversely affect the
priority of LENDER's Liens in and on the Collateral.
4.5 Punctual Payment. Duly and punctually pay or cause to be paid
the Obligations, including, without limitation, the principal
outstanding and interest accrued on the Note and all other amounts
from time to time owing hereunder, all in accordance with the terms
of this Agreement and the Note.
Section 5. Events of Default and Remedies.
5.1 Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default:
(a) Failure to pay any installment of principal under this
Agreement or the Note on the date such installment shall become due and
payable; or
(b) Failure to pay any installment of interest on the Loans or
any of the other Obligations of Borrower to Lenders or Agent arising
under this Agreement, the Note or any of the other Loan Documents
when and as the same shall become due and payable whether by
acceleration or otherwise and such failure shall not have been cured
within five (5) calendar days; or
(c) Borrower defaults on the payment of any principal of or any
interest on any recourse Indebtedness or Indebtedness under which the
lender acquires recourse for any reason, or breaches any term of any
evidence of such recourse Indebtedness or of any loan agreement,
mortgage, indenture or other agreement relating thereto if (i) the
amount of such Indebtedness exceeds $1,000,000 in principal amount,
and (ii) the effect of such breach is to permit acceleration under
the applicable instrument, and such breach is neither waived by the
note holder or obligee nor cured to LENDER's satisfaction, in each
case within five (5) calendar days or there is an acceleration under
the applicable instrument; or
(d) Borrower fails or neglects to perform, keep or observe any
covenant or provision of this Agreement or of any of the other Loan
Documents or any other document or agreement executed by Borrower in
connection therewith and the same has not been cured to LENDER's
satisfaction within ten (10) calendar days after Borrower shall
become aware thereof, whether by written notice from LENDER or
otherwise; or
(e) Any of Borrower's representations or warranties made in any
Loan Document or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in
any material respect when made; or
(f) Borrower shall become insolvent; or admit in writing its
inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment
of a receiver, liquidator, custodian or trustee for it or for a
substantial part of its property or business, or such a receiver,
liquidator, custodian or trustee otherwise shall be appointed and
shall not be discharged within sixty (60) days after such
appointment; or
(g) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or
against Borrower, or any order, judgment or decree shall be entered
against Borrower decreeing its dissolution or division; provided,
however, with respect to an involuntary petition in bankruptcy, such
petition shall not have been dismissed within sixty (60) days after
the filing of such petition; or
(h) There shall have been a change in the assets, liabilities,
financial condition, operations, or business of Borrower, other than
changes in the ordinary course of business, which in the reasonable
determination of Requisite Lenders has, either individually or in the
aggregate, had a Material Adverse Effect; or
(i) There shall be a money judgment, writ or warrant of attachment
or similar process entered or filed against Borrower which is not fully
covered by insurance or remains unvacated, unbonded, unstayed or
unpaid or undischarged for more than sixty (60) days (whether or not
consecutive) or in any event later than five (5) calendar days prior
to the date of any proposed sale thereunder, which, together with all
such other judgments or attachments against Borrower exceeds in the
aggregate $5,000,000.
5.2 Waiver of Default. Any Event of Default may be waived only with
the written consent of LENDER. Any Event of Default so waived shall
be deemed to have been cured and not to be continuing; but no such
waiver shall be deemed a continuing waiver or extend to or affect any
subsequent like default or impair any rights arising therefrom.
5.3 Remedies.
5.3.1 Exercise of Remedies. Upon the occurrence and continuance
of an Event of Default, may at the option of LENDER do any one or more
of the following, all of which are authorized by Borrower:
(a) Declare the Commitment of each Lender to make Loans to be
terminated, whereupon such Commitments shall forthwith be terminated;
(b) Declare all or any of the Obligations of the Borrower under
this Agreement, the Note, the other Loan Documents and any other
instrument executed by Borrower pursuant to such Loan Documents to be
immediately due and payable, and upon such declaration such
obligations so declared due and payable shall immediately become due
and payable and LENDER may exercise from time to time any and all
rights and remedies available to them under applicable law, provided
that if such Event of Default is under part (e) or (f) of Section
4.1, then the Note shall become immediately due and payable forthwith
without the requirement of any notice or other action by LENDER.
(c) Without notice to or demand upon Borrower, make such
payments and do such acts as LENDER considers necessary or commercially
reasonable to protect its security interest in the Collateral (except
sending out direct notification letters)l
(d) Terminate this Agreement as to any future liability or
obligation of LENDER, but without affecting its rights and security
interest in the Collateral;
(e) Exercise all of LENDER's rights under the Security Agreement;
and
(f) Exercise in addition to all other rights and remedies granted
hereunder, any and all rights and remedies granted under the Loan
Documents or otherwise available at law or in equity.
5.3.2 Set-Off. In addition to any rights and remedies of LENDER
provided by law, if an Event of Default exists, LENDER is authorized
at any time and from time to time, without prior notice to Borrower,
any such notice being waived by Borrower to the fullest extent
permitted by law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held
by, and other indebtedness at any time owing from, to or for the
credit or the account of Borrower against any and all Obligations
owing to LENDER, then existing, irrespective of whether or not LENDER
shall have made demand under this Agreement or any Loan Document.
LENDER agrees promptly to notify Borrower after any such set-off and
application made by LENDER; provided, however, that the failure to
give such notice shall not affect the validity of such set-off and
application. The rights of LENDER under this Section 5.3.2 are in
addition to the other rights and remedies (including other rights of
set-off) which LENDER may have.
5.3.3 Rights and Remedies Cumulative. LENDER's rights and
remedies under this Agreement shall be cumulative. LENDER shall have
all other rights and remedies not inconsistent herewith as provided by
law or in equity. No exercise by LENDER of one right or remedy shall be
deemed an election. No delay by LENDER shall constitute a waiver,
election or acquiescence by such party.
Section 6. Expenses.
6.1 Expenses. Borrower agrees to pay within thirty days of the date
of an invoice submitted to Borrower (a) all actual and reasonable
costs and expenses (including, without limitation, all reasonable
attorneys' fees and allocated expenses of Agent's in-house legal
staff or outside counsel) of preparation of the Loan Documents and
all amendments, modifications and substitutions thereto, all costs of
furnishing all opinions of counsel for Borrower (including, without
limitation, any opinions requested by Agent or Requisite Lenders as
to any legal matters arising hereunder) and of Borrower's performance
of and compliance with all agreements and conditions contained herein
on its part to be performed or complied with; (b) all other actual
and reasonable out-of-pocket expenses (including, without Limitation,
all reasonable attorneys' fees and allocated expenses of Agent's in-
house legal staff or outside counsel) incurred by (i) Agent in
connection with the negotiation, preparation, execution and
enforcement of the Loan Documents and (ii) if an Event of Default has
occurred and is continuing, Lenders in connection with the enforcement
of the Loan Documents; and (c) regardless of the existence of an Event of
Default, all legal, appraisal, audit, accounting, consulting or other
fees, costs or expenses incurred in connection with any litigation,
contest, dispute, suit, proceeding or action in which (i) Borrower is a
party and (ii) any Lender or Agent shall be the prevailing party (whether
instituted by Lenders, Agent, Borrower or any other Person) in any way
relating to the Loan Documents, or any other agreement to be executed or
delivered in connection herewith. Borrower shall be liable for all fees,
costs and expenses listed in this Section 10.1 whether or not the
transactions contemplated by this Agreement are completed, unless the
failure to complete such transactions is due solely to Lenders, or Agent's
failure to comply with the terms and conditions of this Agreement.
6.2 Taxes, etc. Borrower agrees to pay all governmental assessments,
charges or taxes (except income, gross receipts, ad valorem,
intangibles, franchise or other similar taxes imposed on LENDER),
including any interest or penalties thereon, at any time payable or
ruled to be payable in respect of the existence, execution or
delivery of the Loan Documents or the issuance of the Note by reason
of any existing or hereafter enacted federal, state or local statute,
and to indemnify and hold each Lender and Agent and each and every
other holder of any Note harmless against liability in connection
with any such assessments, charges or taxes.
6.3 Indemnification. To the fullest extent permitted by law,
Borrower agrees to protect, indemnify, defend and hold harmless
LENDER, its Affiliates, directors, officers, employees, agents and
any person who controls any of them within the meaning of the Federal
and State securities laws ("Indemnitees") from and against any
liabilities, losses, damages or expenses of any kind or nature and
from any suits, claims or demands (including, without limitation, in
respect of or for reasonable attorney's fees and other expenses)
arising on account of or in connection with any matter or thing or
action or failure to act by Indemnitees, or any of them, arising out
of or relating to a breach of any of Borrower's obligations due
LENDER under he Loan Documents or any agreement or instrument
contemplated by the Loan Documents, except to the extent such
liability arises from the willful misconduct or gross negligence of
any of the Indemnitees. Upon receiving knowledge of any suit, claim
or demand asserted by a third party that LENDER believes is covered
by this indemnity, LENDER shall give Borrower notice of the matter
and an opportunity to defend it, at Borrower's sole cost and expense,
with legal counsel reasonably satisfactory to LENDER. LENDER may also
require Borrower to defend the matter. This obligation on the part of
Borrower shall survive the payment and performance of the
Obligations.
Section 7. Miscellaneous.
7.1 Survival. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery of
the Loan Documents and the making of the Loans hereunder.
7.2 No Waiver by Agent or Lenders. No failure or delay on the part
of LENDER in the exercise of any power, right or privilege hereunder,
under the Note or under any of the other Loan Documents shall impair
such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.
7.3 Notices. Except as otherwise provided in this Agreement, any
notice or other communication herein required or permitted to be
given shall be in writing and may be delivered in person, with
receipt acknowledged, or sent by telex, telecopy, computer
transmission or by United States mail, registered or certified,
return receipt requested, postage prepaid and addressed as set forth
on the signature pages to this Agreement or at such other address as
may be substituted by notice given as herein provided. The giving of
any notice required hereunder may be waived in writing by the party
entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall
be deemed to have been duly given or served on the date on which
personally delivered, with receipt acknowledged, or five (5) Business
Days after the same shall have been deposited in the United States
mail. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to the
persons designated below (other than the parties hereto) to receive
copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other
communication.
7.4 Severability. In case any provision or obligation under the Loan
Documents shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
7.5 Construction. This Agreement is the result of negotiations
between and has been reviewed by each of Borrower, LENDER and their
respective counsel; accordingly, this Agreement shall be deemed to be
the product of each party hereto, and no ambiguity shall be construed
in favor of or against either Borrower or LENDER.
7.6 Entire Agreement; Amendments and Waivers.
(a) This Agreement, the other Loan Documents and any other
agreement submitted in connection herewith, each dated as of the date
hereof, taken together, constitute and contain the entire agreement
of Borrower and LENDER and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications
between the parties, whether written or oral, respecting the subject
matter hereof. Borrower and LENDER agree that they intend the literal
words of this Agreement and the other Loan Documents and that no
parol evidence shall be necessary or appropriate to establish either
Borrower's, or LENDER's actual intentions.
(b) No amendment or waiver of any provision of this Agreement or
any other Loan Document, and no consent with respect to any departure
by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by LENDER and Borrower, and then such waiver shall
be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such waiver,
amendment, or consent shall, unless in writing and signed by LENDER
and Borrower, do any of the following:
(1) increase or extend the Commitment of LENDER (or reinstate
any Commitment terminated as provided herein or subject LENDER to any
additional monetary obligations;
(2) postpone or delay any date fixed for any payment of
principal, interest, fees or other amounts due to LENDERt hereunder or
under any Loan Document;
(3) reduce the principal of, or the rate of interest specified
herein on any Loan, or of any fees or other amounts payable hereunder
or under any Loan Document; or
(4) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which shall be required for
LENDER to take any action hereunder, except as specifically
contemplated by this Agreement.
7.7 No Set-Offs by Borrower. All sums payable by Borrower pursuant
to this Agreement, the Note or any of the other Loan Documents shall
be payable without notice or demand and shall be payable in U.S.
Dollars without set-off or reduction of any manner whatsoever.
7.8 Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given
any substantive effect.
7.9 Governing Law. Except as otherwise expressly provided in any of
the Loan Documents, in all respects, including all matters of
construction, validity and performance, this Agreement and the
Obligations arising hereunder shall be governed by, and construed and
enforced in accordance with, the laws of the State of California
applicable to contracts made and performed in such state, without
regard to the principles thereof regarding conflict of laws, and any
applicable laws of the United States of America.
7.10 Waiver of Jury Trial. LENDER AND BORROWER AGREE THAT NEITHER OF
THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR
ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN THEM, OR (B)
SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS
PARAGRAPH HAVE BEEN FULLY DISCUSSED BY LENDER AND BORROWER, AND THESE
PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER LENDER NOR
BORROWER HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
7.11 Subsequent Holders. The terms and provisions of the Loan
Documents shall inure to the benefit of any assignee or transferee of
the Note, and in the event of such transfer or assignment, the rights
and privileges conferred in the Loan Documents upon LENDER shall
automatically extend to and be vested in such transferee or assignee,
all subject to the terms and conditions hereof.
7.12 Assignability. This Agreement, the Note and the other Loan
Documents shall be bonding upon and shall inure to the benefit of the
parties hereto and thereto and their respective successors and
assigns except that Borrower may not assign its rights hereunder or
thereunder or any interest herein or therein, whether by operation of
law or otherwise, without the prior written consent of each Lender.
7.13 Confidentiality. LENDER agrees to hold in trust and confidence
all nonpublic information concerning the business or operation of
Borrower received from Borrower and clearly marked as confidential,
and to use such information only in connection with its
administration of this Agreement, except with the consent of
Borrower. This Section 7.13 shall survive the performance and
repayment in full of the Obligations hereunder.
7.14 Counterparts. This Agreement and any amendments, waivers,
consents, or supplements hereto and thereto may be executed in any
number of counterparts, and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall
constitute but one and the same instrument. Each such agreement shall
become effective upon the execution of a counterpart hereof or
thereof by each of the parties hereto and telephonic notification
thereof has been received by Borrower and LENDER.
TRIAD SYSTEMS FINANCIAL CORPORATION
By:___________________________________
Its:___________________________________
TRIAD SYSTEMS CORPORATION
By:___________________________________
Its:___________________________________
EXHIBIT J
REVOLVING CREDIT NOTE
$11,916,333 September 29, 1995
Livermore, California
FOR VALUE RECEIVED, Triad Systems Corporation, a Delaware corporation,
with offices at 3055 Triad Drive, Livermore, California ("Triad"), hereby
promises to pay to the order of Triad Systems Financial Corporation, a
California corporation, with offices at 3055 Triad Drive, Livermore,
California ("TSFC"), or at such other place as TSFC may from time to time
designate, the principle sum of Eleven Million Nine Hundred Sixteen
Thousand and Three Hundred Thirty-three Dollars ($11,916,333), plus
interest on the unpaid principal balance from the date of this Note until
maturity at a rate equal to three quarters of one percent (.75%) per annum
in excess of the rate of interest publicly announced from time to time by
Comerica Bank, N.A. ("Bank") as its prime rate, which rate may not be the
lowest rate of interest charged by the Bank to any of its customers, and
adjusted on the first business day of each month by the Bank from time to
time.
Such interest shall (i) be computed on the basis of a year equal to
360 days; (ii) be charged for the actual number of days within the
period for which interest is being charged; and be charged only on
the loan principal balance and other advances at any time disbursed
and not repaid. Payments shall be made in lawful money of the United
States, in arrears, in immediately available funds in increments
(other than the interest portion of the payment) and on the same due
dates identical as the payments due from TSFC to The First National
Bank of Boston under one certain Promissory Note dated August 29, 1995
in the principal sum of Twelve Million Dollars ($12,000,000).
This Note, in principal, interest, costs and reasonable attorneys'
fees, and any extension or renewal hereof, and any and every other
debt, liability and obligation, direct or indirect, absolute or
contingent, liquidated or unliquidated, due or to become due, whether
now existing or hereafter arising of Triad to TSFC shall be secured
by a Credit Facility Agreement executed by Triad of even date hereof
(hereafter "Agreement"), the terms and provisions of which are hereby
incorporated by this reference.
TSFC and Triad intend to conform strictly to the applicable usury
laws now in force governing this transaction, and any interest
payable under this Promissory Note or the Agreement, shall be subject
to reduction to the amount not in excess of the maximum non-usurious
amount allowed under applicable usury laws.
TIME IS OF THE ESSENCE and if any payment is not made when due,
TSFC at its option may declare this Note in default and at its option
without notice or demand declare immediately due and payable the
entire balance of this Note. In the event of a default under this
Note or Agreement, interest from the date hereof shall be
recalculated at a rate equivalent to the greater of (i) fourteen
(14%) per annum and (ii) four percent (4%) per annum in excess of the
Comerica Bank Prime Rate, and all sums due under this Note shall
become immediately due and payable. In addition, if any payment is
not paid within ten (10) days of its due date, there shall be a late
charge of five percent (5%) of the unpaid installment assessed Triad,
but in no event shall any late charge exceed an amount determined in
strict accordance with any state or federal statute applicable
thereto, together with other expenses necessarily incurred by TSFC by
reason of default under this Note. Any default under the Agreement
shall be deemed a default under this Note.
Triad hereby waives presentment for payment, demand, notice of non-
payment and demand, protest, notice and agrees that the time of
payment hereof may be extended from time to time, one or more times
without notice of such extension or extensions and without further
consent.
Triad may prepay this Note or any portion thereof, at any time
without penalty.
In the event of commencement of suit to enforce payment or
performance of this Note, Triad shall pay TSFC such additional sums
for attorneys fees and court costs, as any court of competent
jurisdiction may adjudge reasonable.
This Note shall, in all respects, be governed by the laws of the
State of California.
IN WITNESS WHEREOF, This Note is executed as of the day and year
first above written.
ATTEST: MAKER: TRIAD SYSTEMS CORPORATION
___________________ By: BRUCE BLANCO
Title: Corporate Controller
EXHIBIT K
LESSEE NOTIFICATION LETTER
To Lessee: ________________________________
Name
________________________________
Street Address
________________________________
City State Zip
This will serve notice to you that the rentals and all other
payments due from you under the Equipment Lease dated
_______________________, between you and Triad Systems Financial
Corporation has been assigned to THE FIRST NATIONAL BANK OF BOSTON.
Until you are directed otherwise by THE FIRST NATIONAL BANK OF
BOSTON, your payments should be forwarded directly to 435 Tasso
Street, Suite 250, Palo Alto, California 94301, Attention: High
Technology Division.
Please sign and return the enclosed copy of this notice to
Christopher McCabe, Vice President, at the address stated above.
TRIAD SYSTEMS FINANCIAL CORPORATION
By: RONALD D. LINDBERG
Title: Assistant Treasurer
THE FIRST NATIONAL BANK OF BOSTON
By: OSCAR JALDOWSKI
Title: Managing Director
The undersigned acknowledges receipt of notice
of the assignment referenced above:
Lessee:________________________________
By:___________________________________
Title:__________________________________
SCHEDULE 1
COMMITMENTS
Commitment Pro Rata Share
---------- --------------
First National Bank of Boston $12,000,000 100%
Total $12,000,000 100.0%
Schedule 4.5
Liens
None.
Schedule 4.12
EXHIBIT "A"
TRIAD SYSTEMS CORPORATION
SUBSIDIARIES
STATE OR OTHER
JURISDICTION OF
INCORPORATION CREATED OR
TYPE NAME OR ORGANIZATION ACQUIRED
- ----- ----- ----------------- -----------
Domestic Triad Systems
Financial Corporation California 1978
Domestic 3055 Triad Dr. Corporation California 1988
Domestic loadSTAR Systems Inc. New Jersey 1992
Domestic Orleans Leasing
Corporation California 1979
Domestic Triad International
Sales Corporation California 1980
Domestic Triad Systems
Integrations California 1986
Domestic Triad Data
Corporation California 1984
Foreign Tridex Systems
Limited United Kingdom 1981
Foreign Tridex Leasing
Limited United Kingdom 1993
Foreign Triad Systems
Canada Limited Canada 1982
Foreign Triad Systems
Ireland Limited Ireland 1992
Foreign Triad Systems
France, S.A.R.L France 1994
Schedule 6.7
ERISA Plans
None.
