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, 1996
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 $94,790,000 based on the closing sales
price of the Company's common stock, as reported on NASDAQ on November 29,
1996. 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 29, 1996 was 17,835,409.
This report, including all exhibits and attachments, contains 65 pages.
The Exhibit Index is located on pages 44-46.
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) Information Statement
filed by the Company with the Securities and Exchange Commission on
November 13, 1996, as amended on November 15, 1996, pursuant to
Regulation 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1
thereunder ("Information Statement").
This information statement is referred to herein as the "Information
Statement" and is incorporated as provided in Part III.
Part I
Item 1. BUSINESS
Introduction
Triad Systems Corporation ("Triad" or the "Company") 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.
On October 17, 1996, the Company signed a definitive merger
agreement with Cooperative Computing, Inc., a Texas corporation ("CCI") under
which an acquisition company owned jointly by CCI and the investment firm of
Hicks, Muse, Tate & Furst would acquire the Company. See "SUBSEQUENT EVENT -
Execution of Merger Agreement."
Triad's installed base provides significant recurring revenues,
accounting for 74% of its annual revenues in fiscal 1996. Of the recurring
revenues, 49% is from service and support agreements, 26% from sales of
hardware and software upgrades and add-ons to existing customers and 25%
from subscription fees for Triad's proprietary database products. Triad's
principal strategy is to expand its presence and generate increasing
recurring revenues in its primary markets by marketing a growing family of
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 needing 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 requirements. See "BUSINESS-Information Services."
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, jobbers and retailers, who stock and sell the automobile parts
used by service dealers and consumers. Today, these channels of distribution
are blurring with many warehouses selling directly to service dealers and
retailers and many jobbers also selling at wholesale.
The Company had approximately 11,000 Automotive customers spanning small
and large businesses as of September 30, 1996. Triad's installed base
provides a source of recurring revenue through sales of applications software
packages, peripherals, hardware upgrades, information services, business
products and customer support services. Due to the high level of automation
among traditional jobbers segment 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 to domestic
jobbers segment.
The Company has developed new products and approaches to expand its
customer base in adjacent segments. The Company typically offers its software
products and databases in conjunction with system sales, and also markets
selected software products and databases separately. Triad has gained access
to several leading retail chains, as well as jobbers utilizing non-Triad
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 workstation 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, France 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 and
service aftermarket in the United States, Canada and selected European
Community countries. See "BUSINESS-Information Services."
Triad markets systems to the warehouse distributor segment. More than
160 mid-range and large warehouse distributors have installed the Paperless
Warehouse, the UNIX-based DIS Warehouse System and the Triad Ultimate System.
The UNIX-based Warehouse System is targeted at the traditional warehouse
distributor who primarily services independent jobbers. The Triad Ultimate
System is for larger distributors who wish to operate their warehouses and
stores from a single Central Processing Unit (CPU). The Paperless Warehouse
utilizes Bar-Code Scanning and Radio Frequency technology to enhance
efficiency and productivity in the warehouse operations. Additionally,
smaller warehouse distributors and larger jobbers have purchased the
Company's jobber system. See "BUSINESS-Triad Hardware Systems and Software
Products."
Hardlines and Lumber. Triad's Hardlines and Lumber operation offers
integrated business systems to a market of approximately 49,000 hardware
stores and home centers, lumber/building supplies stores, paint and
decorating retailers, and farm supply dealers with annual sales of between
$300 thousand and $200 million. At September 30, 1996, the Company had
approximately 5,400 customers in these markets.
There is a lower level of automation in the Hardlines and Lumber market
compared to the Automotive 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
encouraged automation, and some 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,
Eagle LS and IMS systems allow for product offerings suitable for hardlines
and building materials chains with up to 99 stores and $200 million in annual
sales. See "BUSINESS-Triad Hardware Systems and Software Products."
Information Services
Triad licenses its proprietary databases in return for a license fee and
monthly subscription fees entitling customers to periodic updates. These
database products generate recurring revenues through monthly subscription
fees and add value to the Company's products, thus contributing to new system
sales. The Company offers special databases to its Automotive customers and
has a database catalog product for hardware stores affiliated with Cotter
& Company (True Value).
Electronic Catalog. Triad's Electronic Catalog product provides more than
20 million automobile parts applications. This database minimizes 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, 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, 1996,
approximately 5,800 customers had licensed the Electronic Catalog database.
Telepricing. The Telepricing service provides price updates for automotive
parts following a manufacturer's price change, minimizing 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 3,000 subscribers at September 30, 1996.
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 approximately 6,700 units generating
monthly fees for this database at September 30, 1996. 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 1996, 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, 1996.
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, Penske 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 service, MarketPACE for the Automotive
Aftermarket, 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.
Databases for International Markets. In 1992, 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. 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 developed 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 to Cotter
affiliated members. See "BUSINESS-Triad Hardware Systems and Software
Products."
Databases for Manufacturers. VISTA is the new transaction analysis
service for the Hardlines and Lumber industry. VISTA provides 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 from VISTA services provide manufacturers with insight into how a
given product or brand performs against its competitors and the market in
general.
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 segments. The Company provides a different set of standard
applications programs for each segment 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. 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.
Triad Prism is a UNIX-based system featuring a fully-integrated relational
database on Intel Pentium Pro and other Intel processors. In 1996, the
Company focused its marketing efforts of the Triad Prism products on the
medium to large sophisticated automotive parts distributors. At about the
same time, the marketing effort for the Triad Eclipse system, developed by
the Company's loadSTAR subsidiary, was expanded to cover the general market
of the automotive parts distributors. Triad's Series 11, Triad Eclipse, and
Triad Prism track inventory, perform accounting functions, and execute such
point of sale operations as invoicing and billing and catalog. Smaller
warehouse distributors also use these systems with applications software
designed to serve their particular information management requirements.
Triad's Series 11 systems use a microcomputer manufactured by Triad with a
proprietary operating system. All these Triad systems 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, 1996, Triad had installed more
than 1,800 TelePart terminals.
Triad ServiceWriter is the latest addition to its growing family of
information management solutions. A version of the service dealer system
which operates under Microsoft WindowsTM was introduced in the fourth
quarter of this year. Triad ServiceWriter blends Triad's unique databases of
20 million parts applications, detailed labor estimates and recommended
vehicle service intervals with the latest in workstation technology. Triad
ServiceWriter also creates printed work estimates, automated work orders and
maintains individual customer records and vehicle maintenance 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. 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, a service which is mandatory in several states. See
"BUSINESS Information Services." Triad's Information Services Division also
markets the Catalog databases separately from the workstation.
In 1996, the Company, acquired certain assets of Pace Automotive Systems
Ltd. of Canada, including the Pace Business Manager, a business management
software system directed at service dealers.
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."
Hardlines and Lumber Industry. Triad Hardlines and Lumber systems
automate inventory control, point of sale functions, invoicing, billing,
payroll, accounting and electronic communications to affiliated cooperatives,
distributors and manufacturers.
The UNIX-based Intel Pentium and Pentium Pro driven Eagle series of
systems is designed for small and mid- to large sized Hardlines dealers. These
systems have greater power and functionality and therefore have expanded
access to larger Hardlines dealers. Existing Triad customers are able to
upgrade to an Eagle system and utilize the newly incorporated technological
advancements.
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. More than 3,750 Eagle and Eagle LS
systems, including upgrades and new systems, have been sold since 1991.
In 1996, the Company purchased Computer System Dynamics (CSD) and its
assets. CSD was founded in 1975 and is headquartered in Denver, Colorado. It
is recognized as one of the leaders in providing specialized computer
solutions to the building materials industry which is comprised of 600 firms
in 1,100 locations nationwide. CSD's product, IMS, is a UNIX-based system
designed for large sized lumber and building material dealers. The product
is being driven by Intel Pentium and IBM RS/6000 hardware and has
functionality to handle very large lumber dealers.
The True Start(TM) product, an entry level catalog and ordering system,
includes the Cotter and Company database product. It is designed as a stand
alone system and is marketed and sold by Cotter and Company to its 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 32% of the Company's full-time employees at September 30,
1996, 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
Advice Line service giving them access to trained personnel able to perform
on-line diagnostics or to dispatch field engineers if on-site service is
necessary.
Virtually all new system customers enter into system support agreements
at the time of purchase and most retain such service agreements as long as
they own the system. Monthly domestic fees vary with system size. At
September 30, 1996, the Company had 181 field engineers and managers, and 73
customer education representatives (CERs) and managers in 115 domestic and
17 foreign field service offices.
Customer Training. Customer training is offered in Triad facilities,
including 42 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 pre-load
inventory files provided by certain cooperatives or distributors.
Marketing and Sales
The Company markets its automotive and hardlines products and services
through a 225-person direct sales organization as of September 30, 1996.
The Company's products and services 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 and France in 1996. 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, 1994, 1995 and 1996, 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 65% of domestic business systems
sales in the year ended September 30, 1996.
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, 1996, Triad Financial purchased and leased
$564 million of Triad equipment, including $39 million during fiscal 1996.
Triad Financial also provides lease financing to independent third parties in
the markets that Triad serves, and since 1984 has financed $70 million under
these programs, including $18 million in 1996. 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 $25.9 million at September 30, 1996. 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, 1996, the Company had
$16 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 most restrictive covenant requires that both Triad and Triad
Financial be profitable every quarter. The Company failed to meet this
covenant at June 30, 1996, and received a waiver. At September 30, 1996, the
Company is in compliance with the restrictive covenants. 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 1994, 1995 and 1996, Triad's respective product development
expenditures including capitalized costs were $11.2 million, $11.1 million
and $11.9 million.
The Company capitalized $3.1 million, $2.9 million and $3.5 million of
software development costs in 1994, 1995 and 1996, 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. During 1996, the Company repositioned certain products
within the Automotive Aftermarket and wrote off $7,500,000 in capitalized
costs for Triad Prism.
At September 30, 1996, the Company employed 128 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 96% of hardware overhead cost, with subassembly, assembly and
test costs representing the balance. The Company had 45 manufacturing
employees at September 30, 1996. 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 considers to be a trade
secret.
Triad has obtained licenses from various sources covering operating
systems, utilities and applications programs and databases 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 three 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 the largest software
producers, information services and computer systems suppliers. 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 large distributors and large cooperatives that market computer
systems to their members. Competition for the Company's higher-priced
warehouse systems and database products 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 from traditional suppliers of systems to retailers,
from parts manufacturers and from others.
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 operates in a highly competitive environment, marked by a
significant consolidation among its traditional customer base. Triad is
developing new products and improvements to meet these competitive
challenges.
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.
Triad, in compliance with the Hart-Scott-Rodino antitrust Improvements
Act, notified the Federal Trade Commission (FTC) and Department of Justice of
the pending tender offer for shares by Hicks, Muse, Tate & Furst Incorporated.
See "SUBSEQUENT EVENT - Execution of Merger Agreement." The FTC has since
initiated a review of the transaction. The parties do not believe the
transaction raises any competitive concerns and are cooperating fully in
this review.
Employees
At September 30, 1996, Triad had 1,503 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.
Subsequent Event - Execution of Merger Agreement
On October 17, 1996, the Company signed a definitive merger agreement
with Cooperative Computing, Inc., a Texas corporation ("CCI"), under which CCI
Acquisition Corp. ("CAC"), a Delaware corporation jointly owned by CCI and
Hicks, Muse, Tate & Furst Incorporated, a private investment firm located in
Dallas, Texas, would acquire the Company.
Pursuant to the terms of the merger agreement, CAC commenced a cash
tender offer for all outstanding shares of the Company at a price of $9.25
per share on October 23, 1996. The tender offer, which was to have expired at
12:00 Midnight, New York City time, November 20, 1996, has been extended
until 12:00 midnight, New York City time, on Friday, January 3, 1997. When
the tender offer is completed, it will be followed by a merger transaction,
in which any shares of the Company's common stock that remain outstanding
after the tender offer will be exchanged for cash at the same price as the
tender offer price. The tender offer is not expected to be completed until
the Federal Trade Commission completes its currently pending review of the
transaction and certain other conditions to closing are satisfied.
In addition to the cash consideration to be received by the Company's
shareholders pursuant to the tender offer or the merger transaction, the
merger agreement provides that the Company's shareholders of record
immediately prior to the consummation of the tender offer will receive a
dividend consisting of their pro rata share of the equity of a newly formed
company whose assets will consist of all the Company's owned real property
located in Livermore, California, including its corporate headquarters
buildings and land held for sale in the Triad Park development in Livermore.
The spun-off real estate entity, which the Company expects to be a public
company, will assume all the indebtedness currently secured by the spun-off
real estate and will lease the corporate headquarters buildings to the
Company's post merger successor. Over time, the real estate entity is
expected to liquidate its real estate portfolio, with proceeds used to
pay expenses (including taxes), repay secured debt and distribute any
remaining proceeds to its equity holders. 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.
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 97/8% that may be adjusted at the option of the lender in 1998.
At September 30, 1996, the Company was leasing sales and service space in
116 cities in the United States and 16 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 only be used
for agricultural purposes.
The Company sold an aggregate of 59.1 acres of Triad Park from fiscal
years 1987 through 1996 for $11.3 million and as of September 30, 1996,
intended to market 161.1 acres of Triad Park for resale during the next
several years. During first quarter 1997, the Company decided to sell an
additional 36 acres previously classified in Property, Plant and Equipment.
Approximately 14.6 acres of property have been rezoned for retail use,
28.1 acres for residential, 25.4 acres for retail or industrial use and the
balance of the property is zoned for 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 $9.6 million in
assessments outstanding, the Company made $864,000 in interest payments on
the bonds in fiscal 1994, $832,000 in fiscal 1995 and $816,000 in fiscal
1996.
The Company intends to sell those portions of the Livermore acreage which
are in excess of the Company's long-term facilities requirements.
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, 1996.
Item E.O. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Executive Officers and Operating Management as of
December 15, 1996 are as follows:
Name Age Position
- ---- --- --------
James R. Porter 61 President, Chief Executive Officer, and
Director
Shane Gorman 53 Executive Vice President, Automotive Operations
Chad A. Schneller 55 Vice President, Hardlines and Lumber Operations
Stanley F. Marquis 53 Vice President, Finance, Chief Financial
Officer, Corporate Secretary and Treasurer;
President, Triad Systems Financial Corporation
Dan F. Dent 49 Vice President and General Manager, Customer
Support Services Division
Thomas A. King 52 Vice President, Product Development and
Manufacturing
M. Edward Molkenbuhr 49 Vice President and General Manager, Service
Dealer Division
Thomas J. O'Malley 61 Vice President, Administration
Bruce M. Blanco 47 Corporate Controller and General Manager,
Triad Systems Financial Corporation
Patrick J. Bormann 40 General Manager, Automotive Distributor Systems
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. 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. 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. 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 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. 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. 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. In
October 1996, he assumed the responsibilities of General Manager of Triad
Systems Financial Corporation.
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. In October 1996, he was
promoted to General Manager, Automotive Distributor Systems.
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, 1996, there
were 1,245 record holders of the Company's common stock. Below are the quoted
prices for the stock's high and low sales prices:
FY 1996 High Low
- -----------------------------------------------------------------
First Quarter $ 6 3/8 $ 5 1/4
Second Quarter 6 3/4 5 1/2
Third Quarter 6 7/8 5 1/4
Fourth Quarter 6 5/8 4 3/4
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
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) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------
Statements of Income Data
Revenues
Systems $ 70,090 73,312 72,910 64,069 63,820
Customer support services 64,148 62,429 59,733 59,509 61,063
Information services 31,792 28,092 24,436 20,586 18,127
Finance 9,646 11,244 10,199 8,654 9,562
- -----------------------------------------------------------------------------
Total revenues $175,676 $175,077 $167,278 $152,818 $152,572
Market revenues
Automotive $101,182 $112,223 $112,750 $102,484 $104,957
Hardlines and lumber 69,757 56,255 50,229 47,506 43,553
Other 4,737 6,599 4,299 2,828 4,062
- -----------------------------------------------------------------------------
Total revenues $175,676 $175,077 $167,278 $152,818 $152,572
Gross margins
Automotive 46.4% 51.4% 50.4% 49.8% 50.7%
Hardlines and lumber 49.4% 50.9% 49.7% 50.2% 45.4%
Total gross margins 46.6% 49.4% 49.3% 49.4% 48.7%
Operating income $ 5,533 $ 20,532 $ 19,361 $ 15,822 $ 18,013
Gain from sale of land 1,194 - - 652 -
Income before extraordinary
charge 1,559 8,426 7,379 5,065 3,520
Net income 1,182 8,030 7,236 5,065 2,097
Primary earnings per share
Income before extraordinary
charge $ .09 $ .48 $ .43 $ .31 $ .27
Net income .07 .46 .42 .31 .17
Fully diluted earnings per
share
Income before extraordinary
charge .09 .48 .43 .30 .27
Net income .07 .45 .42 .30 .17
Balance Sheet Data
Total assets $139,753 $132,709 $136,363 $131,379 $124,175
Total debt 55,913 55,609 63,406 72,352 71,896
Stockholders' equity
(deficit) 16,787 14,221 12,141 3,114 (2,649)
Other Data
Net income as a percent
of revenue 0.7% 4.6% 4.3% 3.3% 1.4%
Return on assets 1.1% 6.3% 5.5% 4.0% 2.8%
Product development costs
Capitalized software $ 3,465 $ 2,930 $ 3,142 $ 2,840 $ 3,347
Product development expense 8,414 8,136 8,022 8,118 7,483
- -----------------------------------------------------------------------------
Total product development
costs $ 11,879 $ 11,066 $ 11,164 $ 10,958 $ 10,830
Capital expenditures $ 2,931 $ 2,819 $ 3,416 $ 3,029 $ 3,116
Depreciation and amortization 8,704 8,793 8,087 8,423 9,912
Number of employees 1,503 1,453 1,449 1,391 1,409
Common shares outstanding 17,749 17,370 13,626 12,484 11,710
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Revenues for fiscal 1996 of $175.7 million increased slightly over 1995
revenues of $175.1, which were 5% above the $167.3 million of 1994. Gross
profit of $81.9 million declined 5% or $4.7 million from 1995, while
increasing 5% or $4.1 million over 1994.
A restructuring charge of $9.0 million, related to an Automotive product
issue and realignment of Automotive Aftermarket operations, was included in
the 1996 operating profit of $5.5 million compared to operating income of
$20.5 million in 1995 and $19.4 million in 1994.
Net income was $1.2 million in 1996 compared with $8.0 million in 1995
and $7.2 million in 1994. Net income in 1996 reflected the $9.0 million
restructuring charge, proceeds from the sale of the Company's investment in
the Alldata Corporation of $1.8 million, the sale of four parcels in Triad
Park for $1.1 million and a net charge of $.4 million after taxes related to
the refinancing of debt. Net income in 1995 and 1994 also reflected a net
charge of $.4 million and $.1 million after taxes, respectively, also
related to the early retirement of debt.
Fully diluted earnings per share were 7 cents in 1996, 45 cents in 1995
and 42 cents in 1994.
Automotive Aftermarket Revenues
The Automotive Aftermarket consists of manufacturers, warehouse
distributors, parts stores and independent and chain repair outlets.
Revenues are primarily derived from the sale and financing of systems and
information and support services related to those systems. Automotive
Aftermarket revenues of $101.2 million were 10% below 1995 revenues of
$112.2 million. Revenues in 1995 remained relatively consistent with 1994.
Systems sales in 1996 decreased 22% to $31.6 million from $40.7 million in
1995, a decline of 9% from $44.7 million in 1994. In 1995, the Company's
jobber system sales were affected by the implementation of a controlled
rollout of the second phase of the Triad Prism(R) product due to certain
software-related problems. In the third quarter of 1996, recognizing slower
than anticipated aftermarket acceptance of the Triad Prism system and its
product performance issues, management:
- Reduced and repositioned the automotive product line to more closely
match the configuration of the aftermarket while decreasing the
complexity and costs associated with a broader product line. The
Triad Prism system remains a contributing member of the automotive
product line, marketed to a specific segment of the aftermarket.
- Resized the automotive sales force and management structure to reflect
aftermarket changes and current sales.
- Initiated a review of the research and development spending process to
ensure that ongoing spending is a profitable investment for Triad
stockholders. As a result, a restructuring charge of $9.0 million was
recorded for the third quarter of 1996.
As part of the restructuring, there was an increased focus on the large
account segment that resulted in record systems revenue of $9.5 million, an
increase of 34% from $7.1 in 1995.
Customer support revenues were down $2.5 million to $34.2 million in 1996
from $36.7 million in 1995. Revenues decreased by $.5 million in 1995 from
1994 revenues of $37.2 million The 1995 decline was attributed to a
reduction in the customer base as well as shifting customers to lower priced
service options and more reliable product technology The 1996 decline was
related to lower-than-planned new automotive systems sales and a reduction
of the customer base due to continuing consolidation within the aftermarket.
Information services revenues grew 10% to $29.5 million in 1996 which was
13% greater than 1994. Customers utilizing Triad's information products
increased in 1996, 1995 and 1994. In addition, national automotive chain
customers began subscribing during 1994. MarketPACE point of sale (POS)
operation continues to develop. These emerging businesses inter-relate with
the Company's products and other services from manufacturers to end-users.
Triad Systems Financial Corporation ("Triad Financial", a wholly-owned
subsidiary) revenues were $5.9 million in 1996, down 27% or $2.1 million
from 1995. Finance revenues for 1995 were $8.0 million, up 14% or
$1.0 million over 1994. The decline in 1996 was due mainly to a lower-earning
portfolio and lower discounting yields related to rising interest rates.
Hardlines & Lumber Market Revenues
The Hardlines & Lumber Market consists of manufacturers, hardware stores,
home centers, lumber and building supply outlets and paint and decorating
centers. Revenues increased by 24% or $13.5 million to $69.8 million from
1995 to 1996 and increased 12% or $6.0 million to $56.3 million from 1994 to
1995. Contributing to the overall increase in revenues was the Company's
acquisition of Computer System Dynamics (CSD) in June 1996. (See the
Liquidity and Capital Resources section.)
Systems revenues increased $7.2 million to $36.4 million for 1996 and
$3.0 million to $29.2 million for 1995. Triad continues to become more closely
affiliated with major co-ops and wholesale distributors and this activity is
reflected in the revenue growth from 1994 to 1996.
Customer support revenues increased 21% to $27.3 million in 1996 and 11%
to $22.6 million in 1995. This growth is a direct result of increases in the
customer base.
Information services revenues increased to $2.3 million in 1996 compared
to $1.3 million in 1995 and $.6 million in 1994. Triad's Vista point of sale
(POS) services continue to contribute to this growth as its customer base
expands.
Triad Systems Financial Corporation revenues were fairly consistent from
1994 to 1996.
Gross Margin
Gross margins for the Automotive Aftermarket of 46% declined 5% from 1995
and increased slightly from 1994 to 1995. The 1996 decline was due primarily
to higher Triad Prism system returns and the cost of shifting customers to
lower margin products. Also contributing was a change in the product mix,
along with a higher percentage of fixed costs. Gross margins for the
Hardlines and Lumber Market have remained relatively consistent at 49% in
1996, 51% in 1995 and 50% in 1994.
Consolidated Expenses and Other Income
Marketing expense of $48.7 million increased slightly as a percentage of
revenue over the prior year due to an increase in lease loss reserves in the
automotive aftermarket. In 1995, marketing expense of $46.9 million also
increased slightly as a percentage of revenues over 1994 due to an increase
in the sales force and continued investment in the Automotive and Hardlines
and Lumber markets.
Product development expenses, after capitalization of software
development, were $8.4 million in 1996, $8.1 million in 1995 and $8.0 million
in 1994. As a percentage of revenue, product development expense remained
consistent at 5% over the three years.
General, administrative and other operating expenses decreased 6.7% to
$10.2 million and decreased in 1995 compared to 1994 by 1.1% from
$11.0 million. The 1996 cost reflects reduced litigation expenses, initiated
by the Company to protect its intellectual property rights, along with
containment of operating costs.
The restructuring charge of $9.0 million included a $7.5 million
write-off relating to the Triad Prism system software the Company had
previously capitalized, along with $1.0 million in reserves for related
product issues. Also included was $.5 million in costs associated with the
realignment of aftermarket sales and support personnel to address increasing
aftermarket consolidation.
Interest and other expense decreased by $1.0 million to $5.9 million
in 1996 and by $.5 million to $6.9 million in 1995 compared to 1994. In the
fourth quarter of 1995, the Company retired $3.8 million and refinanced
$11.8 million in floating rate notes at a lower interest cost, which is
reflected in the interest decrease in 1996. The Company's retirement of debt
also contributed to the decline in interest expense in 1995 and 1994.
Other income of $2.9 million in 1996 consisted of the sale of marketable
securities and land held for resale. The Company realized $1.8 million in
income related to the sale of its investment in AllData Corporation, an
automotive database marketer that was purchased by Autozone in March 1996.
In September 1996, the Company recognized a gain of $1.1 million in the sale
of 25 acres of land held for resale. The Company sold an 11-acre parcel to
Lincoln Properties Company, which plans to erect an office and research and
development building, a 9.2-acre parcel to HHH Investment and Supply
Company, which plans to house dental laboratories, a 1.8-acre parcel to
D'Ambrosio Brothers Investment Company, which plans to build a restaurant
and a 3.4-acre parcel to Tri-Valley Office Limited Partnership, which plans
to erect an office building.
In July of 1996, $10.1 million of senior fixed-rate notes were retired
early. This generated an extraordinary charge of $377,000 ($.02 per share)
that included a premium of $379,000, unamortized debt costs of $229,000,
less taxes of $231,000.
Subsequent Event
On October 17, 1996, the Company signed a definitive merger agreement
with Cooperative Computing, Inc. ("CCI"), a Texas corporation, under which
CCI Acquisition Corp. ("CAC"), a Delaware corporation jointly owned by CCI
and Hicks, Muse, Tate & Furst Incorporated, a private investment firm located
in Dallas, Texas, would acquire the Company. Pursuant to the terms of the
merger agreement, CAC commenced a cash tender offer for all outstanding
shares of the Company at a price of $9.25 per share on October 23, 1996. The
tender offer, which was to have expired at 12:00 Midnight, New York City
time, November 20, 1996, has been extended until 12:00 midnight, New York
City time, on Friday, January 3, 1997. When the tender offer is completed,
it will be followed by a merger transaction, in which any shares of the
Company's common stock that remain outstanding after the tender offer will
be exchanged for cash at the same price as the tender offer price. The
tender offer is not expected to be completed until the Federal Trade
Commission completes its currently pending review of the transaction and
certain other conditions to closing are satisfied.
In addition to the cash consideration to be received by the Company's
shareholders pursuant to the tender offer or the merger transaction, the
merger agreement provides that the Company's shareholders of record
immediately prior to the consummation of the tender offer will receive a
dividend consisting of their pro rata share of the equity of a newly formed
company whose assets will consist of all the Company's owned real property
located in Livermore, California, including its corporate headquarters
buildings and land held for sale in the Triad Park development in Livermore.
The spun-off real estate entity, which the Company expects to be a public
company, will assume all the indebtedness currently secured by the spun-off
real estate and will lease the corporate headquarters buildings to the
Company's post merger successor. Over time, the real estate entity is
expected to liquidate its real estate portfolio, with proceeds used to
pay expenses (including taxes), repay secured debt and distribute any
remaining proceeds to its equity holders. 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.
Future Operating Results
Future operating 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, marketable securities, lease discounting and credit lines, will
provide adequate funds to finance foreseeable operating needs. The Company
maintains $26.9 million in a bank line of credit and there were outstanding
borrowings of $15.8 million at September 30, 1996.
Triad Financial financed $42.2 million in Triad equipment during 1996
in addition to $17.7 million in non-Triad equipment through client lease
programs. Triad Financial received $73.6 million of proceeds from
discounting leases during 1996.
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 failed to meet the quarterly profitability covenant
in the third quarter and received a waiver of this requirement. 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.
Capital equipment expenditures, excluding capitalized leases, were
$2.9 million during 1996.
On June 27, 1996, the Company acquired Computer System Dynamics, Inc.
(CSD), a Colorado supplier of systems and software products to the high-end
user in the Hardlines and Lumber market. The acquisition expanded Triad's
Hardlines and Lumber customer base to more than 5,400 customers with
approximately 6,100 locations. The acquisition was accounted for using the
purchase method. The purchase includes contingent deferred payment obligations
based on attainment of future performance objectives.
On September 30, 1996, the Company acquired certain assets of Pace
Automotive Systems, Ltd., the leading provider of automated information
management systems in the Canadian service dealer market. The acquisition
expanded the Service Dealers customer base by 1,200 customers.
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 his respective stock ownership level within a
three-to five-year period. All of the current executive officers required to
meet the stock ownership target by October 1, 1996 had done so as of
September 30, 1996.
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," (SFAS No. 121), which requires the
review for impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In certain situations, an impairment loss would be recognized.
The Company does not believe that adoption of SFAS No. 121, which will become
effective for the Company's fiscal year 1997, will have a material impact on
its financial condition or operating results.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
This statement, which establishes a fair value-based method 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 on a pro forma net income and earnings per
share under the new method. The Company is required to adopt SFAS No. 123 by
fiscal year 1997, and upon adoption, will elect to continue to measure
compensation cost for its employee stock compensation plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25.
Pro forma disclosure of net income and earnings per share will reflect the
difference between compensation cost included in net income and the related
cost measured by the fair value-based method defined in SFAS No. 123,
including tax effects, that would have been recognized in the consolidated
statement of operations if the fair value-based method had been used.
During June 1996, the Financial Accounting Standards Board issued Statement
No. 125 (SFAS No. 125), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." This standard establishes
consistent standards for distinguishing transfers of financial assets that
are sales from transfers that are secured borrowings. The Company is
reviewing the requirements of this pronouncement and its effect on lease
discounting including any administrative organizational changes to insure
continued sales accounting treatment for these transactions. SFAS No. 125
will become effective for transactions that the Company enters into after
December 31, 1996.
Item 8. Financial Statements and Supplementary Data
Consolidated Statements of Income
For the Years Ended September 30
(Amounts in thousands
except per share data) 1996 1995 1994
- ---------------------------------------------------------------------
Revenues
Systems $ 70,090 $ 73,312 $ 72,910
Customer support services 64,148 62,429 59,733
Information services 31,792 28,092 24,436
Finance 9,646 11,244 10,199
- ---------------------------------------------------------------------
Total revenues 175,676 175,077 167,278
Cost of sales
Systems 37,544 35,606 34,407
Services and finance 56,264 52,903 50,359
- ---------------------------------------------------------------------
Total cost of sales 93,808 88,509 84,766
Gross margin 81,868 86,568 82,512
Marketing 48,688 46,929 44,030
Product development 8,414 8,136 8,022
General and administrative 10,233 10,971 11,099
Restructuring charge 9,000 - -
- ---------------------------------------------------------------------
Operating expenses 76,335 66,036 63,151
- ---------------------------------------------------------------------
Operating income 5,533 20,532 19,361
Interest and other expense 5,944 6,941 7,459
Other income 2,926 - -
- ---------------------------------------------------------------------
Income before income taxes and
extraordinary charge 2,515 13,591 11,902
Provision for income taxes 956 5,165 4,523
- ---------------------------------------------------------------------
Income before extraordinary
charge 1,559 8,426 7,379
Extraordinary charge on repurchase
of debt, net of taxes 377 396 143
- ---------------------------------------------------------------------
Net income $ 1,182 $ 8,030 $ 7,236
=====================================================================
Earnings per share
Primary
Income before extraordinary charge $ .09 $ .48 $ .43
Net income .07 .46 .42
Weighted average shares 17,570 17,774 17,418
Fully diluted
Income before extraordinary charge $ .09 $ .48 $ .43
Net income .07 .45 .42
Weighted average shares 17,570 17,973 17,421
=====================================================================
The accompanying notes are an integral part of these financial statements.
Consolidated Balance Sheets
September 30
(Amounts in thousands
except share data) 1996 1995
- ---------------------------------------------------------------------
Assets
Current assets
Cash and equivalents $ 7,652 $ 7,263
Trade accounts receivable 17,746 13,175
Investment in leases 1,635 2,001
Inventories 5,799 5,636
Prepaid expenses and other
current assets 8,551 6,702
- ---------------------------------------------------------------------
Current assets 41,383 34,777
Service parts 3,273 3,316
Property, plant and equipment 26,887 27,017
Long-term investment in leases 14,380 16,540
Land for resale 22,850 25,250
Capitalized software and
intangible assets 21,312 16,222
Other assets 9,668 9,587
- ---------------------------------------------------------------------
Assets $139,753 $132,709
=====================================================================
Liabilities
Current liabilities
Notes payable and current portion
of long-term debt $ 25,990 $ 3,032
Accounts payable 10,590 9,373
Accrued employee compensation 8,275 7,908
Deferred income taxes 2,701 3,338
Other current liabilities and
accrued expenses 10,968 9,695
- ---------------------------------------------------------------------
Current liabilities 58,524 33,346
Long-term debt 29,923 52,577
Deferred income taxes 27,656 26,176
Other liabilities 6,863 6,389
- ---------------------------------------------------------------------
Liabilities 122,966 118,488
- ---------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity
Common stock
$.001 par value; authorized
50,000,000 shares;
issued 18,394,000 shares at
September 30, 1996 and
17,969,000 shares at
September 30, 1995 18 18
Treasury stock
645,000 shares at September 30, 1996
and 599,000 shares at
September 30, 1995 (3,478) (3,204)
Capital in excess of par value 29,954 28,201
Accumulated deficit (9,707) (10,794)
- ---------------------------------------------------------------------
Stockholders' equity 16,787 14,221
- ---------------------------------------------------------------------
Liabilities and stockholders'
equity $139,753 $132,709
=====================================================================
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) 1996 1995 1994
- ---------------------------------------------------------------------
Cash flows from operating activities
Income before extraordinary charge $ 1,559 $ 8,426 $ 7,379
Adjustments to reconcile income
before extraordinary charge
to net cash provided by operating
activities
Extraordinary charge on repurchase
of debt, net of taxes (377) (396) (143)
Depreciation and amortization 8,704 8,793 8,087
Receivable and inventory loss
provisions 10,956 8,271 8,264
Restructuring charge 9,000 - -
Gains from lease discounting (6,981) (7,585) (5,923)
Gain on sale of marketable security (1,779) - -
Gain from sale of land (1,194) - -
Other (3,395) 876 1,710
Changes in assets and liabilities
Trade accounts receivable (6,525) (2,138) (6,548)
Investment in leases 6,637 13,607 6,233
Inventories (49) (207) (991)
Deferred income taxes 559 1,349 3,401
Prepaid expenses and other
current assets (1,277) (634) (1,512)
Accounts payable 448 433 (764)
Accrued employee compensation 127 (182) 742
Other current liabilities and
accrued expenses (969) (494) 513
- ---------------------------------------------------------------------
Net cash provided from operating
activities 15,444 30,119 20,448
- ---------------------------------------------------------------------
Cash flows from investing activities
Investment in property, plant and
equipment (2,931) (2,819) (3,416)
Capitalized software and databases (8,452) (7,043) (5,282)
Investment in service parts (1,041) (1,887) (1,195)
Proceeds from the sale of land 3,523 - -
Acquisition of businesses (4,054) - -
Sale of marketable securities 2,321 - -
Other (1,065) (1,116) (2,166)
- ---------------------------------------------------------------------
Net cash used in investing
activities (11,699) (12,865) (12,059)
- ---------------------------------------------------------------------
Cash flows from financing activities
Issuance of debt 53,924 53,391 40,560
Repayment of debt (58,668) (62,718) (50,536)
Redemption of preferred stock - (10,000) -
Proceeds from sale of common stock 1,662 3,998 2,834
Dividends paid - (400) (800)
Purchase of treasury stock (274) (1,878) (734)
Other - (347) -
- ---------------------------------------------------------------------
Net cash used in financing
activities (3,356) (17,954) (8,676)
- ---------------------------------------------------------------------
Net increase (decrease) in cash
and equivalents 389 (700) (287)
Beginning cash and equivalents 7,263 7,963 8,250
- ---------------------------------------------------------------------
Ending cash and equivalents $ 7,652 $ 7,263 $ 7,963
Supplemental disclosures of cash
flow information
Cash paid during the year for
Interest $ 6,058 $ 6,644 $ 7,172
Income taxes 1,279 557 881
Noncash investing and financing
activities
Conversion of preferred stock - 11,195 -
Leases capitalized - 913 518
Assessment district refinancing 5,300 - -
=====================================================================
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) 1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------
Cumulative convertible
preferred stock
Beginning balance $ 0 $ 10 $ 10 0 1,000 1,000
Repurchase and conversion - (10) - - (1,000) -
- ------------------------------------------------------------------------------
Ending balance 0 0 10 0 0 1,000
- ------------------------------------------------------------------------------
Common stock
Beginning balance 18 14 13 17,969 13,896 12,611
Common stock issuance - 4 1 425 4,073 1,285
- ------------------------------------------------------------------------------
Ending balance 18 18 14 18,394 17,969 13,896
- ------------------------------------------------------------------------------
Treasury stock
Beginning balance (3,204) (1,326) (592) 599 270 127
Treasury stock purchase (274) (1,878) (734) 46 329 143
- ------------------------------------------------------------------------------
Ending balance (3,478) (3,204) (1,326) 645 599 270
- ------------------------------------------------------------------------------
Capital in excess of par
Beginning balance 28,201 31,680 27,626
Preferred stock
repurchase/conversion - (10,079) -
Preferred stock
conversion dividend - (151) -
Common stock issuance 1,662 4,083 2,833
Market rate adjustment
on dividend - 435 870
Tax benefit of options
exercised 91 2,233 351
- ------------------------------------------------------------------------------
Ending balance 29,954 28,201 31,680
- ------------------------------------------------------------------------------
Accumulated deficit
Beginning balance (10,794) (18,237) (23,943)
Net income 1,182 8,030 7,236
Translation gains (losses) (95) 97 140
Preferred stock conversion
dividend - 151 -
Dividends declared on
cumulative convertible
preferred stock - (400) (800)
Market rate adjustment
on dividends - (435) (870)
- ------------------------------------------------------------------------------
Ending balance (9,707) (10,794) (18,237)
- ------------------------------------------------------------------------------
Stockholders' equity $16,787 $14,221 $12,141
==============================================================================
The accompanying notes are an integral part of these financial statements.
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies.
Description of Business.
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, assembles, markets,
services and leases computer systems. Development and assembly facilities
are located in Livermore, California, Denver, Colorado and New Jersey.
Principal markets are located in the United States, United Kingdom, Ireland
and Canada.
Financial Statement Presentation.
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.
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.
Treasury Stock.
Purchases of the Company's common stock are valued at cost.
Debt Costs.
The unamortized costs associated with the issuance of debt instruments are
recorded with the associated liability. Amortization is computed according
to the interest and is included in interest expense. Upon retirement of
remaining principal balances, the associated unamortized costs are reflected
in operations.
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.
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.
Fair Value of Financial Instruments.
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable, and other
accrued liabilities approximate fair value because of their short
maturities. Lease receivables are stated at the present value using the
internal rate of return which approximates fair value. All significant debt
obligations either carry variable interest rates and their carrying value is
considered to approximate fair value or for the senior fixed rate notes and
the mortgage loan payable, the settlement rates which when factored into
these instruments approximate fair value.
Use Of Estimates.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affects the reported amounts of assets and liabilities. It
also affects the disclosure of contingent assets and liabilities at the
dates of the financial statements along with the reported amounts of
revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
Certain Risks and Concentrations.
Cash and cash equivalents are, for the most part, maintained with several
major financial institutions in the United States. Deposits held with banks
may exceed the amount of insurance provided on such deposits. Generally
these deposits may be redeemed upon demand and therefore, bear minimal risk.
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral from its customers. Most of the
Company's customers are in the Automotive Aftermarket or the Hardlines and
Lumber industry.
Off Balance Sheet Risk.
The Company conducts business on a global basis in several international
currencies. As such, it is exposed to adverse movements in foreign currency
exchange rates. The Company enters into foreign exchange forward contracts
to reduce currency exposures. These contracts principally hedge exposures
associated with intercompany product sales denominated in United Kingdom
currencies. The Company does not enter into foreign exchange contracts for
trading purposes.
Limited and full recourse agreements are maintained with banks and lending
institutions under which lease receivables are discounted and removed from
the balance sheet. Triad Financial is contingently liable in the event of
lessee nonpayment. See Note 3 "Discounting of Lease Receivables."
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.
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 $ 38,731,000 in 1996, $36,984,000 in 1995 and $39,624,000 in
1994. 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) 1996 1995
- ------------------------------------------------------------------
Assets
Cash $ 10 $ 5
Net investment in leases 16,015 18,541
Residual value retained on leases
discounted, less unearned income of
$7,735 in 1996 and $7,476 in 1995 7,012 6,452
Receivable from parent company 55,243 50,262
Other assets 3,880 3,652
- ------------------------------------------------------------------
Assets $82,160 $78,912
==================================================================
Liabilities and Stockholder's Equity
Other liabilities and accrued
expenses $ 8,687 $ 8,367
Deferred income 2,570 2,337
Debt 10,059 13,033
Stockholder's equity 60,844 55,175
- ------------------------------------------------------------------
Liabilities and stockholder's
equity $82,160 $78,912
==================================================================
Condensed Combined Statements of Income
For the Years Ended September 30
(Amounts in thousands) 1996 1995 1994
- ---------------------------------------------------------------------
Revenues $ 9,646 $11,244 $10,199
Costs and expenses
Selling and administrative 1,544 1,750 1,949
Provision for doubtful accounts
and revaluation charges 5,897 3,232 2,317
- ---------------------------------------------------------------------
Operating income 2,205 6,262 5,933
Interest expense 925 132 199
Intercompany income 7,766 5,678 3,148
- ---------------------------------------------------------------------
Income before taxes 9,046 11,808 8,882
Provision for income taxes 3,413 4,413 3,430
- ---------------------------------------------------------------------
Net income $ 5,633 $ 7,395 $ 5,452
=====================================================================
Note 3. Discounting of Lease Receivables.
Limited and full recourse agreements are maintained with banks and lending
institutions under which available lines were $ 45,885,000 at September 30,
1996. 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 $73,624,000 in 1996, $73,216,000 in 1995 and $64,044,000 in 1994. 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, 1996, the contingent liability for discounted leases was
$25,855,000. 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. In third quarter, 1996, the
Company failed to meet this covenant and received the appropriate waiver.
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, 1996 and 1995 include allowances
for doubtful accounts of $1,980,000 and $1,420,000, respectively.
Note 5. Business Combination.
On June 27, 1996, the Company acquired Computer System Dynamics, Inc. (CSD),
a supplier of systems and software products to the lumber and building
materials segment of the Hardlines and Lumber market.
The acquisition was accounted for as a purchase. The purchase price was
$8,500,000 with additional future obligations contingent upon CSD's
attainment of certain performance objectives. The fair market values of the
acquired assets and assumed liabilities were included in the Company's
financial statements. The purchase price was allocated to the acquired
assets and assumed liabilities based on the fair market values. Of the
$6,000,000 recorded as intangibles, $3,700,000 was goodwill and $2,300,000
million was purchased technology and the customer base. The intangibles will
be amortized on a straight-line basis over seven years. The results of
operations of the acquired business were included from the acquisition date
through September 30, 1996.
Note 6. Inventories.
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------
Purchased parts $ 2,233 $ 2,189
Work in process 12 391
Finished goods 3,554 3,056
- ------------------------------------------------------------------
Total inventories $ 5,799 $ 5,636
==================================================================
Note 7. Service Parts.
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------
Service parts $10,154 $10,980
Less accumulated depreciation 6,881 7,664
- ------------------------------------------------------------------
Total service parts $ 3,273 $ 3,316
==================================================================
Note 8. Property, Plant and Equipment.
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------
Furniture and equipment $24,928 $21,269
Field service and demonstration
equipment 12,949 12,519
Buildings and leasehold improvements 17,421 17,210
- ------------------------------------------------------------------
55,298 50,998
Less accumulated depreciation
and amortization 35,198 30,768
- ------------------------------------------------------------------
20,100 20,230
Land 6,787 6,787
- ------------------------------------------------------------------
Total property, plant and equipment $26,887 $27,017
==================================================================
Note 9. Investment in Leases.
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------
Total minimum lease payments
receivable $12,469 $17,226
Allowance for doubtful accounts (222) (233)
Initial direct costs 216 287
Estimated unguaranteed
residual value 882 1,211
- ------------------------------------------------------------------
Gross investment in leases 13,345 18,491
Unearned income (3,561) (5,456)
Leases pending acceptance 6,231 5,506
- ------------------------------------------------------------------
Total investment in leases 16,015 18,541
- ------------------------------------------------------------------
Short-term investment in leases 1,635 2,001
Long-term investment in leases $14,380 $16,540
==================================================================
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 10. Capitalized Software.
(Amounts in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
Beginning balance $ 9,127 $ 8,114 $ 7,263
Restructuring charge (7,500) - -
Acquisition of Assets 677 - -
Capitalized software costs 3,465 2,930 3,142
Amortization of software costs (1,370) (1,917) (2,291)
- -----------------------------------------------------------------------------
Ending balance $ 4,399 $ 9,127 $ 8,114
=============================================================================
Note 11. Land for Resale.
Triad currently holds 161.1 acres in Livermore, California that it intends
to sell over a period of years. During first quarter of 1997 an additional
36 acres was reclassified from Property, Plant and Equipment to Land for
Resale. Gains from the sale of land amounting to $1,194,000 in 1996 are
included as other income.
Note 12. 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 the deferred amount 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 $1,005,000 in 1996, $985,000 in 1995 and
$933,000 in 1994.
Note 13. Debt.
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------
12.25% senior fixed rate notes,
due in 1999 $ 9,200 $19,300
Line of credit 15,800 -
Warehousing credit agreement 10,000 11,916
Mortgage loan payable, bearing
interest at 9.9%, and maturing
through 2003 10,001 10,946
Assessment district improvement
bonds, bearing interest at rates
ranging from 4.75% to 7.25%, and
maturing through 2014
Land for operations 1,453 2,432
Land for resale 8,153 8,500
Other, bearing interest at rates
ranging from 7% to 12%,
and maturing through 1998 1,612 3,290
Unamortized debt issuance costs (306) (775)
- ------------------------------------------------------------------
Total debt 55,913 55,609
- ------------------------------------------------------------------
Short-term debt 25,990 3,032
Long-term debt $29,923 $52,577
==================================================================
The Company retired $10,100,000 of the 12.25% senior fixed rate notes
("fixed rate notes") at 103.75% of principal plus accrued interest in
July 1996. The remaining $9,200,000 12.25% fixed rate notes mature in 1999,
however, $8,334,000 of principal plus accrued interest is subject to
mandatory redemption in August 1997. The balance 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. Interest is payable semiannually.
The Company retired $1.9 million on the Warehouse Credit Agreement during
1996. The term of the original 1995 Warehousing Credit Agreement was a one
year revolver with a three year term out option. During October 1996, the
revolver was renegotiated and now requires monthly payments of $333,333
starting in April 1997 with the remaining balance due December 1997.
Interest on this revolver is the LIBOR rate plus 1.85% (7.35% at
September 30, 1996). 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 $26,875,000 revolving line of credit with a bank bears
interest at prime rate plus 0.75% (9% at September 30, 1996), and is
collateralized by receivables and inventories. The line of credit commitment
decreases by $1,125,000 each quarter through maturity in 1997. Commitment
fees are 0.5% on the average unused commitment.
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. At June 30, the Company failed to meet certain
credit line covenants which were waived. At September 30, the Company
received a waiver on the credit line covenants because of its failure to
meet the equity requirements and the current and quick ratios.
Annual maturities of long-term debt for each year from 1997 through 2001 are
$26,241,000, $12,946,000, $2,017,000, $2,007,000 and $2,134,000,
respectively.
Accruals for interest expense at the end of 1996 and 1995 were $218,000 and
$533,000, respectively.
Note 14. Equity.
Cumulative Convertible Preferred Stock.
On March 31, 1995, the Company financed the exchange of 1,000,000 preferred
stock and the associated warrants to purchase 3,500,000 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 15. Restructuring Charge.
In the third quarter of 1996, the Company recorded a $9,000,000
restructuring charge related to an Automotive product issue and realignment
of the Automotive Aftermarket operations. This charge includes a $7,500,000
write off of previously capitalized costs for the Triad Prism system
software, along with $1,000,000 in reserves for related product issues. Also
included is $500,000 in costs associated with the realignment of aftermarket
sales and support personnel to address increasing consolidation of the
Automotive Aftermarket. The Company believes that this event will not
adversely affect its future liquidity or working capital.
Note 16. Other Income.
Other income is comprised of a sale of marketable securities, $1,779,000,
net land sales totaling $1,194,000, and other expenses of $47,000.
Note 17. Extraordinary Charges.
Extraordinary charges resulted from the retirement of debt in 1996, 1995 and
1994. The early retirement of the senior fixed rate notes in 1996, 1995 and
1994 generated extraordinary charges of $377,000 ($.02 per share), $153,000
($.01 per share) and $143,000 ($.01 per share) that included premiums of
$379,000, $198,000 and $196,000, unamortized debt costs of $229,000, $49,000
and $35,000 less taxes of $231,000, $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 18. 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 typically vest ratably over five
years 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, 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
Granted 31 5.00 to 6.38 189
Exercised (277) 1.90 to 5.50 (886)
Cancelled (47) 3.81 to 5.50 (238)
- ------------------------------------------------------------------------------
Options outstanding at
September 30, 1996 1,838 $1.78 to $6.63 $7,026 1,491 383
- ------------------------------------------------------------------------------
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, 1996, 860,000
shares have been issued and 290,000 shares are available for issuance.
Note 19. 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
1997 through 2001 are $1,922,000, $1,499,000, $594,000 $232,000 and $169,000
respectively. Rental expense under operating lease was $2,773,000 in 1996,
$3,445,000 in 1995 and $3,007,000 in 1994.
The Company is involved in litigation arising in the ordinary course of
business and has been named as defendants in legal proceeding wherein
substantial damages are claimed. Such proceedings are not uncommon in the
Company's business and historically, the Company has been successful in
defending such actions or have settled them within insured limits. In the
opinion of management, after consultation with legal counsel, these matters
will be resolved without material adverse effect on the Company's result of
operations or financial position.
The Board of Directors determined that in the event of a change of
control of the Company, employees, including executive officers, would be
entitled to certain severance benefits in the event their employment is
terminated. The maximum benefits provide for a year's salary plus bonus. In
the event of a sale or exchange of more than fifty percent of the stock of
the Company to an outside entity, all options shall become fully exercisable
and fully vested.
Note 20. Income Taxes.
Provision for Income Taxes.
(Amounts in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------
Current
Federal $ 37 $ 1,433 $ 545
State 387 523 503
Foreign 136 367 30
- -----------------------------------------------------------------------------
Current provision 560 2,323 1,078
Deferred
Federal 104 3,628 2,481
State 49 (904) 983
Foreign 12 (125) (107)
- -----------------------------------------------------------------------------
Deferred provision 165 2,599 3,357
- -----------------------------------------------------------------------------
Provision for income taxes $ 725 $ 4,922 $ 4,435
=============================================================================
In 1996, 1995 and 1994, taxes of $ 956,000, $5,165,000 and $4,523,000,
respectively, were provided on income from continuing operations. Respective
tax benefits of $ 231,000, $243,000 and $88,000, related to extraordinary
charges on the repurchases of debt are included in the 1996, 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:
1996 1995 1994
- -----------------------------------------------------------------------------
U.S. statutory income tax rate 35.0% 35.0% 35.0%
State taxes, net of Federal
income tax benefit 14.9 (1.8) 8.1
Foreign income taxes 5.6 3.8 -
Favorable tax settlements on
prior years (30.2) - -
Permanent differences,
primarily goodwill 12.7 - -
Income tax credits - (1.0) (1.3)
Other - 2.0 (3.8)
- -----------------------------------------------------------------------------
Effective tax rate 38.0% 38.0% 38.0%
=============================================================================
Deferred Tax Assets and Liabilities.
(Amounts in thousands) 1996 1995
- ---------------------------------------------------------------------
Deferred Tax Assets
Current gross deferred tax assets
Inventory and sales return reserves $ 3,246 $ 2,771
Accrued compensation 777 700
Other 1,374 1,036
- ---------------------------------------------------------------------
Current gross deferred tax assets 5,397 4,507
- ---------------------------------------------------------------------
Noncurrent gross deferred tax assets
Federal Tax credit 5,108 5,368
Depreciation 1,123 1,612
Other 1,134 1,424
- ---------------------------------------------------------------------
Noncurrent gross deferred tax assets 7,365 8,404
- ---------------------------------------------------------------------
Gross deferred tax assets 12,762 12,911
Less valuation allowance - -
- ---------------------------------------------------------------------
Deferred tax assets 12,762 12,911
- ---------------------------------------------------------------------
Deferred Tax Liabilities
Current gross deferred tax liabilities
Direct financing leases 7,694 7,595
Other 390 250
- ---------------------------------------------------------------------
Current gross deferred tax liabilities 8,084 7,845
- ---------------------------------------------------------------------
Noncurrent gross deferred tax liabilities
Direct financing leases 34,011 34,029
Other 1,024 551
- ---------------------------------------------------------------------
Noncurrent gross deferred tax liabilities 35,035 34,580
- ---------------------------------------------------------------------
Gross deferred tax liabilities 43,119 42,425
- ---------------------------------------------------------------------
Net deferred tax liabilities $30,357 $29,514
=====================================================================
At September 30, 1996, the Company had business tax credit carryforwards of
$1,180,000, which may be used to reduce future Federal income taxes, if any.
The business tax credit carryforwards expire from 1999 through 2010. Also
available to the Company to reduce future regular federal income taxes are
alternative minimum tax credits of approximately $3,927,000 with no
statutory expiration period.
Substantially all of the Company's operating income was generated from
domestic operations during 1996, 1995 and 1994. 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
$2,396,000 at September 30, 1996.
Note 21. Segment Information.
The Company operates in one industry segment; it produces and markets
proprietary databases and software products, and designs, develops,
assembles, markets, services and leases computer systems. The Company
markets its products in the United States, Puerto Rico, the United Kingdom,
France, 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 22. Selected Quarterly Financial Data (Unaudited).
(Amounts in thousands 1996 Fiscal Quarter Ended
except per share data) Dec. 31 March 31 June 30 Sept. 30
- ----------------------------------------------------------------------------
Revenues $40,850 $42,434 $42,318 $50,074
Gross margin 19,417 19,655 19,717 23,079
Operating income 3,982 3,365 (5,805) 3,991
Income before
extraordinary charge 1,486 2,190 (4,411) 2,294
Extraordinary charge,
net of taxes - - - 377
Net income 1,486 2,190 (4,411) 1,917
Earnings per share
Primary
Income before
extraordinary charge $ .09 $ .13 $ (.25) $ .13
Net income .09 .13 (.25) .11
Fully diluted
Income before
extraordinary charge $ .09 $ .13 $ (.25) $ .13
Net income .09 .13 (.25) .11
- ----------------------------------------------------------------------------
1995 Fiscal Quarter Ended
Dec. 31 March 31 June 30 Sept. 30
- ----------------------------------------------------------------------------
Revenues $41,969 $44,118 $41,183 $47,807
Gross margin 20,643 22,013 20,135 23,777
Operating income 4,287 5,379 4,409 6,457
Net income 1,430 2,291 1,594 2,715
Earnings per common and
common equivalent share $ .08 $ .13 $ .09 $ .15
- ----------------------------------------------------------------------------
Note 23. Recent Accounting Pronouncements.
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," which requires the review for
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
certain situations, an impairment loss would be recognized. The Company does
not believe the adoption of SFAS No. 121, which is required in fiscal 1997,
will have a material impact on the Company's financial condition or
operating results.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
This statement, which establishes a fair value-based method 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 on a pro forma net income and earnings per
share under the new method. The Company is required to adopt SFAS No. 123 by
fiscal year 1997, and upon adoption, will elect to continue to measure
compensation cost for its employee stock compensation plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25.
Pro forma disclosure of net income and earnings per share will reflect the
difference between compensation cost included in net income and the related
cost measured by the fair value-based method defined in SFAS No. 123,
including tax effects, that would have been recognized in the consolidated
statement of operations if the fair value-based method had been used.
During June 1996, the Financial Accounting Standards Board issued Statement
No. 125 (SFAS No. 125) "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." This standard, which establishes
consistent standards for distinguishing transfers of financial assets that
are sales from transfers that are secured borrowings. The Company is
reviewing the requirements of this pronouncement and its effect on lease
discounting including any administrative organizational changes to insure
continued sales accounting treatment for these transactions. SFAS No. 125
will become effective for transactions that the Company enters into after
December 31, 1996.
Note 24. Subsequent Event.
On October 17, 1996, the Company signed a definitive merger agreement with
Cooperative Computing, Inc. ("CCI"), a Texas corporation, under which CCI
Acquisition Corp. ("CAC"), a Delaware corporation jointly owned by CCI and
Hicks, Muse, Tate & Furst Incorporated, a private investment firm located in
Dallas, Texas, would acquire the Company. Pursuant to the terms of the
merger agreement, CAC commenced a cash tender offer for all outstanding
shares of the Company at a price of $9.25 per share on October 23, 1996. The
tender offer, which was to have expired at 12:00 Midnight, New York City
time, November 20, 1996, has been extended until 12:00 midnight, New York
City time, on Friday, January 3, 1997. When the tender offer is completed,
it will be followed by a merger transaction, in which any shares of the
Company's common stock that remain outstanding after the tender offer will
be exchanged for cash at the same price as the tender offer price. The
tender offer is not expected to be completed until the Federal Trade
Commission completes its currently pending review of the transaction and
certain other conditions to closing are satisfied.
In addition to the cash consideration to be received by the Company's
shareholders pursuant to the tender offer or the merger transaction, the
merger agreement provides that the Company's shareholders of record
immediately prior to the consummation of the tender offer will receive a
dividend consisting of their pro rata share of the equity of a newly formed
company whose assets will consist of all the Company's owned real property
located in Livermore, California, including its corporate headquarters
buildings and land held for sale in the Triad Park development in Livermore.
The spun-off real estate entity, which the Company expects to be a public
company, will assume all the indebtedness currently secured by the spun-off
real estate and will lease the corporate headquarters buildings to the
Company's post merger successor. Over time, the real estate entity is
expected to liquidate its real estate portfolio, with proceeds used to
pay expenses (including taxes), repay secured debt and distribute any
remaining proceeds to its equity holders. 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.
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 23, 1996
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, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 30, 1996, 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.
October 23, 1996
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 "Right to Designate Directors: Parent's Designees," "Directors of the
Company" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Information Statement filed with the Securities and Exchange
Commission on November 8, 1996 pursuant to Regulation 14(f) of the
Securities Exchange Act of 1934 and Rule 14f-1 thereunder ("Information
Statement"). Information with respect to executive officers may be found on
pages 12 to 13, 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," "Comparison of Stockholder Return,"
"Compensation of Directors," "Termination and Change-of-Control
Arrangements" and "Compensation Committee Interlocks and Insider
Participation" set forth in the Information Statement referred to above.
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" set forth in
the Information Statement referred to above.
Item 13. Certain Relationships and Related Transactions
There is incorporated by reference the information under the caption
"Executive Compensation And Other Matters" set forth in the Information
Statement referred to above.
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. 333-06247 (filed June 18, 1996),
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, are included in Item 8 and are incorporated herein by
reference:
Financial Statements and Supplementary Data
Consolidated Balance Sheet
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
Corporate Responsibility Statement
Report of Independent Accountants
Page Number
-----------
(2) Consolidated Financial Statement Schedule in
Form 10K Report
II Valuation and Qualifying Accounts 43
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 44 to 46.
(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, 1996.
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 19, 1996 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 19, 1996
(James R. Porter) (Principal Executive
Officer)
/s/ STANLEY F. MARQUIS Vice President December 19, 1996
(Stanley F. Marquis) (Principal Financial
Officer)
/s/ BRUCE M. BLANCO Corporate Controller December 19, 1996
(Bruce M. Blanco) (Principal Accounting
Officer)
/s/ WILLIAM W. STEVENS Chairman of the Board December 19, 1996
(William W. Stevens)
/s/ HENRY M. GAY Director December 19, 1996
(Henry M. Gay)
/s/ GEORGE O. HARMON Director December 19, 1996
(George O. Harmon)
/s/ RICHARD C. BLUM Director December 19, 1996
(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, 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
==== ==== ==== ====
Year ended
September 30, 1996:
Allowance for
doubtful accounts and
system returns $2,249 $10,456 (C) $10,503 (A) $2,202
====== ======= ======= ======
Product warranty
costs (B) $199 $710 $714 $195
==== ==== ==== ====
Inventory valuation $559 $236 $4 $791
==== ==== == ====
- ----------------------
(A) Balances written off during the 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.
(C) Includes $70,000 balance transferred from the acquisition of Computer
Systems Dynamics, Inc. and $146,839 receivables allowance transferred
due to the acquisition of certain assets of Pace Automotive Systems, Ltd.
EXHIBIT INDEX FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1996
Sequentially
Exhibit Numbered
Number 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 the 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
Financial Corporation and the First National Bank of
Boston dated August 29, 1995, incorporated by reference
from Exhibit 10.19 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995.
10.20 Amendment No. Four to Revolving Credit Loan Agreement and
Consent (to Exchange Agreement) between Triad Systems
Corporation, Triad Systems Financial Corporation and
Comerica Bank-California dated May 23, 1996, incorporated
by reference from Exhibit 10.20 to the Company's Form 10-Q
for the fiscal quarter ended June 30, 1996.
10.21 Amendment No. Five to Revolving Credit Loan Agreement and
Consent (to Exchange Agreement) between Triad Systems
Corporation, Triad Systems Financial Corporation and
Comerica Bank-California dated June 28, 1996, incorporated
by reference from Exhibit 10.21 to the Company's Form 10-Q
for the fiscal quarter ended June 30, 1996.
* 10.22 Triad Systems Corporation Amendment to the Amended and
Restated 1982 Stock Option Plan dated February 8, 1996,
incorporated by reference from Exhibit 10.22 to the
Company's Form 10-Q for the fiscal quarter ended
June 30, 1996.
* 10.23 Triad Systems Corporation Amended and Restated Outside
Directors Stock Option Plan dated April 30, 1996,
incorporated by reference from Exhibit 10.23 to the
Company's Form 10-Q for the fiscal quarter ended
June 30, 1996.
10.24 Agreement and Plan of Merger among Cooperative Computing
Incorporated, CCI Acquisition Corporation and Triad
Systems Corporation dated October 17, 1996, incorporated
by reference from Exhibit 5 to the Company's
Schedule 14D-9 filed October 23, 1996.
11.1 Computation of Earnings per share.
12.1 Statement regarding computation of ratio of earnings to
fixed charges, incorporated by reference from
Exhibit 12.1 to the 1992 Form S-4 Registration Statement.
20.1 Information Statement Pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and Rule 14f-1 dated
November 13, 1996.
20.2 Amendment to the Information Statement dated
November 15, 1996.
21.1 Subsidiaries.
23.1 Consent of Independent Accountants.
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,
1994 1995 1996
------ ------ ------
(Amounts in thousands except
per share data)
Calculation of number of shares
entering into computations
Weighted average shares
outstanding 12,995 17,159 17,570
Assumed conversion of preferred
stock and exercise of warrants 3,137 - -
------ ------ ------
16,132 17,159 17,570
Net effect of dilutive stock
options and warrants based on
the average stock price 1,286 615 -
------ ------ ------
Average primary shares outstanding 17,418 17,774 17,570
Net effect of dilutive stock
options and warrants based
on the ending stock price 3 199 -
------ ------ ------
Average fully diluted shares
outstanding 17,421 17,973 17,570
====== ====== ======
Income before extraordinary charge $7,379 $8,426 $1,559
Net interest costs associated
with assumed retirement of debt 63 - -
Preferred stock conversion
dividend - 151 -
------ ------ ------
Adjusted income before
extraordinary charge 7,442 8,577 1,559
Extraordinary charge 143 396 377
------ ------ ------
Adjusted net income $7,299 $8,181 $1,182
====== ====== ======
Earnings per share
Primary
Income before extraordinary
charge $ .43 $ .48 .09
Net income .42 .46 .07
Fully diluted
Income before extraordinary
charge $ .43 $ .48 .09
Net income .42 .45 .07
Exhibit 21.1
TRIAD SYSTEMS CORPORATION
SUBSIDIARIES
State or Other
Jurisdiction of
Incorporation or
Name Organization
- ---- ----------------
Triad Systems Financial Corporation California
Tridex Systems Limited United Kingdom
Tridex Leasing Limited United Kingdom
Triad Systems Ireland Limited Ireland
Triad Systems Canada Limited Canada
Triad Systems France, S.A.R.L. France
3055 Triad Drive Corporation California
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.
333-06247, 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 23, 1996, on our audits of the consolidated financial statements and
financial statement schedule of Triad Systems Corporation and subsidiaries as
of September 30, 1995 and 1996, and for the years ended September 30, 1996,
1995 and 1994, which report is included in the Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
San Jose, California
December 19, 1996
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),
Eagle(TM), Eagle LS(TM), Pace Business Manager(TM), Triad Ultimate(TM),
Triad Eclipse(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) and Pentium Pro(TM) are trademarks 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, 1996 and Consolidated Statement of
Income and Statement of Cash Flow for the year ended September 30, 1996 and is
qualified in its entirity by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 7652
<SECURITIES> 0
<RECEIVABLES> 19726
<ALLOWANCES> 1980
<INVENTORY> 5799
<CURRENT-ASSETS> 41383
<PP&E> 62085
<DEPRECIATION> 35198
<TOTAL-ASSETS> 139753
<CURRENT-LIABILITIES> 58524
<BONDS> 29923
<COMMON> 18
0
0
<OTHER-SE> 16769
<TOTAL-LIABILITY-AND-EQUITY> 139753
<SALES> 70090
<TOTAL-REVENUES> 175676
<CGS> 37544
<TOTAL-COSTS> 93808
<OTHER-EXPENSES> 76335
<LOSS-PROVISION> 10956
<INTEREST-EXPENSE> 5944
<INCOME-PRETAX> 2515
<INCOME-TAX> 956
<INCOME-CONTINUING> 1559
<DISCONTINUED> 0
<EXTRAORDINARY> 377
<CHANGES> 0
<NET-INCOME> 1182
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
[Triad Logo]
TRIAD SYSTEMS CORPORATION
3055 TRIAD DRIVE
LIVERMORE, CALIFORNIA 94550
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE
REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement is being mailed on or about November 12, 1996,
to holders of record of the Common Stock, par value $.001 per share ("Share",
collectively the "Shares" or the "Common Stock") of Triad Systems Corporation, a
Delaware corporation (the "Company"), at the close of business on or about
November 7, 1996. The term "Share" includes the related common stock purchase
rights (the "Rights") issued pursuant to the Amended and Restated Rights
Agreement, dated as of December 6, 1993 (the "Rights Agreement"), between the
Company and Chemical Trust Company of California, as Rights Agent. You are
receiving this Information Statement in connection with the possible election to
the Company's Board of Directors (the "Board" or the "Board of Directors") of
that number of persons designated by Cooperative Computing, Inc., a Texas
corporation ("Parent"), as will give Parent that number of directors, rounded up
to the next whole number (but in no event more than one less than the total
number of directors on the Board of Directors of the Company), on the Company's
Board of Directors equal to the product of the total number of directors on the
Board of Directors of the Company multiplied by the percentage that the number
of Shares purchased by Parent or any of its subsidiaries pursuant to the Offer
(as defined below) bears to the aggregate number of Shares outstanding.
Parent and its affiliate, CCI Acquisition Corp., a Delaware corporation
("Purchaser"), have commenced a tender offer to purchase all outstanding Shares
on the terms and subject to the conditions set forth in the Offer to Purchase,
dated October 23, 1996 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with the Offer to Purchase and any amendments or
supplements thereto, collectively constitute the "Offer"). The Offer was
disclosed in a Tender Offer Statement on Schedule 14D-1 and Schedule 13D, dated
October 23, 1996 (the "Schedule 14D-1"), which was filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules promulgated by the
Commission thereunder. The Offer is being made by Purchaser pursuant to the
Agreement and Plan of Merger, dated as of October 17, 1996 (the "Merger
Agreement"), among Parent, Purchaser and the Company. The Company filed a
Solicitation/Recommendation Statement on Schedule 14D-9 with the Commission on
October 23, 1996 pursuant to Section 14(d)(4) of the Exchange Act and the rules
promulgated thereunder.
The Merger Agreement requires the Company, at the request of Parent, to
take all action necessary to cause Parent's designees to be elected to the Board
under the circumstances described therein. This Information Statement is
required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. You are
urged to read this Information Statement carefully. You are not, however,
required to take any action.
Pursuant to the Merger Agreement, Purchaser and Parent commenced the Offer
on October 23, 1996. The Offer is scheduled to expire at 12:00 midnight, New
York City time, on Wednesday, November 20, 1996, unless extended in accordance
with its terms.
<PAGE> 2
The information contained in this Information Statement concerning
Purchaser and Parent and their respective board designees has been furnished to
the Company by Parent and Purchaser, and the Company assumes no responsibility
for the accuracy or completeness of such information.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of September 30, 1996, there were
17,749,158 Shares issued and outstanding. The Board presently consists of five
members, and there are currently no vacancies on the Board. Each director holds
office until such director's successor is elected and qualified or until such
director's earlier resignation, death or removal.
RIGHT TO DESIGNATE DIRECTORS; PARENT'S DESIGNEES
The Merger Agreement provides that promptly upon the purchase by Parent or
any of its subsidiaries of such number of Shares which represents at least 51%
of the outstanding Shares on a fully-diluted basis (as defined in the Merger
Agreement), and from time to time thereafter, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number (but in
no event more than one less than the total number of directors on the Board) as
will give Parent, subject to compliance with Section 14(f) of the Exchange Act,
representation on the Board equal to the product of (a) the number of directors
on the Board (giving effect to any increase in the number of directors pursuant
to the Merger Agreement) and (b) the percentage that such number of Shares so
purchased bears to the aggregate number of Shares outstanding (such number being
the "Board Percentage"). The Company has agreed, upon request of Parent, to
promptly satisfy the Board Percentage by increasing the size of the Board or
using its best efforts to secure the resignations of such number of directors as
is necessary to enable Parent's designees to be elected to the Board and to
cause Parent's designees promptly to be so elected, provided that no such action
shall be taken which would result in there being, prior to the consummation of
the Merger, less than two directors of the Company that are not affiliated with
Parent. Following the election or appointment of Parent's designees pursuant to
the Merger Agreement and prior to the Effective Time (as defined in the Merger
Agreement) of the Merger, any amendment or termination of the Merger Agreement,
extension for the performance or waiver of the obligations or other acts of
Parent or Purchaser or waiver of the Company's rights thereunder shall require
the concurrence of a majority of the directors of the Company then in office who
are Continuing Directors. The term "Continuing Directors" means (i) each member
of the Board on the date of the Merger Agreement who voted to approve the Merger
Agreement and (ii) any successor to any Continuing Director who was recommended
to succeed such Continuing Director by a majority of the Continuing Directors
then on the Board.
It is expected that Parent's designees may assume office at any time
following the purchase of Shares by Purchaser pursuant to the Offer, which
purchase may not be consummated prior to midnight on Wednesday, November 20,
1996 and that, upon assuming office, Parent's designees will thereafter
constitute at least a majority of the Board of Directors. To the extent the
Board of Directors will consist of persons who are not Parent's designees, the
Company expects such persons shall be Continuing Directors.
Parent's designees will be selected by Parent from among the individuals
listed below. The Company has been informed that each of the following
individuals has consented to serve as a director of the Company if appointed or
elected. None of the following individuals owns any Shares. In addition, none of
the following individuals is a director of, or holds any position with, the
Company. The name, age, present principal occupation or employment and five-year
employment history of each of the following individuals are set forth below.
Each person is a citizen of the United States, and, except as indicated
otherwise, the business address of each person is 200 Crescent Court, Suite
1600, Dallas, Texas 75201.
2
<PAGE> 3
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION
NAME, AGE AND OR EMPLOYMENT AND FIVE-YEAR
BUSINESS ADDRESS EMPLOYMENT HISTORY
---------------- ----------------------------
<S> <C>
Glenn E. Staats* (52).............. Chairman of the Board, Cooperative Computing, Inc.
6207 Bee Cave Road (1985-present); Director, President and Chief
Austin, Texas 78146 Executive Officer, Cooperative Computing, Inc.
(1976-present)
Preston W. Staats, Jr.* (54)....... Director, Secretary and Executive Vice President,
6207 Bee Cave Road Cooperative Computing, Inc. (1978-present)
Austin, Texas 78146
Thomas O. Hicks (50)............... Chairman of the Board and Chief Executive Officer,
Hicks, Muse, Tate & Furst Incorporated (1989-present)
Lawrence D. Stuart, Jr. (52)....... Managing Director and Principal, Hicks, Muse, Tate &
Furst Incorporated (October 1995-present); Managing
Partner -- Dallas Office, Weil, Gotshal & Manges LLP
(1988-September 1995)
John R. Muse (45).................. Managing Director and Principal, Hicks, Muse, Tate &
Furst Incorporated (1989-present)
Charles W. Tate (52)............... Managing Director and Principal, Hicks, Muse, Tate &
Furst Incorporated (1991-present)
Jack D. Furst (37)................. Managing Director and Principal, Hicks, Muse, Tate &
Furst Incorporated (1989-present)
Alan B. Menkes (37)................ Managing Director and Principal, Hicks, Muse, Tate &
Furst Incorporated (April 1996-present); Vice
President, Hicks, Muse, Tate & Furst Incorporated
(1992-1996); The Carlyle Group (1988-1992)
Michael J. Levitt (38)............. Managing Director and Principal, Hicks, Muse, Tate &
Furst Incorporated (April 1996-present); Managing
Director and Deputy Head of Investment Banking, Smith
Barney Inc. (1993-1996); Morgan Stanley & Co.
(1986-1993)
</TABLE>
- ---------------
* Glenn E. Staats and Preston W. Staats, Jr. are brothers.
DIRECTORS OF THE COMPANY
The Company's Certificate of Incorporation provides that there shall be
three classes of directors of as nearly equal size as reasonably possible, each
class being elected for a three-year term and only one class being elected each
year. The total number of directors is fixed by the Board of Directors pursuant
to authority granted it under the Company's By-Laws. The Board of Directors is
presently comprised of five directors, one of whom is a salaried employee of the
Company. The current terms of the Class I, Class II and Class III directors
expire at the 1997, 1998 and 1999 Annual Meetings, respectively.
Set forth below is certain information concerning the Company's directors,
including their classes and terms, ages, present principal occupations and
business experience during the past five years and the period during which they
have served as directors. The business address of each director is 3055 Triad
Drive, Livermore, California 94550.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING LAST FIVE YEARS AGE SINCE
---- ---------------------- --- --------
<S> <C> <C> <C>
CLASS I DIRECTOR WHOSE TERM EXPIRES AT THE 1997 ANNUAL MEETING OF STOCKHOLDERS:
William W. Stevens... Chairman of the Board of the Company since 1972. Founder 65 1972
of the Company and President and Chief Executive Officer
from inception until September 1985.
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING LAST FIVE YEARS AGE SINCE
---- ---------------------- --- --------
<S> <C> <C> <C>
CLASS II DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS:
Henry M. Gay......... Director of the Company. Founder of the Company and Vice 72 1972
President, Marketing until 1980. Secretary from 1972 to
September 1987. Also a director of Silicon Valley Bank.
Richard C. Blum...... Director of the Company. President and Chairman of 61 1992
Richard C. Blum & Associates, L.P. Also a director of
Northwest Airlines Corporation, URS Corporation and
National Education Corporation.
CLASS III DIRECTORS WHOSE TERMS EXPIRE AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS:
James R. Porter...... President and Chief Executive Officer of the Company 60 1985
since 1985. Also a director of Brock Control Systems and
Silicon Valley Bank.
George O. Harmon..... Director of the Company. President and Chief Executive 73 1986
Officer of Harmon Associates International, Inc. Also a
director of Interscience Inc. and various privately held
companies.
</TABLE>
CERTAIN INFORMATION REGARDING THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
OF DIRECTORS
During the fiscal year ended September 30, 1996, the Board of Directors
held 5 meetings. During the 1996 fiscal year, each director attended at least
75% of the aggregate of the total number of meetings of the Board of Directors
and the total number of meetings of committees of the Board of Directors on
which he served which were held during the periods in which such director
served.
The Board of Directors has an Audit Committee and a Compensation Committee.
Messrs. Gay, Harmon and Porter are the members of the Audit Committee,
which held one meeting during the fiscal year ended September 30, 1996. The
functions of the Audit Committee include recommending to the Board of Directors,
subject to stockholder approval, the independent accountants, reviewing and
approving the planned scope of the annual audit, proposed fee arrangements and
the results of the annual audit, reviewing the adequacy of accounting and
financial controls, reviewing the independence of the independent accountants,
approving all assignments to be performed by the independent accountants and
instructing the independent accountants, as deemed appropriate, to undertake
special assignments.
Messrs. Stevens, Gay and Harmon are the members of the Compensation
Committee, which held one meeting during the fiscal year ended September 30,
1996. The Compensation Committee reviews and recommends salaries for corporate
officers and key employees. In addition, the Compensation Committee administers
the Company's Amended and Restated 1982 Stock Option Plan, although the Board
retains the authority to grant stock options pursuant thereto, and administers
the 1990 Employee Stock Purchase Plan and the Amended and Restated Outside
Directors' Stock Option Plan. For additional information concerning the
Compensation Committee, see "COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION."
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive reimbursement of
expenses and an annual retainer fee of $10,000, plus $1,000 for each meeting of
the Board of Directors and $500 for each separate meeting of committees of the
Board of Directors which they attend, in compensation for their services as
members of the Board of Directors of the Company.
The Triad Systems Corporation Amended and Restated Outside Directors' Stock
Option Plan (the "Directors Plan") provides for the granting of nonqualified
stock options (that is, options which are not intended to satisfy the
requirements of Section 422 of the Internal Revenue Code) to directors of the
Company who are not employees of the Company. A total of 100,000 Shares were
reserved for issuance under
4
<PAGE> 5
the Directors Plan, of which none currently remain available for grant. Unless
the Directors Plan is amended to increase the number of Shares reserved for
issuance and to extend the period during which options can be granted under the
Directors Plan, no additional options can be granted under the Directors Plan.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James R. Porter.................... 60 President, Chief Executive Officer, and Director
Shane Gorman....................... 53 Executive Vice President, Automotive Operations
Dan F. Dent........................ 49 Vice President and General Manager, Customer
Support Services Division
Thomas A. King..................... 52 Vice President, Product Development and
Manufacturing
Stanley F. Marquis................. 53 Vice President, Finance, Chief Financial Officer,
Corporate Secretary and Treasurer; President,
Triad Systems Financial Corporation.
M. Edward Molkenbuhr............... 49 Vice President and General Manager, Service Dealer
Division
Thomas J. O'Malley................. 61 Vice President, Administration
Chad A. Schneller.................. 55 Vice President, Hardlines and Lumber Operations
Bruce M. Blanco.................... 47 Corporate Controller and General Manager, Triad
Systems Financial Corporation
Patrick J. Bormann................. 40 General Manager, Automotive Distributor Systems
</TABLE>
Mr. Porter joined the Company as President and Chief Executive Officer and
was elected as a director of the Company in September 1985.
Mr. Gorman joined the Company as a sales representative in 1972 and has
held several progressive management positions, including General Manger,
Automotive Division, General Manager, Dental Division and Vice President and
General Manager, Automotive Division. He became Executive Vice President in
September 1992.
Mr. 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 The Ultimate Corporation from July 1991 to December
1992.
Mr. King joined the Company in April 1989 as Vice President, Product
Development and became Vice President, Product Development and Manufacturing in
October 1993.
Mr. 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 the
Company. In December 1994 he was promoted to Vice President, Finance, Chief
Financial Officer and became Corporate Secretary.
Mr. Molkenbuhr joined the Company in September 1993 as Vice President and
General Manger of the Company's new Service Dealer Division. Prior to joining
the Company, 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. O'Malley joined the Company in January 1981 as Director of
Administration and was elected Vice President, Administration in August 1983.
5
<PAGE> 6
Mr. Schneller joined the Company as Vice President and General Manager,
Hardlines and Lumber Division in July 1994. Prior to joining the Company, he
served as President and Chief Executive Officer of Harvest Software from January
1991 to December 1993.
Mr. 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. In October 1996 he
assumed the responsibilities of General Manager of Triad Systems Financial
Corporation.
Mr. 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, Warehouse Systems in October 1995. In October 1996
he was promoted to General Manager, Automotive Distributor Systems.
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.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 31, 1996,
with respect to the beneficial ownership of Shares by (i) all persons known by
the Company to be the beneficial owners of more than 5% of the outstanding
Shares, (ii) each director of the Company, (iii) the Chief Executive Officer and
the four other most highly compensated executive officers of the Company as of
September 30, 1996 whose total annual compensation for the year ended September
30, 1996 exceeded $100,000, and (iv) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP
BENEFICIAL OWNER OF COMMON STOCK PERCENT OF CLASS(1)
------------------- -------------------- -------------------
<S> <C> <C>
Richard C. Blum....................................... 2,008,159(3) 10.9%
909 Montgomery Street, Suite 400
San Francisco, California 94133
Gabelli Funds, Inc. .................................. 1,850,800(4) 10.0%
One Corporate Center
Rye, New York 10580-1434
Pioneering Management Corporation..................... 1,237,950(5) 6.72%
60 State Street
Boston, MA 02109
James R. Porter....................................... 958,200(6) 5.1%
3055 Triad Drive
Livermore, CA 94550
William W. Stevens.................................... 430,340(7) 2.3%
Henry M. Gay.......................................... 90,397(8) (2)
George O. Harmon...................................... 40,001(9) (2)
Shane Gorman.......................................... 235,288(10) 1.3%
Chad A. Schneller..................................... 40,500(11) (2)
Thomas A. King........................................ 246,000(12) 1.3%
Stanley F. Marquis.................................... 151,294(13) (2)
All Executive Officers and Directors as a Group....... 4,443,060(14) 22.9%
</TABLE>
6
<PAGE> 7
- ---------------
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all Shares
shown as beneficially owned by them, subject to community property laws,
where applicable.
(2) Less than 1%.
(3) Includes 10,001 Shares subject to options vested and exercisable within 60
days of October 31, 1996. Of these shares, (a) The Common Fund for
Nonprofit Organizations, 450 Post Road East, Westport, Connecticut
06881-0909, beneficially owns 1,111,111 Shares, representing 6% of the
Common Stock; (b) BK Capital Partners IV, L.P. beneficially owns 275,936
Shares, representing 1.5% of the Common Stock; (c) BK Capital Partners III,
Limited Partnership beneficially owns 500,000 Shares, representing 2.7% of
the Common Stock; and (d) BK Capital Partners II, a California limited
partnership ("BK II") beneficially owns 111,111 Shares, representing 0.6%
of the Common Stock. By reason of advisory and other relationships with the
foregoing persons, Richard C. Blum and Richard C. Blum & Associates, L.P.
("RCBA") may be deemed to be indirect beneficial owners of all such Shares
and Richard C. Blum and RCBA each have sole power to dispose of all of such
Shares. The address of RCBA is 909 Montgomery Street, San Francisco,
California 94133, and the address of BK Capital Partners IV, L.P., BK
Capital Partners III, Limited Partnership and BK II is c/o Richard C. Blum
& Associates, L.P., 909 Montgomery Street, San Francisco, California 94133.
Mr. Blum and each of the entities referenced in clauses (a) through (d) of
the preceding sentence entered into a Stockholders Agreement, dated October
17, 1996, among Parent, Purchaser and certain selling stockholders (the
"Stockholders Agreement"), pursuant to which such persons agreed, among
other things, to tender all Shares beneficially owned by them in accordance
with the terms of the Offer.
(4) Includes 204,900 Shares, representing 1% of the Common Stock, held by
Gabelli Performance Partnership, 117,000 Shares, representing 0.6% of the
Common Stock, held by Gabelli Funds, Inc., 13,000 Shares, representing .07%
of the Common Stock, held by Gabelli International Limited II, 656,300
Shares, representing 3.6% of the Common Stock, held by Gabelli Associates
Fund, 20,000 Shares, representing 0.1% of the Common Stock, held by Gabelli
Associates Limited and 839,600 Shares, representing 5% of the Common Stock,
held by GAMCO Investors Inc., 79,000 Shares of which GAMCO Investors, Inc.
has no power to vote.
(5) Includes 390,000 Shares, representing 2% of the Common Stock, held by
Pioneer Small Company Fund, and 847,950 Shares, representing 5% of the
Common Stock, held by Pioneer Capital Growth Fund. The investment adviser
of both funds is Pioneering Management Corporation.
(6) Includes 349,736 Shares subject to options vested and exercisable within 60
days of October 31, 1996. Mr. Porter entered into the Stockholders
Agreement, pursuant to which he agreed, among other things, to tender all
Shares beneficially owned by him in accordance with the terms of the Offer.
(7) Includes 423,690 Shares held as tenant-in-common with Virda J. Stevens, of
which 6,650 Shares are held as custodian for Jean Stevens. Mr. Stevens
entered into the Stockholders Agreement, pursuant to which he agreed, among
other things, to tender all Shares beneficially owned by him in accordance
with the terms of the Offer.
(8) Includes 50,396 Shares held by Henry M. Gay and his wife, as trustees of a
family trust, and 40,001 Shares subject to options vested and exercisable
within 60 days of October 31, 1996. Mr. Gay entered into the Stockholders
Agreement, pursuant to which he agreed, among other things, to tender all
Shares beneficially owned by him in accordance with the terms of the Offer.
(9) Includes 40,001 Shares subject to options vested and exercisable within 60
days of October 31, 1996. Mr. Harmon entered into the Stockholders
Agreement, pursuant to which he agreed, among other things, to tender all
Shares beneficially owned by him in accordance with the terms of the Offer.
(10) Includes 78,500 Shares subject to options vested and exercisable within 60
days of October 31, 1996.
(11) Includes 40,000 Shares subject to options vested and exercisable within 60
days of October 31, 1996.
(12) Includes 200,000 Shares subject to options vested and exercisable within 60
days of October 31, 1996.
(13) Includes 99,869 Shares subject to options vested and exercisable within 60
days of October 31, 1996.
7
<PAGE> 8
(14) Includes 1,012,608 Shares subject to options vested and exercisable within
60 days of October 31, 1996.
Voting Agreement Between the Company and the RCBA Group. At the record date
for any meeting of the Company's stockholders, if RCBA, its affiliates and
accounts that it manages or advises (the "RCBA Group"), beneficially own voting
stock of the Company in excess of certain specified limits, then the voting
stock in excess of those limits is to be voted with respect to nominees to the
Board of Directors and all other matters in accordance with the recommendations
of the Board of Directors, except that the RCBA Group retains all voting
authority with respect to certain business combinations resulting in a change of
control, any recapitalization or similar transaction, and the sale of all or
substantially all of the Company's assets. At the present time, the RCBA Group
does not own voting stock in excess of the limits specified in such voting
agreement. The voting agreement terminates upon the later of August 3, 1997 or
such time as the RCBA Group no longer beneficially owns voting stock or equity
securities in an amount that exceeds certain thresholds specified in the voting
agreement.
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company, as of September 30, 1996, whose
total annual compensation for the fiscal year ended September 30, 1996 exceeded
$100,000, for services in all capacities to the Company and its subsidiaries
during each of the fiscal years ended September 30, 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------
BONUS
------------------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY PERFORMANCE OTHER(1) COMPENSATION(2)
- ---------------------------------- ---- -------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C>
James R. Porter 1996 $298,864 $ 70,969 -- $ 2,850
President and Chief Executive 1995 300,000 155,216 $100,074 2,984
Officer 1994 300,000 150,734 97,295 4,636
Chad A. Schneller 1996 180,000 173,690 -- 3,000
Vice President 1995 180,000 89,982 -- 3,750
Hardlines and Lumber 1994 32,500 48,750 -- 450
Operations
Thomas A. King 1996 185,004 34,188 -- 3,000
Vice President, 1995 185,004 57,371 -- 3,584
Product Development 1994 185,004 60,644 -- 4,808
and Manufacturing
Shane Gorman 1996 195,000 19,078 -- 1,995
Executive Vice President 1995 195,000 76,985 43,290 2,979
Automotive Operations 1994 195,000 97,978 23,498 5,128
Stanley F. Marquis 1996 170,004 34,357 -- 3,000
Vice President, Finance 1995 166,879 66,556 18,281 3,848
Chief Financial Officer 1994 155,004 65,666 2,925 4,065
Corporate Secretary and
Treasurer; President, Triad
Systems Financial Corporation
</TABLE>
- ---------------
(1) Represents bonus paid with the exercise of stock options granted before
1987. The bonuses paid were in an amount equal to 30% of the excess of $2.50
per share over the option exercise price.
(2) Represents matching contributions by the Company to the named officers'
401(k) savings and incentive plans.
8
<PAGE> 9
During the fiscal year ended September 30, 1996, there were no option
grants to the Chief Executive Officer of the Company or to any of the four other
most highly compensated executive officers. The following table provides
information concerning exercises of options to purchase Shares in the fiscal
year ended September 30, 1996, and unexercised options held as of September 30,
1996, by the persons named in the Summary Compensation Table:
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT 9/30/96 AT 9/30/96(2)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Porter.......... 349,736 $ 826,270
Chad A. Schneller........ 40,000 60,000 25,000 $37,500
Thomas A. King........... 5,000 $ 5,938 200,000 341,875
Shane Gorman............. 78,500 168,250
Stanley F. Marquis....... 99,869 224,795
</TABLE>
- ---------------
(1) A bonus paid in connection with the exercise of certain stock options has
been excluded from Values Realized and Year-End Values. See the column
entitled "Bonus -- Other" in the Summary Compensation Table for information
regarding such bonus paid in the year ended September 30, 1996.
(2) Valuation based on the difference between the option exercise price and the
closing sales price of the Common Stock on September 30, 1996, the last
trading day of the fiscal year (which was $5.38 per share, as reported by
the NASDAQ National Market System).
TERMINATION AND CHANGE-OF-CONTROL ARRANGEMENTS
In January, 1989, the Board of Directors determined that in the event of a
change of control of the Company, employees, including executive officers, would
be entitled to certain severance benefits in the event their employment were
terminated. A formal severance policy, including the elements previously
approved by the Board in 1989, was adopted for employees, including executive
officers, in October, 1996.
Under the Company's current policy, a change in control is defined as (i) a
merger or consolidation in which the stockholders of the Company before the
merger or consolidation do not retain at least a majority of the beneficial
interest in the voting stock of the surviving corporation, (ii) the sale of all
or substantially all of the Company's assets, and/or (iii) the direct or
indirect sale or exchange by the stockholders of the Company of more than 50% of
the stock of the Company to person(s) or entity(ies), other than the Company or
any subsidiary or employee benefit plan of the Company.
Should there occur such a change in control and an executive officer's
employment be involuntarily terminated within 12 months following such change of
control, the officer will become entitled to the following severance benefits:
(1) all options then held by the officer will immediately accelerate and
become fully exercisable; and
(2) minimum severance pay in an aggregate amount equal to twelve times the
executive officer's monthly salary in effect on the date of termination, plus
the total bonus compensation paid for services rendered in the immediately
preceding fiscal year, which amount shall be payable during the twelve month
period following the date of termination, in twenty-four successive biweekly
payments, net of federal and state tax withholdings; and
(3) all employee benefits which the officer was entitled to receive
immediately prior to the date of termination, for a period of twelve months
following the date of termination.
9
<PAGE> 10
Involuntary termination is defined to include, without limitation, a change
in duties and functions with respect to an executive officer's position which
results in the officer not maintaining an equivalent or greater role in the
management of the Company as that performed by the officer prior to the change
in control.
Options granted under the Company's Amended and Restated 1982 Stock Option
Plan, 1990 Employee Stock Purchase Plan and Amended and Restated Outside
Directors' Stock Option Plan contain provisions pursuant to which unexercised
options may become fully vested and fully exercisable immediately prior to a
"change of control" as defined above, and terminate to the extent they are not
exercised as of consummation of the change of control.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors sets the base salary
of the Company's executive officers and approves bonus programs for executive
officers. Option grants to executive officers are made by the Compensation
Committee. The following is a summary of policies of the Committee that affected
the compensation paid to executive officers, as reflected in the tables set
forth elsewhere in this Information Statement.
GENERAL COMPENSATION POLICY
The Committee's overall policy is to offer the Company's executive officers
competitive compensation opportunities based upon their personal performance,
the financial performance of the Company and their contribution to that
performance. One of the Committee's primary objectives is to have a substantial
portion of each executive officer's compensation be contingent upon the
Company's performance as well as the executive officer's individual performance.
Each executive officer's compensation package is comprised of three elements:
(i) base salary which reflects individual performance and salary levels in the
industry, (ii) annual variable performance awards payable in cash and tied to
the achievement of annual financial performance goals established by the
Committee, and (iii) long-term stock-based incentive awards designed to
strengthen the mutuality of interests between the executive officers and the
Company's stockholders. Generally, as an executive officer's level of
responsibility increases, a greater portion of compensation will be dependent
upon the Company's financial performance and stock price appreciation.
The Company has considered the potential impact of Section 162(m) ("Section
162(m)") of the Internal Revenue Code of 1986, as amended, adopted under the
federal Revenue Reconciliation Act of 1993. Section 162(m) disallows a tax
deduction by any publicly-held corporation for individual remuneration exceeding
$1 million in any taxable year for any of the executive officers named in the
Summary Compensation Table, unless such excess compensation is
performance-based. Since the targeted cash compensation of each of the executive
officers identified in the Summary Compensation Table is well below the $1
million threshold and the Company believes that any options granted under the
Company's Amended and Restated 1982 Stock Option Plan and 1990 Employee Stock
Purchase Plan will be excluded from the executive officer's remuneration for
purposes of Section 162(m), the Committee believes that Section 162(m) will not
reduce the tax deductions available to the Company. The Company's policy is to
qualify to the extent reasonable its executive officers' compensation for
deductibility under applicable tax laws.
FACTORS
The primary factors taken into account in establishing each executive
officer's compensation package for the 1996 fiscal year are summarized below.
The relative weight given to each factor varied with each individual in the sole
discretion of the Committee. The Committee, in its discretion, may apply
entirely different factors to each individual's compensation, such as varying
the attainment criteria based on expected performance of a growth business
versus a mature business.
10
<PAGE> 11
BASE SALARY
The base salary for each officer is set on the basis of personal
performance, the salary levels in effect for similarly-situated executives at
high technology companies in the Company's geographic area with whom the Company
competes to hire and retain executives (with the respective executive officer's
salaries generally set to correspond with the executive's experience and
performance level) and internal comparability considerations. As a general
matter, year-to-year adjustments to each executive officer's base salary are
based upon personal performance for the year, changes in the general level of
base salaries of persons in positions comparable to that of the executive
officer within the industry and prior salary adjustments. The Company's fiscal
1995 financial performance was also a factor in establishing base salary
increases for fiscal 1996. After taking these factors into account, base
compensation was held at 1995 base salary levels for all but two executive
officers. In aggregate the base salaries for executive officers increased 0.1%
for fiscal 1996.
ANNUAL INCENTIVE COMPENSATION
In setting annual bonus compensation, the Committee considered the
historical, aggregate executive compensation for each executive officer, the
aggregate compensation paid to similarly-situated executives at high technology
companies in the Company's geographic area with whom the Company competes to
hire and retain executives and the Company's fiscal 1995 financial performance.
Annual bonuses are earned by each executive officer on the basis of the
Company's achievement of corporate performance targets established by the
Committee at the start of the fiscal year. The individual bonus targets for
fiscal 1996 were based on percentages of base salary tied to attainment of
designated achievement targets. The Committee-approved achievement targets were
based on revenue and operating contributions at the corporate, division and
segment levels, varying by executive officer in light of the differing positions
and responsibilities of each executive officer.
LONG-TERM STOCK-BASED INCENTIVE COMPENSATION
Stock option grants are reviewed annually by the Committee. Grants in a
particular year are designed to align the interests of the executive officer
with those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an equity
stake in the business. Each grant generally allows the executive officer to
acquire shares of the Company's common stock at a fixed price per share (the
market price on the grant date) over a ten year period, thus providing a return
to the executive officer only if the market price of the shares appreciates over
the option term. Options granted to executive officers generally vest at the
rate of 20% per year and become fully vested after five years. The size of the
option grant to each executive officer, including the Chief Executive Officer,
is set at a level which is intended to create a meaningful opportunity for stock
ownership based upon the individual's current position with the Company, the
size of comparable grants made to individuals in similar positions in the
industry, the individual's personal performance in recent periods and the number
of options held by the individual at the time of grant. The relative weight
given to these factors varies with each individual in the sole discretion of the
Committee.
STOCK OWNERSHIP BY MANAGEMENT
The Committee believes stock ownership further aligns executive officers'
interests with those of the Company's shareholders. Consistent with this
philosophy, the Company previously established a policy that executive officers
of the Company are to own stock equivalent to the following compensation
standards within a three-year period, measured from October 1, 1993:
President -- stock ownership equivalent to two times 1993 total compensation
(salary plus cash bonus); Executive Vice President and Vice President -- stock
ownership equivalent to the respective 1993 total compensation; and Other
Officers -- stock ownership equivalent to the respective 1993 base salary. Hires
subsequent to October 31, 1993 at the officer level must meet the respective
stock ownership level within five years from the date of hire, based on the
first full fiscal year's compensation after hire or promotion. Six of the
current executive officers are required to meet the stock ownership target by
October 1, 1997. As of October 1, 1996, all six had achieved the target.
11
<PAGE> 12
CEO COMPENSATION
In setting the compensation payable to the Company's Chief Executive
Officer, James R. Porter, the Committee sought to be competitive with high
technology companies in the Company's geographic area, while at the same time
assuring that a significant percentage of such compensation was tied to
Company's financial performance and stock price appreciation.
The Committee established Mr. Porter's base salary in the same manner and
applying the same criteria that it used generally to establish the base salaries
of the other executive officers. Accordingly, in setting Mr. Porter's base
salary, the Committee considered his personal performance for the year, changes
in the general level of base salaries of CEOs at high technology companies in
the Company's geographic area, prior salary adjustments and corporate
performance factors.
The remaining component of Mr. Porter's 1996 fiscal year compensation was
dependent upon achieving certain corporate performance targets as set forth in
his Committee-approved bonus plan. The amount of any cash bonus to be paid to
him for the 1996 fiscal year was dependent upon the Company's attainment of
performance factors tied to its levels of revenue and operating income.
Submitted by the Compensation Committee of the Company's Board of
Directors:
William W. Stevens
Henry M. Gay
George O. Harmon
12
<PAGE> 13
COMPARISON OF STOCKHOLDER RETURN
Set forth below are line graphs comparing the annual percentage change in
the cumulative total return on the Company's Common Stock with the cumulative
total return of the Standard & Poor's 500 Index and a composite index comprised
of the Standard & Poor's (S&P) Software and Service Index and the S&P Computer
Index (i) for the period commencing on September 30, 1991 and ending on
September 30, 1996, and (ii) for the period commencing on September 30, 1985 and
ending on September 30, 1996.
STOCKHOLDER RETURNS 1991-1996(2)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD TRIAD SYSTEMS COMBINED IN-
(FISCAL YEAR COVERED) CORPORATION S&P 500 INDEX DEX(1)
<S> <C> <C> <C>
1991 100 100 100
1992 167.86 111.05 103.11
1993 150.00 125.49 109.40
1994 132.14 130.11 137.56
1995 164.29 168.82 199.61
1996 153.57 203.14 275.55
</TABLE>
13
<PAGE> 14
In the following graph, the Company has presented comparative stockholder
return information over the period from September 30, 1985, the year James R.
Porter joined the Company as Chief Executive Officer, through September 30,
1996. During 1989, the Company faced an unsuccessful hostile takeover attempt
and effected a stockholder-approved Plan of Recapitalization paying $15.00 per
share in cash to all stockholders.
STOCKHOLDER RETURNS 1985-1996(2)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD TRIAD SYSTEMS COMBINED IN-
(FISCAL YEAR COVERED) CORPORATION S&P 500 INDEX DEX(1)
<S> <C> <C> <C>
1985 100 100 100
1986 112.70 131.60 119.97
1987 169.84 188.67 173.34
1988 190.48 165.22 125.34
1989 273.20 219.75 142.87
1990 115.03 199.44 105.99
1991 201.31 261.60 140.66
1992 339.91 290.50 150.55
1993 301.96 328.28 168.96
1994 266.01 340.38 209.28
1995 330.71 441.62 304.05
1996 309.15 532.04 425.21
</TABLE>
(1) The Combined Index was calculated by the Company by weighting equally the
S&P Computer Index and the S&P Software and Service Index, as prepared by
Standard & Poor's Compustat Services, Inc.
(2) Assumes that $100.00 was invested on September 30, 1991 and September 30,
1985, respectively, at the closing sales price of Shares and in each index,
and that all dividends were reinvested. Returns are measured through the
last trading day of each of the Company's fiscal years. No cash dividends
have been declared on the Company's Common Stock, except a cash payment of
$15.00 per share that was paid on the Company's Common Stock in connection
with the Company's recapitalization in August 1989 and is assumed to have
been reinvested. Stockholder returns over the indicated period should not be
considered indicative of future stockholder returns.
Stockholder returns presented in the performance graphs are generally not
necessarily indicative of future results. The higher the baseline stock
price, the less volatile the graphic presentation of fluctuations;
therefore, the Company's stock value when compared to S&P 500 and the
Combined Index, can fluctuate more broadly and changes can appear
exaggerated in a graphic presentation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William W. Stevens, Henry M. Gay and George O. Harmon served as members of
the Board of Directors' Compensation Committee during fiscal 1996. Mr. Stevens
was President and Chief Executive Officer of the Company from inception until
September 1985. Mr. Gay was Vice President, Marketing from inception until 1980
and Secretary from 1972 to September 1987.
14
<PAGE> 15
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)"), requires the Company's executive officers, directors and persons who
beneficially own more than 10% of a registered class of the Company's equity
securities to file with the Commission initial reports of beneficial ownership
on Form 3 and reports of changes in beneficial ownership on Forms 4 and 5 with
respect to the Company's Common Stock. Such officers, directors and
greater-than-10% beneficial owners are also required by Commission rules to
furnish the Company with copies of all Section 16(a) reports they file with the
Commission.
Based solely on a review of copies of such forms received by the Company,
and written representations from certain reporting persons that no other reports
were required for such persons, the Company believes that all Section 16(a)
filing requirements applicable to its officers, directors and greater-than-10%
beneficial owners were complied with during the fiscal year ended September 30,
1996.
COMMENCEMENT OF SERVICE
None of Parent's Board designees will begin serving as directors of the
Company until at least ten days after the date this Information Statement is
filed with the Commission and mailed to the Company's stockholders of record.
15
<PAGE> 16
[TRIAD LETTERHEAD]
November 12, 1996
Dear Triad Stockholders:
Enclosed is a copy of the Company's Information Statement pursuant to Section
14(f) of the Securities Exchange Act of 1934 and Rule 14f-1 thereunder (the
"Information Statement"). Pursuant to the Agreement and Plan of Merger (the
"Merger Agreement") dated as of October 17, 1996 between the Company,
Cooperative Computing, Inc. ("CCI") and CCI Acquisition Corp., an affiliate of
CCI ("CCI Acquisition"), CCI Acquisition commenced a cash tender offer (the
"Offer") to purchase all outstanding shares of the Company's Common Stock at
$9.25 per share on October 23, 1996. The Offer is scheduled to expire on
November 20, 1996. Pursuant to the Merger Agreement, CCI has the right to
appoint a majority of the Company's Board of Directors. The Company expects
that CCI will exercise this right shortly after the consummation of the Offer.
This Information Statement is required to be sent to all stockholders in
advance of a change in the majority of the Board of Directors of the Company
without a meeting of the Company's stockholders.
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS REQUIRED IN CONNECTION
WITH THIS INFORMATION STATEMENT. No proxies are being solicited and you are
requested not to send the Company a proxy. However, you are urged to read this
Information Statement carefully.
On behalf of the Board of Directors and officers of the Company, thank you for
your continued interest in the affairs of the Company.
Very best wishes,
/s/ JAMES R. PORTER
- -------------------
James R. Porter
President and Chief Executive Officer
