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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
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.
COMMISSION FILE NUMBER 0-27678
TRIDENT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-6403301
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
1114 FEDERAL ROAD 06804
BROOKFIELD, CONNECTICUT (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 740-9333
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of exchange on
Title of each class which registered
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
COMMON STOCK, $0.01 PAR VALUE
(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 such
filing requirements for the past 90 days. Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on December 18,
1996 as reported on the Nasdaq National Market, was approximately $ 79,607,000.
Shares of Common Stock held by each officer and director and by each person
who own more than 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.
On December 18, 1996 there were 7,069,935 shares of Common Stock
outstanding, exclusive of treasury shares or shares held by subsidiaries of the
Registrant.
Part III incorporates information by reference from the definitive Proxy
Statement in connection with the Registrant's Annual Meeting of Shareholders to
be held on January 29, 1997.
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TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
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PAGE
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PART I
Item 1: Business.............................................................................. 3
Item 2: Properties............................................................................ 8
Item 3: Legal Proceedings..................................................................... 9
Item 4: Submission of Matters to a Vote of Security Holders................................... 9
PART II
Item 5: Market for the Registrant's Common Equity and Related Stockholder Matters............. 11
Item 6: Selected Financial Data............................................................... 11
Item 7: Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 13
Item 8: Financial Statements and Supplementary Data........................................... 18
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................................... 18
PART III
Item 10: Directors and Executive Officers of the Registrant.................................... 19
Item 11: Executive Compensation................................................................ 19
Item 12: Security Ownership of Certain Beneficial Owners and Management........................ 19
Item 13: Certain Relationships and Related Transactions........................................ 19
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 20
Signatures.............................................................................................. 22
</TABLE>
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PART I
This Form 10-K contains forward looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company's actual results could differ materially from those set
forth in the forward-looking statements. Factors that might cause such a
difference include those discussed under Management Discussion and Analysis -
Business Environment and Future Results.
ITEM 1: Business
COMPANY OVERVIEW
Trident International, Inc. (hereafter, together with its consolidated
subsidiaries referred to as the "Company" or "Trident") designs, manufactures
and markets piezoelectric impulse ink jet subsystems including printheads, inks
and other consumables, and related components for the industrial market. The
Company's proprietary products are used for a variety of printing applications
which require high speed, good print quality, durable equipment and the ability
to change the printed text or pattern frequently. The Company's Ultrajet(TM)
printing subsystems are marketed worldwide, primarily through over 75 original
equipment manufacturer (OEM) customers that integrate them into
computer-controlled, application-specific products which are then sold the
end-users. The Company's contracts with its OEM customers also provide for
ongoing sales by the Company of consumables, consisting principally of inks and
printing subsystem components.
The largest application in which the Company's product are used is carton
coding, which involves printing directly onto shipping cartons. Carton coding
systems which incorporate the Company's products allow end-users to print any
combination of high quality text, bar codes, and graphics directly onto blank
cartons as they move down an assembly or production line. The Company's products
allow this information to be changed frequently, even carton by carton. This
eliminates the need to maintain a substantial inventory of preprinted carton or
labels, while also reducing production time and costs and allowing for frequent
changeover between products. Other current industrial applications for the
Company's products include check coding, addressing and business forms
imprinting, postal bar coding and stamp cancellation and garment pattern
plotting.
PRODUCTS
General. The Company specializes in the design and manufacture of
proprietary impulse ink jet imaging subsystems, including printheads, inks and
other consumables and related components. To support its OEM customers, Trident
also offers a comprehensive range of accessories and components, and a printhead
repair service. Trident is committed to providing its OEM customers and their
end-users with all of their piezoelectric impulse ink jet product and service
requirements.
Ultrajet Imaging Subsystems. The Company has developed a series of imaging
subsystems which are based on its proprietary impulse ink jet technology. This
technology employs a piezoelectric crystal, which is a ferroelectric ceramic
material that changes shape when an electric field is applied across it. Thus, a
voltage applied across two faces can cause it to grow or shrink in length, or to
be distorted sideways, depending on the mode of operation selected. Trident's
patented technology utilizes the piezoelectric crystal as a piston opposite the
orifice through which the ink is projected onto the printing surface. A voltage
waveform is smoothly increased which causes sub-micron reductions in the length
of the piezoelectric crystal. This draws ink into the chamber preparing it for
firing onto the printing surface. Surface tension forces in the orifice prevent
air from entering the chamber, which would interfere with the printing process.
Next, the voltage across the piezoelectric crystal is rapidly reduced, which
allows the length of the crystal to return to its original size and create a
sudden pressure pulse inside the chamber, which forces a droplet of ink out of
the orifice. The process of printing each droplet takes approximately 0.0001
seconds.
One of the principal advantages of the Company's technology is that
relatively large droplets can be generated at high frequencies and velocities.
The high pressures generated also enable more than one orifice to be placed in
each chamber, which increases the print area without adding chambers, thereby
avoiding additional cost. The arrangement of the piezoelectric crystal and ink
chambers found in the Company's printheads is proprietary to Trident. It enables
ink droplets to be formed at frequencies as high as 10,000 droplets per second
with an initial velocity of more than 10 meters per second. This enables the
droplets to travel across a small gap through the air, which is an important
feature in industrial marking
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applications where the printing surfaces are rarely flat, smooth or traveling at
a fixed distance from the printhead.
The Company's printing products are modular to enable its OEM customers to
order the most suitable configuration for their system and to minimize
development and production costs. The imaging subsystem consists of a printhead,
tubing, cables and, at the option of the OEM, an ink reservoir and electronic
driver printed circuit boards. The printheads are available in four basic
orifice configurations according to the desired print height and resolution.
Some configurations are also available with either stainless steel or nickel
orifice plates depending on the selection of ink. The orifice plate can have
either one, three, six or eight orifices for each chamber. The use of multiple
orifices per chamber in a liquid impulse ink jet printhead is proprietary to
Trident. The benefits are increased print area without added cost and
complexity. Resolution is sacrificed in applications where print height and cost
are more critical, such as bar coding, which does not require high vertical
resolution. Multiple printheads may be stacked to create even taller images.
In the industrial market, the typical spacing between printed droplets is
five to seven thousandths of an inch, which provides a resolution of 140 to 200
dots per inch. In these industrial applications, resolution greater than 200
dots per inch is generally not required, while speed, print distance and print
area are often critical. By contrast, impulse ink jet printers developed for the
office and home market are required to generate images with 300 to 600 dots per
inch resolution, which creates a requirement for droplets which are
substantially smaller than those produced by the Company's technology and which
consequently cannot travel as far across air gaps to the printing surface. The
higher resolution and smaller droplet volume typical of the printers developed
for the office and home markets also reduce the printing speed when compared to
the Company's printhead.
The Company's imaging subsystem products are priced according to the print
area (number of orifices), the type of ink and the ink reservoir. The typical
prices range from $800 for the Company's least expensive imaging subsystem to
$2,200 for its premium performance bar code product.
Ink Products. The Company offers six basic ink products: PostBrite,
VersaPrint, FastDri, AllWrite, HiDef and JetWrite. All except PostBrite (an
ultraviolet fluorescent ink for postal bar coding) are offered in black. The
Company's VersaPrint products are also available in red, blue and green colors.
Most of the Company's inks are manufactured from oil or glycol liquids and are,
therefore, non-volatile and non-toxic. Two exceptions are the FastDri and
AllWrite inks which are formulated for semi-porous printing surfaces and,
therefore, require small quantities of volatile solvents to allow drying. The
Company expects that future ink products developed for nonporous printing
surfaces will require a small amount of maintenance at start-up following shut
down periods of one or more hours. The carton coding market uses mainly
VersaPrint and HiDef inks which are entirely non-volatile. This property
provides end-user customers with increased reliability, resulting in fewer
production delays.
Accessories and Options. The Company offers a range of accessories and
options to assist OEM customers in the development of systems. These are
sometimes employed by OEMs only for their initial evaluation of one of the
Company's products, while the OEMs develop their own version of the accessory
for the final production product. Larger volume producers are generally more
inclined to attempt to create their own accessories than smaller ones. Smaller
companies, or companies using systems in which the accessories represent a
relatively small percentage of the total system cost, are more likely to
purchase these components from Trident. An OEM may also purchase equipment from
Trident to repair and calibrate printheads itself, provided that it has been
trained and certified by Trident.
SALES AND MARKETING
The Company sells its products both domestically and internationally through
OEMs and to major end-users who have in-house engineering resources capable of
developing a printing system utilizing the Company's products. The Company has
approximately 75 active customers worldwide, of which approximately one-half
currently purchase from five to several hundred printheads per month. Several of
the Company's OEM customers sell systems incorporating the Company's products
worldwide, although the Company recognizes sales to the region where the
products are billed.
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Sales are divided into three regions: North America, Europe and the Far
East. Sales for the twelve months ended September 30, 1994 (Combined 1994) (See
page 13) and Fiscal 1995 and 1996 to these three regions were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SEPTEMBER 30,
(000'S OMITTED)
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1994 Fiscal Fiscal
Region (Combined) 1995 1996
- ---------- ---------- ------ -----
<S> <C> <C> <C>
North America $ 8,963 $12,130 $17,994
Europe 2,500 3,500 5,986
Far East 1,030 1,700 1,945
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Total $12,493 $17,330 $25,925
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</TABLE>
All sales are denominated in US dollars.
The Company believes that international use of impulse ink jet applications
currently lags behind that of the U.S. The Company expects that the North
American region will continue to be the largest due to the strength of domestic
OEM customers, particularly those utilizing carton coding applications. European
sales are rapidly growing as use of bar codes on shipping containers is
increasing and European customers are introducing the use of Trident's products
to stamp cancellation. The Far East trails the rest of the world in utilization
of impulse ink jet printing technologies. The Company believes, however, that
the ability of systems using the Company's subsystems to print certain Asian
language characters and the continuing industrialization of Far East/Pacific Rim
countries will create additional demand for the Company's products.
All of the Company's OEM customers are sub-licensed by the Company on a
non-exclusive basis to use the Company's products. New customers are required to
purchase an evaluation kit from the Company, which includes training on the
equipment and an evaluation kit license, before the Company agrees to fully
license the customer. Trident believes that this allows it to control the use of
the product and to ensure that it is applied competently and professionally in
the market. The Company's licenses provide for the ongoing purchase of ink from
the Company and the right to use the printheads and inks as a system. The
Company is aware of a small number of third-party ink manufacturers offering ink
for use with some of the Company's printheads. Use of these third-party inks
would be an unlicensed activity by the OEM and its end-user customer, could
damage the Company's printheads and would void the warranty on such printheads.
Most of the Company's inks, bottles and cartridges are currently protected by
patents.
The sales organization is divided into the three regions and each region is
managed by a local business manager who reports directly to the Company's
President and Chief Executive Officer. The Company believes that this structure
provides for optimum response and support to the local customer and keeps senior
management closely attuned to the customers' needs. The Company's largest sales
region is North America where, in addition to the business manager, three
regional sales representatives respond to day-to-day customer needs and new
inquiries. The Company's sales in the Far East are concentrated in Japan, where
the Company employs the services of two Japanese business consultants. Sales
inquiries are generally developed from word of mouth recommendations, product
exhibits and advertisements. Senior managers of the Company are frequently
involved with industry conferences, which also generate high visibility for the
Company.
The Company's applications engineers provide training both at Trident and at
the customers' premises. They assist with diagnosing and solving end-user
problems as required. Service of the end-user system is provided by the OEM
customers or their distributors. In applications where products cannot be
shipped without the printed code or image, responsive service close to the
customers' sites is essential. Therefore, training the customer is a high
priority activity. The applications engineers also ensure that the OEMs have
properly designed their systems to optimize the performance of the printing
system.
The Company sells its products to over 75 OEM customers worldwide.
Historically, the Company has not required its OEM customers to display the
Trident label on their equipment and ink in response to such customers' desire
to differentiate themselves as much as possible from their competitors. Some
customers sell ink with the Trident label. Others request the
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Company to manufacture ink with the OEM's label attached. The Company also
allows customers to package the ink in their own containers to further support
their desire for differentiation.
During Combined 1994, as defined on page 5, and Fiscal 1995 and 1996, sales
to the following customers accounted for more than 10% of the Company's net
sales:
<TABLE>
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Twelve Months ended September 30,
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Customer 1994 Fiscal Fiscal
Name (Combined) 1995 1996
- -------- ---------- ------ ------
<S> <C> <C> <C>
Marsh 15% 23% 22%
Company
Foxjet, Inc. 12% 11% 13%
BancTec, Inc. 12% 13% 12%
</TABLE>
During Combined 1994 and Fiscal 1995 and 1996, approximately 78%, 72% and
79%, respectively, of the Company's net sales were to its top ten customers.
The Company enters into sales and license agreements with its OEM customers
that provide the general terms on which sales of the Company's products will be
made. These agreements typically license the OEM's to manufacture, use and sell
equipment employing and including certain of the Company's proprietary
technology. The OEM customers generally agree to assign to the Company any
interest they obtain in any proprietary rights including inventions and
resulting patents and patent applications and confidential technical information
comprising improvements in or technology relating to the Company's technology.
The sales and license agreements are non-exclusive in nature and of indefinite
length but are terminable by either party upon material breach by the other
party.
ENGINEERING, RESEARCH AND DEVELOPMENT AND INTELLECTUAL PROPERTY
The Company conducts engineering development programs for the purpose of new
product development, enhancing existing products and reducing manufacturing
costs. The Company produces all designs on a computer aided drafting system and
has recently invested in modeling software and other analytical tools. The
engineering, research and development functions are divided between two
departments. The research and development department concentrates on fundamental
improvements in the Company's understanding of the technology and in producing
computer simulations of new concepts to rapidly evaluate and optimize
performance without requiring physical prototypes to be made. The Company's
research and development is performed primarily by its own staff, although,
outside development consultants are occasionally employed. The engineering
development department includes multiple disciplines for the development of
printheads, ink systems, inks and electronics printed circuit boards. The
Company expended approximately $1,078,000, $1,317,000, and $2,326,000 for
research and development during Combined 1994 and Fiscal 1995 and 1996,
respectively.
The Company's research and development objectives are to fully exploit the
benefits of its technology by creating computer models in order to design
products which increase the travel distance of the ink droplets through the air,
increase the frequency and velocity of droplet generation, increase channel
density and lower production cost through the use of innovative designs and
materials. The Company believes that its technology offers significant benefits
over other impulse ink jet technologies and that further advancements are
achievable.
The Company operates under a patent portfolio covering its printheads, ink
delivery systems and inks. In addition to the Company's own patent applications,
the Company has an exclusive license from Dataproducts Corporation
(Dataproducts) to Dataproducts' rights and certain patents relating to liquid
inks and impulse ink jet printing (the Dataproducts License) within the
"industrial marking field". The technology used by the Company under the
Dataproducts License is integral to the Company's impulse ink jet products.
Several of the patents relating to this technology expire over the next six to
nine years. The Dataproducts License provides the Company with the right to use
Dataproducts' liquid ink technology, which
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rights are generally exclusive in industrial markets, and nonexclusive in the
general or office printing market. The areas of preprinted documents and wide
format liquid ink printing are shared with Dataproducts. During Fiscal 1996, the
Company acquired a non-exclusive license from Dataproducts for solid ink jet
printing technology in certain licensed industrial marking fields. The Company
recorded a charge of $3,052,000 as a write-off of purchased in process research
and development to record the cost of evaluating and acquiring this license. The
Company intends to develop products utilizing this technology for new industrial
applications. Dataproducts acquired the technology licensed by the Company from
Exxon Enterprises Printing Systems, Inc. which originally developed the basic
technology in the late 1970s and early 1980s.
Significant patents for which applications have been filed by the Company
and which are licensed from Dataproducts are directed to: the mode of operation
and structure of the piezoelectric transducer assembly; multiple orifices;
multiple drops that merge in flight or on the printing surface; a method to
prevent evaporative inks from clogging the orifices; method of melting and
delivery of ink to printheads; and numerous inks.
MANUFACTURING AND SUPPLIERS
All of the Company's products are manufactured in Brookfield, Connecticut.
The assembly process for printheads essentially requires the high precision
assembly and testing of various purchased components, several of which are
proprietary to the Company and are custom-made according to the Company's
design. The assembly process includes several discrete steps, each of which is
considered a trade secret and has been developed and refined since the Company's
inception. These processes are closely monitored, in some cases using
statistical process control.
One of the most critical components of the Company's printheads is the
orifice plate. The Company has two suppliers for its current production designs
which utilize nickel, and has developed a new technique for the manufacture of
stainless steel orifice plates working with a sole supplier. This supplier has
signed a development contract with the Company but does not yet have a full
production supply agreement. Any future interruption or termination of supplies
of these stainless steel orifice plates could have a material adverse effect on
the Company's business and results of operations.
The Company's assembly operation is performed under filtered air hoods. The
assembly and test operations are organized into work cells and employ
just-in-time methodologies for work flow and materials control. Since the
introduction of this organization in January 1995, work in process materials and
cycle time have been reduced and yields have increased. Total inventory of
materials has been reduced while production output has increased. Most of the
Company's production personnel are cross-trained in several operations,
affording greater flexibility to balance the production flow and to add new
employees.
Due to the harsh nature of the industrial environment, printheads require
occasional repair for orifice clogs and physical damage. The Company offers its
customers this service at the facility in Brookfield, Connecticut. A rapid
turnaround is important to the customer and, therefore, the Company's repair
department has also been organized into a work cell. In addition, as the volume
of the installed base of printheads grows, the Company anticipates that repair
facilities will be opened in Europe and the Far East.
All ink formulations and processes are the property of the Company. Pursuant
to the Company's supply agreement with Micropore, Inc. (Micropore), the Company
has agreed to purchase all of its requirements of certain of its current ink
products from Micropore. Micropore operates several facilities and produces
Trident inks at two facilities to provide alternate sources of supply.
The Company's manufacturing-engineering and quality groups are responsible
for the productivity and quality improvements in production and for the
introduction of new products into production. Simultaneous engineering is
employed by the Company to ensure that new products are manufacturable and to
shorten the development time.
In 1996, the ink production department's capital equipment was upgraded for
higher capacity and semi-automated filtration, bottle cleaning, filling,
labeling and sealing equipment.
BACKLOG
The order backlog as of September 30, 1996 was approximately $8.2 million
compared with $7.7 million as of September 30, 1995. Backlog consists of
purchase orders scheduled for shipment within 12 months following the order
date.
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Purchasers of standard products may generally cancel or reschedule orders
without significant penalty and, accordingly, the Company's backlog at any time
is not necessarily indicative of future sales.
COMPETITION
The Company considers its direct competition to be other providers of
on-demand, variable information printers which primarily employ ink jet printing
technology and thermal transfer labeling systems.
With respect to applications for carton coding, the Company's principal
competition is from manufacturers of thermal transfer labeling systems, which
apply labels either manually off-line, on-line with a label applicator, or
on-line with a print-and-apply system. These systems typically have an initial
purchase price comparable to that of ink jet coding systems sold by the
Company's OEMs, but the cost of labeling or coding using thermal transfer
labeling systems can be as much as ten times greater. These systems are provided
by companies such as Willett Systems Limited and Diagraph Corporation, who also
sell the Company's ink jet products, and by Zebra Technologies Corporation,
Intermec Corporation, Sato America, Inc., Datamax International Corp. and Weber
Marking Systems Inc. Simple alphanumeric codes are typically applied by
valve-jet ink jet systems which are manufactured by the Company's OEMs and do
not directly compete with the Company's current high resolution products.
Competition in the Company's other applications is primarily from other ink
jet printing technologies. An example is the use of continuous ink jet systems
in the addressing and imprinting market which are manufactured by Scitex Digital
Printing, Inc. and Videojet Systems International, Inc.
The Company is aware that Nu-Kote Holdings, Inc. has acquired a new ink jet
technology and has released a piezoelectric impulse ink jet printhead for
industrial and other applications. This printhead could be used for applications
for which the Company currently manufactures and markets ink jet subsystems. It
is unclear how much market penetration this printhead will achieve, although it
is anticipated that the price of this printhead will be substantially lower than
the price of comparable Trident printheads.
The markets for the Company's products are highly competitive. The Company
believes that its ability to compete successfully depends upon a number of
factors both within and beyond its control, including product performance,
product features, product availability, price, quality, timing of new product
introductions by the Company and its competitors, customer support, and industry
and general economic trends. The Company seeks to compete by offering a broad
product line, emphasizing high performance and quality with a continuing
commitment to product improvements and new product introductions. The Company's
current and prospective competitors include many companies that have greater
financial, technical and marketing resources than the Company. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors.
EMPLOYEES
As of September 30, 1996, Trident had 126 full time employees including
temporary direct employees. Of these employees, 14 were in sales and marketing,
24 were in engineering and research and development, 13 were in administration
and finance, 29 in production overhead and 46 were factory direct employees.
None of the Company's employees are represented by a labor union. The Company
anticipates expanding its engineering department during fiscal year 1997.
Management believes that such expansion is critical to its success. The Company
believes its relationships with its employees are good.
ITEM 2: PROPERTIES
Trident's main facility consists of approximately 35,000 square feet of
leased space in Brookfield, Connecticut, divided between two buildings. The
Company has a European office located in Dublin, Ireland and a Midwest office
located in Park Ridge, Illinois. One of the buildings in Brookfield is occupied
by sales and marketing, engineering and research and development, and ink
production. The other building is occupied by administration and finance,
production and production support. The leases expire in 1997 and include an
option to renew at prevailing market rates for one three year period. The
buildings are in good condition and have been extensively remodeled by the
Company to accommodate new processes and
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the growth in employees. More than 90% of the available space is now in use and,
therefore, the Company intends to seek larger premises in 1997, likely in the
same local area. The Company anticipates that its rental costs may increase in
the event that it leases such new premises. One of the buildings currently
leased by the Company in Brookfield is located on property that may require
remediation due to releases of hazardous substances in prior operations by a
previous occupant. The site investigation and remediation, if needed, is subject
to the Property Transfer Act program administered by the Connecticut Department
of Environmental Protection.
ITEM 3: LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending legal proceedings which are
material to the Company to which it is a party or to which any of its property
is subject.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended September 30, 1996.
EXECUTIVE OFFICERS OF REGISTRANT
The following table lists the names, ages and positions held with the
Company of all executive officers of the Registrant as of December 18, 1996.
There were no family relationships between any director or executive of the
Company.
<TABLE>
<CAPTION>
NAME Age Position
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<S> <C> <C>
Elaine A. Pullen......... 42 President, Chief Executive Officer and Chief Operating Officer
J. Leo Gagne............. 40 Vice President and Chief Financial Officer
Carl L. Schlemmer........ 46 Vice President of Operations
Robert L. Rogers......... 42 Vice President of Research
Richard A. Cutting....... 53 Vice President of Engineering
David A. Hundt........... 42 Director of Finance and Administration
Donald P. Hicks.......... 47 Director of Marketing
</TABLE>
ELAINE A. PULLEN joined the Company as President and Chief Operating Officer
in August 1994. She has been President since that time and, in addition, has
served as a director and Chief Executive Officer since April 1, 1995. Prior to
joining the Company, Ms. Pullen served as a director of Linx Printing
Technologies, PLC ("Linx") from September 1992 to August 1994, where she also
served as Business Operations Director from February 1994 to August 1994 and as
Engineering Director from September 1992 to February 1994. Prior to that, Ms.
Pullen served as President of Linx USA from 1991 to 1992, and as Vice President
of Applied Research and Engineering of Videojet Systems International, Inc. from
1988 to 1991. Ms. Pullen holds a B.S. in Applied Physics from the British
Institute of Physics. She has 22 years of experience in research and
development, marketing and operations management in the ink jet printing field.
J. LEO GAGNE joined the Company as Vice President and Chief Financial
Officer in February, 1996. Prior to joining the Company, Mr. Gagne served as
Director - Enterprise Group of the Hartford Office of Arthur Andersen LLP. Mr.
Gagne is a Certified Public Accountant and holds a B.S. in Accounting from the
University of Connecticut.
CARL L. SCHLEMMER joined the Company in 1991 as Vice President of
Operations. Prior to joining the Company, Mr. Schlemmer served as Vice President
of Schott Electronics, Inc. from 1988 to 1991 and as a Vice President of Design
Circuits, Inc. from 1976 to 1988. Mr. Schlemmer holds a B.A. in Chemistry with a
minor in Mathematics from Western Connecticut State University.
ROBERT L. ROGERS joined the Company in 1989 as Director of Engineering. He
served as Director of Research and Development prior to his promotion to Vice
President of Research in August, 1996. Prior to 1989, Mr. Rogers was involved in
ink jet research at Exxon Enterprises Printing Systems, Inc. and Dataproducts
Corporation. Mr. Rogers holds a B.S. in Mechanical Engineering from Cornell
University.
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RICHARD A. CUTTING joined the Company in October 1996 as Vice President of
Engineering. Prior to joining the Company, Mr. Cutting served as Program
Management Director for InterMatrix, Inc. from March, 1995 to October, 1996 and
as Executive Director, Program Management at Pitney Bowes, Inc. from December,
1992 to December, 1994, where he also served as Executive Director, Program
Integration from October, 1991 to November, 1992 and as Vice President Strategic
Planning and Central Engineering from May, 1988 to September, 1991. Mr. Cutting
holds a M.A. in Natural Sciences and Electrical Sciences Engineering from St.
John's College, Cambridge, England.
DAVID A. HUNDT joined the Company in 1991 as Controller, has served as
Secretary and Treasurer since June 1994 and as Director of Finance and
Administration since October 1995. Prior to joining the Company, Mr. Hundt
served as Controller at Web Technologies, Inc. from 1987 to 1991. Mr. Hundt
holds a B.S. in Accounting from the University of Bridgeport.
DONALD P. HICKS joined the Company in 1990 as Eastern Regional Sales Manager
and has served as Director of Marketing since October 1995. Prior to joining the
Company, Mr. Hicks served as Director of Corporate Communications, Marketing
Manager and Program Manager of Photronics, Inc. Mr. Hicks holds a B.S. in
Business Administration from the University of Maryland.
10
<PAGE> 11
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been included for quotation on the Nasdaq
National Market under the Nasdaq symbol "TRDT" since the Company's initial
public offering in February 1996. The following table set forth, for the periods
indicated, the high and low closing sales prices for the Common Stock on such
market:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1996:
Second quarter (since February 29, 1996)........... 19.25 17.00
Third quarter...................................... 24.75 17.00
Fourth quarter..................................... 22.00 16.00
</TABLE>
At December 18, 1996, the Company had 49 holders of record of its Common
Stock, although the Company believes that the number of beneficial owners of
its Common Stock as of that date was substantially greater. There were
7,069,935 shares of Common Stock outstanding on December 18, 1996.
The market price of the Company's Common Stock has fluctuated significantly
since the initial public offering in February 1996. The market price of the
Common Stock could be subject to significant fluctuation in the future based on
factors such as announcements of new products by the Company or its competitors,
quarterly fluctuations in Trident's financial results or other industrial
printing companies' financial results, changes in analysts' estimates of the
Company's financial performance, general condition in the industrial printing
market and conditions in the financial markets. In addition, the stock market in
general has experienced extreme price and volume fluctuations, which have
particularly affected the market prices for many companies and which have often
been unrelated to the operating performance of the specific companies. There can
be no assurance that the market price of the Common Stock will not decline
substantially or otherwise continue to experience significant fluctuations in
the future.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain all cash for use in the operation and expansion of
the Company's business and does not anticipate paying any cash dividends in the
near future.
ITEM 6: SELECTED FINANCIAL DATA
The following selected consolidated financial data for each of the five
reporting periods presented has been derived from the audited consolidated
financial statements of the Company. The selected consolidated financial data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.
11
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PREDECESSOR(1) COMBINED(2) THE COMPANY
---------------------- ------------ -----------
FOR THE FOR THE FOR THE
12 MONTHS 9 MONTHS 12 MONTHS
ENDED ENDED ENDED FISCAL YEARS
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, -----------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net Sales .................... $ 8,251 $ 7,417 $12,493 $ 17,330 $ 25,925
Cost of Sales ................ 3,628 3,157 5,853 6,604 9,392
------- -------- ------- -------- --------
Gross Profit ................. 4,623 4,260 6,640 10,726 16,533
------- -------- ------- -------- --------
Operating Expenses:
Marketing and Selling ..... 668 516 701 912 1,415
Research and Development .. 690 625 1,078 1,317 2,326
Write-Off of In-Process
Research and Development .. -- -- -- -- 3,052
General and Administrative 670 587 1,137 1,580 2,405
Amortization of Intangibles 233 252 486 802 800
Amortization of Deferred
Compensation .............. -- -- -- 1,183 443
------- -------- ------- -------- --------
Total Operating Expenses ..... 2,261 1,980 3,402 5,794 10,441
------- -------- ------- -------- --------
Operating Income ............. 2,362 2,280 3,238 4,932 6,092
Interest (Income) Expense, Net 16 (10) 482 1,845 241
Redeemable Warrant Interest
Charge ....................... -- -- -- 4,561 1,710
------- -------- ------- -------- --------
Income (Loss) Before Income
Taxes ....................... 2,346 2,290 2,756 (1,474) 4,141
Provision for Income Taxes ... 864 954 1,280 1,965 2,752
------- -------- ------- -------- --------
Net Income (Loss) Before
Extraordinary Item ........... 1,482 1,336 1,476 (3,439) 1,389
Extraordinary Item (Net
of Income Tax Benefit of
$1,253) ...................... -- -- -- -- (1,803)
------- -------- ------- -------- --------
Net Income ................... $ 1,482 $ 1,336 $ 1,476 $ (3,439) $ (414)
======= ======== ======= ======== ========
CONSOLIDATED BALANCE
SHEET DATA:
Working capital .............. $ 2,300 $ 1,849 $ 2,103 $ 3,232 $ 21,056
Total assets ................. 11,875 11,736 20,967 23,133 38,331
Total long-term debt ......... -- -- 14,738 12,361 --
Redeemable common stock.......
warrants .................... -- -- -- 4,561 --
Redeemable preferred stock ... -- -- 3,123 3,311 --
Stockholders' equity
(deficit)............... 10,611 10,389 1,072 (1,311) 35,962
</TABLE>
12
<PAGE> 13
(1) The Predecessor (the "Predecessor") refers to Trident, Inc., the
Company's operating subsidiary, prior to its acquisition on June 24,
1994 from Porelon, Inc. ("Porelon"), a wholly-owned subsidiary of
Johnson Worldwide Associates, Inc. ("JWA").
(2) The pro forma combined statement of operations data for the 12 months
ended September 30, 1994 represents the Predecessor's results from
October 1, 1993 through June 23, 1994, and the Company's results from
inception (June 24, 1994) through September 30, 1994, and does not
purport to represent the results of operations as if Trident
International, Inc.'s acquisition of the Predecessor (the "1994
Acquisition") occurred on September 30, 1993. This information is
presented to provide more meaningful period to period comparisons. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company designs, manufactures and markets impulse ink jet subsystems,
including printheads, inks and other consumables, and related components for the
industrial market. The Company markets its products worldwide principally to
OEMs, who integrate the products into systems which are then sold to end-users
directly or via distributors. The largest market segment currently addressed by
the Company's products is that of printing onto shipping cartons. Other
industrial market segments in which the Company's products are currently being
utilized include check coding, addressing and imprinting business forms, postal
bar coding and stamp cancellation and plotting garment patterns.
The Predecessor was founded in 1989 as Trident, Inc. Shortly after its
incorporation, a majority interest in the Predecessor was purchased by JWA
through JWA's direct subsidiary, Porelon. At that time, the Predecessor also
obtained the Dataproducts License from Dataproducts Corporation, which gave the
Predecessor exclusive rights to a series of liquid ink jet technology patents
for use in the "industrial marking field." The technology covered by the
Dataproducts License is at the core of the Company's current line of industrial
printing subsystems. In December 1992, Porelon purchased the remaining minority
interests in the Predecessor and the Predecessor became a wholly-owned
subsidiary of Porelon.
On June 24, 1994, the Company acquired all of the capital stock of the
Predecessor (the 1994 Acquisition). The aggregate cash consideration paid by the
Company in the 1994 Acquisition was approximately $19.9 million, including $1.0
million for a consulting agreement. The 1994 Acquisition has been accounted for
as a purchase and, accordingly, the total consideration has been allocated to
the assets acquired and liabilities assumed based on their estimated fair value
at the date of the 1994 Acquisition. The excess of the purchase price over the
fair value of the net assets acquired ($13.9 million) is being amortized over 20
years. Periodically, the Company evaluates the realizability of this asset based
upon expectations of undiscounted cash flows and operating income. Based upon
its most recent analysis, the Company believes that no impairment of the current
net book value of this asset exists. The $1.0 million payment made by the
Company under the consulting agreement was being amortized. The services
provided under the consulting agreement largely related to transition services
in connection with the establishment of stand-alone operations and assistance in
preparation for an initial public offering. Other long -term assets acquired in
the 1994 Acquisition are being depreciated over their respective useful lives of
5 years. See Note 1 of "Notes to Consolidated Financial Statements."
In February 1996, the Company completed the initial public offering of its
common stock which provided proceeds, after underwriting discounts and
commissions, of $28.3 million. The Company incurred certain significant charges
relating to the 1994 Acquisition from the beginning of fiscal year 1996 through
the consummation of the Offering. The Company incurred charges of $4.2 million,
net of related income tax benefits, comprised of $2.1 million of recurring
charges which were expensed through consummation of the offering and did not
recur thereafter, and $2.1 million of extraordinary or non-recurring charges
which were expensed at the closing of the Offering. The Company used
approximately $10.8 million to repay the outstanding indebtedness under its
credit facility and $4.5 million to retire all of the $5.0 million in principal
amount of the zero coupon notes issued by the Company for $1.9 million in
connection with the 1994 Acquisition. The remaining net proceeds will be used
for working capital and general corporate purposes. As a result of the offering,
the Company incurred extraordinary charges to earning for approximately $2.2
million of unamortized original issue discount and approximately $898,000 of
unamortized financing costs relating to the Credit Facility and the Notes. The
Company also recognized a non-recurring charge of approximately $438,000,
representing the unamortized portion of the cost of the Consulting Agreement as
of the Offering date, which was terminated at the time of the Offering.
Collectively, these items resulted in extraordinary or non-recurring charges to
earnings of approximately $2.1 million, net of related income tax benefits, at
the time of the Offering.
In March 1996, the Company acquired from Dataproducts Corporation a
non-exclusive license for patented solid ink jet printing technology in certain
licensed industrial marking fields. This agreement allows the Company to use
these patents in the development of its own solid ink printhead. The Company
recorded a charge of $3.1 million during fiscal 1996 as a write-off of purchased
in-process research and development to record the cost of evaluating and
acquiring this
13
<PAGE> 14
license. The Company intends to continue to evaluate potential acquisitions and
licenses of new technologies.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of net
revenues for the years ended September 30, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
-------- THE COMPANY
12 MONTHS -------------------------
ENDED FISCAL YEARS
SEPTEMBER 30, -------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales ..................................... 100.0% 100.0% 100.0%
Cost of sales ................................. 46.9 38.1 36.2
----- ----- -----
Gross profit .................................. 53.1 61.9 63.8
----- ----- -----
Operating expenses:
Marketing and selling .................... 5.6 5.3 5.4
Research and development ................. 8.6 7.6 9.0
Write-off of purchased in-process research
and development .......................... -- -- 11.8
General and administrative ............... 9.1 9.1 9.3
Amortization of intangibles .............. 3.9 4.6 3.1
Amortization of deferred compensation .... -- 6.8 1.7
----- ----- -----
Total operating expenses ...................... 27.2 33.4 40.3
----- ----- -----
Operating income .............................. 25.9 28.5 23.5
Interest (income) expense, net ................ 3.9 10.7 0.9
Redeemable warrant interest charge ............ -- 26.3 6.6
----- ----- -----
Income (loss) before income taxes ............. 22.0 (8.5) 16.0
Provision for income taxes .................... 10.2 11.3 10.6
----- ----- -----
Net income (loss) before extraordinary item ... 11.8 (19.8) 5.4
Extraordinary item ............................ -- -- (7.0)
----- ----- -----
Net income (loss) ............................. 11.8% (19.8)% (1.6)%
===== ===== =====
</TABLE>
Fiscal 1996 Compared to Fiscal 1995.
Net Sales. Net sales increased $8.6 million, or 50% to $25.9 million in
Fiscal 1996 from $17.3 million in Fiscal 1995. Approximately $5.1 million of the
increase in net sales was due to higher printhead unit volumes, particularly to
carton coding customers, and a 4.2% increase in average selling price per
printhead unit. Increased sales of the Ultrajet 256/32 printhead, as well as
sales of existing models accounted for the Fiscal 1996 printhead unit volume
increase. The increase in average selling price per printhead unit in Fiscal
1996 was attributable to an increase in the percentage of higher priced, newer
model printheads sold, such as the Ultrajet 192/32 and Ultrajet 256/32, to meet
the carton coding market's continuing needs for products with improved print
height capabilities. Sales of ink products increased 50% in Fiscal 1996 as
compared to Fiscal 1995 due to increased unit volumes of ink as the installed
base of printheads expanded during the year. Net sales to international
customers increased by $2.7 million, or 53%, in Fiscal 1996.
Gross Profit. Gross profit increased by $5.8 million , or 54%, to $16.5
million in Fiscal 1996 from $10.7 million in Fiscal 1995. Gross profit as a
percentage of net sales increased from 61.9% in Fiscal 1995 to 63.8% in Fiscal
1996. The increase in gross profit as a percentage of sales was due to increased
average selling prices of the Company's printhead products and lower printhead
and ink costs.
14
<PAGE> 15
Marketing and Selling Expenses. Marketing and selling expenses increased
$503,000, or 55% to $1.4 million in Fiscal 1996 from $912,000 in Fiscal 1995 due
to an increase in personnel and associated travel expense and marketing
literature. As a percentage of net sales, these expenses increased to 5.4% in
Fiscal 1996 from 5.3% in Fiscal 1995. The Company believes that marketing and
selling expenses will increase in both dollar terms and as a percentage of net
sales as the Company introduces new products, opens new markets and increases
end user awareness.
Research and Development Expenses. Research and development expenses
increased $1.0 million, or 77%, to $2.3 million in Fiscal 1996 from $1.3 million
in Fiscal 1995. As a percentage of net sales, these expenses increased to 9.0%
in Fiscal 1996 from 7.6% in Fiscal 1995 due to the increases in engineering and
research and development spending to develop new technologies and products.
Research and development expenses were 10.7% for the three months ended
September 30, 1996 and the Company expects that the Company will continue to
make research and development expenditures at this level for the foreseeable
future.
Write-off of Purchased In-Process Research and Development. In March 1996,
the Company acquired from Dataproducts Corporation a non-exclusive license for
patented solid ink jet printhead technology in certain licensed industrial
marking fields. This agreement allows the Company to use these patents in the
development and commercialization of its own solid ink printhead. The Company
recorded a charge of approximately $3.1 million during Fiscal 1996 as a
write-off of purchased in process research and development to record the cost of
evaluating and acquiring this license. There was no similar expenses in the year
ended September 30, 1995.
General and Administrative Expenses. General and administrative expenses
increased $825,000, or 52%, to $2.4 million in Fiscal 1996 from $1.6 million in
Fiscal 1995. The increase in general and administrative expenses was due
principally to the write-off of a consulting agreement in the amount of $438,000
and additions of accounting and administrative personnel. As a percentage of net
sales, these expenses increased to 9.3% for Fiscal 1996 from 9.1% for Fiscal
1995. If the write-off of the consulting agreement had not occurred, these
expenses would have decreased to 7.6% of net sales for Fiscal 1996 due to the
increase in net sales without a corresponding increase in general and
administrative expenses.
Amortization of Intangibles and Amortization of Deferred Compensation.
Amortization of the excess of purchase price over the fair value of net assets
acquired and other intangibles of $800,000 and $802,000, respectively, did not
vary in amount for Fiscal 1996 as compared to Fiscal 1995. Amortization of
deferred compensation decreased by $740,000 or 62.6% to $443,000 for Fiscal 1996
because deferred compensation expense was fully amortized effective February,
1996.
Interest Expense, net. Interest expense, net decreased $1.6 million to
$241,000 in Fiscal 1996 from $1.8 million in Fiscal 1995 due to the repayment of
debt with the proceeds from the initial public offering and increases in
interest income.
Redeemable Warrant Interest Charge. During Fiscal 1995, the Company expensed
$4.6 million as redeemable warrant interest charges. This expense is associated
with the accretion in value of the NationsCredit Warrant. Redeemable warrant
interest charge decreased by $2.9 million, or 63% to $1.7 million for Fiscal
1996 because the redeemable warrants were fully accreted as of February, 1996.
(See Note 12 of "Notes to Consolidated Financial Statements").
Provision for Income Taxes. The provision for income taxes for Fiscal 1996
was $2.8 million on income before income taxes of $4.1 million. The effective
tax rate for Fiscal 1996 differed from the statutory rate principally due to the
non-deductibility of the redeemable warrant interest charge, amortization of
deferred compensation and amortization costs related to excess of purchase price
over fair value of net assets acquired. The Company anticipates that it's
effective tax rate may decrease as a result of reductions in state income taxes
and the elimination of certain non-deductible items.
Extraordinary Item. In connection with the initial public offering, the
Company expensed approximately $2.2 million of unamortized original issue
discount upon prepayment of certain zero coupon notes issued in the 1994
transaction and approximately $898,000 of unamortized deferred financing cost.
The extraordinary item represents the write-off of these items less a related
income tax benefit of approximately $1.3 million.
Fiscal 1995 Compared to Combined 1994.
For comparison purposes, Combined 1994 represents combined data of the
Predecessor for the period from October 1, 1993 to June 23, 1994, the date of
the 1994 Acquisition, and of the Company for the period from June 24, 1994 to
September 30, 1994. This information is presented to provide more meaningful
period to period comparisons.
15
<PAGE> 16
Net Sales. Net sales increased $4.8 million, or 39%, to $17.3 million in
Fiscal 1995 from $12.5 million in Combined 1994. Approximately $2.5 million of
the increase in net sales was due to higher printhead unit volumes, particularly
to carton coding customers, and a 7.4% increase in average selling price per
printhead unit. The introduction of the Ultrajet 256/32 printhead and a
printhead model for the AllWrite ink, as well as increased sales of existing
models accounted for the Fiscal 1995 printhead unit volume increase. The
increase in average selling price per printhead unit in Fiscal 1995 was
attributable to demands from carton coding OEMs for higher priced, newer model
printheads such as the Ultrajet 192/32 and Ultrajet 256/32 with improved print
height capabilities. The remaining increase in net sales in Fiscal 1995 was
attributable to increased unit volumes of ink as the installed base of
printheads expanded during the year. Net sales to international customers
increased by $1.6 million, or 46%, in Fiscal 1995.
Gross Profit. Gross profit increased $4.1 million, or 62%, to $10.7 million
in Fiscal 1995 from $6.6 million in Combined 1994. Gross profit as a percentage
of net sales increased from 53.1% in Combined 1994 to 61.9% in Fiscal 1995. The
increase in gross profit as a percentage of net sales was due principally to
increased prices on the Company's printhead products. Lower printhead costs also
contributed to the margin improvement in Fiscal 1995. Implementation of work
cell and just-in-time concepts in the printhead production process improved
production yields and efficiencies resulting in average cost reductions as
compared to Combined 1994. Gross profit in Combined 1994 included a $362,000
charge to cost of sales, equivalent to 2.9% of net sales, for the inventory
step-up to fair market value recorded in connection with the 1994 Acquisition.
Marketing and Selling Expenses. Marketing and selling expenses increased
$211,000, or 30%, to $912,000 in Fiscal 1995 from $701,000 in Combined 1994, but
decreased as a percentage of net sales to 5.3% in Fiscal 1995 from 5.6% in
Combined 1994 as a result of increased net sales.
Research and Development Expenses. Research and development expenses
increased $239,000, or 22%, to $1.3 million in Fiscal 1995 from $1.1 million in
Combined 1994, but decreased as a percentage of sales to 7.6% in Fiscal 1995
from 8.6% in Combined 1994 due to the increase in net sales.
General and Administrative Expenses. General and administrative expenses
increased $443,000, or 39%, to $1.6 million in Fiscal 1995 from $1.1 million in
Combined 1994, but remained virtually unchanged as a percentage of net sales at
9.1%. The Company was amortizing over three years the cost of the $1.0 million
Consulting Agreement it entered into with JWA in connection with the 1994
Acquisition as a charge to general and administrative expense. Approximately
$244,000 of the increase in general and administrative expenses resulted from a
full year of amortization of the Consulting Agreement in Fiscal 1995.
Amortization of Intangibles. Amortization of intangibles increased $316,000,
or 65%, to $802,000 in Fiscal 1995 from $486,000 in Combined 1994 principally
due to a full year of amortization expense related to the excess of purchase
price over the fair value of net assets acquired in connection with the 1994
Acquisition.
Amortization of Deferred Compensation. In connection with the 1994
Acquisition, the Stockholders' Warrant to purchase up to 235,192 shares of
Common Stock was issued on a pro rata basis to all of the Company's Common
Stockholders of record. A portion of the Stockholders' Warrant to purchase up to
108,400 shares was issued to certain members of management and directors of the
Company. In Fiscal 1995, the Company recorded deferred compensation expense for
the difference between the exercise price on the date of issuance and the
estimated fair value of the Stockholders' Warrant at the expected date of the
Offering. This amount was amortized over the period commencing October 1, 1994
through the anticipated date of consummation of the Offering. Deferred
compensation expense recognized during Fiscal 1995 was $1.2 million.
Interest Expense, net. Interest expense increased $1.4 million to $1.8
million in Fiscal 1995 from $482,000 in Combined 1994 primarily due to the full
year of interest charges related to the increased debt level from the 1994
Acquisition.
Redeemable Warrant Interest Charge. During Fiscal 1995, the Company expensed
$4.6 million as redeemable warrant interest charges. This expense is associated
with the accretion in value of the NationsCredit Warrant. (See Note 12 of Notes
to Consolidated Financial Statements.) There were no similar expenses incurred
in Combined 1994.
Provision for Income Taxes. The provision for income taxes for Fiscal 1995
was $2.0 million on a net loss before taxes of $1.5 million. This effective tax
rate was due principally to the non-deductibility of the redeemable warrant
interest charges, amortization of deferred compensation and amortization costs
related to excess of purchase price over fair value of net assets acquired. The
effective tax rate of 46% for Combined 1994 was significantly lower than the
rate for Fiscal 1995 due to the absence of significant non-deductible charges in
Combined 1994.
16
<PAGE> 17
Business Environment and Future Results.
The industrial printing industry is highly competitive and the Company
believes it will need to continue to develop new products and applications in
order to remain competitive. Several of the Company's competitors are larger and
have greater financial, research and development, marketing and other resources
than the Company. For example, Nu-Kote Holdings, Inc. released a piezoelectric
printhead intended for use in industrial printing and other applications. No
assurance can be given that the Company will be able to compete successfully
against current or future competitors or that the competitive pressures faced by
the Company will not adversely affect its results of operations. The Company is
aware that manufacturers of certain ink products are claiming that their inks
could be utilized with certain of the Company's impulse ink jet printheads.
Although the use of such other inks will void the Company's warranties on its
printheads, and could, in the Company's judgement, result in inferior
performance and permanent damage to its printheads, there can be no assurance
that the introduction and sale of such other inks will not have a material
adverse effect on the Company's financial condition or results of operation or
that end users will continue to purchase their ink requirements from the
Company.
The markets for the Company's products are characterized by changing
technology, evolving industry standards and changing customer needs. The
Company's future success will depend in part on its ability to enhance its
current products and to develop new products on a timely and cost-effective
basis in order to respond to technological developments and changing customer
needs. There can be no assurance that the Company will be successful in
developing new products or enhancing its existing products on a timely or
cost-effective basis.
New products could also have the effect of decreasing customer demand for
the Company's current products. Although the Company historically has not
experienced any material adverse impact on its business attributable to delays
in the introduction of new products, there can be no assurance that delays will
not occur in the future. The Company expects a component of its growth strategy
to be the acquisition of new technologies, whether through entering into
licensing arrangements, acquiring businesses owning desirable technology, or
otherwise. An example of this is the new solid ink jet printing technology.
There can be no assurance that the Company's investments in new technologies,
including solid ink, will lead to the successful development of new products.
The Company's net sales are dependent upon the ability of its OEM customers
to develop and sell products that incorporate the Company's impulse ink jet
products. Factors such as economic conditions, inventory position, limited
marketing resources and other factors affecting these OEM customers could have a
substantial impact upon the Company's financial results. No assurances can be
given that the Company's OEM customers will not experience financial or other
difficulties that could adversely affect their operations and, in turn, the
results of operations of the Company.
For the year ended September 30, 1996, approximately 79% of the Company's
net sales were to its top ten OEM customers, while approximately 22%, 13% and
12% of the Company's net sales for this period were to three OEM customers,
Marsh Company, Foxjet, Inc., and BancTec, Inc., respectively. A significant
diminution in the sales to or loss of any of the Company's major customers would
have a material adverse effect on the Company's results of operations.
For the year ended September 30, 1996, approximately 68% of the Company's
net sales were derived from carton coding and the Company anticipates that
carton coding will continue to account for a substantial portion of the
Company's total net sales. A reduction in demand for carton coding systems would
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company's annual and quarterly operating results may fluctuate due to
factors such as the timing of new product announcements and introduction by the
Company and its competitors, market acceptance of new or enhanced versions of
the Company's products, changes in product mix, changes in manufacturing costs
or other expenses, competitive pricing pressures, the gain or loss of
significant customers, increased research and development expenses and general
economic conditions.
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in the Company's operating
results, shortfalls in such operating results from levels forecast by securities
analysts and other events or factors. In addition, the stock market has, from
time to time, experienced extreme price and volume fluctuations that have often
been unrelated to the operating performance of the affected companies.
In connection with the consummation of the Company's initial public offering
in February, 1996, the Company paid down all of its indebtedness and fully
amortized a number of expenses incurred in connection with the 1994 Acquisition.
As a result, period to period comparisons involving periods through March 31,
1996 may not necessarily be meaningful or indicative of trends in operating
results.
17
<PAGE> 18
Liquidity and Capital Resources. The Company liquidity was materially
improved during Fiscal 1996 as a result of the completion of the initial public
offering of its common stock. Partially offsetting this improvement was a cash
requirement of approximately $3.1 million for the purchase of a nonexclusive
license for patented solid ink jet printing technology. At September 30, 1996,
the Company had working capital of $21.1 million compared to $3.2 million at
September 30, 1995. At September 30, 1996, the Company has cash and temporary
cash investments of $17.3 million. The Company also has a line of credit with
Fleet Bank which allows them to borrow up to $1,000,000. There were no
borrowings under this line at September 30, 1996.
The Company's long-term capital requirements will depend on numerous factors
including the rate at which the Company identifies, evaluates and acquires new
technologies, whether through entering into licensing arrangements or acquiring
businesses, the timing of the expansion of the Company's facilities and the
purchase of additional factory automation equipment. The Company believes the
proceeds of the initial public offering, together with amounts available from
cash generated by its operating activities, will be adequate to meet the
Company's anticipated needs for working capital and capital expenditures through
at least the next 12 months.
Effect of Recent Accounting Pronouncements. In March 1995, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," which established criteria for the
recognition and measurement of impairment loss associated with long-lived
assets. The Company will be required to adopt this standard in fiscal year 1997.
Based on the Company's initial evaluation, adoption is not expected to have a
material impact on the Company's financial position or results of operations.
The Company plans to adopt SFAS No. 123, "Accounting for Stock-Based
Compensation" in fiscal 1997. SFAS No. 123 was issued by the Financial
Accounting Standards Board in October 1995 and allows companies to choose
whether to account for stock-based compensation on a fair value method or to
continue to account for stock-based compensation under the current intrinsic
value method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued
to Employees". Entities electing to remain with the accounting in APB Opinion
No. 25 must make proforma disclosures of net income, as if the fair value based
method of accounting defined in the statement had been applied. The Company
plans to continue to follow the provisions of APB No. 25. Therefore, management
of the Company believes that the impact of adoption will not have a significant
effect on the Company's financial position or results of operations.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and notes there to are included elsewhere
in the report on Form 10-K as follows:
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................................... F-1
Consolidated Balance Sheets at September 30, 1995 and 1996............................................. F-2
Consolidated Statements of Operations for the period October 1, 1993 to June 23, 1994
(Predecessor), for the period June 24, 1994 to September 30, 1994 and for the two years
ended September 30, 1995 and 1996.................................................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the Period from October 1, 1993
to September 30, 1996................................................................................ F-4
Consolidated Statements of Cash Flows for the period October 1, 1993 to June
23, 1994 (Predecessor), for the period June 24, 1994 to September 30, 1994
and for the two years ended September 30, 1995 and 1996.............................................. F-5
Notes to Consolidated Financial Statements............................................................. F-6
Financial Statement Schedules:
Report of Independent Public Accountants on Financial Statement Schedule............................... F-16
Schedule II - Valuation and Qualifying Accounts........................................................ F-17
</TABLE>
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the financial statements or notes
thereto.
ITEM 9: CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable
18
<PAGE> 19
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 of Form 10-K with respect to
identification of directors is incorporated by reference to the information
contained in Trident's definitive Proxy Statement for the Company's 1997 Annual
Meeting of Stockholders (the "Proxy Statement"), to be filed with the Securities
and Exchange Commission. For information with respect to the executive officers
of the Registrant, see "Executive Officers of the Registrant" at the end of Part
I of this report.
ITEM 11: EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by
reference to such information contained in the Proxy Statement.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by
reference to such information contained in the in the Proxy Statement.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by
reference to the information contained in such Proxy Statement.
19
<PAGE> 20
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements - See Item 8 of Part II.
(2) Financial Statement Schedule - See Item 8 of Part II.
(3) Exhibits - See Exhibit Index at page 21 of this Form 10-K.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter ended September 30, 1996.
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1 Third Amended and Restated Certificate of Incorporation of Trident International, Inc. (incorporated
herein by reference to the Company's quarterly report on Form 10-Q for the three months ended March 31,
1996 (Form 10-Q))
3.2 Form of Amended and Restated By-laws of Trident International, Inc. (incorporated herein by
reference to the Company's quarterly report on Form 10-Q)
4.1 Specimen certificate for shares of Common Stock, $.01 par value of the Company (incorporated herein
by reference to the Registration Statement)
4.2 Warrant to Purchase 235,192 Shares of Common Stock of the Company
dated as of June 24, 1994 (incorporated herein by reference to the
Registration Statement)
4.3 Registration Rights Agreement by and among Trident Holding Corp., the
Management Investors, the Brean Murray Investors, the West Point
Investors, the TA Investors, and Nations Financial Capital Corporation
dated June 24, 1994 (incorporated herein by reference to the
Registration Statement)
10.1 Employment Agreement between the Company and Elaine A. Pullen dated as of
August 22, 1994 (incorporated herein by reference to the Registration Statement)
10.2 Consulting Agreement between the Company and R. Hugh van Brimer dated as of
July 1, 1996
10.3 Stock Purchase and Restriction Agreement by and between the Company and Elaine A.
Pullen dated as of October 27, 1994 (incorporated herein by reference to the Registration Statement)
10.4 Memorandum of Understanding by and between Trident, Inc. and Micropore, Inc.
dated as of May 24, 1994 (incorporated herein by reference to the Registration Statement)
10.5 License Agreement by and between Dataproducts Corporation and Trident, Inc. dated
as of March 17, 1989 (incorporated herein by reference to the Registration Statement)
10.6 Letter Amendment by and between Dataproducts Corporation dn Trident , Inc. dates
as of January 5, 1994 (incorporated herein by reference to the Registration Statement)
10.7 Amendment to License Agreement by and between Dataproducts Corporation and
Trident, Inc. dated as of March 17, 1989, effective as of December 1, 1992
(incorporated herein by reference to the Registration Statement)
10.8 Lease by and between Oskar G. Rogg and Trident, Inc. for premises at 1114 Federal
Road, Brookfield, Connecticut dated as of May 23, 1995 (incorporated herein
by reference to the Registration Statement)
10.9 Lease by and between Oskar G. Rogg and Trident, Inc. for premises at 1112 Federal
Road, Brookfield, Connecticut dated as of May 23, 1995 (incorporated herein by reference
to the Registration Statement)
10.10 Form of Amended and Restated 1994 Stock Option and Grant Plan
(incorporated herein by reference to the Company's quarterly report on
Form 10-Q)
10.11 Sales and License Agreement between Marsh Company and Trident, Inc. dated as of
July 28, 1993 (incorporated herein by reference to the Registration Statement)
10.12 Sales and License Agreement between Foxjet, Inc. and Trident, Inc. dated as of February
20, 1991 (incorporated herein by reference to the Registration Statement)
10.13 Ink Jet Printer OEM Kit Agreement between BancTec, Inc. and Dataproducts, Corp. as
assigned to Trident, Inc. on March 17, 1989 (incorporated herein by reference to the
Registration Statement)
*10.14 Arrangements for the Purchase and Supply of Inks with Porelon Group
dated August 7, 1996
10.15 Patent License Agreement dated March 15, 1996 between
the Company and Dataproducts Corporation (incorporated herein by reference to the
Company's quarterly report on Form 10-Q)
21.1 Schedule of Subsidiaries of Registrant (incorporated herein by reference to the Registration
Statement)
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
* Confidential treatment requested.
</TABLE>
21
<PAGE> 22
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.
Trident International, Inc.
(Registrant)
Dated: December 20, 1996 By: /s/ Elaine A. Pullen
............................ ....................................
Elaine A. Pullen
President & Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ R. Hugh Van Brimer Director and December 20, 1996
_____________________________ Chairman of the Board
(R. Hugh Van Brimer)
/s/ Elaine A. Pullen President, December 20, 1996
_____________________________ Chief Executive Officer
(Elaine A. Pullen) and Director
(Principal Executive Officer)
/s/ J. Leo Gagne Vice President December 20, 1996
_____________________________ and Chief Financial Officer
(J. Leo Gagne) (Principal Financial and
Accounting Officer)
/s/ Robert S. Anderson Director December 20, 1996
_____________________________
(Robert S. Anderson)
/s/ Russell Greenberg Director December 20, 1996
_____________________________
(Russell Greenberg)
/s/ Bruce Johnston Director December 20, 1996
_____________________________
(Bruce Johnston)
/s/ Norman Norris Director December 20, 1996
_____________________________
(Norman Norris)
/s/ Michael K. Lorelli Director December 20, 1996
_____________________________
(Michael K. Lorelli)
</TABLE>
22
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Trident International, Inc.:
We have audited the accompanying consolidated balance sheets of Trident
International, Inc. (a Delaware corporation) and subsidiaries as of September
30, 1995 and 1996 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the periods from October 1,
1993 to June 23, 1994 (the Predecessor Period) and for the period from June 24,
1994 to September 30, 1994 and the years ended September 30, 1995 and 1996 (the
Successor Periods). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 Trident
International, Inc. and subsidiaries as of September 30, 1995 and 1996, and the
consolidated results of their operations and their cash flows for the
Predecessor Period and Successor Periods, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Hartford, Connecticut
October 25, 1996
F-1
<PAGE> 24
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1995 1996
---- ----
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents ...................................................... $ 2,988 $ 17,349
Accounts Receivable, Net of Allowance for Doubtful Accounts of $220,000
in 1995 and $300,000 at September 30, 1996 ................................... 2,929 3,915
Inventories .................................................................... 1,049 1,563
Deferred Income Taxes .......................................................... 285 431
Other Current Assets ........................................................... 95 167
-------- --------
Total Current Assets ..................................................... 7,346 23,425
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, Net ........................................ 876 1,443
DEFERRED INCOME TAXES ............................................................ -- 919
INTANGIBLE ASSETS, Net of Accumulated Amortization of $1,714
In 1995 and $1,824 in 1996 ..................................................... 14,911 12,544
-------- --------
$ 23,133 $ 38,331
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Long-Term Debt .............................................. $ 2,620 $ --
Accounts Payable ............................................................... 584 999
Accrued Expenses ............................................................... 795 1,101
Income Taxes Payable ........................................................... 115 269
-------- --------
Total Current Liabilities ................................................ 4,114 2,369
-------- --------
LONG-TERM DEBT, Less Current Portion Included Above .............................. 12,361 --
-------- --------
DEFERRED INCOME TAXES ............................................................ 97 --
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 16)
REDEEMABLE COMMON STOCK WARRANTS ................................................. 4,561 --
-------- --------
SERIES A REDEEMABLE CONVERTIBLE PARTICIPATING PREFERRED STOCK, $.01 Par
Value; 307,317 Shares Authorized, Issued and Outstanding at September 30, 1995 . 3,311 --
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock, $.01 Par Value; 30,000,000 Shares Authorized; 7,010,234 Shares
Issued and Outstanding at September 30, 1996 ................................. -- 70
Class A Voting Common Stock, $.01 Par Value; 7,000,000 Shares
Authorized; 1,560,000 Shares Issued and Outstanding at September 30, 1995 .... 16 --
Additional Paid-In Capital ..................................................... 2,786 40,059
Deferred Compensation .......................................................... (443) --
Retained Earnings (Deficit) .................................................... (3,670) (4,167)
-------- --------
Total Stockholders' Equity (Deficit) ..................................... (1,311) 35,962
-------- --------
$ 23,133 $ 38,331
======== ========
</TABLE>
F-2
<PAGE> 25
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- -----------------
PERIOD FROM PERIOD FROM YEARS ENDED
OCTOBER 1, 1993 JUNE 24, 1994 SEPTEMBER 30,
TO TO -----------------------------
JUNE 23, 1994 SEPTEMBER 30, 1994 1995 1996
------------- ------------------ ---- ----
<S> <C> <C> <C> <C>
NET SALES ................................. $ 8,792 $ 3,701 $ 17,330 $ 25,925
COST OF SALES ............................. 4,008 1,845 6,604 9,392
----------- ----------- ----------- --------
Gross Profit ........................ 4,784 1,856 10,726 16,533
----------- ----------- ----------- --------
OPERATING EXPENSES:
Marketing and Selling ............... 512 189 912 1,415
Research and Development ............ 747 331 1,317 2,326
Write-Off of Purchased In-
Process Research and
Development ....................... -- -- -- 3,052
General and Administrative .......... 763 374 1,580 2,405
Amortization of Excess of
Purchase Price Over the Fair
Value of Net Assets Acquired
and Other Intangibles ............. 267 219 802 800
Amortization of Deferred
Compensation ...................... -- -- 1,183 443
----------- ----------- ----------- --------
Total Operating Expenses ...... 2,289 1,113 5,794 10,441
----------- ----------- ----------- --------
Operating Income .............. 2,495 743 4,932 6,092
OTHER (INCOME) EXPENSE:
Interest (Income) Expense, Net ...... (8) 490 1,845 241
Redeemable Warrant Interest
Charge .............................. -- -- 4,561 1,710
----------- ----------- ----------- --------
Income (Loss) Before Income Taxes
and Extraordinary Item .......... 2,503 253 (1,474) 4,141
PROVISION FOR INCOME
TAXES ................................... 1,033 247 1,965 2,752
----------- ----------- ----------- --------
Net Income (Loss) Before
Extraordinary Item .............. 1,470 6 (3,439) 1,389
EXTRAORDINARY ITEM, Net
of Income Tax Benefit of $1,253 ......... -- -- -- (1,803)
----------- ----------- ----------- --------
NET INCOME (LOSS) ......................... $ 1,470 6 (3,439) (414)
===========
INCREASE IN
REDEMPTION VALUE OF
PREFERRED STOCK ......................... (50) (187) (83)
----------- ----------- --------
LOSS APPLICABLE TO
COMMON STOCKHOLDERS ..................... $ (44) $ (3,626) $ (497)
=========== =========== =========
NET INCOME (LOSS) PER
COMMON SHARE:
Net Income (Loss) Before
Extraordinary Item .................. $ (0.03) $ (2.26) $ 0.26
Extraordinary Item, Net of Tax ...... -- -- (0.36)
----------- ----------- ---------
Net Income (Loss) ................... $ (0.03) $ (2.26) $ (0.10)
=========== =========== =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING ...................... 1,548,000 1,603,562 5,030,112
=========== =========== =========
</TABLE>
F-3
<PAGE> 26
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(000'S OMITTED, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A COMMON
COMMON STOCK STOCK OF THE SUCCESSOR COMMON STOCK
OF THE $.01 PAR VALUE OF THE
PREDECESSOR COMMON STOCK SUCCESSOR
----------- ------------ ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR:
BALANCE, October 1, 1993 ......... 12,000 $ -- -- $ -- -- $--
Net Income ..................... -- -- -- -- -- --
------ ---- ---------- ---- --------- ---
BALANCE, June 23, 1994 ........... 12,000 $ -- -- $ -- -- --
====== ==== ========== ==== ========= ===
SUCCESSOR:
Issuance of Common Stock in
Connection With the
Acquisition, Net of Issuance
Cost of $384,312 ............. -- $ -- 1,500,000 $ 15 -- $--
Net Income ..................... -- -- -- -- -- --
Increase in Redemption Value
of Preferred Stock ........... -- -- -- -- -- --
------ ---- ---------- ---- --------- ---
BALANCE September 30, 1994 ....... -- -- 1,500,000 15 -- --
Net Loss ....................... -- -- -- -- -- --
Issuance of Common Stock ....... -- -- 60,000 1 -- --
Increase in Redemption Value
of Preferred Stock ........... -- -- -- -- -- --
Deferred Compensation Associated
with Issuance of Contingent
Warrants ..................... -- -- -- -- -- --
Amortization of Deferred
Compensation ................. -- -- -- -- -- --
------ ---- ---------- ---- --------- ---
BALANCE, September 30, 1995 ..... -- -- 1,560,000 16 -- --
Net Loss ....................... -- -- -- -- -- --
Conversion of Class A Common
Stock to Common Stock ........ -- -- (1,560,000) (16) 1,560,000 16
Issuance of Common Stock ....... -- -- -- -- 1,900,000 19
Payment of Offering Costs ...... -- -- -- -- -- --
Exercise of Warrants and Options -- -- -- -- 477,064 4
Conversion of Preferred Stock
to Common Stock .............. -- -- -- -- 3,073,170 31
Conversion of Redeemable
Common Stock Warrants to
Stockholders' Equity ......... -- -- -- -- -- --
Increase in Redemption Value of
Preferred Stock .............. -- -- -- -- -- --
Amortization of Deferred
Compensation ................. -- -- -- -- -- --
------ ---- ---------- ---- --------- ---
BALANCE, September 30 1996 ....... -- $ -- -- $ -- 7,010,234 $70
====== ==== ========== ==== ========= ===
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
PAID-IN DEFERRED EARNINGS
CAPITAL COMPENSATION (DEFICIT) TOTAL
------- ------------ --------- -----
<S> <C> <C> <C> <C>
PREDECESSOR:
BALANCE, October 1, 1993 ......... $ 9,711 $ -- $ 679 $ 10,390
Net Income ..................... -- -- 1,470 1,470
-------- ------- ------- --------
BALANCE, June 23, 1994 ........... $ 9,711 $ -- $ 2,149 $ 11,860
======== ======= ======= ========
SUCCESSOR:
Issuance of Common Stock in
Connection with the
Acquisition, Net of Issuance
Cost of $384,312 ............. $ 1,101 $ -- $ -- $ 1,116
Net Income ..................... -- -- 6 6
Increase in Redemption Value
of Preferred Stock ........... -- -- (50) (50)
-------- ------- ------- --------
BALANCE September 30, 1994 ....... 1,101 -- (44) 1,072
Net Loss ....................... -- -- (3,439) (3,439)
Issuance of Common Stock ....... 59 -- -- 60
Increase in Redemption Value
of Preferred Stock ........... -- -- (187) (187)
Deferred Compensation Associated
with Issuance of Contingent
Warrants ..................... 1,626 (1,626) -- --
Amortization of Deferred
Compensation ................. -- 1,183 -- 1,183
-------- ------- ------- --------
BALANCE, September 30, 1995 ..... 2,786 (443) (3,670) (1,311)
Net Loss ....................... -- -- (414) (414)
Conversion of Class A Common
Stock to Common Stock ........ -- -- -- --
Issuance of Common Stock ....... 28,245 -- -- 28,264
Payment of Offering Costs ...... (1,065) -- -- (1,065)
Exercise of Warrants and Options 459 -- -- 463
Conversion of Preferred Stock
to Common Stock .............. 3,363 -- -- 3,394
Conversion of Redeemable
Common Stock Warrants to
Stockholders' Equity ......... 6,271 -- -- 6,271
Increase in Redemption Value of
Preferred Stock .............. -- -- (83) (83)
Amortization of Deferred
Compensation ................. -- 443 -- 443
-------- ------- ------- --------
BALANCE, September 30 1996 ....... $ 40,059 $ -- $(4,167) $ 35,962
======== ======= ======= ========
</TABLE>
The Accompanying Notes Are an Integral Part of These
Consolidated Financial Statements.
F-4
<PAGE> 27
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
(NOTE 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- -------------------------------------------------
PERIOD FROM PERIOD FROM YEARS ENDED
OCTOBER 1, 1993 JUNE 24, 1994 SEPTEMBER 30,
TO TO -------------
JUNE 23, 1994 SEPTEMBER 30, 1994 1995 1996
------------- ------------------ ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .......................................... $ 1,470 $ 6 $(3,439) $ (414)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided By Operating Activities:
Depreciation and Amortization ............................ 456 411 1,542 1,315
Amortization of Deferred Compensation .................... -- -- 1,183 443
Extraordinary Item ....................................... -- -- -- 3,056
Write-Off of Consulting Agreement ........................ -- -- -- 438
Gain (Loss) on Sale of Fixed Assets ...................... (5) -- (2) --
Deferred Income Taxes .................................... (70) 3 (18) (1,162)
Accretion of Interest on Zero Coupon Notes ............... -- 61 243 108
Accretion of Redeemable Warrant Interest Charge .......... -- -- 4,561 1,710
Changes in Operating Assets and Liabilities:
Accounts Receivable ................................... (450) 136 (1,241) (986)
Due from Affiliates of Predecessor .................... (759) 243 -- --
Inventories ........................................... (254) 457 539 (514)
Other Current Assets .................................. (3) 12 (33) (72)
Accounts Payable, Accrued Expenses and Income
Taxes Payable ......................................... 92 32 509 875
------- -------- ------- --------
Net Cash Provided by Operating Activities .......... 477 1,361 3,844 4,797
------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Predecessor, Net of Cash Acquired ......... -- (19,349) -- --
Purchases of Leasehold Improvements and Equipment, Net ... (75) (52) (440) (848)
------- -------- ------- --------
Net Cash Used in Investing Activities .............. (75) (19,401) (440) (848)
------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Preferred Stock ................ -- 3,073 -- --
Proceeds from Issuance of Common Stock ................... -- 1,500 60 28,264
Payments of Offering Costs ............................... -- -- -- (1,065)
Exercise of Warrants and Stock Options ................... -- -- -- 463
Proceeds from Tranche A and B Senior Notes ............... -- 13,500 -- --
Repayments of Tranche A and B Senior Notes and
Zero Coupon Notes ...................................... -- -- (750) (17,250)
Proceeds from Line-of-Credit ............................. -- 1,094 -- --
Repayments on Line-of-Credit ............................. -- (850) (244) --
Proceeds from Issuance of Zero Coupon Notes .............. -- 1,927 -- --
Costs Related to Financing of Acquisition of Predecessor . -- (1,686) -- --
------- -------- ------- --------
Net Cash (Used In) Provided By Financing Activities -- 18,558 (934) 10,412
------- -------- ------- --------
INCREASE IN CASH ........................................... 402 518 2,470 14,361
CASH, Beginning of Period .................................. 187 -- 518 2,988
------- -------- ------- --------
CASH, End of Period ........................................ $ 589 $ 518 $ 2,988 $ 17,349
======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Paid During the Period for --
Interest ............................................... $ -- $ 259 $ 1,327 $ 3,120
Income Taxes ........................................... $ 788 $ 230 $ 1,927 $ 2,506
Non-Cash Transactions --
Increase in Redemption Value of Preferred Stock ....... $ -- $ 50 $ 187 $ 83
</TABLE>
The Accompanying Notes Are an Integral Part of These Consolidated
Financial Statements.
F-5
<PAGE> 28
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Business
Trident International, Inc. (the Company) designs, manufactures and markets
impulse ink jet subsystems, including printheads, inks and other consumables,
and related components for the industrial market. The Company markets its
products worldwide principally to original equipment manufacturers (OEMs), who
integrate the products and systems which are then sold to end-users directly or
via distributors. The largest market application currently addressed by the
Company's products is that of printing onto shipping cartons. Other industrial
applications for which the Company's products are currently being utilized
include check coding, addressing and imprinting business forms, postal bar
coding and stamp cancellation and plotting garment patterns.
Organization
In June 1994, Trident Holding Corp., a Delaware corporation, was formed for
the purpose of acquiring all of the capital stock of its predecessor Trident,
Inc., an unrelated Connecticut corporation. On June 24, 1994, Trident Investors
Corp., a Delaware corporation and a wholly-owned subsidiary of Trident Holding
Corp., purchased all of the outstanding stock of Trident, Inc. (the
Acquisition). Trident Investors Corp. then merged into Trident, Inc. with
Trident, Inc. becoming the surviving entity of the merger. As a result, Trident,
Inc. became a wholly-owned subsidiary of Trident Holding Corp. In January 1996,
Trident Holding Corp. changed its name to Trident International, Inc.
In February 1996, Trident International, Inc. completed its initial public
offering of its common stock which provided proceeds, after underwriting
discounts and commissions, of $28,264,000. The Company used approximately
$10,755,000 to repay the outstanding indebtedness under its credit facility and
$4,500,000 to retire all of the $5,000,000 in principal amount of the zero
coupon notes originally issued by the Company for $1,927,000 in connection with
the 1994 Acquisition. The remaining net proceeds will be used for working
capital and general corporate purposes.
The 1994 Acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the date of the Acquisition. The excess
of purchase price over the fair values of the net assets acquired is being
amortized over 20 years. The following table summarizes the allocation of the
cost of the Acquisition to the net assets acquired (000's omitted):
<TABLE>
<S> <C>
Cash .............................................................. $ 589
Accounts receivable ............................................... 1,824
Inventories ....................................................... 2,045
Property and equipment ............................................ 619
Excess of purchase price over the fair value of net assets acquired 13,945
Consulting agreement .............................................. 1,000
Other assets ...................................................... 923
Accounts payable and other current liabilities .................... (952)
Deferred income taxes, net ........................................ (55)
--------
$19,938
=======
</TABLE>
In connection with the Acquisition, the Company also entered into a 3-year
consulting agreement with its former parent, Johnson Worldwide Associates, Inc.
(JWA), for a cash payment of $1,000,000. This agreement required JWA to provide
the Company with certain transition services in connection with the
establishment of a stand-alone company and assistance related to preparation for
an initial public offering. The unamortized balance of this consulting agreement
of approximately $438,000 was charged to general and administrative expense in
February, 1996 upon the consummation of the initial public offering.
The Acquisition was financed by a senior credit facility and proceeds
obtained by the Company through the issuance of common stock, preferred stock
and zero coupon notes (see Notes 10, 11, and 12).
F-6
<PAGE> 29
The following summary unaudited pro forma condensed consolidated statement
of operations for the full fiscal year ended September 30, 1994, is presented as
though the Acquisition had occurred at the beginning of the fiscal year. The
unaudited pro forma information is provided for information purposes only. It is
based on historical information but does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the Company:
<TABLE>
<S> <C>
Net sales .............................................. $12,493,000
Net income ............................................. 204,000
Net income attributable to common stockholders ......... 67,000
Net income per common share ............................ $.01
Weighted average shares outstanding .................... 4,619,503
</TABLE>
The unaudited pro forma condensed consolidated statement of operations
reflects adjustments made for (1) the amortization of the excess of purchase
price over the fair value of assets acquired and other intangible assets related
to the Acquisition; (2) the interest expense related to the borrowings under the
senior credit facility and zero coupon notes used to finance a portion of the
purchase price and (3) the accretion of the Company's preferred stock to reflect
its redemption value. Weighted average shares outstanding used in the
calculation of pro forma net income per share include common stock equivalents
computed using the treasury stock method and assume the conversion of the
redeemable convertible participating preferred stock into common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the Company and
its wholly-owned subsidiaries, Trident, Inc. and Trident Overseas, F.S.C. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all investment instruments purchased with a maturity of three months
or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, under the first-in, first-out
(FIFO) method, or market and include materials, labor and manufacturing
overhead. The Company periodically evaluates the realizability of its
inventories and establishes a reserve for excess or obsolete inventories, as
necessary.
F-7
<PAGE> 30
Leasehold improvements and equipment
Leasehold improvements and equipment are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(000's OMITTED)
---------------
1995 1996
---- ----
<S> <C> <C>
Leasehold improvements ............... $ 190 $ 301
Machinery and equipment .............. 824 1,496
Furniture and fixtures ............... 100 165
------ ------
1,114 1,962
Less - Accumulated depreciation and
amortization ....................... 238 519
------ ------
$ 876 $1,443
====== ======
</TABLE>
Leasehold improvements and equipment are stated at cost less accumulated
depreciation and amortization. Expenditures for repairs and maintenance are
charged to expense as incurred. Depreciation and amortization are computed using
the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Leasehold improvements ................................... 6
Machinery and equipment .................................. 5 - 7
Furniture and fixtures ................................... 10
</TABLE>
Intangible assets
Intangible assets are stated at cost less accumulated amortization. The
excess of purchase price over fair value of net assets acquired is being
amortized on a straight-line basis over 20 years. Periodically, the Company
evaluates the realizability of this asset based upon expectations of
undiscounted cash flows and operating income. Based upon its most recent
analysis, the Company believes that no impairment of the excess of purchase
price over fair value of net assets acquired exists at September 30, 1996. Other
intangibles are amortized on a straight-line basis over their estimated useful
lives which are 5 years.
Revenue recognition
Revenue is recorded upon the shipment of products.
Research and development costs
The Company's research and development costs are charged to expense as
incurred.
Warranty Costs
The Company provides, by a current charge to operations, an amount it
estimates will be needed to cover future warranty obligations for products sold
during the applicable period. The related liability is included in accrued
expenses in the accompanying consolidated balance sheets.
F-8
<PAGE> 31
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
statement requires the Company to recognize deferred tax liabilities and assets
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities and
tax net operating loss carry forwards available for tax reporting purposes,
using applicable tax rates for the years in which the differences are expected
to reverse.
Net income (loss) per common share
Primary earnings (loss) per common share is determined by deducting the
increase in redemption value of redeemable convertible participating preferred
stock from net income (loss) of the Company. This amount is divided by the
weighted average number of common shares and dilutive common share equivalents
outstanding, except that pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins, common share equivalents issued at prices below the
anticipated public offering price during the twelve months immediately preceding
the initial public offering filing date have been included in the calculation as
if they were outstanding for all periods presented (using the treasury stock
method). Primary and fully diluted earnings (loss) per common share are
identical.
Effect of recent accounting pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which established criteria for the recognition and measurement of impairment
loss associated with long-lived assets. The Company will be required to adopt
this standard in fiscal 1997. Based on the Company's initial evaluation,
adoption is not expected to have a material impact on the Company's financial
position or results of operations.
The Company plans to adopt SFAS No. 123, "Accounting for Stock-Based
Compensation" in Fiscal 1997. SFAS No. 123 was issued by the Financial
Accounting Standards Board in October 1995 and allows companies to choose
whether to account for stock-based compensation on a fair value method or to
continue to account for stock-based compensation under the current intrinsic
value method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities electing to remain with the accounting in APB Opinion
No. 25 must make proforma disclosures of net income, as if the fair value based
method of accounting defined in the statement had been applied. The Company
plans to continue to follow the provisions of APB No. 25. Therefore, management
of the Company believes that the impact of adoption will not have a significant
effect on the Company's financial position or results of operations.
3. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30,
-------------
(000's omitted)
1995 1996
------ ------
<S> <C> <C>
Raw materials ................ $ 466 $ 894
Work-in-process .............. 363 331
Finished goods ............... 220 338
------ ------
$1,049 $1,563
====== ======
</TABLE>
F-9
<PAGE> 32
4. INTANGIBLE ASSETS:
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
(000's OMITTED)
1995 1996
---- ----
<S> <C> <C>
Excess of purchase price over fair value of
net assets acquired ..................... $13,945 $13,945
Deferred financing costs .................. 1,257 --
Consulting agreement ...................... 1,000 --
Prepaid license fee ....................... 378 378
Other ..................................... 45 45
------- -------
16,625 14,368
Less -- Accumulated amortization .......... 1,714 1,824
------- -------
$14,911 $12,544
======= =======
</TABLE>
5. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
(000's OMITTED)
1995 1996
---- ----
<S> <C> <C>
Bonuses payable....................... $258 $ 307
Accrued warranty...................... 257 575
Salaries payable...................... 97 126
Other................................. 183 93
---- ------
$795 $1,101
==== ======
</TABLE>
6. SIGNIFICANT CUSTOMERS:
The three largest customers of the Company each accounted for more than 10%
of the Company's net sales for each of the years ended September 30, 1995 and
1996 and in the aggregate accounted for 47% of the Company's net sales in each
of those years. Accounts receivable from these customers were approximately
$1,714,000 and $1,736,000 at September 30, 1995 and 1996, respectively.
7. FOREIGN SALES:
The Company sells into three major regions worldwide. Sales to these regions
are as follows (000's omitted):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- --------------------------------------
OCTOBER 1, 1993 JUNE 24, 1994 FOR THE YEARS ENDED
TO TO SEPTEMBER 30,
JUNE 23, SEPTEMBER 30, -------------------
1994 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Americas ...... $6,388 $ 2,575 $12,130 $17,994
Europe ........ 1,830 670 3,500 5,986
Far East ...... 574 456 1,700 1,945
------ ------- ------- -------
$8,792 $ 3,701 $17,330 $25,925
====== ======= ======= =======
</TABLE>
F-10
<PAGE> 33
8. WRITE-OFF OF PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT:
In March 1996, the Company acquired from Dataproducts Corporation a
non-exclusive license for patented solid ink jet printing technology in certain
licensed industrial marking fields. This agreement allows the Company to use
these patents in the development and commercialization of its own solid ink
printhead. During fiscal 1996, the Company recorded a charge of $3,052,000 as a
write-off of purchased in-process research and development to record the cost of
evaluating and acquiring this license.
9. EXTRAORDINARY ITEM
In connection with the initial public offering, the Company expensed
approximately $2,158,000 of unamortized original issue discount upon the
prepayment of the Company's zero coupon notes and approximately $898,000 of
unamortized deferred financing costs upon the repayment of the Company's Tranche
A and B senior notes. The write-off of these items, less the related income tax
benefit of approximately $1,253,000 has been reflected as an extraordinary item
in the consolidated statements of operations.
10. FINANCING ARRANGEMENTS
On June 24, 1994, in connection with the Acquisition, the Company entered
into a credit agreement (the Credit Agreement) with NationsCredit Commercial
Corp. (the Lender), formerly Greyrock Capital Group, Inc. and Nations Financial
Capital Corp. The Credit Agreement consisted of a Tranche A senior note (the
Tranche A Note) in an aggregate principal amount of $10,500,000, a Tranche B
senior subordinated note (the Tranche B Note) in an aggregate principal amount
of $3,000,000 and a line-of-credit of up to $2,500,000. In addition, the Company
also received proceeds of approximately $1,927,000 from certain investors upon
the issuance of subordinated zero coupon notes. Long-term debt as of September
30, 1995 consisted of the following (000's omitted):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------
<S> <C>
Tranche A............... $ 9,750
Tranche B............... 3,000
Zero coupon notes....... 2,231
-------
14,981
Less -- Current portion. 2,620
-------
$12,361
=======
</TABLE>
The remaining balances of long-term debt as of February, 1996 were repaid
utilizing the proceeds of the initial public offering.
Tranche A and B senior notes
The Tranche A Note had mandatory scheduled quarterly repayments, as defined
in the Credit Agreement, beginning October 1, 1994 with full payment on or
before July 1, 2001. The Tranche B Note had mandatory scheduled quarterly
repayments beginning with the first quarterly date following the earlier of June
24, 2000 or the date of complete repayment of the Tranche A Note. Additional
principal payments on the Tranche A and B Notes were required based on excess
cash flow, as defined. For the period from June 24, 1994 to September 30, 1994,
no additional principal payments under the excess cash flow provision were
required. For the year ended September 30, 1995, $1,370,000 of excess cash flow
payments was required to be paid. This was paid during the year ending September
30, 1996. In addition, mandatory prepayments of the Tranche A and B Notes were
required in the event the Company received proceeds related to insurance, asset
sales and issuance of equity securities, including a qualified initial public
offering. Under the Credit Agreement, the Tranche B Note was issued with
detachable warrants to purchase shares of the Company's common stock (see Note
12).
The Tranche A Note bore interest at the 30-day commercial paper rate, as
defined, plus 4.5%. The Tranche B Note bore interest at the 30-day commercial
paper rate plus 6.5%. Interest on both notes was payable monthly in arrears.
F-11
<PAGE> 34
The Credit Agreement contained financial and other covenants which required
the Company to maintain certain debt coverage and leverage ratios, meet minimum
net income before interest, taxes, depreciation and amortization (EBITDA), as
defined, and limited capital expenditures and lease payments.
Line-of-Credit
The Company has a line of credit agreement with a bank which allows it to
borrow up to $1,000,000 at either the prime rate or LIBOR plus 2%. Borrowings
are collateralized by all corporate assets. There were no outstanding borrowings
under this agreement at September 30, 1996.
The Company previously had a credit agreement which provided for maximum
borrowings up to $2,500,000. This agreement terminated with the initial public
offering.
Subordinated zero coupon notes
In connection with the Acquisition, the Company issued zero coupon notes
(the Notes) with an aggregate principal amount payable at maturity of
$5,000,000. The discount of approximately $3,073,000 was being amortized
recognizing a yield to maturity of approximately 11.6% per annum. The carrying
value at September 30, 1995 represented the principal at maturity less the
unamortized discount. The full principal amount of the Notes was due on
September 30, 2002. In the event of a qualified public offering prior to
September 30, 2002, the notes became payable at 90% of their maturity value
($4,500,000) through June 24, 1996 and 100% thereafter. At September 30, 1995,
the carrying value of the notes was $2,231,365. In connection with the initial
public offering, $4,500,000 was paid to retire this obligation. The unamortized
original issue discount of approximately $2,158,000 was recognized as an
extraordinary item in the consolidated statements of operations (see Note 9).
11. REDEEMABLE CONVERTIBLE PARTICIPATING PREFERRED STOCK:
In connection with the Acquisition, the Company authorized and issued
307,317 shares of Series A Convertible Participating Preferred Stock, $.01 par
value, with a redemption feature (the Preferred Stock). Total proceeds from this
sale were $3,073,170. The holders were entitled to dividends at the same rate as
dividends were paid on the common stock. Each share of the Preferred Stock
entitled the holder to the number of votes per share equal to the number of
shares of common stock into which each share of Preferred Stock is then
convertible. The Preferred Stock was automatically converted into shares of
common stock simultaneously with the initial public offering of the Company's
common stock.
12. STOCKHOLDERS' EQUITY:
Common stock
On June 24, 1994, the Company sold 1,500,000 shares of Class A voting common
stock for a purchase price of $1.00 per share to various investors. On October
27, 1994 the Company sold 60,000 shares of Class A voting common stock to an
officer of the Company for a purchase price of $1.00 per share.
In February, 1996, the Certificate of Incorporation was amended to authorize
30,000,000 shares of common stock, $.01 par value, and 5,000,000 shares of
undesignated preferred stock. All outstanding shares of Class A voting common
stock were converted to common stock. Class A voting common stock and Class B
non-voting common stock were canceled.
F-12
<PAGE> 35
Stock options
Under the Company's Amended and Restated 1994 Stock Option and Grant Plan
(the Plan) the Company may grant options to purchase up to a maximum of
1,000,000 shares of common stock to employees, consultants and other key
persons. Options granted may be incentive stock options or nonqualified options
and must be granted at a price not less than fair market value on the date of
grant. Fair market value (as defined in the Plan) and the vesting of these
options is determined by the Board of Directors. The options expire no later
than 10 years from the date of grant. At September 30, 1996, 866,000 shares were
available for granting of additional options.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------
NUMBER EXERCISE
OF SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Balance at September 30, 1994 .... -- --
Granted .......................... 108,000 $ 1.00 - $ 5.00
-------
Balance at September 30, 1995 .... 108,000 $ 1.00 - $ 5.00
Granted .......................... 26,000 $12.00 - $16.00
Exercised ........................ 4,750 $ 5.00
Expired .......................... 1,500 $ 5.00
-------
Balance at September 30, 1996 .... 127,750 $ 1.00 - $16.00
=======
</TABLE>
The options vest ratably over a four year period on the anniversary of the
grant date. Of the options outstanding at September 30, 1996, options to
purchase 22,250 shares of the Company's common stock at $1.00 - $5.00 per share
were exercisable.
Redeemable warrants
Under the Credit Agreement, the Tranche B Note was issued to the Lender with
detachable warrants. The warrants gave the Lender both the right to purchase
shares of the Company's common stock and the right to require the Company to
repurchase some or all of the warrants at the earlier of June 30, 1998 or the
occurrence of certain events, including repayment of the indebtedness under the
Credit Agreement or upon a qualified public offering.
In connection with the Credit Agreement, the Company granted the Lender
warrants to purchase between 418,118 and 653,310 shares of common stock
depending upon the fair market valuation of the Company. These warrants had an
exercise price of $1.00 per share. The warrants contained a put option which
required that the Company purchase the warrants at the fair market value of the
Company's common stock, net of the associated warrant exercise price, at the
time the put option was exercised (the Option Price). The Company had the option
to repurchase the warrants at 110% of the Option Price at the earlier of June
30, 1998 or upon a qualified public offering, as defined.
The Company accounted for the initial value of the redeemable warrants based
on their fair market value at the time the warrants were issued, using a formula
contained in a Warrantholders Rights Agreement entered into in connection with
the issuance of the warrants. The Company did not assign any value to the
warrants at the time of issuance, as their fair market value did not exceed the
warrant exercise price. Commencing at the beginning of fiscal 1995, the carrying
value of the redeemable warrants has been increased by periodic accretions, so
that their carrying amount would equal the mandatory redemption amount at the
time of the Company's initial public offering (the Offering). During the years
ended September 30, 1995, and 1996, the Company expensed $4,561,000 and
$1,710,000, respectively, of this estimated cost. At the time of the initial
public offering, these warrants were exercised for 418,118 shares of common
stock and the Company's liability for redeemable common stock warrants was
converted to stockholders' equity.
Contingent warrants
In June 1994, contingent warrants to purchase up to 235,192 shares of common
stock at $1.00 per share were granted on a pro rata basis to all of the
Company's common stockholders of record. These warrants were to become
exercisable in the event that the Lender was entitled to exercise warrants to
purchase less than 653,310 shares of common stock. In the event this occurred,
the holders of contingent warrants would be able to exercise warrants to
F-13
<PAGE> 36
purchase shares of common stock for the difference between the amount of shares
the Lender exercised and 653,310 total shares of common stock. In connection
with the initial public offering, warrants to purchase 235,192 common shares
were issued. During Fiscal 1996, warrants to purchase 55,976 shares were
exercised. At September 30, 1996, warrants to purchase 179,216 shares of common
stock at $1.00 per share were outstanding.
In Fiscal 1995, the Company recorded deferred compensation expense of
$1,626,000 for the difference between the exercise price on the date of grant
and the deemed fair value of the warrants held by management at the time it was
probable that the number of warrants (108,400) which could be exercised could be
determined (the Offering Date). This amount was amortized over the period
commencing October 1, 1994 through the Offering Date. Deferred compensation
expense recognized during the years ended September 30, 1995 and 1996, was
$1,183,000 and $443,000, respectively.
13. INCOME TAXES:
The provision (benefit) for income taxes includes (000's omitted):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- -----------------------------------------------
OCTOBER 1, 1993 JUNE 24, 1994 FOR THE YEARS ENDED
TO TO SEPTEMBER 30,
JUNE 23, SEPTEMBER 30, -------------
1994 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal ......... $ 934 $ 171 $ 1,432 $ 3,314
State ........... 169 73 551 600
------- ------- ------- -------
1,103 244 1,983 3,914
------- ------- ------- -------
Deferred:
Federal ......... (60) 2 (13) (962)
State ........... (10) 1 (5) (200)
------- ------- ------- -------
(70) 3 (18) (1,162)
------- ------- ------- -------
Income tax before
extraordinary item $ 1,033 $ 247 $ 1,965 $ 2,752
======= ======= ======= =======
</TABLE>
The Company's effective tax rate, as a percent of income (loss) before
extraordinary item, differs from the statutory federal rate as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------- -------------------------------------------
OCTOBER 1, 1993 JUNE 24, 1994 FOR THE YEARS ENDED
TO TO SEPTEMBER 30,
JUNE 23, SEPTEMBER 30, -------------
1994 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statutory Federal tax rate ........... 34% 34% (34%) 34%
State taxes net of Federal benefit ... 4 21 24 6
Non-deductible amortization of the
excess of purchase price over fair
value of net assets acquired ....... 2 8 10 4
Non-deductible redeemable warrant
interest charge .................... -- -- 105 14
Benefit from foreign sales corporation -- -- (3) (3)
Inventory acquired in purchase
acquisition with no tax benefit .... -- 49 -- --
Non-deductible amortization of
deferred compensation .............. -- -- 27 4
Other ................................ 1 (14) 4 7
-- -- --- --
Effective tax rate before
extraordinary item ................. 41% 98% 133% 66%
== == === ==
</TABLE>
F-14
<PAGE> 37
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial reporting and income
tax purposes. The approximate tax effects of temporary differences which give
rise to net deferred tax assets are as follows (000's omitted):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1995 1996
------ -----
<S> <C> <C>
Current:
Accrued warranty expense ...... $ 105 $ 213
Inventories ................... 36 77
Allowance for doubtful accounts 90 111
Other accrued expenses ........ 54 30
----- -------
285 431
----- -------
Non-Current:
Depreciation and amortization . (54) (58)
Intangible assets ............. (43) 977
----- -------
(97) 919
----- -------
Net deferred tax assets .... $ 188 $ 1,350
===== =======
</TABLE>
14. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution retirement plan which is available to
substantially all employees. The Company pays plan expenses and a matching
contribution of 50% of every qualifying dollar contributed by plan participants
to a maximum of 3% of compensation. Contributions by the Company amounted to
$31,000 for the period October 1, 1993 to June 23, 1994; $16,000 for the period
June 24, 1994 to September 30, 1994; and $46,000 and $69,000 for the years ended
September 30, 1995 and 1996, respectively.
15. RELATED PARTY TRANSACTION:
In connection with the Acquisition, the Company incurred certain advisory,
legal and financing fees. As a result, the Company paid approximately $1,700,000
in such fees, of which approximately $673,000 was paid to or on behalf of
certain investors in the Company.
16. COMMITMENTS AND CONTINGENCIES:
The Company leases certain operating facilities and equipment under
long-term, noncancelable operating leases. The leases for the operating
facilities expire June 30, 1997, and include an option to renew at prevailing
market rates for one three-year period. Approximate future minimum rental
commitments under noncancelable operating leases having a term in excess of one
year are approximately $128,000. Rental expense amounted to $82,000 for the
period October 1, 1993 to June 23, 1994; $40,000 for the period June 24, 1994 to
September 30, 1994 and $130,000 and $154,000 for the years ended September 30,
1995 and 1996, respectively.
The Company entered into a three-year employment agreement with its chief
executive officer which requires minimum annual compensation through November
1997. The agreement also provides for certain incentive bonus payments.
In connection with the Acquisition, the Company undertook an environmental
compliance audit which identified certain environmental deficiencies on
properties leased by the Company. The site of one of the Company's leased
facilities was contaminated due to prior uses by a prior occupant and may
require remedial action. Although the Company obtained an indemnification
agreement in connection with the Acquisition with respect to such prior
contamination, if the Company is found to be liable as a result of any
contamination of the site, there can be no assurance that such indemnification
will be available or that, if available, it will be sufficient. While the
ultimate results of future claims, if any, against the Company with regard to
these matters cannot be determined, management does not anticipate that these
matters will have a material adverse impact on the consolidated results of
operations or financial position of the Company.
F-15
<PAGE> 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
Trident International, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheets of Trident International, Inc. and Subsidiaries as
of September 30, 1995 and 1996 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the periods from
October 1, 1993 to June 23, 1994 (the Predecessor Period) and for the period
from June 24, 1994 to September 30, 1994 and the years ended September 30, 1995
and 1996 (the Successor Periods), included in this Form 10-K, and have issued
our report thereon dated October 25, 1996. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
accompanying schedule on page F-17 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The information reflected in the schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Hartford, Connecticut
October 25, 1996
F-16
<PAGE> 39
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ------ -------- ---------- ------
<S> <C> <C> <C> <C>
Predecessor Company:
Allowance for Doubtful Accounts -
October 1, 1993 to June 23, 1994 ..... $ 50,000 -- - $ 50,000
Successor Company:
Allowance for Doubtful Accounts -
June 24, 1994 to September 30, 1994 ... $ 50,000 -- - $ 50,000
October 1, 1994 to September 30, 1995 . $ 50,000 $170,000 - $220,000
October 1, 1995 to September 30, 1996 . $220,000 $ 80,000 - $300,000
</TABLE>
F-17
<PAGE> 1
CONFIDENTIAL
CONSULTING AGREEMENT
AGREEMENT dated as of July 1, 1996 by and between Trident International,
Inc., a Delaware corporation (the "Company"), and R. Hugh Van Brimer of 119
Woodhall Spa, Williamsburg, Virginia 23188 ("Consultant").
WHEREAS, Consultant has been the President and Chief Executive Officer
of Trident, a predecessor company, and
WHEREAS, the Company desires to assure itself of the continued services
of Consultant;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Company and Consultant agree as follows:
1. Employment and Term. The Company agrees to employ Consultant and
Consultant hereby agrees to work for the Company and any other subsidiary of the
Company as directed by the Company in the capacity of a consultant for a period
commencing on the date of 1 July, 1996 and ending on 30 June, 1997, subject to
renewal and termination as set forth in Section 5 hereof. The Company shall
engage Consultant as a consultant to the Company for a minimum of ten days per
quarter and a maximum of 20 days per quarter at a rate of $1,000 per day.
Employment in excess of 20 days per quarter is permitted by consent of both
parties at the same per diem rate. Such consulting arrangements shall terminate
no earlier than 30 June, 1997. During the period that Consultant is providing
consulting services to the Company, he shall be entitled to reimbursement for
his reasonable out-of-pocket expenses incurred in the performance of such
consulting services, including, without limitation, air travel in accordance
with Company travel policy between Williamsburg, Virginia and the principal
offices of the Company, transportation, lodging and meals, subject to the
Company's procedures regarding substantiation and documentation of such
expenses.
During Consultant's employment, the Company agrees that it will assign
Consultant duties consistent with his current duties as Consultant and will
provide him with office space and other accommodations and assistance both in
Connecticut and Williamsburg, Virginia consistent with his current arrangements
with Trident.
2. Compensation. Consultant's compensation for the period commencing on
1 July, 1996 to the expiration of the Employment Term will be at the rate of one
thousand dollars ($1,000.00) per day. Said fee shall be payable in arrears in
monthly installments. In the event that any salary or other payments due
Consultant under this Agreement are not made within 30 days after the date such
compensation or other payments are due, such unpaid compensation or other
payments shall bear interest at the rate of 10% per annum from the date such
amount was due to be paid to Consultant until the date on which payment in full
is made.
3. Benefits. Consultant will be entitled to health and hospitalization
insurance benefits at least comparable to the benefits of a senior professional
employee of the Company in accordance
<PAGE> 2
with the terms and descriptions of such plans and benefits as in effect from
time to time. Consultant shall be reimbursed for his reasonable out-of-pocket
expenses incurred in the performance of his duties hereunder, including, without
limitation, air travel between Williamsburg, Virginia and the principal offices
of the Company or other business venue transportation, lodging and meals,
subject to the Company's and Trident's procedures regarding substantiation and
documentation of such expenses.
4. Extent of Service. During Consultant's employment hereunder,
Consultant shall, subject to the discretion and supervision of the Chief
Executive of the Company, devote his business time, best efforts and business
judgement, skill and knowledge to the advancement of the Company's interests and
to the discharge of Consultant's duties and responsibilities hereunder.
Consultant shall not engage in any other business activity, except as may be
approved by the Board of Directors of the Company, provided, however, that
nothing herein shall prevent Consultant from:
(a) Investing Consultant's assets in a manner not prohibited by that
certain Non-Competition Agreement between Consultant and the Company (the
"Non-Competition Agreement"), and in such form or manner as shall not require
Consultant to render any material services with respect to the operations or
affairs of any company or other entity in which such investments are made;
(b) Serving on the Board of Directors of any company or any
committee thereof, subject to the prohibition set forth in the Non-Competition
Agreement and provided that Consultant is not required to render any material
services with respect to the operations or affairs of any such company other
than attendance at meetings of the board of directors or committees thereof of
such company; or
(c) Engaging in religious, charitable or other community or
non-profit activities which do not impair Consultant's ability to fulfill his
duties and responsibilities under the Agreement.
5. Renewal; Termination
(a) General. Except as otherwise provided herein, this Agreement
shall terminate on 30 June, 1997 unless renewed by the mutual written consent of
the parties hereto. This Agreement and Consultant's employment hereunder may be
terminated at any time by the mutual consent of the parties hereto.
(b) Termination by the Company for Cause. Notwithstanding the
provisions of Section 1 hereof, Consultant's employment hereunder may be
terminated for cause without further liability (except for amounts payable
pursuant to Section 5 (f) (i) hereof) on the part of the Company effective
immediately by a vote of a majority of the Board of Directors of the Company
after the Company has provided written notice to the Consultant setting forth in
reasonable detail the nature of such cause and given Consultant the opportunity
to be heard by the Board of Directors of the Company. Only the following shall
constitute "cause" for such termination:
(i) Conviction of Consultant of a crime involving moral
turpitude, deceit, dishonesty or fraud;
<PAGE> 3
(ii) Material failure to perform a substantial portion of
Consultant's duties and responsibilities hereunder, which failure
continues after written notice given to Consultant by the Board of
Directors of the Company;
(iii) Gross negligence or willful misconduct of Consultant with
respect to the Company or any subsidiary or affiliate
thereof; and
(iv) Breach of Consultant's obligations under the
Non-Competition Agreement.
(c) Termination by Consultant. Consultant's employment hereunder may
be terminated by Consultant by written notice to the Board of Directors of the
Company at least six months prior to such termination.
(d) Termination by the Company Without Cause. Subject to the payment
of termination benefits pursuant to Section 5 (f) (i), Consultant's employment
with the Company may be terminated by the Company without cause by a vote of a
majority of the Board of Directors of the Company on written notice to
Consultant.
(e) Other Termination Events.
(i) Consultant's employment under this Agreement will terminate
upon his death.
(ii) In the event of Consultant's permanent physical or mental
disability or incapacity, as evidenced by a certificate of a physician
licensed to practice in any state in the United States, this Agreement
may be terminated by the Company. Upon any termination under this
subsection (e)(ii), Consultant will be subject to and entitled to
benefits under the Company's disability plan, if any, as then in
effect.
(f) Rights of Termination.
(i) In the event of termination of Consultant's employment with
the Company pursuant to Section 5(d), (i) the Company shall continue to
pay Consultant a monthly minimum consulting fee and provide other
benefits to which he may be entitled for the remainder of the term of
this Agreement, said consulting fees to be made on the same periodic
dates as such payments would have been made to Consultant had
Consultant's employment not been terminated.
(ii) In the event of termination of Consultant's employment
with the Company pursuant to Section 5 (e)(i), the Company shall pay to
Consultant's wife or estate, as the case may be, a lump sum equal to
Consultant's one minimum quarterly consulting fee at the rate in effect
immediately prior to Consultant's death.
(g) Set-off. Any amounts otherwise payable to Consultant under
Section 5 (f) shall be subject to reduction in the amount of any cash
compensation received by Consultant from other employment or self-employment for
services performed during the period in which amounts are payable under such
Section , provided that the Company shall not be entitled to set-off any amounts
otherwise payable to Consultant under Section 5 (f) (i) against cash
compensation
<PAGE> 4
received by Consultant for services approved in advance by the Board of
Directors of the Company, which approval shall not be unreasonable withheld.
Consultant shall inform the Company of any such amounts of cash compensation and
shall refund to the Company any amounts which the Company has paid which exceed
the amounts due from the Company after application of the provisions of this
paragraph.
(h) Litigation and Regulatory Cooperation. To the extent reasonably
requested by the Company, Consultant shall cooperate fully with the Company in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Company which relate to
events or occurrences that transpired while Consultant was employed by the
Company. Consultant's full cooperation in connection with such claims or actions
shall include, but not be limited to, being available to meet with counsel to
prepare for discovery or trial and to act as a witness on behalf of the Company
at mutually convenient times. To the extent reasonably requested by the Company,
Consultant shall also cooperate fully with the Company in connection with any
examination or review of any federal, state or local regulatory authority with
respect to events or occurrences that transpired while Consultant was employed
by the company. The Company shall compensate Consultant for such cooperation
with the Company at rate of $1,000 per day, payable monthly in arrears, and will
reimburse Consultant for any reasonable out-of-pocket expenses, including,
without limitation, air travel between Williamsburg, Virginia and the principal
offices of the Company or other required venues, transportation, lodging and
meals, incurred in connection therewith.
6. Remedies for Breach. In the event that Consultant brings a legal
action against the Company to enforce his rights under this Agreement and
Consultant prevails on the merits of such action, the Company shall reimburse
Consultant the cost of his legal fees in connection with such action.
7. Change of Control. Prior to the termination of Consultant's
employment hereunder, in the event that within 90 days following the completion
of any transaction or series of transactions in which all of the Company's
outstanding capital stock is sold to an unaffiliated third party or upon the
sale of all or substantially all of the assets of the Company to an unaffiliated
third party or upon the sale of greater than 50% of the Company's outstanding
capital stock to any person or persons acting as a group (a "Change of Control")
there occurs a change in Consultant's duties, responsibilities, status or
position with the Company which, in Consultant's reasonable judgement, does not
represent a promotion from or maintaining of Consultant's duties,
responsibilities, status or position as in effect immediately prior to the
Change of Control, or any removal of Consultant from or any failure to reappoint
or re-elect Consultant to such position, except in connection with the
termination of Consultant's employment for cause, disability, retirement or
death, Consultant shall be entitled to terminate this Agreement and the Company
shall continue to pay Consultant a consulting fee and provide other benefits to
which he may be entitled for the remainder of the term of this Agreement, said
compensation to be made on the same periodic dates as such payments would have
been made to Consultant had Consultant's employment not been terminated.
8. Waiver. The failure of the Company to require the performance of any
term or obligation provided for herein, or the waiver by the Company of any
breach of this Agreement, shall not prevent enforcement of such term or
obligation, or be deemed a waiver of any subsequent breach.
<PAGE> 5
9. Binding Effect. This Agreement will be binding upon Consultant and
his heirs, executors, administrators and legal representatives and will be
binding upon and inure to the benefit of the Company and any other subsidiary of
the Company, and its and their respective successors and assigns.
10. Enforceability. If any portion or provision of this Agreement is to
any extent declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, will not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and Consultant with respect to the subject matter hereof,
and supersedes all prior representations and agreements with respect to such
subject matter. This Agreement may not be amended, modified or waived except by
a written instrument duly executed by the person against whom enforcement of
such amendment, modification or waiver is sought. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, in any particular case will
not prevent any subsequent enforcement of such term or obligation or to be
deemed a waiver of any separate or subsequent breach.
12. Notices. Any notices, requests, demands and other communications
provided for by this Agreement will be sufficient if in writing and delivered in
person or sent be registered or certified mail, postage prepaid, to Consultant
at the last address which Consultant has filed in writing with the Company or,
in the case of any notice to the Company, at their main offices, to the
attention of the Chief Executive Officer, with a copy to the Treasurer.
13. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Connecticut, without regard to the conflicts of
laws provision thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the date first set for above.
TRIDENT INTERNATIONAL, INC.
By: /s/ ELAINE A PULLEN
_______________________
Elaine A. Pullen
President and C.E.O.
CONSULTANT
By: /s/ R. HUGH VAN BRIMER
_______________________
R. Hugh Van Brimer
<PAGE> 1
TRIDENT, INC.
1114 Federal Road
Brookfield, CT 06804
203/740-9333
August 7, 1996
Mr. Donald J. Polak
President & CEO
Porelon Group
1480 Gould Drive
Cookeville, TN 38506
Dear Don:
Reference is made to the Memorandum of Understanding (the "Memorandum")
between Trident, Inc. ("Trident") and Micropore, Inc., ("Micropore") pursuant to
which Trident agreed to purchase from Micropore, and Micropore agreed to supply
to Trident, certain inks through 1998. This letter sets forth the agreement of
Trident and Micropore hereinafter known as the Porelon Group ("Porelon") to
terminate the Memorandum and enter into new arrangements for the purchase and
supply of inks under the following terms and conditions:
1. Purchase of Inks. Trident agrees, during the term of this Letter
Agreement (and any extension thereof), to purchase all of its requirements for
its XXXXXXXX, XXXXX, XXXXXXXXXX, XXXX inks (individually, an "Ink," and
collectively, the "Inks") from Porelon. The Inks purchased shall be manufactured
by Porelon in accordance with the confidential specifications and quality
standards previously supplied to Porelon by Trident, with such reasonable
modifications as Trident may request from time to time.
2. Price and Method of Payment. Trident shall purchase Inks from
Porelon at the prices set forth on Schedule A hereto. The prices so set forth
shall be subject to change by Porelon with ninety (90) days notice. Any price
adjustment must maintain the same ratio between standard cost and selling price
as now exists and Trident shall have the right to require evidence of cost
increases prior to agreement of such price adjustment. Payment for Inks sold by
Porelon to Trident shall be made within thirty (30) days of delivery and
acceptance of such Inks by Trident. In the event that Trident fails to pay for
any shipment of Inks within such thirty (30) day period, Porelon shall
thereafter have the right to apply a reasonable finance charge to any unpaid
balance not to exceed 1.5% per month.
3. Obligation to Supply. Porelon may terminate its obligation to supply
any or all of the Inks identified in Paragraph 1 to Trident with 180 days
notice. Notice not to supply one ink does not affect Porelon's obligation to
supply the other inks.
<PAGE> 2
4. Delivery of Inks. Trident shall place orders for Inks in amounts
greater than 380 lbs. per order and at least sixty (60) days in advance of any
requested delivery date. Porelon shall ship all Inks F.O.B., Cookeville,
Tennessee4. Acceptance or rejection of any shipment shall be made by Trident
within the longer of fourteen (14) calendar or ten 10 business days of receipt
of such shipment by Trident. Porelon acknowledges that time of delivery of the
Inks is of the essence. In the event that Porelon fails to deliver Inks (or any
portion thereof) by the requested delivery date, and Porelon fails to cure such
failure within thirty (30) days, Trident shall have the right to terminate this
Letter Agreement by written notice to Porelon and seek alternative sources for
the Inks.
5. Further Assurances. Porelon acknowledges that it may be difficult
for Trident to locate alternative sources for the Inks in the event of a failure
by Porelon to deliver any Ink in such volume and in accordance with such
specifications as Trident may require. Porelon therefore agrees that, during the
term of this Letter Agreement (and any extension thereof), it will maintain an
alternative facility capable of producing the Inks within ten (10) business days
in the event that any circumstances arise which make the production of Inks (in
such volumes, and in accordance with such quality standards, as required by
Trident) at its current facilities impossible or impracticable. Porelon shall
provide Trident with reasonable assurances of the existence and capability of
such alternative facility, including physical inspection by Trident, if
requested, prior to September 15, 1996. In the event that, at any time, Trident
reasonably concludes that such alternative facility is not or will not be
capable of meeting its requirements for Inks, and Porelon does not correct the
deficiencies in 30 days, Trident shall have the right to terminate this Letter
Agreement by written notice to Porelon and seek alternative sources for the
Inks.
6. Term and Termination. Subject to the early termination provisions
set forth above, the terms and conditions of this Letter Agreement shall
continue until December 31, 2000 (the "Termination Date"); provided, however,
that the term of this Letter Agreement shall be extended automatically for a
period of one year commencing on the Termination Date and on each subsequent
anniversary of the Termination Date unless either party has given the other
party written notice, at least ninety (90) days prior to any such extension
date, of such party's election not to extend the term of this Letter Agreement.
7. Confidentiality and Non-Competition. At all times during and after
the term of this Letter Agreement, Porelon shall keep confidential all
proprietary and technical information provided to it by Trident (whether
pursuant to this Letter Agreement or otherwise) with respect to any Inks, ink
jet printheads or any related equipment or materials and shall not disclose or
use in any way any such information. In recognition of the confidential
information provided to it hereunder (and in related documents), Porelon agrees
that until the date which is two (2) years from the earlier of (a) the
Termination Date, or (b) the date on which this Letter Agreement is otherwise
terminated, it will not engage, directly or indirectly, in the sale of any ink
jet inks to, or the manufacture of ink jet inks for sale by, current or future
users, original equipment manufacturer customers, or distributors of any ink jet
devices sold by Trident during such period or any suppliers thereof.
<PAGE> 3
8. Conflicting Agreements and Remedies. In the event of any conflict
between the terms of this Letter Agreement and any other document or agreement
between the parties (including the Nonexclusive License Agreement and Assignment
and License Back Agreement, as both are appended to the Memorandum), the terms
of this Letter Agreement shall control. In the event of a breach of this Letter
Agreement by either party, the party who has not breached shall be entitled to
equitable relief in addition to any other remedies available to it.
9. Assignment. This Letter Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns,
provided that Porelon may only assign its rights or obligations hereunder to a
successor entity by way of merger, consolidation or the sale of all or
substantially all of its business and assets, which successor entity expressly
agrees to assume Porelon's obligations under this Letter Agreement and any
related agreements or documents.
10. Governing Law and Severability. The terms of this Letter Agreement
shall be governed by and construed in accordance with the internal laws, and not
the laws pertaining to conflicts of laws, of the State of Connecticut. Should
any provision of this Letter Agreement now or at any time during its term (or
any extension thereof) conflict with any applicable law or regulation, said
provision shall be considered as of no force and effect and the remainder of
this Letter Agreement shall remain in full force and effect.
11. Waiver. The failure of either party to enforce at any time or for
any period of time the provisions hereof (or of a purchase order) in accordance
with their terms will not be construed to be a waiver of such provisions or of
the right of such party thereafter to enforce each and every such provision.
12. Effective Date. This Letter Agreement shall be effective as of
August 1, 1996.
<PAGE> 4
If the above accurately sets forth our understanding, please so
indicate by executing this Letter Agreement where provided below and returning
it to me.
Sincerely,
TRIDENT, INC.
By: /s/ ELAINE A PULLEN
________________________________________
Elaine A. Pullen
President and Chief Executive Officer
ACCEPTED AND AGREED TO:
PORELON, INC.
By: /s/ DONALD J. POLAK
_________________________________________
Donald J. Polak
President & Chief Executive Officer
<PAGE> 5
SCHEDULE A
THE INKS
<TABLE>
<CAPTION>
NAME TRIDENT PART NO. PRICE / LB.
---- ---------------- -----------
<S> <C> <C> <C>
XXXXXXXX XXX-XXXX-XX $ X.XX
XXXXX XXX-XXXX-XX $ X.XX
XXXXXXXXXX XXX-XXXX-XX $ X.XX
XXXXXXXXXX XXX-XXXX-XX $ X.XX
XXXX XXX-XXXX-XX $ X.XX
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K into the Company's
previously filed Registration Statement File No. 333-10745.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
December 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 17,349
<SECURITIES> 0
<RECEIVABLES> 4,215
<ALLOWANCES> 300
<INVENTORY> 1,563
<CURRENT-ASSETS> 23,425
<PP&E> 1,962
<DEPRECIATION> 519
<TOTAL-ASSETS> 38,331
<CURRENT-LIABILITIES> 2,369
<BONDS> 0
0
0
<COMMON> 70
<OTHER-SE> 35,892
<TOTAL-LIABILITY-AND-EQUITY> 38,331
<SALES> 25,925
<TOTAL-REVENUES> 25,925
<CGS> 9,392
<TOTAL-COSTS> 10,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 80
<INTEREST-EXPENSE> 1,951
<INCOME-PRETAX> 4,141
<INCOME-TAX> 2,752
<INCOME-CONTINUING> 1,389
<DISCONTINUED> 0
<EXTRAORDINARY> (1,803)
<CHANGES> 0
<NET-INCOME> (414)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
<FN>
Amounts inapplicable or not disclosed as a separate line on the Condensed
Consolidated Balance Sheets or Condensed Consolidated Statements of Operations
are reported as 0 herein.
</FN>
</TABLE>
