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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, 1997
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:
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Name of exchange on
Title of each class which registered
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None None
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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
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.
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 15, 1997 as reported on the Nasdaq National Market, was approximately
$73,413,000. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
On December 15, 1997 there were 6,672,251 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, 1998.
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TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT
ON FORM 10-K
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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................ 10
Item 6: Selected Financial Data.................................................................. 10
Item 7: Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 12
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
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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's 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 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 to 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 products 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. The Company recently launched new products for use in printing date
and batch codes onto items and primary packages.
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.
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 applications where the printing surfaces are
rarely flat, smooth or traveling at a fixed distance from the printhead.
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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 a range of
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
from one to eleven 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 1200 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.
The Company currently markets three printhead subsystems to OEM customers:
Ultrajet(TM)
The Ultrajet is a 32 channel printhead available with 3, 6 and 8 orifices
per channel configuration. The subsystem is utilized in current applications
including carton coding, check coding, addressing and business forms imprinting,
postal bar coding and stamp cancellation, and garment pattern plotting and
miscellaneous other porous media. The majority of the Company's current
printhead revenue derives from sales of the Ultrajet subsystem. The Company is
in the process of developing a new generation of Ultrajet products called the
Ultrajet II. The first release will be an improved bar code printhead to replace
the successful Ultrajet 256/32. The Company believes that the new bar code
printhead has improved print quality and reliability required in the carton
coding market.
PixelJet(TM)
The PixelJet printhead was launched in 1997. It has 64 channels for higher
resolution printing and is available with one or two orifices per channel
configuration. The subsystem is constructed from stainless steel and is
therefore compatible with a wider range of ink chemistries. Initial sales of the
PixelJet are for addressing and for printing oriental characters onto corrugated
cartons where higher resolution is required.
MicroCoder(TM)
The MicroCoder printhead was also launched in 1997. It has 16 channels with
two orifices per channel. The printhead is available with AllWrite A3000TM ink
designed to print onto non-porous surfaces such as primary packages and
industrial parts. The Company believes that the MicroCoder AllWrite A3000
combination provides unique competitive features and will compete effectively
with the more expensive and complex Continuous Ink Jet systems.
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 and non-porous printing
surfaces and, therefore, require small quantities of volatile solvents to allow
drying. While impulse ink jet ink for non-porous surfaces typically require
maintenance at start-up following shut down periods of one or more hours, the
AllWrite A3000 in combination with the Company's patented printhead pulsing
technique does not require additional maintenance. 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.
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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.
Sales are divided into three regions: North America, Europe and the Far
East. Sales for the years ended September 30, 1995, 1996, and 1997 to these
three regions were as follows:
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TWELVE MONTHS ENDED SEPTEMBER 30,
(000'S OMITTED)
Region 1995 1996 1997
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North America $12,130 $17,994 $21,507
Europe 3,500 5,986 6,150
Far East 1,700 1,945 2,626
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Total $17,330 $25,925 $30,283
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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 relatively flat due to the acquisition of one of the Company's
European customers, Cueprint, by a U.S. customer, Videojet Systems
International, and to the weakness of the European economy. The growing use of
the EAN128 bar code symbology in Europe is also placing demands on the Company's
products performance which the Company believes will be corrected with the
Ultrajet II printhead and a new ink. European customers are introducing the use
of Trident's products to stamp cancellation which is growing ink sales in the
region. 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, and could
damage the Company's printheads which 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. The Company believes that this structure
provides for optimum response and support to the local customer. The Company's
largest sales region is North America where, in addition to the business
manager, three application engineers respond to day-to-day customer needs. The
business manager and one of the application engineers are located in Park Ridge,
Illinois. The European business manager is located in Dublin, Ireland along with
an applications engineer. 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
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generate high visibility for the Company. The marketing department is
responsible for sales to new customers and for developing an end-user identity
for the Company. A business development group is responsible for finding and
establishing new markets which have significant revenue potential. The Company
has assigned engineering and marketing personnel to this group to develop
subsystems and modules for wide-area printing.
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, although it plans to do so in the
future. Some customers sell ink with the Trident label. Others request the
Company to manufacture ink with the OEM's label attached. The Company also
allows customers to package the ink in their own containers to protect them from
the use of other OEM's ink being sold to their customers.
During the years ended September 30, 1995, 1996, and 1997 sales to the
following customers accounted for more than 10% of the Company's net sales:
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Year Ended September 30,
Customer Name 1995 1996 1997
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Marsh Company 23% 22% 23%
Foxjet, Inc. 11% 13% 9%
BancTec, Inc. 13% 12% 8%
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During the years ended September 30, 1995, 1996, and 1997, approximately
72%, 79% and 70%, 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 invested in modeling software and other analytical tools. The engineering
and research functions are divided between two departments. The research
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 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 $1,317,000, $2,326,000, and
$3,027,000 for research and development during the years ended September 30,
1995, 1996, and 1997, 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
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(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 five to
eight years. The Dataproducts License provides the Company with the right to use
Dataproducts' liquid ink technology, which 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.
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. At the time of the purchase of the solid ink jet technology, certain
technological hurdles had not been overcome to enable the Company to
commercialize a product. Commercialization of this technology by the Company
required extensive development work both on the solid ink itself and the ink jet
printheads used to apply that ink in commercial applications. The Company has
made significant progress and plans to further develop this technology.
Development of new products using this technology should continue through July
of 1998. Over the life of the development process, the Company anticipates that
it will have expended in excess of $750,000 to complete the development of this
technology. Consequently, 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. The
Company intends to continue to evaluate potential acquisitions and licenses of
new technologies.
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. 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.
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.
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BACKLOG
The order backlog as of September 30, 1997 was approximately $8.9 million
compared with $8.2 million as of September 30, 1996. Backlog consists of
purchase orders scheduled for shipment within 12 months following the order
date. 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, 1997, Trident had 161 full time employees including
temporary direct employees. Of these employees, 22 were in sales and marketing,
32 were in engineering and research and development, 11 were in administration
and finance, 34 in production overhead and 47 were factory direct employees.
None of the Company's employees are represented by a labor union. The Company
expanded its engineering and marketing departments during fiscal year 1997 and
continues to do so during fiscal year 1998. 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 1998. The buildings are
in good condition and have been extensively remodeled by the Company to
accommodate new processes and the growth in employees. More than 90% of the
available space is now in use. Subsequent to September 30, 1997, the Company
rented 6,000 square feet of additional office and research and development space
in New Milford, Connecticut under a one-year agreement. The Company intends to
seek
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larger premises in 1998, likely in the same local area. The Company anticipates
that its facility related costs may increase in the event that it expands its
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, 1997.
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 15, 1997.
There were no family relationships between any director or executive officer of
the Company.
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NAME AGE POSITION
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Elaine A. Pullen . . . . . . . 43 President, Chief Executive Officer and Chief Operating Officer
J. Leo Gagne . . . . . . . . . 41 Vice President and Chief Financial Officer
Robert L. Rogers . . . . . . . 43 Vice President of Research
Richard A. Cutting . . . . . . 54 Vice President of Engineering
</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 24 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.
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.
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.
9
<PAGE> 10
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
1997:
First quarter ............................................ 20.00 16.00
Second quarter ........................................... 24.00 14.88
Third quarter ............................................ 24.75 17.25
Fourth quarter ........................................... 18.00 14.13
</TABLE>
At December 15, 1997, the Company had 41 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
6,672,251 shares of Common Stock outstanding on December 15, 1997.
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 conditions 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.
10
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PREDECESSOR (1) COMBINED (2) THE COMPANY
FOR THE FOR THE
9 MONTHS 12 MONTHS ----------------------------------
ENDED ENDED FISCAL YEARS
SEPTEMBER 30, SEPTEMBER 30, ----------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales ....................................... $ 7,417 $12,493 $ 17,330 $ 25,925 $ 30,283
Cost of sales ................................... 3,157 5,853 6,604 9,392 10,818
-------- ------- -------- -------- --------
Gross profit .................................... 4,260 6,640 10,726 16,533 19,465
-------- ------- -------- -------- --------
Operating expenses:
Marketing and selling ........................ 516 701 912 1,415 2,358
Research and development ..................... 625 1,078 1,317 2,326 3,027
Write-off of in-process research and
development .............................. -- -- -- 3,052 --
General and administrative ................... 587 1,137 1,580 2,405 2,134
Amortization of intangibles .................. 252 486 802 800 802
Amortization of deferred compensation ........ -- -- 1,183 443 --
-------- ------- -------- -------- --------
Total operating expenses ........................ 1,980 3,402 5,794 10,441 8,321
-------- ------- -------- -------- --------
Operating income ................................ 2,280 3,238 4,932 6,092 11,144
Interest (income) expense, net .................. (10) 482 1,845 241 (1,072)
Redeemable warrant interest charge .............. -- -- 4,561 1,710 --
-------- ------- -------- -------- --------
Income (loss) before income taxes ............... 2,290 2,756 (1,474) 4,141 12,216
Provision for income taxes ...................... 954 1,280 1,965 2,752 4,703
-------- ------- -------- -------- --------
Net income (loss) before extraordinary item ..... 1,336 1,476 (3,439) 1,389 7,513
Extraordinary item (net of income tax benefit of
$1,253)......................................... -- -- -- (1,803) --
-------- ------- -------- -------- --------
Net income ...................................... $ 1,336 $ 1,476 $ (3,439) $ (414) $ 7,513
======== ======= ======== ======== ========
CONSOLIDATED BALANCE
SHEET DATA:
Working capital ................................. $ 1,849 $ 2,103 $ 3,232 $ 21,056 $ 23,518
Total assets .................................... 11,736 20,967 23,133 38,331 40,907
Total long-term debt ............................ -- 14,738 12,361 -- --
Redeemable common stock warrants ................ -- -- 4,561 -- --
Redeemable preferred stock ...................... -- 3,123 3,311 -- --
Stockholders' equity (deficit) .................. 10,389 1,072 (1,311) 35,962 37,889
</TABLE>
11
<PAGE> 12
(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.
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 earnings 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 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. At the time of the purchase of the solid
12
<PAGE> 13
ink jet technology, certain technological hurdles had not been overcome to
enable the Company to commercialize a product. Commercialization of this
technology by the Company required extensive development work both on the solid
ink itself and the ink jet printheads used to apply that ink in commercial
applications. The Company has made significant progress and plans to further
develop this technology. Development of new products using this technology
should continue through July of 1998. Over the life of the development process,
the Company anticipates that it will have expended in excess of $750,000 to
complete the development of this technology. Consequently, 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. 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, 1995, 1996, and 1997:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0%
Cost of sales........................................ 38.1 36.2 35.7
----- ----- -----
Gross profit......................................... 61.9 63.8 64.3
----- ----- -----
Operating expenses:
Marketing and selling........................... 5.3 5.4 7.8
Research and development........................ 7.6 9.0 10.0
Write-off of purchased in-process research
and development................................. - 11.8 -
General and administrative...................... 9.1 9.3 7.1
Amortization of intangibles..................... 4.6 3.1 2.6
Amortization of deferred compensation........... 6.8 1.7 -
----- ----- -----
Total operating expenses............................. 33.4 40.3 27.5
----- ----- -----
Operating income..................................... 28.5 23.5 36.8
Interest (income) expense, net....................... 10.7 0.9 ( 3.5)
Redeemable warrant interest charge................... 26.3 6.6 -
----- ----- -----
Income (loss) before income taxes.................... (8.5) 16.0 40.3
Provision for income taxes........................... 11.3 10.6 15.5
----- ----- -----
Net income (loss) before extraordinary item.......... (19.8) 5.4 24.8
Extraordinary item................................... - (7.0) -
----- ----- -----
Net income (loss).................................... (19.8)% (1.6)% 24.8%
===== ===== =====
</TABLE>
Fiscal 1997 Compared to Fiscal 1996.
Net Sales. Net sales increased $4.4 million, or 17% to $30.3 million in
Fiscal 1997 from $25.9 million in Fiscal 1996. Approximately $1.1 million of the
increase in net sales was due to a 7.2% increase in average selling price per
printhead unit due to a change in product mix to the higher priced Ultrajet
256/32 printhead. This was partially offset by a 2.2% decrease in unit volume
sales. In certain cases, one Ultrajet 256/32 printhead replaces two printheads
of other configurations. Sales of ink products increased 39% in Fiscal 1997 as
compared to Fiscal 1996 due to a 55.0% increase in the unit volume of ink as the
installed base of printheads expanded during the year. This was partially offset
by a reduction of average selling price of 10.4% as customers obtained higher
volume discounts. Net sales to international customers increased by $845,000 or
10.7%, in Fiscal 1997.
Gross Profit. Gross profit increased by $2.9 million, or 18%, to $19.5
million in Fiscal 1997 from $16.5 million in Fiscal 1996. Gross profit as a
percentage of net sales increased from 63.8% in Fiscal 1996 to 64.3% in Fiscal
1997. The increase in gross profit as a percentage of sales was due to increased
average selling prices of the Company's printhead products and a higher
percentage of ink revenue.
13
<PAGE> 14
Marketing and Selling Expenses. Marketing and selling expenses increased
$943,000, or 67% to $2.4 million in Fiscal 1997 from $1.4 million in Fiscal 1996
due to an increase in personnel and associated travel expense and marketing
literature. As a percentage of net sales, these expenses increased to 7.8% in
Fiscal 1997 from 5.4% in Fiscal 1996. 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 $701,000, or 30%, to $3.0 million in Fiscal 1997 from $2.3 million in
Fiscal 1996. As a percentage of net sales, these expenses increased to 10.0% in
Fiscal 1997 from 9.0% in Fiscal 1996 due to the increases in engineering and
research and development spending to develop new technologies and products. The
increase was due to increases in payroll expense and contract research. Research
and development expenses were 10.6% of net sales for the three months ended
September 30, 1997 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 were no similar expenses in the
year ended September 30, 1997.
General and Administrative Expenses. General and administrative expenses
decreased $271,000, or 11%, to $2.1 million in Fiscal 1997 from $2.4 million in
Fiscal 1996. Included in general and administrative expenses for the year ended
September 30, 1996 was the write-off of a consulting agreement in the amount of
$438,000. As a percentage of net sales, these expenses decreased to 7.1% for
Fiscal 1997 from 9.3% for Fiscal 1996. If the write-off of the consulting
agreement had not occurred, these expenses would have been 7.6% of net sales for
Fiscal 1996.
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 $802,000 and $800,000, respectively, did not
vary in amount for Fiscal 1997 as compared to Fiscal 1996. Amortization of
deferred compensation decreased by $443,000 to $0 for Fiscal 1997 because
deferred compensation expense was fully amortized effective February, 1996.
Interest (Income) Expense, net. Net interest income was $1.1 million for
Fiscal 1997 compared to net interest expense of $241,000 for Fiscal 1996. This
was due to repayment of all outstanding borrowings with the proceeds of the
initial public offering and an increase in interest income on higher cash
balances.
Redeemable Warrant Interest Charge. Redeemable warrant interest charge
decreased by $1.7 million to $0 for Fiscal 1997 because the redeemable warrants
were fully accreted as of February, 1996. (See Note 11 of "Notes to Consolidated
Financial Statements").
Provision for Income Taxes. The provision for income taxes for Fiscal 1997
was $4.7 million on income before income taxes of $12.2 million. The effective
tax rate for Fiscal 1997 differed from the statutory rate principally due to
state income taxes and the non-deductibility of amortization costs related to
the excess of purchase price over fair value of assets acquired.
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. There were no similar expenses
in 1997.
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
14
<PAGE> 15
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.
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 11 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.
15
<PAGE> 16
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.
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, 1997, approximately 70% of the Company's
net sales were to its top ten OEM customers, while approximately 23% of the
Company's net sales for this period were to Marsh Company. 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, 1997, approximately 71% 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.
16
<PAGE> 17
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.
Liquidity and Capital Resources. At September 30, 1997, the Company had
working capital of $23.5 million compared to $21.1 million at September 30,
1996. At September 30, 1997, the Company had cash and marketable securities of
$19.8 million. The primary investing and financing cash flows activities for the
year ended September 30, 1997 were the purchase of marketable securities of
$12.7 million and the purchase of treasury stock of $5.7 million, respectively.
Cash flows from operations of $8.9 million results primarily from net income of
$7.5 million plus depreciation and amortization of $1.2 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, 1997.
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 that it has sufficient cash resources to meet its anticipated needs for
working capital and capital expenditures through at least the next 12 months.
17
<PAGE> 18
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>
<CAPTION>
<S> <C>
Report of Independent Public Accountants................................................................................ F-1
Consolidated Balance Sheets at September 30, 1996 and 1997.............................................................. F-2
Consolidated Statements of Operations for the three years ended September 30, 1995,
1996, and 1997........................................................................................................ F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the three years ended
September 30, 1995, 1996, and 1997.................................................................................... F-4
Consolidated Statements of Cash Flows for the three years ended September 30, 1995,
1996, and 1997........................................................................................................ F-5
Notes to Consolidated Financial Statements.............................................................................. F-6
Financial Statement Schedules:
Report of Independent Public Accountants on Financial Statement Schedule................................................ F-14
Schedule II - Valuation and Qualifying Accounts......................................................................... F-15
</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, 1997.
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 Form 10-Q)
4.1 Specimen certificate for shares of Common Stock, $.01 par value of
the Company (incorporated herein by reference to the Company's
Registration Statement on Form S-1 (File No. 33-80549))("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 November 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, 1997
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 and 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 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 (incorporated herein by reference to the
Company's amended annual report on Form 10-K for the fiscal year
ended September 30, 1996 (the "1996 Form 10-K/A"))
10.15 Patent License Agreement dated March 15, 1996 between the Company and
Dataproducts Corporation (incorporated herein by reference to the
Form 10-Q)
*10.16 Lease by and between Oskar G. Rogg and Trident, Inc. for Premises at
1112 and 1114 Federal Road, Brookfield, Connecticut dated as of
August 6, 1997
*10.17 Lease by and between Robert and Laura E. Lore and Trident, Inc. for
Premises at 129 Danbury Road, New Milford, Connecticut dated as of
October 23, 1997
*10.18 Commercial Promissory Financial Note between Fleet Bank and Trident
International, Inc. dated as of September 30, 1997
21.1 Schedule of Subsidiaries of Registrant (incorporated herein by
reference to the Registration Statement)
*23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
* Filed herewith
** Certain portions of this documents have been omitted pursuant to a
grant of confidential treatment request from the Securities and
Exchange Commission ("the Commission"). The omitted portions have
been filed separately with the Commission.
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)
December 19, 1997 /s/ Elaine A. Pullen
Dated:------------------------- By:--------------------------------------
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 19, 1997
----------------------------------- Chairman of the Board
(R. Hugh Van Brimer)
President, December 19, 1997
/s/ Elaine A. Pullen Chief Executive Officer
----------------------------------- and Director
(Elaine A. Pullen) (Principal Executive Officer)
Vice President December 19, 1997
/s/ J. Leo Gagne and Chief Financial Officer
----------------------------------- (Principal Financial and
(J. Leo Gagne) Accounting Officer)
/s/ Robert S. Anderson Director December 19, 1997
-----------------------------------
(Robert S. Anderson)
/s/ Russell Greenberg Director December 19, 1997
-----------------------------------
(Russell Greenberg)
/s/ Bruce Johnston Director December 19, 1997
-----------------------------------
(Bruce Johnston)
Director
-----------------------------------
(Michael K. Lorelli)
/s/ Norman Norris Director December 19, 1997
-----------------------------------
(Norman Norris)
/s/ John R. Webb Director December 19, 1997
-----------------------------------
(John R. Webb)
</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, 1996 and 1997 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended September 30, 1997. 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, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
-------------------------------
ARTHUR ANDERSEN LLP
Hartford, Connecticut
October 24, 1997
F-1
<PAGE> 24
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000'S OMITTED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................................. $ 17,349 $ 7,065
Marketable securities ..................................................................... -- 12,728
Accounts receivable, net of allowance for doubtful accounts of $300,000
in 1996 and 1997 ....................................................................... 3,915 4,385
Inventories ............................................................................... 1,563 1,745
Deferred income taxes ..................................................................... 431 465
Other current assets ...................................................................... 167 148
-------- -------
Total current assets ............................................................... 23,425 26,536
LEASEHOLD IMPROVEMENTS AND EQUIPMENT, net .................................................. 1,443 1,924
DEFERRED INCOME TAXES ...................................................................... 919 704
INTANGIBLE ASSETS, net of accumulated amortization of $1,824
in 1996 and $2,625 in 1997 ............................................................... 12,544 11,743
-------- -------
$ 38,331 $40,907
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................................................... $ 999 $ 1,540
Accrued expenses ......................................................................... 1,101 1,067
Income taxes payable ..................................................................... 269 411
-------- -------
Total current liabilities .......................................................... 2,369 3,018
-------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 14)
STOCKHOLDERS' EQUITY:
Common Stock, $.01 Par value; 30,000,000 shares authorized; 7,010,234 and 7,167,981 shares
issued and outstanding at september 30, 1996 and 1997, respectively .................. 70 72
Additional paid-in capital ............................................................... 40,059 40,146
Retained earnings (deficit) .............................................................. (4,167) 3,346
-------- -------
35,962 43,564
Less - treasury stock at cost, 345,000 shares ............................................ -- 5,675
-------- -------
Total stockholders' equity ......................................................... 35,962 37,889
-------- -------
$ 38,331 $40,907
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE> 25
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
NET SALES ........................................................ $ 17,330 $ 25,925 $ 30,283
COST OF SALES .................................................... 6,604 9,392 10,818
----------- ----------- -----------
Gross profit ............................................... 10,726 16,533 19,465
----------- ----------- -----------
OPERATING EXPENSES:
Marketing and selling ...................................... 912 1,415 2,358
Research and development ................................... 1,317 2,326 3,027
Write-off of purchased in-process research and development.. -- 3,052 --
General and administrative ................................. 1,580 2,405 2,134
Amortization of excess of purchase price over the fair value
of net assets acquired and other intangibles ............ 802 800 802
Amortization of deferred compensation ...................... 1,183 443 --
----------- ----------- -----------
Total operating expenses ............................. 5,794 10,441 8,321
----------- ----------- -----------
Operating income ..................................... .4,932 6,092 11,144
OTHER (INCOME) EXPENSE:
Interest (income) expense, net ............................. 1,845 241 (1,072)
Redeemable warrant interest charge ......................... 4,561 1,710 --
----------- ----------- -----------
Income (loss) before income taxes and extraordinary
item................................................. (1,474) 4,141 12,216
PROVISION FOR INCOME TAXES ....................................... 1,965 2,752 4,703
----------- ----------- -----------
Net income (loss) before extraordinary item ............ (3,439) 1,389 7,513
EXTRAORDINARY ITEM, net of income tax benefit of $1,253 .......... -- (1,803) --
----------- ----------- -----------
NET INCOME (LOSS) ................................................ (3,439) (414) 7,513
INCREASE IN REDEMPTION VALUE OF PREFERRED STOCK .................. (187) (83) --
----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS .............. $ (3,626) $ (497) $ 7,513
=========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) before extraordinary item ................ $ (2.26) $ 0.26 $ 1.05
Extraordinary item, net of tax ............................. -- (0.36) --
----------- ----------- -----------
Net income (loss) .......................................... $ (2.26) $ (0.10) $ 1.05
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ....................... 1,603,562 5,030,112 7,151,722
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 26
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(000'S OMITTED, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK ADDITIONAL RETAINED
$.01 PAR VALUE COMMON STOCK PAID-IN DEFERRED EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT)
------ ------ ------ ------ ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE September 30, 1994 ....... 1,500,000 $ 15 -- $-- $ 1,101 $ -- $ (44)
Net loss ....................... -- -- -- -- -- -- (3,439)
Issuance of common stock ....... 60,000 1 -- -- 59 -- --
Increase in redemption value
of preferred stock ........... -- -- -- -- -- -- (187)
Deferred compensation associated
with issuance of contingent
warrants ..................... -- -- -- -- 1,626 (1,626) --
Amortization of deferred
compensation ................. -- -- -- -- -- 1,183 --
---------- ---- --------- --- -------- ------- -------
BALANCE, September 30, 1995 ...... 1,560,000 16 -- -- 2,786 (443) (3,670)
Net loss ....................... -- -- -- -- -- -- (414)
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 28,245 -- --
Payment of offering costs ...... -- -- -- -- (1,065) -- --
Exercise of warrants and
options....................... -- -- 477,064 4 459 -- --
Conversion of preferred stock
to common stock .............. -- -- 3,073,170 31 3,363 -- --
Conversion of redeemable
common stock warrants to
stockholders' equity ......... -- -- -- -- 6,271 -- --
Increase in redemption value of
preferred stock .............. -- -- -- -- -- -- (83)
Amortization of deferred
compensation ................. -- -- -- -- -- 443 --
---------- ---- --------- --- -------- ------- -------
BALANCE, September 30, 1996 ...... -- -- 7,010,234 70 40,059 -- (4,167)
Net income ..................... -- -- -- -- -- -- 7,513
Issuance of common stock ....... -- -- 3,689 -- 55 -- --
Purchase of treasury stock ..... -- -- -- -- -- -- --
Exercise of warrants and
options ...................... -- -- 154,058 2 32 -- --
---------- ---- --------- --- -------- ------- -------
BALANCE, September 30, 1997 ...... -- $ -- 7,167,981 $72 $ 40,146 $ -- $ 3,346
========== ==== ========= === ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
TREASURY
STOCK TOTAL
----- -----
<S> <C> <C>
BALANCE September 30, 1994 ....... $ -- $ 1,072
Net loss ....................... -- (3,439)
Issuance of common stock ....... -- 60
Increase in redemption value
of preferred stock ........... -- (187)
Deferred compensation associated
with issuance of contingent
warrants ..................... -- --
Amortization of deferred
compensation ................. -- 1,183
------- --------
BALANCE, September 30, 1995 ...... -- (1,311)
Net loss ....................... -- (414)
Conversion of Class A common
stock to common stock ........ -- --
Issuance of common stock ....... -- 28,264
Payment of offering costs ...... -- (1,065)
Exercise of warrants and
options....................... -- 463
Conversion of preferred stock
to common stock .............. -- 3,394
Conversion of redeemable
common stock warrants to
stockholders' equity ......... -- 6,271
Increase in redemption value of
preferred stock .............. -- (83)
Amortization of deferred
compensation ................. -- 443
------- --------
BALANCE, September 30, 1996 ...... -- 35,962
Net income ..................... -- 7,513
Issuance of common stock ....... -- 55
Purchase of treasury stock ..... (5,675) (5,675)
Exercise of warrants and
options ...................... -- 34
------- --------
BALANCE, September 30, 1997 ...... $(5,675) $ 37,889
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 27
TRIDENT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................................... $(3,439) $ (414) $ 7,513
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization ............................................ 1,542 1,315 1,152
Amortization of deferred compensation .................................... 1,183 443 --
Extraordinary item ....................................................... -- 3,056 --
Write-off of consulting agreement ........................................ -- 438 --
Gain (loss) on sale of fixed assets ...................................... (2) -- --
Deferred income taxes .................................................... (18) (1,162) 181
Accretion of interest on zero coupon notes ............................... 243 108 --
Accretion of redeemable warrant interest charge .......................... 4,561 1,710 --
Changes in operating assets and liabilities:
Accounts receivable ................................................... (1,241) (986) (470)
Inventories ........................................................... 539 (514) (182)
Other current assets .................................................. (33) (72) 19
Accounts payable, accrued expenses and income taxes payable ........... 509 875 649
------- -------- --------
Net cash provided by operating activities .......................... 3,844 4,797 8,862
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities, net .................................. -- -- (12,728)
Purchases of leasehold improvements and equipment, net ................... (440) (848) (832)
------- -------- --------
Net cash used in investing activities .............................. (440) (848) (13,560)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................................... 60 28,264 55
Payments of offering costs ............................................... -- (1,065) --
Exercise of warrants and stock options ................................... -- 463 34
Purchases of treasury stock .............................................. -- -- (5,675)
Repayments of long-term indebtedness ..................................... (750) (17,250) --
Repayments on line-of-credit ............................................. (244) -- --
------- -------- --------
Net cash (used in) provided by financing activities ............... (934) 10,412 (5,586)
------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... 2,470 14,361 (10,284)
CASH AND CASH EQUIVALENTS, beginning of period ............................. 518 2,988 17,349
------- -------- --------
CASH AND CASH EQUIVALENTS, end of period ................................... $ 2,988 $ 17,349 $ 7,065
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest ............................................................... $ 1,327 $ 3,120 $ --
Income taxes ........................................................... $ 1,927 $ 2,506 $ 4,381
Non-cash transactions --
Increase in redemption value of preferred stock ....................... $ 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:
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.
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 a previously existing
credit facility (the Credit Agreement) and $4,500,000 to retire all of the
Company's zero coupon notes (see Note 9).
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.
Marketable securities
The Company invests in marketable securities of highly rated financial
institutions and investment grade debt instruments and limits the amount of
credit exposure in any one entity. The Company has classified its marketable
securities as "available for sale" and accordingly carries such securities at
aggregate fair value. Unrealized gains or losses are included in stockholders'
equity as a component of additional paid-in capital. At September 30, 1997, the
fair value of the Company's marketable securities approximated its cost.
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-6
<PAGE> 29
Leasehold improvements and equipment
Leasehold improvements and equipment are comprised of the following:
<TABLE>
<CAPTION>
September 30,
(000's omitted)
1996 1997
---- ----
<S> <C> <C>
Leasehold improvements........................... $ 301 $ 567
Machinery and equipment.......................... 1,496 2,021
Furniture and fixtures........................... 165 207
------ ------
1,962 2,795
Less - Accumulated depreciation and
amortization................................... 519 871
------ ------
$1,443 $1,924
====== ======
</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, 1997. 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 which is generally between one and three years. The
related liability is included in accrued expenses in the accompanying
consolidated balance sheets.
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.
F-7
<PAGE> 30
Net income (loss) per common share
Primary earnings (loss) per common share is determined by deducting, where
applicable, 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 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share", which establishes new standards for computing and
presenting earnings per share. SFAS No. 128 is effective for financial
statements issued for periods ending after December 31, 1997 and earlier
adoption is not permitted. The Company believes that the impact of adoption of
this statement will not have a material effect on the calculation of earnings
per share.
In July 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners
("comprehensive income"). SFAS No. 130 is effective for financial statements
issued for fiscal years beginning after December 15, 1997 with earlier
application permitted. The Company believes that the impact of adoption of this
statement will not have a significant effect on the Company's financial position
and results of operations.
3. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30,
(000's omitted)
1996 1997
---- ----
<S> <C> <C>
Raw materials............................... $ 894 $ 943
Work-in-process............................. 331 511
Finished goods.............................. 338 291
------ ------
$1,563 $1,745
====== ======
</TABLE>
4. INTANGIBLE ASSETS:
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
September 30,
(000's omitted)
1996 1997
---- ----
<S> <C> <C>
Excess of purchase price over fair value of
net assets acquired........................... $13,945 $13,945
Prepaid license fee............................. 378 378
Other........................................... 45 45
------- -------
14,368 14,368
Less -- Accumulated amortization................ 1,824 2,625
------- -------
$12,544 $11,743
======= =======
</TABLE>
F-8
<PAGE> 31
5. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
September 30,
(000's omitted)
1996 1997
---- -----
<S> <C> <C>
Bonuses payable............................. $ 307 $ 150
Accrued warranty............................ 575 625
Salaries payable............................ 126 172
Other....................................... 93 120
------ ------
$1,101 $1,067
====== ======
</TABLE>
6. SIGNIFICANT CUSTOMERS:
The largest customer of the Company was the only customer that accounted
for more than 10% of the Company's net sales with 23% of the Company's net sales
for the year ended September 30, 1997. Accounts receivable for this customer was
approximately $1,260,000 at September 30, 1997. The three largest customers 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 receivables 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>
FOR THE YEARS ENDED
SEPTEMBER 30,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Americas............ $12,130 $17,994 $21,507
Europe.............. 3,500 5,986 6,150
Far East............ 1,700 1,945 2,626
------- ------- -------
$17,330 $25,925 $30,283
======= ======= =======
</TABLE>
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. At the time of the purchase of the solid ink jet technology, certain
technological hurdles had not been overcome to enable the Company to
commercialize a product. Commercialization of this technology by the Company
will require extensive development work both on the solid ink itself and the ink
jet printheads used to apply that ink in commercial applications. The Company
plans to further develop this technology and develop new products using this
technology. This development process should continue until July of 1998.
Consequently, 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 in 1996, 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 outstanding
balance under the Company's Credit Agreement. 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.
F-9
<PAGE> 32
10. 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 1.5%. Borrowings
are collateralized by all corporate assets. There were no outstanding borrowings
under this agreement at September 30, 1997.
11. STOCKHOLDERS' EQUITY:
Redeemable Convertible Participating Preferred Stock
In June 1994, 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.
Common Stock
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. There were no outstanding shares
of preferred stock at September 30, 1997.
Employee Stock Purchase Plan
In January, 1997, the stockholders approved the Trident International, Inc.
Employee Stock Purchase Plan (ESPP). The ESPP allows eligible employees the
right to purchase common stock on a quarterly basis at the lower of 85% of the
market price at the beginning or end of each three-month offering period. During
fiscal 1997, 3,689 shares were issued under the ESPP for $55,437. At September
30, 1997, the Company had a balance of 96,311 shares reserved for the ESPP.
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 non-qualified 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, 1997, 726,900 shares were
available for granting of additional options.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 requires the
measurement of the fair value of stock options or warrants to be included in the
statement of income or disclosed in the notes to financial statements. The
Company has determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion No. 25 and
elect the disclosure-only alternative under SFAS 123. The Company has computed
the pro forma disclosures required under SFAS 123 for options granted in fiscal
1996 and 1997 using the Black Scholes option pricing model prescribed by SFAS
123. The weighted average assumptions used are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Risk free interest rate 6.16% 6.16%
Expected dividend yield 0% 0%
Expected lives 5 years 5 years
Expected volatility 49% 49%
</TABLE>
F-10
<PAGE> 33
Had compensation cost for the Company's stock option plan and employee
stock purchase plan been determined based on the fair value at the grant dates
of awards under these plans consistent with the method of SFAS 123, the
Company's net income (loss) and pro forma net income (loss) per common share
would have been the following amounts:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net income (loss):
As reported (000's omitted) $(414) $7,513
Pro forma (000's omitted) (414) 7,466
Net income (loss) per common share:
As reported (0.10) 1.05
Pro forma (0.10) 1.04
</TABLE>
Because SFAS 123 method of accounting has not been applied to options
granted prior to October 1, 1995, the resulting pro forma compensation cost may
be not representative of that to be expected in future years.
A summary of the status of the Company's stock options plan at September
30, 1997, 1996 and 1995 and changes during the years then ended is presented in
the table and narrative below:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------ ----------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at October 1, - $ - 108,000 $ 3.52 127,750 $ 5.52
Granted 108,000 3.52 26,000 13.69 139,100 17.73
Exercised - - 4,750 5.00 7,775 4.15
Canceled - - 1,500 5.00 7,800 8.99
------- ----- ------- ------ ------- ------
Outstanding at September 30, 108,000 $3.52 127,750 $ 5.52 251,275 $12.21
======= ===== ======= ====== ======= ======
Options exercisable at
September 30, 0 $ - 22,250 $ 3.20 50,850 $ 5.10
======= ===== ======= ====== ======= ======
Weighted average fair value
options granted during the year $ 6.81 $ 9.02
====== ======
</TABLE>
The following table represents weighted average price and life information
about significant option groups outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted
Range of Number Contractual Average Number
Exercise Prices Outstanding Life (Yrs) Exercise Price Exercisable
--------------- ----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
$1.00 38,000 7 $ 1.00 18,000
$5.00 51,100 8 $ 5.00 23,100
$12.00 - $18.00 115,175 9 $15.90 9,750
$18.01 - $20.25 47,000 9 $20.09 0
------- ------
251,275 50,850
======= ======
</TABLE>
F-11
<PAGE> 34
Redeemable warrants
In June, 1994, under the Credit Agreement, the Issuer (the Lender) was
issued warrants with 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
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 and 1997, warrants to purchase 55,976 and
153,828 shares, respectively were exercised. At September 30, 1997, warrants to
purchase 25,388 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.
12. INCOME TAXES:
The provision (benefit) for income taxes includes the following (000's
omitted):
<TABLE>
<CAPTION>
For the Years Ended
September 30,
--------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal ......................................... $1,432 $3,314 $3,838
State ........................................... 551 600 684
------ ------ ------
1,983 3,914 4,522
------ ------ ------
Deferred:
Federal ......................................... (13) (962) 154
State ........................................... (5) (200) 27
------ ------ ------
(18) (1,162) 181
------ ------ ------
Income tax before extraordinary item .............. $1,965 $2,752 $4,703
====== ====== ======
</TABLE>
F-12
<PAGE> 35
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>
For the Years Ended
September 30,
---------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate ................................................ (34%) 34% 34%
State taxes net of Federal benefit ........................................ 24 6 4
Non-deductible amortization of the excess of purchase price over fair value
of net assets acquired .................................................. 10 4 --
Non-deductible redeemable warrant interest charge ......................... 105 14 --
Benefit from foreign sales corporation .................................... (3) (3) (2)
Non-deductible amortization of deferred compensation ...................... 27 4 --
Other ..................................................................... 4 7 3
---- --- ---
Effective tax rate before extraordinary item .............................. 133% 66% 39%
==== === ===
</TABLE>
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,
------------------
1996 1997
---- ----
<S> <C> <C>
Current:
Accrued warranty expense ...... $ 213 $ 225
Inventories ................... 77 97
Allowance for doubtful accounts 111 108
Other accrued expenses ........ 30 35
------- -------
431 465
------- -------
Non-Current:
Depreciation and amortization . (58) (61)
Intangible assets ............. 977 765
------- -------
919 704
------- -------
Net deferred tax assets ...... $ 1,350 $ 1,169
======= =======
</TABLE>
13. 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
$46,000, $69,000, and $98,000 for the years ended September 30, 1995, 1996, and
1997, respectively.
14. 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, 1998, 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 $78,000. Rental expense amounted to $130,000, $154,000,
and $180,000 for the years ended September 30, 1995, 1996 and 1997,
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 1994, 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 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-13
<PAGE> 36
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, 1996 and 1997 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
September 30, 1995, 1996, and 1997 included in this Form 10-K, and have issued
our report thereon dated October 24, 1997. 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-15 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 24, 1997
F-14
<PAGE> 37
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>
Allowance for Doubtful Accounts -
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
October 1, 1996 to September 30, 1997 . . . . $300,000 $ - $ - $300,000
</TABLE>
F-15
<PAGE> 1
EXHIBIT 10.2
CONFIDENTIAL
CONSULTING AGREEMENT
AGREEMENT dated as of July 1, 1997 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, 1997 and ending on 30 June, 1998, 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, 1998. 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. The Company
will provide temporary office accommodation while Consultant is engaged in work
for the Company in Connecticut, and will provide accommodations and assistance
in Williamsburg required to perform consulting assignments.
2. Compensation. Consultant's compensation for the period commencing on 1
July, 1997 to the expiration of the Employment Term will be at the rate of one
thousand dollars
1
<PAGE> 2
($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 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.
2
<PAGE> 3
5. Renewal; Termination
(a) General. Except as otherwise provided herein, this Agreement
shall terminate on 30 June, 1998 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;
(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.
3
<PAGE> 4
(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 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
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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.
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
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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:_______________________________
Elaine A. Pullen
President and C.E.O.
CONSULTANT
By:_______________________________
R. Hugh Van Brimer
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EXHIBIT 10.16
August 6, 1997
Mr. Oskar G. Rogg
586 Danbury Road
New Milford, CT 06776
RE: Extension of Leases for 1112 and 1114 Federal Road, Brookfield, Connecticut
Dear Mr. Rogg:
This letter is to confirm that you, as landlord, and we, as tenant, have agreed
to extend the terms of the leases for the buildings which we occupy at 1112 and
1114 Federal Road, Brookfield, Connecticut, for an additional one year period
commencing July 1, 1997 and expiring June 30, 1998, upon the same terms and
conditions as are currently provided in the leases.
Please sign this letter in the space provided below and return it to us to
confirm your agreement with the above.
Sincerely,
/s/ J. Leo Gagne
- -----------------------------------
J. Leo Gagne
Vice-President and Chief Financial Officer
Agreed:
/s/ Oskar G. Rogg
- -----------------------------------
Oskar G. Rogg
<PAGE> 1
EXHIBIT 10.17
LEASE AGREEMENT
THIS LEASE AGREEMENT is made this 23rd day of October, 1997, by and
between ROBERT LORE, LAURA E. LORE, all of Brookfield, Connecticut,
(hereinafter, collectively, referred to as Lessor), and Trident International,
Inc., (hereinafter referred to as Lessee).
W I T N E S S E T H
THAT the Lessor, in consideration of the rents, terms, covenants,
conditions and agreements hereinafter reserved and contained on the part of
the Lessee to be paid, kept and performed, has granted, demised, leased and let,
and by these presents does grant, demise, lease and let, unto the Lessee, and
the Lessee does hereby take and hire from the Lessor, the premises hereinafter
described, subject to such rents, terms, covenants, conditions and agreements
which the Lessee agrees hereby to pay, keep and perform.
1. Description of Premises.
Lessor hereby leases to Lessee, and Lessee hereby rents from Lessor,
those certain premises outlined in red on Schedule A attached hereto and made a
part hereof, containing 6,398 square feet, (hereinafter called the "demised
premises"), which premises are part of a total structure constructed being
constructed by the Lessor on premises located on the Easterly side of Route #7,
in New Milford, Connecticut, and made a part hereof, TOGETHER WITH the right,
in common with others, to use the parking area, driveways, and other facilities
designed for common use, subject to the terms hereof.
2. Length of Term/Commencement Date.
The term of this Lease shall be for 1 year commencing on November 1,
1997, and ending on October 31, 1998 unless sooner terminated or extended, as
hereinafter provided.
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3. Minimum Rental.
During each year of the term of this Lease, Lessee covenants and agrees to
pay Lessor a fixed minimum annual rental, in lawful money of the United States,
equal to the amount resulting by multiplying the total square footage of the
demised premises by the following amounts:
Year of Term Amount
------------ ------
1 $6.00 per square foot
2 $ -- per square foot
3 $ -- per square foot
4 $ -- per square foot
5 $ -- per square foot
Such rental shall be payable, in each year, in monthly installments equal to
1/12th of the annual rental, in advance, on the first day of each month during
the term of this Lease, at the office of the Lessor or at such other place as
Lessor may designate, without any set-off or deduction whatsoever.
All adjustments of rent, costs, charges and expenses which Lessee assumes,
agrees or is obligated to pay to Lessor pursuant to this Lease, during the term
hereof, shall be deemed "Additional Rent", which Lessee covenants to pay when
due. In the event of nonpayment of such Additional Rent, Lessor shall have all
the rights and remedies with respect thereto as is herein provided for
nonpayment of rent.
4. Additional Rent -- Taxes and Common Charge.
A. Lessee shall pay, as Additional Rent as specified on Insert 1:
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(2) An annual common charge equal to the amount resulting by multiplying
the total number of square feet of the demised premises by the following
amounts:
Year of Term Amount
------------ ------
1 $.50 cents per square foot
2 $.50 cents per square foot
3 $.60 cents per square foot
4 $________ per square foot
5 $________ per square foot
Such common charge shall be payable in monthly installments equal to 1/12th of
the annual common charge, in advance, on the same day of each month and in the
same manner as hereinabove provided with respect to the payment of annual
rental.
Lessee will not pay sewer benefit assessment tax, but will pay sewer usage
tax.
6. Lessee's Installations.
Except for the improvements to be made by Lessor as provided in Paragraph
5 above, Lessee, at his own cost and expense, shall perform all work, and shall
fully equip the demised premises with all trade equipment, additional lighting
fixtures, furniture, operating equipment, furnishings, fixtures, floor
coverings, and any other equipment, necessary for the proper operation of
Lessee's business to be conducted on the demised premises.
7. Use of Premises.
Lessee shall use and occupy the demised premises for no purpose other than
office space, laboratory space and other general business uses.
8. Utilities.
The Lessor represents that the demised premises are, or will be prior to
the commencement of the term hereof, serviced by water, sewer and separately
metered electricity, but Lessor shall not be liable for any failure of any
water supply or electric current or
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any service by any such utility.
The Lessee shall pay all charges for electricity, light, heat, power and/or
other services used or charges imposed in or about or supplied to the demised
premises, and shall indemnify the Lessor against any and all liability on such
account.
Lessee, at his own expense, shall be responsible for the removal of his own
trash, rubbish, garbage and other refuse, and shall provide, at his own cost and
expense, a suitable receptacle for this purpose, to be placed in such area as
shall be designated by Lessor.
9. Common Areas.
All common areas and other facilities in or about the entire premises of
which the demised premises are a part provided by Lessor shall be subject to the
exclusive control and management of Lessor, at his sole cost and expense. Lessor
shall have the right to construct, maintain and operate lighting and other
facilities on all said areas and improvements; to police the same; to change the
area, level, location and arrangement of parking areas and other facilities; to
restrict parking by tenants, their officers, agents and employees; to close
temporarily all or any portion of the parking areas or facilities to discourage
non-customer parking.
Lessor shall pay the entire operating costs of the common areas of and
facilities on the entire premises of which the demised premises are a part.
"Operating costs" shall mean the total cost and expense incurred in operating
and maintaining the common facilities, including, without limitation, gardening
and landscaping, repairs, line painting, lighting, sanitary control, removal of
snow, and the cost of personnel to implement such services, and in directing
parking and policing the common facilities. "Common facilities and common
areas", whether such terms are used individually or collectively, shall mean all
areas, space, equipment, signs and special services, whether provided by
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Lessor or Lessee, for the common or joint use and benefit of the occupants of
the building, their employees, agents, servants, customer and other invitees,
including, without limitation, parking areas, access roads, driveways,
retaining walls, landscaped areas, truck service ways, loading docks,
pedestrian malls (enclosed or open), ramps and sidewalks, comfort and first-aid
stations, washrooms and parcel pick-up stations. Parking per Schedule A
attached.
All common areas and facilities which Lessee may be permitted to use and
occupy are to be used and occupied under a revocable license, and if such
license be revoked, or if the amount of such areas be changed or diminished,
Lessor shall not be subject to any liability, nor shall Lessee be entitled to
any compensation or diminution or abatement of rent, nor shall revocation or
diminution of any such areas be deemed constructive or actual eviction, it
being understood, however, that Lessee shall, at all times during the term of
this Lease, have access, by vehicle, to the demised premises.
10. Waiver of Damage.
The Lessor shall not be liable for any damage or injury to any property or
person (including death) resulting from steam, gas, electricity, water, rain or
snow which may flow or leak from any part of the demised premises or the entire
premises of which they are a part, or from any pipes, appliances or plumbing
works of the same, or from the street or subsurface, or from any other place,
or from interference with light or other incorporeal hereditaments or
easements, or by reason of the break or leakage or obstruction of the water or
soil pipes, or any other leakage in or about said premises, however caused,
except if due to the affirmative acts of the Lessor; nor for any damage or
injury which may be sustained as a result of the carelessness, negligence or
improper conduct on the part of the Lessee, or any other tenant, their agents,
servants or employees.
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11. Lessor's Right of Entry.
The Lessor, his agents and representatives, at all reasonable times, may
enter the demised premises for the purpose of (i) inspection thereof, (ii)
making repairs, replacements, alterations or additions to the same, without
imposing any obligation upon the Lessor hereunder, and (iii) exhibiting said
premises to prospective tenants, purchasers, or other persons.
12. Repairs.
The Lessor, at his sole cost and expense, except if caused by the
negligent act or omission of the Lessee, his agents or employees, shall
maintain and keep in good condition, the roof, floor and exterior and
supporting walls of the building housing the demised premises, and shall
effectuate major maintenance and repairs on the heating system (including
boilers), electrical, plumbing, septic, water supply and any air-conditioning
systems servicing the demised premises. Major repairs will be $1,250.00 or
more. The Lessee, at his sole cost and expense, except if caused by the
negligent act or omission of Lessor, his agents or employees, whether the same
shall be the property of the Lessee or Lessor, shall promptly repair and at all
times maintain in good condition the interior of the demised premises,
including any office, and shall make all other repairs to the interior thereof,
including those necessary and not major in nature on the electrical fixtures,
equipment, electrical installation, plumbing equipment, heating and
air-conditioning equipment and fixtures, machinery, hardware, interior painting
and decorations of every kind, all door and window screens and replace all
broken or damaged glass, including window and door glass and plate glass. In
addition, Lessee shall be responsible for the repair and replacement of the
front entry door. All such repairs and replacements shall be made only by
persons approved, in advance, in writing, by the Lessor.
13. Structural Changes/Alterations.
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The Lessee shall make no structural changes or major interior changes,
alterations or improvements to the demised premises, without the express prior
written consent of the Lessor, which consent shall not be unreasonably
withheld.
14. Fire Clause
A. If the demised premises shall be destroyed or so injured by any cause
as to be unfit, in whole or in part, for occupancy, and such destruction or
injury could reasonably be repaired within two (2) months from the happening of
such destruction or injury, then Lessee shall not be entitled to surrender
possession of the demised premises, nor shall Lessee's liability to pay rent
under this Lease cease, without the mutual consent of the parties hereto, but
in case of any such destruction or injury, Lessor shall repair the same with
all reasonable speed and shall complete such repairs within two (2) months from
the happening of such damage or injury, and if, during such period, Lessee
shall be unable to use all or any portion of the demised premises, a
proportionate allowance shall be made to Lessee from the rent, corresponding to
the time during which and to the portion of the demised premises of which
Lessee shall be so deprived to the use on account thereof.
B. If such destruction or injury cannot reasonably be repaired within two
(2) months from the happening thereof, Lessor shall notify Lessee within
fourteen (14) days after the happening of such destruction or injury whether or
not Lessor will repair or rebuild. If Lessor elects not to repair or rebuild,
this Lease shall be terminated. If Lessor shall elect to repair or rebuild,
Lessor shall specify the time within which such repairs or reconstruction will
be completed, and Lessee shall have the option, within thirty (30) days after
the receipt of such notice, to elect either to terminate this Lease and further
liability hereunder or to extend the term of the Lease by a period of time
equivalent to the time from the happening of such destruction or injury until
the demised premises are restored to their former condition. In the
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event Lessee elects to extend the term of this Lease, Lessor shall restore the
demised premises to their former condition within the time specified in the
notice, and Lessee shall not be liable to pay rent for the period from the time
of such destruction or injury until the demised premises are so restored to
their former condition.
C. Both the Lessor and Lessee hereby waive and relinquish any and all
rights which each may have against the other on account of any claims for
damages resulting from a loss to property owned by the other, it being the sole
intention of the parties to eliminate the right of either party to a
subrogation of his own rights to his insurance company.
15. Insurance.
During the term of this Lease, the Lessee, at his sole cost and expense,
shall carry and maintain insurance on the demised premises, and shall furnish
property evidence to the Lessor.
16. Acceptance of Premises.
The Lessee shall examine the demised premises before taking possession,
and the Lessee's entry into possession shall constitute conclusive evidence
that, as of the date thereof, said premises were in good order and satisfactory
condition.
17. Maintenance of Premises and Abutting Areas.
Lessee shall not permit, allow or cause any act or deed to be performed or
any practice to be adopted or followed in or about the demised premises which
shall cause or be likely to cause injury or damage to any person or to said
premises or to the sidewalks and pavements adjoining the building housing the
demised premise. Lessee, at all times, shall keep said demised premises, and
its appurtenances, in a neat and orderly condition and clean and free from
rubbish, dirt and other miscellaneous items and accumulations.
18. Signs, etc.
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A. Lessee, at his sole cost and expense, shall install a sign on the front
of the demised premises, which shall be uniform with the signs of all other
existing or future tenants of the building of which the demised premises are a
part, and which shall be approved by the Lessor prior to its installation.
B. If the Lessor, in his sole and absolute discretion, at any time during
the term of this Lease, elects to install a common free-standing sign on the
entire premises of which the demised premises are a part, listing all tenants
of such premises, including the Lessee, Lessee shall reimburse Lessor for
Lessee's proportionate share of the total cost thereof.
C. Lessee shall not permit, allow or cause to be erected, installed,
maintained, painted or displayed on, in or at the demised premises, or any part
thereof or of the entire premises of which the demised premises are a part, any
other exterior signs, or any interior signs, lettering, placards, announcements,
decoration, advertising media or advertising material of any kind whatsoever,
visible from the exterior of said premises, without the prior written approval
of the Lessor, provided, however, that, subject to compliance with all other
applicable provisions hereof, Lessee may display merchandise and advertising
media within the demised premises. Lessee shall not permit, allow or cause to
be used in or at the demised premises any advertising media or device, such as
phonographs, radios, public address systems, sound production or reproduction
devices, mechanical or moving display devices, motion pictures, television
devices, excessively bright lights, changing, flashing, flickering or moving
lights or lighting devices, or any similar devices, the effect of which shall
be visible or audible from the exterior of said premises.
D. In all respects, the Lessee shall comply with any and all applicable
rules and regulations concerning the erection and maintenance of signs within
the Town of New Milford, and shall pay for all costs connected with the
obtaining of any necessary permits.
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19. Nuisances.
The Lessee shall not permit, allow or cause any noxious, disturbing or
offensive odors, fumes, gas, noise or any smoke, dust, steam or vapors, or
conduct sound or cause vibration to originate in or to be emitted from the
demised premises.
20. Rodents, etc.
The Lessee shall keep the demised premises clear and free of rodents bugs,
vermin and, at the request of the Lessor, Lessee shall participate and
cooperate in carrying out any program of extermination that Lessor may direct,
and the Lessee shall bear the reasonable cost thereof, regardless of whether or
not any portion of the demised premises shall have been sublet by Lessee.
21. Housekeeping.
The Lessee shall not use or permit the use of any portion of the demised
premises as sleeping or living quarters or as lodging rooms, or keep or harbor
therein any live animals, fish or birds, or use the same for any illegal
purpose. Lessee shall not permit, allow or cause any sinks, toilets or urinals
in said premises to be used for any purpose except that for which they were
designed and installed, and the expense of repairing any breakage or damage or
removal of any stoppage resulting from a contrary use thereof shall be paid by
Lessee. Lessee shall maintain the windows in a clean, neat and orderly
condition, and keep the glass thereof clean, and shall store all trash, rubbish
and garbage within said premises, and shall provide for the prompt and regular
removal thereof for disposal outside the area of the demised premises or as
directed by the Lessor. Lessee shall not burn or otherwise dispose of any
trash, waste, rubbish or garbage in or about the demised premises. Lessee
agrees to permit no waste of the property, but on the contrary, to take good
care of same and, upon termination of this Lease, to surrender possession of
same, without notice, in as good condition as at the commencement of the term or
as they may be put
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in during the term, as reasonable use thereof will permit.
22. Option to Renew.
The Lessee shall have the right and option of extending this Lease for 2
further successive term one year, subject to all the terms, covenants and
conditions of this Lease, upon Lessee notifying Lessor, in writing, of his
election to renew, at least three (3) months prior to the expiration of the
original term of this Lease. The renewal rental charges will be as stated in
Insert 2.
23. Lessor's covenants.
Lessor covenants and warrants that he has full right and authority to
execute and perform this Lease and to grant the estate demised herein, and
covenants that the Lessee, on performance of his obligations hereunder, shall
peaceably and quietly hold and enjoy the demised premises throughout the term of
this Lease or any extension or renewal thereof.
24. Eminent Domain.
The parties hereto agree that should the demised premises, or the entire
premises of which they are a part, or any substantial part thereof, be taken or
condemned by a competent authority for public or quasi-public use, then, and in
such event, this Lease shall cease and terminate and come to an end as of the
time of such actual taking, and the rent shall be paid up to such time of actual
taking, and, then and thenceforth, all obligations of the parties hereunder, the
one to the other, shall cease and terminate. It is expressly agreed that the
Lessee shall not be entitled to any part or award by way of condemnation, appeal
therefrom, or settlement which may be obtained by the Lessor as a result of such
taking, nor shall the Lessee have any right to appear as a party in any
condemnation proceeding or appeal therefrom.
25. Conduct of Lessee.
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Lessee, at all times, shall fully and promptly comply with all laws,
ordinances, orders and regulations of any lawful authority having jurisdiction
of the demised premises, including, but not limited to, such as shall relate to
the cleanliness, safety, occupation and use of said premises, and the nature,
character and manner of operation of the business conducted in or at said
premises, or the adoption or use of any sales promotion devices or practices as
shall attempt to mislead or deceive the public, or which directly or indirectly,
would attempt to detract from or impair the reputation or dignity of said
business, said premises or the entire premises of which they are a part, or the
general reputation or dignity of any business of others conducted in the entire
premises of which the demised premises are a part.
26. Assignment and Subletting.
Lessee shall not assign, or in any manner transfer, this Lease or any
estate, interest or benefit therein, or sublet the demised premises, or any
part or parts thereof, or permit the use of the same or any part thereof, by
anyone other than the Lessee, without the prior written consent of the Lessor,
which consent shall not be unreasonably withheld. Transfer of a majority
interest in the Lessee shall constitute for purposes of this Lease, an
assignment of lease. Consent by the Lessor to any assignment or transfer of
interest under this Lease or subletting of said premises, or any part thereof,
shall be limited to the instance stated, and such written consent shall not
constitute consent to any other assignment, transfer of interest or subletting,
nor shall such consent relieve the Lessee of any of his obligations hereunder.
27. Bankruptcy.
If, at any time during the term hereby demised, a petition shall be filed
in bankruptcy by or against the Lessee, or if the Lessee shall make an
assignment for the benefit of creditors, or a receiver shall be appointed over
the assets of the Lessee, whether by voluntary or involuntary act, or if an
attachment, lien or
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execution shall be levied upon the assets of the Lessee located in the demised
premises, and such attachment shall not be released within thirty (30) days
after levy, then, upon the happening of any of the aforesaid events and at the
option of the Lessor, the Lease shall expire and terminate with the same force
and effect as if the time of the happening of any such event were the date fixed
herein for the expiration of the term of this Lease. It is further stipulated
and agreed that in the event of the termination of the term of this Lease by the
happening of any such events, Lessor shall forthwith, upon such termination, and
any other provision of this Lease to the contrary notwithstanding, become
entitled to recover as and for liquidated damages caused by such breach of the
provisions of this Lease an amount equal to the difference between the then cash
value of the rent reserved hereunder for the unexpired portion of the term
hereby demised and the then cash rental value of the demised premises for such
unexpired portion of the term hereby demised, unless the statute which governs
or shall govern the proceeding in which such damages are to be proved, limits or
shall limit the amount of such claim capable of being so proved, in which case,
the Lessor shall be entitled to prove as and for liquidated damages an amount
equal to that allowed by and under any such statute. The provisions of this
paragraph shall be without prejudice to the Lessor's right to prove, in full,
damages for rent accrued prior to the termination of this Lease, but not paid.
The provisions of this Lease shall be without prejudice to any rights given to
Lessor by any pertinent statute to prove for any amounts allowed thereby.
In making any such computation, the then cash rental value of the demised
premises shall be deemed, prima facie, to be the rental realized upon any
reletting, if such reletting can be accomplished by the Lessor within a
reasonable time after such termination of this Lease, and the then present cash
value of the future rents hereunder reserved to the Lessor for the unexpired
portion of the term hereby demised shall be deemed to be such sum, invested at
the rate of six percent (6%) simple interest, as will produce the
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future rent over the period of time in question.
28. Lessee's Default.
The happening of any one or more of the following listed events
(hereinafter referred to as "Event of Default"), shall constitute a breach of
this Lease on the part of the Lessee:
A. The failure of the Lessee to regularly and diligently and actively
operate his business in or on the demised premises;
B. The failure of the Lessee to pay any rent payable hereunder,
including, but not limited to, any additional rent or payments of
money required hereunder, and the continued failure to pay the same
for ten (10) days or more after the maturity of the same; and
C. The failure of the Lessee to fully and promptly perform any act
required of him in the performance of this Lease or to otherwise
comply with any term or provision hereof, and the continued failure
so to do for thirty (30) days or more after notice of such failure
from Lessor.
Upon the happening of any Event of Default, Lessor, if he shall elect, may
(i) collect each installment of rental hereunder as and when the same matures,
or (ii) Lessor, or any other person by his order, may re-enter the demised
premises without process of law and without being liable to any prosecution
therefore, and may either elect to terminate this Lease, or if the Lessor
desires not to terminate this Lease but to terminate the right to possession
and occupancy and relet and demised premises to any person, firm or
corporation, as the agent of the Lessee or otherwise, for whatever rent he
shall obtain, apply the avails of such reletting first to the payment of such
expenses as the Lessor may incur in the reentering and reletting of the same
and then to the payment of the rent due hereunder and the fulfillment of
Lessee's covenants, and
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pay over to the Lessee the balance, if any; and in case of its deficiency, the
Lessee shall remain liable therefore. Lessee agrees to pay a reasonable
attorney's fee and all costs, if it becomes necessary for Lessor to employ an
attorney to collect any of the rent or enforce any of the provisions of this
Lease, and any other cost of retaking or reletting said premises, including,
but not limited to, the payment of a commission for brokerage.
29. Arbitration.
Any and all disputes, disagreements, claims or questions arising out of
this Lease or from the breach hereof shall be submitted to arbitration in New
Milford, Connecticut, pursuant to and in accordance with the rules and
procedures of the American Arbitration Association then appertaining, and any
judgment upon the award rendered may be entered in the Court of the forum,
state or federal, having jurisdiction. It is mutually agreed that the decision
of the arbitrators shall be a condition precedent to any right of legal action
that either party may have against the other.
31. Holding Over.
And it is further agreed that in case the Lessee shall, with or without the
written consent of the Lessor endorsed hereon or on a duplicate hereof, at any
time hold over the demised premises beyond the period herein specified as the
termination of this Lease, then the Lessee shall hold said premises upon the
same terms and under the same stipulations and agreements as are in this Lease
contained and no holding over by the Lessee shall operate to renew this Lease,
nor to create any tenancy.
32. Notices.
Any and all notices or the exercise of any option rights called for or
required by any provision of this lease, unless specifically described herein,
shall be in writing, and shall be delivered to the respective parties by
certified mail, return receipt requested, at the following addresses:
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<PAGE> 16
A. To the Lessor: c/o Robert Lore
85 Riverford Road
Brookfield, Connecticut 06804
B. To the Lessee: c/o J. Leo Gagne, Vice President & CFO
Trident International, Inc.
1114 Federal Road
Brookfield, Connecticut 06804
Such addresses may be changed by either party by notifying the other party in
the manner required for notice.
33. Waiver.
The failure of the Lessor to insist upon strict performance of any of
the covenants or conditions of this Lease, or to exercise any option herein
conferred to any one or more instance, shall not be construed as a waiver or
relinquishment of any such covenants, conditions or options, but the same shall
be and remain in full force and effect.
34. Subordination.
It is further agreed that this Lease shall not be a lien against the
demised premises in respect to any mortgages that are now or hereafter may be
placed against said premises, and the recording of such mortgage or mortgages
shall have preference and precedence, regardless of the date of record. Lessee
further agrees to execute any document requested by Lessor to evidence or
further effectuate this provision of this Lease, and failing such execution,
Lessee shall be liable to Lessor for all damages, including reasonable
attorney's fees, incurred by Lessor as a result of such refusal. The term
"mortgage" shall include each and every form and type of security instrument. It
is further understood and agreed that reference to the execution of an
additional instrument or evidence of subordination is not necessary for this
subordination to be effective.
35. Security Deposit.
Lessee, upon the execution hereof, has deposited with the
16
<PAGE> 17
Lessor an amount equal to three (3) times the amount of the monthly rental plus
common charges payable during the first year of the term of this Lease, receipt
of which is hereby acknowledged by the Lessor, two (2) months of which as
security for the faithful performance and observance by Lessee of the terms,
provisions and conditions of this Lease, and one (1) month of which is for the
first month's rental. It is agreed that in the event Lessee defaults in respect
of any of the terms, provisions and conditions of this Lease, including, but
not limited to, the payment of minimum and/or additional rent, Lessor may use,
apply or retain the whole or any part of the security so deposited to the
extent required for the payment of any minimum and/or additional rent or any
other sum as to which Lessee is in default, or for any sum which Lessor may
expend or may be required to expend by reason of Lessee's default in respect of
any of the terms, covenants and conditions of this Lease, including, but not
limited to, any damages or deficiency in the re-letting of the demised
premises, whether such damages or deficiency accrued before or after summary
proceedings or other re-entry by Lessor.
In the event that Lessee shall fully and faithfully comply with all of the
terms, provisions, covenants and conditions of this Lease, the security, or the
unapplied portion thereof, as the case may be, shall be returned to Lessee at
the expiration of the term of this Lease, or any renewal thereof, and after
delivery of entire possession of the demised premises to the Lessor.
Lessee hereby waives his right to payment by the Lessor of statutory
interest on the amount of such security deposit.
36. Binding Effect.
This Lease, together with any and all addendae or amendments hereto, shall
inure to the benefit of the respective parties hereto, their heirs, successors
and assigns (provided that any assignment by the Lessee shall be effective only
if made in strict accordance with the terms of this Lease).
17
<PAGE> 18
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals on
the day and year first above written.
LESSOR: LESSEE:
By:
- ----------------------------- ----------------------------
Robert Lore
- -----------------------------
Laura E. Lore
18
<PAGE> 19
In the event that Lessee shall fully and faithfully comply with all of the
terms, provisions, covenants and conditions of this Lease, the security, or the
unapplied portion thereof, as the case may be, shall be returned to Lessee at
the expiration of the term of this Lease, or any renewal thereof, and after
delivery of entire possession of the demised premises to the Lessor.
Lessee hereby waives his right to payment by the Lessor of statutory
interest on the amount of such security deposit.
36. Binding Effect.
This Lease, together with any and all addendae or amendments hereto, shall
inure to the benefit of the respective parties hereto, their heirs, successors
and assigns (provided that any assignment by the Lessee shall be effective only
if made in strict accordance with the terms of this Lease).
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals on
the day and year first above written.
LESSOR: LESSEE:
/s/ Robert Lore By: /s/ J. Leo Gagne
- ------------------------------- ---------------------------------
Robert Lore
/s/ Laura Lore
- -------------------------------
Laura E. Lore
19
<PAGE> 20
Insert 1:
The leasee shall pay property taxes at the rate of $1.16 per square foot
per year. This amount will be adjusted based on changes in mil rate by the Town
of New Milford. Such amount will be paid in monthly installments equal to
1/12th of annual expense.
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<PAGE> 21
Insert 2:
First renewal year - Base Rent $6.50 per square foot
Common Charges $0.50 per square foot
Second renewal year - Base Rent $6.50 per square foot
Common Charges $0.60 per square foot
21
<PAGE> 1
EXHIBIT 10.18
COMMERCIAL PROMISSORY GRID NOTE
$1,000,000 AS OF SEPTEMBER 30, 1997
FOR VALUE RECEIVED, the undersigned, TRIDENT INTERNATIONAL, INC. (the
"BORROWER"), hereby promises to pay to the order of FLEET NATIONAL BANK (the
"BANK") at the office of Bank at 777 Main Street, Hartford, Connecticut 06115,
or at such other place as the holder (including Bank, hereinafter referred to as
"HOLDER") hereof may designate, the principal sum of ONE MILLION DOLLARS
($1,000,000), or the aggregate unpaid principal amount of all Advances made by
Holder to Borrower hereunder, whichever is less, in lawful money of the United
States, and to pay interest on each Advance, beginning on the date hereof,
before and after maturity or judgment (but subject to the default rate of
interest set forth below) at either (a) a fixed rate per annum equal to one
hundred fifty (150) basis points above IBOR (as determined for each Interest
Period applicable thereto) for available Interest Periods of thirty (30), sixty
(60) or ninety (90) days, or (b) a floating rate per annum equal to the Prime
Rate, whichever Borrower elects pursuant to the terms of this Note, and to pay
all taxes (except taxes on the overall net income or gross receipts of Holder)
levied or assessed on this Note or the debt evidenced hereby against Holder, and
together with all costs, expenses and attorneys' and other professional fees
incurred in any action to collect and/or enforce this Note or to enforce,
preserve, protect, defend, foreclose or realize upon any security agreement or
other agreement securing or relating to this Note or to enforce, preserve,
protect, defend, foreclose or sustain the lien of said security agreement or
other agreement or in any litigation or controversy arising from or connected
with said security agreement or other agreement, or this Note. Capitalized terms
used above shall have the meanings set forth in Paragraph 1 hereof.
This Note has been executed and delivered subject to the following terms
and conditions:
1. ADVANCES.
(a) Definitions. As used in this Paragraph 1 and elsewhere in this
Note, the following terms shall have the following meanings:
(i) "Advance" shall have the meaning set forth in subparagraph
(b) of this Paragraph 1.
(ii) "Business Day" means any day other than a Saturday,
Sunday or a day on which commercial banks located in Hartford, Connecticut are
required or permitted by law to close.
(iii) "Defaulting Event" means the occurrence of an Event of
Default or the occurrence of any condition or event which but for the giving of
notice or passage of time or both would constitute an Event of Default.
(iv) "Dollar" or "$" means lawful money of the United States
of
<PAGE> 2
America.
(v) "Event of Default" shall have the meaning set forth in
Paragraph 11 hereof.
(vi) "IBOR" means, for any LIBOR Rate Loan for any Interest
Period, the interest rate per annum determined pursuant to the following
formula, as adjusted from time to time in accordance with subparagraph (a)(xiii)
of this Paragraph 1:
IBOR = IBOR Base Rate
--------------------------------
1-Reserve Requirements
(vii) "IBOR Base Rate" means, as applicable to each LIBOR Rate
Loan, the rate per annum (rounded upwards, if necessary, to the next higher
1/32nd of 1%) as determined on the basis of the offered rates for deposits in
Dollars, for a period of time comparable to the Interest Period applicable to
such LIBOR Rate Loan, which appears on the Telerate page 3750 as of 11:00 a.m.
London time on the day that is two (2) LIBOR Business Days prior to the first
day of the Interest Period applicable to such LIBOR Rate Loan; PROVIDED,
HOWEVER, if the rate described above does not appear on the Telerate System on
any applicable interest determination date, the IBOR Base Rate shall be the rate
(rounded upwards, if necessary, to the next higher 1/32nd of 1%) for deposits in
Dollars for a period substantially equal to the Interest Period applicable to
such LIBOR Rate Loan on the Reuters Page "LIBO" (or such other page as may
replace the LIBO Page on that service for the purpose of displaying such rates),
as of 11:00 a.m. London time on the day that is two (2) LIBOR Business Days
prior to the first day of the Interest Period applicable to such LIBOR Rate
Loan.
If both the Telerate and Reuters system are unavailable, then the
rate for that date will be determined on the basis of the offered rates for
deposits in Dollars for a period of time comparable to the Interest Period
applicable to such LIBOR Rate Loan which are offered by four (4) major banks in
the London interbank market at approximately 11:00 a.m. London time on the day
that is two (2) LIBOR Business Days prior to the first day of the Interest
Period applicable to such LIBOR Rate Loan as selected by the calculation agent.
The principal London office of each of the four major London banks will be
requested to provide a quotation of its Dollar deposit offered rate. If at least
two (2) such quotations are provided, the rate for that date will be the
arithmetic mean of the quotations. If fewer that two (2) quotations are provided
as requested, the rate for that date will be determined on the basis of the
rates quoted for loans in Dollars to leading European banks for a period of time
comparable to the Interest Period applicable to such LIBOR Rate Loan offered by
major banks in New York City at approximately 11:00 a.m. New York City time, on
the day that is two (2) LIBOR Business Days prior to the first day of the
Interest Period applicable to such LIBOR Rate Loan. In the event that Holder is
unable to obtain any such quotation as provided above, it will be deemed that a
LIBOR Rate Loan is unavailable and, accordingly, such requested LIBOR Rate Loan
shall be made as a Prime Rate Loan.
(viii) "Interest Period" means, with respect to each Advance
which Borrower elects to be or continue to be a LIBOR Rate Loan, an available
period of one (1), two
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<PAGE> 3
(2) or three (3) months, as Borrower may elect pursuant to subparagraphs (b),
(c) and (d) of this Paragraph 1, commencing on the date upon which such Advance
is made, continued as or converted to a LIBOR Rate Loan, and ending on the last
day of such period, provided that:
(A) any Interest Period which would otherwise end on a day
which is not a London Business Day shall be extended to the next succeeding
Business Day unless such next London Business Day falls in another calendar
month, in which event such Interest Period shall end on the immediately
preceding London Business Day;
(B) any Interest Period that begins on the last London
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last London Business Day of a calendar month; and
(C) no Interest Period shall end after the Termination Date.
(ix) "LIBOR Rate Loan(s)" means any Advance(s) which bears
interest at a rate determined with reference to IBOR.
(x) "London Business Day" means a Business Day on which
dealings in Dollar deposits are also carried on in the London interbank market
and banks are open for business in London.
(xi) "Prime Rate" means, for any Prime Rate Loan, the variable
per annum rate of interest so designated from time to time by Holder as its
prime rate. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate being charged to any customer. With respect to
each Prime Rate Loan, any change in the interest rate because of a change in the
Prime Rate shall become effective, without notice or demand, immediately upon
any change in the Prime Rate.
(xii) "PRIME RATE Loan(s)" means any Advance(s) hereunder
which bears interest at a rate determined with reference to the Prime Rate.
(xiii) "Reserve Requirements" means, for any Interest Period
for each LIBOR Rate Loan, the maximum reserve percentage requirement (including
any marginal, special, emergency or supplemental reserves, and rounded to the
next higher 1/100th of 1% and expressed as a decimal) in effect for any day
during such Interest Period under Regulation D of the Board of Governors of the
Federal Reserve System for Eurocurrency Liabilities as defined therein (or in
the case of the fallback rate, for the type of deposits or liabilities on which
the fallback rate is based). With respect to each LIBOR Rate Loan, any change in
the interest rate because of a change in the Reserve Requirements shall become
effective, without notice or demand, on the date on which such change in the
Reserve Requirements becomes effective.
(xiv) "Termination Date" means August 1, 1998.
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<PAGE> 4
(b) Procedure for Advances, Payment. During the period from and
including the date hereof to but excluding the Termination Date, so long as
Borrower is in compliance with all of the terms and conditions of this Note and
no Defaulting Event has occurred and is continuing, Borrower may borrow, repay
and reborrow advances hereunder (each, an "ADVANCE"); provided, however, that
for the period commencing on the date hereof and continuing through and
including the Termination Date, there shall be no borrowings or reborrowings and
no outstanding principal under this Note for at least thirty (30) consecutive
days. Each Advance shall be either a Prime Rate Loan, a LIBOR Rate Loan or a
combination thereof, as Borrower may elect subject to the provisions of this
Note. Whenever Borrower desires an Advance, Borrower shall notify Holder (which
notice shall be irrevocable) by telex, telecopy or telephone of the proposed
borrowing. Such notice (each, a "NOTICE OF BORROWING") shall specify the date of
the proposed borrowing (which shall be a Business Day), the type of borrowing
(e.g. either a Prime Rate Loan, a LIBOR Rate Loan or a combination thereof), the
amount to be borrowed and, if a LIBOR Rate Loan is requested, the duration of
the initial available Interest Period. Each Notice of Borrowing for Advances
which are Prime Rate Loans must be received by Holder no later than 12:00 p.m.,
Hartford, Connecticut time on the day such borrowing is requested, and each
Notice of Borrowing for Advances which are LIBOR Rate Loans must be received by
Holder no later than 10:00 a.m., Hartford, Connecticut time at least three (3)
Business Days' prior to the day such borrowing is requested. Any Notice of
Borrowing may be followed by a written confirmation thereof by Borrower,
PROVIDED that if such written confirmation differs in any respect from the
action taken by Holder, the records of Holder shall control absent manifest
error. If any Advance is made, Holder may, at its option, record on the books
and records of Holder or endorse on Schedule 1 hereto, an appropriate notation
evidencing each Advance hereunder, the interest rate applicable to each such
Advance and repayments of all Advances; and Borrower authorizes Holder to
maintain such records or make such notations and agrees that the amount shown on
the books and records of Holder or on said Schedule 1, as applicable, as
outstanding from time to time shall constitute the amount owing to Holder
pursuant to this Note, absent manifest error. In the event the amount shown on
Schedule 1 conflicts with the amount noted as due pursuant to the books and
records of Holder, the books and records shall control the disposition of the
conflict. UNLESS SOONER ACCELERATED AS A RESULT OF THE OCCURRENCE OF AN EVENT OF
DEFAULT, ALL ADVANCES AND ANY OTHER SUMS DUE HEREUNDER SHALL BE DUE AND PAYABLE
IN FULL ON THE TERMINATION DATE IN IMMEDIATELY AVAILABLE FUNDS, at which time
Borrower shall have no ability to request, and Holder shall have no obligation
to make, any further Advances hereunder. Holder is authorized (but not required)
to charge principal and interest and all other amounts due under this Note to
any account of Borrower maintained with Holder as and when it becomes due.
(c) Election and Continuation of Interest Periods. Borrower shall
elect the initial available Interest Period applicable to each Advance
hereunder which it elects to be a LIBOR Rate Loan by its applicable Notice of
Borrowing or by its notice of conversion given to Holder pursuant to
subparagraph (d) of this Paragraph 1, as the case may be. Any LIBOR Rate Loan
may be continued as such upon the expiration of the then current Interest Period
with
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<PAGE> 5
respect thereto by Borrower giving irrevocable written notice to Holder (which
notice, in the case of a continuation of a LIBOR Rate Loan, shall indicate the
duration of the next available Interest Period to be applicable to such LIBOR
Rate Loan) not less than three (3) Business Days prior to the last Business Day
of the then current Interest Period with respect to such Loan, PROVIDED that no
LIBOR Rate Loan may be continued as such: (i) at a time when any Defaulting
Event has occurred and is continuing, (ii) in the event a LIBOR Rate Loan is
unavailable pursuant to subparagraphs (e) and (f) of this Paragraph 1, and (iii)
after the date that is thirty (30) days prior to the Termination Date. If Holder
does not receive timely written notice of continuation, or if any LIBOR Rate
Loan may no longer continue as such, such LIBOR Rate Loan shall be automatically
converted, without notice, to a Prime Rate Loan on the last day of the then
expiring Interest Period.
(d) Conversion of Advances. Borrower may elect from time to time,
subject to the limitations set forth below, to convert a Prime Rate Loan to a
LIBOR Rate Loan or a LIBOR Rate Loan to a Prime Rate Loan by giving Holder not
less than three (3) Business Days' prior irrevocable written notice of such
election, PROVIDED that any such conversion of a LIBOR Rate Loan to a Prime Rate
Loan shall only be made on the last Business Day of the then current Interest
Period with respect thereto. Any such notice of conversion shall specify the
amount of the Advance being converted and, in the case of a conversion to a
LIBOR Rate Loan, the length of the initial available Interest Period applicable
thereto. All or any part of outstanding Advances hereunder which may be
converted as provided herein, PROVIDED that no Prime Rate Loan may be converted
by Borrower to a LIBOR Rate Loan (i) at a time when any Defaulting Event has
occurred and is continuing, (ii) at a time when a LIBOR Rate Loan is unavailable
pursuant to subparagraphs (e) and (f) of this Paragraph 1, and (iii) after the
date that is thirty (30) days prior to the Termination Date.
(e) Illegality. Notwithstanding any other provisions hereof, if any
applicable law or governmental regulation, guideline, order or directive, or any
change therein, or in the interpretation or application thereof by any
governmental authority charged with the interpretation or the administration
thereof (whether or not having the force of law) shall make it unlawful for
Holder to make or maintain LIBOR Rate Loans as contemplated by this Note: (i)
the obligation of Holder to make LIBOR Rate Loans, continue LIBOR Rate Loans as
such and/or convert Prime Rate Loans to LIBOR Rate Loans shall forthwith be
canceled, and (ii) such Advances then outstanding as LIBOR Rate Loans, if any,
shall be converted automatically, without notice, to Prime Rate Loans on the
respective last days of the then current Interest Periods with respect thereto
or within such earlier time as required by law. If any such conversion of the
LIBOR Rate Loans is made on a day that is not the last Business Day of the then
current Interest Period applicable thereto, Borrower shall pay Holder such
amount or amounts required pursuant to subparagraph (g) of this Paragraph 1.
(f) Basis for Determining IBOR Inadequate or Unfair. In the event,
and on each occasion, that Holder shall have determined (which determination
shall be conclusive and binding upon Borrower) that (i) adequate and reasonable
means do not exist for determining IBOR, or (ii) Dollar deposits in the relevant
amount and for the relevant maturity are no longer
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<PAGE> 6
available to Holder in the London interbank market, or (iii) the making or
continuation of LIBOR Rate Loans has been made impractical or unlawful by the
occurrence of a contingency that materially and adversely affects the London
interbank market, or (iv) the IBOR Base Rate will not adequately and fairly
reflect the cost to Holder of making or maintaining LIBOR Rate Loans, Holder
shall give Borrower notice of such determination as soon as practicable. If such
notice is given (A) any requested LIBOR Rate Loan shall be made as a Prime Rate
Loan, unless Borrower gives Holder three (3) Business Days' prior written notice
that its request for such borrowing is canceled, (B) any Prime Rate Loan that
was to have been converted to a LIBOR Rate Loan shall be continued as a Prime
Rate Loan, and (C) any outstanding LIBOR Rate Loan shall be automatically
converted, without notice, to a Prime Rate Loan effective on the last Business
Day of the then current Interest Period applicable thereto. Until such notice
has been withdrawn, no further LIBOR Rate Loans shall be made or continued as
such, nor shall Borrower have the right to convert Prime Rate Loans to LIBOR
Rate Loans.
(g) Indemnity. Borrower agrees to indemnify Holder and to hold
Holder harmless from any loss (including any of the Additional Costs referred to
in Paragraph 4 hereof and any lost profits) or expense that it may sustain or
incur as a consequence of (i) a default by Borrower in the payment of the
principal of or interest on any LIBOR Rate Loan, (ii) the failure by Borrower to
complete a borrowing of, conversion into or continuation of a LIBOR Rate Loan
after notice thereof has been given, or (iii) the making of a prepayment of a
LIBOR Rate Loan (irrespective of whether such prepayment is made pursuant to
Paragraph 6 hereof, as a result of termination and/or acceleration following an
Event of Default or for any other reason) on a day which is not the last day of
the then current Interest Period applicable thereto, including, but not limited
to, in each case, any such loss or expense arising from the reemployment of
funds obtained by it or from fees, interest or other amounts payable to
terminate the deposits from which such funds were obtained. Holder shall prepare
a certificate as to any additional amounts payable to it pursuant to this
subparagraph (g), which certificate shall be submitted by Holder to Borrower and
shall, absent manifest error, be deemed conclusive.
(h) Survival. The obligations and covenants of Borrower under this
Paragraph 1 shall survive the repayment of all Advances made hereunder.
2. INTEREST. All computations of interest hereunder shall be made on the
basis of a 360 day year and the actual number of days elapsed and shall be due
and payable as follows: (a) interest on each LIBOR Rate Loan shall be due and
payable on the last Business Day of each Interest Period in immediately
available funds; and (b) interest on each Prime Rate Loan shall be due and
payable monthly, in arrears, in immediately available funds commencing on the
first day of the next succeeding month following the making of, or conversion of
a LIBOR Rate Loan into, such Prime Rate Loan and continuing on the first day of
each and every month thereafter until such Prime Rate Loan is paid in full or
converted to a LIBOR Rate Loan pursuant to subparagraph (d) of Paragraph 1
hereof. Upon the occurrence of any Defaulting Event, without in any way
affecting Holder's other rights and remedies, or after maturity or after
judgment has been rendered on this Note, Borrower's right to select pricing
options shall cease and the unpaid principal balance of all outstanding Advances
shall, at the option of Holder, bear interest at a rate
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<PAGE> 7
which is four (4) percentage points per annum greater than that which would
otherwise be applicable.
3. LAWFUL INTEREST. Notwithstanding any provisions of this Note, it is the
understanding and agreement of Borrower and Holder that the maximum rate of
interest to be paid by Borrower to Holder shall not exceed the highest or the
maximum rate of interest permissible to be charged by a commercial lender such
as Holder to a commercial borrower such as Borrower under the laws of the State
of Connecticut. If, at any time, the rate of interest, together with all amounts
which constitute interest and which are reserved, charged or taken by Holder as
compensation for fees, services or expenses incidental to the making,
negotiating or collection of any Advance evidenced hereby, shall be deemed by
any competent court of law, governmental agency or tribunal to exceed the
maximum rate of interest permitted to be charged by Holder to Borrower, then,
during such time as such rate of interest would be deemed excessive, that
portion of each sum paid attributable to that portion of such interest rate that
exceeds the maximum rate of interest so permitted shall be deemed a voluntary
prepayment of principal.
4. ADDITIONAL PAYMENTS. In the event that applicable law, treaty or
regulation or directive from any government, governmental agency or regulatory
authority, or any change therein or in the interpretation or application
thereof, or compliance by Holder with any request or directive (whether or not
having the force of law) from any central bank or government, governmental
agency or regulatory authority, shall:
(a) subject Holder to any tax of any kind whatsoever (except taxes
on the overall net income or gross receipts of Holder) with respect to this Note
or the loans made by it, or change the basis of taxation of payments to Holder
of principal, interest or any other amount payable hereunder (except for changes
in the rate of tax on the overall net income of Holder);
(b) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirements against assets held by, or deposits or
other liabilities in or for the account of, advances or loans or other
extensions of credit by, or any other acquisition of funds by, any office of
Holder, including (without limitation) pursuant to Regulations of the Board of
Governors of the Federal Reserve System; or
(c) in the reasonable opinion of Holder, cause this Note or any
Advance evidenced hereby to be included in any calculations used in the
computation of regulatory capital standards; or
(d) impose on Holder any other condition;
and the result of any of the foregoing is to increase the cost to Holder of
making, converting into, continuing and/or maintaining the Advances evidenced
hereby (or any part thereof) by an amount that Holder reasonably deems to be
material, or to reduce the amount of any payment (whether of principal, interest
or otherwise) with respect of the Advances evidenced hereby by an amount that
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<PAGE> 8
Holder reasonably deems material, then, in any case, Borrower shall promptly pay
Holder, upon its demand, such additional amounts equal to such additional costs
or such reduction, as the case may be (collectively the "ADDITIONAL COSTS").
Holder shall certify the amount of such Additional Costs to Borrower, and such
certification, absent manifest error, shall be deemed conclusive.
5. LATE CHARGE. Holder may collect a late charge not to exceed five (5)
percent of any installment of interest or payment of principal or any other
amount due to Holder, which is not paid or reimbursed by Borrower within fifteen
(15) days of the due date thereof to defray the extra cost and expense involved
in handling such delinquent payment and the increased risk of non-collection.
The minimum late charge shall be $15.00.
6. PREPAYMENTS. If, at any time, the aggregate principal amount of all
Advances outstanding under this Note shall exceed the maximum amount permitted
by this Note, Borrower shall immediately prepay so much of the outstanding
principal balance that, after giving effect to such prepayments, the outstanding
principal balance shall not be in excess of the maximum amount permitted by this
Note. In addition, Borrower may, at its option and upon one (1) Business Days'
prior written notice, prepay any Advance hereunder, in whole or in part, on the
following conditions: (a) Borrower shall pay all accrued interest on the
principal being paid to the date of the prepayment and, in the case of
prepayments in full, all fees, charges, costs, expenses and other amounts then
due hereunder; and (b) in the case of a LIBOR Rate Loan, such LIBOR Rate Loan
shall only be prepaid on the last Business Day of the then current Interest
Period with respect thereto. In its notice, Borrower shall specify the date and
amount of the prepayment, whether the Advance being prepaid is a Prime Rate
Loan, LIBOR Rate Loan or a combination thereof, and, if a combination thereof,
the amount allocable to each. In the event that any prepayment (whether
mandatory or voluntary) of a LIBOR Rate Loan is required or permitted on a date
other than the last Business Day of the then current Interest Period with
respect thereto, Borrower shall indemnify Holder therefore in accordance with
subparagraph (g) of Paragraph I hereof. All prepayments will be applied first to
the payment of accrued interest to the date of the prepayment and the remainder
to the principal balances of this Note.
7. REPRESENTATIONS AND WARRANTIES. In order to induce Holder to make
Advances, Borrower makes the following representations and warranties to Holder,
which shall be deemed made as of the date hereof and on the date of each Advance
and shall survive the execution and delivery hereof and each performance
hereunder. Any knowledge acquired by Holder shall not diminish its rights to
rely upon such representations and warranties.
(a) Good Standing and Qualification. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
(b) Corporate Authority. Borrower has full power and authority to
enter into and perform the obligations under this Note, to make the borrowings
contemplated herein, to execute and deliver this Note and any other documents
executed in connection herewith, and to incur the obligations provided for
herein, all of which have duly authorized by all necessary and proper corporate
action. No other consent or approval or the taking of any other action in
-8-
<PAGE> 9
respect of the shareholders or of any public authority is required to be
obtained by Borrower as a condition to the validity or enforceability of this
Note or any other document executed in connection herewith.
(c) Binding Agreements. This Note and any other document executed
in connection herewith constitute the valid and legally binding obligations of
Borrower, enforceable in accordance with their respective terms.
(d) No Conflicting Law or Agreements. The execution, delivery and
performance by Borrower of this Note and any other document executed in
connection herewith (i) do not violate any provision of the Certificate of
Incorporation or By-laws of Borrower, (ii) do not violate any order, decree or
judgment, or any provision of any statute, rule or regulation, (iii) do not
violate or conflict with, result in a breach of or constitute (with notice or
lapse of time, or both) a default under any shareholder agreement, mortgage or
contract to which Borrower is a party, or by which any of its property is bound,
and (iv) do not result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any property or assets of Borrower,
other than any such lien, charge or encumbrance in favor of Holder created
hereunder.
(e) Compliance. Borrower: (i) is not in default in any material
respect with respect to or in violation of any order, writ, injunction or decree
of any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency, authority or official, or in
violation of any law, statute, rule or regulation to which it or its properties
is or are subject, (ii) has not received notice of any such default from any
party, and (iii) is not default in the payment or performance of any of its
material obligations or in the performance of any material mortgage, indenture,
lease, contract or other agreement to which it is a party or by which any of its
assets or properties are bound.
8. FINANCIAL STATEMENTS; NOTICE OF DEFAULT. Borrower shall deliver to
Holder: (a) within sixty (60) days after the close of each quarter of each
fiscal year of Borrower, a copy of Borrower's Quarterly Report on Form 10-Q
filed or to be filed with the Securities and Exchange Commission; (b) within
ninety (90) days after the close of each fiscal year of Borrower: (i) financial
statements including, a balance sheet as of the close of such year and
statements of income, cash flows and retained earnings for the year then ended,
prepared in conformity with GAAP (as defined below), applied on a basis
consistent with that of the preceding year or containing disclosure of the
effect on financial position or results of operations of any change in the
application of accounting principles during the year and accompanied by a report
thereon, containing an opinion, unqualified as to scope, of Arthur Andersen LLP,
or another nationally recognized firm of independent certified public
accountants selected by Borrower, and (ii) a copy of Borrower's Annual Report on
Form 10-K filed or to be filed with the Securities and Exchange Commission; (c)
within one hundred twenty (120) days after the close of each fiscal year of
Borrower, the most recent year end balance sheet and statement of income and
retained earnings of each endorser or guarantor of this Note (herein a
"GUARANTOR"), if any, in form and detail satisfactory to Holder, signed by such
Guarantor and certified as true, accurate and complete or, if Guarantor is a
natural person, personal financial statements in form and detail satisfactory to
-9-
<PAGE> 10
Holder and such Guarantor's federal and state income tax returns and all
schedules thereto, signed and dated and filed with the Internal Revenue Service
and applicable state revenue collection agency; and (d) promptly on becoming
aware of any Defaulting Event, notice thereof, in writing.
9. COVENANTS. Unless Holder otherwise consents in writing, Borrower
shall not:
(a) Encumbrances. Incur or permit to exist any lien, mortgage,
security interest, pledge, charge or other encumbrance, against any of its
property or assets, whether now owned or hereafter acquired (including, without
limitation, any lien or encumbrance relating to any response, removal or
clean-up of any toxic substances or hazardous wastes), except: (i) liens,
mortgages, security interests, charges or other encumbrances (A) in favor of
Holder, (B) listed on Schedule 2 attached hereto, or (C) specifically permitted,
in writing, by Holder; (ii) pledges or deposits in connection with or to secure
worker's compensation or unemployment insurance; and (iii) liens for taxes,
assessments or governmental charges or levies not yet due and payable, liens for
taxes, assessments or governmental charges or levies being contested in good
faith for which adequate reserves have been established to the extent required
by GAAP (as defined below), liens incurred in the ordinary course of business
which do not secure indebtedness for borrowed money such as carriers',
warehousemen's and mechanics' liens and other similar liens arising in the
ordinary course of business, liens incurred in connection with workers'
compensation, unemployment insurance and other types of social security, and
liens for purchase money indebtedness and capital lease indebtedness incurred by
Borrower as permitted in subparagraph (b) of this Paragraph 9.
(b) Limitation on Indebtedness. Create, incur or guarantee any
indebtedness or obligation for borrowed money (including without limitation, any
reimbursement obligations for any letter of credit issued by any financial
institution) from, or issue or sell any of its obligations to any lender other
than Holder in excess of $250,000 in the aggregate at any time outstanding.
(c) Contingent Liabilities. Assume, guarantee, endorse or otherwise
become liable upon the obligations of any person, firm or corporation, or enter
into any purchase or option agreement or other arrangement having substantially
the same effect as such a guarantee, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
(d) Covenant to Secure Equally and Ratably. Permit any other
indebtedness incurred after the date hereof to be secured by any asset of
Borrower unless Borrower secures this Note or causes this Note to be secured
equally and ratably with all such other indebtedness secured other than
indebtedness, secured liens or encumbrances permitted pursuant to subparagraph
(a) of this Paragraph 9.
(e) Consolidation, Merger, Purchase of Assets. Merge or consolidate
with or into any other person, firm or corporation nor will Borrower purchase or
otherwise acquire all or a material portion of the stock or assets of any other
person, firm or corporation.
-10-
<PAGE> 11
10. FINANCIAL COVENANTS. Unless Holder otherwise consents in writing:
(a) Definitions. As used in this Paragraph 10, the following terms
shall have the following meanings:
(i) "Current Ratio" means, as of any date of determination,
that quotient equal to (A) Total Current Assets, divided by (B) Total Current
Liabilities.
(ii) "Debt-to-Tangible Net Worth Ratio" means, as of any date
of determination, that quotient equal to (A) Total Liabilities, divided by (B)
Tangible Net Worth.
(iii) "EBIT" (Earnings Before Interest and Taxes) means, as of
any date of determination (without duplication), the sum of (A) net income (or
net loss) from continuing operations (excluding extraordinary items of income),
plus (B) all Interest expense net of interest income, plus (C) all income tax
expense, plus (D) any other non-cash items of expense, all as determined in
accordance with GAAP.
(iv) "GAAP" means generally accepted accounting principles in
the United States of America, as from time to time in effect; provided, however,
that for purposes of compliance with this Paragraph 10 and the related
definitions, GAAP means such principles as in effect on the date of the
preparation and delivery of the financial statements described in Paragraph 8
hereof and consistently followed, without giving effect to any subsequent
changes other than changes consented to in writing by Holder.
(v) "Indebtedness" means all obligations that in accordance
with GAAP should be classified as liabilities upon Borrower's balance sheet as
liabilities.
(vi) "Intangible Assets" means Borrower's assets that in
accordance with GAAP are properly classifiable as intangible assets, including,
but not limited to, good will, franchises, licenses, patents, trademarks,
tradenames and copyrights.
(vii) "Interest" means, for the applicable period, all
interest paid or payable, including, but not limited to, interest paid or
payable on Indebtedness.
(viii) "Interest Coverage Ratio" means, as of any date of
determination, that quotient equal to (A) EBIT, divided by (B) Interest.
(ix) "Tangible Net Worth" means, as of any date of
determination, the sum of (A) Total Assets, minus (B) the sum of (1) Total
Liabilities, plus (2) Intangible Assets.
(x) "Total Assets" means total assets determine in accordance
with GAAP (using the FIFO inventory valuation method).
(xi) "Total Current Assets" means total current assets
determined in
-11-
<PAGE> 12
accordance with GAAP (using the FIFO inventory valuation method).
(xii) "Total Current Liabilities" means total current
Indebtedness determined in accordance with GAAP (using the FIFO inventory
valuation method).
(xiii) "Total Liabilities" means total Indebtedness determined
in accordance with GAAP (using the FIFO inventory valuation method).
(b) Accounting Terms. Unless otherwise defined or specified in this
Paragraph 10, all accounting terms shall be construed and all accounting
determinations shall be made in accordance with GAAP.
(c) Tangible Net Worth. Borrower shall not permit its Tangible Net
Worth to fall below Twenty Million Dollars ($20,000,000) at any time.
(d) Interest Coverage Ratio. Borrower shall not permit its Interest
Coverage Ratio to be less than 3.0-to-1.0 as of March 31, June 30, September 30
and December 31 of each year.
(e) Current Ratio. Borrower shall not permit its Current Ratio to be
less than 1.5-to-1.0 as of March 31, June 30, September 30 and December 31 of
each year.
(f) Debt-to-Tangible Net Worth Ratio. Borrower shall not permit its
Debt-to-Tangible Net Worth Ratio to be greater than 1.0-to-1.0 as of March 31,
June 30, September 30 and December 31 of each year.
11. EVENTS OF DEFAULT; REMEDIES. Each of the following shall constitute an
"EVENT OF DEFAULT" hereunder:
(a) Failure to make due payment of principal or interest on this
Note or in the payment of any other liability owing by Borrower to Holder, now
existing or hereinafter incurred, whether direct or contingent, within five (5)
days of the due date thereof,
(b) Failure by Borrower to observe or perform any covenant contained
in this Note or any of its obligations under any document, instrument or
agreement governing, evidencing or securing this Note, and with respect only to
Borrower's covenants set forth in Paragraph 9 hereof, a continuation of any such
failure for fifteen (15) days;
(c) Any representation or warranty made by Borrower to Holder or any
statement, certificate or other data furnished by any of them in connection
herewith proves at any time to be incorrect in any material respect;
(d) Any levy, seizure, attachment, execution or similar process
shall be issued or levied on any property of Borrower having a fair market value
in excess of $250,000;
-12-
<PAGE> 13
(e) Borrower shall (i) apply for or consent to the appointment of a
receiver, conservator, trustee or liquidator of all or a substantial part of any
of its assets; (ii) become insolvent or be unable, or admit in writing its
inability, to pay its debts as they mature; (iii) file or permit the filing of
any petition, case, arrangement, reorganization, or the like under any
insolvency or bankruptcy law, or the adjudication of it as a bankrupt, or the
making of an assignment for the benefit of creditors or the consenting to any
form of arrangement for the satisfaction, settlement or delay of debt or the
appointment of a receiver for all or any part of its properties; or (iv) take
any action for the purpose of effecting any of the foregoing;
(f) An order, judgment or decree shall be entered, or a case shall
be commenced, against Borrower, without the application, approval or consent of
Borrower by or in any court of competent jurisdiction, approving a petition or
permitting the commencement of a case seeking reorganization or liquidation of
Borrower or appointing a receiver, trustee, conservator or liquidator of
Borrower, or of all or a substantial part of its assets and Borrower, by any
act, indicates its approval thereof, consent thereto, or acquiescence therein;
(g) Failure by Borrower to pay or perform any other indebtedness or
obligation in the aggregate principal amount of $250,000, whether contingent or
otherwise, or if any such other indebtedness or obligation shall be accelerated,
or if there exists any event of default under any instrument, document or
agreement governing, evidencing or securing such other indebtedness or
obligations;
(h) Holder believes that any material adverse change in the assets,
liabilities, financial condition or business of Borrower has occurred since the
date of any financial statements delivered to Holder before or after the date of
this Note; and
(i) If, at any time, holder believes in good faith that the prospect
of payment of any obligation or the performance of any agreement of Borrower is
impaired, or there is such a change in the assets, liabilities, financial
condition or business of Borrower as Holder believes in good faith impairs
Holder's security (if any) or increases its risk of non-collection.
Upon the occurrence of (1) any Event of Default set forth in subparagraphs
(e) and (f) of this Paragraph 11, any requirement upon Holder to make further
Advances hereunder shall automatically and immediately terminate and any and all
indebtedness hereunder shall automatically become immediately due and payable,
without presentment, demand, protest, notice of protest or other notice or
requirements of any kind, all of which are expressly waived by Borrower, and (2)
any one or more of the other Events of Default, any requirement upon Holder to
make further Advances hereunder shall, at the option of Holder, terminate and
any and all indebtedness hereunder shall, at the option of Holder, become
immediately due and payable, without presentment, demand, protest, notice of
protest or other notice or requirements of any kind, all of which are expressly
waived by Borrower. Failure to exercise such option shall not constitute a
waiver of the right to exercise the same in the event of any subsequent default.
-13-
<PAGE> 14
12. LIEN AND SET OFF. Borrower hereby grants Holder a lien, security
interest and right of setoff as security for all of its indebtedness and other
liabilities to Holder, whether now existing or hereafter arising, upon and
against all its deposits, credits, collateral and property, now or hereafter in
the possession, custody, safekeeping or control of Holder or, if Holder is Bank,
any entity under common control of Fleet Financial Group, or in transit to any
of them. At any time, without demand or notice, Holder may apply or set off the
same, or any part thereof, to any liability or obligation of Borrower to Holder,
even though unmatured and regardless of the adequacy of any other collateral
securing the indebtedness hereunder. ANY AND ALL RIGHTS TO REQUIRE HOLDER TO
MARSHAL OR OTHERWISE EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES ANY OR ALL OF THE INDEBTEDNESS HEREUNDER PRIOR TO
EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY OR IRREVOCABLY WAIVED.
13. PREJUDGMENT REMEDY WAIVER. BORROWER (1) ACKNOWLEDGES THAT THE ADVANCES
EVIDENCED BY THIS NOTE ARE PART OF A COMMERCIAL TRANSACTION, AND (2) TO THE
EXTENT PERMITTED BY STATE OR FEDERAL LAW, WAIVES THE RIGHT IT MAY HAVE TO PRIOR
NOTICE OF AND A HEARING UNDER ANY SUCH STATE OR FEDERAL LAW, INCLUDING WITHOUT
LIMITATION, CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS AMENDED, ON THE
RIGHT OF HOLDER TO ANY REMEDY OR COMBINATION OF REMEDIES THAT ENABLES HOLDER, BY
WAY OF ATTACHMENT, FOREIGN ATTACHMENT, GARNISHMENT OR REPLEVIN, TO DEPRIVE
BORROWER OF ANY OF THEIR PROPERTY, AT ANY TIME, PRIOR TO FINAL JUDGMENT IN ANY
LITIGATION INSTITUTED IN CONNECTION WITH THIS NOTE, AND FURTHER WAIVES ALL
RIGHTS TO REQUEST THAT HOLDER POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT
BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR
OBTAINED BY HOLDER.
14. JURY TRIAL WAIVER. BORROWER AND HOLDER MUTUALLY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR
ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR
ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING WITHOUT LIMITATION, TORT CLAIMS.
THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ACCEPT THIS NOTE AND
MAKE THE ADVANCES EVIDENCED HEREBY.
15. NO WAIVER. Failure by Holder to insist upon the strict performance by
Borrower of any terms and provisions herein shall not be deemed to be a waiver
of any terms and provisions
-14-
<PAGE> 15
herein, and Holder shall retain the right thereafter to insist upon strict
performance by Borrower of any and all terms and provisions of this Note or any
agreement securing the repayment of this Note.
16. MISCELLANEOUS. Any delay on the part of Holder hereunder in exercising
any right hereunder or under any mortgage or security agreement which may secure
this Note shall not operate as a waiver of any such right, and any waiver
granted for one occasion shall not operate as a waiver in the event of a
subsequent default. The rights and remedies of Holder hereof shall be cumulative
and not in the alternative, and shall include all rights and remedies granted
herein, in any document, instrument or agreement governing, evidencing or
securing this Note and under all applicable laws. This Note is the final,
complete and exclusive statement of the terms governing this Note.
17. ACKNOWLEDGMENT OF COPY, USE OF PROCEEDS, REPLACEMENT NOTE. Borrower
acknowledges receipt of a copy of the Note and attests, represents and warrants
to Holder that advances hereunder are to be used for general commercial purposes
and that no part of such proceeds will be used, in whole or in part, directly or
indirectly, for purchasing or carrying any "margin security" or "margin stock"
as such terms are defined in Regulation U of the Board of Governors of the
Federal Reserve System. Upon receipt of any affidavit of an officer of Holder as
to the loss, theft, destruction or mutilation of this Note or any other security
document which is not of public record, if any, and, in the case of any such
loss, theft, destruction or mutilation, upon surrender and cancellation of such
Note or other security document, Borrower will issue, in lieu thereof, a
replacement Note or other security document in the same principal amount thereof
and otherwise of like tenor.
18. TRANSFER OF BANK'S INTEREST. Borrower hereby agrees that Bank, in its
sole discretion, shall have the unrestricted right at any time and from time to
time, and without Borrower's consent, to grant to one or more banks or other
financial institutions (each, a "PARTICIPANT") participating interests in Bank's
obligation to lend hereunder and/or any or all of the advances held by Bank
hereunder. In the event of any such grant by Bank of a participating interest to
a Participant, whether or not upon notice to Borrower, Bank shall remain
responsible for the performance of its obligations hereunder and Borrower shall
continue to deal solely and directly with Bank in connection with Bank's rights
and obligations hereunder. Bank may furnish any information concerning Borrower
in its possession from time to time to Participants and prospective
Participants, PROVIDED that Bank shall require any such Participants and
prospective Participants to agree in writing to maintain the confidentiality of
such information. In addition to the foregoing, Bank may at any time pledge all
or any portion of its rights under this Note to any of the twelve (12) Federal
Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C.
Section 341, PROVIDED that no such pledge or enforcement thereof shall release
Bank from its obligations hereunder.
19. GOVERNING LAW. This Note shall be governed by the laws of the State of
Connecticut (without regard to its conflicts of law provisions).
-15-
<PAGE> 16
20. SEVERABILITY. If any provision of this Note is deemed void, invalid or
unenforceable under applicable law, such provision is and will be deemed to be
totally ineffective to that extent, but the remaining provisions shall be deemed
unaffected and shall remain in full force and effect.
21. SUCCESSORS AND ASSIGNS. The provisions of this Note shall bind the
assigns and successors of Borrower and shall inure to the benefit of Holder, its
successors and assigns.
IN WITNESS WHEREOF, Borrower has executed, or caused this Note to be duly
executed, as a sealed instrument.
Witnesses (as to both):
/s/ Barbara Koger TRIDENT INTERNATIONAL, INC.
- --------------------------------
/s/ Dianne R. Neley
- -------------------------------- By /s/ J. Leo Gagne
----------------------------------
Its Vice President--CFO
By
----------------------------------
Its
16
<PAGE> 17
Schedule 1
<TABLE>
<CAPTION>
Amount of
Advance Made
This Date And
Interest Rate Amount of Principal Amount of
Applicable Principal Prepaid Balance Remaining Interest Paid Notation
Date Thereto This Date Unpaid this Date Made By
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
-17-
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated October 24, 1997, in this Form 10-K, into the Company's previously
filed Registration Statements File numbers 333-10745 and 333-22477.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Hartford, Connecticut
December 19, 1997
<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, 1997 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-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,065
<SECURITIES> 12,728
<RECEIVABLES> 4,685
<ALLOWANCES> 300
<INVENTORY> 1,745
<CURRENT-ASSETS> 26,536
<PP&E> 2,795
<DEPRECIATION> 871
<TOTAL-ASSETS> 40,907
<CURRENT-LIABILITIES> 3,018
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 37,817
<TOTAL-LIABILITY-AND-EQUITY> 40,907
<SALES> 30,283
<TOTAL-REVENUES> 30,283
<CGS> 10,818
<TOTAL-COSTS> 8,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,216
<INCOME-TAX> 4,703
<INCOME-CONTINUING> 7,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,513
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
