<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 000-20719
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PRINTRAK INTERNATIONAL INC.
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(Exact name of registrant as specified in its charter)
Delaware 33-0070547
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1250 North Tustin Avenue Anaheim, California 92807
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(Address of principal executive offices) (Zip Code)
(714) 238-2000
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(Registrant's telephone number, including area code)
Not Applicable
-----------------
(Former name, former address and former fiscal year,
if changed since last report)
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 and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
------ ------
11,297,591 shares of the issuer's common stock, par value $0.0001 per
share, were outstanding as of July 31, 1998.
<PAGE>
FORM 10-Q
CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Number
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<S> <C>
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 30, 1998 (unaudited)
and March 31, 1998. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unaudited Consolidated Statements of Operations for the three month
periods ended June 30, 1998 and 1997. . . . . . . . . . . . . . . . . 2
Unaudited Consolidated Statements of Cash Flows for the three month
periods ended June 30, 1998 and 1997. . . . . . . . . . . . . . . . . 3
Notes to the Consolidated Financial Statements. . . . . . . . . . . . 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
Item 1: Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 14
Item 2: Changes in Securities. . . . . . . . . . . . . . . . . . . . 14
Item 3: Defaults upon Senior Securities. . . . . . . . . . . . . . . 14
Item 4: Submission of Matters to a Vote of Security Holders. . . . . 14
Item 5: Other Information. . . . . . . . . . . . . . . . . . . . . . 14
Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 14
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE>
PRINTRAK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(unaudited)
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . $ 657 $ 3,763
Short-term investments . . . . . . . . . . . . . . . . - 1,101
Accounts receivable, net (Note 2). . . . . . . . . . . 24,985 28,129
Inventories, net (Note 3) . . . . . . . . . . . . . . 8,450 8,229
Prepaid expenses and other current assets . . . . . . 1,882 2,413
Deferred income taxes . . . . . . . . . . . . . . . . 1,763 1,763
-------- --------
Total current assets . . . . . . . . . . . . . . 37,737 45,398
Notes receivable from related parties . . . . . . . . . . . 62 558
Property, plant and equipment - net . . . . . . . . . . . 4,719 5,086
Deferred income taxes . . . . . . . . . . . . . . . . . . . 2,244 2,243
Other long-term assets. . . . . . . . . . . . . . . . . . . 2,182 2,475
Goodwill and other intangible assets, net . . . . . . . . . 2,730 2,835
-------- --------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $ 49,674 $ 58,595
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 3,982 $ 6,538
Accrued wages and employee benefits. . . . . . . . . . 2,537 3,178
Other accrued liabilities. . . . . . . . . . . . . . . 5,558 7,194
Current portion of long-term debt (Note 4) . . . . . . 1,466 1,056
Deferred revenue . . . . . . . . . . . . . . . . . . . 7,945 8,640
Income taxes payable . . . . . . . . . . . . . . . . . 806 477
-------- --------
Total current liabilities . . . . . . . . . . . . 22,294 27,083
Long-term debt, less current portion (Note 4) . . . . . . . 6,553 10,960
-------- --------
Total liabilities . . . . . . . . . . . . . . . . 28,847 38,043
Stockholders' equity:
Common stock ($.0001 par value; 20,000,000 shares
authorized; 11,296,241 and 11,269,203 shares issued
and outstanding) . . . . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . 17,879 17,850
Retained earnings. . . . . . . . . . . . . . . . . . . 3,291 3,052
Unrealized gain on short-term investments. . . . . . . 21 11
Note receivable from stockholder . . . . . . . . . . . (300) (300)
Cumulative foreign exchange translation adjustment . . (65) (62)
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Total stockholders' equity. . . . . . . . . . . . 20,827 20,552
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY. . . . . . . . . . $ 49,674 $ 58,595
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months Three months
ended June 30, ended June 30,
1998 1997
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<S> <C> <C>
REVENUES:
System . . . . . . . . . . . . . . . . . . . . . $ 12,593 $ 12,406
Maintenance. . . . . . . . . . . . . . . . . . . 3,844 2,856
-------- --------
Total revenues. . . . . . . . . . . . . . . 16,437 15,262
COST OF REVENUES:
System . . . . . . . . . . . . . . . . . . . . . 6,237 6,350
Maintenance. . . . . . . . . . . . . . . . . . . 2,902 1,625
-------- --------
Total cost of revenues. . . . . . . . . . . 9,139 7,975
Gross profit. . . . . . . . . . . . . . . . 7,298 7,287
OPERATING EXPENSES:
Research, development and engineering. . . . . . 2,080 2,590
Selling, general and administrative. . . . . . . 4,637 3,810
Merger expenses . . . . . . . . . . . . . . . . . - 874
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Total operating expenses . . . . . . . . . . 6,717 7,274
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Operating income . . . . . . . . . . . . . . 581 13
Other (expense) income. . . . . . . . . . . . . . (216) 70
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Income before provision for income taxes . . 365 83
Provision for income taxes. . . . . . . . . . . . 127 29
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Net income . . . . . . . . . . . . . . . . . $ 238 $ 54
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-------- --------
Net income per common share:
Basic. . . . . . . . . . . . . . . . . . . . $ .02 $ .00
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-------- --------
Diluted. . . . . . . . . . . . . . . . . . . $ .02 $ .00
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PRINTRAK INTERNATIONAL INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months Three months
ended June 30, ended June 30,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 238 $ 54
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . 869 718
Gain on sale of fixed assets . . . . . . . . . . . (46) (1)
Deferred tax provision . . . . . . . . . . . . . . - 104
Changes in operating assets and liabilities:
Accounts receivable, net. . . . . . . . . . . 3,140 (1,093)
Inventories, net. . . . . . . . . . . . . . . (152) 474
Prepaid expenses and other current assets . . 824 162
Accounts payable. . . . . . . . . . . . . . . (2,236) (1,184)
Accrued liabilities . . . . . . . . . . . . . (2,368) 1,510
Deferred revenue. . . . . . . . . . . . . . . (595) (348)
-------- --------
Net cash (used in) provided by operating
activities . . . . . . . . . . . . . . . . . . (326) 396
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . (425) (306)
Proceeds from the sale of PPE. . . . . . . . . . . 5 -
Net proceeds from notes receivable . . . . . . . . 496 95
Sale (purchase) of short-term investments. . . . . 1,111 (563)
-------- --------
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . 1,187 (774)
Cash flows from financing activities:
Payments from long-term debt . . . . . . . . . . . (3,996) (713)
Additional paid in capital . . . . . . . . . . . . 29 184
-------- --------
Net cash used in financing activities. . . . . . . (3,969) (529)
Effect of exchange rate changes on cash balances . 2 54
-------- --------
Net change in cash and cash equivalents. . . . . . . . (3,106) (853)
Cash and cash equivalents, beginning of year. . . . . . 3,763 3,832
-------- --------
Cash and cash equivalents, end of period. . . . . . . . $ 657 $ 2,979
-------- --------
-------- --------
Non-Cash Transaction-Transfer of Inventory to Fixed
Assets . . . . . . . . . . . . . . . . . . . . . . 69 253
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense . $ 284 $ 41
-------- --------
-------- --------
Cash paid during the period for income taxes . . . $ 52 $ 474
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PRINTRAK INTERNATIONAL INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
GENERAL BUSINESS
Printrak International Inc. ("the Company") is a worldwide supplier of
integrated identification and information systems used primarily in criminal
justice and public safety applications, as well as in emerging applications
in civil markets such as welfare and immigration control. The Company
provides networked fingerprint, photo imaging, computer-aided dispatch and
automated records management systems, as well as digital scanning devices.
The Company's integrated systems serve approximately 700 national, state,
county and municipal agencies in 36 countries.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The unaudited consolidated financial statements reflect
all adjustments, which are normal and recurring in nature, and which in the
opinion of management are necessary to a fair statement of the financial
position and results of operations as of June 30, 1998 and for the three
month periods ended June 30, 1998 and 1997. The results of operations for
the three month period ended June 30, 1998 are not necessarily indicative of
the results of operations for the entire fiscal year ending March 31, 1999.
These consolidated financial statements and related footnotes should be read
in conjunction with the consolidated financial statements and related
footnotes presented in the Company's 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
REVENUE RECOGNITION - In October 1997, the AICPA issued SOP 97-2, "Software
Revenue Recognition" which later in part amended by SOP 98-4, "Deferral of
the Effective Date of a Provision of SOP 97-2". These statements supersede
SOP 91-1 under which the Company has previously been recognizing revenue.
The Company adopted SOP 97-2 for transactions entered into beginning April 1,
1998.
Pursuant to SOP 97-2, the Company recognizes revenue on contracts which do not
require significant modification or customization of software when all of the
following conditions are met: a signed contract is obtained, delivery has
occurred, the fee is fixed and determinable, collectibility is probable, and
any uncertainties with regard to customer acceptance are insignificant. A
majority of the Company's contracts include a combination of the following
elements: hardware, software, license fees, installation, program
modifications, file conversion, training, and customer support. For such
contracts, revenue must be allocated to each component based on vendor
specific objective evidence of the components fair value. Revenue allocated
to undelivered products is recognized as the above criteria are met; revenue
for services is recognized as services are performed or, for maintenance
agreements, ratably over the life of the related contract. Cash payments for
systems sales or maintenance received in advance of revenue recognition are
accounted for as deferred revenue. For those contracts which have been
considered long-term contracts due to a significant amount of customization,
the Company recognizes revenue on a percentage of completion basis.
<PAGE>
COMPREHENSIVE INCOME - Effective April 1, 1998, the Company has adopted SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. This statement establishes
standards for the reporting of comprehensive income and its components.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from nonowner sources. For the three month period ending
June 30, 1998, the difference between net income, as reported, and
comprehensive income was not significant.
CERTAIN TRANSACTIONS
On May 14, 1998, RICOL, LLC, a California limited liability company (RICOL),
which is controlled by Richard M. Giles, the Company's Chairman, President,
Chief Executive Officer and Acting Chief Financial Officer, sold the
principal operating facility (the Property) utilized by the Company. Upon
the sale of the building, RICOL repaid a note of $500,000 to the Company
associated with the original sale of the building from the Company to RICOL
on May 13, 1995. This resulted in the original note being fully satisfied.
In connection with the sale of the property, the Company entered into a lease
for the Property with the unrelated third party for a term of six years,
expiring April 30, 2004.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(unaudited)
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<S> <C> <C>
Billed receivables .................... $ 15,199 $ 18,641
Unbilled receivables................... 10,757 10,840
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25,956 29,481
Less allowance for doubtful accounts... (971) (1,352)
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$ 24,985 $ 28,129
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-------- --------
</TABLE>
Unbilled receivables consist of system and maintenance revenues which have been
earned but not invoiced because of contractual terms of the underlying
agreements.
3. INVENTORIES
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(unaudited)
----------- -----------
<S> <C> <C>
Raw materials ...................... $ 4,721 $ 4,979
Work in process..................... 5,015 4,657
-------- --------
9,736 9,636
Less allowance for inventory
obsolescence and revaluation...... (1,286) (1,407)
-------- --------
$ 8,450 $ 8,229
-------- --------
-------- --------
</TABLE>
<PAGE>
4. DEBT
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(unaudited)
----------- -----------
<S> <C> <C>
Revolving line of credits with bank:
Working capital line ................... $ 3,545 $ 7,488
Acquisition line........................ 4,000 4,000
Obligations under capital leases........ 474 528
-------- --------
Total debt ........................... 8,019 12,016
Less current portion of long-term debt.. (1,466) (1,056)
-------- --------
$ 6,553 $ 10,960
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</TABLE>
Subsequent to June 30, 1998, the Company negotiated an arrangement with its bank
to refinance its debt into a $15.0 million revolving credit facility used
principally for working capital and a $4.0 million term loan which has been
utilized in the past for acquisitions. The revolving credit facility expires
August 2, 1999, and the term loan is payable in quarterly installments beginning
November 1, 1998. The revolving line of credit and term loan agreements contain
certain restrictive covenants which restrict the Company's ability to pay
dividends and require the Company to maintain minimum tangible net worth and
certain other financial ratios. The Company was in compliance with these
covenants as amended.
5. NET INCOME AND NET INCOME PER SHARE
SFAS No. 128 requires dual presentation of "basic" and "diluted" earnings per
share, thus replacing "primary" and "fully diluted" earnings per share required
under APB No. 15. Basic EPS excludes common stock equivalents and is computed
by dividing net income by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the inclusion of common stock
equivalents and their potential dilution. Diluted EPS is similar to fully
diluted EPS; however, it uses the average stock price during the period as part
of the computation.
The number of shares used in computing EPS is as follows for the three months
ended June 30:
<TABLE>
<CAPTION>
1997 1998
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<S> <C> <C>
Weighted average shares outstanding - basic ..... 11,108,000 11,283,000
Common stock equivalents......................... 634,000 370,000
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Weighted average shares outstanding - diluted.... 11,742,000 11,653,000
---------- ----------
---------- ----------
</TABLE>
6. RESTRUCTURING CHARGES
In fiscal 1998, the Company announced a formal plan for restructuring both its
SunRise and TFP subsidiaries to realize cost savings and capitalize on synergies
by consolidating the subsidiaries into the Company's Anaheim operations. The
restructuring charges include lease termination and facility
<PAGE>
closure costs, losses on the disposition of fixed assets and severance costs
for terminated employees. As of June 30, 1998, the Company has principally
completed the restructuring activities, with the exception of subleasing its
Fremont, CA facility, and actual costs have not differed significantly from
amounts previously accrued. Approximately $329,000 of accrued restructuring
costs are included in accrued liabilities as of June 30, 1998, which
principally relate to future lease commitments and unpaid severance.
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTORY NOTE
This Quarterly Report on Form 10-Q contains certain 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 and the Company
intends that such forward-looking statements be subject to the safe harbors
created thereby. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks", "estimates", variations of such words and similar
expressions are intended to identify such forward-looking statements, which
include (I) the existence and development of the Company's technical and
manufacturing capabilities, (ii) anticipated competition, (iii) potential
future growth in revenues and income, (iv) potential future decreases in
costs, and (v) the need for, and availability of, additional financing.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company's
markets will continue to grow, that the Company's products will remain
accepted within their respective markets and will not be replaced by new
technology, that competitive conditions within the Company's markets will not
change materially or adversely, that the Company will retain key technical
and management personnel, that the Company's forecasts will accurately
anticipate market demand, and that there will be no material adverse change
in the Company's operations or business. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, and future business decisions,
all of which are difficult or impossible to predict accurately and many of
which are beyond the control of the Company. In light of the significant
uncertainties inherent in the forward-looking information included herein,
the inclusion of such information should not be regarded as a representation
by the Company or any other person that the objectives or plans of the
Company will be achieved.
The following is management's discussion and analysis of certain significant
factors which have affected the earnings and financial position of the
Company during the period included in the accompanying financial statements.
This discussion compares the three-month period ended June 30, 1998 with the
three-month period ended June 30, 1997. This discussion should be read in
conjunction with the financial statements and associated notes.
<PAGE>
PRINTRAK INTERNATIONAL INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTH PERIOD ENDED
JUNE 30, 1997
TOTAL REVENUES
The Company's total revenues are comprised of system revenues, which include
products, file conversion, data mapping services and system installations,
and maintenance revenues related to hardware and software support.
Total revenues increased 7.7% to $16.4 million for the quarter ended June 30,
1998, up from $15.3 million for the quarter ended June 30, 1997. This $1.1
million revenue increase is attributable to the Company's acquisitions during
fiscal year 1998. For the first quarter of fiscal year 1999, the Company's
Boulder division contributed $3.3 million in total revenues while SunRise
Imaging added $1.3 million in overall revenues. This $4.6 million
contribution represents a 100% revenue increase as both of these acquisitions
were completed in the Company's second quarter of the previous year. TFP's
revenues of $1.3 million were down 43.0% from prior year revenues of $2.4
million. This reduction is representative of the assimilation of TFP's
product lines into the Company's Anaheim operations which was substantially
complete at June 30, 1998. The Company's AFIS product line contributed $10.5
million in total quarterly revenues, versus $12.9 million for the same period
of the previous year. This revenue decline is primarily attributable to the
implementation of Statement of Position No. 97-2, Software Revenue
Recognition. The implementation of this accounting pronouncement resulted in
the delay of revenue recognition on certain contracts. This revenue is
expected to be recognized in the second quarter, as well as subsequent
quarters in fiscal year 1999.
System revenues increased $0.2 million or 1.5% to $12.6 million for the first
quarter from $12.4 million for the first quarter of the previous year as a
result of the Boulder and SunRise Imaging acquisitions. Maintenance revenues
equaled $3.8 million for the quarter ended June 30, 1998, increasing 34.6%
from revenues of $2.9 million for the quarter ended June 30, 1997. The
increase in maintenance revenues is reflective of the expiration of
warranties on certain AFIS contracts and an overall expansion in the customer
installed base over the prior year due to the Company's acquisitions. The
Boulder division and SunRise Imaging subsidiary collectively contributed
approximately $0.6 million of the maintenance revenue increase.
The Company's quarterly revenues have in the past, and in the future, may be
expected to fluctuate significantly. These fluctuations are the result of a
variety of factors, including: the Company's delivery cycle, variations in
order size, variations in product mix, and the timing of orders.
<PAGE>
GROSS PROFIT
Cost of revenues primarily consist of purchased materials procured for use in
the assembly of the Company's products, manufacturing or assembly labor and
overhead, file conversion costs and data mapping costs, as well as
maintenance expenses and estimated costs to complete system installations.
Overall gross profit remained consistent at $7.3 million for the quarterly
period ended June 30, 1998, versus the same period of the previous fiscal
year. Gross margin was 44.4% for the three months ended June 30, 1998, down
from 47.7% for the three months ended June 30, 1997. The gross profit for
system revenues increased to $6.4 million for the quarter ended June 30,
1998 from $6.1 million for the same quarter in fiscal year 1997.
System gross margin also increased to 50.5%, up from 48.8% for the first
quarter of the prior year. Gross margin related to maintenance revenues
decreased to 24.5% in the first quarter in comparison to 43.1% for the first
quarter of the previous year.
The overall increase in gross margin related to system revenues is, in part,
associated with favorable material costs on certain contracts, which resulted
in overall cost reductions from the previous year's first quarter. The
reduction in the Company's maintenance revenue margin is due in part to the
duplicative resource costs incurred between AFIS and TFP during the
transition of TFP into Anaheim operations. The decline in maintenance gross
margin is also attributable to the Boulder division's cost in maintaining
certain systems for which the Company has not yet received a maintenance
contract from the customer. This service was performed to encourage all
customers to assign their contracts to the Company; however, in some
instances, costs have been incurred without receiving a maintenance contract
during this transition period.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses consist principally of
compensation paid to sales, marketing, and administrative personnel, payments
to consultants, professional service fees, travel and related expenses, and
other marketing expenses.
For the three month period ended June 30, 1998, SG&A expenses increased to
$4.6 million from $3.8 million for the period ended June 30, 1997. This
reflects an overall SG&A expense increase of $0.8 million or 21.7% between
the first quarter of fiscal year 1999 and the first quarter of fiscal year
1998. The increase in SG&A expenses results from the Company's acquisitions
of the Boulder and SunRise divisions. Incremental SG&A expenses associated
with these divisions equaled $1.3 million while labor and marketing expenses
from the Company's AFIS business declined $0.2 million. The cost synergies
associated with the TFP integration into Anaheim resulted in cost savings of
approximately $0.3 million for the period ended June 30, 1998 in comparison
to the same period of the previous year. SG&A expenses, as a percentage of
revenues, increased to 28.2% for the three months ended June 30, 1998 from
25.0% for the three months ended June 30, 1997.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses (RD&E) are comprised primarily
of compensation paid to personnel engaged in research, development and
engineering activities, amounts paid for outside services and the cost of
materials used in the development of hardware and software products.
<PAGE>
RD&E expenses decreased 19.7% to $2.1 million for the quarter ended June 30,
1998, down from $2.6 million for the quarter ended June 30, 1997. The
decrease in RD&E expense is comprised of a reduction in contract labor
expense of $0.3 million, as well as an increased allocation of resources to
contract specific tasks which are classified as cost of sales. RD&E
expenses, as a percentage of revenues, decreased to 12.7% for the three
months ended June 30, 1998, down from 17.0% for the same period of the
previous year.
OTHER EXPENSE (INCOME)
Other expense for the quarter ended June 30, 1998 equalled $216,000 in
comparison to other income of $70,000 for the quarter ended June 30, 1997.
Other expense for the period ended June 30, 1998 is primarily due to
approximately $284,000 of interest expense associated with the Company's
revolving line of credit and acquisition line of credit. Additionally, the
Company incurred $68,000 of foreign exchange losses, offset by $136,000 of
interest income and other income related items. For the quarter ended June
30, 1997, other income of approximately $70,000 resulted from interest income
on the Company's short-term investments and other income related items offset
in part by interest expense and foreign exchange loss.
PROVISION FOR INCOME TAXES
Income tax expense for the quarter ended June 30, 1998 equaled $127,000 in
comparison to $29,000 for the quarter ended June 30, 1997. This represents
an overall increase in tax expense of $98,000. The Company's tax provision
is based on the federal statutory rate of 35% and reflects the impact of
state and foreign taxes and the utilization of limited net operating loss
carryforwards.
SYSTEM BACKLOG
The Company measures its backlog of system revenues as orders for which
contracts or purchase orders have been signed, but for which revenues have
not been recognized. In those instances where revenue is recognized on a
percentage of completion basis, the Company includes in backlog contract
revenue not recognized at the period end. As of June 30, 1998, the Company's
system revenue backlog approximated $35.6 million, compared to $29.7 million
as of March 31, 1998 and $24.3 million on June 30, 1997.
Orders comprising the Company's backlog may include requirements for custom
software development or file conversion that may require extensive resources
to be completed prior to shipment. Any failure of the Company to meet an
agreed upon schedule could lead to the cancellation of the related order.
The Company believes that it is important for competitive reasons and to
better satisfy customer requirements to reduce order lead times.
Additionally, variations in the size, complexity and delivery requirements of
customer orders may result in substantial fluctuations in backlog on a
regular basis. Accordingly, the Company believes that backlog is not a
meaningful indicator of future financial performance.
<PAGE>
FINANCIAL CONDITION
Cash, cash equivalents and short-term investments declined from $4.9 million
at March 31, 1998 to $0.7 million at June 30, 1998 as a result of a paydown
on the Company's line of credit of $4.0 million. Trade receivables declined
$3.1 million from $28.1 million at March 31, 1998 to $25.0 million at June
30, 1998 primarily as a result of collections on certain significant
receivables which were outstanding at March 31, 1998. Total inventory levels
increased slightly from $8.2 million at March 31, 1998 to $8.5 million at
June 30, 1998 primarily due to the Company's increased backlog of system
orders. Prepaid expenses and other current assets declined $0.5 million
during the quarter as a result of the reduction of a current non-trade
receivable.
During the first quarter, the Company's Chief Executive Officer and
President, Richard M. Giles, repaid a $500,000 note associated with the sale
of the building from the Company to a limited liability partnership
controlled by Mr. Giles. As a result, the note receivable from related
parties declined from $558,000 to $62,000.
The decrease in the net balance of property, plant and equipment of $0.4
million from $5.1 million at March 31, 1998 to $4.7 million at June 30, 1998
reflects capital expenditures of approximately $0.5 million, capital
deletions of approximately $0.1 million and depreciation expense of $0.8
million.
Total current liabilities decreased from $27.1 million at March 31, 1998 to
$22.3 million at June 30, 1998. The decrease in accounts payable of $2.6
million is a result of the timing of certain large payments.
Correspondingly, the decline in accrued wages is primarily the result of the
number of days of accrued payroll at March 31, 1998 versus June 30, 1998.
The reduction in accrued liabilities is primarily the result of decreases in
warranty and estimated costs to complete reserves due to completion of vendor
obligations on certain contracts as well as the adoption of SOP 97-2.
Additionally, accrued liabilities declined due to the usage of the
restructuring accruals recorded for the integration of TFP and SunRise
operations in the Company's headquarter's in Anaheim, CA. The company's
integration of TFP and SunRise was substantially completed as of June 30,
1998.
The decline in long-term debt is a result of reduced borrowing levels on the
Company's revolving line of credit. Subsequent to June 30, 1998, the Company
negotiated an arrangement with its bank to refinance its debt into a $15.0
million revolving credit facility and a $4.0 million term loan. The
revolving credit facility expires on August 2, 1999, and the term loan is
payable in quarterly installments beginning November 1, 1998 and maturing
February 1, 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations through the cash provided by its
operations and the utilization of its revolving credit line. The Company's
operating activities used cash of approximately $0.3 million for the three
months ended June 30, 1998 primarily as a result of decreases in accounts
payable and accrued liabilities offset by decreases in accounts receivable.
The Company's operating activities generated cash of $0.4 million for the
three months ended June 30, 1997.
The Company's investing activities provided net cash of $1.2 million for the
period ended June 30, 1998 due primarily to the repayment of the $0.5 million
note receivable from RICOL, LLC as well as the liquidation of the Company's
short-term investments. For the period ended June 30, 1997, the
<PAGE>
Company's investing activities used cash of approximately $0.8 million due
primarily to the purchase of short-term investments and capital expenditures.
Financing activities used cash of $4.0 million during the three-month period
ended June 30, 1998 as a result of the paydown on the Company's revolving
credit line. During the three month period ended June 30, 1997, financing
activities used approximately $0.5 million for the same purpose.
The Company believes that the cash generated from operations, as well as the
use of the revolving credit line will provide sufficient resources to fund
the Company through at least fiscal year 1999.
<PAGE>
PRINTRAK INTERNATIONAL INC.
PART II-OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
the date of this report, the Company is not a party to any legal proceedings,
the adverse outcome of which, in management's opinion, individually or in the
aggregate, would have a material adverse effect on the Company's results of
operations or financial position.
Item 2 - CHANGES IN SECURITIES
None.
Item 3 - DEFAULTS UPON SENIOR SECURITIES
None.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5 - OTHER INFORMATION
None.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
On June 10, 1998, the Company filed a Form 8-K announcing the resignation of
Alfred Castleman as Chief Financial Officer, Vice President, Finance and
director.
On June 25, 1998, the Company filed a Form 8-K/A with restated financial
statements relating to the Company's earlier acquisition of SunRise Imaging.
Exhibit Index:
10.1 Amended & restated loan agreement with Union Bank dated July 31, 1998.
10.2 Promissory Note with Union Bank in the amount of $15,000,000.00
dated July 31, 1998.
10.3 Promissory Note with Union Bank in the amount of $4,000,000.00 dated
July 31, 1998.
27 Financial Data Schedule
99.1 July 14, 1998 Peter T. Higgins, former head of FBI's IAFIS
initiative, joins Printrak Board of Directors
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRINTRAK INTERNATIONAL INC.
(REGISTRANT)
By /s/ RICHARD M. GILES
----------------------------------------
Name: Richard M. Giles
Title: Chief Executive Officer, President
and acting Chief Financial Officer
August 14, 1998
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT ("Agreement") is made and entered
into as of this 31st day of July, 1998 by and between Printrak International
inc. a Delaware corporation and UNION BANK OF CALIFORNIA, N.A., ("Bank"). This
Agreement amends and restates in its entirety that certain Loan Agreement dated
August 12, 1996.
SECTION 1. THE LOAN
1.1.1 The Revolving Loan. Bank will loan to Borrower an amount
not to exceed Fifteen Million Dollars ($15,000,000) outstanding in the aggregate
at any one time (the "Revolving Loan"). Borrower may borrow, repay and reborrow
all or part of the Revolving Loan in accordance with the terms of the Revolving
Note. All borrowings of the Revolving Loan must be made before August 2, 1999 at
which time all unpaid principal and interest of the Revolving Loan shall be due
and payable. The Revolving Loan shall be evidenced by a promissory note (the
"Revolving Note") on the standard form used by Bank for commercial loans. Bank
shall enter each amount borrowed and repaid in Bank's records and such entries
shall be deemed to be the amount of the Revolving Loan outstanding. Omission of
Bank to make any such entries shall not discharge Borrower of its obligation to
repay in full with interest all amounts borrowed.
1.1.1.1 The Standby L/C Sublimit. As a sublimit to the
Revolving Loan, Bank shall issue, for the account of Borrower, one or more
irrevocable, standby letters of credit (individually, an "L/C" and collectively,
the "L/Cs"), All such standby L/Cs shall be drawn on such terms and conditions
as are acceptable to Bank. The aggregate amount available to be drawn under all
outstanding L/Cs and the aggregate amount of unpaid reimbursement obligations
under drawn L/Cs shall not exceed Five Million Dollars ($5,000,000) and shall
reduce, dollar for dollar, the maximum amount available under the Revolving
Loan. No standby L/C shall have an expiry date more than one year from its date
of issuance and each L/C shall be governed by the terms of (and Borrower agrees
to execute) Bank's standard form for standby L/C applications and reimbursement
agreements. No L/C shall expire after August 2, 1999.
1.1.2 The Reducing Revolving Loan. Bank previously made a
certain Reducing Revolving Loan ("Reducing Revolving Loan") to Borrower, which
matures on February 1, 2001. The current outstanding principal amount of the
Reducing Revolving Loan is Four Million Dollars ($4,000,000). This Reducing
Revolving Loan is evidenced by e promissory note ("Term Note") on the standard
form used by Bank for commercial loans.
1.1.3 The Term Loan. Solely to repay,the Reducing Revolving
Loan, Bank will convert the sum outstanding as of the date of this Agreement
into a fully amortizing Term Loan (the "Term Loan"). In the event of a
prepayment of principal and payment of any resulting fees, any prepaid amounts
shall be applied to the scheduled principal payments in the reverse order of
their maturity. The Term Loan shall be evidenced by a promissory note (the "Term
Note") on the standard form used by Bank for commercial loans.
- 1 -
<PAGE>
1.2 Terminology.
As used herein the word "Loan" shall mean, collectively, all the
credit facilities described above.
As used herein the word "Note" shall mean, collectively, all the
promissory notes described above.
As used herein, the words "Loan Documents" shall mean all documents
executed in connection with this Agreement.
1.4 Purpose of Loan. The proceeds of the Revolving Loan shall be
used for general working capital purposes and the proceeds of the Term Loan
shall be used only to repay the Reducing Revolving Loan.
1.5 Interest and Fees.
(a) The unpaid principal balance of the Revolving Loan and the
Term Loan shall bear interest at the rate or rates provided in the Revolving
Note and the Term Note as selected by Borrower. The Revolving Loan and the Term
Loan may be prepaid in full or in part only in accordance with the terms of the
Revolving Note and the Term Note and any such prepayment shall be subject to the
prepayment fee provided for therein.
(b) Without in any way limiting the rights and remedies of
Bank under this Agreement, including without limitation the right to call a
default, accelerate the balance owing under the Note, and the right to assess
the default rate of interest on all or a portion of the principal and interest
due hereunder, Borrower agrees to pay to Bank, in immediately available funds, a
fee of Two Thousand Five Hundred Dollars ($2,500) for each month during which
Borrower is not in compliance with each of the financial covenants set forth in
Sections 4.6, 4.7, 4.8, 4.9 and 4.10 of this Agreement.
1.6 Loan Commitment Fee. Borrower has paid in advance a
commitment fee of Fifty-Thousand Dollars ($50,000) on or before the date of
execution of this Agreement, No portion of this fee shall be reimbursable.
1.10 Balances. Borrower shall maintain its major depository
accounts with Bank until the Note and all sums payable pursuant to this
Agreement have bean paid in full.
1.11 Disbursement. Upon execution hereof, Bank shall disburse
the proceeds of the Loan as provided in Bank's standard form Authorization
executed by Borrower.
1.12 Security. Prior to any disbursement of the Loan, Borrower
shall have executed a security agreement, on Bank's standard form, and a
financing statement, suitable for filing in the office of the Secretary of
State of the State of California and any other state designated by Bank,
granting to Bank a first priority security interest in such of Borrower's
property as is described in said security agreement. Borrower shall also
grant to Bank a security interest in any and all patents owned by Borrower.
Costs incurred in order for Bank to perfect its security interest in such
patents shall be paid for by Borrower. At Bank's request, Borrower will also
obtain executed landlord's and mortgagee's waivers on Bank's form covering
all of Borrower's property located on leased or encumbered real property.
- 2 -
<PAGE>
1.13 Controlling Document. In the event of any inconsistency
between the terms of this Agreement and any Note or any of the other Loan
Documents, the terms of such Note or other Loan Documents will prevail over
the terms of this Agreement.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the
proceeds of the Loan unless at or prior to the time for the making of such
disbursement, the following conditions have been fulfilled to Bank's
satisfaction:
2.1 Compliance. Borrower shall have performed and complied with all
terms and conditions required by this Agreement to be performed or complied with
by it prior to or at the date of the making of such disbursement and shall have
executed and delivered to Bank the Note and other documents deemed necessary by
Bank.
2.2 Guaranties. Printrak Limited shall have executed and delivered
to Bank a continuing guaranty in form and amount satisfactory to Bank. Borrower
shall cause each Guarantor to submit to Bank not later than one hundred twenty
(120) days after the and of each fiscal year such Guarantor's financial
statement in form satisfactory to Bank.
2.3 Borrowing Resolution. Borrower shall have provided Bank with
certified copies of resolutions duly adopted by the Board of Directors of
Borrower, authorizing this Agreement and the Loan Documents. Such resolutions
shall also designate the persons who are authorized to act on Borrower's behalf
in connection with this Agreement and to do the things required of Borrower
pursuant to this Agreement.
2.4 Continuing Compliance. At the time any disbursement is to be
made, there shall not exist any event, condition or act which constitutes an
event of default under Section 6 hereof or any event, condition or act which
with notice, lapse of time or both would constitute such event of default; nor
shall there be any such event, condition, or act immediately after the
disbursement were it to be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 Business Activity. The principal business of Borrower is the
development, marketing and sale of law enforcement and civil identification
systems and related products.
3.2 Affiliates and Subsidiaries. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling interest
or at least a 25% ownership interest) and their addresses, and the names of
Borrower's principal shareholders, are as provided on a schedule delivered to
Bank on or before the date of this Agreement.
3.3 Authority to Borrow. The execution, delivery and performance of
this Agreement, the Note and all other agreements and instruments required by
Bank in connection with the Loan are not in contravention of any of the terms of
any indenture, agreement or undertaking to which Borrower is a party or by which
it or any of its property is bound or effected.
3.4 Financial Statements. The financial statements of Borrower,
including both a balance sheet at March 31, 1998, together with supporting
schedules, and an income statement for
- 3 -
<PAGE>
the twelve (12) months ended March 31, 1998, have heretofore been furnished to
Bank, and are true and complete and fairly represent the financial condition of
Borrower during the period covered thereby. Since March 31, 1996, there has been
no material adverse change in the financial condition or operations of Borrower.
3.5 Title. Except for assets which may have been disposed of in the
ordinary course of business, Borrower has good and marketable title to all of
the property reflected in its financial statements delivered to Bank and to all
property acquired by Borrower since the date of said financial statements, free
and clear of all liens, encumbrances, security interests and adverse claims
except those specifically referred to in said financial statements.
3.6 Litigation. There is no litigation or proceeding pending or
threatened against Borrower or any of its property which is reasonably likely to
affect the financial condition, property or business of Borrower in a materially
adverse manner or result in liability in excess of Borrower's insurance
coverage.
3.7 Default. Borrower is not now in default in the payment of any of
its material obligations, and there exists no event, condition or act which
constitutes en event of default under Section 6 hereof and no condition, event
or act which with notice or lapse of time, or both, would constitute an event of
default.
3.8 Organization. Borrower is duly organized and existing under the
laws of the state of its organization, and has the power and authority to carry
on the business in which it is engaged and/or proposes to engage.
3.9 Power. Borrower has the power and authority to enter into this
Agreement and to execute and deliver the Note and all of the other Loan
Documents.
3.10 Authorization. This Agreement and all things required by this
Agreement have been duly authorized by all requisite action of Borrower.
3.11 Qualification. Borrower is duly qualified and in good standing
in any jurisdiction where such qualification is required.
3.12 Compliance With Laws. Borrower is not in violation with respect
to any applicable laws, rules, ordinances or regulations which materially affect
the operations or financial condition of Borrower.
3.13 ERISA. Any defined benefit pension plans as defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of
Borrower meet, as of the date hereof, the minimum funding standards of Section
302 of ERISA, and no Reportable Event or Prohibited Transaction as defined in
ERISA has occurred with respect to any such plan.
3.14 Regulation U. No action has been taken or is currently planned
by Borrower, or any agent acting on its behalf, which would cause this Agreement
or the Note to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities and
Exchange Act of 1934, in each case as in effect now or as the same may hereafter
be in effect. Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock as one of its important
activities and none of the proceeds of the Loan will be used directly or
indirectly for such purpose.
- 4 -
<PAGE>
3.15 Continuing Representations. These representations shall be
considered to have been made again at and as of the date of each disbursement of
the Loan and shall be true and correct as of such date or dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement or any
other of the Loan Documents have bean paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
4.1 Use of Proceeds. Borrower will use the proceeds of the Loan only
as provided in subsection 1.4 above.
4.2 Payment of Obligations. Borrower will pay and discharge promptly
all taxes, assessments and other governmental charges and claims levied or
imposed upon it or its property, or any part thereof, provided, however, that
Borrower shall have the right in good faith to Contest any such taxes,
assessments, charges or claims and, pending the outcome of such contest, to
delay or refuse payment thereof provided that adequately funded reserves are
established by it to pay and discharge any such taxes, assessments, charges and
claims.
4.3 Maintenance of Existence. Borrower will maintain and preserve
its existence and assets and all rights, franchises, licenses and other
authority necessary for the conduct of its business and will maintain and
preserve its property, equipment and facilities in good order, condition and
repair. Bank may, at reasonable times, visit and inspect any of the properties
of Borrower.
4.4 Records. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles and will permit Bank to have access thereto, to make
examination and photocopies thereof, and to make audits during regular business
hours. Costs for such audits shall be paid by Borrower.
4.5 Information Furnished. Borrower will furnish to Bank:
(a) Within thirty (30) days after the close of each fiscal
month, except for the final month of each fiscal year, its unaudited balance
sheet as of the close of such fiscal month, its unaudited income and expense
statement with supportive schedules and statement of retained earnings for
that fiscal month, prepared in accordance with generally accepted accounting
principles;
(b) Within ninety (90) days after the close of each fiscal
year, a copy of its statement of financial condition including at least its
balance sheet as of the close of such fiscal year, its income and expense
statement and retained earnings statement for such fiscal year, examined and
prepared on an audited basis by independent certified public accountants
selected by Borrower and reasonably satisfactory to Bank, in accordance with
generally accepted accounting principles applied on a basis consistent with that
of the previous year;
(c) If requested, copies of such financial statements and
reports as Borrower may file with any state or federal agency, including all
state and federal income tax returns;
(d) Such other financial statements and information as Bank may
reasonably request from time to time;
(e) In connection with each financial statement provided
hereunder, a statement, executed by Borrower's chief financial officer or
other duly authorized officer certifying that (i) Borrower is in compliance
with all covenants under this Agreement and (ii) no default has occurred
- 5 -
<PAGE>
and no event exists which with notice or the lapse of time, or both, would
result in a default hereunder.
(f) In connection with each fiscal year-end statement
required hereunder, any management letter of Borrower's certified public
accountant.
(g) Prompt written notice to Bank of all events of default
under any of the terms or provisions of this Agreement or of any other
agreement, contract, document or instrument entered, or to be entered into
with Bank; and of any litigation which, if decided adversely to Borrower,
would have a material adverse effect on Borrower's financial condition; and
of any other matter which has resulted in, or is likely to result in, a
material adverse change in its financial conditions or operations; and
(l) Prior written notice to Bank of any changes in Borrower's
officers and other senior management or Borrower's name and location of
Borrower's assets or Borrower's principal place of business or chief executive
office.
4.6 Quick Ratio. Borrower shall maintain a ratio of cash, accounts
receivable and marketable securities to current liabilities, less deferred
revenues classified as current liabilities on Borrower's balance sheet as of
said period, of not less than the following amounts for the periods specified:
Quarter ended June 30, 1998 1.10:1.0
Quarter ended September 30, 1998 1.25:1.0
Quarter ended December 31, 1998 1.25:1.0
Quarter and Fiscal Year ended March 31, 1999 1.50:1.0
4.7 Tangible Net Worth. Until June 30, 1998, Borrower will at all
times maintain a Tangible Net Worth of not less than Sixteen Million Dollars
($16,000,000). Thereafter, Borrower will at all times maintain a minimum
Tangible Net Worth of the following amounts for the periods specified:
Quarter ended September 30, 1998 $16,500,000
Quarter ended December 31, 1998 $17,600,000
Quarter and Fiscal Year ended March 31, 1999 $19,600,000
"Tangible Net Worth" shall mean net worth increased by indebtedness of
Borrower subordinated to Bank and decreased by patents, licenses, trademarks,
trade names, goodwill and other similar intangible assets, organizational
expenses, and monies due from affiliates (including officers, shareholders
and directors).
4.8 Debt to Tangible Net Worth. Borrower will at all times maintain
a ratio of total liabilities to tangible net worth of not greater than the
following amounts for the periods specified:
Quarter ended June 30, 1998 2.50:1.0
Quarter ended September 30, 1998 2.25:1.0
Quarter ended December 31, 1998 2.00:1.0
Quarter and Fiscal Year ended March 31, 1999 1.50:1.0
- 6 -
<PAGE>
4.9 Profitability. Borrower will maintain its net profit, after
provision for income taxes, at not less than the following amounts for the
periods specified:
<TABLE>
<CAPTION>
<S> <C>
Quarter ended June 30, 1998 $100,000
For the Six Months Ended September 30, 1998 $ 600,000
For the Nine Months Ended December 31, 1998 $1,700,000
For the Fiscal Year ended March 31, 1999 $3,700,000
</TABLE>
4.10 Cash Flow. Borrower will maintain a ratio of Cash Flow to Debt
Service of not less than 1.50:1.0. Compliance with this subsection shall be
measured as of the end of each fiscal year end. "Cash Flow" shall mean net
profit after taxes to which depreciation, amortization and other noncash
expenses are added for the twelve (12) month period immediately preceding the
date of calculation. "Debt Service" shall mean that portion of long-term
liabilities and capital leases coming due within twelve (12) months of the date
of calculation.
4.11 Insurance. Borrower will keep all of its insurable property,
real, personal or mixed, insured by companies and in amounts approved by Bank
against fire and such other risks, and in such amounts, as is customarily
obtained by companies conducting similar business with respect to like
properties. Borrower will furnish to Bank statements of its insurance coverage,
will promptly furnish other or additional insurance deemed necessary by and upon
request of Bank to the extent that such insurance may be available and hereby
assigns to Bank, as security for Borrower's obligations to Bank, the proceeds of
any such insurance. Prior to any disbursement of the Loan, Bank will be named
loss payee on all policies insuring collateral and such policies shall require
at least ten (10) days' written notice to Bank before any policy may be altered
or cancelled. Borrower will maintain adequate worker's compensation insurance
and adequate insurance against liability for damage to persons or property.
4.12 Additional Requirements. Borrower will promptly, upon demand
by Bank, take such further action and execute all such additional documents and
instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly Supply Bank with such other information
concerning its affairs as Bank may request from time to time.
4.13 Litigation and Attorneys' Fees. Borrower will pay promptly to
Bank upon demand, reasonable attorneys' fees (including but not limited to the
reasonable estimate of the allocated costs and expenses of in-house legal
counsel and legal staff) and all costs and other expenses paid or incurred by
Bank in collecting, modifying or compromising the Loan or in enforcing or
exercising its rights or remedies created by, connected with or provided for in
this Agreement or any of the Loan Documents, whether or not an arbitration,
judicial action or other proceeding is commenced. If such proceeding is
commenced, only the prevailing party shall be entitled to attorneys' fees and
court costs.
4.14 Bank Expenses. Borrower will pay or reimburse Bank for all
costs, expenses and fees incurred by Bank in preparing and documenting this
Agreement and the Loan, and all amendments and modifications thereof, including
but net limited to all filing and recording fees, costs of appraisals, insurance
and attorneys' fees, including the reasonable estimate of the allocated costs
and expenses of in-house legal counsel and legal staff.
4.15 Reports Under Pension Plans. Borrower will furnish to Bank, as
soon as possible and in any event within 15 days after Borrower knows or has
reason to know that any event or condition with respect to any defined benefit
pension plans of Borrower described in Section 3 above has occurred, a statement
of an authorized officer of Borrower describing such event or condition and the
action, if any, which Borrower proposes to take with respect thereto.
- 7 -
<PAGE>
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement or
any other of the Loan Documents have been paid in full, unless Bank waives
compliance in writing, Borrower agrees that:
5.1 Encumbrances and Liens. Borrower will not create, assume or
suffer to exist any mortgage, pledge, security interest, encumbrance, or lien
(other than for taxes not delinquent and for taxes and other items being
contested in good faith) on property of any kind, whether real, personal or
mixed, now owned or hereafter acquired, or upon the income or profits thereof,
except to Bank and except for minor encumbrances and easements on real property
which do not effect its market value, and except for existing liens on
Borrower's personal property and future purchase money security interests
encumbering only the personal property purchased.
5.2 Borrowings. Borrower will not sell, discount or otherwise
transfer any account receivable or any note, draft or other evidence of
indebtedness, except to Bank or except to a financial institution at face value
for deposit or collection purposes only and without any fee other than fees
normally charged by the financial institution for deposit or collection
services. Borrower will not borrow any money, become contingently liable to
borrow money, nor enter any agreement to directly or indirectly obtain borrowed
money, except pursuant to agreements made with Bank.
5.3 Sale of Assets, Liquidation or Merger. Borrower will neither
liquidate nor dissolve nor enter into any consolidation, merger, partnership or
other combination, nor convey, nor sell, nor lease all or the greater part of
its assess or business, nor purchase or lease all or the greater part of the
assets or business of another.
5.4 Loans, Advances and Guaranties. Borrower will not, except in the
ordinary course of business as currently conducted, make any loans or advances,
become a guarantor or surety, pledge its credit or properties in any manner or
extend credit.
5.5 Investments. Borrower will not purchase the debt or equity of
another person or entity except for Savings accounts and certificates of deposit
of Bank, direct U.S. Government obligations and commercial paper issued by
corporations with the top ratings of Moody's or Standard & Poor's, provided all
such permitted investments shall mature within one year of purchase.
5.6 Payment of Dividends. Borrower will not declare or pay any
dividends, other than a dividend payable in its own common stock, or authorize
or make any other distribution with respect to any of its stock now or hereafter
outstanding.
5.7 Retirement of Stock. Borrower will not acquire or retire any
share of its capital stock for value.
5.8 Parent and Subsidiary Property. Borrower will not transfer any
property to its parent or any affiliate of its parent, except for value received
in the normal course of business as business would be conducted with an
unrelated or unaffiliated entity. In no event shall management fees or fees for
services be paid by Borrower to any such direct or indirect affiliate without
Bank's prior written approval.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default") shall
terminate any obligation on the part of Bank to make or continue the Loan and
automatically, unless otherwise provided under the Note, shall make all sums of
interest and principal and any other amounts owing under the Loan immediately
due and payable, without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor, or any other notices or demands:
- 8 -
<PAGE>
6.1 Borrower shall default in the due and punctual payment of the
principal of or the interest on the Note or any of the other Loan Documents; or
6.2 Any default shall occur under the Note; or
6.3 Borrower shall default in the due performance or observance of
any covenant or condition of the Loan Documents; or
6.4 Any guaranty or subordination agreement required hereunder is
breached or becomes ineffective, or any Guarantor or subordinating creditor
dies, disavows or attempts to revoke or terminate such guaranty or subordination
agreement; or
6.5 There is a change in ownership or control of ten percent (10%)
or more of the issued and outstanding stock of Borrower or any Guarantor, or (if
Borrower is a partnership) there is a change in ownership or control of any
general partner's interest.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 Additional Remedies. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in addition
to all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
7.2 Nonwaiver. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy shall
not preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
7.3 Inurement. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assignees of
Borrower, and any assignment by Borrower without Bank's consent shall be null
and void.
7.4 Applicable Law. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California.
7.5 Severability. Should any one or more provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions
nevertheless shall be effective. In the event of any conflict between the
provisions of this Agreement and the provisions of any note or reimbursement
agreement evidencing any indebtedness hereunder, the provisions of such note or
reimbursement agreement shall prevail.
7.6 Integration Clause. Except for documents and instruments
specifically referenced herein, this Agreement constitutes the entire agreement
between Bank and Borrower regarding the Loan and all prior communications verbal
or written between Borrower and Bank shall be of no further effect or
evidentiary value.
7.7 Construction. The section and subsection headings herein are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
7.8 Amendments. This Agreement may be amended only in writing signed
by all parties hereto.
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<PAGE>
7.9 Counterparts. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original, but
when together shall be one and the same instrument.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following methods and
addressed to the respective party at its address given with the signatures at
the end of this Agreement and shall be considered to have been validly given:
(a) upon delivery, if delivered personally; (b) upon receipt, if mailed, first
class postage prepaid, with the United States Postal Service; (c) on the next
business day, if sent by overnight courier service of recognized standing: and
(d) upon telephoned confirmation of receipt, if telecopied.
8.2 The addresses to which notices or demands are to be given may be
changed from time to time by notice delivered as provided above.
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A. PRINTRAK INTERNATIONAL INC.
By: /s/ Kim Ha By: /s/ Susanna Bennett
--------------------------- ---------------------------
Title V.P. Title V.P. of Finance
------------------------ ---------------------------
By: /s/ Steve Dunne
--------------------------- 1250 North Tustin Avenue
Anaheim, CA 92807
Title: V.P. Telephone:(714) 238-2039
------------------------ Telecopier:(714) 238-2049
Attention; Susanna Bennett,
500 South Main Street Vice President/Corporate
Suite 200 Secretary
Orange, CA 92868
Telecopier: (714) 565-5725
Telephone: (714) 565-5585
Attention: Kim He, Vice President
- 10 -
<PAGE>
UNION
BANK OF
CALIF0RNIA
PROMISSORY NOTE
(BASE RATE)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Borrower Name PRINTRAK INTERNATIONAL INC.
- --------------------------------------------------------------------------------------------------------------
Borrower Address Office 45061 Loan Number 7l447051 87 0081-00-0-000
1250 NORTH TUSTIN AVE.
ANAHEIM, CA 92807 Maturity Date AUGUST 2, 1999 Amount $15,000,000.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
$15,000,000.00 Date JULY 31, 1998
FOR VALUE RECEIVED, on AUGUST 2, 1999, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of FIFTEEN MILLION AND NO/100 Dollars ($15,000,000.00), or so
much thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at the per annum rate or rates and at
the times set forth below.
1. INTEREST PAYMENTS. Debtor shall pay interest on the 2ND day of each MONTH
(commencing SEPTEMBER 2, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year of
360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder in
minimum amounts of at least $500,000.00 shall bear interest at a rate which
is equal to Bank's LIBOR-Rate for the Interest Period selected by Debtor,
plus the Applicable Margin.
No Base interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and on
the expiration of any Interest Period with respect to principal outstanding
on which a Base Interest Rate has been accruing, select an index offered by
Bank for a Base Interest Rate Loan and Interest Period by telephoning an
authorized lending officer of Bank located at the banking office identified
below prior to 10:00 a.m., Pacific time, on any Business Day and advising
that officer of the selected index, the Interest Period and the Origination
Date selected (which Origination Date, for a Base Interest Rate Loan based
on the LIBOR-Rate, shall follow the date of such selection by no more than
two (2) Business Days).
Bank will mail a written communication of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the rate
selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves the
right to fund the principal from any source of funds notwithstanding any
Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is not
bearing interest at a Base Interest Rate shall bear interest at a rate per
annum equal to the Reference Rate plus the Applicable Margin, which rate
shall vary as and when the Reference Rate or the Applicable Margin, as the
case may be, changes.
At any time prior to the maturity of this note, subject to the provisions
of paragraph 4, below, of this note, Debtor may borrow, repay and reborrow
hereon so long as the total outstanding at any one time does not exceed the
principal amount of this note. Debtor shall pay all amounts due under this
note in lawful money of the United States at Bank's ORANGE COUNTY
COMMERCIAL BANKING Office, or such other office as may be designated by
Bank, from time to time.
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<PAGE>
2. LATE PAYMENTS. If any payment required by the terms of this note shall remain
Unpaid ten days after same is due, at the option of Bank, Debtor shall pay a fee
of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in paragraph 1.b, of this note,
calculated from the date of default until all amounts payable under this note
are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based on
the Reference Rate may be prepaid in whole or in part at any time, without
penalty or premium, Debtor may prepay amounts outstanding under this note
bearing interest at a Base Interest Rate in whole or in part provided
debtor has given Bank not less then five (5) Business Days prior written
notice of Debtor's intention to make such prepayment and pays to Bank the
liquidated damages due as a result. Liquidated Damages shall also be paid,
if Bank, for any other reason, including acceleration or foreclosure,
receives all or any portion of principal bearing interest at a Base
Interest Rate prior to its scheduled payment date. Liquidated Damages shall
be an amount equal to the present value of the product of: (i) the
difference (but not less than zero) between (a) the Base Interest Rate
applicable to the principal amount which is being prepaid, and (b) the
return which Bank could obtain if it used the amount of such prepayment of
principal to purchase at bid price regularly quoted securities issued by
the United Stares having a maturity date most closely coinciding with the
relevant Base Rate Maturity Date and such securities were held by Bank
until the relevant Base Rate Maturity Date ("Yield Rate"); (ii) a fraction,
the numerator of which is the number of days in the period between the date
of prepayment and the relevant Base Rate Maturity Date and the denominator
of which is 360; and (iii) the amount of the principal so prepaid (except
in the event that principal payments are required and have been made as
scheduled under the terms of the Base Interest Rate Loan being prepaid,
then an amount equal to the lesser of (A) the amount prepaid or (B) 50% of
the sum of (1) the amount prepaid and (2) the amount of principal scheduled
under the terms of the Base Interest Rate Loan being prepaid to be
outstanding at the relevant Base Rate Maturity Date). Present value under
this note is determined by discounting the above product to present value
using the Yield Rate as the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against
Bank, should the return which Bank could obtain under this prepayment
formula exceed the interest that Bank would have received if no prepayment
had occurred. All prepayments shall include payment of accrued interest on
the principal amount so prepaid and shall be applied to payment of interest
before application to principal. A determination by Bank as to the
prepayment fee amount, if any, shall be conclusive.
c. Bank shall provide Debtor a statement of the amount payable on account
of prepayment. Debtor acknowledges that (I) Bank establishes a Base
Interest Rate upon the understanding that it apply to the Base Interest
Rate Loan for the entire Interest Period, and (ii) any prepayment may
result in Bank incurring additional costs, expenses or liabilities; and
Debtor agrees to pay these liquidated damages as a reasonable estimate of
the costs, expenses and liabilities of Bank associated with such
prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
entity other then Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgement, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice of
levy, notice to withhold, or ether legal process for taxes other than property
taxes; (l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money, (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this
note immediately due and payable; however, upon the occurrence of an event of
default under d, e f, or g, all principal and interest shall automatically
become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are not
paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of time
and the full extent permitted by law, (a) waive diligence, presentment, demand,
notice of nonpayment, protest, notice of protest, and notice of every kind; (b)
waive the right to assert the defense of any statute of limitations to any debt
or obligation hereunder; and (c) consent to renewals and extensions of time for
the payment of any amounts due under this note. If this note is signed by more
than one party, the term "Debtor" includes each of the undersigned and any
successors in interest thereof; all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the credit
of such payment based upon Bank's schedule of funds availability, and interest
under this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note. Debtor and any Obligor, including
their successors and assigns, hereby consent to the jurisdiction of any
competent court within the State of
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<PAGE>
California, as provided in any alternative dispute resolution agreement executed
between Debtor and Bank, and consent to service of process by any means
authorized by said state's law. The term "Bank" includes, without limitation,
any holder of this Note. This note shall be construed in accordance with and
governed by the laws of the State of California. This note hereby incorporates
any alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below; "Agreement" means that certain Amended and
Restated Loan Agreement, of even date herewith, by and between Debtor and Bank,
as at any time amended, supplemented or otherwise modified or restated.
"Applicable Margin" means (1) in the case of a Base Interest Rate Loan, a per
annum rate equal to (a) 2.75%, if the ratio of Debtor's total liabilities to
Tangible Net Worth (as such term is defined in the Agreement) (the "Leverage
Ratio") as at the end of the most recent calendar month in respect of which
Debtor has furnished a financial statement to Bank as required by the Agreement
(the Reported Period ) is equal to or greater than 2.25:1.00, (b) 2.50%, if the
Leverage Ratio as at the end of the most recent Reported Period is less than
2.25:1.00 but equal to or greater than 2.00:1.00, (c) 2.25%, if the Leverage
Ratio as at the end of the most recent Reported Period is less than 2.00:1.00
but equal to or greater than 1.75:1.00, (d) 2.00%, if the Leverage Ratio as at
the end of the most recent Reported Period is less than 1.75:1.00 but equal to
or greater than 1.50:1.00, and (e) 1.75%, if the Leverage Ratio as at the end of
the most recent Reported Period is less than 1.50:1.00; and (2) in the case of
principal amounts outstanding hereunder that are bearing interest at a rate
based upon the Reference Rate, a per annum rate equal to (a) 0.25%, if the
Leverage Ratio as at the end of the most recent Reported Period is equal to or
greater than 2.25:1.00, and (b) 0.00%,if the Leverage Ratio as at the end of the
most recent Reported Period is less than 2.25:1.00. A change in the Applicable
Margin resulting from a change in the Leverage Ratio shall become effective on
the first day of the calendar month following the Reported Period in respect of
which a financial statement furnished by Debtor to Bank pursuant to the
Agreement reflects a change in the Leverage Ratio which requires a change in the
Applicable Margin as provided for herein. For the purpose of determining the
Applicable Margin, if a default under this note or an Event of Default (as such
term is defined in the Agreement) has occurred and is continuing (including
without limitation a default or an Event of Default resulting from the failure
of Debtor to furnish any financial statement to Bank as required by the
Agreement), then, without waiving any right or remedy that Bank may have under
the Agreement as a result of such default or Event of Default (including without
limitation the rights to accelerate Debtor's obligations and invoke the default
interest rate), the Leverage Ratio shall be conclusively presumed to be equal to
or greater than 2.25:1.00 from the date of the occurrence of such default or
Event of Default until such default or Event of Default is cured or otherwise
waived by Bank. "Base Interest Rate" means a rate of interest based on the
LIBOR-Rate. "Base Interest Rate Loan" means amounts outstanding under this note
that bear interest at a Base Interest Rate. "Base Rate Maturity Date" means the
last day of the Interest Period with respect to principal outstanding under a
Base Interest Rate Loan. "Business Day" means a day on which Bank is open for
business for the funding of corporate loans, and, with respect to the rate of
interest based on the LIBOR Rate, on which dealing in U.S. dollar deposits
outside of the United States may be carried on by Bank. "Interest Period means
with respect to funds bearing interest at a rate based on the LIROR Rate, any
calendar period of one, three, six, nine or twelve months. In determining an
Interest Period, a month means a period that starts on one Business Day in a
month and ends on and include the day preceeding the numerically corresponding
day in the next month. For any month in which there is no such numerically
corresponding day, then as to that month, such day shall be deemed to be the
last calendar day of such month. Any Interest Period which would otherwise end
on a non-Business Day shall end on the next succeeding Business Day unless that
is the first day of a month, in which event such Interest Period shall and on
the next preceeding Business Day. "LIBOR Rate" means a per annum rate of
interest (rounded upward, if necessary, to the nearest 1/100 of 1%) at which
dollar deposits, in immediately available funds and in lawful money of the
United States would be offered to Bank, outside of the United States, for a term
coinciding with the Interest Period selected by Debtor and for an amount equal
to the amount of principal covered by Debtor's interest rate selection, plus
Bank's costs, including the costs, if any, of reserve requirements, "Origination
Date" means the first day of the Interest Period. "Reference Rate" means the
rate announced by Bank from time to time at its corporate headquarters as its
Reference Rate. The Reference Rate is an index rate determined by Bank from time
to time as a means of pricing certain extensions of credit and is neither
directly tied to any external rate of interest or index nor necessarily the
lowest rate of interest charged by Bank at any given time.
PRINTRAK INTERNATIONAL, INC.
By
/s/ Susanna Bennett
---------------------------------------
SUSANNA BENNETT, CORPORATE SECRETARY/VP
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<PAGE>
UNION
BANK OF
CALIF0RNIA
PROMISSORY NOTE
(BASE RATE)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Borrower Name PRINTRAK INTERNATIONAL INC.
- --------------------------------------------------------------------------------------------------------------
Borrower Address Office 45061 Loan Number 7l447051 87 0082-00-0-000
1250 NORTH TUSTIN AVE.
ANAHEIM, CA 92807 Maturity Date FEBRUARY 1, 2001 Amount $4,000,000.00
- --------------------------------------------------------------------------------------------------------------
</TABLE>
$4,000,000.00 Date JULY 31, 1998
FOR VALUE RECEIVED, on FEBRUARY 1, 2001, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of FOUR MILLION AND NO/100 Dollars ($4,000,000.00), or so much
thereof as is disbursed, together with interest on the balance of such principal
from time to time outstanding, at the per annum rate or rates and at the times
set forth below.
1. PAYMENTS
PRINCIPAL PAYMENTS. Debtor shall pay principal in installments of FOUR HUNDRED
SIXTEEN THOUSAND SIX HUNDRED SIXTY SIX AND 67/100 Dollars ($416,666.67) each on
the FIRST day of each NOVEMBER, FEBRUARY, MAY, AND AUGUST, commencing NOVEMBER
1, 1998. On FEBRUARY 1, 2001, all principal and interest then unpaid shall be
due and payable. The availability under this note shall be reduced on the same
day and in the same amount as each scheduled principal payment.
INTEREST PAYMENTS. Debtor shall pay interest on the FIRST day of each MONTH
(commencing SEPTEMBER 1, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year of
360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder in
minimum amounts of at least $500,000.00 shall bear interest at a rate which
is equal to Bank's LIBOR-Rate for the Interest Period selected by Debtor,
plus the Applicable Margin.
No Base interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and on
the expiration of any Interest Period with respect to principal outstanding
on which a Base Interest Rate has been accruing, select an index offered by
Bank for a Base Interest Rate Loan and interest Period by telephoning an
authorized lending officer of Bank located at the banking office identified
below prior to 10:00 a.m., Pacific time, on any Business Day and advising
that officer of the selected index, the Interest Period and the Origination
Date selected (which Origination Date, for a Base Interest Rate Loan based
on the LIBOR-Rate, shall follow the date of such selection by no more than
two (2) Business Days).
Bank will mail a written communication of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the rate
selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves the
right to fund the principal from any source of funds notwithstanding any
Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is not
bearing interest at a Base Interest Rate shall bear interest at a rate per
annum equal to the Reference Rate plus the Applicable Margin, which rate
shall vary as and when the Reference Rate or the Applicable Margin, as the
case may be, changes.
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
<PAGE>
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in paragraph 1.b, of this note,
calculated from the date of default until all amounts payable under this note
are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based on
the Reference Rate may be prepaid in whole or in part at any time, without
penalty or premium, Debtor may prepay amounts outstanding under this note
bearing interest at a Base Interest Rate in whole or in part provided
Debtor has given Bank not less then five (5) Business Days prior written
notice of Debtor's intention to make such prepayment and pays to Bank the
liquidated damages due as a result. Liquidated Damages shall also be paid,
if Bank, for any other reason, including acceleration or foreclosure,
receives all or any portion of principal bearing interest at a Base
Interest Rate prior to its scheduled payment date. Liquidated Damages shall
be an amount equal to the present value of the product of: (i) the
difference (but not less than zero) between (a) the Base Interest Rate
applicable to the principal amount which is being prepaid, and (b) the
return which Bank could obtain if it used the amount of such prepayment of
principal to purchase at bid price regularly quoted securities issued by
the United Stares having a maturity date most closely coinciding with the
relevant Base Rate Maturity Date and such securities were held by Bank
until the relevant Base Rate Maturity Date ("Yield Rate"); (ii) a fraction,
the numerator of which is the number of days in the period between the date
of prepayment and the relevant Base Rate Maturity Date and the denominator
of which is 360; and (iii) the amount of the principal so prepaid (except
in the event that principal payments are required and have been made as
scheduled under the terms of the Base Interest Rate Loan being prepaid,
then an amount equal to the lesser of (A) the amount prepaid or (B) 50% of
the sum of (1) the amount prepaid and (2) the amount of principal scheduled
under the terms of the Base Interest Rate Loan being prepaid to be
outstanding at the relevant Base Rate Maturity Date). Present value under
this note is determined by discounting the above product to present value
using the Yield Rate as the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against
Bank, should the return which Bank could obtain under this prepayment
formula exceed the interest that Bank would have received if no prepayment
had occurred. All prepayments shall include payment of accrued interest on
the principal amount so prepaid and shall be applied to payment of interest
before application to principal. A determination by Bank as to the
prepayment fee amount, if any, shall be conclusive. In the event of
partial prepayment, such prepayments shall be applied to principal payments
in the inverse order of their maturity.
c. Bank shall provide Debtor a statement of the amount payable on account
of prepayment. Debtor acknowledges that (i) Bank establishes a Base
Interest Rate upon the understanding that it apply to the Base Interest
Rate Loan for the entire Interest Period, and (ii) any prepayment may
result in Bank incurring additional costs, expenses or liabilities; and
Debtor agrees to pay these liquidated damages as a reasonable estimate of
the costs, expenses and liabilities of Bank associated with such
prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
entity other then Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgement, injunction, decree,
writ or demand of any court or other public authority: (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice of
levy, notice to withhold, or Other legal process for taxes other than property
taxes; (l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money, (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this
note immediately due and payable; however, upon the occurrence of an event of
default under d, e f, or g, all principal and interest shall automatically
become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are not
paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of time
and the full extent permitted by law, (a) waive diligence, presentment, demand,
notice of nonpayment, protest, notice of protest, and notice of every kind; (b)
waive the right to assert the defense of any statute of limitations to any debt
or obligation hereunder; and (c) consent to renewals and extensions of time for
the payment of any amounts due under this note. If this note is signed by more
than one party, the term "Debtor" includes each of the undersigned and any
successors in interest thereof; all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the credit
of such payment based upon Bank's schedule of funds availability, and interest
under this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note, Debtor and any Obligor, including
their successors and assigns, hereby consent to the jurisdiction of any
competent court within the State of California, as provided in any alternative
dispute resolution agreement executed between Debtor and Bank, and consent to
service of process by any means authorized by said state's law. The term "Bank"
includes, without limitation, any holder of this note. This note shall be
construed in accordance
<PAGE>
with and governed by the laws of the State of California. This note hereby
incorporates any alternative dispute resolution agreement previously,
concurrently or hereafter executed between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below; "Agreement" means that certain Amended and
Restated Loan Agreement, of even date herewith, by and between Debtor and
Bank, as at any time amended, supplemented or otherwise modified or restated.
"Applicable Margin" means (1) in the case of a Base Interest Rate Loan, a per
annum rate equal to (a) 3.25%, if the ratio of Debtor's total liabilities to
Tangible Net Worth (as such term is defined in the Agreement) (the "Leverage
Ratio") as at the end of the most recent calendar month in respect of which
Debtor has furnished a financial statement to Bank as required by the
Agreement (the "Reported Period") is equal to or greater than 2.25:1.00, (b)
3.00%, if the Leverage Ratio as at the end of the most recent Reported Period
is less than 2.25:1.00 but equal to or greater than 2.00:1.00, (c) 2.75%, if
the Leverage Ratio as at the end of the most recent Reported Period is less
than 2.00:1.00 but equal to or greater than 1.75:1.00, (d) 2.50%, if the
Leverage Ratio as at the end of the most recent Reported Period is less than
1.75:1.00 but equal to or greater than 1.50:1.00, and (e) 2.25%, if the
Leverage Ratio as at the end of the most recent Reported Period is less than
1.50:1.00; and (2) in the case of principal amounts outstanding hereunder
that are bearing interest at a rate based upon the Reference Rate, a per annum
rate equal to (a) 0.50%, if the Leverage Ratio as at the end of the most
recent Reported Period is equal to or greater than 2.25:1.00, (b) 0.25%, if
the Leverage Ratio as at the end of the most recent Reported Period is less
than 2.25:1.00 but equal to or greater than 2.00:1.00, and (c) 0.00%, if the
Leverage Ratio as at the end of the most recent Reported Period is less than
2.00:1.00. A change in the Applicable Margin resulting from a change in the
Leverage Ratio shall become effective on the first day of the calendar month
following the Reported Period in respect of which a financial statement
furnished by Debtor to Bank pursuant to the Agreement reflects a change in
the Leverage Ratio which requires a change in the Applicable Margin as
provided for herein. For the purpose of determining the Applicable Margin, if
a default under this note or an Event of Default (as such term is defined in
the Agreement) has occurred and is continuing (including without limitation a
default or an Event of Default resulting from the failure of Debtor to
furnish any financial statement to Bank as required by the Agreement), then,
without waiving any right or remedy that Bank may have under the Agreement as
a result of such default or Event of Default (including without limitation
the rights to accelerate Debtor's obligations and invoke the default interest
rate), the Leverage Ratio shall be conclusively presumed to be equal to or
greater than 2.25:1.00 from the date of the occurrence of such default or
Event of Default until such default or Event of Default is cured or otherwise
waived by Bank. "Base Interest Rate" means a rate of interest based on the
LIBOR-Rate. "Base Interest Rate Loan" means amounts outstanding under this
note that bear interest at a Base Interest Rate. "Base Rate Maturity Date"
means the last day of the Interest Period with respect to principal
outstanding under a Base Interest Rate Loan. "Business Day" means a day on
which Bank is open for business for the funding of corporate loans, and, with
respect to the rate of interest based on the LIBOR Rate, on which dealings in
U.S. dollar deposits outside of the United States may be carried on by Bank.
"Interest Period" means with respect to funds bearing interest at a rate
based on the LIROR Rate, any calendar period of one, three, six, nine or
twelve months. In determining an Interest Period, a month means a period that
starts on one Business Day in a month and ends on and includes the day
preceding the numerically corresponding day in the next month. For any month
in which there is no such numerically corresponding day, then as to that
month, such day shall be deemed to be the last calendar day of such month.
Any Interest Period which would otherwise end on a non-Business Day shall end
on the next succeeding Business Day unless that is the first day of a month,
in which event such Interest Period shall end on the next preceeding Business
Day. "LIBOR Rate" means a per annum rate of interest (rounded upward, if
necessary, to the nearest 1/100 of 1%) at which dollar deposits, in
immediately available funds and in lawful money of the United States would be
offered to Bank, outside of the United States, for a term coinciding with the
Interest Period selected by Debtor and for an amount equal to the amount of
principal covered by Debtor's interest rate selection, plus Bank's costs,
including the costs, if any, of reserve requirements. "Origination Date"
means the first day of the Interest Period. "Reference Rate" means the rate
announced by Bank from time to time at its corporate headquarters as its
Reference Rate. The Reference Rate is an index rate determined by Bank from
time to time as a means of pricing certain extensions of credit and is
neither directly tied to any external rate of interest or index nor
necessarily the lowest rate of interest charged by Bank at any given time.
PRINTRAK INTERNATIONAL, INC.
By /s/ SUSANNA BENNETT
---------------------------------------
SUSANNA BENNETT, CORPORATE SECRETARY/VP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> APR-01-1998 APR-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 657 2,979
<SECURITIES> 0 5,162
<RECEIVABLES> 25,956 24,900
<ALLOWANCES> (971) (268)
<INVENTORY> 8,450 4,447
<CURRENT-ASSETS> 37,737 38,531
<PP&E> 4,719 5,412
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 49,674 49,114
<CURRENT-LIABILITIES> 22,294 13,907
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 20,826 34,287
<TOTAL-LIABILITY-AND-EQUITY> 49,674 49,114
<SALES> 12,593 12,406
<TOTAL-REVENUES> 16,437 15,262
<CGS> 6,237 6,350
<TOTAL-COSTS> 9,139 7,975
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (284) (41)
<INCOME-PRETAX> 365 83
<INCOME-TAX> 127 29
<INCOME-CONTINUING> 238 54
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 238 54
<EPS-PRIMARY> .02 .00
<EPS-DILUTED> .02 .00
</TABLE>
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE NEWS ANNOUNCEMENT
Contacts: Steve Yeich
Printrak International Inc.
714/238-2000
Paula Brici Bordigon
Lages & Associates
949/453-8080
PETER T. HIGGINS, FORMER HEAD OF FBI'S IAFIS
INITIATIVE, JOINS PRINTRAK BOARD OF DIRECTORS
ANAHEIM, Calif., July 14, 1998 -- Printrak International Inc. (NASDAQ:
AFIS) today announced the appointment of Peter T. Higgins, a prominent
consultant and lecturer on identification technology and other aspects of
criminal justice information services (CJIS), to its board of directors,
effective July 15, 1998.
The founder and principal consultant of Higgins & Associations,
International, Higgins earlier worked for nearly 30 years in government
service with the Central Intelligence Agency and Federal Bureau of
Investigation until his retirement in 1995. In his final government
assignment as deputy assistant director for engineering and CJIS, he
established and managed the FBI program office for the Integrated Fingerprint
Identification System (IAFIS). His 25 years of service in technical analysis
and management at the CIA culminated in his appointment in 1989 as chief
information officer, Office of the Director.
Higgins' numerous activities in industry affairs include serving as
chair of the AFIS Committee of the International Association for
Identification, the worlds oldest and largest professional forensics
organization.
Printrak concurrently announced the resignation as director of Kenneth
W. Simmonds, whose other business commitments prevented his desired level of
participation in Printrak affairs.
<PAGE>
"Peter Higgins is one of the most knowledgeable practitioners and
dedicated visionaries in the field of identification technology," said
Richard Giles, president and chief executive officer at Printrak. "His
participation as a director affords us a substantial level of expertise in
our market and technology areas. Furthermore, his background with very large
scale system implementations will help shape Printrak's business strategy,
particularly in the emerging market for national ID systems."
Giles added that Printrak is seeking an additional outside director with
strong credentials in IT hardware, software and professional services.
Printrak International Inc. (http://www.printrakinternational.com) is a
leading worldwide supplier of integrated identification and information
systems used primarily in criminal justice and public safety applications,
and with increasing frequency in civil applications such as national I.D.,
welfare and immigration control. Printrak's Digital Justice Solution-Trade
Mark- provides networked fingerprint, photo imaging, computer-aided dispatch
and automated records management systems. The company's systems serve
approximately 700 national, state, county and municipal agencies in 36
countries.
###
