FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
-------------------------------------------
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: 1-5513
--------------------------------------------------------
TRIDEX CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Connecticut 06-0682273
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
61 Wilton Road, Westport CT 06880
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(203) 226-1144
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Former address:
- --------------------------------------------------------------------------------
(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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| | NO |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES |_| NO |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding November 12, 1999
- --------------------------- -----------------------------
Common stock, no par value 6,368,289
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. Financial Information:
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Income for the Quarters and Nine
Months Ended September 30, 1999 and September 30, 1998 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and September 30, 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of the Results of
Operations and Financial Condition 9
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
EXHIBIT INDEX 16
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1999 1998
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 426 $ 18
Receivables 9,296 7,806
Inventories 7,774 7,941
Deferred tax assets 954 1,092
Other current assets 380 278
-------- --------
Total current assets 18,830 17,135
-------- --------
Plant and equipment 4,898 4,251
Less accumulated depreciation (2,276) (1,806)
-------- --------
2,622 2,445
-------- --------
Goodwill and intangible assets, net 12,785 13,803
Purchased and internally developed software
costs, net 10,418 11,319
Deferred tax assets 8,138 8,000
Other assets 259 251
-------- --------
$ 53,052 $ 52,953
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank line of credit $ 5,400 $ 4,756
Term loan payable (Note 5) 11,100 1,650
Accounts payable 6,333 5,875
Accrued liabilities 3,549 2,021
Deferred revenue 583 933
-------- --------
Total current liabilities 26,965 15,235
-------- --------
Long term debt, less current portion (Note 5) 9,508 19,341
Shareholders' equity:
Common stock, no par value 1,634 1,634
Additional paid-in capital 33,928 33,328
Retained deficit (17,268) (14,819)
Receivable from sale of stock (750) (801)
Common shares held in treasury, at cost (965) (965)
-------- --------
16,579 18,377
-------- --------
$ 53,052 $ 52,953
======== ========
See notes to consolidated condensed financial statements.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
----------------------------- -----------------------------
September September September September
30, 1999 30, 1998 30, 1999 30, 1998
<S> <C> <C> <C> <C>
Net sales $ 15,114 $ 12,815 $ 48,040 $ 30,840
----------------------------- -----------------------------
Operating costs and expenses:
Cost of sales 10,814 9,423 34,912 22,790
Engineering, design and product development costs 1,580 632 3,476 2,212
Selling, administrative and general expenses 2,625 2,355 7,428 5,708
Depreciation and amortization 1,116 1,047 3,270 2,175
Purchased in-process software technology 17,600
----------------------------- -----------------------------
16,135 13,457 49,086 50,485
----------------------------- -----------------------------
Operating Loss (1,021) (642) (1,046) (19,645)
Other charges (credits):
Interest expense, net 889 688 2,454 1,024
Other, net 9 7 (51) 15
----------------------------- -----------------------------
898 695 2,403 1,039
----------------------------- -----------------------------
Loss before income taxes (1,919) (1,337) (3,449) (20,684)
Benefit for income taxes (520) (730) (1,000) (7,294)
----------------------------- -----------------------------
Net loss $ (1,399) $ (607) $ (2,449) $ (13,390)
----------------------------- -----------------------------
Loss per share - basic and diluted:
Net loss $ (0.22) $ (0.10) $ (0.38) $ (2.24)
----------------------------- -----------------------------
Weighted average shares outstanding
Basic and diluted 6,368,000 6,377,000 6,368,000 5,975,000
----------------------------- -----------------------------
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
September September
30, 1999 30, 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,449) $(13,390)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 574 416
Amortization of goodwill and intangible assets 1,304 976
Amortization of purchased and internally developed software costs 1,626 783
Amortization of debt discount 217 68
Charge for purchased in-process software technology 17,600
Deferred income taxes (6,414)
Gain on sale of assets (178)
Changes in operating assets and liabilities, net of amounts acquired:
Receivables (1,571) (1,998)
Inventory (300) (171)
Other assets (110) (23)
Accounts payable, accrued liabilities and income taxes payable 1,649 1,813
-------- --------
Net cash provided by (used in) operating activities 762 (340)
-------- --------
Cash flows from investing activities:
Purchases of plant and equipment (619) (419)
Capitalized software development costs (725) (951)
Net cash paid for acquisition (42,570)
Proceeds from sale of assets 295 855
-------- --------
Net cash used in investing activities (1,049) (43,085)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long term debt 23,000
Net proceeds from line of credit 644 3,200
Proceeds from issuance of stock 2,000
Principal payments on long term debt (600)
Net decrease in short term investments 4,403
Proceeds from exercise of stock options and warrants 51 87
-------- --------
Net cash provided by financing activities 695 32,090
-------- --------
Increase (decrease) in cash and cash equivalents 408 (11,335)
Cash and cash equivalents at beginning of period 18 11,839
-------- --------
Cash and cash equivalents at end of period $ 426 $ 504
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,577 $ 718
Income taxes 125 116
Supplemental disclosures of non-cash investing and financing activities:
Stock issued for acquisition $ 4,998
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. General:
Tridex Corporation ("Tridex" or the "Company"), through its wholly-owned
subsidiaries, Ultimate Technology Corporation ("Ultimate") and Progressive
Software, Inc. ("Progressive"), is a leading provider of Point-of-Sale
("POS") and Back Office enterprise resource management software, systems
integration and related services to the food service and specialty retail
markets.
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly its financial
position as of September 30, 1999, the results of its operations for the
quarters and nine months ended September 30, 1999 and September 30, 1998
and changes in its cash flows for the nine months ended September 30, 1999
and September 30, 1998. The December 31, 1998 consolidated condensed
balance sheet has been derived from the Company's audited financial
statements at that date. These interim financial statements should be read
in conjunction with the financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Revenue includes hardware sales, design, implementation and support of
software systems, and related consultation services. Revenue on hardware
sales is recognized upon shipment to the customer. Revenue on software
sales is recognized in accordance with Statement of Position (SOP) 97-2,
"Software Revenue Recognition". Software license revenues are recognized
when a software contract has been signed, delivery has occurred, fees are
fixed and determinable and collectibility is probable. Maintenance
revenues are deferred and recognized ratably over the maintenance period,
generally one year.
Although the Company has experienced significant growth in revenues during
the past nine months, the Company does not believe such growth is
necessarily indicative of future operating results and there can be no
assurance that the Company will be profitable on a quarterly or annual
basis. In addition, the Company expects increased competition and intends
to continue to invest in software development. Future operating results
will depend on many factors, including demand for the Company's products,
the level of product competition, competitor pricing, the size and timing
of significant orders, the ability of the Company to develop, introduce
and market new products on a timely basis and changes in levels of
operating expenses.
2. Acquisition of Progressive Software, Inc.:
The Company purchased Progressive on April 17, 1998 and accounted for the
acquisition by the purchase method. Accordingly, the results of operations
of Progressive have been included in the accompanying consolidated
financial statements from the date of acquisition.
The purchase price of Progressive was $47,594,000 including acquisition
costs. The consideration paid for Progressive was comprised of 714,000
shares of Tridex common stock valued at $4,998,000 and the balance in
cash. The cash portion of the purchase price was financed by: (a)
$12,000,000 borrowed under a senior term loan from Fleet National Bank
("Fleet"), (b) $11,000,000 proceeds from the sale of senior subordinated
notes to Massachusetts Mutual Life Insurance Company and certain
affiliates (the "MassMutual Investors"), (c) $2,000,000 proceeds from the
sale of 285,714 shares of Tridex common stock to the MassMutual Investors,
(d) $1,736,000 borrowed under a working capital facility with Fleet, and
(e) the balance from the Company's cash and short term investments. The
Company also issued to the MassMutual Investors stock purchase warrants
for 350,931 shares of common stock at an exercise price of $7.00 per
share. The value of the warrants of $1,228,000 was recorded as a discount
to the principal amount of the outstanding notes and is being amortized to
interest expense over the term of the notes using the interest rate
method. See note 5 for further discussion of the Company's obligations to
Fleet and the MassMutual Investors and the warrant issued to the
MassMutual Investors.
<PAGE>
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values. The tangible net assets
consisted primarily of accounts receivable, inventory, equipment and
leasehold improvements, other assets and liabilities. Intangible assets
consisted of goodwill, existing technology and core technology being
amortized over five to ten years. Based upon a valuation prepared by an
independent technology consulting firm, $17,600,000 of the purchase price
was allocated to in-process technology that had not reached technological
feasibility, had no alternative future use, and for which successful
development was uncertain. Accordingly, in the second quarter of 1998 the
Company recorded a one-time charge in the amount of $17,600,000.
The following unaudited pro forma data reflect the acquisition of
Progressive as if the acquisition had occurred at the beginning of 1998,
but exclude the one-time charge for in-process software technology,
discussed above. The pro forma financial information is not necessarily
indicative of the combined results that would have occurred had the
acquisition taken place at the beginning of the period, nor is it
necessarily indicative of the results that may occur in the future.
Nine Months Ended
------------------
September 30, 1998
------------------
(Dollars in thousands, except per share amounts)
Sales $ 37,306
Operating loss (3,326)
Net loss (3,557)
Loss per share - basic: $ (0.56)
3. Earnings (loss) per common share:
Basic earnings (loss) per common share is based on the weighted average
number of common shares outstanding during the period. Diluted earnings
per common share assumes the exercise of options and warrants and the
conversion of dilutive securities, when the result is dilutive.
4. Inventories:
Components of inventory are:
September 30, 1999 December 31, 1998
------------------ -----------------
(Dollars in Thousands)
Raw materials and component parts $2,603 $3,011
Work-in-process 29 37
Finished goods 5,142 4,893
------ ------
$7,774 $7,941
====== ======
5. Bank credit agreement and long term debt:
The components of long term debt are:
September 30, 1999 December 31, 1998
------------------ -----------------
(Dollars in Thousands)
Term loan payable $11,100 $11,100
Senior subordinated notes, net of
discount 9,508 9,891
------- -------
20,608 20,991
Less: current portion 11,100 1,650
------- -------
$ 9,508 $19,341
======= =======
On April 17, 1998, the Company entered into a Credit Agreement (the
"Credit Agreement") with Fleet. The Credit Agreement is secured by a first
priority security interest in substantially all of the Company's assets
and restricts the amount available for payment of cash dividends and
capital stock distributions. The original terms of the Credit Agreement
provided for an $8 million working capital facility (the "Working Capital
Facility") and a $12 million term loan facility (the "Term Loan"). The
Credit Agreement allowed the Company to borrow at interest rates based
upon Fleet's prime rate, plus a margin of up to one percentage
<PAGE>
point, depending upon certain performance criteria. At the Company's
option, it could borrow at interest rates based upon LIBOR, plus a margin
ranging from 1.25 to 2.75 percentage points, depending upon certain
performance criteria. Interest on prime rate-based loans is payable
monthly. Interest on LIBOR-based loans is payable at the end of the LIBOR
measuring period. At September 30, 1999 the interest rate on outstanding
Credit Agreement debt was approximately 9.14%. The Working Capital
Facility bears a non-utilization fee on the unused facility ranging from
.25% to .625% depending upon certain performance criteria. The Term Loan
requires the Company to make quarterly principal payments commencing June
30, 1998 in the amount of $300,000 per quarter during the first year,
$450,000 per quarter during the second year and $750,000 per quarter
through termination on March 31, 2003. The Credit Agreement, as originally
executed, imposed certain financial covenants, including minimum tangible
capital base, maximum ratio of senior funded debt to EBITDA, maximum ratio
of total consolidated funded debt to EBITDA, minimum interest coverage
ratio and minimum fixed charge coverage ratio.
As of December 31, 1998, the Company was not in compliance with the
covenants related to the ratio of senior funded debt to EBITDA, the ratio
of total consolidated funded debt to EBITDA, the interest coverage ratio
and the fixed charge coverage ratio. On March 30, 1999, Fleet agreed to
waive the non-compliance as of December 31, 1998 and to amend the
covenants. The amended covenants require the Company to maintain a minimum
interest coverage ratio and a minimum net worth. In addition, the
amendment imposed a temporary reduction of $2,000,000 in the availability
under the Working Capital Facility and increased the interest rate by one
percentage point. The amendment allowed the Company to defer its March 31,
1999 term loan payment of $300,000 to June 30, 1999. The Company incurred
a fee of $50,000 payable to Fleet for this amendment. Fees to amend the
Credit Agreement are being amortized over the remaining term of the
agreement. On June 30, 1999, the Working Capital Facility was extended to
September 30, 1999 and the term loan payments scheduled for March 31, 1999
and June 30, 1999 were deferred to September 30, 1999. Fees of $80,000
related to this amendment were amortized during the third quarter. As of
September 30, 1999, the Company was in compliance with the covenants and
expects to be in compliance through the end of the year. As of September
30, 1999, the Working Capital Facility with Fleet was extended to March
31, 2000 and the interest rate was increased by one percentage point
(beginning September 30, borrowings are at the bank's prime rate plus a
margin of 2.5% or at the Company's option LIBOR plus 4.75%). In addition
the term loan was modified. The term loan payments scheduled for March 31,
1999, June 30, 1999 and September 30, 1999 were deferred to December 31,
1999, and the outstanding principal balance of the term note is due and
payable on December 31, 1999. Accordingly, the debt related to the Term
Loan has been classified as current in the balance sheet as of September
30, 1999. The Company incurred a fee of $30,000 for this amendment. Fees
to amend the Credit Agreement are being amortized over the remaining term
of the agreement. The Company is in discussions with Fleet to continue the
Working Capital Facility and with other financial institutions to replace
the credit facility.
On April 17, 1998, in conjunction with the acquisition of Progressive, the
Company sold to the MassMutual Investors $11 million of the Company's
senior subordinated notes due April 17, 2005 (the "Notes"). The Notes bear
interest at 12% payable quarterly on the 17th day of January, April, July
and October. The Notes require prepayments of $3,666,667 on each of April
17, 2003 and April 17, 2004. The Notes, as originally issued, imposed
certain financial covenants, including minimum consolidated net worth,
minimum fixed charge coverage ratio and maximum leverage ratio. The
Company issued to the MassMutual Investors on May 27, 1998 warrants to
purchase 350,931 shares of the Company's common stock at $7.00 per share.
The estimated fair market value of the warrants of $1,228,000 was recorded
as a discount to the principal amount of the outstanding Notes and is
being amortized to interest expense over the term of the Notes using the
interest rate method.
As of December 31, 1998, the Company was not in compliance with the
covenants related to the fixed charge coverage ratio and the leverage
ratio. On March 26, 1999, the MassMutual Investors agreed to waive the
non-compliance as of December 31, 1998 and to amend the financial
covenants. The amended covenants require the Company to maintain a minimum
interest coverage ratio and a minimum net worth. The amendment allowed the
Company to defer its April 17, 1999 interest payment of $330,000 to July
17, 1999. In consideration for the amendment to the Notes and in exchange
for the warrant issued in 1998, on March 29, 1999 the Company issued new
stock purchase warrants to the MassMutual Investors to purchase 800,000
shares of common stock at $2.03125 per share. The incremental estimated
fair value of the new warrants over the estimated fair value of the old
warrants, $600,000, was recorded as additional debt discount and is being
amortized to interest expense over the remaining term of the Notes using
the interest rate method. On June 30, 1999, the MassMutual Investors
agreed to defer the interest payments due on April 17, 1999, and July 17,
1999 to October 17, 1999. As of September 30, 1999, the MassMutual
Investors agreed to defer the interest payments due on April 17, 1999,
July 17, 1999, October 17, 1999, and January 17, 2000, each in the amount
of $330,000, to April 15, 2000. As of September 30, 1999, the Company was
in compliance with the covenants of the Notes and expects to be in
compliance through the end of the year.
<PAGE>
6. Commitments and contingencies:
The Company is involved in an environmental matter and legal proceedings
discussed in Note 9 to the consolidated financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1998. During the quarter ended June 30, 1999, the Company increased its
accruals for these matters by $130,000. As of September 30, 1999 and to
the date of this report, there has been no material development in the
resolution of this matter.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Certain statements included in this report, including, but not limited to,
statements in this Management's Discussion and Analysis of the Results of
Operations and Financial Condition, which are not historical facts may be deemed
to contain forward looking statements with respect to events the occurrence of
which involves risks and uncertainties, including, but not limited to, the
Company's expectations regarding net sales, gross profit, operating income and
financial condition.
Results of Operations
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
Consolidated net sales for the quarter ended September 30, 1999 increased
$2,299,000 (17.9%) to $15,114,000 from $12,815,000 in the comparable quarter of
the prior year. The increase reflects increased sales at Progressive and greater
volume of shipments of Ultimate's point-of-sale ("POS") component products,
particularly custom manufactured keyboards and pole displays, as well as
distributed products.
Consolidated gross profit (exclusive of depreciation and amortization) increased
$908,000 (26.8%) to $4,300,000 from $3,392,000 in the prior year's quarter, as a
result of the contribution of Progressive and greater volume of shipments of
Ultimate's POS products. Consolidated gross profit margin increased to 28.5% of
sales from 26.5% of sales in the prior year's quarter as a result of the mix of
the hardware component of Progressive's sales and a more favorable product mix
and lower manufacturing costs from Ultimate.
Consolidated engineering, design and product development costs, on a gross
basis, increased $106,000 (7.2%) to $1,580,000 from $1,474,000 in the prior
year's quarter. No product development costs were capitalized during the current
quarter. In the prior year's quarter, product development costs of $842,000 were
capitalized.
Consolidated selling, administrative and general expenses increased $270,000
(11.5%) to $2,625,000 from $2,355,000 in the prior year's quarter. The increase
in selling, administrative and general expenses reflects increased expenditures
for marketing of both POS terminal systems and software, professional services
and provision for uncollectable accounts, offset in part by the 1999 reversal of
$500,000 in excess pension accruals.
Consolidated depreciation and amortization for the quarter was $1,116,000
compared to $1,047,000 in the prior year's quarter. Depreciation increased
$51,000. Amortization expense consists primarily of the amortization of
goodwill, intangibles and existing and core technology acquired with
Progressive.
Consolidated operating income (loss) for the current quarter was a loss of
$1,021,000 compared to a loss of $642,000 in the prior year's quarter. The
increased operating loss was primarily the result of the increase in expensed
versus capitalized product development costs at Progressive and the increase in
selling and administrative expenses. Consolidated operating loss as a percentage
of sales was 6.8% compared to 5.0% in the prior year's quarter.
Net interest expense for the quarter was $889,000 compared to $688,000 in the
prior year's quarter. The increase in interest expense is primarily the result
of increased borrowings under the working capital facility and related banking
fees. Interest expense is net of interest income of $35,000 in the current
quarter and $23,000 in the prior year's quarter.
<PAGE>
Other charges of $9,000 in the current quarter and $7,000 in the prior year's
quarter are the carrying costs of non-operating properties held for sale.
Benefit for income taxes in the current quarter reflects an estimated effective
tax rate of approximately 27.1% for the quarter and approximately 54.6% in the
prior year's quarter. The Company has not provided a full valuation allowance
for the amount of the net deferred tax assets, as management believes
realization of these future benefits are more likely than not. The Company will
continue to periodically evaluate the need for additional valuation allowances.
Net loss for the current quarter was $1,399,000 (or $0.22 per share), as
compared to a net loss of $607,000 (or $0.10 per share) in the prior year's
quarter. The average number of common shares outstanding decreased to 6,368,000
shares from 6,377,000 shares in the prior year's quarter.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Consolidated net sales for the nine months ended September 30, 1999 increased
$17,200,000 (55.8%) to $48,040,000 from $30,840,000 in the comparable period of
the prior year. Prior year's sales include the sales of Progressive only from
the date of acquisition, April 17, 1998. The increase in sales reflects record
levels of shipments of Ultimate's products. Progressive's sales were 34% greater
than the full nine-month period of the prior year. Progressive's sales also
included an enterprise license fee of approximately $500,000 charged to a
distributor.
Consolidated gross profit (exclusive of depreciation and amortization) increased
$5,078,000 (63.1%) to $13,128,000 from $8,050,000 in the prior year's period,
primarily as a result of the contribution of Progressive and greater volume of
shipments of POS products. Consolidated gross profit margin increased to 27.3%
of sales from 26.1% of sales in the prior year's period as a result of the
contribution of software sales from Progressive.
Consolidated engineering, design and product development costs, on a gross
basis, increased $1,038,000 (32.8%) to $4,201,000 from $3,163,000 in the prior
year's period. Net of amounts capitalized, $725,000 during the current period
and $951,000 during the prior year's period, such expenses increased $1,264,000
(57.1%) to $3,476,000 from $2,212,000 in the prior year's period. Product
development projects at Ultimate include the recently introduced UltimaTouch
5000 POS workstation.
Consolidated selling, administrative and general expenses increased $1,720,000
(30.1%) to $7,428,000 from $5,708,000 in the prior year's period. The increase
in selling, administrative and general expenses is primarily the result of the
inclusion of such costs for Progressive. General expenses in the prior year's
period include a non-recurring charge of approximately $160,000 associated with
the due diligence review for a transaction that was not completed. Operating
expenses in the prior year include the $17,600,000 write-off of in-process
software technology acquired with the purchase of Progressive.
Consolidated depreciation and amortization for the current period was $3,270,000
compared to $2,175,000 in the prior year's period. Depreciation increased
$155,000. Amortization expense is primarily the amortization of goodwill,
intangibles and existing and core technology acquired with Progressive.
Consolidated operating loss for the current period was $1,046,000 compared to a
loss of $2,045,000 (exclusive of the write-off of in process software
technology) in the prior year's period. The loss in the current period was
primarily the result of the increase in selling, administrative and general
expenses. Consolidated operating loss as a percentage of sales was 2.2% compared
to 6.6% in the prior year's period.
Net interest expense for the current period was $2,454,000 compared to
$1,024,000 in the prior year's period. Interest expense of the period consists
of interest on debt incurred to acquire Progressive. The increase in interest
expense reflects such debt being outstanding for the entire period and, to a
lesser extent, to increased borrowings under the working capital facility and
related banking fees. Interest expense is net of interest income of $81,000 in
the current period and $330,000 in the prior year's period.
Other income of $51,000 reflects a gain of $180,000 on the sale of the assets of
the ribbon division offset by provisions for costs associated with the
remediation of environmental matters and non-operating properties held for sale.
<PAGE>
Benefit for income taxes in the first nine months reflects an estimated
effective tax rate for the year of 29.0%. The benefit recorded in the prior
year's period reflects the recognition of deferred taxes of approximately
$5,814,000 related to the write-off of in-process software technology. The
Company has not provided a full valuation allowance for the amount of the net
deferred tax assets, as management believes realization of these future benefits
are more likely than not. The Company will continue to periodically evaluate the
need for additional valuation allowances.
Net loss for the current period was $2,499,000 (or $0.38 per share) as compared
to a net loss of $13,390,000 (or $2.24 per share) in the prior year's period.
The average number of common shares outstanding increased to 6,368,000 shares
from 5,975,000 shares in the prior year's period.
Liquidity and Capital Resources
The Company's working capital deficiency at September 30, 1999 was $8,135,000
compared with working capital of $1,900,000 at December 31, 1998. The current
ratio was 1.12 : 1.00 at December 31, 1998.
The Company has a credit agreement with Fleet under which Fleet has provided the
Company with a $12.0 million term loan facility (the "Term Loan") and an $8.0
million working capital revolving credit facility (the "Working Capital
Facility"). As of December 31, 1998, the Company was not in compliance with the
covenants related to the ratio of senior funded debt to EBITDA, the ratio of
total consolidated funded debt to EBITDA, the interest coverage ratio and the
fixed charge coverage ratio. On March 30, 1999, Fleet agreed to waive the
non-compliance as of December 31, 1998 and to amend the covenants. The amended
covenants require the Company to maintain a minimum interest coverage ratio and
a minimum net worth. In addition, the amendment imposed a temporary reduction of
$2,000,000 in the availability under the Working Capital Facility and increases
the interest rate by one percentage point. The amendment allowed the Company to
defer its March 31, 1999 term loan payment of $300,000 to June 30, 1999. The
Company incurred a fee of $50,000 payable to Fleet for this amendment. Fees to
amend the Credit Agreement are being amortized over the remaining term of the
agreement. On June 30, 1999, the Working Capital Facility was extended to
September 30, 1999 and the Term Loan payments scheduled for March 31, 1999 and
June 30, 1999 were deferred to September 30, 1999. Fees of $80,000 related to
this amendment were amortizing during the third quarter. As of September 30,
1999, the Company was in compliance with the covenants and expects to be in
compliance through the end of the year. As of September 30, 1999, the Working
Capital Facility with Fleet was extended to March 31, 2000 and the interest rate
was increased by one percentage point (beginning September 30, borrowings are at
the bank's prime rate plus a margin of 2.5% or at the Company's option LIBOR
plus 4.75%). In addition the term loan payments was modified. The term loan
payments scheduled for March 31, 1999, June 30, 1999 and September 30, 1999 were
deferred to December 31, 1999 and the outstanding principal balance of the Term
Loan is due and payable on December 31,1999. Accordingly, the debt related to
the Term Loan has been classified as current in the balance sheet as of
September 30, 1999. The Company incurred a fee of $30,000 for this amendment.
Fees to amend the Credit Agreement are being amortized over the remaining term
of the agreement. The Company is in discussions with Fleet to continue the
Working Capital Facility and with other financial institutions to replace the
facility. Based on these discussions the Company believes it can renew or obtain
similar working capital financing. However, there is no certainty such financing
can be obtained, or can be obtained at similar terms or costs. If similar
working capital financing is not obtained, it would have a material adverse
effect on the Company's financial position and cash flows.
The Notes payable to the MassMutual Investors, as originally issued, imposed
certain financial covenants, including minimum consolidated net worth, minimum
fixed charge coverage ratio and maximum leverage ratio. As of December 31, 1998,
the Company was not in compliance with the covenants related to the fixed charge
coverage ratio and the leverage ratio. On March 26, 1999, the MassMutual
Investors agreed to waive the non-compliance as of December 31, 1998 and to
amend the financial covenants. The amended covenants require the Company to
maintain a minimum interest coverage ratio and a minimum net worth. The
amendment allowed the Company to defer its April 17, 1999 interest payment of
$330,000 to July 17, 1999. In consideration for the amendment to the Notes and
in exchange for the warrant issued in 1998, on March 29, 1999 the Company issued
new stock purchase warrants to the MassMutual Investors to purchase 800,000
shares of common stock at $2.03125 per share. The incremental estimated fair
value of the new warrants over the estimated fair value of the old warrants,
$600,000, was recorded as additional debt discount and is being amortized to
interest expense over the remaining term of the Notes using the interest rate
method. On June 30, 1999, the MassMutual Investors agreed to defer the interest
payments due on April 17, 1999, and July 17, 1999 to October 17, 1999. As of
September 30, 1999, the MassMutual Investors again agreed to defer the interest
payments due on April 17, 1999, July 17, 1999, October 17, 1999, and January 17,
2000 each in the amount of $330,000, to April 15, 2000. As of September 30,
1999, the Company was in compliance with the covenants of the Notes and expects
to be in compliance through the end of the year.
At September 30, 1999, the Company had availability of $600,000 under the
Working Capital Facility and no material commitment for capital expenditures.
The Company believes that cash flow from operations and the Working Capital
Facility will be sufficient to satisfy its working capital needs through the end
of its fiscal year ending December 31, 1999 but there can be no assurance that
the Company will be able to generate sufficient cash from those sources to meet
its operating requirements. In the event that the Company was unable to meet its
needs for cash from the sources described above, the Company will need to obtain
<PAGE>
equity or debt financing or reduce its operating expenses and capital
expenditures. Furthermore, the Company must either negotiate an extension of the
maturity date of its Term Loan or repay the Term Loan on or before December 31,
1999. The Company is in the process of negotiating the sale of its Ultimate
subsidiary and believes that the proceeds of such sale will be sufficient to
repay the Term Loan in full. There can be no assurance that the sale will be
consummated by December 31, 1999 or that, in the absence of such sale the
Company will be able to negotiate a further extension of the maturity date of
the Term Loan. If the Company is unable to repay the Term Loan by December 31,
1999 or obtain an extension of the maturity date, Fleet would be entitled to
accelerate the maturity of the Working Capital Facility and foreclose on its
security for the credit facilities which would have a material adverse effect on
the Company's liquidity, capital resources and cash flows.
The Year 2000
Commencing in late 1998, the Company undertook a review and assessment of those
areas within its business and operations that could be adversely affected by the
failure of the products or computer systems of the Company (or its customers,
vendors or suppliers) to recognize and perform properly date-sensitive functions
involving or in connection with the Year 2000. The Company identified four areas
of its operations which could be impacted by the Year 2000 issue: products;
internal systems and software; vendor and supplier products and systems; and
customers' internal systems. The Company effected a survey during the first six
months of 1999 of its products, information systems, suppliers, customers and
other third parties with significant relationships with the Company to identify
risks related to the Year 2000 issue and address its potential impact on the
Company.
Products
The Company's survey of its products for Year 2000 compliance involved
performing extensive testing of all date-sensitive functions on software
products and third-party components used in products sold by the Company or
licensed by the Company to third parties. No significant non-compliance issues
have been identified through such testing. The Company will continue to perform
significant testing of its products throughout 1999 and 2000. The Company has
determined to make available members of its technical support staff to assist
customers of the Company's products and services if any Year 2000 issues arise.
Internal Systems
The Company's internal information systems have been updated with Year 2000
compliant releases from the system providers. Systems used internally by the
Company in the development of products and services have been tested for Year
2000 compliance, and the Company has received compliance certificates from the
providers of such systems. The Company will continue to test and monitor its
internal systems throughout 1999 and 2000.
Vendors and Suppliers
Management identified key vendors and suppliers of materials to the Company. The
Company sent questionnaires to all such key vendors and suppliers regarding
their Year 2000 compliance status, and to identify those open issues that could
have a material adverse effect on the Company's business and operations. Through
vendor and supplier responses to the questionnaire, the Company received
assurances that Year 2000 compliance problems encountered by such vendors and
suppliers, if any, will not have a material adverse effect on the Company. The
Company continues to monitor the compliance status of each key vendor and
supplier in order to minimize any risk associated with the failure of such
parties' systems and products to be Year 2000 compliant. Furthermore, the
Company utilizes multiple vendors and suppliers of all critical materials to
further reduce its risks associated with the Year 2000 issue.
Customers
The Company has distributed questionnaires to all of its current customers
requesting those customers to verify that their systems are Year 2000 compliant,
and to notify the Company of any unresolved non-compliance matters that may have
a material adverse effect on the Company. The majority of the customers
contacted by the Company have responded that their systems are Year 2000
compliant. The
<PAGE>
Company continues to seek assurances regarding compliance from those customers
who have not responded. There can be no absolute assurance that customers will
bring their internal systems into compliance in a timely fashion to avoid a
material adverse effect on the Company. If customers do not resolve their
internal systems' Year 2000 compliance issues, their purchasing of Company
products and services could be negatively impacted in the fourth quarter of 1999
and the first quarter of 2000, which could have a material adverse effect on the
operations, liquidity and capital resources of the Company.
Based upon its survey and the advice of technical consultants, the Company
believes that the Year 2000 issue will not have a material impact on its
products and that the cost of addressing the Year 2000 issue is not likely to
have a material impact on the Company's operations or financial condition. The
Company will continue to review the Year 2000 issue for potential impact on its
products, operations and financial condition. The Company has designated a Year
2000 task team which, commencing January 1, 2000, will be dedicated exclusively
to addressing any Year 2000-related issues that arise.
The Company has expensed costs as incurred related to the Year 2000 analysis and
remediation process. All costs to finish the Year 2000 effort will be expensed
as incurred and are not expected to have a material adverse effect on the
Company. The Company believes that its efforts have identified and corrected the
crucial Year 2000 compliance issues and that its Year 2000 compliance
remediation process is complete, although the Company will continue to test
compliance through the remainder of 1999 and into 2000. If the Company, its
larger customers, its key vendors and significant suppliers encounter
unanticipated Year 2000 issues which they are unable to resolve in a timely
manner, the operations, liquidity, and capital resources of the Company could be
materially and adversely affected.
Nasdaq Listing
As of September 30, 1999, the Company's net tangible assets were $3,794,000.
Accordingly, as of such date the Company did not meet the Nasdaq National Market
listing requirement of maintaining $4,000,000 of net tangible assets. There can
be no assurance that the Company's common stock will continue to be listed on
the Nasdaq National Market. If the Company's common stock were delisted from the
Nasdaq system, current information regarding bid and asked prices for the common
stock would become less readily available to brokers, dealers and/or their
customers. As a result of reduced availability of current information, it is
likely that there would be a reduction in the liquidity of the market for the
common stock which, in turn, could result in decreased demand for the common
stock, a decrease in the stock price and an increase in the spread between the
bid and asked prices for the common stock.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 4.1 Fourth Amendment to Securities Purchase
Agreements dated September 30, 1999 by and
among Massachusetts Mutual Life Insurance
Company and certain of its affiliates and
Tridex Corporation.
Exhibit 10.1 Amendment No. 4 to Credit Agreement dated as
of September 30, 1999, to Credit Agreement
dated as of April 17, 1998, by and between
Fleet National Bank, Tridex Corporation,
Progressive Software, Inc. and Ultimate
Technology Corporation.
Exhibit 11. Computation of Per Share Earnings
b. Reports on Form 8-K
The Company filed a Current Report on Form 8-K on July 16,
1999 to report that it had amended the Credit Agreement with
Fleet and the Securities Purchase Agreements with the
MassMutual Investors.
<PAGE>
SIGNATURES
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.
TRIDEX CORPORATION
(Registrant)
November 12, 1999 /s/Seth M. Lukash
----------------------------------------------
Seth M. Lukash
Chairman of the Board, President, Chief
Executive Officer, and Chief Operating Officer
November 12, 1999 /s/Daniel A. Bergeron
----------------------------------------------
Daniel A. Bergeron
Vice President and Chief Financial Officer
November 12, 1999 /s/George T. Crandall
----------------------------------------------
George T. Crandall
Vice President and Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit 4.1 Fourth Amendment to Securities Purchase Agreements dated
September 30, 1999 by and among Massachusetts Mutual Life
Insurance Company and certain of its affiliates and Tridex
Corporation. 17
Exhibit 10.1 Amendment No. 4 to Credit agreement dated as of September
30, 1999, to Credit Agreement dated as of April 17, 1998, by
and between Fleet National Bank, Tridex Corporation,
Progressive Software, Inc. and Ultimate Technology
Corporation. 22
Exhibit 11 Computation of Per Share Earnings 29
Exhibit 27 Financial Data Schedule
Exhibit 4.1
TRIDEX CORPORATION
PROGRESSIVE SOFTWARE, INC.
ULTIMATE TECHNOLOGY CORPORATION
61 Wilton Road
Westport, Connecticut 06880
September 30, 1999
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
MASSMUTUAL CORPORATE INVESTORS
MASSMUTUAL PARTICIPATION INVESTORS
MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED
1295 State Street
Springfield, Massachusetts 01111
Re: Fourth Amendment to Securities Purchase Agreements
Ladies and Gentlemen:
TRIDEX CORPORATION, a Connecticut corporation (the "Holding Company"),
PROGRESSIVE SOFTWARE, INC., a North Carolina corporation and successor to Tridex
NC, Inc. ("PSI"), and ULTIMATE TECHNOLOGY CORPORATION, a New York corporation
("UTC") (the Holding Company, PSI, and UTC are sometimes collectively referred
to herein as the "Issuers" and each as an "Issuer"), jointly and severally agree
with each of you as follows.
Background:
A. Reference is made to those certain Securities Purchase Agreements dated
April 17, 1998, as amended by that certain letter of waiver and limited
amendment dated November 12, 1998 relating thereto, as further amended by that
certain Second Amendment to Securities Purchase Agreements dated March 26, 1999
(the "Second Amendment"), and as further amended by that certain Third Amendment
to Securities Purchase Agreement dated June 30, 1999 (as so amended, the
"Securities Purchase Agreements"), among the Issuers and each of you.
Capitalized terms used herein without definition have the meanings ascribed to
them in the Securities Purchase Agreements.
B. The Issuers have requested that the holders of the Securities approve
certain amendments to and waivers under the Securities Purchase Agreements and
the other Operative Documents in connection with the Amendment No. 4 to Credit
Agreement dated as of September 30, 1999 (the "Fourth Amendment to Fleet Bank
Agreement") among the Holding Company, PSI, UTC, and Fleet National Bank,
pursuant to which certain amendments are being made to the Fleet Bank Documents
and Fleet National Bank is agreeing to the deferral of certain payments of
principal thereunder.
1. Consents and Waivers. Each of you hereby agrees that (a) the Issuers may
defer the payment of each of the April 17, 1999, July 17, 1999, October 17, 1999
and January 17, 2000 interest payments on the Notes until April 15, 2000, at
which date such April 17, 1999, July 17, 1999, October 17, 1999 and January 17,
2000 interest payments on the Notes shall all be due and payable in full; and
(b) notwithstanding anything to the contrary in the Securities Purchase
Agreements, the Issuers' failure to comply with section 13.6 of the Securities
Purchase Agreements prior to the date of this Fourth Amendment in respect of the
period ending December 31, 1998, shall not constitute an Event of Default and
the holders hereby waive any such Event of Default which existed for such period
prior to the date of this Fourth Amendment, provided that such section 13.6 of
the Securities Purchase Agreements as amended by the Second
<PAGE>
Amendment shall only remain in effect in respect of periods ending subsequent to
December 31, 1998, and prior to April 1, 2000. As of April 1, 2000, such section
13.6, as in effect prior to the date of the Second Amendment, shall be deemed
reinstated.
2. Conditions to Effectiveness of Fourth Amendment. This Fourth Amendment shall
be effective upon the first date upon which the following conditions shall have
been satisfied to your reasonable satisfaction:
(a) The Issuers shall have delivered to you executed copies of each of the
following documents in form and substance satisfactory to you:
(i) a fully executed counterpart of this Fourth Amendment;
(ii) certified copies of (A) the resolutions of the Board of
Directors of each of the Issuers approving this Fourth Amendment and the
matters contemplated hereby and (B) all documents evidencing other
necessary corporate actions and governmental approvals, if any, with
respect to this Fourth Amendment and the other documents to be delivered
hereunder;
(iii) a certificate of the Secretary or an Assistant Secretary of
each of the Issuers certifying the names and true signatures of the
officers of each Issuer authorized to sign this Fourth Amendment and the
other documents to be delivered hereunder;
(iv) an opinion, dated the date hereof, from Messrs. Hinckley, Allen
& Snyder LLP, counsel for the Issuers, substantially in the form of
Exhibit 3(a)(iv) attached hereto; and
(v) an executed counterpart of the Fourth Amendment to Fleet Bank
Agreement, substantially in the form of Exhibit 3(a)(v) attached hereto.
(b) The Issuers shall have paid in full all fees, expenses and
disbursements incurred by you in connection with this Fourth Amendment,
including, without limitation, the fees, expenses and disbursements of your
special counsel.
3. No Default, Representations and Warranties, Etc.
(a) The Issuers represent and warrant that the representations and
warranties contained in the Securities Purchase Agreements and the other
Operative Documents are in all material respects correct on and as of the date
hereof (after giving effect hereto) as if made on such date (except as a result
of transactions permitted under the Securities Purchase Agreements), that no
Default or Event of Default exists (other than those which have been
specifically waived pursuant to section 1 hereof) and that no condition exists
which has resulted in, or could reasonably be expected to result in, a Material
Adverse Change.
(b) Each of the Issuers ratifies and confirms the Securities Purchase
Agreements and each of the other Operative Documents to which it is a party and
agrees that, after giving effect to the amendments, modifications and
supplements effected hereby, each such agreement, document and instrument is in
full force and effect, that its obligations thereunder and under this Fourth
Amendment are its legal, valid and binding obligations enforceable against it in
accordance with the terms thereof and hereof and that it has no defense, whether
legal or equitable, setoff or counterclaim to the payment and performance of
such obligations.
(c) The Issuers agree that (i) if any default shall be made in the
performance or observation of any covenant, agreement or condition contained
herein or (ii) if any representation or warranty made by any Issuer herein or
therein shall prove to have been false or incorrect on the date as of which
made, the same shall constitute an Event of Default under the Securities
Purchase Agreements and the other Operative Documents and, in such event, you
and each other holder of any of the Securities shall have all
<PAGE>
rights and remedies provided by law and/or provided or referred to in the
Securities Purchase Agreements and the other Operative Documents. The Issuers
further agree that this Fourth Amendment is an Operative Document and all
references thereto in the Securities Purchase Agreements and in any other of the
Operative Documents shall include this Fourth Amendment.
4. Payment of Transaction Costs. Without limiting the generality of the
provisions of the Operative Documents, the Issuers jointly and severally shall
pay all reasonable fees and disbursements incurred by you in connection
herewith, including, without limitation, the reasonable fees, expenses and
disbursements of your special counsel.
5. Governing Law. This Fourth Amendment, including the validity hereof and the
rights and obligations of the parties hereunder, shall be construed in
accordance with and governed by the domestic substantive laws of The
Commonwealth of Massachusetts without giving effect to any choice of law or
conflicts of law provision or rule that would cause the application of the
domestic substantive laws of any other jurisdiction.
6. Miscellaneous. The headings in this Fourth Amendment are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof. This
Fourth Amendment embodies the entire agreement and understanding among the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof. In case any provision in this Fourth Amendment
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Fourth Amendment may be executed in any number of
counterparts and by the parties hereto on separate counterparts but all such
counterparts shall together constitute but one and the same instrument. Except
as specifically amended or modified pursuant to this Fourth Amendment, the
Securities Purchase Agreements shall remain in full force and effect, and the
execution and delivery of this Fourth Amendment shall not, except as expressly
provided herein, operate as a waiver of any of your rights, powers, or remedies
under the Securities Purchase Agreements or the documents and instruments
delivered in connection therewith.
[The remainder of this page is left blank intentionally.]
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart hereof, whereupon this Fourth
Amendment shall become a binding agreement under seal among the parties hereto.
Please then return one of such counterparts to the Issuers.
Very truly yours,
TRIDEX CORPORATION
By _________________________________
(Title)
PROGRESSIVE SOFTWARE, INC.
By _________________________________
(Title)
ULTIMATE TECHNOLOGY CORPORATION
By ________________________________
(Title)
The foregoing is hereby accepted and agreed to.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By _________________________________
(Title)
MASSMUTUAL CORPORATE INVESTORS
By _________________________________
(Title)
The foregoing is executed on behalf of MassMutual Corporate Investors, organized
under a Declaration of Trust, dated September 13, 1985, as amended from time to
time. The obligations of such Trust are not personally binding upon, nor shall
resort be had
<PAGE>
to the property of, any of the Trustees, shareholders, officers, employees, or
agents of such Trust, but the Trust's property only shall be bound.
MASSMUTUAL PARTICIPATION INVESTORS
By _________________________________
(Title)
The foregoing is executed on behalf of MassMutual Participation Investors,
organized under a Declaration of Trust, dated April 7, 1988, as amended from
time to time. The obligations of such Trust are not personally binding upon, nor
shall resort be had to the property of, any of the Trustees, shareholders,
officers, employees, or agents of such Trust, but the Trust's property only
shall be bound.
MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED
By Massachusetts Mutual Life Insurance Company, as Investment Manager
By _________________________________
(Title)
Exhibit 10.1
AMENDMENT NO. 4 TO CREDIT AGREEMENT
Dated as of September 30, 1999
This Amendment No. 4 to Credit Agreement (this "Amendment") is made by and
among TRIDEX CORPORATION, a Connecticut corporation ("Tridex"), PROGRESSIVE
SOFTWARE, INC., a North Carolina corporation ("PSI"), ULTIMATE TECHNOLOGY
CORPORATION, a New York corporation ("UTC", and collectively, together with
TRIDEX and PSI, the "Borrowers" and each, individually, a "Borrower"), and FLEET
NATIONAL BANK, a national banking association organized under the laws of the
United States of America (the "Bank").
PRELIMINARY STATEMENTS:
A. The Borrowers and the Bank have entered into a Credit Agreement dated
as of April 17, 1998. The Borrowers and the Bank have also entered into an
Amendment No. 1 to Credit Agreement dated as of November 1, 1998 ("Amendment No.
1"). The Borrowers and the Bank have further entered into an Amendment No. 2 to
Credit Agreement dated as of March 15, 1999 ("Amendment No. 2"). The Borrowers
and the Bank have further entered into Amendment No. 3 to Credit Agreement dated
as of June 30, 1999 ("Amendment No. 3"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings given thereto in the Credit
Agreement, as amended. As used herein, the term "Credit Agreement" shall mean
the Credit Agreement, as amended pursuant to Amendment No. 1, Amendment No. 2,
Amendment No. 3 and this Amendment.
B. For good and valuable consideration, the receipt of which is
acknowledged, the Borrowers and the Bank have agreed to further amend the Credit
Agreement, as hereinafter set forth.
SECTION 1. Recitals; Acknowledgement of Indebtedness. The above recitals
are true and correct.
As of September 30, 1999, the Borrowers are legally, validly, enforceably,
jointly and severally indebted to the Bank under the Facility Documents, without
defense, recoupment, counterclaim or offset as follows:
Principal
---------
Working Capital Loans $ 5,400,000.00
Term Loan $ 11,100,000.00
together with accrued and unpaid interest thereon and all other amounts due and
owing thereunder.
SECTION 2. Amendments. The Facility Documents are, effective as of the
date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 3 hereof, hereby amended as follows:
(a) The following definitions in the Credit Agreement are hereby amended
and modified as follows:
"Eligible Inventory" means, as of any date of determination thereof,
all Inventory (valued at the lower of cost or its net realizable value as
determined using GAAP) owned by the Borrowers, but excluding (a) all Inventory
in which the Bank does not have a first perfected security interest, subject to
no other Lien prior to or on a parity with such security interest, (b) all
Inventory for which warehouse receipts or documents of title have been issued,
unless the same are delivered to the Bank (c) all Inventory of PSI prior to the
date that the Term Loan is paid in full and thereafter such inventory of PSI
shall no longer be excluded hereunder, (d) all work-in-progress, packaging and
labeling of any finished Inventory units housed at customer locations, and (e)
all other Inventory deemed ineligible by the Bank because of any circumstance
that could, in the Bank's judgement, reasonably exercised, adversely affect the
quality of such Inventory as collateral security. Notwithstanding the preceding
sentence, "Eligible Inventory" shall not include any Inventory not located at
the premises owned by or leased to or contracted to a Borrower, unless such
Inventory is in transit (and insured) or such Borrower has made a formal
financing statement filing against the consignee of such Inventory and has given
any party claiming of record a
<PAGE>
security interest in such consignee's Inventory, or other assets that might
include such Inventory, notice of such Borrower's consignment arrangements with
such consignee or has taken equivalent protective steps satisfactory to the
Bank.
"Margin" means the percentage points to be added to the Bank's Prime
Rate or the then applicable LIBOR Rate, as follows:
Libor Margin Prime Rate Margin
------------ -----------------
4.75% 2.5%
(b) Effective on the earlier of the payoff of the Term Loan or
December 31, 1999, Section 8.2 of the Credit Agreement entitled "Net Worth"
shall be automatically amended by deleting from the last sentence
"$15,400,000.00" and replacing it with "$20,000,000.00";
(c) The Working Capital Loans, plus all accrued and unpaid interest
thereon, shall be due and payable in full on March 31, 2000. Interest shall
continue to be payable monthly in accordance with the terms of the Facility
Documents;
(d) The $300,000.00 principal payment originally due on the Term
Loan on March 31, 1999, which was deferred to June 30, 1999, and was further
deferred until September 30, 1999, is hereby further deferred until December 31,
1999. Interest shall continue to be payable monthly in accordance with the terms
of the Facility Documents;
(e) The $450,000.00 principal payment originally due on the Term
Loan on June 30, 1999 and deferred until September 30, 1999, is hereby further
deferred until December 31, 1999. Interest shall continue to be payable monthly
in accordance with the terms of the Facility Documents;
(f) The further $450,000.00 principal payment originally due on the
Term Loan on September 30, 1999 is hereby deferred until December 31, 1999;
(g) The outstanding principal balance of the Term Note, together
with all accrued and unpaid interest thereon shall be due and payable in full on
December 31, 1999;
(h) In consideration of the deferral by the Bank set forth in
Section 2(c)-(g), the Borrowers agree to pay an extension fee deemed to be
earned as of the date hereof in the amount of Thirty Thousand and No/100 DOLLARS
($30,000.00) ("Extension Fee"), payable in monthly installments of FIVE THOUSAND
AND NO/100 DOLLARS ($5,000.00) commencing on October 1, 1999 and continuing on
the first day of each month thereafter until either the Extension Fee is paid in
full or the Loans are paid in full. In the event that the Loans are paid in full
prior to the payment in full of the Extension Fee, then any balance due shall be
waived. Time is of the essence with respect to each payment date set forth in
this Amendment; and
(i) Within one (1) day after the payoff of the Term Loan, the
Borrowers shall deliver to the Bank an updated Borrowing Base Certificate,
certified by Tridex's President or Chief Financial Officer. In the event that
the Borrowing Base Certificate demonstrates that the Working Capital Loans
exceed the Borrowing Base, then the Borrowers shall immediately make such
payment as is necessary so that the Working Capital Loans do not exceed the
Borrowing Base.
SECTION 3. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, the Bank shall have received counterparts of this
Amendment executed by the Borrowers and approved by the Bank and a counterpart
executed by the Bank, and Section 2 hereof shall become effective when, and only
when, the Bank shall have additionally received all of the following documents
or items, each document (unless otherwise indicated) being dated the date of
receipt thereof by the Bank (which date shall be the same for all such
documents), in form and substance satisfactory to the Bank:
(a) Certified copies of (i) the resolutions of the Board of
Directors of each of the Borrowers approving this Amendment and the matters
contemplated hereby and (ii) all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to this Amendment and
the matters contemplated hereby;
<PAGE>
(b) A certificate of the Secretary or an Assistant Secretary of each
of the Borrowers certifying the names and true signatures of the officers of the
Borrower authorized to sign this Amendment and the other documents to be
delivered hereunder;
(c) Evidence that Massachusetts Mutual Life Insurance Company and
its Affiliates ("Mass Mutual") have agreed to defer the interest payments due on
April 17, 1999, July 17, 1999, October 17, 1999 and January 17, 2000 payable on
the $11,000,000.00 Subordinated Debt to a date no earlier than April 15, 2000
and waive any other defaults that may exist under the documents and/or
instruments evidencing such Subordinated Debt; and
(d) An opinion of counsel to the Borrowers in form and substance
acceptable to the Bank.
SECTION 4. Representations and Warranties of Each of the Borrowers. Each
of the representations and warranties made by each of the Borrowers in the
Facility Documents or otherwise made by or on behalf of the Borrowers in
connection therewith after the date thereof shall have been true and correct in
all respects on the date when made and shall also be true and correct in all
material respects on the date hereof, except to the extent of changes resulting
from transactions contemplated or permitted by the Facility Documents and
changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse.
SECTION 5. Reaffirmation of Facility Documents. The Borrowers agree that:
(a) This Amendment and each of the other Facility Documents as
amended hereby, constitute legal, valid and binding obligations of the Borrowers
enforceable against each Borrower in accordance with their respective terms.
(b) The Credit Agreement and the Security Agreement create valid and
perfected first priority security interests and liens in and to the Collateral
covered thereby enforceable against all third parties in all jurisdictions,
securing the payment of all Obligations, and the execution, delivery and
performance of this Amendment do not adversely affect the aforesaid security
interests and liens of the Credit Agreement and the Security Agreement.
(c) Except as set forth in the Credit Agreement, there is no pending
or threatened action or proceeding affecting the Borrowers or any of their
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of the
Borrowers or any of their Subsidiaries. There is no pending or threatened action
or proceeding affecting the Borrowers or any of their Subsidiaries before any
court, governmental agency or arbitrator which purports to affect the legality,
validity or enforceability of this Amendment or any of the other Facility
Documents, as amended hereby.
(d) The Facility Documents existing on the date hereof constitute
legal, valid and binding obligations of the Borrowers, enforceable against the
Borrowers in accordance with their respective terms. After giving effect to the
amendments provided for in this Amendment, no event has occurred and is
continuing which constitutes a Default or an Event of Default.
SECTION 6. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of Section 2 hereof, on and after the
date hereof each reference in the Credit Agreement to "this Agreement,"
"hereunder, "hereof," "herein" or words of like import, and each reference in
any Facility Documents to the Credit Agreement or any other Facility Document,
shall mean and be a reference to the Credit Agreement or such other Facility
Document as amended hereby.
(b) Except as specifically amended or modified pursuant to this
Amendment, the provisions of the Credit Agreement, the Notes and the other
Facility Documents shall remain in full force and effect and are hereby ratified
and confirmed. Without limiting the generality of the foregoing, the Credit
Agreement, the Security Agreement and all of the Collateral described therein do
and shall continue to secure the payment of all indebtedness and liabilities of
the Borrowers to the Bank under the Credit Agreement and the other Facility
Documents, as amended hereby.
<PAGE>
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Bank under any of the Facility Documents, nor
constitute a waiver of any provision of any of the Facility Documents.
SECTION 7. Costs, Expenses and Taxes. Without limiting the foregoing or
anything else contained herein, each of the Borrowers agrees to pay on demand
all reasonable costs and expenses of the Bank in connection with the
preparation, execution and delivery of this Amendment and the other instruments
and documents to be delivered hereunder, including, without limitation, the
reasonable costs and expenses for the performance of a field audit, the
reasonable fees and out-of-pocket expenses of counsel for the Bank (including
the allocated costs of in-house counsel) with respect thereto and with respect
to advising the Bank as to its rights and responsibilities hereunder and
thereunder. Each of the Borrowers further agrees to pay on demand all reasonable
costs and expenses, if any (including, without limitation, reasonable counsel
fees and expenses, including the allocated costs of in-house counsel), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Amendment and the other instruments and documents to be
delivered hereunder, including, without limitation, reasonable counsel fees
(including the allocated costs of in-house counsel) and expenses in connection
with the enforcement of its rights. In addition, each of the Borrowers shall pay
any and all taxes payable or determined to be payable in connection with the
execution and delivery of this Amendment and the other instruments and documents
to be delivered hereunder, and agrees to save the Bank harmless from and against
any and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes.
SECTION 8. Waivers. The Borrowers waive, release and discharge any and all
claims or causes of action of any kind whatsoever, whether at law or in equity,
arising on or prior to the date hereof, which the Borrowers may have against the
Bank, its affiliates, successors and assigns, agents, directors, employees and
counsel, in connection with the Loans. The waivers and releases made herein
include the Borrowers' waiver of any damages which may have been, or may in the
future be, caused to the Borrowers, their properties or business prospects
because of the actions waived and released and the agreements made herein,
including, without limitation, any actual or implicit, direct or indirect,
incidental or consequential damages suffered by the Borrowers therefrom,
including, but not limited to: (a) lost profits; (b) loss of business
opportunity; (c) increased financing costs; (d) increased legal and other
administrative fees; and (e) damages to business reputation.
SECTION 9. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 10. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of Connecticut, without
reference to Connecticut's choice of law rules.
SECTION 11. COMMERCIAL WAIVER. EACH BORROWER ACKNOWLEDGES THAT THE LOANS
EVIDENCED BY THE NOTES ARE FOR COMMERCIAL PURPOSES AND WAIVES ANY RIGHT TO
NOTICE AND HEARING UNDER SECTIONS 52-278a THROUGH 52-278n OF THE CONNECTICUT
GENERAL STATUTES AS NOW OR HEREAFTER AMENDED AND AUTHORIZES THE ATTORNEY OF THE
BANK, OR ANY SUCCESSOR THERETO, TO ISSUE A WRIT OF PREJUDGMENT REMEDY WITHOUT
COURT ORDER. FURTHER, EACH BORROWER HEREBY WAIVES TO THE EXTEND PERMITTED BY
LAW, THE BENEFITS OF ALL VALUATION, APPRAISEMENTS, HOMESTEAD, EXEMPTION, STAY,
REDEMPTION AND MORATORIUM LAWS NOW IN FORCE OR WHICH MAY HEREAFTER BECOME LAWS.
EACH BORROWER ACKNOWLEDGES THAT IT MAKES THESE WAIVERS AND THE WAIVERS CONTAINED
IN SECTION 10.8 OF THE CREDIT AGREEMENT KNOWINGLY, VOLUNTARILY AND AFTER
EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THESE WAIVERS WITH ITS
ATTORNEYS.
SECTION 12. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE BORROWERS AND BANK WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE BORROWERS
AND THE BANK DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE BORROWERS AND THE BANK HERETO WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTIONS, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF,
CONNECTED WITH,
<PAGE>
RELATED TO, OR INCIDENTAL TO, THIS AMENDMENT OR ANY OF THE OTHER FACILITY
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 13. Further Assurances.
(a) Regarding Preservation of Collateral. The Borrowers will execute
and deliver to the Bank such further documents, instruments, assignments and
other writings, and will do such other acts necessary or desirable, to preserve
and protect the Collateral at any time securing or intended to secure the
Obligations, as the Bank may reasonably require.
(b) Regarding this Amendment. The Borrowers will cooperate with, and
will do such further acts and execute such further instruments and documents as
the Bank shall reasonably request to carry out to its satisfaction the
transactions contemplated by this Amendment and the other Facility Documents.
SECTION 14. Notices. Notices given after the date hereof shall be
delivered to the parties hereto at their respective "Address for Notices" on the
signature page of this Amendment.
[Remainder of Page Left Intentionally Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
TRIDEX CORPORATION
By:____________________________________
George T. Crandall
Its Treasurer
Duly Authorized
Address for Notices:
61 Wilton Road
Westport, CT 06880
ULTIMATE TECHNOLOGY CORPORATION
By:____________________________________
George T. Crandall
Its Treasurer
Duly Authorized
Address for Notices:
61 Wilton Road
Westport, CT 06880
PROGRESSIVE SOFTWARE, INC.
By:____________________________________
Daniel Bergeron
Its Treasurer
Duly Authorized
Address for Notices:
61 Wilton Road
Westport, CT 06880
<PAGE>
FLEET NATIONAL BANK
By:____________________________________
Vincent J. Pitts
Its Vice President
Duly Authorized
Address for Notices:
Fleet National Bank
777 Main Street
CT MO H21B
Hartford, CT 06115
Facsimile No.: (860) 986-7624
TRIDEX CORPORATION AND SUBSIDIARIES
Exhibit 11 Computation of Per Share Earnings
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
------------------------- ---------------------------
September September September September
30, 1999 30, 1998 30, 1999 30, 1998
------------------------- ---------------------------
<S> <C> <C> <C> <C>
BASIC AND DILUTED:
EARNINGS (LOSS):
Net loss available to common stockholders $ (1,399) $ (607) $ (2,449) $ (13,390)
------------------------- ---------------------------
SHARES:
Weighted average common shares outstanding 6,368,000 6,377,000 6,368,000 5,975,000
------------------------- ---------------------------
EARNINGS (LOSS) PER SHARE -
BASIC AND DILUTED:
------------------------- ---------------------------
Net loss $ (0.22) $ (0.10) $ (0.38) $ (2.24)
========================= ===========================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 426
<SECURITIES> 0
<RECEIVABLES> 9,809
<ALLOWANCES> 513
<INVENTORY> 7,774
<CURRENT-ASSETS> 18,968
<PP&E> 4,898
<DEPRECIATION> 2,276
<TOTAL-ASSETS> 53,052
<CURRENT-LIABILITIES> 26,965
<BONDS> 9,508
0
0
<COMMON> 1,634
<OTHER-SE> 14,945
<TOTAL-LIABILITY-AND-EQUITY> 53,052
<SALES> 48,040
<TOTAL-REVENUES> 48,040
<CGS> 34,912
<TOTAL-COSTS> 49,086
<OTHER-EXPENSES> (31)
<LOSS-PROVISION> (374)
<INTEREST-EXPENSE> 3,454
<INCOME-PRETAX> (3,449)
<INCOME-TAX> (1,000)
<INCOME-CONTINUING> (2,449)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,449)
<EPS-BASIC> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
