UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
-----------------------------
FORM 10-K
-----------------------------
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 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: 1-5513
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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)
Registrant's telephone number, including area code: (203) 226-1144
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on which
Title of each class registered
- - ----------------------------------- ---------------------------------------
Common Stock, Without Par Value NASDAQ
Securities registered pursuant to Section 12 (g) of the Act: None
- - --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any other amendment
to this Form 10-K. |_|
As of March 12, 1999 the aggregate market value of the registrant's issued and
outstanding voting stock held by non-affiliates of the registrant was
$12,417,000.
As of March 12, 1999 the registrant had outstanding 6,368,289 shares of common
stock, without par value.
<PAGE>
Exhibit Index appears on page 35
<PAGE>
PART I
ITEM 1. BUSINESS
General
Tridex Corporation ("Tridex" or the "Company"), through its wholly-owned
subsidiaries Ultimate Technology Corporation ("Ultimate") and Progressive
Software, Inc. ("Progressive") and its Tridex Ribbons Division is a leading
designer, developer, manufacturer, marketer and integrator of high quality,
specialized software and hardware systems and components for the point-of-sale
("POS") industry. See Note 3 to the Company's 1998 Consolidated Financial
Statements for a discussion of discontinued operations. All dollar amounts
within this report, unless otherwise indicated, exclude results of discontinued
operations.
(A) General Development of Business since December 31, 1997
On April 17, 1998 Tridex acquired all of the outstanding common stock of
Progressive from Paul J. Smith, for a total purchase price of $47,594,000
consisting of 714,000 shares of Tridex common stock valued at $4,998,000
and the balance in cash. Tridex has raised claims seeking a purchase price
reduction based on information learned in the third and fourth quarters of
1998. Tridex and Mr. Smith are now in litigation. See "Legal Proceedings".
(B) Financial Information about Industry Segments
The Company manages two operating subsidiaries as separate reportable
business segments. Each segment offers different products to different
classes of customers in the POS market. Ultimate is primarily focused on
providing hardware solutions to the retail sector of the market, while
Progressive is primarily focused on providing software solutions to the
food service and specialty retail sectors of the market.
(C) Narrative Description of Business
(i) Principal Products and Services
Ultimate designs, manufactures and sells customer displays,
keyboards and terminal devices for POS applications. Its products,
based on "Open Systems" design, are used in Twinax, Unix/Aix and
PC-based POS applications. Ultimate's newest product, the fully
integrated Model 40 POS system, combines a monitor, receipt printer,
cash drawer and a hardware platform which can be selected by the
customer. Platform options include PC, net PC, thin client, ASCII
terminal and TWINAX. Ultimate's other terminal products are the
Model 1, 2/2B and 3. The Model 1, an on-line TWINAX terminal made
for use with the IBM AS400/System 3X, is the only POS specific,
fully integrated TWINAX terminal available on the market. The Model
2/2B is a serial POS terminal for RS232 connection to any multi-user
host system. The Model 3, a PC-based front-end platform for
connection to a PC via the keyboard port, provides full POS
peripheral functionality while retaining the flexibly and
serviceability of a separate dedicated PC. Ultimate also offers the
Series 500, an advanced POS keyboard for use with PC or ASCII
terminals. Ultimate's terminals and other peripheral products are
sold to system integrators, original equipment manufacturers and
directly to end users by a direct sales force along with selected
strategic relationships with distributors, dealers and VARS located
in New York, New Hampshire, Illinois, California, Georgia and Texas.
Progressive offers three lines of high quality POS and back office
software systems for the restaurant industry: IRIS Quick Serve and
IRIS Full Serve, both Windows(R) NT(R)-based applications, and SMART
2, a DOS-based application on a Windows(R) NT(R) platform.
Progressive Software's integrated restaurant information system,
IRIS, is a 32-bit Microsoft Windows(R) NT(R)-based system for quick
service and table service operators that combines advanced front of
the house POS capabilities and powerful Back Office resource
planning services to manage every aspect of store operations. This
includes an intuitive touchscreen POS for order entry, drive-thru
and kitchen display management, cost and general accounting, time
and attendance, purchasing and inventory control, and demand
forecasting.
IRIS Quick Serve, currently installed in Japan, Taiwan and the
United Kingdom is year 2000, Euro compliant and Unicode-enabled.
Building on its legacy DOS product, Progressive also offers SMART 2
for customers who want to continue to use Progressive's legacy DOS
systems on a Windows(R) NT(R)
<PAGE>
platform. SMART 2 employs object oriented component technology and
helps manage the transition from legacy DOS systems to current
technology. Progressive currently has more than 10,000 installations
of its legacy DOS and Windows(R) NT(R) solutions in North America,
Asia and Europe. Progressive was awarded the 1996 Microsoft Retail
Application Developer award for its back office food service
software.
Progressive sells its software systems through direct and indirect
sales forces and, when requested by customers, provides hardware and
system integration services in connection with software sales. In
addition, Progressive also offers help desk, on-site technical and
consulting support, and project management services.
(ii) Sources and Availability of Raw Materials
The principal raw materials used by Ultimate in the manufacture of
custom keyboards and customer displays are injection molded plastic
parts, formed metal parts and electronic subassemblies, all of which
are readily available from a number of sources. The assembly of POS
terminals combines the keyboard and customer display manufactured by
Ultimate with a printer, monitor, cash drawer and other peripheral
devices purchased from various suppliers, all of which are readily
available from a number of sources.
(iii) Intellectual Property
The Company regards its software designs and code and portions of
the hardware designs incorporated into its products as proprietary
and protects them with a combination of copyright, trademark and
trade secret laws, employee and third party nondisclosure agreements
and similar means. It may be possible for unauthorized third parties
to copy certain portions of the Company's products or to reverse
engineer or otherwise obtain and use, to the Company's detriment,
information that the Company regards as proprietary. Moreover, the
laws of some foreign countries do not afford the same protection to
the Company's proprietary rights as do United States laws. There can
be no assurance that legal protections relied upon by the Company to
protect its proprietary rights will be adequate or that the
Company's competitors will not independently develop products that
are substantially equivalent or technologically superior to the
Company's. In addition, some of the intellectual property used by
Ultimate is not proprietary. No assurance can be given that such
intellectual property will not be used by Ultimate's competitors.
(iv) Seasonality and Practices Relating to Working Capital Items
Sales of the Company's products are not subject to material seasonal
variations. The Company has not historically been required to
maintain significant inventories of raw materials or finished goods
in order to fill customer orders.
(v) Certain Customers
The Company has certain customers, the loss of which, if not
replaced by sales to other customers, could have an adverse effect
on the Company. In any single year or series of consecutive years,
sales by each of Ultimate and Progressive to a single customer may
exceed 10% of their respective annual net sales. As customers
complete the installation of new POS systems, sales to these
customers decline, so that the identity of Ultimate's and
Progressive's largest customers changes in the ordinary business. In
the year ended December 31, 1998, Starbucks Coffee Company, Steak `n
Shake, Inc., and Frisch's Restaurants, Inc. accounted for
approximately 25%, 14% and 9%, respectively, of Progressive's net
sales, and Lowes Companies, Inc., Ace Hardware Corporation, and
Advance Stores Company, Inc., accounted for approximately 20%, 9%
and 7%, respectively, of Ultimate's net sales.
(vi) Backlog
The Company's backlog of firm orders was approximately $12,700,000
as of March 12, 1999 and $2,750,000 as of March 13, 1998. Tridex
expects to fill all of its backlog within the current fiscal year.
(vii) Competition
The Company faces aggressive competition in all of its markets. Many
of the Company's current and potential competitors are large
multi-national enterprises with extensive experience and resources
in designing, manufacturing and marketing POS software and hardware.
Progressive competes with
<PAGE>
Radiant Systems, Inc., Micros Systems, Inc., PAR Technology
Corporation, Ibertech, Inc. and GEAC Computer Corporation Limited.
Ultimate competes with other POS systems integrators, including NCR
Corporation and IBM Corporation and with manufacturers of terminals,
keyboards and pole displays.
In certain markets, the Company's competitors sometimes offer prices
lower than the Company's because of lower overhead, attributable to
higher volume production and off-shore manufacturing locations,
which enjoy cheaper sources of labor and raw materials. Many of the
Company's domestic competitors, particularly those that are
divisions of substantially larger companies, have greater financial
and other resources than Tridex.
(viii) Research and Development Activities
The Company spent approximately $4,552,000 in 1998, $693,000 in 1997
and $447,000 in 1996 on engineering, design and product development
efforts in connection with software and development and specialized
engineering and design to introduce a number of new products and to
customize products for the Company's customers. Expenditures in 1998
include $1,731,000 of capitalized software development costs.
(ix) Environmental Matters
Allu Realty Trust ("Allu"), a Massachusetts business trust with
transferable shares, all of which are owned by Tridex, is the former
owner of land located at 100 Foley Street, Somerville, Massachusetts
(the "Site"). Although Allu sold the property to 100 Foley Street
Incorporated ("Foley"), an unrelated entity, Allu and Tridex remain
responsible for certain environmental problems associated with the
Site.
In 1984, Allu and Tridex disclosed to the Massachusetts Department
of the Attorney General the existence of chromium, oil and grease at
the Site. As a result, the Environmental Protection Division of the
Department of the Attorney General and the Massachusetts Department
of Environmental Protection ("MDEP") conducted an investigation of
the Site. At MDEP's request, the Company retained an environmental
engineering firm, which completed a Phase II investigation study of
the Site. The Company conducted further studies to more specifically
characterize and assess the Site and to determine appropriate long
term clean up.
In 1993, the Company entered into an agreement with Foley pursuant
to which Tridex and Foley agreed to pay 75% and 25%, respectively,
of the costs incurred after January 1, 1992 in connection with the
investigation and remediation of the Site (the "Site Participation
Agreement"). The Site Participation Agreement also provides that, to
the extent there are available proceeds from the sale of the Site
or, if not sold, from the operation of the Site after January 1,
1997, Tridex shall be reimbursed approximately $200,000 of the
$250,000 it expended in connection with the Site prior to January 1,
1992. As of December 31, 1998, the Company had spent approximately
$728,000 in connection with the Site.
In 1997, Foley sold the Site to an affiliate of Stop & Shop, Inc.
("Stop & Shop") and Stop & Shop has taken control of all remediation
of the Site. However, Foley asserts that Allu and Tridex remain
liable for payment of certain costs associated with the remediation
of the Site. Also in 1997, Foley brought suit against the Company
claiming that the Company failed to contribute its share of the
remediation costs pursuant to the Site Participation Agreement. The
Company has filed a counterclaim. This litigation was stayed until
February 1999 and discovery has commenced. The implementation of
clean-up measures was commenced in 1998 and is anticipated to be
completed in 1999. As of December 31, 1998, the Company had accrued
$258,000 for the Site, which represents the currently estimated
minimum cost of remediation, after considering the Site
Participation Agreement. The Company estimates that it may spend up
to $275,000 in connection with the Site. Accordingly, although no
assurances can be given regarding the total costs which may be
incurred, the Company does not believe at this time that the
remediation of the Site is reasonably likely to have a material
effect on the Company's financial condition, results of operations
or liquidity. The Company expects that, as in the past, cash from
operations will be sufficient to pay the costs of remediation.
<PAGE>
(x) Employees
As of March 12, 1999, Tridex and its subsidiaries employed
approximately 229 persons, of whom 211 were full time and 18 were
temporary employees. Progressive employed approximately 123 persons
and Ultimate employed approximately 90 persons.
(D) Financial Information About Foreign and Domestic Operations and Export
Sales
In December 1998, the Company opened a wholly owned subsidiary, Retail
Resource Solutions Limited, in the United Kingdom. The subsidiary is a
sales and distribution office of Progressive's products. There were no
material transactions in 1998. From June 1994 through May 1997, the
Company owned Cash Bases GB Limited ("Cash Bases"), a manufacturer of
custom cash drawers located in the United Kingdom. The results of
operations of Cash Bases are classified as discontinued operations. Export
sales from the United States were approximately $166,000 in 1998, $879,000
in 1997 and $130,000 in 1996.
(E) Directors and Executive Officers of the Registrant
(i) Directors of the Registrant
Principal
Principal Business of
Director Name Age Occupation Employer Name Employer
----------------------------------------------------------------------
Seth M. Lukash 52 Chairman of Tridex Developer and
the Board, Corporation manufacturer of
President, computer
Chief software and
Executive hardware
Officer and systems and
Chief components for
Operating POS
Officer applications.
Paul J. Dunphy 79 Management Self-employed Management
Consultant consulting.
Dennis J. Lewis 44 Management Self-employed Management
Consultant consulting.
Thomas R. Schwar 62 Retired None Personal
investments.
Graham Y. Tanaka 51 President Tanaka Investment
Capital advising.
Management,
Inc.
(ii) Executive Officers of the Registrant
Name Age Position
--------------------------------------------------------------------------
Seth M. Lukash 52 Chairman of the Board of Directors, President,
Chief Executive Officer, Chief Operating
Officer and Director
Daniel A. Bergeron 39 Vice President and Chief Financial Officer
John MacWillie 50 Vice President of Technology and Strategic
Business Development
George T. Crandall 52 Vice President, Treasurer, Controller and
Secretary
Thomas F. Curtin, Jr. 41 Vice President of Human Resources
Samuel J. Villanti 34 President, Ultimate Technology Corporation, a
wholly-owned subsidiary of the Company
Raymond J. Mueller 39 President, Progressive Software, Inc., a
wholly-owned subsidiary of the Company
Seth M. Lukash has been a senior executive officer of the Company
since 1977 and has been a Director since 1979. He has served as
Chairman of the Board of Directors of the Company since November
1988, Chief Executive Officer since August 1987, and President and
Chief Operating Officer since June 1989. Mr. Lukash previously
served as President of the Company from September 1983 to August
1988 and as Chief Operating Officer from September 1983 to August
1987. Mr. Lukash is the son of Alvin Lukash, a Director Emeritus of
the Company.
Daniel A. Bergeron has been a Vice President of the Company since
March 19, 1998 and Chief Financial Officer since April 1, 1998.
Prior to joining Tridex, Mr. Bergeron served as Vice President
<PAGE>
and Chief Financial Officer of the international manufacturing and
engineering company Dorr-Oliver Incorporated. Prior to 1987, Mr.
Bergeron held various financial management positions with Akzo
Chemical and United Brands Company.
John MacWillie joined Tridex in May 1998 as Vice President of
Technology and Strategic Business Development. Prior to joining
Tridex, Mr. MacWillie was a Vice President of the Gartner Group from
March 1996 to May 1998 and was Director of Strategic Business
Development at Symantec Corporation from 1993 to 1996. Previously,
he was Vice President of Marketing at JYACC, Inc. and Chief
Technology Officer at Telemetrics, Inc.
George T. Crandall has been a Vice President of the Company since
1992, Treasurer since 1990 and Corporate Controller since 1989.
Prior to joining Tridex in November 1988, Mr. Crandall was a
consultant to Northeast Manufacturing Companies, Inc. and was
previously employed by Revere Copper and Brass Incorporated.
Thomas F. Curtin, Jr. has been Vice President of Human Resources of
the Company since April 1995. In May 1997 the Board of Directors
appointed him an executive officer. Prior to joining Tridex as
Director of Human Resources in 1994, Mr. Curtin held human resource
management positions with Lone Star Industries, Berol Corporation
and Brockway Glass Company.
Samuel J. Villanti was appointed President of Ultimate on October
12, 1998. Prior to joining Ultimate, Mr. Villanti was General
Manager of Axiohm IPB's engineering and manufacturing facility in
Ithaca, NY from March 1998 to October 1998. Previously, Mr. Villanti
was employed in the management consulting practice of Price
Waterhouse LLP from 1990 to 1995. Previously, he held various
management positions with NCR Corporation.
Raymond J. Mueller was appointed President of Progressive on April
17, 1998 upon its acquisition by Tridex. He joined Progressive in
1996 as manager of the Denver branch office and was Executive Vice
President since October 1997. Prior to joining Progressive, Mr.
Mueller was Vice President and Chief Information Officer of
Richfield Hospitality Services, Inc. from 1994 to 1996 and was
President of Tradeware Technologies, Inc. from 1980 to 1994.
ITEM 2. PROPERTIES
The Company's operations are currently conducted at the six facilities described
below:
<TABLE>
<CAPTION>
Size - Owned
Approx. Sq. or Lease
Location Operations Conducted Ft. Leased Expiration Date
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Westport, Principal executive 5,000 Leased July 31, 2001
Connecticut offices
Victor, New York Manufacturing 80,000 Leased January 31, 2002
facility
Charlotte, North Product Development 37,600 Leased December 31, 2000
Carolina
Denver, Colorado Product Development 2,800 Leased October 31, 1999
Seattle, Washington Product Development 800 Leased July 31, 1999
Bloomfield, Non-operating 23,000 Owned N/A
Connecticut facility held for
sale
</TABLE>
The Company believes that its facilities generally are in good condition,
adequately maintained and suitable for their present and contemplated uses.
ITEM 3. LEGAL PROCEEDINGS
See Item 1(C)(ix) "Environment" set forth above and Note 9 of the Notes to
Consolidated Financial Statements included in this report.
When Tridex acquired Progressive in April 1998, it granted Mr. Smith
registration rights for his 714,000 shares of Tridex common stock issued as part
of the purchase price. At the same closing, Mr. Smith agreed to deliver a tax
<PAGE>
form needed by Tridex to obtain favorable tax treatment of the purchase. Tridex
made repeated requests for the tax form but it was not delivered until January
1999. Mr. Smith requested registration of his shares, and Tridex commenced
preparation of a registration statement, but postponed its completion while
waiting for Mr. Smith to deliver the tax form.
During the last three months of 1998, counsel for Tridex met with and
corresponded with counsel for Mr. Smith, stating that Tridex was preparing to
pursue arbitration and other legal remedies against him. On January 5, 1999,
Tridex received the executed tax form. On January 4, 1999, Mr. Smith filed a
suit against Tridex and Progressive in the Federal District Court in North
Carolina and served the papers at a later date. The suit seeks damages of up to
$5.0 million plus a court order requiring Tridex to register the shares of its
common stock issued to Mr. Smith as part of the purchase price. The suit also
seeks a declaratory judgment to prevent Tridex from pursuing other claims which
it has asserted against Mr. Smith in post-closing negotiations. Tridex has
denied the substantive allegations in Mr. Smith's complaint. Tridex has made
claims against Mr. Smith for breach of federal and state securities laws, fraud
and misrepresentation. Tridex is seeking damages in an unspecified amount which
is estimated to exceed Mr. Smith's claims against Tridex. At this phase of the
litigation, the parties have not begun discovery. Although it is not possible to
predict the outcome, Tridex believes it has valid defenses to Smith's claim and
that the claims of Tridex and Progressive against Smith are meritorious. Tridex
will aggressively defend against the claim made by Smith and aggressively pursue
its own claims against him.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last quarter
of the year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market ("Nasdaq") under the symbol "TRDX." As of March 12, 1999
there were 1,183 holders of record of the common stock. The following table
lists the high and low sales prices of the common stock reported during the
years ended December 31, 1998, and 1997.
Year Ended December 31,
-------------------------------------------------------------
1998 1997
-------------------------------------------------------------
High Low High Low
-------------------------------------------------------------
January - March 8 1/8 4 11/16 18 1/4 (3 3/4) 12 1/2 (2 1/2)
April - June 7 7/8 6 1/8 3 1/16 2 1/2
July - September 7 1/2 3 1/2 7 3 1/4
October - December 4 1/2 2 1/4 6 7/8 4
Amounts shown in parenthesis for the first quarter of 1997 are the adjusted
sales prices provided to the Company by Nasdaq to reflect a pro rata allocation
of the market prices for the Company's common stock as if the spin-off of
TransAct Technologies Incorporated ("TransAct") by the Company had occurred
prior to January 1, 1997.
No dividends or other distributions on the common stock (other than the
distribution of TransAct stock to Tridex shareholders in 1997) have been
declared in more than ten years. The Company does not anticipate declaring
dividends in the foreseeable future. The Company's credit agreement with Fleet
National Bank ("Fleet") prohibits the payment of cash dividends for the term of
the agreement.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
-------------------------------------------------------------------
December December December December December December
31, 1998 31, 1997 31, 1996 31, 1995 31, 1995 31, 1994
--------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales from
continuing operations $ 43,504 $ 25,833 $ 22,325 $ 18,854 $ 14,393 $ 9,010
===================================================================
Income (loss) from
continuing operations $(14,146) $ (568) $ 5,646 $ (670) $ (1,407) $ (786)
===================================================================
Income (loss) from
continuing operations
per common- basic $ (2.33) $ (0.11) $ 1.44 $ (0.18) $ (0.38) $ (0.22)
===================================================================
Cash dividends per
common share None None None None None None
===================================================================
</TABLE>
As of
----------------------------------------------------
December December December December December
31, 1998 31, 1997 31, 1996 31, 1995 31, 1994
----------------------------------------------------
Balance Sheet Data:
Total assets $52,953 $28,003 $33,972 $29,006 $26,949
====================================================
Long term debt $19,341 None None $ 8,171 $ 6,443
====================================================
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements included in this report, including, but not limited to,
statements in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, 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 and the Company's evaluation of the Year 2000 issue.
(A) Results of Operations
As described in Note 3 of the Notes to Consolidated Financial Statements
included in Item 8 of this report, in 1997 the Company completed the
spin-off of TransAct and the sale of Cash Bases. The Selected Financial
Data are derived from the Company's Consolidated Financial Statements,
which have been restated from historical financial statements to present
the results of operations of TransAct and Cash Bases as discontinued
operations for all periods presented. The Consolidated Financial
Statements may not necessarily reflect what the results of operations or
the financial position of the Company would have been if TransAct and Cash
Bases had been separate entities during the periods presented. The
discussion and analysis set forth below are based upon continuing
operations only.
(i) Year ended December 31, 1998 compared to year ended December 31,
1997
Consolidated net sales for the year ended December 31, 1998
increased $17,671,000 (68%) to $43,504,000 from $25,833,000 for the
prior year. The increase reflects sales of Progressive (which
include software and hardware) from the date of acquisition, April
17, 1998, and greater volume of shipments of Ultimate's POS
component products, particularly custom manufactured keyboards and
pole displays, as well as distributed products.
Consolidated gross profit increased $5,630,000 (91%) to $11,834,000
from $6,204,000 in the prior year, primarily as a result of the
contribution of Progressive and greater volume of shipments by
Ultimate. Consolidated gross profit margin increased to 27.2% of
sales from 24.0% of sales in the
<PAGE>
prior year as a result of the addition of software sales from
Progressive and a more favorable product mix and lower manufacturing
costs from Ultimate.
Consolidated engineering, design and product development costs
(exclusive of capitalized software development costs), increased
$2,128,000 to $2,821,000 from $693,000 in the prior year. The
increase is primarily the result of the inclusion of such costs for
Progressive. As a percentage of revenue, engineering, design and
product development costs (exclusive of capitalized software
development costs) increased to 6.5% in 1998 compared to 2.7% for
1997. Actual engineering, design and product development costs,
including capitalized software costs of $1,731,000 increased to
10.5% in 1998 compared to 2.7% for 1997. The increase in absolute
dollars is primarily due to expenditures for Progressive's IRIS
Windows(R) NT(R) retail management software products for the quick
serve, full serve, and casual dining market segments and new
software products for the industry. Other software development
initiatives include; enhancement of Progressive's release and
version management capabilities, internationalization and
translation of software products for specific foreign markets, and
porting existing applications to new database systems. The Company
intends to continue investing significant resources in new releases
and products in the future.
Consolidated selling, administrative and general expenses for the
current year increased $3,052,000 (54%) to $8,713,000 from
$5,661,000 in the prior year. The increase in selling,
administrative and general expenses is primarily the result of the
inclusion of such costs for Progressive and the inclusion of a
non-recurring charge of approximately $310,000 associated with the
due diligence review for a transaction that was not completed. Prior
year administrative and general expenses include a non-cash expense
of $1,225,000 related to a stock incentive compensation agreement
with the principal executive officers of Ultimate. Operating
expenses in the current year include the $17,600,000 write-off of
in-process software technology acquired as part of the purchase of
Progressive.
Depreciation and amortization for the current year increased
$2,382,000 to $3,246,000 from $864,000 in the prior year. The
increase in amortization is primarily the result of amortizing
goodwill, intangibles and existing and core technologies acquired
with Progressive.
Subsequent to the issuance of the Company's June 30, 1998 condensed
consolidated financial statements, the SEC issued new guidance on
its views regarding the valuation methodology used in determining
purchased in-process technology expensed on the date of acquisition.
In response to the new SEC guidance, the company has voluntarily
recalculated the fair value of the purchased in-process software
technology in accordance with the SEC staff's view.
The revised valuation was based on estimates of the after tax net
cash flows and gives explicit consideration to the SEC's views on
purchased in-process technology as set forth in a September 9, 1998
letter from the SEC to the American Institute of Certified Public
Accountants. Specifically, the revised valuation gives consideration
to the following: (I) a fair market value premise was employed; (II)
the value of the core technology was explicitly addressed, with a
view toward ensuring the relative allocations to core technology and
in-process technology were consistent with the relative
contributions of each to the final product; and (III) the allocation
to in-process technology was based on a calculation that considered
only the efforts completed as of the transaction date, and only the
cash flow associated with said completed efforts for one generation
of the products currently in-process.
The Company recorded a one time charge of $26.3 million in the
second quarter of 1998 for purchased in-process technology that had
not reached technological feasibility, had no alternative future
use, and for which successful development was uncertain. The
conclusion that the in-process development effort, or any material
sub-component, had no alternative future use was reached in
consultation with development personnel at Progressive and an
independent technology consulting firm, acting on behalf of the
Company.
The in-process development related to a project to develop a
Windows(R) NT(R) compliant POS software product. The primary tasks
under development at the time of acquisition included writing code
to work in a Windows environment and completing various POS and back
office functions. The
<PAGE>
Company began to benefit from the acquired research and development
related to the IRIS product in the third quarter 1998.
Significant assumptions used to determine the value of in-process
technology included several factors, including the following. First,
a forecast of net cash flows that were expected to result from the
development effort. Second, a percentage of completion estimated by
considering a number of factors, including the costs invested to
date relative to the expected total cost of the development effort
and the amount of progress completed as of the transaction date, on
a technological basis, relative to the overall technological
achievements required to achieve the intended functionality of the
eventual product. The technological issues were addressed by
engineering representatives from both Progressive and an independent
technology consulting firm engaged by the Company. Third, a discount
rate of approximately 23%, which represents the Company's risk
adjusted weighted average cost of capital, was applied to the cash
flows resulting from the revenues expected to be generated from the
IRIS project.
As a result of the revised valuation, the amount of purchase price
allocated to in-process technology decreased from $26.3 million to
$17.6 million and the amount ascribed to purchased existing and core
technology and goodwill and other intangibles increased from $14.8
million to $23.5 million.
Through the second quarter of 1998, the Company expected Progressive
to be accretive to earnings. For reasons which are now the subject
of litigation with its former owner, Progressive had a segment
operating loss of $2,111,000 for the current year. See "Legal
Proceedings" and Note 12 of the notes to consolidated financial
statements included in this report.
Consolidated operating income (loss) for the current year was a loss
of $2,964,000 (exclusive of the write-off of in-process software
technology) compared to a loss of $1,014,000 in the prior year. The
loss in the current year was primarily the result of the increase in
selling, administrative and general expenses. Consolidated operating
income (loss) as a percentage of sales was a 6.8% loss compared to a
3.9% loss in the prior year.
Net interest expense for the current year was $1,735,000 compared to
net interest income of $603,000 in the prior year. Interest expense
for the period primarily consists of interest on debt incurred to
acquire Progressive. Interest income for the prior year primarily
consisted of interest earned on temporary cash investments and
interest earned on receivables from the sales of stock.
Other non-operating expense of $22,000 for the current year
represents costs associated with non-operating properties held for
sale. Other non-operating expenses in the prior year's period
include a provision of $196,000 to write-down the value of real
estate held for sale.
Provision (benefit) for income taxes in the current year reflects an
effective tax rate of 36.6% compared to 7.2% in the prior year. The
benefit recorded in the current year reflects the recognition of
deferred taxes of approximately $5,814,000 related to the write-off
of in-process software technology.
Net loss for the current year was $14,146,000 (or $2.33 per share)
as compared to net loss of $35,000 (or $.01 per share) for the prior
year. The average number of common shares outstanding increased to
6,077,000 shares from 5,157,000 shares in the prior year.
(ii) Year ended December 31, 1997 compared to year ended December 31,
1996
Consolidated net sales for the year ended December 31, 1997
increased $3,508,000 (16%) to $25,833,000 from $22,325,000 for the
prior year. The increase reflects greater volume of shipments of
certain POS terminals, custom manufactured keyboards and customer
displays.
Consolidated gross profit increased $250,000 (4%) to $6,204,000 from
$5,954,000 in the prior year, primarily due to the increase in the
volume of shipments of POS terminal systems. The gross margin
declined to 24.0% from 26.7% in the prior year as a result of a
change in sales mix to a higher proportion of distributed products
and a lower proportion of manufactured products, particularly custom
keyboards and pole displays.
<PAGE>
Consolidated engineering, design and product development costs
increased $246,000 (55%) to $693,000 from $447,000 in the prior
year. The increase reflects the ongoing cost of enhancing existing
products and developing new products, such as Ultimate's Series 600
POS Keyboard and Series 7000 and 8000 Compact PC's / Network
Computers.
Consolidated selling, administrative and general expenses increased
$1,516,000 (37%) to $5,661,000 from $4,145,000 in the prior year.
Administrative and general expense in 1997 include a non-cash
expense of $1,225,000 related to a stock incentive compensation
agreement with the principal executive officers of Ultimate. General
expenses in 1996 included a charge of $320,000 to amend an unfunded
pension arrangement established in 1995. Selling expenses increased
$260,000 in 1997 primarily as the result of more intensive efforts
in the selling of POS terminal systems including increased
advertising and sales support personnel.
The operating loss was $1,014,000 compared to an operating income of
$306,000 in the prior year. The operating loss as a percent of
revenue was 3.9% in 1997 compared to operating income of 1.4% of
revenue in the prior year. The loss in 1997 was primarily the result
of the increase in selling, administrative and general expenses,
particularly the expense of the stock incentive compensation
agreement discussed above.
Net interest income was $603,000 compared to net interest expense of
$827,000 in the prior year. Interest income for 1997 primarily
consists of interest earned on temporary cash investments. The
Company had no debt outstanding at the end of 1997.
Other non-operating expense, (net) includes a provision of $196,000
to write-down the value of real estate held for sale, based upon the
declining market value of the property. The prior year includes an
additional provision of $163,000 for loss on the anticipated
disposal of real estate held for sale. Non-operating income for the
prior year includes the non-taxable gain of $6,200,000 from the
initial public offering of TransAct (the "TransAct Offering").
The income tax benefit is $44,000 compared to $112,000 in 1996. The
effective tax rate is related to state income taxes and
non-deductible amortization of goodwill. The 1996 provision was
benefited by the $6,200,000 non-taxable gain recognized from the
TransAct Offering.
The loss from continuing operations was $568,000 (or $0.11 per share
basic) compared to income of $5,646,000 (or $1.44 per share - basic)
in the prior year. Exclusive of the one-time gain from the TransAct
Offering, the loss from continuing operations was $554,000 (or $0.14
per share - basic) in 1996.
Discontinued operations reflect the equity in the income of TransAct
and Cash Bases. Spin-off related expenses consist of professional
services and other costs related to the spin-off of TransAct.
Net loss was $35,000 (or $0.01 per share - basic and diluted) as
compared to net income of $8,848,000 (or $2.26 per share - basic,
$2.00 per share -diluted) for the prior year. The average number of
common shares - basic outstanding was 5,157,000 during 1997 compared
to 3,913,000 during 1996.
(iii) Liquidity and Capital Resources
At December 31, 1998, the Company had availability of $1,244,000
under the Company's working capital revolving credit facility. The
Company's working capital at December 31, 1998 was $1,900,000
compared with $19,490,000 at December 31, 1997. The current ratio
was 1.1 : 1.0 at December 31, 1998 and 6.2 : 1.0 at December 31,
1997.
The decrease in working capital is primarily the result of use of
funds to finance the current operations of Progressive from the date
of purchase and the purchase of Progressive. 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,
including payment of Progressive's line of credit of $9,632,000. The
cash portion of the purchase
<PAGE>
price was financed by: (a) $12,000,000 borrowed under a senior term
loan from Fleet, (b) $1,736,000 borrowed under a working capital
facility with Fleet, (c) $11,000,000 proceeds from the sale of notes
to Massachusetts Mutual Life Insurance Company and related investors
("the MassMutual Investors"), (d) $2,000,000 proceeds from the sale
of 285,714 shares of Tridex common stock to the MassMutual Investors
and (e) the balance from the Company's cash. The Company also issued
to the MassMutual Investors stock purchase warrants for 350,931
shares of common stock, no par value, at an exercise price of $7.00
per share. The value of the warrants, $1,228,000, has been 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 7 to the Company's
financial statements of this Form 10-K for a description of the
Fleet credit agreement and the notes sold to the MassMutual
Investors.
As of December 31, 1998, the Company was not in compliance with the
covenants under its loans from Fleet. Those 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. In addition, Fleet imposed a temporary reduction of
$2,000,000 in the availability under the Working Capital Facility.
The Company paid a fee to Fleet of $70,000 for similar amendments as
of September 30, 1998, which is being amortized over the remaining
term of the Credit Agreement. The current amendment increases the
interest rate on Credit Agreement obligations by 1% and requires the
Company to maintain a minimum interest coverage ratio and a minimum
net worth. The current amendment to the Credit Facility allows the
Company to defer its March 31, 1999 debt payment of $300,000 to June
30, 1999. The Company will pay a fee to Fleet of $50,000 on June 30,
1999 for this amendment. On June 30, 1999, the working capital
facility with Fleet matures. The Company is in discussions with
Fleet to continue the facility and with other financial institutions
to replace the facility.
The notes issued to the MassMutual Investors impose 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 Company paid a fee to the MassMutual
Investors of $39,600 for similar amendments as of September 30,
1998, which is being amortized over the remaining term of the Notes.
The current amendment allows the Company to defer its April 17, 1999
interest payment of $330,000 to July 17, 1999. The amended covenants
require the Company to maintain a minimum interest coverage ratio
and a minimum net worth. In consideration for the amendment to the
notes and in exchange for surrender of the warrant issued in 1998
for 350,931 shares of common stock, no par value, with an exercise
price of $7.00 per share, the Company has issued a new warrant for
800,000 shares of common stock, no par value, at an exercise price
at market value of date of issuance per share, which was $2.03125.
At December 31, 1998, the Company had no material commitment for
capital expenditures.
The Company believes that funds generated from operations of the
combined companies and borrowings under the Working Capital Facility
of the Credit Agreement, as necessary, will continue to satisfy its
working capital needs.
(iv) The Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to represent the year. Computer
programs that have a time-sensitive program may recognize a date
using "00" as the year 1900 rather than the year 2000. This could
result in system failures, miscalculations, temporary inability to
process transactions or engage in other normal business activities.
The Company has identified the following areas which could be
affected by the Year 2000 issue: Company products, internally used
systems and software, products and/or services provided by key third
parties and business partners, and internal systems used by key
customers. The Company
<PAGE>
created a Year 2000 project team to address each area and report
their findings to the Board of Directors on a quarterly basis. The
team's assignment is to first identify possible areas of
non-compliance, second develop a fix or solution to the
non-compliance, and third to implement and test the fix and/or
solution.
The Company has been performing extensive testing on software
products and third party components used in products sold or
licensed by the Company to its customers. The Company has tested and
continues to test its current DOS and Windows(R) NT(R) software
releases. Testing is not being performed with respect to legacy
products that the Company no longer sells or supports. When testing
determines that a product is not Year 2000 compliant, the Company
has developed or will develop a fix or a migration path to a product
that is Year 2000 compliant. As of this date no significant issues
have been identified. The expense to upgrade product applications to
be Year 2000 compliant has been expensed as incurred.
Part of the Company's Year 2000 initiative is to verify, to the best
of the Company's ability, that the internal systems of key vendors
and suppliers are Year 2000 compliant. The Company has sent
questionnaires to and has received assurances from key vendors and
suppliers that any Year 2000 issues that they suffer will not have a
material adverse effect on the Company. However, there can be no
absolute assurance that key vendors and suppliers will convert their
systems in a timely manner to avoid an adverse material effect on
the Company. The Company believes that its current and future
communication and actions with key vendors and suppliers will
minimize these risks.
The Company currently uses three internal information systems. Each
system has been updated with new releases from its vendor to bring
the system into Year 2000 compliance. Two of the three systems have
been installed and tested for compliance. The third system has been
installed and is in the process of being tested for Year 2000
compliance. The expense incurred to date, as of December 31, 1998,
was approximately $200,000. The cost to finish the testing will be
expensed as incurred and is not expected to be material.
The Company has other internal systems that are used in the
development of products and services. Each of these systems has been
tested for Year 2000 compliance. The Company has received compliance
certificates from these systems' vendors. The Company is continuing
to test these systems and expects to finish such testing by the
second quarter of 1999. All costs will be expensed as incurred and
are not expected to be material.
Part of the Company's Year 2000 initiative is to verify, to the best
of the Company's ability, that the internal processing systems of
the Company's customers are Year 2000 compliant. The Company has
sent questionnaires to all of its current customers asking for
verification that their systems are Year 2000 compliant and, if not,
to identify those open issues that may have a material adverse
effect on the Company. As of December 31, 1998, the Company has
received responses from 60% of its customer base. The Company will
continue to follow-up with the remaining 40% and hopes to have a 90%
response by the end of the third quarter 1999. However, there can be
no absolute assurance that customers will convert their internal
systems in a timely manner to avoid a material adverse effect on the
Company. The Company believes that its current and future
communication and actions with customers will minimize these risks.
The Company has expensed costs as incurred related to the Year 2000
analysis and remediation process. The majority of the costs incurred
to date were internal labor costs associated to analyzing existing
systems and implementing remediation, including testing. Costs were
incurred for software upgrades for internal business systems and
replacement of software tools used in product development. All costs
to finish the Year 2000 effort will be expensed as incurred and are
not expected to have an adverse material effect on the Company.
The Company believes its efforts have identified and corrected the
crucial Year 2000 compliance issues. The Company expects to complete
the Year 2000 project by the end of the third quarter and the
Company will continue to test through the remainder of 1999 and the
Year 2000. If the Company, its large customers, its key vendors, and
significant suppliers are unable to resolve Year 2000
<PAGE>
processing issues in a timely manner, it could have a material
adverse effect on the operations, liquidity, and capital resources
of the Company.
(B) Impact of Inflation
Tridex believes that its business has not been affected to a significant
degree by inflationary trends because of the low rate of inflation during
the past three years and cost reduction programs at each of its
operations. Tridex believes that any increase in cost due to inflation can
be recovered by price increases or offset by cost reductions and
productivity improvements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Number
------
Report of Independent Accountants 15
Tridex Corporation and Subsidiaries consolidated financial
statements:
Consolidated balance sheets as of December 31, 1998 and
1997. 16
Consolidated statements of operations for the years
ended December 31, 1998, 1997 and 1996. 17
Consolidated statements of shareholders' equity for the
years ended December 31, 1998 and 1997. 18
Consolidated statements of cash flows for the years
ended December 31, 1998, 1997 and 1996. 19
Notes to consolidated financial statements. 20
Financial Statement Schedules - All schedules are omitted since the
required information is either (a) not present or not present in amounts
sufficient to require submission of the schedule or (b) included in the
financial statements or notes thereto.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Tridex Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of Tridex
Corporation and its subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Hartford, Connecticut
March 30, 1999
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
----------------------------------
1998 1997
----------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 18 $ 11,839
Short term investments 4,403
Receivables (Note 4) 7,806 3,043
Inventories (Note 5) 7,941 2,987
Deferred tax assets (Note 11) 1,092 659
Other current assets 278 343
----------------------------------
Total current assets 17,135 23,274
----------------------------------
Plant and equipment:
Machinery, furniture and equipment 3,775 2,138
Leasehold improvements 476 298
----------------------------------
4,251 2,436
Less accumulated depreciation (1,806) (1,195)
----------------------------------
2,445 1,241
----------------------------------
Goodwill and intangible assets, net of
accumulated amortization of
$3,893 in 1998 and $2,460 in 1997 13,803 2,517
Purchased and internally developed software
costs, net of accumulated
amortization of $1,212 11,319
Deferred tax assets 8,000 206
Other assets 251 765
----------------------------------
$ 52,953 $ 28,003
----------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loan payable $ 4,756
Current portion of long term debt 1,650
Accounts payable 5,875 $ 1,820
Accrued liabilities 1,931 1,806
Deferred revenue 933
Income taxes payable 90 158
----------------------------------
Total current liabilities 15,235 3,784
----------------------------------
Long term debt, less current portion 19,341
Commitments and contingencies (Note 9)
Shareholders' equity (Notes 1 and 10):
Preferred stock, $1 par value; authorized
2,000,000 shares; Issued none
Common stock, no par value, stated value
$.25; authorized 10,000,000 shares;
issued 6,526,187 and 5,497,808 shares 1,634 1,377
Additional paid-in capital 33,328 25,273
Accumulated deficit (14,819) (673)
Receivable from sale of stock (801) (816)
Common stock held in treasury, at cost,
157,898 and 146,398 shares (965) (942)
----------------------------------
18,377 24,219
----------------------------------
$ 52,953 $ 28,003
==================================
See notes to consolidated financial statements.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Net sales $ 43,504 $ 25,833 $ 22,325
----------------------------------------------
Operating costs and expenses:
Cost of sales 31,670 19,629 16,371
Engineering, design and product
development costs 2,821 693 447
Selling, administrative and general
expenses 8,713 5,661 4,145
Depreciation and amortization 3,264 864 1,056
Purchased in-process software
technology (Note 2) 17,600
----------------------------------------------
64,068 26,847 22,019
----------------------------------------------
Operating income (loss) (20,564) (1,014) 306
Other charges (income):
Gain on sale of subsidiary stock
(Note 3) (6,200)
Interest (income) expense, net 1,735 (603) 827
Other, net 22 201 145
----------------------------------------------
1,757 (402) (5,228)
----------------------------------------------
Income (loss) from continuing
operations before income taxes (22,321) (612) 5,534
Benefit for income taxes (8,175) (44) (112)
----------------------------------------------
Income (loss) from continuing
operations (14,146) (568) 5,646
Discontinued operations (Note 3):
Equity in subsidiary's income from
discontinued operations 533 3,454
Spin-off related expenses, net of
taxes of $68 252
----------------------------------------------
Net income (loss) $ (14,146) $ (35) $ 8,848
==============================================
Earnings (loss) per share - basic:
Income (loss) from continuing
operations $ (2.33) $ (.11) $ 1.44
Income from discontinued
operations .10 0.82
----------------------------------------------
Net income (loss) $ (2.33) $ (.01) $ 2.26
==============================================
Earnings (loss) per share - diluted:
Income (loss) from continuing
operations $ (2.33) $ (.11) $ 1.30
Income from discontinued
operations .10 0.70
----------------------------------------------
Net income (loss) $ (2.33) $ (.01) $ 2.00
==============================================
Weighted average shares outstanding:
Basic 6,077,000 5,157,000 3,913,000
==============================================
Diluted 6,077,000 5,331,000 4,599,000
==============================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Held Additional Receivable
Common Stock In Treasury Paid-In Accumulate From Sale
Shares Amount Shares Amount Capital Deficit Of Stock
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1995 3,900,807 $ 978 119,996 $ (828) $21,939 $(6,609)
Exercise of
warrants and
stock options 147,414 37 482
Purchase of
treasury shares 4,502 (45)
Conversion of
debentures 112,210 28 940
Net Income 8,848
------------------------------------------------------------------------
Balance, December
31, 1996 4,160,431 1,043 124,498 (873) 23,361 2,239
Exercise of
warrants and
stock options 859,932 215 6,181 $ (816)
Conversion of notes
and debentures 377,445 94 3,492
Distribution of
TransAct shares (9,584) (2,877)
Issuance of stock
incentive
compensation
shares 100,000 25 1,618
Purchase of
treasury shares 21,900 (69)
Tax benefit related
to employee stock
sales 205
Net loss (35)
------------------------------------------------------------------------
Balance, December
31,1997 5,497,808 1,377 146,398 (942) 25,273 (673) (816)
Exercise of stock
options 28,665 7 74 15
Issuance of
acquisition shares 714,000 179 4,819
Sale of shares 285,714 71 1,929
Forfeiture of stock
incentive
compensation
shares 11,500 (23)
Tax benefit related
to employee stock
sales 5
Warrants issued 1,228
Net loss (14,146)
------------------------------------------------------------------------
Balance, December
31, 1998 6,526,187 $1,634 157,898 $ (965) $33,328 $(14,819) $ (801)
========================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(14,146) $ (35) $ 8,848
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 3,264 864 1,056
Debt discount amortization 119
Charge for purchased in-process
software technology 17,600
Deferred income taxes (8,227) (114) 537
Stock incentive compensation expense (23) 1,225
Loss on disposal of assets 194 27
Equity used in subsidiary's income from
discontinued operations (533) (3,454)
Gain on sale of subsidiary stock (6,200)
Changes in operating assets and liabilities:
Receivables (620) (260) (656)
Inventory (601) 1,271 (2,377)
Other current assets (157) 53 36
Other assets (91) 46 (131)
Accounts payable, accrued liabilities,
deferred revenue and income taxes
payable 1,940 (526) 788
----------------------------------------
Net cash provided by (used in)
operating activities (942) 2,185 (1,526)
----------------------------------------
Cash flows from investing activities:
Purchases of plant and equipment (767) (546) (250)
Capitalized software development costs (1,731)
Net cash paid for acquisition (42,596)
Proceeds from sale of assets 855
Proceeds from sale of discontinued operations 5,200
Receipt of principal of note receivable
from TransAct 1,000
----------------------------------------
Net cash provided by (used in)
investing activities (44,239) 5,654 (250)
----------------------------------------
Cash flows from financing activities:
Net change in borrowings under line of
credit 4,756
Net proceeds from issuance of long
term debt 23,000
Principal payments on long term
borrowings (900) (5,850)
Net decrease (increase) in short term
investments 4,403 (4,403)
Proceeds from issuance of shares and exercise
of stock options and warrants 2,101 5,580 474
Net transactions with discontinued
operations 105 1,319
Proceeds from repayment of TransAct
intercompany debt 7,500
Purchase of treasury shares (69)
----------------------------------------
Net cash provided by financing
activities 33,360 1,213 3,443
----------------------------------------
Increase (decrease) in cash and cash
equivalents (11,821) 9,052 1,667
Cash and cash equivalents at beginning
of period 11,839 2,787 822
----------------------------------------
Cash and cash equivalents at end of
period $ 18 $ 11,839 $ 2,489
========================================
Supplemental cash flow information:
Interest paid $ 1,649 $ 96 $ 843
Income taxes paid $ 115 $ 197 $ 972
Supplemental non-cash investing and financing
activities:
Stock issued for acquisition $ 4,998
Conversion of convertible debt to
common stock $ 3,710 $ 1,010
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and summary of significant accounting policies:
Business: Tridex Corporation (the "Company"), through its wholly-owned
subsidiaries Ultimate Technology Corporation ("Ultimate"), Progressive
Software, Inc. ("Progressive"), and its Tridex Ribbons Division, is a
leading designer, developer, manufacturer, marketer and integrator of high
quality software and hardware systems and components for the point-of-sale
("POS") industry and ribbon cartridges for specialty dot matrix printers.
Principles of consolidation: The accompanying consolidated financial
statements include the accounts of the Company after elimination of all
material intercompany accounts and transactions. See Note 3 for treatment
of discontinued operations.
Cash and cash equivalents: Cash equivalents consist primarily of
certificates of deposit with maturities of less than ninety days and are
carried at cost, which approximates market value.
Short-term investments: Short-term investments consist primarily of
commercial paper with original maturities at date of purchase beyond three
months and less than 12 months. Such short-term investments are carried at
cost, which approximates fair value, due to the short period of time to
maturity.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Foreign Currency: The financial position and results of operations of the
Company's foreign subsidiaries are measured using local currency as the
functional currency. Assets and liabilities of such subsidiaries have been
translated at current exchange rates, and related revenues and expenses
have been translated at weighted average exchange rates.
Inventories: Inventories are stated at the lower of cost (principally
first-in, first-out) or market.
Plant and equipment and depreciation: Plant and equipment and leasehold
improvements are stated at cost. Depreciation is provided for primarily by
the straight-line method over the estimated useful lives. The estimated
useful life of machinery, furniture and equipment is five to ten years.
Leasehold improvements are amortized over the shorter of the term of the
lease or the useful life of the asset.
Goodwill and intangible assets: Goodwill and intangible assets were
$13,803,000 and $2,517,000 at December 31, 1998 and 1997, respectively.
The amounts are the result of the acquisition of Progressive in 1998 and
of Ultimate in 1993 and are being amortized on the straight-line method
over ten years. The Company periodically reviews goodwill to assess
recoverability based upon expectations of non-discounted cash flows from
operations. The Company believes that no material impairment of goodwill
exists at December 31, 1998.
Purchased and internally developed software costs: The Company capitalizes
software development costs in accordance with Statement of Financial
Accounting Standards Number 86 "Accounting for the Costs of Computer
Software to Be Sold Leased, or Otherwise Marketed" (SFAS 86). The
capitalization of software development costs begins when the technological
feasibility of a product has been established by development of a working
model and ends when the product is available for general release to
customers. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs
require considerable judgement by management with respect to certain
external factors, including, but not limited to, anticipated future
revenues, estimated economic life and changes in software and hardware
technologies. Annual amortization charged to cost of sales will be
computed on an individual product basis and will be the greater of: (a)
the ratio of current gross revenues for a product to the total current and
anticipated future gross revenues for the product, or (b) the
straight-line method over the estimated economic life of the product,
which is generally estimated to be 3 years. As of
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and summary of significant accounting policies: (continued)
December 31, 1998 and 1997, capitalized software development costs were
$1,731,000 and zero, respectively. There was no amortization expense
related to the capitalized software development costs for the year ended
December 31, 1998. As of December 31, 1998 and 1997, purchased software
costs associated with the acquisition of Progressive were $9,588,000 and
zero, respectively. There was $1,212,000 of amortization expense related
to the purchase software costs for the year ended December 31, 1998.
All other research and development expenditures are charged to research
and development expense in the period incurred.
Other assets: Included in other assets at December 31, 1998 and 1997 is a
note receivable from a corporate officer of $125,000, which bears interest
at 8.5%. Also included in other assets at December 31, 1997 is the
investment in Cash Bases of $605,000.
Receivable from sale of stock: In connection with the exercise of options
in 1997, the Company offered loans to all employees whose total exercise
price of options under the Tridex Corporation 1989 Long Term Incentive
Plan (the "1989 Plan") exceeded $50,000. At December 31, 1998, one such
loan was outstanding in the amount of $801,000. The loan is a full
recourse loan due in June, 1999, bears interest at the rate of 7.577% and
is secured by a pledge of the shares acquired by the employee through the
exercise of the options.
Revenue recognition: Revenue is generated from sales of hardware systems
and components and from licensing software systems under noncancelable
license agreements through direct and indirect channels. The Company also
generates revenues from customer support and maintenance, and from
implementation and training services provided to customers.
Revenue on software sales is recognized in accordance with Statement of
Position SOP 97-2, "Software Revenue Recognition" (SOP 97-2). Under SOP
97-2, software license revenues through the Company's direct sales
channels are recognized when a noncancelable license agreement has been
executed, fees are fixed and determinable, the software has been
delivered, accepted by the customer if acceptance is required by the
contract and other than perfunctory, and collection is considered
probable. Software license revenues through the Company's indirect sales
channel are recognized as such fees are reported to the Company or when
minimum license payments are stated in the contract.
Maintenance revenues are recognized ratably over the maintenance period,
generally one year. Revenues from implementation and training services are
recognized as services are performed. The Company may enter into contracts
which provide hardware, software license, and service elements. As such
service elements are not essential to functionality of the software, in
accordance with SOP 97-2, the hardware and license fees are generally
recognized upon delivery of the respective elements and the service
revenues are recognized when performed.
Deferred revenue is comprised of payments received in advance of product
delivery, maintenance and other services which have been paid by customers
prior to services being performed.
Sales to Lowe's Companies, Inc. accounted for approximately 12%, 10% and
22% of consolidated net sales for the years ended December 31, 1998,
December 31, 1997 and December 31, 1996, respectively. Sales to Starbucks
Coffee Company ("Starbucks") accounted for approximately 10% of
consolidated net sales for the year ended December 31, 1998.
Stock based compensation:
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plan. Under APB 25, compensation expense
is recognized to the extent that the fair market value of the underlying
stock on the date of grant exceeds the exercise price of the employee
stock option. Additional
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and summary of significant accounting policies: (continued)
disclosures required under Financial Accounting Standards Board Statement
No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), are included
in Note 10, Stock Options and Warrants.
Income taxes: Income tax expense is based on estimated taxes payable or
refundable on a tax return basis for the current year and changes in the
amount of deferred tax assets and liabilities during the year. Deferred
income taxes are provided for revenue and expenses that are recognized in
different periods for income tax and financial statement purposes. The
Company accounts for income taxes in accordance with FAS 109 "Accounting
for Income Taxes," which mandates the liability method for computing
deferred income taxes. The objective of the liability method is to
recognize the amount of current and deferred taxes payable or refundable
at the financial statement date resulting from all events that have been
recognized in the financial statement based upon the provisions of enacted
tax laws. See Note 11 for a further discussion.
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.
For the years ending December 31, 1998 and 1997, the basic and diluted per
share amounts were the same. The following is a reconciliation of the
earnings per share for the year ended December 31, 1996:
Net Income Average Shares Per Share Amount
------------------------------------------------
Basic earnings per share $8,848 3,913 $ 2.26
Diluted effect of options,
warrants and assumed
conversion of
convertible debt 686
Income impact from assumed
conversions 341
------------------------------------------------
Diluted earnings per share $9,189 4,599 $ 2.00
================================================
2. Acquisition of Progressive Software, Inc.:
On April 17, 1998, the Company purchased all of the issued and outstanding
shares of privately held Progressive, a software and systems provider for
the restaurant and specialty retail industries. The acquisition of
Progressive was accounted for by the purchase method. Accordingly, the
results of operations of Progressive have been included in the
accompanying consolidation 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, including payment of Progressive's line of credit of $9,632,000. 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, MassMutual Corporate
Investors, MassMutual Participation Investors and MassMutual Corporate
Value Partners Limited (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
tem 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.
The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values. The tangible net assets
consist primarily of accounts receivable of $4,143,000, inventory of
$4,353,000, equipment and leasehold improvements of $1,056,000, other
assets of $28,000 and liabilities
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
assumed of $3,105,000. On April 17, 1998 a valuation of all intangible
assets of Progressive was performed by an independent appraisal firm in
conformity with the Uniform Standards of Professional Appraisal Practice
of the Appraisal Foundation. The intangible assets included in-process
software technology projects, among other assets, which were related to
research and development that had not reached technological feasibility
and for which there was no alternative future use. The value of the
purchased in-process software technology was charged to expense in
accordance with applicable accounting rules during the quarter ended June
30, 1998.
On September 9, 1998, the SEC staff notified the American Institute of
Certified Public Accountants ("AICPA") that it had concerns with respect
to the common methodologies used to calculate the fair market value of
purchased in-process software technology. The Company has voluntarily
recalculated the fair market value of the purchased in-process software
technology in accordance with the SEC staff's new view. As a result, the
Company has increased the allocation of the purchase price to goodwill,
other intangibles and purchased existing and core technology and has
decreased the allocation to purchased in-process software technology. The
amount of the purchase price allocated to in-process research and
development was determined by estimating that the stage of completion at
the date of acquisition was 89%, estimating cash flows resulting from the
expected revenues generated from the project, and discounting the net cash
flows back to their present value using a discount rate of 23%, which
represents an appropriate risk premium to the Company's weighted average
cost of capital. In process technology under development at the date of
acquisition that had not established technological feasibility and for
which no alternative use was identified were written off in accordance
with generally accepted accounting principles. If this project is not
successfully developed, the Company may not realize the value assigned to
the in-process research and development projects. The goodwill and other
intangibles and purchased existing and core technology are being amortized
over five to seven years. The allocation of the purchase price was as
follows:
As Reported As Restated
----------- -----------
Tangible net assets $ 6,475 $ 6,475
Purchased in-process software
technology 26,300 17,600
Purchased existing and core
technology 6,900 10,800
Estimated goodwill and other
intangibles 7,919 12,719
----------- -----------
$ 47,594 $ 47,594
=========== ===========
The following unaudited pro forma data reflect the acquisition of
Progressive as if the acquisition had occurred at the beginning of 1998
and 1997, 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.
Year Ended December 31,
------------------------------------------------
1998 1997
---- ----
(Dollars in thousands, except per share amounts)
Net sales $ 49,970 $ 59,651
Operating loss $ (4,468) $ (2,225)
Net loss $ (4,093) $ (3,394)
Loss per share - basic $ (0.64) $ (0.55)
3. Discontinued Operations:
On March 31, 1997 the Company effected the distribution of its remaining
5,400,000 shares of common stock of its former subsidiary, TransAct
Technologies Incorporated ("TransAct"), to Tridex stockholders on the
basis of 1.005 shares of TransAct common stock for each share of Tridex
common stock owned.
On May 29, 1997 Tridex sold its wholly-owned subsidiary Cash Bases GB
Limited ("Cash Bases") to a group comprised of the executive directors of
Cash Bases and Lloyds Development Capital Limited for up to
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$6,200,000, consisting of $5,200,000 in cash, a $250,000 unsecured
promissory note bearing interest at the rate of 10% per annum payable in
full on April 30, 2000, contingent payments of up to $750,000 depending
upon Cash Bases' earnings before interest and a 10% equity stake in the
newly organized buyer Cash Bases Group Limited ("Cash Bases Group"). On
February 25, 1998 the Company entered into an agreement with Cash Bases
Group whereby the Company sold its remaining equity interest in Cash Bases
Group, the $250,000 principal amount of the note receivable and the future
contingency payments for an aggregate settlement amount of $855,000 in
cash. Proceeds of the settlement were received in March 1998. The
Consolidated Financial Statements have been restated to present the
results of operations of TransAct and Cash Bases as discontinued
operations. Such results are summarized below.
Year Ended December 31,
-----------------------------------
1997 1996
-----------------------------------
(Dollars in thousands, except per
share amounts)
Net sales $20,317 $56,862
Operating income 2,029 6,295
Net income 533 3,202
Earnings per share basic 0.10 0.82
4. Receivables:
Receivables are net of the allowance for doubtful accounts. The
reconciliation of the allowance for doubtful accounts is as follows:
Year Ended December 31,
----------------------------------------------
1998 1997 1996
----------------------------------------------
(Dollars in thousands)
Balance at beginning of
year $ 20 $ 70 $ 31
Provision for doubtful
accounts 300 80 44
Accounts written off,
net of recoveries (1) (130) (5)
----------------------------------------------
Balance at end of year $ 319 $ 20 $ 70
==============================================
5. Inventories:
The components of inventories are:
December 31,
-----------------------------------
1998 1997
-----------------------------------
(Dollars in thousands)
Raw materials and
component parts $3,011 $2,097
Work-in-process 37 75
Finished goods 4,893 815
-----------------------------------
$7,941 $2,987
===================================
6. Accrued liabilities:
The components of accrued liabilities are:
December 31,
-----------------------------------
1998 1997
-----------------------------------
(Dollars in thousands)
Payroll, fringe benefits
and commissions $ 278 $ 402
Unfunded pension
obligation 530 555
Environmental matters 258 262
Interest 298
Other 567 587
-----------------------------------
$1,931 $1,806
===================================
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Bank credit agreement and long term debt:
On April 17, 1998, the Company entered into a Credit Agreement (the
"Credit Agreement") with Fleet National Bank ("Fleet") which provides for
an $8 million working capital facility (the "Working Capital Facility")
and a $12 million term loan facility (the "Term Loan"). The Working
Capital Facility expires on June 30, 1999 and 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 allows the Company to borrow at interest rates based upon
Fleet's prime rate, plus a margin of up to one percentage point, depending
upon certain performance criteria. At the Company's option, it may 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
December 31, 1998 the interest rate on outstanding Credit Agreement debt
was approximately 7.8%.
The Credit Agreement is secured by a first priority security interest in
substantially all of the Company's assets, imposes 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) and restricts the amount available for payment of cash
dividends and capital stock distributions.
As of December 31, 1998, the Company was not in compliance with the
covenants under its loans from Fleet. Those 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. In addition, Fleet imposed a
temporary reduction of $2,000,000 in the availability under the Working
Capital Facility. The Company paid a fee to Fleet of $70,000 for similar
amendments as of September 30, 1998, which is being amortized over the
remaining term of the Credit Agreement. The current amendment increases
the interest rate on Credit Agreement obligations by 1% and requires the
Company to maintain a minimum interest coverage ratio and a minimum net
worth. The current amendment to the Credit Facility allows the Company to
defer its March 31, 1999 debt payment of $300,000 to June 30, 1999. The
Company will pay a fee to Fleet of $50,000 on June 30, 1999 for this
amendment. On June 30, 1999, the working capital facility with Fleet
matures. The Company is in discussions with Fleet to continue the facility
and with other financial institutions to replace the facility.
On April 17, 1998, the Company sold to the MassMutual Investors $11
million of the Company's senior subordinated notes due April 17, 2005 (the
"Notes"). On May 27, 1998, the Company issued to the MassMutual Investors
warrants to purchase 350,931 shares of the Company's common stock at $7.00
per share and the interest rate on the Notes was reduced to 12% from 19%.
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. The Notes require prepayments of $3,666,667 on each
of April 17, 2003 and April 17, 2004. Interest is payable quarterly on the
17th day of January, April, July and October commencing on July 17, 1998.
The Notes issued to the MassMutual Investors impose 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 Company paid a fee to the
MassMutual Investors of $39,600 for similar amendments as of September 30,
1998, which is being amortized over the remaining term of the Notes. The
current amendment allows the Company to defer its April 17, 1999 interest
payment of $330,000 to July 17, 1999. The amended covenants require the
Company to maintain a minimum interest coverage ratio and a minimum net
worth. In consideration for the
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Bank credit agreement and long term debt: (continued)
amendment to the Notes and in exchange for surrender of the warrant issued
in 1998 for 350,931 shares of common stock, no par value, with an exercise
price of $7.00 per share the Company, on March 29, 1999, the Company
issued a new stock purchase warrant for 800,000 shares of common stock, no
par value, with an exercise price at market value of date of issuance per
share, which was $2.03125.
The components of long term debt are:
December 31, 1998
-----------------
(Dollars in thousands)
Term loan payable $ 11,100
Senior subordinated notes, net of discount 9,891
----------
20,991
Current portion 1,650
----------
$ 19,341
==========
During 1997, the holders of $2,460,000 principal amount of the Company's
10.5% senior subordinated convertible debentures due 1997 (the
"Debentures") converted their holdings into 273,318 shares of the
Company's common stock at a rate of $9.00 per share. Also during 1997, the
holders of warrants (the "Warrants") to purchase 39,750 shares of common
stock of Tridex (issued in 1993 to the original purchasers of the 10.5%
Debentures) exercised their warrants at $9.25 per share. The amount of the
unamortized discount at the time of conversion aggregating $52,000 was
charged to additional paid in capital.
Also during 1997, the holders of $1,250,000 principal amount of the
Company's 8% subordinated convertible term promissory notes converted
their holdings into 104,127 shares of Tridex common stock at $12.00 per
share.
Interest expense is stated net of interest income of $348,000 in 1998 and
$77,000 in 1996. Interest income in 1997 is stated net of interest expense
of $95,000.
8. Pension plan:
Effective December 31, 1995, the Company established a non-qualified
unfunded pension arrangement for Alvin Lukash, a shareholder and former
corporate officer and Director Emeritus. The pension arrangement requires
the Company to pay an annual benefit of $100,000, payable monthly, through
the death of Mr. Lukash. The unfunded accumulated benefit obligation at
December 31, 1998 of $530,000 is included in Accrued Liabilities in the
accompanying balance sheet. The Company recorded the actuarial present
value of the benefits calculated at a 7.2% discount rate. The Company
recorded pension expense of $75,000 in 1998 and $78,000 in 1997.
9. Commitments and contingencies:
(a) Lease obligations:
At December 31, 1998, the Company was lessee on long term operating
leases for equipment and real property. The terms of certain leases
provide for escalating rent payments in later years of the lease as
well as payment of minimum rent and real estate taxes. Rent expense
amounted to approximately $664,000 in 1998, $300,000 in 1997 and
$315,000 in 1996. Minimum aggregate rental payments required under
operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of December 31, 1998 are as follows:
$775,000 in 1999, $714,000 in 2000; $308,000 in 2001; $35,000 in
2002; and $11,000 in 2003.
(b) Environmental matters:
Allu Realty Trust ("Allu"), a Massachusetts business trust with
transferable shares, all of which are owned by Tridex, is the former
owner of land located at 100 Foley Street, Somerville, Massachusetts
(the "Site"). Although Allu has sold the property to 100 Foley
Street Incorporated ("Foley"), an unrelated entity, Allu and Tridex
remain responsible for certain environmental problems associated
with the Site, depending on the outcome of pending litigation.
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1984, Allu and Tridex disclosed to the Massachusetts Department
of the Attorney General the existence of chromium, oil and grease at
the Site. As a result, the Environmental Protection Division of the
Department of the Attorney General and the Massachusetts Department
of Environmental Protection ("MDEP") conducted an investigation of
the Site. At MDEP's request, the Company retained an environmental
engineering firm, which completed a Phase II investigation study of
the Site. The Company has conducted further studies to more
specifically characterize and assess the Site and to determine
appropriate long term clean up.
In 1993, the Company entered into an agreement with Foley pursuant
to which Tridex and Foley agreed to pay 75% and 25%, respectively,
of the costs incurred after January 1, 1992 in connection with the
investigation and remediation of the Site (the "Site Participation
Agreement"). The Site Participation Agreement also provides that, to
the extent there are available proceeds from the sale of the Site
or, if not sold, from the operation of the Site after January 1,
1997, Tridex shall be reimbursed approximately $200,000 of the
$250,000 it expended in connection with the Site prior to January 1,
1992. As of December 31, 1998, the Company had spent approximately
$728,000 in connection with the Site.
In 1997, Foley sold the Site to an affiliate of Stop & Shop, Inc.
("Stop & Shop") and Stop & Shop has taken control of all remediation
of the Site. However, Foley asserts that Allu and Tridex remain
liable for payment of certain costs associated with the remediation
of the Site. Also in 1997, Foley brought suit against the Company
claiming that the Company failed to contribute its share of the
remediation costs pursuant to the Site Participation Agreement. The
Company has filed a counterclaim. This litigation was stayed until
February, 1999 and discovery has commenced. The implementation of
clean-up measures was commenced in 1998 and is anticipated to be
concluded in 1999. As of December 31, 1998, the Company had accrued
$258,000 for the Site, which represents the currently estimated
minimum cost of remediation, after considering the Site
Participation Agreement. The Company estimates that it may spend up
to $275,000 in connection with the Site. Accordingly, although no
assurances can be given regarding the materiality of the total costs
which may be incurred, the Company does not believe at this time
that the remediation of the Site is reasonably likely to have a
material effect on the Company's financial condition, results of
operations or liquidity. The Company expects that, as in the past,
cash from operations will be sufficient to pay the costs of
remediation.
(c) Legal proceedings
When Tridex acquired Progressive in April 1998, it granted Mr. Smith
registration rights for his 714,000 shares of Tridex common stock
issued as part of the purchase price. At the same closing, Mr. Smith
agreed to deliver a tax form needed by Tridex to obtain favorable
tax treatment of the purchase. Tridex made repeated requests for the
tax form but it was not delivered until January 1999. Mr. Smith
requested registration of his shares, and Tridex commenced
preparation of a registration statement, but postponed its
completion while waiting for Mr. Smith to deliver the tax form.
During the last three months of 1998, counsel for Tridex met with
and corresponded with counsel for Mr. Smith, stating that Tridex was
preparing to pursue arbitration and other legal remedies against
him. On January 5, 1999, Tridex received the executed tax form. On
January 4, 1999, Mr. Smith filed a suit against Tridex and
Progressive in the Federal District Court in North Carolina and
served the papers at a later date. The suit seeks damages of up to
$5.0 million plus a court order requiring Tridex to register the
shares of its common stock issued to Mr. Smith as part of the
purchase price. The suit also seeks a declaratory judgment to
prevent Tridex from pursuing other claims which it has asserted
against Mr. Smith in post-closing negotiations. Tridex has denied
the substantive allegations in Mr. Smith's complaint. Tridex has
made claims against Mr. Smith for breach of federal and state
securities laws, fraud and misrepresentation. Tridex is seeking
damages in an unspecified amount which is estimated to exceed Mr.
Smith's claims against Tridex. At this phase of the litigation, the
parties have not begun discovery. Although it is not possible to
predict the outcome, Tridex believes it
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
has valid defenses to Smith's claim and that the claims of Tridex
and Progressive against Smith are meritorious. Tridex will
aggressively defend against the claim made by Smith and aggressively
pursue its own claims against him.
10. Stock options and warrants:
The Company presently maintains three stock option plans for employees and
non-employee directors as follows:
1998 Non-Executive Long Term Incentive Plan
The 1998 Long Term Incentive Plan (the "1998 Non-Executive Plan") was
approved by the shareholders of the Company at the Annual Meeting held on
May 27, 1998. The 1998 Non-Executive Plan permits stock-based incentive
compensation in the form of: (a) stock options, (b) stock appreciation
rights, (c) restricted stock, (d) deferred stock, (e) stock purchase
rights and (f) other stock-based compensation. Pursuant to the 1998
Non-Executive Plan, up to 600,000 shares of common stock may be
distributed to key non-executive employees of the Company. Options granted
are at prices equal to 100% of the fair market value of the common stock
at the date of grant. Under APB 25 when the exercise price of employee
stock options equals the fair market value of the underlying stock on the
date of grant, no compensation expense is recognized. Options granted are
exercisable at the discretion of the Stock Option Committee, but in no
event shall the period be for more than ten years. Ninety days after an
employee's termination, the outstanding options are canceled. At December
31, 1998 the Company had reserved 600,000 shares of common stock for
issuance upon the exercise of options granted under the 1998 Non-Executive
Plan. At December 31, 1998, options for 240,000 shares were outstanding
under the 1998 Non-Executive Plan at exercise prices ranging from $2.625
to $7.00 per share. These options, none of which were exercisable, have a
weighted average exercise price of $5.99 per share and a weighted average
remaining contractual life of 9.5 years.
1997 Long Term Incentive Plan
The 1997 Long Term Incentive Plan (the "1997 Plan") was approved by the
shareholders of the Company at the Annual Meeting held on May 14, 1997 and
amended at the Annual Meeting on May 27, 1998 to increase the number of
authorized shares. The 1997 Plan permits stock-based incentive
compensation in the form of: (a) stock options, (b) stock appreciation
rights, (c) restricted stock, (d) deferred stock, (e) stock purchase
rights and (f) other stock-based compensation. Pursuant to the 1997 Plan,
as amended, up to 1,000,000 shares of common stock may be distributed to
officers and key employees of the Company. Options granted are at prices
equal to 100% of the fair market value of the common stock at the date of
grant. Under APB 25 when the exercise price of employee stock options
equals the fair market value of the underlying stock on the date of grant,
no compensation expense is recognized. Options granted are exercisable at
the discretion of the Stock Option Committee of the Board, but in no event
shall the period be for more than ten years. Ninety days after an
employee's termination, the outstanding options are canceled. At December
31, 1998 the Company had reserved 971,335 shares of common stock for
issuance upon the exercise of options granted under the 1997 Plan. At
December 31, 1998, options for 507,999 shares were outstanding under the
1997 Plan at exercise prices ranging from $2.81 to $7.50 per share. These
options, of which 107,982 were exercisable, have a weighted average
exercise price of $4.09 per share and a weighted average remaining
contractual life of 8 years.
Non-Employee Directors Plan
The Non-Employee Directors' Stock Plan (the "Directors' Plan") was
approved by the Shareholders of the Company at the Annual Meeting held on
May 14, 1997. The Directors' Plan permits the issuance to non-employee
directors of the Company of options for up to 100,000 shares of the
Company's common stock. Options issued under the Directors' Plan do not
qualify as incentive options under Section 422 of the Internal Revenue
Code. Options to purchase 10,000 shares of the Company's common stock were
granted to each non-employee director upon the effective date of the
Directors' Plan. Persons subsequently elected as non-employee directors
will
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Stock options and warrants: (continued)
be granted options to purchase 10,000 shares on the date of their
election. Thereafter, on the date of the Company's Annual Meeting of
Shareholders, each non-employee director will be granted an option to
purchase 3,000 shares of common stock. Options become exercisable in three
equal annual installments and may be exercised within ten years of the
date of the grant. At December 31, 1998 the Company had reserved 100,000
shares of common stock for issuance upon the exercise of options granted
under the Directors' Plan. At December 31, 1998, options for 39,000 shares
were outstanding under the Directors Plan at exercise prices ranging from
$2.81 to $6.75 per share. These options, of which 9,999 were exercisable,
have a weighted average exercise price of $2.81 per share and a weighted
average remaining contractual life of 8.6 years.
1989 Long Term Incentive Plan
The 1989 Long Term Incentive Plan ("the 1989 Plan"), which was terminated
upon the approval of the 1997 Plan, permitted stock-based incentive
compensation in the form of: (a) stock options, (b) stock appreciation
rights, (c) restricted stock, (d) deferred stock, (e) stock purchase
rights and (f) other stock-based compensation. Pursuant to the 1989 Plan,
up to 1,250,000 shares of common stock could have been distributed to
officers, key employees and non-employee directors of the Company. Options
granted were at prices equal to 100% of the fair market value of the
common stock at the date of grant. No charge against income was required
with respect to options. Options granted were exercisable at the
discretion of the Stock Option Committee, but in no event shall the period
be for more than ten years. Ninety days after an employee's termination,
the outstanding options were canceled. During 1997, the Company
accelerated the vesting of all outstanding options in conjunction with the
distribution of the TransAct shares.
Warrants:
As of December 31, 1998, the Company had outstanding stock purchase
warrants for 350,931 shares of common stock issued to the MassMutual
Investors in conjunction with the issuance of the Notes discussed in Note
7. These warrants are exercisable at $7.00 per share from April 19, 1999
through April 17, 2008. In consideration for the amendment to the Notes
and in exchange for the warrant issued for 350,931 shares of common stock,
no par value, at an exercise price of $7.00 per share the Company, on
March 26, 1999, issued a stock purchase warrant to the MassMutual
Investors for 800,000 shares of common stock, no par value, at an exercise
price at market value on the date of issuance, $2.03125 per share. During
1997, stock purchase warrants were exercised for an aggregate of 230,632
shares of common stock, consisting of warrants for 117,550 shares held by
directors of the Company and 113,082 shares issued to the purchasers of
the 10.5% Debentures and the placement agent for the 10.5% Debentures.
The following summarizes the combined activity of all stock option plans
and outstanding warrants during the three-year period ended December 31,
1998:
<TABLE>
<CAPTION>
Weighted- Weighted-
Stock Average Options and Average
Options and Exercise Warrants Exercise
Warrants Price Exercisable Price
----------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 953,362 $ 6.72
Granted 99,000 8.08
Exercised (147,414) 3.52
Canceled (42,206) 6.24
-----------
Balance, December 31, 1996 862,742 7.45 445,994 $ 7.50
Granted 471,000 2.96
Exercised (859,932) 7.44
Canceled (23,810) 9.16
-----------
Balance, December 31, 1997 450,000 2.97 0
</TABLE>
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Stock options and warrants: (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Granted 860,431 6.43
Exercised (28,665) 2.81
Canceled (143,836) 4.63
-----------
Balance, December 31, 1998 1,137,930 4.65 117,981 3.00
====================================================
</TABLE>
The following summarizes additional information about stock options and
warrants outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options and Warrants
Options and Warrants Outstanding Exercisable
------------------------------------ -----------------------
Number Number
Outstanding Weighted- Weighted- Exercisable Weighted-
Range of at December Average Average at Average
Exercise 31, Exercise Remaining December 31, Exercise
Prices 1998 Price Life 1998 Price
------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
$2.6250 $2.8125 251,999 $ 2.81 8.42 83,983 $ 2.81
$3.0938 $3.8750 172,500 $ 3.26 6.76 29,999 $ 3.18
$4.1250 $6.7500 86,500 $ 5.11 9.49 3,999 $ 5.50
$7.0000 $7.5000 626,931 $ 7.03 9.35 0
---------- -------
1,137,930 $ 5.38 8.76 117,981 $ 3.00
========== =======
</TABLE>
Had compensation expense been recognized based on the fair value of the
options at their grant dates, as prescribed in Financial Accounting
Standard No. 123, the Company's net income (loss) and earnings per share
would have been:
Year Ended December 31,
------------------------------------------------
1998 1997 1996
------------------------------------------------
(Dollars in thousands except per share amounts)
Net income (loss):
As reported $(14,146) $ (35) $8,848
Pro forma under FAS 123 $(14,513) $ (301) $8,673
Pro forma earnings per share
(basic and diluted:
As reported $ (2.33) $(0.01) $ 2.26
Pro forma under FAS 123 $ (2.41) $(0.06) $ 2.22
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions:
1998 1997 1996
--------------------------------------------------
Dividend yield 0% 0% 0%
Risk-free interest
rates 4.08% - 5.61% 5.72% - 6.22% 5.04% - 5.07%
Expected volatility 36.7% - 43.7% 37.6% - 38.6% 57.0% - 57.6%
Expected option term 3 years 3 years 5 - 10 years
11. Income taxes:
The components of the income tax benefit are as follows:
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
--------------------------------------------------
(Dollars in thousands)
Current:
Federal $ 69 $ 88 $ (743)
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Stock options and warrants: (continued)
State (17) (18) 94
--------------------------------------------------
$ 52 $ 70 $ (649)
--------------------------------------------------
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
--------------------------------------------------
(Dollars in thousands)
Deferred:
Federal $(7,498) $ (107) $ 553
State (729) (7) (16)
--------------------------------------------------
(8,227) (114) 537
--------------------------------------------------
Benefit for income
taxes $ (8,175) $ (44) $ (112)
--------------------------------------------------
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the
financial statements. The Company's gross deferred tax assets and
liabilities were comprised of the following:
December 31, 1998 December 31, 1997
------------------------------------
(Dollars in thousands)
Gross deferred tax assets:
In-process research and development $6,188
Future deductible liabilities and
reserves 955 $1,342
Net operating loss carryforwards 2,487 463
Federal minimum tax credit
carryforwards 169 46
Federal business and other tax credit
carryforwards 149
-----------------------------------
$9,948 $1,851
-----------------------------------
Gross deferred tax liabilities:
-----------------------------------
Depreciation $ 25 $ 69
===================================
At December 31, 1998 and 1997, valuation allowances of $831,000 and
$917,000, respectively, have been recorded which relate primarily to net
operating loss carryforwards and certain state deferred tax deductions for
which a tax benefit will not likely be realized. The net change since
December 31, 1997 in the valuation allowance for deferred tax assets was a
decrease of $86,000 related primarily to a decrease in deferred state tax
benefits.
At December 31, 1998, the Company had federal net operating loss
carryforwards of $5,763,000 that expire in 2018 and state net operating
loss carryforwards of $10,190,000 that expire principally in 1999 through
2003. The Company also had federal minimum tax credit carryforwards of
$169,000 which may be carried forward indefinitely as a credit against
regular federal tax liability in future years and other tax credit
carryforwards of $149,000 consisting primarily of research and development
tax credits that expire in 2018.
Differences between the U.S. statutory federal income tax rate and the
Company's effective income tax rate are analyzed below:
Year Ended December 31,
----------------------------------------
1998 1997 1996
----------------------------------------
Federal statutory tax rate (34.0%) (34.0%) 34.0%
Nondeductible purchase
accounting 0.7% 27.7% 3.1%
State income taxes, net of
federal income taxes (3.3%) (3.1%) 0.8%
<PAGE>
TRIDEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gain on sale of subsidiary stock (38.1%)
Valuation allowance (0.8%)
Other 2.2% (1.0%)
----------------------------------------
Effective tax rate (36.6%) (7.2%) (2.0%)
========================================
12. Segments:
Prior to the acquisition of Progressive, the Company operated in only one
segment. Presently, the Company manages each of its two operating
subsidiaries as a separate reportable business segment. Each segment
offers different products to different classes of customers in the POS
market. Ultimate is primarily focused on providing hardware solutions to
the retail sector of the market, while Progressive is primarily focused on
providing software solutions to the food service and specialty retail
sector of the market. Intersegment sales are not material. The Company
evaluates the performance of each segment based on operating profit,
exclusive of corporate expense, interest, taxes and nonrecurring gains and
losses. Each segment follows the Company's significant accounting
policies. Following is a table of selected financial data concerning the
Company's reportable segments.
For the Year Ended December 31, 1998
------------------------------------------------
(Dollars in thousands)
------------------------------------------------
Ultimate Progressive Other Total
------------------------------------------------
Sales to external
customers $25,608 $17,468 $ 428 $ 43,504
Depreciation and
amortization 862 2,282 120 3,264
Segment operating income
(loss) $ 1,671 $(2,111) $ 8 (432)
======= ======= ======
Purchased in-process
software technology 17,600
Other corporate expense 2,532
--------
Consolidated operating
income (loss) $(20,564)
========
Segment assets $10,752 $32,249 $ 133 $ 43,134
======= ======= ======
Corporate assets 9,819
--------
Consolidated assets $ 52,953
========
Capital expenditures for
segment assets $ 212 $ 536 $ 748
======= =======
Corporate capital
expenditures 19
--------
Consolidated capital
expenditures $ 767
========
13. Disclosure Regarding Fair Value of Financial Instruments:
The estimated fair value amounts of the Company's financial instruments
was made in accordance with the requirements of SFAS No. 107. The
estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
Considerable judgement is required to develop the estimates of fair value,
thus, the estimates provided herein are not necessarily indicative of the
amounts that could be realized in a current market exchange.
December 31, 1998
-----------------------------------
(Dollars in thousands)
Carrying Amount Fair Value
Financial Assets:
Cash and cash equivalents $ 18 $ 18
Accounts receivable 7,806 7,806
Liabilities:
Accounts payable 5,875 5,875
Bank loan payable 4,756 4,756
Term loan payable 11,100 10,900
Senior subordinated notes 9,891 9,591
14. Other Significant Transactions:
During the quarter ended December 31, 1997, the Company recorded
additional compensation expense of $237,000 related to the acceleration of
the distribution of shares under the Stock Incentive Compensation
<PAGE>
Agreement with certain officers of Ultimate and a provision of $196,000 to
write-down the carrying value of real estate held for sale. During the
quarter ended December 31, 1996, the Company recorded a $320,000 provision
to amend the unfunded pension arrangement established in the prior year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) Directors.
The information contained in "Information Concerning Nominees for Election
as Directors and Executive Officers" of the Company's Proxy Statement (the
"Proxy Statement") for its Annual Meeting of Shareholders which is
scheduled to be held on May 19, 1999 is hereby incorporated herein by
reference. Also see Item 1(E)(i) above.
(B) Executive Officers.
See Item 1(E)(ii) above.
(C) Compliance with Section 16(a) of the Exchange Act.
The information contained in "Compliance with Section 16(a)" of the Proxy
Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in "Compensation of Directors and Executive Officers"
of the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in "Security Ownership of Certain Beneficial Owners
and Management" of the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
The information contained in "Certain Relationships and Related Transactions" of
the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following financial statements and exhibits are filed as part of this
report:
(i) Financial statements
See Item 8 on page 14.
(ii) Financial statement schedules
See Item 8 on page 14.
(iii) List of Exhibits.
See Exhibit Index on page 35.
(B) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the last
quarter of the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TRIDEX CORPORATION
By: /s/ Seth M. Lukash
------------------------------------------------
Seth M. Lukash
Chairman of the Board, President,
Chief Executive Officer, Chief Operating Officer
and Director
Date: March 30, 1999
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
/s/ Seth M. Lukash Chairman of the Board, President, March 30, 1999
- - ----------------------------- Chief Executive Officer, Chief
Seth M. Lukash Operating Officer and Director
(Principal Executive Officer)
/s/ Daniel A. Bergeron Vice President and March 30, 1999
- - ----------------------------- Chief Financial Officer
Daniel A. Bergeron
(Principal Financial Officer)
/s/ George T. Crandall Vice President, Treasurer, March 30, 1999
- - ----------------------------- Controller and Secretary
George T. Crandall
(Principal Accounting Officer)
/s/ Graham Y. Tanaka Director March 30, 1999
- - -----------------------------
Graham Y. Tanaka
/s/ Paul J. Dunphy Director March 30, 1999
- - -----------------------------
Paul J. Dunphy
/s/ Thomas R. Schwarz Director March 30, 1999
- - -----------------------------
Thomas R. Schwarz
/s/ Dennis J. Lewis Director March 30, 1999
- - -----------------------------
Dennis J. Lewis
<PAGE>
Exhibit Index
Page
Number
------
2.1 Stock Purchase Agreement dated as of February 24, 1998, by and
among Paul J. Smith, Progressive Software, Inc., Tridex Corporation
("Tridex" or the "Company"), and Tridex NC, Inc., with index of
Schedules and Exhibits thereto filed as Exhibit 2.1 to the
Company's Current Report of Form 8-K filed April 30, 1998 is hereby
incorporated herein by reference.
3.1 Certificate of Incorporation of Tridex, as amended, filed on June
28, 1985 as Exhibit 3.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended March 30, 1985, is hereby incorporated
herein by reference.
3.2 Certificate of Amendment of Incorporation of Tridex, dated October
1, 1987, filed on July 18, 1988 as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended April 2, 1988
is hereby incorporated herein by reference.
3.3 Certificate of Amendment of Incorporation of Tridex, dated August
15, 1988, filed on June 29, 1989 as Exhibit 3.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended April 1, 1989
is hereby incorporated herein by reference.
3.4 Certificate of Amendment of Incorporation of Tridex, dated March
31,1989 filed on June 29, 1989 as Exhibit 3.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended April 1, 1989
is hereby incorporated herein by reference.
3.5 Bylaws of Tridex, as amended and restated as of January 22, 1996,
filed on March 26, 1996 as Exhibit 3.5 to the Company's Transition
Report on Form 10-K for the transition year ended December 31, 1995
is hereby incorporated herein by reference.
4.1 Description of the Company's common stock set forth in the
Company's Registration Statement on Form 8-A filed July 14, 1986,
is hereby incorporated herein by reference.
4.2 Tridex Corporation 1997 Long Term Incentive Plan (as amended and
restated), filed as Exhibit A to the Company's Proxy Statement for
the Annual Meeting of Shareholders filed April 17, 1997 is hereby
incorporated herein by reference.
4.3 Tridex Corporation Non-Employee Directors' Stock Plan filed as
Exhibit B to the Company's Proxy Statement for the Annual Meeting
of Shareholders filed April 17, 1997 is hereby incorporated herein
by reference.
4.4 Tridex Corporation 1998 Non-Executive Long Term Incentive Plan
filed as Exhibit A to the Company's Proxy Statement for the Annual
Meeting of Shareholders filed May 8, 1998 is hereby incorporated
herein by reference.
4.5 Registration Rights Agreement by and between Paul J. Smith and
Tridex dated as of April 17, 1998 filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K filed April 30, 1998 is hereby
incorporated herein by reference.
4.6 Securities Purchase Agreements dated as of April 17, 1998, by and
among Massachusetts Mutual Life Insurance Company and certain of
its affiliates and Tridex filed as Exhibit 4.2 to the Company's
Current Report on Form 8-K filed April 30, 1998 is hereby
incorporated herein by reference.
4.7 Form of 19% senior subordinated notes due April 17, 2005 filed as
Exhibit 4.3 to the Company's Current Report on Form 8-K filed April
30, 1998 is hereby incorporated herein by reference.
4.8 Form of Letter of Waiver and Limited Amendment dated November 12,
1998 by and among Massachusetts Mutual Life Insurance Company and
certain of its affiliates and Tridex filed as Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 is hereby incorporated herein by reference.
4.9 Second Amendment to Securities Purchase Agreements dated March 37
26, 1999 by and among Massachussets Mutual Life Insurance
Company and certain of its affiliates and Tridex.
10.1 Credit Agreement dated as of April 17, 1998, by and between Fleet
National Bank, Tridex, Progressive Software, Inc., Ultimate
Technology Corporation, and Tridex NC, Inc., with index of
Schedules and Exhibits thereto filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K filed April 30, 1998 is hereby
incorporated herein by reference.
10.2 Term Note in the amount of $12,000,000, due March 31, 2003, payable
by Tridex and its affiliates to Fleet National Bank ("Fleet") filed
as Exhibit 10.2 to the Company's Current Report on Form 8-K filed
April 30, 1998 is hereby incorporated herein by 2 reference.
10.3 Working Capital Note in the amount of $8,000,000 due June 30, 1999,
payable by Tridex and its affiliates to Fleet National Bank filed
as Exhibit 10.3 to the Company's Current Report on Form 8-K filed
April 30, 1998 is hereby incorporated herein by reference.
10.4 Amendment No. 1 to Credit Agreement dated as of November 1, 1998,
to Credit Agreement dated as of April 17, 1998, by and between
Fleet, Tridex, Progressive Software, Inc. and Ultimate Technology
Corporation filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998 is hereby
incorporated herein by reference.
<PAGE>
10.5 Manufacturing Support Services Agreement dated as of September 28,
1996 between Magnetec Corporation and Tridex filed as Exhibit 10.5
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 28, 1996, is hereby incorporated herein by
reference.
10.6 Printer Supply Agreement dated as of July 30, 1996 between Magnetec
Corporation and Ultimate Technology Corporation, filed as Exhibit
10.7 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 28, 1996, is hereby incorporated herein by
reference.
10.7 Tax Sharing Agreement dated as of July 31, 1996 between Tridex and
TransAct Technologies Incorporated filed as Exhibit 10.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 28, 1996 is hereby incorporated herein by reference.
10.8 Retirement Agreement, dated as of December 31, 1995, between Tridex
and Alvin Lukash, filed on March 29, 1996 as Exhibit 10.15 to the
Company's Transition Report on Form 10-K for the transition year
ended December 31, 1995 is hereby incorporated herein by reference.
10.9 First Amendment to Retirement Agreement dated December 31, 1996
between Tridex and Alvin Lukash, filed on March 31, 1997 as Exhibit
10.9 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, is hereby incorporated herein by reference.
10.10 Employment Agreement dated December 2, 1996 between Tridex and Seth
M. Lukash filed on March 31, 1997 as Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, is
hereby incorporated herein by reference.
10.11 Employment Agreement dated August 7, 1996 between Tridex and George
T. Crandall filed on March 31, 1997 as Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996, is hereby incorporated herein by reference.
10.12 Employment Agreement dated February 21, 1997 between Ultimate
Technology Corporation and Dennis Lewis filed on March 31, 1997 as
Exhibit 10.21 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, is hereby incorporated herein by
reference.
10.13 Employment Agreement dated February 21, 1997 between Ultimate
Technology Corporation and Gary German filed on March 31, 1997 as
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, is hereby incorporated herein by
reference.
10.14 Employment Agreement dated February 21, 1997 between Ultimate
Technology Corporation and Paul Wolf filed on March 31, 1997 as
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, is hereby incorporated herein by
reference.
10.15 Employment Agreement dated August 7, 1996 between Tridex and Thomas
F. Curtin, Jr. filed as Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, is hereby
incorporated herein by reference.
10.16 Employment Agreement dated April 9, 1998 between Tridex and Daniel
A. Bergeron filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998 is hereby
incorporated herein by reference.
10.17 Employment Agreement dated May 11, 1998 between Tridex and John
MacWillie filed as Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998 is hereby
incorporated herein by reference.
10.18 Employment Agreement dated April 21, 1998 between Tridex and
Raymond J. Mueller filed as Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998 is
hereby incorporated herein by reference.
10.19 Amended and Restated Employment Agreement dated March 26, 1999
between Tridex and Samuel J. Villanti. 44
10.20 Amendment No. 2 to Credit Agreement dated as of March 30, 1999, to
Credit Agreement dated as of April 17, 1998, by and between Fleet,
Tridex, Progressive Software, Inc. and Ultimate Technology
Corporation. 49
11.1 Statement re: computation of per share earnings. 56
21.1 List of Subsidiaries of Tridex. 57
23.1 Consent of Independent Accountant 58
27.1 Financial Data Schedule.
EXHIBIT 4.9
TRIDEX CORPORATION
PROGRESSIVE SOFTWARE, INC.
ULTIMATE TECHNOLOGY CORPORATION
61 Wilton Road
Westport, Connecticut 06880
March 26, 1999
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
MASSMUTUAL CORPORATE INVESTORS
MASSMUTUAL PARTICIPATION INVESTORS
MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED
1295 State Street
Springfield, Massachusetts 01111
Re: Second 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 (the "First Amendment") (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 (a) certain existing Events of
Default thereunder; and (b) the Amendment No. 2 to Credit Agreement dated as of
March 15, 1999 (the "Second 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 Bank is agreeing
to the deferral of a payment of principal thereunder.
1. Amendments.
(a) Section 12.1(b)(i) of each of the Securities Purchase Agreements is
hereby amended by deleting the words "one registration" and substituting the
words "two registrations" therefor.
(b) Section 12.3 of each of the Securities Purchase Agreements is hereby
amended by deleting section 12.3 in its entirely and substituting the following
therefor:
<PAGE>
12.3 S-3 Registration; Permitted Registration.
(a) In addition to the rights under sections 12.1 and 12.2, upon the
written request by the holder or holders of an aggregate number of
Registrable Shares at the time issued (or issuable) constituting in the
aggregate the lesser of (x) 25 % of the aggregate number of Registrable
Shares issued (or issuable) as of March 26, 1999 (such number to be
appropriately adjusted for stock splits, stock dividends and combinations
and similar events) or (y) 100% of the Registrable Shares then issued (or
issuable), the Holding Company shall use its commercially reasonable best
efforts to effect the registration, qualification, and compliance of all
of the Registrable Shares of the holder or holders making such request and
shall use its commercially reasonable best efforts to continue the
effectiveness of the related registration statement for at least 180 days,
provided that the Holding Company shall be obligated to effect a
registration, qualification, and compliance requested pursuant to this
section 12.3(a) only if the Holding Company is then eligible to file the
related registration statement on Form S-3 (or any successor form) under
the Securities Act. The Holding Company shall pay all Registration
Expenses related to each registration, qualification, and compliance
requested pursuant to this section 12.3(a).
(b) If and to the extent that any holder or holders of any
Registrable Shares shall have, at the time of delivery of the written
request referred to in section 12.2, no present intention of selling or
distributing such Registrable Shares, the Holding Company shall be
obligated to effect the registration, qualification, and compliance of
such Registrable Shares of such holder or holders only if and to the
extent, in each case, that such registration, qualification, and
compliance are at the time permitted by the applicable statutes or rules
and regulations thereunder or the practices of the governmental authority
concerned.
(c) Section 13.6 of each of the Securities Purchase Agreements is hereby
amended by deleting section 13.6 in its entirely and substituting the following
therefor:
(a) EBITDA to Interest Charges Ratio. The Issuers, on a consolidated
basis, shall initially maintain a ratio of EBITDA to Interest Charges of
not less than 1.0 to 1.0 at all times, as measured on March 31, 1999, for
the period beginning on February 1, 1999, through March 31, 1999.
Thereafter, the Issuers, on a consolidated basis, shall maintain at all
times the minimum ratio of EBITDA to Interest Charges set forth below, as
measured at the end of each month commencing April 30, 1999, for the
period beginning on February 1, 1999, through the date of measurement set
forth below.
Measurement Date Applicable Ratio
---------------- ----------------
April 30, 1999 1.0 to 1.0
May 31, 1999 1.1 to 1.0
June 30, 1999 1.2 to 1.0
July 31, 1999 1.3 to 1.0
August 31, 1999 1.3 to 1.0
September 30, 1999 1.4 to 1.0
and the last day of
each month thereafter
<PAGE>
For purposes of the aforesaid covenant, (a) "EBITDA" shall mean, for any
period, net income for such period after restoring thereto amounts
(without duplication) deducted for (i) Interest Charges, (ii) taxes in
respect of income, and (iii) depreciation and amortization, in each case
determined in accordance with GAAP; and (b) "Interest Charges" shall not
include any deferred interest on the Notes.
(b) Net Worth. The Issuers shall maintain at all times, as measured
at the end of each month, commencing March 31, 1999, Consolidated Net
Worth of not less than $15,400,000.
(d) The term "Registrable Shares" in section 14 of each of the Securities
Purchase Agreements is deleted in its entirely and the following is substituted
therefor:
"Registrable Shares" shall mean any Purchased Common Shares and any
Warrant Shares, except that, as to any particular Registrable Shares, such
securities, once issued, will cease to be Registrable Shares when (a) a
registration statement covering such securities has been declared
effective and such securities have been disposed of pursuant to an
effective registration statement or (b) such securities are sold to the
public in accordance with Rule 144 (or any similar provision then in
force) under the Securities Act. A Person shall be deemed a "holder" of
Registrable Shares for purposes of section 12 if such Person is the holder
of any Warrants or any Warrant Shares issued upon exercise of any Warrant.
(e) The term "Warrants" as used in each of the Securities Purchase
Agreements shall mean and include the Warrants for 800,000 Shares of Common
Stock, no par value, of the Holding Company referred to in section 3(a)(iv) of
this Second Amendment together with any warrants issued in exchange therefor or
replacement thereof.
2. Consents and Waivers. Each of you hereby agrees that (a) the Issuers may
defer the payment of the April 17, 1999, interest payment on the Notes until
July 17, 1999, at which date such April 17, 1999, payment and the July 17, 1999,
payment shall both 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 Second 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 Second
Amendment, provided that such section 13.6 of the Securities Purchase Agreements
as amended hereby shall only remain in effect in respect of periods ending
subsequent to December 31, 1998, and prior to January 1, 2000. As of January 1,
2000, such section 13.6, as in effect prior to the date of the First Amendment,
shall be deemed reinstated.
3. Conditions to Effectiveness of Second Amendment. This Second 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 Second Amendment;
(ii) certified copies of (A) the resolutions of the Board of
Directors of each of the Issuers approving this Second Amendment and the
matters contemplated hereby and (B) all documents evidencing other
necessary corporate actions and governmental approvals, if any, with
respect to this Second 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
<PAGE>
Second Amendment and the other documents to be delivered hereunder;
(iv) new, immediately exercisable, Warrants, dated the date hereof,
representing the right to purchase at an Exercise Price of $2.03125 per
share 800,000 shares of Common Stock, without par value, of the Holding
Company substantially in the form of Exhibit 3(a)(iv) attached hereto in
exchange for your surrender of the outstanding Warrants;
(v) an opinion, dated the date hereof, from Messrs. Hinckley, Allen
& Snyder, counsel for the Issuers, substantially in the form of Exhibit
3(a)(v) attached hereto; and
(vi) an executed counterpart of an amendment to the Fleet Bank
Agreement, substantially in the form of Exhibit 3(a)(vi) attached hereto.
(b) The Issuers shall have paid in full all fees, expenses and
disbursements incurred by you in connection with this Second Amendment,
including, without limitation, the fees, expenses and disbursements of your
special counsel.
4. 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 2 hereof) and that no condition exists
which has resulted in, or could reasonably be expected to result in, a Material
Adverse Change. The Common Stock issuable upon exercise of the Warrants,
including the new Warrants referred to in section 3(a)(iv) of this Second
Amendment, is the only class of Voting Stock of the Holding Company. Since April
17, 1998, there has been no adjustment to the Exercise Price (as defined in the
Warrants), and since such date no event has occurred which has required such
adjustment.
(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 Second
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 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 Second 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 Second Amendment.
5. 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
<PAGE>
disbursements of your special counsel.
6. Governing Law. This Second 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.
7. Miscellaneous. The headings in this Second Amendment are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof. This
Second 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 Second 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 Second 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 Second Amendment, the
Securities Purchase Agreements shall remain in full force and effect, and the
execution and delivery of this Second 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 Second
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
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
<PAGE>
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 10.19
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement") is
entered into as of the 26th day of March, 1999, by and between Tridex
Corporation, a Connecticut corporation with a mailing address of 61 Wilton Road,
Westport, Connecticut 06880 (the "Company"), and Samuel J. Villanti, an
individual with a residence address of 28 Mendonshire Heights, Honeoye Falls,
NY, 14472 (the "Executive").
INTRODUCTION
1. The Company is in the business of providing custom system solutions for
retail point-of-sale, convenience store, specialty retail, and other
transaction-based markets (the "Business").
2. On November 23, 1998 the Company and Executive entered into an
Employment Agreement (the "Original Agreement"), which, by entering into this
Agreement, they amend and restate.
3. The Company desires to continue to employ Executive and Executive
desires to continue such employment on the terms and conditions set forth
herein.
AGREEMENT
In consideration of the premises and mutual promises herein below set
forth, the parties hereby agree as follows.
1. Employment Period. The terms of this Agreement shall commence on the
date hereof and, subject to earlier termination as hereinafter provided, shall
terminate one (1) year after November 23, 1998 provided that the term of this
Agreement shall automatically extend by thirty (30) days for each thirty (30)
day period which shall expire without either the Company or the Executive giving
written notice to terminate. The term of the Executive's employment hereunder is
hereinafter referred to as the "Employment Period".
2. Employment Duties. Subject to the terms and conditions set forth
herein, the Company hereby employs Executive to act as President of Ultimate
Technology Corporation, a wholly owned New York subsidiary of the Company
("Ultimate") during the Employment Period, and Executive hereby accepts such
employment. The duties assigned and authority granted to Executive shall be as
set forth in the By-laws of Tridex and as determined by its Board of Directors,
and the CEO, from time to time. Executive agrees to perform his duties for the
Company diligently, competently, and in a good faith manner. The Executive may
also engage in civic and charitable activities to the extent they are not
inconsistent with Executive's duties hereunder.
3. Salary and Bonus.
(a) Base Salary. The Company agrees to pay Executive $145,000 per
year, payable in weekly installments (the "Base Salary"). Executive's Base
Salary shall not be decreased. In addition, no later than November 1999 the
Board of Directors of the Company (or any appropriate committee thereof) shall
review and may increase the Executive's annual Base Salary in its discretion,
based upon the Company's performance and the Executive's particular
contributions.
(b) Bonus. Executive shall have an opportunity to earn an annual
bonus under the Company's Incentive Compensation Plan, subject to attainment of
specific financial and individual objectives and the discretion of the Company's
Board of Directors (or any appropriate committee thereof).
4. Other Benefits.
(a) Insurance and Other Benefits. The Executive shall be entitled to
participate in, and shall receive the maximum benefits available under, the
Company's insurance programs (including health, disability and life insurance)
and any ERISA benefit plans, as the same may be adopted and/or amended from time
to time,
<PAGE>
and shall receive other fringe benefits that may be provided by the Company to
other senior executives. The Company shall contribute the maximum amount
permitted under current law to the Executive's 401(k) Plan, and any other
Company pension or retirement plan during the Employment Period.
(b) Vacation. Executive shall be entitled to an annual vacation of
such duration as may be determined by the Board of Directors, but not less than
that generally established for other executives of Company and in no event less
than three (3) weeks, without interruption of salary.
(c) Reimbursement of Expenses. The Company shall reimburse Executive
for all reasonable travel, entertainment and other expenses incurred or paid by
the Executive in connection with, or related to, the performance of his duties
or responsibilities under this Agreement, provided that Executive submits to the
Company substantiation of such expenses sufficient to satisfy the record keeping
guidelines promulgated from time to time by the Internal Revenue Service.
5. Termination by the Company With Cause. The Company may terminate this
Agreement if any of the following events shall occur:
(a) the death or disability of the Executive (for purposes of this
Agreement, "disability" shall mean the Executive's incapacity due to physical or
mental illness which has caused the Executive to be absent from the full-time
performance of his duties with the Company for a period of six (6) consecutive
months);
(b) any action or inaction by the Executive that constitutes
larceny, fraud, gross negligence, a willful or negligent misrepresentation to
the directors or officers of the Company, its successors or assigns, a crime
involving moral turpitude; or
(c) the refusal of the Executive to follow the reasonable and lawful
written instructions of the Board of Directors of the Company with respect to
the services to be rendered and the manner of rendering such services by
Executive, provided such refusal is material and repetitive and is not justified
or excused either by the terms of this Agreement or by actions taken by the
Company in violation of this Agreement, and with respect to the first two
refusals Executive has been given reasonable written notice and explanation
thereof and reasonable opportunity to cure and no cure has been effected within
a reasonable time after such notice.
The Company may terminate this Agreement pursuant to this Section 5
immediately upon written notice to the Executive, except for termination due to
the death of the Executive, which shall require no notice.
6. Termination.
(a) Termination by the Executive. Executive may terminate this
Agreement at any time by providing the Company with a minimum of one (1) month
of written notice to the Company.
(b) Termination by the Company Without Cause. The Company may
terminate this Agreement at any time, without cause by providing written notice
to Executive. As used in this Agreement, the terms "without Cause" shall mean
termination for any reason not specified in Section 5 hereof, except for
retirement, and "with Cause" shall mean termination for those reasons specified
in Section 5 hereof.
(i) Without Cause. If the Company terminates this Agreement
without Cause, for a period equal to twelve (12) months thereafter, the Company
shall provide Executive with a severance package which shall consist of the
following: (1) payment on the first business day of each month of an amount
equal to one-twelfth of the Executive's then current annual Base Salary under
Section 3(a) hereof; (2) payment on the first business day of each month of an
amount equal to one-twelfth of the Executive's annual target bonus amount under
the Company's Executive Incentive Compensation Plan for the year of termination,
pro rated for the portion of the fiscal year occurring prior to termination; and
(3) continuation of all benefits under Section 4(a) and (c).
(ii) With Cause. If the Company terminates this Agreement with
Cause, then the Executive shall be entitled to receive the Base Salary earned
but unpaid through the date of such termination, as well as reimbursement by the
Company for any out-of-pocket expenses incurred by the Executive in connection
with the business of the Company as contemplated by Section 4(d) above prior to
the date of termination, but no
<PAGE>
further payments of Base Salary or additional compensation shall be due by the
Company thereafter, and the Executive shall not thereafter be entitled to
receive benefits under Sections 4(a) or (b) hereof.
(c) General Release. As a condition precedent to receiving any
severance payment, the Executive shall execute a general release of any and all
claims which Executive or his heirs, executors, agents or assigns might have
against the Company, it subsidiaries, affiliates, successors, assigns and its
past, present and future employees, officers, directors, agents and attorneys.
7. Non-Competition. During the term of this Agreement and for a period of
six (6) months following the termination of this Agreement, Executive will not
directly or indirectly whether as a partner, consultant, agent, employee,
co-venturer, greater than two percent owner or otherwise or through any other
person (as hereinafter defined): (a) be engaged in any business which develops
software or manufactures or sells hardware for use in the specialty retail,
restaurant, supermarket or convenience store sectors of the POS market (A) in
any part of the world in which the Company is engaged in selling its products
directly or indirectly at the time the Executive ceases to provide services
hereunder, (B) if the territorial restriction in the preceding clause is deemed
to be too broad, then the areas shall be the countries in which the Company is
engaged in selling its products directly or indirectly at the time the Executive
ceases to provide services hereunder, (C) if the territorial restriction in the
preceding clause is deemed to be too broad, then the area shall be the continent
of North America, (D) if the territorial restriction in the preceding clause is
deemed to be too broad, then the areas shall be those states of the United
States in which the Company is engaged in selling its products directly or
indirectly at the time the Executive ceases to provide services hereunder, (E)
if the territorial restriction in the preceding clause is deemed to be too
broad, then the areas shall be any states in which the services performed by the
Executive for the Company are directly related to the products and services
provided by the Company to its customers in such states, or (F) if the
territorial restriction in the preceding clause is deemed to be too broad, then
the area shall be the states of New York and any other state in which the
Executive actually performed services for the Company during the Employment
Period; or (b) attempt to recruit any employee of the Company, assist in their
hiring by any other Person, or encourage any employee to terminate his or her
employment with the Company; or (c) encourage any customer of the Company to
conduct with any other person any business or activity which such customer
conducts or could conduct with the Company. For purpose of this Section 7, the
term "Company" shall include any person controlling under common control with or
controlled by, the Company, provided, however, that with respect to Tridex
Corporation and any subsidiary of Tridex Corporation, the provisions of this
Section 7 shall cease and be of no force and effect six (6) months after the
Company is no longer a subsidiary of Tridex.
For purpose of this Section 7, the term "Person" shall mean an individual
or corporation, association or partnership in estate or trust or any other
entity or organization.
The Executive recognizes and agrees that because a violation by him of
this Section 7 will cause irreparable harm to the Company that would be
difficult to quantify and for which money damages would be inadequate, the
Company shall have the right to injunctive relief to prevent or restrain any
such violation, without the necessity of posting a bond.
Executive expressly agrees that the character, duration and scope of this
covenant not to compete are reasonable in light of the circumstances as they
exist at the date upon which this Agreement has been executed. However, should a
determination nonetheless be made by a court of competent jurisdiction at a
later date that the character, duration or geographical scope of this covenant
not to compete is unreasonable in light of the circumstances as they then exist,
then it is the intention of both Executive and the Company that this covenant
not to compete shall be construed by the court in such a manner as to impose
only those restrictions on the conduct of Executive which are reasonable in
light of the circumstances as they then exist and necessary to provide the
Company the intended benefit of this covenant to compete.
8. Confidentiality Covenants. Executive understands that Company may
impart to him confidential business information including, without limitation,
designs, financial information, personnel information, strategic plans, product
development information and the like (collectively "Confidential Information").
Executive hereby acknowledges Company's exclusive ownership of such Confidential
Information.
Executive agrees as follows: (1) only to use the Confidential Information
to provide services to the Company; (2) only to communicate the Confidential
Information to fellow employees, agents and representatives
<PAGE>
of the Company on a need-to-know basis; and (3) not to otherwise disclose or use
any Confidential Information. Upon demand by the Company or upon termination of
Executive's employment, Executive will deliver to the Company all manuals,
photographs, recordings, and any other instrument or device by which, through
which, or on which Confidential Information has been recorded and/or preserved,
which are in my Executive's possession, custody or control. Executive
acknowledges that for purposes of this Section 8 the term "Company" means any
person or entity now or hereafter during the term of this Agreement which
controls, is under common control with, or is controlled by, the Company.
The Executive recognizes and agrees that because a violation by him of
this Section 8 will cause irreparable harm to the Company that would be
difficult to quantify and for which money damages would be inadequate, the
Company shall have the right to injunctive relief to prevent or restrain any
such violation, without the necessity of posting a bond.
9. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and thereof
and supersedes any and all previous agreements, written and oral, regarding the
subject matter hereof between the parties hereto, including but not limited to
the Original Agreement. The Company shall be entitled to enforce this Agreement,
according to its terms. This Agreement shall not be changed, altered, modified
or amended, except by a written agreement signed by both parties hereto.
10. Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed to have been given if delivered by hand, sent by
generally recognized overnight courier service, telex or telecopy, or certified
mail, return receipt requested.
(a) to the Company at:
61 Wilton Road
Westport, Connecticut 06880
Attn: Chairman and CEO
(b) to the Executive at:
28 Mendonshire Heights
Honeoye, NY 14472
Any such notice or other communication will be considered to have been
given (i) on the date of delivery in person, (ii) on the third day after mailing
by certified mail, provided that receipt of delivery is confirmed in writing,
(iii) on the first business day following delivery to a commercial overnight
courier or (iv) on the date of facsimile transmission (telecopy) provided that
the giver or the notice obtains telephone confirmation of receipt.
Either party may, by notice given to the other party in accordance with
this Section 10, designate another address or person for receipt of notices
hereunder.
11. Severability. If any term or provision of this Agreement, or the
application thereof to any person or under any circumstance, shall to any extent
by invalid or unenforceable, the remainder of this Agreement, or the application
of such terms to the persons or under circumstances other than those as to which
it is invalid or unenforceable, shall be considered severable and shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest extent permitted by law, be deemed amended and given such
interpretation as to achieve the economic intent of this Agreement.
12. Waiver. The failure of any party to insist in any one instance or more
upon strict performance of any of the terms and conditions hereof, or to
exercise any right of privilege herein conferred, shall not be construed as a
waiver of such terms, conditions, rights or privileges, but same shall continue
to remain in full force and effect. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement by the other party
shall not be construed as, or constitute, a continuing waiver of such provision,
or waiver of any other violation of, breach of or default under any other
provision of this Agreement.
<PAGE>
15. Successors and Assigns. This Agreement shall be binding upon the Company
and any successors and assigns of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TRIDEX CORPORATION
By:
------------------------------------
Title:
---------------------------------
EXECUTIVE:
---------------------------------------
Samuel J. Villanti
EXHIBIT 10.20
AMENDMENT NO. 2 TO CREDIT AGREEMENT
Dated as of March 30, 1999
AMENDMENT No. 2 to Credit Agreement (this "Amendment") 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").
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.
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. Amendments. The Facility Documents are, effective as of
the date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 2 hereof, hereby amended as follows:
(a) The first sentence of Section 2.1(a) of the Credit
Agreement is hereby amended and restated in full to read as follows:
Subject to the terms and conditions of this Agreement, the Bank
agrees to make revolving loans ("Working Capital Loans") to the
Borrowers from time to time from and including the date hereof to
and including the Revolving Credit Termination Date, up to but not
exceeding in the aggregate principal amount at any one time
outstanding the amount of the Working Capital Commitment, and
provided that the aggregate outstanding principal amount of Working
Capital Loans shall at no time exceed the Borrowing Base.
(b) The following definitions in the Credit Agreement are
hereby amended and modified as follow:
"Borrowing Base" means an amount equal to the sum of (a) 80% of Eligible
Receivables, and (b) 50% of Eligible Inventory, provided, however, in no event
shall the aggregate amount under clause (b) exceed $2,000,000. Unless the Bank
shall otherwise determine, the Borrowing Base as of any date shall be the
Borrowing Base set forth on the most current Borrowing Base Certificate
certified and delivered by the Borrower pursuant to either Section 6.8 or
Section 4.2. If, at any time, the Borrowing Base shall exceed the Working
Capital Commitment, for purposes of this Agreement the Borrowing Base shall be
deemed to be equal to the Working Capital Commitment.
"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, (d) all work-in-progress,
packaging and labeling, and 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 judgment, 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 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
<PAGE>
consignee of such Inventory and has given any party claiming of record a
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.
"Working Capital Commitment" means the obligation of the Bank to make the
Working Capital Loans under this Agreement in the aggregate principal amount of
up to $6,000,000, as such amount may be limited or reduced pursuant to Article 2
or otherwise modified from time.
"Margin" means, with respect to Prime Rate Loans, 1.5 percentage
points, and with respect to LIBOR Loans, 3.75 percentage points.
(c) The first three lines of the definition of "Eligible
Receivables" are hereby amended to read as follows:
"Eligible Receivables" means, as of any date of determination thereof, all
Receivables of the Borrowers net of the Borrower's customary reserves,
discounts, credits, returns, rebates, allowances or set-offs, and expressly
netting therefrom all warranty reserves, customer deposits, billings for
evaluation units, reserves for unissued credits, contra accounts and prepayments
(up to the amount of any eligible account receivable amounts owed), and
expressly excluding the following types of Receivables:
Subsections (i) through (xviii) under the definition of "Eligible Receivables"
shall remain unchanged in the Credit Agreement.
(d) The following defined term is hereby added to the Credit
Agreement:
"Net Worth" means, with respect to any Person, at any time, the stockholders'
equity of such Person and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with GAAP.
(e) The $300,000 principal payment due on the Term Loan on
March 31, 1999 is hereby deferred until June 30, 1999.
(f) The Borrowers acknowledge that, pursuant to the terms of
the Credit Agreement, the Working Capital Loans, plus all accrued interest
thereon, shall be due and payable in full on June 30, 1999. Notwithstanding the
foregoing, the aforesaid maturity date for the Working Capital Loans may be
extended from June 30, 1999 until September 30, 1999 in the sole, absolute
discretion of the Bank, and the Borrowers expressly acknowledge that the Bank
shall make such determination in its sole, absolute discretion without regard to
the financial condition of the Borrowers, improved or otherwise. Without
limiting the foregoing, the Bank shall not consider any extension of the
maturity date of the Working Capital Loans unless, on or prior to June 30, 1999,
(i) the Borrowers continue to make all scheduled principal and interest payments
due under the Term Loan and the Working Capital Loans (other than the $300,000
principal payment referred to above due on June 30, 1999, which $300,000
principal payment shall be due on September 30, 1999), and (iii) Mass Mutual
agrees to defer the payment of interest in the approximate amount of $330,000
referenced in Section 2(d) herein to a date no earlier than October 17, 1999.
(g) Sections 8.1 through 8.5 of the Credit Agreement are
hereby deleted in their entirety and are hereby replaced by the following two
sections:
Section 8.1. EBITDA to Interest Expense Ratio. The Borrowers,
on a consolidated basis, shall initially maintain a ratio of EBITDA
to Interest Expense of not less than 1.0 to 1.0 at all times, as
measured on March 31, 1999 for the period beginning on February 1,
1999 through March 31, 1999. Thereafter, the Borrowers, on a
consolidated basis, shall maintain at all times the minimum ratio of
EBITDA to Interest Expense set forth below, as measured at the end
of each month, commencing April 30, 1999, for the period beginning
on February 1, 1999 through the date of measurement set forth below:
<PAGE>
Measurement Date Applicable Ratio
---------------- ----------------
April 30, 1999 1.0 to 1.0
May 31, 1999 1.1 to 1.0
June 30, 1999 1.2 to 1.0
July 31, 1999 1.3 to 1.0
August 31, 1999 1.3 to 1.0
September 30, 1999 1.4 to 1.0
and the last day of each month thereafter.
For purposes of the aforesaid covenant, "Interest Expense"
shall not include any deferred interest on the $11,000,000
Subordinated Debt.
Section 8.2. Net Worth. The Borrowers, on a consolidated basis, shall maintain
at all times, as measured at the end of each month, commencing March 31, 1999, a
Net Worth of not less than $15,400,000.
(h) In consideration of the deferral by the Bank set forth in
Section 1(e) hereof and in consideration of the waiver by the Bank of certain
covenant defaults of the Borrowers, as provided in Section 4(d) hereof, and the
modification of the financial covenants pursuant to Section 1(g) above, the
Borrowers agree that, as of January 1, 2000, the Borrowers shall comply in all
respects with each of the financial covenants as described in Article VIII of
the original Credit Agreement dated April 17, 1998, it being the intention of
the parties hereto that none of the modifications to such covenants set forth in
Amendment No. 1 or in this Amendment No. 2 would thereafter be applicable.
(i) Section 1.1(g) of the Security Agreement is hereby amended
to designate said Section as Section 1.1(h) and a new Section 1.1(g) is hereby
added to read as follows:
(g) All general intangibles and all choses in action,
settlement funds, proceeds of claims in tort or contract, including without
limitation, all rights and proceeds in, to and under any contract or tort
actions by any of the Grantors (or their Affiliates) against any person or
entity.
SECTION 2. 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 the Bank, and Section 1 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.
(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) An amendment fee equal to $50,000 accruing as of the date
hereof and payable on or before June 30, 1999, and extension fees equal to
$20,000 accruing on July 1, 1999, $20,000 accruing on August 1, 1999 and $30,000
accruing on September 1, 1999, with all such extension fees payable in full on
or before September 30, 1999.
(d) Evidence that Massachusetts Mutual Life Insurance Company
and its Affiliates ("Mass Mutual") have agreed to defer the interest payment in
the amount of approximately $330,000 payable on the $11,000,000 Subordinated
Debt on April 17, 1999 to a date no earlier than July 17, 1999, and further
evidence that Mass Mutual has waived any and all covenant defaults existing as
of December 31, 1998 in respect of
<PAGE>
$11,000,000 Subordinated Debt and has amended the financial covenants under the
$11,000,000 Subordinated Debt to levels that are, in the opinion of the Bank, no
more restrictive than the financial covenants of the Bank as amended pursuant to
Section 1(g) of this Amendment, and have consented to the terms of this
Amendment and have agreed that no event of default shall exist under the
Subordinated Debt Agreements as a result of this Amendment.
(e) Acknowledgment copies of amendments to financing
statements (UCC-3) duly filed under the Uniform Commercial Code in all
jurisdictions necessary or, in the opinion of the Bank desirable to perfect the
security interests of the Bank in the collateral granted by the Borrowers to the
Bank under the Security Agreement and the other Facility Documents.
(f) Acknowledgment by the Borrowers that the Bank will,
promptly after the execution and delivery of this Amendment, notify any parties
against whom the Borrowers have claims that any and all proceeds of any tort or
contract claims by any of the Borrowers against such parties have been assigned
to the Bank as collateral security for the Loans.
SECTION 3. Representations and Warranties of Each of the Borrowers. Each
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
(b) The execution, delivery and performance by the Borrower of
this Amendment and the Facility Documents, as amended hereby, to which it is or
is to be a party are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) the
Borrower's charter or by-laws, (ii) any law or any contractual restriction
binding on or affecting the Borrower, or result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge, encumbrance or preferential arrangement of any nature upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
(c) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Borrower of this
Amendment or any of the Facility Documents, as amended hereby, to which it is or
is to be a party.
(d) This Amendment and each of the other Facility Documents as
amended hereby, constitute legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms.
(e) The Credit Agreement and the Security Agreement creates
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.
(f) Except as set forth in the Credit Agreement and in
Schedule A hereto, there is no pending or threatened action or proceeding
affecting the Borrower or any of its Subsidiaries before any court, governmental
agency or arbitrator, which may materially adversely affect the financial
condition or operations of the Borrower or any Subsidiary. There is no pending
or threatened action or proceeding affecting the Borrower or any of its
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.
(g) The Facility Documents existing on the date hereof
constitute legal, valid and binding obligations of the Borrower, enforceable
against the Borrower 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.
<PAGE>
SECTION 4. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of Section 1 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 Banks and the Bank under the Credit Agreement and the other
Facility Documents, as amended hereby.
(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 or the Banks under any of the Facility
Documents, nor constitute a waiver of any provision of any of the Facility
Documents.
(d) Notwithstanding anything to the contrary herein, the Bank
agrees that the failure of the Borrowers to comply with the financial covenants
set forth in Article 8 of the Credit Agreement in effect prior to this Amendment
in respect of the period ending December 31, 1998, shall not constitute an Event
of Default, provided that the financial covenants set forth in Article 8 as
amended hereby shall remain in full force and effect in respect of all periods
described in Section 1(g) herein ending subsequent to December 31, 1998.
SECTION 5. Costs, Expenses and Taxes. Each of the Borrowers agrees to pay on
demand all 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 fees
and out-of-pocket expenses of counsel for the Bank 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 costs and
expenses, if any (including, without limitation, reasonable counsel fees and
expenses), 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 and expenses in connection with the enforcement of rights under
this Section 5. In addition, each of the Borrowers shall pay any and all stamp
and other 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 6. 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 7. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of Connecticut.
<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 above written.
TRIDEX CORPORATION
By
--------------------------------------
George T. Crandall, Treasurer
Address for Notices:
61 Wilton Avenue
Westport, CT 06880
ULTIMATE TECHNOLOGY CORPORATION
By
--------------------------------------
George T. Crandall, Treasurer
Address for Notices:
100 Rawson Road
Victor, NY 14564
PROGRESSIVE SOFTWARE INC.
By
--------------------------------------
Daniel Bergeron, Treasurer
Address for Notices:
2301 Crown Center Drive
Charlotte, NC 28227
<PAGE>
FLEET NATIONAL BANK
By
--------------------------------------
H. Frazier Caner, Vice President
Address for Notices:
Fleet National Bank
One Landmark Square
2nd Floor
Stamford, CT 06901
Attn: H. Frazier Caner
Vice President
Facsimile No.: (203) 964-4850
TRIDEX CORPORATION AND SUBSIDIARIES
EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
BASIC
EARNINGS:
Income (loss) from continuing operations $ (14,146) $ (568) $ 5,646
Income from discontinued operations 533 3,202
----------------------------------------------
Net income (loss) available to common
stockholders $ (14,146) $ (35) $ 8,848
==============================================
SHARES:
Average common shares outstanding 6,077,000 5,157,000 3,913,000
==============================================
EARNINGS PER COMMON SHARE - BASIC:
Income (loss) from continuing operations $ (2.33) $ (0.11) $ 1.44
Income from discontinued operations 0.10 0.82
----------------------------------------------
Net income (loss) $ (2.33) $ (0.01) $ 2.26
==============================================
DILUTED:
EARNINGS:
Income (loss) from continuing operations $ (568) $ 5,646
Income impact from assumed conversions 0 341
---------------------------------
Income (loss) available to common
stockholders plus assumed conversions (568) 5,987
Income from discontinued operations 533 3,202
---------------------------------
Net income (loss) available to
common shareholders $ (35) $ 9,189
=================================
SHARES:
Average common shares outstanding 5,157,000 3,913,000
Dilutive effect of outstanding
options and warrants as
determined by the treasury
stock method 174,000 241,000
Dilutive effect of convertible debt
assumed converted at the
beginning of the year 0 445,000
---------------------------------
5,331,000 4,599,000
=================================
EARNINGS PER COMMON SHARE - DILUTED:
Income (loss) from continuing operations $ (0.11) $ 1.30
Income from discontinued operations 0.10 0.70
---------------------------------
Net income (loss) $ (0.01) $ 2.00
=================================
</TABLE>
TRIDEX CORPORATION
EXHIBIT 21.1 SUBSIDIARIES OF TRIDEX CORPORATION
Jurisdiction of Percentage
Name Incorporation Owner Owned
- - --------------------------------------------------------------------------------
Allu Realty Trust * Massachusetts Tridex 100%
RIL Corporation* Connecticut Tridex 100%
Ultimate Technology
Corporation New York Tridex 100%
Progressive Software, Inc. North Carolina Tridex 100%
Retail Resource Solutions
Limited United Kingdom Tridex 100%
*Inactive
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of Tridex Corporation on Form S-8 (File numbers 333-52555, 333-52557,
333-52559) of our report dated March 30, 1999 on our audits of the consolidated
financial statements of Tridex Corporation as of December 31, 1998 and 1997, and
for the years ended December 31, 1998, 1997, and 1996, which report is
incorporated by reference from the 1998 Annual Report to Stockholders in this
Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) TRIDEX
CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 8,125
<ALLOWANCES> 319
<INVENTORY> 7,941
<CURRENT-ASSETS> 1,371
<PP&E> 4,251
<DEPRECIATION> 1,806
<TOTAL-ASSETS> 52,953
<CURRENT-LIABILITIES> 15,235
<BONDS> 19,341
1,634
0
<COMMON> 0
<OTHER-SE> 16,743
<TOTAL-LIABILITY-AND-EQUITY> 52,953
<SALES> 43,504
<TOTAL-REVENUES> 43,504
<CGS> 31,670
<TOTAL-COSTS> 63,768
<OTHER-EXPENSES> 22
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 1,735
<INCOME-PRETAX> (22,321)
<INCOME-TAX> (8,175)
<INCOME-CONTINUING> (14,146)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,146)
<EPS-PRIMARY> (2.33)
<EPS-DILUTED> (2.33)
</TABLE>
