<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1996 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: 1-9641
IDENTIX INCORPORATED
(Exact name of registrant as specified in its charter)
California 94-2842496
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
510 N. Pastoria Avenue, Sunnyvale, California 94086
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 731-2000
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 requirement for the past 90 days. YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
24,323,937 shares of Common Stock
as of October 31, 1996
<PAGE> 2
IDENTIX INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - September 30, 1996 and June 30, 1996 ..............1
Consolidated Statements of Operations - three months ended
September 30, 1996 and 1995....................................................2
Consolidated Statements of Cash Flows - three months ended
September 30, 1996 and 1995....................................................3
Notes to Consolidated Financial Statements.......................................4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................6
PART II OTHER INFORMATION...............................................................18
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on Form 8-K
Signatures.................................................................................19
</TABLE>
<PAGE> 3
IDENTIX INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
----------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 205,000 $ 981,000
Accounts receivable, less allowance for doubtful accounts
and sales returns of $621,000 and $488,000 ............. 19,389,000 16,331,000
Inventories .............................................. 3,672,000 4,464,000
Prepaid expenses and other assets ........................ 554,000 266,000
------------ ------------
Total current assets .................................. 23,820,000 22,042,000
Property and equipment, net ................................ 2,581,000 2,218,000
Intangibles and other assets ............................... 2,902,000 2,847,000
------------ ------------
$ 29,303,000 $ 27,107,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable to banks ................................... $ 4,298,000 $ 1,846,000
Accounts payable ......................................... 2,740,000 3,309,000
Accrued compensation ..................................... 1,102,000 1,185,000
Other accrued liabilities ................................ 680,000 426,000
Current portion of long-term debt ........................ 106,000 106,000
Deferred maintenance revenue ............................. 272,000 256,000
------------ ------------
Total current liabilities ............................. 9,198,000 7,128,000
Deferred maintenance revenue ............................... 253,000 293,000
Long-term debt ............................................. 100,000 127,000
Other liabilities .......................................... 89,000 87,000
------------ ------------
Total liabilities ..................................... 9,640,000 7,635,000
------------ ------------
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, no par; 30,000,000 shares authorized;
24,323,937 and 24,320,464 shares issued and outstanding 50,031,000 50,024,000
Accumulated deficit ...................................... (30,374,000) (30,534,000)
Cumulative translation adjustment ........................ 6,000 (18,000)
------------ ------------
Total shareholders' equity ............................ 19,663,000 19,472,000
------------ ------------
$ 29,303,000 $ 27,107,000
============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
1
<PAGE> 4
IDENTIX INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Net product revenues $ 6,376,000 $ 3,165,000
Services revenues 5,700,000 4,427,000
------------ ------------
Total revenues 12,076,000 7,592,000
------------ ------------
Costs and expenses:
Cost of product revenues 3,372,000 1,689,000
Cost of services revenues 4,650,000 3,682,000
Research, development and engineering 452,000 336,000
Marketing and selling 1,625,000 883,000
General and administrative 1,737,000 905,000
------------ ------------
Total costs and expenses 11,836,000 7,495,000
------------ ------------
Income from operations 240,000 97,000
Interest income (expense), net (51,000) 40,000
Other income (expense), net (9,000) (10,000)
------------ ------------
Income before income taxes 180,000 127,000
Provision for income taxes (20,000) --
------------ ------------
Net income $ 160,000 $ 127,000
============ ============
Net income per common and
common equivalent share $ 0.01 $ 0.01
============ ============
Weighted average common
and common equivalent shares 25,122,000 24,171,000
============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
2
<PAGE> 5
IDENTIX INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 160,000 $ 127,000
Adjustments to reconcile net income to net cash used
for operating activities:
Depreciation and amortization 456,000 307,000
Amortization of deferred maintenance revenue (147,000) (69,000)
Changes in assets and liabilities:
Accounts receivable (3,058,000) (1,307,000)
Inventories 792,000 (329,000)
Prepaid expenses and other assets (288,000) 98,000
Accounts payable (569,000) 252,000
Accrued compensation (83,000) (16,000)
Other accrued liabilities 254,000 (53,000)
Deferred maintenance revenue 123,000 72,000
----------- -----------
Net cash used for operating activities (2,360,000) (918,000)
----------- -----------
Cash flows used for investing activities:
Capital expenditures (629,000) (334,000)
Additions to intangibles and other assets (245,000) (96,000)
Cash received from acquisition -- 24,000
----------- -----------
Net cash used for investing activities (874,000) (406,000)
----------- -----------
Cash flows from financing activities:
Borrowings under bank lines of credit 6,178,000 4,031,000
Payments under bank lines of credit (3,726,000) (3,994,000)
Borrowings under long-term note -- 206,000
Principal payments on long-term note (27,000) (12,000)
Proceeds from sale of common stock and warrants, net 7,000 4,076,000
Other, net 2,000 --
----------- -----------
Net cash provided by financing activities 2,434,000 4,307,000
----------- -----------
Effects of exchange rate changes on cash
and cash equivalents 24,000 --
----------- -----------
Net increase (decrease) in cash and cash equivalents (776,000) 2,983,000
Cash and cash equivalents at beginning of period 981,000 3,842,000
----------- -----------
Cash and cash equivalents at end of period $ 205,000 $ 6,825,000
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
3
<PAGE> 6
IDENTIX INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These accompanying consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments (consisting only
of normal recurring adjustments) which are necessary for a fair
presentation of the financial position and results of operations for
the interim period have been included. These consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the fiscal year ended June
30, 1996 included in the Company's Form 10-K. The results of operations
for the three months ended September 30, 1996 are not necessarily
indicative of results to be expected for the entire fiscal year, which
ends on June 30, 1997.
The consolidated financial statements include the accounts of Identix
Incorporated (the "Company") and its wholly owned subsidiaries: ANADAC,
Inc. ("ANADAC"), Fingerscan Pty Limited ("Fingerscan") which was
acquired on March 26, 1996, and Innovative Archival Solutions, Inc.
("IAS") which was acquired on June 30, 1996. Identix accounted for the
acquisition of Fingerscan as a purchase. Identix accounted for the
acquisition of IAS as a pooling of interests. Accordingly, the
consolidated balance sheet at September 30, 1995 and the consolidated
statement of operations and consolidated statement of cash flows for
the three month period from July 1, 1995 to September 30, 1995 have
been restated to include the accounts and operations of IAS. All
significant intercompany balances and transactions have been eliminated
in consolidation.
2. EFFECT OF THE IAS ACQUISITION ON THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
A summary of the effects of the acquisition of IAS, which was
accounted for as a pooling of interests, on the consolidated
statement of operations for the Company for the three months ended
September 30, 1995 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------
AS PREVIOUSLY
COMBINED REPORTED
-------- --------------
<S> <C> <C>
Total revenues $ 7,592,000 $ 7,513,000
Net income $ 127,000 $ 124,000
Net income per common and
common equivalent share $ 0.01 $ 0.01
Weighted average common and
common equivalent shares 24,171,000 24,016,000
</TABLE>
3. INVENTORIES
Inventories are stated at the lower of cost (determined on the
first-in, first-out cost method) or market. Inventories consisted of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------ ------------
<S> <C> <C>
Purchased parts and materials $1,923,000 $2,869,000
Work-in-process 977,000 429,000
Finished goods 772,000 1,166,000
---------- ----------
$3,672,000 $4,464,000
========== ==========
</TABLE>
4
<PAGE> 7
4. CONTINGENT LIABILITIES
The Company has been named as a defendant in a class action lawsuit
which was filed in October 1996 in the United States District Court for
the Northern District of California. Certain executive officers of the
Company are also named as defendants. The plaintiff purports to
represent a class of all persons who purchased the Company's common
stock between January 31, 1996 and August 26, 1996 (the "Class
Period"). The complaint alleges claims under the federal securities
laws. The plaintiff alleges that the Company and certain of its
executive officers made false and misleading statements regarding
the Company that caused the market price of its common stock
to be "artificially inflated" during the Class Period. The complaint
does not specify the amount of damages sought. The Company and its
officers deny the allegations and will vigorously defend against
this action.
The Company is a defendant in a patent infringement lawsuit related to
the Company's TouchPrint 600 and 900 products filed against the Company
by a competitor. TouchPrint is a "live-scan" system used by law
enforcement agencies to scan and capture high quality fingerprint
images. The lawsuit has no implication for any other Identix products.
The Court has granted the Company's motion that the TouchPrint 600 does
not infringe the patent. The remaining issue in the case is whether the
Company's TouchPrint 900 product, which is the predecessor of the
TouchPrint 600 and is no longer in production, infringes the patent.
The Company is defending this matter vigorously and believes that it is
unlikely that the outcome of this lawsuit will have a material adverse
effect on the Company's financial position and results of operations.
5
<PAGE> 8
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Identix Incorporated ("Identix" or "the Company") designs, develops,
manufactures and markets two categories of products for security, anti-fraud,
law enforcement and other applications: (i) biometric identity verification
("Bio-ID") products that identify an individual through the unique biological
characteristics of a fingerprint and (ii) biometric imaging products that
capture forensic quality fingerprint images directly from an individual's
fingers for law enforcement and other applications. The Company's principal
Bio-ID products are TouchNet II*, TouchSafe II*, TouchLock II*, TouchClock II*
and TouchBlock*. The Company's principal biometric imaging products are
TouchPrint 600*, TouchView II*, I3 Workstation* and DocuColor*. The Company
provides information technology, engineering and management consulting services
to private and public sector clients through a wholly owned subsidiary, ANADAC,
Inc. ("ANADAC"). ANADAC's services support the development, installation,
integration, and operation of hardware and software technology solutions,
including Identix products, for a variety of client operating environments.
On March 26, 1996, the Company acquired Fingerscan Pty Limited ("Fingerscan"), a
privately-held Australian-based company that designs and markets Bio-ID
products. Fingerscan had been a long-standing Identix OEM partner integrating
Identix fingerprint identification technology into Fingerscan's fingerprint
identity and verification products and systems. The acquisition was accounted
for as a purchase. Accordingly, the Company's financial statements include the
results of Fingerscan from the date of acquisition.
On June 30, 1996, the Company acquired Innovative Archival Solutions, Inc.
("IAS"), a privately-held company which provides fingerprinting services using
the Company's biometric imaging products. The acquisition was accounted for as a
pooling of interests. Accordingly, the Company's fiscal 1996 consolidated
financial statements include the accounts and operations of IAS. For the periods
prior to fiscal 1996, the effects of the combination with IAS were not
significant, and the Company has not restated those years to include the
accounts and operations of IAS. On October 1, 1996, IAS was merged into Identix.
The business of IAS is now being conducted as the Company's Fingerprint Services
Division.
The statements in this report that relate to future plans, events, or
performance are forward-looking statements. Actual results, events and
performance may differ materially due to a variety of factors including the
factors described under "Factors That May Affect Future Results, Events, or
Performance" below. Readers are cautioned not to place undo reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
Revenues for the three month period ended September 30, 1996 were $12,076,000
compared to $7,592,000 for the same period in the prior fiscal year. The
increase in revenues of 59% for the three month period ended September 30, 1996
was due to increases in both the Company's products business revenues and
services business revenues.
- -----------------------------
(*) The Company's has adopted TouchNet II(TM), TouchSafe II(TM), TouchLock
II(TM), TouchClock II(TM), TouchBlock(TM), TouchPrint 600(TM), TouchView
II(TM), I3 Workstation(TM) and DocuColor(TM) as trademarks.
6
<PAGE> 9
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
The Company's net product revenues were $6,376,000 for the three month
period ended September 30, 1996 compared to $3,165,000 for the same period in
the prior fiscal year. The increase in net product revenues of 101% was due to
(i) increased shipments of the Company's TouchPrint products, (ii) the
inclusion of Fingerscan revenues which were generated from the sale of Bio-ID
products, and (iii) an increase in revenues generated by the Company's
Fingerprint Services Division. International sales accounted for $1,265,000 or
20% of the Company's net product revenues for the three month period ended
September 30, 1996 compared to $218,000 or 7% for the same period in the prior
fiscal year. The Company expects international sales to continue to represent a
significant portion of net product revenues, although the percentage may
fluctuate from period to period. The Company's international sales are
denominated in U.S. dollars except for sales by Fingerscan which are
denominated in Australian dollars. To date, transactions conducted in
currencies other than U.S. dollars have not presented significant exchange
exposure. Accordingly, the Company has not entered into any hedging
transactions. The Company monitors its foreign currency exchange exposure and
will take appropriate action to reduce foreign exchange risk, if significant.
One non-U.S. Government customer accounted for 16% of the Company's total
revenues for the three month period ended September 30, 1996 and a different
non-U.S. Government customer accounted for 15% of the Company's total revenues
for the three month period ended September 30, 1995.
The Company's services revenues were $5,700,000 for the three month period ended
September 30, 1996 compared to $4,427,000 for the same period in the prior
fiscal year. The increase in services revenues of 29% for the three month period
ended September 30, 1996 was due to increased contract revenues from both U.S.
Government and commercial clients. The majority of the Company's services
revenues are generated from contracts with the U.S. Government, principally the
Department of Defense ("DOD"). Revenues from the DOD and from other U. S.
Government agencies for the three month period ended September 30, 1996
accounted for 76% of the Company's total services revenues compared to 77% of
the Company's total services revenues for the same period in the prior fiscal
year.
The Company's services business generates a significant amount of its revenues
from cost plus fixed fee ("CPFF") contracts, which accounted for approximately
45% of its services revenues for both the three month period ended September 30,
1996 and the comparable period in the prior fiscal year. CPFF contracts provide
for the reimbursement of allowable costs, including indirect costs plus a fee or
profit. The Company's services business also generates revenue from
time-and-materials ("T&M") contracts and from firm fixed-price ("FFP")
contracts. During the three month periods ended September 30, 1996 and September
30, 1995, the Company derived approximately 34% and 43% of its services revenues
from T&M and FFP contracts, respectively. T&M contracts typically provide for
payment of negotiated hourly rates for labor incurred plus reimbursement of
other allowable direct and indirect costs. FFP contracts provide for a fixed
price for stipulated services or products, regardless of the costs incurred,
which may result in losses from cost overruns. In addition, revenues generated
from contracts with government agencies are subject to audit and subsequent
adjustment by negotiation between the Company and representatives of such
government agencies.
Gross margin on net product revenues was 47% for the three month period ended
September 30, 1996 as compared to 47% for the same period in the prior fiscal
year.
Gross margin on services revenues was 18% for the three month period ended
September 30, 1996 as compared to 17% for same period in the prior fiscal year.
7
<PAGE> 10
IDENTIX INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
Research, development and engineering expenses were $452,000 or 7% of
net product revenues for the three month period ended September 30, 1996,
compared to $336,000 or 11% for the same period in the prior fiscal year. In
addition, for the three month periods ended September 30, 1996 and September
30, 1995, research, development and engineering expenditures funded by
customers were $125,000 and $29,000, respectively. The increase in research,
development and engineering expenses in absolute dollars was primarily due to
the inclusion of research, development and engineering expenses incurred by
Fingerscan to develop and maintain certain Bio-ID products. The Company
believes that investment in research and development is critical to maintaining
a strong technological position in the industry and therefore expects research,
development and engineering expenses to continue to increase in absolute
dollars in the future fiscal 1997 quarters.
Marketing and selling expenses were $1,625,000 or 13% of total revenues
for the three month period ended September 30, 1996, compared to $883,000 or
12% of total revenues for the same period in the prior fiscal year. The
increase in marketing and selling expenses was primarily due to the inclusion
of Fingerscan's marketing and selling expenses and increased staffing and
expenses (i) to promote the Company's products and services, (ii) to expand its
customer service organization and (iii) to expand international sales and
distribution.
General and administrative expenses were $1,737,000 or 14% of total
revenues for the three month period ended September 30, 1996, compared to
$905,000 or 12% of total revenues for the same period in the prior fiscal year.
The increase in general and administrative expenses was primarily due to (i)
litigation reserves and expenses of $328,000 related to a patent infringement
lawsuit filed by a competitor and a class action lawsuit filed against the
Company (see Note 4 of Notes to Consolidated Financial Statements), (ii) the
additional administrative expenses related to the operations of Fingerscan and
(iii) an increase in staffing and other related administrative expenses.
Net interest expense was $51,000 for the three month period ended September 30,
1996 compared to net interest income of $40,000 for the same period in the prior
fiscal year. The difference was due to increased borrowing under the Company's
lines of credit and lower cash balances for temporary investment during the
three month period ended September 30, 1996 compared to the same period in the
prior fiscal year.
Other expense was $9,000 for the three month period ended September 30, 1996
compared to $10,000 for the same period in the prior fiscal year.
During the three month period ended September 30, 1996, the weighted average
interest rate paid by the Company on its line of credit (the "Identix Line of
Credit") was 8.75%. The weighted average interest rate paid by ANADAC on its
bank line of credit (the "ANADAC Line of Credit") during the three month period
ended September 30, 1996 was 8.25%.
The provision for income taxes consists primarily of federal alternative minimum
tax and state taxes. The rate is substantially below the federal statutory rate
due to the utilization of federal net operating loss carryforwards for which no
benefit has previously been taken.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its operations during the three months ended September 30,
1996 primarily from its existing working capital at June 30, 1996 and borrowings
under the Identix Line of Credit and the ANADAC Line of Credit. As of September
30, 1996, the Company's principal sources of liquidity consisted of $14.6
million of working capital including $205,000 in cash and cash equivalents, the
Identix Line of Credit and the ANADAC Line of Credit.
8
<PAGE> 11
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
At September 30, 1996, the Identix Line of Credit which expired on October 4,
1996, allowed for borrowing up to $3.0 million and bore interest at the bank's
prime rate of interest (8.25% at September 30, 1996) plus 0.5% per annum. Under
this line of credit, the Company could borrow up to 80% of eligible accounts
receivable. At September 30, 1996, $1,700,000 was outstanding and $401,000 was
available under the Identix Line of Credit. On October 4, 1996, the Company
entered into a new line of credit agreement (the "New Identix Line of Credit")
with the same bank which expires October 3, 1997. The New Identix Line of Credit
allows for borrowings up to $5.0 million against qualified accounts receivable
and bears interest at the bank's prime rate of interest. The New Identix Line of
Credit agreement contains financial and operating covenants, including
restrictions on the Company's ability to pay dividends on the Company's common
stock.
The ANADAC Line of Credit is a $4,000,000 bank line of credit secured by
ANADAC's accounts receivable and certain other assets. Under the ANADAC Line of
Credit, ANADAC may borrow against qualified accounts receivable. Amounts drawn
bear interest at the bank's prime rate of interest. The line of credit expired
on October 31, 1996. At September 30, 1996, $2,453,000 was outstanding and
$1,534,000 was available under the ANADAC Line of Credit. The ANADAC Line of
Credit agreement contains financial and operating covenants. ANADAC has
negotiated a new line of credit with the same bank with substantially the same
terms described above. This line of credit expires on October 31, 1997.
Net cash used for operating activities during the three months ended September
30, 1996 was $2,360,000, due primarily to finance increases in accounts
receivable of $3,058,000 and decreases in accounts payable of $569,000. These
uses of cash for operating activities were offset, in part, by a decrease in
inventories of $792,000. The increase in accounts receivable was due primarily
to (i) the Company extending payment terms on a contract with a prime contractor
similar to those that the prime contractor has with its customer, and (ii)
delays in payment on accounts receivable from certain government agencies. The
decrease in inventories was due primarily to sales of certain inventory during
the three month period ended September 30, 1996 that was purchased and/or
produced prior to June 30, 1996 for sales that were expected to occur prior to
June 30, 1996.
Net cash used in investing activities during the three months ended September
30, 1996 was $874,000 comprised of purchases of property and equipment and
additions to intangibles and other assets of $629,000 and $245,000,
respectively.
Net cash provided by financing activities during the three months ended
September 30, 1996 was $2,434,000 related primarily to net borrowings against
the Company's lines of credit.
Identix did not have any material capital expenditure commitments as of
September 30, 1996.
The Company believes that cash flow from operations, together with existing
working capital and two bank lines of credit maintained by the Company, will be
adequate for the Company's cash requirements for fiscal 1997. However, the
Company may need to obtain additional financing prior to June 30, 1997. There
can be no assurance that the Company would be able to obtain such financing or
that the terms of such financing would be favorable to the Company.
FACTORS THAT MAY AFFECT FUTURE RESULTS, EVENTS OR PERFORMANCE
The Company's future operations, financial performance, business and share price
may be affected by a number of factors, including the following, any of which
could cause actual results to vary materially from anticipated results or from
those expressed in any forward-looking statements made by the Company in this
Report on Form 10-Q for the three months ended September 30, 1996, or in other
reports, press releases or other statements issued from time to time.
9
<PAGE> 12
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
FLUCTUATIONS IN QUARTERLY RESULTS; HISTORY OF LOSSES
The Company's quarterly operating results have in the past been, and will
continue to be, subject to significant variations resulting from a number of
factors, many of which are outside of the Company's control and any one of which
could substantially affect the Company's results of operations for any
particular fiscal period. The Company's revenues in any period have been, and in
the near term are expected to be, derived from large orders from a limited
number of customers, which in most cases are government agencies or resellers
who sell the Company's products to government agencies. Accordingly, revenues in
a particular quarter will be dependent upon the timing and size of major orders
and the timing of recognition of revenues from those orders. Government agencies
are subject to political and budgetary constraints and orders from them may be
canceled or substantially delayed or the receipt of revenues or payments
substantially delayed due to political and budgetary processes or other
scheduling delays relating to the contract or bidding process. In addition, the
Company's contracts with local government agencies may be contingent upon
availability of matching funds from state or federal entities. Other factors
which can result in fluctuations in quarterly results of operations include
budgetary and purchasing cycles of government agencies; changes in the mix of
products and services sold; the pricing of existing and future products by the
Company's competitors; the introduction of new or enhanced products by the
Company or its competitors and the market acceptance thereof; expenses related
to, and results of, litigation; percentage of and costs associated with FFP
contracts and T&M contracts; the availability and cost of key components; and
fluctuations in general economic conditions. The Company also may choose to
reduce prices or to increase spending in response to competition or to pursue
new market opportunities, all of which may adversely affect the Company's
business, financial condition and results of operations. Further, the lead time
for ordering parts and materials and building the Company's products can be many
months and the Company orders parts and materials and builds products based on
its forecasted demand for the products. If demand for the Company's products
lags significantly behind the Company's forecasts, the Company runs the risk of
building too large an inventory, which may adversely affect cash flow and may
result in write-offs or write-downs of inventory because of product
obsolescence. Due to the foregoing factors, the Company's operating results may
be below the expectations of public market analysts and investors in some future
quarters, which would likely result in a decline in the trading price of the
Common Stock. The Company believes that period-to-period comparisons of its
results of operations should not be relied upon as indications of future
performance.
At September 30, 1996, the Company had an accumulated deficit of
approximately $30.4 million. The Company experienced net losses in each year
since inception, including a net loss of approximately $3.4 million for the
fiscal year ended June 30, 1996 which included a $4.7 million write-off of
in-process research and development acquired when the Company purchased
Fingerscan on March 26, 1996. There can be no assurance that the Company will
be able to achieve profitability in any future periods.
CURRENTLY PENDING LITIGATION
The Company is currently a defendant in a securities class action lawsuit and
in a patent infringement lawsuit (see Note 4 of Notes to Consolidated Financial
Statements). The Company is defending these matters vigorously. However, there
can be no assurance that the Company will be successful in defending such
actions. Adverse results from such litigation would have a material adverse
effect on the Company's business, financial condition and results of operations.
Even if the Company is successful in its defense of both of these actions, the
costs of such defense have been, and may continue to be, substantial and the
lawsuits have diverted the attention of the Company's management and technical
personnel.
10
<PAGE> 13
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
DEPENDENCE UPON NEW AND UNCERTAIN MARKETS; UNCERTAINTY OF MARKET ACCEPTANCE
Substantially all of the Company's product revenues to date have been, and for
the foreseeable future are anticipated to be, derived from Bio-ID products and
biometric imaging products. These products represent new technologies which have
not gained widespread commercial acceptance. In particular, Bio-ID products
represent a new approach to identity verification which has only been used in
very limited applications to date. The expansion of the market for the Company's
products depends on a number of factors, including the cost and reliability of
the Company's products and products of competitors, customers' perception of the
perceived benefits of these products, public perceptions of the intrusiveness of
these products and the manner in which agencies are using the fingerprint
information collected, public confidence as to confidentiality of private
information, customers' satisfaction with the Company's products, and publicity
regarding these products. Public objections have been raised to the use of
biometric imaging products for some applications on civil liberties grounds. The
Company's future success is dependent upon the development and expansion of
markets for Bio-ID products and biometric imaging products both domestically and
internationally. In addition, even if markets develop for Bio-ID products and
additional markets develop for biometric imaging products, there can be no
assurance that the Company's products will gain wide market acceptance. A number
of factors may limit the market acceptance of the Company's products, including
the performance and price of the Company's products compared to competitive
products or technologies, the practicalities of developing the infrastructure
necessary to support certain Bio-ID applications such as ATMs and point-of-sale
applications, the nature of technological innovations and new product
development activities by the Company and its competitors, and the extent of
marketing efforts by the Company's collaborators or partners. If the markets for
the Company's products fail to develop or develop more slowly than anticipated
or if the Company's products fail to gain wide market acceptance, the Company's
business, financial condition and results of operations would be materially and
adversely affected.
COMPETITION AND TECHNOLOGICAL CHANGE
The markets for Bio-ID products and biometric imaging systems are extremely
competitive and are characterized by rapid technological change, both as a
result of technical developments exploited by competitors, the changing
technical needs of the customers and frequent introductions of new features. In
addition, the Company is experiencing intense price competition in the law
enforcement market and, to a lesser extent, price competition in the markets
where the Company sells its Bio-ID products. The Company expects competition to
increase as other companies introduce additional and more competitive products.
In order to compete effectively in this environment, the Company must
continually be able to develop and market new and enhanced products and market
those products at competitive prices. There can be no assurance that the Company
will be able to make the technological advances necessary to compete
successfully in its products business. Some of the Company's present and
potential competitors have financial, marketing and research resources
substantially greater than those of the Company. Existing and new competitors
may enter or expand their efforts in the Company's product markets, or develop
new products to compete against the Company's products. No assurance can be
given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or performance features or that new products or technologies will
not render obsolete the products of the Company. For example, other companies
are currently developing other methods of biometric identification such as hand
geometry, voice recognition, signature recognition or retina scanning, which
could significantly reduce the potential market for the Company's products if
successfully developed and commercialized. Some of these products have been
brought to market. The Company believes that to remain competitive in the
future it will need to invest increasing financial resources in research and
development. The Company's Bio-ID products also face competition from
non-biometric technologies such as traditional key, card and surveillance
systems, PINs, passwords and similar traditional verification methods.
In its services business, the Company faces substantial competition from
professional services providers of all sizes in the government professional
services market. ANADAC is increasingly being required to bid on FFP and similar
contracts that result in greater performance risk to ANADAC. If ANADAC is not
able to maintain a competitive cost structure, support specialized market
niches, retain its highly qualified personnel or align with technology leaders,
its ability to compete successfully will be materially and adversely affected.
11
<PAGE> 14
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS
The Company's future success will depend upon its ability to address the needs
of the market by enhancing its current products and by developing and
introducing new products on a timely basis that keep pace with technological
developments and emerging industry standards (including FBI accreditation
standards), respond to evolving customer requirements and achieve market
acceptance. The development of new, technologically-advanced products and
product enhancements is a complex and uncertain process requiring high levels of
innovation, as well as the accurate anticipation of technological and market
trends. Any failure by the Company to anticipate or adequately respond to
technological developments or end user requirements, or any significant delays
in product development or introduction, could result in a loss of
competitiveness or a decline in revenue. There can be no assurance that the
Company will be successful in developing and marketing product enhancements or
new products on a timely basis if at all, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and sale of these products, or that any of its new products and
product enhancements will adequately meet the requirements of the marketplace
and achieve market acceptance. If the Company is unable, for technological or
any other reason, to develop, introduce and sell its products in a timely
manner, the Company's business, financial condition and results of operations
would be materially and adversely affected. In addition, because a number of the
Company's biometric imaging products and Bio-ID products are incorporated into
systems marketed by other companies, or are co-marketed together with other
products or services sold by other companies, the failure to introduce products
in a timely manner may cause such companies to seek alternative suppliers or
marketing partners. From time to time, the Company or its present or future
competitors may announce new products, capabilities or technologies that have
the potential to replace the Company's existing products. There can be no
assurance that announcements of currently planned or other new products will not
cause customers to delay or alter their purchasing decisions in anticipation of
such products, which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, new
product introductions may contribute to fluctuations in quarterly operating
results or result in the early obsolescence of the Company's products, because
customers may forego ordering the Company's existing products. If the Company's
new products have reliability or quality problems, the Company may experience
reduced orders, higher manufacturing costs, delays in collecting accounts
receivable and additional service and warranty expense.
UNCERTAINTY RELATED TO CONTRACTS FOR SERVICES WITH GOVERNMENT AGENCIES
During the fiscal year ended June 30, 1996 and the three month period
ended September 30, 1996, the Company's services business derived approximately
75% and 76%, respectively, of its revenue from contracts relating to the DOD
and other U.S. Government agencies. Because of downsizing in certain government
programs, the Company has been expanding its services business to other
targeted government agencies and commercial organizations, but there can be no
assurance that the results of these efforts will be substantial enough to
offset any decline in revenue from government programs that have been
downsizing. There can be no assurance that the Company's services business will
not be adversely affected by further downsizing in the government agencies to
which the Company currently provides services.
During the fiscal year ended June 30, 1996 and the three month period
ended September 30, 1996, the Company derived approximately 41% and 34%,
respectively, of services revenues from T&M and FFP contracts. T&M
contracts typically provide for payment of negotiated hourly rates for labor
incurred plus reimbursement of other allowable direct and indirect costs. FFP
contracts provide for a fixed price for stipulated services or products,
regardless of the costs incurred, which may result in losses from cost
overruns. The Company assumes greater performance risk on FFP and T&M contracts
and the failure to estimate accurately ultimate costs or to control costs
during performance of the work can result in reduced profit margins or losses.
There can be no assurance that the Company's services business will not incur
such overruns for any FFP and T&M contracts it is awarded. In addition,
revenues generated from contracts with government agencies are subject to audit
and subsequent adjustment by negotiation between the Company and
representatives of such government agencies. If such revenues are audited,
there can be no assurance that no adjustments would be made and that such
adjustments would not have a material adverse effect on the Company's business,
financial condition and results of operations.
12
<PAGE> 15
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
OTHER PUBLIC AGENCY CONTRACT CONSIDERATIONS
A majority of the Company's revenues are derived from the sale of products and
services to governmental agencies or OEMs who sell products to government
agencies. Government agencies frequently require provisions in contracts that
are not standard in private commercial transactions, such as bonding
requirements and provisions permitting the purchasing agency to cancel the
contract without penalty if funding for the contract is no longer available or
is not obtained. As public agencies, the Company's prospective customers are
also subject to public agency contract requirements which vary from jurisdiction
to jurisdiction. Future sales to public agencies will depend on the Company's
ability to meet public agency contract requirements, certain of which may be
onerous or even impossible for the Company to satisfy. In addition, public
agency contracts are frequently awarded only after formal competitive bidding
processes, which have been and may continue to be protracted, and typically
contain provisions that permit cancellation in the event that funds are
unavailable to the public agency. There can be no assurance that the Company
will be awarded any of the contracts for which its products are bid or, if
awarded, that substantial delays or cancellations of purchases will not result
from protests initiated by losing bidders.
DEPENDENCE ON COLLABORATIVE PARTNERS FOR PRODUCT DISTRIBUTION
The Company's strategy for the distribution of certain of its products requires
entering into various arrangements with corporate collaborators. These
agreements often are of short duration, terminable with little or no notice, and
subject to periodic amendment. Although the Company believes that its
collaborative partners and the systems integrators with which it works have an
economic motivation to promote or use the Company's products, the amount and
timing of resources to be devoted to these activities are not within the control
of the Company. There can be no assurance that such parties will actively
promote the Company's products or pursue installations which use the Company's
equipment, that any distribution or other arrangements with the Company will not
be terminated or renegotiated or that the Company will derive any revenues from
such arrangements. The Company intends to continue to seek collaborative
arrangements to commercialize certain of its products. There can be no assurance
that the Company will be able to negotiate acceptable collaborative arrangements
in the future or that current or future collaborative arrangements will be
successful.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
Approximately 20% and 13% of the Company's net product revenues were for foreign
installations for the three month period ended September 30, 1996 and the fiscal
year ended June 30, 1996, respectively. A key component of the Company's
strategy is to continue expansion into international markets. There can be no
assurance that the Company will be able to market, sell and deliver its products
in these foreign countries. In addition to the uncertainty as to the Company's
ability to expand its international presence, there are certain risks inherent
in foreign operations, including longer accounts receivable payment cycles in
certain countries, general economic conditions in each country, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world, delays in or prohibitions on exporting products
resulting from export restrictions for certain technologies (such as encryption
technology), fluctuations in foreign currencies, fluctuations in the U.S.
Dollar which can increase the sales price of the Company's products in local
currencies, loss of revenue, property and equipment from expropriation,
nationalization, war, insurrection, terrorism and other political risks, the
overlap of different tax structures, risks of increases in taxes and other
government fees and involuntary renegotiation of contracts with foreign
governments. The Company is also at risk from changes in foreign and domestic
laws, regulations and policies governing foreign operations. There can be no
assurance that laws or administrative practice relating to taxation, foreign
exchange or other matters of countries within which the Company operates or
will operate will not change. Any such change could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, the laws of foreign countries treat the protection of
proprietary rights differently from, and may not protect the Company's
proprietary rights to the same extent as, laws in the United States.
13
<PAGE> 16
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
DEPENDENCE ON LARGE ORDERS BY CUSTOMERS
The Company's revenues have principally consisted, and will continue to consist
principally, of large orders from a limited number of customers. While the
individual customers may vary from period to period, the Company is nevertheless
dependent upon these large orders for a substantial portion of its total
revenues. There can be no assurance that the Company will be able to obtain
large orders on a consistent basis. The Company's inability to obtain sufficient
large orders would have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, the timing and shipment
of such orders may cause the operating results of the Company in any given
quarter to differ from projections of securities analysts, which could adversely
affect the trading price of the Company's common stock. Losses arising from
customer disputes regarding shipping schedules, product condition or
performance, or the Company's inability to collect accounts receivable from any
major customer could also have a material adverse effect on the Company's
business, financial condition and results of operations.
Orders for the Company's biometric imaging products are often subject to delays
associated with the lengthy approval processes that typically accompany large
capital expenditures by government agencies. The Company's total revenues depend
in significant part upon the decision of a government agency to adopt and
integrate the Company's systems, which often involves a significant capital
commitment as well as significant future support costs. Similar delays may also
be experienced from government agencies procuring the Company's services. The
Company often has a lengthy sales cycle while the customer evaluates and
receives approvals for the purchase of the Company's products or services. Any
significant failure by the Company to receive an order after expending
significant funds and effort could have a material adverse effect on its
business, financial condition and results of operations. It may be difficult to
accurately predict the sales cycle of any large order. In the event one or more
large orders fail to be shipped as forecasted for a fiscal quarter, the
Company's total revenues and operating results for such quarter could be
materially and adversely affected. In addition, even if the Company receives
such an order, the order may be contingent upon availability of matching funds
from state or federal entities or may be canceled or receipt of revenues may be
substantially delayed due to political and budgetary processes.
RISK OF PRODUCT DEFECTS AND FAILURE TO MEET PERFORMANCE CRITERIA
Complex products such as those offered by the Company may contain undetected or
unresolved defects or may fail initially to meet customers' performance criteria
when first introduced or as new versions are released. There can be no assurance
that, despite testing by the Company, defects or performance flaws will not be
found in new products or new versions of products following commercial release
or that performance failures will not result, causing loss of market share,
delay in or loss of market acceptance, additional warranty expense or product
recall. In addition, the failure of products to meet performance criteria could
result in delays in recognition of revenue and higher operating expenses during
the period required to correct such defects. There is a risk, that for
unforeseen reasons, the Company may be required to repair or replace a
substantial number of products in use or to reimburse persons for products that
fail to work or meet strict performance criteria. Any such occurrence could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company does carry product liability insurance, but
there can be no assurance that existing coverage is adequate for current
operations or will be adequate for future operations. The Company's business
could be adversely affected by the assertion of product liability claims.
PROTECTION OF PROPRIETARY TECHNOLOGY
The Company's ability to compete effectively will depend in part on its ability
to maintain the proprietary nature of its technology, products and manufacturing
processes. The Company principally relies upon patent, copyright, trade secret
and contract law to establish and protect its proprietary rights. The success of
the Company's products business will depend in part on its proprietary
technology and the Company's protection of such technology. The Company holds
United States and foreign patents covering certain of its products and
technologies and has other patent applications pending. No assurance can be
given that the claims allowed on any patents held by the Company will be
sufficiently broad to protect the Company's technology. In addition, no
assurance can be given that any patents issued to the Company will not be
challenged,
14
<PAGE> 17
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
invalidated or circumvented or that the rights granted thereunder will
provide competitive advantages to the Company. The loss of patent protection on
the Company's technology or the circumvention of its patent protection by
competitors could have a material adverse effect on the Company's ability to
compete successfully in its products business. There can be no assurance that
any existing or future patent applications by the Company will result in issued
patents with the scope of the claims sought by the Company, or at all, that any
current or future issued or licensed patents, trade secrets or know-how will
afford sufficient protection against competitors with similar technologies or
processes, or that any patents issued will not be infringed upon or designed
around by others. In addition, there can be no assurance that others will not
independently develop proprietary technologies and processes which are the same
as or substantially equivalent or superior to those of the Company. Further,
there can be no assurance that the Company has not or will not infringe prior
or future patents owned by others, that the Company will not need to acquire
licenses under patents belonging to others for technology potentially useful or
necessary to the Company, or that such licenses will be available to the
Company, if at all, on terms acceptable to the Company. Litigation, which could
result in substantial cost to the Company and diversion of management
attention, may also be necessary to enforce any patents issued to the Company
or to determine the scope and validity of other parties' proprietary rights.
For example, the Company is engaged in litigation with Digital Biometrics
Incorporated ("DBI") regarding an alleged infringement by the Company of a DBI
patent (see Note 4 of Notes to Consolidated Financial Statements). If the
outcome of any such litigation is adverse to the Company, its business could be
adversely affected. To determine the priority of inventions, the Company may
have to participate in interference proceedings declared by the United States
Patent and Trademark Office or oppositions in foreign patent offices, which
could result in substantial cost to the Company and limitations on the scope or
validity of the Company's patents. The Company also relies on trade secrets and
proprietary know-how which it seeks to protect by confidentiality agreements
with its employees and consultants and with third parties. There can be no
assurance that these agreements will not be breached, that the Company will
have adequate remedies for any breach, or that its trade secrets and
proprietary know-how will not otherwise become known or be independently
discovered by others.
RISKS ASSOCIATED WITH MANAGING EXPANSION OF OPERATIONS
The Company has experienced significant growth in recent years and believes that
in order to be successful it must continue to grow rapidly. In order to grow
rapidly, the Company will be required to expand, train and manage its employee
base, particularly skilled technical, marketing and management personnel. Rapid
growth will also require an increase in the level of responsibility for both
existing and new management and will require the Company to implement and
improve operational, financial and management information procedures and
controls. The Company competes with some of the major technology, consulting and
software companies in seeking to attract qualified personnel. There can be no
assurance that the management skills and systems currently in place will be
adequate or that the Company will be able to manage any significant growth it
experiences effectively and to hire or assimilate new personnel necessary to
pursue its growth strategy. Any failure to adequately manage growth could
materially and adversely affect the Company's business, financial condition and
results of operations.
DEPENDENCE UPON SOLE AND LIMITED SOURCES OF SUPPLY; RISKS ASSOCIATED WITH
IMPLEMENTATION OF LARGER SCALE MANUFACTURING CAPABILITIES
Certain of the components included in the Company's products are obtained from a
single source or a limited group of suppliers, the most important of which are
the charge coupled devices and ASICs for the Bio-ID products and the charge
coupled devices for the biometric imaging products. The Company has no long term
agreements with any of its suppliers. Although the Company seeks to reduce
dependence on these sole and limited sources of suppliers, the partial or
complete loss of certain of these sources or the delay in receiving supplies
from these sources could result in delays in manufacturing and shipping of
products to customers and require the incurrence of development and other costs
to establish alternative sources of supply. While the Company attempts to
maintain a few months worth of inventory on sole sourced components, it may take
the Company several months to locate alternative suppliers if required, and/or
to re-tool its products to accommodate components from different suppliers. If
the Company is required to seek alternative suppliers, there can be no assurance
that the Company will be able to obtain such components within the time frames
required by the Company at an affordable cost, or at all. Any delays resulting
from suppliers failing to deliver components on a timely basis in sufficient
15
<PAGE> 18
IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
quantities and of sufficient quality or any significant increase in the price of
components from existing or alternative suppliers could have a material adverse
effect on the Company's business, financial condition and results of operations.
Historically, the volume of the Company's production requirements for the law
enforcement and public sectors has not placed significant capacity constraints
on the Company's manufacturing and assembling capabilities. However, as the
Company begins to market its products for potentially larger volume commercial
applications such as time-and-attendance and computer database security, the
Company may be required to fulfill larger orders in a short period of time and
to implement measures to decrease product costs. There can be no assurance that
the Company will be able to scale-up its manufacturing and assembling capacities
to fulfill such orders and to decrease manufacturing costs. Any failure by the
Company to implement higher volume manufacturing or reduce product costs for
commercial applications could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS
As part of its business strategy, the Company intends to acquire assets and
businesses principally relating to or complementary to its current operations.
The Company acquired Fingerscan in March 1996 and IAS in June 1996. These and
any other acquisitions by the Company will be accompanied by the risks commonly
encountered in acquisitions of companies. Such risks include, among other
things, potential exposure to unknown liabilities of acquired companies or to
acquisition costs and expenses exceeding amounts anticipated for such purposes;
fluctuations in the Company's quarterly and annual operating results due to the
costs and expenses of acquiring and integrating new businesses; the difficulty
and expense of assimilating the operations and personnel of the companies; the
potential disruption of the Company's ongoing business and diversion of
management time and attention; the inability of management to maximize the
Company's financial and strategic position by the successful incorporation of
acquired technology; the maintenance of uniform standards, controls, procedures
and policies; the impairment of relationships with and possible loss of key
employees and customers as a result of changes in management; the incurrence of
amortization expenses if an acquisition is accounted for as a purchase; and
dilution to the shareholders of the Company if the consideration for the
acquisition consists of stock. In addition, the difficulty of integrating
certain companies may be increased by geographic distances. There can be no
assurance that the Company will be successful in overcoming these risks or any
other problems encountered in connection with such acquisitions.
DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL
The Company's success will depend upon its ability to retain its current senior
management team and key technical, marketing and sales personnel and its ability
to identify, attract and retain additional highly qualified personnel. The
Company's employees may voluntarily terminate their employment with the Company
at any time, and competition for qualified employees, especially engineers, is
intense. The process of locating additional personnel with the combination of
skills and attributes required to carry out the Company's strategy is often
lengthy. The loss of the services of key personnel, or the inability to attract
additional qualified personnel, could have a material adverse effect on the
Company's business, financial condition and results of operations.
VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price and volume
fluctuations that may be unrelated to the operating performance of particular
companies. In addition, the market price of the Company's common stock, like
the stock prices of many technology companies, has been, and may continue to be,
highly volatile. Variations in quarterly operating results, the timing and
volume of procurements for the Company's products and services, announcements of
technological innovations or new products or services by the Company or by the
Company's competitors, announcements regarding product pricing by the Company or
its competitors, failure of the Company to meet earnings or revenue projections
of market analysts, the commencement of litigation, the developments in or
outcome of any litigation, developments in patent or other proprietary rights,
and economic and other external factors, among other factors, may have a
material adverse effect on the market price of the Company's common stock.
16
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IDENTIX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED . . .
SHARE HOLDINGS OF ASCOM HOLDING
As of September 30, 1996, Ascom USA Inc. ("Ascom"), beneficially owned
approximately 22% of the outstanding common stock. This concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company. The Company is a party to a Voting Trust Agreement ("Voting Trust
Agreement") with Ascom whereby Ascom has deposited all of its 5,418,224 shares
of the Company's common stock ("Voting Stock") into a voting trust ("Voting
Trust"). The Trustee has voting control of the Voting Stock. The Voting Trust
Agreement expires in 2004. Ascom has preemptive rights with respect to
issuances of the Company's securities and registration rights with respect to
the securities it holds. The Company's ability to obtain additional financing on
favorable terms in the future may be adversely affected by the existence of
these preemptive rights and registration rights.
17
<PAGE> 20
IDENTIX INCORPORATED
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in a class action
lawsuit which was filed in October 1996 in the United States
District Court for the Northern District of California. Certain
executive officers of the Company are also named as defendants.
The plaintiff purports to represent a class of all persons who
purchased the Company's common stock between January 31, 1996
and August 26, 1996 (the "Class Period"). The complaint alleges
claims under the federal securities laws. The plaintiff alleges
that the Company and certain of its executive officers made
false and misleading statements regarding the Company that
caused the market price of its common stock to be "artificially
inflated" during the Class Period. The complaint does not
specify the amount of damages sought. The Company and its
officers deny the allegations and will vigorously defend
against this action.
On May 31, 1995, Digital Biometrics, Inc. ("DBI"), a
competitor, filed a lawsuit in the United States District Court
in the Northern District of California against the Company
alleging that certain of the Company's TouchPrint products
violate a DBI patent and seeking injunctive relief and
unspecified damages. The lawsuit has no implication for other
Identix products. The Court has granted the Company's motion
that the TouchPrint 600 does not infringe the patent. The
remaining issue in the case is whether the Company's TouchPrint
900 product, which is the predecessor of the TouchPrint 600 and
is no longer in production, infringes the patent. The Company is
defending this matter vigorously and believes that it is
unlikely that the outcome of this lawsuit will have a material
adverse effect on the Company's financial position or results of
operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
10.22 The Fourth Amendment to Lease Agreement
Dated June 15, 1988 for the Company's
corporate offices and manufacturing facility
10.23 Security and Loan Agreement between the
Company and Imperial Bank dated October 4,
1996
11.1 Statement of Computation of Earnings Per
Share
27.1 Financial Data Schedule
(b) On August 27, 1996, the Company filed a report on
Form 8-K related to a press release issued on August
26, 1996. The press release stated that the Company
has made changes in the application of its revenue
recognition policy for certain Law Enforcement
contracts and has restated its revenues and earnings
for its fiscal quarters ended December 31, 1995,
March 31, 1996 and June 30, 1996.
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<PAGE> 21
IDENTIX INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IDENTIX INCORPORATED
November 14, 1996
BY: /s/James P. Scullion
----------------------------
James P. Scullion
Executive Vice President,
Chief Financial Officer and Secretary
19
<PAGE> 22
EXHIBIT INDEX
Exhibit
Number Description
10.22 The Fourth Amendment to Lease Agreement
Dated June 15, 1988 for the Company's
corporate offices and manufacturing facility
10.23 Security and Loan Agreement between the
Company and Imperial Bank dated October 4,
1996
11.1 Statement of Computation of Earnings Per
Share
27.1 Financial Data Schedule
<PAGE> 1
Exhibit 10.22
THIS FOURTH AMENDMENT TO LEASE is dated for reference purposes only as
February 9, 1996, and is part of that Lease dated June 15, 1988 together with
the Lease Amendment Number 1 dated August 18, 1993; Amendment Number 2 dated
June 7, 1994; and the Third Amendment To Lease dated September 13, 1994 thereto
(collectively, the "Lease") by and between CALIFORNIA STATE TEACHERS'
RETIREMENT SYSTEM, a retirement system created pursuant to the laws of the
State of California ("Landlord"), and IDENTIX, INC. a California corporation
("Tenant"), and is made with reference to the following facts:
A. The Premises currently leased by Tenant pursuant to the Lease
consists of 20,000 rentable square feet commonly known as 510 North Pastoria,
City of Sunnyvale, California.
B. The Lease Term for said Premises currently expires on March 31,
1996.
C. Tenant and Landlord have agreed to expand the square footage of
said Premises by 20,000 rentable square feet incorporated herein by reference
as the "Expansion Space".
D. Tenant and Landlord have agreed to extend the Term of the Lease.
NOW THEREFORE, Landlord and Tenant hereby agree that the Lease shall be
amended as follows:
1. Premises: Paragraph 2 is hereby amended to provide for the
Expansion Space of 20,000 rentable square feet in a free-standing Building
located at 685 West Maude Avenue, Sunnyvale resulting in a total of 40,000
rentable square feet. Expansion Space together with the original Premises shall
be deemed the "Premises".
2. Lease Term: Paragraph 4 is hereby amended to provide that the Lease
Term shall be for a period of sixty (60) calendar months (plus the partial
month following the Commencement Date if such date is not the first day of a
month).
3. Monthly Rent: Starting on the Commencement Date, Paragraph 5 is
hereby amended to provide for the Monthly Rent as follows:
Months 1-30: $32,000.00 per month
Months 31-60: $33,600.00 per month
4. Tenant Improvement Allowances:
A. The term "First Level Tenant Improvement Allowance" shall mean
the maximum amount Landlord is required to spend toward the payment of Interior
Improvement Costs for all Interior Improvements constructed in the Premises,
which amount is $260,000.00 (i.e., $6.50 per square foot within the entire
Premises).
B. A second level Tenant Improvement Allowance ("Second Level
Tenant Improvement Allowance") of $140,000.00 (i.e., $3.50 per square foot
within the entire Premises) shall be made available for an increase in the Base
Monthly Rent as provided for in paragraph 5 of this Amendment.
C. The First Level Tenant Improvement Allowance plus the Second
Level Tenant Improvement Allowance shall be termed the "Total Tenant
Improvement Allowance" consisting of $400,000.00 (i.e., $10.00 per square foot
within the entire Premises).
5. Adjustments to the Monthly Rent: The Monthly Rent as provided for in
Paragraph 5 of the Lease shall be adjusted as follows:
<PAGE> 2
A. For every increment of $40,000.00 (i.e., $1.00 per square
foot of Area), or proportion thereof to the Second Level Tenant Improvement
Allowance spent for the payment of the Interior Improvement Costs as defined in
Exhibit B, "Interior Improvement Agreement", the Monthly Rent shall increase
$0.0212 per square foot per month. As an example, if $60,000.00 of Second Level
Tenant Improvement Allowance is spent, the Monthly Rent shall increase $0.0318
per square foot per month.
B. No credit in the Monthly Rent shall be made if a portion of
the First Level Tenant Improvement Allowance is not spent.
6. SECURITY DEPOSIT AND CALCULATION OF FINAL PAYMENT:
A. Paragraph 1 of the Addendum 1 of the Lease is hereby
deleted, and Tenant shall deposit with Landlord upon signature hereon the sum
of $33,600.00 in cash as non-interest bearing security for the performance by
Tenant of its obligations under the Lease. If Tenant defaults with respect to
any provision of the Lease, Landlord may apply all or any part of the Security
Deposit for the payment of any Rent or other sum in default, the repair of such
damage to the Premises or the payment of any other amount which Landlord may
spend or become obligated to spend by reason of Tenant's default or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default to the full extent permitted by law. If any portion
of the Security Deposit is so applied, Tenant shall, within ten (10) days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount, and Tenant's failure to do
so shall be a default under this Lease. If Tenant is not otherwise in default,
the Security Deposit or any balance thereof shall be returned to Tenant within
thirty (30) days of termination of the Lease.
B. Upon execution of Exhibit D ("Acceptance Agreement") as
provided for in Paragraph 8 of Exhibit B hereto, Tenant shall increase the
Security Deposit to an amount equal to the last month's Monthly Rent, as those
amounts are finally calculated as provided for in Paragraph 5 herein.
7. COMMENCEMENT DATE: The Commencement Date of the Lease Term shall be
the day after Substantial Completion of the Interior Improvements as defined in
Paragraph 2D of Exhibit B to this Amendment. However, subject to delays caused
by Landlord or force majeure, in no event shall the Commencement Date be later
than sixty (60) days after the full execution of this Fourth Amendment To
Lease. Tenant shall have the right upon written notice to Landlord to terminate
this Lease if the Interior Improvements as provided for in Exhibit B to this
Amendment are not Substantially Completed within six (6) months after the full
execution of this Amendment if such delay is caused solely by Landlord.
8. HVAC REPAIRS: Prior to the Commencement Date, Landlord at Landlord's
sole cost, shall pay the $4,278.00 cost of repairs on the HVAC system for both
Buildings comprising the Premises as outlined in the two reports by Alron
Heating & Air Conditioning, Inc. titled "Customer Quotation" dated October 30,
1995 attached hereto as Exhibit "G". Additionally, Landlord shall provide the
electrical, HVAC, plumbing systems, and roof in the Expansion Space to Tenant
in good working condition as of the Commencement Date.
9. OPTION TO EXTEND: Paragraph 5B of the Lease is hereby amended to
provide that the option period monthly rent shall be 100% of the current market
rate for similar space in Sunnyvale.
10. REAL PROPERTY TAXES: Paragraph 15 of the Lease is hereby amended to
add the following:
<PAGE> 3
I. Notwithstanding anything to the contrary contained in the
Lease, Tenant acknowledges and agrees that for so long as Landlord's interest
in the Premises is owned by the state or any local public entity or government,
including without limitation a state public retirement system, this Lease and
Tenant's interest hereunder may constitute a possessory interest subject to
property taxation and as a result Tenant may be subject to the payment of real
estate taxes levied on that interest (in which event, Tenant shall promptly pay
such taxes). In addition, for so long as the Landlord's interest in the
Premises is owned by a state public retirement system, the full cash value, as
defined in Sections 110 and 110.1 of the Revenue and Taxation Code, of the
possessory interest upon which real estate taxes will be based shall equal the
greater of (a) the full cash value of the possessory interest, or (b) Tenant's
allocable share of the full cash value of the property that would have been
taxed if the property had been subject to property tax upon acquisition by the
state public retirement system.
11. PARKING: Paragraph 40 is hereby amended to provide Tenant the
exclusive right to use the parking as shown in Exhibit A herein.
12. SIGNAGE: Tenant shall have the exclusive use of the existing street
monument signs in front of both buildings constituting the Premises as defined
in Paragraph 1 of this Amendment.
13. REPAIR AND MAINTENANCE: The repair and maintenance obligations of
Tenant and Landlord for the Premises as defined in Paragraph I herein shall be
governed by Paragraph 17 of the Lease and Paragraph 2 of the Addendum Number 1
to the Lease except as follows:
Subparagraph "a") the heading "ROOF" and subparagraphs "b"), "c"), and
"d") under the heading "MECHANICAL SYSTEM" shall hereby be deleted.
14. INTERIOR IMPROVEMENTS: At the end of the Lease Term Tenant shall
not be obligated to remove any interior improvements or alterations existing as
of the Commencement Date of this Amendment which have previously been approved
by Landlord and for which a permit has been obtained from the appropriate
governing authority for their construction. Additionally, Landlord agrees to
allow those new Interior Improvements which shall be mutually agreed upon and
constructed in accordance with the provisions of Exhibit B to this Amendment to
remain at the end of the Lease Term unless otherwise disapproved by Landlord
once Tenant submits its proposed interior plans as provided for in Paragraph 4
of the Exhibit B to this Amendment.
15. BROKERAGE COMMISSIONS: Paragraph 35 is amended to provide that
Tenant warrants that it has not been represented by or had any dealings with
any real estate broker, salesman, or agent in regard to the transaction
represented by this Amendment, or incurred any obligations for the payment of
brokerage commissions or finder's fees which would be earned or become due and
payable by reason of the execution of this Lease Amendment and/or the
underlying transaction, and no brokerage commissions or finder's fees are due
in regard to the transaction. Tenant will hold Landlord harmless and indemnify
Landlord against any claim loss, or damage, including reasonable attorney's
fees, in regard to a brokerage commission or finder's fee claim by a broker or
finder under contract with or working with Tenant.
16. ENVIRONMENTAL: Notwithstanding anything to the contrary contained
herein, Landlord shall indemnify, defend and hold harmless Tenant from and
against any and all liability, loss, suits, claims, actions, costs and expense
(including, without limitation, reasonable attorneys' fees and expenses),
arising as a result of the presence of any toxic or otherwise hazardous
substances (i) existing on, about or under the Premises as of the date of
delivery of possession of the Premises from Landlord to Tenant, and/or (ii)
hereafter caused by Landlord or Landlord's employees, agents or representatives
to be located on, about or under the Premises (including, without limitations,
the Expansion Space).
<PAGE> 4
17. Except as expressly set forth in this Amendment, all terms
and conditions of the Lease remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Fourth
Amendment to be effective as of the date first set forth above.
LANDLORD: TENANT:
CALIFORNIA STATE TEACHERS' IDENTIX, INC.
RETIREMENT SYSTEM a California corporation
a retirement system created pursuant
to the laws of the State of California
By: AMB Institutional Realty
Advisors, Inc.
a California corporation, as advisor
By: /s/ John L. Rossi By: /s/ James P. Scullion
----------------------------- -----------------------------
John L. Rossi James P. Scullion
Vice President Chief Financial Officer
Date: 2/28/96 Date: February 14, 1996
--------------------------- ---------------------------
Exhibit A - Site Plan
Exhibit B - Interior Improvement Agreement
Exhibit C - Approved Specifications
Exhibit D - Acceptance Agreement
Exhibit E - STRS Provisions
Exhibit F - Conflict of Interest Certificate
Exhibit G - Customer Quotation
<PAGE> 5
EXHIBIT A
SITE PLAN
[MAP]
510 NORTH PASTORIA
NORTH PASTORIA
WEST MAUDE AVENUE
PAGE 1 of 2
<PAGE> 6
EXHIBIT A
SITE PLAN
[MAP]
685 WEST MAUDE
(EXPANSION SPACE)
WEST MAUDE
Page 2 of 2
<PAGE> 7
INTERIOR IMPROVEMENT AGREEMENT
THIS IMPROVEMENT AGREEMENT is made part of that Lease dated February 9,
1996, (the "Lease") by and between CALIFORNIA STATE TEACHERS' RETIREMENT
SYSTEMS a retirement systems created pursuant to the laws of the State of
California, ("Landlord"), and IDENTIX, INC. ("Tenant"). Landlord and Tenant
agree that the following terms are part of the Lease:
1. Purpose of Improvement Agreement: The purpose of this
Improvement Agreement is to set forth the rights and obligations of Landlord
and Tenant with respect to the construction of Interior Improvements within the
Premises prior to the Commencement Date.
2. Definitions: As used in this Interior Improvement Agreement,
the following terms shall have the following meanings, and terms which are not
defined below, but which are defined in the Lease and which are used in this
Interior Improvement Agreement, shall have the meanings ascribed to them by the
Lease:
A. Approved Specifications: The term "Approved Specifications"
shall mean those specifications for the Interior Improvements to be constructed
by Landlord which are described by Exhibit "C" to the Lease.
B. Interior Improvements: The term "Interior Improvements"
shall mean all interior improvements to be constructed by Landlord in
accordance with the Approved Specifications (e.g., HVAC equipment and
distribution, transformer and power distribution, partitions, floor, wall, and
window covering, lighting fixtures).
C. Interior Improvement Costs: The term "Interior Improvement
Costs" shall mean the following: (i) the total amount due pursuant to the
general construction contract entered into by Landlord to construct the
Interior Improvements; (ii) the cost of all governmental approvals required as
a condition to the construction of the Interior Improvements (including all
construction taxes imposed by the City of Sunnyvale) in connection with the
issuance of a building permit for the Interior Improvements; (iii) all utility
connection or use fees; (iv) fees of architects or engineers for services
rendered in connection with the design and construction of the Interior
Improvements; and (v) the cost of payment and performance bonds obtained by
Landlord or Prime Contractor to assure completion of the Interior Improvement.
D. Substantial Completion and Substantially Complete: The terms
"Substantial Completion" and "Substantially Complete" shall each mean the date
when all of the following have occurred with respect to the Interior
Improvements in question; (i) the construction of the Interior Improvements in
question has been substantially completed in accordance with the requirements
of this Lease; (ii) the architect responsible for preparing the plans shall
have been substantially completed in accordance with the plans and
specifications therefor; and (iii) the Building Department of the City of
Sunnyvale has completed its final inspection of such improvements and has
"signed off" the building inspection card approving such work as complete.
3. Schedule of Performance: Set forth in this paragraph is a schedule
of certain critical dates relating to Landlord's and Tenant's respective
obligations regarding the construction of the Interior Improvements (the
"Schedule of Performance"). Landlord and Tenant shall each be obligated to use
reasonable efforts to perform their respective obligations within the time
periods set forth in the Schedule of Performance and elsewhere in this Interior
Improvement Agreement. The Schedule of Performance is as follows:
<PAGE> 8
<TABLE>
<CAPTION>
Action Responsible
Items Due Date Party
----------- -------------------------------------- -----------
<S> <C> <C> <C>
A. Approval by Within five (5) business Tenant
Tenant of days after the later of (i) Landlord's
Preliminary delivery of the Preliminary Interior
Interior Plans to Tenant, or (ii) the execution
Plans of this Amendment.
B. Delivery to Within ten (10) business Landlord
Tenant of days after approval of the
Final Preliminary Interior Plans
Interior
Plans
C. Approval by Within five (5) business days after Tenant
Tenant of Tenant receives Final Interior Plans
Final
Interior
Plans
D. Commence- Within five (5) days after Landlord
ment of issuance of all necessary
construction governmental approvals
of Interior
Improvement
E. Substantial Within forty-two (42) days after Landlord
Completion issuance of building permit for
of Interior the Interior Improvements
Improvements
</TABLE>
4. Construction of Interior Improvements: Landlord shall, at its
sole cost and expense, construct the Interior Improvements in accordance with
the following:
A. Development and Approval of Preliminary Interior Plans:
On or before the due date specified in the Schedule of Performance, Landlord
shall deliver to Tenant for its review and approval preliminary plans for the
Interior Improvements which are consistent with and conform to Tenant's
Interior Improvements and the Approved Specifications (the "Preliminary
Interior Plans"). On or before the due date specified in the Schedule of
Performance, Tenant shall either approve such plans or notify Landlord in
writing of its specific objections to the Preliminary Interior Plans. If Tenant
so objects, Landlord shall revise the Preliminary Interior Plans to address
such objections in a manner consistent with the parameters for the Interior
Improvements set forth in this Improvement Agreement and the Approved
Specifications and shall resubmit such revised Preliminary Interior Plans as
soon as reasonably practicable to Tenant for its approval. When such revised
Preliminary Interior Plans are resubmitted to Tenant, it shall either approve
such plans or notify Landlord of any further objections in writing within five
(5) business days after receipt thereof. If Tenant has further objections to
the revised Preliminary Interior Plans, the parties shall meet and confer to
develop Preliminary Interior Plans that are acceptable to both Landlord and
Tenant within five (5) business days after Tenant has notified Landlord of its
second set of objections. In the event Tenant and Landlord do not resolve all
of Tenant's objections within such five (5) business day period, Landlord and
Tenant shall immediately cause Landlord's architect to meet and confer with
Tenant's architect or construction consultant, who shall apply the standards
set forth in this Improvement Agreement to resolve Tenant's objections and
incorporate such resolution into the Preliminary Interior Plans, which process
Landlord and Tenant shall cause to be completed within five (5) business days
after the conclusion of the five (5) business day period referred to in the
immediately preceding sentence.
<PAGE> 9
B. DEVELOPMENT AND APPROVAL OF FINAL INTERIOR PLANS: Once the
Preliminary Interior Plans have been approved by Landlord and Tenant (including
all changes made to resolve Tenant's objections approved by Landlord's
architect and Tenant's architect or construction consultant pursuant to
subparagraph 4A), Landlord shall complete and submit to Tenant for its approval
final working drawings for the Interior Improvements by the due date specified
in the Schedule of Performance. Tenant shall approve the final plans for the
Interior Improvements or notify Landlord in writing of its specific objections
by the due date specified in the Schedule of Performance. If Tenant so objects,
the parties shall confer and reach agreement upon final working drawings for
the Interior Improvements within five (5) business days after Tenant has
notified Landlord of its objections. In the event Tenant and Landlord do not
resolve all of Tenant's objections with such five (5) business day period,
Landlord and Tenant shall immediately cause Landlord's architect to meet and
confer with Tenant's architect or construction consultant, who shall apply the
standards set forth in the Improvement Agreement to resolve Tenant's objections
and incorporate such resolution into the Final Interior Plans, which process
Landlord and Tenant shall cause to be completed within five (5) business days
after the conclusion of the five (5) business day period referred to in the
immediately preceding sentence. The final working drawings so approved by
Landlord and Tenant (including all changes made to resolve Tenant's objections
approved by Landlord's architect and Tenant's architect or construction
consultant) are referred to herein as the "Final Interior Plans".
C. BUILDING PERMIT: As soon as the Final Interior Plans have been
approved by Landlord and Tenant, Landlord shall apply for a building permit for
the Interior Improvements and shall diligently prosecute to completion such
approval process.
D. CONSTRUCTION CONTRACT: Landlord and Tenant shall cooperate to cause
the Interior Improvements to be constructed by a general contractor who is
engaged by Landlord in accordance with subparagraph 4D(1) hereof.
(1) The job of constructing the Interior Improvements shall be
offered for "competitive bid", on a fixed price basis, to three (3) general
contractors selected by Landlord and approved by Tenant. The construction
contract shall be awarded to the bidder submitting the lowest bid for the job.
Landlord shall submit to Tenant a list of general contractors acceptable to
Landlord to whom the job may be bid, and Tenant shall notify Landlord within
three (3) business days after receipt of such list of its objection to any
proposed contractor. Tenant's failure to object within such period of time
shall be deemed to be its approval of all bidders on the list so submitted by
Landlord. If the lowest bid resulting from such competitive bidding process
indicates that the Interior Improvement Costs will exceed $260,000.000 Dollars
($6.50 per gross leasable square foot of the Premises), Landlord shall promptly
notify Tenant, in writing, to that effect, and Tenant shall have the right to
propose modifications to the Final Interior Plans within five (5) business days
after Tenant's receipt of Landlord's notice, subject to Landlord's approval of
such changes, for the purpose of reducing the Interior Improvement costs. Such
revision of the final Interior Plans shall be completed as expeditiously as
possible; provided, however, that (i) the job shall nonetheless be awarded to
the low bidder whose price shall be adjusted based upon the changes requested
by Tenant and approved by Landlord made to the Final Interior Plans; and (ii)
if Tenant should choose to exercise its right to modify the final Interior
Plans for the purpose of reducing the Interior Improvement costs, any delay
resulting from the failure by Tenant to timely exercise its right to do so
shall be a delay caused by Tenant for purposes of paragraph 7 hereof.
(2) Landlord and Tenant shall use their best efforts to approve
the general contractor and all subcontractors so that the construction contract
may be executed as soon as possible.
E. COMMENCEMENT OF INTERIOR IMPROVEMENTS: On or before the due date
specified in the Schedule of Performance, Landlord shall commence construction
for the Interior Improvements and shall diligently prosecute such construction
to completion, using all reasonable efforts to achieve Substantial Completion
of the Interior Improvements by the due date specified in the Schedule of
Performance.
<PAGE> 10
5. Payment of Interior Improvement Costs: Landlord and Tenant
shall have the following obligations with respect to the payment of Interior
Improvement Costs:
A. Landlord shall be obligated to pay an amount equal to
the Tenant Improvement Allowance as provided for in Paragraph 4 of the Fourth
Amendment To Lease for the Payment of Interior Improvement costs. If the total
of Interior Improvements Costs exceeds the amount of Landlord's required
contribution, Tenant shall be obligated to pay the entire amount of such
excess. To the extent the total of Interior Improvement Costs exceeds the First
Level Tenant Improvement Allowance but is less than the Total Tenant
Improvement Allowance, Landlord shall pay the amount of such excess, in which
event the Monthly Rent shall be increased as provided for in Paragraph 5 of the
Fourth Amendment To Lease. In no event shall Landlord be obligated to pay for
Interior Improvement Costs in excess of the allowances provided for in
Paragraph 4 of the Fourth Amendment To Lease. Tenant must pay for such excess.
If Tenant becomes obligated to contribute toward paying Interior Improvement
Costs pursuant to this subparagraph 5A, then Landlord shall estimate the amount
of such excess prior to commencing construction of the Interior Improvements
and Tenant shall pay to Landlord a proportionate share of each progress payment
due to the general contractor which bears the same relationship to the total
amount of the progress payment in question as the amount Tenant is obligated to
contribute to the payment of Interior Improvement Costs bears to the total
estimated Interior Improvement Costs. Tenant shall pay Tenant's share of any
progress payment to Landlord within five (5) business days after receipt of a
statement therefor from Landlord. At the time the final accounting is rendered
by Landlord pursuant to subparagraph 5C hereof, there shall be an adjustment
between Landlord and Tenant such that each shall only be required to contribute
to the payment of Interior Improvement Costs in accordance with the obligations
set forth in this subparagraph 5A, which adjustment shall be made within five
(5) days after Landlord notifies Tenant of the required adjustment. If Tenant
is required to make a payment to Landlord, Tenant shall make such payment even
if Tenant elects to audit the statement submitted by Landlord pursuant to
subparagraph 5C. In the event Tenant's audit discloses that an overpayment or
underpayment was made by Tenant, there shall be an adjustment between Landlord
and Tenant as soon as reasonably practicable such that each shall only be
required to contribute to the payment of costs in accordance with the
obligations set forth in this subparagraph 5A.
B. If Tenant fails to pay any amount when due pursuant to
this paragraph 5, then (i) Landlord may (but without the obligation to do so)
advance such funds on Tenant's behalf, and Tenant shall be obligated to
reimburse Landlord for the amount of funds so advanced on its behalf, and (ii)
Tenant shall be liable for the payment of a late charge and interest in the
same manner as if Tenant had failed to pay Monthly Rent when due as described
in paragraph 6 of the Lease. Any amounts paid to Landlord by Tenant pursuant to
this subparagraph shall be held by Landlord as Tenant's agent, for disbursal to
the general contractor in payment for work costing in excess of Landlord's
required contribution.
C. When the Interior Improvements are Substantially
Completed, Landlord shall submit to Tenant a final and detailed accounting of
all Interior Improvement Costs paid by Landlord, certified as true and correct
by Landlord's financial officers. Tenant shall have the right to audit the
books, records, and supporting documents of Landlord to the extent necessary to
determine the accuracy of such accounting during normal business hours after
giving Landlord at least two (2) days prior written notice. Tenant shall bear
the cost of such audit, unless such audit discloses that Landlord has
overstated the total of such costs by more than two percent (2%) of the actual
amount of such costs, in which event Landlord shall pay the cost of Tenant's
audit. Any such audit must be conducted, if at all, within ninety (90) days
after Landlord delivers such accounting to Tenant.
6. Changes to Approved Plans: Once the Final Interior Plans have
been approved by Landlord and Tenant, neither shall have the right to order
extra work or change orders with respect to the construction of the Interior
Improvements without the prior written consent of the other. All extra work or
change orders requested by either Landlord or Tenant shall be made in writing,
shall specify any added or reduced cost and/or construction time resulting
therefrom, and shall become effective and a part of the Final Interior Plans
once approved in writing by both parties. If a change order requested by Tenant
results in an increase in the cost of constructing
<PAGE> 11
order requested by Tenant at the time the change order is approved by both
Landlord and Tenant if and to the extent such change order causes the Interior
Improvement Costs to exceed Landlord's required contribution thereto described
in subparagraph 5A. If a change order results in an increase in the amount of
construction time needed by Landlord to complete the Interior Improvements,
paragraph 7 hereof may apply.
7. Delay in Completion Caused by Tenant: The parties hereto
acknowledge that the date on which Tenant's obligation to pay the Monthly Rent
and the Additional Rent would otherwise commence may be delayed because of (i)
Tenant's failure to submit necessary information to Landlord when required,
(ii) Tenant's failure to promptly review and approve the plans for the Interior
Improvements in accordance with the Schedule for Performance, (iii) any act by
Tenant which interferes with or delays the completion of the plans for the
Interior Improvements or Landlord's construction work, (iv) change orders
requested by Tenant and approved by Landlord, or (v) special materials or
equipment ordered or specified by Tenant that cannot be obtained by Landlord at
normal cost within a reasonable period of time because of limited availability.
It is the intent of the parties hereto that the commencement of Tenant's
obligation to pay the Monthly Rent and all Additional Rent not be delayed by
any of such causes or by any other act of Tenant, and in the event it is so
delayed, Tenant's obligation to pay the Monthly Rent and all Additional Rent
shall commence as of the date it would otherwise have commenced absent delay
caused by Tenant, provided that within a reasonable period time after learning
of the occurrence of the cause of any such delay, Landlord notifies Tenant in
writing of the fact that such delay has occurred and the known or anticipated
extent of any such delay.
8. Delivery of Possession, Punch List, and Acceptance Agreement:
As soon as the Interior Improvements are Substantially Completed, Landlord and
Tenant shall together walk through the Premises and inspect all Interior
Improvements so completed, using reasonable efforts to discover all uncompleted
or defective construction in the Interior Improvements. After such inspection
has been completed, each party shall sign an acceptance agreement in the form
attached to the Lease as Exhibit "D", which shall (i) include a list of all
"punch list" items which the parties agree are to be corrected by Landlord
and (ii) shall state the Commencement Date and the initial Monthly Rent. As
soon as such inspection has been completed and such acceptance agreement
executed, Landlord shall deliver possession of the Premises to Tenant. Landlord
shall use reasonable efforts to complete and/or repair such "punch list"
items within thirty (30) days after executing the acceptance agreement.
Landlord shall have no obligation to deliver possession of the Premises to
Tenant until such procedures regarding the preparation of a punch list and the
execution of the acceptance agreement have been completed. Tenant's taking
possession of the Expansion Space shall be deemed to be an acceptance by Tenant
of Landlord's work of improvement in such part as complete and in accordance
with the terms of the Lease except for the punch list items noted and latent
defects that could not reasonable have been discovered by Tenant during its
inspection of the Interior Improvements prior to completion of the acceptance
agreement. Notwithstanding anything contained herein, Tenant's obligation to
pay the Monthly Rent and Additional Rent shall commence as provided in the
Lease, regardless of whether Tenant completes such inspection or executes such
acceptance agreement.
9. Standard of Construction and Warranty: Landlord here by
warrants that the Interior Improvements shall be constructed substantially in
accordance with the Final Interior Plans (as modified by change orders approved
by Landlord and Tenant), all Private Restrictions and all Laws, in a good and
workmanlike manner, and all materials and equipment furnished shall conform to
such final plans and shall be new and otherwise of good quality. The foregoing
warranty shall be subject to, and limited by, the following:
A. Once Landlord is notified in writing of any breach of
the above-described warranty, Landlord shall promptly commence the cure of such
breach and complete such cure with diligence at Landlord's sole cost and
expense.
B. Landlord's liability pursuant to such warranty shall be
limited to the cost of correcting the defect or other matter in question. In no
event shall Landlord be liable to Tenant for any damages or liability incurred
by Tenant as a result of such defect or other matter, including without
limitation damages resulting from any loss of business by Tenant or other
consequential
<PAGE> 12
Page Six
C. Notwithstanding anything contained herein, Landlord shall not
be liable for any defect in design, construction, or equipment furnished which
is discovered and of which Landlord receives written notice from Tenant for the
first (1st) anniversary of the recordation of a notice of completion for the
work of improvement affected by the defect.
D. With respect to defects for which Landlord is not responsible
pursuant to subparagraph 9C, Tenant shall have the benefit of any construction
or equipment warranties existing in favor of Landlord that would assist Tenant
in correcting such defect and in discharging its obligations regarding the
repair and maintenance of the Premises. Upon request by Tenant, Landlord shall
inform Tenant of all written construction and equipment warranties existing in
favor of Landlord which affect the Interior Improvements. Landlord shall
cooperate with Tenant in enforcing such warranties and in bringing any suit that
may be necessary to enforce liability with regard to any defect for which
Landlord is not responsible pursuant to this paragraph so long as Tenant pays
all costs reasonably incurred by Landlord in so acting.
E. Landlord makes no other express or implied warranty with
respect to the design, construction or operation of the Interior Improvements
except as set that forth in this paragraph.
10. Condition to Landlord's Performance: Landlord's obligations under
the Lease are subject to the satisfaction or waiver of the condition that
Landlord obtain all building permits and other governmental approvals required
in order to commence construction of the Interior Improvements by the due dates
specified in the Schedule of Performance. If such condition is not satisfied or
waived within the applicable time period, Landlord shall have the option of
terminating the Lease; provided, however, that landlord shall have the option
to extend the time period for the satisfaction of such condition for a period of
up to sixty (60) days to enable landlord to continue its efforts to cause such
condition to be satisfied. If any such option to extend the time for
satisfaction of this condition is exercised, (i) Landlord shall continue to use
reasonable efforts to cause the condition to be satisfied; (ii) all other time
periods contained in the Schedule of Performance which are impacted by such
extension shall be appropriately adjusted; and (iii) such extension shall not
constitute a delay caused by Tenant pursuant to paragraph 7 hereof, nor shall
Landlord in any way be penalized for exercising such option to obtain
additional time to cause the condition to be satisfied. If Landlord becomes
entitled to and elects to so terminated the Lease, the Lease shall terminate on
the dated notice is so given to Tenant. Landlord shall be under an obligation
of good faith to use all reasonable efforts to cause the condition to be
satisfied.
11. Effect of Agreement: In the event of any inconsistency between this
Improvement Agreement and the Lease, the terms of this Improvement Agreement
shall prevail.
LANDLORD: TENANT:
CALIFORNIA STATE TEACHERS' IDENTIX, INC.
RETIREMENT SYSTEM a California corporation
a retirement system created pursuant
to the laws of the State of California
By: AMB Institutional Realty Advisors, Inc.
a California corporation, as advisor
By: /s/ John L. Rossi By: /s/ James P. Scullion
------------------------------- ------------------------
John L. Rossi James P. Scullion
Vice President Chief Financial Officer
<PAGE> 13
EXHIBIT C
Approved Specifications
(To be added at a later date)
<PAGE> 14
ACCEPTANCE AGREEMENT
THIS ACCEPTANCE AGREEMENT is made as of September 17, 1996 by
and between the parties hereto with regard to that Lease dated June 15, 1988 as
amended by the Fourth Amendment To Lease dated February 9, 1996 by and between
CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM a California general partnership,
as Landlord ("Landlord"), and IDENTIX, INC. as Tenant ("Tenant"), affecting
those Premises commonly known as 510 North Pastoria and 685 West Maude,
Sunnyvale, California. The parties hereto agree as follows:
1. All improvements required to be constructed by Landlord by the
Lease have been completed in accordance with the terms of the Lease and are
hereby accepted by Tenant, subject to the completion of punchlist items.
2. Possession of the Premises has been delivered to Tenant and
Tenant has accepted and taken possession of the Premises.
3. The Commencement Date of the Lease Term is May 1, 1996 and
the Lease Term shall expire on April 30, 2001 unless sooner terminated
according to the terms of the Lease or by mutual agreement.
4. The Base Monthly Rent initially due pursuant to the Lease is
Thirty Three Thousand, Four Hundred Seven Dollars and 68/100 ($33,407.68) per
month, subject to any subsequent adjustments required by the Lease.
5. Landlord has received a Security Deposit in the amount of
Thirty Five Thousand, Seven Dollars and 68/100 ($35,007.68).
6. The Lease is in full force and effect, neither party is in
default of its obligations under the Lease, and Tenant has no setoffs, claims,
or defenses to the enforcement of the Lease.
LANDLORD: TENANT:
CALIFORNIA STATE TEACHERS' Identix, Inc.,
RETIREMENT SYSTEM a California corporation
a retirement system created
pursuant to the laws of the By: /s/ James P. Scullion
State of California --------------------------
James P. Scullion
By: AMB Institutional Chief Financial Officer
Realty Advisors, Inc.
a California corporation,
as Investment Manager Date: OCTOBER 22, 1996
------------------------
By:
-----------------------------
John L. Rossi,
Vice President
Date:
---------------------------
<PAGE> 15
STRS Provisions
Acknowledgment, Representation and Warranty
Re Prohibited Transactions
(Tenant)
IDENTIX, INC. a California corporation; ("Tenant") hereby acknowledges that
State Teachers' Retirement System ("STRS") is a unit of the California State
and Consumer Services Agency established pursuant to Title I, Division 1, Part
13 of the California Educational Code, Sections 2200 et seq., as amended (the
"Ed Code"). As a results, STRS is prohibited from engaging in certain
transactions with a "school district or other employing agency" or a "member,
retirant or beneficiary" (as those terms are defined in the Ed Code). In
addition, STRS may be subject to certain restrictions and requirements under
the Internal Revenue Code, 26 U.S.C. Section 1 et seq. (The "Code").
Accordingly, Tenant represents and warrants to STRS that (a) Tenant is neither
a school district or other employing agency nor a member, retirant or
beneficiary; (b) has not made any contribution or contributions to STRS; (c)
neither a school district or other employing agency, or a member, retirant or
beneficiary, nor any person who has made any contributions to STRS, nor any
combination thereof, is related to Tenant by any relationship described in
Section 267(b) of the Code; (d) neither AMB, its affiliates, related entities,
agents, officer, directors or employees, not any STRS board member, employee or
internal investment contractor (collectively, "STRS Affiliates") has received
or will receive, directly or indirectly, any payment, consideration or other
benefit from, nor does any STRS Affiliate have any agreement or arrangement
with Tenant or any person or entity affiliated with Tenant relating to the
transactions contemplated by this Agreement; an (e) no STRS Affiliate has any
direct or indirect ownership interest in Identix, Inc. a California corporation
or any person or entity affiliated with Identix, Inc. a California
corporation.
STRS Exculpation.
This Agreement is being executed by AMB Institutional Realty Advisors, Inc., on
behalf of the State Teachers' Retirement System, a retirement system created
pursuant to the laws of the State of California ("STRS"). No present or future
officer, director, employee, trustee, member, investment manager or agent of
STRS shall have any personal liability, directly or indirectly, and recourse
shall not be had against any such officer, director, employee, trustee, member,
investment manager or agent under or in connection with this Agreement or any
other document or instrument heretofore or hereafter executed in connection
with this Agreement Identix, Inc. a California corporation hereby waives and
releases any and all such personal liability and recourse. The limitations of
liability provided in this Section are in addition to, and not in limitation
of, any limitation on liability applicable to STRS provided by law or in any
other contract, agreement or instrument.
LANDLORD: TENANT:
California State Teachers' Retirement IDENTIX, INC.
System, a retirement system created a California corporation
pursuant to the laws of the State of
California
By: AMB Institutional Realty By: /s/ James P. Scullion
Advisors, Inc., a California ----------------------------
corporation, as advisor James P. Scullion
Chief Financial Officer
February 14, 1996
By: /s/ John L. Rossi
---------------------------------
John L. Rossi
Vice President
<PAGE> 16
CONFLICT OF INTEREST CERTIFICATE
(Tenant)
This Conflict of Interest Certificate (this "Certificate") is given by IDENTIX,
INC. a California corporation ("Tenant"), in favor of AMB Institutional Realty
Advisors, Inc., a California corporation, as investment manager ("Advisor"), to
the STATE TEACHERS' RETIREMENT SYSTEM, a retirement system created pursuant to
the laws of the State of California ("STRS"), pursuant to that Lease dated
February 9, 1996 (the "Agreement"), by and between Tenant and Advisor, in
connection with Advisor for the STRS-owned real property located at 685 West
Maude Avenue, Sunnyvale, California (the "Property").
Tenant hereby represents and warrants as follows:
1. No Interest in Property or Benefit from Acquisition or Disposition.
Neither Tenant, its affiliates, other related entities nor any of its
agents, officers or employees has received or will receive directly or
indirectly, any benefit from the Property or from the purchase or sale
of the Property by STRS, or by Advisor on behalf of STRS, other than the
rents set forth in the Agreement.
2. No Relationship with Advisor. Except as otherwise disclosed in writing
by Tenant or Advisor, the Tenant, its affiliates and other related
entities have no agreement or arrangement respecting the Property with
Advisor or with any broker or other person or entity, and Tenant, its
affiliates and other related entities have no direct or indirect
ownership interest in Advisors, except as set forth in the Agreement.
3. No Knowledge of Conflicts of Other Parties. Tenant has no knowledge of
any of the matters described in this Certificate with respect to
Advisor, any member of the Teachers' Retirement Board of STRS, or
employee or internal investment contractor of STRS.
IN WITNESS WHEREOF, Tenant has caused its duly authorized representative to
execute this Certificate and hereby certifies that the foregoing is true and
correct under penalty of perjury as of February 14, 1996.
IDENTIX, INC.
a California corporation
By: /s/ James P. Scullion
------------------------------
James P. Scullion
Chief Financial Officer
- ---------------------------------
[Print Name and Title]
<PAGE> 17
ALRON Heating & Air Conditioning, Inc.
32830 Enterprise St, Suite E
Newark, California 94890
(610) 796-0154 fax (610) 796-0123
C-20 427424 Customer Quotation
Quote No. 1661 Rev. No. 0 Quote Date 10/30/95
- -------------------------------------------------------------------------------
Submitted To: A/R # 5337 | Location: S/M # 986
ORCHARD PROPERTIES | STARTECH
2290 NORTH FIRST STREET | 685 W. MAUDE
SUITE 300 |
SAN JOSE , CA 95131 | SUNNYVALE , CA 94086
ATTN: BYRON WOOLWORTH | ATTN: TOM ROURKE
PHONE: 408/922-0400 | PHONE: 408-739-9283
FAX: 408-922-0137 | FAX:
- -------------------------------------------------------------------------------
Type: Q3 QUOTED SERVICES Quote Amount: See Text
Reference Invoice: 55697 Dated 10.24.95 Quote Expiration: 11.29.95
- -------------------------------------------------------------------------------
SYS UNIT MODEL NUMBER NFC SERIAL NUMBER WAR/CCNT TYPE
AH 1 25 TRA U3F29597 N
CON 1 RAUA3006MA TRA 3F16376 N
AH 2 25 TRA U3F29571 N
CON 2 RAUA3006MA TRA 3F16375 N
BOI 1 1020T-0 RAI 063092 N
COM 1 210 QUI 306965 N
- -------------------------------------------------------------------------------
Work Description
DURING OUR RECENT HVAC INSPECTION, THE FOLLOWING PROBLEMS WERE FOUND WHICH
NEED ATTENTION:
AH #1: AIR HANDLER WAS FOUND TO FUNCTION NORMALLY. ALL FILTERS WERE CLEAN,
AND BELT WAS FOUND IN GOOD CONDITION.
NOTE: BLOWER MOTOR CONTROLLED BY ENERGY SAVING TOSHIBA TOSVERT 130HI
TRANSISTOR INVERTER FREQUENCY DRIVE.
CON #1: CONDENSER FUNCTIONS NORMALLY IN COOLING MODE; ALTHOUGH, COMPRESSOR
CONTACTORS HAVE BURNED CONTACTS, CONDENSER COIL NEEDS CLEANING AND CONDENSER
FAN #2 HAS WORN BEARINGS.
AH #2: AIR HANDLER WAS FOUND TO FUNCTION NORMALLY. ALL FILTERS WERE CLEAN,
AND BELT WAS FOUND IN GOOD CONDITION.
NOTE: BLOWER MOTOR CONTROLLED BY ENERGY SAVING TOSHIBA TOSVERT 130HI
TRANSISTOR INVERTER FREQUENCY DRIVE.
CON #2: CONDENSER WAS FOUND TO FUNCTION NORMALLY IN COOLING MODE; ALTHOUGH,
BOTH COMPRESSOR CONTACTORS HAVE BURNED CONTACTS AND CONDENSER COIL NEEDS
CLEANING.
BOILER #1: SYSTEM FUNCTIONS NORMALLY IN HEATING MODE ALONG WITH PUMP.
Continued on Next Page
<PAGE> 18
ALRON HEATING & AIR CONDITIONING, INC.
37530 ENTERPRISE CT., SUITE 5 CUSTOMER QUOTE NO: 02*1661*0
NEWARK, CALIFORNIA 34580 QUOTE DATE: 10/30/95
(510) 796-0154 FAX (510) 795-0153 PAGE: 2
C-20 427434
===============================================================================
CONTROL AIR COMPRESSOR #1: SYSTEM FUNCTIONS NORMALLY AND BELT FOUND IN GOOD
CONDITION.
VAV ZONING: PNEUMATIC VARIABLE AIR VOLUME BOXES CONTROL EACH ZONE AND ARE
LOCATED ABOVE T-BAR CEILING. CURRENTLY, IT IS UNKNOWN WHETHER ALL ZONES ARE
CURRENTLY DIVIDED FOR LOAD AND AREA. THIS SHOULD BE EVALUATED, IF NEW TENANT
IMPROVEMENT WILL TAKE PLACE.
NOTE: SYSTEMS APPEARED TO HAVE BEEN MAINTAINED BY THERMA.
COST OF ABOVE LISTED REPAIRS INCLUDING PARTS, LABOR AND TAX ..........$1,998.00
COST OF INSPECTION DATED 10/24/95: ................................... $189.00
- ----------------------------------------------------------------------------
Submitted by: John Tereri /s/ John Tereri 10/30/95
--------------------------- --------
Customer Acceptance Signature Date
Dated Purchase Order:
- ------------------------------ ------------ -----------
<PAGE> 19
ALRON Heating & Air Conditioning, Inc.
32830 Enterprise St, Suite E
Newark, California 94890
(610) 796-0154 fax (610) 796-0123
C-20 427424 Customer Quotation
Quote No. 1662 Rev. No. 1 Quote Date 10/30/95
- -------------------------------------------------------------------------------
Submitted To: A/R # 5337 | Location: S/M # 240
ORCHARD PROPERTIES | IDENTIX
2290 NORTH FIRST STREET | 310 N. PASTORIA AVE
SUITE 300 |
SAN JOSE , CA 95131 | SUNNYVALE , CA 94086
ATTN: BYRON WOOLWORTH | ATTN: JIM MEIDINGER
PHONE: 408/922-0400 | PHONE: 408-739-2000
FAX: 408-922-0137 | FAX: 408-739-3308
- -------------------------------------------------------------------------------
Type: Q3 QUOTED SERVICES Quote Amount: See Text
Reference Invoice: 55696 Dated 10.23.95 Quote Expiration: 11.29.95
- -------------------------------------------------------------------------------
SYS UNIT MODEL NUMBER MFG SERIAL NUMBER WAR/CCNT TYPE
AC 1 STHA303LB TRA 3A10410 01/01/96C PM
AC 2 D2CG060N08225A YOR NEUM088408 01/01/96C PM
AC 3 D2CG03GN04125A YOR NGUM320508 01/01/96C PM
AC 4 SFHA403LA 3C21916 01/01/96C PM
AC 5 D2CG060NO8225A YOR NBUM088345 01/01/96C PM
AC 7 SFHA303LB TRA 2L23303 01/01/96C PM
AC 8 D2CG060N04125 YOR NNYM077415 01/01/96C PM
AC 9 SFH22303LB TRA 2L23309 01/01/96C PM
AC 10 SFHA503LB TRA 2M13759 01/01/96C PM
AC 11 SFHA403LA TRA 3A10563 01/01/96C PM
AC 12 SFHA303LB TRA 2L22304 01/01/96C PM
AC 13 D4CG060N08225A YOR NEBM030634 01/01/96C PM
- -------------------------------------------------------------------------------
Work Description
DURING OUR RECENT HVAC INSPECTION, THE FOLLOWING PROBLEMS WERE FOUND WHICH
NEED ATTENTION:
AC #1: SYSTEM FUNCTIONS NORMALLY IN HEATING AND COOLING MODES; ALTHOUGH,
COMPRESSOR CONTRACTOR IS WORN WHICH NEEDS REPLACEMENT. MANUFACTURING DATE:
1973.
A/C #2: SYSTEM FUNCTIONS NORMALLY IN HEATING AND COOLING MODES. ORIGINAL
UNIT HAD BEEN REPLACED DECEMBER 1988.
AH #3: SYSTEM FUNCTIONS NORMALLY IN HEATING AND COOLING MODES. ORIGINAL UNIT
HAD BEEN REPLACED DECEMBER 1988.
AC #4: SYSTEM FOUND WITH HEAT DISCONNECTED, SINCE UNIT FEEDS HIGH HEAT LOAD
AREA. FAN CYCLING CONTROL IS NONFUNCTIONAL, SINCE CONDENSER FAN MOTOR STARTS ON
INITIATION OF COOLING CYCLE. ALSO, UNIT HAS WORN CONTRACTOR. MANUFACTURING
DATE: 1973.
Continued on Next Page
<PAGE> 20
ALRON HEATING & AIR CONDITIONING, INC.
37530 ENTERPRISE CT., SUITE 5 CUSTOMER QUOTE KE: 02*1662*1
NEWARK, CALIFORNIA 34580 QUOTE DATE: 10/30/95
(510) 796-0154 FAX (510) 795-0153 PAGE: 2
C-20 427434
===============================================================================
A/C #3: SYSTEM FUNCTIONS NORMALLY IN HEATING AND COOLING MODES. ORIGINAL UNIT
HAD BEEN REPLACED DECEMBER 1988.
A/C #6: SYSTEM WAS REMOVED FROM ROOFTOP AND DUCTS WERE CAPPED DURING TENANT
IMPROVEMENT IN APPROXIMATELY 1987/88.
A/C #7: SYSTEM FUNCTIONS NORMALLY IN HEATING AND COOLING MODES; ALTHOUGH,
COMPRESSOR CONTACTOR IS WORN. MANUFACTURING DATE: 1972.
A/C #8: SYSTEM FUNCTIONS NORMALLY IN HEATING AND COOLING MODES. ORIGINAL UNIT
HAD BEEN REPLACED APRIL 1992.
A/C #9: SYSTEM FUNCTIONS NORMALLY IN HEATING MODE. HEAD PRESSURE CONTROL
HELLOWS IS LEAKING REFRIGERANT, WHICH NEEDS REPLACEMENT. COMPRESSOR HAD
RECENTLY BEEN REPLACED BY ANOTHER CONTRACTOR. AL JOINTS HAVE BEEN POORLY
SOLDERED INCLUDING COMPRESSOR, DRIER SHELL AND ACCESS VALVE. WEAK JOINTS WILL
EVENTUALLY FAIL AND CAUSE COMPONENT DAMAGE FROM REFRIGERANT LEAK. MANUFACTURING
DATE: 1972.
A/C #10: SYSTEM FUNCTIONS NORMALLY IN HEATING AND COOLING MODES; ALTHOUGH,
COMPRESSOR CONTACTOR IS WORN. MANUFACTURING DATE: 1972.
A/C #11: SYSTEM FUNCTIONS IN HEATING AND COOLING MODES. UNIT TOP IS BADLY
RUSTED, COMPRESSOR CONTACTOR IS WORN AND SYSTEM REFRIGERANT CHARGE IS SLIGHTLY
LOW. MANUFACTURING DATE: 1972.
A/C #12: SYSTEM FUNCTIONS NORMALLY IN HEATING AND COOLING MODES; ALTHOUGH,
COMPRESSOR CONTACTOR IS WORN. MANUFACTURING DATE: 1972.
A/C #13: SYSTEM FUNCTIONS NORMALLY IN HEATING AND COOLING MODES. ORIGINAL UNIT
HAD BEEN REPLACED MAY 1993.
COST OF REPAIRS, AS LISTED ABOVE INCLUDING PARTS, LABOR AND TAX:......$2,280.00
COST OF INSPECTION DATED 10/23/95:......................................$469.00
<PAGE> 21
ALRON HEATING 7 AIR CONDITIONING, INC.
37530 ENTERPRISE CT., SUITE 5 CUSTOMER QUOTE KE: 02*1662*1
NEWARK, CALIFORNIA 34580 QUOTE DATE: 10/30/95
(510) 796-0154 FAX (510) 795-0153 PAGE: 3
C-20 427434
===============================================================================
A/C #1,2,3,4,5,6: THESE UNITS FEED SEVERAL PROBLEM ZONES SPANNING FROM THE
RIGHT SIDE OF LOBBY AREA (AS YOU ENTER BUILDING) TO MAUDE AVE SIDE OF BUILDING.
SEVERAL AND CONTINUOUS PROBLEMS MUST BE RESOLVED TO ELIMINATE TENANT
COMPLAINTS. ALL ZONES WERE EVALUATED AND QUOTE WAS SENT TO MARSHA QUIOONEZ ON
01/27/95 TO RESOLVE ZONING AND TONNAGE PROBLEMS. MAJORITY OR PROBLEMS FOUND
STILL EXIST TODAY. REPLACEMENT OF EXISTING UNITS WILL NOT SOLVE ALL PROBLEMS.
ALL ZONES TO THE LEFT SIDE OF LOBBY AREA WERE NEVER EVALUATED, SINCE COMPLAINTS
WERE MINIMUM. COPY OF ORIGINAL QUOTE #1374 ADDRESSED TO IDENTIX IS ENCLOSED FOR
YOUR ???????.
NOTE: SEVERAL OF THE ZONING AND TONNAGE PROBLEMS WERE CREATED BY TENANT; SUCH
AS: MOVING WALLS, ADDING WALLS, REMOVING WALLS, ADDING LOADS ABOVE NORMAL
COMFORT COOLING. THERMOSTATS NEED RELOCATION, DUCTING NEEDS MAJOR ALTERATION TO
CREATE CORRECT ZONES AND ADDITIONAL TONNAGE IS NEEDED TO CONDITION INCREASED
LOAD.
===============================================================================
Submitted by: John Teresi /s/ John Teresi 10/30/95
-------------------------- ------------
Signature Date
Customer Acceptance
___________________________ Dated ___________ Purchase Order: _______________
TOTAL P.06
<PAGE> 1
Exhibit 10.23
IMPERIAL BANK
Member FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between IDENTIX INCORPORATED
, a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as
may be determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
80.000% of Eligible Accounts
and in no event more than $5,000,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account on demand and (b) on or before the tenth
day of each month, interest on the average daily unpaid balance of the Loan
Account during the immediately preceding month at the rate of NO percent
(0.000%) per annum in excess of the rate of interest which Bank has
announced as its prime lending rate ("Prime Rate") which shall vary
concurrently with any change in such Prime Rate. Interest shall be computed
at the above rate on the basis of the actual number of days during which the
principal balance of the loan account is outstanding divided by 360, which
shall for interest computation purposes be considered one year. Bank at its
option may demand payment of any or all of the amount due under the Loan
Account including accrued but unpaid interest at any time. Such notice may
be given verbally or in writing and should be effective upon receipt by
Borrower. The amount of interest payable each month by Borrower shall not
be less than a minimum monthly charge of $250.00. Bank is hereby authorized
to charge Borrower's deposit account(s) with Bank for all sums due Bank under
this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower in
a form satisfactory to Bank and shall contain a certification setting forth
the matters referred to in Section 1, which shall disclose that Borrower is
entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to be
sold or to be leased, or for services rendered or to be rendered no
matter how evidenced, including accounts receivable, contract rights,
chattel paper, instruments, purchase orders, notes, drafts, acceptances,
general intangibles and other forms of obligations and receivables.
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank
now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received within 90
days from any invoice date, (2) all Accounts against which the account
debtor or any other person obligated to make payment thereon asserts any
defense, offset, counterclaim or other right to avoid or reduce the
liability represented by the Account and (3) any Accounts if the account
debtor or any other person liable in connection therewith is insolvent,
subject to bankruptcy or receivership proceedings or has made an
assignment for the benefit of creditors or whose credit standing is
unacceptable to Bank and Bank has so notified Borrower. Eligible Accounts
shall only include such accounts as Bank in its sole discretion shall
determine are eligible from time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future Accounts,
including all proceeds due thereunder, all guaranties and security therefor,
and hereby grants to Bank a continuing security interest in all moneys in the
Collateral Account referred to in Section 6 hereof, as security for any and
all obligations of Borrower to Bank, whether now owing or hereafter incurred
and whether direct, indirect, absolute or contingent. So long as Borrower is
indebted to Bank or Bank is committed to extend credit to Borrower, Borrower
will execute and deliver to Bank such assignments, including Bank's standard
forms of Specific or General Assignment covering individual Accounts,
notices, financing statements, and other documents and papers as Bank may
require in order to affirm, effectuate or further assure the assignment to
Bank of the Collateral or to give any third party, including the account
debtors obligated on the Accounts, notice of Bank's interest in the
Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence all Borrower's Accounts,
provided that no legal action shall be maintained thereon or in connection
therewith without Bank's prior written consent. Any collection of Accounts by
Borrower, whether in the form of cash, checks, notes, or other instruments
for the payment of money (properly endorsed or assigned where required to
enable Bank to collect same), shall be in trust for Bank, and Borrower
shall keep all such collections separate and apart from all other funds and
property so as to be capable of identification as the property of Bank and
deliver said collections daily to Bank in the identical form received. The
proceeds of such collections when received by Bank may be applied by Bank
directly to the payment of Borrower's Loan Account or any other obligation
secured hereby. Any credit given by Bank upon receipt of said proceeds shall
be conditional credit subject to collection. Returned items at Bank's option
may be charged to Borrower's general account. All collections of the Accounts
shall be set forth on an itemized schedule, showing the name of the account
debtor, the amount of each payment and such other information as Bank may
request.
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments. However, Borrower shall immediately
notify Bank of all cases involving returns, repossessions, and loss or damage
of or to merchandise represented by the Accounts and of any credits,
adjustments or disputes arising in connection with the goods or services
represented by the Accounts and, in any of such events, Borrower will
immediately pay to Bank from its own funds (and not from the proceeds of
Accounts or Inventory) for application to Borrower's Loan Account or any
other obligation secured hereby the amount of any credit for such returned
or repossessed merchandise and adjustments made to any of the Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other incorporation
papers, or of any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is found or affected; (ii) Borrower is, or at the
time the collateral becomes subject to Bank's security interest will be, the
true and lawful owner of and has, or at the time the collateral becomes
subject to Bank's security interest will have, good and clear title to the
Collateral, subject only to Bank's rights therein; (iii) Each Account is, or
at the time the Account comes into existence will be, a true and correct
statement of a bona fide indebtedness incurred by the debtor named therein in
the amount of the Account for either merchandise sold or delivered (or being
held subject to Borrower's delivery instructions) to, or services rendered,
performed and accepted by, the account debtor; (iv) That there are or will be
no defenses, counterclaims, or setoffs which may be asserted against the
Accounts; and (v) any and all financial information, including information
relating to the Collateral submitted by Borrower to Bank, whether previously
or in the future, is or will be true and correct.
<PAGE> 2
9. Borrower will: (i) Furnish Bank from time to time such financial
statements and information as Bank may reasonably request and inform Bank
immediately upon the occurrence of a material adverse change therein; (ii)
Furnish Bank periodically, in such form and detail and at such times as
Bank may require, statements showing aging and reconciliation of the
Accounts and collections thereon; (iii) Permit representatives of Bank to
inspect the Borrower's books and records relating to the Collateral and
make extracts therefrom at any reasonable time and to arrange for
verification of the Accounts, under reasonable procedures, acceptable to
Bank, directly with the account debtors or otherwise at Borrower's expense;
(iv) Promptly notify Bank of any attachment or other legal process levied
against any of the Collateral and any information received by Borrower
relative to the Collateral, including the Accounts, the account debtors or
other persons obligated in connection therewith, which may in any way
affect the value of the Collateral or the rights and remedies of Bank in
respect thereto; (v) Reimburse Bank upon demand for any and all legal
costs, including reasonable attorneys' fees, and other expense incurred in
collecting any sums payable by Borrower under Borrower's Loan Account or
any other obligation secured hereby, enforcing any term or provision of
this Security Agreement or otherwise or in the checking, handling and
collection of the Collateral and the preparation and enforcement of any
agreement relating thereto; (vi) Notify Bank of each location and of each
office of Borrower at which records of Borrower relating to the Accounts
are kept; (vii) Provide, maintain and deliver to Bank policies insuring the
Collateral against loss or damage by such risks and in such amounts, forms
and companies as Bank may require and with loss payable solely to Bank,
and, in the event Bank takes possession of the Collateral, the insurance
policy or policies and any unearned or returned premium thereon shall at
the option of Bank become the sole property of Bank, such policies and the
proceeds of any other insurance covering or in any way relating to the
Collateral, whether now in existence or hereafter obtained, being hereby
assigned to Bank; and (viii) in the event the unpaid balance of Borrower's
Loan Account shall exceed the maximum amount of outstanding loans to which
Borrower is entitled under Section 1 hereof, Borrower shall immediately pay
to Bank, from its own funds and not from the proceeds of Collateral, for
credit to Borrower's Loan Account the amount of such excess.
10. Bank may at any time, without prior notice to Borrower, collect the Accounts
and may give notice of assignment to any and all account debtors, and
Borrower does hereby make, constitute and appoint Bank its irrevocable, true
and lawful attorney with power to receive, open and dispose of all mail
addressed to Borrower, to endorse the name of Borrower upon any checks or
other evidences of payment that may come into the possession of Bank upon
the Accounts to endorse the name of the undersigned upon any document or
instrument relating to the Collateral; In its name or otherwise, to demand,
sue for, collect and give acquittances for any and all moneys due or to
become due upon the Accounts; to compromise, prosecute or defend any action,
claim or proceeding with respect thereto; and to do any and all things
necessary and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or grant
a security interest in any of the Collateral other than to Bank, or execute
any financing statements covering the Collateral in favor of any secured
party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or breach be
made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for the
purpose of obtaining credit hereunder prove false; (iii) Bank deem the
Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower become
insolvent or make an assignment for the benefit of creditors; or (v) Any
proceeding be commended by or against Borrower under any bankruptcy,
reorganization, arrangement, readjustment of debt or moratorium law or
statute; then in any such event, Bank may, at its option and without demand
first made and without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to Borrower as
provided in Section 1 hereof; (b) Declare all sums secured hereby
immediately due and payable; (c) immediately take possession of the
Collateral wherever it may be found, using all necessary force so to do, or
require Borrower to assemble the Collateral and make it available to Bank at
a place designated by Bank which is reasonably convenient to Borrower and
Bank, and Borrower waives all claims for damages due to or arising from or
connected with any such taking; (d) Proceed in the foreclosure of Bank's
security interest and sale of the Collateral in any manner permitted by
law, or provided for herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without having the Collateral
at the place of sale, and upon terms and in such manner as Bank may
determine, and Bank may purchase same at any such sale; (f) Retain the
Collateral in full satisfaction of the obligations secured thereby; (g)
Exercise any remedies of a secured party under the Uniform Commercial Code.
Prior to any such disposition, Bank may, at its option, cause any of the
Collateral to be repaired or reconditioned in such manner and to such extent
as Bank may deem advisable, and any sums expended therefor by Bank shall be
repaid by Borrower and secured hereby. Bank shall have the right to enforce
one or more remedies hereunder successively or concurrently, and any such
action shall not estop or prevent Bank from pursuing any further remedy
which it may have hereunder or by law. If a sufficient sum is not realized
from any such disposition of Collateral to pay all obligations secured by
this Security Agreement, Borrower hereby promises and agrees to pay Bank any
deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section 1 hereof shall immediately terminate and
the unpaid balance of the Loan Account, all other obligations secured hereby
and all other sums due hereunder shall immediately become due and payable
without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports
and other types of documents and records submitted to Bank in connection
with the transactions contemplated herein at any time subsequent to four
months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set forth
in any other security or other agreement executed by Borrower, but each and
every condition hereof shall be in addition thereto.
16. Additional Provisions: Subject to conditions and limitations contained in
the Letter Agreement dated September 27, 1996 (and accepted and agreed to
10/1/96) and Credit Terms and Conditions dated October 4, 1996. See Addendum
attached
Executed this 4th day of October, 1996
IDENTIX INCORPORATED
--------------------------------------
(Name of Borrower)
BY: /s/ Randall C. Fowler CEO
-------------------------------------
(Authorized Signature and Title)
BY: /s/ Kenneth LeDeit AVP BY:
______________________________ ____________________________________
Title (Authorized Signature and Title)
<PAGE> 3
ADDENDUM TO SECURITY AND LOAN AGREEMENT DATED OCTOBER 4, 1996
If any installment payment, interest payment, principal payment or principal
balance payment due hereunder is delinquent ten or more days, Obligor agrees to
pay Bank a late charge in the amount of 5% of the payment so due and unpaid, in
addition to the payment; but nothing in this paragraph is to be construed as any
obligation on the part of the holder of this note to accept payment of any
payment past due or less than the total unpaid principal balance after maturity.
All payments shall be applied first to any late charges owing, then to interest
and the remainder, if any, to principal.
IDENTIX INCORPORATED
By: /s/ Randall C. Fowler
____________________________
President and CEO
____________________________
<PAGE> 4
[Imperial Bank Logo]
226 Airport Parkway October 4, 1996
San Jose, California
Subject: Credit Terms and Conditions Borrower: Identix Incorporated
("Agreement")
Gentlemen:
To induce you to make loans to the undersigned (herein called "Borrower"), and
in consideration of any loan or loans you, in your sole discretion, may make to
Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS.
Company is a corporation.
Borrower is duly organized and existing and in good standing under the laws of
the State of California and is authorized and in good standing to do business
in the State of California. Borrower has powers and adequate authority, rights
and franchises to own its property and to carry on its business as now
conducted, and is duly qualified and in good standing in each State in which
the character of the properties owned by it therein or the conduct of its
business makes such qualification necessary, and Borrower has the power and
adequate authority to make and carry out this Agreement. Borrower has no
investment in any other business entity, except as stated below. The following
subsidiaries are 100% owned by Borrower: ANADAC Incorporated, and FINGERSCAN
Pty Limited.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of
this Agreement are duly authorized and do not require the consent or approval
of any governmental body or other regulatory authority; are not in
contravention of or in conflict with any law or regulation or any term or
provision of Borrower's articles of incorporation, by-laws, or Articles of
Association, as the case may be, and this Agreement is the valid, binding and
legally enforceable obligation of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any of
its property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.
4. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of 07/31/96,
and the related profit and loss statement for the 1 month ended on that date, a
copy of which has heretofore been delivered to you by Borrower, and all other
statements and data submitted in writing by Borrower to you in connection with
this request for credit are true and correct, and said balance sheet and profit
and loss statement truly present the financial condition of Borrower as of the
date thereof and the results of the operations of Borrower for the period
covered thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date there
have been no materially adverse changes in the financial condition or business
of Borrower. Borrower has no knowledge of any liabilities, contingent or
otherwise, at such date not reflected in said balance sheet, and Borrower has
not entered into any special commitments or substantial contracts which are not
reflected in said balance sheet, other than in the ordinary and normal course
of its business, which may have a materially adverse effect upon its financial
condition, operations or business as now conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section C.3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state,
local or federal taxes, and if Borrower has contracted with any government
agency, Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
9. REGULATION U. The proceeds of this loan shall not be used to
purchase or carry margin stock (as defined with Regulation U of the Board of
Governors of the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, it will, unless you
shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long
as:
(a) The same are being contested in good faith and by appropriate proceedings
in such manners as not to cause any materially adverse effect upon its
financial condition or the loss of any right of redemption from any sale
thereunder, and
(b) it shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it adequate with
respect thereto.
4. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit your representatives to have access to,
and to examine its properties, books and records at all reasonable times; and
furnish you:
(a) As soon as available, and in any event within 25 days after the close of
each month of each fiscal year of Borrower, commencing with the month next
ending, a balance sheet, profit and loss statement and reconciliation of
Borrower's capital accounts as of the close of such period and covering
operations for the portion of Borrower's fiscal year ending on the last day of
such period, all in reasonable detail and stating in comparative form the
figures for the corresponding date and period in the previous fiscal year,
prepared in accordance with generally accepted accounting principles on a basis
consistently maintained by Borrower and certified by an appropriate officer of
Borrower, subject, however, to year-end audit adjustments;
(b) As soon as available, and in any event within 90 days after the close of
each fiscal year of Borrower, a report of audit of Company as of the close of
and for such fiscal year, all in reasonable detail and stating in comparative
form the figures as of the close of and for the previous fiscal year, with the
unqualified opinion of accountants satisfactory to you.
CUSTOMER'S COPY(S)
<PAGE> 5
(c) Within 25 days after the close of each month of each fiscal year of
Borrower, a certificate by chief financial officer or partner of Borrower,
grading the Borrower has performed and observed each and every covenant
contained in this Letter of Inducement to be performed by it and that no event
has occurred and no condition then exists which constitutes an event of default
hereunder or would constitute such an event of default upon the lapse of time
or upon the giving of notice and the lapse of time specified herein, or, if any
such event has occurred or any such condition exists, specifying the nature
thereof;
(d) Promptly after the receipt thereof by Borrower, copies of any detailed
audit reports submitted to Borrower by independent accountants in connection
with each annual or interim audit of the accounts of Borrower made by such
accountants;
(e) Promptly after the same are available, copies of all such proxy statements,
financial statements and reports as Borrower shall send to its stockholders, if
any, and copies of all reports which Borrower may file with the Securities and
Exchange Commission or any governmental authority at any time substituted
therefor; and
(f) Such other information relating to the affairs of Borrower as you
reasonably may request from time to time.
(g) Notice of Default, Promptly notify the Bank in writing of the occurrence of
any event of default hereunder or any event which upon notice and lapse of time
would be an event of default.
C. Borrower agrees that so long as it is indebted to you, it will not, without
your written consent:
1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the
character of its business; or make any change in its executive management.
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from you except obligations
now existing as shown in financial statement dated 07/31/96, excluding those
being refinanced by your bank; or sell or transfer, either with or without
recourse, any accounts or notes receivable or any moneys due to become due.
3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage,
pledge encumbrance, lien or charge of any kind (including the charge upon
property at any time purchased or acquired under conditional sale or other
title retention agreement) upon any asset now owned or hereafter acquired by
it, other than liens for taxes not delinquent and liens in your favor.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or
advances, except Borrower may make loans or advances to its 100% owned
subsidiaries not exceeding $1,000,000 in the aggregate provided that said
subsidiary or subsidiaries has executed and delivered to Bank a guaranty of the
Line, in form and consent acceptable to Bank (Loans and/or advances in the form
of product of Borrower sold to its subsidiaries in the ordinary course of
business with normal trade terms will be excluded from this covenant), to any
person or other entity other than in the ordinary and normal course of its
business as now conducted or make any investment in the securities of any
person or other entity other than the United States Government; or guarantee
or otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in
the ordinary and normal course of its business.
5. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase
or otherwise acquire the assets or business of any person or other entity,
except borrower may purchase or otherwise acquire the assets or business of any
person or other entity as long as such events do not cause the Borrower to
violate any of the Bank's financial convents; or liquidate, dissolve, merge or
consolidate, or commence any proceedings therefor; or sell any assets except in
the ordinary and normal course of its business as now conducted; or sell,
lease, assign, or transfer any substantial part of its business or fixed
assets, or any property or other assets necessary for the continuance of its
business as now conducted including without limitation the selling of any
property or other asset accompanied by the leasing back of the same.
6. DIVIDENDS, STOCK PAYMENTS. If a corporation, declare or pay any
dividend (other than dividends payable in common stock of Borrower) or make any
other distribution on any of its capital stock now outstanding or hereafter
issued or purchase, redeem or retire any of such stock.
D. The occurrence of any one of the following events of default shall, at your
opinion, terminate your commitment to lend and make all sums of principal and
interest then remaining unpaid on all Borrower's indebtedness to you
immediately due and payable, all without demand, presentment or notice, all of
which are hereby expressly waived;
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal or
of interest on any indebtedness of Borrower to you.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower.
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in any
material respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or
any of its assets and shall remain unvacated, unbonded or unstayed for a period
of 10 days or in any event later than five days prior to the date of any
proposed sale thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
E. MISCELLANEOUS PROVISIONS.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
your Bank or any holder of Notes issued hereunder, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under this agreement or any note
issued in connection with a loan that your Bank may make hereunder, are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
See Addendum dated October 4, 1996 attached hereto and incorporated herein by
this reference for additional terms. In the event of a conflict between this
Agreement and the Addendum, the terms in the Addendum prevail.
Identix Incorporated
By /s/ Randall C. Fowler CEO
____________________________________
(Authorized Signature and Title)
<PAGE> 6
IDENTIX INCORPORATED
Addendum to Credit Terms & Conditions
Dated October 4, 1996
Line: $5,000,000 Revolving Line of Credit containing the following
sub-limits:
a) $1,000,000 sub-limit for the issuance of Commercial and Standby
Letters of Credit with a maturity not to exceed 90 days past the
maturity of the Line,
b) $200,000 sub-limit for foreign exchange reserved for the issuance
of forward contracts up to a maximum of $2,000,000.
At no time will the sum of the sub-limits and direct borrowings under
the Line exceed the aggregate sum of $5,000,000.
Purpose: To support short term working capital requirements, issuance of
letters of credit and for hedging foreign currency exposures.
Borrowing
Base: Borrowing base to be monitored on a monthly basis and consists of
the sum of:
A) 80% of Eligible Accounts (as hereinafter defined) payable by
debtors whose principal place of business is located within
the United States of America ("Eligible Domestic Accounts")
and any Letter of Credit backed or Insured Eligible Accounts
payable by debtors whose principal place of business is located
outside the United States of America ("Eligible Foreign
Accounts").
B) 80% of Eligible Foreign Accounts listed in Table I.
Table I
-------
Ascorn Autelca, AG NIASCO
Fujitsu Sharp
Identrix AG
Eligible Accounts will include those accounts outstanding less
than 90 days from invoice date subject to certain exclusions for
non-approved foreign, contra accounts and inter company accounts.
Notwithstanding the foregoing, except for the Fujitsu, (Australia)
accounts, any account which alone exceeds 20% of the total accounts
of Borrower will be excluded from Eligible Accounts to the extent
said accounts exceed 20% of the total accounts. The concentration
limit on Fujitsu, (Australia) accounts is 30%. If 25% or more of
an account receivable is past due (greater than 90 days) the entire
account shall be excluded from Eligible Accounts. Notwithstanding
the foregoing, Eligible Accounts include all North American MORPHO
Systems, Inc. accounts until October 31, 1996, subject to review of
such accounts to Bank's satisfaction. Beginning November 1, 1996
the above stated limitations apply to North American MORPHO
Systems, Inc. accounts.
Maturity: 364 days from date of execution of loan documentation.
<PAGE> 7
IDENTIX INCORPORATED
ADDENDUM TO CREDIT TERMS & CONDITIONS
DATED OCTOBER 4, 1996
PAGE 2 OF 3
Interest Rate: Bank's Prime Rate, per annum (floating).
Fee: 1/2% of commitment amount per annum, payable upon acceptance
of commitment.
Payments: Interest due monthly.
Principal due upon maturity.
Collateral: Secured by a perfected senior security interest in all assets
of the Borrower, excluding the assets of the Borrower's
subsidiaries and previously leased equipment.
Financial
Covenants: Covenants will be monitored on a monthly basis unless noted
otherwise and will be calculated on a consolidating basis using
only Identix Incorporated financial statements as a stand-alone:
1) Minimum Quick Ratio(1) of 1.25 to 1.00.
2) Minimum Tangible Net Worth(2) of $7,500,000 plus 50% of the
net proceeds of any stock offering.
3) Maximum Total Liabilities(3) to Tangible Net Worth(2) of
1.50 to 1.00.
4) Quarterly after-tax profitability, allowing for two
quarterly losses per fiscal year not to exceed $500,000 per
quarter and in the aggregate.
Ratio
Definitions: (1) Quick Ratio is cash plus accounts receivable divided by
current liabilities.
(2) Tangible Net Worth is the financial statement net worth of
the Borrower prepared according to generally accepted
accounting principles less intangible assets (including but
not limited to investment in subsidiaries, and in-process
technology), plus indebtedness fully subordinated to the
debt due to the Bank.
(3) Total Liabilities are all the Borrower's liabilities except
for indebtedness fully subordinated to the debt due to the
Bank.
Reporting
Requirements: 1) Monthly listing of backlog orders, aged accounts receivable
and accounts payable from invoice date with Bank borrowing
base certificate within 15 days of month end.
2) Monthly internally prepared financial statements of Identix
Incorporated as a stand-alone prepared according to
generally accepted accounting principles and Bank's
compliance certificate within 25 days of month end.
3) Quarterly internally prepared consolidating and consolidated
financial statements, including the 10-Q report within 45
days of the end of each fiscal quarter of Borrower.
4) Unqualified audited consolidating and consolidated annual
financial statements within 90 days of the end of each
fiscal year of Borrower, including the 10-K report.
<PAGE> 8
IDENTIX INCORPORATED
ADDENDUM TO CREDIT TERMS & CONDITIONS
DATED OCTOBER 4, 1996
PAGE 3 OF 3
Reporting
Requirements:
(continued) 5) Annual Report within 120 days of days of the end of each
fiscal year of Borrower.
6) Budgets, sales projections, operating plans, or other
financial exhibits which Bank may reasonably request.
Other
Covenants: 1) Borrower, without prior written permission of the Bank, will
not:
a) Incur additional borrowed indebtedness other than
subordinated debt and domestic equipment leases.
b) Merge, liquidate a substantial portion of its assets, or
acquire other assets other than in the normal course of
business. Notwithstanding the foregoing, Borrower may
make acquisitions as long as such events do not cause
the Borrower to violate any of the Bank's financial
convents.
c) Make loans, investments or advances to outside parties
other than in the normal course of business, except
Borrower may make loans, investments or advances to its
100% owned subsidiaries not exceeding $1,000,000 in the
aggregate, provided that said subsidiary or subsidiaries
has executed and delivered to Bank a guaranty of the
Line, in form and content acceptable to Bank (Loans
and/or advances in the form of product of Borrower sold
to its subsidiaries in the ordinary course of business
with normal trade terms will be excluded from this
covenant).
d) Make distributions or dividends to shareholders.
2) Borrower to notify Bank in writing of any legal action
commenced against it which may result in damages over
$50,000.
3) Borrower to provide Bank proof of insurance covering all
tangible corporate assets and a Lender's Loss Payable Clause
with Bank as Loss Payee.
4) Annual accounts receivable audit performed by the Bank's
Asset Based Department with results satisfactory to Bank,
at Borrower's expense.
Banking
Relationship: Principal operating accounts and banking activities of Borrower
to be maintained with Bank.
Identix Incorporated
By /s/ Randall C. Fowler CEO
_______________________________________
(Authorized Signature and Title)
<PAGE> 1
Exhibit 11.1
IDENTIX INCORPORATED
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Net income $ 160,000 $ 127,000
=========== ===========
Number of shares used in computing per share amounts:
Weighted average common shares outstanding 24,322,000 22,813,000
Common equivalent shares attributable to
stock options and warrants 800,000 1,358,000
----------- -----------
Total weighted average common and common
equivalent shares outstanding 25,122,000 24,171,000
=========== ===========
Net income per share $ 0.01 $ 0.01
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE IS INCLUDED IN THIS FORM 10-Q IN COMPLIANCE WITH
THE COMMISSION'S RULES RELATING TO THE EDGAR FILING PROCESS. THIS SCHEDULE
CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE
SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS DATED AS OF THE THREE MONTH
PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 205,000
<SECURITIES> 0
<RECEIVABLES> 20,010,000
<ALLOWANCES> 621,000
<INVENTORY> 3,672,000
<CURRENT-ASSETS> 23,820,000
<PP&E> 2,581,000<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 29,303,000
<CURRENT-LIABILITIES> 9,198,000
<BONDS> 0
0
0
<COMMON> 50,031,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,303,000
<SALES> 6,376,000
<TOTAL-REVENUES> 12,076,000
<CGS> 3,372,000
<TOTAL-COSTS> 11,836,000
<OTHER-EXPENSES> 0<F2>
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 0<F2>
<INCOME-PRETAX> 180,000
<INCOME-TAX> 20,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 160,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0<F2>
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT IS SHOWN NET OF ACCUMULATED DEPRECIATION
<F2>NOT SHOWN SEPARATELY WHEN REPORTING FORM 10-Q
</FN>
</TABLE>
