-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SdzR1nXZDISqC3Bc4RurikUxiE3DIJ58qvpHhGzH8+Iuf15SvqO8iOxgFys3IvIi zOp08cLGuDW6s4/Fr8i2Sg== 0001005477-99-001576.txt : 19990426 0001005477-99-001576.hdr.sgml : 19990426 ACCESSION NUMBER: 0001005477-99-001576 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIDEX CORP CENTRAL INDEX KEY: 0000047254 STANDARD INDUSTRIAL CLASSIFICATION: 3577 IRS NUMBER: 060682273 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05513 FILM NUMBER: 99583156 BUSINESS ADDRESS: STREET 1: 61 WILTON RD CITY: WESTPORT STATE: CT ZIP: 06880-3121 BUSINESS PHONE: 2032261144 MAIL ADDRESS: STREET 1: 61 WILTON ROAD CITY: WESTPORT STATE: CT ZIP: 06880-3121 FORMER COMPANY: FORMER CONFORMED NAME: HI G INC DATE OF NAME CHANGE: 19840829 10-K 1 FROM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC. 20549 ----------------------------- FORM 10-K ----------------------------- (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 1998 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________. ----------------------------- Commission File Number: 1-5513 ----------------------------- TRIDEX CORPORATION (Exact name of registrant as specified in its charter) Connecticut 06-0682273 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 61 Wilton Road Westport, CT 06880 (Address of principal executive offices) Registrant's telephone number, including area code: (203) 226-1144 Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange on which Title of each class registered - - ----------------------------------- --------------------------------------- Common Stock, Without Par Value NASDAQ Securities registered pursuant to Section 12 (g) of the Act: None - - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any other amendment to this Form 10-K. |_| As of March 12, 1999 the aggregate market value of the registrant's issued and outstanding voting stock held by non-affiliates of the registrant was $12,417,000. As of March 12, 1999 the registrant had outstanding 6,368,289 shares of common stock, without par value. Exhibit Index appears on page 35 PART I ITEM 1. BUSINESS General Tridex Corporation ("Tridex" or the "Company"), through its wholly-owned subsidiaries Ultimate Technology Corporation ("Ultimate") and Progressive Software, Inc. ("Progressive") and its Tridex Ribbons Division is a leading designer, developer, manufacturer, marketer and integrator of high quality, specialized software and hardware systems and components for the point-of-sale ("POS") industry. See Note 3 to the Company's 1998 Consolidated Financial Statements for a discussion of discontinued operations. All dollar amounts within this report, unless otherwise indicated, exclude results of discontinued operations. (A) General Development of Business since December 31, 1997 On April 17, 1998 Tridex acquired all of the outstanding common stock of Progressive from Paul J. Smith, for a total purchase price of $47,594,000 consisting of 714,000 shares of Tridex common stock valued at $4,998,000 and the balance in cash. Tridex has raised claims seeking a purchase price reduction based on information learned in the third and fourth quarters of 1998. Tridex and Mr. Smith are now in litigation. See "Legal Proceedings". (B) Financial Information about Industry Segments The Company manages two operating subsidiaries as separate reportable business segments. Each segment offers different products to different classes of customers in the POS market. Ultimate is primarily focused on providing hardware solutions to the retail sector of the market, while Progressive is primarily focused on providing software solutions to the food service and specialty retail sectors of the market. (C) Narrative Description of Business (i) Principal Products and Services Ultimate designs, manufactures and sells customer displays, keyboards and terminal devices for POS applications. Its products, based on "Open Systems" design, are used in Twinax, Unix/Aix and PC-based POS applications. Ultimate's newest product, the fully integrated Model 40 POS system, combines a monitor, receipt printer, cash drawer and a hardware platform which can be selected by the customer. Platform options include PC, net PC, thin client, ASCII terminal and TWINAX. Ultimate's other terminal products are the Model 1, 2/2B and 3. The Model 1, an on-line TWINAX terminal made for use with the IBM AS400/System 3X, is the only POS specific, fully integrated TWINAX terminal available on the market. The Model 2/2B is a serial POS terminal for RS232 connection to any multi-user host system. The Model 3, a PC-based front-end platform for connection to a PC via the keyboard port, provides full POS peripheral functionality while retaining the flexibly and serviceability of a separate dedicated PC. Ultimate also offers the Series 500, an advanced POS keyboard for use with PC or ASCII terminals. Ultimate's terminals and other peripheral products are sold to system integrators, original equipment manufacturers and directly to end users by a direct sales force along with selected strategic relationships with distributors, dealers and VARS located in New York, New Hampshire, Illinois, California, Georgia and Texas. Progressive offers three lines of high quality POS and back office software systems for the restaurant industry: IRIS Quick Serve and IRIS Full Serve, both Windows(R) NT(R)-based applications, and SMART 2, a DOS-based application on a Windows(R) NT(R) platform. Progressive Software's integrated restaurant information system, IRIS, is a 32-bit Microsoft Windows(R) NT(R)-based system for quick service and table service operators that combines advanced front of the house POS capabilities and powerful Back Office resource planning services to manage every aspect of store operations. This includes an intuitive touchscreen POS for order entry, drive-thru and kitchen display management, cost and general accounting, time and attendance, purchasing and inventory control, and demand forecasting. IRIS Quick Serve, currently installed in Japan, Taiwan and the United Kingdom is year 2000, Euro compliant and Unicode-enabled. Building on its legacy DOS product, Progressive also offers SMART 2 for customers who want to continue to use Progressive's legacy DOS systems on a Windows(R) NT(R) platform. SMART 2 employs object oriented component technology and helps manage the transition from legacy DOS systems to current technology. Progressive currently has more than 10,000 installations of its legacy DOS and Windows(R) NT(R) solutions in North America, Asia and Europe. Progressive was awarded the 1996 Microsoft Retail Application Developer award for its back office food service software. Progressive sells its software systems through direct and indirect sales forces and, when requested by customers, provides hardware and system integration services in connection with software sales. In addition, Progressive also offers help desk, on-site technical and consulting support, and project management services. (ii) Sources and Availability of Raw Materials The principal raw materials used by Ultimate in the manufacture of custom keyboards and customer displays are injection molded plastic parts, formed metal parts and electronic subassemblies, all of which are readily available from a number of sources. The assembly of POS terminals combines the keyboard and customer display manufactured by Ultimate with a printer, monitor, cash drawer and other peripheral devices purchased from various suppliers, all of which are readily available from a number of sources. (iii) Intellectual Property The Company regards its software designs and code and portions of the hardware designs incorporated into its products as proprietary and protects them with a combination of copyright, trademark and trade secret laws, employee and third party nondisclosure agreements and similar means. It may be possible for unauthorized third parties to copy certain portions of the Company's products or to reverse engineer or otherwise obtain and use, to the Company's detriment, information that the Company regards as proprietary. Moreover, the laws of some foreign countries do not afford the same protection to the Company's proprietary rights as do United States laws. There can be no assurance that legal protections relied upon by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop products that are substantially equivalent or technologically superior to the Company's. In addition, some of the intellectual property used by Ultimate is not proprietary. No assurance can be given that such intellectual property will not be used by Ultimate's competitors. (iv) Seasonality and Practices Relating to Working Capital Items Sales of the Company's products are not subject to material seasonal variations. The Company has not historically been required to maintain significant inventories of raw materials or finished goods in order to fill customer orders. (v) Certain Customers The Company has certain customers, the loss of which, if not replaced by sales to other customers, could have an adverse effect on the Company. In any single year or series of consecutive years, sales by each of Ultimate and Progressive to a single customer may exceed 10% of their respective annual net sales. As customers complete the installation of new POS systems, sales to these customers decline, so that the identity of Ultimate's and Progressive's largest customers changes in the ordinary business. In the year ended December 31, 1998, Starbucks Coffee Company, Steak `n Shake, Inc., and Frisch's Restaurants, Inc. accounted for approximately 25%, 14% and 9%, respectively, of Progressive's net sales, and Lowes Companies, Inc., Ace Hardware Corporation, and Advance Stores Company, Inc., accounted for approximately 20%, 9% and 7%, respectively, of Ultimate's net sales. (vi) Backlog The Company's backlog of firm orders was approximately $12,700,000 as of March 12, 1999 and $2,750,000 as of March 13, 1998. Tridex expects to fill all of its backlog within the current fiscal year. (vii) Competition The Company faces aggressive competition in all of its markets. Many of the Company's current and potential competitors are large multi-national enterprises with extensive experience and resources in designing, manufacturing and marketing POS software and hardware. Progressive competes with Radiant Systems, Inc., Micros Systems, Inc., PAR Technology Corporation, Ibertech, Inc. and GEAC Computer Corporation Limited. Ultimate competes with other POS systems integrators, including NCR Corporation and IBM Corporation and with manufacturers of terminals, keyboards and pole displays. In certain markets, the Company's competitors sometimes offer prices lower than the Company's because of lower overhead, attributable to higher volume production and off-shore manufacturing locations, which enjoy cheaper sources of labor and raw materials. Many of the Company's domestic competitors, particularly those that are divisions of substantially larger companies, have greater financial and other resources than Tridex. (viii) Research and Development Activities The Company spent approximately $4,552,000 in 1998, $693,000 in 1997 and $447,000 in 1996 on engineering, design and product development efforts in connection with software and development and specialized engineering and design to introduce a number of new products and to customize products for the Company's customers. Expenditures in 1998 include $1,731,000 of capitalized software development costs. (ix) Environmental Matters Allu Realty Trust ("Allu"), a Massachusetts business trust with transferable shares, all of which are owned by Tridex, is the former owner of land located at 100 Foley Street, Somerville, Massachusetts (the "Site"). Although Allu sold the property to 100 Foley Street Incorporated ("Foley"), an unrelated entity, Allu and Tridex remain responsible for certain environmental problems associated with the Site. In 1984, Allu and Tridex disclosed to the Massachusetts Department of the Attorney General the existence of chromium, oil and grease at the Site. As a result, the Environmental Protection Division of the Department of the Attorney General and the Massachusetts Department of Environmental Protection ("MDEP") conducted an investigation of the Site. At MDEP's request, the Company retained an environmental engineering firm, which completed a Phase II investigation study of the Site. The Company conducted further studies to more specifically characterize and assess the Site and to determine appropriate long term clean up. In 1993, the Company entered into an agreement with Foley pursuant to which Tridex and Foley agreed to pay 75% and 25%, respectively, of the costs incurred after January 1, 1992 in connection with the investigation and remediation of the Site (the "Site Participation Agreement"). The Site Participation Agreement also provides that, to the extent there are available proceeds from the sale of the Site or, if not sold, from the operation of the Site after January 1, 1997, Tridex shall be reimbursed approximately $200,000 of the $250,000 it expended in connection with the Site prior to January 1, 1992. As of December 31, 1998, the Company had spent approximately $728,000 in connection with the Site. In 1997, Foley sold the Site to an affiliate of Stop & Shop, Inc. ("Stop & Shop") and Stop & Shop has taken control of all remediation of the Site. However, Foley asserts that Allu and Tridex remain liable for payment of certain costs associated with the remediation of the Site. Also in 1997, Foley brought suit against the Company claiming that the Company failed to contribute its share of the remediation costs pursuant to the Site Participation Agreement. The Company has filed a counterclaim. This litigation was stayed until February 1999 and discovery has commenced. The implementation of clean-up measures was commenced in 1998 and is anticipated to be completed in 1999. As of December 31, 1998, the Company had accrued $258,000 for the Site, which represents the currently estimated minimum cost of remediation, after considering the Site Participation Agreement. The Company estimates that it may spend up to $275,000 in connection with the Site. Accordingly, although no assurances can be given regarding the total costs which may be incurred, the Company does not believe at this time that the remediation of the Site is reasonably likely to have a material effect on the Company's financial condition, results of operations or liquidity. The Company expects that, as in the past, cash from operations will be sufficient to pay the costs of remediation. (x) Employees As of March 12, 1999, Tridex and its subsidiaries employed approximately 229 persons, of whom 211 were full time and 18 were temporary employees. Progressive employed approximately 123 persons and Ultimate employed approximately 90 persons. (D) Financial Information About Foreign and Domestic Operations and Export Sales In December 1998, the Company opened a wholly owned subsidiary, Retail Resource Solutions Limited, in the United Kingdom. The subsidiary is a sales and distribution office of Progressive's products. There were no material transactions in 1998. From June 1994 through May 1997, the Company owned Cash Bases GB Limited ("Cash Bases"), a manufacturer of custom cash drawers located in the United Kingdom. The results of operations of Cash Bases are classified as discontinued operations. Export sales from the United States were approximately $166,000 in 1998, $879,000 in 1997 and $130,000 in 1996. (E) Directors and Executive Officers of the Registrant (i) Directors of the Registrant Principal Principal Business of Director Name Age Occupation Employer Name Employer ---------------------------------------------------------------------- Seth M. Lukash 52 Chairman of Tridex Developer and the Board, Corporation manufacturer of President, computer Chief software and Executive hardware Officer and systems and Chief components for Operating POS Officer applications. Paul J. Dunphy 79 Management Self-employed Management Consultant consulting. Dennis J. Lewis 44 Management Self-employed Management Consultant consulting. Thomas R. Schwar 62 Retired None Personal investments. Graham Y. Tanaka 51 President Tanaka Investment Capital advising. Management, Inc. (ii) Executive Officers of the Registrant Name Age Position -------------------------------------------------------------------------- Seth M. Lukash 52 Chairman of the Board of Directors, President, Chief Executive Officer, Chief Operating Officer and Director Daniel A. Bergeron 39 Vice President and Chief Financial Officer John MacWillie 50 Vice President of Technology and Strategic Business Development George T. Crandall 52 Vice President, Treasurer, Controller and Secretary Thomas F. Curtin, Jr. 41 Vice President of Human Resources Samuel J. Villanti 34 President, Ultimate Technology Corporation, a wholly-owned subsidiary of the Company Raymond J. Mueller 39 President, Progressive Software, Inc., a wholly-owned subsidiary of the Company Seth M. Lukash has been a senior executive officer of the Company since 1977 and has been a Director since 1979. He has served as Chairman of the Board of Directors of the Company since November 1988, Chief Executive Officer since August 1987, and President and Chief Operating Officer since June 1989. Mr. Lukash previously served as President of the Company from September 1983 to August 1988 and as Chief Operating Officer from September 1983 to August 1987. Mr. Lukash is the son of Alvin Lukash, a Director Emeritus of the Company. Daniel A. Bergeron has been a Vice President of the Company since March 19, 1998 and Chief Financial Officer since April 1, 1998. Prior to joining Tridex, Mr. Bergeron served as Vice President and Chief Financial Officer of the international manufacturing and engineering company Dorr-Oliver Incorporated. Prior to 1987, Mr. Bergeron held various financial management positions with Akzo Chemical and United Brands Company. John MacWillie joined Tridex in May 1998 as Vice President of Technology and Strategic Business Development. Prior to joining Tridex, Mr. MacWillie was a Vice President of the Gartner Group from March 1996 to May 1998 and was Director of Strategic Business Development at Symantec Corporation from 1993 to 1996. Previously, he was Vice President of Marketing at JYACC, Inc. and Chief Technology Officer at Telemetrics, Inc. George T. Crandall has been a Vice President of the Company since 1992, Treasurer since 1990 and Corporate Controller since 1989. Prior to joining Tridex in November 1988, Mr. Crandall was a consultant to Northeast Manufacturing Companies, Inc. and was previously employed by Revere Copper and Brass Incorporated. Thomas F. Curtin, Jr. has been Vice President of Human Resources of the Company since April 1995. In May 1997 the Board of Directors appointed him an executive officer. Prior to joining Tridex as Director of Human Resources in 1994, Mr. Curtin held human resource management positions with Lone Star Industries, Berol Corporation and Brockway Glass Company. Samuel J. Villanti was appointed President of Ultimate on October 12, 1998. Prior to joining Ultimate, Mr. Villanti was General Manager of Axiohm IPB's engineering and manufacturing facility in Ithaca, NY from March 1998 to October 1998. Previously, Mr. Villanti was employed in the management consulting practice of Price Waterhouse LLP from 1990 to 1995. Previously, he held various management positions with NCR Corporation. Raymond J. Mueller was appointed President of Progressive on April 17, 1998 upon its acquisition by Tridex. He joined Progressive in 1996 as manager of the Denver branch office and was Executive Vice President since October 1997. Prior to joining Progressive, Mr. Mueller was Vice President and Chief Information Officer of Richfield Hospitality Services, Inc. from 1994 to 1996 and was President of Tradeware Technologies, Inc. from 1980 to 1994. ITEM 2. PROPERTIES The Company's operations are currently conducted at the six facilities described below:
Size - Owned Approx. Sq. or Lease Location Operations Conducted Ft. Leased Expiration Date - - ---------------------------------------------------------------------------------------- Westport, Principal executive 5,000 Leased July 31, 2001 Connecticut offices Victor, New York Manufacturing 80,000 Leased January 31, 2002 facility Charlotte, North Product Development 37,600 Leased December 31, 2000 Carolina Denver, Colorado Product Development 2,800 Leased October 31, 1999 Seattle, Washington Product Development 800 Leased July 31, 1999 Bloomfield, Non-operating 23,000 Owned N/A Connecticut facility held for sale
The Company believes that its facilities generally are in good condition, adequately maintained and suitable for their present and contemplated uses. ITEM 3. LEGAL PROCEEDINGS See Item 1(C)(ix) "Environment" set forth above and Note 9 of the Notes to Consolidated Financial Statements included in this report. When Tridex acquired Progressive in April 1998, it granted Mr. Smith registration rights for his 714,000 shares of Tridex common stock issued as part of the purchase price. At the same closing, Mr. Smith agreed to deliver a tax form needed by Tridex to obtain favorable tax treatment of the purchase. Tridex made repeated requests for the tax form but it was not delivered until January 1999. Mr. Smith requested registration of his shares, and Tridex commenced preparation of a registration statement, but postponed its completion while waiting for Mr. Smith to deliver the tax form. During the last three months of 1998, counsel for Tridex met with and corresponded with counsel for Mr. Smith, stating that Tridex was preparing to pursue arbitration and other legal remedies against him. On January 5, 1999, Tridex received the executed tax form. On January 4, 1999, Mr. Smith filed a suit against Tridex and Progressive in the Federal District Court in North Carolina and served the papers at a later date. The suit seeks damages of up to $5.0 million plus a court order requiring Tridex to register the shares of its common stock issued to Mr. Smith as part of the purchase price. The suit also seeks a declaratory judgment to prevent Tridex from pursuing other claims which it has asserted against Mr. Smith in post-closing negotiations. Tridex has denied the substantive allegations in Mr. Smith's complaint. Tridex has made claims against Mr. Smith for breach of federal and state securities laws, fraud and misrepresentation. Tridex is seeking damages in an unspecified amount which is estimated to exceed Mr. Smith's claims against Tridex. At this phase of the litigation, the parties have not begun discovery. Although it is not possible to predict the outcome, Tridex believes it has valid defenses to Smith's claim and that the claims of Tridex and Progressive against Smith are meritorious. Tridex will aggressively defend against the claim made by Smith and aggressively pursue its own claims against him. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the last quarter of the year covered by this report. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market ("Nasdaq") under the symbol "TRDX." As of March 12, 1999 there were 1,183 holders of record of the common stock. The following table lists the high and low sales prices of the common stock reported during the years ended December 31, 1998, and 1997. Year Ended December 31, ------------------------------------------------------------- 1998 1997 ------------------------------------------------------------- High Low High Low ------------------------------------------------------------- January - March 8 1/8 4 11/16 18 1/4 (3 3/4) 12 1/2 (2 1/2) April - June 7 7/8 6 1/8 3 1/16 2 1/2 July - September 7 1/2 3 1/2 7 3 1/4 October - December 4 1/2 2 1/4 6 7/8 4 Amounts shown in parenthesis for the first quarter of 1997 are the adjusted sales prices provided to the Company by Nasdaq to reflect a pro rata allocation of the market prices for the Company's common stock as if the spin-off of TransAct Technologies Incorporated ("TransAct") by the Company had occurred prior to January 1, 1997. No dividends or other distributions on the common stock (other than the distribution of TransAct stock to Tridex shareholders in 1997) have been declared in more than ten years. The Company does not anticipate declaring dividends in the foreseeable future. The Company's credit agreement with Fleet National Bank ("Fleet") prohibits the payment of cash dividends for the term of the agreement. ITEM 6. SELECTED FINANCIAL DATA
Year Ended Nine Months Ended ------------------------------------------------------------------- December December December December December December 31, 1998 31, 1997 31, 1996 31, 1995 31, 1995 31, 1994 -------------------------------------------------------------------- (Dollars in thousands, except per share amounts) Statement of Operations Data: Net sales from continuing operations $ 43,504 $ 25,833 $ 22,325 $ 18,854 $ 14,393 $ 9,010 =================================================================== Income (loss) from continuing operations $(14,146) $ (568) $ 5,646 $ (670) $ (1,407) $ (786) =================================================================== Income (loss) from continuing operations per common- basic $ (2.33) $ (0.11) $ 1.44 $ (0.18) $ (0.38) $ (0.22) =================================================================== Cash dividends per common share None None None None None None ===================================================================
As of ---------------------------------------------------- December December December December December 31, 1998 31, 1997 31, 1996 31, 1995 31, 1994 ---------------------------------------------------- Balance Sheet Data: Total assets $52,953 $28,003 $33,972 $29,006 $26,949 ==================================================== Long term debt $19,341 None None $ 8,171 $ 6,443 ==================================================== ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements included in this report, including, but not limited to, statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations, which are not historical facts may be deemed to contain forward looking statements with respect to events the occurrence of which involves risks and uncertainties, including, but not limited to, the Company's expectations regarding net sales, gross profit, operating income and financial condition and the Company's evaluation of the Year 2000 issue. (A) Results of Operations As described in Note 3 of the Notes to Consolidated Financial Statements included in Item 8 of this report, in 1997 the Company completed the spin-off of TransAct and the sale of Cash Bases. The Selected Financial Data are derived from the Company's Consolidated Financial Statements, which have been restated from historical financial statements to present the results of operations of TransAct and Cash Bases as discontinued operations for all periods presented. The Consolidated Financial Statements may not necessarily reflect what the results of operations or the financial position of the Company would have been if TransAct and Cash Bases had been separate entities during the periods presented. The discussion and analysis set forth below are based upon continuing operations only. (i) Year ended December 31, 1998 compared to year ended December 31, 1997 Consolidated net sales for the year ended December 31, 1998 increased $17,671,000 (68%) to $43,504,000 from $25,833,000 for the prior year. The increase reflects sales of Progressive (which include software and hardware) from the date of acquisition, April 17, 1998, and greater volume of shipments of Ultimate's POS component products, particularly custom manufactured keyboards and pole displays, as well as distributed products. Consolidated gross profit increased $5,630,000 (91%) to $11,834,000 from $6,204,000 in the prior year, primarily as a result of the contribution of Progressive and greater volume of shipments by Ultimate. Consolidated gross profit margin increased to 27.2% of sales from 24.0% of sales in the prior year as a result of the addition of software sales from Progressive and a more favorable product mix and lower manufacturing costs from Ultimate. Consolidated engineering, design and product development costs (exclusive of capitalized software development costs), increased $2,128,000 to $2,821,000 from $693,000 in the prior year. The increase is primarily the result of the inclusion of such costs for Progressive. As a percentage of revenue, engineering, design and product development costs (exclusive of capitalized software development costs) increased to 6.5% in 1998 compared to 2.7% for 1997. Actual engineering, design and product development costs, including capitalized software costs of $1,731,000 increased to 10.5% in 1998 compared to 2.7% for 1997. The increase in absolute dollars is primarily due to expenditures for Progressive's IRIS Windows(R) NT(R) retail management software products for the quick serve, full serve, and casual dining market segments and new software products for the industry. Other software development initiatives include; enhancement of Progressive's release and version management capabilities, internationalization and translation of software products for specific foreign markets, and porting existing applications to new database systems. The Company intends to continue investing significant resources in new releases and products in the future. Consolidated selling, administrative and general expenses for the current year increased $3,052,000 (54%) to $8,713,000 from $5,661,000 in the prior year. The increase in selling, administrative and general expenses is primarily the result of the inclusion of such costs for Progressive and the inclusion of a non-recurring charge of approximately $310,000 associated with the due diligence review for a transaction that was not completed. Prior year administrative and general expenses include a non-cash expense of $1,225,000 related to a stock incentive compensation agreement with the principal executive officers of Ultimate. Operating expenses in the current year include the $17,600,000 write-off of in-process software technology acquired as part of the purchase of Progressive. Depreciation and amortization for the current year increased $2,382,000 to $3,246,000 from $864,000 in the prior year. The increase in amortization is primarily the result of amortizing goodwill, intangibles and existing and core technologies acquired with Progressive. Subsequent to the issuance of the Company's June 30, 1998 condensed consolidated financial statements, the SEC issued new guidance on its views regarding the valuation methodology used in determining purchased in-process technology expensed on the date of acquisition. In response to the new SEC guidance, the company has voluntarily recalculated the fair value of the purchased in-process software technology in accordance with the SEC staff's view. The revised valuation was based on estimates of the after tax net cash flows and gives explicit consideration to the SEC's views on purchased in-process technology as set forth in a September 9, 1998 letter from the SEC to the American Institute of Certified Public Accountants. Specifically, the revised valuation gives consideration to the following: (I) a fair market value premise was employed; (II) the value of the core technology was explicitly addressed, with a view toward ensuring the relative allocations to core technology and in-process technology were consistent with the relative contributions of each to the final product; and (III) the allocation to in-process technology was based on a calculation that considered only the efforts completed as of the transaction date, and only the cash flow associated with said completed efforts for one generation of the products currently in-process. The Company recorded a one time charge of $26.3 million in the second quarter of 1998 for purchased in-process technology that had not reached technological feasibility, had no alternative future use, and for which successful development was uncertain. The conclusion that the in-process development effort, or any material sub-component, had no alternative future use was reached in consultation with development personnel at Progressive and an independent technology consulting firm, acting on behalf of the Company. The in-process development related to a project to develop a Windows(R) NT(R) compliant POS software product. The primary tasks under development at the time of acquisition included writing code to work in a Windows environment and completing various POS and back office functions. The Company began to benefit from the acquired research and development related to the IRIS product in the third quarter 1998. Significant assumptions used to determine the value of in-process technology included several factors, including the following. First, a forecast of net cash flows that were expected to result from the development effort. Second, a percentage of completion estimated by considering a number of factors, including the costs invested to date relative to the expected total cost of the development effort and the amount of progress completed as of the transaction date, on a technological basis, relative to the overall technological achievements required to achieve the intended functionality of the eventual product. The technological issues were addressed by engineering representatives from both Progressive and an independent technology consulting firm engaged by the Company. Third, a discount rate of approximately 23%, which represents the Company's risk adjusted weighted average cost of capital, was applied to the cash flows resulting from the revenues expected to be generated from the IRIS project. As a result of the revised valuation, the amount of purchase price allocated to in-process technology decreased from $26.3 million to $17.6 million and the amount ascribed to purchased existing and core technology and goodwill and other intangibles increased from $14.8 million to $23.5 million. Through the second quarter of 1998, the Company expected Progressive to be accretive to earnings. For reasons which are now the subject of litigation with its former owner, Progressive had a segment operating loss of $2,111,000 for the current year. See "Legal Proceedings" and Note 12 of the notes to consolidated financial statements included in this report. Consolidated operating income (loss) for the current year was a loss of $2,964,000 (exclusive of the write-off of in-process software technology) compared to a loss of $1,014,000 in the prior year. The loss in the current year was primarily the result of the increase in selling, administrative and general expenses. Consolidated operating income (loss) as a percentage of sales was a 6.8% loss compared to a 3.9% loss in the prior year. Net interest expense for the current year was $1,735,000 compared to net interest income of $603,000 in the prior year. Interest expense for the period primarily consists of interest on debt incurred to acquire Progressive. Interest income for the prior year primarily consisted of interest earned on temporary cash investments and interest earned on receivables from the sales of stock. Other non-operating expense of $22,000 for the current year represents costs associated with non-operating properties held for sale. Other non-operating expenses in the prior year's period include a provision of $196,000 to write-down the value of real estate held for sale. Provision (benefit) for income taxes in the current year reflects an effective tax rate of 36.6% compared to 7.2% in the prior year. The benefit recorded in the current year reflects the recognition of deferred taxes of approximately $5,814,000 related to the write-off of in-process software technology. Net loss for the current year was $14,146,000 (or $2.33 per share) as compared to net loss of $35,000 (or $.01 per share) for the prior year. The average number of common shares outstanding increased to 6,077,000 shares from 5,157,000 shares in the prior year. (ii) Year ended December 31, 1997 compared to year ended December 31, 1996 Consolidated net sales for the year ended December 31, 1997 increased $3,508,000 (16%) to $25,833,000 from $22,325,000 for the prior year. The increase reflects greater volume of shipments of certain POS terminals, custom manufactured keyboards and customer displays. Consolidated gross profit increased $250,000 (4%) to $6,204,000 from $5,954,000 in the prior year, primarily due to the increase in the volume of shipments of POS terminal systems. The gross margin declined to 24.0% from 26.7% in the prior year as a result of a change in sales mix to a higher proportion of distributed products and a lower proportion of manufactured products, particularly custom keyboards and pole displays. Consolidated engineering, design and product development costs increased $246,000 (55%) to $693,000 from $447,000 in the prior year. The increase reflects the ongoing cost of enhancing existing products and developing new products, such as Ultimate's Series 600 POS Keyboard and Series 7000 and 8000 Compact PC's / Network Computers. Consolidated selling, administrative and general expenses increased $1,516,000 (37%) to $5,661,000 from $4,145,000 in the prior year. Administrative and general expense in 1997 include a non-cash expense of $1,225,000 related to a stock incentive compensation agreement with the principal executive officers of Ultimate. General expenses in 1996 included a charge of $320,000 to amend an unfunded pension arrangement established in 1995. Selling expenses increased $260,000 in 1997 primarily as the result of more intensive efforts in the selling of POS terminal systems including increased advertising and sales support personnel. The operating loss was $1,014,000 compared to an operating income of $306,000 in the prior year. The operating loss as a percent of revenue was 3.9% in 1997 compared to operating income of 1.4% of revenue in the prior year. The loss in 1997 was primarily the result of the increase in selling, administrative and general expenses, particularly the expense of the stock incentive compensation agreement discussed above. Net interest income was $603,000 compared to net interest expense of $827,000 in the prior year. Interest income for 1997 primarily consists of interest earned on temporary cash investments. The Company had no debt outstanding at the end of 1997. Other non-operating expense, (net) includes a provision of $196,000 to write-down the value of real estate held for sale, based upon the declining market value of the property. The prior year includes an additional provision of $163,000 for loss on the anticipated disposal of real estate held for sale. Non-operating income for the prior year includes the non-taxable gain of $6,200,000 from the initial public offering of TransAct (the "TransAct Offering"). The income tax benefit is $44,000 compared to $112,000 in 1996. The effective tax rate is related to state income taxes and non-deductible amortization of goodwill. The 1996 provision was benefited by the $6,200,000 non-taxable gain recognized from the TransAct Offering. The loss from continuing operations was $568,000 (or $0.11 per share basic) compared to income of $5,646,000 (or $1.44 per share - basic) in the prior year. Exclusive of the one-time gain from the TransAct Offering, the loss from continuing operations was $554,000 (or $0.14 per share - basic) in 1996. Discontinued operations reflect the equity in the income of TransAct and Cash Bases. Spin-off related expenses consist of professional services and other costs related to the spin-off of TransAct. Net loss was $35,000 (or $0.01 per share - basic and diluted) as compared to net income of $8,848,000 (or $2.26 per share - basic, $2.00 per share -diluted) for the prior year. The average number of common shares - basic outstanding was 5,157,000 during 1997 compared to 3,913,000 during 1996. (iii) Liquidity and Capital Resources At December 31, 1998, the Company had availability of $1,244,000 under the Company's working capital revolving credit facility. The Company's working capital at December 31, 1998 was $1,900,000 compared with $19,490,000 at December 31, 1997. The current ratio was 1.1 : 1.0 at December 31, 1998 and 6.2 : 1.0 at December 31, 1997. The decrease in working capital is primarily the result of use of funds to finance the current operations of Progressive from the date of purchase and the purchase of Progressive. The purchase price of Progressive was $47,594,000 including acquisition costs. The consideration paid for Progressive was comprised of 714,000 shares of Tridex common stock valued at $4,998,000 and the balance in cash, including payment of Progressive's line of credit of $9,632,000. The cash portion of the purchase price was financed by: (a) $12,000,000 borrowed under a senior term loan from Fleet, (b) $1,736,000 borrowed under a working capital facility with Fleet, (c) $11,000,000 proceeds from the sale of notes to Massachusetts Mutual Life Insurance Company and related investors ("the MassMutual Investors"), (d) $2,000,000 proceeds from the sale of 285,714 shares of Tridex common stock to the MassMutual Investors and (e) the balance from the Company's cash. The Company also issued to the MassMutual Investors stock purchase warrants for 350,931 shares of common stock, no par value, at an exercise price of $7.00 per share. The value of the warrants, $1,228,000, has been recorded as a discount to the principal amount of the outstanding notes and is being amortized to interest expense over the term of the notes using the interest rate method. See Note 7 to the Company's financial statements of this Form 10-K for a description of the Fleet credit agreement and the notes sold to the MassMutual Investors. As of December 31, 1998, the Company was not in compliance with the covenants under its loans from Fleet. Those covenants related to the ratio of senior funded debt to EBITDA, the ratio of total consolidated funded debt to EBITDA, the interest coverage ratio and the fixed charge coverage ratio. On March 30, 1999, Fleet agreed to waive the non-compliance as of December 31, 1998 and to amend the covenants. In addition, Fleet imposed a temporary reduction of $2,000,000 in the availability under the Working Capital Facility. The Company paid a fee to Fleet of $70,000 for similar amendments as of September 30, 1998, which is being amortized over the remaining term of the Credit Agreement. The current amendment increases the interest rate on Credit Agreement obligations by 1% and requires the Company to maintain a minimum interest coverage ratio and a minimum net worth. The current amendment to the Credit Facility allows the Company to defer its March 31, 1999 debt payment of $300,000 to June 30, 1999. The Company will pay a fee to Fleet of $50,000 on June 30, 1999 for this amendment. On June 30, 1999, the working capital facility with Fleet matures. The Company is in discussions with Fleet to continue the facility and with other financial institutions to replace the facility. The notes issued to the MassMutual Investors impose certain financial covenants, including minimum consolidated net worth, minimum fixed charge coverage ratio and maximum leverage ratio. As of December 31, 1998, the Company was not in compliance with the covenants related to the fixed charge coverage ratio and the leverage ratio. On March 26, 1999, the MassMutual Investors agreed to waive the non-compliance as of December 31, 1998 and to amend the financial covenants. The Company paid a fee to the MassMutual Investors of $39,600 for similar amendments as of September 30, 1998, which is being amortized over the remaining term of the Notes. The current amendment allows the Company to defer its April 17, 1999 interest payment of $330,000 to July 17, 1999. The amended covenants require the Company to maintain a minimum interest coverage ratio and a minimum net worth. In consideration for the amendment to the notes and in exchange for surrender of the warrant issued in 1998 for 350,931 shares of common stock, no par value, with an exercise price of $7.00 per share, the Company has issued a new warrant for 800,000 shares of common stock, no par value, at an exercise price at market value of date of issuance per share, which was $2.03125. At December 31, 1998, the Company had no material commitment for capital expenditures. The Company believes that funds generated from operations of the combined companies and borrowings under the Working Capital Facility of the Credit Agreement, as necessary, will continue to satisfy its working capital needs. (iv) The Year 2000 The Year 2000 issue is the result of computer programs being written using two digits rather than four to represent the year. Computer programs that have a time-sensitive program may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures, miscalculations, temporary inability to process transactions or engage in other normal business activities. The Company has identified the following areas which could be affected by the Year 2000 issue: Company products, internally used systems and software, products and/or services provided by key third parties and business partners, and internal systems used by key customers. The Company created a Year 2000 project team to address each area and report their findings to the Board of Directors on a quarterly basis. The team's assignment is to first identify possible areas of non-compliance, second develop a fix or solution to the non-compliance, and third to implement and test the fix and/or solution. The Company has been performing extensive testing on software products and third party components used in products sold or licensed by the Company to its customers. The Company has tested and continues to test its current DOS and Windows(R) NT(R) software releases. Testing is not being performed with respect to legacy products that the Company no longer sells or supports. When testing determines that a product is not Year 2000 compliant, the Company has developed or will develop a fix or a migration path to a product that is Year 2000 compliant. As of this date no significant issues have been identified. The expense to upgrade product applications to be Year 2000 compliant has been expensed as incurred. Part of the Company's Year 2000 initiative is to verify, to the best of the Company's ability, that the internal systems of key vendors and suppliers are Year 2000 compliant. The Company has sent questionnaires to and has received assurances from key vendors and suppliers that any Year 2000 issues that they suffer will not have a material adverse effect on the Company. However, there can be no absolute assurance that key vendors and suppliers will convert their systems in a timely manner to avoid an adverse material effect on the Company. The Company believes that its current and future communication and actions with key vendors and suppliers will minimize these risks. The Company currently uses three internal information systems. Each system has been updated with new releases from its vendor to bring the system into Year 2000 compliance. Two of the three systems have been installed and tested for compliance. The third system has been installed and is in the process of being tested for Year 2000 compliance. The expense incurred to date, as of December 31, 1998, was approximately $200,000. The cost to finish the testing will be expensed as incurred and is not expected to be material. The Company has other internal systems that are used in the development of products and services. Each of these systems has been tested for Year 2000 compliance. The Company has received compliance certificates from these systems' vendors. The Company is continuing to test these systems and expects to finish such testing by the second quarter of 1999. All costs will be expensed as incurred and are not expected to be material. Part of the Company's Year 2000 initiative is to verify, to the best of the Company's ability, that the internal processing systems of the Company's customers are Year 2000 compliant. The Company has sent questionnaires to all of its current customers asking for verification that their systems are Year 2000 compliant and, if not, to identify those open issues that may have a material adverse effect on the Company. As of December 31, 1998, the Company has received responses from 60% of its customer base. The Company will continue to follow-up with the remaining 40% and hopes to have a 90% response by the end of the third quarter 1999. However, there can be no absolute assurance that customers will convert their internal systems in a timely manner to avoid a material adverse effect on the Company. The Company believes that its current and future communication and actions with customers will minimize these risks. The Company has expensed costs as incurred related to the Year 2000 analysis and remediation process. The majority of the costs incurred to date were internal labor costs associated to analyzing existing systems and implementing remediation, including testing. Costs were incurred for software upgrades for internal business systems and replacement of software tools used in product development. All costs to finish the Year 2000 effort will be expensed as incurred and are not expected to have an adverse material effect on the Company. The Company believes its efforts have identified and corrected the crucial Year 2000 compliance issues. The Company expects to complete the Year 2000 project by the end of the third quarter and the Company will continue to test through the remainder of 1999 and the Year 2000. If the Company, its large customers, its key vendors, and significant suppliers are unable to resolve Year 2000 processing issues in a timely manner, it could have a material adverse effect on the operations, liquidity, and capital resources of the Company. (B) Impact of Inflation Tridex believes that its business has not been affected to a significant degree by inflationary trends because of the low rate of inflation during the past three years and cost reduction programs at each of its operations. Tridex believes that any increase in cost due to inflation can be recovered by price increases or offset by cost reductions and productivity improvements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Number ------ Report of Independent Accountants 15 Tridex Corporation and Subsidiaries consolidated financial statements: Consolidated balance sheets as of December 31, 1998 and 1997. 16 Consolidated statements of operations for the years ended December 31, 1998, 1997 and 1996. 17 Consolidated statements of shareholders' equity for the years ended December 31, 1998 and 1997. 18 Consolidated statements of cash flows for the years ended December 31, 1998, 1997 and 1996. 19 Notes to consolidated financial statements. 20 Financial Statement Schedules - All schedules are omitted since the required information is either (a) not present or not present in amounts sufficient to require submission of the schedule or (b) included in the financial statements or notes thereto. Report of Independent Accountants To the Board of Directors and Shareholders of Tridex Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Tridex Corporation and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Hartford, Connecticut March 30, 1999 TRIDEX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) December 31, ---------------------------------- 1998 1997 ---------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 18 $ 11,839 Short term investments 4,403 Receivables (Note 4) 7,806 3,043 Inventories (Note 5) 7,941 2,987 Deferred tax assets (Note 11) 1,092 659 Other current assets 278 343 ---------------------------------- Total current assets 17,135 23,274 ---------------------------------- Plant and equipment: Machinery, furniture and equipment 3,775 2,138 Leasehold improvements 476 298 ---------------------------------- 4,251 2,436 Less accumulated depreciation (1,806) (1,195) ---------------------------------- 2,445 1,241 ---------------------------------- Goodwill and intangible assets, net of accumulated amortization of $3,893 in 1998 and $2,460 in 1997 13,803 2,517 Purchased and internally developed software costs, net of accumulated amortization of $1,212 11,319 Deferred tax assets 8,000 206 Other assets 251 765 ---------------------------------- $ 52,953 $ 28,003 ---------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank loan payable $ 4,756 Current portion of long term debt 1,650 Accounts payable 5,875 $ 1,820 Accrued liabilities 1,931 1,806 Deferred revenue 933 Income taxes payable 90 158 ---------------------------------- Total current liabilities 15,235 3,784 ---------------------------------- Long term debt, less current portion 19,341 Commitments and contingencies (Note 9) Shareholders' equity (Notes 1 and 10): Preferred stock, $1 par value; authorized 2,000,000 shares; Issued none Common stock, no par value, stated value $.25; authorized 10,000,000 shares; issued 6,526,187 and 5,497,808 shares 1,634 1,377 Additional paid-in capital 33,328 25,273 Accumulated deficit (14,819) (673) Receivable from sale of stock (801) (816) Common stock held in treasury, at cost, 157,898 and 146,398 shares (965) (942) ---------------------------------- 18,377 24,219 ---------------------------------- $ 52,953 $ 28,003 ================================== See notes to consolidated financial statements. TRIDEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts)
Year Ended December 31, ---------------------------------------------- 1998 1997 1996 ---------------------------------------------- Net sales $ 43,504 $ 25,833 $ 22,325 ---------------------------------------------- Operating costs and expenses: Cost of sales 31,670 19,629 16,371 Engineering, design and product development costs 2,821 693 447 Selling, administrative and general expenses 8,713 5,661 4,145 Depreciation and amortization 3,264 864 1,056 Purchased in-process software technology (Note 2) 17,600 ---------------------------------------------- 64,068 26,847 22,019 ---------------------------------------------- Operating income (loss) (20,564) (1,014) 306 Other charges (income): Gain on sale of subsidiary stock (Note 3) (6,200) Interest (income) expense, net 1,735 (603) 827 Other, net 22 201 145 ---------------------------------------------- 1,757 (402) (5,228) ---------------------------------------------- Income (loss) from continuing operations before income taxes (22,321) (612) 5,534 Benefit for income taxes (8,175) (44) (112) ---------------------------------------------- Income (loss) from continuing operations (14,146) (568) 5,646 Discontinued operations (Note 3): Equity in subsidiary's income from discontinued operations 533 3,454 Spin-off related expenses, net of taxes of $68 252 ---------------------------------------------- Net income (loss) $ (14,146) $ (35) $ 8,848 ============================================== Earnings (loss) per share - basic: Income (loss) from continuing operations $ (2.33) $ (.11) $ 1.44 Income from discontinued operations .10 0.82 ---------------------------------------------- Net income (loss) $ (2.33) $ (.01) $ 2.26 ============================================== Earnings (loss) per share - diluted: Income (loss) from continuing operations $ (2.33) $ (.11) $ 1.30 Income from discontinued operations .10 0.70 ---------------------------------------------- Net income (loss) $ (2.33) $ (.01) $ 2.00 ============================================== Weighted average shares outstanding: Basic 6,077,000 5,157,000 3,913,000 ============================================== Diluted 6,077,000 5,331,000 4,599,000 ==============================================
See notes to consolidated financial statements. TRIDEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands)
Common Stock Held Additional Receivable Common Stock In Treasury Paid-In Accumulate From Sale Shares Amount Shares Amount Capital Deficit Of Stock ------------------------------------------------------------------------ Balance, December 31, 1995 3,900,807 $ 978 119,996 $ (828) $21,939 $(6,609) Exercise of warrants and stock options 147,414 37 482 Purchase of treasury shares 4,502 (45) Conversion of debentures 112,210 28 940 Net Income 8,848 ------------------------------------------------------------------------ Balance, December 31, 1996 4,160,431 1,043 124,498 (873) 23,361 2,239 Exercise of warrants and stock options 859,932 215 6,181 $ (816) Conversion of notes and debentures 377,445 94 3,492 Distribution of TransAct shares (9,584) (2,877) Issuance of stock incentive compensation shares 100,000 25 1,618 Purchase of treasury shares 21,900 (69) Tax benefit related to employee stock sales 205 Net loss (35) ------------------------------------------------------------------------ Balance, December 31,1997 5,497,808 1,377 146,398 (942) 25,273 (673) (816) Exercise of stock options 28,665 7 74 15 Issuance of acquisition shares 714,000 179 4,819 Sale of shares 285,714 71 1,929 Forfeiture of stock incentive compensation shares 11,500 (23) Tax benefit related to employee stock sales 5 Warrants issued 1,228 Net loss (14,146) ------------------------------------------------------------------------ Balance, December 31, 1998 6,526,187 $1,634 157,898 $ (965) $33,328 $(14,819) $ (801) ========================================================================
See notes to consolidated financial statements. TRIDEX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
Year Ended December 31, ---------------------------------------- 1998 1997 1996 ---------------------------------------- Cash flows from operating activities: Net income (loss) $(14,146) $ (35) $ 8,848 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 3,264 864 1,056 Debt discount amortization 119 Charge for purchased in-process software technology 17,600 Deferred income taxes (8,227) (114) 537 Stock incentive compensation expense (23) 1,225 Loss on disposal of assets 194 27 Equity used in subsidiary's income from discontinued operations (533) (3,454) Gain on sale of subsidiary stock (6,200) Changes in operating assets and liabilities: Receivables (620) (260) (656) Inventory (601) 1,271 (2,377) Other current assets (157) 53 36 Other assets (91) 46 (131) Accounts payable, accrued liabilities, deferred revenue and income taxes payable 1,940 (526) 788 ---------------------------------------- Net cash provided by (used in) operating activities (942) 2,185 (1,526) ---------------------------------------- Cash flows from investing activities: Purchases of plant and equipment (767) (546) (250) Capitalized software development costs (1,731) Net cash paid for acquisition (42,596) Proceeds from sale of assets 855 Proceeds from sale of discontinued operations 5,200 Receipt of principal of note receivable from TransAct 1,000 ---------------------------------------- Net cash provided by (used in) investing activities (44,239) 5,654 (250) ---------------------------------------- Cash flows from financing activities: Net change in borrowings under line of credit 4,756 Net proceeds from issuance of long term debt 23,000 Principal payments on long term borrowings (900) (5,850) Net decrease (increase) in short term investments 4,403 (4,403) Proceeds from issuance of shares and exercise of stock options and warrants 2,101 5,580 474 Net transactions with discontinued operations 105 1,319 Proceeds from repayment of TransAct intercompany debt 7,500 Purchase of treasury shares (69) ---------------------------------------- Net cash provided by financing activities 33,360 1,213 3,443 ---------------------------------------- Increase (decrease) in cash and cash equivalents (11,821) 9,052 1,667 Cash and cash equivalents at beginning of period 11,839 2,787 822 ---------------------------------------- Cash and cash equivalents at end of period $ 18 $ 11,839 $ 2,489 ======================================== Supplemental cash flow information: Interest paid $ 1,649 $ 96 $ 843 Income taxes paid $ 115 $ 197 $ 972 Supplemental non-cash investing and financing activities: Stock issued for acquisition $ 4,998 Conversion of convertible debt to common stock $ 3,710 $ 1,010
See notes to consolidated financial statements. TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business and summary of significant accounting policies: Business: Tridex Corporation (the "Company"), through its wholly-owned subsidiaries Ultimate Technology Corporation ("Ultimate"), Progressive Software, Inc. ("Progressive"), and its Tridex Ribbons Division, is a leading designer, developer, manufacturer, marketer and integrator of high quality software and hardware systems and components for the point-of-sale ("POS") industry and ribbon cartridges for specialty dot matrix printers. Principles of consolidation: The accompanying consolidated financial statements include the accounts of the Company after elimination of all material intercompany accounts and transactions. See Note 3 for treatment of discontinued operations. Cash and cash equivalents: Cash equivalents consist primarily of certificates of deposit with maturities of less than ninety days and are carried at cost, which approximates market value. Short-term investments: Short-term investments consist primarily of commercial paper with original maturities at date of purchase beyond three months and less than 12 months. Such short-term investments are carried at cost, which approximates fair value, due to the short period of time to maturity. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency: The financial position and results of operations of the Company's foreign subsidiaries are measured using local currency as the functional currency. Assets and liabilities of such subsidiaries have been translated at current exchange rates, and related revenues and expenses have been translated at weighted average exchange rates. Inventories: Inventories are stated at the lower of cost (principally first-in, first-out) or market. Plant and equipment and depreciation: Plant and equipment and leasehold improvements are stated at cost. Depreciation is provided for primarily by the straight-line method over the estimated useful lives. The estimated useful life of machinery, furniture and equipment is five to ten years. Leasehold improvements are amortized over the shorter of the term of the lease or the useful life of the asset. Goodwill and intangible assets: Goodwill and intangible assets were $13,803,000 and $2,517,000 at December 31, 1998 and 1997, respectively. The amounts are the result of the acquisition of Progressive in 1998 and of Ultimate in 1993 and are being amortized on the straight-line method over ten years. The Company periodically reviews goodwill to assess recoverability based upon expectations of non-discounted cash flows from operations. The Company believes that no material impairment of goodwill exists at December 31, 1998. Purchased and internally developed software costs: The Company capitalizes software development costs in accordance with Statement of Financial Accounting Standards Number 86 "Accounting for the Costs of Computer Software to Be Sold Leased, or Otherwise Marketed" (SFAS 86). The capitalization of software development costs begins when the technological feasibility of a product has been established by development of a working model and ends when the product is available for general release to customers. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgement by management with respect to certain external factors, including, but not limited to, anticipated future revenues, estimated economic life and changes in software and hardware technologies. Annual amortization charged to cost of sales will be computed on an individual product basis and will be the greater of: (a) the ratio of current gross revenues for a product to the total current and anticipated future gross revenues for the product, or (b) the straight-line method over the estimated economic life of the product, which is generally estimated to be 3 years. As of TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business and summary of significant accounting policies: (continued) December 31, 1998 and 1997, capitalized software development costs were $1,731,000 and zero, respectively. There was no amortization expense related to the capitalized software development costs for the year ended December 31, 1998. As of December 31, 1998 and 1997, purchased software costs associated with the acquisition of Progressive were $9,588,000 and zero, respectively. There was $1,212,000 of amortization expense related to the purchase software costs for the year ended December 31, 1998. All other research and development expenditures are charged to research and development expense in the period incurred. Other assets: Included in other assets at December 31, 1998 and 1997 is a note receivable from a corporate officer of $125,000, which bears interest at 8.5%. Also included in other assets at December 31, 1997 is the investment in Cash Bases of $605,000. Receivable from sale of stock: In connection with the exercise of options in 1997, the Company offered loans to all employees whose total exercise price of options under the Tridex Corporation 1989 Long Term Incentive Plan (the "1989 Plan") exceeded $50,000. At December 31, 1998, one such loan was outstanding in the amount of $801,000. The loan is a full recourse loan due in June, 1999, bears interest at the rate of 7.577% and is secured by a pledge of the shares acquired by the employee through the exercise of the options. Revenue recognition: Revenue is generated from sales of hardware systems and components and from licensing software systems under noncancelable license agreements through direct and indirect channels. The Company also generates revenues from customer support and maintenance, and from implementation and training services provided to customers. Revenue on software sales is recognized in accordance with Statement of Position SOP 97-2, "Software Revenue Recognition" (SOP 97-2). Under SOP 97-2, software license revenues through the Company's direct sales channels are recognized when a noncancelable license agreement has been executed, fees are fixed and determinable, the software has been delivered, accepted by the customer if acceptance is required by the contract and other than perfunctory, and collection is considered probable. Software license revenues through the Company's indirect sales channel are recognized as such fees are reported to the Company or when minimum license payments are stated in the contract. Maintenance revenues are recognized ratably over the maintenance period, generally one year. Revenues from implementation and training services are recognized as services are performed. The Company may enter into contracts which provide hardware, software license, and service elements. As such service elements are not essential to functionality of the software, in accordance with SOP 97-2, the hardware and license fees are generally recognized upon delivery of the respective elements and the service revenues are recognized when performed. Deferred revenue is comprised of payments received in advance of product delivery, maintenance and other services which have been paid by customers prior to services being performed. Sales to Lowe's Companies, Inc. accounted for approximately 12%, 10% and 22% of consolidated net sales for the years ended December 31, 1998, December 31, 1997 and December 31, 1996, respectively. Sales to Starbucks Coffee Company ("Starbucks") accounted for approximately 10% of consolidated net sales for the year ended December 31, 1998. Stock based compensation: The Company applies APB Opinion 25 and related interpretations in accounting for its stock option plan. Under APB 25, compensation expense is recognized to the extent that the fair market value of the underlying stock on the date of grant exceeds the exercise price of the employee stock option. Additional TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business and summary of significant accounting policies: (continued) disclosures required under Financial Accounting Standards Board Statement No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), are included in Note 10, Stock Options and Warrants. Income taxes: Income tax expense is based on estimated taxes payable or refundable on a tax return basis for the current year and changes in the amount of deferred tax assets and liabilities during the year. Deferred income taxes are provided for revenue and expenses that are recognized in different periods for income tax and financial statement purposes. The Company accounts for income taxes in accordance with FAS 109 "Accounting for Income Taxes," which mandates the liability method for computing deferred income taxes. The objective of the liability method is to recognize the amount of current and deferred taxes payable or refundable at the financial statement date resulting from all events that have been recognized in the financial statement based upon the provisions of enacted tax laws. See Note 11 for a further discussion. Earnings (loss) per common share: Basic earnings (loss) per common share is based on the weighted average number of common shares outstanding during the period. Diluted earnings per common share assumes the exercise of options and warrants and the conversion of dilutive securities, when the result is dilutive. For the years ending December 31, 1998 and 1997, the basic and diluted per share amounts were the same. The following is a reconciliation of the earnings per share for the year ended December 31, 1996: Net Income Average Shares Per Share Amount ------------------------------------------------ Basic earnings per share $8,848 3,913 $ 2.26 Diluted effect of options, warrants and assumed conversion of convertible debt 686 Income impact from assumed conversions 341 ------------------------------------------------ Diluted earnings per share $9,189 4,599 $ 2.00 ================================================ 2. Acquisition of Progressive Software, Inc.: On April 17, 1998, the Company purchased all of the issued and outstanding shares of privately held Progressive, a software and systems provider for the restaurant and specialty retail industries. The acquisition of Progressive was accounted for by the purchase method. Accordingly, the results of operations of Progressive have been included in the accompanying consolidation financial statements from the date of acquisition. The purchase price of Progressive was $47,594,000 including acquisition costs. The consideration paid for Progressive was comprised of 714,000 shares of Tridex common stock valued at $4,998,000 and the balance in cash, including payment of Progressive's line of credit of $9,632,000. The cash portion of the purchase price was financed by: (a) $12,000,000 borrowed under a senior term loan from Fleet National Bank ("Fleet"), (b) $11,000,000 proceeds from the sale of senior subordinated notes to Massachusetts Mutual Life Insurance Company, MassMutual Corporate Investors, MassMutual Participation Investors and MassMutual Corporate Value Partners Limited (the "MassMutual Investors"), (c) $2,000,000 proceeds from the sale of 285,714 shares of Tridex common stock to the MassMutual Investors, (d) $1,736,000 borrowed under a working capital facility with Fleet, and (e) the balance from the Company's cash and short tem investments. The Company also issued to the MassMutual Investors stock purchase warrants for 350,931 shares of common stock at an exercise price of $7.00 per share. The value of the warrants of $1,228,000 was recorded as a discount to the principal amount of the outstanding notes and is being amortized to interest expense over the term of the notes using the interest rate method. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The tangible net assets consist primarily of accounts receivable of $4,143,000, inventory of $4,353,000, equipment and leasehold improvements of $1,056,000, other assets of $28,000 and liabilities TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS assumed of $3,105,000. On April 17, 1998 a valuation of all intangible assets of Progressive was performed by an independent appraisal firm in conformity with the Uniform Standards of Professional Appraisal Practice of the Appraisal Foundation. The intangible assets included in-process software technology projects, among other assets, which were related to research and development that had not reached technological feasibility and for which there was no alternative future use. The value of the purchased in-process software technology was charged to expense in accordance with applicable accounting rules during the quarter ended June 30, 1998. On September 9, 1998, the SEC staff notified the American Institute of Certified Public Accountants ("AICPA") that it had concerns with respect to the common methodologies used to calculate the fair market value of purchased in-process software technology. The Company has voluntarily recalculated the fair market value of the purchased in-process software technology in accordance with the SEC staff's new view. As a result, the Company has increased the allocation of the purchase price to goodwill, other intangibles and purchased existing and core technology and has decreased the allocation to purchased in-process software technology. The amount of the purchase price allocated to in-process research and development was determined by estimating that the stage of completion at the date of acquisition was 89%, estimating cash flows resulting from the expected revenues generated from the project, and discounting the net cash flows back to their present value using a discount rate of 23%, which represents an appropriate risk premium to the Company's weighted average cost of capital. In process technology under development at the date of acquisition that had not established technological feasibility and for which no alternative use was identified were written off in accordance with generally accepted accounting principles. If this project is not successfully developed, the Company may not realize the value assigned to the in-process research and development projects. The goodwill and other intangibles and purchased existing and core technology are being amortized over five to seven years. The allocation of the purchase price was as follows: As Reported As Restated ----------- ----------- Tangible net assets $ 6,475 $ 6,475 Purchased in-process software technology 26,300 17,600 Purchased existing and core technology 6,900 10,800 Estimated goodwill and other intangibles 7,919 12,719 ----------- ----------- $ 47,594 $ 47,594 =========== =========== The following unaudited pro forma data reflect the acquisition of Progressive as if the acquisition had occurred at the beginning of 1998 and 1997, but exclude the one-time charge for in-process software technology, discussed above. The pro forma financial information is not necessarily indicative of the combined results that would have occurred had the acquisition taken place at the beginning of the period, nor is it necessarily indicative of the results that may occur in the future. Year Ended December 31, ------------------------------------------------ 1998 1997 ---- ---- (Dollars in thousands, except per share amounts) Net sales $ 49,970 $ 59,651 Operating loss $ (4,468) $ (2,225) Net loss $ (4,093) $ (3,394) Loss per share - basic $ (0.64) $ (0.55) 3. Discontinued Operations: On March 31, 1997 the Company effected the distribution of its remaining 5,400,000 shares of common stock of its former subsidiary, TransAct Technologies Incorporated ("TransAct"), to Tridex stockholders on the basis of 1.005 shares of TransAct common stock for each share of Tridex common stock owned. On May 29, 1997 Tridex sold its wholly-owned subsidiary Cash Bases GB Limited ("Cash Bases") to a group comprised of the executive directors of Cash Bases and Lloyds Development Capital Limited for up to TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS $6,200,000, consisting of $5,200,000 in cash, a $250,000 unsecured promissory note bearing interest at the rate of 10% per annum payable in full on April 30, 2000, contingent payments of up to $750,000 depending upon Cash Bases' earnings before interest and a 10% equity stake in the newly organized buyer Cash Bases Group Limited ("Cash Bases Group"). On February 25, 1998 the Company entered into an agreement with Cash Bases Group whereby the Company sold its remaining equity interest in Cash Bases Group, the $250,000 principal amount of the note receivable and the future contingency payments for an aggregate settlement amount of $855,000 in cash. Proceeds of the settlement were received in March 1998. The Consolidated Financial Statements have been restated to present the results of operations of TransAct and Cash Bases as discontinued operations. Such results are summarized below. Year Ended December 31, ----------------------------------- 1997 1996 ----------------------------------- (Dollars in thousands, except per share amounts) Net sales $20,317 $56,862 Operating income 2,029 6,295 Net income 533 3,202 Earnings per share basic 0.10 0.82 4. Receivables: Receivables are net of the allowance for doubtful accounts. The reconciliation of the allowance for doubtful accounts is as follows: Year Ended December 31, ---------------------------------------------- 1998 1997 1996 ---------------------------------------------- (Dollars in thousands) Balance at beginning of year $ 20 $ 70 $ 31 Provision for doubtful accounts 300 80 44 Accounts written off, net of recoveries (1) (130) (5) ---------------------------------------------- Balance at end of year $ 319 $ 20 $ 70 ============================================== 5. Inventories: The components of inventories are: December 31, ----------------------------------- 1998 1997 ----------------------------------- (Dollars in thousands) Raw materials and component parts $3,011 $2,097 Work-in-process 37 75 Finished goods 4,893 815 ----------------------------------- $7,941 $2,987 =================================== 6. Accrued liabilities: The components of accrued liabilities are: December 31, ----------------------------------- 1998 1997 ----------------------------------- (Dollars in thousands) Payroll, fringe benefits and commissions $ 278 $ 402 Unfunded pension obligation 530 555 Environmental matters 258 262 Interest 298 Other 567 587 ----------------------------------- $1,931 $1,806 =================================== TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Bank credit agreement and long term debt: On April 17, 1998, the Company entered into a Credit Agreement (the "Credit Agreement") with Fleet National Bank ("Fleet") which provides for an $8 million working capital facility (the "Working Capital Facility") and a $12 million term loan facility (the "Term Loan"). The Working Capital Facility expires on June 30, 1999 and bears a non-utilization fee on the unused facility ranging from .25% to .625% depending upon certain performance criteria. The Term Loan requires the Company to make quarterly principal payments commencing June 30, 1998 in the amount of $300,000 per quarter during the first year, $450,000 per quarter during the second year and $750,000 per quarter through termination on March 31, 2003. The Credit Agreement allows the Company to borrow at interest rates based upon Fleet's prime rate, plus a margin of up to one percentage point, depending upon certain performance criteria. At the Company's option, it may borrow at interest rates based upon LIBOR, plus a margin ranging from 1.25 to 2.75 percentage points, depending upon certain performance criteria. Interest on prime rate-based loans is payable monthly. Interest on LIBOR-based loans is payable at the end of the LIBOR measuring period. At December 31, 1998 the interest rate on outstanding Credit Agreement debt was approximately 7.8%. The Credit Agreement is secured by a first priority security interest in substantially all of the Company's assets, imposes certain financial covenants (including minimum tangible capital base, maximum ratio of senior funded debt to EBITDA, maximum ratio of total consolidated funded debt to EBITDA, minimum interest coverage ratio and minimum fixed charge coverage ratio) and restricts the amount available for payment of cash dividends and capital stock distributions. As of December 31, 1998, the Company was not in compliance with the covenants under its loans from Fleet. Those covenants related to the ratio of senior funded debt to EBITDA, the ratio of total consolidated funded debt to EBITDA, the interest coverage ratio and the fixed charge coverage ratio. On March 30, 1999, Fleet agreed to waive the non-compliance as of December 31, 1998 and to amend the covenants. In addition, Fleet imposed a temporary reduction of $2,000,000 in the availability under the Working Capital Facility. The Company paid a fee to Fleet of $70,000 for similar amendments as of September 30, 1998, which is being amortized over the remaining term of the Credit Agreement. The current amendment increases the interest rate on Credit Agreement obligations by 1% and requires the Company to maintain a minimum interest coverage ratio and a minimum net worth. The current amendment to the Credit Facility allows the Company to defer its March 31, 1999 debt payment of $300,000 to June 30, 1999. The Company will pay a fee to Fleet of $50,000 on June 30, 1999 for this amendment. On June 30, 1999, the working capital facility with Fleet matures. The Company is in discussions with Fleet to continue the facility and with other financial institutions to replace the facility. On April 17, 1998, the Company sold to the MassMutual Investors $11 million of the Company's senior subordinated notes due April 17, 2005 (the "Notes"). On May 27, 1998, the Company issued to the MassMutual Investors warrants to purchase 350,931 shares of the Company's common stock at $7.00 per share and the interest rate on the Notes was reduced to 12% from 19%. The estimated fair market value of the warrants of $1,228,000 was recorded as a discount to the principal amount of the outstanding Notes and is being amortized to interest expense over the term of the Notes using the interest rate method. The Notes require prepayments of $3,666,667 on each of April 17, 2003 and April 17, 2004. Interest is payable quarterly on the 17th day of January, April, July and October commencing on July 17, 1998. The Notes issued to the MassMutual Investors impose certain financial covenants, including minimum consolidated net worth, minimum fixed charge coverage ratio and maximum leverage ratio. As of December 31, 1998, the Company was not in compliance with the covenants related to the fixed charge coverage ratio and the leverage ratio. On March 26, 1999, the MassMutual Investors agreed to waive the non-compliance as of December 31, 1998 and to amend the financial covenants. The Company paid a fee to the MassMutual Investors of $39,600 for similar amendments as of September 30, 1998, which is being amortized over the remaining term of the Notes. The current amendment allows the Company to defer its April 17, 1999 interest payment of $330,000 to July 17, 1999. The amended covenants require the Company to maintain a minimum interest coverage ratio and a minimum net worth. In consideration for the TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Bank credit agreement and long term debt: (continued) amendment to the Notes and in exchange for surrender of the warrant issued in 1998 for 350,931 shares of common stock, no par value, with an exercise price of $7.00 per share the Company, on March 29, 1999, the Company issued a new stock purchase warrant for 800,000 shares of common stock, no par value, with an exercise price at market value of date of issuance per share, which was $2.03125. The components of long term debt are: December 31, 1998 ----------------- (Dollars in thousands) Term loan payable $ 11,100 Senior subordinated notes, net of discount 9,891 ---------- 20,991 Current portion 1,650 ---------- $ 19,341 ========== During 1997, the holders of $2,460,000 principal amount of the Company's 10.5% senior subordinated convertible debentures due 1997 (the "Debentures") converted their holdings into 273,318 shares of the Company's common stock at a rate of $9.00 per share. Also during 1997, the holders of warrants (the "Warrants") to purchase 39,750 shares of common stock of Tridex (issued in 1993 to the original purchasers of the 10.5% Debentures) exercised their warrants at $9.25 per share. The amount of the unamortized discount at the time of conversion aggregating $52,000 was charged to additional paid in capital. Also during 1997, the holders of $1,250,000 principal amount of the Company's 8% subordinated convertible term promissory notes converted their holdings into 104,127 shares of Tridex common stock at $12.00 per share. Interest expense is stated net of interest income of $348,000 in 1998 and $77,000 in 1996. Interest income in 1997 is stated net of interest expense of $95,000. 8. Pension plan: Effective December 31, 1995, the Company established a non-qualified unfunded pension arrangement for Alvin Lukash, a shareholder and former corporate officer and Director Emeritus. The pension arrangement requires the Company to pay an annual benefit of $100,000, payable monthly, through the death of Mr. Lukash. The unfunded accumulated benefit obligation at December 31, 1998 of $530,000 is included in Accrued Liabilities in the accompanying balance sheet. The Company recorded the actuarial present value of the benefits calculated at a 7.2% discount rate. The Company recorded pension expense of $75,000 in 1998 and $78,000 in 1997. 9. Commitments and contingencies: (a) Lease obligations: At December 31, 1998, the Company was lessee on long term operating leases for equipment and real property. The terms of certain leases provide for escalating rent payments in later years of the lease as well as payment of minimum rent and real estate taxes. Rent expense amounted to approximately $664,000 in 1998, $300,000 in 1997 and $315,000 in 1996. Minimum aggregate rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 1998 are as follows: $775,000 in 1999, $714,000 in 2000; $308,000 in 2001; $35,000 in 2002; and $11,000 in 2003. (b) Environmental matters: Allu Realty Trust ("Allu"), a Massachusetts business trust with transferable shares, all of which are owned by Tridex, is the former owner of land located at 100 Foley Street, Somerville, Massachusetts (the "Site"). Although Allu has sold the property to 100 Foley Street Incorporated ("Foley"), an unrelated entity, Allu and Tridex remain responsible for certain environmental problems associated with the Site, depending on the outcome of pending litigation. TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 1984, Allu and Tridex disclosed to the Massachusetts Department of the Attorney General the existence of chromium, oil and grease at the Site. As a result, the Environmental Protection Division of the Department of the Attorney General and the Massachusetts Department of Environmental Protection ("MDEP") conducted an investigation of the Site. At MDEP's request, the Company retained an environmental engineering firm, which completed a Phase II investigation study of the Site. The Company has conducted further studies to more specifically characterize and assess the Site and to determine appropriate long term clean up. In 1993, the Company entered into an agreement with Foley pursuant to which Tridex and Foley agreed to pay 75% and 25%, respectively, of the costs incurred after January 1, 1992 in connection with the investigation and remediation of the Site (the "Site Participation Agreement"). The Site Participation Agreement also provides that, to the extent there are available proceeds from the sale of the Site or, if not sold, from the operation of the Site after January 1, 1997, Tridex shall be reimbursed approximately $200,000 of the $250,000 it expended in connection with the Site prior to January 1, 1992. As of December 31, 1998, the Company had spent approximately $728,000 in connection with the Site. In 1997, Foley sold the Site to an affiliate of Stop & Shop, Inc. ("Stop & Shop") and Stop & Shop has taken control of all remediation of the Site. However, Foley asserts that Allu and Tridex remain liable for payment of certain costs associated with the remediation of the Site. Also in 1997, Foley brought suit against the Company claiming that the Company failed to contribute its share of the remediation costs pursuant to the Site Participation Agreement. The Company has filed a counterclaim. This litigation was stayed until February, 1999 and discovery has commenced. The implementation of clean-up measures was commenced in 1998 and is anticipated to be concluded in 1999. As of December 31, 1998, the Company had accrued $258,000 for the Site, which represents the currently estimated minimum cost of remediation, after considering the Site Participation Agreement. The Company estimates that it may spend up to $275,000 in connection with the Site. Accordingly, although no assurances can be given regarding the materiality of the total costs which may be incurred, the Company does not believe at this time that the remediation of the Site is reasonably likely to have a material effect on the Company's financial condition, results of operations or liquidity. The Company expects that, as in the past, cash from operations will be sufficient to pay the costs of remediation. (c) Legal proceedings When Tridex acquired Progressive in April 1998, it granted Mr. Smith registration rights for his 714,000 shares of Tridex common stock issued as part of the purchase price. At the same closing, Mr. Smith agreed to deliver a tax form needed by Tridex to obtain favorable tax treatment of the purchase. Tridex made repeated requests for the tax form but it was not delivered until January 1999. Mr. Smith requested registration of his shares, and Tridex commenced preparation of a registration statement, but postponed its completion while waiting for Mr. Smith to deliver the tax form. During the last three months of 1998, counsel for Tridex met with and corresponded with counsel for Mr. Smith, stating that Tridex was preparing to pursue arbitration and other legal remedies against him. On January 5, 1999, Tridex received the executed tax form. On January 4, 1999, Mr. Smith filed a suit against Tridex and Progressive in the Federal District Court in North Carolina and served the papers at a later date. The suit seeks damages of up to $5.0 million plus a court order requiring Tridex to register the shares of its common stock issued to Mr. Smith as part of the purchase price. The suit also seeks a declaratory judgment to prevent Tridex from pursuing other claims which it has asserted against Mr. Smith in post-closing negotiations. Tridex has denied the substantive allegations in Mr. Smith's complaint. Tridex has made claims against Mr. Smith for breach of federal and state securities laws, fraud and misrepresentation. Tridex is seeking damages in an unspecified amount which is estimated to exceed Mr. Smith's claims against Tridex. At this phase of the litigation, the parties have not begun discovery. Although it is not possible to predict the outcome, Tridex believes it TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS has valid defenses to Smith's claim and that the claims of Tridex and Progressive against Smith are meritorious. Tridex will aggressively defend against the claim made by Smith and aggressively pursue its own claims against him. 10. Stock options and warrants: The Company presently maintains three stock option plans for employees and non-employee directors as follows: 1998 Non-Executive Long Term Incentive Plan The 1998 Long Term Incentive Plan (the "1998 Non-Executive Plan") was approved by the shareholders of the Company at the Annual Meeting held on May 27, 1998. The 1998 Non-Executive Plan permits stock-based incentive compensation in the form of: (a) stock options, (b) stock appreciation rights, (c) restricted stock, (d) deferred stock, (e) stock purchase rights and (f) other stock-based compensation. Pursuant to the 1998 Non-Executive Plan, up to 600,000 shares of common stock may be distributed to key non-executive employees of the Company. Options granted are at prices equal to 100% of the fair market value of the common stock at the date of grant. Under APB 25 when the exercise price of employee stock options equals the fair market value of the underlying stock on the date of grant, no compensation expense is recognized. Options granted are exercisable at the discretion of the Stock Option Committee, but in no event shall the period be for more than ten years. Ninety days after an employee's termination, the outstanding options are canceled. At December 31, 1998 the Company had reserved 600,000 shares of common stock for issuance upon the exercise of options granted under the 1998 Non-Executive Plan. At December 31, 1998, options for 240,000 shares were outstanding under the 1998 Non-Executive Plan at exercise prices ranging from $2.625 to $7.00 per share. These options, none of which were exercisable, have a weighted average exercise price of $5.99 per share and a weighted average remaining contractual life of 9.5 years. 1997 Long Term Incentive Plan The 1997 Long Term Incentive Plan (the "1997 Plan") was approved by the shareholders of the Company at the Annual Meeting held on May 14, 1997 and amended at the Annual Meeting on May 27, 1998 to increase the number of authorized shares. The 1997 Plan permits stock-based incentive compensation in the form of: (a) stock options, (b) stock appreciation rights, (c) restricted stock, (d) deferred stock, (e) stock purchase rights and (f) other stock-based compensation. Pursuant to the 1997 Plan, as amended, up to 1,000,000 shares of common stock may be distributed to officers and key employees of the Company. Options granted are at prices equal to 100% of the fair market value of the common stock at the date of grant. Under APB 25 when the exercise price of employee stock options equals the fair market value of the underlying stock on the date of grant, no compensation expense is recognized. Options granted are exercisable at the discretion of the Stock Option Committee of the Board, but in no event shall the period be for more than ten years. Ninety days after an employee's termination, the outstanding options are canceled. At December 31, 1998 the Company had reserved 971,335 shares of common stock for issuance upon the exercise of options granted under the 1997 Plan. At December 31, 1998, options for 507,999 shares were outstanding under the 1997 Plan at exercise prices ranging from $2.81 to $7.50 per share. These options, of which 107,982 were exercisable, have a weighted average exercise price of $4.09 per share and a weighted average remaining contractual life of 8 years. Non-Employee Directors Plan The Non-Employee Directors' Stock Plan (the "Directors' Plan") was approved by the Shareholders of the Company at the Annual Meeting held on May 14, 1997. The Directors' Plan permits the issuance to non-employee directors of the Company of options for up to 100,000 shares of the Company's common stock. Options issued under the Directors' Plan do not qualify as incentive options under Section 422 of the Internal Revenue Code. Options to purchase 10,000 shares of the Company's common stock were granted to each non-employee director upon the effective date of the Directors' Plan. Persons subsequently elected as non-employee directors will TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Stock options and warrants: (continued) be granted options to purchase 10,000 shares on the date of their election. Thereafter, on the date of the Company's Annual Meeting of Shareholders, each non-employee director will be granted an option to purchase 3,000 shares of common stock. Options become exercisable in three equal annual installments and may be exercised within ten years of the date of the grant. At December 31, 1998 the Company had reserved 100,000 shares of common stock for issuance upon the exercise of options granted under the Directors' Plan. At December 31, 1998, options for 39,000 shares were outstanding under the Directors Plan at exercise prices ranging from $2.81 to $6.75 per share. These options, of which 9,999 were exercisable, have a weighted average exercise price of $2.81 per share and a weighted average remaining contractual life of 8.6 years. 1989 Long Term Incentive Plan The 1989 Long Term Incentive Plan ("the 1989 Plan"), which was terminated upon the approval of the 1997 Plan, permitted stock-based incentive compensation in the form of: (a) stock options, (b) stock appreciation rights, (c) restricted stock, (d) deferred stock, (e) stock purchase rights and (f) other stock-based compensation. Pursuant to the 1989 Plan, up to 1,250,000 shares of common stock could have been distributed to officers, key employees and non-employee directors of the Company. Options granted were at prices equal to 100% of the fair market value of the common stock at the date of grant. No charge against income was required with respect to options. Options granted were exercisable at the discretion of the Stock Option Committee, but in no event shall the period be for more than ten years. Ninety days after an employee's termination, the outstanding options were canceled. During 1997, the Company accelerated the vesting of all outstanding options in conjunction with the distribution of the TransAct shares. Warrants: As of December 31, 1998, the Company had outstanding stock purchase warrants for 350,931 shares of common stock issued to the MassMutual Investors in conjunction with the issuance of the Notes discussed in Note 7. These warrants are exercisable at $7.00 per share from April 19, 1999 through April 17, 2008. In consideration for the amendment to the Notes and in exchange for the warrant issued for 350,931 shares of common stock, no par value, at an exercise price of $7.00 per share the Company, on March 26, 1999, issued a stock purchase warrant to the MassMutual Investors for 800,000 shares of common stock, no par value, at an exercise price at market value on the date of issuance, $2.03125 per share. During 1997, stock purchase warrants were exercised for an aggregate of 230,632 shares of common stock, consisting of warrants for 117,550 shares held by directors of the Company and 113,082 shares issued to the purchasers of the 10.5% Debentures and the placement agent for the 10.5% Debentures. The following summarizes the combined activity of all stock option plans and outstanding warrants during the three-year period ended December 31, 1998:
Weighted- Weighted- Stock Average Options and Average Options and Exercise Warrants Exercise Warrants Price Exercisable Price ---------------------------------------------------- Balance, December 31, 1995 953,362 $ 6.72 Granted 99,000 8.08 Exercised (147,414) 3.52 Canceled (42,206) 6.24 ----------- Balance, December 31, 1996 862,742 7.45 445,994 $ 7.50 Granted 471,000 2.96 Exercised (859,932) 7.44 Canceled (23,810) 9.16 ----------- Balance, December 31, 1997 450,000 2.97 0
TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Stock options and warrants: (continued)
Granted 860,431 6.43 Exercised (28,665) 2.81 Canceled (143,836) 4.63 ----------- Balance, December 31, 1998 1,137,930 4.65 117,981 3.00 ====================================================
The following summarizes additional information about stock options and warrants outstanding at December 31, 1998:
Options and Warrants Options and Warrants Outstanding Exercisable ------------------------------------ ----------------------- Number Number Outstanding Weighted- Weighted- Exercisable Weighted- Range of at December Average Average at Average Exercise 31, Exercise Remaining December 31, Exercise Prices 1998 Price Life 1998 Price ------------------------------------------------------- ----------------------- $2.6250 $2.8125 251,999 $ 2.81 8.42 83,983 $ 2.81 $3.0938 $3.8750 172,500 $ 3.26 6.76 29,999 $ 3.18 $4.1250 $6.7500 86,500 $ 5.11 9.49 3,999 $ 5.50 $7.0000 $7.5000 626,931 $ 7.03 9.35 0 ---------- ------- 1,137,930 $ 5.38 8.76 117,981 $ 3.00 ========== =======
Had compensation expense been recognized based on the fair value of the options at their grant dates, as prescribed in Financial Accounting Standard No. 123, the Company's net income (loss) and earnings per share would have been: Year Ended December 31, ------------------------------------------------ 1998 1997 1996 ------------------------------------------------ (Dollars in thousands except per share amounts) Net income (loss): As reported $(14,146) $ (35) $8,848 Pro forma under FAS 123 $(14,513) $ (301) $8,673 Pro forma earnings per share (basic and diluted: As reported $ (2.33) $(0.01) $ 2.26 Pro forma under FAS 123 $ (2.41) $(0.06) $ 2.22 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: 1998 1997 1996 -------------------------------------------------- Dividend yield 0% 0% 0% Risk-free interest rates 4.08% - 5.61% 5.72% - 6.22% 5.04% - 5.07% Expected volatility 36.7% - 43.7% 37.6% - 38.6% 57.0% - 57.6% Expected option term 3 years 3 years 5 - 10 years 11. Income taxes: The components of the income tax benefit are as follows: Year Ended December 31, -------------------------------------------------- 1998 1997 1996 -------------------------------------------------- (Dollars in thousands) Current: Federal $ 69 $ 88 $ (743) TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Stock options and warrants: (continued) State (17) (18) 94 -------------------------------------------------- $ 52 $ 70 $ (649) -------------------------------------------------- Year Ended December 31, -------------------------------------------------- 1998 1997 1996 -------------------------------------------------- (Dollars in thousands) Deferred: Federal $(7,498) $ (107) $ 553 State (729) (7) (16) -------------------------------------------------- (8,227) (114) 537 -------------------------------------------------- Benefit for income taxes $ (8,175) $ (44) $ (112) -------------------------------------------------- Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company's gross deferred tax assets and liabilities were comprised of the following: December 31, 1998 December 31, 1997 ------------------------------------ (Dollars in thousands) Gross deferred tax assets: In-process research and development $6,188 Future deductible liabilities and reserves 955 $1,342 Net operating loss carryforwards 2,487 463 Federal minimum tax credit carryforwards 169 46 Federal business and other tax credit carryforwards 149 ----------------------------------- $9,948 $1,851 ----------------------------------- Gross deferred tax liabilities: ----------------------------------- Depreciation $ 25 $ 69 =================================== At December 31, 1998 and 1997, valuation allowances of $831,000 and $917,000, respectively, have been recorded which relate primarily to net operating loss carryforwards and certain state deferred tax deductions for which a tax benefit will not likely be realized. The net change since December 31, 1997 in the valuation allowance for deferred tax assets was a decrease of $86,000 related primarily to a decrease in deferred state tax benefits. At December 31, 1998, the Company had federal net operating loss carryforwards of $5,763,000 that expire in 2018 and state net operating loss carryforwards of $10,190,000 that expire principally in 1999 through 2003. The Company also had federal minimum tax credit carryforwards of $169,000 which may be carried forward indefinitely as a credit against regular federal tax liability in future years and other tax credit carryforwards of $149,000 consisting primarily of research and development tax credits that expire in 2018. Differences between the U.S. statutory federal income tax rate and the Company's effective income tax rate are analyzed below: Year Ended December 31, ---------------------------------------- 1998 1997 1996 ---------------------------------------- Federal statutory tax rate (34.0%) (34.0%) 34.0% Nondeductible purchase accounting 0.7% 27.7% 3.1% State income taxes, net of federal income taxes (3.3%) (3.1%) 0.8% TRIDEX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Gain on sale of subsidiary stock (38.1%) Valuation allowance (0.8%) Other 2.2% (1.0%) ---------------------------------------- Effective tax rate (36.6%) (7.2%) (2.0%) ======================================== 12. Segments: Prior to the acquisition of Progressive, the Company operated in only one segment. Presently, the Company manages each of its two operating subsidiaries as a separate reportable business segment. Each segment offers different products to different classes of customers in the POS market. Ultimate is primarily focused on providing hardware solutions to the retail sector of the market, while Progressive is primarily focused on providing software solutions to the food service and specialty retail sector of the market. Intersegment sales are not material. The Company evaluates the performance of each segment based on operating profit, exclusive of corporate expense, interest, taxes and nonrecurring gains and losses. Each segment follows the Company's significant accounting policies. Following is a table of selected financial data concerning the Company's reportable segments. For the Year Ended December 31, 1998 ------------------------------------------------ (Dollars in thousands) ------------------------------------------------ Ultimate Progressive Other Total ------------------------------------------------ Sales to external customers $25,608 $17,468 $ 428 $ 43,504 Depreciation and amortization 862 2,282 120 3,264 Segment operating income (loss) $ 1,671 $(2,111) $ 8 (432) ======= ======= ====== Purchased in-process software technology 17,600 Other corporate expense 2,532 -------- Consolidated operating income (loss) $(20,564) ======== Segment assets $10,752 $32,249 $ 133 $ 43,134 ======= ======= ====== Corporate assets 9,819 -------- Consolidated assets $ 52,953 ======== Capital expenditures for segment assets $ 212 $ 536 $ 748 ======= ======= Corporate capital expenditures 19 -------- Consolidated capital expenditures $ 767 ======== 13. Disclosure Regarding Fair Value of Financial Instruments: The estimated fair value amounts of the Company's financial instruments was made in accordance with the requirements of SFAS No. 107. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. Considerable judgement is required to develop the estimates of fair value, thus, the estimates provided herein are not necessarily indicative of the amounts that could be realized in a current market exchange. December 31, 1998 ----------------------------------- (Dollars in thousands) Carrying Amount Fair Value Financial Assets: Cash and cash equivalents $ 18 $ 18 Accounts receivable 7,806 7,806 Liabilities: Accounts payable 5,875 5,875 Bank loan payable 4,756 4,756 Term loan payable 11,100 10,900 Senior subordinated notes 9,891 9,591 14. Other Significant Transactions: During the quarter ended December 31, 1997, the Company recorded additional compensation expense of $237,000 related to the acceleration of the distribution of shares under the Stock Incentive Compensation Agreement with certain officers of Ultimate and a provision of $196,000 to write-down the carrying value of real estate held for sale. During the quarter ended December 31, 1996, the Company recorded a $320,000 provision to amend the unfunded pension arrangement established in the prior year. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (A) Directors. The information contained in "Information Concerning Nominees for Election as Directors and Executive Officers" of the Company's Proxy Statement (the "Proxy Statement") for its Annual Meeting of Shareholders which is scheduled to be held on May 19, 1999 is hereby incorporated herein by reference. Also see Item 1(E)(i) above. (B) Executive Officers. See Item 1(E)(ii) above. (C) Compliance with Section 16(a) of the Exchange Act. The information contained in "Compliance with Section 16(a)" of the Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained in "Compensation of Directors and Executive Officers" of the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained in "Security Ownership of Certain Beneficial Owners and Management" of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION The information contained in "Certain Relationships and Related Transactions" of the Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) The following financial statements and exhibits are filed as part of this report: (i) Financial statements See Item 8 on page 14. (ii) Financial statement schedules See Item 8 on page 14. (iii) List of Exhibits. See Exhibit Index on page 35. (B) Reports on Form 8-K. The Company did not file any Current Reports on Form 8-K during the last quarter of the period covered by this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRIDEX CORPORATION By: /s/ Seth M. Lukash ------------------------------------------------ Seth M. Lukash Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Director Date: March 30, 1999 Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - - --------- ----- ---- /s/ Seth M. Lukash Chairman of the Board, President, March 30, 1999 - - ----------------------------- Chief Executive Officer, Chief Seth M. Lukash Operating Officer and Director (Principal Executive Officer) /s/ Daniel A. Bergeron Vice President and March 30, 1999 - - ----------------------------- Chief Financial Officer Daniel A. Bergeron (Principal Financial Officer) /s/ George T. Crandall Vice President, Treasurer, March 30, 1999 - - ----------------------------- Controller and Secretary George T. Crandall (Principal Accounting Officer) /s/ Graham Y. Tanaka Director March 30, 1999 - - ----------------------------- Graham Y. Tanaka /s/ Paul J. Dunphy Director March 30, 1999 - - ----------------------------- Paul J. Dunphy /s/ Thomas R. Schwarz Director March 30, 1999 - - ----------------------------- Thomas R. Schwarz /s/ Dennis J. Lewis Director March 30, 1999 - - ----------------------------- Dennis J. Lewis Exhibit Index Page Number ------ 2.1 Stock Purchase Agreement dated as of February 24, 1998, by and among Paul J. Smith, Progressive Software, Inc., Tridex Corporation ("Tridex" or the "Company"), and Tridex NC, Inc., with index of Schedules and Exhibits thereto filed as Exhibit 2.1 to the Company's Current Report of Form 8-K filed April 30, 1998 is hereby incorporated herein by reference. 3.1 Certificate of Incorporation of Tridex, as amended, filed on June 28, 1985 as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 1985, is hereby incorporated herein by reference. 3.2 Certificate of Amendment of Incorporation of Tridex, dated October 1, 1987, filed on July 18, 1988 as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended April 2, 1988 is hereby incorporated herein by reference. 3.3 Certificate of Amendment of Incorporation of Tridex, dated August 15, 1988, filed on June 29, 1989 as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended April 1, 1989 is hereby incorporated herein by reference. 3.4 Certificate of Amendment of Incorporation of Tridex, dated March 31,1989 filed on June 29, 1989 as Exhibit 3.4 to the Company's Annual Report on Form 10-K for the fiscal year ended April 1, 1989 is hereby incorporated herein by reference. 3.5 Bylaws of Tridex, as amended and restated as of January 22, 1996, filed on March 26, 1996 as Exhibit 3.5 to the Company's Transition Report on Form 10-K for the transition year ended December 31, 1995 is hereby incorporated herein by reference. 4.1 Description of the Company's common stock set forth in the Company's Registration Statement on Form 8-A filed July 14, 1986, is hereby incorporated herein by reference. 4.2 Tridex Corporation 1997 Long Term Incentive Plan (as amended and restated), filed as Exhibit A to the Company's Proxy Statement for the Annual Meeting of Shareholders filed April 17, 1997 is hereby incorporated herein by reference. 4.3 Tridex Corporation Non-Employee Directors' Stock Plan filed as Exhibit B to the Company's Proxy Statement for the Annual Meeting of Shareholders filed April 17, 1997 is hereby incorporated herein by reference. 4.4 Tridex Corporation 1998 Non-Executive Long Term Incentive Plan filed as Exhibit A to the Company's Proxy Statement for the Annual Meeting of Shareholders filed May 8, 1998 is hereby incorporated herein by reference. 4.5 Registration Rights Agreement by and between Paul J. Smith and Tridex dated as of April 17, 1998 filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed April 30, 1998 is hereby incorporated herein by reference. 4.6 Securities Purchase Agreements dated as of April 17, 1998, by and among Massachusetts Mutual Life Insurance Company and certain of its affiliates and Tridex filed as Exhibit 4.2 to the Company's Current Report on Form 8-K filed April 30, 1998 is hereby incorporated herein by reference. 4.7 Form of 19% senior subordinated notes due April 17, 2005 filed as Exhibit 4.3 to the Company's Current Report on Form 8-K filed April 30, 1998 is hereby incorporated herein by reference. 4.8 Form of Letter of Waiver and Limited Amendment dated November 12, 1998 by and among Massachusetts Mutual Life Insurance Company and certain of its affiliates and Tridex filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 is hereby incorporated herein by reference. 4.9 Second Amendment to Securities Purchase Agreements dated March 37 26, 1999 by and among Massachussets Mutual Life Insurance Company and certain of its affiliates and Tridex. 10.1 Credit Agreement dated as of April 17, 1998, by and between Fleet National Bank, Tridex, Progressive Software, Inc., Ultimate Technology Corporation, and Tridex NC, Inc., with index of Schedules and Exhibits thereto filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed April 30, 1998 is hereby incorporated herein by reference. 10.2 Term Note in the amount of $12,000,000, due March 31, 2003, payable by Tridex and its affiliates to Fleet National Bank ("Fleet") filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed April 30, 1998 is hereby incorporated herein by 2 reference. 10.3 Working Capital Note in the amount of $8,000,000 due June 30, 1999, payable by Tridex and its affiliates to Fleet National Bank filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed April 30, 1998 is hereby incorporated herein by reference. 10.4 Amendment No. 1 to Credit Agreement dated as of November 1, 1998, to Credit Agreement dated as of April 17, 1998, by and between Fleet, Tridex, Progressive Software, Inc. and Ultimate Technology Corporation filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 is hereby incorporated herein by reference. 10.5 Manufacturing Support Services Agreement dated as of September 28, 1996 between Magnetec Corporation and Tridex filed as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 1996, is hereby incorporated herein by reference. 10.6 Printer Supply Agreement dated as of July 30, 1996 between Magnetec Corporation and Ultimate Technology Corporation, filed as Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 1996, is hereby incorporated herein by reference. 10.7 Tax Sharing Agreement dated as of July 31, 1996 between Tridex and TransAct Technologies Incorporated filed as Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 1996 is hereby incorporated herein by reference. 10.8 Retirement Agreement, dated as of December 31, 1995, between Tridex and Alvin Lukash, filed on March 29, 1996 as Exhibit 10.15 to the Company's Transition Report on Form 10-K for the transition year ended December 31, 1995 is hereby incorporated herein by reference. 10.9 First Amendment to Retirement Agreement dated December 31, 1996 between Tridex and Alvin Lukash, filed on March 31, 1997 as Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated herein by reference. 10.10 Employment Agreement dated December 2, 1996 between Tridex and Seth M. Lukash filed on March 31, 1997 as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated herein by reference. 10.11 Employment Agreement dated August 7, 1996 between Tridex and George T. Crandall filed on March 31, 1997 as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated herein by reference. 10.12 Employment Agreement dated February 21, 1997 between Ultimate Technology Corporation and Dennis Lewis filed on March 31, 1997 as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated herein by reference. 10.13 Employment Agreement dated February 21, 1997 between Ultimate Technology Corporation and Gary German filed on March 31, 1997 as Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated herein by reference. 10.14 Employment Agreement dated February 21, 1997 between Ultimate Technology Corporation and Paul Wolf filed on March 31, 1997 as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, is hereby incorporated herein by reference. 10.15 Employment Agreement dated August 7, 1996 between Tridex and Thomas F. Curtin, Jr. filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, is hereby incorporated herein by reference. 10.16 Employment Agreement dated April 9, 1998 between Tridex and Daniel A. Bergeron filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 is hereby incorporated herein by reference. 10.17 Employment Agreement dated May 11, 1998 between Tridex and John MacWillie filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 is hereby incorporated herein by reference. 10.18 Employment Agreement dated April 21, 1998 between Tridex and Raymond J. Mueller filed as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 is hereby incorporated herein by reference. 10.19 Amended and Restated Employment Agreement dated March 26, 1999 between Tridex and Samuel J. Villanti. 44 10.20 Amendment No. 2 to Credit Agreement dated as of March 30, 1999, to Credit Agreement dated as of April 17, 1998, by and between Fleet, Tridex, Progressive Software, Inc. and Ultimate Technology Corporation. 49 11.1 Statement re: computation of per share earnings. 56 21.1 List of Subsidiaries of Tridex. 57 23.1 Consent of Independent Accountant 58 27.1 Financial Data Schedule. EX-4.9 2 SECOND AMENDMENT TO SECURITIES PURCHASE AGREEMENTS EXHIBIT 4.9 TRIDEX CORPORATION PROGRESSIVE SOFTWARE, INC. ULTIMATE TECHNOLOGY CORPORATION 61 Wilton Road Westport, Connecticut 06880 March 26, 1999 MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY MASSMUTUAL CORPORATE INVESTORS MASSMUTUAL PARTICIPATION INVESTORS MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED 1295 State Street Springfield, Massachusetts 01111 Re: Second Amendment to Securities Purchase Agreements Ladies and Gentlemen: TRIDEX CORPORATION, a Connecticut corporation (the "Holding Company"), PROGRESSIVE SOFTWARE, INC., a North Carolina corporation and successor to Tridex NC, Inc. ("PSI"), and ULTIMATE TECHNOLOGY CORPORATION, a New York corporation ("UTC") (the Holding Company, PSI, and UTC are sometimes collectively referred to herein as the "Issuers" and each as an "Issuer"), jointly and severally agree with each of you as follows. Background: A. Reference is made to those certain Securities Purchase Agreements dated April 17, 1998, as amended by that certain letter of waiver and limited amendment dated November 12, 1998 relating thereto (the "First Amendment") (as so amended, the "Securities Purchase Agreements"), among the Issuers and each of you. Capitalized terms used herein without definition have the meanings ascribed to them in the Securities Purchase Agreements. B. The Issuers have requested that the holders of the Securities approve certain amendments to and waivers under the Securities Purchase Agreements and the other Operative Documents in connection with (a) certain existing Events of Default thereunder; and (b) the Amendment No. 2 to Credit Agreement dated as of March 15, 1999 (the "Second Amendment to Fleet Bank Agreement") among the Holding Company, PSI, UTC, and Fleet National Bank, pursuant to which certain amendments are being made to the Fleet Bank Documents and Fleet Bank is agreeing to the deferral of a payment of principal thereunder. 1. Amendments. (a) Section 12.1(b)(i) of each of the Securities Purchase Agreements is hereby amended by deleting the words "one registration" and substituting the words "two registrations" therefor. (b) Section 12.3 of each of the Securities Purchase Agreements is hereby amended by deleting section 12.3 in its entirely and substituting the following therefor: 12.3 S-3 Registration; Permitted Registration. (a) In addition to the rights under sections 12.1 and 12.2, upon the written request by the holder or holders of an aggregate number of Registrable Shares at the time issued (or issuable) constituting in the aggregate the lesser of (x) 25 % of the aggregate number of Registrable Shares issued (or issuable) as of March 26, 1999 (such number to be appropriately adjusted for stock splits, stock dividends and combinations and similar events) or (y) 100% of the Registrable Shares then issued (or issuable), the Holding Company shall use its commercially reasonable best efforts to effect the registration, qualification, and compliance of all of the Registrable Shares of the holder or holders making such request and shall use its commercially reasonable best efforts to continue the effectiveness of the related registration statement for at least 180 days, provided that the Holding Company shall be obligated to effect a registration, qualification, and compliance requested pursuant to this section 12.3(a) only if the Holding Company is then eligible to file the related registration statement on Form S-3 (or any successor form) under the Securities Act. The Holding Company shall pay all Registration Expenses related to each registration, qualification, and compliance requested pursuant to this section 12.3(a). (b) If and to the extent that any holder or holders of any Registrable Shares shall have, at the time of delivery of the written request referred to in section 12.2, no present intention of selling or distributing such Registrable Shares, the Holding Company shall be obligated to effect the registration, qualification, and compliance of such Registrable Shares of such holder or holders only if and to the extent, in each case, that such registration, qualification, and compliance are at the time permitted by the applicable statutes or rules and regulations thereunder or the practices of the governmental authority concerned. (c) Section 13.6 of each of the Securities Purchase Agreements is hereby amended by deleting section 13.6 in its entirely and substituting the following therefor: (a) EBITDA to Interest Charges Ratio. The Issuers, on a consolidated basis, shall initially maintain a ratio of EBITDA to Interest Charges of not less than 1.0 to 1.0 at all times, as measured on March 31, 1999, for the period beginning on February 1, 1999, through March 31, 1999. Thereafter, the Issuers, on a consolidated basis, shall maintain at all times the minimum ratio of EBITDA to Interest Charges set forth below, as measured at the end of each month commencing April 30, 1999, for the period beginning on February 1, 1999, through the date of measurement set forth below. Measurement Date Applicable Ratio ---------------- ---------------- April 30, 1999 1.0 to 1.0 May 31, 1999 1.1 to 1.0 June 30, 1999 1.2 to 1.0 July 31, 1999 1.3 to 1.0 August 31, 1999 1.3 to 1.0 September 30, 1999 1.4 to 1.0 and the last day of each month thereafter For purposes of the aforesaid covenant, (a) "EBITDA" shall mean, for any period, net income for such period after restoring thereto amounts (without duplication) deducted for (i) Interest Charges, (ii) taxes in respect of income, and (iii) depreciation and amortization, in each case determined in accordance with GAAP; and (b) "Interest Charges" shall not include any deferred interest on the Notes. (b) Net Worth. The Issuers shall maintain at all times, as measured at the end of each month, commencing March 31, 1999, Consolidated Net Worth of not less than $15,400,000. (d) The term "Registrable Shares" in section 14 of each of the Securities Purchase Agreements is deleted in its entirely and the following is substituted therefor: "Registrable Shares" shall mean any Purchased Common Shares and any Warrant Shares, except that, as to any particular Registrable Shares, such securities, once issued, will cease to be Registrable Shares when (a) a registration statement covering such securities has been declared effective and such securities have been disposed of pursuant to an effective registration statement or (b) such securities are sold to the public in accordance with Rule 144 (or any similar provision then in force) under the Securities Act. A Person shall be deemed a "holder" of Registrable Shares for purposes of section 12 if such Person is the holder of any Warrants or any Warrant Shares issued upon exercise of any Warrant. (e) The term "Warrants" as used in each of the Securities Purchase Agreements shall mean and include the Warrants for 800,000 Shares of Common Stock, no par value, of the Holding Company referred to in section 3(a)(iv) of this Second Amendment together with any warrants issued in exchange therefor or replacement thereof. 2. Consents and Waivers. Each of you hereby agrees that (a) the Issuers may defer the payment of the April 17, 1999, interest payment on the Notes until July 17, 1999, at which date such April 17, 1999, payment and the July 17, 1999, payment shall both be due and payable in full; and (b) notwithstanding anything to the contrary in the Securities Purchase Agreements, the Issuers' failure to comply with section 13.6 of the Securities Purchase Agreements prior to the date of this Second Amendment in respect of the period ending December 31, 1998, shall not constitute an Event of Default and the holders hereby waive any such Event of Default which existed for such period prior to the date of this Second Amendment, provided that such section 13.6 of the Securities Purchase Agreements as amended hereby shall only remain in effect in respect of periods ending subsequent to December 31, 1998, and prior to January 1, 2000. As of January 1, 2000, such section 13.6, as in effect prior to the date of the First Amendment, shall be deemed reinstated. 3. Conditions to Effectiveness of Second Amendment. This Second Amendment shall be effective upon the first date upon which the following conditions shall have been satisfied to your reasonable satisfaction: (a) The Issuers shall have delivered to you executed copies of each of the following documents in form and substance satisfactory to you: (i) a fully executed counterpart of this Second Amendment; (ii) certified copies of (A) the resolutions of the Board of Directors of each of the Issuers approving this Second Amendment and the matters contemplated hereby and (B) all documents evidencing other necessary corporate actions and governmental approvals, if any, with respect to this Second Amendment and the other documents to be delivered hereunder; (iii) a certificate of the Secretary or an Assistant Secretary of each of the Issuers certifying the names and true signatures of the officers of each Issuer authorized to sign this Second Amendment and the other documents to be delivered hereunder; (iv) new, immediately exercisable, Warrants, dated the date hereof, representing the right to purchase at an Exercise Price of $2.03125 per share 800,000 shares of Common Stock, without par value, of the Holding Company substantially in the form of Exhibit 3(a)(iv) attached hereto in exchange for your surrender of the outstanding Warrants; (v) an opinion, dated the date hereof, from Messrs. Hinckley, Allen & Snyder, counsel for the Issuers, substantially in the form of Exhibit 3(a)(v) attached hereto; and (vi) an executed counterpart of an amendment to the Fleet Bank Agreement, substantially in the form of Exhibit 3(a)(vi) attached hereto. (b) The Issuers shall have paid in full all fees, expenses and disbursements incurred by you in connection with this Second Amendment, including, without limitation, the fees, expenses and disbursements of your special counsel. 4. No Default, Representations and Warranties, Etc. (a) The Issuers represent and warrant that the representations and warranties contained in the Securities Purchase Agreements and the other Operative Documents are in all material respects correct on and as of the date hereof (after giving effect hereto) as if made on such date (except as a result of transactions permitted under the Securities Purchase Agreements), that no Default or Event of Default exists (other than those which have been specifically waived pursuant to section 2 hereof) and that no condition exists which has resulted in, or could reasonably be expected to result in, a Material Adverse Change. The Common Stock issuable upon exercise of the Warrants, including the new Warrants referred to in section 3(a)(iv) of this Second Amendment, is the only class of Voting Stock of the Holding Company. Since April 17, 1998, there has been no adjustment to the Exercise Price (as defined in the Warrants), and since such date no event has occurred which has required such adjustment. (b) Each of the Issuers ratifies and confirms the Securities Purchase Agreements and each of the other Operative Documents to which it is a party and agrees that, after giving effect to the amendments, modifications and supplements effected hereby, each such agreement, document and instrument is in full force and effect, that its obligations thereunder and under this Second Amendment are its legal, valid and binding obligations enforceable against it in accordance with the terms thereof and hereof and that it has no defense, whether legal or equitable, setoff or counterclaim to the payment and performance of such obligations. (c) The Issuers agree that (i) if any default shall be made in the performance or observation of any covenant, agreement or condition contained herein or (ii) if any representation or warranty made by any Issuer herein or therein shall prove to have been false or incorrect on the date as of which made, the same shall constitute an Event of Default under the Securities Purchase Agreements and the other Operative Documents and, in such event, you and each other holder of any of the Securities shall have all rights and remedies provided by law and/or provided or referred to in the Securities Purchase Agreements and the other Operative Documents. The Issuers further agree that this Second Amendment is an Operative Document and all references thereto in the Securities Purchase Agreements and in any other of the Operative Documents shall include this Second Amendment. 5. Payment of Transaction Costs. Without limiting the generality of the provisions of the Operative Documents, the Issuers jointly and severally shall pay all reasonable fees and disbursements incurred by you in connection herewith, including, without limitation, the reasonable fees, expenses and disbursements of your special counsel. 6. Governing Law. This Second Amendment, including the validity hereof and the rights and obligations of the parties hereunder, shall be construed in accordance with and governed by the domestic substantive laws of The Commonwealth of Massachusetts without giving effect to any choice of law or conflicts of law provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. 7. Miscellaneous. The headings in this Second Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. This Second Amendment embodies the entire agreement and understanding among the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. In case any provision in this Second Amendment shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Second Amendment may be executed in any number of counterparts and by the parties hereto on separate counterparts but all such counterparts shall together constitute but one and the same instrument. Except as specifically amended or modified pursuant to this Second Amendment, the Securities Purchase Agreements shall remain in full force and effect, and the execution and delivery of this Second Amendment shall not, except as expressly provided herein, operate as a waiver of any of your rights, powers, or remedies under the Securities Purchase Agreements or the documents and instruments delivered in connection therewith. [The remainder of this page is left blank intentionally.] If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart hereof, whereupon this Second Amendment shall become a binding agreement under seal among the parties hereto. Please then return one of such counterparts to the Issuers. Very truly yours, TRIDEX CORPORATION By --------------------------------------------- (Title) PROGRESSIVE SOFTWARE, INC. By --------------------------------------------- (Title) ULTIMATE TECHNOLOGY CORPORATION By --------------------------------------------- (Title) The foregoing is hereby accepted and agreed to. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By ---------------------------------- (Title) MASSMUTUAL CORPORATE INVESTORS By ---------------------------------- (Title) The foregoing is executed on behalf of MassMutual Corporate Investors, organized under a Declaration of Trust, dated September 13, 1985, as amended from time to time. The obligations of such Trust are not personally binding upon, nor shall resort be had to the property of, any of the Trustees, shareholders, officers, employees, or agents of such Trust, but the Trust's property only shall be bound. MASSMUTUAL PARTICIPATION INVESTORS By ---------------------------------- (Title) The foregoing is executed on behalf of MassMutual Participation Investors, organized under a Declaration of Trust, dated April 7, 1988, as amended from time to time. The obligations of such Trust are not personally binding upon, nor shall resort be had to the property of, any of the Trustees, shareholders, officers, employees, or agents of such Trust, but the Trust's property only shall be bound. MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED By Massachusetts Mutual Life Insurance Company, as Investment Manager By ---------------------------------- (Title) EX-10.19 3 AMENDED AND RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.19 AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amended and Restated Employment Agreement (the "Agreement") is entered into as of the 26th day of March, 1999, by and between Tridex Corporation, a Connecticut corporation with a mailing address of 61 Wilton Road, Westport, Connecticut 06880 (the "Company"), and Samuel J. Villanti, an individual with a residence address of 28 Mendonshire Heights, Honeoye Falls, NY, 14472 (the "Executive"). INTRODUCTION 1. The Company is in the business of providing custom system solutions for retail point-of-sale, convenience store, specialty retail, and other transaction-based markets (the "Business"). 2. On November 23, 1998 the Company and Executive entered into an Employment Agreement (the "Original Agreement"), which, by entering into this Agreement, they amend and restate. 3. The Company desires to continue to employ Executive and Executive desires to continue such employment on the terms and conditions set forth herein. AGREEMENT In consideration of the premises and mutual promises herein below set forth, the parties hereby agree as follows. 1. Employment Period. The terms of this Agreement shall commence on the date hereof and, subject to earlier termination as hereinafter provided, shall terminate one (1) year after November 23, 1998 provided that the term of this Agreement shall automatically extend by thirty (30) days for each thirty (30) day period which shall expire without either the Company or the Executive giving written notice to terminate. The term of the Executive's employment hereunder is hereinafter referred to as the "Employment Period". 2. Employment Duties. Subject to the terms and conditions set forth herein, the Company hereby employs Executive to act as President of Ultimate Technology Corporation, a wholly owned New York subsidiary of the Company ("Ultimate") during the Employment Period, and Executive hereby accepts such employment. The duties assigned and authority granted to Executive shall be as set forth in the By-laws of Tridex and as determined by its Board of Directors, and the CEO, from time to time. Executive agrees to perform his duties for the Company diligently, competently, and in a good faith manner. The Executive may also engage in civic and charitable activities to the extent they are not inconsistent with Executive's duties hereunder. 3. Salary and Bonus. (a) Base Salary. The Company agrees to pay Executive $145,000 per year, payable in weekly installments (the "Base Salary"). Executive's Base Salary shall not be decreased. In addition, no later than November 1999 the Board of Directors of the Company (or any appropriate committee thereof) shall review and may increase the Executive's annual Base Salary in its discretion, based upon the Company's performance and the Executive's particular contributions. (b) Bonus. Executive shall have an opportunity to earn an annual bonus under the Company's Incentive Compensation Plan, subject to attainment of specific financial and individual objectives and the discretion of the Company's Board of Directors (or any appropriate committee thereof). 4. Other Benefits. (a) Insurance and Other Benefits. The Executive shall be entitled to participate in, and shall receive the maximum benefits available under, the Company's insurance programs (including health, disability and life insurance) and any ERISA benefit plans, as the same may be adopted and/or amended from time to time, and shall receive other fringe benefits that may be provided by the Company to other senior executives. The Company shall contribute the maximum amount permitted under current law to the Executive's 401(k) Plan, and any other Company pension or retirement plan during the Employment Period. (b) Vacation. Executive shall be entitled to an annual vacation of such duration as may be determined by the Board of Directors, but not less than that generally established for other executives of Company and in no event less than three (3) weeks, without interruption of salary. (c) Reimbursement of Expenses. The Company shall reimburse Executive for all reasonable travel, entertainment and other expenses incurred or paid by the Executive in connection with, or related to, the performance of his duties or responsibilities under this Agreement, provided that Executive submits to the Company substantiation of such expenses sufficient to satisfy the record keeping guidelines promulgated from time to time by the Internal Revenue Service. 5. Termination by the Company With Cause. The Company may terminate this Agreement if any of the following events shall occur: (a) the death or disability of the Executive (for purposes of this Agreement, "disability" shall mean the Executive's incapacity due to physical or mental illness which has caused the Executive to be absent from the full-time performance of his duties with the Company for a period of six (6) consecutive months); (b) any action or inaction by the Executive that constitutes larceny, fraud, gross negligence, a willful or negligent misrepresentation to the directors or officers of the Company, its successors or assigns, a crime involving moral turpitude; or (c) the refusal of the Executive to follow the reasonable and lawful written instructions of the Board of Directors of the Company with respect to the services to be rendered and the manner of rendering such services by Executive, provided such refusal is material and repetitive and is not justified or excused either by the terms of this Agreement or by actions taken by the Company in violation of this Agreement, and with respect to the first two refusals Executive has been given reasonable written notice and explanation thereof and reasonable opportunity to cure and no cure has been effected within a reasonable time after such notice. The Company may terminate this Agreement pursuant to this Section 5 immediately upon written notice to the Executive, except for termination due to the death of the Executive, which shall require no notice. 6. Termination. (a) Termination by the Executive. Executive may terminate this Agreement at any time by providing the Company with a minimum of one (1) month of written notice to the Company. (b) Termination by the Company Without Cause. The Company may terminate this Agreement at any time, without cause by providing written notice to Executive. As used in this Agreement, the terms "without Cause" shall mean termination for any reason not specified in Section 5 hereof, except for retirement, and "with Cause" shall mean termination for those reasons specified in Section 5 hereof. (i) Without Cause. If the Company terminates this Agreement without Cause, for a period equal to twelve (12) months thereafter, the Company shall provide Executive with a severance package which shall consist of the following: (1) payment on the first business day of each month of an amount equal to one-twelfth of the Executive's then current annual Base Salary under Section 3(a) hereof; (2) payment on the first business day of each month of an amount equal to one-twelfth of the Executive's annual target bonus amount under the Company's Executive Incentive Compensation Plan for the year of termination, pro rated for the portion of the fiscal year occurring prior to termination; and (3) continuation of all benefits under Section 4(a) and (c). (ii) With Cause. If the Company terminates this Agreement with Cause, then the Executive shall be entitled to receive the Base Salary earned but unpaid through the date of such termination, as well as reimbursement by the Company for any out-of-pocket expenses incurred by the Executive in connection with the business of the Company as contemplated by Section 4(d) above prior to the date of termination, but no further payments of Base Salary or additional compensation shall be due by the Company thereafter, and the Executive shall not thereafter be entitled to receive benefits under Sections 4(a) or (b) hereof. (c) General Release. As a condition precedent to receiving any severance payment, the Executive shall execute a general release of any and all claims which Executive or his heirs, executors, agents or assigns might have against the Company, it subsidiaries, affiliates, successors, assigns and its past, present and future employees, officers, directors, agents and attorneys. 7. Non-Competition. During the term of this Agreement and for a period of six (6) months following the termination of this Agreement, Executive will not directly or indirectly whether as a partner, consultant, agent, employee, co-venturer, greater than two percent owner or otherwise or through any other person (as hereinafter defined): (a) be engaged in any business which develops software or manufactures or sells hardware for use in the specialty retail, restaurant, supermarket or convenience store sectors of the POS market (A) in any part of the world in which the Company is engaged in selling its products directly or indirectly at the time the Executive ceases to provide services hereunder, (B) if the territorial restriction in the preceding clause is deemed to be too broad, then the areas shall be the countries in which the Company is engaged in selling its products directly or indirectly at the time the Executive ceases to provide services hereunder, (C) if the territorial restriction in the preceding clause is deemed to be too broad, then the area shall be the continent of North America, (D) if the territorial restriction in the preceding clause is deemed to be too broad, then the areas shall be those states of the United States in which the Company is engaged in selling its products directly or indirectly at the time the Executive ceases to provide services hereunder, (E) if the territorial restriction in the preceding clause is deemed to be too broad, then the areas shall be any states in which the services performed by the Executive for the Company are directly related to the products and services provided by the Company to its customers in such states, or (F) if the territorial restriction in the preceding clause is deemed to be too broad, then the area shall be the states of New York and any other state in which the Executive actually performed services for the Company during the Employment Period; or (b) attempt to recruit any employee of the Company, assist in their hiring by any other Person, or encourage any employee to terminate his or her employment with the Company; or (c) encourage any customer of the Company to conduct with any other person any business or activity which such customer conducts or could conduct with the Company. For purpose of this Section 7, the term "Company" shall include any person controlling under common control with or controlled by, the Company, provided, however, that with respect to Tridex Corporation and any subsidiary of Tridex Corporation, the provisions of this Section 7 shall cease and be of no force and effect six (6) months after the Company is no longer a subsidiary of Tridex. For purpose of this Section 7, the term "Person" shall mean an individual or corporation, association or partnership in estate or trust or any other entity or organization. The Executive recognizes and agrees that because a violation by him of this Section 7 will cause irreparable harm to the Company that would be difficult to quantify and for which money damages would be inadequate, the Company shall have the right to injunctive relief to prevent or restrain any such violation, without the necessity of posting a bond. Executive expressly agrees that the character, duration and scope of this covenant not to compete are reasonable in light of the circumstances as they exist at the date upon which this Agreement has been executed. However, should a determination nonetheless be made by a court of competent jurisdiction at a later date that the character, duration or geographical scope of this covenant not to compete is unreasonable in light of the circumstances as they then exist, then it is the intention of both Executive and the Company that this covenant not to compete shall be construed by the court in such a manner as to impose only those restrictions on the conduct of Executive which are reasonable in light of the circumstances as they then exist and necessary to provide the Company the intended benefit of this covenant to compete. 8. Confidentiality Covenants. Executive understands that Company may impart to him confidential business information including, without limitation, designs, financial information, personnel information, strategic plans, product development information and the like (collectively "Confidential Information"). Executive hereby acknowledges Company's exclusive ownership of such Confidential Information. Executive agrees as follows: (1) only to use the Confidential Information to provide services to the Company; (2) only to communicate the Confidential Information to fellow employees, agents and representatives of the Company on a need-to-know basis; and (3) not to otherwise disclose or use any Confidential Information. Upon demand by the Company or upon termination of Executive's employment, Executive will deliver to the Company all manuals, photographs, recordings, and any other instrument or device by which, through which, or on which Confidential Information has been recorded and/or preserved, which are in my Executive's possession, custody or control. Executive acknowledges that for purposes of this Section 8 the term "Company" means any person or entity now or hereafter during the term of this Agreement which controls, is under common control with, or is controlled by, the Company. The Executive recognizes and agrees that because a violation by him of this Section 8 will cause irreparable harm to the Company that would be difficult to quantify and for which money damages would be inadequate, the Company shall have the right to injunctive relief to prevent or restrain any such violation, without the necessity of posting a bond. 9. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and thereof and supersedes any and all previous agreements, written and oral, regarding the subject matter hereof between the parties hereto, including but not limited to the Original Agreement. The Company shall be entitled to enforce this Agreement, according to its terms. This Agreement shall not be changed, altered, modified or amended, except by a written agreement signed by both parties hereto. 10. Notices. All notices, requests, demands and other communications required or permitted to be given or made under this Agreement shall be in writing and shall be deemed to have been given if delivered by hand, sent by generally recognized overnight courier service, telex or telecopy, or certified mail, return receipt requested. (a) to the Company at: 61 Wilton Road Westport, Connecticut 06880 Attn: Chairman and CEO (b) to the Executive at: 28 Mendonshire Heights Honeoye, NY 14472 Any such notice or other communication will be considered to have been given (i) on the date of delivery in person, (ii) on the third day after mailing by certified mail, provided that receipt of delivery is confirmed in writing, (iii) on the first business day following delivery to a commercial overnight courier or (iv) on the date of facsimile transmission (telecopy) provided that the giver or the notice obtains telephone confirmation of receipt. Either party may, by notice given to the other party in accordance with this Section 10, designate another address or person for receipt of notices hereunder. 11. Severability. If any term or provision of this Agreement, or the application thereof to any person or under any circumstance, shall to any extent by invalid or unenforceable, the remainder of this Agreement, or the application of such terms to the persons or under circumstances other than those as to which it is invalid or unenforceable, shall be considered severable and shall not be affected thereby, and each term of this Agreement shall be valid and enforceable to the fullest extent permitted by law, be deemed amended and given such interpretation as to achieve the economic intent of this Agreement. 12. Waiver. The failure of any party to insist in any one instance or more upon strict performance of any of the terms and conditions hereof, or to exercise any right of privilege herein conferred, shall not be construed as a waiver of such terms, conditions, rights or privileges, but same shall continue to remain in full force and effect. Any waiver by any party of any violation of, breach of or default under any provision of this Agreement by the other party shall not be construed as, or constitute, a continuing waiver of such provision, or waiver of any other violation of, breach of or default under any other provision of this Agreement. 15. Successors and Assigns. This Agreement shall be binding upon the Company and any successors and assigns of the Company. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. TRIDEX CORPORATION By: ------------------------------------ Title: --------------------------------- EXECUTIVE: --------------------------------------- Samuel J. Villanti EX-10.20 4 AMENDMENT NO. 2 TO CREDIT AGREEMENT EXHIBIT 10.20 AMENDMENT NO. 2 TO CREDIT AGREEMENT Dated as of March 30, 1999 AMENDMENT No. 2 to Credit Agreement (this "Amendment") by and among TRIDEX CORPORATION, a Connecticut corporation ("Tridex"), PROGRESSIVE SOFTWARE, INC., a North Carolina corporation ("PSI"), ULTIMATE TECHNOLOGY CORPORATION, a New York corporation ("UTC", and collectively, together with TRIDEX, and PSI, the "Borrowers" and each, individually a "Borrower"), and FLEET NATIONAL BANK, a national banking association organized under the laws of the United States of America (the "Bank"). PRELIMINARY STATEMENTS: A. The Borrowers and the Bank have entered into a Credit Agreement dated as of April 17, 1998. The Borrowers and the Bank have also entered into an Amendment No.1 to Credit Agreement dated as of November 1, 1998 ("Amendment No. 1"). Capitalized terms used herein and not otherwise defined herein shall have the meanings given thereto in the Credit Agreement, as amended. As used herein, the term "Credit Agreement" shall mean the Credit Agreement as amended pursuant to Amendment No.1. B. For good and valuable consideration, the receipt of which is acknowledged, the Borrowers and the Bank have agreed to further amend the Credit Agreement, as hereinafter set forth. SECTION 1. Amendments. The Facility Documents are, effective as of the date hereof and subject to the satisfaction of the conditions precedent set forth in Section 2 hereof, hereby amended as follows: (a) The first sentence of Section 2.1(a) of the Credit Agreement is hereby amended and restated in full to read as follows: Subject to the terms and conditions of this Agreement, the Bank agrees to make revolving loans ("Working Capital Loans") to the Borrowers from time to time from and including the date hereof to and including the Revolving Credit Termination Date, up to but not exceeding in the aggregate principal amount at any one time outstanding the amount of the Working Capital Commitment, and provided that the aggregate outstanding principal amount of Working Capital Loans shall at no time exceed the Borrowing Base. (b) The following definitions in the Credit Agreement are hereby amended and modified as follow: "Borrowing Base" means an amount equal to the sum of (a) 80% of Eligible Receivables, and (b) 50% of Eligible Inventory, provided, however, in no event shall the aggregate amount under clause (b) exceed $2,000,000. Unless the Bank shall otherwise determine, the Borrowing Base as of any date shall be the Borrowing Base set forth on the most current Borrowing Base Certificate certified and delivered by the Borrower pursuant to either Section 6.8 or Section 4.2. If, at any time, the Borrowing Base shall exceed the Working Capital Commitment, for purposes of this Agreement the Borrowing Base shall be deemed to be equal to the Working Capital Commitment. "Eligible Inventory" means, as of any date of determination thereof, all Inventory (valued at the lower of cost or its net realizable value as determined using GAAP) owned by the Borrowers, but excluding (a) all Inventory in which the Bank does not have a first perfected security interest, subject to no other Lien prior to or on a parity with such security interest, (b) all Inventory for which warehouse receipts or documents of title have been issued, unless the same are delivered to the Bank, (c) all Inventory of PSI, (d) all work-in-progress, packaging and labeling, and any finished Inventory units housed at customer locations, and (e) all other Inventory deemed ineligible by the Bank because of any circumstance that could, in the Bank's judgment, reasonably exercised, adversely affect the quality of such Inventory as collateral security. Notwithstanding the preceding sentence, "Eligible Inventory" shall not include any Inventory not located at premises owned by or leased to or contracted to a Borrower, unless such Inventory is in transit (and insured) or such Borrower has made a formal financing statement filing against the consignee of such Inventory and has given any party claiming of record a security interest in such consignee's Inventory, or other assets that might include such Inventory, notice of such Borrower's consignment arrangements with such consignee or has taken equivalent protective steps satisfactory to the Bank. "Working Capital Commitment" means the obligation of the Bank to make the Working Capital Loans under this Agreement in the aggregate principal amount of up to $6,000,000, as such amount may be limited or reduced pursuant to Article 2 or otherwise modified from time. "Margin" means, with respect to Prime Rate Loans, 1.5 percentage points, and with respect to LIBOR Loans, 3.75 percentage points. (c) The first three lines of the definition of "Eligible Receivables" are hereby amended to read as follows: "Eligible Receivables" means, as of any date of determination thereof, all Receivables of the Borrowers net of the Borrower's customary reserves, discounts, credits, returns, rebates, allowances or set-offs, and expressly netting therefrom all warranty reserves, customer deposits, billings for evaluation units, reserves for unissued credits, contra accounts and prepayments (up to the amount of any eligible account receivable amounts owed), and expressly excluding the following types of Receivables: Subsections (i) through (xviii) under the definition of "Eligible Receivables" shall remain unchanged in the Credit Agreement. (d) The following defined term is hereby added to the Credit Agreement: "Net Worth" means, with respect to any Person, at any time, the stockholders' equity of such Person and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP. (e) The $300,000 principal payment due on the Term Loan on March 31, 1999 is hereby deferred until June 30, 1999. (f) The Borrowers acknowledge that, pursuant to the terms of the Credit Agreement, the Working Capital Loans, plus all accrued interest thereon, shall be due and payable in full on June 30, 1999. Notwithstanding the foregoing, the aforesaid maturity date for the Working Capital Loans may be extended from June 30, 1999 until September 30, 1999 in the sole, absolute discretion of the Bank, and the Borrowers expressly acknowledge that the Bank shall make such determination in its sole, absolute discretion without regard to the financial condition of the Borrowers, improved or otherwise. Without limiting the foregoing, the Bank shall not consider any extension of the maturity date of the Working Capital Loans unless, on or prior to June 30, 1999, (i) the Borrowers continue to make all scheduled principal and interest payments due under the Term Loan and the Working Capital Loans (other than the $300,000 principal payment referred to above due on June 30, 1999, which $300,000 principal payment shall be due on September 30, 1999), and (iii) Mass Mutual agrees to defer the payment of interest in the approximate amount of $330,000 referenced in Section 2(d) herein to a date no earlier than October 17, 1999. (g) Sections 8.1 through 8.5 of the Credit Agreement are hereby deleted in their entirety and are hereby replaced by the following two sections: Section 8.1. EBITDA to Interest Expense Ratio. The Borrowers, on a consolidated basis, shall initially maintain a ratio of EBITDA to Interest Expense of not less than 1.0 to 1.0 at all times, as measured on March 31, 1999 for the period beginning on February 1, 1999 through March 31, 1999. Thereafter, the Borrowers, on a consolidated basis, shall maintain at all times the minimum ratio of EBITDA to Interest Expense set forth below, as measured at the end of each month, commencing April 30, 1999, for the period beginning on February 1, 1999 through the date of measurement set forth below: Measurement Date Applicable Ratio ---------------- ---------------- April 30, 1999 1.0 to 1.0 May 31, 1999 1.1 to 1.0 June 30, 1999 1.2 to 1.0 July 31, 1999 1.3 to 1.0 August 31, 1999 1.3 to 1.0 September 30, 1999 1.4 to 1.0 and the last day of each month thereafter. For purposes of the aforesaid covenant, "Interest Expense" shall not include any deferred interest on the $11,000,000 Subordinated Debt. Section 8.2. Net Worth. The Borrowers, on a consolidated basis, shall maintain at all times, as measured at the end of each month, commencing March 31, 1999, a Net Worth of not less than $15,400,000. (h) In consideration of the deferral by the Bank set forth in Section 1(e) hereof and in consideration of the waiver by the Bank of certain covenant defaults of the Borrowers, as provided in Section 4(d) hereof, and the modification of the financial covenants pursuant to Section 1(g) above, the Borrowers agree that, as of January 1, 2000, the Borrowers shall comply in all respects with each of the financial covenants as described in Article VIII of the original Credit Agreement dated April 17, 1998, it being the intention of the parties hereto that none of the modifications to such covenants set forth in Amendment No. 1 or in this Amendment No. 2 would thereafter be applicable. (i) Section 1.1(g) of the Security Agreement is hereby amended to designate said Section as Section 1.1(h) and a new Section 1.1(g) is hereby added to read as follows: (g) All general intangibles and all choses in action, settlement funds, proceeds of claims in tort or contract, including without limitation, all rights and proceeds in, to and under any contract or tort actions by any of the Grantors (or their Affiliates) against any person or entity. SECTION 2. Conditions of Effectiveness. This Amendment shall become effective when, and only when, the Bank shall have received counterparts of this Amendment executed by the Borrowers and the Bank, and Section 1 hereof shall become effective when, and only when, the Bank shall have additionally received all of the following documents or items, each document (unless otherwise indicated) being dated the date of receipt thereof by the Bank (which date shall be the same for all such documents), in form and substance satisfactory to the Bank: (a) Certified copies of (i) the resolutions of the Board of Directors of each of the Borrowers approving this Amendment and the matters contemplated hereby and (ii) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Amendment and the matters contemplated hereby. (b) A certificate of the Secretary or an Assistant Secretary of each of the Borrowers certifying the names and true signatures of the officers of the Borrower authorized to sign this Amendment and the other documents to be delivered hereunder. (c) An amendment fee equal to $50,000 accruing as of the date hereof and payable on or before June 30, 1999, and extension fees equal to $20,000 accruing on July 1, 1999, $20,000 accruing on August 1, 1999 and $30,000 accruing on September 1, 1999, with all such extension fees payable in full on or before September 30, 1999. (d) Evidence that Massachusetts Mutual Life Insurance Company and its Affiliates ("Mass Mutual") have agreed to defer the interest payment in the amount of approximately $330,000 payable on the $11,000,000 Subordinated Debt on April 17, 1999 to a date no earlier than July 17, 1999, and further evidence that Mass Mutual has waived any and all covenant defaults existing as of December 31, 1998 in respect of $11,000,000 Subordinated Debt and has amended the financial covenants under the $11,000,000 Subordinated Debt to levels that are, in the opinion of the Bank, no more restrictive than the financial covenants of the Bank as amended pursuant to Section 1(g) of this Amendment, and have consented to the terms of this Amendment and have agreed that no event of default shall exist under the Subordinated Debt Agreements as a result of this Amendment. (e) Acknowledgment copies of amendments to financing statements (UCC-3) duly filed under the Uniform Commercial Code in all jurisdictions necessary or, in the opinion of the Bank desirable to perfect the security interests of the Bank in the collateral granted by the Borrowers to the Bank under the Security Agreement and the other Facility Documents. (f) Acknowledgment by the Borrowers that the Bank will, promptly after the execution and delivery of this Amendment, notify any parties against whom the Borrowers have claims that any and all proceeds of any tort or contract claims by any of the Borrowers against such parties have been assigned to the Bank as collateral security for the Loans. SECTION 3. Representations and Warranties of Each of the Borrowers. Each Borrower represents and warrants as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. (b) The execution, delivery and performance by the Borrower of this Amendment and the Facility Documents, as amended hereby, to which it is or is to be a party are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action and do not contravene (i) the Borrower's charter or by-laws, (ii) any law or any contractual restriction binding on or affecting the Borrower, or result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge, encumbrance or preferential arrangement of any nature upon or with respect to any of the properties now owned or hereafter acquired by the Borrower. (c) No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Amendment or any of the Facility Documents, as amended hereby, to which it is or is to be a party. (d) This Amendment and each of the other Facility Documents as amended hereby, constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. (e) The Credit Agreement and the Security Agreement creates valid and perfected first priority security interests and liens in and to the Collateral covered thereby enforceable against all third parties in all jurisdictions, securing the payment of all Obligations, and the execution, delivery and performance of this Amendment do not adversely affect the aforesaid security interests and liens of the Credit Agreement and the Security Agreement. (f) Except as set forth in the Credit Agreement and in Schedule A hereto, there is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator, which may materially adversely affect the financial condition or operations of the Borrower or any Subsidiary. There is no pending or threatened action or proceeding affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator which purports to affect the legality, validity or enforceability of this Amendment or any of the other Facility Documents, as amended hereby. (g) The Facility Documents existing on the date hereof constitute legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. After giving effect to the amendments provided for in this Amendment, no event has occurred and is continuing which constitutes a Default or an Event of Default. SECTION 4. Reference to and Effect on the Facility Documents. (a) Upon the effectiveness of Section 1 hereof, on and after the date hereof each reference in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in any Facility Documents to the Credit Agreement or any other Facility Document, shall mean and be a reference to the Credit Agreement or such other Facility Document as amended hereby. (b) Except as specifically amended or modified pursuant to this Amendment, the provisions of the Credit Agreement, the Notes and the other Facility Documents shall remain in full force and effect and are hereby ratified and confirmed. Without limiting the generality of the foregoing, the Credit Agreement, the Security Agreement and all of the Collateral described therein do and shall continue to secure the payment of all indebtedness and liabilities of the Borrowers to the Banks and the Bank under the Credit Agreement and the other Facility Documents, as amended hereby. (c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Bank or the Banks under any of the Facility Documents, nor constitute a waiver of any provision of any of the Facility Documents. (d) Notwithstanding anything to the contrary herein, the Bank agrees that the failure of the Borrowers to comply with the financial covenants set forth in Article 8 of the Credit Agreement in effect prior to this Amendment in respect of the period ending December 31, 1998, shall not constitute an Event of Default, provided that the financial covenants set forth in Article 8 as amended hereby shall remain in full force and effect in respect of all periods described in Section 1(g) herein ending subsequent to December 31, 1998. SECTION 5. Costs, Expenses and Taxes. Each of the Borrowers agrees to pay on demand all costs and expenses of the Bank in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Bank with respect thereto and with respect to advising the Bank as to its rights and responsibilities hereunder and thereunder. Each of the Borrowers further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 5. In addition, each of the Borrowers shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Amendment and the other instruments and documents to be delivered hereunder, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. SECTION 6. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 7. Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of Connecticut. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. TRIDEX CORPORATION By -------------------------------------- George T. Crandall, Treasurer Address for Notices: 61 Wilton Avenue Westport, CT 06880 ULTIMATE TECHNOLOGY CORPORATION By -------------------------------------- George T. Crandall, Treasurer Address for Notices: 100 Rawson Road Victor, NY 14564 PROGRESSIVE SOFTWARE INC. By -------------------------------------- Daniel Bergeron, Treasurer Address for Notices: 2301 Crown Center Drive Charlotte, NC 28227 FLEET NATIONAL BANK By -------------------------------------- H. Frazier Caner, Vice President Address for Notices: Fleet National Bank One Landmark Square 2nd Floor Stamford, CT 06901 Attn: H. Frazier Caner Vice President Facsimile No.: (203) 964-4850 EX-11 5 COMPUTATION OF PER SHARE EARNINGS TRIDEX CORPORATION AND SUBSIDIARIES EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS (Dollars in thousands, except per share amounts)
Years Ended December 31, ---------------------------------------------- 1998 1997 1996 ---------------------------------------------- BASIC EARNINGS: Income (loss) from continuing operations $ (14,146) $ (568) $ 5,646 Income from discontinued operations 533 3,202 ---------------------------------------------- Net income (loss) available to common stockholders $ (14,146) $ (35) $ 8,848 ============================================== SHARES: Average common shares outstanding 6,077,000 5,157,000 3,913,000 ============================================== EARNINGS PER COMMON SHARE - BASIC: Income (loss) from continuing operations $ (2.33) $ (0.11) $ 1.44 Income from discontinued operations 0.10 0.82 ---------------------------------------------- Net income (loss) $ (2.33) $ (0.01) $ 2.26 ============================================== DILUTED: EARNINGS: Income (loss) from continuing operations $ (568) $ 5,646 Income impact from assumed conversions 0 341 --------------------------------- Income (loss) available to common stockholders plus assumed conversions (568) 5,987 Income from discontinued operations 533 3,202 --------------------------------- Net income (loss) available to common shareholders $ (35) $ 9,189 ================================= SHARES: Average common shares outstanding 5,157,000 3,913,000 Dilutive effect of outstanding options and warrants as determined by the treasury stock method 174,000 241,000 Dilutive effect of convertible debt assumed converted at the beginning of the year 0 445,000 --------------------------------- 5,331,000 4,599,000 ================================= EARNINGS PER COMMON SHARE - DILUTED: Income (loss) from continuing operations $ (0.11) $ 1.30 Income from discontinued operations 0.10 0.70 --------------------------------- Net income (loss) $ (0.01) $ 2.00 =================================
EX-21.2 6 SUBSIDIARIES TRIDEX CORPORATION EXHIBIT 21.1 SUBSIDIARIES OF TRIDEX CORPORATION Jurisdiction of Percentage Name Incorporation Owner Owned - - -------------------------------------------------------------------------------- Allu Realty Trust * Massachusetts Tridex 100% RIL Corporation* Connecticut Tridex 100% Ultimate Technology Corporation New York Tridex 100% Progressive Software, Inc. North Carolina Tridex 100% Retail Resource Solutions Limited United Kingdom Tridex 100% *Inactive EX-23.1 7 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements of Tridex Corporation on Form S-8 (File numbers 333-52555, 333-52557, 333-52559) of our report dated March 30, 1999 on our audits of the consolidated financial statements of Tridex Corporation as of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997, and 1996, which report is incorporated by reference from the 1998 Annual Report to Stockholders in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP March 31, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) TRIDEX CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 18 0 8,125 319 7,941 1,371 4,251 1,806 52,953 15,235 19,341 1,634 0 0 16,743 52,953 43,504 43,504 31,670 63,768 22 300 1,735 (22,321) (8,175) (14,146) 0 0 0 (14,146) (2.33) (2.33)
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