<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HYPERCOM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3578 86-0828608
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
2851 WEST KATHLEEN ROAD
PHOENIX, ARIZONA 85023
(602) 504-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ALBERT A. IRATO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HYPERCOM CORPORATION
2851 WEST KATHLEEN ROAD
PHOENIX, ARIZONA 85023
(602) 504-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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STEVEN D. PIDGEON, ESQ. IRA A. GREENSTEIN, ESQ.
CHRISTOPHER J. LITTLEFIELD, ESQ. KRISTINA M. JODIS, ESQ.
MICHAEL B. MALEDON, ESQ. MORRISON & FOERSTER LLP
SNELL & WILMER L.L.P. 1290 AVENUE OF THE AMERICAS
ONE ARIZONA CENTER NEW YORK, NEW YORK 10104-0012
PHOENIX, ARIZONA 85004-0001 (212) 468-8000
(602) 382-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value........................ $235,000,000 $71,213
===============================================================================================
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(1) Includes shares of Common Stock that the Underwriters have the option to
purchase to cover over-allotments, if any.
(2) Calculated pursuant to Rule 457(o) of the rules and regulations promulgated
under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1997
PROSPECTUS
11,250,000 SHARES
[HYPERCOM CORPORATION LOGO]
HYPERCOM CORPORATION
COMMON STOCK
---------------------------
Of the 11,250,000 shares of Common Stock, $.001 par value per share (the
"Common Stock"), of Hypercom Corporation ("Hypercom" or the "Company") offered
hereby, 8,500,000 shares are being issued and sold by the Company and 2,750,000
shares are being sold by the Selling Stockholders (collectively, the
"Offering"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the shares being sold by the Selling
Stockholders.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application will be made for listing of the Common Stock on the
New York Stock Exchange ("NYSE") under the symbol "HYC."
---------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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=========================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Share............................ $ $ $ $
- ---------------------------------------------------------------------------------------------------------
Total(3)............................. $ $ $ $
=========================================================================================================
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offering of $ payable by
the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 1,687,500 additional shares of Common Stock on the same terms and
conditions as the securities offered hereby solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting" and "Principal and Selling
Stockholders."
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the shares
will be made at the offices of Lehman Brothers Inc., New York, New York, on or
about , 1997.
---------------------------
LEHMAN BROTHERS
SALOMON BROTHERS INC
COWEN & COMPANY
, 1997
<PAGE> 3
The Company has registered its "Hypercom" trademark in the U.S. and several
foreign countries, and maintains a number of other trademarks. This Prospectus
may contain the trademarks of other companies. See "Business -- Proprietary
Rights."
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK
OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including "Risk Factors" and
the Consolidated Financial Statements and Notes thereto. Unless otherwise
indicated, all information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option or currently outstanding stock options
granted by the Company and (ii) gives effect to a 5-for-4 Common Stock split
which was effected on September 10, 1997. The Company's fiscal year ends June
30.
THE COMPANY
Hypercom is a leading worldwide developer, manufacturer and supplier of
high performance, comprehensive point-of-sale ("POS") payment systems and
sophisticated enterprise networking products. The Company's end-to-end POS
payment system solutions, comprised of terminals, peripherals, POS network
products and software, enable merchants to automate credit, charge, debit and
other electronic payment transactions, all with seamless integration and
interoperability and at a lower total cost of ownership. The Company has the
second largest installed base of POS terminals in the U.S. and worldwide, and
the largest installed base in Latin America and Asia/Pacific. Leveraging nearly
20 years of expertise with POS networks, the Company has developed a family of
multi-service switch/routers that enable the integration of business-critical
legacy data, local area network ("LAN"), voice, fax and video traffic
transmitted among central and remote locations. The Company's networking
products allow its customers to eliminate duplicative networks and facilitate
migration to cost-effective switched services.
The Company's products currently are sold in more than 50 countries through
its direct sales force and a variety of third-party distribution channels. In
fiscal 1997, international sales accounted for 55.8% of the Company's net
revenue. Representative customers include Alamo Rent A Car, Inc., American
Express Company, AT&T Corp., Banamex, BA Merchant Services, Inc., CrediCard
Brazil, First Data Merchant Services, General Electric Capital Corporation, The
Home Depot, Inc., The Hong Kong and Shanghai Banking Corporation Group, Lucent
Technologies, Inc., National Bank of Australia and Wells Fargo Bank, N.A.
POS Systems. In recent years, consumers demanding fast, convenient and
secure methods of payment have increasingly switched to card-based payments,
such as debit, credit and charge cards, from traditional forms of payment, such
as checks and cash. According to The Nilson Report, a payment systems industry
newsletter, retail consumer payments using credit, debit, electronic benefits
transfer ("EBT") and prepaid cards increased from approximately 15% in 1990 to
approximately 21% of retail payment transactions in the U.S. in 1995, and are
projected to grow at a five-year compounded annual growth rate ("CAGR") of
approximately 16% to 26.3 billion through 2000 and by approximately 13% to 47.9
billion from 2000 to 2005. The increasing use of credit and debit cards and the
proliferation of new electronic payment technologies and programs, such as chip
cards and customer loyalty, are driving the need for new, cost-effective, fast
and secure POS payment systems that can handle the increased complexity and the
projected volumes of POS transactions. The infrastructure development of
emerging markets, such as Eastern Europe, Russia and China, also is expected to
contribute to the increasing demand for electronic payment products. According
to Frost & Sullivan, a market research firm, the sale of POS terminals in the
U.S. is projected to grow at a five-year CAGR of 24.6% to approximately 2.4
million terminals by 2000 and revenues from POS terminal sales in the U.S. are
projected to grow at a five-year CAGR of 21.7% for the same period.
Approximately 51% of the worldwide installed base of POS terminals is in the
U.S.
Hypercom POS Systems, which accounted for approximately 88% of Hypercom's
net revenue in fiscal 1997, develops, manufactures, markets and supports a
comprehensive range of technologically advanced (i) POS terminals and
peripherals, which process transactions at the point of sale, (ii) POS network
products, which provide efficient, accurate and fast transaction transport and
(iii) software products, including terminal application software and terminal
management software, that enable remote and automated terminal management and
the downloading of terminal application software. Hypercom believes that it is
the only single source provider of complete, end-to-end POS payment system
solutions that are interoperable not only
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<PAGE> 5
with other Hypercom products, but also with competitors' products. In addition,
due to the technologically-advanced features, speed, reliability, functionality
and upgradeability of its products, the Company believes that the total cost of
ownership of Hypercom products generally is less than its competitors' products,
enabling Hypercom products to command premium pricing.
The Company has established itself as a leading innovator in the electronic
payments industry through the introduction of numerous state-of-the-art POS
terminals and peripheral products, transaction networking products and
transaction processing software. Since the introduction of POS terminals in the
early 1980s, Hypercom has delivered a series of innovations, such as fast-dial
techniques, Synchronous Data Link Control ("SDLC") terminals, bit-map message
formats, dual-track card readers and on-line terminal management, which have
resulted in reduced transaction costs, improved reliability and flexibility. The
Company also introduced technology that reduces transaction response times from
20 seconds to less than 10 seconds, which has resulted in substantial savings
for Hypercom customers and better service to consumers.
Network Systems. There is a rapidly increasing need for enterprise
networking solutions that support a comprehensive range of legacy protocols and
are able to consolidate legacy data, LAN, voice, fax and video applications over
frame relay and other switched network services. These solutions need to
accommodate the continued reliance of many financial institutions and other
large branch-oriented enterprises on existing legacy mainframe systems for their
mission-critical applications, and the desire of such organizations to add
networked client/server computing without creating duplicate networks, thereby
reducing telecommunications costs.
Hypercom Network Systems, which accounted for approximately 12% of
Hypercom's net revenue in fiscal 1997, develops, manufactures, markets and
supports enterprise networking systems through its Integrated Enterprise Network
("IEN") family of flexible, stackable, multi-service switch/routers. IEN
products have established Hypercom as a leading integrator for enterprise branch
networking systems of legacy data, LAN, voice, fax and video traffic, allowing
for migration from expensive leased lines to cost-effective frame relay and
other switched network services. IEN products provide Hypercom customers with
reduced telecommunications, network administration and maintenance costs.
Business Strategy. The Company's primary objective is to become the
leading worldwide provider and innovator of POS payment system solutions. In
addition, the Company intends to leverage the unique technical capabilities of
its networking and software products to become a leading supplier of networking
products to enterprises that have substantial branch networking needs. To
achieve these objectives, the Company is seeking to (i) extend its technology
leadership, (ii) exploit its international expertise, (iii) capitalize on the
retooling of the POS payments infrastructure, (iv) provide complete, end-to-end
POS payment systems, (v) leverage its POS network expertise into the enterprise
branch networking market and (vi) enhance brand awareness through increased
marketing and distribution.
The Company was formed in Australia in 1978 and was reincorporated in
Delaware in 1996. See "Background of the Company." Unless the context otherwise
requires, references in this Prospectus to "Hypercom" and the "Company" refer to
Hypercom Corporation and its subsidiaries and the predecessors thereto. The
Company's principal executive offices are located at 2851 West Kathleen Road,
Phoenix, Arizona 85023, and its telephone number is (602) 504-5000. The Company
maintains a World Wide Web site at http://www.hypercom.com. The information
contained in the Company's World Wide Web site is not, and shall not be deemed
to be, a part of this Prospectus.
4
<PAGE> 6
THE OFFERING
Common Stock offered by the Company.... 8,500,000 shares
Common Stock offered by the Selling
Stockholders........................... 2,750,000 shares
Common Stock to be outstanding after
the Offering........................... 33,500,000 shares(1)
Use of proceeds........................ For repayment of indebtedness,
expansion of manufacturing,
warehouse and corporate facilities
and general corporate purposes,
including working capital, capital
expenditures and possible
acquisitions. See "Use of Proceeds."
Proposed New York Stock Exchange
symbol................................. HYC
- ---------------
(1) Excludes 3,783,750 shares of Common Stock issuable upon exercise of stock
options outstanding at September 12, 1997, with a weighted average exercise
price of $5.82 per share, of which 1,696,250 shares were exercisable at such
date. See "Capitalization" and "Management."
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEAR ENDED JUNE 30,
------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net revenue............................... $56,771 $91,183 $146,168 $163,556 $196,742
Cost and expenses:
Cost of revenue......................... 30,817 57,301 83,016 89,710 103,227
Research and development................ 2,337 4,429 5,422 8,509 12,926
Selling, general and administrative..... 12,192 14,929 27,687 44,741 52,530
Non-cash compensation expense(1)........ -- -- 698 2,061 4,784
-------- -------- -------- -------- --------
Total costs and expenses......... 45,346 76,659 116,823 145,021 173,467
Income from operations.................... $11,425 $14,524 $ 29,345 $ 18,535 $ 23,275
======== ======== ======== ======== ========
Net income................................ $ 8,764 $ 9,149 $ 19,556 $ 12,289 $ 15,562
======== ======== ======== ======== ========
Net income per share...................... $ 0.23 $ 0.24 $ 0.51 $ 0.32 $ 0.57
======== ======== ======== ======== ========
Number of shares used in per share
calculations(2)......................... 37,952,072 38,115,604 38,236,105 38,740,591 27,328,226
======== ======== ======== ======== ========
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JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................ $16,318 $
Working capital.......................................................... 62,949
Total assets............................................................. 138,741
Short-term debt.......................................................... 14,064
Long-term debt, less current portion..................................... 10,506
Total stockholders' equity............................................... 60,894
</TABLE>
- ---------------
(1) Relates to stock underlying options granted to an executive officer which
the Company is obligated to purchase under certain conditions at a price
determined pursuant to a formula based upon the Company's net income. It is
anticipated that the Company will incur a substantial non-cash charge
(approximately $ million at an assumed initial public offering price of $
per share) in the quarter in which the Company's initial public offering is
completed, but will incur no future charges under this arrangement since the
repurchase obligation will terminate upon closing of the Offering.
(2) Fiscal 1997 share amount gives effect to a repurchase of 11,650,000 shares
of Common Stock.
(3) As adjusted to give effect to the sale by the Company of 8,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$ per share, less underwriting discounts and commissions and
estimated offering expenses, and the anticipated application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, investors should
carefully consider the following risk factors when evaluating an investment in
the Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements as a result of certain factors, including those discussed in "Risk
Factors" below, in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in "Business," as well as factors discussed
elsewhere in this Prospectus.
DIFFICULTY IN FORECASTING NET REVENUE; SIGNIFICANT FLUCTUATIONS IN QUARTERLY
RESULTS; SEASONALITY
The Company's net revenue in a given period is difficult to forecast as a
result of a variety of factors, including the timing of product purchases by the
Company's customers, the length of the sales cycle for the Company's products
and quarterly fluctuations. Hypercom POS Systems and its customers enter into
purchase agreements, which generally have a one-year term and minimum purchase
commitments. However, under the terms of these agreements, the Company's
customers are not required to make purchases at any particular times during the
term of the agreement or to purchase products exclusively from the Company.
Because the timing of product purchases in any given period is solely within the
customers' discretion and control, net revenue attributable to POS payment
systems products is difficult to forecast in any given period. This difficulty
in forecasting net revenue is compounded in certain international markets in
which large orders for complete systems sales occur more frequently than in the
U.S. Due to the significant commitment of capital associated with complete
systems sales, the sales cycle for such systems is generally lengthy and
difficult to predict. With respect to Hypercom Network Systems, the Company
generally operates with little backlog and, as a result, net revenue
attributable to enterprise networking products in any quarter is substantially
dependent on the orders booked and shipped in that quarter. Further, the highly
technical nature of these sales generally results in a sales cycle that ranges
from 12 to 18 months.
The Company's operating results also are subject to other uncertainties,
including risks and uncertainties related to general industry and economic
conditions, competitive pressures, the composition, timing and size of orders
from and shipments to major customers, variations in product mix and product
cost, overhead costs, obsolescence of inventory, manufacturing or production
difficulties, certain nonrecurring charges and other factors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview" and "-- Quarterly Operating Results." Accordingly, the Company's
operating results vary
materially from quarter to quarter. Because a high percentage of the Company's
operating expenses are relatively fixed, if anticipated sales and shipments in
any quarter do not occur as expected, the Company's operating results may be
adversely affected and fall significantly short of expectations. Any
unanticipated decline in the growth of the Company's net revenue, without a
corresponding and timely reduction in the growth of operating expenses, could
have a material adverse effect on the Company's business, operating results and
financial condition. There is no assurance that, in the event of any shortfall
of sales or reduction in gross margin in a quarter, the Company will be able to
control expenses sufficiently or promptly to meet profitability objectives for
that quarter.
Historically, the Company's business has experienced, and is expected to
continue to experience some degree of seasonality. In this regard, the Company's
net revenue and results of operations have been stronger in the first half of
the fiscal year reflecting (i) increased purchases of POS payment systems to
satisfy increased retail demand during the holiday season, (ii) incentive
programs offered by VISA and MasterCard from July to December of each year that
encourage merchants to offer card-based payment systems and (iii) allocation of
customers' capital budgets which typically occurs by the end of March with
volume shipments commencing in July. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Seasonality."
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<PAGE> 8
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY FLUCTUATIONS
For the fiscal years 1997, 1996 and 1995, net revenue from international
sales comprised approximately 55.8%, 58.1% and 60.4%, respectively, of the
Company's net revenues. The Company expects that international sales will
continue to account for a significant percentage of the Company's net revenue in
the foreseeable future. Accordingly, the Company is subject to risks associated
with international operations, including management of a multinational
organization, fluctuations in currency exchange rates, the burden of complying
with international laws and other regulatory and product certification
requirements and changes in such laws and requirements, tariffs and other trade
barriers, import and export controls, restrictions on the repatriation of funds,
inflationary conditions, staffing, employment and severance issues, political
and economic instability and longer payment cycles in certain countries. The
Company's manufacturing facilities in Australia and Brazil and its subcontracted
manufacturing facilities in China are subject to particular risks relating to
political developments, tariffs, duties, taxes, local content requirements and
other trade barriers in those countries. The inability to effectively manage
these and other risks could adversely affect the Company's business, operating
results and financial condition.
The Company's international sales are denominated primarily in U.S.
dollars, but some sales are denominated in the currency of the country in which
the sale occurs. A decrease in the value of such foreign currencies relative to
the U.S. dollar could make the price of the Company's products sold
internationally less competitive or result in losses from currency exchange rate
fluctuations. The Company has sales offices and manufacturing facilities in a
number of foreign countries, the operating expenses of which are also subject to
the effects of fluctuations in currency exchange rates. The Company generally
does not engage in hedging transactions which could partially offset the effects
of fluctuations in currency exchange rates. However, as the Company continues to
expand its international operations, exposure to gains and losses on foreign
currency transactions may increase. The Company may choose to limit such
exposure by entering into forward foreign exchange contracts or engaging in
similar hedging strategies. There can be no assurance that any currency exchange
strategy would be successful in avoiding exchange-related losses or that the
failure to manage currency risks will not have a material adverse effect on the
Company's business, operating results or financial condition. See
"Business -- Sales, Marketing and Distribution" and "-- Manufacturing."
INDUSTRY AND TECHNOLOGICAL CHANGES; DEPENDENCE ON DEVELOPMENT AND MARKET
ACCEPTANCE OF NEW PRODUCTS
The market for POS payment systems products in the electronic payments
industry is driven by consumers who want to use a variety of payment options and
the merchant's need to offer new payment options as required to remain
competitive. Although the technologies and payment options used in the
electronic payment industry have not changed substantially in recent years, the
Company believes that demand for lower cost products that feature greater
functionality at the point of sale, more rapid and accurate processing of
transactions and improvements in security features, as well as emerging
technologies and payment programs, will result in significant changes in the
electronic payments industry over the next few years. In addition, the
enterprise networking industry has been, and continues to be, characterized by
rapidly changing technologies and new product introductions. The Company's
success, particularly in the enterprise networking industry, will depend to a
substantial degree upon its continued ability to develop and introduce, in a
timely fashion, enhancements to its existing products and new products that meet
changing market and industry requirements.
The development of new products and technologies is a complex and uncertain
process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. There can be no assurance that
the Company will be able to identify, develop, manufacture, market or support
new products and technologies successfully, that such new products and
technologies will gain market acceptance and be successful or that the Company
will be able to respond effectively to technological changes, emerging industry
standards or product announcements by competitors. In addition, the Company
occasionally has experienced delays in the introduction of product enhancements
and new products. There can be no assurance that the Company will be able to
introduce product enhancements or new products on a timely basis in the future.
Further, from time to time, the Company may announce new products, capabilities
or technologies that have the potential to replace or shorten the life cycle of
the Company's existing product offerings. There can be no
7
<PAGE> 9
assurance that announcements of product enhancements or new product offerings
will not cause customers to defer purchasing existing Company products or cause
distributors or other resellers to return products to the Company. Failure to
introduce new products or product enhancements effectively and on a timely
basis, customer delays in purchasing products in anticipation of new product
introductions and any inability of the Company to respond effectively to
technological changes, emerging industry standards or product announcements by
competitors could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Industry Overview,"
"-- Products and Services," "-- Products Under Development," "-- Research and
Product Development" and "-- Competition."
DEPENDENCE ON CURRENT MANAGEMENT AND KEY PERSONNEL
George Wallner, Albert A. Irato, Paul Wallner and Jairo Gonzalez have been,
and will continue to be, instrumental in the development, growth and operations
of the Company. The Company has employment agreements with Messrs. Irato and
Gonzalez, but does not have employment agreements with George Wallner and Paul
Wallner or any other member of senior management. See "Management -- Employment
Agreements." The loss of any of these persons could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company's continued growth and operations also depend to a significant
extent on the continued service of other key employees and the hiring of new
qualified employees. Competition for highly skilled business, technical,
marketing and other personnel is intense, particularly in the strong economic
cycle currently prevailing for high technology companies. The loss of one or
more key employees or the Company's inability to attract additional qualified
employees or retain other employees could have an adverse effect on the
Company's business, operating results and financial condition. In addition, the
Company may experience increased compensation costs in order to compete for
skilled employees. See "Business -- Employees."
EXCESS OR OBSOLETE INVENTORY
Managing the Company's inventory of components and finished products is a
complex task. A number of factors, including the need to maintain a significant
inventory of certain components which are in short supply or which must be
purchased in bulk to obtain favorable pricing, the general unpredictability of
demand for specific products and customer requests for quick delivery schedules,
may result in the Company maintaining excess inventory. Other factors, including
changes in market demand and technology, and new product introductions that may
replace or shorten the life cycle of the Company's existing product offerings,
may cause the Company's inventory to become obsolete. Any excess or obsolete
inventory could result in price reductions and inventory write-downs, which in
turn could adversely affect the Company's business, operating results and
financial condition. See "Business -- Manufacturing."
IMPLEMENTATION OF INFORMATION SYSTEMS; MANAGEMENT OF QUARTERLY FINANCIAL
REPORTING
The Company's predecessor was started in Australia in 1978, and expanded
into other international markets and the U.S. through a number of affiliated or
subsidiary companies or divisions that operated as autonomous business units.
These business units were responsible for their own financial reporting and cash
management and, in some cases, manufacturing. Typically, detailed financial
statements were prepared only on an annual basis. In 1996, the Company was
formed as a U.S. holding company for these various business operations, which
were restructured into new operating units. In addition, the Company centralized
certain functions such as purchasing and manufacturing, implemented an
Oracle-based management information system to improve financial reporting and
budgeting and began to manage its business toward quarterly reporting. There can
be no assurance that these efforts will result in improved quarterly reporting,
more consistent operating results or that they will not adversely affect the
Company's business, operating results and financial condition.
COMPETITION
The markets in which the Company operates are highly competitive and are
becoming increasingly competitive. Principal competitive factors include product
quality, reliability, performance, functionality,
8
<PAGE> 10
pricing, certification, and upgradeability. In the electronic payment industry
the Company competes primarily against VeriFone, Inc., which was recently
acquired by Hewlett-Packard Company, and in the enterprise networking market
competes with Cisco Systems, Inc., 3Com Corporation, Bay Networks, Inc.,
Motorola Information Systems Group, and other providers. Certain of the
Company's competitors have significantly greater financial and technical
resources than the Company, as well as better name recognition and a larger
customer base than the Company. The Company faces additional competitive factors
in foreign countries, including preferences for national vendors, and
difficulties in obtaining necessary certifications and in meeting the
requirements of government policies. Competitive factors may result in, among
other things, price discounts or other concessions by the Company and sales lost
by the Company to competitors, which could have a material adverse effect on the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully in the future.
See "Business -- Competition."
LIMITED HISTORY OF PROFITABILITY OF HYPERCOM NETWORK SYSTEMS
The Company established Hypercom Network Systems in 1992 to continue to
develop enterprise networking products and technologies for the electronic
payments industry and to leverage these technologies to address other enterprise
networking opportunities. Since its formation, Hypercom Network Systems has
expended substantial sums on research and development and on establishing
distinct manufacturing operations and distribution channels. Until recently, the
majority of Hypercom Network Systems' sales were to Hypercom POS Systems. The
Company believes that Hypercom Network Systems has only recently achieved
profitability as a standalone business, and there can be no assurance that it
will continue to remain profitable as a separate business, particularly in light
of the competitive nature of the industry in which it operates. See
"Business -- Competition."
DEPENDENCE ON CERTAIN SUPPLIERS AND THIRD-PARTY DISTRIBUTORS
The Company utilizes a contract manufacturer to build networking products
and is dependent on sole-source suppliers for certain product components,
including microprocessors, certain integrated circuits and other electronic
components, while certain other components are available from only a limited
number of sources. Although to date the Company generally has been able to
obtain adequate supplies of products and components, the Company's inability to
obtain sufficient products or components or to develop alternative sources could
result in delays in product introductions or shipments, which could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Manufacturing."
The Company uses various channels to market and distribute its products,
including sales to end-users via third-party distributors. Third-party
distributors are a substantial channel for distribution in some international
markets and increasingly are becoming a substantial channel for distribution in
the U.S., particularly with respect to the Company's enterprise networking
products. Accordingly, the Company's ability to market and distribute its
products depends significantly on its relationship with third-party
distributors, as well as the performance and financial condition of these
distributors. In the event that the Company's relationship with its distributors
deteriorates, or the performance or financial condition of the distributors
affects their performance or ability to pay the Company, the Company's business,
operating results and financial condition could be materially adversely
affected. Further, the Company's ability to terminate poorly performing
distributors in certain markets or countries could be restricted under local
laws. See "Business -- Sales, Marketing and Distribution."
RELIANCE ON CERTAIN HYPERCOM POS SYSTEMS CUSTOMERS
A significant portion of Hypercom POS Systems sales has resulted, and is
expected to continue to result, from substantial purchases made by a limited
number of large organizations. Although no one customer accounted for more than
10% of the Company's net revenue in 1997, the Company derived 19.5% of its net
revenue from sales to its two largest customers and 33.6% of its net revenue
from sales to its five largest customers. The Company typically enters into
purchase agreements with its larger customers which generally have a one-year
term and provide for minimum purchase commitments. However, these agreements do
not
9
<PAGE> 11
require such customers to purchase POS payment system products exclusively from
the Company. The failure of any of the Company's larger POS payment system
customers to continue to purchase such products from the Company, or any
significant delay in purchases by such customers, could have a material adverse
effect on the Company's business, operating results and financial condition. The
Company expects that in the future it will continue to rely on a limited number
of customers in any given period for a significant portion of its net revenue.
Further, customer demand can be adversely affected by numerous variables,
including budgetary constraints, changes in the customers' competitive
environment, mergers or other strategic alignments involving customers, pricing
policies by the Company or its competitors, personnel changes, the number,
timing and significance of new product and product enhancement announcements by
the Company and its competitors, the ability of the Company to develop,
introduce and market new and enhanced products on a timely basis and general
economic factors. There can be no assurance that the Company's significant
customers will continue to purchase products from the Company at historical or
any particular levels. See "Business -- Customers."
IMPACT OF INDUSTRY REGULATION AND STANDARDS
The Company's products must meet industry standards, such as those imposed
by VISA and MasterCard, and receive certification for connection to certain
public telecommunications networks prior to their sale. In the U.S., the
Company's products must comply with various regulations defined by the Federal
Communications Commission (the "FCC") and Underwriters Laboratories.
Internationally, the Company's products must comply with standards established
by telecommunications authorities in various countries, as well as with
recommendations of quasi-regulatory authorities and standards-setting
committees. In addition, public carriers require that equipment connected to
their networks comply with their own standards, which in part reflect their
currently installed equipment. Some public carriers have installed equipment
that does not fully comply with current industry standards, and this
noncompliance must be addressed in the design of the Company's enterprise
networking products. Any future inability to obtain on a timely basis or retain
domestic or foreign regulatory approvals or certifications or to comply with
existing or evolving industry standards could have a material adverse effect on
the Company's business, operating results and financial condition. In addition,
rates for public telecommunications services, including features and capacity of
such services, are governed by tariffs determined by carriers and subject to
regulatory approval. Changes in these tariffs could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business -- Government Regulation."
The Company's operations are subject to various state, federal and
international laws governing, among other things, occupational health and
safety, minimum wages, overtime, retirement and profit-sharing plans and
severance payments, and the use, storage, handling and disposal of certain
chemicals used in the Company's production processes. Any failure to comply with
applicable requirements, or the adoption of new regulations or changes in
existing regulations, could impose additional compliance costs on the Company,
require a cessation of certain activities or otherwise have a material adverse
effect on the Company's business, operating results and financial condition.
PRODUCT DEFECTS
Products as complex as those offered by the Company may contain undetected
design defects of software or hardware errors that could be difficult to detect
and correct when first introduced or as new versions are released. Such errors
have occurred in the past, and there can be no assurance that, despite testing
by the Company and customers, errors will not be found in new or enhanced
products after commencement of commercial shipments. Moreover, there can be no
assurance that once detected, such errors can be corrected in a timely manner,
if at all. Software errors may take several months to correct, if they can be
corrected at all, and hardware errors may take even longer to rectify. The
occurrence of any such software or hardware errors, as well as any delay in
correcting them, could result in delays in shipment of products, loss of market
acceptance of the Company's products, additional warranty expense, diversion of
engineering and other resources from the Company's product development efforts
or the loss of credibility with the Company's
10
<PAGE> 12
distributors and customers, any of which could have a material adverse effect on
the Company's business, operating results and financial condition.
The Company's POS payment systems products are used to process payment
transactions and, as a result, the security features of the such products are
important. In general, the Company's POS payment systems products are designed
to comply with industry practices relating to security in payment transactions.
Any failure of the security features of the Company's products could adversely
affect the marketing of its products and any violation of its product warranties
resulting from security breaches could result in claims against the Company.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company seeks to establish and protect the proprietary aspects of its
products by relying on applicable patent, copyright, trademark and trade secret
laws and on confidentiality, licensing and other contractual arrangements, all
of which may afford only limited protection. Notwithstanding the Company's
efforts to protect its proprietary rights, it may be possible for unauthorized
third parties to copy certain portions of the Company's products or to reverse
engineer or obtain and use technology that the Company regards as proprietary.
In addition, the laws of certain countries do not protect the Company's
proprietary rights to the same extent as do the laws of the U.S. Accordingly,
there can be no assurance that the Company will be able to protect its
proprietary technology against unauthorized copying or use, which could
adversely affect the Company's competitive position. The Company has
applications for certain patents and trademarks pending. There can be no
assurance that any patents or trademarks will be granted or, if granted, that
any patents will cover all claims sought to be protected. Further, there can be
no assurance that any patent or trademark held by or granted to the Company, if
challenged, will be found valid or enforceable.
The Company's products and technologies incorporate subject matter that the
Company believes is in the public domain or are otherwise within the rights of
the Company to use, such as products and technologies designed and provided by
third parties. There can be no assurance, however, that third parties will not
assert patent or other intellectual property infringement claims against the
Company with respect to its products and technologies. From time to time, the
Company receives notices from third parties claiming that the Company's products
infringe such parties' proprietary rights, and the Company may receive such
notices in the future. Regardless of its merit, any such claim can be
time-consuming, result in costly litigation and require the Company to enter
into royalty and licensing agreements. Such royalty or licensing agreements may
not be offered or be available on terms acceptable to the Company. If a
successful claim is made against the Company and the Company fails to timely
develop or license a substitute technology, the Company's business, operating
results and financial condition could be materially adversely affected. See
"Business -- Proprietary Rights."
RISKS OF POTENTIAL ACQUISITIONS
The Company may acquire or make substantial investments in complementary
businesses, technologies or products in the future. Any such acquisition or
investment would entail various risks, including the difficulty of assimilating
the technologies, operations and personnel of the acquired business, technology
or product, the potential disruption of the Company's ongoing business and,
generally, the potential inability of the Company to obtain the desired
financial and strategic benefits from the acquisition or investment. These
factors could have a material adverse effect on the Company's business,
operating results and financial condition. Future acquisitions and investments
by the Company also could result in substantial cash expenditures, potentially
dilutive issuances of equity securities, the incurrence of additional debt and
contingent liabilities, and amortization expenses related to goodwill and other
intangible assets, which could adversely affect the Company's business,
operating results and financial condition.
VOTING CONTROL BY EXISTING STOCKHOLDERS
George Wallner and Paul Wallner will, in the aggregate, beneficially own
approximately 63.5% of the Company's outstanding Common Stock following the
completion of the Offering, assuming no exercise of the
11
<PAGE> 13
underwriters' over-allotment option. Accordingly, George Wallner and Paul
Wallner, acting together, will have the ability to control the affairs of the
Company, including the election of all of the directors to the Company's Board
of Directors and, except as otherwise provided by law, approving or disapproving
other matters submitted to a vote of the Company's stockholders, including a
merger, consolidation or sale of assets. This voting control also may have the
effect of delaying or preventing a change in control of the Company and may
affect the price that investors might be willing to pay in the future for shares
of the Company's Common Stock. See "Principal and Selling Stockholders."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE; IMMEDIATE AND
SUBSTANTIAL DILUTION
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price will be determined through negotiations among the Company, the Selling
Stockholders and the Underwriters and may bear no relationship to the price at
which the Common Stock will trade upon completion of the Offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
In recent years, the stock market in general, and the market for technology
stocks in particular, have experienced extreme price fluctuations. The market
price of the Company's Common Stock may be significantly affected by various
factors such as quarterly variations in the Company's operating results, changes
in revenue growth rates for the Company as a whole or for specific geographic
areas, business units or products, earnings estimates or changes in estimates by
market analysts, speculation in the press or analyst community, the announcement
of new products or product enhancements by the Company or its competitors and
general market conditions or market conditions specific to particular
industries. There can be no assurance that the market price of the Company's
Common Stock will not experience significant fluctuations in the future.
All of the currently outstanding shares of Common Stock were issued at
prices substantially lower than the price of the shares of Common Stock offered
hereby. Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in net tangible book value with respect to
their shares of Common Stock and may incur additional dilution upon the exercise
of outstanding stock options. See "Dilution."
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public
market following the Offering could have an adverse effect on the price of the
Common Stock. Upon completion of the Offering, the Company will have 33,500,000
shares of Common Stock outstanding (35,187,500 if the Underwriters' over-
allotment option is exercised in full). Of these shares, the 11,250,000 shares
sold in the Offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 22,250,000 shares of Common Stock are "restricted
securities" as that term is defined under Rule 144 under the Securities Act, and
were issued and sold by the Company in reliance on exemptions from registration
under the Securities Act. These restricted shares may not be sold in the public
market unless they are registered under the Securities Act or are sold pursuant
to an exemption from registration, such as Rules 144 or 701. All officers,
directors and existing stockholders, who collectively hold all of such
restricted shares, have agreed, pursuant to certain lock-up agreements, that
they will not offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of such shares for a period of 180 days from the date of this
Prospectus without the prior written consent of Lehman Brothers Inc. In
addition, upon expiration of the lock-up agreements, approximately 1,955,750
shares of Common Stock issuable upon the exercise of certain options will be
eligible for sale in the public market, in reliance on Rules 144 and 701 under
the Securities Act.
After the effective date of the Offering, the Company intends to register a
total of approximately 8,081,250 shares of Common Stock reserved for issuance
under its Long-Term Incentive Plan, 1997 Employee
12
<PAGE> 14
Stock Purchase Plan and Nonemployee Directors' Stock Option Plan and under
certain nonstatutory stock option grants. See "Shares Eligible for Future Sale."
LACK OF CURRENT SPECIFIC PLANS FOR UNALLOCATED OFFERING PROCEEDS
The principal purposes of the Offering are to increase the Company's
capitalization and financial flexibility and expand the Company's current
manufacturing, warehouse and corporate facilities. The Company currently has no
specific plans for approximately $ million of the net proceeds from the
Offering. The Company currently expects to use such proceeds for general
corporate purposes, including working capital, product development, capital
expenditures and possible acquisitions. The amounts expended for each purpose
and the timing of such expenditures may vary depending upon numerous factors.
Consequently, the Company will have broad discretion in determining the amount
and timing of expenditures and in using the unallocated proceeds of the
Offering, and there can be no assurance that the Company will use such
discretion effectively or in a manner that will not materially adversely affect
the Company's business, operating results or financial condition. See "Use of
Proceeds."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws may have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. Such provisions could limit
the price that certain investors may be willing to pay in the future for shares
of the Company's Common Stock. Certain of these provisions allow the Company to
issue Preferred Stock without any vote or further action by the stockholders,
provide for a classified Board of Directors and regulate nominations for the
Board of Directors. These provisions may make it more difficult for stockholders
to take certain corporate actions and could have the effect of delaying or
preventing a change in control of the Company. In addition, certain provisions
of Delaware law applicable to the Company also could delay or make more
difficult a merger, tender offer or proxy contest involving the Company. See
"Management" and "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements including statements
regarding, among other items, the Company's growth strategy and anticipated
trends in the Company's business. Additional written or oral forward-looking
statements may be made by the Company from time to time in filings with the
Securities and Exchange Commission (the "Commission") or otherwise. The words
"believe," "expect," "anticipate" and "project" and similar expressions identify
forward-looking statements, which speak only as of the date the statement is
made. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, some of
which cannot be predicted or quantified and are beyond the Company's control.
Future events and actual results could differ materially from those set forth
in, contemplated by or underlying the forward-looking statements. Statements in
this Prospectus, including those set forth in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," describe factors, among others, that could contribute to or cause
such differences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.
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<PAGE> 15
BACKGROUND OF THE COMPANY
Hypercom Corporation is the successor to an Australian company founded by
George Wallner, the Company's Chairman of the Board, in 1978. The Company's
operations were primarily focused on international markets until 1987, when the
Australian company expanded its operations into the U.S. On June 5, 1996, the
Company was reincorporated in Delaware, and shortly thereafter, through a series
of corporate restructurings, became a U.S. holding company for the operations of
the Australian company and its subsidiaries and affiliates. These restructurings
were completed in July 1997.
The Company now operates through numerous operating divisions and
subsidiaries, including (i) Hypercom POS USA/Canada, which is responsible for
POS payment system operations in the U.S. and Canada, (ii) Hypercom
International, which is responsible for international marketing, sales and
distribution of both POS payment systems and enterprise networking products,
(iii) Hypercom Network Systems, which is responsible for enterprise networking
operations and (iv) Hypercom Manufacturing Resources, which is responsible for
all manufacturing operations of the Company. In addition, the Company operates
various subsidiaries or business units in Australia, Hong Kong, China,
Singapore, the United Kingdom, Russia, Mexico, Brazil and Chile to support
Hypercom's international operations.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 8,500,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$ million ($ million if the Underwriters' over-allotment option is
exercised in full) based upon an assumed initial public offering price of
$ per share. The Company anticipates that such net proceeds will be
used as follows: (i) approximately $21 million to repay indebtedness, (ii)
approximately $20 million to expand the Company's manufacturing, warehouse and
corporate facilities (see "Business -- Properties") and (iii) approximately
$ million, for general corporate purposes, including working capital,
product development, capital expenditures and possible acquisitions. While the
Company engages from time to time in discussions with respect to potential
acquisitions, the Company has no current plans, commitments or agreements with
respect to any such acquisitions as of the date of this Prospectus. The debt to
be repaid consists of (i) borrowings under the Company's revolving line of
credit which were incurred to fund operations, bear interest at a weighted
average rate of 8.25% and mature in December 1997 and (ii) a non-interest
bearing note due June 1999 and payable to an existing stockholder which was
issued by the Company as partial consideration for the repurchase of certain of
such stockholder's shares. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Stockholders.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds from the Offering in short-term, investment
grade, interest bearing securities. Investment of the net proceeds in short-term
investments rather than operations could adversely affect the Company's overall
return on its capital. The foregoing represents the Company's present intentions
with respect to the allocation of proceeds of the Offering based upon its
present plans and business conditions. The occurrence of certain unforeseen
events or changed business conditions, however, could result in the application
of the proceeds of the Offering in a manner other than as described in this
Prospectus. See "Risk Factors -- Lack of Current Specific Plans for Unallocated
Offering Proceeds."
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain all earnings to finance the operations and
expansion of the Company's business and therefore does not anticipate paying
cash dividends in the foreseeable future.
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<PAGE> 16
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1997, and as adjusted to give effect to the sale by the Company of
8,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share, less underwriting discounts and
commissions and estimated offering expenses, and the application of the
estimated net proceeds therefrom as set forth under "Use of Proceeds." This
table should be read in conjunction with the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------
ACTUAL AS ADJUSTED
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt................................................. $14,064 $
======== ========
Long-term debt, less current portion............................ 10,506
-------- --------
Redeemable common stock(1)...................................... 7,543
--------
Stockholders' equity:
Common stock, $.001 par value; 100,000,000 shares authorized;
25,000,000 shares issued and outstanding, actual;
shares issued and outstanding, as adjusted(2).... 4
Additional paid-in capital.................................... 965
Receivables from stockholders................................. (2,401)
Retained earnings............................................. 62,326
-------- --------
Total stockholders' equity............................ 60,894
-------- --------
Total capitalization................................ $78,943 $
======== ========
</TABLE>
- ---------------
(1) Relates to certain stock options granted to an executive officer which the
Company is obligated to purchase under certain conditions at a price
determined pursuant to a formula based upon the Company's net income. This
obligation will terminate upon completion of the Offering and the redeemable
common stock will convert into additional paid-in capital.
(2) Excludes 8,081,250 shares of Common Stock reserved for issuance and
available for grant or sale under the Company's Long-Term Incentive Plan,
1997 Employee Stock Purchase Plan and Nonemployee Directors' Stock Option
Plan and certain nonstatutory stock option agreements, under which there
were options outstanding to purchase an aggregate of 2,943,750 shares of
Common Stock as of June 30, 1997 and 3,783,750 shares of Common Stock as of
September 12, 1997.
15
<PAGE> 17
DILUTION
The net tangible book value of the Company's Common Stock as of June 30,
1997, was $68,437,000, or $2.74 per share of Common Stock. Net tangible book
value per common share represents the Company's tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding.
Without taking into account any changes in such net tangible book value
subsequent to June 30, 1997, other than to give effect to (i) the sale by the
Company of 8,500,000 shares of Common Stock offered hereby (after deducting the
underwriting discounts and commissions and estimated offering expenses) and the
application of the estimated proceeds thereof, the pro forma net tangible book
value of the Company as of June 30, 1997 would have been $ million, or
$ per share. This amount represents an immediate increase in net
tangible book value of $ per share to existing stockholders and the
immediate dilution of $ per share to new investors purchasing Common
Stock in the Offering. Dilution per share to new investors represents the
difference between the pro forma net tangible book value per share of Common
Stock immediately after completion of the Offering and the amount per share paid
by purchasers of Common Stock of the Company in the Offering. The following
table illustrates the per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $
Net tangible book value per share as of June 30, 1997...................... $ 2.74
Increase per share attributable to new investors...........................
-----
Pro forma net tangible book value per common share after the Offering........
-----
Dilution per share to new investors.......................................... $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1997,
the differences between the existing stockholders and new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid, at the
assumed initial public offering price of $ per share, before deducting
the underwriting discounts and commissions and estimated offering expenses
payable by the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 25,000,000 74.6% $ 969,000 % $0.04
New investors....................... 8,500,000 25.4
---------- --- -------- ---
Total............................. 33,500,000 100.0% $ 100%
========== === ======== ===
</TABLE>
The foregoing computations exclude 8,081,250 shares of Common Stock
reserved for issuance and available for grant or sale under the Company's
Long-Term Incentive Plan, 1997 Employee Stock Purchase Plan and Nonemployee
Directors' Stock Option Plan and certain nonstatutory stock option agreements,
under which there were options outstanding to purchase an aggregate of 2,943,750
shares of Common Stock as of June 30, 1997 and 3,783,750 shares of Common Stock
as of September 12, 1997.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data for each of the years in the
three-year period ended June 30, 1997 and as of June 30, 1996 and 1997 have been
derived from the Company's financial statements included elsewhere in this
Prospectus which have been audited by Coopers & Lybrand L.L.P., independent
accountants, whose report thereon is also included elsewhere in this Prospectus.
The selected consolidated financial data as of June 30, 1995 have been derived
from audited financial statements of the Company which are not included in this
Prospectus. The selected consolidated financial data for the years ended June
30, 1993 and 1994 and as of June 30, 1993 and 1994 have been derived from
unaudited financial statements of the Company which are not included in this
Prospectus. In management's opinion, the unaudited financial information has
been prepared on the same basis as the audited consolidated financial statements
and includes all necessary adjustments, consisting only of normal recurring
adjustments, that management considers necessary for a fair presentation of the
unaudited financial information when read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The selected consolidated financial data set forth below are qualified in their
entirety by, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net revenue............................... $56,771 $91,183 $146,168 $163,556 $196,742
Costs and expenses:
Cost of revenue......................... 30,817 57,301 83,016 89,710 103,227
Research and development................ 2,337 4,429 5,422 8,509 12,926
Selling, general and administrative..... 12,192 14,929 27,687 44,741 52,530
Non-cash compensation expense(1)........ -- -- 698 2,061 4,784
-------- -------- -------- -------- --------
Total costs and expenses........ 45,346 76,659 116,823 145,021 173,467
-------- -------- -------- -------- --------
Income from operations.................... 11,425 14,524 29,345 18,535 23,275
Interest and other income................. 2,026 761 1,953 618 2,248
Interest expense.......................... (308) (475) (757) (667) (2,140)
-------- -------- -------- -------- --------
Income before income taxes................ 13,143 14,810 30,541 18,486 23,383
Income taxes.............................. (4,379) (5,661) (10,985) (6,197) (7,821)
-------- -------- -------- -------- --------
Net income................................ $ 8,764 $ 9,149 $ 19,556 $ 12,289 $ 15,562
======== ======== ======== ======== ========
Net income per share...................... $ 0.23 $ 0.24 $ 0.51 $ 0.32 $ 0.57
======== ======== ======== ======== ========
Shares used in net income per share
calculations(2)......................... 37,952,072 38,115,604 38,236,105 38,740,591 27,328,226
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 3,334 $ 3,876 $ 8,018 $ 16,113 $ 16,318
Working capital.......................................... 9,652 14,440 33,148 48,693 62,949
Total assets............................................. 29,087 57,234 80,414 101,829 138,741
Short-term debt.......................................... 247 2,358 5,043 6,055 14,064
Long-term debt, less current portion..................... 769 2,424 2,155 14,307 10,506
Redeemable common stock(1)............................... -- -- 698 2,759 7,543
Total stockholders' equity............................... 16,902 25,641 44,836 45,232 60,894
</TABLE>
- ---------------
(1) Relates to stock underlying options granted to an executive officer which
the Company is obligated to purchase under certain conditions at a price
determined pursuant to a formula based upon the Company's net income. It is
anticipated that the Company will incur a substantial non-cash charge
(approximately $ million at an assumed initial public offering price of
$ per share) in the quarter in which the Company's initial public
offering is completed, but will incur no future charges under this
arrangement since the repurchase obligation will terminate upon closing of
the Offering. Upon termination of this arrangement the redeemable common
stock will convert to additional paid-in capital.
(2) Fiscal 1997 share amount gives effect to a repurchase of 11,650,000 shares
of Common Stock.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus. This Prospectus, including the following discussion, contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
in the discussion below and elsewhere in this Prospectus.
OVERVIEW
Hypercom is a leading worldwide developer, manufacturer and supplier of
high performance, comprehensive POS payment systems and sophisticated enterprise
networking products. The Company's end-to-end POS payment system solutions,
comprised of terminals, peripherals, POS network products and software, enable
merchants to automate payment transactions. The Company has developed a family
of multi-service switch/routers that enable the integration of a wide variety of
business-critical legacy data, LAN, voice, fax and video traffic transmitted
among central and remote locations, allowing its customers to eliminate
duplicative networks and facilitate migration to cost-effective switched
services. The Company's products currently are sold in more than 50 countries
through its direct sales force and a variety of third-party distribution
channels.
The Company's net revenue is derived from its POS Systems and Network
Systems businesses. Historically, the Company derived substantially all of its
net revenue from its POS Systems business. In fiscal 1997, Hypercom POS Systems
and Hypercom Network Systems accounted for approximately 88% and 12%,
respectively, of the Company's net revenue. The Company anticipates that it will
continue to derive a substantial portion of its net revenue from Hypercom POS
Systems in the foreseeable future, but that net revenue from Hypercom Network
Systems will increase as a percentage of net revenue.
POS payment systems products generally are sold under annual volume
contracts with resellers and financial institutions and revenue is recognized
upon shipment of products. Network Systems sales are made to financial
institutions and other large retail and service organizations with
geographically dispersed branches. Revenue on certain network product contracts
is recognized upon customer acceptance. The Company anticipates that the
introduction of new services and products, such as Pinnacle Server Environment
software products, will increase the Company's recurring revenue stream from
software licenses or service contracts.
The Company derives a significant portion of its net revenue from
international sales. In fiscal 1997, international revenue accounted for 55.8%
of total net revenue. The Company's international sales are denominated
primarily in U.S. dollars, although a portion is denominated in foreign
currencies. The Company expects that in the future it will continue to
denominate most of its international sales in U.S. dollars. The Company has not
experienced any significant foreign exchange gains or losses, and the Company
does not expect that foreign currency fluctuations will have a significant
effect on either its net revenue or costs in the near term.
The Company's results of operations over the past three years have been
affected by certain restructuring events and non-cash compensation charges. In
1992, pursuant to an employment agreement with the Company's President and Chief
Executive Officer, the Company granted this officer a right to require that the
Company repurchase stock underlying options granted to him upon certain events,
including his death or disability or a sale of the Company, at a prescribed
formula based upon the net income of the Company. For accounting purposes, the
stock subject to the options is considered redeemable and the Company records
periodic compensation charges based upon increases in the difference between the
exercise price of the options and the market value of the stock as determined
pursuant to the net income formula set forth in the officer's employment
agreement. During fiscal 1997, 1996 and 1995, the Company recorded non-cash
compensation charges in the amounts of $4.8 million, $2.1 million and $0.7
million, respectively, pursuant to this arrangement. It is anticipated that the
Company will incur a substantial non-cash charge (estimated to be
18
<PAGE> 20
$ million, assuming an initial public offering price of $ per share) in
the quarter in which the Offering is completed, but will incur no further
charges under this arrangement since the repurchase obligation will terminate
upon the closing of the Offering.
In fiscal 1996, the Company restructured its organization and moved its
legal domicile from Australia to the U.S. In addition, the Company combined
substantial manufacturing facilities previously located in Australia with its
Phoenix, Arizona operations. In connection with these events, the Company
incurred approximately $3 million of expenditures relating primarily to the
closure of its Australian manufacturing operation.
In fiscal 1997, the Company continued to incur restructuring charges
related to the Company's move to the U.S. In addition, the Company incurred
significant expenses in implementing an Oracle management information platform
for its worldwide manufacturing, sales and finance functions and the related
expansion of its management information systems staff. These reorganization and
other expenses totaled approximately $4 million in fiscal 1997. Selling, general
and administrative expenses in fiscal 1997 also reflect the significant
expansion of its Hypercom Network Systems sales and services organization and
establishment of Hypercom International, an operating division which manages all
international sales and distribution activities. The Company believes that these
additional infrastructure-related expenses have better positioned the Company
for future growth.
To date, all of the Company's software development costs have been expensed
as incurred and included in research and development. The Company's product
development process is such that technological feasibility is established upon
completion of a working model. Costs incurred between completion of the working
model and the point at which the product is ready for initial shipment have not
been significant.
RESULTS OF OPERATIONS
The following table sets forth certain selected financial information as a
percentage of net revenue for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net revenue......................................................... 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue................................................... 56.8 54.8 52.5
Research and development.......................................... 3.7 5.2 6.6
Selling, general and administrative............................... 18.9 27.4 26.7
Non-cash compensation expense..................................... 0.5 1.3 2.4
----- ----- -----
Total costs and expenses.................................. 79.9 88.7 88.2
----- ----- -----
Income from operations.............................................. 20.1 11.3 11.8
Interest and other income........................................... 1.3 0.4 1.1
Interest expense.................................................... (0.5) (0.4) (1.1)
----- ----- -----
Income before income taxes.......................................... 20.9 11.3 11.9
Income taxes........................................................ (7.5) (3.8) (4.0)
----- ----- -----
Net income.......................................................... 13.4% 7.5% 7.9%
===== ===== =====
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
Net Revenue. Net revenue in fiscal 1997 increased $33.1 million, or 20.3%,
to $196.7 million from $163.6 million in fiscal 1996 due primarily to increased
POS Systems sales of $17.6 million and increased Network Systems sales of $15.6
million. The increase in POS Systems sales was due primarily to a higher number
of POS terminals and peripherals sold coupled with relatively stable prices of
the Company's POS payment system products, reflecting increasing consumer use of
card-based payment methods. The increase
19
<PAGE> 21
in Network Systems sales was a function of continuing market acceptance of the
Company's enterprise networking products. International sales accounted for
55.8% and 58.1% of the Company's net revenue in fiscal 1997 and 1996,
respectively.
Cost of Revenue. The Company's cost of revenue includes raw material
costs, manufacturing labor and overhead and subcontract manufacturing costs. The
Company's cost of revenue increased $13.5 million, or 15.1%, to $103.2 million
in fiscal 1997 from $89.7 million in fiscal 1996. As a percentage of net
revenue, cost of revenue declined to 52.5% in fiscal 1997 from 54.8% in fiscal
1996, due to improved manufacturing and reduced labor costs realized from the
centralization of manufacturing operations in Phoenix, Arizona and the increased
use of subcontractors for certain operations that were previously performed
internally.
Research and Development Expense. Research and development expense
consists primarily of software and hardware engineering costs and development
personnel expenses. Research and development expense increased $4.4 million, or
51.9%, to $12.9 million in fiscal 1997 from $8.5 million in fiscal 1996, as a
result of development efforts relating to the Company's growing Network Systems
business, as well as development of new POS payment system products, including
the Company's Pinnacle Server Environment. Increased development efforts caused
research and development expense to increase, as a percentage of net revenue, to
6.6% in fiscal 1997 from 5.2% in fiscal 1996. The Company anticipates
maintaining its annual research and development expense at a relatively constant
percentage of net revenue as the Company's net revenue grows.
Selling, General and Administrative Expense. Selling, general and
administrative expense is comprised largely of sales and marketing expenses,
administrative personnel costs and facilities costs. Selling, general and
administrative expense increased $7.8 million, or 17.4%, to $52.5 million in
fiscal 1997 from $44.7 million in fiscal 1996. As a percentage of net revenue,
these expenses increased to 26.7% in fiscal 1997 from 27.4% in fiscal 1996. The
increase in 1997 reflects ongoing restructuring costs relating to the
consolidation of principal manufacturing operations in Phoenix, Arizona begun in
1996, the implementation of an Oracle management information platform for the
Company's worldwide manufacturing, sales and finance functions and the related
expansion of its management information systems staff, which totaled
approximately $4 million. In addition, selling, general and administrative
expense in fiscal 1997 reflected the Company's significant expansion of its
Network Systems sales and services organization, and establishment of Hypercom
International, which manages all international sales and distribution
activities.
Non-Cash Compensation Expense. In connection with the grant of certain
stock options to the Company's President and Chief Executive Officer, which
includes a stock repurchase arrangement, the Company recorded a non-cash
compensation charge of $4.8 million and $2.1 million in fiscal 1997 and fiscal
1996, respectively. The repurchase arrangement will terminate upon the closing
of the Offering and, except for the charge to be recorded at such time, no
further charges will be recorded.
Income from Operations. Income from operations increased $4.7 million, or
25.6%, to $23.3 million in fiscal 1997 from $18.5 million in fiscal 1996, and
increased as a percentage of net revenue to 11.8% in fiscal 1997 from 11.3% in
fiscal 1996. This increase in fiscal 1997 resulted primarily from manufacturing
efficiencies and reduced labor cost realized from the centralization of
manufacturing operations in Phoenix, Arizona and the increased use of
subcontractors for certain operations which were previously performed
internally.
Net Interest and Other Income. Interest and other income, consisting
primarily of interest income on short-term investments and cash balances, offset
interest expense on borrowings in both fiscal 1997 and 1996.
Income Taxes. The provisions for federal, state and foreign taxes were
$7.8 million and $6.2 million for fiscal years 1997 and 1996, respectively. The
effective tax rates were 33.4% and 33.5% in fiscal 1997 and 1996, respectively.
The use of certain tax credits, such as research and experimentation tax credits
in the U.S. and Australia, sales attributable to certain foreign jurisdictions
that impose lower tax rates account for the difference between the Company's
effective tax rate and the U.S. federal statutory tax rate and use of a foreign
sales corporation, which affords lower tax rates on certain international sales.
20
<PAGE> 22
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
Net Revenue. Net revenue in fiscal 1996 increased $17.4 million, or 11.9%,
to $163.6 million from $146.2 million in fiscal 1995, due primarily to increased
domestic and international POS payment system sales. The increase in net revenue
reflects, in part, the acquisition and consolidation of Hypercom Asia Limited
("Hypercom Asia"), the Company's largest distributor, which allowed the Company
to sell products directly to end users at higher prices than such products were
sold to Hypercom Asia. International sales accounted for 58.1% and 60.4% of the
Company's net revenue in fiscal 1996 and 1995, respectively.
Cost of Revenue. The Company's cost of revenue increased $6.7 million, or
8.1%, to $89.7 million in fiscal 1996 from $83.0 million in fiscal 1995,
primarily as a result of increased sales. As a percentage of net revenue, cost
of revenue declined to 54.8% in fiscal 1996 from 56.8% in fiscal 1995, primarily
due to an increase in direct sales to end users, resulting from the acquisition
of Hypercom Asia, which allowed the Company to achieve higher gross margins on
the sale of such products.
Research and Development Expense. Research and development expense
increased $3.1 million, or 56.9%, to $8.5 million in fiscal 1996 from $5.4
million in fiscal 1995. The increase in research and development expense is a
result of increased development activities at Hypercom Network Systems. This
increase caused research and development expense to increase as a percentage of
net revenue to 5.2% in fiscal 1996 from 3.7% in fiscal 1995.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $17.1 million, or 61.6%, to $44.7 million in
fiscal 1996 from $27.7 million in fiscal 1995. As a percentage of net revenue,
these expenses increased to 27.4% in fiscal 1996 from 18.9% in fiscal 1995.
Approximately $7 million of the increase reflects selling, general and
administrative expense of Hypercom Asia, which was acquired in fiscal 1996. In
addition, selling, general and administrative expense in fiscal 1996 includes
restructuring charges of approximately $3 million related to the Company's
consolidation of manufacturing operations in the U.S. and $4.3 million
attributable to bonuses paid to certain officers.
Non-Cash Compensation Expense. In connection with the grant of certain
stock options to the Company's President and Chief Executive Officer, which
includes a stock repurchase agreement, the Company recorded a non-cash
compensation charge of $2.1 million in fiscal 1996 and $0.7 million in fiscal
1995. The repurchase agreement will terminate upon the completion of the
Offering and, except for the charge to be recorded at such time, no further
charges will be recorded.
Income from Operations. Income from operations decreased $10.8 million, or
36.8%, to $18.5 million in fiscal 1996 from $29.3 million in fiscal 1995. This
decrease is primarily due to (i) restructuring charges of approximately $3
million related to the Company's consolidation of Australian manufacturing
operations with U.S. operations, (ii) bonuses of $4.3 million paid to certain
officers and (iii) a $3.1 million increase in research and development expense
related to the expansion of Hypercom Network Systems.
Net Interest and Other Income. Interest and other income in 1995 included
approximately $0.6 million attributable to the Company's 30% interest in
Hypercom Asia, which is included in other income under the equity method. As a
result of the acquisition of Hypercom Asia in 1996, the Company did not record
similar income in fiscal 1996. The Company also recorded greater interest income
in fiscal 1995 as a result of higher cash balances and returns on short-term
investments.
Income Taxes. The provisions for federal, state and foreign taxes were
$6.2 million and $11.0 million for fiscal years 1996 and 1995, respectively. The
effective tax rates were 33.5% and 36.0% in fiscal 1996 and 1995, respectively.
The decrease in effective tax rates reflected a shift in revenue to certain
jurisdictions with lower tax rates and use of the Company's foreign sales
corporation.
QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited consolidated financial
information for each of the four quarters in fiscal 1997. In management's
opinion, this unaudited quarterly information has been prepared on the same
basis as the audited consolidated financial statements and includes all
necessary adjustments,
21
<PAGE> 23
consisting only of normal recurring adjustments, that management considers
necessary for a fair presentation of the unaudited quarterly results when read
in conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus. The Company believes that
quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
------------- ------------ --------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net revenue.................................. $47,690 $ 57,742 $45,912 $ 45,398
Costs and expenses:
Cost of revenue............................ 25,359 28,555 25,712 23,601
Research and development................... 3,160 2,688 3,018 4,060
Selling, general and administrative........ 10,975 13,819 13,027 14,709
Non-cash compensation expense.............. 1,430 2,409 529 416
------- ------- -------- --------
Total costs and expenses................ 40,924 47,741 42,286 42,786
------- ------- ------- -------
Income from operations....................... 6,766 10,271 3,626 2,612
Interest and other income.................... 315 770 381 782
Interest expense............................. (322) (478) (752) (588)
------- -------- -------- --------
Income before income taxes................... 6,759 10,563 3,255 2,806
Income taxes................................. (2,260) (3,533) (1,089) (939)
------- -------- -------- --------
Net income................................... $ 4,499 $ 7,030 $ 2,166 $ 1,867
======= ======== ======== ========
PERCENT OF NET REVENUE:
Net revenue.................................. 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenue............................ 53.2 49.5 56.0 52.0
Research and development................... 6.6 4.7 6.6 8.9
Selling, general and administrative........ 23.0 23.9 28.4 32.4
Non-cash compensation expense.............. 3.0 4.2 1.2 0.9
------- -------- -------- --------
Total costs and expenses................ 85.8 82.7 92.1 94.2
------- -------- ------- -------
Income from operations....................... 14.2 17.8 7.9 5.8
Interest and other income.................... 0.1 1.3 0.8 1.7
Interest expense............................. (0.1) (0.8) (1.6) (1.3)
------- -------- -------- --------
Income before income taxes................... 14.2 18.3 7.1 6.2
Income taxes................................. (4.7) (6.1) (2.4) (2.1)
------- -------- -------- --------
Net income................................... 9.4% 12.2% 4.7% 4.1%
======= ======== ======== ========
</TABLE>
The Company's operating results are subject to various risks and
uncertainties, including risks and uncertainties related to economic conditions,
competitive pressures, the composition, timing and size of orders from and
shipments to major customers, variations in product mix and product cost,
overhead costs, obsolescence of inventory, manufacturing or production
difficulties, certain nonrecurring charges and other factors. Accordingly, the
Company's operating results may vary materially from quarter to quarter. Because
a high percentage of the Company's operating expenses are relatively fixed, if
anticipated sales and shipments in any quarter do not occur as expected, the
Company's operating results may be adversely affected and fall significantly
short of expectations. Any unanticipated decline in the growth of the Company's
net revenue, without a corresponding and timely reduction in the growth of
operating expenses, could have an adverse effect on the Company's business,
operating results and financial condition. There is no assurance that, in the
event of any shortfall of sales or reduction in gross margin in a quarter, the
Company will be able to control expenses sufficiently or promptly to meet
profitability objectives for that quarter. See "Risk Factors" for a discussion
of other factors that may adversely affect the Company's operating results in
any given quarter.
22
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
The Company requires working capital to support inventory and accounts
receivables, and to fund capital expenditures necessary to support its growth.
At June 30, 1997, the Company's working capital was $62.9 million, which
included cash and cash equivalents of $16.3 million. The Company funds working
capital requirements with cash from operations and borrowings, principally a
line of credit. Net cash provided by operating activities in fiscal 1997, 1996
and 1995 was $3.2 million, $11.0 million and $5.7 million, respectively.
The Company's capital commitments consist primarily of the purchase or
lease of facilities and equipment. The Company used $6.9 million, $8.0 million
and $1.9 million in 1997, 1996 and 1995, respectively, to purchase property,
plant and equipment, primarily manufacturing equipment, facilities and computer
hardware and software to support the Company's growth. The Company anticipates
that it will spend approximately $25.0 million to fund capital improvements
during fiscal 1998, including $20.0 million relating to the expansion of its
manufacturing, warehouse and corporate facilities in Phoenix, Arizona. See "Use
of Proceeds" and "Business -- Properties." For information relating to the
Company's lease commitments, see Note 13 to the Consolidated Financial
Statements included elsewhere in this Prospectus.
The Company maintains a $20.0 million revolving line of credit which
expires in December 1997. The line of credit is secured by the Company's
accounts receivable and inventory. Under the terms of the agreement, the Company
may borrow up to an amount equal to 80.0% of its accounts receivable under
ninety days past due and 35.0% of its raw material and finished goods inventory.
The outstanding balance as of June 30, 1997 was $9.9 million. The credit
agreement limits the incurrence of additional debt and the granting of liens or
encumbrances on assets and restricts the use of borrowed funds to working
capital needs. The Company currently is in the process of renegotiating its
credit facilities and, pending completion of negotiations, all covenants have
been waived. Additionally, in August 1997, the Company borrowed under separate
arrangements an additional $9.3 million, of which $5.5 million matures on July
15, 2002, and $3.8 million matures on March 15, 2001. The Company anticipates
repaying the line of credit from proceeds of the Offering. The Company also had
notes payable to stockholders in the aggregate amount of $3.9 million at June
30, 1997, which also will be repaid with the proceeds of this Offering.
The Company believes that the net proceeds from the Offering together with
cash generated by operations and available borrowings will be sufficient to fund
the Company's operations for the foreseeable future.
BACKLOG
As of June 30, 1997 and 1996, the Company had backlog of $111.0 million and
$78.0 million. The Company includes in its backlog all revenue specified in
signed contracts and purchase orders to the extent that the Company contemplates
recognition of the related revenue within one year. There can be no assurance
that the contracts included in backlog will actually generate the specified
revenues or that the actual revenues will be generated within the one year
period.
IMPACT OF INFLATION
In recent years, inflation has not had a significant impact on the
Company's historical operations. There can be no assurance that inflation will
not adversely affect the Company's operations in the future, particularly in
emerging markets where inflationary conditions tend to be more prevalent.
SEASONALITY
Historically, the Company's net revenue and results of operations have been
stronger in the first half of the fiscal year reflecting (i) increased purchases
of POS payment systems to satisfy increased retail demand during the holiday
season, (ii) incentive programs offered by VISA and MasterCard from July to
December of each year that encourage merchants to offer card-based payment
systems and (iii) allocation of customers' capital budgets which typically
occurs by the end of March with volume shipments commencing in July.
23
<PAGE> 25
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. SFAS
No. 128, which requires presentation of "basic" and "diluted" earnings per
share, as defined, on the face of the income statement for all entities with
complex capital structures. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997 and requires restatement of
all prior period earnings per share amounts.
In June 1997, the FASB issued SFAS No. 130, Comprehensive Income. SFAS No.
130, which requires that changes in the amounts of certain items, including
foreign currency translation adjustments, which are currently direct adjustments
to equity, be shown in a statement of comprehensive income. The statement of
comprehensive income may be included at the bottom of the statement of
operations or as a separate financial statement. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997 and requires the reclassification
of earlier financial statements for comparative purposes.
The Company is currently studying the impact of these pronouncements.
24
<PAGE> 26
BUSINESS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Hypercom is a leading worldwide developer, manufacturer and supplier of
high performance, comprehensive POS payment systems and sophisticated enterprise
networking products. The Company's end-to-end POS payment system solutions,
comprised of terminals, peripherals, POS network products and software, enable
merchants to automate credit, charge, debit and other electronic payment
transactions, all with seamless integration and interoperability and at a lower
total cost of ownership. The Company has the second largest installed base of
POS terminals in the U.S. and worldwide, and the largest installed base in Latin
America and Asia/Pacific. Leveraging nearly 20 years of expertise with POS
networks, the Company has developed a family of multi-service switch/routers
that enable the integration of business-critical legacy data, LAN, voice, fax,
and video traffic transmitted among central and remote locations. The Company's
networking products allow its customers to eliminate duplicative networks and
facilitate migration to cost-effective switched services. The Company's products
currently are sold in more than 50 countries through its direct sales force and
a variety of third-party distribution channels.
Hypercom POS Systems, which accounted for approximately 88% of Hypercom's
net revenue in fiscal 1997, develops, manufactures, markets and supports a
comprehensive range of technologically advanced (i) POS terminals and
peripherals, which process transactions at the point of sale, (ii) POS network
products, which provide efficient, accurate and fast transaction transport and
(iii) software products, including terminal application software and terminal
management software, that enable remote and automated terminal management and
the downloading of terminal application software. Hypercom believes that it is
the only single source provider of complete, end-to-end POS payment system
solutions that are interoperable not only with other Hypercom products, but also
with competitors' products. In addition, due to the technologically-advanced
features, speed, reliability, functionality and upgradeability of its products,
the Company believes that the total cost of ownership of Hypercom products
generally is less than its competitors' products, enabling Hypercom products to
command premium pricing.
Hypercom Network Systems, which accounted for approximately 12% of
Hypercom's net revenue in fiscal 1997, develops, manufactures, markets and
supports enterprise networking systems through its Integrated Enterprise Network
("IEN") family of flexible, stackable, multi-service switch/routers. IEN
products have established Hypercom as a leading integrator for enterprise branch
networking systems of legacy data, LAN, voice, fax and video traffic, allowing
for migration from expensive leased lines to cost-effective frame relay and
other switched network services. IEN products provide Hypercom customers with
reduced telecommunications, network administration and maintenance costs.
INDUSTRY BACKGROUND
POS PAYMENT SYSTEMS. In recent years, consumers demanding fast, convenient
and secure methods of payment have increasingly substituted card-based payments,
such as debit, credit and charge cards, for traditional forms of payments, such
as checks and cash. According to The Nilson Report, a payment systems industry
newsletter, retail consumer payments using credit, debit, electronic benefits
transfer and prepaid cards increased from approximately 15% in 1990 to
approximately 21% of transactions (measured in dollars) in the U.S. in 1995, and
are projected to account for approximately 33% and 43% of transactions by 2000
and 2005, respectively. The Nilson Report estimates that POS card transactions
in the U.S. will grow at a five-year CAGR of approximately 16% to 26.3 billion
through 2000 and by approximately 13% to 47.9 billion from 2000 to 2005. The
Company believes that the growth rate for POS transactions worldwide over the
same periods could exceed projected U.S. growth rates. It is anticipated that
convenience, security and financial incentives, such as loyalty programs, will
continue to encourage increased use of card-based payment methods.
25
<PAGE> 27
RETAIL CONSUMER PAYMENT METHODS IN THE U.S.(1)(2)
(DOLLARS IN TRILLIONS)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD RETAIL CONSUMER PAYMENT
(FISCAL YEAR COVERED) METHODS IN THE U.S.
<S> <C>
1990 3.00
1995 3.80
2000 5.10
2005 6.90
</TABLE>
- ---------------
(1) Source: The Nilson Report.
(2) Cards include credit, debit, prepaid and EBT cards.
To accommodate consumer preferences for card-based payments and to
facilitate the electronic delivery of such payments, automated POS systems were
introduced in the early 1980s. Prior to that time, most POS credit and debit
card transactions were processed manually, using paper-based systems. As the
volume of credit card transactions increased, card issuing banks, through their
associations with VISA and MasterCard, offered financial incentives to encourage
the deployment of new POS technologies to improve accuracy, reduce costs,
enhance efficiency, improve settlement procedures and reduce credit abuse and
fraud. These new capabilities included electronic authorization, data capture,
transaction transmission and settlement. These functions require the use of a
POS terminal capable of reading a cardholder's account information from the
card's magnetic stripe and combining this information with the amount of the
sale entered via a POS terminal keypad. The terminal electronically transmits
this transaction information over a communications network to an authorized
computer data center and then displays the returned authorization or
verification response on the POS terminal. According to The Nilson Report, the
1995 year-end installed base of POS payment terminals worldwide was 10.2
million, of which approximately 51%, 24% and 12% were located in the U.S.,
Europe and Asia/Pacific, respectively. According to Frost & Sullivan, a market
research firm, the sale of POS terminals in the U.S. is projected to grow at a
five-year CAGR of 24.6% to approximately 2.4 million terminals by 2000 and
revenues from POS terminal sales in the U.S. are projected to grow at a
five-year CAGR of 21.7% for the same period.
New electronic payment technologies are expected to facilitate the
introduction of additional electronic payment applications, such as
sophisticated customer loyalty programs and stored value cards, and the use of
POS systems in new vertical industries, such as health care and the electronic
payment of government benefits, which is already available in several states and
required to be available for federal programs by 1999. In addition, the
infrastructure development of emerging markets, such as those in Eastern Europe,
Russia and China, is expected to contribute to the increasing demand for
electronic payment products.
The increasing use of debit, credit and charge cards and the proliferation
of new electronic payment methods and programs are driving the need for POS
payment systems which (i) support a wide array of payment and program options,
(ii) are scalable, flexible and cost-effective, (iii) provide fast, secure data
transmission and (iv) can work with existing legacy systems, which form the
backbone of the electronic payments industry. Many of today's installed base of
POS terminals are relatively old and in need of
26
<PAGE> 28
replacement to handle the increased volumes projected for POS transactions, new
payment programs that may be offered in the future, new technologies such as
chip cards and new modems and other interfaces to faster telecommunications
facilities. In addition, the components of current POS payment systems typically
are supplied by numerous vendors which may impair interoperability, scalability
and upgradability.
ENTERPRISE NETWORKING MARKET. As requirements for the transmission of
data, voice, fax and video have become more complex, many enterprises have
developed multiple networks which carry different types of traffic (data, voice,
fax and video) using a range of protocols (SNA and TCP/IP) and networking
technologies (X.25, frame relay, asynchronous transfer mode ("ATM")).
Historically, large organizations have performed business-critical data
processing predominantly on hierarchical, centralized computer systems, mainly
IBM mainframe (legacy) systems. Wide area networks ("WANs") have been built to
provide access to these systems and databases from geographically-dispersed
branch offices. The CIMI Corporation, a market research firm, estimates that in
1996 legacy SNA traffic accounted for approximately 59% of total network traffic
and will continue to account for approximately 54% of total network traffic in
1998 and 1999. More recently, intranets, LANs, internet access, video
conferencing and other data applications have created a surging demand for
increased network capacity. Companies are searching for methods to integrate
traffic from legacy systems, LANs and single-point remote sites, as well as
video and voice traffic, so that they can eliminate duplicative networks and
reduce communication costs.
Frame relay, an efficient, low-latency, packet switching technology, is
enjoying rapid growth as a carrier-offered service due to its speed and economy,
deployment flexibility and ability to combine incompatible protocols, such as
SNA and TCP/IP, onto a single line resulting in reduced connectivity costs and
network operational complexity. An additional benefit of frame relay is that it
provides a smooth migration to ATM and other broadband switching services.
According to Vertical Systems Group, a market research firm, worldwide revenues
from new frame relay equipment sales were approximately $217 million in 1995 and
are projected to grow at a five-year CAGR of 39.4% to approximately $1.1 billion
by 2000.
There is a rapidly increasing need for enterprise networking solutions that
support a comprehensive range of legacy protocols and are able to consolidate
legacy, LAN, voice, fax and video applications over frame relay and other
switching services. These solutions need to accommodate the continued reliance
of financial institutions and other large branch networking organizations on
existing legacy mainframe systems for mission-critical applications and the
desire of such organizations to add network client/server computing without
creating duplicate networks, thereby reducing telecommunications costs.
THE HYPERCOM SYSTEMS SOLUTION
Hypercom has successfully deployed its core competencies in hardware
engineering and manufacturing, software development and international operations
to deliver comprehensive, end-to-end POS payment system solutions that maximize
performance and minimize costs. As a result, Hypercom has emerged as a leading
worldwide developer, manufacturer and supplier of high performance,
comprehensive POS payment systems and sophisticated enterprise networking
products.
POS SYSTEMS
The Company believes that its POS Systems business has the following key
competitive advantages:
TECHNOLOGY LEADER AND INNOVATOR. The Company has established itself as a
technology leader and innovator in the electronic payments industry by
developing a number of state-of-the-art POS payment terminals and peripheral
products, transaction networking products and transaction processing software.
Since the introduction of POS payment terminals in the early 1980s, Hypercom has
delivered a series of innovations, such as fast-dial techniques, SDLC terminals,
bit-map message formats, dual-track card readers and on-line terminal
management. The Company also introduced technology that reduced transaction
response times from 20 seconds to less than 10 seconds, which has resulted in
substantial savings for Hypercom customers and better service to consumers.
Hypercom has developed a comprehensive base of terminal and networking
technologies that will enable it to remain a leading innovator in the POS
payment systems market.
27
<PAGE> 29
COMPREHENSIVE POS TRANSACTION SYSTEMS PROVIDER. The Company differentiates
itself from its competitors by developing, manufacturing and providing complete,
end-to-end POS payment system solutions. With its POS payment terminal
technology, networking hardware and software, client/server software and
low-cost chip card, the Company is a systems-level supplier. Most competitors
offer only certain components of a POS payment system. In contrast, Hypercom
products offer comprehensive payment systems, enabling seamless integration and
interoperability with other Hypercom or competitors' products.
LOWER TOTAL COST OF OWNERSHIP. The Company designs its products to provide
customers with a lower total cost of ownership, enabling Hypercom products to
command premium pricing. The Company's core products typically feature
multi-functionality, robust construction, scalabilty to facilitate system growth
and ready upgradeability to accommodate new technological developments that can
extend product life. The Company's technologically advanced, easy-to-use
products also provide faster transaction processing times, reduce the time and
costs needed to train merchant personnel who operate Hypercom products and
ensure the secure transmission of financial transactions.
INTERNATIONAL EXPERIENCE AND GLOBAL PRESENCE. The Company has been selling
its products in international markets for nearly 20 years and currently sells
its products in more than 50 countries. According to The Nilson Report, the
Company has the second largest installed base of POS terminals in the U.S. and
worldwide, and the largest installed base in Latin America and Asia/Pacific. The
Company has gained significant expertise in adapting to local customs,
addressing local regulatory, certification and telecommunications requirements
and establishing key partnering arrangements with local distributors and
resellers. Further, because the Company's products incorporate advanced
communications technology, the Company believes that its POS payment systems
perform better than its competitors' products in less developed
telecommunications environments, most of which support only earlier generations
of communications protocols.
INTEGRATED DESIGN AND PRODUCTION. The Company designs, develops and
manufactures substantially all of its products in-house, enabling it to control
the product development process at all levels. In addition, the Company works
closely with its customers, distribution channels and related industry
participants to identify products that respond to market needs. Company
officials actively engage in standards-setting efforts and participate in a wide
variety of user groups and industry forums to facilitate product identification
and development efforts. The Company believes that its integrated approach to
product identification, development and manufacturing will continue to reduce
research and development costs and time to market and facilitate its manufacture
of high quality products at low cost.
NETWORK SYSTEMS
Hypercom Network Systems has leveraged its extensive branch networking
expertise in POS payment systems to develop, manufacture, market and support a
family of flexible, stackable, multi-service switch/routers under the trade name
Integrated Enterprise Network. The Company believes that its Network Systems
business has the following key competitive advantages:
TECHNOLOGICALLY ADVANCED, MULTI-SERVICE ARCHITECTURE. Hypercom's IEN
products feature a modular and distributed processing architecture, which
supports legacy and client/server environments and multiple traffic types. Each
IEN device incorporates a switch, router, Frame Relay Assembler/Disassembler
("FRAD"), protocol converter, dial back-up unit and Channel Service Unit/Data
Service Unit ("CSU/DSU"), and performs data compression and encryption. These
products support all WAN services critical for global networking, including
frame relay, X.25 and ISDN, enabling networks to capitalize on the lowest
available telecommunications tariffs. IEN products integrate legacy data, LAN,
voice, fax and video applications over a single network. The benefits of IEN
products include reduced telecommunications costs through the elimination of
duplicate networks, consolidation of customer premises equipment, common
management interface, optimized network performance, added reliability and
system integrity for mission-critical applications.
EXTENSIVE LEGACY EXPERTISE. Due to the pervasiveness of legacy systems
throughout enterprise networks, Hypercom's support of legacy systems provides a
distinct advantage over router vendors whose products are
28
<PAGE> 30
based on IP technology. As additional types of traffic are added to the network,
voice and video in particular, Hypercom's expertise and range of options for
legacy protocols will be increasingly valuable to users in preserving their
financial investments, and ensuring data security and reliability associated
with legacy systems. The comprehensive range of legacy protocols supported by
Hypercom's IEN products include SNA/SDLC, 3270 Bisync, 2780/3780 Bisync,
Burroughs Poll Select, X.25 and asynchronous protocols.
BUSINESS STRATEGY
The Company's objective is to become the leading worldwide provider and
innovator of POS payment system solutions. In addition, the Company is
leveraging the extensive technical capabilities of its networking and software
products to become a leading supplier in the enterprise networking market,
particularly for branch networking applications. To achieve these objectives,
the Company is pursuing the following key strategies:
EXTEND TECHNOLOGY LEADERSHIP. The Company historically has dedicated
substantial resources to maintaining technological superiority over its
competitors and intends to continue its leadership in technology by introducing
cost-effective, innovative products that will facilitate the continued
acceptance of electronic payment media, including new programs and services as
they are developed. For example, the Company currently is developing
next-generation, multi-functional, portable POS payment terminals which will
incorporate improved user interface functionality with enhanced graphic displays
and improved security features. By continuing its technology leadership in the
electronic payments industry, the Company believes it can increase its market
share as emerging technology trends, such as EBT, smart cards, stored value
cards and others, create new opportunities in the POS payment systems market.
EXPLOIT INTERNATIONAL EXPERTISE. A number of international markets present
substantial growth opportunities, such as those in Eastern Europe, China and
Russia. Many of these markets are only beginning to build their electronic
transaction infrastructure, while others, such as those in Western Europe, have
a well-developed infrastructure and are beginning to take advantage of reduced
costs afforded by Hypercom products. In addition, the Company believes that its
POS payment systems, which have advanced telecommunications technology, perform
better in less developed telecommunications environments than competitors'
products. The Company believes there is a substantial opportunity to exploit its
international expertise to sell its products in emerging markets, and intends to
aggressively target these new markets and other markets which it has only
recently begun to serve, such as Europe.
CAPITALIZE ON RETOOLING OF POS PAYMENTS INFRASTRUCTURE. The Company
intends to capitalize on and influence emerging electronic payment technologies
through recently introduced products and products under current development.
These products include (i) the Pinnacle Server Environment, client/server
software applications that provide front-end adaptation capability to host
systems, (ii) Network Terminals, a range of innovative client/server terminal
products that can accommodate greater functionality at low cost, (iii)
ChipStripe, a new low-cost chip card that supports credit, debit and loyalty
applications with improved security, (iv) Interactive Customer Equipment, a
family of easy-to-operate, touch-screen terminals that allows
cardholder-activated magnetic stripe and chip card transactions in a variety of
stationary and mobile venues and (v) faster modem speed capability in POS
payment terminals to reduce telecommunications costs. The Company also is
developing a range of network-based transaction software that will process
Internet transactions, as well as transactions over private networks. The
Company believes that the changes necessitating the anticipated retooling of the
installed POS terminal base and the products it has developed or has under
development to address these changes present a substantial opportunity for
Hypercom to increase sales and market share.
PROVIDE COMPLETE, END-TO-END POS PAYMENT SYSTEMS. The Company believes
that it is the only single source provider of complete, end-to-end POS payment
system solutions. The Company also believes that customers prefer to purchase
from a single supplier that can support a complete system to ensure seamless
interoperability among key components, particularly in a rapidly changing
environment in which new functionality often is added. The Company's ability to
provide end-to-end solutions is a particularly strong competitive advantage in
international markets in which network infrastructures are typically less well-
29
<PAGE> 31
developed and complete system sales occur more frequently. The Company's
products under development, which cover a broad range of compatible POS system
components, reflect its continuing commitment to providing comprehensive systems
solutions.
LEVERAGE POS NETWORK EXPERTISE INTO ENTERPRISE BRANCH NETWORKING
MARKET. In recent years, the Company has leveraged its POS network expertise to
develop enterprise networking products that address the needs of electronic
payment processors and other enterprises that have substantial branch networking
requirements, such as financial institutions and retailers. The Company
continues to differentiate its enterprise networking products through superior
functionality and versatility, and the integration of legacy data, LAN, voice,
fax and video traffic over a single line. The Company intends to increase the
marketing of these technological advantages through its growing direct and
indirect networking products sales force to achieve a leadership position in the
enterprise branch networking market.
ENHANCE BRAND AWARENESS THROUGH INCREASED MARKETING AND DISTRIBUTION. The
Company intends to enhance brand awareness by (i) enlarging its direct sales
staff, (ii) securing additional distributors in emerging markets, such as
Eastern Europe, China and Russia, and in markets the Company currently serves,
(iii) enhancing training programs for resellers and assisting them in
identifying sales opportunities, (iv) expanding its participation in industry
forums and conferences, (v) increasing print advertising in industry
publications and (vi) continuing to develop product and sales training
literature. Training programs, marketing materials and print advertising will
emphasize the Company's competitive advantages, particularly its technology
leadership and unique ability to provide end-to-end POS payment system
solutions.
PRODUCTS AND SERVICES
POS PAYMENT SYSTEMS
The Company's POS payment systems are comprised of a comprehensive range of
(i) POS terminals and peripherals, (ii) POS network products, which provide
efficient, accurate and fast transaction transport and (iii) software products,
including terminal application software and terminal management software, that
enable remote and automated downloading of terminal application software. This
comprehensive range of products provides Hypercom customers with turn-key
capability to supply high performance, end-to-end POS payment system solutions
to merchants and consumers.
TERMINALS AND PERIPHERALS. The Company's terminal products include
stand-alone terminals, compact terminals that have integrated printers and
wireless terminals for specific industry applications, such as automobile
rental, restaurants and temporary merchant locations. The Company's terminal
products are designed for use with magnetic-stripe cards, such as typical
credit, debit or charge cards, as well as with smart or chip cards. Terminal
functionality ranges from routine tasks, such as credit or debit authorization,
electronic draft capture and electronic batch submission and settlement, to high
level functions, such as customer loyalty programs, eligibility checking for
health insurance or government benefits and time and attendance data collection
reporting. These products feature a modular design to allow for easy upgrading
as new technologies become available.
The principal peripheral products that interface with Hypercom terminals
include printers, personal identification number entry devices (known as PIN
pads), signature capture devices and communications products. Printers enable
printing of customer receipts. PIN pads allow acceptance of magnetic-stripe and
chip card-based debit cards and other forms of payment requiring a personal
identification number, and allow for support of customer-activated stored value.
The Company's S7 PIN Pad can be connected to any Hypercom T Series terminal,
turning it into a full-feature debit or combined debit and data capture
terminal. Hypercom's S7 and S8 line of PIN pads provide a range of hardware and
software features that ensure encryption-key and PIN security. In addition,
Hypercom offers the CS7GC Signature Capture PIN Pad, which enables
cost-effective digital capture and storage of signature information for credit
card transactions.
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<PAGE> 32
The following table describes some of the Company's POS terminal and
peripheral products:
TERMINAL AND PERIPHERAL PRODUCTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION
- -------------------------------------------------------------------------------------------
<S> <C> <C>
T7P Point-of-Sale Terminal Full-function, low-cost terminal with replaceable
integrated printer; supports retail, restaurant,
lodging, and auto rental industries
- -------------------------------------------------------------------------------------------
T77x Integrated Printer
Terminal Terminal family with integrated high performance
printer
- -------------------------------------------------------------------------------------------
T7E Terminal Stand alone, high performance terminal compatible
with P8 Printer
- -------------------------------------------------------------------------------------------
T7Q Qwerty Keyboard Terminal Enhanced graphic display allows for more complex,
transaction-based point of sale; supports medical
and banking industries
- -------------------------------------------------------------------------------------------
T7GQ Qwerty Keyboard Terminal Allows simple entry of alpha data and is
especially suited for medical eligibility
verification and claims processing
- -------------------------------------------------------------------------------------------
T7PRA Wireless Terminal Fully-integrated terminal using AMPS cellular
communications
- -------------------------------------------------------------------------------------------
T7PRC Wireless Terminal Convenience of integrated printer and wireless
operation capability; supports temporary location
merchants, such as special events and kiosks, and
mobile services, such as delivery vans and taxis
- -------------------------------------------------------------------------------------------
T7GE Graphic Display Terminal Uses familiar and intuitive ATM format designed to
support hotel/motel and oil/gas industries
- -------------------------------------------------------------------------------------------
S7 PIN Pad High performance, secure PIN pad with optional
magnetic-stripe and chip-card reader
- -------------------------------------------------------------------------------------------
S8 PIN Pad Low-cost, secure PIN pad
- -------------------------------------------------------------------------------------------
P8 Printer High-speed, bi-directional printer with sprocket
or friction feed
- -------------------------------------------------------------------------------------------
</TABLE>
POS NETWORK PRODUCTS. The Company's POS network products consist of a
family of Network Access Controller ("NAC") products, which facilitate
transaction delivery from the point of sale to processors of electronic
payments. NACs are intelligent communications products which provide a wide
range of digital and analog interfaces, line concentration, protocol conversion,
data concentration, transaction routing, backup transmission paths and multiple
device interface capabilities that allow access to high-performance data
communications networks. Hypercom recently introduced the MiniNAC2, which
connects automated teller machines, POS terminals and peripherals and PCs or
in-store controllers to existing hosts utilizing standard dial access services.
31
<PAGE> 33
The following table provides a description of the Company's NAC products:
NETWORK ACCESS CONTROLLERS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
PRODUCT FEATURES INDUSTRIES SERVED
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MiniNAC Low-cost, compact network access Retail
controller, performs protocol conversion Lodging
for dial networking or ATM dial operations; Multi-lane retail
has internal 28.8 kbps modem; applications Restaurant
include store LAN controller, protocol
converter, retail concentrator and ATM dial
adapter
- --------------------------------------------------------------------------------------------
Stack-M High performance, stackable network access Retail
controller, performs protocol conversion Multi-lane retail
for dial networking or ATM dial operations; Casino
has internal 28.8 kbps modem; applications
include store LAN controller, protocol
converter, retail concentrator and ATM dial
adapter; has ISDN capability
- --------------------------------------------------------------------------------------------
NAC-1 Single-slot network access controller which Retail
supports a broad range of data Lodging
concentration interfacing, protocol Multi-lane retail
conversion and transaction routing Restaurant
functions through a combination of plug-in
cards
- --------------------------------------------------------------------------------------------
NAC-6 Six-slot network access controller which Retail
supports a broad range of data Lodging
concentration interfacing, protocol Multi-lane retail
conversion and transaction routing Restaurant
functions through a combination of plug-in Electronic transaction
cards processing
- --------------------------------------------------------------------------------------------
NAC-16 Sixteen-slot network access controller Retail
which supports a broad range of data Lodging
concentration interfacing, protocol Multi-lane retail
conversion and transaction routing Restaurant
functions through a combination of plug-in Electronic transaction
cards processing
- --------------------------------------------------------------------------------------------
MegaNAC Sixteen-slot, high performance, digital Retail
(T1/E1) network access controller which Lodging
supports a broad range of data Multi-lane retail
concentration interfacing, protocol Restaurant
conversion and transaction routing Electronic transaction
functions through a combination of plug-in processing
cards
- --------------------------------------------------------------------------------------------
</TABLE>
SOFTWARE PRODUCTS. The three principal categories of the Company's
software products are terminal application software, terminal management
software and transaction processing software.
Terminal Application Software. The Company works closely with its clients
to develop standard and customized applications that operate on Hypercom
terminals. To date, the Company has developed over 80 terminal software
applications, ranging from entry-level credit and debit solutions to complex
systems that support a comprehensive range of electronic payment and medical
transaction functions. Among these software applications are specialized
applications for specific markets such as lodging, restaurants, multi-lane
retail and health care.
Terminal Management Software. Every terminal application software program
produced by the Company has a management and control module that interacts with
the Company's Term-Master Terminal
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<PAGE> 34
Network Management System. Term-Master is designed to provide mission-critical
functionality to users of Hypercom's T Series terminals. Term-Master is the
basis for an integrated terminal management approach that supports multiple
merchant locations, remote and automated downloading of terminal application
software, multiple application software management, merchant terminal set-ups,
performance monitoring and on-line diagnostics.
Transaction Processing Software. The Company's EFT-Master family of
software products automates payment and other transactions. EFT-Master includes
a range of applications which provide low volume financial transaction
processing on PC and client/server platforms. EFT-Master supports electronic
transaction processing, chip-card based loyalty applications, transaction
message formatting, transaction routing, electronic data capture and settlement
and card database authorization.
ENTERPRISE NETWORKING PRODUCTS
The Company's IEN products consist of a modular family of multi-service
switch/routers that enable the integration of business-critical legacy data,
LAN, voice, fax and video traffic transmitted among central and remote
locations, allowing enterprises to eliminate duplicative networks and facilitate
migration to cost-effective switched services. Each IEN device incorporates a
switch, router, FRAD, protocol converter, dial back-up unit and CSU/DSU, and
performs data compression and encryption.
IEN is a modular system consisting of base chassis with plug-in cards.
Plug-in cards support a range of functions, including ISDN BRI, V.32 bis/V.34
dial backup, DSU 56/64 kbps, data compression and encryption, dual V.35 uplink,
T1/E1 interface, 4-port voice card, 2 channel serial user or WAN interface card
and single RS232C/V.24 serial I/O.
The following table describes the Company's plug-in cards:
PLUG-IN CARDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CARDS DESCRIPTION
- ------------------------------------------------------------------------------------------
<S> <C>
CID15 Low-cost single RS232, V.35 port
- ------------------------------------------------------------------------------------------
CIM15 Low-cost dial back-up V.22 bis/V.32/V.34 modem
- ------------------------------------------------------------------------------------------
CID61 High performance serial card w/RS232, V.35 modem with ISDN-PRI
- ------------------------------------------------------------------------------------------
CID63 Dual port multi-function card which supports the following plug in
modules:
RS 232; V.35; V.32 bis/V.34 modem; 56/64 kbps DSU; ISDN-BRI; Ethernet
LAN interface; PCM V.22 bis modem; Data compression; DES encryption
- ------------------------------------------------------------------------------------------
LET61 High performance Ethernet router card
- ------------------------------------------------------------------------------------------
LTR61 High performance token ring router card
- ------------------------------------------------------------------------------------------
DTC11 Digital TI/EI digital interface; TDM mux/switch CSU
- ------------------------------------------------------------------------------------------
DLA14 Analog voice interface with four port voice/fax card
- ------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 35
Chassis are available in various sizes as described in the following table:
CHASSIS FOR PLUG-IN CARDS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
NUMBER
OF
MODEL SLOTS DESCRIPTION
------------------------------------------------------------------------------------------
<C> <C> <S>
IEN2000 2 Small branch/remote locations; ATM expansion capability
------------------------------------------------------------------------------------------
IEN3000 6 Regional and remote locations
------------------------------------------------------------------------------------------
IEN4000 8 Regional and large remote locations
------------------------------------------------------------------------------------------
IEN5000 16 Data center/regional locations
------------------------------------------------------------------------------------------
IEN6000 16 Data center/regional locations; ATM expansion capability
------------------------------------------------------------------------------------------
</TABLE>
The Company also offers the IEN500, a single-slot chassis which supports
two configurations: 2 WAN and 1 serial port and 1 WAN and 2 serial ports. IEN
products work with all WAN services critical for global networking, including
X.25, ISDN, frame relay and others, using them cost-effectively to capitalize on
the lowest available telecommunications tariffs. These products also support a
comprehensive range of legacy protocols, including SNA/SDLC, 3270 Bisync,
2780/3780 Bisync, Burroughs Poll Select, X.25 and asynchronous protocols.
The Company also provides software applications that centralize management,
automate routine tasks and integrate with clients' existing network management
environments. Hypercom's IENView software is a suite of standards-based
applications that allow users to manage their networks from a single integrated
console. IENView software provides applications for enterprise and switched
internetwork management, remote monitoring, device management, simulation-based
planning and problem-solving and performance analysis.
SERVICES
The Company provides a broad range of services related to its POS payment
systems and enterprise networking products. The Company provides consulting
services (i) to assist with strategies and alternatives for POS payment systems,
(ii) to assist in the design, installation, integration and management of POS
payment systems and (iii) to design customized software applications, and
deployment, training, technical assistance and maintenance services for its
products.
PRODUCTS UNDER DEVELOPMENT
The Company currently is developing a number of significant new products
that are anticipated to be introduced in fiscal 1998. These new products include
the following:
NEW TERMINAL SYSTEMS. The Company plans to introduce its Interactive
Customer Equipment ("ICE") terminal system beginning in the second fiscal
quarter of 1998. Designed to meet evolving merchant and consumer preferences,
ICE employs user-friendly, touch-screen technology which facilitates the
implementation of new customer loyalty programs, marketing communications and
other POS services. ICE will enable delivery of video messages from service
providers to cardholders at the point of sale, similar to messages displayed on
today's bank automated teller machines. ICE will support chip cards, PIN pad
functions, complex transaction selection and electronic signature capture, and
can be equipped with battery and internal wireless capability to provide a
portable terminal solution for use in automobile rental company parking lots,
restaurants and numerous other business locations where portability is
essential. In addition, the Company is developing the Network Terminal, which
utilizes the client/server computing model, and moves intelligence away from the
retail counter and onto centralized servers that can be more easily maintained
and upgraded at lower costs, and the Q7 POS Terminal, which is a multi-lane
terminal that connects to electronic cash registers and existing POS payment
systems. The Company is developing peripheral products for use with this
34
<PAGE> 36
new generation of terminals, including printers, modems and secure access module
expansion, and external wireless and connectivity modules.
PINNACLE SERVER ENVIRONMENT. The Company's Pinnacle Server Environment
("Pinnacle") will consist of a family of client/server applications that support
a wide range of front-end functions for electronic payment processors. Initial
installations of certain Pinnacle applications are in process in certain
international markets. The Company believes that traditional static host systems
are well-suited for processing the relatively simple core financial transaction,
which debits the "from account" and credits the "to account" by the transaction
amount, but are ill-suited for processing value-added applications, such as
customer loyalty programs, stored value and other functions. Pinnacle will serve
as an adaptation layer between a changing POS environment and the rigid
mainframe host. Pinnacle permits customers to readily upgrade their POS payment
systems to support new functions and payment modes without the need to change or
replace their expensive mainframe host system. Because Pinnacle is
client/server-based, these upgrades are seamless and less expensive than
modifying the mainframe host system to support new functions and payment modes.
Pinnacle will be initially comprised of the following servers: (i) Pinnacle
Financial Server, which will perform transaction data capture reformatting and
routing, (ii) Pinnacle Token Tracking Server, which will service merchant
loyalty programs, (iii) Pinnacle Network Terminal Server, which will service
Hypercom's Network Terminals, (iv) Pinnacle Signature Server, which will perform
electronic signature capture and retrieval functions, (v) Pinnacle Chip Server,
which will perform customized chip card applications and provide chip-based
security and authentication and (vi) Pinnacle Communications Server, which will
enhance networking and routing.
CHIPSTRIPE. The Company has developed a low-cost chip card, marketed under
the name ChipStripe, which provides a cost-effective and secure alternative to
today's magnetic stripe-based debit and credit cards. Chip cards, such as
ChipStripe, enhance security because they are harder to counterfeit and embed
user identification information. Fully-embedded ChipStripe cards will cost
approximately $1 per card, substantially lower than the current cost of other
chip cards. The Company believes that ChipStripe's low cost will encourage
financial institutions to use chip cards for fraud detection and customer
loyalty programs.
INTERNET COMMERCE. In response to the growing interest in Internet
commerce, the Company is developing a family of network-based software that will
operate over the Internet, as well as over private networks, whether legacy or
IP-based, including low-speed, packet networks that still dominate the banking
industry. This software is expected to enable Internet-based information,
banking and electronic commerce functions to be accessed via any standard
browser, as well as certain legacy software architectures.
CUSTOMERS
Hypercom POS Systems' customers are predominantly large domestic and
international financial institutions, electronic payment processors, independent
service organizations ("ISOs") and resellers. These customers generally have
substantial POS payment system requirements. Representative direct and indirect
POS customers include American Express Company, BA Merchant Services, Inc.,
Banamex, CrediCard Brazil, First Data Merchant Services, General Electric
Capital Corporation, National Bank of Australia and Wells Fargo Bank, N.A. In
any given year, select customers may account for a significant percentage of net
revenue. Although no one customer accounted for more than 10% of the Company's
net revenue in fiscal 1997, the two largest customers accounted for 19.5% of the
Company's net revenue in fiscal 1997 and the five largest customers accounted
for 33.6% of the Companys net revenue.
Hypercom Network Systems' customers generally consist of large financial
institutions, retailers, electronic payment processors, resellers and other
enterprises that have substantial branch networking requirements spanning an
average of 200 sites. Representative direct and indirect network customers
include Alamo Rent A Car, Inc., American Express Company, AT&T Corp., First Data
Merchant Services, The Home Depot, Inc., The Hong Kong and Shanghai Banking
Corporation Group and Lucent Technologies, Inc.
The Company places special emphasis on offering high-performance,
technologically-advanced POS payment system solutions and enterprise branch
networking products to enable its customers to gain market
35
<PAGE> 37
share in their respective industries. The following summarizes the end-to-end
solutions the Company has provided to two of its significant customers.
American Express. The Company's relationship with American Express began
in 1983 in Australia, and the Company has been supplying American Express with
POS terminals, peripherals and POS network products worldwide since that time.
In 1987, the Company was awarded contracts to supply American Express with
high-performance, custom-designed terminals and a U.S.-wide dial access network.
The new terminals and the network represented a significantly advanced
technology, manifested in reduced response times (from 20 seconds to 6 seconds)
and increased reliability, resulting in substantially reduced operating costs.
Subsequent network technology upgrades and the addition of new terminals ensured
that the American Express terminal program remained one of the most advanced
systems in the world. The Company's network technology also was adopted by AT&T
Transaction Services and Transaction Network Services, Inc. for use in their
third-party transaction delivery networks. These networks today handle a
substantial portion of the dial POS transactions in the U.S. In June 1997, the
Company signed a three year, $25 million contract with American Express to
supply POS terminals and printers to American Express customers worldwide. This
contract consolidated American Express' POS equipment purchasing and was awarded
after American Express evaluated numerous responses to a request for proposal
issued in 1996. In addition, the Company was selected to provide service and
support functions for American Express POS networks outside the U.S.
HSBC Group. HSBC Group, whose founding member is The Hong Kong and
Shanghai Banking Corporation Group, is one of the world's leading international
banking and financial services organizations with over 3,000 offices in 71
countries. Major members of the HSBC Group include the Midland Bank of the
United Kingdom, the Marine Midland Bank and the HSBC Banco Bamerindus of Brazil,
as well as The Hong Kong and Shanghai Bank's extensive operations in Hong Kong,
Asia, Canada, Australia and the Middle East. In April 1996, the Company was
selected by the HSBC Group to supply a global frame relay network to support the
HSBC Group's operations in 42 countries. Hypercom's IEN technology was chosen to
provide both the frame relay backbone and the branch office access equipment
solution. The HSBC Group's network supports a wide range of applications and
technologies, including bank branch teller terminals and controllers, a global
automated teller machine service, POS and card products terminals and
client/server-based customer electronic banking service. Hypercom's IEN products
were chosen because of the Company's demonstrated capability to support the wide
range of protocols, access methods and applications required by such a diverse
and widely distributed financial institution.
SALES, MARKETING AND DISTRIBUTION
The Company sells its POS payment system solutions through its direct sales
force and through independent third-party resellers, including financial
institutions, electronic payment processors and service providers. The Company's
domestic sales and marketing personnel, which consists of 24 persons located
throughout the country, are managed from its Phoenix, Arizona headquarters. To
support its international operations, which also are headquartered in Phoenix,
the Company has sales and support facilities in Miami (serving Latin America),
Hong Kong, China, Singapore, Japan, Australia, Brazil, Chile, Argentina, Mexico,
Hungary, Russia, the United Kingdom and France.
The Company sells its enterprise networking products primarily through an
11-person direct sales force, distributors, value-added resellers and system
integrators, who resell the Company's networking products along with other
computer and communications equipment. Because the sale of networking products
is highly technical, the sales cycle can be as long as 18 months. The technical
nature of the sale also results in increased reliance on resellers who work
closely with the Company's customers to identify the benefits that Hypercom
enterprise networking products can provide to their businesses and support the
Company's products locally.
The Company's marketing programs include trade shows, press releases, press
interviews, speaker engagements, training and technology seminars, sales
collateral and white papers, print advertising, articles and newsletters
supported by Hypercom's technical publications group.
For a description of operating profit or loss attributable to each of the
Company's industry segments and information relating to geographic areas and
export sales, see the Consolidated Financial Statements and
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<PAGE> 38
Notes thereto included elsewhere in this Prospectus. For information relating to
the Company's backlog, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Backlog."
CUSTOMER SERVICE AND SUPPORT
The Company believes that it has established a reputation for manufacturing
high quality, reliable products and for providing excellent service and support
for its products. Through its facilities in Phoenix, Arizona, the Company
provides pre- and post-sales consulting, application software development and
support, installation services, customer support and comprehensive repair
facilities for its products. The Company also supports its enterprise networking
products through remote access to customer installations. Remote access is
accomplished either through a dial-up network connection directly to a
customer's installation or through a modem connection to the central part of the
customer's system. This connection allows Company support personnel to analyze
and correct installation and configuration problems remotely. Field support
engineers are available to assist with customer emergencies, and third-party
field personnel provide additional support for the Company's products.
The Company provides a five-year warranty on its POS terminal products and
one to five-year warranties on other products. The Company has not incurred
significant warranty expense to date. The Company believes that its five-year
warranty on POS terminal products has contributed significantly to its
reputation for manufacturing high quality, reliable products, and that this
warranty results in a lower total cost of ownership than competitors' products.
MANUFACTURING
The Company's principal manufacturing facility is located in Phoenix,
Arizona, where the Company manufactures both POS payment systems and enterprise
networking products. The Company also manufactures POS products at its
facilities in Brazil, and certain POS payment systems are manufactured by a
contract manufacturer in China. The Company also relies on certain third-party
suppliers for certain components of its POS payment system products.
The Company's enterprise networking products are manufactured and assembled
at its Phoenix facility, as well as by a contract manufacturer. The Company also
manufactures certain networking product components in Australia and other
components are manufactured by various third parties, including its contract
manufacturer.
To control product costs, the Company centrally manages its material
requirements planning and bills of material from its Phoenix facility on an
integrated computer system, which is networked to all Hypercom manufacturing
centers. By managing its purchasing centrally, the Company is able to obtain
discounts on volume purchases. The Company also maintains sufficient flexibility
in its purchasing to allow it to take advantage of favorable pricing in regional
markets. Central management of purchases also assists the Company in ensuring
quality control of components used in its products.
RESEARCH AND PRODUCT DEVELOPMENT
Since its inception, the Company has made substantial investments in
research and development. With respect to its POS payment system products, the
Company's development efforts are focused on products that support new
technologies and payment products emerging in the electronic payments industry.
With respect to enterprise networking products, the Company's efforts are
focused on developing new capabilities to support real-time integrated data,
voice and multimedia communications. The Company works closely with its
customers to define new product concepts and identify emerging applications for
its products. Development projects are evaluated through a management review
process and assigned to the Company's development centers based upon the
potential value of the target markets, as well as the technology, manpower and
engineering expertise requirements.
The Company designs and develops all of its products and incorporates,
where appropriate, technologies from third parties and those available in the
public domain. The Company's product development units for
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<PAGE> 39
both POS payment system products and enterprise networking products are
headquartered in Phoenix, Arizona. Development staffs also are located in
Australia, Hong Kong, Singapore, Brazil, Russia and the United Kingdom. The
Company maintains a separate development group dedicated to electronic commerce
transaction software which is located in Australia, where it benefits from
certain research and experimentation tax credits.
The markets for the Company's products are characterized by changing
technology, evolving industry standards and frequent product introductions.
Management believes that the Company's future success depends in large part upon
its ability to continue to enhance its existing products and to develop new
products. The Company is dedicated to complying with industry standards and
supporting important new standards as they emerge.
At August 31, 1997, 200 employees of the Company were engaged in research
and product development, including 169 in POS payment systems development and 31
in enterprise networking systems development. In 1997, 1996 and 1995, the
Company's research and development expenditures were $12.9 million, $8.5 million
and $5.4 million, respectively. To date, all of the Company's research and
development costs have been expensed as incurred. The Company expects that it
will continue to expend substantial resources on research and product
development.
COMPETITION
The markets in which the Company operates are highly competitive and are
becoming increasingly competitive. With respect to its POS payment system
products, the Company competes primarily on the basis of ease-of-use, product
performance, price, features, quality, the availability of application software
programs, the number of third-party network host and telephone system
certifications it has obtained for its products and application programs, rapid
development, release and delivery of software products and customer support and
responsiveness. Software products compete on the basis of functionality,
scalability, quality and support.
Although the market for the Company's POS payment system products is
competitive, the need for highly reliable and fully-certified software creates a
barrier to entry by new competitors. For example, electronic payment processors
have specific requirements that POS payment systems software must meet,
including requirements relating to security, host communications and message
format. Accordingly, POS terminal devices must accurately capture information
required to process the transaction, package this information, transmit it to
the processor's host system in the specified format and receive the host
system's response. Each processor has its own unique requirements that require
the development of different software applications and the successful completion
of a lengthy certification process. As a result, to compete effectively,
competitors must be able to develop software applications compatible with the
diverse requirements of numerous processors of electronic transactions and that
satisfy the diverse certification standards of these processors. The Company's
primary competitor in the POS payment systems market is VeriFone, Inc., which
was recently acquired by Hewlett-Packard Company.
With respect to its enterprise networking products, the Company competes
primarily on the basis of product features, quality, flexibility, reliability,
scalability and interoperability. The market for the Company's enterprise
networking products is intensely competitive and is characterized by rapid
technological development. The Company's competitors with respect to networking
products include (i) internetworking companies, such as Cisco Systems, Inc.,
3Com Corporation and Bay Networks, Inc., (ii) FRAD providers, such as Sync
Research, Inc., Motorola Information Systems Group, and Netlink, Inc. and (iii)
circuit management providers, such as Visual Networks, Inc. and NetScout
Systems, Inc. The Company expects that the number of competitors in both the POS
payment systems and enterprise networking systems markets will grow due to the
growth opportunities in both markets.
Many of the Company's current and potential competitors have significantly
greater financial, technical and marketing resources than the Company, as well
as better name recognition and a larger customer base than the Company. As a
result, they may be able to devote greater resources to the development,
promotion, sale and support of their products than the Company. The Company
often faces additional competitive factors
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<PAGE> 40
in foreign countries, including preferences for national vendors and
difficulties in obtaining necessary certifications and in meeting the
requirements of government policies.
PROPRIETARY RIGHTS
The Company's success is dependent upon its proprietary technology. The
Company relies upon copyrights, trademark and trade secret laws and more
recently upon patent law protection, to establish and maintain its proprietary
rights in its technology and products.
The Company currently does not hold any issued patents in the U.S., but
does have three patent applications pending. The Company has received a notice
of allowance and anticipates that it will obtain a patent in early 1998 for its
pending patent application relating to a POS terminal configured with a
substantial portion of its functionality at a remote processor. The Company's
second pending patent application relates to the Company's replaceable printer
mechanism which has been instituted by Hypercom in its integrated POS terminals
containing a printer. The third patent application relates to the use of a smart
card in conjunction with a personal computer which uses the floppy drive as an
interface device. The Company has taken steps necessary to pursue patent
protection for these three patent applications in a number of foreign countries.
The Company has U.S. federal registration for its "Hypercom" trademark. In
addition, the "Hypercom" trademark is registered in 17 foreign countries with
registration pending in 11 additional countries. In addition to the registered
trademark of the Hypercom(R) name and logo, the Company has obtained U.S.
federal registrations for the following trademarks: MEGANAC(R), MININAC(R),
MINIROUTER(R), TERM-MASTER(R), VIRTUAL MAPPED SNA(R) and VIRTUAL POS(R). The
Company's trademark applications for U.S. registration include: QUIX(TM), TOKEN
TRACKING SYSTEM(TM), VIRTUAL TERMINAL(TM), CHIPSTRIPE(TM) and INTEGRATED
ENTERPRISE NETWORK(TM).
The Company embeds copyright notices in its software products advising all
users that the software is owned by Hypercom. The Company also places copyright
notices on documentation related to these products. The Company routinely relies
on contractual arrangements to protect its proprietary software programs,
including written contracts prior to product distribution or through the use of
shrink wrap license agreements. The Company typically does not obtain federal
copyright registrations for its software.
There can be no assurance that others will not develop products or
technologies that are equivalent or superior to those of the Company, or that
any patents, copyrights, confidentiality agreements and internal safeguards upon
which the Company relies will be adequate to protect its interests.
GOVERNMENT REGULATION
The Company's products must meet industry standards, such as those imposed
by VISA and MasterCard, and receive certification for connection to certain
public telecommunications networks prior to their sale. In the U.S., the
Company's products must comply with various regulations defined by the FCC and
Underwriters Laboratories. Internationally, the Company's products must comply
with standards established by telecommunications authorities in various
countries, as well as with recommendations of quasi-regulatory authorities and
standards-setting committees. In addition, public carriers require that
equipment connected to their networks comply with their own standards, which in
part reflect their currently installed equipment. Some public carriers have
installed equipment that does not fully comply with current industry standards,
and this noncompliance must be addressed in the design of the Company's
enterprise networking products. Any future inability to obtain on a timely basis
or retain domestic or foreign regulatory approvals or certifications or to
comply with existing or evolving industry standards could have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, rates for public telecommunications services, including
features and capacity of such services, are governed by tariffs determined by
carriers and subject to regulatory approval. Changes in these tariffs could have
a material adverse effect on the Company's business, operating results and
financial condition.
The Company's operations are subject to various state, federal and
international laws governing, among other things, occupational health and
safety, minimum wages, overtime, retirement plans and profit-sharing and
severance payments, and the use, storage, handling and disposal of certain
chemicals used in the
39
<PAGE> 41
Company's production processes. Although the Company believes that its
operations comply in all material respects with such regulatory requirements,
any failure to comply with applicable requirements, or the adoption of new
regulations or changes in existing regulations, could impose additional
compliance costs on the Company, require a cessation of certain activities or
otherwise have a material adverse effect on the Company's business, operating
results and financial condition.
EMPLOYEES
At August 31, 1997, the Company employed 827 persons, including 417 in
manufacturing, service and support, 112 in sales and marketing, 200 in
engineering and 98 in finance and administration. Approximately 250 employees
were in international locations.
None of the Company's employees is represented by a labor union, and the
Company considers its relations with its employees to be positive. The Company
has experienced no work stoppages.
Competition for technical personnel in the Company's industry is intense.
To date, the Company has been successful in recruiting and retaining qualified
employees, but there is no assurance that it will continue to be successful in
doing so in the future. The Company's future success depends in part on its
continued ability to hire, assimilate and retain qualified personnel.
PROPERTIES
The Company's principal administrative, assembly and warehouse facilities
are located in Phoenix, Arizona, where it owns an approximate 84,000 square foot
building and leases an adjacent 23,800 square foot building. The lease expires
on August 31, 2011. In addition, the Company recently purchased a 10.4 acre lot
adjacent to this facility. The Company expects that a portion of the proceeds of
the Offering will be used to expand the Company's manufacturing, warehouse and
corporate facilities. The Company intends to expand the Company's manufacturing
facility to increase manufacturing and warehouse space and construct a new
building that will house Hypercom Network Systems and the Company's corporate
headquarters. See "Use of Proceeds."
The Company leases an approximate 20,000 square foot facility in Sydney,
Australia, and an approximate 17,000 square foot facility in Brazil. In
addition, the Company maintains an approximate 12,400 square foot warehouse
facility in Phoenix under a lease that expires on December 31, 2002. The Company
also leases office space in Arizona, Florida, Georgia, Maryland, Hong Kong,
China, Singapore, Japan, Chile, Argentina, Mexico, Russia, Hungary and the
United Kingdom, all of which are dedicated primarily to sales and support. The
Company believes that its facilities are adequate for its operations as now
conducted and, upon completion of the expansion of its Phoenix, Arizona
corporate and manufacturing facilities, will be sufficient for the foreseeable
future.
LEGAL PROCEEDINGS
From time to time, the Company is subject to claims and litigation incident
to its business. As of the date of this Prospectus, there is no material legal
proceeding to which the Company is a party.
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<PAGE> 42
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
current directors, persons nominated to become directors immediately following
the Offering, and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------- ---- -----------------------------------------------
<S> <C> <C>
George Wallner....................... 46 Chairman of the Board of Directors
Albert A. Irato...................... 59 Vice Chairman of the Board of Directors, Chief
Executive Officer and President of the Company
and Chief Executive Officer and President of
Hypercom U.S.A., Inc.
Paul Wallner......................... 43 Vice Chairman of the Board of Directors of the
Company and President of Hypercom Network
Systems
Jairo Gonzalez....................... 35 Vice Chairman of the Board of Directors of the
Company and President of Hypercom International
Thomas E. Linnen..................... 51 Chief Financial Officer of the Company
William E. Fisher(1)(2).............. 51 Director Nominee
Peter J. Hart(1)(2).................. 57 Director Nominee
</TABLE>
- ---------------
(1) It is anticipated that Messrs. Hart and Fisher will serve as members of the
Compensation Committee of the Board of Directors upon their election as
directors immediately following the Offering.
(2) It is anticipated that Messrs. Hart and Fisher will serve as members of the
Audit Committee of the Board of Directors upon their election as directors
immediately following the Offering.
The business experience of each of the directors, director nominees and
executive officers is set forth below.
George Wallner has served as the Chairman of the Board of Directors since
he founded the Company in 1978. Mr. Wallner also serves as the Company's Chief
Technologist. Mr. Wallner received a degree in electrical and communications
engineering from the Kando Kalmau Technical College of Budapest, Hungary. George
Wallner is the brother of Paul Wallner.
Albert A. Irato has served as Vice Chairman of the Board of Directors,
Chief Executive Officer and President since October 1992. In addition, since
October 1992, Mr. Irato has served as President and Chief Executive Officer of
Hypercom U.S.A., Inc., a wholly-owned subsidiary of the Company responsible for
POS operations in the U.S. and Canada. From 1985 until 1992, Mr. Irato served in
various management capacities at American Express Corp. TRS, the travel related
services division of American Express, most recently as Senior Vice President
responsible for the merchant operations and POS and ATM networks and services.
Mr. Irato also served as Chairman of the Board of the Electronic Funds Transfer
Association headquartered in Washington, D.C. Mr. Irato currently serves on the
Board of Directors of Continental Circuits Corp., a manufacturer of circuit
boards. Mr. Irato holds a B.S. from Spring Hill College and an advanced
management degree from the Darden School of the University of Virginia. Mr.
Irato and Mr. Hart are brothers-in-law.
Paul Wallner has served as a Vice Chairman of the Board of Directors since
the Company was founded in 1978, and has served since 1995 as President of
Hypercom Network Systems, the Company's operating division responsible for
designing and manufacturing network products. Mr. Wallner obtained his B.S. in
business from a Hungarian state college and has over 20 years of experience in
WAN/LAN system development and software integration for telecommunication
applications. Paul Wallner is the brother of George Wallner.
Jairo Gonzalez has served as Vice Chairman of the Board of Directors since
July 1997, and has served since 1990 as President of Hypercom International, the
Company's operating division responsible for international sales and marketing
of both POS payment systems and enterprise networking products. Mr. Gonzalez
holds a B.A. in political science from the University of Oregon.
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<PAGE> 43
Thomas E. Linnen has served as Chief Financial Officer since October 1996.
Prior to joining the Company, Mr. Linnen was Vice President of Finance,
Secretary, Treasurer and a Director of Continental Circuits Corp., a
manufacturer of circuit boards. Mr. Linnen currently serves as a Director of
Go-Video, Inc., a manufacturer of consumer electronic video products. Mr. Linnen
received a B.S. in business administration from the University of Wisconsin and
is a Certified Public Accountant.
William E. Fisher has been nominated and has agreed to serve as a Director
of the Company immediately following the Offering. Since its inception in 1993,
Mr. Fisher has served as Director, Chairman of the Board, President and Chief
Executive Officer of Transaction System Architects, Inc. ("TSA"), a developer of
software products and services primarily focused on the electronic funds
transfer market. From 1987 to 1993, Mr. Fisher served in various capacities at
Applied Communications, Inc., a subsidiary of TSA, most recently as Chief
Executive Officer. In addition, Mr. Fisher currently serves as a Director for BA
Merchant Services, Inc., a provider of payment processing and related
information products and services, and West Teleservices Corp., a provider of
telecommunications services and products.
Peter J. Hart has been nominated and has agreed to serve as a Director of
the Company immediately following the Offering. Since 1996, Mr. Hart has served
as a Director and Vice President of Express Card Systems, Inc., an electronic
payment products manufacturers representative. From 1973 to 1996, Mr. Hart
served in various capacities at Price Waterhouse LLP, most recently as Senior
Tax Partner. Mr. Hart and Mr. Irato are brothers-in-law.
KEY EMPLOYEES
The business experience of each of the Company's key employees is set forth
below.
Chris Alexander has served as Chief Operating Officer of Hypercom
International since 1993. Prior to joining the Company, Mr. Alexander served as
Vice President, Treasurer and Chief Financial Officer for the Lawrin Company, a
manufacturer of lighting and lighting accessories, from 1992 to 1993. From 1988
to 1992, Mr. Alexander served as President and Chief Executive Officer of the
Washington Manufacturing Company, a textile manufacturer. From 1982 to 1988, Mr.
Alexander served as Administrative Vice President and Treasurer for Dataplex
Corporation, a microfiche processing company. Mr. Alexander received his B.S.
degree in industrial management from the Georgia Institute of Technology and his
M.B.A. in Finance from Georgia State University.
William A. Dowlin has served since July 1997 as President of Hypercom
Manufacturing Resources, Inc., the Company's wholly-owned subsidiary responsible
for all manufacturing operations. From 1991 to 1997, Mr. Dowlin served as Vice
President of Manufacturing at Symbol Technologies, Inc., a manufacturer of bar
code data transaction systems. From 1986 to 1991, Mr. Dowlin served as Vice
President of Operations at National Computer Systems, a global information
services company.
Peter J. Stutsman has served as Secretary and General Counsel for the
Company since 1995. Prior to joining the Company in 1994, Mr. Stutsman served
from 1993 to 1994 as Manager of Contract Administration for Syntellect, Inc., a
manufacturer of automated voice attendant equipment. From 1988 to 1993, Mr.
Stutsman served as Senior Contract Administrator for McDATA Corporation, a
manufacturer of computer-related products. Mr. Stutsman holds a B.S. degree in
Accounting and a M.B.A. from Arizona State University, and received his law
degree from Southwestern University School of Law. Mr. Stutsman is a member of
the Arizona, California and Texas Bar Associations.
Scott Tsujita has served as the Company's Treasurer and Vice President of
Finance since 1993. From 1990 to 1993, Mr. Tsujita served as Senior
Manager-Audit for Zolondek, Blumenthal, Greene, Freed & Strassels. From 1986 to
1990, Mr. Tsujita served as an Audit Manager for KPMG Peat Marwick LLP. Mr.
Tsujita received his B.S. in accounting from the University of British Columbia
and is a member of the American Institute of Certified Public Accountants and
the State of Arizona State Board of Accounting.
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<PAGE> 44
SUMMARY OF EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to the Company during
fiscal 1997 of those persons who were, at June 30, 1997 (i) the Chief Executive
Officer of the Company and (ii) the other four most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
NAME AND ------------------- OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- --------------------------------- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
George Wallner................... $494,411 $156,500 $ -- -- $11,711
Chairman of the Board of
Directors
Albert A. Irato.................. 306,260 14,500 -- 257,500 --
Chief Executive Officer and
President
Paul Wallner..................... 368,697 156,500 -- -- 17,680
President of Hypercom Network
Systems
Jairo Gonzalez................... 228,181 -- -- 1,075,000 --
President of Hypercom
International
Thomas E. Linnen................. 104,461 -- -- 81,250 --
Chief Financial Officer
</TABLE>
- ---------------
(1) The cost of certain perquisites and other personal benefits are not included
because they did not exceed the lesser of either $50,000 or 10% of the total
of the annual salary and bonus reported for the Named Executive Officer. See
"Certain Relationships and Related Transactions" for information relating to
advances made by the Company to certain of the Named Executive Officers.
(2) Amounts reflect contributions made by the Company's Australian subsidiary to
a superannuation fund. This superannuation fund was dissolved by the Company
in fiscal 1998 and the funds were distributed to the participants.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during fiscal 1997, to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------
NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
- ---------------------------------- ---------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
George Wallner.................... -- -- -- --
Paul Wallner...................... -- -- -- --
Albert A. Irato................... 257,500 13.5% $6.40 12/31/06
Jairo Gonzalez.................... 1,075,000 56.2 6.40 12/31/06
Thomas E. Linnen.................. 81,250 4.2 6.40 11/25/06
</TABLE>
- ---------------
(1) Of Mr. Linnen's options, 12,500 vest upon completion of the Offering, and
the remaining 68,750 options become exercisable over five years at the rate
of 20% on each successive anniversary of the date of grant. One-half of each
of Mr. Irato's and Mr. Gonzalez's options vested immediately with the
remaining one-half becoming exercisable over five years at the rate of 20%
on each successive anniversary of the date of grant.
(2) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation. Actual gains, if any, on stock option exercises are dependent
on the future performance of the Common Stock and overall stock market
conditions, as well as the option holder's continued employment with the
Company throughout the vesting period. The amounts reflected in this table
will not necessarily be achieved.
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<PAGE> 45
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value of
unexercised options held by the Named Executive Officers as of June 30, 1997. No
Named Executive Officer exercised any options in fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
George Wallner................................... -- --
Paul Wallner..................................... -- --
Albert A. Irato.................................. 1,158,750 128,750
Jairo Gonzalez................................... 537,500 537,500
Thomas E. Linnen................................. -- 81,250
</TABLE>
- ---------------
(1) Assumes a market price for the Common Stock at June 30, 1997, equal to the
assumed initial public offering price of $ per share less the
exercise price thereof.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Albert A. Irato, the Company's President and Chief Executive Officer, is
employed under an agreement that expires January 1, 2002. The agreement
currently provides for an annual base salary of $322,000, with annual
adjustments beginning October 1, 1997 up to a maximum of $422,000. The agreement
also provides for an automobile allowance, participation in the Company's
benefit plans and certain other fringe benefits. In addition, pursuant to the
agreement Mr. Irato was granted options to purchase 257,500 shares of Common
Stock at an exercise price of $6.40 per share. One-half of the options vested
immediately and the remaining one-half become exercisable over five years at the
rate of 20% per year beginning January 1, 1998. In the event that Mr. Irato's
employment is terminated by the Company without cause or by reason of death or
disability, or in the event of a change of control of the Company, all options
will vest immediately. In the event that Mr. Irato's employment is terminated
without cause, Mr. Irato will receive for a period of one year following
termination an amount equal to his annual base salary on the date of
termination. The agreement also contains a non-compete provision whereby Mr.
Irato has agreed that he will not, during his employment and for one year after
any termination of employment, participate or assist in the ownership or
operation of any business similar to or competitive with the Company. Mr. Irato
may terminate his employment with the Company at any time during the term.
Jairo Gonzalez, President of Hypercom International, is employed under an
agreement that expires January 1, 2002. The agreement currently provides for an
annual base salary of $250,000, with annual adjustments beginning October 1,
1997 up to a maximum of $300,000. The agreement also provides for an automobile
allowance, participation in the Company's benefit plans and certain other fringe
benefits. In addition, pursuant to the agreement Mr. Gonzalez was granted
options to purchase 1,075,000 shares of Common Stock at an exercise price of
$6.40 per share. One-half of the options vested immediately and the remaining
one-half become exercisable over five years at the rate of 20% per year
beginning January 1, 1998. In the event that Mr. Gonzalez's employment is
terminated by the Company without cause or by reason of death or disability, or
in the event of a change of control of the Company, all options will vest
immediately. In the event that Mr. Gonzalez's employment is terminated without
cause, Mr. Gonzalez will receive for a period of one year following termination
an amount equal to his annual base salary on the date of termination. The
agreement also contains a non-compete provision whereby Mr. Gonzalez has agreed
that he will not, during his employment and for one year after any termination
of employment, participate or assist in the ownership or operation of any
business similar to or competitive with the Company. Mr. Gonzalez may terminate
his employment with the Company at any time during the term.
44
<PAGE> 46
LONG-TERM INCENTIVE PLAN
In November 1996, the Company's Board of Directors adopted and the
stockholders of the Company approved the Hypercom Corporation Long-Term
Incentive Plan (the "LTIP"). Under the LTIP, the Company may grant incentive
stock options, non-qualified stock options, stock appreciation rights,
performance shares, restricted stock, dividend equivalents, and other Common
Stock-based awards to employees, consultants, and advisors of the Company. The
Company believes that the LTIP promotes the success and enhances the value of
the Company by linking the personal interests of participants to those of the
Company's stockholders and providing participants with an incentive for
outstanding performance. The total number of shares of Common Stock available
for awards under the LTIP is 5,000,000, subject to a proportionate increase or
decrease in the event of a stock split, reverse stock split, stock dividend, or
other adjustment to the Company's total number of issued and outstanding shares
of Common Stock. No single participant may receive awards covering in the
aggregate more than 1,875,000 shares of stock.
Following the Offering, the LTIP will be administered by the Board of
Directors or a committee that is appointed by, and serves at the discretion of,
the Board of Directors and consists of at least two nonemployee directors. The
Board of Directors or the committee, as the case may be, will have the exclusive
authority to administer the LTIP, including the power to determine eligibility,
the type and number of awards to be granted and the terms and conditions of any
award granted, including the price and timing of awards. Upon a change of
control in the Company, in the sole discretion of the Board of Directors or the
committee, as the case may be, every award outstanding under the LTIP may become
fully exercisable. Awards granted under the LTIP may not be sold, transferred,
pledged, assigned or otherwise alienated, other than by will or by the laws of
descent and distribution.
1997 EMPLOYEE STOCK PURCHASE PLAN
In September 1997, the Company's Board of Directors adopted and the
stockholders of the Company approved the Hypercom Corporation 1997 Employee
Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan allows eligible
employees of the Company to purchase shares of the Common Stock through periodic
payroll deductions. The initial offering period commences upon the Offering and
extends through June 30, 1998, with subsequent offering periods beginning every
six months thereafter. At the end of each offering period, payroll deductions
for the offering period will be used to purchase shares of Common Stock for each
participant's account at a price equal to 90% of the fair market value of the
Common Stock on either the first or last day of the offering period, whichever
is less. Payroll deductions under the Purchase Plan are limited to 10% of each
eligible employee's earnings during the offering period, and no single
participant will be granted an option to purchase shares with a value in excess
of $25,000 for each calendar year. The Board has reserved 625,000 shares of
Common Stock for issuance under the Purchase Plan, subject to adjustment in the
event of a stock split, reverse stock split, stock dividend or similar event.
The purchase right of a participant will terminate automatically in the
event the participant ceases to be an employee of the Company or any subsidiary
of the Company and any payroll deductions collected from such individual during
the offering period in which such termination occurs will be refunded.
401(k) RETIREMENT SAVINGS PLAN
Under the Company's 401(k) retirement savings plan, adopted in January
1993, eligible employees may direct that an amount up to the lesser of 15% of
their compensation or a statutory maximum be withheld by the Company and
contributed to their account. All 401(k) plan contributions are placed in a
trust fund to be invested by the 401(k) plan's trustee, except that the 401(k)
plan may permit participants to direct the investment of their account balances
among mutual or investment funds available under the plan. The Company may, at
management's discretion, make matching contributions under the 401(k) plan.
Matching contributions become vested at a rate of 20% per year beginning after a
participant's second full year of service. All matching contributions are fully
vested following a participant's sixth year of service.
Amounts contributed to participant accounts under the 401(k) plan and any
earnings or interest accrued on the participant accounts are generally not
subject to federal income tax until distributed to the participant and may not
be withdrawn until death, retirement or termination of employment.
45
<PAGE> 47
COMMITTEES OF THE BOARD OF DIRECTORS
Immediately following the Offering, the Company's Board of Directors will
establish a Compensation Committee and an Audit Committee. The Compensation
Committee, a majority of which will be independent directors, will review
executive salaries and administer any bonus, incentive compensation and stock
option plans of the Company. In addition, the Compensation Committee will
consult with management of the Company regarding compensation policies and
practices of the Company. The Audit Committee, a majority of which also will be
independent directors, will review the professional services provided by the
Company's independent auditors, the annual financial statements of the Company
and the Company's internal controls. It is anticipated that William E. Fisher
and Peter J. Hart will serve as members of the Compensation and Audit Committees
upon their election to the Company's Board of Directors immediately following
the Offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the year ended June 30, 1997, the Company's Board of Directors
established levels of compensation for certain of the Company's executive
officers without the involvement of the Compensation Committee, which had not
yet been formed. The Company's entire Board of Directors made all decisions
regarding executive compensation that occurred during 1997. For information
relating to certain transactions in which members of the Board of Directors have
a direct or indirect material interest, see "Certain Relationships and Related
Transactions."
DIRECTOR COMPENSATION
FEES. The Company's independent directors will be paid $5,000 annually for
their services as directors and their participation in meetings of the Board of
Directors and meetings of committees of the Board of Directors of which they are
members, and will be reimbursed for reasonable travel expenses incurred in
connection with attendance at each Board and Committee meeting. Directors who
also are officers of the Company will not be compensated for their services as
directors.
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN. In September 1997, the Company's
Board of Directors adopted and the stockholders of the Company approved the
Hypercom Corporation Nonemployee Directors' Stock Plan (the "Director Plan") to
attract and retain independent directors. The Director Plan is administered by a
committee appointed by the Board and provides for an initial grant to each
Nonemployee Director of an option to purchase 6,250 shares of Common Stock
immediately following the Offering. In addition, each individual who first
becomes a Nonemployee Director after the date of the initial grant of options
will be granted an option to purchase 6,250 shares of Common Stock, and will
receive an annual grant of options to purchase 6,250 shares of Common Stock. The
aggregate number of shares of Common Stock subject to the Director Plan may not
exceed 93,750, subject to adjustment in the event of a stock split, reverse
stock split, stock dividend or similar event. Options granted under the Director
Plan are fully vested and become fully exercisable on the first anniversary of
the date of grant and have a term of ten years. The exercise price per share
under the Director Plan is equal to the fair market value of such shares upon
the date of grant. In general, options may be exercised by payment in cash or a
cash equivalent, previously acquired shares having a fair market value at the
time of exercise equal to the total option exercise price or a combination
thereof.
Options exercisable upon the date of death or disability of any Nonemployee
Director remain exercisable for one year after the date of death or disability
of such Nonemployee Director. If a Nonemployee Director's service on the Board
of Directors of the Company is terminated for any reason other than for death or
disability, all options which are exercisable remain exercisable for 90 days
after the date of termination. Upon a change of control of the Company, every
option shall become fully exercisable. Options granted under the Director Plan
may not be sold, transferred, pledged, assigned or otherwise alienated, other
than by will or by the laws of descent and distribution.
46
<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, and
as adjusted to reflect the sale by the Company and the Selling Stockholders of
the shares offered hereby by (i) each director and director-nominee of the
Company, (ii) each of the Named Executive Officers of the Company, (iii) all
directors, director-nominees, and executive officers of the Company as a group,
(iv) each beneficial owner of more than 5% of the outstanding Common Stock and
(v) all Selling Stockholders. To the knowledge of the Company, all persons
listed below have sole voting and investment power with respect to their shares,
except to the extent that authority is shared by their respective spouses under
applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED AFTER
PRIOR TO OFFERING(1) SHARES OFFERING(1)
-------------------- BEING --------------------
NAME OF BENEFICIAL OWNER(2) NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------- ---------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
George Wallner............................... 12,650,000 50.6% 1,200,000 11,450,000 34.2%
Paul Wallner................................. 11,000,000 44.0 1,200,000 9,800,000 29.3
Al Irato(3).................................. 1,534,500 5.9 350,000 1,184,500 3.4
Jairo Gonzalez(4)............................ 645,000 2.5 -- 645,000 1.9
Thomas Linnen(5)............................. 26,250 * -- 26,250 *
William E. Fisher............................ -- * -- -- *
Peter J. Hart................................ -- * -- -- *
All directors, director-nominees and
executive officers as a group.............. 25,855,750 96.3% 2,750,000 23,105,750 65.4%
</TABLE>
- ---------------
* Represents less than 1% of total shares outstanding.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired within 60 days from the date of this Prospectus through the
exercise of any option, warrant or right. Shares of Common Stock subject to
options, warrants or rights which are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage of the
person holding such options, warrants or rights, but are not deemed
outstanding for computing the percentage of any other person. The amounts
and percentages are based upon 25,000,000 shares of Common Stock outstanding
as of the date of this Prospectus, and 33,500,000 shares of Common Stock
outstanding as of the close of the Offering, respectively.
(2) Unless otherwise noted, the address of each of the persons listed is 2851
West Kathleen Road, Phoenix, Arizona 85023.
(3) Includes 1,184,500 shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
(4) Consists entirely of shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
(5) Consists entirely of shares of Common Stock subject to options exercisable
within 60 days of the date of the Offering.
47
<PAGE> 49
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a promissory note dated December 31, 1994, Albert A. Irato, the
Company's President and Chief Executive Officer, owed principal balances of
$220,305, $212,130 and $252,130 to the Company as of June 30, 1997, 1996, and
1995, respectively. Under the note, interest is payable quarterly at a rate
equal to the most favorable interest rate charged by the Company's lenders. The
note matures on December 31, 2004.
In October 1994, the Company made a loan to George Wallner, the Company's
Chairman, to help finance the purchase of Mr. Wallner's residence. The loan,
which bore interest at 8%, was collateralized by the property and became payable
in full six months after the close of the purchase of the property. As of June
30, 1996 and 1995, amounts outstanding under the loan were $1,624,102 and
$888,874, respectively. In 1997, the loan was paid in full. The largest
aggregate amount outstanding under the loan in fiscal 1997 was $2,982,521.
In fiscal 1997, the Company made a loan to each of George Wallner, the
Company's Chairman, and Paul Wallner, the President of Hypercom Network Systems,
in the principal amount of $750,000. The loans are non-interest bearing and are
due in full in 2006. In addition, in fiscal 1997, George Wallner provided an
advance of $356,136 to the Company. As of June 30, 1997, George Wallner's net
amount outstanding to the Company was $393,864.
During fiscal 1997, 1996 and 1995, the Company paid approximately $580,000,
$0 and $240,000, respectively, for research and development services to Digitech
Research, Inc., an entity owned by George Wallner. In addition, during fiscal
1997, 1996 and 1995, the Company provided non-interest bearing advances to
Digitech of $32,812, $107,188, and $60,000, respectively. The Company has
terminated its arrangements with Digitech.
The Company leases an approximately 20,000 square foot facility from a
trust, the beneficiaries of which are George Wallner and Paul Wallner. During
fiscal 1997, 1996 and 1995, the Company paid $108,619, $252,800 and $213,300,
respectively, in rent and associated administrative fees to this trust.
Peter J. Hart, a Director-Nominee of the Company, is a director and Vice
President of Express Card Systems, Inc. ("ECS"), a sales company, which derives
a significant portion of its revenues from products sold to the Company. Mr.
Hart's wife is the Chairman, President and sole stockholder of ECS. The wife of
Albert A. Irato, the Company's President and Chief Executive Officer, is a Vice
President of ECS. The wives of Messrs. Hart and Irato are sisters. During fiscal
1997, 1996 and 1995, ECS was paid $340,400, $248,700 and $192,500, respectively,
with respect to sales of products to the Company, and it is anticipated that ECS
will be paid approximately $350,000 in fiscal 1998 with respect to such sales.
Following the Offering, any transactions between the Company and its
affiliated entities, executive officers, directors or significant stockholders
will require the approval of a majority of the independent directors of the
Company and will be on terms that will be no less favorable to the Company than
the Company could obtain from non-affiliated parties.
48
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws, copies of which have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.001 per share, and 10,000,000 shares of Preferred
Stock, par value $.001 per share. Immediately following the Offering, 33,500,000
shares of Common Stock will be issued and outstanding (assuming no exercise of
outstanding options), and no shares of Preferred Stock will be issued and
outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters on which stockholders are entitled to vote. Holders of
Common Stock do not have cumulative voting rights, and therefore holders of a
majority of the shares voting for the election of directors can elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company does not anticipate paying cash dividends in the
foreseeable future. In the event of liquidation, dissolution, or winding up of
the Company, the holders of Common Stock are entitled to share ratably in any
corporate assets remaining after payment of all debts, subject to any
preferential rights of any outstanding Preferred Stock. See "Dividend Policy."
Holders of Common Stock have no preemptive, conversion, or redemption
rights and are not subject to further calls or assessments by the Company. All
of the outstanding shares of Common Stock are, and the shares offered by the
Company hereby will be, if issued, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company has the authority, without further
action by the Company's stockholders, to issue from time to time up to
10,000,000 shares of Preferred Stock in one or more series and to fix the number
of shares, designations, voting powers, preferences, optional and other special
rights, and the restrictions or qualifications thereof. The rights, preferences,
privileges and restrictions or qualifications of different series of Preferred
Stock may differ with respect to dividend rates, amounts payable on liquidation,
voting rights, conversion rights, redemption provisions, sinking fund provisions
and other matters. The issuance of Preferred Stock could: (i) decrease the
amount of earnings and assets available for distribution to holders of Common
Stock; (ii) adversely affect the rights and powers, including voting rights, of
holders of Common Stock and (iii) have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plans
to issue any shares of Preferred Stock.
ANTI-TAKEOVER LAW AND CERTAIN BYLAW PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which restricts certain transactions and business
combinations between a corporation and an "Interested Stockholder" owning 15% or
more of the corporation's outstanding voting stock, for a period of three years
from the date the stockholder becomes an Interested Stockholder. Subject to
certain exceptions, unless the transaction is approved by the board of directors
and the holders of at least two-thirds of the outstanding voting stock of the
corporation (excluding shares held by the Interested Stockholder), Section 203
prohibits significant business transactions such as a merger with, disposition
of assets to, or receipt of disproportionate financial benefits by the
Interested Stockholder, or any other transaction that would increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans).
49
<PAGE> 51
In addition, the Company's Amended and Restated Bylaws provide that the
Board of Directors is divided into two classes of directors with each class
serving a staggered two-year term. The classification system of electing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of the Company and may maintain the
incumbency of the Board of Directors, as it generally makes it more difficult
for stockholders to replace a majority of the directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation provides
that, to the fullest extent permitted by Delaware law, a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of such director's fiduciary duty, except for liability: (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases; and (iv)
for any transaction from which the director derives an improper benefit. The
effect of the provision of the Company's Amended and Restated Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior), except in the situations described in clauses (i) through (iv) above.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek nonmonetary relief such as an injunction or recision in the
event of a breach of a director's duty of care. In addition, the Company's
Certificate of Incorporation provides that the Company shall indemnify any
person who is or was a director, officer, employee, or agent of the Company, or
who is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation or entity, against expenses,
liabilities and losses incurred by any such person by reason of the fact that
such person is or was acting in such capacity. The Company's Amended and
Restated Certificate of Incorporation also permits it to secure insurance on
behalf of any director, officer, employee or agent of the Company for any
liability arising out of such person's actions in such capacity.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock of the Company is
Harris Trust Company of California.
50
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Sales of substantial amounts of shares of the Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock, making it more difficult for the Company to sell equity securities
in the future at a time and price which it deems appropriate.
Upon the completion of the Offering, the Company will have 33,500,000
shares of Common Stock outstanding (35,187,500 if the Underwriters'
over-allotment option is exercised in full). Of these shares, the shares sold in
the Offering will be freely tradeable without restriction or further
registration under the Securities Act. The remaining 22,250,000 shares of Common
Stock outstanding as of the date of this Prospectus are "restricted securities"
as that term is defined by Rule 144 of the Securities Act, and were issued and
sold by the Company in reliance on exemptions from registration under the
Securities Act. These restricted securities will be eligible for sale in
accordance with the provisions of Rule 144 beginning 180 days after the date of
this Prospectus, or earlier to the extent that Lehman Brothers Inc. consents to
such sale as described below.
In general, under Rule 144, a person who has beneficially owned shares for
at least one year, including an "affiliate," as that term is defined in the
Securities Act, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the then outstanding
shares of Common Stock (approximately 335,000 shares after the completion of the
Offering) or the average weekly trading volume during the four calendar weeks
preceding filing of notice of such sale, subject to certain requirements
concerning availability of public information, manner and notice of sale.
In addition, affiliates must comply with the restrictions and requirements
of Rule 144, other than the one-year holding period requirements, in order to
sell shares of Common Stock which are not restricted securities. Under Rule
144(k), a person who is not an affiliate and has not been an affiliate for at
least three months prior to the sale and who has beneficially owned restricted
shares for at least a two year holding period may resell such shares without
compliance with the foregoing requirements.
The Company, its officers and directors and existing stockholders have
agreed, pursuant to certain lock-up agreements, that, for a period of 180 days
after the date of this Prospectus, they will not, without the prior written
consent of Lehman Brothers Inc., offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for any shares of Common Stock except in certain
limited circumstances. In addition, upon the expiration of the lock-up
agreements, approximately 1,955,750 shares of Common Stock issuable upon the
exercise of certain options, will be eligible for sale in the public market, in
reliance on Rules 144 and 701 under the Securities Act.
After the effective date of the Offering, the Company intends to register a
total of approximately 8,081,250 shares of Common Stock reserved for issuance
under its Long-Term Incentive Plan, 1997 Employee Stock Purchase Plan and
Nonemployee Directors' Stock Option Plan and under certain nonstatutory stock
option grants. See "Shares Eligible for Future Sale." The shares registered
under such registration statements will be available for resale in the open
market upon the exercise of vested options, subject to Rule 144 volume
limitations applicable to affiliates.
51
<PAGE> 53
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the
Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement of which the Prospectus forms a part, each of the
underwriters named below for whom Lehman Brothers Inc., Salomon Brothers Inc and
Cowen & Company are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company and the Selling Stockholders, and
the Company and the Selling Stockholders have agreed to sell to each
Underwriter, the aggregate number of shares of Common Stock set forth opposite
the name of each such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------------ ------------
<S> <C>
Lehman Brothers Inc. ...................................................
Salomon Brothers Inc....................................................
Cowen & Company.........................................................
------------
Total......................................................... 11,250,000
==========
</TABLE>
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock directly to the public initially at the public offering price set forth on
the cover page of this Prospectus and to certain selected dealers (who may
include the Underwriters) at such initial public offering price less a
concession not in excess of $ per share. The selected dealers may
reallow a concession not in excess of $ per share to certain other
brokers and dealers. After commencement of the initial public offering, the
offering price and other selling terms may be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent, including the conditions that no stop
order suspending the effectiveness of the Registration Statement is in effect
and no proceedings for such purpose are pending before or threatened by the
Commission, and that there has been no material adverse change in the condition
of the Company. The Underwriters will be obligated to purchase all of the shares
of Common Stock if any are purchased.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments that may be required to be made in
respect thereof.
The Company has granted the Underwriters an option to purchase up to an
aggregate of 1,687,500 additional shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. Such option may be exercised at any time until 30
days after the date of the Underwriting Agreement. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase a number of the
additional shares of Common Stock proportionate to such Underwriter's initial
commitment as indicated in the preceding table. The Company will be obligated,
pursuant to such option, to sell such shares to
52
<PAGE> 54
the Underwriters to the extent such option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated between the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the shares of Common Stock, in
addition to prevailing market conditions, are the Company's historical
performance and capital structure, estimates of business potential and earnings
prospects of the Company, an overall assessment of the Company, an assessment of
the Company's management and the consideration of the above factors in relation
to the market valuation of companies in related businesses.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase shares of Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions may consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
In addition, if the Representatives over-allot (i.e., if they sell more
shares of Common Stock than are set forth on the cover page of this Prospectus)
and thereby create a short position in the Common Stock in connection with the
Offering, the Representatives may reduce that short position by purchasing
Common Stock in the open market. The Representatives also may elect to reduce
any short position by exercising all or part of the over-allotment option
described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Application will be made for listing of the Common Stock on the New York
Stock Exchange under the symbol "HYC."
The Company, its officers and directors and all of its existing
stockholders have agreed that they will not, subject to certain exceptions, for
a period of 180 days from the date of this Prospectus, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for any such shares of Common
Stock, without the prior written consent of Lehman Brothers Inc.
The Representatives have informed the Company that the Underwriters do not
intend to sell to, and therefore will not confirm the sales of shares of Common
Stock offered hereby to, any accounts over which they exercise discretionary
authority.
53
<PAGE> 55
LEGAL MATTERS
The validity of the shares offered hereby is being passed upon for the
Company by Snell & Wilmer L.L.P., Phoenix, Arizona. Certain legal matters will
be passed upon for the Underwriters by Morrison & Foerster LLP, New York, New
York.
EXPERTS
The consolidated balance sheets as of June 30, 1997 and 1996 and the
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1997, included in this
Prospectus have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus constitutes a part of the Registration Statement and does not
contain all of the information set forth therein and in the exhibits thereto,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and exhibits. Statements contained in this Prospectus as
to the contents of any document are not necessarily complete and in each
instance are qualified in their entirety by reference to the copy of the
appropriate document filed with the Commission. The Registration Statement,
including the exhibits thereto, may be examined without charge at the
Commission's public reference facility at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, copies of all or any part of
the Registration Statement, including such exhibits thereto, may be obtained
from the Commission at its principal office in Washington, D.C., upon payment of
the fees prescribed by the Commission. The Registration Statement is also
available through the Commission's Website on the World Wide Web located at
http://www.sec.gov.
The Registration Statement and the reports and other information to be
filed by the Company following the Offering in accordance with the Securities
and Exchange Act of 1934, as amended, can be inspected and copied at the
principal office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington D.C. 20549, and at the following regional offices of
the Commission: 7 World Trade Center, New York, NY 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60601. Copies of
such material may be obtained from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington D.C.
20549, upon payment of the fees prescribed by the Commission. Copies of such
material are also available through the Commission's Website on the World Wide
Web located at http://www.sec.gov.
54
<PAGE> 56
HYPERCOM CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997.............................. F-3
Consolidated Statements of Income for the years ended June 30, 1995, 1996 and 1997.... F-4
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1995,
1996 and 1997....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1996 and
1997................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Hypercom Corporation
We have audited the accompanying consolidated balance sheets of Hypercom
Corporation as of June 30, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hypercom
Corporation as of June 30, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
September 10, 1997
F-2
<PAGE> 58
HYPERCOM CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 16,113 $ 16,318
Accounts receivable (net of allowance for doubtful accounts of $761
and $779 for 1996 and 1997, respectively)......................... 24,575 31,074
Inventories.......................................................... 40,905 55,921
Deferred income taxes................................................ 2,568 5,580
Prepaid income taxes................................................. -- 7,353
Prepaid expenses and other current assets............................ 2,272 4,716
-------- --------
Total current assets......................................... 86,433 120,962
Property, plant and equipment, net..................................... 13,240 16,424
Investments in and advances to related parties......................... 478 394
Other assets........................................................... 1,678 961
-------- --------
Total assets................................................. $101,829 $138,741
======== ========
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank notes payable................................................... $ 3,392 $ 9,900
Accounts payable..................................................... 19,729 21,963
Accrued liabilities.................................................. 5,907 11,646
Deferred revenue..................................................... 1,825 8,279
Income taxes payable................................................. 4,224 2,061
Current portion of long-term obligations............................. 2,663 4,164
-------- --------
Total current liabilities.................................... 37,740 58,013
Long-term obligations.................................................. 14,307 10,506
Deferred income taxes.................................................. 538 602
Other long-term liabilities............................................ 1,253 1,183
-------- --------
Total liabilities............................................ 53,838 70,304
-------- --------
Commitments and contingencies (Note 13)
Redeemable common stock................................................ 2,759 7,543
-------- --------
Stockholders' equity:
Common stock -- $.001 par value; 100,000,000 shares authorized;
25,000,000 shares issued and outstanding in 1996 and 1997,
respectively...................................................... 4 4
Additional paid-in capital........................................... 425 965
Receivables from stockholders........................................ (1,961) (2,401)
Retained earnings.................................................... 46,764 62,326
-------- --------
Total stockholders' equity................................... 45,232 60,894
-------- --------
Total liabilities, redeemable common stock and stockholders'
equity..................................................... $101,829 $138,741
======== ========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-3
<PAGE> 59
HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net revenue....................................... $ 146,168 $ 163,556 $ 196,742
Costs and expenses:
Cost of revenue................................. 83,016 89,710 103,227
Research and development........................ 5,422 8,509 12,926
Selling, general and administrative............. 27,687 44,741 52,530
Non-cash compensation expense................... 698 2,061 4,784
---------- ---------- ----------
Total costs and expenses................ 116,823 145,021 173,467
---------- ---------- ----------
Income from operations............................ 29,345 18,535 23,275
Interest and other income......................... 1,953 618 2,248
Interest expense.................................. (757) (667) (2,140)
---------- ---------- ----------
Income before income taxes........................ 30,541 18,486 23,383
Income taxes...................................... (10,985) (6,197) (7,821)
---------- ---------- ----------
Net income........................................ $ 19,556 $ 12,289 $ 15,562
========== ========== ==========
Net income per share.............................. $ 0.51 $ 0.32 $ 0.57
========== ========== ==========
Number of shares used in per share calculations... 38,236,105 38,740,591 27,328,226
========== ========== ==========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-4
<PAGE> 60
HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RECEIVABLES TOTAL
--------------------- PAID-IN FROM RETAINED STOCKHOLDERS'
SHARES BALANCE CAPITAL STOCKHOLDERS EARNINGS EQUITY
----------- ------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1994..... 36,300,000 $ -- $ -- $ (410) $ 26,051 $25,641
Issuance of common stock...... 350,000 4 425 -- -- 429
Advances to stockholders...... -- -- -- (790) -- (790)
Net income.................... -- -- -- -- 19,556 19,556
---------- ----- ----- ----- -------- -------
Balance as of June 30, 1995..... 36,650,000 4 425 (1,200) 45,607 44,836
Repurchase of common stock.... (11,650,000) -- -- -- (11,132) (11,132)
Advances to stockholders...... -- -- -- (761) -- (761)
Net income.................... -- -- -- -- 12,289 12,289
---------- ----- ----- ----- -------- -------
Balance as of June 30, 1996..... 25,000,000 4 425 (1,961) 46,764 45,232
Contributions from
stockholders............... -- -- 540 -- -- 540
Advances to stockholders...... -- -- -- (440) -- (440)
Net income.................... -- -- -- -- 15,562 15,562
---------- ----- ----- ----- -------- -------
Balance as of June 30, 1997..... 25,000,000 $ 4 $ 965 $ (2,401) $ 62,326 $60,894
========== ===== ===== ===== ======== =======
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-5
<PAGE> 61
HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers................................. $145,197 $155,563 $190,955
Interest received............................................ 316 919 1,327
Other income received........................................ 837 (121) 438
Cash paid to suppliers and consultants....................... (130,385) (133,229) (171,398)
Interest paid................................................ (714) (702) (2,247)
Income taxes paid............................................ (9,524) (11,356) (15,880)
--------- --------- ---------
Net cash provided by operating activities............ 5,727 11,074 3,195
--------- --------- ---------
Cash flows from investing activities:
Investments in and advances to related parties............... (3,496) 1,722 123
Acquisition of controlling interest in subsidiary (net of
cash received)............................................ -- 302 --
Notes receivable............................................. 1,993 1,180 --
Acquisition of other assets.................................. (37) (44) --
Proceeds from disposal of property, plant and equipment...... 109 667 1,260
Purchase of property, plant and equipment.................... (1,947) (8,011) (6,930)
Purchase of investment....................................... -- -- (546)
Proceeds from sale of investment............................. -- -- 61
--------- --------- ---------
Net cash used in investing activities................ (3,378) (4,184) (6,032)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from bank notes payable and other debt
instruments............................................... 18,229 40,375 76,746
Repayment of bank notes payable and other debt instruments... (15,938) (33,229) (72,761)
Receivables from stockholders................................ (790) (761) (530)
Proceeds from sale of common stock........................... 429 -- --
Repurchase of common stock................................... -- (6,000) --
Contributions from stockholders.............................. -- -- 540
--------- --------- ---------
Net cash provided by financing activities............ 1,930 385 3,995
--------- --------- ---------
Effect of exchange rate changes................................ (138) 820 (953)
--------- --------- ---------
Net increase in cash........................................... 4,141 8,095 205
Cash and cash equivalents, beginning of year................... 3,877 8,018 16,113
--------- --------- ---------
Cash and cash equivalents, end of year......................... $ 8,018 $ 16,113 $ 16,318
========= ========= =========
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-6
<PAGE> 62
HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by operating
activities:
Net income...................................................... $19,556 $12,289 $15,562
Adjustments to reconcile net income to net cash provided by
operating activities:
Non-cash compensation expense................................ 698 2,061 4,784
Depreciation................................................. 1,901 2,375 2,888
Bad debt expense............................................. 167 494 1,427
Provision for excess and obsolete inventory.................. -- 2,133 994
Exchange (gain) loss......................................... 842 (2,639) (445)
Equity in investee income.................................... (571) (37) (39)
Deferred income taxes........................................ (182) (1,386) (2,948)
Minority interest in subsidiary.............................. -- 246 --
(Gain) loss on disposal of fixed assets...................... (134) 162 (130)
Loss on sale of investments.................................. -- -- 58
(Increase) decrease in:
Accounts receivable........................................ (1,327) (4,481) (7,316)
Inventories................................................ (9,388) (1,302) (15,290)
Prepaid income taxes....................................... -- -- (7,353)
Prepaid expenses and other assets.......................... (1,689) (157) (1,489)
Increase (decrease) in:
Accounts payable........................................... (5,678) 6,498 2,208
Accrued liabilities........................................ 190 250 5,810
Deferred revenue........................................... (1,035) (1,335) 6,707
Income taxes payable....................................... 2,377 (4,097) (2,163)
Other liabilities.......................................... -- -- (70)
------- ------- --------
Net cash provided by operating activities......................... $ 5,727 $11,074 $ 3,195
======= ======= ========
Cash and non-cash investing and financing activities:
Acquisition of plant and equipment through capital leases....... $ 276 $ 181 $ 133
Changes in accounts payable related to the purchase of property,
plant and equipment.......................................... $ 587 $ 36
Repurchase of common stock for note payable, net of debt
discount..................................................... $ 5,132
Acquisition of controlling interest in subsidiary:
Assets acquired (net of seller financing).................... $ 6,224
Liabilities assumed.......................................... (4,505)
Previous ownership interest.................................. (903)
Remaining minority interest.................................. (316)
-------
Net cash paid........................................... $ 500
=======
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-7
<PAGE> 63
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Hypercom Corporation, a Delaware corporation, was formed on June 5, 1996
for the purposes of acquiring all of the outstanding stock of Hypercom Pty.,
Ltd. ("HPL"), an Australian corporation, and its subsidiaries in connection with
the domestication of HPL. There was no change in control in connection with this
transaction and, accordingly, no change in the accounting basis has been made in
the accompanying consolidated financial statements.
Hypercom Corporation (with its subsidiaries, the "Company") is a worldwide
developer, manufacturer, and supplier of point-of-sale ("POS") payment systems
and enterprise networking products.
The U.S. operations primarily consist of product development,
manufacturing, sales and marketing, distribution and customer service. The
European operations consist of product distribution through the Company's sales
and support offices located in the United Kingdom, Russia, France and Hungary.
Latin American operations engage primarily in product distribution through the
Company's subsidiaries in Mexico, Brazil, Chile and Argentina; however, certain
manufacturing operations exist in Brazil. The Asia/Pacific operations are
engaged primarily in product development and manufacturing through the Company's
subsidiary in Australia (with certain contract manufacturing in China) and
product distribution through the Company's subsidiaries or business units in
Singapore, Hong Kong, Japan and Australia.
2. SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements are comprised of the accounts of
Hypercom Corporation and all subsidiaries in which a controlling interest is
held. All significant intercompany balances and transactions have been
eliminated.
The Company carries its investments in subsidiaries, less than 50% owned,
under the equity method of accounting.
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 Translation
The foreign subsidiaries use the U.S. dollar as the functional currency and
translate monetary assets and liabilities at year-end exchange rates, and
inventories, property and nonmonetary assets and liabilities at historical
rates. During the year ended June 30, 1995, the Company recorded a net
translation loss of $841,867. During the years ended June 30, 1996 and 1997, the
Company recorded net translation gains of $2,639,436 and $444,820, respectively.
These translation adjustments were included in the results of operations.
Cash and Cash Equivalents
The Company considers all investment instruments purchased with an original
maturity of three months or less to be cash equivalents.
F-8
<PAGE> 64
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at the lower of standard cost or market. Standard
costs approximate first-in, first-out ("FIFO") costs.
Capitalized Software
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. The Company's product development
process is such that technological feasibility is established upon completion of
a working model. Costs incurred between completion of the working model and the
point at which the product is ready for initial shipment have not been
significant. To date, all software development costs have been expensed as
incurred and included in research and development expense.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided on straight-line and accelerated methods over the
following useful lives:
<TABLE>
<S> <C>
Building....................................................... 31.5 years
Equipment...................................................... 2.5-7 years
Furniture and fixtures......................................... 5-7 years
Vehicles....................................................... 4.5-5 years
Leasehold improvements......................................... 2.5-10 years
</TABLE>
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in income for the period.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax laws (including rates) is recognized
in income in the period that includes the enactment date.
The Company does not provide for federal income taxes on the undistributed
earnings of its international subsidiaries because earnings are reinvested and,
in the opinion of management, will continue to be reinvested indefinitely.
Revenue Recognition
The Company generally recognizes product revenue upon shipment of product.
Revenue from service obligations is deferred and recognized over the lives of
the contracts. The Company accrues for warranty costs, sales returns and other
allowances at the time of shipment.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, which defines a fair value based method of accounting
for employee stock options or similar equity instruments. However, it also
allows an entity to continue to account for these plans according to Accounting
Principles Board Opinion
F-9
<PAGE> 65
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 25 ("APB 25"), provided pro forma disclosures of net income are made as if
the fair value based method of accounting, defined by SFAS No. 123, had been
applied. The Company has elected to continue to measure compensation expense
related to employee stock purchase options using APB 25, and has provided the
required pro forma disclosures.
Net Income Per Share
Primary earnings per share is computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during the year.
The Company has computed common and common equivalent shares in determining
the number of shares used in calculating net income per share for all periods
presented pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 83. SAB No. 83 requires the Company to include all common
shares and all common share equivalents issued during the 12 month period
preceding the filing date of an initial public offering in its calculation of
the number of shares used to determine net income per share as if the shares had
been outstanding for all periods presented.
Self-Insurance
The Company self-insures, with certain stop loss insurance coverages, for
short-term disability, life and employee health care. Claims expense is recorded
in the year of occurrence through the accrual of claim reserves based on
estimates of ultimate claims costs.
Operating Segments
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information ("SFAS No. 131"), superseding SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise ("SFAS No. 14"). SFAS
No. 131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial statements. It also requires disclosures about products and
services, geographic areas and major customers. The Company adopted SFAS No. 131
for the fiscal year ended June 30, 1997, and has provided the required
disclosures.
The accounting policies of the reportable segments are the same as those
used for the consolidated entity. Performance is evaluated based on profit or
loss from operations. Intersegment sales and transfers are accounted for based
on defined transfer prices.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Recently Issued Accounting Standards
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share. SFAS
No. 128 requires presentation of "basic" and "diluted" earnings per share, as
defined, on the face of the income statement for all entities with complex
capital structures. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997 and requires restatement of all prior
period earnings per share amounts. The Company is currently studying the impact
of this pronouncement.
In June 1997, the FASB issued SFAS No. 130, Comprehensive Income. SFAS No.
130 requires that changes in the amounts of certain items, including foreign
currency translation adjustments, which are currently direct adjustments to
equity, be shown in a statement of comprehensive income. The statement of
comprehensive income may be included at the bottom of the statement of
operations or as a separate financial
F-10
<PAGE> 66
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statement. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997 and requires the reclassification of earlier financial statements for
comparative purposes. The Company is currently studying the impact of this
pronouncement.
3. CONCENTRATIONS OF CREDIT AND OTHER RISKS:
Financial Instruments
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash equivalents and accounts receivable.
The Company's cash equivalents are in high quality securities placed with
major international banks and financial institutions. The Company, in the normal
course of business, maintains balances in excess of the Federal Deposit
Insurance Corporation's insurance limit. The balance in excess of the insurance
limit at June 30, 1996 and 1997 was $2,800,695 and $2,315,036, respectively. The
Company also maintains balances in foreign banks which are used for current
operations of subsidiaries located abroad. Foreign deposits which are uninsured
amounted to $13,994,606 and $13,587,260 as of June 30, 1996 and 1997,
respectively.
The Company's accounts receivable result primarily from credit sales to a
broad customer base, both nationally and internationally. The Company routinely
assesses the financial strength of its customers, requiring letters of credit
from certain foreign customers, and provides an allowance for doubtful accounts
as necessary.
Inventories
Most components used in the Company's systems are purchased from outside
sources. Certain components are purchased from single suppliers.
The failure of any such supplier to meet its commitment on schedule could
have a material adverse effect on the Company's business, operating results and
financial condition.
If a sole-source supplier were to go out of business or otherwise become
unable to meet its supply commitments, the process of locating and qualifying
alternate sources could require up to several months, during which time the
Company's production could be delayed. Such delays could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company makes inventory provisions for potentially excess and obsolete
inventory based on forecasted demand. Actual demand may differ from such
anticipated demand and may have a material adverse effect on inventories
valuation.
International Operations
The Company's international business is an important contributor to the
Company's net revenue and profits. However, the majority of the Company's
international sales are denominated in the U.S. dollar, and an increase in the
value of the U.S. dollar relative to foreign currencies could make products sold
internationally less competitive. The operating expenses of the Company's
overseas offices are paid in local currencies and are subject to the effects of
fluctuations in foreign currency exchange rates.
The Company conducts manufacturing operations in Brazil and Australia with
certain contract manufacturing in China. Foreign manufacturing is subject to
certain risks, including the imposition of tariffs and import and export
controls, together with changes in governmental policies. The occurrence of any
of these events could have a material adverse effect on the Company's business,
operating results and financial condition.
F-11
<PAGE> 67
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company values financial instruments as required by SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The carrying amounts of
cash and cash equivalents and bank notes payable approximate fair value due to
the short maturity of those instruments. The fair value of long-term obligations
is estimated by discounting the future cash flows required under the terms of
each respective debt agreement by current market rates for the same or similar
issues of debt with similar remaining maturities. A summary of carrying amounts
and fair values as of June 30, 1996 and 1997, are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------
1996 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents................. $ 16,113 $16,113 $ 16,318 $16,318
Financial liabilities:
Bank notes payable........................ 3,392 3,392 9,900 9,900
Long-term obligations..................... 16,970 15,807 14,670 13,980
</TABLE>
5. INVENTORIES:
As of June 30, 1996 and 1997, inventories consist of the following (dollars
in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
Purchased parts.......................................... $17,338 $24,765
Work-in-process.......................................... 11,589 9,604
Finished goods........................................... 11,978 21,552
------- -------
$40,905 $55,921
======= =======
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
As of June 30, 1996 and 1997, property, plant and equipment consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
Land..................................................... $ 1,194 $ 1,194
Building................................................. 5,349 5,349
Equipment................................................ 8,986 11,730
Furniture and fixtures................................... 888 1,236
Vehicles................................................. 757 1,010
Leasehold improvements................................... 433 1,402
------- -------
17,607 21,921
Less accumulated depreciation and amortization........... (4,367) (5,497)
------- -------
$13,240 $16,424
======= =======
</TABLE>
During 1997, the Company entered into a sale/leaseback transaction,
resulting in a gain of $505,109. The lease is classified as an operating lease,
and the gain will be recognized pro rata over the lease term. During
F-12
<PAGE> 68
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997, the Company recognized $120,228 of the gain which was included in interest
and other income in the accompanying consolidated statement of income.
7. EQUITY INVESTMENTS:
Hypercom Design Services, Inc.
The Company owns 30% of the outstanding common stock of Hypercom Design
Services, Inc. ("HDS") and accounts for HDS under the equity method of
accounting. The investments in and advances to related parties in the
accompanying consolidated balance sheets include equity in HDS of $75,670 and
$114,887 and net advances of $196,266 and $63,290 to HDS as of June 30, 1996 and
1997, respectively. Repayment terms for the advances are unspecified.
Other income for the years ended June 30, 1995, 1996 and 1997 included
HPI's proportionate share of HDS' net income of $10,357, $36,682 and $39,217,
respectively.
Hypercom Asia Limited
As of June 30, 1995, the Company owned 30% of the outstanding common stock
of Hypercom Asia Limited, a Hong Kong corporation, and its subsidiaries
(collectively, "Hypercom Asia"). This investment was accounted for under the
equity method of accounting. Other income for the year ended June 30, 1995
includes equity in earnings of Hypercom Asia of $560,607.
In July 1995, the Company purchased an additional 59.5% of the outstanding
common stock of Hypercom Asia for $1,250,000. This transaction was accounted for
by the purchase method and the accounts of Hypercom Asia have been included in
the consolidation of the Company as of and for the years ended June 30, 1996 and
June 30, 1997.
The purchase price was allocated as follows (dollars in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired...................................... $ 3,529
Fair value of liabilities acquired................................. (2,279)
-------
Net assets acquired at fair value.................................. $ 1,250
=======
</TABLE>
During fiscal year 1997, the Company acquired the remaining 10.5% of the
outstanding common stock of Hypercom Asia for $265,000.
8. BANK NOTES PAYABLE:
The Company has a $20.0 million revolving line of credit agreement with
Bank One, Arizona which expires in December 1997. Under the terms of the
agreement, the Company may borrow up to an amount equal to 80% of its accounts
receivable under ninety days past due and 35% of its raw material (purchased
parts) and finished goods inventory. Interest is charged at the bank's prime
rate. The weighted average interest rate for the year was 8.25%. The loan is
collateralized by accounts receivable and inventory. The agreement contains
certain covenants which include limitations on the incurrence of additional
debt, liens or encumbrances on assets and restrictions on the use of funds
solely to fund working capital needs. The outstanding balances as of June 30,
1996 and 1997 were $3.3 million and $9.9 million, respectively.
During fiscal 1996, the Company had a $400,000 line of credit with Northern
Trust Bank of Arizona collateralized by the Company's equipment. Interest was
charged at 1.0% over the bank's prime rate. The weighted average interest rate
for the year was 9.25%. The outstanding principal balance was $92,380 as of June
30, 1996. The outstanding principal was repaid in fiscal 1997 and the line of
credit expired.
F-13
<PAGE> 69
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM OBLIGATIONS:
Long-term obligations consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
Note payable to Bank One, Arizona; payable on July 15, 1997,
interest at 8.46% is due monthly; collateralized by inventory,
receivables and equipment...................................... $ 6,000 $ 6,000
Note payable to stockholder; payable in three annual installments
of $2,000 starting June 30, 1997; effective interest of 8.25%;
net of debt discount of $868 and $446 for 1996 and 1997,
respectively................................................... 5,132 3,554
Industrial development bonds; principal payable in annual
installments based on stated maturities; interest payable at a
variable rate, approximately 3.75% as of June 30, 1997; subject
to mandatory sinking fund requirements of $33 monthly; due June
2006; collateralized by letter of credit; amounts held in trust
and sinking fund requirements of $628 and $128 as of June 30,
1996 and 1997, respectively, are included in long-term other
assets......................................................... 4,000 3,700
Note payable to Bank One, Arizona; payable in monthly
installments of $5, plus interest at 8.92%; due January 2001;
collateralized by deed of trust on land and building........... 1,089 1,031
Note payable to Northern Trust Bank of Arizona; payable in
monthly installments of $3, plus interest at 8.9%; due July
1998; collateralized by equipment.............................. 66 33
Capital leases................................................... 683 352
------- -------
16,970 14,670
Less current portion............................................. (2,663) (4,164)
------- -------
$14,307 $10,506
======= =======
</TABLE>
The loan agreements relating to the notes payable and line of credit (Note
8) with Bank One, Arizona, NA contain various covenants pertaining to
maintenance of working capital, minimum stockholder's equity, capital
expenditures and restricting transactions outside of normal business activities
with related parties. Due to the Company's reincorporation in Delaware, the bank
waived all covenants until such time as new covenants pertaining to the
reincorporated entity are negotiated.
During August 1997, the Company entered into a $5.5 million note payable
with Bank One, Arizona. Proceeds from the note were used to payoff the $6.0
million note which was due July 15, 1997. The note is collateralized by
inventory, receivables and equipment, and interest is charged at 0.375% over the
bank's prime rate. Principal payments are due in monthly installments of
$91,667, plus interest, with the final payment due July 15, 2002.
During August 1997, the Company entered into a $3.8 million note payable
with Bank One, Arizona. Proceeds from the note were used to payoff the
industrial development bonds. The loan is collateralized by buildings and
equipment, and interest is charged at 0.375% over the bank's prime rate.
Principal payments are due in monthly installments of $28,788, plus interest,
with the final payment due March 15, 2001.
F-14
<PAGE> 70
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate principal payments due on long-term obligations and the
mandatory sinking fund requirements after giving effect to the August 1997
refinancings are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30,
-----------------------------------------------------------
<S> <C>
1998....................................................... $ 4,164
1999....................................................... 3,567
2000....................................................... 1,500
2001....................................................... 3,913
2002....................................................... 1,163
Thereafter................................................. 809
-------
$15,116
=======
</TABLE>
10. INCOME TAXES:
Income before income taxes consisted of the following (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Income before income taxes:
United States....................................... $11,981 $ 8,919 $13,621
Foreign............................................. 18,560 9,567 9,762
------- ------- -------
$30,541 $18,486 $23,383
======= ======= =======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of June 30,
1996 and 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Inventory valuation and reserves................................. $ 988 $2,406
Compensation accruals............................................ 1,291 2,927
Allowance for doubtful accounts.................................. 241 247
Other............................................................ 48 --
------ ------
Total deferred tax assets, current....................... $2,568 $5,580
====== ======
Deferred tax assets:
Other............................................................ $ 46 $ (94)
Deferred tax liabilities:
Property, plant and equipment.................................... (584) (508)
------ ------
Net deferred tax liabilities, noncurrent................. $ (538) $ (602)
====== ======
</TABLE>
F-15
<PAGE> 71
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income tax expense (benefits) are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................. $ 3,606 $ 3,638 $ 6,904
State............................................... 1,327 862 1,227
Foreign............................................. 6,235 3,083 2,638
------- ------- -------
11,168 7,583 10,769
------- ------- -------
Deferred:
Federal............................................. (155) (1,128) (2,601)
State............................................... (27) (212) (446)
Foreign............................................. -- (46) 99
------- ------- -------
(182) (1,386) (2,948)
------- ------- -------
$10,986 $ 6,197 $ 7,821
======= ======= =======
</TABLE>
Consolidated income tax expense differed from the amount computed by
applying the U.S. federal income tax rate to income before income taxes for the
years ended June 30, 1995, 1996 and 1997 as shown below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Tax expense at the federal statutory rate............. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit............................................. 2.8 3.0 3.4
Foreign taxes attributable to foreign operations less
than federal statutory.............................. (0.9) (1.4) (3.3)
Research and experimentation credit................... -- -- (2.1)
Other................................................. (0.9) (3.1) 0.4
---- ---- -----
Effective tax rate.................................... 36.0% 33.5% 33.4%
==== ==== =====
</TABLE>
As of June 30, 1995, 1996 and 1997, the Company had not provided federal
income tax benefits on cumulative losses of individual international
subsidiaries of $263,000, $881,000 and $2,109,000, respectively. Upon
distribution of earnings in the form of dividends or otherwise, the Company may
be subject to both U.S. income taxes and withholding taxes in the various
international jurisdictions.
11. PROFIT SHARING PLANS:
The Company has a 401(k) profit sharing plan covering all eligible
full-time employees of the Company. Contributions to the 401(k) plan are made by
the participants to their individual accounts through payroll withholding.
Additionally, the plan provides for the Company to make profit sharing
contributions to the plan in amounts at the discretion of management. There were
no employer contributions for the years ended June 30, 1995 or 1996. The
employer contribution for the year ended June 30, 1997 was $21,000.
12. STOCKHOLDERS' EQUITY:
Stock Splits
On November 25, 1996, the Company declared a 10,000-for-1 stock split,
effected in the form of a stock dividend. On September 10, 1997, the Company
declared a 5-for-4 stock split, effected in the form of a stock
F-16
<PAGE> 72
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividend. All references to the number of common shares outstanding, common
shares reserved for issuance under the Plan, and per share information have been
adjusted to reflect the stock splits on a retroactive basis.
Stock Options
In connection with an officer's employment agreement (the "Agreement"), as
amended, the Company provided for stock options to be granted to an officer
equal to 1.0% of the outstanding common shares of the Company as of June 30,
1992, 1993 and 1994 with exercise prices equal to the fair market values defined
by a net income formula in the Agreement ("Defined Fair Market Value") at the
respective dates. The options are exercisable as of July 1, 1995, 1996 and 1997,
respectively, and remain exercisable for 10 years from these dates. The
Agreement also provides for additional stock options immediately exercisable to
purchase 1.0% of the outstanding common stock of the Company on January 1, 1994
and 1995 with an exercise price equal to the Defined Fair Market Value as of the
respective dates; the options remain exercisable for 10 years.
The Agreement requires the Company to purchase all or part of any shares
then owned by the officer, if (i) the majority stockholders sell all of their
voting stock of the Company, (ii) the officer terminates his employment, (iii)
the officer becomes disabled or (iv) the officer dies. The Company's obligation
to purchase the shares will terminate upon completion of an initial public
offering. The Company is obligated to purchase the shares for the greater of the
price received by the majority stockholders or the Defined Fair Market Value.
In accordance with variable plan accounting compensation expense has been
recognized annually for the increase in the Defined Fair Market Value.
Compensation expense was $698,000, $2,061,000 and $4,784,000, for the years
ended June 30, 1995, 1996 and 1997, respectively. The Company's cumulative
repurchase obligation is included as redeemable common stock in the consolidated
balance sheet.
During fiscal 1997, the Company's board of directors approved the Hypercom
Corporation Long-Term Incentive Plan (the "Plan") which allocates 5,000,000
shares of common stock for issuance at the Company's discretion. The Plan
authorizes issuance of "incentive stock options" (as defined by the Internal
Revenue Code of 1986), non-qualified stock options, stock appreciation rights,
restricted stock awards, performance share awards, dividend equivalent awards
and other stock-based awards. Stock options issued under the Plan become
exercisable over a period determined by the Board of Directors (generally over
five years) and expire ten years after the date of grant.
A summary of the Company's stock option activity and related information
for the years ended June 30, 1995, 1996 and 1997 follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance outstanding....... 1,025,000 $ 1.37 1,030,000 $ 1.62 1,030,000 $ 1.62
Granted........................... 262,500 2.66 -- -- 1,913,750 6.43
Exercised......................... (257,500) 1.66 -- -- -- --
-------- ----- ------- ----- --------- -----
Ending balance outstanding.......... 1,030,000 $ 1.62 1,030,000 $ 1.62 2,943,750 $ 4.75
======== ===== ======= ===== ========= =====
Exercisable at end of year.......... 262,500 $ 2.66 515,000 $ 1.68 1,436,250 $ 3.77
======== ===== ======= ===== ========= =====
</TABLE>
F-17
<PAGE> 73
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes additional information about the Company's
stock options outstanding as of June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------- OPTIONS EXERCISABLE
WEIGHTED -------------------
AVERAGE WEIGHTED WEIGHTED
SHARES REMAINING AVERAGE SHARES AVERAGE
RANGE OF UNDER CONTRACTUAL EXERCISE UNDER EXERCISE
EXERCISE PRICES OPTION LIFE PRICE OPTION PRICE
- ------------------------------------------ --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.66 - $2.66............................. 1,030,000 8.6 years $ 1.62 770,000 $ 1.49
$6.40 - $8.00............................. 1,913,750 9.5 years 6.43 666,250 6.40
</TABLE>
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its stock option plans under the fair value based method of that
Statement.
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions: risk free interest
rates from 6.50% to 6.76%; an average expected time to exercise of five years;
and no dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The pro forma
information for the year ended June 30, 1997 follows (dollars in thousands
except for net income per share information):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Pro forma net income....................................... $14,834
Pro forma net income per share............................. 0.54
</TABLE>
The above pro forma disclosure are not necessarily representative of the
effects on reported net income for future years.
13. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Company leases office and warehouse space, equipment and vehicles under
noncancelable operating leases. The office space leases provide for annual rent
payments plus a share of taxes, insurance and maintenance on the properties. The
Company also leases various equipment and vehicles under capital leases. Future
minimum payments under the operating and capital leases are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
YEAR ENDING OPERATING CAPITAL
JUNE 30, LEASES LEASES
------------------------------------------------------------ --------- -------
<S> <C> <C>
1998........................................................ $ 1,679 $ 261
1999........................................................ 1,097 96
2000........................................................ 749 28
2001........................................................ 770 --
2002........................................................ 423 --
Thereafter.................................................. 2,176 --
------ ----
Total minimum lease payments................................ $ 6,894 385
======
Less imputed interest....................................... (33)
----
Present value of net minimum lease payments................. $ 352
====
</TABLE>
Rent expense charged to operations was $708,000, $2,220,000 and $1,929,000
for the years ended June 30, 1995, 1996 and 1997, respectively.
F-18
<PAGE> 74
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Litigation
In the ordinary course of business, various claims are filed against the
Company. Historically, costs associated with the resolution of such claims have
not been significant. The Company is not currently aware of any claims pending
against it that would have a material impact on the Company's business,
operating results or financial condition.
14. RELATED PARTY TRANSACTIONS:
Digitech Research, Inc.
The Company provided advances of $60,000, $107,188 and $32,812 as of June
30, 1995, 1996 and 1997, respectively, to Digitech Research, Inc. ("Digitech"),
an entity controlled by a stockholder of the Company. As of June 30, 1996 and
1997, amounts due from Digitech were $167,188 and $200,000, respectively. In
addition, during fiscal 1997 the Company paid Digitech $580,000 for research and
development services which were expensed as paid.
Repurchase of Common Stock
In June 1996, the Company purchased substantially all of the outstanding
shares of a minority stockholder of HPL for $12 million, $6 million in cash and
a $6 million non-interest bearing note payable. The note payable is due in three
equal installments on June 30, 1997, 1998 and 1999. The note payable has been
discounted at 8.25% and the discounted amounts of $1,706,767 and $1,847,575 are
included in long-term obligations, current and long-term, respectively. The debt
discount is being amortized using the effective interest method. This repurchase
was accounted for as a charge to retained earnings.
Hypercom Unit Trust
During fiscal 1995, 1996 and 1997, the Company paid $213,300, $252,800 and
$108,619 in rent to Hypercom Unit Trust, a trust fund controlled by certain
stockholders.
Express Card Systems, Inc.
A relative of an officer of the Company is a Vice President of Express Card
Systems, Inc. ("ECS"). The Company paid ECS commissions of $192,500, $248,700
and $340,400 for fiscal 1995, 1996 and 1997, respectively, related to products
the Company purchased.
15. SEGMENT INFORMATION:
The Company has two reportable segments: POS Systems and Network Systems.
POS Systems develops, manufactures, markets and supports products that automate
electronic payment transactions at the point of sale in merchant establishments.
Network Systems develops, manufactures, markets and supports enterprise
networking systems that interconnect and consolidate through wide area networks,
geographically dispersed legacy data, local area network, voice, fax and video
traffic into a single networked system.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technologies and marketing strategies.
F-19
<PAGE> 75
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents certain segment financial information as of
and for the year ended June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
POS NETWORK
YEAR ENDED JUNE 30, 1997 SYSTEMS SYSTEMS TOTALS
-------- ------- --------
<S> <C> <C> <C>
Revenues from external customers........................ $172,682 $24,060 $196,742
Intersegment revenues................................... -- 10,468 10,468
-------- ------- --------
Total revenues........................................ $172,682 $34,528 $207,210
======== ======= ========
Depreciation expense.................................... $ 2,199 $ 435 $ 2,634
======== ======= ========
Segment income from operations.......................... $ 32,005 $ 3,933 $ 35,938
======== ======= ========
Segment assets.......................................... $186,863 $31,455 $218,318
======== ======= ========
</TABLE>
Prior to fiscal 1997, the Company's financial reporting system did not
provide separate information on Network Systems, and the Company has determined
that it would be impracticable to develop that information. Accordingly, no
segment information is provided for prior years.
F-20
<PAGE> 76
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of segment financial information to consolidated totals as
of and for the year ended June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1997
----------
<S> <C>
NET REVENUES
Net revenues for reportable segments...................................... $207,210
Elimination of intersegment............................................... (10,468)
--------
Total consolidated net revenues................................. $196,742
========
DEPRECIATION
Depreciation expense from reportable segments............................. $ 2,634
Unallocated amounts:
Corporate depreciation.................................................. 254
--------
Consolidated depreciation expense.................................... $ 2,888
========
INCOME FROM OPERATIONS
Income from operations for reportable segments............................ $ 35,938
Elimination of intersegment profits....................................... (5,341)
Unallocated amounts:
Corporate expenses...................................................... (7,322)
--------
Consolidated income from operations.................................. $ 23,275
========
JUNE 30,
1997
--------
ASSETS
Segment assets............................................................ $218,318
Unallocated amounts:
Corporate assets........................................................ 17,851
Eliminations:
Intercompany receivables................................................ (45,435)
Investments in and advances to related parties.......................... (44,564)
Profit in ending inventory.............................................. (7,429)
--------
Consolidated assets.................................................. $138,741
========
</TABLE>
F-21
<PAGE> 77
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. GEOGRAPHIC SEGMENT DATA:
Net revenues to external customers are based on the location of the
customer. Geographic information as of June 30, 1995, 1996 and 1997 and for each
of the three years ended June 30, 1997, is presented in the table below (dollars
in thousands):
<TABLE>
<CAPTION>
UNITED LATIN ASIA/
STATES AMERICA PACIFIC EUROPE TOTAL
------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995
Net revenues............................ $57,827 $56,214 $32,127 $ -- $146,168
YEAR ENDED JUNE 30, 1996
Net revenues............................ $68,596 $43,582 $50,119 $1,259 $163,556
Long-lived assets....................... 12,218 539 2,547 92 15,396
YEAR ENDED JUNE 30, 1997
Net revenues............................ $86,904 $47,482 $58,233 $4,123 $196,742
Long-lived assets....................... 13,472 2,296 1,857 154 17,779
</TABLE>
17. SUBSEQUENT EVENTS:
On July 31, 1997, the Company granted 840,000 incentive stock options under
its Long-Term Incentive Plan at an exercise price of $9.60.
On September 8, 1997, the Company's board of directors authorized
10,000,000 shares of $0.001 par value preferred stock. As of that date, no
shares were outstanding.
On September 8, 1997, the Board of Directors authorized management to file
a Registration Statement with the Securities and Exchange Commission relating to
the Company's Common Stock (the "Offering").
On September 8, 1997, the Company's Board of Directors adopted and the
stockholders of the Company approved the Hypercom Corporation 1997 Employee
Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan allows eligible
employees of the Company to purchase shares of the Common Stock through periodic
payroll deductions. The initial offering period commences immediately following
the Offering and extends through June 30, 1998, with subsequent offering periods
beginning every six months thereafter. At the end of each offering period,
payroll deductions for the offering period will be used to purchase shares of
Common Stock for each participant's account at a price equal to 90% of the fair
market value of the Common Stock on either the first or last day of the offering
period, whichever is less. Payroll deductions under the Purchase Plan are
limited to 10% of each eligible employee's earnings during the offering period,
and no single participant will be granted an option to purchase shares with a
value in excess of $25,000 for each calendar year. The Board has reserved
625,000 shares of Common Stock for issuance under the Purchase Plan, subject to
adjustment in the event of a stock split, reverse stock split, stock dividend or
similar event.
On September 8, 1997, the Company's Board of Directors adopted and the
stockholders of the Company approved the Hypercom Corporation Nonemployee
Directors' Stock Plan (the "Director Plan"). The Director Plan is administered
by a committee appointed by the Board and provides for an initial grant to each
Nonemployee Director of an option to purchase 6,250 shares of Common Stock
immediately following the Offering. In addition, each individual who first
becomes a Nonemployee Director after the date of the initial grant of options
will be granted an option to purchase 6,250 shares of Common Stock, and will
receive an annual grant of options to purchase 6,250 shares of Common Stock. The
aggregate number of shares of
F-22
<PAGE> 78
HYPERCOM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock subject to the Director Plan may not exceed 93,750, subject to
adjustment in the event of a stock split, reverse stock split, stock dividend or
similar event. Options granted under the Director Plan are fully vested and
become fully exercisable on the first anniversary of the date of grant and have
a term of ten years. The exercise price per share under the Director Plan is
equal to the fair market value of such shares upon the date of grant. In
general, options may be exercised by payment in cash or a cash equivalent,
previously acquired shares having a fair market value at the time of exercise
equal to the total option exercise price or a combination thereof.
F-23
<PAGE> 79
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Background of the Company............. 14
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 25
Management............................ 41
Principal and Selling Stockholders.... 47
Certain Relationships and Related
Transactions........................ 48
Description of Capital Stock.......... 49
Shares Eligible for Future Sale....... 51
Underwriting.......................... 52
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 54
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1997 (25 CALENDAR DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
11,250,000 SHARES
[HYPERCOM CORPORATION LOGO]
HYPERCOM CORPORATION
COMMON STOCK
---------------------------
PROSPECTUS
, 1997
---------------------------
LEHMAN BROTHERS
SALOMON BROTHERS INC
COWEN & COMPANY
======================================================
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with the issuance and distribution of the
securities to be registered hereunder, all of which will be paid by the
registrant, will be substantially as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ----------------------------------------------------------------------------------- -------
<S> <C>
SEC Registration Fee............................................................... $71,213
NYSE Filing Fee.................................................................... $
NASD Filing Fee.................................................................... $24,000
*Blue Sky Fees and Expenses (including legal fees)................................. $ 5,000
*Accounting Fees and Expenses...................................................... $
*Legal Fees and Expenses........................................................... $
*Consulting Fees................................................................... $
*Printing and Engraving............................................................ $
*Registrar and Transfer Agent's Fees............................................... $
*Miscellaneous Expenses............................................................ $
-------
Total.................................................................... $
=======
</TABLE>
- ---------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation provides
that a director of the Company shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for: (i) any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) liability for payments of dividends or stock purchases or redemptions in
violation of Section 174 of the Delaware General Corporation Law; or (iv) any
transaction from which the director derived an improper personal benefit. In
addition, the Company's Certificate of Incorporation provides that the Company
shall to the fullest extent authorized by the Delaware General Corporation Law,
as the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than such law permitted the corporation
to provide prior to such amendment), indemnify and hold harmless any person who
was or is a party, or is threatened to be made a party to or is otherwise
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that such person is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee") against expenses, liabilities and losses
(including attorneys' fees, judgments, fines, excise taxes or penalties paid in
connection with the Employee Retirement Income Security Act of 1974, as amended,
and amounts paid in settlement) reasonably incurred or suffered by such
Indemnitee in connection therewith; provided, however, that except as otherwise
provided with respect to proceedings to enforce rights to indemnification, the
Company shall indemnify any such Indemnitee in connection with a proceeding (or
part thereof) initiated by such Indemnitee only if such proceeding or part
thereof was authorized by the board of directors of the Company.
The right to indemnification set forth above includes the right to be paid
by the Company the expenses (including attorneys' fees) incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an Indemnitee in his capacity as a director or officer (and
not in any other capacity in which
II-1
<PAGE> 81
service was or is rendered by such Indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Company of an undertaking, by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is not further right to appeal that such Indemnitee is
not entitled to be indemnified for such expenses under this section or
otherwise. The rights to indemnification and to the advancement of expenses
conferred herewith are contract rights and continue as to an Indemnitee who has
ceased to be a director, officer, employee or agent and inures to the benefit of
the Indemnitee's heirs, executors and administrators.
The Delaware General Corporation Law provides that indemnification is
permissible only when the director, officer, employee, or agent acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct was unlawful. The
Delaware General Corporation Law also precludes indemnification in respect of
any claim, issue, or matter as to which an officer, director, employee, or agent
shall have been adjudged to be liable to the Company unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine that, despite such adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
The Company has agreed to indemnify the Underwriters and their controlling
persons, and the Underwriters have agreed to indemnify the Company and its
controlling persons, against certain liabilities, including liabilities under
the Securities Act. Reference is made to the Underwriting Agreement filed as
part of the Exhibits hereto.
For information regarding the Company's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 17 hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On November 17, 1994, the Company's predecessor, Hypercom Pty. Ltd.
("HPL"), an Australian corporation, issued 350,000 shares of Common Stock to
Albert A. Irato upon exercise of an option.
On July 1, 1996, the Company issued 908,255 shares of Common Stock to
George Wallner, Paul Wallner and Albert A. Irato in connection with the
formation of the Company and proposed reorganization of HPL.
On October 25, 1996, the Company issued a total of 23,091,745 shares of
Common Stock to George Wallner, Paul Wallner and Albert A. Irato in
consideration for all of the issued and outstanding shares of Common Stock of
HPL.
On November 27, 1996, the Company issued 1,000,000 shares of Common Stock
to a former stockholder of HPL as partial consideration for that stockholder's
sale to the Company of shares in HPL.
The above information reflects (i) the ratio used in exchanging shares of
Common Stock of HPL for shares of Common Stock of the Company, (ii) a
10,000-for-1 stock split effected by the Company on November 25, 1996 and (iii)
a 5-for-4 stock split effected by the Company on September 10, 1997.
Exemption from registration for each transaction described above was
claimed pursuant to Section 4(2) of the Securities Act regarding transactions by
an issuer not involving any public offering.
II-2
<PAGE> 82
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ --------------------------------------------------------------------------------
<C> <S>
1 * Form of Underwriting Agreement among the Representatives, the Company and the
Selling Stockholders
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
4.1 Amended and Restated Certificate of Incorporation of the Registrant filed as
Exhibit 3.1
5 * Opinion of Snell & Wilmer L.L.P.
10.1 Revolving Line of Credit Loan Agreement, by and between Hypercom, Inc., and Bank
One, Arizona, NA, dated March 13, 1996, and amended, November 19, 1996
10.2 Lease, as amended, dated June 14, 1996, by and between Estes-Samuelson
Partnership and Hypercom, Inc.
10.3 Hypercom Corporation Long-Term Incentive Plan+
10.4 Hypercom Corporation 1997 Employee Stock Purchase Plan+
10.5* Hypercom Corporation 401(k) Retirement Savings Plan+
10.6 Hypercom Corporation Nonemployee Directors' Stock Option Plan+
10.7 Employment Agreement with Jairo Gonzalez, dated January 1, 1997+
10.8 Employment Agreement with Albert A. Irato, dated January 1, 1997+
11 Earnings per Share Computation
21 List of Subsidiaries
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
23.2* Consent of Snell & Wilmer L.L.P. (included in Exhibit 5)
24 Power of Attorney (see signature page included in Registration Statement)
27 Financial Data Schedule
99.1 Director-Nominee Consent of Peter J. Hart
99.2 Director-Nominee Consent of William E. Fisher
</TABLE>
- ---------------
* To be filed by amendment.
+ Management or compensatory plan or agreement.
(b) Statement Schedules.
<TABLE>
<CAPTION>
SEQUENTIALLY
SCHEDULE DESCRIPTION OF NUMBERED
NUMBER SCHEDULES PAGE
- -------- ------------------------------------------------------------- ------------
<C> <S> <C>
I. Report of Independent Accountants S-2
II. Valuation and Qualifying Accounts S-3
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public
II-3
<PAGE> 83
policy as expressed in the Securities Act and is, therefore unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
For the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(b) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Phoenix, State of Arizona, on September 12, 1997.
HYPERCOM CORPORATION
By: /s/ GEORGE WALLNER
------------------------------------
George Wallner
Chairman of the Board of Directors
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George Wallner and Albert A. Irato, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitutions and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments to this Form S-1
Registration Statement and to sign any registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) of the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith with the Securities and Exchange
Commission, granting under said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully and to all
intents and purposes as he might or could do in person hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------- -------------------
<S> <C> <C>
/s/ GEORGE WALLNER Chairman of the Board of September 12, 1997
- ------------------------------------- Directors (Principal Executive
George Wallner Officer)
/s/ ALBERT A. IRATO Vice Chairman of the Board, Chief September 12, 1997
- ------------------------------------- Executive Officer and President
Albert A. Irato
/s/ PAUL WALLNER Vice Chairman of the Board of September 12, 1997
- ------------------------------------- Directors
Paul Wallner
/s/ JAIRO GONZALEZ Vice Chairman of the Board of September 12, 1997
- ------------------------------------- Directors
Jairo Gonzalez
/s/ THOMAS E. LINNEN Chief Financial Officer September 12, 1997
- ------------------------------------- (Principal Financial and
Thomas E. Linnen Accounting Officer)
</TABLE>
II-5
<PAGE> 85
INDEX TO FINANCIAL STATEMENT SCHEDULES*
<TABLE>
<CAPTION>
SEQUENTIALLY
SCHEDULE DESCRIPTION OF NUMBERED
NUMBER SCHEDULES PAGE
- -------- ------------------------------------------------------------- ------------
<C> <S> <C>
I. Report of Independent Accountants S-2
II. Valuation and Qualifying Accounts S-3
</TABLE>
- ---------------
* All other schedules are omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
S-1
<PAGE> 86
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Hypercom Corporation
In connection with our audits of the consolidated financial statements of
Hypercom Corporation as of June 30, 1996 and 1997 and for each of the three
years in the period ended June 30, 1997, which financial statements are included
in the Prospectus, we have also audited the financial statement schedule listed
in Item 16 herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
September 10, 1997
S-2
<PAGE> 87
HYPERCOM CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
Allowance for doubtful accounts......... $ 100 $ 167 $ -- $ -- $ 267
YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts......... 267 494 -- -- 761
Inventory reserves...................... -- 2,133 -- -- 2,133
YEAR ENDED JUNE 30, 1997:
Allowance for doubtful accounts......... 761 1,427 -- (1,409) 779
Inventory reserves...................... 2,133 994 -- (525) 2,602
</TABLE>
S-3
<PAGE> 88
APPENDIX A
Inside Front Cover: Representative pictures of Hypercom POS terminals
being used in typical environment.
Inside Front Cover Fold Out: Representation of a schematic of a point-of-sale
network which ties together to a complex network
comprising of LANs and WANs.
Back Inside Cover: Hypercom Logo.
<PAGE> 89
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
1 * Form of Underwriting Agreement among the Representatives, the Company
and the Selling Stockholders
3.1 Amended and Restated Certificate of Incorporation of the Company
3.2 Amended and Restated Bylaws of the Company
4.1 Amended and Restated Certificate of Incorporation of the Registrant
filed as Exhibit 3.1
5 * Opinion of Snell & Wilmer L.L.P.
10.1 Revolving Line of Credit Loan Agreement, by and between Hypercom, Inc.,
and Bank One, Arizona, NA, dated March 13, 1996, and amended, November
19, 1996
10.2 Lease, as amended, dated June 14, 1996, by and between Estes-Samuelson
Partnership and Hypercom, Inc.
10.3 Hypercom Corporation Long-Term Incentive Plan+
10.4 Hypercom Corporation 1997 Employee Stock Purchase Plan+
10.5 * Hypercom Corporation 401(k) Retirement Savings Plan+
10.6 Hypercom Corporation Nonemployee Directors' Stock Option Plan+
10.7 Employment Agreement with Jairo Gonzalez, dated January 1, 1997+
10.8 Employment Agreement with Albert A. Irato, dated January 1, 1997+
11 Earnings per Share Computation
21 List of Subsidiaries
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
23.2 * Consent of Snell & Wilmer L.L.P. (included in Exhibit 5)
24 Power of Attorney (see signature page included in Registration
Statement)
27 Financial Data Schedule
99.1 Director-Nominee Consent of Peter J. Hart
99.2 Director-Nominee Consent of William E. Fisher
</TABLE>
- ---------------
* To be filed by amendment.
+ Management or compensatory plan or agreement.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HYPERCOM CORPORATION
This Amended and Restated Certificate of Incorporation has been duly
adopted by Hypercom Corporation, a Delaware corporation pursuant to Sections
242 and 245 of the General Corporation Law of the State of Delaware. Originally
incorporated June 5, 1996 under the same name.
ARTICLE ONE
The name of the corporation is Hypercom Corporation.
ARTICLE TWO
The address of the corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is Corporation Trust Company.
ARTICLE THREE
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE FOUR
The corporation shall have perpetual existence.
ARTICLE FIVE
A. The corporation shall be authorized to issue two classes of shares
of stock to be designated, respectively, "Common Stock" and "Preferred Stock";
the total number of shares of Common Stock that the corporation shall have
authority to issue shall be 100,000,000, and each of such shares shall have a
par value of $.001; and the total number of shares of Preferred Stock that the
corporation shall have the authority to issue shall be 10,000,000, and each of
such shares shall have a par value of $.001.
B. Shares of Preferred Stock may be issued from time to time in one or
more series as may from time to time be determined by the Board of Directors of
the corporation, each of said series to be distinctly designated. The voting
powers, preferences and relative, participating, optional, and other special
rights, and the qualifications, limitations, or restrictions thereof, if any, of
each such series may differ from those of any and all other series of Preferred
Stock at any time outstanding, and the Board of Directors is hereby expressly
granted authority to fix or alter, by resolution or resolutions, the
designation, number, voting powers, preferences, and relative, participating,
optional, and other special rights, and the qualifications, limitations, and
restrictions thereof, of each such
<PAGE> 2
ARTICLE SIX
The Board of Directors of the corporation shall have the power to
adopt, amend, and repeal any or all of the Bylaws of the corporation.
ARTICLE SEVEN
Election of members to the Board of Directors need not be by written
ballot unless the Bylaws of the corporation shall so provide.
Meetings of the stockholders of the corporation may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
corporation may be kept (subject to any provision contained in the Delaware
General Corporation Law) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the corporation.
ARTICLE EIGHT
To the fullest extent permitted by the Delaware General Corporation
Law, a director or former director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director of the corporation; provided, that the foregoing
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limiting the liability of directors, the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as amended. Any repeal or modification of
this Article Eight shall not adversely affect any right or protection of a
director of the corporation existing hereunder with respect to any act or
omission occurring prior to or at the time of such repeal or modification. The
limitation of liability provided herein shall continue after a director has
ceased to occupy such position as to acts or omissions occurring during such
director's term or terms of office.
The provisions of this Article Eight shall not be deemed to limit or
preclude indemnification of a director by the corporation for any liability of a
director which has not been eliminated by the provisions of this Article Eight.
ARTICLE NINE
A. The corporation shall to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such
-2-
<PAGE> 3
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than such law permitted the corporation
to provide prior to such amendment), indemnify and hold harmless any person who
was or is a party, or is threatened to be made a party to or is otherwise
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that such person is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "Indemnitee") against expenses, liabilities and losses
(including attorneys' fees, judgments, fines, excise taxes or penalties paid in
connection with the Employee Retirement Income Security Act of 1974, as amended,
and amounts paid in settlement) reasonably incurred or suffered by such
Indemnitee in connection therewith; provided, however, that except as provided
in this section with respect to proceedings to enforce rights to
indemnification, the corporation shall indemnify any such Indemnitee in
connection with a proceeding (or part thereof) initiated by such Indemnitee only
if such proceeding or part thereof was authorized by the board of directors of
this corporation.
B. The right to indemnification conferred in this section shall include
the right to be paid by the corporation the expenses (including attorneys' fees)
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an Indemnitee in his capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such Indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the corporation of an undertaking, by
or on behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is not
further right to appeal that such Indemnitee is not entitled to be indemnified
for such expenses under this section or otherwise. The rights to indemnification
and to the advancement of expenses conferred in this section shall be contract
rights and such rights shall continue as to an Indemnitee who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
Indemnitee's heirs, executors and administrators.
C. If a claim under the two preceding paragraphs of this section is not
paid in full by the corporation within sixty (60) days after a written claim has
been received by the corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, the Indemnitee may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the Indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the Indemnitee to
enforce a right to an advancement of expenses) and (ii) in any suit brought by
the corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the corporation shall be entitled to recover such expenses upon
a final adjudication that the Indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the corporation (including its board of directors, independent legal
counsel, or its
-3-
<PAGE> 4
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
corporation (including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
section or otherwise shall be on the corporation.
D. The rights to indemnification and advancement of expenses conferred
in this section shall not be exclusive of any other rights which any person may
have or hereafter acquire under any statute, the corporation's certificate of
incorporation, as it may be amended or restated from time-to-time, any
agreement, vote of stockholders or disinterested directors, or otherwise. No
amendment or repeal of this Article Nine shall apply to or have any effect on
any right to indemnification provided hereunder with respect to any acts or
omissions occurring prior to such amendment or repeal.
E. The corporation shall have the power to purchase and maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the corporation or another corporation, partnership, joint venture,
trust or other enterprise (including an employee benefit plan) against any
expense, liability or loss, whether or not the corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law. The corporation may also create a trust fund,
grant a security interest and/or use other means (including, but not limited to
letters of credit, surety bonds and/or similar arrangements), as well as enter
into contracts providing indemnification to the full extent authorized or
permitted by law and including as part thereof provisions with respect to any or
all of the foregoing, to ensure the payment of such amounts as may become
necessary to effect indemnification as provided therein, or elsewhere.
F. For purposes of this section, references to the "corporation" shall
include any subsidiary of this corporation from and after the acquisition
thereof by this corporation, so that any person who is a director, officer,
employee or agent of such subsidiary after the acquisition thereof by this
corporation shall stand in the same position under the provisions of this
section as such person would have had such person served in such position for
this corporation.
G. The corporation may, to the extent authorized from time to time by
the board of directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the corporation to the fullest extent of
the provisions of this section with respect to the indemnification and
advancement of expenses of directors and officers of the corporation.
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ARTICLE TEN
The name and mailing address of the incorporator is as follows:
T.L. Ford
Corporation Trust Center
1209 Orange Street
City of Wilmington
Delaware 19801
ARTICLE ELEVEN
The initial Board of Directors of the corporation shall consist of four
(4) persons. The size of the Board of Directors may be increased or decreased in
the manner provided in the Bylaws of the corporation. All corporate powers of
the corporation shall be exercised by or under the direction of the Board of
Directors except as otherwise provided herein or by law. The names and mailing
addresses of the persons to serve as the initial directors are:
George Wallner
2851 West Kathleen Road
Phoenix, AZ 85023
Albert A. Irato
2851 West Kathleen Road
Phoenix, AZ 85023
Paul Wallner
2851 West Kathleen Road
Phoenix, AZ 85023
Jairo Gonzalez
2851 West Kathleen Road
Phoenix, AZ 85023
ARTICLE TWELVE
Subject to any conditions imposed by law, the corporation expressly
denies the application of the Arizona Corporate Takeover Laws, Arizona Revised
Statutes Section 10-2701 et seq., or any successor thereto.
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ARTICLE THIRTEEN
The corporation reserves the right to amend, alter, change, or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by the Delaware General Corporation Law.
IN WITNESS WHEREOF, Hypercom Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by the undersigned duly
authorized officer who declares under penalty of perjury that the matters set
forth in the foregoing Amended and Restated Certificate of Incorporation are
true and correct to his knowledge. This Amended and Restated Certificate of
Incorporation was executed at Phoenix, Arizona, as of this 9th day of
September, 1997.
HYPERCOM CORPORATION
/s/ Peter J. Stutsman
-------------------------
By: Peter J. Stutsman
Its: Secretary
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EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
HYPERCOM CORPORATION
I. REFERENCES TO CERTAIN TERMS AND CONSTRUCTION
1.01. Certain References. Any reference herein made to law will be
deemed to refer to the law of the State of Delaware, including any applicable
provision of Chapter 1 of Title 8 of the Delaware Statutes, or any successor
statutes, as from time to time amended and in effect (sometimes referred to
herein as the "Delaware General Corporation Law"). Any reference herein made to
the corporation's Certificate will be deemed to refer to its Certificate of
Incorporation and all amendments thereto as at any given time on file with the
Delaware Secretary of State (any reference herein to that office being intended
to include any successor to the incorporating and related functions being
performed by that office at the date of the initial adoption of these Bylaws).
Except as otherwise required by law, the term "stockholder" as used herein shall
mean one who is a holder of record of shares of the corporation.
1.02. Seniority. The law and the Certificate (in that order of
precedence) will in all respects be considered senior and superior to these
Bylaws, with any inconsistency to be resolved in favor of the law and such
Certificate (in that order of precedence), and with these Bylaws to be deemed
automatically amended from time to time to eliminate any such inconsistency
which may then exist.
1.03. Computation of Time. The time during which an act is
required to be done, including the time for the giving of any required notice
herein, shall be computed by excluding the first day or hour, as the case may
be, and including the last day or hour.
II. OFFICES
2.01. Principal Office. The principal office or place of business of
the corporation in the State of Delaware shall be the registered office of the
corporation in the State of Delaware. The corporation may change its registered
office from time to time in accordance with the relevant provisions of the
Delaware General Corporation Law. The corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the corporation may require from time to time.
III. STOCKHOLDERS
3.01. Annual Stockholder Meeting. The annual meeting of
stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall elect by a plurality
<PAGE> 2
vote members of the Board of Directors in the class whose term shall expire at
such annual meeting, and transact such other business as may properly be brought
before the meeting.
3.02. Special Stockholder Meetings. Unless otherwise prescribed by
law or by the Certificate of Incorporation, special meetings of stockholders,
for any purpose or purposes, may be called by either the Chairman, the
Vice-Chairman, the President, or the holders of 10% or more of the issued and
outstanding shares of capital stock entitled to vote thereat and shall be called
by either such officer at the request in writing of a majority of the Board of
Directors. Any such written request by stockholders shall state the purpose or
purposes of the proposed meeting, and business to be transacted at any such
meeting shall be confined to the purposes stated in the notice thereof and to
such additional matters as the chairman of the meeting may rule to be germane to
such purposes.
3.03. Notice of Stockholders Meetings.
(a) Required Notice. Except as otherwise allowed or
required by law, written notice stating the place, day and hour of any annual or
special stockholders meeting shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting by or at the direction of the
person or persons calling the meeting, to each stockholder entitled to vote at
such meeting and to any other stockholder entitled to receive notice of the
meeting by law or the Certificate. Such notice may be given either personally or
by sending a copy thereof through the mail, by telegraph, by private delivery
service (including overnight courier), or by facsimile transmission, charges
prepaid, to each stockholder at his/her address as it appears on the records of
the corporation. If the notice is sent by mail, by telegraph or by private
delivery service, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office or
private delivery service for transmission to such person. If the notice is sent
by facsimile transmission, it shall be deemed to have been given upon
transmission, if transmission occurs before 12:00 noon at the place of receipt,
and upon the day following transmission, if transmission occurs after 12:00
noon.
(b) Adjourned Meeting. If any stockholders meeting is
adjourned to a different date, time, or place, notice need not be given of the
new date, time, and place, if the new date, time, and place are announced at the
meeting at which the adjournment is taken. But if the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, then notice of the adjourned meeting shall be given
to each stockholder of record entitled to such notice pursuant to Section
3.03(a) above.
(c) Waiver of Notice. Any stockholder may waive
notice of a meeting (or any notice of any other action required to be given by
the Delaware General Corporation Law, the corporation's Certificate, or these
Bylaws), at any time before, during, or after the meeting or other action, by a
writing signed by the stockholder entitled to the notice. Each such waiver shall
be delivered to the corporation for inclusion in the minutes or filing with the
corporate records. Attendance of a stockholder at a meeting shall constitute a
waiver of notice of the meeting, except
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when the stockholder attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
(d) Contents of Notice. The notice of each special
stockholders meeting shall include a description of the purpose or purposes for
which the meeting is called. Except as required by law or the corporation's
Certificate, the notice of an annual stockholders meeting need not include a
description of the purpose or purposes for which the meeting is called.
3.04. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or in order to make a determination of stockholders for
any other proper purpose, the Board of Directors may fix a date as the record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors. In the case of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, such record date shall not be more than
sixty (60) days nor less than ten (10) days prior to the date of such meeting.
In the case of determining stockholders entitled to consent to corporate action
in writing without a meeting, the record date shall not be more than ten (10)
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors. In the case of determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the record date shall be not more than sixty (60) days prior to such action. If
no record date is so fixed by the Board of Directors, the record date for the
determination of stockholders shall be as provided in the Delaware General
Corporation Law.
When a determination of stockholders entitled to notice of or
to vote at any meeting of stockholders has been made as provided in this
Section, such determination shall apply to any adjournment thereof, unless the
Board of Directors fixes a new record date.
3.05. Stockholder List. The officer who has charge of the stock
ledger of the corporation shall make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address and the
number of shares held by each. The stockholder list shall be available for
inspection by any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting at a place within the city where the meeting is to be held, which place
shall be specified in the meeting notice, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. Except as otherwise provided by
law, failure to comply with this section shall not affect the validity of any
action taken at the meeting.
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<PAGE> 4
3.06. Stockholder Quorum and Voting Requirements. Unless otherwise
provided in the Certificate or these Bylaws or required by law,
(a) a majority of the shares entitled to vote,
present in person or represented by proxy, shall constitute a quorum at a
meeting of stockholders;
(b) in all matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
represented by proxy at a meeting and entitled to vote on the subject matter
shall be at the act of the stockholders;
(c) directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at a meeting and
entitled to vote on the election of directors; and
(d) where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes, present
in person or represented by proxy, shall constitute a quorum entitled to take
action with respect to that vote on that matter and the affirmative vote of the
majority of shares of such class or classes present in person or represented by
proxy at the meeting shall be the act of such class.
Except as provided below, voting will be by ballot on any
question as to which a ballot vote is demanded prior to the time the voting
begins by any person entitled to vote on such question; otherwise, a voice vote
will suffice. Unless otherwise provided in the Certificate, all elections of
directors will be by written ballot. No ballot or change of vote will be
accepted after the polls have been declared closed following the ending of the
announced time for voting.
3.07. Proxies. At all meetings of stockholders, a stockholder may
vote in person or by proxy duly executed in writing by the stockholder or the
stockholder's duly authorized attorney-in-fact. Such proxy shall comply with law
and shall be filed with the Secretary of the corporation or other person
authorized to tabulate votes before or at the time of the meeting. No proxy
shall be valid after three (3) years from the date of its execution unless
otherwise provided in the proxy. The burden of proving the validity of any
undated, irrevocable, or otherwise contested proxy at a meeting of the
stockholders will rest with the person seeking to exercise the same. A facsimile
appearing to have been transmitted by a stockholder or by such stockholder's
duly authorized attorney-in-fact may be accepted as a sufficiently written and
executed proxy.
3.08. Voting of Shares. Unless otherwise provided in the
Certificate or the Delaware General Corporation Law, each outstanding share
entitled to vote shall be entitled to one (1) vote upon each matter submitted to
a vote at a meeting of stockholders.
3.09. Election Inspectors. The Board of Directors, in advance of
any meeting of the stockholders, may appoint an election inspector or inspectors
to act at such meeting (and at any adjournment thereof). If an election
inspector or inspectors are not so appointed, the chairman of
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the meeting may, or upon request of any person entitled to vote at the meeting
will, make such appointment. If any person appointed as an inspector fails to
appear or to act, a substitute may be appointed by the chairman of the meeting.
If appointed, the election inspector or inspectors (acting through a majority of
them if there be more than one) will determine the number of shares outstanding,
the authenticity, validity, and effect of proxies, the credentials of persons
purporting to be stockholders or persons named or referred to in proxies, and
the number of shares represented at the meeting in person and by proxy; will
receive and count votes, ballots, and consents and announce the results thereof;
will hear and determine all challenges and questions pertaining to proxies and
voting; and, in general, will perform such acts as may be proper to conduct
elections and voting with complete fairness to all stockholders. No such
election inspector need be a stockholder of the corporation.
3.10. Organization and Conduct of Meetings. Each meeting of the
stockholders will be called to order and thereafter chaired by the Chairman of
the Board of Directors if there is one, or, if not, or if the Chairman of the
Board is absent or so requests, then by the Vice-Chairman, or if both the
Chairman of the Board and the Vice-Chairman are unavailable, then by the
President or such other officer of the corporation or such stockholder as may be
appointed by the Board of Directors. The corporation's Secretary or in his or
her absence, an Assistant Secretary will act as secretary of each meeting of the
stockholders. If neither the Secretary nor an Assistant Secretary is in
attendance, the chairman of the meeting may appoint any person (whether a
stockholder or not) to act as secretary for the meeting. After calling a meeting
to order, the chairman thereof may require the registration of all stockholders
intending to vote in person and the filing of all proxies with the election
inspector or inspectors, if one or more have been appointed (or, if not, with
the secretary of the meeting). After the announced time for such filing of
proxies has ended, no further proxies or changes, substitutions, or revocations
of proxies will be accepted. If directors are to be elected, a tabulation of the
proxies so filed will, if any person entitled to vote in such election so
requests, be announced at the meeting (or adjournment thereof) prior to the
closing of the election polls. Absent a showing of bad faith on his or her part,
the chairman of a meeting will, among other things, have absolute authority to
fix the period of time allowed for the registration of stockholders and the
filing of proxies, to determine the order of business to be conducted at such
meeting, and to establish reasonable rules for expediting the business of the
meeting and preserving the orderly conduct thereof (including any informal, or
question and answer portions thereof).
3.11. Stockholder Approval or Ratification. The Board of Directors
may submit any contract or act for approval or ratification of the stockholders
at a duly constituted meeting of the stockholders. Except as otherwise required
by law, if any contract or act so submitted is approved or ratified by a
majority of the votes cast thereon at such meeting, the same will be valid and
as binding upon the corporation and all of its stockholders as it would be if it
were the act of its stockholders.
3.12. Informalities and Irregularities. All informalities or
irregularities in any call or notice of a meeting of the stockholders or in the
areas of credentials, proxies, quorums, voting, and similar matters, will be
deemed waived if no objection is made at the meeting.
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3.13. Stockholder Action by Written Consent. Any action required
or permitted to be taken at a meeting of the stockholders may be taken without a
meeting if one (1) or more consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Each consent shall bear the date of signature of each stockholder who
signs the consent. The consents shall be delivered to the corporation in
accordance with law for inclusion in the minutes or filing with the corporate
record. Prompt notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented to the action.
3.14. Nomination of Directors. Only persons who are nominated
in accordance with the following procedures shall be eligible for election as
directors of the corporation. Nominations of persons for election to the Board
of Directors may be made at any annual meeting of stockholders (a) by or at the
direction of the Board of Directors (or any duly authorized commit tee thereof)
or (b) by any stockholder of the corporation (i) who is a stockholder of record
on the date of the giving of the notice provided for in this Section 3.14 and on
the record date for the determination of stockholders entitled to vote at such
annual meeting and (ii) who complies with the notice procedures set forth in
this Section 3.14.
In addition to any other applicable requirements, for a nomination to
be made by a stock holder, such stockholder must have given timely notice
thereof in proper written form to the Secretary of the corporation, as
prescribed below.
No person shall be elected to the Board of Directors of this
corporation at an annual meeting of the stockholders, or at a special meeting
called for that purpose, unless, with respect to a person nominated by a
stockholder of the corporation, a written notice of nomination of such person by
the stockholder shall have been received by the Secretary of the corporation at
least one hundred and twenty (120) days prior to the anniversary date of the
immediately preceding annual meeting if an annual meeting, or seven (7) days
after notice of the meeting is mailed to stockholders if a special meeting. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting (including the number of shares of
stock of the corporation owned beneficially or of record by such stockholder and
the nominee or nominees) and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the stockholders and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (d) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
corporation if so elected.
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No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 3.14. If the Chairman of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Notwithstanding compliance with the foregoing provisions, the
Board of Directors shall not be obligated to include information as to any
stockholder nominee for director in any proxy statement or other communication
sent to stockholders.
3.15. Business at Annual Meetings. No business may be
transacted at an annual meeting of stockholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
stockholder of the corporation (i) who is a stock holder of record on the date
of the giving of the notice provided for in this Section 3.15 and on the record
date for the determination of stockholders entitled to vote at such annual
meeting and (ii) who complies with the notice procedures set forth in this
Section 3.15.
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company not less than one hundred and twenty (120) prior to the anniversary date
of the immediately preceding annual meeting of stockholders; provided, however,
that in the event that the annual meeting is called for a date that is not
within thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the close
of business on the tenth day following the day on which such notice of the date
of the annual meeting was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
corporation that are owned beneficially or of record by such stockholder, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
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No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 3.15, provided, however, that,
once business has been properly brought before the annual meeting in accordance
with such procedures, nothing in this Section 3.15 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted.
IV. BOARD OF DIRECTORS
4.01. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors.
4.02. Number, Tenure, Classification and Qualification of
Directors. Unless otherwise provided in the Certificate, the authorized number
of directors shall be not less than one nor more than nine. The number of
directors in office from time to time shall be within the limits specified
above, as prescribed initially in the Certificate, or by the incorporator or
incorporators of the corporation, or by the initial director or directors of the
corporation and thereafter as prescribed from time to time by resolution adopted
by either the stockholders or the Board of Directors. The Board of Directors
shall have the power to increase or decrease its size within the aforesaid
limits and to fill any vacancies that may occur in its membership, whether
resulting from an increase in the size of the Board or otherwise. The directors
shall be divided into two classes designated Class I and Class II. Each Class
shall consist of one-half of the directors or as close thereto as possible. The
Class I directors shall stand for election at the annual meeting of stockholders
held in 1998 and shall be elected for a two-year term. The Class II directors
shall stand for election at the 1999 annual meeting of stockholders and shall be
elected for a two-year term. At each annual meeting of stockholders, commencing
with the annual meeting to be held during 1998, each of the successors to the
directors of the Class whose term shall have expired at such annual meeting
shall be elected for a term running until the second annual meeting next
succeeding his or her election and until his or her successor shall have been
duly elected and qualified. Unless required by the Certificate, directors do not
need to be residents of the State of Delaware or stockholders of the
corporation.
4.03. Regular Meetings of the Board of Directors. A regular annual
meeting of the Board of Directors is to be held as soon as practicable after the
adjournment of each annual meeting of the stockholders, either at the place of
the stockholders meeting or at such other place as the directors elected at the
stockholders meeting may have been informed of at or prior to the time of their
election. Additional regular meetings may be held at regular intervals at such
places and at such times as the Board of Directors may determine.
4.04. Special Meetings of the Board of Directors. Special meetings
of the Board of Directors may be held whenever and wherever called for by the
Chairman of the Board, the Vice-Chairman, the President, or the number of
directors that would be required to constitute a quorum.
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4.05. Notice of, and Waiver of Notice for, Directors Meetings. No
notice need be given of regular meetings of the Board of Directors. Notice of
the time and place (but not necessarily the purpose or all of the purposes) of
any special meeting will be given to each director in person or by telephone, or
via mail or facsimile transmission. Notice to any director of any such special
meeting will be deemed given sufficiently in advance when (i), if given by mail,
the same is deposited in the United States mail at least four (4) days before
the meeting date, with postage thereon prepaid, (ii), if given by facsimile
transmission, the same is transmitted at least 24 hours prior to the convening
of the meeting, or (iii), if personally delivered (including by overnight
courier) or given by telephone, the same is handed, or the substance thereof is
communicated over the telephone to the director or to an adult member of his or
her office staff or household, at least 24 hours prior to the convening of the
meeting. Any director may waive notice of any meeting and any adjournment
thereof at any time before, during, or after it is held, as provided by law.
Except as provided in the next sentence below, the waiver must be in writing,
signed by the director entitled to the notice, and filed with the minutes or
corporate records. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
4.06. Director Quorum. A majority of the total number of directors
then in office shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, unless the Certificate requires a greater
number.
4.07. Directors, Manner of Acting.
(a) The affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors unless the Certificate or these Bylaws require a greater
percentage and except as otherwise required by law.
(b) Unless the Certificate provides otherwise, any or
all directors may participate in a regular or special meeting by, or conduct the
meeting through the use of, conference telephone or similar communications
equipment by means of which all persons participating in the meeting may hear
each other, in which case any required notice of such meeting may generally
describe the arrangements (rather than or in addition to the place) for the
holding thereof. A director participating in a meeting by this means is deemed
to be present in person at the meeting.
(c) A director who is present at a meeting of the
Board of Directors or a committee of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless: (1) the
director objects at the beginning of the meeting (or promptly upon his/her
arrival) to holding it or transacting business at the meeting; or (2) his/her
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (3) he/she delivers written notice of his/her dissent or abstention
to the presiding officer of the meeting before its adjournment or to the
corporation before 5:00 p.m. on the next business day after the meeting. The
right of dissent or abstention is not available to a director who votes in favor
of the action taken.
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4.08. Director Action Without a Meeting. Unless the Certificate
provides otherwise, any action required or permitted to be taken by the Board of
Directors at a meeting may be taken without a meeting if the action is taken by
unanimous written consent of the Board of Directors as evidenced by one (1) or
more written consents describing the action taken, signed by each director and
filed with the minutes or proceedings of the Board of Directors.
4.09. Removal of Directors by Stockholders. Except as limited by
the Certificate or by law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors.
4.10. Board of Director Vacancies. Unless the Certificates
provides otherwise and except as otherwise provided by law, any vacancy or newly
created directorship may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
4.11. Director Compensation. Unless otherwise provided in the
Certificate, by resolution of the Board of Directors, each director may be paid
his/her expenses, if any, of attendance at each meeting of the Board of
Directors or any committee thereof, and may be paid a stated salary as director
or a fixed sum for attendance at each meeting of the Board of Directors or any
committee thereof, or both. No such payment shall preclude any director from
serving the corporation in any capacity and receiving compensation therefor.
4.12. Director Committees.
(a) Creation of Committees. Unless the Certificate
provides otherwise, the Board of Directors may create one (1) or more committees
and appoint members of the Board of Directors to serve on them. Each committee
shall have one (1) or more members, who serve at the pleasure of the Board of
Directors.
(b) Selection of Members. The creation of a committee
and appointment of members to it shall be approved by the greater of (1) a
majority of all the directors in office when the action is taken or (2) the
number of directors required by the Certificate to take such action. The Board
of Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of any member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he/she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
(c) Required Procedures. Sections 4.03 through 4.08
of this Article IV, which govern meetings, action without meetings, notice and
waiver of notice, and quorum and voting requirements of the Board of Directors,
apply to committees and their members.
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(d) Authority. Unless limited by the Certificate and
except to the extent limited by law, each committee may exercise those aspects
of the authority of the Board of Directors which the Board of Directors confers
upon such committee in the resolution creating the committee.
4.13. Director Resignations. Any director or committee member may
resign from his or her office at any time by written notice delivered to the
corporation as required by law. Any such resignation will be effective upon its
receipt unless some later time is therein fixed, and then from that time. The
acceptance of a resignation will not be required to make it effective.
4.14. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such director's vote
is counted for such purpose if (i) the material facts as to such director's
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
such director's relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
V. OFFICERS
5.01. Number of Officers. The corporation may have a Chairman of
the Board, Vice-Chairman(s) of the Board, President, Vice President(s),
Secretary, and Treasurer, each of whom shall be appointed by the Board of
Directors. Such other officers and assistant officers as may be deemed
necessary, may be appointed by the Board of Directors. If specifically
authorized by the Board of Directors, an officer may appoint one (1) or more
other officers or assistant officers. The same individual may simultaneously
hold more than one (1) office in the corporation.
5.02. Appointment and Term of Office. The officers of the
corporation shall be appointed by the Board of Directors for a term as
determined by the Board of Directors. The designation of a specified term grants
to the officer no contract rights, and the Board of Directors can remove the
officer at any time prior to the termination of such term. If no term is
specified, an officer of the corporation shall hold office until he or she
resigns, dies, or until he or she is removed in the manner provided by law or in
Section 5.03 of this Article V. The regular election or
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appointment of officers will take place at each annual meeting of the Board of
Directors, but elections of officers may be held at any other meeting of the
Board.
5.03. Resignation and Removal of Officers. An officer may resign
at any time by delivering written notice to the corporation. A resignation is
effective when the notice is delivered unless the notice specifies a later
effective date or event. Any officer may be removed by the Board of Directors at
any time, with or without cause. Such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Appointment of an officer
shall not of itself create contract rights.
5.04. Duties of Officers. Officers of the corporation shall have
authority to perform such duties as may be prescribed from time to time by law,
in these Bylaws, or by the Board of Directors, the President, or the superior
officer of any such officer. Each officer of the corporation (in the order
designated herein or by the Board) will be vested with all of the powers and
charged with all of the duties of his or her superior officer in the event of
such superior officer's absence, death, or disability.
5.05. Bonds and Other Requirements. The Board of Directors may
require any officer to give bond to the corporation (with sufficient surety and
conditioned for the faithful performance of the duties of his or her office) and
to comply with such other conditions as may from time to time be required of him
or her by the Board of Directors.
5.06. Chairman of the Board. The Board of Directors may elect a
Chairman to serve as a general executive officer of the corporation, and, if
specifically designated as such by the Board of Directors, as the chief
executive officer of the corporation. If elected, the Chairman will preside at
all meetings of the Board of Directors and be vested with such other powers and
duties as the Board of Directors may from time to time delegate to him or her,
shall supervise and control all of the business and affairs of the corporation
and the performance by all of its other officers of their respective duties and
in general shall perform all duties incident to the office of the Chairman and
such other duties as may be prescribed by the Board of Directors from time to
time. The Chairman shall, when present, preside at all meetings of the
stockholders and of the Board of Directors. The Chairman will be a proper
officer to sign on behalf of the corporation any deed, bill of sale, assignment,
option, mortgage, pledge, note, bond, evidence of indebtedness, application,
consent (to service of process or otherwise), agreement, indenture, contract, or
other instrument, except in each such case where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed. The Chairman may represent the
corporation at any meeting of the stockholders or members of any other
corporation, association, partnership, joint venture, or other entity in which
the corporation then holds shares of capital stock or has an interest, and may
vote such shares of capital stock or other interest in person or by proxy
appointed by him or her, provided that the Board of Directors may from time to
time confer the foregoing authority upon any other person or persons.
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5.07. The Vice-Chairman. If appointed, in the absence of the
Chairman or in the event of his/her death or disability, the Vice-Chairman (or
in the event there be more than one Vice-Chairman, the Vice-Chairmans in the
order designated at the time of their election, or in the absence of any such
designation, then in the order of their appointment) shall perform the duties of
the Chairman, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Chairman. If there is no Vice-Chairman or in the
event of the death or disability of all Vice-Chairmans, then the President shall
perform such duties of the Chairman in the event of his or her absence, death,
or disability. Each Vice-Chairman will be a proper officer to sign on behalf of
the corporation any deed, bill of sale, assignment, option, mortgage, pledge,
note, bond, evidence of indebtedness, application, consent (to service of
process or otherwise), agreement, indenture, contract, or other instrument,
except in each such case where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed. Any Vice-Chairman may represent the corporation at any
meeting of the stockholders or members of any other corporation, association,
partnership, joint venture, or other entity in which the corporation then holds
shares of capital stock or has an interest, and may vote such shares of capital
stock or other interest in person or by proxy appointed by him or her, provided
that the Board of Directors may from time to time confer the foregoing authority
upon any other person or persons. A Vice-Chairman shall perform such other
duties as from time to time may be assigned to him/her by the Chairman or by the
Board of Directors.
5.08. President. The Board of Directors may elect a President to
serve as an officer of the corporation. If elected, the President shall be
vested with such other powers and duties as the Board of Directors may from time
to time delegate to him or her. The President will be a proper officer to sign
on behalf of the corporation any deed, bill of sale, assignment, option,
mortgage, pledge, note, bond, evidence of indebtedness, application, consent (to
service of process or otherwise), agreement, indenture, contract, or other
instrument, except in each such case where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the corporation, or shall be required by law to
be otherwise signed or executed. Any President may represent the corporation at
any meeting of the stockholders or members of any other corporation,
association, partnership, joint venture, or other entity in which the
corporation then holds shares of capital stock or has an interest, and may vote
such shares of capital stock or other interest in person or by proxy appointed
by him or her, provided that the Board of Directors may from time to time confer
the foregoing authority upon any other person or persons. The President shall
perform such other duties as from time to time may be assigned to him/her by the
Chairman or by the Vice-Chairman or by the Board of Directors.
5.09. The Vice-President. If appointed, in the absence of the
President or in the event of his/her death or disability, the Vice-President (or
in the event there be more than one Vice-President, the Vice-Presidents in the
order designated at the time of their election, or in the absence of any such
designation, then in the order of their appointment) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. If there is no Vice-President or in
the event of the death or disability of all Vice-
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Presidents, then the Treasurer shall perform such duties of the President in the
event of his or her absence, death, or disability. Each Vice-President will be a
proper officer to sign on behalf of the corporation any deed, bill of sale,
assignment, option, mortgage, pledge, note, bond, evidence of indebtedness,
application, consent (to service of process or otherwise), agreement, indenture,
contract, or other instrument, except in each such case where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed. Any Vice-President may
represent the corporation at any meeting of the stockholders or members of any
other corporation, association, partnership, joint venture, or other entity in
which the corporation then holds shares of capital stock or has an interest, and
may vote such shares of capital stock or other interest in person or by proxy
appointed by him or her, provided that the Board of Directors may from time to
time confer the foregoing authority upon any other person or persons. A
Vice-President shall perform such other duties as from time to time may be
assigned to him/her by the Chairman, Vice-Chairman, President or by the Board of
Directors.
5.10. The Secretary. The Secretary shall: (a) keep the minutes of
the proceedings of the stockholders and of the Board of Directors and any
committee of the Board of Directors and all unanimous written consents of the
stockholders, Board of Directors, and any committee of the Board of Directors in
one (1) or more books provided for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws or as required by
law; (c) be custodian of the corporate records and of any seal of the
corporation; (d) when requested or required, authenticate any records of the
corporation; (e) keep a register of the address of each stockholder which shall
be furnished to the Secretary by such stockholder; and (f) in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him/her by the President or by the Board of
Directors. Except as may otherwise be specifically provided in a resolution of
the Board of Directors, the Secretary will be a proper officer to take charge of
the corporation's stock transfer books and to compile the voting record pursuant
to Section 3.05 above, and to impress the corporation's seal, if any, on any
instrument signed by the President, any Vice President, or any other duly
authorized person, and to attest to the same. In the absence of the Secretary, a
secretary pro tempore may be chosen by the directors or stockholders as
appropriate to perform the duties of the Secretary.
5.11. The Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the corporation;
(b) receive and give receipts for moneys due and payable to the corporation from
any source whatsoever, and deposit all such moneys in the name of the
corporation in such bank, trust companies, or other depositories as shall be
selected by the Board of Directors or any proper officer; (c) keep full and
accurate accounts of receipts and disbursements in books and records of the
corporation; and (d) in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to
him/her by the President or by the Board of Directors. The Treasurer will render
to the President, the directors, and the stockholders at proper times an account
of all his or her transactions as Treasurer and of the financial condition of
the corporation. The Treasurer shall be responsible for
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preparing and filing such financial reports, financial statements, and returns
as may be required by law.
5.12. Assistant Secretaries and Assistant Treasurers. The
Assistant Secretaries and the Assistant Treasurers, when authorized by the Board
of Directors, may sign with the President or a Vice-President certificates for
shares of the corporation, the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties as shall be assigned to them
by the Secretary or the Treasurer, respectively, or by the President or the
Board of Directors.
5.13. Salaries. The salaries of the officers of the corporation
may be fixed from time to time by the Board of Directors or (except as to the
President's own) left to the discretion of the President. No officer will be
prevented from receiving a salary by reason of the fact that he or she is also a
director of the corporation.
5.14. Additional Appointments. In addition to the officers
contemplated in this Article V, the Board of Directors may appoint other agents
of the corporation with such authority to perform such duties as may be
prescribed from time to time by the Board of Directors.
VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.01. Certificates for Shares.
(a) Content. Certificates representing shares of the
corporation shall, at a minimum, state on their face the name of the issuing
corporation and that it is formed under the laws of the State of Delaware, the
name of the person to whom issued, and the number and class of shares and the
designation of the series, if any, the certificate represents. Such certificates
shall be signed (either manually or by facsimile to the extent allowable by law)
by any of the Chairman of the Board, Vice-Chairman, the President, or any
Vice-President and by the Secretary or any assistant secretary or the Treasurer
or any assistant treasurer of the corporation, and may be sealed with a
corporate seal or a facsimile thereof. Each certificate for shares shall be
consecutively numbered or otherwise identified and will exhibit such information
as may be required by law. If a supply of unissued certificates bearing the
facsimile signature of a person remains when that person ceases to hold the
office of the corporation indicated on such certificates or ceases to be the
transfer agent or registrar of the corporation, they may still be issued by the
corporation and countersigned, registered, issued, and delivered by the
corporation's transfer agent and/or registrar thereafter, as though such person
had continued to hold the office indicated on such certificate.
(b) Legend as to Class or Series. If the corporation
is authorized to issue different classes of shares or different series within a
class, the powers, designations, preferences, and relative, participating,
optional, or other special rights applicable to each class or series and the
qualifications, limitations, or restrictions of such preference and/or rights
shall be set forth in full or summarized on the front or back of each
certificate as required by law. Alternatively, each certificate
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may state on its front or back that the corporation will furnish a stockholder
this information on request and without charge.
(c) Stockholder List. The name and address of the
person to whom shares are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation.
(d) Lost Certificates. In the event of the loss,
theft, or destruction of any certificate representing shares of the corporation
or of any predecessor corporation, the corporation may issue (or, in the case of
any such shares as to which a transfer agent and/or registrar have been
appointed, may direct such transfer agent and/or registrar to countersign,
register, and issue) a new certificate, and cause the same to be delivered to
the registered owner of the shares represented thereby; provided that such owner
shall have submitted such evidence showing the circumstances of the alleged
loss, theft, or destruction, and his, her, or its ownership of the certificate,
as the corporation considers satisfactory, together with any other facts that
the corporation considers pertinent; and further provided that, if so required
by the corporation, the owner shall provide a bond or other indemnity in form
and amount satisfactory to the corporation (and to its transfer agent and/or
registrar, if applicable).
6.02. Registration of the Transfer of Shares. Registration of the
transfer of shares of the corporation shall be made only on the stock transfer
books of the corporation. In order to register a transfer, the record owner
shall surrender the shares to the corporation for cancellation, properly
endorsed by the appropriate person or persons with reasonable assurances that
the endorsements are genuine and effective. Unless the corporation has
established a procedure by which a beneficial owner of shares held by a nominee
is to be recognized by the corporation as the owner, the corporation will be
entitled to treat the registered owner of any share of the capital stock of the
corporation as the absolute owner thereof and, accordingly, will not be bound to
recognize any beneficial, equitable, or other claim to, or interest in, such
share on the part of any other person, whether or not it has notice thereof,
except as may expressly be provided by applicable law, including as may be
contemplated by Title 6, Subtitle I, Article 8 of the Delaware code (or any
comparable successor statutes), as in effect from time to time.
6.03. Shares Without Certificates. The Board of Directors may
authorize the issuance of uncertificated shares by the corporation and may
prescribe procedures for the issuance and registration of transfer thereof and
with respect to such other matters as the Board of Directors shall deem
necessary or appropriate.
VII. DISTRIBUTIONS
7.01. Distributions. Subject to such restrictions or requirements
as may be imposed by applicable law or the corporation's Certificate or as may
otherwise be binding upon the corporation, the Board of Directors may from time
to time declare, and the corporation may pay or make, dividends or other
distributions to its stockholders.
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VIII. CORPORATE SEAL
8.01. Corporate Seal. The Board of Directors may provide for a
corporate seal of the corporation that will have inscribed thereon any
designation including the name of the corporation, Delaware as the state of
incorporation, the year of incorporation, and the words "Corporate Seal."
IX. AMENDMENTS
9.01. Amendments. If the Certificate so provides, the
corporation's Board of Directors may amend or repeal the corporation's Bylaws
unless the Certificate or the Delaware General Corporation Law reserve any
particular exercise of this power exclusively to the stockholders in whole or
part. The corporation's stockholders may amend or repeal the corporation's
Bylaws even though the Bylaws may also be amended or repealed by its Board of
Directors.
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EXHIBIT 10.1
REVOLVING LINE OF CREDIT
LOAN AGREEMENT
(ACCOUNTS RECEIVABLE AND INVENTORY)
This Agreement is entered into by and between HYPERCOM, INC., an Arizona
corporation & HYPERCOM LATINO AMERICA, INC., an Arizona corporation & HYPERCOM
MANUFACTURING RESOURCES, INC., an Arizona corporation ("Borrower") and Bank
One, Arizona, NA ("Bank").
RECITALS:
Borrower desires to obtain from Bank a revolving line of credit ("Loan") and
Bank is willing to make the Loan, but only on the terms and conditions
hereinafter set forth.
NOW, THEREFORE in consideration of the premises and the mutual promises herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. LOAN.
1.1 REVOLVING LINE OF CREDIT. Subject to the terms and conditions contained
herein and in the other documents, instruments and agreements executed in
connection with the Loan and the security therefor ("Loan Documents"), Bank
will establish for Borrower the Loan as a revolving line of credit against
which Bank will make advances ("Advances") from time to time for the purpose of
providing working capital to Borrower. Subject to the terms hereof, Borrower
shall have the right to obtain Advances, repay Advances and obtain additional
Advances; however, all of the Advances hereunder shall be viewed as a single
loan. At no time shall the unpaid principal balance of the Loan exceed the
amount set forth in Section 13 hereof ("Maximum Amount") and all Advances of
the Loan shall be made on or before the date set forth in Section 13 hereof.
1.2 ADVANCES. Subject to the terms and conditions hereof, Advances of the Loan
will be made in amounts not to exceed the amount ("Borrowing Base") calculated
in accordance with the formula set forth in the Borrowing Base Certificate,
attached hereto as Exhibit A and by this reference incorporated herein. In
calculating the Borrowing Base, the percentage set forth in Section 13 hereof
of the amount of Total Eligible Accounts Receivable and the percentage set
forth in Section 13 hereof of the amount (determined on the basis of the lower
of cost or market value) of Total Eligible Inventory shall be used. "Eligible
Account Receivable" is an amount owing to Borrower, as determined by Bank in
its sole and absolute discretion, which has arisen from the delivery and/or
shipment of products previously made and from services rendered for which an
invoice has been issued by Borrower to its customer ("Customer") (a) which
amount is not subject to any offset, counterclaim or defense asserted by the
Customer, (b) which amount is subject to a perfected security interest in favor
of Bank and is not subject to any other security interest, lien, claim or
encumbrances, (c) which amount has not remained unpaid for more than the number
of days set forth in Section 13 after the date due under the terms of the
related invoice, (d) where not more than fifteen percent (15%) of the total
amount owing from the Customer has remained unpaid for more than the number of
days set forth in Section 13 after the date due under the terms of the related
invoice, (e) which amount is not an uninsured amount owing from a Customer
located in a foreign country and (f) which amount is not owing from the United
States of America or any agency, department or subdivision thereof, unless a
properly executed assignment of claims has been received by Bank. "Eligible
Inventory" is the inventory of Borrower (consisting of those items within the
categories set forth in Section 13), as determined by Bank in its sole and
absolute discretion, to be (a) in good condition and salable in the ordinary
course of Borrower's business, (b) owned by Borrower free and clear of any
mortgages, liens, security interests, claims, encumbrances or rights of others,
excepting only the security interests in favor of Bank, (c) located at a
location identified in a Security Agreement (hereinafter defined), (d) subject
to a perfected security interest in favor of Bank, (e) not subject to any
consignment to any Customer and (e) not acquired by Borrower in or as part of a
bulk transfer of sale or assets unless Borrower has complied with all applicable
bulk sales or bulk transfer laws.
1.3 NOTE. The Loan shall be evidenced by a promissory note ("Note") of even
date herewith in a form prepared and approved by Bank in the Maximum Amount,
payable in accordance with the terms thereof. Interest on the principal amount
outstanding from time to time shall be charged as provided in the Note and
should such rate of interest as calculated thereunder exceed that allowed by
law, the applicable rate of interest will be the maximum rate of interest
allowed by applicable law.
1.4 PREPAYMENTS. If for any reason the aggregate principal amount of the Loan
outstanding at any time shall exceed the maximum amount permitted to be
borrowed in accordance with Section 1.2 hereof, Borrower, without notice or
demand, shall immediately make a principal payment to Bank in an amount equal
to such excess plus accrued and unpaid interest hereon. Borrower may from time
to time, prepay all or part of the outstanding principal balance of the Loan.
1.5 REMITTANCE ACCOUNT. If so indicated in Section 13 hereof, the proceeds
received by Borrower from its inventory and collection of accounts receivable,
which, pursuant to the Security Agreements (hereinafter defined), are required
to be transmitted to Bank, shall be handled and administered by Bank in
and through a remittance account in accordance with the provisions of the
Security Agreements.
2. SECURITY
2.1 SECURITY AGREEMENTS. As security for the payment of the Note, the Loan, and
all other liabilities and obligations of Borrower to Bank, now existing or
hereafter created, Borrower shall grant to Bank a security interest in all of
Borrower's inventory, accounts receivable, rights to payment and such other
property ("Property"), as more particularly described in one or more security
agreements ("Security Agreements") executed by Borrower and delivered to Bank
in form and substance satisfactory to Bank, in its sole and absolute discretion.
The Security Agreements shall grant to Bank a first and prior security interest
in and to the Property, except as otherwise expressly provided therein.
2.2 ADDITIONAL DOCUMENTS. Borrower shall execute from time to time upon the
request of Bank, such financing statements or the documents reasonably
required by Bank to perfect or continue Bank's security interests described
herein.
3. ADVANCES.
3.1 CONDITIONS PRECEDENT TO ADVANCES. Bank shall have no obligation to make any
Advance until the conditions set forth in the following subparagraphs and
elsewhere herein have been satisfied at the expense of Borrower, as determined
by Bank in its sole and absolute discretion:
(a) Borrower shall have delivered to Bank, in form and substance
satisfactory to Bank, this Agreement, the Note, the Security Agreements
and such other documents, instruments, financing statements, certificates
and agreements as Bank may reasonably request;
(b) If Borrower is a corporation or a partnership, Borrower shall have
delivered to Bank, in form and substance satisfactory to Bank in its sole
and absolute discretion certified copies of resolutions of Borrower's
board of directors or partners, as the case may be, authorizing Borrower
to execute, deliver, honor and perform the Loan Documents and to grant the
security interest in the Property as provided in the Security Agreements
and certifying the names and signatures of the officers or partners, as
the case may be, of Borrower authorized to sign the Loan Documents;
(c) All of Bank's liens and security interests securing the Loan, shall
have been validly perfected;
(d) No material adverse change shall have occurred in the business or
financial condition of Borrower or any guarantor since the date of the
latest financial statements given to Bank by on behalf of Borrower or
such guarantor;
(e) Each of the warranties and representations made by Borrower in the
Loan Documents shall be true and correct as of the date of each Advance
and;
(f) Borrower shall have kept and performed the various covenants,
obligations and agreements on its part to be kept and performed under the
Loan Documents and no Event of Default, or act or event which with the
giving of notice or the passage of time, or both, would constitute an
Event of Default hereunder or under any of the other Loan Documents, shall
have occurred and be continuing.
3.2 REQUESTS FOR ADVANCES. Advances may be made by Bank at the oral or written
request of the persons named in Section 13 hereof, either one acting alone, who
are authorized to request Advances and direct disposition of any such Advances
until written notice of the revocation of such authority is received from
Borrower by Bank. Each request by Borrower for an Advance shall constitute a
reaffirmation, as of the date of such request, of all of the representations
and warranties of Borrower contained in this Agreement and in the other Loan
Documents.
3.3 NO WAIVER. No Advance shall constitute a waiver of any of the conditions to
any further Advances nor, in the event Borrower is unable to satisfy any such
condition, shall any such Advance have the effect of precluding Bank from
thereafter declaring such inability to be an Event of Default (as hereinafter
define).
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4. FEES.
4.1 FEES. As additional consideration for Bank's commitment to make Advances,
Borrower agrees to pay the Bank the following fees, which shall be
non-refundable to Borrower, shall be held and retained by Bank as its sole
property and shall not be applied to any payments due under the Loan Documents
other than this Section 4:
(a) a commitment fee in the amount set forth in Section 13 hereof, payable
on or before the date hereof;
(b) a non-utilization fee computed at the rate per annum set forth in
Section 13 hereof on the unused portion of the Maximum Amount and payable
quarterly in arrears to be calculated from the date hereof, where the
phrase "unused portion of the Maximum Amount" means the average difference
between (i) the Maximum Amount and (ii) the outstanding principal balance
of the Loan on each day during such period; and
(c) an inspection fee in the amount per inspection set forth in Section 13
hereof, payable within ten (10) days of Borrower being billed therefor by
Bank.
5. REPRESENTATIONS AND WARRANTIES.
5.1 REPRESENTATIONS AND WARRANTIES. Borrower makes the following
representations and warranties to Bank, which representations and warranties
shall survive the execution of this Agreement:
(a) Legal Status. Borrower, if a corporation, partnership, trust, or other
legal entity, has been duly organized and is validly existing under the
laws of its State of Incorporation or formation, as the case may be, and is
qualified to transact business, and has made all filings and is in good
standing, in the State of Arizona and in every other jurisdiction in which
the nature of its business requires such qualifies;
(b) No Violation. The making and performance of Borrower of the Loan
Documents does not violate any provision of law, nor any provision of
Borrower's formation documents, including, without limitation, Articles of
Incorporation or any partnership or trust agreement, or result in a breach
of, or constitute a default under, any agreement, indenture or other
instrument to which Borrower is a party or by which Borrower may be bound;
(c) Authorization. This Agreement and the other Loan Documents have been
duly authorized, executed and delivered, and are legal, valid and binding
agreements of Borrower enforceable against Borrower in accordance with
their terms, except as enforceability may be limited by bankruptcy,
solvency, reorganization, moratorium or similar laws effecting creditors'
rights generally and by general principles of equity;
(d) Financial Statements. All financial statements and reports that have
heretofor been presented to Bank in conjunction with the transaction which
is the subject of this Agreement, have been prepared in conformity with
generally accepted accounting principals consistently applied, fairly and
accurately present the financial condition and income of the subject
thereof, as of the date given, and neither contain any untrue statement of
a material fact nor fail to state a material fact required in order to make
such financial statements not misleading. Since the date of such financial
statements, there has been no material adverse change in the financial
condition or operations of the subject thereof.
(e) Consent and Licenses. No consent, approval or authorization of, or
registration or filing with, any governmental body or authority, or any
other person, firm or entity not a party hereto, is or will be required as
a condition to the valid execution, delivery, performance or enforceability
of the Loan Documents, or the transactions contemplated hereby or thereby,
or to the conduct of Borrower's business;
(f) Litigation. There is no litigation either pending or, to the best of
its knowledge, threatened against Borrower before any court or
administrative agency, or before any arbitrator, which may have a material
adverse effect on the assets, business, financial conditions or operations
of Borrower, or which would prevent or hinder the performance of Borrower's
obligations under the Loan Documents, and, furthermore, Borrower has not
violated any law and, to the best of its knowledge, is not the subject of
any investigation by a governmental agency that could result in an
indictment or a forfeiture or seizure of any of its assets;
(g) Environmental Matters. Borrower, to the best of its knowledge after due
investigation, is in compliance in all material respects with all
applicable environmental, health and safety statutes and regulations and
Borrower does not have any material contingent liability in connection with
any improper treatment, storage, disposal or release into the environment
of any hazardous or toxic waste or substance;
(h) Margin Securities. Borrower will not directly or indirectly invest all
or any part of the proceeds of the Loan in any security subject to the
margin requirements of Regulations G, T, U, or X of the Board of Governors
of the Federal Reserve System or use all or any part of proceeds of the
Loan to reduce or retire any indebtedness which was originally incurred to
purchase any margin securities or for any other purpose which would violate
any of the margin regulations of the Board of Governors of the Federal
Reserve System;
(i) ERISA. Borrower is in compliance with the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the regulations and
published interpretations thereunder, and no Reportable Event (as defined
in ERISA) has occurred with respect to any plan subject thereto. Borrower
has not incurred any material funding deficiency within the meaning of
ERISA and has not incurred any material liability to the Pension Benefit
Guarantee Corporation in connection with any such plan established or
maintained by Borrower; and
(j) Investment Company Act. Borrower is not, and is not directly or
indirectly controlled by, or acting on behalf of, any person which is, an
"Investment Company" within the meaning of the Investment Company Act of
1940, as amended.
6. COVENANTS OF BORROWER.
6.1 COVENANTS. Until the payment in full of the Loan and until the fulfillment
of all of its obligations hereunder and under the other Loan Documents,
Borrower shall comply with the following covenants:
(a) Books and Records. Borrower shall at all times keep accurate and
complete books, records and accounts of all of Borrower's business
activities, prepared in accordance with generally accepted accounting
principles consistently applied, and Borrower shall permit Bank, or any
persons designated by Bank, at any reasonable time, to inspect, audit and
examine such books, records and accounts and to make copies or extracts
thereof;
(b) Statements and Reports. Borrower shall furnish to Bank;
(i) within the number of days set forth in Section 13 hereof after the
end of each fiscal year of Borrower, financial statements of Borrower,
which shall include a balance sheet, an income statement showing the
results of operations for such a fiscal year and a change in financial
position statement for such fiscal year, together, in each case, with
the comparable figures for the immediately preceding fiscal year, all in
reasonable detail and prepared in accordance with generally accepted
accounting principles, consistently applied, which statements shall
contain the certification requirements set forth in Section 13 hereof;
(ii) within the number of days set forth in Section 13 hereof after the
end of each of the fiscal periods of Borrower set forth in Section 13
hereof, financial reports of Borrower, which shall include a balance
sheet, an income statement showing the results of operations for such
fiscal period and a change in financial position statement for such
fiscal period, together, in each case, with the comparable figures for
the immediately preceding corresponding fiscal period, all in reasonable
detail and prepared in accordance with generally accepted accounting
principles, consistently applied, and containing the certifications
required pursuant to Section 13 hereof;
(iii) with each such set of financial statements, a certificate prepared
as at the end of the period covered by such financial statements,
showing the computation as of such date of each of the financial
covenants contained in Section 6.1(a);
(iv) within twenty (20) days after the end of each month a Borrowing
Base Certificate in the form attached hereto as Exhibit A, to which
shall be attached the following reports:
(A) An aging and listing of all accounts receivable prepared in
accordance with generally accepted accounting principles which
itemizes each account debtor by name and address and which states the
total amount payable to Borrower and contains a breakdown indicating
future amounts due and when due, current amounts due, amounts thirty
(30) days past due, sixty (60) days past due, and ninety (90) or more
days past due, and reflecting any credit adjustments, returns and
allowances;
(B) An aging and listing of all accounts payable-trade prepared in a
similar manner;
(C) A complete and detailed description of all inventory containing a
breakdown into the categories referenced in Section 1.2 hereof and
set forth in Section 13 hereof;
(v) promptly, from time to time, upon request of Bank, such other
information concerning the financial condition, business and affairs of
Borrower as shall be reasonably requested by Bank;
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<PAGE> 3
(c) Notices. Borrower shall promptly notify Bank in writing of the
occurrence of any Event of Default under any of the Loan Documents or any
act or event which, with the giving of notice or the passage of time, or
both, would be such an Event of Default and of any legal action, proceeding
or investigation threatened or instituted against Borrower that might have
a material adverse effect upon the operations, financial condition or
business of Borrower or Borrower's ability to repay the Loan, or Bank's
security interest in the Property, and from time to time, at Bank's
request, Borrower will furnish to Bank a summary of the status of all such
actions, proceedings or investigation;
(d) Financial Covenants. Except as otherwise noted, all capitalized terms
referred to in the following financial covenants shall be determined in
accordance with generally accepted accounting principles, consistently
applied:
(i) a minimum Tangible Net Worth shall be maintained in the amount set
forth in Section 13 hereof, where "Tangible Net Worth" shall mean the
sum of the following: Capital, Capital Surplus and Retained Earnings,
less the sum of the value on Borrower's books of all intangible
assets, including, but not limited to, goodwill, patents, franchises,
trademarks, copyrights and the write-up in the book value of any
assets resulting therefrom after acquisition;
(ii) a minimum Owner's Equity shall be maintained of the percentage
set forth in Section 13 hereof, where "Owner's Equity" shall mean the
results obtained by dividing (A) Tangible Net Worth by (B) Borrower's
Total Assets less Intangibles;
(iii) a minimum current ratio, calculated by dividing Borrower's
Current Assets by Borrower's Current Liabilities, shall be maintained
at the ratio set forth in Section 13 hereof;
(iv) a minimum Working Capital shall be maintained in the amount set
forth in Section 13 hereof, where "Working Capital" shall mean
Borrower's Current Assets less Borrower's Current Liabilities; and
(v) a minimum interest coverage ratio calculated by dividing
Borrower's Total Earnings before interest and taxes by Borrower's
Total Interest Expense shall be maintained at the ratio set forth in
Section 13 hereof;
(e) Maintain Business. Borrower shall maintain in full force and effect all
licenses, permits, authorizations, bonds, franchises and other rights
necessary or desirable to the profitable conduct of its business, shall
continue in, and limit its operations to, the same general lines of
business as are presently conducted and shall comply with all applicable
laws, orders, regulations and ordinances of all governmental authorities,
and, if a corporation or partnership, shall maintain its corporate or
partnership existence;
(f) Mergers, Sale of Assets. Borrower will not, without Bank's prior
written consent: (i) sell, lease, transfer or dispose of substantially all
of its assets to another entity; or (ii) consolidate with or merge into
another entity, permit any other entity to merge into it or consolidate
with it, or permit any transfer of the ownership of, or power to control,
Borrower;
(g) Dividends and Other Distributions. If so indicated in Section 13
hereof, Borrower (if a corporation or a partnership) will not, without
Bank's prior written consent, declare, order, pay or make, directly or
indirectly: (i) any dividend or other distribution on or on account of any
shares of any class of stock or any other partnership interest of Borrower
now or hereafter outstanding, except a dividend payable solely in shares of
Borrower's common stock; (ii) any management fee; (iii) any loans to
shareholders or partners of Borrower; or (iv) any redemption, retirement,
purchase or other acquisition of any shares of any class of stock or
partnership interest of Borrower now or hereafter outstanding or of any
warrants or rights to purchase any such stock or partnership interest,
except (if Borrower is a corporation) to the extent that the consideration
paid for any such redemption, retirement, purchase or acquisition consists
of shares of Borrower's common stock;
(h) Capital Expenditures. Borrower will not, without Bank's prior written
consent, in any twelve (12) month period, purchase, invest in or otherwise
acquire additional fixed assets, which in the aggregate cost Borrower more
than the amount set forth in Section 13 hereof;
(i) Leases. Borrower will not, without Bank's prior written consent, enter
into any lease of personal property which would cause Borrower's total
rental obligations in any fiscal year to exceed the amount set forth in
Section 13 hereof;
(j) Indebtedness. Borrower will not, without Bank's prior written consent:
(i) incur, create, assume or permit to exist any obligation or
indebtedness, except (A) existing indebtedness disclosed on financial
statements previously delivered to Bank, (B) the Loan and (C) other
indebtedness and trade obligations and normal accruals in the ordinary
course of business not yet due and payable; (ii) become liable, directly or
indirectly, as guarantor or otherwise, for any obligation of any person or
entity, except existing obligations of such kind previously disclosed to
Bank in writing, in excess of the amount set forth in Section 13;
(k) Insurance. Borrower shall maintain and keep in force insurance of the
types and amounts customarily carried in its lines of business, including,
without limitation, fire, public liability, product liability, property
damage and workers' compensation, such insurance to be carried with
companies and in amounts satisfactory to Bank, in its reasonable
discretion, and Borrower shall deliver to Bank from time to time as Bank
may request, schedules setting forth all insurance then in effect and
copies of the policies; and
(l) Environmental Matters. Borrower will take all reasonable actions to
prevent the occurrence of any material violation of any applicable
environmental, health and safety statutes and regulations, or any order or
judgment of any court with respect to environmental pollution or
contamination, hazardous waste disposal or any other environmental matter
and Borrower shall promptly give written notice to Bank of the following
occurrences and of the steps being taken by Borrower, with respect thereto:
(i) notice that Borrower's operations are not in full compliance with the
requirements of applicable environmental, health and safety statutes and
regulations; (ii) notice that Borrower is subject to a governmental
investigation evaluating whether any remedial action is needed to respond
to the release of any hazardous or toxic waste or substance into the
environment; or (iii) notice that any properties or assets of Borrower are
subject to any environmental lien.
7. EVENTS OF DEFAULT.
7.1 Events of Default. The occurrence of one or more of the following events
shall constitute an Event of Default under this Agreement:
(a) There shall occur an event of default under a Security Agreement;
(b) Borrower fails to observe or perform any of the covenants, conditions
and agreements on the part of Borrower contained herein or in any of the
other Loan Documents other than Security Agreements;
(c) If any representation or warranty made by Borrower to Bank contained
herein or in any of the other Loan Documents proves to have been untrue in
any material respect when made; or
(d) Borrower shall be in default in the payment or performance of any
material obligation under any indenture, contract, mortgage, deed of trust
or other agreement or instrument to which Borrower is a party or by which
it is bound.
8. REMEDIES OF BANK UPON DEFAULT.
8.1 Remedies. At any time after any Event of Default has occurred, Bank may,
without presentment, demand, protest or further notice of any kind (all of which
are hereby expressly waived) and, notwithstanding the provisions contained in
any other document or instrument executed or to be executed by Borrower to Bank
hereunder or contained in any other agreement, take any one or more of the
following actions:
(a) Declare the entire principal and any accrued interest on the Loan,
together with all costs and expenses, to be immediately due and payable,
and to enforce payment thereof by any means permitted by law or in equity;
(b) Without accelerating payment, enforce the payment of sums of principal
and interest then due (including any penalty interest or late payment
charges);
(c) Require Borrower to take or refrain from taking any action which may be
necessary to cure such Event of Default and to obtain affirmative or
negative injunctions or restraining orders with respect thereto;
(d) Obtain the appointment of a receiver of the business and assets of
Borrower;
(e) File suit for any sums owing or for damages; and
(f) Exercise any other remedy or right provided in law or in equity or
permitted under this Agreement, the Security Agreements or any of the other
Loan Documents.
8.2 Remedies Cumulative. Any and all remedies conferred upon Bank shall be
deemed cumulative with, and nonexclusive of any other remedy conferred hereby or
by law, and Bank in the exercise of any one remedy shall not be precluded from
the exercise of any other.
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<PAGE> 4
9. ATTORNEYS' FEES AND EXPENSES.
In addition to interest on principal as stated in the Note, Borrower shall pay
all costs of closing the Loan and all expenses of Bank with respect thereto,
including, but not limited to, inspection fees and in-house and outside legal
fees (including legal fees incurred by Bank subsequent to the closing of the
Loan in connection with the disbursement and administration of the Loan),
filing fees and similar items. Said attorneys' fees and costs may, at Bank's
option, be deducted from the disbursements of Loan proceeds hereunder. In
addition to any liability Borrower may have under Arizona Revised Statutes
12-341.01, Borrower shall pay Bank's attorneys' fees and costs incurred in the
collection of any indebtedness hereunder, or in enforcing this Agreement,
whether or not suit is brought, and any attorneys' fees and costs incurred by
Bank in any proceeding under the Federal Bankruptcy Code in order to collect
any indebtedness hereunder or to preserve, protect or realize upon any security
for such indebtedness.
10. WAIVER.
Any waiver of any of the terms of this Agreement by Bank shall not be construed
as a waiver of any other terms of this Agreement, and no waiver shall be
effective unless made in writing. The failure of Bank to exercise any right
with respect to the declaration of any default shall not be deemed or construed
to constitute a waiver by, or to preclude Bank from exercising any right with
respect to such default at a later date or with respect to any subsequent
default by Borrower.
11. NOTICES.
Any notices required or permitted to be given pursuant to the Loan Documents
shall be in writing and shall be given by personal delivery or by mailing the
same by United States mail, postage prepaid, to the address set forth in
Section 13 hereof. Any such notice shall be deemed received for purposes of
this Agreement upon delivery if given by personal delivery or 3 days after the
mailing thereof if given by mail. If either party desires to change the address
to which notices are to be sent it shall do so in writing and deliver the same
to the other party in accordance with the notice provisions set forth above.
12. MISCELLANEOUS.
12.1 Parties. This Agreement is made solely between Borrower and Bank, no
other person shall have any right of action hereunder. The parties expressly
agree that no person shall be a third-party beneficiary to this Agreement.
12.2 Indemnity. Borrower agrees to and shall indemnify, hold harmless and
defend Bank from any liability, claims or losses resulting from the
disbursement of the proceeds of the Loan or from the condition of the Property
whether arising during or after the term of the Loan. This provision shall
survive repayment of the Loan and shall continue in full force and effect so
long as the possibility of such liability, claims or losses exists.
12.3 Entire Agreement. This Agreement (including, if so indicated in Section
13 hereof, the Addendum attached hereto and by this reference incorporated
herein), together with all other Loan Documents, constitutes the entire
agreement of the parties hereto and thereto, and no prior agreement or
understanding with respect to the Loan, whether written or oral and including,
but not limited to, any loan commitment issued by Bank to Borrower, shall be of
any further force or effect, all such other prior agreements and commitments
having been superseded in their entirety by the Loan Documents.
12.4 Assignment. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective executors, administrators, heirs,
successors and assigns; provided, however, that neither this Agreement nor any
rights or obligations hereunder shall be assignable by Borrower without the
prior express written consent of Bank first had any obtained, and any purported
assignment made in contravention hereof shall be void. Bank may assign any part
of or all of the Loan and its rights and obligations hereunder at any time in
its sole discretion. Bank may participate all or any portion of the Loan to
such other party or parties as Bank shall select.
12.5 Governing Law. This Agreement and each of the Loan Documents shall be
construed in accordance with and governed by the internal law, and not the law
of conflicts, of the State of Arizona.
12.6 Time. Time is of the essence hereof.
12.7 Survival. The representations and warranties hereunder shall survive the
closing of the Loan and Bank may enforce such representations and warranties at
any time. Borrower's covenants shall survive the closing of the Loan and shall
be performed fully and faithfully by Borrower at all times. The indemnities of
Borrower shall survive repayment of the Loan.
12.8 Severability. If any term or provision of this Agreement of any other
Loan Document, or the application thereof to any circumstance, shall be
invalid, illegal or unenforceable to any extent, such term or provision shall
not invalidate or render unenforceable any other term or provision of this
Agreement or any other Loan Document, or the application of such term or
provision to any other circumstance. To the extent permitted by law, the
parties hereto hereby waive any provision of law that renders any term or
provision hereof invalid or unenforceable in any respect.
13. STATEMENT OF TERMS.
1.1 Maximum Amount: $10,000,000.00 1.1 Expiration Date: 12/5/97
1.2 Eligible Receivables 1.2 Eligible Inventory
Percentage: 80% Percentage: 35%
1.2(c) No. of Days 1.2(d) No. of Days
Past Due 89 Past Due: NA
1.2 Inventory Categories: Raw Materials X yes __ no
Work in Process __ X no
Finished Goods X yes __ no
1.5 Remittance Account __ is X is not required
3.2 Persons Authorized to Request Advances
GEORGE R. WALLNER OR ALBERT IRATO OR SCOTT TSUJITA
4.1(a) Commitment Fee: $30,000.00, inclusive of document preparation fee
4.1(b) Non-Utilization Fee: NA % per annum
4.1(c) Inspection Fee: NA % per inspection
6.1(b)(i) Statements due within 120 days of each fiscal year
Certification Requirements Independent certified public accountant
satisfactory to Bank to review financial statements
6.1(b)(ii) Statements due within 45 days of each month end
Certification Requirements company prepared on a consolidated basis
6.1(d)(i) Minimum Tangible Net Worth: $ *
6.1(d)(ii) Owner's Equity: * %
6.1(d)(iii) Current Ratio: * :1.0
6.1(d)(iv) Minimum Working Capital: $ *
6.1(d)(v) Interest Coverage Ratio: * :1.0
6.1(g) Dividends and Other Distributions * are * are not permitted
6.1(h) Capital Expenditures: $ *
6.1(i) Leases: $ *
6.1(j) Indebtedness: $ NA
11. Address for Notices HYPERCOM INC & HYPERCOM LATINO AMERICA INC &
To Borrower: HYPERCOM MANUFACTURING RESOURCES INC
2851 W. KATHLEEN ROAD
PHOENIX, AZ 85023
Attention:
To Bank: Bank One, Arizona, NA
P.O. BOX 71 DEPT A-781
PHOENIX, AZ 85001-0071
Attention: SCOTT T. SCHAEFER
12.3 Addendum X is __ is not attached hereto and incorporated herein.
* see addendum attached hereto
IN WITNESS WHEREOF, the parties have executed this Agreement this 13th day of
MARCH 1996.
Borrower: HYPERCOM, INC., an Arizona corporation, and HYPERCOM LATINO AMERICA,
INC., an Arizona corporation, and HYPERCOM MANUFACTURING RESOURCES, INC., an
Arizona corporation
By: SEE ATTACHED ADDENDUM FOR SIGNATURES
PRINTED NAME: SEE ATTACHED ADDENDUM FOR SIGNATURES
TITLE:
Bank:
BANK ONE, ARIZONA, NA
By: SEE ATTACHED ADDENDUM FOR SIGNATURES
PRINTED NAME: SCOTT T. SCHAEFER
TITLE: VICE PRESIDENT
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ADDENDUM TO REVOLVING LINE OF CREDIT LOAN AGREEMENT
(ACCOUNTS RECEIVABLE AND INVENTORY)
BETWEEN HYPERCOM, INC., an Arizona corporation & HYPERCOM LATINO AMERICA, INC.
an Arizona corporation & HYPERCOM MANUFACTURING RESOURCES, INC., an Arizona
corporation ("BORROWER")
AND BANK ONE, ARIZONA, NA ("BANK") DATED MARCH 13, 1996
1. Section 6.1(b) of the Loan Agreement is modified to add subsection (v) as
follows:
"(v) Borrower shall cause Guarantor to furnish to Bank, (i) as soon as
available and in any event within ninety (90) days after the end of each
fiscal year of Guarantor, copies of the balance sheet of Guarantor as of
the end of such fiscal year and statements of income and retained
earnings and a statement of cash flow of Guarantor for such fiscal year,
in each case setting forth in comparative form the figures for the
preceding fiscal year of Guarantor, all in reasonable detail, compiled
by a certified public accountant and signed by Guarantor.
2. Section 6.1(d) of the Loan Agreement is replaced in its entirety as follows:
"(d) Financial Covenants-Except as otherwise noted, all capitalized terms
referred to in the following financial covenants shall be determined in
accordance with generally accepted accounting principles, consistently
applied:
(i) A minimum Tangible Net Worth shall be maintained in an amount equal
to the sum of (A) $25,000,000.00 and (B) the aggregate of fifty percent
(50%) of the net income of Borrower for each fiscal year, commencing
with that fiscal year ending June 30, 1996. "Tangible Net Worth" means
(A) the sum of all capital accounts of the Borrower (including, without
limitation, and paid-in capital, capital surplus, and retained
earnings), less (B) the sum of the value on Borrower's books of all
Intangible Assets. "Intangible Assets" means all intangible assets under
GAAP, provided, that regardless of GAAP, Intangible Assets shall
include: copyrights; franchises; goodwill; licenses; loan origination
fees; non-competition covenants; organization or formation expenses;
patents; shares of the capital stock of Borrower; service marks; service
names; trademarks; tradenames; write-up in the book value of any asset
in excess of the acquisition cost of the asset to Borrower; any amount,
however designated on the balance sheet, representing the excess of the
purchase price paid for assets or stock acquired over the value assigned
thereto on the books of Borrower; unamortized debt discount; deferred
discount; computer software; and research and development costs and
expenses. Tangible Net Worth shall not be reduced by any net income that
is less than zero (i.e., a net deficit or loss).
(ii) An Owner's Equity Percentage shall be maintained equal to or
exceeding 35%. "Owner's Equity Percentage" means the result obtained by
dividing (A) Owner's Equity Amount by (B) Total Assets, less Intangible
Assets. "Owner's Equity Amount" means the sum of Tangible Net Worth and
indebtedness subordinated to the satisfaction of Bank to the obligations
of Borrower under the Loan Documents as to liens and encumbrances, time
and right of payment, and rights against collateral.
(iii) A minimum current ratio shall be maintained of 1.30 to 1.0
calculated by dividing Borrower's Current Assets by Borrower's Current
Liabilities where "Current Assets" means current assets under GAAP,
provided that, regardless of GAAP, Current Assets shall not include:
accounts receivable other than trade accounts receivable; receivables
due from stockholders, directors, officers, partners, members,
employees, subsidiaries, and other affiliates; promissory notes,
including the portion due within the current period, unless the
obligation evidenced thereby has been independently verified to Bank by
an independent certified public accountant; accrued interest receivable;
income tax refunds
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<PAGE> 6
receivable; prepaid expenses; cash surrender value of life insurance
policies; guarantee or performance deposits; and dealer reserves; and
"Current Liabilities" means current liabilities under GAAP and, in
addition, the following: all indebtedness to stockholders, directors,
officers, partners, members, employees, subsidiaries, and other
affiliates that is not subordinated to the satisfaction of Bank to the
obligations of Borrower under the Loan Documents as to liens and
encumbrances, time and right of payment, and rights against collateral.
(iv) A minimum Working Capital shall be maintained in the amount of
$10,000,000.00. "Working Capital" means Borrower's Current Assets, less
Borrower's Current Liabilities.
(v) A minimum Debt Coverage Ratio shall be maintained of 2.0 to 1.0.
This ratio shall be calculated by dividing (A) Borrower's net income
after Interest and Taxes and before Amortization and Depreciation, by
(B) the prior period current portion of Loan Term Debt."
3. Section 6.1(g) of the Loan Agreement is replaced in its entirety as follows:
(g) Dividends and Other Distributions. Borrower will not directly or
indirectly (i) declare or pay any dividend or other distribution on or
account of any capital stock or other securities of Borrower in excess
of 100% of net annual earnings of Borrower, except a dividend payable
solely in shares of the common stock of Borrower; or (ii) pay any
management fee in excess of 100% of net annual earnings of Borrower.
Borrower will cause Guarantor not to directly or indirectly (i) declare
or pay any dividend or other distribution on or account of any capital
stock or other securities of Guarantor in excess of 100% of net annual
earnings of Guarantor, except a dividend payable solely in shares of the
common stock of Guarantor; or (ii) pay any management fee in excess of
100% of net annual earnings of Guarantor.
4. Section 6.1(h), (i), and (j) of the Loan Agreement are replaced in their
entirety by (h) as follows:
(h) Capital Expenditures, Leases, and Indebtedness. Borrower will not in
any twelve (12) month period, (a) acquire additional fixed assets, (b)
enter into any lease of personal property, or (c) assume, create, incur,
or permit to exist any indebtedness, except (i) existing indebtedness
disclosed on financial statements delivered to Bank prior to the date of
this Agreement, (ii) the obligations of Borrower to Bank, and (iii)
other indebtedness and trade obligations and normal accruals in the
ordinary course of business not yet due and payable, in the case of (a),
(b), and (c) each in excess in the aggregate of $2,500,000.00.
5. The Loan Agreement is modified the add Sections 14 through 19 as follows:
14. Definitions. The RLC Loan Agreement and this Addendum are
hereinafter referred to as the "Agreement". Capitalized terms used
herein shall have the meanings set forth in the RLC Loan Agreement and
the following terms shall have the following meanings:
"Commitment" means the agreement of BANK hereunder to issue Letters of
Credit pursuant to the terms and conditions in Letter of Credit
Agreements and to make Advances pursuant to the terms and conditions in
the Agreement.
"Existing Letter(s) of Credit" means any and all letter(s) of credit
issued by BANK at the request of BORROWER prior to the date of this
Agreement, as to which letter(s) of credit the date that is the Standard
Number of Days after the last date for payment of drafts drawn or drawn
and accepted thereunder is after the date of this Agreement.
2
<PAGE> 7
"Letter of Credit Agreement" means BANK's standard form Application and
Agreement for Commercial Letter of Credit, BANK's standard form Application for
Standby Letter of Credit and Standby Letter of Credit Agreement, or other
standard application and agreement for letters of credit in use by BANK from
time to time.
"Letters of Credit" means the letters of credit in BANK's standard form from
time to time issued pursuant to this Agreement and any Existing Letters of
Credit.
"Reimbursement Amount" means the amount BORROWER is obligated to pay to BANK
under a Letter of Credit Agreement in respect of a draft drawn or drawn and
accepted under the respective Letter of Credit, which amount shall be the
amount of the draft or acceptance and all costs, expenses, fees, and other
amounts then payable by BORROWER to BANK under the Letter of Credit Agreement.
"Standard Number of Days" means the standard number of days established by BANK
from time to time to allow for delivery to BANK of drafts drawn under letters
of credit issued by BANK and presented to financial institutions other than
BANK for delivery to BANK. BANK may change such number of days at any time and
from time to time in its absolute and sole discretion without notice to
BORROWER and may have a different number of days for commercial letters of
credit and standby letters of credit.
15. Letters of Credit.
15.1 Issuance of Letters of Credit. Subject to the terms and conditions
of this Agreement and the Letter of Credit Agreements and subject to the
policies, procedures, and requirements of BANK in effect from time to time for
issuance of Letters of Credit (including, without limitation, payment of letter
of credit fees), BANK agrees to issue, from time to time on or before the
scheduled Commitment expiration date set forth in the Agreement, Letters of
Credit upon request by and for the account of BORROWER, provided that as to
each requested Letter of Credit BORROWER has delivered to BANK a completed and
executed Letter of Credit Agreement, and provided further that the date that is
the Standard Number of Days after the last date for payment of drafts drawn or
drawn and accepted under a requested Letter of Credit is before the scheduled
Commitment expiration date set forth in the Agreement. Each reference in this
Agreement to "issue" or "issuance" or other forms of such words in relation to
Letters of Credit shall also include any extension or renewal of a Letter of
Credit. Upon occurrence of an Event of default, or any condition or event that
with notice, passage of time, or both would be an Event of default, BANK, in
its absolute and sole discretion and without notice, may suspend the commitment
to issue Letters of Credit. In addition, upon occurrence of an Event of
default, BANK, in its absolute and sole discretion and without notice, may
terminate the commitment to issue Letters of Credit.
15.2 Issuance Procedure. To obtain a Letter of Credit, BORROWER shall
complete and execute a Letter of Credit Agreement and submit it to the letter
of credit department of BANK. Upon receipt of a completed and executed Letter of
Credit Agreement, BANK will process the application in accordance with the
policies, procedures, and requirements of BANK then in effect. If the
application meets the requirements of BANK and is within the policies of BANK
then in effect, BANK will issue the requested Letter of Credit.
15.3 Reimbursement of BANK for Payment of Drafts Drawn or Drawn and
Accepted Under Letters of Credit. The obligation of BORROWER to reimburse BANK
for payment by BANK of drafts drawn or drawn and accepted under a Letter of
Credit shall be as provided in the respective Letter of
3
<PAGE> 8
Credit Agreement. BANK will notify BORROWER of payment by BANK of a draft drawn
or drawn and accepted under a Letter of Credit and of the respective
Reimbursement Amount and will give BORROWER the election (i) to pay the
Reimbursement Amount pursuant to the respective Letter of Credit Agreement or
(ii) to pay the Reimbursement Amount by BANK making an Advance subject to the
terms and conditions of this Agreement and applying the proceeds of the Advance
to pay the Reimbursement Amount. If BORROWER does not communicate to BANK its
election within two Business Days after notification by BANK of payment of the
draft or acceptance, BORROWER shall be deemed to have elected to pay the
Reimbursement Amount by BANK making an Advance hereunder, provided that if the
terms and conditions in this Agreement for an Advance hereunder are not
satisfied, BORROWER shall be deemed to have elected to pay the Reimbursement
Amount pursuant to the Letter of Credit Agreement. Each Advance to pay a
Reimbursement Amount shall be dated the date that BANK pays the respective draft
or acceptance and shall accrue interest from and after such date. If BORROWER is
to pay the Reimbursement Amount pursuant to the Letter of Credit Agreement,
BORROWER shall also pay to BANK interest on the Reimbursement Amount from and
including the date BANK pays the respective draft or acceptance at the rate per
annum at which interest is then accruing under the Line of Credit Note until the
Reimbursement Amount and such interest are paid in full, provided that if
BORROWER fails to pay the Reimbursement Amount and accrued interest thereon
within five (5) days after notification by BANK to BORROWER of payment of the
respective draft or acceptance, interest thereafter shall accrue at the interest
rate applicable to past-due payments under the Line of Credit Note. Such
interest shall be computed on the basis of a 360-day year and accrue on a daily
basis for the actual number of days elapsed. Notwithstanding the above, if
BORROWER elects or is deemed to have elected to pay the Reimbursement Amount
pursuant to the Letter of Credit Agreement and fails to pay the Reimbursement
Amount and interest thereon within five (5) days after notification by BANK to
BORROWER, BANK, in its absolute and sole discretion and without notice to
BORROWER and regardless of whether the terms and conditions in this Agreement
for Advances are satisfied, may make an Advance under this Agreement in the
amount of the Reimbursement Amount and accrued interest thereon and apply the
proceeds of such Advance to pay the Reimbursement Amount and accrued interest.
16. Letters of Credit and Advances. Letters of Credit may be issued by BANK at
the oral or written request of the respective person or persons designated in
the Agreement to request Advances. Such person or persons are hereby
authorized by BORROWER to request Letters of Credit and Advances, to execute
and deliver Letter of Credit Agreements on behalf of BORROWER, and to direct
disposition of the proceeds of Advances until written notice of the revocation
of such authority is received from BORROWER by BANK and BANK has had a
reasonable time to act upon such notice. BANK shall have no duty to monitor for
BORROWER or to report to BORROWER the use of Letters of Credit or proceeds of
Advances. Advances shall be disbursed by BANK in the manner agreed upon by BANK
and BORROWER from time to time.
17. Limit on Letters of Credit and Advances. Anything in the Loan Documents to
the contrary notwithstanding, the sum from time to time of (i) the aggregate
amount of outstanding and undrawn Letters of Credit, (ii) the aggregate amount
of outstanding and unpaid drafts drawn or drawn and accepted under Letters of
Credit, (iii) the aggregate amount of unpaid Reimbursement Amounts, and (iv)
the amount of outstanding and unpaid Advances shall not exceed the lesser of (A)
the Maximum Amount and (B) the Borrowing Base, provided, that if such sum at
any time exceeds the lesser of (A) and (B), BORROWER, without notice or demand,
shall immediately make a payment to BANK in an amount equal to the sum of (1)
such excess and (2) accrued and unpaid interest thereon.
18. Collateral Upon Event of Default. Upon an event of default and demand by
BANK in its absolute and sole discretion, BORROWER shall immediately deliver
to BANK, as security for all obligations of
4
<PAGE> 9
Borrower under the Loan Documents (including, without limitation, the
obligation to pay Reimbursement Amounts), immediately available funds in an
amount equal to the sum of (i) the aggregate amount of outstanding and
undrawn Letters of Credit, and (ii) the aggregate amount of outstanding and
unpaid drafts drawn or drawn and accepted under Letters of Credit. BORROWER
hereby grants to BANK a security interest in all such funds delivered to
BANK to secure payment and performance of said obligations.
19. Conditions Precedent to Each Advance and Letter of Credit. BANK shall
be obligated to issue a Letter of Credit or make an Advance when requested
by BORROWER only if the representations and warranties by the Loan Parties
in the Loan Documents are accurate on and as of the date of this Agreement
and on and as of the date of issuance of the Letter of Credit or of making
the Advance before and after giving effect to the Letter of Credit or the
Advance and the application of the proceeds of the Advance. Delay or
failure by BANK to insist on satisfaction of any condition of issuance of a
Letter of Credit or making an Advance shall not be a waiver of such
condition precedent or any other condition precedent. If BORROWER is unable
to satisfy any condition precedent of issuance of a Letter of Credit or
making an Advance, the issuance of the Letter of Credit or the making of
the Advance shall not preclude BANK from thereafter declaring the condition
or event causing such inability to be an event of default.
Dated this 13th day of March, 1996.
BORROWER:
HYPERCOM, INC., an Arizona corporation
By: /s/ Albert Irato
-------------------------------
Albert Irato, President and CEO
HYPERCOM LATINO AMERICA, INC., an Arizona corporation
By: /s/ Albert Irato
-------------------------------
Albert Irato, Vice President
HYPERCOM MANUFACTURING RESOURCES, INC.,
an Arizona corporation
By: /s/ Albert Irato
-------------------------------
Albert Irato, President
BANK:
BANK ONE, ARIZONA, NA
BY: /s/ Scott T. Schaefer
-------------------------------
Scott T. Schaefer, Vice President
5
<PAGE> 10
EXHIBIT A
BANK ONE, ARIZONA, NA
BORROWING BASE RECONCILIATION
HYPERCOM, INC. AND HYPERCOM LATINO AMERICA, INC.
AND HYPERCOM MANUFACTURING RESOURCES, INC.
Due to Bank by 20th of each month
1. Total Assigned Accounts Receivable $_____________
2. Less: Ineligibles - Accounts over 90 days $_____________
3. Less: Uninsured Foreign Receivables not backed by a LOC $_____________
4. Less: Government Receivables $_____________
5. Less: Related Accounts Receivable $_____________
6. Net Accounts Receivable $_____________
7. Margin 80%
8. Borrowing Potential on Accounts Receivable $_____________
9. Total Assigned Inventory $_____________
10. Less: Work in Progress $_____________
11. Less: Accounts Payable - Trade $_____________
12. Less: Customer Deposits $_____________
13. Less: Book Overdraft $_____________
14. Net Inventory $_____________
15. Margin 35%
16. Borrowing Potential on Inventory $_____________
17. Total Borrowing Potential (lines 8 + 16) $_____________
18. RLC Commitment $10,000,000.00
19. RLC Outstanding Balance $_____________
20. Is the RLC in Margin (Lines 17 vs 19) YES/NO
DATE: _______________________
<TABLE>
<CAPTION>
HYPERCOM, INC. AND HYPERCOM LATINO AMERICA, INC. AND HYPERCOM MANUFACTURING
RESOURCES, INC.
<S> <C> <C>
BY: ____________ BY: ____________ BY: ____________
ITS: ____________ ITS: ____________ ITS: ____________
</TABLE>
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
APPROVED BY:
- ---------------------------------------------------------------------------------------------------------------------
Officer Name Officer No. Dept./Branch Name
SCOTT T. SCHAEFER 377764 COMMERCIAL BANKING CENTER
- ---------------------------------------------------------------------------------------------------------------------
Dept./Branch No. Account No. Commitment No. Note No. Class
A-781 4274576744 18 42
- ---------------------------------------------------------------------------------------------------------------------
Loan $ Name: HYPERCOM, INC., an Arizona corporation and HYPERCOM LATINO AMERICA, INC., an
10,000,000.00 Arizona corporation and HYPERCOM MANUFACTURING RESOURCES, INC., an Arizona corporation
- ---------------------------------------------------------------------------------------------------------------------
Rate Interest From REPLACEMENT of Note
BANK ONE, ARIZONA, NA PRIME, TO MOVE WITH PRIME 4274573402-75/133 HYPERCOM, INC.
AND HYPERCOM LATINO AMERICA, INC.
- ---------------------------------------------------------------------------------------------------------------------
Collateral: S/A DATED 3/13/96-INVENTORY, RECEIVABLES AND RIGHTS TO PAYMENT AND EQUIPMENT BY HYPERCOM, INC.;
S/A DATED 3/13/96-INVENTORY, RECEIVABLES AND RIGHTS TO PAYMENT AND EQUIPMENT BY HYPERCOM LATINO AMERICA,
INC.; AND S/A DATED 3/13/96-INVENTORY, RECEIVABLES AND RIGHTS TO PAYMENT AND EQUIPMENT BY HYPERCOM
MANUFACTURING RESOURCES, INC.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
BANK ONE, ARIZONA, NA
REVOLVING LINE OF CREDIT NOTE
VARIABLE RATE
Phoenix, Arizona
MARCH 13, 1996
FOR VALUE RECEIVED, the undersigned ("Borrower"), promises to pay on or
before December 5, 1997 to BANK ONE, ARIZONA, NA, a national banking
association, ("Bank"), or order, the aggregate principal amount outstanding on
Borrower's revolving line of credit as shown on Bank's records which shall at
all times be conclusive and govern, with interest payable monthly on the unpaid
balance outstanding from time to time at an annual rate equal to ZERO percent
(0.00%) more than the rate of interest publicly announced by BANK ONE, ARIZONA,
NA as its "prime rate", as such rate shall change from time to time during the
term hereof. Interest is to be charged on a daily basis for the actual number
of days the principal is outstanding from the date of disbursement to date of
maturity. The rate of interest agreed to shall include the interest rate as
shown above, in accordance with the terms of this note, plus any compensating
balance requirement and any additional charges, costs and fees incident to this
loan to the extent they are deemed to be interest under applicable Arizona law.
It is expressly agreed by Borrower that the maximum outstanding principal at
any one time on this note shall not exceed the amount of TEN MILLION AND NO/100
DOLLARS ($10,000,000.00), and the amount outstanding on this note at any
specific time shall be the total amount advanced hereunder by Bank less the
amount of principal payments made hereon from time to time by Borrower. All
amounts payable hereunder shall be paid in lawful money of the United States.
Should the rate of interest as calculated under this note exceed that allowed
by law, the applicable rate of interest will be the maximum rate of interest
allowed by applicable law.
Principal and interest shall be payable at the Commercial Banking
Center office of Bank One, Arizona, NA in Phoenix, Arizona, or at such other
place as the holder hereof may designate. At Bank's option, any payments may be
applied first to accrued interest and then to principal. All past-due payments
of principal or interest shall bear interest from their due date until paid at
a rate of interest 2% per annum higher than the interest rate specified above
or 12% per annum, whichever is higher, payable on demand.
This note shall become immediately due and payable at the option of the
holder hereof without presentment or demand or any notice to Borrower or any
other person obligated hereon, upon default in the payment of any of the
principal hereof or any interest thereon when due, or in payment under any
other agreement between Borrower and Bank, or if any event occurs or condition
exists which authorized the acceleration of the maturity hereof under any
security agreement, mortgage, deed of trust or other agreement made by Borrower
in favor of Bank. Failure to exercise this option shall not constitute a waiver
of the right to exercise the same in the event of any subsequent default.
In the event any holder hereof utilizes the services of an attorney in
attempting to collect the amounts due hereunder or to enforce the terms hereof
or of any agreements related to this indebtedness, or if any holder hereof
becomes party plaintiff or defendant in any legal proceeding in relation to the
property described in any instrument securing this note or for the recovery or
protection of the indebtedness evidenced hereby, Borrower, its successors and
assigns, shall repay to such holder hereof, on demand, all costs and expenses
so incurred, including reasonable attorneys' fees, including those costs,
expenses and attorney's fees incurred after the filing by or against the
Borrower of any proceeding under any chapter of the Bankruptcy Act, or similar
federal or state statute, and whether incurred in connection with the
involvement of any holder hereof as creditor in such proceedings or otherwise.
1
<PAGE> 12
Borrower and all sureties, endorsers and guarantors of this note waive
demand, presentment for payment, notice of non-payment, protest, notice of
protest and all other notice, filing of suite and diligence in collecting this
note or the release of any party primarily or secondarily liable hereon and
further agree that it will not be necessary for any holder hereof, in order to
enforce payment of this note by any of them, to first institute suit or exhaust
its remedies against any maker or others liable herefor, and consent to any
extension or postponement of time of payment of this note or any other
indulgence with respect hereto without notice thereof to any of them.
Bank and Borrower will establish specific instructions and procedures
by which draws against said credit will be presented for disbursement, but
nothing contained herein shall create a duty on the part of Bank to make said
disbursement if Borrower is in default.
Address:
2851 West Kathleen Road
Phoenix, Arizona 85023
HYPERCOM, INC., an Arizona corporation
By: /s/ Albert Irato
-------------------------------
Albert Irato, President and CEO
HYPERCOM LATINO AMERICA, INC., an Arizona corporation
By: /s/ Albert Irato
----------------------------
Albert Irato, Vice President
HYPERCOM MANUFACTURING RESOURCES, INC., an Arizona corporation
By: /s/ Albert Irato
-----------------------
Albert Irato, President
2
<PAGE> 13
CLN# 4274576744-18/190
MODIFICATION AGREEMENT
----------------------
DATE: November 19, 1996
- ----
PARTIES: Borrower: HYPERCOM, INC., an Arizona corporation & HYPERCOM
- ------- LATINO AMERICA, INC., an Arizona corporation &
HYPERCOM MANUFACTURING RESOURCES, INC., an Arizona
corporation
Bank: BANK ONE, ARIZONA, NA, a national banking association
RECITALS:
- --------
A. Bank has extended to Borrower credit ("LOAN") in the principal amount of
$10,000,000 pursuant to the Revolving Line of Credit Loan Agreement (Accounts
Receivable and Inventory), dated March 13, 1996 ("LOAN AGREEMENT"), and
evidenced by the Revolving Line of Credit Note (Variable Rate), dated March 13,
1996 ("NOTE"). The unpaid principal of the Loan as of the date hereof is
$8,250,000.00.
B. The Loan and/or guaranty of Loan is secured by, among other things, the
(i) Continuing Security Agreement, dated March 13, 1996 by HYPERCOM, INC.,
(ii) Continuing Security Agreement, dated March 13, 1996 by HYPERCOM LATINO
AMERICA, INC., and (iii) Continuing Security Agreement, dated March 13, 1996 by
HYPERCOM MANUFACTURING RESOURCES, INC., each for the benefit of Bank (the
agreements, documents, and instruments securing the Loan and the Note are
referred to individually and collectively as the ("SECURITY DOCUMENTS").
C. The Note, the Loan Agreement, the Security Documents, any arbitration
resolution, and all other agreements, documents, and instruments evidencing,
securing, or otherwise relating to the Loan are sometimes referred to
individually and collectively as the "LOAN DOCUMENTS."
D. Borrower has requested that Bank modify the Loan and the Loan Documents as
provided herein. Bank is willing to so modify the Loan and the Loan Documents,
subject to the terms and conditions herein.
AGREEMENT:
- ---------
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Bank agree as follows:
1. ACCURACY OF RECITALS.
--------------------
Borrower acknowledges the accuracy of the Recitals.
2. MODIFICATION OF LOAN DOCUMENTS.
------------------------------
2.1 The Loan Documents are modified as follows:
2.1.1 The amount of the Loan and the Note, and the maximum principal
amount that may at any time be outstanding thereunder, is changed from
$10,000,000.00 to $20,000,000.00 and Borrower may obtain, and Bank shall be
obligated to make, further advances under the Loan Documents subject to the
terms and conditions of the Loan Documents applicable to advances.
2.1.2 The reference to Section 1.1 "Maximum Amount" in Section 13 of
the Loan Agreement is modified to read in its entirety as follows:
1.1 Maximum Amount $20,000,000.00
1
<PAGE> 14
2.1.3 Section 6.1 (b)(i) and (ii) of the Loan Agreement are modified to read
in their entirety as follows:
(i) within the number of days set forth in Section 13 hereof after the
end of each fiscal year of Borrower, consolidated financial statements
of Borrower, which shall include a balance sheet, an income statement
showing the results of operations for such a fiscal year and a change in
financial position statement for such fiscal year, together, in each
case, with the comparable figures for the immediately preceding fiscal
year, all in reasonable detail and prepared in accordance with generally
accepted accounting principles, consistently applied, which statements
shall contain the certification requirements set forth in Section 13
hereof;
(ii) within the number of days set forth in Section 13 hereof after the
end of each of the fiscal periods of Borrower set forth in Section 13
hereof, consolidated financial reports of Borrower, which shall include
a balance sheet, an income statement showing the results of operations
for such fiscal period and a change in financial position statement for
such fiscal period, together, in each case, with the comparable figures
for the immediately preceding corresponding fiscal period, all in
reasonable detail and prepared in accordance with generally accepted
accounting principles, consistently applied, and containing the
certifications required pursuant to Section 13 hereof;
2.1.4 Section 6.1 (b)(v) of the Loan Agreement is modified to read in its
entirety as follows:
(v) or shall cause Guarantor, HYPERCOM PTY, LTD., a New South Wales,
Australia corporation, to furnish to Bank, (i) as soon as available and
in any event within one hundred twenty (120) days after the end of each
fiscal year of Guarantor, copies of the balance sheet of Guarantor as of
the end of such fiscal year and statements of income and retained
earnings and a statement of cash flow of Guarantor for such fiscal year,
in each case setting forth in comparative form the figures for the
preceding fiscal year of Guarantor, all in reasonable detail, compiled
by a certified public accountant and signed by Guarantor;
2.1.5 Section 6.1 (b) of the Loan Agreement is modified to include subsection
(vi) and (vii) as follows:
(vi) as soon as available and in any event within one hundred twenty
(120) days after the end of each fiscal year a consolidated financial
statement of Hypercom, Inc and Subsidiaries & Hypercom Pty, Ltd. which
shall include a balance sheet, an income statement showing the results
of combined operations for such a fiscal year and a change in financial
position statement for such fiscal year, together, in each case, with
the comparable figures for the immediately preceding fiscal year, all in
reasonable detail and prepared in accordance with generally accepted
accounting principles, consistently applied, which statements shall
contain the following certification requirements: Independent certified
public accountant satisfactory to Bank to audit financial statements and
deliver an unqualified opinion on the financial statements;
(vii) promptly, from time to time, upon request of Bank, such other
information concerning the financial condition, business and affairs of
Borrower as shall be reasonably requested by bank;
2.1.6 Section 6.1 (d)(i) of the Loan Agreement is modified to read in its
entirety as follows:
(i) A minimum Tangible Net Worth shall be maintained in an amount equal
to the sum of (A) $30,000,000.00 and (B) the aggregate of fifty percent
(50%) of the net income of Borrower for each fiscal year, commencing
with that fiscal year ending June 30, 1996. "Tangible Net Worth" means
(A) the sum of all capital accounts of the Borrower (including, without
limitation, any paid-in capital, capital surplus, and retained
earnings), less (B) the sum of the value on Borrower's books of all
Intangible Assets. "Intangible Assets" means all intangible assets
under GAAP, provided, that regardless of GAAP, Intangible Assets shall
include: copyrights; franchises; goodwill; licenses; loan origination
fees; non-competition covenants; organization or formation expenses;
patents; shares of the capital stock of Borrower; service marks;
service names; trademarks; tradenames; write-up in the book value of
any asset in excess of the acquisition cost of the asset to Borrower;
any amount, however designated on the balance sheet, representing the
excess of the purchase price paid for assets or stock acquired over the
value assigned thereto on the books of Borrower; unamortized debt
discount; deferred discount; computer software; and research and
development costs and expenses. Tangible Net Worth shall not be reduced
by any net income that is less than zero (i.e., a net deficit or loss).
2
<PAGE> 15
2.1.7 Section 6.1 (d)(iv) of the Loan Agreement is modified to read in
its entirety as follows:
(iv) A minimum Working Capital shall be maintained in the amount of
$15,000,000.00. "Working Capital" means Borrower's Current Assets, less
Borrower's Current Liabilities.
2.1.8 Section 6.1. (d)(v) of the Loan Agreement is modified to read in
its entirety as follows:
(v) A minimum Debt Coverage Ratio shall be maintained of 2.0 to 1.0.
This ratio shall be calculated by dividing (i) the sum, for the
immediately preceding four fiscal quarters, of Borrower's Net Income,
Amortization expense, and Depreciation expense, by (ii) Borrower's
current maturities of Long Term Debt, including without limitation
Capital Leases. All capitalized terms used in the preceding sentence
shall be determined in accordance with generally accepted accounting
principles, consistently applied.
2.1.9 Section 6.1 (h),(i), and (j) of the Loan Agreement is modified
to read in its entirety as follows:
(h) Capital Expenditures, Leases, and Indebtedness. Borrower will not in
any twelve (12) month period, (a) acquire additional fixed assets, (b)
enter into any lease of personal property, or (c) assume, create, incur,
or permit to exist any indebtedness, except (i) existing indebtedness
disclosed on financial statements delivered to Bank prior to the date of
this Agreement, (ii) the obligations of Borrower to Bank, and (iii)
other indebtedness and trade obligations and normal accruals in the
ordinary course of business not yet due and payable, in the case of (a),
(b), and (c) each in excess in the aggregate of $5,000,000.00.
2.1.10 The reference to Section 6.1(b)(i) and (ii) in Section 13 of the
Loan Agreement are modified to read in their entirety as follows:
(i) Statements due within 120 days of each fiscal year
Certification Requirements: Independent certified public accountant
satisfactory to Bank to audit financial statements and deliver an
unqualified opinion on the financial statements
(ii) Statements due within 45 days of each month end
Certification Requirements: Borrower prepared financial statements
2.2 Each of the Loan Documents is modified to provide that it shall
be a default or an event of default thereunder if Borrower shall fail to comply
with any of the covenants of Borrower herein or if any representation or
warranty by Borrower herein is materially incomplete, incorrect, or misleading
as of the date hereof.
2.3 Each reference in the Loan Documents to any of the Loan
Documents shall be a reference to such document as modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
The Loan Documents are ratified and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or
interests in property granted as security in the Loan Documents shall remain as
security for the Loan and the obligations of Borrower in the Loan Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Bank:
4.1 No default or event of default under any of the Loan Documents
as modified herein, nor any event, that, with the giving of notice or the
passage of time or both, would be a default or an event of default under the
Loan Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial
condition of Borrower or any other person whose financial statement has been
delivered to Bank in connection with the Loan from the most recent financial
statement received by Bank.
4.3 Each and all representations and warranties of Borrower in the
Loan Documents are accurate on the date hereof.
3
<PAGE> 16
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrower, enforceable against Borrower in accordance with
their terms.
4.6 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as modified
herein. The execution and delivery of this Agreement and the performance of the
Loan Documents as modified herein have been duly authorized by all requisite
action by or on behalf of Borrower. This Agreement has been duly executed and
delivered on behalf of Borrower.
5. BORROWER COVENANTS.
Borrower covenants with Bank:
5.1 Borrower shall execute, deliver, and provide to Bank such
additional agreements, documents, and instruments as reasonably required by
Bank to effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and forever releases and discharges Bank
and its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in
law or equity of Borrower, whether now known or unknown to Borrower, (i) in
respect of the Loan, the Loan Documents, or the actions or omissions of Bank in
respect of the Loan or the Loan Documents and (ii) arising from events
occurring prior to the date of this Agreement.
5.3 Contemporaneously with the execution and delivery of this
Agreement, Borrower has paid to Bank:
5.3.1 All accrued and unpaid interest under the Note and all
amounts, other than interest and principal, due and payable by Borrower under
the Loan Documents as of the date hereof.
5.3.2 All the internal and external costs and expenses incurred by
Bank in connection with this Agreement (including, without limitation, inside
and outside attorneys, title, filing, and recording costs, expenses, and fees).
6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
Bank shall not be bound by this Agreement until (i) Bank has executed and
delivered this Agreement, (ii) Borrower has performed all of the obligations of
Borrower under this Agreement to be performed contemporaneously with the
execution and delivery of this Agreement, (iii) if required by Bank, Borrower
and any guarantor(s) of the Loan have executed and delivered to Bank an
arbitration resolution, and (iv) each guarantor of the Loan has executed the
Consent of Guarantor(s) below.
7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
The Loan Documents as modified herein contain the complete understanding and
agreement of Borrower and Bank in respect of the Loan and supersede all prior
representations, warranties, agreements, arrangements, understandings, and
negotiations. No provision of the Loan Documents as modified herein may be
changed, discharged, supplemented, terminated, or waived except in a writing
signed by the parties thereto.
8. BINDING EFFECT.
The Loan Documents as modified herein shall be binding upon and shall inure to
the benefit of Borrower and Bank and their respective successors and assigns.
4
<PAGE> 17
9. CHOICE OF LAW.
This Agreement shall be governed by and construed in accordance with the laws
of the State of Arizona, without giving effect to conflicts of law principles.
COUNTERPART EXECUTION.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.
DATED as of the date first above stated.
HYPERCOM, INC., an Arizona corporation
By: /s/ Albert Irato
-----------------------------------
Albert Irato, President and CEO
HYPERCOM LATINO AMERICA, INC., an Arizona
corporation
By: /s/ Albert Irato
-----------------------------------
Albert Irato, Vice President
HYPERCOM MANUFACTURING RESOURCES, INC.,
an Arizona corporation
By: /s/ Albert Irato
-----------------------------------
Albert Irato, President
BANK ONE, ARIZONA, NA,
a national banking association
By /s/ Scott T. Schaefer
-----------------------------------
Name: Scott T. Schaefer
Title: Vice President
5
<PAGE> 18
CONSENT OF GUARANTOR(S)
The undersigned (i) consent to the modification of the Loan Documents and all
other matters in the foregoing Agreement, (ii) reaffirm the Continuing
Guaranty, dated March 13, 1996 and any other agreements, documents and
instruments securing or otherwise relating thereto ("Guarantor Documents"),
(iii) acknowledge that the Guarantor Documents continue in full force and
effect, remain unchanged, except as specifically modified hereby, and are
valid, binding and enforceable in accordance with their respective terms, (iv)
agree that all references, if any, in the Guarantor Documents to any of the
Loan Documents are modified to refer to those documents as modified by the
Agreement, and (v) agree to be bound by the release of Bank set forth in the
Agreement.
Dated as of the date of the Agreement.
HYPERCOM PTY. LTD.,
A New South Wales, Australia corporation
By: /s/ George Wallner
---------------------------------
George R. Wallner, Director
6
<PAGE> 1
EXHIBIT 10.2
STANDARD INDUSTRIAL LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION LOGO]
1. PARTIES. This Lease, dated, for reference purposes only, June 14, 1996, is
made by and between Estes-Samuelson Partnership, an Arizona General Partnership,
2400 East Arizona Biltmore Circle, Suite 1360, Phoenix, Arizona 85016 (herein
called "Lessor") and Hypercom, Inc., an Arizona Corporation, 2851 West Kathleen
Road, Phoenix, Arizona 85023 (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Maricopa State of Arizona.
commonly known as 15640 North 28th Drive and described as Lot 1, Tract A,
Arizona Business Park, Unit 6, a 23,772 SF Building. The plans and
specifications for the base building are delivered herewith. Said real
property including the land and all improvements therein, is herein called
"the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for 10 Years commencing on
September 1, 1996 and ending on August 31, 2006 unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee
hereunder or extend the term hereof, but in such case, Lessee shall not be
obligated to pay rent until possession of the Premises is tendered to Lessee;
provided, however, that if Lessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the parties shall be discharged
from all obligations hereunder; provided further, however, that if such written
notice of Lessee is not received by Lessor within said ten (10) day period,
Lessee's right to cancel this Lease hereunder shall terminate and be of no
further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay
rent for such period at the initial monthly rates set forth below.
4. RENT. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $17,591.28, in advance, on the day of each month of the term hereof.
Lessee shall pay Lessor upon the execution hereof $ as rent for
September, 1996. Commencing with the September, 2001 payment, the net monthly
rental shall increase to $19,730.76. Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the
monthly installment. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$17,591.28 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provisions of this Lease. Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Lessee's failure
to do so shall be a material breach of this Lease. Lessor shall not be required
to keep said deposit separate from its general accounts. If Lessee performs all
of Lessee's obligations hereunder, said deposit, or so much thereof as has not
theretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest hereunder) at the expiration of
the term hereof, and after Lessee has vacated the Premises. No trust
relationship is created herein between Lessor and Lessee with respect to said
Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for
administrative office, light assembly, and warehouse and distribution. or any
other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition
and repair the Premises and every part thereof, structural and non-structural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (interior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises. also, Arizona Business Park
Common Area Maintenance.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned
Initials:
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NET
-------
(C)American Industrial Real Estate Association 1980
<PAGE> 2
by the installation or removal of Lessee's trade fixtures, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, plumbing and
fencing on the premises in good operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after ten
(10) days' prior written notice to Lessee (except in the case of an emergency,
in which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair and the cost thereof
together with interest thereon at the maximum rate then allowable by law shall
become due and payable as additional ?????????? to Lessor together with Lessee's
next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warranty), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or nonstructural, all of which obligations are intended to be that of
the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility Installations in, on
or about the Premises, except for nonstructural alterations not exceeding $2,500
in cumulative costs during the term of this Lease. In any event, whether or not
in excess of $2,500 in cumulative cost, Lessee shall make no change or
alteration to the exterior of the Premises nor the exterior of the building(s)
on the Premises without Lessor's prior written consent. As used in this
Paragraph 7.5 the term "Utility Installation" shall mean carpeting, window
coverings, air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term, and restore
the Premises to their prior condition. Lessor may require Lessee to provide
Lessor, at Lessee's sole cost and expense, a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such improvements,
to insure Lessor against any liability for mechanic's and materialmen's liens
and to insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, Lessor may require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor's against liability for the same and holding the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorneys fees and costs in participating in such action
if Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.5(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall become the
property of Lessor and remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph 7.5(d).
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall
also maintain the liability insurance described in paragraph 8.2 hereof, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name Lessee
as an additional insured on such policy. Whether the insuring party is the
Lessor or the Lessee, Lessee shall, as additional rent for the Premises, pay the
cost of all insurance required hereunder, except for that portion of the cost
attributable to Lessor's liability insurance coverage in excess of $1,000,000
per occurrence. If Lessor is the insuring party Lessee shall, within ten (10)
days following demand by Lessor, reimburse Lessor for the cost of the insurance
so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage insurance insuring Lessor and Lessee
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be a combined single limit policy in an amount not less than 1,000,000 per
occurrence. The policy shall insure performance by Lessee of the indemnity
provisions of this Paragraph 8. The limits of said insurance shall not, however,
limit the liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during the
terms of this Lease a policy or policies of insurance covering loss or damage to
the Premises, in the amount of the full replacement value thereof, as the same
may exist from time to time, which replacement value is now $1,000,000.00, but
in no event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. The insuring party shall, in
addition, obtain and keep in force during the term of this Lease a policy of
rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all real estate taxes and insurance
costs for said period. A stipulated value or agreed amount endorsement deleting
the coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. if the insuring party
shall fail to procure and maintain said insurance the other party may, but shall
not be required to, procure and maintain the same, but at the expense of Lessee.
If such insurance coverage has a deductible clause, the deductible amount shall
not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount.
(b) If the Premises are part of a larger building, or if the
Premises are part of a group of buildings owned by Lessor which are adjacent to
the Premises, then Lessee shall pay for any increase in the property insurance
of such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not
insure Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide". The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in Paragraph
8.3. If Lessee does or permits to be done anything which shall increase the cost
of the insurance policies referred to in Paragraph 8.3, then Lessee shall
forthwith upon Lessor's demand reimburse Lessor for any additional premiums
attributable to any act or omission or operation of Lessee causing such increase
in the cost of insurance. If Lessor is the insuring party, and if the insurance
policies maintained hereunder cover other improvements in addition to the
Premises. Lessor shall deliver to Lessee a written statement setting forth the
amount of any such insurance cost increase and showing in reasonable detail the
manner in which it has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from
and against any and all claims arising from Lessee's use of the Premises, or
from the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of the Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim. Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee,
as a material party of the consideration to Lessor, hereby assumes all risk of
damage to property or injury to persons, in, upon or about the Premises arising
from any cause and Lessee hereby waives all claims in respect thereof against
Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessee shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
NET -2- Initials:
----
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<PAGE> 3
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is less than
50% of the then replacement cost of the Premises. "Premises Building Partial
Damage" shall herein mean damage or destruction to the building of which the
Premises are a part to the extent that the cost of repair is less than 50% of
the then replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the then replacement cost of the Premises. "Premises Building Total
Destruction" shall herein mean damage or destruction to the building of which
the Premises are a part to the extent that the cost of repair is 50% or more of
the then replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction
which was caused by an event required to be covered by the insurance described
in paragraph 8.
9.2 PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is an Insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's expense, repair such damage, but not Lessee's fixtures, equipment
or tenant improvements unless the same have become a part of the Premises
pursuant to Paragraph 7.5 hereof as soon as reasonably possible and this Lease
shall continue in full force and effect. Notwithstanding the above, if the
Lessee is the insuring party, and if the insurance proceeds received by Lessor
are not sufficient to effect such repair, Lessor shall give notice to Lessee of
the amount required in addition to the insurance proceeds to effect such
repair. Lessee shall contribute the required amount to Lessor within ten days
after Lessee has received notice from Lessor of the shortage in the insurance.
When Lessee shall contribute such amount to Lessor, Lessor shall make such
repairs as soon as reasonably possible and this Lease shall continue in full
force and effect. Lessee shall in no event have any right to reimbursement for
any such amounts so contributed.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an Insured Loss and which falls within the
classification of Premises Partial Damage or Premises Building Partial Damage,
unless caused by a negligent or willful act of Lessee (in which event Lessee
shall make the repairs at Lessee's expense), Lessor may at Lessor's option
either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
the occurrence of such damage of Lessor's intention to cancel and terminate
this Lease, as of the date of the occurrence of such damage. In the event
Lessor elects to give such notice of Lessor's intention to cancel and terminate
this Lease, Lessee shall have the right within ten (10) days after the receipt
of such notice to give written notice to Lessor of Lessee's intention to repair
such damage at Lessee's expense, without reimbursement from Lessor, in which
event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this
Lease there is damage, whether or not an Insured Loss, (including destruction
required by any authorized public authority), which falls into the
classification of Premises Total Destruction or Premises Building Total
Destruction, this Lease shall automatically terminate as of the date of such
total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of
this Lease there is damage, whether or not an Insured Loss, which falls within
the classification of Premises Partial Damage, Lessor may at Lessor's option
cancel and terminate this Lease as of the date of occurrence of such damage by
giving written notice to Lessee of Lessor's election to do so within 30 days
after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than 20 days after the occurrence of
an Insured Loss falling within the classification of Premises Partial Damage
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said 20 day period, Lessor shall, at Lessor's expense,
repair such damage as soon as reasonably possible and this Lease shall continue
in full force and effect. If Lessee fails to exercise such option during said
20 day period, then Lessor may at Lessor's option terminate and cancel this
Lease as of the expiration of said 20 day period by giving written notice to
Lessee of Lessor's election to do so within 10 days after the expiration of
said 20 day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3,
and Lessor or Lessee repairs or restores the Premises pursuant to the
provisions of this Paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within 90 days after such obligations shall accure,
Lessee may at Lessee's option cancel and terminate this Lease by giving Lessor
written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as
defined in paragraph 10.2, applicable to the Premises during the term of this
Lease. All such payments shall be made at least ten (10) days prior to the
delinquency date of such payment. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes paid by
Lessee shall cover any period of time prior to or after the expiration of the
term hereof, Lessee's share of such taxes shall be equitably prorated to cover
only the period of time within the tax fiscal year during which this Lease shall
be in effect, and Lessor shall reimburse Lessee to the extent required. If
Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the
same, in which case Lessee shall repay such amount to Lessor with Lessee's next
rent installment together with interest at the maximum rate then allowable by
law.
10.2 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Premises by any authority having
the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, as against any legal or equitable interest
of Lessor in the Premises or in the real property of which the Premises are a
part, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Premises. The term "real property tax"
shall also include any tax, fee, levy, assessment or charge (i) in substitution
of, partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax" or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and
all other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within 10 days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this ???. Any such assignment shall not, in any way,
affect or limit the liability of Lessee under the terms of this Lease even if
after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of which shall not
be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. Consent to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments or subletting of this Lease or
amendments or modifications to this Lease with assignees
Initials:
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of Lessee, without notifying Lessee, or any successor of Lessee, and without
obtaining its or their consent thereto and such action shall not relieve Lessee
of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by:
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice thereof from Lessor to Lessee;
provided, however, that if the nature of Lessee's default is such that more than
30 days are reasonably required for its cure, then Lessee shall not be deemed to
be in default if Lessee commenced such cure within said 30-day period and
thereafter diligently prosecutes such cure to completion.
(d)(i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided however in the event that any
provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge ??? to 6% of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default with respect to
such overdue amount, nor prevent Lessor from exercising any of the other rights
and remedies granted hereunder. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive installments of
rent, then rent shall automatically become due and payable quarterly in advance,
rather than monthly, notwithstanding paragraph 4 or any other provision of this
Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than 10% of the floor area
of the building on the Premises, or more than 25% of the land area of the
Premises which is not occupied by any building, is taken by condemnation. Lessee
may, at Lessee's option, to be exercised in writing only within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent shall be
reduced in the proportion that the floor area of the building taken bears to the
total floor area of the building situated on the Premises. No reduction of rent
shall occur if the only area taken is that which does not have a building
located thereon. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award shall
be made as compensation for diminution in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee shall
be entitled to any award for loss of or damage to Lessee's trade fixtures and
removable personal property. In the event that this Lease is not terminated by
reason of such condemnation. Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed thereunder by the condemning authority, Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Cushman & Wakefield Licensed real estate broker(s), a fee as set forth in a
separate agreement between Lessor and said broker(s), or in the event there is
no separate agreement between Lessor and said broker(s), the sum of $ ,
for brokerage services rendered by said broker(s) to Lessor in this transaction.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this ??? whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this Paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this Paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be
NET INITIALS:
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conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and
shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in
Paragraph 15, in the event of any transfer of such title or interest, Lessor
herein named (and in case of any subsequent transfers then the grantor) shall
be relieved from and after the date of such transfer of all liability as
respects Lessor's obligations thereafter to be performed, provided that any
funds in the hands of Lessor or the then grantor at the time of such transfer,
in which Lessee has an interest, shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest
at the time of the modification. Except as otherwise stated in this Lease,
Lessee hereby acknowledges that neither the real estate broker listed in
Paragraph 15 hereof nor any cooperating broker on this transaction nor the
Lessor or any employees or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or
use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable
laws and regulations in effect during the term of this Lease except as
otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent
so accepted, regardless of Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, but all options and rights
of first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure
to execute such documents within 10 days after written demand shall constitute
a material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
court. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making
such alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the
prior permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent
shall not be reasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are authorized and legally
capable of executing this Lease on behalf of Lessor and that such execution is
binding upon all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of
first refusal to lease other property of Lessor or the right of first offer to
lease other property of Lessor; (3) the right or option to purchase the
Premises, or the right of first refusal to purchase the Premises, or the right
of first offer to purchase the Premises or the right or option to purchase
other property of Lessor, or the right of first refusal to purchase other
property of Lessor or the right of first offer to purchase other property of
Lessor.
Initials:
-----
NET -----
- 5 -
<PAGE> 6
39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the
default alleged in said notice of default is cured, or (ii) during the period
of time commencing on the day after a monetary obligation to Lessor is due from
Lessee and unpaid (without any necessity for notice thereof to Lessee)
continuing until the obligation is paid, or (iii) at any time after an event of
default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any
necessity of Lessor to give notice of such default to Lessee), or (iv) in the
event that Lessor has given to Lessee three or more notices of default under
paragraph 13.1(b), where a late charge has become payable under paragraph 13.4
for each of such defaults, or paragraph 13.1(c), whether or not the defaults
are cured, during the 12 month period prior to the time that Lessee intends to
exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of 30 days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within 30 days after
the date that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without
any necessity of Lessor to give notice of such default to Lessee), or (iv)
Lessor gives to Lessee three or more notices of default under paragraph
13.1(b), where a late charge becomes payable under paragraph 13.4 for each such
default, or paragraph 13.1(c), whether or not the defaults are cured.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. Easements. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material breach of this Lease.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation, trust
or partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Insuring Party. The insuring party under this lease shall be the Lessee.
47. Addendum. Attached hereto is an addendum or addenda containing paragraphs
48 through 50 which constitutes ??? of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO: THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at Estes-Samuelson Partnership
------------------------------ ----------------------------------
on By /s/
--------------------------------------- -------------------------------
Address 2400 East Arizona Biltmore, #1360 By
--------------------------------- -------------------------------
Phoenix, AZ 85016
- ----------------------------------------- "LESSEE" (Corporate seal)
??? at Hypercom, Inc.
----------------------------------- ----------------------------------
on By /s/
--------------------------------------- --------------------------------
Address 2851 W. Kathleen Road By
--------------------------------- --------------------------------
Phoenix, AZ 85023
- ----------------------------------------- "LESSEE" (Corporate seal)
For these forms write or call the American Industrial Real Estate Association,
345 South Figueroa St., M-1, Los Angeles, CA 90071
(213) 687-8777 Form 204n 780
(C)1980 - By American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
<PAGE> 7
ADDENDUM TO THAT CERTAIN LEASE DATE JUNE , 1996 BETWEEN
ESTES-SAMUELSON PARTNERSHIP AS LESSOR AND HYPERCOM, INC. AS LESSEE.
48. TENANT IMPROVEMENT ALLOWANCE. An allowance of $285,264 shall be
contributed by Lessor for the construction of improvements to the Premises. The
construction of said improvements shall be accomplished by Lessor. Preliminary
plans showing the proposed improvements shall be submitted to Lessee for its
approval on or before June 20, 1996. Lessee shall, within three (3) days of
receipt, either: (1) approve said plans or (2) negotiate such modifications
with Lessor's representative so as to attempt to make said plans mutually
acceptable. In the event Lessee requests modifications to the plans, Lessee and
Lessor shall work diligently together to attempt to reach a mutually acceptable
solution within ten (10) days of Lessee's receipt of the plans for the proposed
improvements. In the event Lessee has not objected to any aspect of said plans
within three (3) days of receipt, then said plans shall be deemed to have been
approved by Lessee. Upon the approval of said plans by Lessee, Lessor shall
immediately provide for the expeditious completion of the detailed working
drawings for the improvements and submit to the City the same for building
permit. In the event the parties are unable to reach agreement upon the
preliminary plans within the said ten (10) days following receipt of the
preliminary plans for the proposed improvements then this Lease shall become
null and void and neither party shall have further obligation to the other.
Lessor shall contract with The Weitz Company to act as general contractor for
the construction of the tenant improvements. The Weitz Company shall secure a
minimum of three (3) bids for each trade involved in constructing said tenant
improvements. In the event the total cost of constructing said tenant
improvements exceeds the $285,264 tenant improvement allowance, Lessee shall
pay such excess cost to Lessor within ten (10) days of the issuance of a final
certificate of occupancy by the City of Phoenix relating to the construction of
such tenant improvements. In order that Lessee may control its potential
monetary obligation under the terms of this paragraph Lessee shall have the
right to review and approve all cost estimates and contract amounts generated
by The Weitz Company relating to the work associated with said tenant
improvements. In the event Lessee, Lessor, and The Weitz Company do not agree
on the budget for the cost of the tenant improvements within ten (10) days
after the submission of the same to Lessee then this Lease shall become null
and void and neither party shall have further obligation to the other.
In the event the total cost of the tenant improvements is less than the budget
amount of $285,264 Lessee shall be given a credit against future rentals due in
an amount equal to the difference between the $285,264 and the actual cost of
the tenant improvements. The actual cost of the tenant improvements shall
include but not be limited to the actual construction cost paid to The Weitz
Company related to said tenant improvements, the cost of preparing the plans
and specifications related to said tenant improvements, any City fees or
charges related directly thereto. No brokerage fees or Lessor's overhead or
profit shall be included in the cost of the tenant improvements.
Notwithstanding the provisions of Articles 3 and 4 above, the Lease
commencement date shall be that date upon which a certificate of occupancy is
issued by the City of Phoenix for the improvements to the Premises and the
tenant improvement work which will allow Lessee to take possession of the
Premises for the purposes of conducting its business therein. The parties agree
that it is to their mutual benefit to make the Premises available for Lessee's
use at the earliest possible date and they will work diligently toward that end.
<PAGE> 8
49. OPTION TO RENEW. If Lessee shall have faithfully performed its obligations
under this Lease, then Lessee shall have an option to extend the term of this
Lease for five (5) years ("Option Period") under the same terms and conditions
as in this Lease contained except that the rental rate during the Option Period
shall be increased by seventy percent (70%) of the increase in the Consumer
Price Index, All Urban Consumers/United States, as published by the United
States Department of Labor Bureau of Labor Statistics using the said Index as
published for the month of May 1996 as the base Index and the index as published
for the month of May 2006 for the comparison Index. In the event the said Index
is no longer published at the time of exercise of this Option, then the parties
shall agree upon a substitute Index which shall measure the erosion and
purchasing power of the dollar, if any, during the appropriate period.
The Option Period must be exercised in writing by delivering notice to Lessor at
least one hundred eighty days (180) but no more than two hundred seventy days
(270), prior to the expiration of the base lease term.
<PAGE> 9
ADDENDUM NUMBER 2 TO THAT CERTAIN LEASE DATE JUNE 14, 1996 BETWEEN
ESTES-SAMUELSON PARTNERSHIP AS LESSOR AND HYPERCOM, INC. AS LESSEE.
Article 50. FIRST RIGHT OF OFFER. Prior to offering the Premises for sale to
any third party Landlord shall first offer the Premises for sale to Tenant by
providing Tenant with written notice setting forth the purchase price, terms
and conditions under which Landlord is willing to sell the Premises. Tenant
shall have 30 days from the date of receipt of said notice in which to notify
Landlord of Tenant's acceptance of said offer. In the event Tenant fails to
provide written notice to Landlord within the specified period of time,
Landlord may, within the ten month period following the date of receipt of said
notice by Tenant sell the Premises to any third party under substantially the
same terms and conditions except that the purchase price may be reduced by no
more than five percent of the amount set forth in such offer. If Landlord does
not sell the Premises during the specified ten month period then Tenant's
rights under this First Right of Offer provision shall be reinstated, and
Landlord shall be obligated to provide written notice as provided above to
Tenant prior to any sale to a third party. This First Right of Offer shall not
apply to intra-partnership transfers to persons or entities that are currently
partners in the Estes-Samuelson Partnership, or the heirs of said persons.
<PAGE> 10
AMENDMENT TO THAT CERTAIN LEASE DATE JUNE 14, 1996 BETWEEN
ESTES-SAMUELSON PARTNERSHIP AS LESSOR AND HYPERCOM, INC. AS LESSEE.
WHEREAS, Estes-Samuelson Partnership, as Lessor, and Hypercom, Inc., as Lessee
entered into that certain Lease dated June 14, 1996 and the parties hereby
amend said Lease in accordance with the following:
1. Article 3.1. TERM. The Lease is hereby amended to read "The term of
this Lease shall be for fifteen (15) years commencing on September 1,
1996 and ending on August 31, 2011, unless sooner terminated pursuant
to any provision hereof."
2. Article 4. RENT. The Lease is hereby amended by adding an additional
sentence immediately after the sentence reading "Commencing with the
September, 2001 payment, the net monthly rental shall increase to
$19,730.76." The additional sentence shall read, "Commencing with the
September, 2006 payment, the net monthly rental shall increase to
$20,500.00."
All other terms and conditions of the Lease shall remain unchanged.
Estes-Samuelson Partnership Hypercom, Inc.
/s/ Thomas R. Hornaday /s/ Al Irato
- ---------------------- ------------
Thomas R. Hornaday Al Irato
Partner President
<PAGE> 11
March 10, 1997
SECOND AMENDMENT TO THAT CERTAIN LEASE DATE JUNE 14, 1996 BETWEEN
ESTES-SAMUELSON PARTNERSHIP AS LESSOR AND HYPERCOM, INC. AS LESSEE.
Upon examination it has been determined that the first "Amendment..." to
the subject Lease is inconsistent with Article 49. of the original Lease
document. Therefore, the parties wish to substitute the following Article 49.
for the original Article in order to make it consistent with the Lease, as
amended.
49. OPTION TO RENEW. If Lessee shall have faithfully performed its
obligations under this Lease, then Lessee shall have an option to extend the
term of this Lease for five (5) years ("Option Period") under the same terms
and conditions as in this Lease contained except that the rental rate during
the Option Period shall be increased by seventy percent (70%) of the increase
in the Consumer Price Index, All Urban Consumers/United States, as published by
the United States Department of Labor, Bureau of Labor Statistics using the
said Index as published for the month of May 2006 as the base Index and the
index as published for the month of May 2011 for the comparison Index. In the
event the said Index is no longer published at the time of exercise of this
Option, then the parties shall agree upon a substitute Index which shall
measure the erosion in purchasing power of the dollar, if any, during the
appropriate period.
The Option Period must be exercised in writing by delivering notice to Lessor
at least one hundred eighty days (180) but no more than two hundred seventy
days (270), prior to the expiration of the base lease term.
All other terms and conditions of the Lease shall remain unchanged.
Estes-Samuelson Partnership Hypercom, Inc.
/s/ Thomas R. Hornaday /s/ Al Irato
- ---------------------- ------------
Thomas R. Hornaday Al Irato
Partner President
<PAGE> 1
EXHIBIT 10.3
HYPERCOM CORPORATION
LONG-TERM INCENTIVE PLAN
ARTICLE 1 PURPOSE
1.1. GENERAL. The purpose of the Hypercom Corporation Long-Term
Incentive Plan (the "Plan") is to promote the success, and enhance the value, of
Hypercom Corporation and its subsidiaries (collectively, the "Company") by
linking the personal interests of its employees, consultants, and advisors to
those of Company stockholders and by providing its employees, consultants, and
advisors with an incentive for outstanding performance. The Plan is further
intended to provide flexibility to the Company in its ability to motivate,
attract, and retain the services of employees, consultants, and advisors upon
whose judgment, interest, and special effort the successful conduct of the
Company's operation is largely dependent. Accordingly, the Plan permits the
grant of incentive awards from time to time to selected employees, consultants,
and advisors of the Company.
ARTICLE 2 EFFECTIVE DATE
2.1. EFFECTIVE DATE. The Plan is effective as of November 26,
1996 (the "Effective Date). Within one year after the Effective Date, the Plan
shall be submitted to the stockholders of the Company for their approval. The
Plan will be deemed to be approved by the stockholders if it receives the
affirmative vote of the holders of a majority of the shares of stock of the
Company present, or represented, and entitled to vote at a meeting duly held (or
by the written consent of the holders of a majority of the shares of stock of
the Company entitled to vote) in accordance with the applicable provisions of
the Delaware General Corporation Law and the Company's Bylaws and Certificate of
Incorporation. Any Awards granted under the Plan prior to stockholder approval
are effective when made (unless the Committee specifies otherwise at the time of
grant), but no Award may be exercised or settled and no restrictions relating to
any Award may lapse before stockholder approval. If the stockholders fail to
approve the Plan, any Award previously made shall be automatically canceled
without any further act.
ARTICLE 3 DEFINITIONS AND CONSTRUCTION.
3.1. DEFINITIONS. When a word or phrase appears in this Plan
with the initial letter capitalized, and the word or phrase does not commence a
sentence, the word or phrase shall generally be given the meaning ascribed to it
in this Section or in Sections 1.1 or 2.1 unless a clearly different meaning is
required by the context. The following words and phrases shall have the
following meanings:
(a) "Award" means any Option, Stock Appreciation Right,
Restricted Stock Award, Performance Share Award, Dividend
Equivalent Award, or Other Stock-Based
<PAGE> 2
Award, or any other right or interest relating to Stock or cash,
granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement,
contract, or other instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Company
or a Committee thereof formed under Section 4, as the case may
be.
(d) "Cause" means (except as otherwise provided in on
Option Agreement) if the Board, in its reasonable and good faith
discretion, determines that the employee, consultant or advisor
(i) has developed or pursued interests substantially adverse to
the Company, (ii) materially breached any employment, engagement
or confidentiality agreement or otherwise failed to
satisfactorily discharge his or her duties, (iii) has not
devoted all or substantially all of his or her business time,
effort and attention to the affairs of the Company (or such
lesser amount as has been agreed to in writing by the Company),
(iv) is charged with or convicted of a felony, or (v) has
engaged in activities or omissions that are detrimental to the
well-being of the Company.
(e) "Change of Control" means and includes each of the
following (except as otherwise provided in an Option Agreement):
(1) there shall be consummated any
consolidation or merger of the Company in
which the Company is not the continuing or
surviving entity, or pursuant to which Stock
would be converted into cash, securities or
other property, other than a merger of the
Company in which the holders of the Company's
Stock immediately prior to the merger have at
least 80% ownership of beneficial interest of
common stock or other voting securities of the
surviving entity immediately after the merger;
(2) there shall be consummated any sale,
lease, exchange or other transfer (in one
transaction or a series of related
transactions) of assets or earning power
aggregating more than 40% of the assets or
earning power of the Company and its
subsidiaries (taken as a whole), other than
pursuant to a sale-leaseback, structured
finance or other form of financing
transaction;
(3) the stockholders of the Company shall
approve any plan or proposal for liquidation
or dissolution of the Company;
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<PAGE> 3
(4) any person (as such term is used in
Section 13(d) and 14(d)(2) of the Exchange
Act), other than any current stockholder of
the Company or affiliate thereof or any
employee benefit plan of the Company or any
subsidiary of the Company or any entity
holding shares of capital stock of the Company
for or pursuant to the terms of any such
employee benefit plan in its role as an agent
or trustee for such plan, shall become the
beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of 51% or more
of the Company's outstanding Stock; or
(5) during any period of two consecutive
years, individuals who at the beginning of
such period constituted a majority of the
Board shall fail to constitute a majority
thereof, unless the election, or the
nomination for election by the Company's
stockholders, of each new director was
approved by a vote of at least two-thirds of
the directors then still in office who were
directors at the beginning of the period.
(f) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Committee" means the committee of the Board
described in Article 4.
(h) "Disability" shall mean any illness or other
physical or mental condition of a Participant which renders the
Participant incapable of performing his customary and usual
duties for the Company, or any medically determinable illness or
other physical or mental condition resulting from a bodily
injury, disease or mental disorder which in the judgment of the
Committee is permanent and continuous in nature. The Committee
may require such medical or other evidence as it deems necessary
to judge the nature and permanency of the Participant's
condition.
(i) "Dividend Equivalent" means a right granted to a
Participant under Article 11.
(j) "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.
(k) "Fair Market Value" means with respect to Stock or
any other property, the fair market value of such Stock or other
property as determined by the Board in its discretion, under one
of the following methods: (i) the last reported sales price or
closing price for the Stock as reported on any national
securities exchange on which the Stock is then listed (which
shall include the Nasdaq National Market) for that date or, if
no prices are so reported for that date, such prices on the next
preceding date for
-3-
<PAGE> 4
which such prices were reported; or (ii) the price as determined
by such methods or procedures as may be established from time to
time by the Board.
(l) "Incentive Stock Option" means an Option that is
intended to meet the requirements of Section 422 of the Code or
any successor provision thereto.
(m) "Non-Qualified Stock Option" means an Option that
is not intended to be an Incentive Stock Option.
(n) "Option" means a right granted to a Participant
under Article 7 of the Plan to purchase Stock at a specified
price during specified time periods. An Option may be either an
Incentive Stock Option or a Non-Qualified Stock Option.
(o) "Other Stock-Based Award" means a right, granted to
a Participant under Article 12, that relates to or is valued by
reference to Stock or other Awards relating to Stock.
(p) "Participant" means a person who, as an employee of
or consultant or advisor to the Company or any Subsidiary, has
been granted an Award under the Plan. A "Participant" shall not
include any Director of the Company or any Subsidiary who is not
also an employee of or consultant to the Company or any
Subsidiary.
(q) "Performance Share" means a right granted to a
Participant under Article 9, to receive cash, Stock, or other
Awards, the payment of which is contingent upon achieving
certain performance goals established by the Committee.
(r) "Plan" means the Hypercom Corporation Long-Term
Incentive Plan, as amended from time to time.
(s) "Restricted Stock Award" means Stock granted to a
Participant under Article 10 that is subject to certain
restrictions and to risk of forfeiture.
(t) "Stock" means the Common Stock of the Company and
such other securities of the Company that may be substituted for
Stock pursuant to Article 13.
(u) "Stock Appreciation Right" or "SAR" means a right
granted to a Participant under Article 8 to receive a payment
equal to the difference between the Fair Market Value of a share
of Stock as of the date of exercise of the SAR over the grant
price of the SAR, all as determined pursuant to Article 8.
-4-
<PAGE> 5
(v) "Subsidiary" means any corporation, domestic or
foreign, of which a majority of the outstanding voting stock or
voting power is beneficially owned directly or indirectly by the
Company.
ARTICLE 4 ADMINISTRATION
4.1. BOARD/COMMITTEE. The Plan shall be administered by the
Board of Directors or a Committee that is appointed by, and serves at the
discretion of, the Board. Any Committee shall consist of at least two
individuals who are members of the Board and are "nonemployee directors" as that
term is defined in Rule 16b-3(b)(3) promulgated under Section 16 of the Exchange
Act or any successor provision, except as may be otherwise permitted under
Section 16 of the Exchange Act and the regulations and rules promulgated
thereunder. For purposes of this Plan, the "Board" shall mean the Board of
Directors or the Committee, as the case may be.
4.2. ACTION BY THE BOARD. A majority of the Board shall
constitute a quorum. The acts of a majority of the members present at any
meeting at which a quorum is present and acts approved in writing by a majority
of the Board in lieu of a meeting shall be deemed the acts of the Board. Each
member of the Board is entitled to, in good faith, rely or act upon any report
or other information furnished to that member by any officer or other employee
of the Company or any Subsidiary, the Company's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Company to assist in the administration of the Plan.
4.3. AUTHORITY OF BOARD. The Board has the exclusive power,
authority and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted
to each Participant;
(c) Determine the number of Awards to be granted and
the number of shares of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award
granted under the Plan including but not limited to, the
exercise price, grant price, or purchase price, any restrictions
or limitations on the Award, any schedule for lapse of
forfeiture restrictions or restrictions on the exercisability of
an Award, and accelerations or waivers thereof, based in each
case on such considerations as the Board in its sole discretion
determines;
(e) Determine whether, to what extent, and under what
circumstances an Award may be settled in, or the exercise price
of an Award may be paid in, cash,
-5-
<PAGE> 6
Stock, other Awards, or other property, or an Award may be
canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which
need not be identical for each Participant;
(g) Decide all other matters that must be determined in
connection with an Award;
(h) Establish, adopt or revise any rules and
regulations as it may deem necessary or advisable to administer
the Plan; and
(i) Make all other decisions and determinations that
may be required under the Plan or as the Board deems necessary
or advisable to administer the Plan.
Notwithstanding the above or anything else in the Plan to the
contrary, the executive officers of the Company also have the authority, subject
to the terms, conditions, and parameters set forth by the Board from time to
time, to select Award recipients and establish the terms and conditions of
Awards; provided, however, that (i) any such Award recipient must not be a
person who, at the time the Award is granted, is subject to the restrictions
imposed by Section 16 of the Exchange Act, and (ii) no Awards may be granted at
less than Fair Market Value on the Date of Grant.
4.4. DECISIONS BINDING. The Board's interpretation of the Plan,
any Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Board with respect to the Plan are final, binding, and
conclusive on all parties.
ARTICLE 5 SHARES SUBJECT TO THE PLAN
5.1. NUMBER OF SHARES. Subject to adjustment provided in Section
14, the aggregate number of shares of Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Share
Award) shall be 4,000,000.
5.2. LAPSED AWARDS. To the extent that an Award terminates,
expires or lapses for any reason, any shares of Stock subject to the Award will
again be available for the grant of an Award under the Plan and shares subject
to SARs or other Awards settled in cash will be available for the grant of an
Award under the Plan, in each case to the full extent available pursuant to the
rules and interpretations of the Securities and Exchange Commission under
Section 16 of the Exchange Act, if applicable.
-6-
<PAGE> 7
5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an
Award may consist, in whole or in part, of authorized and unissued Stock,
treasury Stock or Stock purchased on the open market.
5.4. LIMITATIONS ON AWARDS TO ANY SINGLE PARTICIPANT. Subject
to the adjustment provided in Section 14, no single Participant may receive
Awards covering in the aggregate more than 1,500,000 shares of Stock.
ARTICLE 6 ELIGIBILITY
6.1. GENERAL. Awards may be granted only to individuals who
are employees (including employees who also are directors or officers) of the
Company or a Subsidiary or to consultants or advisors thereto, as determined by
the Board.
ARTICLE 7 STOCK OPTIONS
7.1. GENERAL. The Board is authorized to grant Options to
Participants on the following terms and conditions:
(a) EXERCISE PRICE. The exercise price per share of
Stock under an Option shall be determined by the Board.
(b) TIME AND CONDITIONS OF EXERCISE. The Board shall
determine the time or times at which an Option may be
exercised in whole or in part, provided that no Option may be
exercisable prior to six months following the date of the
grant of such Option. The Board also shall determine the
performance or other conditions, if any, that must be
satisfied before all or part of an Option may be exercised. An
Option shall lapse immediately upon a Participant's
termination of employment or termination of consulting
relationship for Cause, unless the Board determines otherwise.
(c) PAYMENT. The Board shall determine the methods by
which the exercise price of an Option may be paid, the form of
payment, including, without limitation, cash, shares of Stock,
or other property (including net issuance or other "cashless
exercise" arrangements), and the methods by which shares of
Stock shall be delivered or deemed to be delivered to
Participants. Without limiting the power and discretion
conferred on the Board pursuant to the preceding sentence, the
Board may, in the exercise of its discretion, but need not,
allow a Participant to pay the Option price by directing the
Company to withhold from the shares of Stock that would
otherwise be issued upon exercise of the Option that number of
shares having a Fair Market Value on the exercise date equal
to the Option price, all as determined pursuant to rules and
procedures established by the Board.
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(d) EVIDENCE OF GRANT. All Options shall be evidenced
by a written Award Agreement between the Company and the
Participant. The Award Agreement shall include such provisions
as may be specified by the Board.
7.2 INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock
Options granted under the Plan must comply with the following additional rules:
(a) EXERCISE PRICE. The exercise price per share of
Stock shall be set by the Board, provided that the exercise
price for any Incentive Stock Option may not be less than the
Fair Market Value as of the date of the grant.
(b) EXERCISE. In no event may any Incentive Stock
Option be exercisable for more than ten years from the date of
its grant.
(c) LAPSE OF OPTION. An Incentive Stock Option shall
lapse under the following circumstances:
(1) The Incentive Stock Option shall lapse
ten (10) years after it is granted, unless an earlier time is
set in the Award Agreement.
(2) The Incentive Stock Option shall lapse
immediately upon termination of employment for Cause or for
any other reason, other than the Participant's death or
Disability, unless the Board determines in its discretion to
extend the exercise period after the Participant's termination
of employment.
(3) In the case of the Participant's
termination of employment due to Disability or death, the
Incentive Stock Option shall lapse immediately upon
termination of employment, unless the Board determines in its
discretion to extend the exercise period of the Incentive
Stock Option for no more than twelve (12) months after the
date the Participant terminates employment. Upon the
Participant's death, any vested and otherwise exercisable
Incentive Stock Options may be exercised by the Participant's
legal representative or representatives, by the person or
persons entitled to do so under the Participant's last will
and testament, or, if the Participant shall fail to make
testamentary disposition of such Incentive Stock Option or
shall die intestate, by the person or persons entitled to
receive said Incentive Stock Option under the applicable laws
of descent and distribution.
(d) INDIVIDUAL DOLLAR LIMITATION. The aggregate Fair
Market Value (determined as of the time an Award is made) of
all shares of Stock with respect to which Incentive Stock
Options are first exercisable by a Participant in any calendar
year may not exceed One Hundred Thousand Dollars
($100,000.00).
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(e) TEN PERCENT OWNERS. An Incentive Stock Option shall
be granted to any individual who, at the date of grant, owns
stock possessing more than ten percent (10%) of the total
combined voting power of all classes of Stock of the Company
only if, at the time such Option is granted, the Option price
is at least one hundred ten percent (110%) of the Fair Market
Value of the Stock and such Option by its terms is not
exercisable after the expiration of five (5) years from the
date the Option is granted.
(f) EXPIRATION OF INCENTIVE STOCK OPTIONS. No Award of
an Incentive Stock Option may be made pursuant to this Plan
after the tenth anniversary of the Effective Date.
(g) RIGHT TO EXERCISE. During a Participant's lifetime,
an Incentive Stock Option may be exercised only by the
Participant.
(h) EMPLOYEES ONLY. Incentive Stock Options may be
granted only to Participants who are employees of the Company
or any Subsidiary.
ARTICLE 8 STOCK APPRECIATION RIGHTS
8.1. GRANT OF SARs. The Board is authorized to grant SARs to
Participants on the following terms and conditions:
(a) RIGHT TO PAYMENT. Upon the exercise of a Stock
Appreciation Right, the Participant to whom it is granted has
the right to receive the excess, if any, of:
(1) The Fair Market Value of one share of
Stock on the date of exercise; over
(2) The grant price of the Stock
Appreciation Right as determined by the Board, which shall not
be less than the Fair Market Value of one share of Stock on
the date of grant in the case of any SAR related to any
Incentive Stock Option.
(b) OTHER TERMS. All awards of Stock Appreciation
Rights shall be evidenced by an Award Agreement. The terms,
methods of exercise, methods of settlement, form of
consideration payable in settlement, and any other terms and
conditions of any Stock Appreciation Right shall be determined
by the Board at the time of the grant of the Award and shall
be reflected in the Award Agreement.
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ARTICLE 9 PERFORMANCE SHARES
9.1. GRANT OF PERFORMANCE SHARES. The Board is authorized to
grant Performance Shares to Participants on such terms and conditions as may be
selected by the Board. The Board shall have the complete discretion to determine
the number of Performance Shares granted to each Participant. All Awards of
Performance Shares shall be evidenced by an Award Agreement.
9.2. RIGHT TO PAYMENT. A grant of Performance Shares gives the
Participant rights, valued as determined by the Board, and payable to, or
exercisable by, the Participant to whom the Performance Shares are granted, in
whole or in part, as the Board shall establish at grant or thereafter. The Board
shall set performance goals and other terms or conditions to payment of the
Performance Shares in its discretion which, depending on the extent to which
they are met, will determine the number and value of Performance Shares that
will be paid to the Participant, provided that the time period during which the
performance goals must be met shall, in all cases, exceed six months.
9.3. OTHER TERMS. Performance Shares may be payable in cash,
Stock, or other property, and have such other terms and conditions as determined
by the Board and reflected in the Award Agreement.
ARTICLE 10 RESTRICTED STOCK AWARDS
10.1. GRANT OF RESTRICTED STOCK. The Board is authorized to
make Awards of Restricted Stock to Participants in such amounts and subject to
such terms and conditions as may be selected by the Board. All Awards of
Restricted Stock shall be evidenced by an Award Agreement.
10.2. ISSUANCE AND RESTRICTIONS. Restricted Stock shall be
subject to such restrictions on transferability and other restrictions as the
Board may impose (including, without limitation, limitations on the right to
vote Restricted Stock or the right to receive dividends on the Restricted
Stock). These restrictions may lapse separately or in combination at such times,
under such circumstances, in such installments, or otherwise, as the Board
determines at the time of the grant of the Award or thereafter.
10.3. FORFEITURE. Except as otherwise determined by the Board
at the time of the grant of the Award or thereafter, upon termination of
employment during the applicable restriction period, Restricted Stock that is at
that time subject to restrictions shall be forfeited and reacquired by the
Company; provided, however, that the Board may provide in any Award Agreement
that restrictions or forfeiture conditions relating to Restricted Stock will be
waived in whole or in part in the event of terminations resulting from specified
causes, and the Board may in other cases waive in whole or in part restrictions
or forfeiture conditions relating to Restricted Stock.
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10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock
granted under the Plan may be evidenced in such manner as the Board shall
determine. If certificates representing shares of Restricted Stock are
registered in the name of the Participant, certificates must bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, and the Company shall retain physical possession of the
certificate until such time as all applicable restrictions lapse.
ARTICLE 11 DIVIDEND EQUIVALENTS
11.1. GRANT OF DIVIDEND EQUIVALENTS. The Board is authorized
to grant Dividend Equivalents to Participants subject to such terms and
conditions as may be selected by the Board. Dividend Equivalents shall entitle
the Participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Stock subject to an Option Award or SAR
Award, as determined by the Board. The Board may provide that Dividend
Equivalents be paid or distributed when accrued or be deemed to have been
reinvested in additional shares of Stock, or otherwise reinvested.
ARTICLE 12 OTHER STOCK-BASED AWARDS
12.1. GRANT OF OTHER STOCK-BASED AWARDS. The Board is
authorized, subject to limitations under applicable law, to grant to
Participants such other Awards that are payable in, valued in whole or in part
by reference to, or otherwise based on or related to shares of Stock, as deemed
by the Board to be consistent with the purposes of the Plan, including without
limitation shares of Stock awarded purely as a "bonus" and not subject to any
restrictions or conditions, convertible or exchangeable debt securities, other
rights convertible or exchangeable into shares of Stock, and Awards valued by
reference to book value of shares of Stock or the value of securities of or the
performance of specified Subsidiaries. The Board shall determine the terms and
conditions of such Awards.
ARTICLE 13 PROVISIONS APPLICABLE TO AWARDS
13.1. STAND-ALONE, TANDEM, AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Board, be granted either
alone or in addition to, in tandem with, or in substitution for, any other Award
granted under the Plan. If an Award is granted in substitution for another
Award, the Board may require the surrender of such other Award in consideration
of the grant of the new Award. Awards granted in addition to or in tandem with
other Awards may be granted either at the same time as or at a different time
from the grant of such other Awards.
13.2. EXCHANGE PROVISIONS. The Board may at any time offer to
exchange or buy out any previously granted Award for a payment in cash, Stock,
or another Award (subject to
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Section 13.1), based on the terms and conditions the Board determines and
communicates to the Participant at the time the offer is made.
13.3. TERM OF AWARD. The term of each Award shall be for the
period as determined by the Board, provided that in no event shall the term of
any Incentive Stock Option or a Stock Appreciation Right granted in tandem with
the Incentive Stock Option exceed a period of ten (10) years from the date of
its grant.
13.4. FORM OF PAYMENT FOR AWARDS. Subject to the terms of the
Plan and any applicable law or Award Agreement, payments or transfers to be made
by the Company or a Subsidiary on the grant or exercise of an Award may be made
in such forms as the Board determines at or after the time of grant, including
without limitation, cash, Stock, other Awards, or other property, or any
combination, and may be made in a single payment or transfer, in installments,
or on a deferred basis, in each case determined in accordance with rules adopted
by, and at the discretion of, the Board. The Board may also authorize payment in
the exercise of an Option by net issuance or other cashless exercise methods.
13.5. LIMITS ON TRANSFER. Unless the Board provides otherwise,
(i) no right or interest of a Participant in any Award may be pledged,
encumbered, or hypothecated to or in favor of any party other than the Company
or a Subsidiary, or shall be subject to any lien, obligation, or liability of
such Participant to any other party other than the Company or a Subsidiary, and
(ii) no Award shall be assignable or transferable by a Participant other than by
will or the laws of descent and distribution.
13.6 BENEFICIARIES. Notwithstanding Section 13.5, a Participant
may, in the manner determined by the Board, designate a beneficiary to exercise
the rights of the Participant and to receive any distribution with respect to
any Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Board. If the Participant is married and resides in a jurisdiction in which
community property laws apply, a designation of a person other than the
Participant's spouse as his beneficiary with respect to more than 50 percent of
the Participant's interest in the Award shall not be effective without the
written consent of the Participant's spouse. If no beneficiary has been
designated or survives the Participant, payment shall be made to the person
entitled thereto under the Participant's will or the laws of descent and
distribution. Subject to the foregoing, a beneficiary designation may be changed
or revoked by a Participant at any time provided the change or revocation is
filed with the Board.
13.7. STOCK CERTIFICATES. All Stock certificates delivered under
the Plan are subject to any stop-transfer orders and other restrictions as the
Board deems necessary or advisable to comply with federal or state securities
laws, rules and regulations and the rules of any national
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<PAGE> 13
securities exchange or automated quotation system on which the Stock is listed,
quoted, or traded. The Board may place legends on any Stock certificate to
reference restrictions applicable to the Stock.
13.8. TENDER OFFERS. In the event of a public tender for all or
any portion of the Stock, or in the event that a proposal to merge, consolidate,
or otherwise combine with another company is submitted for stockholder approval,
the Board may in its sole discretion declare previously granted Options to be
immediately exercisable. To the extent that this provision causes Incentive
Stock Options to exceed the dollar limitation set forth in Section 7.2(d), the
excess Options shall be deemed to be Non-Qualified Stock Options.
13.9. CHANGE OF CONTROL. A Change of Control shall, in the sole
discretion of the Board:
(a) Cause every Award outstanding hereunder to become
fully exercisable and all restrictions on outstanding Awards to
lapse and allow each Participant the right to exercise Awards
prior to the occurrence of the event otherwise terminating the
Awards over such period as the Board, in its sole and absolute
discretion, shall determine. To the extent that this provision
causes Incentive Stock Options to exceed the dollar limitation
set forth in Section 7.2(d), the excess Options shall be deemed
to be Non-Qualified Stock Options; or
(b) Cause every Award outstanding hereunder to
terminate, provided that the surviving or resulting corporation
shall tender an option or options to purchase its shares or
exercise such rights on terms and conditions, as to the number
of shares, rights or otherwise, which shall substantially
preserve the rights and benefits of any Award then outstanding
hereunder.
ARTICLE 14 CHANGES IN CAPITAL STRUCTURE
14.1. GENERAL. In the event a stock split or stock dividend is
declared upon the Stock, the shares of Stock available for grant under the Plan
and the shares of Stock available for grant under the Plan and the shares of
Stock then subject to each Award (and the number of shares subject thereto)
shall be increased proportionately without any change in the aggregate purchase
price therefor. Subject to Section 13.9, in the event the Stock shall be changed
into or exchanged for a different number or class of shares of Stock or of
shares of another corporation, whether through reorganization, recapitalization,
stock split-up or combination of shares, there shall be substituted for each
such share of Stock then subject to each Award (and for each share of Stock then
subject thereto) the number and class of shares of Stock into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to each Award.
ARTICLE 15 AMENDMENT, MODIFICATION AND TERMINATION
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<PAGE> 14
15.1. AMENDMENT, MODIFICATION AND TERMINATION. With the approval
of the Board, at any time and from time to time, the Board may terminate, amend
or modify the Plan. However, without approval of the stockholders of the Company
or other conditions (as may be required by the Code, by the insider trading
rules of Section 16 of the Exchange Act, by any national securities exchange or
system on which the Stock is listed or reported, or by a regulatory body having
jurisdiction), no such termination, amendment, or modification may:
(a) Materially increase the total number of shares of
Stock that may be issued under the Plan, except as provided in
Section 14.1;
(b) Materially modify the eligibility requirements for
participation in the Plan;
or
(c) Materially increase the benefits accruing to
Participants under the Plan.
15.2. AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant.
ARTICLE 16 GENERAL PROVISIONS
16.1. NO RIGHTS TO AWARDS. No Participant or employee or
consultant shall have any claim to be granted any Award under the Plan, and
neither the Company nor the Board is obligated to treat Participants and
employees or consultants uniformly.
16.2. NO STOCKHOLDERS RIGHTS. No Award gives the Participant any
of the rights of a stockholder of the Company unless and until shares of Stock
are in fact issued to such person in connection with such Award.
16.3. WITHHOLDING. The Company or any Subsidiary shall have the
authority and the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy United States Federal, state,
and local taxes (including the Participant's FICA obligation and any withholding
obligation imposed by any country other than the United States in which the
Participant resides) required by law to be withheld with respect to any taxable
event arising as a result of this Plan. With respect to withholding required
upon any taxable event under the Plan, Participants may elect, subject to the
Board's approval, to satisfy the withholding requirement, in whole or in part,
by having the Company or any Subsidiary withhold shares of Stock having a Fair
Market Value on the date of withholding equal to the amount to be withheld for
tax purposes in accordance with such procedures as the Board establishes. The
Board may, at the time any Award is granted, require that any and all applicable
tax withholding requirements be satisfied by the withholding of shares of Stock
as set forth above.
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<PAGE> 15
16.4. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Award
Agreement shall interfere with or limit in any way the right of the Company or
any Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
16.5. UNFUNDED STATUS OF AWARDS. The Plan is intended to be an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award Agreement shall give the Participant any rights that
are greater than those of a general creditor of the Company or any Subsidiary.
16.6. INDEMNIFICATION. To the extent allowable under applicable
law, each member of the Committee or of the Board shall be indemnified and held
harmless by the Company from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such member in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure
to act under the Plan and against and from any and all amounts paid by him or
her in satisfaction of judgment in such action, suit, or proceeding against him
or her provided he or she gives the Company an opportunity, at its own expense,
to handle and defend the same before he or she undertakes to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Certificate of Incorporation or By-Laws, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.
16.7. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan
shall be taken into account in determining any benefits under any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary.
16.8. EXPENSES. The expenses of administering the Plan shall be
borne by the Company and its Subsidiaries.
16.9. TITLES AND HEADINGS. The titles and headings of the
Sections in the Plan are for convenience of reference only, and in the event of
any conflict, the text of the Plan, rather than such titles or headings, shall
control.
16.10. FRACTIONAL SHARES. No fractional shares of stock shall be
issued and the Board shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
16.11. SECURITIES LAW COMPLIANCE. With respect to any person who
is, on the relevant date, obligated to file reports under Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under
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<PAGE> 16
the Exchange Act. To the extent any provision of the Plan or action by the Board
fails to so comply, it shall be void to the extent permitted by law and voidable
as deemed advisable by the Board, and such provision or action shall be deemed
to be modified so as to comply with Rule 16b-3.
16.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the
Company to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Company shall be under no obligation to
register under the Securities Act of 1933, as amended, any of the shares of
Stock issued under the Plan. If the shares issued under the Plan may in certain
circumstances be exempt from registration under such act, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
16.13. GOVERNING LAW. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Arizona.
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EXHIBIT 10.4
HYPERCOM CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of this 1997 Employee Stock Purchase Plan (the
"Plan") is to encourage stock ownership by employees of Hypercom Corporation
(the "Company") and its Subsidiaries and thereby provide employees with an
incentive to contribute to the profitability and success of the Company. The
Plan is intended to qualify as an "employee stock purchase plan" under Section
423 of the Code and will be maintained for the exclusive benefit of eligible
employees of the Company and its Subsidiaries.
2. DEFINITIONS. For purposes of the Plan, in addition to the terms
defined in Section 1, terms are defined as set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cash Account" means the account maintained on behalf of
the Participant by the Custodian for the purpose of holding cash contributions
pending investment in Stock.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Custodian" means Cowen & Company or the successor thereto
as may be appointed by the Board.
(e) "Earnings" means a Participant's salary or wages for
services performed for the Company and its Subsidiaries and received by a
Participant for services rendered during a specified pay period, excluding
bonuses.
(f) "Enrollment Period" means the two-week period immediately
prior to each Offering Period.
(g) "Fair Market Value" means the fair market value of the
Stock determined by such methods or procedures as may be established from time
to time by the Board in good faith, or if the Company's Stock is publicly
traded, the closing price of the Stock on the relevant date as reported on the
New York Stock Exchange (or any national securities exchange or quotation system
on which the Stock is then listed), or if there were sales on that date the
closing price on the next preceding date for which a closing price was reported.
(h) "Offering Period" means the period beginning upon the
initial public offering of the Company's Stock and ending June 30, 1998, then
every six months thereafter, with the second Offering Period to begin on July 1,
1998.
(i) "Participant" means an employee of the Company or a
Subsidiary who is participating in the Plan.
<PAGE> 2
(j) "Purchase Date" means the fifth business day after the end
of each Offering Period.
(k) "Purchase Right" means a Participant's option to purchase
shares which is deemed to be outstanding during a Offering Period. A Purchase
Right represents an "option" as such term is used under Section 423 of the Code.
(l) "Stock" means the common stock of the Company.
(m) "Stock Account" means the account maintained on behalf of
the Participant by the Custodian for the purpose of holding Stock acquired upon
investment under the Plan.
(n) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if each
of the corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in the chain as set forth in Code
Section 424(f).
3. ADMINISTRATION.
(a) Board Administration. The Plan will be administered by the
Board. The Board may delegate its administrative duties and authority (other
than authority to amend the Plan) to any Board committee or to any officers or
employees or committee thereof as the Board may designate (in which case
references to the Board will be deemed to mean the administrator to which such
duties and authority have been delegated). The Board will have full authority to
adopt, amend, suspend, waive, and rescind such rules and regulations and appoint
such agents as it may deem necessary or advisable to administer the Plan, to
correct any defect or supply any omission or reconcile any inconsistency in the
Plan and to construe and interpret the Plan and rules and regulations
thereunder, to furnish to the Custodian such information as the Custodian may
require, and to make all other decisions and determinations under the Plan
(including determinations relating to eligibility). No person acting in
connection with the administration of the Plan will, in that capacity,
participate in deciding any matter relating to his or her participation in the
Plan.
(b) The Custodian. The Custodian will act as custodian under
the Plan, and will perform such duties as are set forth in the Plan and in any
agreement between the Company and the Custodian. The Custodian will establish
and maintain, as agent for Participants, Cash and Stock Accounts and any other
subaccounts as may be necessary or desirable for the administration of the Plan.
(c) Waivers. The Board may waive or modify any requirement
that a notice or election be made or filed under the Plan a specified period in
advance in an individual case or by adopting a rule or regulation under the
Plan, without amending the Plan.
(d) Other Administrative Provisions. The Company will furnish
information from its records as directed by the Board, and such records,
including a Participant's Earnings, will be
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<PAGE> 3
conclusive on all persons unless determined by the Board to be incorrect. Each
Participant and other person claiming benefits under the Plan must furnish to
the Company in writing an up-to-date mailing address and any other information
as the Board or Custodian may reasonably request. Any communication, statement,
or notice mailed with postage prepaid to any such Participant or other person at
the last mailing address filed with the Company will be deemed sufficiently
given when mailed and will be binding upon the named recipient. The Plan will be
administered on a reasonable and nondiscriminatory basis and uniform rules will
apply to all persons similarly situated. All Participants will have equal rights
and privileges (subject to the terms of the Plan) with respect to Purchase Right
outstanding during any given Offering Period.
4. STOCK SUBJECT TO PLAN. Subject to adjustment as provided below, the
total number of shares of Stock reserved and available for issuance or which may
be otherwise acquired upon exercise of Purchase Rights under the Plan will be
500,000. Any shares of Stock delivered by the Company under the Plan may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. The number and kind of such shares of Stock subject to the Plan will be
proportionately adjusted, as determined by the Board, in the event of any
extraordinary dividend or other distribution, recapitalization, forward or
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or event
affecting the Stock.
5. ENROLLMENT AND CONTRIBUTIONS.
(a) Eligibility. An employee of the Company or a Subsidiary
may be enrolled in the Plan for any Offering Period if such employee is employed
by the Company or a Subsidiary on the first day of the Offering Period, unless
one of the following applies to the employee:
(i) such person has been employed for less than
one year with the Company or a Subsidiary;
(ii) Such person is customarily employed by the
Company or a Subsidiary for 20 hours or less
a week or for not more than five months in
any calendar year; or
(iii) Such person would, immediately upon
enrollment, be deemed to own, for purposes
of Section 423(b)(3) of the Code, an
aggregate of five percent or more of the
total combined voting power or value of all
outstanding shares of all classes of the
Company or any Subsidiary.
The Company will notify an employee of the date as of which he or she is
eligible to enroll in the Plan, and will make available to each eligible
employee the necessary enrollment forms.
(b) Initial Enrollment. An employee who is eligible under
Section 5(a) (or who will become eligible on or before a given Offering Period)
may, after receiving current information about the Plan, initially enroll in the
Plan by executing and filing with the Company's Human Resources Department a
properly completed enrollment form, including the employee's election as
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<PAGE> 4
to the rate of payroll contributions for the Offering Period. To be effective
for any Offering Period, such enrollment form must be filed during the
Enrollment Period immediately preceding such Offering Period.
(c) Automatic Re-enrollment for Subsequent Offering Periods. A
Participant whose enrollment in, and payroll contributions under, the Plan
continues throughout a Offering Period will automatically be re-enrolled in the
Plan for the next Offering Period unless (i) the Participant terminates
enrollment before the next Offering Period in accordance with Section 7(a), or
(ii) on the last day of the relevant Enrollment Period he or she is ineligible
to participate under Section 5(a). The initial rate of payroll contributions for
a Participant who is automatically re-enrolled for a Offering Period will be the
same as the rate of payroll contribution in effect at the end of the preceding
Offering Period, unless the Participant files a new enrollment form during the
Enrollment Period immediately preceding such Offering Period designating a
different rate of payroll contributions.
(d) Payroll Contributions. A Participant will make
contributions under the Plan by means of payroll deductions from each payroll
period which ends during the Offering Period, at the rate elected by the
Participant in his or her enrollment form filed during the Enrollment Period
immediately preceding such Offering Period (except that such rate may be changed
during the Offering Period to the extent permitted below). The rate of payroll
contributions elected by a Participant may not be less than two percent (2%) nor
more than ten percent (10%) of the Participant's Earnings for each payroll
period, and only whole percentages may be elected; provided, however, that the
Board may specify a lower minimum rate and higher maximum rate, subject to
Section 8(c). Notwithstanding the above, a Participant's payroll contributions
will be adjusted downward by the Company as necessary to ensure that the limit
on the amount of Stock purchased with respect to a Offering Period set forth in
Section 6(a)(iii) is not exceeded. A Participant may elect to increase,
decrease, or discontinue payroll contributions for a future Offering Period by
filing a new enrollment form during the Enrollment Period immediately preceding
such Offering Period designating a different rate of payroll contributions. In
addition, a Participant may elect to decrease or discontinue payroll
contributions during a Offering Period by filing a new enrollment form, such
change to be effective for the next payroll after the Participant's new
enrollment form is received.
(e) Crediting Payroll Contributions to Cash Accounts. All
payroll contributions by a Participant under the Plan will be credited to a Cash
Account maintained by the Custodian on behalf of the Participant. The Custodian
will credit payroll contributions to each Participant's Cash Account upon
receipt by the Custodian from the Company of information identifying the amount
of payroll contribution. The Company will deposit with the Custodian an amount
equal to the aggregate payroll contributions for the Offering Period (not
otherwise repaid to Participant under Section 7(b)) on or before the Purchase
Date for such Offering Period.
(f) No Interest on Cash Accounts. No interest will be credited
or payable by the Company on payroll contributions or by the Custodian on cash
balances in Participant's Cash Accounts pending investment in Stock.
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6. PURCHASES OF STOCK
(a) Purchase Rights. Enrollment in the Plan for any Offering
Period by a Participant will constitute a grant by the Company of a Purchase
Right to such Participant for such Offering Period. Each Purchase Right will be
subject to the following terms:
(i) The Purchase prices at which Stock will be
purchased under a Purchase Right will be as
specified in Section 6(c).
(ii) Except as limited in (iii) below, the number
of shares of Stock that may be purchased
upon exercise of the Purchase Right for a
Offering Period will equal the number of
shares (including fractional shares) that
can be purchased at the purchase price
specified in Section 6(c) with the aggregate
amount credited to the Participant's Cash
Account as of the Purchase Date.
(iii) The number of shares of Stock subject to a
Participant's Purchase Right for any
Offering Period will not exceed the number
derived by dividing $12,500 by 100% of the
Fair Market Value of one share of Stock on
the first day of the Offering Period for the
Offering Period.
(iv) The Purchase Right will be automatically
exercised on the Purchase Date for the
Offering Period.
(v) Payments by a Participant for Stock
purchased under a Purchase Right will be
made only through payroll deduction in
accordance with Section 5(d) and (e).
(vi) The Purchase Right will expire on the
earlier of the Purchase Date for the
Offering Period or the date on which the
Participant's enrollment in the Plan
terminates.
(b) Purchase of Stock. At or as promptly as practicable after
the Purchase Date for a Offering Period, amounts credited to each Participant's
Cash Account as of such Purchase Date will be applied by the Custodian to the
purchase of shares of Stock, in accordance with the terms of the Plan. Shares of
Stock will be purchased by the Custodian from the Company. Shares sold by the
Company may be authorized but unissued shares or treasury shares, as permitted
under Section 4. The Custodian will aggregate the amounts in all Cash Accounts
when purchasing Stock, and shares purchased will be allocated to each
Participant's Stock Account in proportion to the cash amounts withdrawn from
such Participant's Cash Account. Upon completion of purchases in respect of a
Purchase Date (which will be completed in not more than 30 days after the
Purchase Date), all shares of Stock so purchased for a Participant will be
credited to the Participant's Stock Account.
(c) Purchase Price. The purchase price of each share of Stock
purchased in respect of a Purchase Date will equal 90% of the lesser of (i) the
Fair Market Value of a share of
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<PAGE> 6
Stock on the first day of the Offering Period or (ii) the Fair Market Value of a
share of Stock on the Purchase Date.
(d) Dividend Reinvestment; Other Distributions. Cash dividends
on any Stock credited to a Participant's Stock Account will be automatically
reinvested in additional shares of Stock; such amounts will not be available in
the form of cash to Participants. All cash dividends paid on Stock credited to
Participants' Stock Accounts will be paid over by the Company to the Custodian
at the dividend payment date. The Custodian will aggregate all purchase of Stock
in connection with dividend reinvestment for a given dividend payment date.
Purchases of Stock for purposes of dividend reinvestment will be made as
promptly as practicable (but not more than 30 days) after a dividend payment
date. The Custodian will make such purchases, as directed by the Board directly
from the Company at 100% of the Fair Market Value of a share of Stock on the
dividend payment date. Any shares of Stock distributed as a dividend or
distribution in respect of shares of Stock or in connection with a split of the
Stock credited to a Participant's Stock Account will be credited to such
Account.
(e) Withdrawals and Transfers. Shares of Stock may be
withdrawn from a Participant's Stock Account, in which case one or more
certificates for whole shares may be issued in the name of, and delivered to,
the Participant, with such Participant receiving cash in lieu of fractional
shares based on the Fair Market Value of a share of Stock on the date of
withdrawal. Alternatively, whole shares of Stock may be withdrawn from a
Participant's Stock Account by means of a transfer to a broker-dealer or
financial institution that maintains an account for the Participant, together
with the transfer of cash in lieu of fractional shares based on the Fair Market
Value of a share of Stock on the date of withdrawal. Participants may not
designate any other person to receive shares of Stock withdrawn or transferred
under the Plan. A Participant seeking to withdraw or transfer shares of Stock
must give instructions to the Custodian in such manner and form as may be
prescribed by the Custodian, which instructions will be acted upon as promptly
as practicable. Withdrawals and transfers will be subject to any fees imposed in
accordance with Section 8(a).
(f) Excess Account Balances. If any amounts remain in a Cash
Account following a Purchase Date as a result of the limitation set forth in
Section 6(a)(iii), such amounts will be returned to the Participant by the
Custodian as promptly as practicable.
7. TERMINATION AND DISTRIBUTIONS.
(a) Termination of Enrollment. A Participant's enrollment in
the Plan will terminate upon (i) the beginning of any payroll period or Offering
Period that begins after he or she files a written notice of termination of
enrollment with the Company, provided that such Participant will continue to be
deemed to be enrolled with respect to any completed Offering Period for which
purchases have not been completed, (ii) such time as the Participant becomes
ineligible to participate under Section 5(a) of the Plan, or (iii) the
termination of the Participant's employment by the Company and its Subsidiaries.
An employee whose enrollment in the Plan terminates may again enroll in the Plan
as of any subsequent Offering Period that is at least 90 days after such
termination of enrollment if he or she satisfies the eligibility requirements of
Section 5(a) as of such Offering
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<PAGE> 7
Period. A Participant's election to discontinue payroll contributions will not
constitute a termination of enrollment.
(b) Distribution. As soon as practicable after a Participant's
enrollment in the Plan terminates, amounts in the Participant's Cash Account
which resulted from payroll contributions will be repaid to the Participant. If
amounts credited to the Participant's Cash Account have not yet been deposited
by the Company with the Custodian, the Company rather than the Custodian will
make the repayment to the Participant. The Custodian will continue to maintain
the Participant's Stock Account for the Participant until the earlier of such
time as the Participant directs the sale of all Stock in the Account, withdraws,
or transfers all Stock in the Account, or one year after the Participant ceases
to be employed by the Company and its Subsidiaries. If a Participant's
termination of enrollment results from his or her death, all amounts payable
will be paid to his or her estate.
8. GENERAL.
(a) Costs. Costs and expenses incurred in the administration
of the Plan and maintenance of Accounts will be paid by the Company, to the
extent provided in this Section 8(a). Any brokerage fees and commissions for the
purchase of Stock under the Plan (including Stock purchased upon reinvestment of
dividends and distributions) will be paid by the Company, but any brokerage fees
and commissions for the sale of Stock under the Plan by a Participant will be
borne by such Participant. The rate at which such fees and commissions will be
charged to Participants will be determined by the Custodian or any broker-dealer
used by the Custodian (including an affiliate of the Custodian), and
communicated from time to time to Participants. In addition, the Custodian may
impose or pass through a reasonable fee for the withdrawal of Stock in the form
of stock certificates (as permitted under Section 6(e)), and reasonable fees for
other services unrelated to the purchase of Stock under the Plan, to the extent
approved in writing by the Company and communicated to Participants.
(b) Statements to Participants. The Custodian will reflect
payroll contributions, purchases, sales, and withdrawals and transfers of shares
of Stock and other Plan transactions by appropriate adjustments to the
Participant's Accounts. The Custodian will, not less frequently than
semi-annually, provide or cause to be provided a written statement to the
Participant showing the transactions in his or her Accounts and the date
thereof, the number of shares of Stock purchased or sold, the aggregate purchase
price paid or sales price received, the purchase or sales price per share, the
brokerage fees and commissions paid (if any), the total shares held for the
Participant's Stock Account (computed to at least three decimal places), and
other information.
(c) Compliance with Section 423. It is the intent of the
Company that this Plan comply in all respects with applicable requirements of
Section 423 of the Code and regulations thereunder. Accordingly, if any
provision of this Plan does not comply with such requirements, such provision
will be construed or deemed amended to the extent necessary to conform to such
requirements.
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<PAGE> 8
9. GENERAL PROVISIONS.
(a) Compliance With Legal and Other Requirements. The Plan,
the granting and exercising of Purchase Rights hereunder, and the other
obligations of the Company and the Custodian under the Plan will be subject to
all applicable federal and state laws, rules, and regulations, and to such
approvals by any regulatory or governmental agency as may be required. The
Company may, in its discretion, postpone the issuance or delivery of Stock upon
exercise of Purchase Rights until completion of such registration or
qualification of such Stock or other required action under any federal or state
law, rule, or regulation, listing or other required action with respect to any
automated quotation system or stock exchange upon which the Stock or other
Company securities are designated or listed, or compliance with any other
contractual obligation of the Company, as the Company may consider appropriate,
and may require any Participant to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Stock in compliance with applicable laws, rules, and regulations,
designation or listing requirements, or other contractual obligations.
(b) Limits on Encumbering Rights. No right or interest of a
Participant under the Plan, including any Purchase Right, may be pledged,
encumbered, or hypothecated to or in favor of any party, subject to any lien,
obligation, or liability of such Participant, or otherwise assigned,
transferred, or disposed of except pursuant to the laws of descent or
distribution, and any right of a Participant under the Plan will be exercisable
during the Participant's lifetime only by the Participant.
(c) No Right to Continued Employment. Neither the Plan nor any
action taken hereunder, including the grant of a Purchase Right, will be
construed as giving any employee the right to be retained in the employ of the
Company or any of its Subsidiaries, nor will it interfere in any way with the
right of the Company or any of its Subsidiaries to terminate any employee's
employment at any time.
(d) Taxes. The Company or any Subsidiary is authorized to
withhold from any payment to be made to a Participant, including any payroll and
other payments not related to the Plan, amounts of withholding and other taxes
due in connection with any transaction under the Plan, and a Participant's
enrollment in the Plan will be deemed to constitute his or her consent to such
withholding. In addition, Participants may be required to advise the Company of
sales and other dispositions of Stock acquired under the plan in order to permit
the Company to comply with tax laws and to claim any tax deductions to which the
Company may be entitled with respect to the Plan. (This provision and other Plan
provisions do not set forth an explanation of the tax consequences to
Participants under the Plan. A brief summary of the tax consequences will be
included in disclosure documents to be separately furnished to Participants.)
(e) Changes to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of shareholders or
Participants, except that any such action will be subject to the approval of the
Company's shareholders within one year after such Board action if such
shareholder approval is required by any federal or state law or regulation or
the rules of any automated quotation system or stock exchange on which the Stock
may then be quoted or listed, or if such shareholder approval is necessary in
order for the Plan to continue to meet the
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<PAGE> 9
requirements of Section 423 of the Code, and the Board may otherwise, in its
discretion, determine to submit other such actions to shareholders for approval;
provided, however, that, without the consent of an affected Participant, no
amendment, alteration, suspension, discontinuation, or termination of the Plan
may materially and adversely affect the rights of such Participant with respect
to outstanding Purchase Rights relating to any Offering Period that has been
completed prior to such Board action. The foregoing notwithstanding, upon
termination of the Plan the Board may elect to terminate all outstanding
Purchase Rights at such time as the Board may designate; in the event of such
termination of any Purchase Right prior to its exercise, all amounts contributed
to the Plan which remain in a Participant's Cash Account will be returned to the
Participant (without interest) as promptly as practicable.
(f) No Rights to Participate; No Shareholder Rights. No
Participant or employee will have any claim to participate in the Plan with
respect to Offering Periods that have not commenced, and the Company will have
no obligation to continue the Plan. No Purchase Right will confer on any
Participant any of the rights of a shareholder of the Company unless and until
Stock is duly issued or transferred and delivered to the Participant (or
credited to the Participant's Stock Account).
(g) Fractional Shares. Unless otherwise determined by the
Board, purchases of Stock under the Plan executed by the Custodian may result in
the crediting of fractional shares of Stock to the Participant's Stock Account.
Such fractional shares will be computed to at least three decimal places.
Fractional shares will not, however, be issued by the Company, and certificates
representing fractional shares will not be delivered to Participants under any
circumstances.
(h) Nonexclusivity of the Plan. Neither the adoption of the
Plan by the Board nor its submission to the shareholders of the Company for
approval will be construed as creating any limitations on the power of the Board
to adopt such other compensatory arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
(i) Plan Year. The Plan will operate on a plan year that ends
December 31 in each year.
(j) Governing Law. The validity, construction, and effect of
the Plan and any rules and regulations relating to the Plan will be determined
in accordance with the laws of the State of Arizona, without giving effect to
principles of conflicts of laws, and applicable federal law.
(k) Effective Date. The Plan will become effective at such
time as the Plan has been approved by shareholders of the Company, at a meeting
thereof, by a vote sufficient to meet the requirements of Section 423(b)(2) of
the Code.
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EXHIBIT 10.6
HYPERCOM CORPORATION
NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE 1 ESTABLISHMENT, PURPOSE, AND DURATION
1.1. ESTABLISHMENT OF THE PLAN. Hypercom Corporation, a Delaware
corporation, hereby establishes the Hypercom Corporation Nonemployee Directors'
Stock Option Plan (the "Plan") for the benefit of its Nonemployee Directors. The
Plan sets forth the terms of grants of Nonqualified Stock Options to Nonemployee
Directors. All such grants are subject to the terms and provisions set forth in
this Plan.
1.2. PURPOSE OF THE PLAN. The purpose of the Plan is to encourage
ownership in the Company by Nonemployee Directors, to strengthen the ability of
the Company to attract and retain the services of experienced and knowledgeable
individuals as Nonemployee Directors of the Company, and to provide Nonemployee
Directors with a further incentive to work for the best interests of the Company
and its stockholders.
1.3. EFFECTIVE DATE. The Plan is effective as of the date approved by
the Company's stockholders (the "Effective Date"). The Plan will be deemed to be
approved by the stockholders if it receives the affirmative vote of the holders
of a majority of the shares of stock of the Company present, or represented, and
entitled to vote at a meeting duly held in accordance with the applicable
provisions of the Delaware General Corporation Law and the Company's By-Laws and
Certificate of Incorporation.
1.4. DURATION OF THE PLAN. The Plan shall remain in effect until such
time as the Plan is terminated by the Board of Nonemployee Directors pursuant to
Article 7 or Section 8.4.
ARTICLE 2 DEFINITIONS AND CONSTRUCTION
2.1. DEFINITIONS. For purposes of the Plan, the following terms will
have the meanings set forth below:
(a) "Award" means a grant of Nonqualified Stock Options under
the Plan.
(b) "Board" or "Board of Directors" means the Board of
Directors of the Company, and includes any committee of the Board of
Directors designated by the Board to administer this Plan.
(c) "Change of Control" means and includes each of the
following:
(1) there shall be consummated any consolidation or
merger of the Company in which the Company is not the
continuing or surviving entity, or pursuant to which
Stock would be converted into cash, securities or
other property, other than a merger of the Company in
which the holders of the Company's Stock immediately
prior to the merger have at least 80% ownership of
<PAGE> 2
beneficial interest of common stock or other voting
securities of the surviving entity immediately after
the merger;
(2) there shall be consummated any sale, lease,
exchange or other transfer (in one transaction or a
series of related transactions) of assets or earning
power aggregating more than 40% of the assets or
earning power of the Company and its subsidiaries
(taken as a whole), other than pursuant to a
sale-leaseback, structured finance or other form of
financing transaction;
(3) the stockholders of the Company shall approve any
plan or proposal for liquidation or dissolution of
the Company;
(4) any person (as such term is used in Section 13(d)
and 14(d)(2) of the Exchange Act), other than any
current stockholder of the Company or affiliate
thereof or any employee benefit plan of the Company
or any subsidiary of the Company or any entity
holding shares of capital stock of the Company for or
pursuant to the terms of any such employee benefit
plan in its role as an agent or trustee for such
plan, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 51%
or more of the Company's outstanding Stock; or
(5) during any period of two consecutive years,
individuals who at the beginning of such period
constituted a majority of the Board shall fail to
constitute a majority thereof, unless the election,
or the nomination for election by the Company's
stockholders, of each new Nonemployee Director was
approved by a vote of at least two-thirds of the
Nonemployee Directors then still in office who were
Nonemployee Directors at the beginning of the period.
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Committee" means the committee appointed by the Board to
administer the Plan.
(f) "Company" means Hypercom Corporation, a Delaware
corporation, or any successor as provided in Section 8.3.
(g) "Disability" means any illness or other physical or mental
condition of a Participant which renders the Participant incapable of
performing his customary and usual duties for the Company, or any
medically determinable illness or other physical or mental condition
resulting from a bodily injury, disease or mental disorder which in the
judgment of the Committee is permanent and continuous in nature. The
Committee may require such medical or other evidence as it deems
necessary to judge the nature and permanency of the Participant's
condition.
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<PAGE> 3
(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor provision.
(i) "Fair Market Value" means with respect to Stock, the fair
market value of such Stock as determined by the Board in its
discretion, under one of the following methods: (i) the last reported
sales price or closing price for the Stock as reported on any national
securities exchange on which the Stock is then listed (which shall
include the Nasdaq National Market) for that date or, if no prices are
so reported for that date, such prices on the next preceding date for
which such prices were reported; or (ii) the price as determined by
such methods or procedures as may be established from time to time by
the Board.
(j) "Initial Public Offering Grant" means a grant of an Option
pursuant to Section 6.1 of the Plan.
(k) "Nonemployee Director" means any individual who is a
member of the Board of Directors of the Company and who is not also an
employee of the Company.
(l) "Nonqualified Stock Option" or "NQSO" means an option to
purchase Stock, granted under Article 6, that is not intended to be an
incentive stock option qualifying under Section 422 of the Code.
(m) "Option" means a Nonqualified Stock Option granted under
the Plan.
(n) "Participant" means a Nonemployee Director of the Company
who has been granted an Award under the Plan.
(o) "Stock" means the shares of the Company's Common Stock
described in the Company's Certificate of Incorporation.
2.2. GENDER AND NUMBER. Except as indicated by the context, any
masculine term also shall include the feminine, the plural shall include the
singular, and the singular shall include the plural.
2.3. SEVERABILITY OF PROVISIONS. With respect to persons subject to
Section 16 of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Board, and the remaining provisions of the Plan
or actions by Board shall be construed and enforced as if the invalid provision
or action had not been included or undertaken.
2.4. INCORPORATION BY REFERENCE. In the event this Plan does not
include a provision required by Rule 16b-3 to be stated herein, such provision
(other than one relating to eligibility requirements or the price and amount of
Awards) shall be deemed automatically to be
3
<PAGE> 4
incorporated by reference herein, insofar as Participants subject to Section 16
of the Exchange Act are concerned.
ARTICLE 3 ADMINISTRATION
3.1. THE COMMITTEE. The Plan will be administered by the Committee,
subject to the restrictions set forth in the Plan.
3.2. ADMINISTRATION BY THE COMMITTEE. The Committee has the full power,
discretion, and authority to interpret and administer the Plan in a manner that
is consistent with the Plan's provisions. However, the Committee does not have
the power to determine Plan eligibility, or to determine the number, the price,
the vesting period, or the timing of Awards to be made under the Plan to any
Participant or take any action that would result in the Plan not being treated
as a "formula plan" within the meaning of Rule 16b-3 or any successor provision,
promulgated pursuant to the Exchange Act.
3.3. DECISIONS BINDING. The Committee's determinations and decisions
under the Plan, and all related orders or resolutions of the Board shall be
final, conclusive, and binding on all persons, including the Company, its
stockholders, employees, Participants, and their estates and beneficiaries.
ARTICLE 4 SHARES SUBJECT TO THE PLAN
4.1. NUMBER OF SHARES. The total number of shares of Stock available
for grant under the Plan may not exceed 75,000, subject to adjustment as
provided in Section 4.3. The shares issued pursuant to the exercise of Options
granted under the Plan may be authorized and unissued Stock or Stock reacquired
by the Company, as determined by the Committee.
4.2. LAPSED AWARDS. If any Option granted under the Plan terminates,
expires, or lapses for any reason, any shares subject to purchase pursuant to
such Option again will be available for grant under the Plan.
4.3. ADJUSTMENTS IN AUTHORIZED SHARES. In the event a stock split or
stock dividend is declared upon the Stock, the shares of Stock available for
grant under the Plan, and the shares of Stock then subject to each Award (and
the number of shares subject thereto) shall be increased proportionately without
any change in the aggregate purchase price therefor. Subject to Section 6.13, in
the event the Stock shall be changed into or exchanged for a different number or
class of shares of Stock or of shares of another corporation, whether through
reorganization, recapitalization, stock split-up or combination of shares, there
shall be substituted for each such share of Stock then subject to each Award
(and for each share of Stock then subject thereto) the number and class of
shares of Stock into which each outstanding share of Stock shall be so
exchanged, all without any change in the aggregate purchase price for the shares
then subject to each Award.
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<PAGE> 5
ARTICLE 5 ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Eligibility to participate in the Plan is limited to
Nonemployee Directors.
5.2. ACTUAL PARTICIPATION. All eligible Nonemployee Directors shall
receive a grant of Options pursuant to Article 6.
ARTICLE 6 GRANT OF OPTIONS
6.1. INITIAL PUBLIC OFFERING GRANT. An Option to purchase 5,000 shares
of Stock shall be granted to each Nonemployee Director who is or becomes a
member of the Board immediately following the Company's initial public offering
of Stock. The specific terms of the Options are subject to the provisions of
this Article 6 and the Option Agreement executed pursuant to Section 6.4.
6.2. ANNUAL GRANT. Each individual who is a Nonemployee Director on the
third business day after the Company's annual earnings release beginning with
fiscal year 1998 and through and including fiscal year 2007, shall be granted an
Option as of such date to purchase 5,000 shares of Stock, subject to the
limitations on the number of shares that may be awarded under the Plan. The
specific terms of the Options are subject to the provisions of this Article 6
and the Option Agreement executed pursuant to Section 6.4.
6.3. INITIAL ELECTION. Each individual who first becomes a Nonemployee
Director after the date of the Initial Public Offering Grant, shall be granted
an Option to purchase 5,000 shares of Stock as of the date the individual first
becomes a Nonemployee Director. The specific terms of the Options are subject to
the provisions of this Article 6 and the Option Agreement executed pursuant to
Section 6.4.
6.4. OPTION AGREEMENT. The grant of Options will be evidenced by an
Option Agreement that will not include any terms or conditions that are
inconsistent with the terms and conditions of this Plan.
6.5. OPTION EXERCISE PRICE PER SHARE. The Option exercise price per
share under the Initial Public Offering Grant shall be the initial public
offering price of the Stock. The Option exercise price per share under the
Options granted pursuant to Sections 6.2 and 6.3 shall be the Fair Market Value
of such Stock on the date of grant (the "Exercise Price").
6.6. DURATION OF OPTIONS. Each Option granted to a Participant under
this Article 6 shall expire on the tenth (10th) anniversary date of the date of
grant, unless the Option is earlier terminated, forfeited, or surrendered
pursuant to a provision of this Plan.
6.7. VESTING OF OPTIONS SUBJECT TO EXERCISE. The Options granted to the
Participants under this Article 6 shall vest and become exercisable on the first
anniversary of their date of grant.
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<PAGE> 6
6.8. PAYMENT. Options are exercised by delivering a written notice of
exercise to the Secretary of the Company, setting forth the number of Options to
be exercised and accompanied by a payment equivalent to the product of the
number of Options exercised multiplied by the Exercise Price (the "Total
Exercise Price"). The Total Exercise Price is payable:
(a) in cash or its equivalent;
(b) by tendering previously acquired shares of Stock having a
Fair Market Value at the time of exercise equal to the Total Exercise
Price; or
(c) by a combination of (a) and (b).
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name, stock certificates in an appropriate amount based upon the
number of shares purchased pursuant to the exercise of the Options.
6.9. RESTRICTIONS ON SHARE TRANSFERABILITY. To the extent necessary to
ensure that Options granted under this Article 6 comply with applicable law, the
Board shall impose restrictions on the transferability of any Stock acquired
pursuant to the exercise of an Option under this Article 6, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Stock is then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Stock.
6.10. TERMINATION OF SERVICE ON BOARD OF NONEMPLOYEE DIRECTORS DUE TO
DEATH OR DISABILITY. If a Participant's service on the Board is terminated by
reason of death or Disability, any outstanding Options held by the Participant
that are not fully vested shall be immediately forfeited to the Company. To the
extent an Option is vested and exercisable as of the date of death or
Disability, it shall remain exercisable for one year after the date of death or
Disability by the Participant or such person or persons as shall have been named
as the Participant's legal representative or beneficiary, or by such persons as
shall have acquired the Participant's Options by will or by the laws of descent
and distribution. Any Option that is vested but not exercised during this
one-year period after death or Disability shall be immediately forfeited to the
Company.
6.11. TERMINATION OF SERVICE ON BOARD OF DIRECTORS FOR OTHER
REASONS. If the Participant's service on the Board is terminated for any reason
other than for death or Disability, any outstanding Options held by the
Participant that are not vested as of the date of termination shall be
immediately forfeited to the Company. To the extent an Option is vested and
exercisable as of such date, it shall remain exercisable for ninety (90) days
after the date the Participant's service on the Board terminates. Any Option
that is vested but not exercised during this ninety (90) day period after
termination of service shall be immediately forfeited to the Company.
6
<PAGE> 7
6.12. LIMITATIONS ON THE TRANSFERABILITY OF OPTIONS. Unless the Board
provides otherwise, no Option granted under this Article 6 may be sold,
transferred, pledged, assigned, or otherwise alienated, other than by will, the
laws of descent and distribution, or under any other circumstances allowed by
the Board.
6.13. CHANGE OF CONTROL. A Change of Control shall cause every Option
outstanding hereunder to become fully exercisable and allow each Participant the
right to exercise an Option prior to the occurrence of the event constituting
the Change of Control.
ARTICLE 7 AMENDMENT, MODIFICATION, AND TERMINATION
7.1. AMENDMENT, MODIFICATION, AND TERMINATION. Subject to the terms set
forth in this Section 7.1, the Committee may terminate, amend, or modify the
Plan at any time; provided, however, that stockholder approval is required for
any Plan amendment that would materially increase the benefits to Participants
or the number of securities that may be issued, or materially modify the
eligibility requirements in the Plan.
7.2. AWARDS PREVIOUSLY GRANTED. Unless required by law, no termination,
amendment, or modification of the Plan shall in any manner adversely affect any
Award previously granted under the Plan, without the written consent of the
Participant holding the Award.
ARTICLE 8 MISCELLANEOUS
8.1. INDEMNIFICATION. Each individual who is or shall have been a
member of the Board or the Committee shall be indemnified and held harmless by
the Company against and from any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under this Plan and against and from any and all amounts paid by
him or her in settlement thereof, with the Company's approval, or paid by him or
her in satisfaction of any judgment in any such action, suit, or proceeding
against him or her, provided he or she shall give the Company an opportunity, at
its own expense, to assume and defend the same before he or she undertakes to
defend it on his or her own behalf. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such
individuals may be entitled under the Company's Certificate of Incorporation or
By-Laws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
8.2. BENEFICIARY DESIGNATION. Each Participant under the Plan may name
any beneficiary or beneficiaries to whom any benefit under the Plan is to be
paid in the event of his or her death. Each designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during his or her lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
7
<PAGE> 8
8.3. SUCCESSORS. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.
8.4. REQUIREMENTS OF LAW. The granting of Awards under the Plan shall
be subject to all applicable laws, rules, and regulations, and to such approvals
by any governmental agencies or national securities exchanges as may be
required. Notwithstanding any other provision of the Plan, the Committee may, in
its sole discretion, terminate, amend, or modify the Plan in any way necessary
to comply with the applicable requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission as interpreted pursuant to no-action letters
and interpretive releases.
8.5. GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
8.6. FRACTIONAL SHARES. No fractional shares of stock shall be issued
and the Board shall determine, in its discretion, whether cash shall be given in
lieu of fractional shares or whether such fractional shares shall be eliminated
by rounding up.
8
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), effective as of January 1,
1997 ("Effective Date"), is by and between HYPERCOM CORPORATION, a Delaware
corporation ("Company"), and JAIRO GONZALEZ ("Gonzalez").
RECITALS
This Agreement establishes the terms and conditions of employment of
Jairo Gonzalez by the Company. It supersedes all prior employment agreements
with the Company and any affiliate or predecessor. Certain capitalized terms are
defined in Section 9.6.
AGREEMENTS
In consideration of the mutual promises set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
In consideration of the mutual promises set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment, Duties, and Acceptance. Company and Gonzalez agree that
Gonzalez will be employed for the Term (as hereinafter defined), to
render exclusive full-time services to Company as Vice Chairman and
Division CEO (or such other executive position within the Hypercom
consolidated group of companies (the "Hypercom Group") as the Company
shall determine upon consultation with Gonzalez). Gonzalez shall
perform such duties as are consistent with his positions and as he
shall reasonably be directed to perform by Company's Board of Directors
and Chairman of the Board. Gonzalez also shall be appointed to serve as
a member of the Board of Directors of Company during the Term.
2. Term. The Term of Gonzalez's employment by Company hereunder (the
"Employment Period") shall be for a period of five (5) years from the
Effective Date, subject to the termination provisions of Sections 5.1
through 5.5 hereof.
3. Compensation.
3.1 Base Compensation. During the Employment Period, for all
services rendered by Gonzalez under this Agreement, Company
shall pay Gonzalez an annual base salary, payable in
accordance with the customary payroll policy of Company in
<PAGE> 2
effect at the time such payment is made (or as may otherwise
be mutually agreed upon by the parties), at a rate of no less
than as provided below:
Effective Dates
October 1, 1996 - September 30, 1997 $250,000
October 1, 1997 - September 30, 1998 $260,000
October 1, 1998 - September 30, 1999 $275,000
October 1, 1999 - September 30, 2000 $300,000
Annual base compensation after September 30, 2000 shall be
determined by the Company's Board of Directors not later than
thirty days prior to such date, and shall in no event be less
than $300,000.
3.2 Stock and Stock Options.
(1) Stock and Stock Options. Gonzalez is hereby granted
options ("Option ") to purchase the number of shares
of the Company's common stock at the exercise price
set forth on Schedule 1 hereto, which is the fair
market value on the date hereof. Fifty percent (50%)
of the option grants are immediately exercisable,
with the remaining 50% becoming exercisable at the
rate of 10% per year of the total shares granted (20%
per year of the remaining 50%) thereafter on each
successive anniversary date. Vesting shall terminate
upon his termination of employment. The options shall
be transferable to family members, trusts,
partnerships, foundations or other entities created
for their benefit, and to third parties, provided
that any transfer to a third party shall require the
consent of the Company, which shall not be
unreasonably withheld.
(2) Term of Stock Options. The Options shall have a term
of ten (10) years, subject to the provisions below
(the "Term"). During the Term, Gonzalez may exercise
the Options to the extent he is vested. To the extent
necessary to supplement personal funds, the Company
agrees to consider in good faith granting Gonzalez a
loan in amounts necessary to exercise any Option
provided for herein and/or to make any necessary
payments for income taxes incurred by Gonzalez as the
result of the grant or exercise of Options under this
Section 3.2, with interest and payment dates on such
loans to be negotiated by the parties in good faith.
Said obligation to grant said loan shall terminate
upon the Company's initial public offering ("IPO") of
common stock. Gonzalez may also pay the exercise
price of Options and/or any income tax withholding
requirements in common stock of the Company.
2
<PAGE> 3
(3) Registration Rights. Gonzalez shall be granted
"piggyback" registration rights with respect to any
shares of stock of the Company that he may own to the
extent and as favorable as "piggyback" registration
rights granted to any other shareholder of the
Company. Alternatively, the Company may include the
sale of shares of stock to be issued upon exercise of
Options, or the resale of shares purchased by
Gonzalez upon exercise, in a registration statement
of the Company.
(4) Accelerated Vesting; Exercisability. Gonzalez's
Options (not previously exercisable) shall become
immediately vested and exercisable in full by him or
in the case of his death, by the representative of
his estate, upon the happening of any of the
following events:
(1) Disability or Death. Gonzalez's Disability
or Gonzalez's death.
(2) Termination of Employment. Termination of
Gonzalez's employment by Company without
Cause or by Gonzalez for Good Reason (as
defined below).
(3) Change in Control. A Change in Control of
the Company.
In the event of Disability or Death, termination without Cause
or resignation with or without Good Reason, the period for
exercise of Gonzalez's Options shall terminate on the earlier
of (a) ninety (90) days from the happening of such event or
(b) the expiration of ten (10) years from the date of grant.
In the event of a termination for Cause, the Options shall
terminate upon Gonzalez's termination.
3.3 Adjustment. In the event a stock dividend or split is declared
upon the Company's common stock, the shares of common stock
then subject to the Options shall be increased proportionately
without any change in the aggregate exercise price therefor.
In the event the Company's common stock is changed into or
exchanged for a different number or class of shares of capital
stock of the Company or of another corporation, whether
through a merger, reorganization, consolidation,
recapitalization, combination or exchange of shares, or stock
split, there shall be substituted for each such share of
common stock then subject to the Options the number and class
of shares of stock into which each outstanding share of
Company's common stock shall be so exchanged, all without any
change in the aggregate purchase price for the shares then
subject to the Option.
3
<PAGE> 4
4. Benefits and Bonus. Gonzalez shall be entitled to such paid vacation,
holidays, sick leave and shall be eligible for participation in such
group insurance, hospitalization, major medical, dental, disability
insurance, profit sharing, pension, stock options, and other fringe
benefit programs as those afforded other senior executive officers of
Company. The Company agrees to provide Gonzalez with an appropriate
automobile for business use, the annual lease value of which (as
determined by the "Annual Lease Value Table" provided by the Internal
Revenue Service), shall be approximately $10,000, as reasonably
adjusted hereafter for inflation. Gonzalez shall also be entitled to
participate in any executive bonus plan of the Company upon the terms
and conditions of such plan.
5. Termination.
5.1 Termination upon Death. If Gonzalez dies during the Term, this
Agreement shall terminate, except that the representative of
Gonzalez's estate shall be entitled to receive the
compensation herein provided for the month in which death
occurs.
5.2 Termination Upon Disability. If during the Term Gonzalez
becomes Disabled, Company may at any time thereafter, by
written notice to Gonzalez, terminate the Term of Gonzalez's
employment hereunder. Nothing in this Section 5.2 shall be
deemed to extend the Term. Upon such termination, Gonzalez
shall be entitled to receive the compensation herein provided
for the month in which Disability occurs.
5.3 Termination For Cause. Company may at any time by ninety days
written notice to Gonzalez terminate Gonzalez's employment
hereunder for Cause, provided that Gonzalez shall have ten
(10) days after the notice to cure the deficiency giving rise
to the notice of termination, if it is curable within this
period. The Company need only give one opportunity to cure a
deficiency under this provision. Gonzalez shall be entitled to
receive accrued and unpaid salary to the date of termination.
5.4 Termination by Company Without Cause or by Gonzalez for Good
Reason. If Gonzalez's employment hereunder shall be terminated
by the Company without Cause or by Gonzalez for Good Reason,
Company shall pay to Gonzalez, as liquidated damages and not
as a penalty, for a period of one year following termination,
an amount equal to Gonzalez's annual base compensation on the
date of termination under Section 3.1 hereof payable in
accordance with and at the times set forth in the Company's
normal salary policies, provided, however, that in the event
that all or substantially all of the stock of Company or the
assets of Company are sold during the period in which payments
are being made, then in that instance, the remaining amounts
payable under this provision shall be paid to
4
<PAGE> 5
Gonzalez in a lump sum on the first business day immediately
subsequent to the date of the closing of such sale.
5.5 Voluntary Termination. In the event Gonzalez voluntarily
terminates his employment with Company during or after the
Term, Gonzalez shall be entitled to receive accrued and unpaid
salary to the date of termination.
5.6 Release. The Company's obligation to make any payments
hereunder, other than salary payments due through the date of
termination, shall be subject to receipt by the Company from
Gonzalez of a release in form and substance acceptable to the
Company of all obligations or liabilities of the Company to
him except those arising under this Article 5, pursuant to any
stock option grants (including those herein) or under COBRA.
6. Non-Competition.
6.1 Covenant. Gonzalez hereby covenants and agrees that he will
not, during the term hereof and for one year after any
termination of employment:
(a) Directly or indirectly participate or assist in the
ownership, management, operation or control of any business
similar to or competitive with the Company; provided, however,
that Gonzalez may own, directly or indirectly, solely as an
investment, securities of any person which are traded on any
national securities exchange or in the over the counter market
if Gonzalez (x) is not a controlling person of, or a member of
a group which controls, such person or (y) does not, directly
or indirectly, own 1% or more of any class of securities of
such person; or
(b) Directly or indirectly solicit for employment any person
who is, or within the six month period preceding the date of
such solicitation was, an employee of Company (other than as a
result of a general solicitation for employment); or
(c) Call on or directly or indirectly solicit or divert or
take away from Company or any affiliate of Company any person,
firm, corporation, or other entity who is a customer or
supplier of Company.
6.2 Acknowledgment; Relief for Violation. Gonzalez hereby agrees
that the period of time provided for in this Section 6 and the
territorial restrictions and other provisions and restrictions
set forth herein are reasonable and necessary to protect
Company and its successors and assigns. Gonzalez further
agrees that damages cannot compensate Company in the event of
a violation of this Section 6 and that, if such violation
should occur, injunctive relief shall be essential for the
protection of Company and its successors and assigns.
Accordingly, Gonzalez hereby covenants and agrees that, in the
event any of the provisions of this Section 6 shall be
violated or breached, Company shall be entitled to obtain
injunctive relief
5
<PAGE> 6
against the party or parties violating such covenants, without
bond but upon due notice, in addition to such further or other
relief as may be available at equity or law. Obtainment of
such an injunction by Company shall not be considered an
election of remedies or a waiver of any right to assert any
other remedies which Company has at law or in equity. No
waiver of any breach or violation hereof shall be implied from
forbearance or failure by Company to take action thereof.
6.3 Severability. The Company hereby agrees that, if any provision
with respect to this Section 6 shall be adjudicated to be
invalid or unenforceable, such provision shall be deleted from
this Agreement, but such deletion is to apply only with
respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made; provided,
however, that to the extent any provision hereof is deemed
unenforceable by virtue of its scope in terms of area or
length of time, but may be made enforceable by limitations
thereon, Gonzalez agrees that the same shall be enforceable to
the fullest extent permissible under the laws and public
policies applied in such jurisdiction in which the enforcement
is sought.
6.4 Disclosure. Gonzalez hereby agrees that upon the commencement
by Gonzalez of employment with any third party during the
period in which the terms of this Section 6 are in effect,
Gonzalez shall promptly disclose to each such new employer the
terms of this Section 6. Gonzalez further agrees and
authorizes the Company to notify others, including customers
of the Company and any such future employers of Gonzalez, of
the terms of this Section 6 and of Gonzalez's obligations
hereunder.
6.5 Extension. Gonzalez hereby agrees that the period of time in
which this Section 6 is in effect shall be extended for a
period equal to the duration of any breach of this Section 6
by Gonzalez.
6.6 Survival of Non-Competition. The provisions of this Section 6
will survive any termination of this Agreement.
6.7 Enforcement. Gonzalez agrees to pay any and all reasonable
costs and expenses, including attorneys' fees, incurred by the
Company in enforcing this Section 6 so long as Company
prevails on the same.
7. Confidentiality and Nondisclosure.
7.1 Covenant. It is understood that in the course of Gonzalez's
employment with Company, Gonzalez will become acquainted with
Company Confidential Information (as defined below). Gonzalez
recognizes that Company Confidential Information has been
developed or acquired at great expense, is proprietary to
Company, and is and shall remain the exclusive property of
Company. Accordingly, Gonzalez agrees that he will not,
without the express written consent
6
<PAGE> 7
of Company, during Gonzalez's employment with Company and
thereafter or until such time as Company Confidential
Information becomes generally known, or readily ascertainable
by proper means, by persons unrelated to Company, disclose to
others, copy, make any use of, or remove from Company's
premises any Company Confidential Information, except as
Gonzalez's duties may specifically require. In the event of
dispute or litigation, Gonzalez shall have the burden of proof
by clear and convincing evidence that the Company Confidential
Information has become generally known, or readily
ascertainable by proper means, by persons unrelated to
Company.
As used herein, "Company Confidential Information" shall mean
confidential, proprietary information or trade secrets of
Company including without limitation the following: (1)
customer lists and customer information as compiled by
Company; (2) Company's internal practices and procedures; (3)
Company's financial condition and financial results of
operation to the extent not generally available to the public;
(4) supply of materials information, including sources and
costs; (5) information relating to designs or other subject
matter related to Company's business, strategic planning,
manufacturing, engineering, purchasing, finance, marketing,
promotion, distribution, and selling activities, whether now
existing, or acquired, developed, or made available anytime in
the future to Company; (6) all information which Gonzalez has
a reasonable basis to consider confidential or which is
treated by Company as confidential; and (7) any and all
information having independent economic value to Company that
is not generally known to, and not readily ascertainable by
proper means by, persons who can obtain economic value from
its disclosure or use. Gonzalez acknowledges that such
information is Company Confidential Information whether
disclosed to or learned by Gonzalez or originated by Gonzalez
during employment by Company. In the event that information is
not clearly and obviously publicly available, all information
about Company shall be presumed to be confidential.
7.2 Acknowledgment; Relief for Violation. Gonzalez agrees that
damages cannot compensate Company in the event of a violation
of this Section 7 and that, if such violation should occur,
injunctive relief shall be essential for the protection of
Company and its successors and assigns. Accordingly, Gonzalez
hereby covenants and agrees that, in the event any of the
provisions of this Section 7 shall be violated or breached,
Company shall be entitled to obtain injunctive relief against
the party or parties violating such covenants, without bond
but upon due notice, in addition to such further or other
relief as may be available at equity or law. Obtainment of
such an injunction by Company shall not be considered an
election of remedies or a waiver of any right to assert any
other remedies which Company has at law or in equity. No
waiver of any breach or violation hereof shall be implied from
forbearance or failure by Company to take action thereof.
7
<PAGE> 8
7.3 Disclosure. Gonzalez hereby agrees that upon the commencement
by Gonzalez of employment with any third party during the
period in which the terms of this Section 7 are in effect,
Gonzalez shall promptly disclose to each such new employer the
terms of this Section 7. Gonzalez further agrees and
authorizes the Company to notify others, including customers
of the Company and any such future employers of Gonzalez, of
the terms of this Section 7 and of Gonzalez's obligations
hereunder.
7.4 Survival of Non-Competition. The provisions of this Section 7
will survive any termination of this Agreement.
7.5 Return of Company Materials and Company Confidential
Information. Upon Termination, Gonzalez shall promptly deliver
to Employer the originals and all copies of any and all
materials, documents, notes, manuals, or lists containing or
embodying Company Confidential Information, or relating
directly or indirectly to the business of Company, in the
possession or control of Gonzalez.
7.6 Enforcement. Gonzalez agrees to pay any and all reasonable
costs and expenses, including attorneys' fees, incurred by
Company in enforcing this Section 7 so long as Company
prevails on the same.
8. Indemnification. Company shall indemnify and defend Gonzalez if
Gonzalez is made a party, or threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the
fact that Gonzalez is or was an officer or director of Company or any
of its affiliates, in which capacity Gonzalez is or was serving,
against expenses (including reasonable attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit, or proceeding to the
fullest extent and in the manner set forth in and permitted by the
general corporation law of the State of Delaware, and any other
applicable law, as from time to time in effect.
9. Other Provisions.
9.1 Applicable Currency. Unless otherwise specifically stated, all
dollar amounts set forth in this Agreement are US dollars.
9.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, with
respect thereto, including any agreements, written or oral,
regarding existing or potential profits or stock interests in
the Company or any predecessor or affiliate.
9.3 Waivers and Amendments. This Agreement my be amended,
modified, superseded, canceled, renewed, or extended, and the
terms and conditions hereof
8
<PAGE> 9
may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising
any right, power, or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party
of any right, power, or privilege hereunder, nor any single or
partial exercise of any right, power, or privilege hereunder
preclude any other or further exercise thereof or the exercise
of any other right, power, or privilege hereunder.
9.4 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Arizona without
regard to conflicts of laws principles.
9.5 Arbitration. Any controversy or claim arising out of, or
relating to, this Agreement or the breach thereof, shall be
promptly settled by arbitration in accordance with the rules
then obtaining of the American Arbitration Association, and
judgment upon the award rendered may be entered in any court
having jurisdiction thereof. It is expressly understood that
the arbitrator shall have the authority to grant legal and
equitable relief, including both the authority to grant legal
and equitable relief, including both temporary restraints and
preliminary injunctive relief to the same extent as could a
court of competent jurisdiction, and that the arbitrator is
empowered to order either side to fully cooperate in promptly
resolving any controversies or claims under this Agreement. In
the event that Company terminates Gonzalez for Cause as
provided for in Section 5.3, and in the further event that
Gonzalez promptly initiates arbitration proceedings to contest
that termination as not properly for a Cause set forth in that
Section 5.3, for a period of up to a maximum of six (6) months
pending the outcome of that arbitration (notwithstanding the
provisions of that Section 5.3), Company shall continue to pay
to Gonzalez the compensation provided under Section 3.1 and
shall continue to provide to Gonzalez the benefits set forth
in Section 4, and, in turn, Gonzalez shall be subject to the
provisions of Articles 6 and 7.
9.6 Definitions. The terms "Disability," "Change in Control" and
"Cause" (and derivations thereof) shall have the meaning
ascribed to them in the Company's Long-Term Incentive Plan.
"Good Reason" shall mean the removal of Gonzalez from all
executive-level positions within the Hypercom Group or the
assignment to him of duties inconsistent with an
executive-level position.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HYPERCOM CORPORATION, a Delaware
corporation
By: /s/ George Wallner
-----------------------------
Name:
---------------------------
Title:
--------------------------
___________________________________
JAIRO GONZALEZ
10
<PAGE> 11
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Securities Exercise Price
Date of Grant Underlying Options Granted Per Share
------------- -------------------------- ---------
<S> <C> <C>
January 1, 1997 860,000 $8.00
</TABLE>
11
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), effective as of January 1,
1997 ("Effective Date"), is by and between HYPERCOM CORPORATION, a Delaware
corporation ("Company"), and ALBERT A. IRATO ("Irato").
RECITALS
This Agreement establishes the terms and conditions of employment of Al
Irato by the Company. It supersedes all prior employment agreements with the
Company and any affiliate or predecessor, except with respect to stock and stock
option grants, which shall remain in full force and effect hereunder. Certain
capitalized terms are defined in Section 9.6.
AGREEMENTS
In consideration of the mutual promises set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment, Duties, and Acceptance. Company and Irato agree that Irato
will be employed for the Term (as hereinafter defined), to render
exclusive full-time services to Company as Vice Chairman and Chief
Executive Officer (or such other executive position within the Hypercom
consolidated group of companies (the "Hypercom Group") as the Company
shall determine upon consultation with Irato). Irato shall perform such
duties as are consistent with his positions and as he shall reasonably
be directed to perform by Company's Board of Directors and Chairman of
the Board. Irato also shall be appointed to serve as a member of the
Board of Directors of Company during the Term.
2. Term. The Term of Irato's employment by Company hereunder (the
"Employment Period") shall be for a period of five (5) years from the
Effective Date, subject to the termination provisions of Sections 5.1
through 5.5 hereof.
3. Compensation.
3.1 Base Compensation. During the Employment Period, for all
services rendered by Irato under this Agreement, Company shall
pay Irato an annual base salary, payable in accordance with
the customary payroll policy of Company in effect at the time
such payment is made (or as may otherwise be mutually agreed
upon by the parties), at a rate of no less than as provided
below:
<PAGE> 2
Effective Dates
<TABLE>
<S> <C>
October 1, 1996 - September 30, 1997 $322,000
October 1, 1997 - September 30, 1998 $372,000
October 1, 1998 - September 30, 1999 $392,000
October 1, 1999 - September 30, 2000 $422,000
</TABLE>
Annual base compensation after September 30, 2000 shall be
determined by the Company's Board of Directors not later than
thirty days prior to such date, and shall in no event be less
than $422,000.
3.2 Stock and Stock Options.
(1) Stock and Stock Options. Pursuant to an agreement
with the Company's predecessor dated August 31, 1992,
and amended January 1, 1994 (the "Prior Agreement")
which the Company assumes, Irato has been granted (i)
280,000 shares of common stock, and (ii)
non-qualified options (the "Existing Options") to
purchase additional shares of the Company's common
stock, in the amounts and at the exercise prices set
forth on Schedule 1 hereto, which is the fair market
value on the date of grant, and upon the terms set
forth in the Prior Agreement. All such option grants,
to the extent not already vested, will vest on June
30, 1997. By this Agreement, the Company hereby
grants to Irato non-qualified options (the "New
Options") to acquire an additional 206,000 shares of
common stock, at the exercise price set forth on
Schedule I, which is the fair market value on the
date hereof. Fifty percent (50%) of the New Options
are immediately exercisable, with the remaining 50%
becoming exercisable at the rate of 10% per year of
the total shares granted (20% per year of the
remaining 50%) thereafter on each successive
anniversary date, with all such options vesting on
January 1, 2002. Vesting shall terminate upon his
termination of employment. The Existing Options and
the New Options are collectively referred to as the
"Options." The Options shall be transferable to
family members, trusts, partnerships, foundations or
other entities created for their benefit, and to
third parties, provided that any transfer to a third
party shall require the consent of the Company, which
shall not be unreasonably withheld.
(2) Term of New Options. The New Options shall have a
term of ten (10) years from the date of grant,
subject to the provisions below (the "Term"). During
the Term, Irato may exercise the New Options, to the
extent he is vested. To the extent necessary to
supplement personal funds, the Company agrees to
consider in good faith granting Irato a loan in
amounts necessary to exercise any New Option provided
for herein and/or to make any necessary payments for
income taxes incurred by Irato as the result of the
grant or exercise of New Options under this Section
3.2, with interest
2
<PAGE> 3
and payment dates on such loans to be negotiated by
the parties in good faith. This obligation shall
terminate upon the Company's initial public offering
("IPO") of common stock. Irato may also pay the
exercise price of New Options and/or any income tax
withholding requirements in common stock of the
Company.
(3) Registration Rights. Irato shall be granted
"piggyback" registration rights with respect to any
shares of stock of the Company that he may own to the
extent and as favorable as "piggyback" registration
rights granted to any other shareholder of the
Company. Alternatively, the Company may include the
sale of shares of stock to be issued upon exercise of
Options, or the resale of shares purchased by Irato
upon exercise, in a registration statement of the
Company.
(4) Accelerated Vesting; Exercisability. Irato's New
Options (not previously exercisable) shall become
immediately exercisable in full by him or in the case
of his death, by the representative of his estate,
upon the happening of any of the following events:
(1) Disability or Death. Irato's Disability or
Irato's death.
(2) Termination of Employment. Termination of
Irato's employment by Company without Cause
or by Irato for Good Reason (as defined
below).
(3) Change in Control. A Change in Control of
the Company.
In the event of Disability or Death, termination without Cause
or resignation with or without Good Reason, the period for
exercise of Irato's New Options shall terminate on the earlier
of (a) ninety (90) days from the happening of such event or
(b) the expiration of ten (10) years from the date of grant.
In the event of a termination for Cause, the New Options shall
terminate upon Irato's termination.
3.3 Adjustment. In the event a stock dividend or split is declared
upon the Company's common stock, the shares of common stock
then subject to the New Options shall be increased
proportionately without any change in the aggregate exercise
price therefor. In the event the Company's common stock is
changed into or exchanged for a different number or class of
shares of capital stock of the Company or of another
corporation, whether through a merger, reorganization,
consolidation, recapitalization, combination or exchange of
shares, or stock split, there shall be substituted for each
such share of common stock then subject to the New Options the
number and class of shares of stock into which each
outstanding share of
3
<PAGE> 4
Company's common stock shall be so exchanged, all without any
change in the aggregate purchase price for the shares then
subject to the New Option.
4. Benefits and Bonus. Irato shall be entitled to such paid vacation,
holidays, sick leave and shall be eligible for participation in such
group insurance, hospitalization, major medical, dental, disability
insurance, profit sharing, pension, stock options, and other fringe
benefit programs as those afforded other senior executive officers of
Company. The Company agrees to provide Irato with an appropriate
automobile for business use, the annual lease value of which (as
determined by the "Annual Lease Value Table" provided by the Internal
Revenue Service), shall be approximately $10,000, as reasonably
adjusted hereafter for inflation. Irato shall also be entitled to
participate in any executive bonus plan of the Company upon the terms
and conditions of such plan.
5. Termination.
5.1 Termination upon Death. If Irato dies during the Term, this
Agreement shall terminate, except that the representative of
Irato's estate shall be entitled to receive the compensation
herein provided for the month in which death occurs.
5.2 Termination Upon Disability. If during the Term Irato becomes
Disabled, Company may at any time thereafter, by written
notice to Irato, terminate the Term of Irato's employment
hereunder. Nothing in this Section 5.2 shall be deemed to
extend the Term. Upon such termination, Irato shall be
entitled to receive the compensation herein provided for the
month in which Disability occurs.
5.3 Termination For Cause. Company may at any time by ninety days
written notice to Irato terminate Irato's employment hereunder
for Cause, provided that Irato shall have ten (10) days after
the notice to cure the deficiency giving rise to the notice of
termination, if it is curable within this period. The Company
need only give one opportunity to cure a deficiency under this
provision. Irato shall be entitled to receive accrued and
unpaid salary to the date of termination.
5.4 Termination by Company Without Cause or by Irato for Good
Reason. If Irato's employment hereunder shall be terminated by
the Company without Cause or by Irato for Good Reason, Company
shall pay to Irato, as liquidated damages and not as a
penalty, for a period of one year following termination, an
amount equal to Irato's annual base compensation on the date
of termination under Section 3.1 hereof payable in accordance
with and at the times set forth in the Company's normal salary
policies, provided, however, that in the event that all or
substantially all of the stock of Company or the assets of
Company are sold during the period in which payments are being
made, then in that instance, the remaining
4
<PAGE> 5
amounts payable under this provision shall be paid to Irato in
a lump sum on the first business day immediately subsequent to
the date of the closing of such sale.
5.5 Voluntary Termination. In the event Irato voluntarily
terminates his employment with Company during or after the
Term, Irato shall be entitled to receive accrued and unpaid
salary to the date of termination.
5.6 Release. The Company's obligation to make any payments
hereunder, other than salary payments due through the date of
termination, shall be subject to receipt by the Company from
Irato of a release in form and substance acceptable to the
Company of all obligations or liabilities of the Company to
him except those arising under this Article 5, pursuant to any
stock option grants (including those herein) or under COBRA.
6. Non-Competition.
6.1 Covenant. Irato hereby covenants and agrees that he will not,
during the term hereof and for one year after any termination
of employment:
(a) Directly or indirectly participate or assist in the
ownership, management, operation or control of any business
similar to or competitive with the Company; provided, however,
that Irato may own, directly or indirectly, solely as an
investment, securities of any person which are traded on any
national securities exchange or in the over the counter market
if Irato (x) is not a controlling person of, or a member of a
group which controls, such person or (y) does not, directly or
indirectly, own 1% or more of any class of securities of such
person; or
(b) Directly or indirectly solicit for employment any person
who is, or within the six month period preceding the date of
such solicitation was, an employee of Company (other than as a
result of a general solicitation for employment); or
(c) Call on or directly or indirectly solicit or divert or
take away from Company or any affiliate of Company any person,
firm, corporation, or other entity who is a customer or
supplier of Company.
6.2 Acknowledgment; Relief for Violation. Irato hereby agrees that
the period of time provided for in this Section 6 and the
territorial restrictions and other provisions and restrictions
set forth herein are reasonable and necessary to protect
Company and its successors and assigns. Irato further agrees
that damages cannot compensate Company in the event of a
violation of this Section 6 and that, if such violation should
occur, injunctive relief shall be essential for the protection
of Company and its successors and assigns. Accordingly, Irato
hereby covenants and agrees that, in the event any of the
provisions of this Section 6 shall be violated or breached,
Company shall be entitled to obtain injunctive relief against
the party or
5
<PAGE> 6
parties violating such covenants, without bond but upon due
notice, in addition to such further or other relief as may be
available at equity or law. Obtainment of such an injunction
by Company shall not be considered an election of remedies or
a waiver of any right to assert any other remedies which
Company has at law or in equity. No waiver of any breach or
violation hereof shall be implied from forbearance or failure
by Company to take action thereof.
6.3 Severability. The Company hereby agrees that, if any provision
with respect to this Section 6 shall be adjudicated to be
invalid or unenforceable, such provision shall be deleted from
this Agreement, but such deletion is to apply only with
respect to the operation of such provision in the particular
jurisdiction in which such adjudication is made; provided,
however, that to the extent any provision hereof is deemed
unenforceable by virtue of its scope in terms of area or
length of time, but may be made enforceable by limitations
thereon, Irato agrees that the same shall be enforceable to
the fullest extent permissible under the laws and public
policies applied in such jurisdiction in which the enforcement
is sought.
6.4 Disclosure. Irato hereby agrees that upon the commencement by
Irato of employment with any third party during the period in
which the terms of this Section 6 are in effect, Irato shall
promptly disclose to each such new employer the terms of this
Section 6. Irato further agrees and authorizes the Company to
notify others, including customers of the Company and any such
future employers of Irato, of the terms of this Section 6 and
of Irato's obligations hereunder.
6.5 Extension. Irato hereby agrees that the period of time in
which this Section 6 is in effect shall be extended for a
period equal to the duration of any breach of this Section 6
by Irato.
6.6 Survival of Non-Competition. The provisions of this Section 6
will survive any termination of this Agreement.
6.7 Enforcement. Irato agrees to pay any and all reasonable costs
and expenses, including attorneys' fees, incurred by the
Company in enforcing this Section 6.
7. Confidentiality and Nondisclosure.
7.1 Covenant. It is understood that in the course of Irato's
employment with Company, Irato will become acquainted with
Company Confidential Information (as defined below). Irato
recognizes that Company Confidential Information has been
developed or acquired at great expense, is proprietary to
Company, and is and shall remain the exclusive property of
Company. Accordingly, Irato agrees that he will not, without
the express written consent of Company, during Irato's
employment with Company and thereafter or until such time as
Company Confidential Information becomes generally known, or
readily ascertainable by
6
<PAGE> 7
proper means, by persons unrelated to Company, disclose to
others, copy, make any use of, or remove from Company's
premises any Company Confidential Information, except as
Irato's duties may specifically require. In the event of
dispute or litigation, Irato shall have the burden of proof by
clear and convincing evidence that the Company Confidential
Information has become generally known, or readily
ascertainable by proper means, by persons unrelated to
Company.
As used herein, "Company Confidential Information" shall mean
confidential, proprietary information or trade secrets of
Company including without limitation the following: (1)
customer lists and customer information as compiled by
Company; (2) Company's internal practices and procedures; (3)
Company's financial condition and financial results of
operation to the extent not generally available to the public;
(4) supply of materials information, including sources and
costs; (5) information relating to designs or other subject
matter related to Company's business, strategic planning,
manufacturing, engineering, purchasing, finance, marketing,
promotion, distribution, and selling activities, whether now
existing, or acquired, developed, or made available anytime in
the future to Company; (6) all information which Irato has a
reasonable basis to consider confidential or which is treated
by Company as confidential; and (7) any and all information
having independent economic value to Company that is not
generally known to, and not readily ascertainable by proper
means by, persons who can obtain economic value from its
disclosure or use. Irato acknowledges that such information is
Company Confidential Information whether disclosed to or
learned by Irato or originated by Irato during employment by
Company. In the event that information is not clearly and
obviously publicly available, all information about Company
shall be presumed to be confidential.
7.2 Acknowledgment; Relief for Violation. Irato agrees that
damages cannot compensate Company in the event of a violation
of this Section 7 and that, if such violation should occur,
injunctive relief shall be essential for the protection of
Company and its successors and assigns. Accordingly, Irato
hereby covenants and agrees that, in the event any of the
provisions of this Section 7 shall be violated or breached,
Company shall be entitled to obtain injunctive relief against
the party or parties violating such covenants, without bond
but upon due notice, in addition to such further or other
relief as may be available at equity or law. Obtainment of
such an injunction by Company shall not be considered an
election of remedies or a waiver of any right to assert any
other remedies which Company has at law or in equity. No
waiver of any breach or violation hereof shall be implied from
forbearance or failure by Company to take action thereof.
7.3 Disclosure. Irato hereby agrees that upon the commencement by
Irato of employment with any third party during the period in
which the terms of this Section 7 are in effect, Irato shall
promptly disclose to each such new employer
7
<PAGE> 8
the terms of this Section 7. Irato further agrees and
authorizes the Company to notify others, including customers
of the Company and any such future employers of Irato, of the
terms of this Section 7 and of Irato's obligations hereunder.
7.4 Survival of Non-Competition. The provisions of this Section 7
will survive any termination of this Agreement.
7.5 Return of Company Materials and Company Confidential
Information. Upon Termination, Irato shall promptly deliver to
Employer the originals and all copies of any and all
materials, documents, notes, manuals, or lists containing or
embodying Company Confidential Information, or relating
directly or indirectly to the business of Company, in the
possession or control of Irato.
7.6 Enforcement. Irato agrees to pay any and all reasonable costs
and expenses, including attorneys' fees, incurred by Company
in enforcing this Section 7.
8. Indemnification. Company shall indemnify and defend Irato if Irato is
made a party, or threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that
Irato is or was an officer or director of Company or any of its
affiliates, in which capacity Irato is or was serving, against expenses
(including reasonable attorneys' fees), judgments, fines, and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding to the fullest extent
and in the manner set forth in and permitted by the general corporation
law of the State of Delaware, and any other applicable law, as from
time to time in effect.
9. Other Provisions.
9.1 Applicable Currency. Unless otherwise specifically stated, all
dollar amounts set forth in this Agreement are US dollars.
9.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof
and supersedes (except as reflected herein) all prior
agreements, written or oral, with respect thereto.
9.3 Waivers and Amendments. This Agreement my be amended,
modified, superseded, canceled, renewed, or extended, and the
terms and conditions hereof may be waived, only by a written
instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance. No delay on the part of any
party in exercising any right, power, or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the
part of any party of any right, power, or privilege hereunder,
nor any single or partial exercise of any right, power, or
privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power, or
privilege hereunder.
8
<PAGE> 9
9.4 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Arizona without
regard to conflicts of laws principles.
9.5 Arbitration. Any controversy or claim arising out of, or
relating to, this Agreement or the breach thereof, shall be
promptly settled by arbitration in accordance with the rules
then obtaining of the American Arbitration Association, and
judgment upon the award rendered may be entered in any court
having jurisdiction thereof. It is expressly understood that
the arbitrator shall have the authority to grant legal and
equitable relief, including both the authority to grant legal
and equitable relief, including both temporary restraints and
preliminary injunctive relief to the same extent as could a
court of competent jurisdiction, and that the arbitrator is
empowered to order either side to fully cooperate in promptly
resolving any controversies or claims under this Agreement. In
the event that Company terminates Irato for Cause as provided
for in Section 5.3, and in the further event that Irato
promptly initiates arbitration proceedings to contest that
termination as not properly for a Cause set forth in that
Section 5.3, for a period of up to a maximum of six (6) months
pending the outcome of that arbitration (notwithstanding the
provisions of that Section 5.3), Company shall continue to pay
to Irato the compensation provided under Section 3.1 and shall
continue to provide to Irato the benefits set forth in Section
4, and, in turn, Irato shall be subject to the provisions of
Articles 6 and 7.
9.6 Definitions. The terms "Disability," "Change in Control" and
"Cause" (and derivations thereof) shall have the meaning
ascribed to them in the Company's Long-Term Incentive Plan.
"Good Reason" shall mean the removal of Irato from all
executive-level positions within the Hypercom Group or the
assignment to him of duties inconsistent with an
executive-level position.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HYPERCOM CORPORATION, a Delaware
corporation
By: /s/ George Wallner
----------------------------
Name: George Wallner
--------------------------
Title: Chairman
-------------------------
/s/ Albert A. Irato
--------------------------------
ALBERT A. IRATO
10
<PAGE> 11
SCHEDULE 1
Existing Stock Options
<TABLE>
<CAPTION>
Number of Securities Exercise Price
Date of Grant Underlying Options Granted Per Share
------------- -------------------------- ---------
<S> <C> <C>
June 30, 1992 202,000 $ .83
June 30, 1993 204,000 $1.37
June 30, 1994 208,000 $2.52
January 1, 1995 210,000 $3.32
</TABLE>
New Stock Options
<TABLE>
<CAPTION>
Number of Securities Exercise Price
Date of Grant Underlying Options Granted Per Share
------------- -------------------------- ---------
<S> <C> <C>
January 1, 1997 206,000* $8.00
</TABLE>
* The 206,000 specific stock options are specifically excluded from the terms
and conditions of the prior employment agreement which have not been
extinguished by this Employment Agreement with respect to stock and stock
option grants.
11
<PAGE> 1
Exhibit 11
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Years Ended
-----------------
6/30/93 6/30/94 6/30/95 6/30/96 6/30/93
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Income $9,149,000 $8,466,000 $19,556,000 $12,289,000 $15,562,000
------------------------------------------------------------------------
Weighted average number of shares
outstanding during the year 36,300,000 36,300,000 36,300,000 36,650,000 25,000,000
Assumed conversion of common share
equivalents 1,652,072 1,815,604 1,936,105 2,090,591 2,328,226
Weighted average common and common
equivalent shares used for computation
of net income per share 37,952,072 38,115,604 38,236,105 38,740,591 27,328,226
------------------------------------------------------------------------
Net Income Per Share $0.24 $0.22 $0.51 $0.32 $0.57
========================================================================
</TABLE>
<PAGE> 1
EXHIBIT 21
HYPERCOM CORPORATION
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF ENTITY JURISDICTION OF ORGANIZATION
-------------- ----------------------------
<S> <C> <C>
1. Hypercom Pty. Ltd. Australia
2. Hypercom, Inc. Arizona
3. Hypercom U.S.A., Inc. Delaware
4. Hypercom Latino America, Inc. Arizona
5. Hypercom Manufacturing Resources, Inc. Arizona
6. Hypercom Do Brazil Commercial LTDA Brazil
7. Hypercom Manufacturing Hong Kong, Ltd. Hong Kong
8. Hypercom Asia Ltd. Hong Kong
9. Hypercom Australia Pty., Ltd. Australia
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of our
reports dated September 10, 1997, on our audits of the consolidated financial
statements and financial statement schedule of Hypercom Corporation. We also
consent to the references to our firm under the captions "Experts" and "Selected
Financial Data".
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
September 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 16,318
<SECURITIES> 0
<RECEIVABLES> 31,853
<ALLOWANCES> 779
<INVENTORY> 55,921
<CURRENT-ASSETS> 120,962
<PP&E> 21,921
<DEPRECIATION> 5,497
<TOTAL-ASSETS> 138,741
<CURRENT-LIABILITIES> 58,013
<BONDS> 10,506
7,543
0
<COMMON> 4
<OTHER-SE> 60,890
<TOTAL-LIABILITY-AND-EQUITY> 131,198
<SALES> 196,742
<TOTAL-REVENUES> 196,742
<CGS> 103,227
<TOTAL-COSTS> 173,467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,427
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> 23,383
<INCOME-TAX> 7,821
<INCOME-CONTINUING> 15,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,562
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT OF DIRECTOR-NOMINEE
The undersigned hereby consents to being named as a director-nominee in
the Registration Statement on Form S-1 of Hypercom Corporation (the "Company")
to be filed with the Securities and Exchange Commission and if elected agrees to
serve as a director of the Company effective upon the closing of the initial
public offering of the Company's Common Stock.
Dated: 8-21-97 By: /s/ Peter J. Hart
-------------------- -----------------------------
Name: Peter J. Hart
<PAGE> 1
EXHIBIT 99.2
CONSENT OF DIRECTOR-NOMINEE
The undersigned hereby consents to being named as a director-nominee in the
Registration Statement on Form S-1 of Hypercom Corporation (the "Company") to be
filed with the Securities and Exchange Commission and if elected agrees to
serve as a director of the Company effective upon the closing of the initial
public offering of the Company's Common Stock.
Dated: 8-24-97 By: /s/ William E. Fisher
------------ ------------------------
Name: William E. Fisher
