<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
Hypercom Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
HYPERCOM CORPORATION
2851 WEST KATHLEEN ROAD
PHOENIX, ARIZONA 85053
------------------------
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 20, 1998
------------------------
To Our Stockholders:
The 1998 Annual Meeting of Stockholders (the "Annual Meeting") of Hypercom
Corporation (the "Company") will be held at 9:00 a.m., Arizona Time, on Tuesday,
October 20, 1998, at Embassy Suites Hotel, 2577 W. Greenway Road, Phoenix,
Arizona 85053, for the following purposes:
1. To elect three directors to the Board of Directors to serve a
two-year term or until their successors have been duly elected and
qualified; and
2. To transact such other business as may properly come before the
Annual Meeting. Management is presently aware of no other business to come
before the Annual Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Each outstanding share of the Company's Common Stock entitles the holder of
record at the close of business on September 25, 1998 (the "Record Date"), to
receive notice of and to vote at the Annual Meeting or any adjournment or
postponement thereof. The Company will make available an alphabetical list of
stockholders entitled to vote at the Annual Meeting for examination by any
stockholder. The stockholder list will be available for inspection at the
Company's principal office in Phoenix, Arizona from October 5, 1998 until the
Annual Meeting, and at the Annual Meeting on October 20, 1998. Shares of Common
Stock can be voted at the Annual Meeting only if the holder is present in person
or by valid proxy. A copy of the Company's 1998 Annual Report to Stockholders
for the year ended June 30, 1998, which includes certified financial statements,
is enclosed. Management cordially invites you to attend the Annual Meeting.
By Order of the Board of Directors
George Wallner
Chairman of Board of Directors
Phoenix, Arizona
September 30, 1998
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY SO THAT YOUR SHARES MAY BE
REPRESENTED AT THE MEETING. A POSTAGE-PAID ENVELOPE IS PROVIDED FOR MAILING IN
THE UNITED STATES.
<PAGE> 3
HYPERCOM CORPORATION
2851 WEST KATHLEEN ROAD
PHOENIX, ARIZONA 85053
------------------------
PROXY STATEMENT
------------------------
FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 20, 1998
This Proxy Statement is furnished to the stockholders of Hypercom
Corporation (the "Company") in connection with the solicitation of proxies to be
used in voting at the 1998 Annual Meeting of Stockholders (the "Annual Meeting")
to be held on October 20, 1998 at 9:00 a.m., at Embassy Suites Hotel, 2577 W.
Greenway Road, Phoenix, Arizona 85053, or at such other time and place to which
the Annual Meeting may be adjourned or postponed. THE ENCLOSED PROXY IS
SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. The proxy materials relating
to the Annual Meeting are first being mailed on or about September 30, 1998.
RECORD DATE AND VOTING SECURITIES
The record date for determining the stockholders entitled to notice of and
to vote at the Annual Meeting was the close of business on September 25, 1998
(the "Record Date"), at which time the Company had issued and outstanding
33,594,166 shares of common stock, $0.001 par value per share (the "Common
Stock"). The Common Stock constitutes the only class of outstanding voting
shares of the Company.
QUORUM, PROXIES AND COUNTING VOTES
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the outstanding Common Stock entitled to vote is necessary to
constitute a quorum for the transaction of business. An inspector of elections
appointed by the Board of Directors shall determine the shares represented at
the Annual Meeting and the validity of proxies and shall count all votes.
Determinations of whether a quorum exists and whether the proposals are approved
will be announced at the Annual Meeting. The vote on each proposal submitted to
stockholders is tabulated separately. Each stockholder of record on the Record
Date is entitled to one vote on each proposal that comes before the Annual
Meeting for each share then held. Shares represented by proxies pursuant to
which votes have been withheld from any nominee for director, or which contain
one or more abstentions, are counted as present or represented for purposes of
determining both (i) the presence or absence of a quorum for the Annual Meeting
and (ii) the total number of shares entitled to vote. A "broker non-vote" occurs
when a broker or other nominee holding shares for a beneficial owner votes on
one proposal, but does not vote on another proposal because the broker does not
have discretionary voting power for the other proposal or has not received
instructions from the beneficial owner. Broker non-votes are counted as present
or represented for purposes of determining the presence or absence of a quorum
for the Annual Meeting, but are not counted for purposes of determining the
number of shares entitled to vote with respect to any proposal for which the
broker lacks discretionary authority.
All shares represented by valid proxies will be voted in accordance with
the directions specified on each proxy. Any proxy on which no direction is
specified will be voted FOR Proposal No. 1. By returning the proxy, a
stockholder also authorizes management to vote the stockholder's shares in
accordance with management's best judgment in response to other proposals that
properly come before the Annual Meeting or any adjournment thereof. Management
of the Company currently knows of no other proposals to come before the Annual
Meeting.
REVOCATION OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised at the Annual Meeting by (i)
submitting a duly executed proxy dated subsequent to the original
1
<PAGE> 4
proxy, (ii) attending the Annual Meeting and voting in person or (iii) sending
written notice of revocation to the Secretary of the Company at 2851 West
Kathleen Road, Phoenix, Arizona 85053. Please note, however, that if a
stockholder's shares are held of record by a broker, bank or other nominee and
that stockholder wishes to vote at the Annual Meeting, the stockholder must
bring to the Annual Meeting a letter from the broker, bank or other nominee
confirming that stockholder's beneficial ownership of the shares.
SOLICITING PROXIES
The expenses of soliciting proxies to be voted at the Annual Meeting,
including the cost of preparing, printing, and mailing the Notice of Annual
Meeting of Stockholders, this Proxy Statement, the Annual Report and the
accompanying proxy card, will be paid by the Company. Following the original
mailing of the proxies and other soliciting materials, the Company and its
agents may also solicit proxies by mail, telephone, facsimile, telegraph or in
person. Brokers and other persons holding stock in their names, or in the names
of nominees, will be requested to forward proxy material to the beneficial
owners of the stock and to obtain proxies, and the Company will defray
reasonable expenses incurred in forwarding such material.
The information included herein should be reviewed in conjunction with the
consolidated financial statements, notes to consolidated financial statements,
independent auditors' reports and other information included in the Company's
1998 Annual Report to Stockholders that was mailed with this Proxy Statement to
all stockholders of record on the Record Date.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Annual Meeting, stockholders will be asked to elect three directors
to the Board of Directors, each to serve until the 2000 Annual Meeting of
Stockholders or until his successor shall have been duly elected and qualified
or his resignation or removal, whichever first occurs. The present terms of
George Wallner, Albert A. Irato and William E. Fisher, who are Class I incumbent
directors, will expire at the Annual Meeting. Messrs. Wallner, Irato, and Fisher
have been nominated for re-election as directors, and all have agreed to serve
if elected. If any of them become unavailable for any reason or if a vacancy
should occur before election (which events are not anticipated), the shares
represented by the enclosed proxy will be voted for the election of such other
person or persons as are nominated by the Board of Directors.
The Company does not have a standing nominating committee. The function of
nominating directors is carried out by the entire Board of Directors.
Pursuant to the Company's Bylaws, a stockholder may nominate persons for
election as director, provided that the stockholder (i) is a stockholder of
record at the time of giving notice of the nomination and is entitled to vote at
the meeting of stockholders to which the nomination relates and (ii) complies
with the notice procedures set forth in the Bylaws. The Bylaws provide that the
nominating stockholder must deliver written notice of the nomination to the
Company's Secretary at least 120 days prior to the anniversary date of the
immediately preceding annual meeting, unless the annual meeting is called for a
date that is not within 30 days prior to or after such anniversary, in which
case the notice must be received not later than the tenth day following the date
on which notice of the annual meeting was mailed to stockholders or public
disclosure of the date of such meeting was made, whichever first occurs. The
required notice must contain certain information, including without limitation
information about the nominee and the stockholder making such nomination and
their respective stock holdings, a representation that the nominating
stockholder will appear in person at the annual meeting to nominate such nominee
and a description of any arrangements or understandings between the stockholder
and the nominee, as prescribed in the Bylaws.
The deadline for a stockholder to deliver notice of a nomination for the
election of directors at the 1998 Annual Meeting of Stockholders was June 10,
1998. No nominations were received from any stockholder for the Annual Meeting.
2
<PAGE> 5
VOTE REQUIRED
Directors are elected by a plurality of the shares present, in person or by
proxy, and entitled to vote at the Annual Meeting, provided that a quorum is
present. Votes may be cast FOR the nominees or WITHHELD. In addition, a
stockholder may indicate that he or she is voting FOR the nominees except for
any nominee(s) specified in writing on the proxy card. The three nominees who
receive the greatest number of votes cast FOR the election of such nominees
shall be elected as directors. As a result, any vote other than a vote FOR the
nominee will have the practical effect of voting AGAINST the nominee. An
abstention will have the same effect as voting WITHHELD for the election of
directors, and, pursuant to Delaware law, a broker non-vote will not be treated
as voting in person or by proxy on the proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF EACH
OF THE DIRECTOR NOMINEES.
INFORMATION CONCERNING DIRECTORS, NOMINEES AND OFFICERS
Information concerning the names, ages, positions with the Company and
business experience of each of the Company's current directors (three of whom
are director nominees) and executive officers as of September 30, 1998, is set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George Wallner....................... 47 Chairman of the Board of Directors
Albert A. Irato...................... 61 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......................... 44 Vice Chairman of the Board of Directors of the Company
and President of Hypercom Network Systems
Jairo Gonzalez....................... 36 Vice Chairman of the Board of Directors of the Company
and President of Hypercom International
Thomas E. Linnen..................... 52 Chief Financial Officer of the Company
William E. Fisher(1)(2).............. 52 Director
Peter J. Hart(1)(2).................. 59 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
The business experience of each of the directors 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 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 networking products. Mr. Wallner obtained his B.S.
in
3
<PAGE> 6
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 marketing, sales and
distribution of POS payment systems. Mr. Gonzalez holds a B.A. in political
science from the University of Oregon.
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 served as a Director of the Company since November,
1997. 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 served as a Director of the Company since November, 1997.
Since 1996, Mr. Hart has served as a Director and Vice President of Express Card
Systems, Inc., a sales company. 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.
FORMER DIRECTOR. John C. Elliott, who was elected as a Director of the
Company in November, 1997, resigned for health reasons effective September 1,
1998. The Class II directorship formerly held by Mr. Elliott, the term of which
expires at the 1999 annual meeting of stockholders, will be filled by the
remaining members of the Board of Directors, as provided in the Company's
Bylaws. As of September 30, 1998, the Board of Directors had not yet selected a
nominee.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
BOARD OF DIRECTORS. During the year ended June 30, 1998, the Board of
Directors of the Company met or acted by consent in lieu of a meeting on eleven
occasions. No director attended fewer than 75% of the aggregate of all of the
meetings of the Board of Directors and any committee on which such director
served during the period of such service.
COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors reviews all aspects of compensation of executive officers of the
Company and makes recommendations on such matters to the full Board of Directors
and administers the Company's 1997 Long-Term Incentive Plan. The Compensation
Committee, consisting of Messrs. Fisher, Hart, and Elliott, met in person or
acted by written consent one time during fiscal year 1998.
AUDIT COMMITTEE. The Audit Committee makes recommendations to the Board
concerning the selection and retention of outside auditors for the Company,
reviews the financial statements of the Company, oversees the establishment and
implementation of such systems of internal accounting and auditing control as it
deems appropriate and considers such other matters in relation to the external
audit of the financial affairs of the Company as may be necessary or appropriate
in order to facilitate accurate and timely financial reporting. The Audit
Committee also reviews certain proposals for major transactions. The Audit
Committee, consisting of Messrs. Fisher, and Hart met in person or acted by
written consent two times during the fiscal year 1998.
4
<PAGE> 7
OTHER COMMITTEES. The Company does not maintain a standing nominating
committee or other committee performing similar functions.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $1,250 quarterly for
their services as directors and their participation in meetings of the Board of
Directors and meetings of committees of the Board of Directors of which they are
members, and are reimbursed for reasonable travel expenses incurred in
connection with attendance at each Board and Committee meeting. Directors who
also are officers of the Company are not compensated for their services as
directors.
Directors who are not employees of the Company are also eligible to receive
non-qualified stock options pursuant to a formula grant provision of the
Company's Non-Employee Directors' Stock Option Plan. The formula provided for an
initial grant of options for 6,250 shares to each non-employee director at the
closing of the Company's initial public offering in November 1997. Each
individual who first becomes a non-employee director after November 1997 will
receive a grant of options for 6,250 shares. The formula also provides for an
annual grant of options for 6,250 shares to each non-employee director. All
options are granted at fair market value on the date of grant and vest one year
after the date of grant.
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and long-term
compensation for services rendered in all capacities to the Company during the
fiscal years ended June 30, 1998 and 1997 of those persons who were, at June 30,
1998 (i) the Chief Executive Officer of the Company and (ii) the four remaining
most highly compensated executive officers (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES ALL OTHER
SALARY BONUS OTHER ANNUAL UNDERLYING COMPENSATION(2)
NAME & PRINCIPAL POSITION YEARS ($) ($) COMPENSATION(1) OPTIONS ($)
- ------------------------- ----- -------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
George Wallner.......... 1998 530,000 -- -- -- --
Chairman of the Board
of Directors 1997 494,411 156,500 -- -- 11,711
Albert A. Irato......... 1998 356,616 -- -- -- --
Chief Executive Officer 1997 306,260 14,500 -- 257,500 --
and President
Paul Wallner............ 1998 456,000 -- -- -- --
President of Hypercom 1997 368,697 156,500 -- -- 17,680
Network Systems
Jairo Gonzalez.......... 1998 269,673 -- -- -- --
President of Hypercom 1997 228,181 -- -- 1,075,000 --
International
Thomas E. Linnen........ 1998 165,981 9,450 -- -- --
Chief Financial Officer 1997 104,461 -- -- 81,250 --
</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.
5
<PAGE> 8
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant stock options or stock appreciation rights to any
of the Named Executive Officers during fiscal 1998.
AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
VALUES
The following table sets forth information concerning the value of each
Named Executive Officer's unexercised options at June 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George Wallner........... -- -- -- -- -- --
Paul Wallner............. -- -- -- -- -- --
Albert A. Irato.......... 60,000(2) $323,403 1,146,000 103,000 $9,603,200 $ 370,800
Jairo Gonzalez........... -- -- 645,000 430,000 2,322,000 1,548,000
Thomas E. Linnen......... -- -- 26,250 55,000 94,500 198,000
</TABLE>
- ---------------
(1) Value as of June 30, 1998 is based upon the closing price of $10.00 on that
date as reported on the New York Stock Exchange.
(2) Consists entirely of stock options which were previously gifted by Mr. Irato
to the Capucine Irrevocable 1997 Trust established on behalf of his
daughter.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Albert A. Irato, the Company's President and Chief Executive Officer, is
employed under an agreement effective January 1, 1997, that expires January 1,
2002. The agreement currently provides for an annual base salary of $372,000,
with annual adjustments on October 1, 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 effective January 1, 1997, that expires January 1, 2002. The agreement
currently provides for an annual base salary of $260,000, with annual
adjustments on October 1, 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
6
<PAGE> 9
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.
Although the Company has no current plans to enter into employment
agreements with any other executive officer or key employee, the Company intends
to review the desirability of such employment agreements from time to time in
the future.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION POLICIES
The following statement made by the Compensation Committee shall not be
deemed incorporated by reference into any filing under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, and shall
not otherwise be deemed filed under either of such acts.
The Company established the Compensation Committee in October 1997. The
Compensation Committee is responsible for making recommendations to the Board of
Directors concerning executive compensation, including base salaries, bonuses
and awards of stock options. The Compensation Committee currently consists of
Messrs. Fisher and Hart, each of whom is a non-employee director of the Company.
As the Compensation Committee was recently formed and has only formally met
once, all compensation decisions to date have been made by the Board of
Directors.
The Board establishes each executive's base salary at a level that is
designed to reflect that executive's position and responsibility within the
Company, to attract and retain highly qualified executives and to be competitive
with similarly situated executives at companies of similar size and revenue
levels. The Board also takes into account, among other things, the individual
executive's experience and performance during the past year.
In November 1996, the Company adopted the Hypercom Corporation Long-Term
Incentive Plan to provide key employees selected by the Board an opportunity to
obtain an equity stake in the Company. Stock options are primarily designed to
provide such employees with strong incentives for superior long-term
performance. The exercisability of options is therefore conditioned upon the
employee's continued employment by the Company for periods of time specified by
the Board when these options are granted. Unexercised options are forfeited if
the employee leaves the Company prior to the time such options vest or, if
vested upon termination, if the employee fails to exercise them prior to the end
of a stated period following termination. In making option awards, the Board
reviews the level of awards granted to executives at other comparable companies,
the awards granted to other employees within the Company and the individual
employee's specific position at the Company and role in helping the Company to
achieve its goals.
CEO COMPENSATION
Albert A. Irato has served as Chief Executive Officer and president since
October 1992. As noted above, in all cases the Board's specific decisions
involving executive officer compensation were ultimately based upon the Board's
judgments regarding the individual executive officer's performance and
leadership in achieving the Company's long-term strategic and business goals.
COMPLIANCE WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code, adopted as part of the Revenue
Reconciliation Act of 1993, generally limits to $1 million the deduction that
can be claimed by any publicly-held corporation for compensation paid to any
"covered employee" in any taxable year beginning after December 31, 1993. The
term "covered employee" for this purpose is defined generally as the chief
executive officer and the four other highest-paid employees of the corporation.
In fiscal 1998, the Company did not pay compensation to any executive which was
subject to Section 162(m).
7
<PAGE> 10
While the Compensation Committee has only met once during fiscal year 1998,
it did not determine its specific policies. It is anticipated that the
Compensation Committee will adopt policies similar to the Board of Directors'
existing policies and objectives concerning executive compensation.
William E. Fisher
Peter J. Hart
As Members of the Compensation
Committee
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During fiscal years 1997 and 1998, the Company's Board of Directors
established the levels of compensation for certain of the Company's executive
officers without the involvement of the Compensation Committee, as the
Compensation Committee was not formed until November 1997. The current members
of the Company's Compensation Committee are Messrs. Hart and Fisher. None of
these individuals were at any time an officer or employee of the Company. Mr.
Hart is the brother-in-law of Mr. Irato. In addition, Mr. Hart is a director and
vice president of Express Card Systems, a sales company which derives a
significant portion of its revenues from products sold to the Company. See
"Certain Transactions and Relationships."
8
<PAGE> 11
STOCK PRICE PERFORMANCE GRAPH
The following graph illustrates a comparison of the cumulative total
stockholder return (change in stock price plus reinvested dividends) of (i) the
Company's Common Stock, (ii) the Nasdaq Stock Index (the "Nasdaq") and (iii) a
peer group index selected by the Company (the "Peer Group"), from November 13,
1997 (the date of the Company's initial public offering) through June 30, 1998
(the end of the Company's fiscal year). The Peer Group was selected by the
Company on an industry basis and consists of 3Com Corporation; Checkfree Holding
Corporation; CyberCash, Inc.; Diebold, Incorporated; Equifax Inc.; Hewlett-
Packard Company; IVI Checkmate Corp.; International Verifact Inc.; MICROS
Systems, Inc.; Schlumberger Limited; Transaction Network Services, Inc.; and
Transaction System Architects, Inc. The graph assumes that $100 was invested on
November 13, 1997 in the Company's Common Stock and in each of the comparison
indices, and assumes that dividends were reinvested. The comparisons in the
graph are required by the Securities and Exchange Commission and are not
intended to forecast or be indicative of possible future performance of the
Company's Common Stock.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG HYPERCOM CORPORATION, THE NASDAQ AND THE PEER GROUP
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
HYPERCOM CORPORATION
<TABLE>
<CAPTION>
NASDAQ STOCK
MEASUREMENT PERIOD HYPERCOM MARKET (US SELF-DETERMINED
(FISCAL YEAR COVERED) CORPORATION COMPANIES) PEER GROUP
<S> <C> <C> <C>
11/14/97 100.00 100.00 100.00
100.00 101.10 99.80
12/31/97 88.30 99.50 100.20
84.40 102.70 94.90
103.50 112.30 102.40
83.20 116.40 99.30
81.30 118.40 111.70
75.40 111.90 95.80
6/30/98 62.50 119.80 91.90
</TABLE>
9
<PAGE> 12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than 10% stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely upon a review of the copies of such forms furnished to the Company, or
written representations that no Forms 5 were required, the Company believes that
during the Company's preceding fiscal year all Section 16(a) filing requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT
The following table sets forth, as of September 30, 1998, the number and
percentage of outstanding shares of Common Stock beneficially owned by each
person known by the Company to beneficially own more than 5% of such stock, by
each director and executive officer of the Company and by all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1)(2) OWNED OWNED
- ------------------------------------------ ------------ -------
<S> <C> <C>
George Wallner.............................................. 11,450,000 34.1%
Paul Wallner................................................ 9,800,000 29.2%
Albert A. Irato(3).......................................... 1,030,000 3.1%
Jairo Gonzalez(4)........................................... 645,000 1.9%
Thomas E. Linnen(5)......................................... 50,000 *
William E. Fisher........................................... 11,250 *
Peter J. Hart............................................... 10,250 *
Capucine Irrevocable 1997 Trust(6).......................... 219,000 *
All directors, director-nominees and executive officers as a
group..................................................... 22,996,500 68.5%
</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 September 30, 1998 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 33,594,166 shares of Common Stock outstanding as of September
30, 1998.
(2) Unless otherwise noted, the address of each of the persons listed is 2851
West Kathleen Road, Phoenix, Arizona 85053.
(3) Includes 1,030,000 shares of Common Stock subject to options exercisable
within 60 days and 200,000 shares of Common Stock held by the Al A. and
Sarah D. Irato Charitable Remainder Unitrust, dated October 1, 1997, for
which Mr. Irato serves as co-trustee.
(4) Consists entirely of shares of Common Stock subject to options exercisable
within 60 days.
(5) Consists entirely of shares of Common Stock subject to options exercisable
within 60 days.
(6) Consists entirely of shares of Common Stock subject to options exercisable
within 60 days.
10
<PAGE> 13
CERTAIN TRANSACTIONS AND RELATIONSHIPS
In fiscal 1998, Albert A. Irato, the Company's President and Chief
Executive Officer, repaid in full all outstanding indebtedness to the Company
pursuant to a promissory note dated December 31, 1994. The largest aggregate
amount outstanding under the loan in fiscal 1998 was $220,305, with interest
payable quarterly at a rate equal to the most favorable interest rate charged by
the Company's lenders.
In fiscal 1997, the Company made non-interest bearing loans, payable March
2004, to George Wallner, the Company's Chairman, and to Paul Wallner, the
President of Hypercom Network Systems, each in the principal amount of $750,000.
In fiscal 1998, all amounts outstanding under these notes were due the Company.
The Company leases an approximately 20,000 square foot facility from
Hypercom Unit Trust, the beneficiaries of which are George Wallner and Paul
Wallner. During fiscal 1998, the Company paid $97,439 in rent and associated
administrative fees to this trust.
Peter J. Hart, a director 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
1998, ECS was paid $313,640 with respect to sales of products to the Company.
Except for the non-interest bearing loans described above, the Company
believes that the terms of the foregoing transactions are at least as favorable
as would be available from unaffiliated parties through arm's-length
negotiations.
STOCKHOLDER PROPOSALS
Stockholder proposals for the 1999 Annual Meeting must be received at the
principal executive offices of the Company by June 22, 1999 to be considered for
inclusion in the Company's proxy materials relating to such meeting.
OTHER MATTERS
The Board of Directors does not intend to present at the Annual Meeting any
matters other than those described herein and does not presently know of any
matters that will be presented by other parties.
HYPERCOM CORPORATION
George Wallner
Chairman of the Board of Directors
September 30, 1998
11
<PAGE> 14
PROXY PROXY
HYPERCOM CORPORATION
2851 West Kathleen Road
Phoenix, Arizona 85053
The undersigned hereby appoints Albert A. Irato and Peter J. Stutsman, and each
of them, proxies, with power of substitution and revocation, acting
unanimously and voting or if only one is present and voting then that one, to
vote the shares of stock of Hypercom Corporation which the undersigned is
entitled to vote, at the annual meeting of stockholders to be held at Embassy
Suites Hotel, 2577 W. Greenway Road, Phoenix, Arizona, 85053, on Tuesday,
October 20, 1998, at 9:00 a.m., Arizona time, and at any adjournment or
adjournments thereof, with all the powers the undersigned would possess if
present:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HYPERCOM
CORPORATION AND WILL BE VOTED FOR THE ELECTION OF DIRECTORS UNLESS MARKED TO
WITHHOLD AUTHORITY AND WILL BE VOTED IN ACCORDANCE WITH ANY SPECIFICATION
INDICATED HEREON; IN THE ABSENCE OF A SPECIFICATION AS TO ANY PROPOSAL, THIS
PROXY WILL BE VOTED FOR SUCH PROPOSAL.
(Continued and to be signed on reverse side.)
- -------------------------------------------------------------------------------
<PAGE> 15
- -------------------------------------------------------------------------------
HYPERCOM CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
1. ELECTION OF DIRECTORS: For Withhold For All
Nominees: George Wallner, All All (Except nominee(s)
Albert A. Irato, written below)
William E. Fisher / / / / / /
-----------------------------------------
2. In their discretion, the proxies are
authorized to vote upon all other
matters that properly may be presented
at the meeting.
- ---------------------------------- The undersigned hereby revokes
proxy or proxies heretofore
given to vote such shares at
said meeting or at any adjourn-
ment thereof.
Date: , 1998
-----------
THIS AREA RESERVED FOR ADDRESSING
--------------------------------
- ---------------------------------- Signature of Stockholder
(Please sign exactly as name
appears on this proxy, indicating,
where proper, official position
or representative capacity.)
- -------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
PLEASE SIGN AND DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES
