<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 20, 1998
REGISTRATION NO. 333-41245
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO NOTE EXCHANGE OFFER
ON
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ORIGINALLY FILED ON NOVEMBER 28, 1997
------------------------
AXIOHM TRANSACTION SOLUTIONS, INC.
AND OTHER REGISTRANTS
(SEE TABLE OF OTHER REGISTRANTS BELOW)
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3577 94-2917470
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
15070 AVENUE OF SCIENCE
SAN DIEGO, CA 92128
(619) 451-3485
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------------------
WALTER S. SOBON
CHIEF FINANCIAL OFFICER
AXIOHM TRANSACTION SOLUTIONS, INC.
15070 AVENUE OF SCIENCE
SAN DIEGO, CA 92128
(619) 451-3485
(Name, address, including zip code, and telephone number, including area code,
of agent for service for all Registrants)
--------------------------
COPIES TO:
HENRY P. MASSEY, JR., ESQ.
STEVEN L. BERSON, ESQ.
ANDREW J. HIRSCH, ESQ.
ERIC JOHN FINSETH, ESQ.
WILSON SONSINI GOODRICH & ROSATI, P.C.
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF OTHER REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION
OF I.R.S. EMPLOYER
EXACT NAME OF REGISTRANT INCORPORATION OR IDENTIFICATION
AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER
- ------------------------------------- --------------------------- --------------------
<S> <C> <C>
Axiohm S.A.R.L. France Not Applicable
Axiohm Investissements S.A.R.L. France Not Applicable
Axiohm IPB, Inc. Delaware 06-1413894
Cognitive L.L.C. Delaware 33-0778729
Cognitive Solutions, Inc. California 77-0132482
Dardel Technologies E.U.R.L. France Not Applicable
Stadia Colorado Corp. Colorado 84-0599240
</TABLE>
<PAGE>
CROSS REFERENCE SHEET PURSUANT
TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
- ------------------------------------------------------------------------ --------------------------------------------------
<C> <C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................. Cover of Registration Statement; Outside Front
Cover Page of Prospectus; Cross Reference Sheet.
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Covers of
Prospectus; Available Information; Documents
Incorporated by Reference.
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information........................... Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial and Other
Data; Unaudited Pro Forma Combined Financial
Information.
4. Terms of the Transaction.......................... Prospectus Summary; Risk Factors; The Exchange
Offer; Description of Notes; Certain Federal
Income Tax Considerations.
5. Pro Forma Financial Information................... Prospectus Summary; Selected Historical
Consolidated Pro Forma Financial and Other
Information; Unaudited Pro Forma Combined
Financial Information.
6. Material Contacts with the Company Being
Acquired........................................ Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters... Not Applicable
8. Interests of Named Experts and Counsel............ Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANTS
10. Information with Respect to S-3 Registrants....... Not Applicable
11. Incorporation of Certain Information by
Reference....................................... Not Applicable
12. Information with Respect to S-2 or S-3
Registrants..................................... Not Applicable
13. Incorporation of Certain Information by
Reference....................................... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM S-4 LOCATION IN THE PROSPECTUS
- ------------------------------------------------------------------------ --------------------------------------------------
<C> <C> <S> <C>
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants.......................... Available Information; Documents Incorporated by
Reference; Prospectus Summary; Business;
Selected Historical Consolidated Financial and
Other Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Unaudited Pro Forma Combined
Financial Information; Consolidated Financial
Statements.
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies......... Not Applicable
16. Information with Respect to S-2 or S-3
Companies....................................... Not Applicable
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies............................ Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................. Not Applicable
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange
Offer........................................... The Exchange Offer; Management
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 20, 1998.
PROSPECTUS
$120,000,000
[LOGO]
OFFER TO EXCHANGE
NEW 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007 AND
NEW SUBSIDIARY GUARANTEES OF NEW 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ALL OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007 AND
SUBSIDIARY GUARANTEES OF 9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1998, UNLESS EXTENDED.
------------------------
THE NOTES ARE GUARANTEED BY:
AXIOHM S.A.R.L.
AXIOHM INVESTISSEMENTS S.A.R.L.
AXIOHM IPB, INC.
COGNITIVE L.L.C.
COGNITIVE SOLUTIONS, INC.
DARDEL TECHNOLOGIES E.U.R.L.
STADIA COLORADO CORP.
------------------------
Axiohm Transaction Solutions, Inc., a California corporation formerly named
DH Technology, Inc. (herein the "Company" refers to such corporation both prior
and subsequent to the name change, while "DH" refers to such corporation prior
to the name change), and Axiohm S.A.R.L. (formerly Axiohm S.A.), Axiohm
Investissements S.A.R.L., Axiohm IPB, Inc., Cognitive L.L.C., Cognitive
Solutions, Inc., Dardel Technologies E.U.R.L. and Stadia Colorado Corp.
(collectively the "Guarantors") hereby offer upon the terms and subject to the
conditions set forth in this Prospectus (the "Prospectus") and the accompanying
Letter of Transmittal (the "Letter of Transmittal") (the offering pursuant to
the Prospectus together with the Letter of Transmittal herein the "Exchange
Offer") to exchange up to an aggregate principal amount of $120,000,000 of its
New 9 3/4% Senior Subordinated Notes due 2007 (the "New Notes") and new
Subsidiary Guarantees (as defined) (herein the "New Subsidiary Guarantees") by
the Guarantors of such New Notes for up to an aggregate principal amount of
$120,000,000 of the Company's outstanding 9 3/4% Senior Subordinated Notes due
2007 (the "Existing Notes") and the existing Subsidiary Guarantees (the
"Existing Subsidiary Guarantees") by the Guarantors of such Existing Notes. The
terms of the New Notes and New Subsidiary Guarantees are substantially identical
in all material respects to those of the Existing Notes and Existing Subsidiary
Guarantees, respectively, except that the New Notes (i) will have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and therefore will not be subject to certain restrictions on transfer applicable
to the Existing Notes and (ii) will not be entitled to registration or other
rights under the Registration Rights Agreement (as defined)
CONTINUED ON FOLLOWING PAGE
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED
TO EXISTING HOLDERS ON OR ABOUT , 1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH EXISTING HOLDERS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
---------------------
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 OR THE LETTER OF TRANSMITTAL. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
, 1998
<PAGE>
(CONTINUATION OF COVER PAGE)
including the provision in the Registration Rights Agreement for payment of
Liquidated Damages (as defined) upon failure by the Company to consummate the
Exchange Offer or the occurrence of certain other events. See "Description of
the Existing Notes." The New Notes and New Subsidiary Guarantees will be issued
pursuant to, and the Holders thereof (the "New Holders") will be entitled to the
benefit of, the Indenture (as defined below) governing the Existing Notes and
Existing Subsidiary Guarantees. In the event that the Exchange Offer is
consummated, any Existing Notes which remain outstanding after consummation of
the Exchange Offer and the New Notes issued in the Exchange Offer will vote
together as a single class for purposes of determining whether Holders of the
requisite percentage in outstanding principal amount of Notes (as defined below)
have taken certain actions or exercised certain rights under the Indenture. See
"Description of New Notes", "The Exchange Offer." Holders of Existing Notes are
referred to herein as "Existing Holders", and Existing Holders together with New
Holders are referred to herein collectively as "Holders". The New Notes together
with the Existing Notes are referred to herein collectively as the "Notes", and
the New Subsidiary Guarantees and the Existing Subsidiary Guarantees are
referred to herein collectively as the "Subsidiary Guarantees". The Indenture,
dated as of October 2, 1997 and as amended and supplemented to date, among the
Company, the Guarantors and the Bank of New York, as Trustee (the "Trustee"), is
hereinafter referred to as the "Indenture". Capitalized terms followed by the
parenthetical remark "(as defined)" and not defined herein shall have the
meanings given them in the Indenture.
The Existing Notes were offered (the "Existing Notes Offering"), and the New
Notes are being offered, in connection with the business combination of Axiohm
S.A. and the Company and related transactions (collectively, the "Transactions"
as defined below).
Interest on the Notes will be payable semi-annually on April 1 and October 1
of each year, commencing April 1, 1998.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after October 1, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of redemption. In addition, at any time prior to October 1,
2000, the Company may, in its discretion, redeem up to 35% of the original
aggregate principal amount of the Notes at a redemption price equal to 109.75%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of redemption, with the net proceeds of one
or more Public Equity Offerings (as defined); PROVIDED that at least 65% of the
original aggregate principal amount of the Notes remains outstanding immediately
after each such redemption.
Upon the occurrence of a Change of Control (as defined), the Holders of the
Notes will have the right to require the Company to repurchase their Notes, in
whole or in part, at a price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of repurchase. See "Description of Notes."
The Notes will be general unsecured obligations of the Company subordinate
in right of payment to all existing and future Senior Debt (as defined) of the
Company. The Existing Notes have been, and upon issuance the new Notes will be,
jointly and severally, fully guaranteed on a senior subordinated basis by the
Guarantors. As of September 30, 1997, after giving pro forma effect to the
Transactions, the issuance of the Existing Notes and the Exchange Offer, the
Company and its Subsidiaries (as defined) would have had $50.0 million of Senior
Debt outstanding (exclusive of $35.0 million available under the New Credit
Facility (as defined), which would also be Senior Debt). See "Capitalization"
and "Description of Notes-- Subordination".
On October 2, 1997, the Company issued $120.0 million aggregate principal
amount of Existing Notes. The Existing Notes were issued pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. The New Notes are being
offered hereunder in order to satisfy certain obligations of the Company under
the Registration
i
<PAGE>
(CONTINUATION OF COVER PAGE)
Rights Agreement by and among the Company, certain of the Guarantors and Lehman
Brothers Inc. as the initial purchaser (the "Initial Purchaser"). The Exchange
Offer is intended to satisfy the Company's obligations under the Registration
Rights Agreement. Once the Exchange Offer is consummated, the Company generally
will have no further obligations to register any of the Existing Notes not
tendered by Existing Holders for exchange. See "Risk Factors--Consequences of
Failure to Exchange."
The New Notes generally will be issued in the form of Global Notes (as
defined) which will be deposited with, or on behalf of, the Depositary (as
defined) and registered in its name or in the name of a nominee of the
Depositary. Beneficial interests in the Global Notes representing the New Notes
will be shown on, and transfers thereof will be effected through, records
maintained by DTC and its participants. See "Book-Entry; Delivery and Form".
The Company will accept for exchange any and all Existing Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on , 1998 (20 business days after effectiveness of the registration
statement on Form S-4 of which this Prospectus is a part (the "Exchange Offer
Registration Statement", which term shall encompass all amendments, exhibits,
annexes and schedules thereto)), unless extended by the Company in its sole
discretion (the "Expiration Date"). The Expiration Date will not in any event be
extended to a date later than , 1998 (30 business days after
effectiveness of the Exchange Offer Registration Statement). Tenders of Existing
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Existing Notes with respect to the Exchange
Offer, the Company will promptly return the Existing Notes to the Holders
thereof. The Exchange Offer is not conditioned upon any minimum principal amount
of Existing Notes being tendered for exchange, but is subject to certain events
and conditions that may be waived by the Company and to the terms and provisions
of the Registration Rights Agreement. The Existing Notes may be tendered in
whole or in part solely in integral multiples of $1,000.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance (the "Staff") of the Securities and
Exchange Commission (the "Commission") as set forth in the Staff's EXXON CAPITAL
HOLDINGS CORPORATION no-action letter (available May 13, 1988) (the "Exxon
Capital No-Action Letter"), MORGAN STANLEY & CO. INCORPORATED no-action letter
(available June 5, 1991) (the "Morgan Stanley No-Action Letter"), SHEARMAN &
STERLING no-action letter (available July 2, 1993) (the "Shearman & Sterling
No-Action Letter"), and other interpretive letters addressed to third parties in
other transactions. However, the Company has not sought its own interpretive
letter addressing such matters and there can be no assurance that the Staff
would make a similar determination with respect to the Exchange Offer as it has
in such interpretive letters to third parties. Based on these interpretations by
the Staff, and subject to the two immediately following sentences, the Company
believes that New Notes issued pursuant to this Exchange Offer in exchange for
Existing Notes may be offered for resale, resold and otherwise transferred by a
Holder thereof (other than a Holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holder's business and that such Holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Notes. However, any
Holder of Existing Notes who (i) is an "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act), (ii) does not acquire such New
Notes in the ordinary course of its business, (iii) intends to participate in
the Exchange Offer for the purpose of distributing New Notes, or (iv) is a
broker-dealer who purchased such Existing Notes directly from the Company, (a)
will not be able to rely on the interpretations of the Staff set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Existing Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such
ii
<PAGE>
(CONTINUATION OF COVER PAGE)
Existing Notes unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds
Existing Notes acquired for its own account as a result of market-making or
other trading activities and exchanges such Existing Notes for New Notes (a
"Participating Broker-Dealer"), then such Participating Broker-Dealer may be
deemed a statutory "underwriter" within the meaning of the Securities Act and
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Notes.
Each Holder of Existing Notes who wishes to exchange Existing Notes for New
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, and (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Existing Notes for its own account as a result
of market-making activities or other trading activities (and not directly from
the Company) and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, such a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the Staff in the interpretive letters referred to
above, the Company believes that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the New Notes received upon
exchange of such Existing Notes with a prospectus meeting the requirements of
the Securities Act, which may be the prospectus prepared for an exchange offer
so long as it contains a description of the plan of distribution with respect to
the resale of such New Notes. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Notes
received in exchange for Existing Notes where such Existing Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Notes
for a period of one year following effectiveness of the Exchange Offer
Registration Statement. See "Plan of Distribution." Any Participating
Broker-Dealer who is an affiliate of the Company may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Existing
Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution
of the Letter of Transmittal, that, upon receipt of notice from the Company of
the occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in this Prospectus untrue in
any material respect or which causes this Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made, not
misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend the
sale of New Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be.
The New Notes will be a new issue of securities for which there currently is
no market. Although the Initial Purchaser has informed the Company that it
currently intends to make a market in the New Notes, it is not obligated to do
so, and any such market making may be discontinued at any time without notice.
iii
<PAGE>
(CONTINUATION OF COVER PAGE)
As the Existing Notes were issued and the New Notes are being issued to a
limited number of institutions who typically hold similar securities for
investment, the Company does not expect that an active public market for the New
Notes will develop. Accordingly, there can be no assurance as to the
development, liquidity or maintenance of any market for the New Notes. The
Company does not currently intend to apply for listing of the New Notes on any
securities exchange or for quotation through the Nasdaq Stock Market.
Any Existing Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (except
for those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the Holders of Existing Notes will
continue to be subject to the existing restrictions upon transfer thereof and
the Company will have no further obligation to such Existing Holders (except for
limited instances involving the Initial Purchaser and Existing Holders that are
not eligible to participate in the Exchange Offer) to provide for registration
under the Securities Act of the Existing Notes held by them. To the extent that
Existing Notes are tendered and accepted in the Exchange Offer, an Existing
Holder's ability to sell untendered Existing Notes could be adversely affected.
See "Risk Factors--Consequences of Failure to Exchange."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF EXISTING NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER.
The Company has agreed to pay all expenses of the Exchange Offer. See "The
Exchange Offer--Fees and Expenses." Each New Note will bear interest from the
most recent date to which interest has been paid or duly provided for on the
Existing Note surrendered in exchange for such New Note or, if no such interest
has been paid or duly provided for on such Existing Note, from October 2, 1997.
Holders of the Existing Notes whose Existing Notes are accepted for exchange
will not receive accrued interest on such Existing Notes for any period from and
after the last Interest Payment Date to which interest has been paid or duly
provided for on such Existing Notes prior to the original issue date of the New
Notes or, if no such interest has been paid or duly provided for, will not
receive any accrued interest on such Existing Notes, and will be deemed to have
waived the right to receive any interest on such Existing Notes accrued from and
after such Interest Payment Date or, if no such interest has been paid or duly
provided for, from and after October 2, 1997.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE GUARANTORS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE NEW NOTES AND NEW SUBSIDIARY GUARANTEES OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
ANY OF THE NEW NOTES OR NEW SUBSIDIARY GUARANTEES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER
iv
<PAGE>
(CONTINUATION OF COVER PAGE)
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION WITH
SUCH TRANSACTION.
v
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission the Exchange Offer Registration
Statement on Form S-4 pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the New Notes and New Subsidiary
Guarantees being offered hereby. This Prospectus does not contain all the
information set forth in the Exchange Offer Registration Statement. For further
information with respect to the Company and the Exchange Offer, reference is
made to the Exchange Offer Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are necessarily incomplete. With respect to each such contract,
agreement or other document filed as an exhibit to the Exchange Offer
Registration Statement, reference is made to the exhibit for a more complete
description of the document or matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of Section 13 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Commission.
Though the Guarantors are not currently subject to the informational
requirements of the Exchange Act, as a result of the offering of the New
Subsidiary Guarantees they will become subject thereto. The Company will fulfill
the Guarantors' obligations with respect to such requirements by including
information regarding the Guarantors in the periodic reports of the Company.
Periodic reports and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission's principal office
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and the regional offices of the Commission at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661. Copies of such material can be obtained from the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a website (http://www.sec.gov) that also contains certain
reports and other information filed by the Company. The Common Stock of the
Company is traded on the Nasdaq National Market. Reports, proxy statements and
other information concerning the Company may also be inspected at the offices of
the Nasdaq National Market, Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the Holders and, to the extent permitted
by applicable law or regulation, file with the Commission (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K (if the Company was required to file
such Forms), including in each a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's independent certified public
accountants and (ii) all reports that would be required to be filed on Form 8-K
(if the Company was required to file such reports). In addition, for so long as
any of the Notes remain outstanding, the Company has agreed to make available to
any prospective purchaser of the Notes or beneficial owner of the Notes, in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act.
ENFORCEMENT OF CIVIL LIABILITIES
Three of the Guarantors, namely Axiohm S.A.R.L., a SOCIETE A RESPONSABILITE
LIMITEE ("Axiohm S.A.R.L."), Axiohm Investissements S.A.R.L. ("Axiohm
Investissements"), a SOCIETE A RESPONSABILITE LIMITEE, and Dardel Technologies
E.U.R.L. ("Dardel Technologies"), an ENTREPRISE UNIPERSONELLE A RESPONSABILITE
LIMITEE (all of which are limited liability entities), are organized under the
laws of the Republic of France. All of the directors (GERANTS) and officers of
Axiohm S.A.R.L., Axiohm Investissements and Dardel Technologies are
non-residents of the U.S., and a substantial portion of the assets of Axiohm
S.A.R.L., Axiohm Investissements, Dardel Technologies and such persons is
located outside the U.S. As a result, it may not be possible for Holders to
effect services of process within the U.S. upon such individuals or to
vi
<PAGE>
enforce against them or against Axiohm S.A.R.L., Axiohm Investissements or
Dardel Technologies judgments of courts of the U.S. predicated upon the civil
liability provisions of the federal securities laws of the U.S. If an original
action is brought in the Republic of France, predicated solely upon the U.S.
federal securities laws, French courts may not have the requisite jurisdiction
to grant the remedies sought and actions for enforcement of judgments of U.S.
courts rendered against the French persons referred to above would require such
French persons to waive their right under Article 15 of the French Civil Code to
be sued solely in the Republic of France. The Company believes that no such
French persons have waived such right. In addition, actions in the U.S. under
the U.S. federal securities laws or otherwise could be affected under certain
circumstances by the French Law of July 16, 1980, which may preclude or restrict
the obtaining of evidence in the Republic of France or from French persons in
connection with such actions.
vii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNTIL OCTOBER 2, 1997, THE COMPANY OPERATED UNDER
THE NAME DH TECHNOLOGY, INC. ON THAT DATE A SERIES OF TRANSACTIONS WAS COMPLETED
WITH AXIOHM S.A., A FRENCH COMPANY, AND THE SHAREHOLDERS THEREOF IN WHICH AXIOHM
S.A. BECAME A WHOLLY-OWNED SUBSIDIARY OF THE COMPANY, THE SHAREHOLDERS OF AXIOHM
S.A. BECAME THE OWNERS OF APPROXIMATELY 88% OF THE OUTSTANDING COMMON STOCK OF
THE COMPANY, AND THE COMPANY CHANGED ITS NAME TO AXIOHM TRANSACTION SOLUTIONS,
INC. SEE "--THE TRANSACTIONS". UNLESS THE CONTEXT OTHERWISE REQUIRES, AS USED IN
THIS PROSPECTUS THE TERMS "AXIOHM S.A." AND "DH" REFER TO AXIOHM S.A. AND ITS
SUBSIDIARIES, AND TO DH TECHNOLOGY, INC. AND ITS SUBSIDIARIES, RESPECTIVELY, AS
THEY EXISTED PRIOR TO THE TRANSACTIONS, AND THE TERM THE "COMPANY" REFERS TO
AXIOHM TRANSACTION SOLUTIONS, INC. AND ITS SUBSIDIARIES FOLLOWING CONSUMMATION
OF THE TRANSACTIONS. SUBSEQUENT TO CONSUMMATION OF THE TRANSACTIONS, AXIOHM S.A.
ALTERED ITS FORM OF CORPORATE ENTITY UNDER FRENCH LAW FROM THAT OF A societe
anonyme (S.A.) TO THAT OF A societe a responsabilite limitee (S.A.R.L.). THE
TERM "AXIOHM S.A.R.L." THEREFORE REFERS TO AXIOHM S.A. AS A STAND-ALONE ENTITY
(I.E. NOT INCLUDING ANY OF ITS SUBSIDIARIES) AND A SUBSIDIARY OF THE COMPANY FOR
THE PERIOD AFTER OCTOBER 2, 1997.
THE COMPANY
OVERVIEW
The Company is a non-captive designer, manufacturer and marketer of
transaction printers. The Company has a broad product line and manufactures its
own thermal and impact printheads. The Company's transaction printer products
are used in retail, financial and commercial transactions to provide transaction
records such as receipts, tickets, register journals, checks and other
documents. In addition to transaction printers, the Company also designs,
manufactures and markets: (i) magnetic stripe and computer chip card readers
(collectively, "card readers") which, similar to transaction printers, are an
integral part of transaction activity; and (ii) bar code printers and related
consumable supplies, which are used for automatic identification and data
collection systems. The Company has sales offices in eight countries,
distributor relationships in 32 countries and manufacturing facilities in four
countries. For the nine months ended September 30, 1997, approximately 79% of
pro forma net sales were derived from North America, 15% from Europe and 6% from
Asia and other markets. For the nine months ended September 30, 1997, the
Company had pro forma net sales of $158.3 million.
The Company sells its products to original equipment manufacturers ("OEMs"),
value added resellers ("VARs"), distributors and end-users. For the nine months
ended September 30, 1997, approximately 70% of the Company's pro forma net sales
were application-specific or customizable products designed for and sold to
OEMs. The Company works closely with its OEM customers during the design stage,
providing engineering and manufacturing expertise to meet its customers'
specific needs.
Transaction products are used in numerous applications in three primary
vertical markets: (i) the point-of-sale ("POS") market, which includes
retailers, supermarkets, gas stations, convenience stores and fast food
retailers; (ii) the financial services market, for applications such as
automatic teller machines and cash dispensers (collectively, "ATMs"), money
order machines and bank teller systems; and (iii) the specialty applications
market, for uses in products such as lottery machines, transportation ticketing
machines, pari-mutuel betting machines and information kiosks. The transaction
printer industry is comprised of non-captive manufacturers, such as the Company,
and the internal manufacturing operations of certain OEMs. The non-captive
transaction printer market is highly fragmented, and includes many small
competitors that have limited product lines. The Company also believes that
larger competitors, such as the Company, benefit from a greater diversification
of end-use applications and markets, customers, technology and geography, which
reduces the impact of industry or regional cyclicality.
<PAGE>
The Company was created through the combination of the businesses of Axiohm
S.A., a French corporation, and DH, a California corporation, and their
subsidiaries. See "--The Transactions". The Company's principal executive
offices are located at 15070 Avenue of Science, San Diego, California 92128, and
its telephone number is (619) 451-3485.
THE TRANSACTIONS
THE BUSINESS COMBINATION. On August 21, 1997, AX Acquisition Corporation
("AX"), a California corporation and an indirect wholly-owned subsidiary of
Axiohm S.A., completed a tender offer to purchase 7.0 million shares (or
approximately 88% of the outstanding shares) of DH (the "Tender Offer"). The
Tender Offer was made pursuant to the Agreement and Plan of Merger, dated as of
July 14, 1997 (the "Merger Agreement"), among DH, Axiohm S.A. and AX.
THE TENDER FINANCING. The Tender Offer was financed on August 21, 1997,
through the incurrence by AX of $166.2 million of senior indebtedness under a
secured credit facility (the "Tender Credit Facility") and the issuance by
Axiohm IPB, Inc. ("Axiohm IPB"), a Delaware corporation and a wholly-owned
subsidiary of Axiohm S.A., of $24.0 million in liquidation preference of interim
preferred stock (the "Interim Preferred Stock" and, together with the Tender
Credit Facility, the "Tender Financing").
THE EXCHANGE, THE ACQUISITION OF AX AND THE MERGER. On October 2, 1997, AX
acquired all of the outstanding shares of Axiohm S.A. in exchange for 5,518,524
shares of DH Common Stock and $12.2 million in cash (the "Exchange").
Simultaneously with the closing of the Exchange, DH purchased from Axiohm IPB
all of the outstanding shares of capital stock of AX in exchange for the
assumption by DH of certain obligations incurred by AX or AX's shareholders in
connection with the Tender Offer and the Exchange (the "Acquisition of AX").
Immediately after the Exchange and the Acquisition of AX, AX was merged with and
into DH (the "Merger"). As a result of the Exchange, the Acquisition of AX, the
Merger and the Merger Financing (as defined below) (collectively, the
"Transactions"), immediately after the Merger, approximately 85% of DH's
outstanding Common Stock was held by former Axiohm S.A. shareholders and
approximately 15% was held by former public shareholders of DH. Although DH was
the surviving corporation for legal purposes, the Merger was treated as a
purchase of DH by Axiohm S.A. for accounting purposes. The effective date of the
Merger for legal purposes was October 2, 1997. The effective date of the
acquisition of DH for accounting purposes was August 31, 1997. Concurrently with
the Merger, DH changed its name to Axiohm Transaction Solutions, Inc. As a
result of the Transactions, Axiohm Transaction Solutions, Inc. (formerly DH) is
the parent corporation and Axiohm S.A. and its subsidiaries, including Axiohm
IPB, are direct and indirect subsidiaries of Axiohm Transaction Solutions, Inc.
THE MERGER FINANCING. The Company used the proceeds from the Existing Notes
Offering, together with its existing cash of approximately $31.3 million and
borrowings of approximately $57.0 million under a new $85.0 million credit
facility that provides for term loans in the aggregate principal amount of $50.0
million (the "Term Loan Facility"), and revolving loans and letters of credit in
an aggregate available amount of $35.0 million (the "Revolving Credit Facility"
and, together with the Term Loan Facility, the "New Credit Facility"), to: (i)
repay principal and accrued interest under the Tender Credit Facility and redeem
the Interim Preferred Stock at an aggregate redemption price equal to the
liquidation preference of such Interim Preferred Stock plus accrued and unpaid
dividends; (ii) finance the Exchange; and (iii) pay certain fees and expenses
incurred in connection with the Transactions (the application of the proceeds of
the New Credit Facility and the Existing Notes Offering in accordance with the
foregoing and the replacement and termination of the Tender Credit Facility with
the New Credit Facility are hereinafter referred to collectively as the "Merger
Financing"). See "Use of Proceeds."
2
<PAGE>
The following table illustrates the sources and uses of funds in connection
with the closing of the Merger Financing on October 2, 1997:
<TABLE>
<CAPTION>
AMOUNT
---------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
<CAPTION>
SOURCES OF FUNDS
<S> <C>
Existing cash........................................................ $ 31,250
Revolving Credit Facility (1)........................................ 7,000
Term Loan Facility................................................... 50,000
9 3/4% Senior Subordinated Notes due 2007............................ 120,000
--------
Total Sources of Funds......................................... $ 208,250
--------
--------
<CAPTION>
USES OF FUNDS
<S> <C>
Repayment of Tender Credit Facility.................................. $ 166,200
Redemption of Interim Preferred Stock................................ 24,000
Purchase of shares in the Exchange................................... 12,200
Transaction fees and expenses (2).................................... 5,850
--------
Total Uses of Funds............................................ $ 208,250
--------
--------
</TABLE>
- ------------------------
(1) Represents borrowings under the available $35.0 million Revolving Credit
Facility.
(2) Includes accrued interest and dividends on the Tender Financing and the
fees and expenses of the Merger Financing.
3
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
SECURITIES OFFERED ......................... $120,000,000 aggregate principal amount of New
9 3/4% Senior Subordinated Notes due 2007 and
New Subsidiary Guarantees of New 9 3/4% Senior
Subordinated Notes due 2007.
THE EXCHANGE OFFER ......................... $1,000 principal amount of the New Notes (and
New Subsidiary Guarantees of such amount) in
exchange for each $1,000 principal amount of
Existing Notes (and Existing Subsidiary
Guarantees of such amount). As of the date
hereof, $120,000,000 aggregate principal
amount of Existing Notes are outstanding. The
Company will issue the New Notes to New
Holders on or promptly after the Expiration
Date.
Based on an interpretation by the Staff set
forth in no-action letters issued to third
parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in
exchange for Existing Notes may be offered for
resale, resold and otherwise transferred by
any Holder thereof (other than any such Holder
which is an affiliate of the Company or is a
broker-dealer which acquired such Existing
Notes directly from the Company) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such New Notes
are acquired in the ordinary course of such
Holder's business and that such Holder does
not intend to participate and has no
arrangement or understanding with any person
to participate in the distribution of such New
Notes. Each Participating Broker-Dealer that
acquired such Existing Notes as a result of
market making or other trading activity and
that receives New Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
in connection with any resale of such New
Notes. See "Plan of Distribution."
Any Existing Holder who (i) is an affiliate of
the Company, (ii) does not acquire such New
Notes in the ordinary course of its business,
(iii) tenders in the Exchange Offer with the
intention to participate, or for the purpose
of participating, in a distribution of the New
Notes, or (iv) is a broker-dealer which
acquired such Existing Notes directly from the
Company, could not rely on the position of the
Staff enunciated in the Exxon Capital
No-Action Letter, the Morgan Stanley No-Action
Letter or similar no-action letters and, in
the absence of an exemption
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
therefrom, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with the resale
of the New Notes. Failure to comply with such
requirements in such instance may result in
such Holder incurring liability under the
Securities Act for which the Holder is not
indemnified by the Company.
No federal or state regulatory requirements
must be complied with or approval obtained in
connection with the Exchange Offer, other than
registration requirements under the Securities
Act.
EXPIRATION DATE ............................ 5:00 p.m., New York City time, on ,
1998 (20 business days after effectiveness of
the Exchange Offer Registration Statement),
unless the Exchange Offer is extended by the
Company in its sole discretion, in which case
the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
INTEREST ON THE NEW NOTES AND THE EXISTING
NOTES .................................... Each New Note will bear interest from the most
recent date to which interest has been paid or
duly provided for on the Existing Note
surrendered in exchange for such New Note or,
if no such interest has been paid or duly
provided for on such Existing Note, from
October 2, 1997. Holders of the Existing Notes
whose Existing Notes are accepted for exchange
will not receive accrued interest on such
Existing Notes for any period from and after
the last Interest Payment Date to which
interest has been paid or duly provided for on
such Existing Notes prior to the original
issue date of the New Notes or, if no such
interest has been paid or duly provided for,
will not receive any accrued interest on such
Existing Notes, and will be deemed to have
waived the right to receive any interest on
such Existing Notes accrued from and after
such Interest Payment Date or, if no such
interest has been paid or duly provided for,
from and after October 2, 1997.
CONDITIONS TO THE EXCHANGE OFFER ........... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange
Offer--Conditions."
PROCEDURES FOR TENDERING EXISTING NOTES .... Each Existing Holder wishing to accept the
Exchange Offer must complete, sign and date
the accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver the Letter of
Transmittal, or such facsimile, together with
the Existing Notes and any other
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
required documentation to the Exchange Agent
(as defined) at the address set forth in the
Letter of Transmittal. Persons holding
Existing Notes through the Depositary
(initially the Depository Trust Company
("DTC")) and wishing to accept the Exchange
Offer must do so pursuant to DTC's Automated
Tender Offer Program ("ATOP"), by which each
tendering participant will agree to be bound
by the Letter of Transmittal. By executing or
agreeing to be bound by the Letter of
Transmittal, each Existing Holder will
represent to the Company that, among other
things, the Existing Holder or the person
receiving such New Notes, whether or not such
person is the Existing Holder, is acquiring
the New Notes in the ordinary course of
business and that neither the Existing Holder
nor any such other person has any arrangement
or understanding with any person to
participate in the distribution of such New
Notes within the meaning of the Securities
Act.
SPECIAL PROCEDURES FOR BENEFICIAL OWNERS ... Any beneficial owner whose Existing Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered Holder promptly and
instruct such registered Holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Existing Notes,
either make appropriate arrangements to
register ownership of the Existing Notes in
such owner's name or obtain a properly
completed bond power from the registered
Holder. The transfer of registered ownership
may take considerable time.
GUARANTEED DELIVERY PROCEDURES ............. Existing Holders who wish to tender their
Existing Notes and whose Existing Notes are
not immediately available or who cannot
deliver their Existing Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange
Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration
Date must tender their Existing Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS .......................... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date pursuant to the procedures
described under "The Exchange
Offer--Withdrawals of Tenders."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
ACCEPTANCE OF EXISTING NOTES AND DELIVERY OF
NEW NOTES ................................ The Company will accept for exchange any and
all Existing Notes that are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
New Notes issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .... The exchange of the New Notes for the Existing
Notes pursuant to the Exchange Offer should
not be taxable to the Holders thereof for
federal income tax purposes. See "Certain
Federal Income Tax Consequences."
EFFECT ON HOLDERS OF EXISTING NOTES ........ As a result of the making of this Exchange
Offer, the Company will have fulfilled certain
of its obligations under the Registration
Rights Agreement, and Existing Holders who do
not tender their Existing Notes, except for
limited instances involving the Initial
Purchaser and Existing Holders that are not
eligible to participate in the Exchange Offer,
will not have any further registration rights
under the Registration Rights Agreement or
otherwise. See "The Exchange Offer--Purposes
and Effect of Exchange Offer." Such Existing
Holders will continue to hold the untendered
Existing Notes and will be entitled to all the
rights and subject to all the limitations
applicable thereto under the Indenture, except
to the extent such rights or limitations, by
their terms, terminate or cease to have
further effectiveness as a result of the
Exchange Offer. All untendered Existing Notes
will continue to be subject to certain
restrictions on transfer. Accordingly, if any
Existing Notes are tendered and accepted in
the Exchange Offer, the trading market for the
untendered Existing Notes could be adversely
affected.
EXCHANGE AGENT ............................. The Bank of New York.
</TABLE>
7
<PAGE>
SUMMARY OF TERMS OF NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Existing Notes (which they replace) except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) the Holders of New Notes, except for
limited instances involving the Initial Purchaser and certain Holders that are
not eligible to participate in the Exchange Offer, will not be entitled to
further registration rights under the Registration Rights Agreement, which
rights will be satisfied when the Exchange Offer is consummated, and will not be
entitled to any payments of Liquidated Damages for failure to satisfy such
rights. The New Notes will evidence the same debt as the Existing Notes and will
be entitled to the benefits of the Indenture. See "Description of Notes."
<TABLE>
<S> <C>
SECURITIES OFFERED: ........................ $120,000,000 aggregate principal amount of New
9 3/4% Senior Subordinated Notes due 2007 and
New Subsidiary Guarantees thereof.
INTEREST PAYMENT DATES: .................... April 1 and October 1 of each year, commencing
April 1, 1998, or if any such day is not a
Business Day (as defined), on the next
succeeding Business Day (each an "Interest
Payment Date").
MATURITY DATE: ............................. October 1, 2007.
MANDATORY REDEMPTION: ...................... The Company is not required to make mandatory
redemption or sinking fund payments with
respect to the Notes.
OPTIONAL REDEMPTION: ....................... The Notes are redeemable at the option of the
Company, in whole or in part, at any time on
or after October 1, 2002 at the redemption
prices set forth herein plus accrued and
unpaid interest and Liquidated Damages, if
any, thereon to the date of redemption. In
addition, at any time prior to October 1,
2000, the Company may, in its discretion,
redeem up to 35% of the original aggregate
principal amount of Notes at a redemption
price of 109.75% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the
date of redemption, with the net proceeds of
one or more Public Equity Offerings; PROVIDED
that at least 65% of the original aggregate
principal amount of the Notes remains
outstanding immediately after each such
redemption. See "Description of
Notes--Optional Redemption."
CHANGE OF CONTROL: ......................... Upon the occurrence of a Change of Control,
the holders of the Notes will have the right
to require the Company to repurchase their
Notes, in whole or in part, at a price equal
to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the
date of repurchase. See "Description of
Notes-- Optional Redemption" and "Description
of Notes-- Repurchase at the Option of
Holders--Change of Control." There can be no
guarantee that in such event the Company would
have funds or assets adequate to satisfy any
such demands for repurchase.
RANKING: ................................... The Notes are general unsecured obligations of
the Company subordinate in right of payment to
all
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
existing and future Senior Debt of the
Company. At December 31, 1997, the Company and
its Subsidiaries had $45.8 million of Senior
Debt outstanding (exclusive of $35.0 million
available under the Revolving Credit Facility
which is Senior Debt, of which $2.0 is
currently outstanding). See "Capitalization"
and "Description of Notes-- Subordination."
SUBSIDIARY GUARANTEES: ..................... The Company's payment obligations under the
New Notes will be, and the Existing Notes
remaining outstanding after the Exchange Offer
will continue to be, jointly and severally,
fully and unconditionally guaranteed on a
senior subordinated basis by the Guarantors.
The Subsidiary Guarantees are subordinated in
right of payment to all existing and future
Senior Debt of the Guarantors, including the
Guarantors' guarantees of the Company's
obligations under the New Credit Facility. See
"Description of Notes--Subsidiary Guarantees."
CERTAIN COVENANTS: ......................... The Indenture pursuant to which the New Notes
will be, and the Existing Notes were, issued
contains certain covenants that, among other
things, limit the ability of the Company and
its Restricted Subsidiaries (as defined) to:
(i) incur additional Indebtedness (as defined)
and issue preferred stock; (ii) pay dividends
or make certain other restricted payments;
(iii) enter into transactions with affiliates;
(iv) make certain asset dispositions; (v)
merge or consolidate with, or transfer
substantially all of its assets to another
Person (as defined); (vi) encumber assets
under certain circumstances; (vii) restrict
dividends and other payments from Restricted
Subsidiaries; (viii) issue Capital Stock (as
defined) of wholly-owned subsidiaries; or (ix)
engage in certain business activities. See
"Description of Notes-- Certain Covenants." In
addition, under certain circumstances, the
Company will be required to offer to
repurchase the Notes at a price equal to 100%
of the aggregate principal amount thereof,
plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the
date of repurchase, with the proceeds of
certain Asset Sales (as defined). See
"Description of Notes--Repurchase at the
Option of Holders-- Asset Sales."
TRANSFER RESTRICTIONS: ..................... For restrictions on transfer of the New Notes,
see "The Exchange Offer--Resale of New Notes".
</TABLE>
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH A DECISION TO EXCHANGE EXISTING NOTES FOR NEW NOTES, SEE "RISK FACTORS."
9
<PAGE>
UNAUDITED SUMMARY PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The Unaudited Summary Pro Forma Condensed Combined Financial Data set forth
below should be read in conjunction with the Unaudited Pro Forma Combined
Financial Information included elsewhere herein, and is based on the historical
financial statements of Axiohm Transaction Solutions, Inc. and DH after giving
effect to the purchase method of accounting and other adjustments relating to
the Transactions (exclusive of the effect of the Tender Financing) and after
giving effect to the Exchange Offer. The unaudited summary pro forma statement
of operations data give effect to the Transactions (exclusive of the effect of
the Tender Financing) and to the Exchange Offer as if each had been consummated
on January 1, 1996 for the fiscal year ended December 31, 1996 and the nine
months ended September 30, 1997. The Unaudited Pro Forma Combined Statement of
Operations for the nine months ended September 30, 1997 are based on the
historical financial statements of Axiohm Transaction Solutions, Inc. for the
nine months ended September 30, 1997 and the historical financial statements of
DH for the period from January 1, 1997 through August 31, 1997 (the effective
date of the Transactions for accounting purposes). The unaudited summary pro
forma balance sheet data gives effect to the Transactions (exclusive of the
effect of the Tender Financing) and to the Exchange Offer as if each had been
consummated on September 30, 1997. See "--The Transactions."
The Unaudited Summary Pro Forma Condensed Combined Financial Data is
intended for informational purposes only and is not necessarily indicative of
the future financial position or results of operations of the Company had the
Transactions and the Exchange Offer described above occurred on the indicated
dates or been in effect for the periods presented. The Unaudited Summary Pro
Forma Condensed Combined Financial Data should be read in conjunction with, and
is qualified in its entirety by, the Unaudited Pro Forma Combined Financial
Information and the historical consolidated financial statements of Axiohm
Transaction Solutions, Inc. and DH, including in each case, the related notes
thereto, included elsewhere herein, and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AXIOHM TRANSACTION SOLUTIONS, INC.
------------------------------------
FISCAL YEAR
ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
---------------- ------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales............................................................... $ 211,086 $ 158,289
Cost of goods sold...................................................... 141,237 106,451
-------- --------
Gross profit............................................................ 69,849 51,838
Selling, general and administrative expenses............................ 26,220 23,437
Research and development expenses....................................... 12,453 10,126
Amortization of goodwill................................................ 28,205 21,014
In-process technology, acquisition and other charges.................... -- 11,290
-------- --------
Income (loss) from operations........................................... $ 2,971 $ (14,029)
-------- --------
-------- --------
OTHER DATA:
Ratio of earnings to fixed charges (1).................................. -- --
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
1997
----------------
<S> <C>
BALANCE SHEET DATA:
Total assets.................................................................................... $ 191,906
Total debt (2).................................................................................. 172,452
Shareholders' equity (deficit).................................................................. (24,573)
</TABLE>
- ------------------------
(1) For purposes of this computation, earnings consist of income (loss) before
taxes plus fixed charges. Income before taxes is stated after expensing
amortization of goodwill, depreciation and other non-cash charges. Fixed
charges consist of interest on indebtedness plus that portion of lease
rental expense representative of the interest factor. For the fiscal year
ended December 31, 1996 and the nine months ended September 30, 1997,
earnings before fixed charges were insufficient to cover fixed charges by
approximately $13.3 million and $78.9 million, respectively.
(2) Total debt includes capital lease obligations.
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RISK FACTORS
HOLDERS OF EXISTING NOTES SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET
FORTH BELOW, AS WELL AS THE OTHER INFORMATION APPEARING IN THIS PROSPECTUS,
BEFORE TENDERING ANY EXISTING NOTES FOR EXCHANGE INTO NEW NOTES. CERTAIN MATTERS
SET FORTH BELOW ALSO APPLY TO THE EXISTING NOTES AND WILL CONTINUE TO APPLY TO
ANY EXISTING NOTES REMAINING OUTSTANDING AFTER THE EXCHANGE OFFER.
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT,
INCLUDING, WITHOUT LIMITATION, STATEMENTS THAT INCLUDE THE WORDS "BELIEVES,"
"EXPECTS," "ANTICIPATES" OR SIMILAR EXPRESSIONS AND STATEMENTS RELATING TO
ANTICIPATED COST SAVINGS FOLLOWING THE MERGER, THE COMPANY'S STRATEGIC PLANS,
CAPITAL EXPENDITURES, INDUSTRY TRENDS AND PROSPECTS AND THE COMPANY'S FINANCIAL
POSITION. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT ITS
PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS
ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH PLANS, INTENTIONS OR
EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE SET FORTH BELOW AND
ELSEWHERE IN THE PROSPECTUS INCLUDING, WITHOUT LIMITATION, UNDER THE CAPTIONS
"PROSPECTUS SUMMARY," "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company is, and will continue to be, highly leveraged. On September 30,
1997, after giving pro forma effect to the Transactions, the Company's total
debt would have been $172.5 million and the Company would have had a
stockholders' deficit of $24.6 million. See "Capitalization" and "Selected
Historical Consolidated Financial and Other Data" and "Unaudited Summary Pro
Forma Condensed Combined Financial Data." Required principal payments under the
New Credit Facility and Notes are as follows: $3.2 million in 1998; $7.85
million in 1999; $7.85 million in 2000; $9.3 million in 2001; $9.3 million in
2002; $12.5 million in 2003; and $120 million in 2007. Although the Company has
not finalized its 1998 capital expenditure plans, it is anticipated that capital
expenditures will not exceed the limit of $10.5 million permitted under the New
Credit Facility. The Company would also have had borrowing availability under
the New Credit Facility of $35.0 million, subject to the borrowing conditions
contained therein. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, after giving pro forma effect to the Transactions as
if they had occurred on January 1, 1996 and 1997, respectively, income (loss)
before income taxes and fixed charges would have been insufficient to cover
fixed charges by $14.5 million and $78.9 million, respectively.
The Company's ability to make scheduled payments of principal of, or to pay
the premium, if any, interest or Liquidated Damages, if any, thereon, or to
refinance its indebtedness (including the Notes), or to fund planned capital
expenditures, will depend upon its future performance, which, in turn, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond its control. There can be no assurance that the
Company's business will generate cash flow at or above anticipated levels or
that the Company will be able to borrow funds under the New Credit Facility in
an amount sufficient to enable the Company to service its indebtedness,
including the Notes, or make anticipated capital expenditures. If the Company is
unable to generate sufficient cash flow from operations or to borrow sufficient
funds in the future to service its debt, it may be required to sell assets,
reduce capital expenditures, refinance all or a portion of its existing
indebtedness (including the Notes) or obtain additional financing. There can be
no assurance that any such refinancing would be available on commercially
reasonable terms, or at all, or that any additional financing could be obtained,
particularly in view of the Company's high level of indebtedness, the
restrictions on the Company's ability to incur additional indebtedness under the
New Credit Facility and the Indenture, and the fact that substantially all
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of the Company's and its Subsidiaries' assets have been pledged to secure
obligations under the New Credit Facility.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including but not limited to: (i) making
it more difficult for the Company to satisfy its obligations with respect to the
Notes; (ii) increasing the Company's vulnerability to general adverse economic
and industry conditions; (iii) limiting the Company's ability to obtain
additional financing to fund future working capital, capital expenditures and
other general corporate requirements; (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures or
other general corporate requirements; (v) limiting the Company's flexibility in
planning for, or reacting to, changes in its business and the industry in which
it competes; and (vi) placing the Company at a competitive disadvantage
vis-a-vis less leveraged or better capitalized competitors. In addition, the
Indenture and the New Credit Facility contain financial and other restrictive
covenants that limit, among other things, the ability of the Company to borrow
additional funds. Failure by the Company to comply with such covenants could
result in events of default under the Indenture and the New Credit Facility
which, if not cured or waived, could permit the indebtedness thereunder to be
accelerated which would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the degree
to which the Company is leveraged could prevent it from repurchasing all of the
Notes tendered to it upon the occurrence of a Change of Control. See
"Description of Certain Indebtedness--New Credit Facility" and "Description of
Notes--Repurchase at the Option of Holders--Change of Control."
SUBORDINATION AND RANKING OF THE NOTES
The Notes are general unsecured obligations of the Company subordinate in
right of payment to all existing and future Senior Debt of the Company,
including all indebtedness under the New Credit Facility and effectively
subordinate to all secured indebtedness of the Company and its Subsidiaries. The
New Credit Facility is secured by a first priority Lien (as defined) upon all of
the capital stock of the Company's Subsidiaries (provided that no lien has been
granted on the assets of Foreign Subsidiaries (as defined) and no capital stock
of Foreign Subsidiaries has been pledged to the extent that the granting of such
lien or the making of such pledge would result in adverse United States federal
income tax consequences to the Company or would violate applicable law). In
addition, the Notes have been guaranteed by the Subsidiary Guarantees which are
subordinated in right of payment to all existing and future Senior Debt of the
Guarantors, including the Guarantors' obligations under their respective
guarantees of the New Credit Facility. By reason of such subordination, in the
event of an insolvency, liquidation, reorganization, dissolution or other
winding-up of the Company, the Senior Debt must be paid in full before the
principal of, and premium, if any, interest and Liquidated Damages, if any, on
the Notes may be paid. In the event of a bankruptcy, liquidation or
reorganization of the Company, holders of the Notes will participate ratably
with all holders of subordinated indebtedness of the Company that is deemed to
be of the same class as the Notes, based upon respective amounts owed to each
holder or creditor, in the remaining assets of the Company. If any of the
foregoing events should occur, there can be no assurance that there would be
sufficient assets to pay amounts due on the Notes. In addition, the Indenture
provides that no payment with respect to the Notes may be made in the event of a
payment default with respect to Senior Debt under certain circumstances and the
holders of Designated Senior Debt (as defined) will be entitled to block
payments with respect to the Notes in the event of a nonpayment default on
Designated Senior Debt. At September 30, 1997, on a pro forma basis after giving
effect to the Transactions, the Company and its Subsidiaries would have had
approximately $46.2 million of Senior Debt outstanding (exclusive of an unused
availability of up to $35.0 million under the New Credit Facility that would
also constitute Senior Debt). The Indenture under which the Notes were issued
permits the Company to incur additional indebtedness if certain conditions are
met. See "Capitalization," "Description of Certain Indebtedness-- New Credit
Facility" and "Description of Notes--Certain Covenants."
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RESTRICTIVE LOAN COVENANTS
The Indenture contains covenants that restrict, among other things, the
ability of the Company to incur additional indebtedness, pay dividends or make
certain other Restricted Payments (as defined), enter into transactions with
affiliates, allow its Subsidiaries to make certain payments, make certain asset
dispositions, merge or consolidate with, or transfer substantially all of its
assets to another Person, encumber assets under certain circumstances, restrict
dividends and other payments from Subsidiaries, issue Capital Stock of
wholly-owned Subsidiaries, engage in certain business activities, or engage in
certain change of control transactions. In addition, the Credit Agreement (as
defined) evidencing the New Credit Facility contains other and more restrictive
covenants and prohibits the Company from prepaying certain of its indebtedness,
including the Notes. Under the Credit Agreement, the Company is also required to
maintain specified financial covenants, including maximum capital expenditure
limits, minimum EBITDA, a minimum fixed charge coverage ratio and a maximum
leverage ratio (each as defined). The failure by the Company to maintain such
financial covenants or to comply with the restrictions contained in the Credit
Agreement or the Indenture could result in a default thereunder, which in turn
could cause such indebtedness (and by reason of cross-default provisions, other
indebtedness) to become immediately due and payable. No assurance can be given
that the Company's future operating results will be sufficient to enable
compliance with such covenants, or in the event of a default, to remedy such
default. See "Description of Certain Indebtedness--New Credit Facility" and
"Description of Notes--Certain Covenants."
DEPENDENCE ON PRINCIPAL CUSTOMER
In 1994, Axiohm S.A. acquired the transaction printer business of NCR
Corporation ("NCR") and placed the business in Axiohm IPB. At the time of the
acquisition, Axiohm IPB entered into a three-year contract (the "Initial NCR
Contract") with NCR that required NCR to purchase at least 75% of its needs for
transaction printers of the type manufactured by Axiohm IPB at such time (the
"Initial Covered Products"). Since the acquisition, the Company believes that
NCR has purchased over 90% of its requirements for Initial Covered Products from
Axiohm IPB pursuant to the Initial NCR Contract and has also purchased a
substantial number of other products from Axiohm S.A. Total sales to NCR by
Axiohm S.A. represented 52% and 64% of Axiohm S.A.'s revenues for fiscal years
1996 and 1995, respectively. On a pro forma basis for the nine months ended
September 30, 1997, the Company's sales to NCR would have represented 26% of the
Company's total revenue. On September 2, 1997, Axiohm IPB entered into a new
three-year contract with NCR (the "New NCR Contract"). The New NCR Contract does
not obligate NCR to purchase any of its requirements for transaction printers of
the type manufactured by Axiohm IPB, but does provide that NCR and Axiohm IPB
intend and expect that NCR will purchase from Axiohm IPB substantially all of
its requirements for transaction printers of the type manufactured by Axiohm IPB
(the "New Covered Products"). In case there is reason to believe that NCR is
purchasing less than 75% of its requirements for New Covered Products from
Axiohm IPB at any time during the term of the agreement, there is an obligation
for both parties to work together in good faith to eliminate such deficiency.
Similar to the Initial NCR Contract, the New NCR Contract provides that NCR's
purchase commitment is subject to Axiohm IPB's ability to meet NCR's
specifications and requirements for price, performance, quality, service and
delivery with respect to such New Covered Products. Any failure by NCR to
continue purchasing products from the Company at historical levels or the
termination of the New NCR Contract would have a material adverse effect on the
Company's business, financial condition and operating results.
INTEGRATION OF OPERATIONS
The integration of the administrative, finance and manufacturing operations
of Axiohm S.A. and DH, the coordination of their respective sales and marketing
staffs and the implementation of appropriate operational, financial and
management systems and controls will require significant financial resources and
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substantial attention from management. The Company has identified certain
potential cost savings related to the business combination effected by the
Transactions. The Company expects to incur significant integration costs through
1999 related to the Merger and the aforementioned potential cost savings. Any
inability of the Company to integrate these companies successfully in a timely
and efficient manner could have a material adverse effect on the Company's
business, financial condition and results of operations and would adversely
affect its ability to realize its planned cost savings or would require
additional expenditures to realize such cost savings. In addition, even if the
businesses of Axiohm S.A. and DH are successfully integrated, no assurance can
be given that future expenses can be reduced by the expected cost savings. The
Company's prospects should be considered in light of the numerous risks commonly
encountered in business combinations. In addition, the historical financial
statements and pro forma financial statements presented in this Prospectus may
not necessarily be indicative of the results that would have been attained had
the Company actually operated on a combined basis.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements.
The Company has purchased the necessary hardware and software, and is
currently in the process of implementing firmwide, Oracle enterprise resource
planning system ("ERP") Version 10.6. To date, Version 10.6 has been implemented
in several locations and is expected to be implemented in other locations.
Although Version 10.6 does not fully address Year 2000 requirements, the Company
believes that Oracle ERP Version 10.7 does. Such Version 10.7 has already been
released by Oracle, and the Company anticipates implementing such Version 10.7
prior to the beginning of the year 2000. The total cost to the Company of
converting to Oracle ERP firmwide, is estimated to be approximately $1.0
million.
Failure to implement Oracle ERP Version 10.7 or some other form of
enterprise software that addresses Year 2000 requirements prior to the year 2000
might result in significant difficulties in the Company's administration of
invoicing and payables and other processes. Such difficulties could have a
material adverse effect on the Company's business, financial condition and
results of operations.
MANAGEMENT OF FUTURE ACQUISITIONS
Historically, the Company has achieved a portion of its growth through
acquisitions of other businesses, and the Company intends to pursue additional
acquisitions as part of its growth strategy. There are a number of risks
associated with any acquisition, including the substantial time and attention
required from management of the Company in connection with such transactions,
the difficulty of predicting whether the operations will perform as expected and
other problems inherent with any transition of one business organization into
another. There can be no assurance that the Company will be able to consummate
any beneficial acquisitions in the future or that the anticipated benefits of
any acquisition will be realized. If any such acquisitions are consummated, a
failure by the Company to manage any such acquisitions successfully could have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, there may be future acquisitions that could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets associated with the acquisitions of other
businesses, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
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COMPETITION
The Company has a number of significant domestic and foreign competitors for
its transaction printer, bar code printer and card reader products. Many of the
Company's competitors have significantly greater financial, technical and
marketing resources than does the Company. To remain competitive, the Company
believes that it will be required to maintain a high level of technological
expertise and deliver reliable cost-effective products on a timely basis. There
can be no assurance that the Company will have sufficient resources to continue
to make the investments necessary to maintain its competitive position or that
other competitors with substantially greater financial resources, including
other manufacturers of non-transaction printers, will not attempt to enter the
market. A failure to remain competitive would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business-- Competition."
FLUCTUATING OPERATING RESULTS; DEPENDENCE ON OEM SALES
The Company's net sales and operating results may fluctuate in the future as
a result of a number of factors, including: (i) the timing of customer orders;
(ii) the timing of completion of existing customer contracts; (iii) variations
in the Company's sales channels or the mix of products it sells; (iv) changes in
pricing policies by the Company's suppliers; (v) fluctuations in manufacturing
yields; (vi) market acceptance of new and enhanced versions of the Company's
products; (vii) the success or failure of the sales and marketing efforts of the
Company's OEM customers to end-users; (viii) costs associated with integration
of the businesses of Axiohm S.A. and DH, the timing of acquisitions of other
businesses, products and technologies and any associated charges to earnings and
(ix) seasonal factors relating to the Company's business. In particular, the
Company's customers encounter uncertain and changing demand for their products.
If demand falls below customers' forecasts, or if customers do not control their
inventories effectively, they may cancel or reschedule shipments previously
ordered from the Company. The Company has in the past experienced, and the
Company may at any time and with minimal notice in the future experience,
cancellations and postponements of orders. Any such cancellations or
postponements of orders could have a material adverse effect on the Company's
business, financial condition and results of operations.
After giving pro forma effect to the Transactions, for the nine months ended
September 30, 1997, approximately 70% of the Company's pro forma net sales were
application-specific or customizable products designed for and sold to OEMs. The
Company's sales volume for any one particular OEM application-specific product
is necessarily tied to the ability of the OEM to successfully market its final
product to the end-user. The successful marketing of the OEM's final products to
end-users is generally outside of the control of the Company and is usually not
dependent on the successful performance of the Company's products. Although the
Company attempts to diversify its OEM sales across a broad spectrum of OEMs and
OEM product lines to mitigate these risks, the timing of large orders for
particular OEM products may have a material adverse effect on the Company's
results of operations for the periods in which such orders are filled. In
addition, if sales by an OEM of products to end-users decline or fall short of
expectations, orders to the Company related to such products may decline or
cease. For example, DH's results of operations in 1996 were favorably impacted
by $15.6 million in sales to a single OEM for a new product. However, the
Company expects sales to this OEM for this product during 1997 to be less than
$1.0 million. The Company's results of operations in the future may be similarly
affected by large OEM orders for new products or by rapid declines in sales of
the OEM's products.
SEASONALITY
Axiohm S.A. has historically experienced, and the Company expects to
experience, lower levels of sales of transaction printers during the period from
mid-November to the end of December. The Company believes that this seasonality
has been caused by the fact that some of its POS customers do not install new
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systems in their facilities between Thanksgiving and Christmas, so as not to
disturb their sales flow during this heavy selling period.
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
The markets for some of the Company's products are characterized by frequent
refinement and enhancement of existing products and new product introductions
and by declining average selling prices over product life cycles. The Company's
future prospects are highly dependent upon the timely completion and
introduction of new products at competitive price and performance levels and the
acceptance by new markets of the Company's products. The Company also must
respond to current competitors which may choose to increase their presence in
the Company's markets, and to new competitors, which may choose to enter those
markets. In addition, while the Company is not aware of any new fundamental
technologies for transaction printers that are likely to be a significant factor
in the near future, no assurance can be given that the Company's competitors
will not introduce new technologies or technological improvements that will
place the Company at a competitive disadvantage. The failure by the Company to
make timely introduction of new products or respond to competitive threats could
have a material adverse effect on its business, financial condition and results
of operations.
ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS
Federal, state, local and foreign regulations impose various controls on the
storage, handling, discharge and disposal of substances used in the Company's
manufacturing processes and on the Company's facilities. The Company believes
that its activities conform to present governmental regulations applicable to
its operations and its current facilities, including those related to
environmental, land use, public utility utilization and fire code matters. There
can be no assurance that such governmental regulations will not in the future
impose the need for additional capital equipment or other process requirements
upon the Company or restrict the Company's ability to expand its operations. The
adoption of such measures or any failure by the Company to comply with
applicable environmental and land use regulations or to restrict the discharge
of hazardous substances could subject the Company to future liability or could
cause its manufacturing operations to be curtailed or suspended.
INTERNATIONAL SALES AND OPERATIONS
After giving pro forma effect to the Transactions, for the fiscal year ended
December 31, 1996 and for the nine months ended September 30, 1997,
approximately 23% and 21%, respectively, of the Company's pro forma net sales
were derived from sales to customers outside of the United States. The Company
expects that international sales will continue to represent a significant
portion of its net sales. Although the Company's net sales are denominated in
U.S. dollars, its international business may be affected by changes in demand
resulting from fluctuations in exchange rates as well as by risks such as tariff
regulations and difficulties in obtaining export licenses. In addition,
historically the French operations of Axiohm S.A. have incurred a majority of
Axiohm S.A.'s expenses in French francs, while a substantial majority of Axiohm
S.A.'s revenues have been in U.S. dollars. Any material appreciation in the
French franc relative to the U.S. dollar would, absent any effects associated
with hedging or currency trading transactions, detrimentally affect the
financial performance of the Company's French operations. The Company attempts
to limit its exposure to French franc currency fluctuation compared to the U.S.
dollar by entering into various financial instruments, including forward
exchange contracts, to offset its French franc denominated expenses with
associated U.S. dollar denominated revenue, if, in the opinion of the Company,
to do so would mitigate foreign exchange losses. The forward exchange contracts
the Company has entered into are marked to market, with any exchange gains or
losses and associated costs recognized in the income statement. The Company
cannot predict the effect of exchange rate fluctuations upon future operating
results.
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LABOR RELATIONS
As of September 30, 1997, 213 of the Company's employees at its Ithaca, New
York manufacturing facility were represented by a collective bargaining
agreement with the International Association of Machinists and Aerospace
Workers, which expires in July 1999. Although the Company considers its employee
relations generally to be good, a prolonged work stoppage or strike at any
facility could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, there can be no
assurance that upon the expiration of the existing collective bargaining
agreement, a new agreement will be reached without union action or that any such
new agreement will be on terms satisfactory to the Company. See
"Business--Employees."
DEPENDENCE ON KEY PERSONNEL; RECENT CHANGES IN MANAGEMENT
The Company's success depends to a significant degree upon the continued
contributions of senior management, certain of whom would be difficult to
replace. There can be no assurance that the services of such personnel will
continue to be available to the Company. See "Business--Management." The Company
is also dependent upon the continued services of its engineering, research and
development, sales and marketing and manufacturing and service personnel and on
its ability to attract, train and retain highly skilled personnel in each of
these areas. The Company does not have employment agreements with many of its
employees and does not maintain key person life insurance with respect to any of
its officers, directors or key employees. There can be no assurance that the
Company will be able to retain its key employees. The failure of the Company to
hire and retain such key management and other personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Employees."
On January 10, 1998, the Company's President and Chief Executive Officer,
William H. Gibbs, resigned to pursue other interests. Mr. Gibbs had served as
President and Chief Executive Officer of the Company since November 1985 and as
Chairman of the Board from March 1987 until October 1997. In connection with his
resignation, Mr. Gibbs and the Company entered into a Resignation Agreement and
a Noncompetition and Mutual Release Agreement. See "Certain Transactions--Other
Transactions." Following Mr. Gibbs' resignation, Patrick Dupuy and Gilles
Gibier, the Company's Co-Chairmen since October 1997, will assume the roles of
Co-Chief Executive Officer until a new Chief Executive Officer is selected
following an international search, which is expected to take several months.
David T. Ledwell, the Company's Vice President of Identification and
Component Products, is no longer employed by the Company as of January 12, 1998.
Mr. Ledwell had served in various capacities since 1986.
VOTING CONTROL OF THE COMPANY
As of the date of this Prospectus, the Company's executive officers and
directors as a group beneficially own approximately 59% of the Company's
outstanding Common Stock and Mr. Dupuy and Mr. Gibier, principal shareholders,
Co-Chairmen of the Company's Board of Directors and Co-Chief Executive Officers,
beneficially own approximately 54% of the Company's outstanding Common Stock.
Accordingly, Mr. Dupuy and Mr. Gibier have the ability to elect a majority of
the Board of Directors of the Company and to determine the outcome of any other
matter submitted to the shareholders for approval, including the power to
determine the outcome of all corporate transactions, such as mergers,
consolidations and the sale of all or substantially all of the assets of the
Company. See "Ownership of Capital Stock."
INTELLECTUAL PROPERTY RIGHTS
The Company holds various U.S. and foreign patents on impact printheads,
transaction printers, magnetic card readers and bar code products and has
applied for additional domestic and foreign patents.
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The basic technology for many of the Company's products is based upon these
patents and on manufacturing expertise. There can be no assurance that any
issued patents will provide the Company with competitive advantages or will not
be challenged by third parties, or that the patents of others will not have a
material adverse effect on the Company's ability to do business, or that others
will not independently develop similar products, duplicate the Company's
products, or design around the patents issued to the Company.
The Company has in the past been, and may in the future be, notified that it
may be infringing intellectual property rights possessed by third parties. In
addition, the Company has in the past commenced, and may in the future, commence
litigation against third parties for infringement of the Company's intellectual
property rights. See "Business--Legal Proceedings." Any such litigation
initiated by the Company or by others is, at a minimum, costly, and can divert
the efforts and attention of the Company's management and technical personnel,
which can have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, there can be no assurance that
other infringement claims by third parties or other claims for indemnification
by customers or end-users of the Company's products resulting from infringement
claims will not be asserted in the future or that such assertions, if proven to
be true, will not have a material adverse effect on the Company's business,
financial condition and results of operations. If any such claims are asserted
against the Company, the Company may seek to obtain a license under the third
party's intellectual property rights. There can be no assurance, however, that a
license will be available on commercially reasonable terms, if at all. The
Company could decide, in the alternative, to resort to litigation to challenge
such claims or to design around the patented technology. Such actions could be
costly and would divert the efforts and attention of the Company's management
and technical personnel, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the Company
or any Guarantor, at the time it incurred the indebtedness evidenced by the
Notes or its Subsidiary Guarantee, as the case may be, (i)(a) was or is
insolvent or was rendered insolvent by reason of such occurrence or (b) was or
is engaged in a business or transaction for which the assets remaining with the
Company or such Guarantor constituted unreasonably small capital or (c) intended
or intends to incur, or believed or believes that it would incur, debts beyond
its ability to pay such debts as they mature and (ii) the Company or such
Guarantor received or receives less than reasonably equivalent value or fair
consideration for the incurrence of such indebtedness, then the Notes and the
Subsidiary Guarantees, could be voided, or claims in respect of the Notes or the
Subsidiary Guarantees could be subordinated to all other debts of the Company or
such Guarantor, as the case may be. In addition, the payment of interest and
principal by the Company pursuant to the Notes or the payment of amounts by a
Guarantor pursuant to a Subsidiary Guarantee could be voided and required to be
returned to the person making such payment, or to a fund for the credit of the
creditors of the Company or such Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the saleable value of all of its assets at a fair valuation or if
the present fair saleable value of its assets were less than the amount that
would be required to pay its probable liabilities on its existing debts,
including contingent liabilities, as they become absolute and mature or (ii) it
could not pay its debts as they become due.
The proceeds of the Merger Financing, including the Existing Notes Offering,
were used, in part, to refinance the Tender Financing and the Exchange, the
effect of which was to reduce the Company's equity and replaced such equity with
indebtedness. However, on the basis of historical financial information,
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recent operating history as discussed in "Unaudited Pro Forma Combined Financial
Information," "Selected Historical Consolidated Financial and Other Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other factors, the Company and each Guarantor believes that,
after giving effect to the indebtedness incurred in connection with the Merger
Financing, it did not become insolvent, did not have unreasonably small capital
for the business in which it is engaged and did not incur debts beyond its
ability to pay such debts as they mature. There can be no assurance, however, as
to what standard a court would apply in making such determinations or that a
court would agree with the Company's or such Guarantor's conclusions.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control, the
Company will be required to make an offer to repurchase all of the Notes issued
and then outstanding under the Indenture at a purchase price equal to 101% of
the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of repurchase. See "Description of
Notes--Repurchase at the Option of Holders--Change of Control." Any Change of
Control under the Indenture would constitute a default under the New Credit
Facility. Therefore, upon the occurrence of a Change of Control, the lenders
under the New Credit Facility would have the right to accelerate their loans and
the holders of the Notes would have the right to require the Company to
repurchase their Notes. Upon such event, such lenders would be entitled to
receive payment of all outstanding obligations under the New Credit Facility
before the Company may repurchase any of the Notes tendered pursuant to such an
offer. See "Description of Certain Indebtedness--New Credit Facility." If a
Change of Control were to occur, it is unlikely that the Company would be able
to repay all of its obligations under the New Credit Facility and the Notes
unless it could obtain alternate financing. There can be no assurance that the
Company would be able to obtain any such financing on commercially reasonable
terms, or at all, and consequently no assurance can be given that the Company
would be able to repurchase any of the Notes tendered pursuant to such an offer.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Existing Notes are currently owned by a relatively small number of
beneficial owners. The Existing Notes have not been registered under the
Securities Act or any state securities laws and, unless so registered and to the
extent not exchanged for the New Notes, may not be offered or sold except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. Any Existing Notes tendered and exchanged in the Exchange Offer will
reduce the aggregate principal amount of Existing Notes outstanding. Following
the consummation of the Exchange Offer, Existing Holders who did not tender
their Existing Notes generally will not have any further registration rights
under the Registration Rights Agreement, and such Existing Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for such Existing Notes could be adversely affected. The Existing
Notes are currently eligible for sale pursuant to Rule 144A through The Portal
Market of the National Association of Securities Dealers, Inc. ("Portal").
Because the Company anticipates that most Existing Holders will elect to
exchange such Existing Notes for New Notes due to the absence of restrictions on
the resale of New Notes under the Securities Act, the Company anticipates that
the liquidity of the market for any Existing Notes remaining after the
consummation of the Exchange Offer may be substantially limited.
The New Notes will constitute a new issue of securities for which there is
currently no active trading market. If the New Notes are traded after their
initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities and other factors including general economic conditions and the
current financial condition, results of operations and business prospects of the
Company. Although the New Notes will generally be permitted to be resold or
otherwise transferred by non-affiliates of the Company without compliance with
the registration and
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prospectus delivery requirements of the Securities Act, the Company does not
intend to apply for a listing or quotation of the New Notes on any securities
exchange or stock market. The Initial Purchaser has informed the Company that it
currently intends to make a market in the New Notes. However, the Initial
Purchaser is not obligated to do so, and any such market-making may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed under the Exchange Act.
Accordingly, there can be no assurance as to the development, liquidity or
maintenance of any market for the New Notes, or, in the case of non-tendering
Existing Holders, the trading market for the Existing Notes following the
Exchange Offer. If no trading market develops or is maintained, New Holders may
experience difficulty in reselling New Notes or may be unable to sell them.
The liquidity of, and trading market for, the Existing Notes or the New
Notes also may be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects for,
the Company.
CONSEQUENCES OF FAILURE TO EXCHANGE
Existing Holders who do not exchange their Existing Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Existing Notes as set forth in the legend thereon as a
consequence of the issuance of the Existing Notes pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Existing
Notes may not be offered or sold, unless (i) to a person who the seller
reasonably believes is a qualified institutional buyer in a transaction meeting
the requirements of Rule 144A, in a transaction meeting the requirements of Rule
144A under the Securities Act, (ii) in a transaction occurring outside the
United States to a foreign person, which transaction meets the requirements of
Rule 904 under the Securities Act, (iii) in accordance with another exemption
from the registration requirements of the Securities Act (and based upon an
opinion of counsel if the Company so requests), (iv) to the Company or (v)
pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any State of the United States
or any other applicable jurisdiction. The Company does not currently anticipate
that it will register the Existing Notes under the Securities Act. Based on
interpretations by the Staff, as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Existing Notes may be offered for resale, resold or
otherwise transferred by Holders thereof (other than any such Holder which is an
affiliate of the Company or is a broker-dealer which acquired such Existing
Notes directly from the Company) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement with any person to participate in the distribution of
such New Notes. However, the Commission has not considered the Exchange Offer in
the context of a no-action letter addressing such matters and there can be no
assurance that the Staff would make a similar determination with respect to the
Exchange Offer.
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USE OF PROCEEDS
The Company will not receive any cash proceeds from the Exchange Offer. In
consideration for issuing the New Notes in exchange for Existing Notes as
described in this Prospectus, the Company will receive Existing Notes in like
principal amount. The Existing Notes surrendered in exchange for the New Notes
will be retired and canceled.
The net proceeds from the Existing Notes Offering were used, together with
the Company's then existing cash of approximately $31.3 million and borrowings
of approximately $57.0 million under the New Credit Facility to: (i) repay
principal and accrued interest under the Tender Credit Facility and redeem the
Interim Preferred Stock at an aggregate redemption price equal to the
liquidation value of such Interim Preferred Stock plus accrued and unpaid
dividends; (ii) finance the Exchange; and (iii) pay certain fees and expenses
incurred in connection with the Transactions. See "Prospectus Summary--The
Transactions," "Capitalization," "Unaudited Proforma Combined Financial
Information" and "Description of Certain Indebtedness--New Credit Facility." The
Tender Credit Facility indebtedness which was repaid was incurred, and the
Interim Preferred Stock which was redeemed was issued, to finance the Tender
Offer.
THE EXCHANGE OFFER
The following discussion sets forth or summarizes the material terms of the
Exchange Offer, including those set forth in the Letter of Transmittal
distributed with this Prospectus. This summary is qualified in its entirety by
reference to the full text of the documents underlying the Exchange Offer
(including the Indenture and the Registration Rights Agreement), which are
exhibits to the Exchange Offer Registration Statement.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Existing Notes were sold by the Company to the Initial Purchaser on
October 2, 1997, and were subsequently resold (i) to qualified institutional
buyers pursuant to Rule 144A under the Securities Act, (ii) to institutional
investors that are accredited investors in a manner exempt from registration
under the Securities Act, and (iii) pursuant to offers and sales that occurred
outside the United States within the meaning of Regulation S under the
Securities Act. In connection with the offering of the Existing Notes, the
Company entered into the Registration Rights Agreement, which requires, among
other things, that the Company and the Guarantors (i) file with the Commission a
registration statement under the Securities Act with respect to an issue of new
notes of the Company identical in all material respects (other than transfer
restrictions, registration rights and the requirement, under certain
circumstances, to pay Liquidated Damages) to the Existing Notes (which
obligation has been satisfied by the filing of the Exchange Offer Registration
Statement), (ii) use their best efforts to cause such registration statement to
become effective under the Securities Act and (iii) upon the effectiveness of
that registration statement, offer to the Holders of the Existing Notes the
opportunity to exchange their Existing Notes for a like principal amount of New
Notes, which would be issued without a restrictive legend and may generally be
reoffered and resold by the Holder without restrictions or limitations under the
Securities Act, subject to the terms and conditions of the Exxon Capital, Morgan
Stanley and Shearson & Sterling No-Action Letters. See the discussion set forth
on the cover page of this Prospectus and the information under the captions
"Prospectus Summary--The Exchange Offer" and "--Resale of New Notes."
Any Existing Notes tendered and exchanged in the Exchange Offer will reduce
the aggregate principal amount of Existing Notes outstanding. Following the
consummation of the Exchange Offer, Existing Holders who did not tender their
Existing Notes generally will not have any further registration rights under the
Registration Rights Agreement, and such Existing Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Existing Notes could be adversely affected. The Existing Notes
are currently eligible for sale pursuant to Rule 144A through Portal. Because
the Company anticipates that most Existing Holders will elect to exchange such
Existing Notes for New
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Notes due to the absence of restrictions on the resale of New Notes under the
Securities Act, the Company anticipates that the liquidity of the market for any
Existing Notes remaining after the consummation of the Exchange Offer may be
substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Existing
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time
on the Expiration Date. The Company will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Existing Notes
accepted in the Exchange Offer. Existing Holders may tender some or all of their
Existing Notes pursuant to the Exchange Offer. However, Existing Notes may be
tendered only in integral multiples of $1,000. The form and terms of the New
Notes are the same as the form and terms of the Existing Notes except that (i)
the New Notes have been registered under the Securities Act and hence will not
bear legends restricting the transfer thereof and (ii) New Holders generally
will not be entitled to certain rights under the Registration Rights Agreement
or Liquidated Damages, which rights generally will terminate upon consummation
of the Exchange Offer. The New Notes will evidence the same debt as the Existing
Notes and will be entitled to the benefits of the Indenture.
Existing Holders do not have any appraisal or dissenters' rights under the
California General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, including Rule 14e-1.
The Company shall be deemed to have accepted validly tendered Existing Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Existing
Holders for the purpose of receiving the New Notes from the Company.
If any tendered Existing Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Existing Notes will be
returned, without expense, to the tendering Existing Holder thereof as promptly
as practicable after the Expiration Date.
Existing Holders who tender Existing Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Existing Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 (20 business days after the effective date of the Exchange
Offer Registration Statement), unless the Company, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. In no event will the Expiration
Date be extended to a date more than 30 business days after effectiveness of the
Exchange Offer Registration Statement.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Existing Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension
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<PAGE>
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof.
INTEREST ON NEW NOTES
Each New Note will bear interest from the most recent date to which interest
has been paid or duly provided for on the Existing Note surrendered in exchange
for such New Note or, if no such interest has been paid or duly provided for on
such Existing Note, from October 2, 1997. Holders of the Existing Notes whose
Existing Notes are accepted for exchange will not receive accrued interest on
such Existing Notes for any period from and after the last Interest Payment Date
to which interest has been paid or duly provided for on such Existing Notes
prior to the original issue date of the New Notes or, if no such interest has
been paid or duly provided for, will not receive any accrued interest on such
Existing Notes, and will be deemed to have waived the right to receive any
interest on such Existing Notes accrued from and after such Interest Payment
Date or, if no such interest has been paid or duly provided for, from and after
October 2, 1997. Interest on the New Notes will be payable semi-annually on each
April 1 and October 1, commencing on April 1, 1998.
PROCEDURES FOR TENDERING
Only a Holder of Existing Notes may tender such Existing Notes in the
Exchange Offer. To tender in the Exchange Offer, an Existing Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Existing Notes and any other required documents, to the Exchange Agent
so as to be received by the Exchange Agent at the address set forth below prior
to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the
Existing Notes may be made by book-entry transfer in accordance with the
procedures described below. Confirmation of such book-entry transfer must be
received by the Exchange Agent prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the Company
the representation set forth below in the second paragraph under the heading
"--Resale of New Notes."
The tender by an Existing Holder and the acceptance thereof by the Company
will constitute an agreement between such Existing Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Existing Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Existing Holder promptly and instruct
such registered Existing Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Existing Notes tendered pursuant thereto (i) are signed by the
registered Existing Holder, unless such Existing Holder has completed the box
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entitled "Special Exchange Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) are tendered for the account of an Eligible
Institution. In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Existing Notes listed therein, such Existing Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Existing Holder as such registered Existing Holder's name appears on
such Existing Notes, with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Existing Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Existing Notes and withdrawal of tendered
Existing Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Existing Notes not properly tendered or any Existing Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Existing Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify Existing Holders
of defects or irregularities with respect to tenders of Existing Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to give such notification. Tenders of Existing Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Existing Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Existing Holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
TENDER OF EXISTING NOTES HELD THROUGH DTC
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for ATOP, the DTC Automated Tender Offer Program. Accordingly, DTC
participants may, in lieu of physically completing and signing the applicable
Letter of Transmittal and delivering it to the Exchange Agent, electronically
transmit their acceptance of the Exchange Offer by causing DTC to transfer
Existing Notes to the Exchange Agent in accordance with DTC's ATOP procedures
for transfer. DTC will then send an Agent's Message (as defined below) to the
Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that DTC has received an expressed acknowledgment from a participant in DTC that
is tendering Existing Notes which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the applicable Letter of Transmittal (or, in the case of an Agent's
Message relating to guaranteed delivery, that such participant has received and
agrees to be bound by the applicable Notice of Guaranteed Delivery), and that
the Company may enforce such agreement against such participant.
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BOOK-ENTRY DELIVERY PROCEDURES
Within two business days after the date hereof, the Exchange Agent will
establish accounts with respect to the Existing Notes at DTC, the Midwest
Securities Transfer Company ("MSTC") and the Philadelphia Depositary Trust
Company ("Philadep") (each a "Book-Entry Transfer Facility" and, collectively,
the "Book-Entry Transfer Facilities") for purposes of the Exchange Offer. Any
financial institution that is a participant in any of the Book-Entry Transfer
Facilities systems may make book-entry delivery of the Existing Notes by causing
DTC, MSTC or Philadep to transfer such Existing Notes into the Exchange Agent's
account at such Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for such transfer. Timely book-entry delivery of
Existing Notes pursuant to the Exchange Offer, however, requires receipt of a
Book-Entry Confirmation prior to the Expiration Date. In addition, although
delivery of Existing Notes may be effected through book-entry transfer into the
Exchange Agent's account at a Book-Entry Transfer Facility, the Letter of
Transmittal (or a manually signed facsimile thereof), together with any required
signature guarantees and any other required documents, or an Agent's Message in
connection with a book-entry transfer, must, in any case, be delivered or
transmitted to and received by the Exchange Agent at its address set forth on
the back cover page of this Prospectus prior to the Expiration Date to receive
New Notes for tendered Existing Notes, or the guaranteed delivery procedure
described below must be complied with. Tender will not be deemed made until such
documents are received by the Exchange Agent. Delivery of documents to a
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Existing Holders who wish to tender their Existing Notes and (i) whose
Existing Notes are not immediately available, (ii) who cannot deliver their
Existing Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Existing Holder, the certificate
number(s) of such Existing Notes and the principal amount of Existing Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Existing Notes (or a confirmation of
book-entry transfer of such Existing Notes into the Exchange Agent's account
at DTC) and any other documents required by the Letter of Transmittal, will
be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at DTC)
and all other documents required by the Letter of Transmittal, are received
by the Exchange Agent within three New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Existing Holders who wish to tender their Existing Notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
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To withdraw a tender of Existing Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Existing Notes to be withdrawn (the
"Depositor"), (ii) identify the Existing Notes to be withdrawn (including the
certificate number(s) and principal amount of such Existing Notes, or, in the
case of Existing Notes transferred by book-entry transfer, the name and number
of the account at DTC to be credited), (iii) be signed by the Existing Holder in
the same manner as the original signature on the Letter of Transmittal by which
such Existing Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee
register the transfer of such Existing Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Existing
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time or receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Existing Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Existing Notes so withdrawn
are validly retendered. Any Existing Notes which have been tendered but which
are not accepted for exchange will be returned to the Holder thereof without
cost to such Existing Holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Existing
Notes may be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange New Notes for any Existing
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Existing Notes, if:
(a) in the opinion of counsel to the Company or the Guarantors, the
Exchange Offer or any part thereof contemplated herein violates any
applicable law or interpretation of the Staff;
(b) any action or proceeding shall have been instituted or threatened in
any court or by any governmental agency which might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development shall have occurred in any existing action or proceeding
with respect to either the Company or the Guarantors;
(c) any governmental approval has not been obtained, which approval the
Company shall deem necessary for the consummation of the Exchange Offer as
contemplated hereby;
(d) any cessation of trading on the Nasdaq Stock Market or any exchange,
or any banking moratorium, shall have occurred, as a result of which the
Company is unable to proceed with the Exchange Offer; or
(e) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Exchange Offer
Registration Statement or proceedings shall have been initiated or, to the
knowledge of the Company, threatened for that purpose.
If the Company determines in its reasonable judgment that any of the
foregoing conditions are not satisfied, the Company may (i) refuse to accept any
Existing Notes and return all tendered Existing Notes to the tendering Existing
Holders, (ii) extend the Exchange Offer and retain all Existing Notes tendered
prior to the expiration of the Exchange Offer, subject, however, to the rights
of Existing Holders to withdraw such Existing Notes (see "--Withdrawals of
Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Existing Notes which have not
been withdrawn.
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EXCHANGE AGENT
The Bank of New York will act as Exchange Agent for the Exchange Offer with
respect to the Existing Notes.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Existing Notes and
requests for copies of the Notice of Guaranteed Delivery should be directed to
the Exchange Agent, addressed as follows:
<TABLE>
<S> <C>
By Hand, Overnight The Bank of New York
Courier 101 Barclay Street, Floor
or Mail: 21W
New York, New York 10286
Attention:Thomas E. Tabor,
TreasurerAssistant
By Facsimile: (212) 815-5915
Confirm by Telephone: (212) 815-5381
</TABLE>
FEES AND EXPENSES
The expenses of soliciting Existing Notes for exchange will be borne by the
Company. The principal solicitation is being made by mail by the Exchange Agent.
However, additional solicitation may be made by telephone, facsimile or in
person by officers and regular employees of the Company and its affiliates and
by persons so engaged by the Exchange Agent.
The Company will pay the Exchange Agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the Trustee (as defined), filing fees, blue sky fees and printing
and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Existing Notes pursuant to the Exchange Offer. If, however, certificates
representing the New Notes or the Existing Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued in
the name of, any person other than the registered Holder of the Existing Notes
tendered, or if tendered Existing Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of the Existing Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered Existing Holder or any other person) will be payable by the
tendering Existing Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Existing
Notes, which is the aggregate principal amount of the Existing Notes, as
reflected in the Company's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized in
connection with the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the New Notes.
RESALE OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
Staff as set forth in the Exxon Capital No-Action Letter, the Morgan Stanley
No-Action Letter and the Shearman & Sterling No-Action Letter, and other
interpretive letters addressed to third parties in other transactions. However,
the Company has not sought its own interpretive letter addressing such matters
and there can be no assurance that the Staff would make a similar determination
with respect to the Exchange Offer as it has in such interpretive letters to
third parties. Based on these interpretations by the Staff, and subject to the
two
28
<PAGE>
immediately following sentences, the Company believes that New Notes issued
pursuant to this Exchange Offer in exchange for Existing Notes may be offered
for resale, resold and otherwise transferred by a Holder thereof (other than a
Holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such Holder's business and that
such Holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any Holder of Existing Notes who (i)
is an "affiliate" of the Company (within the meaning of Rule 405 under the
Securities Act), (ii) does not acquire such New Notes in the ordinary course of
its business, (iii) intends to participate in the Exchange Offer for the purpose
of distributing New Notes, or (iv) is a broker-dealer who purchased such
Existing Notes directly from the Company, (a) will not be able to rely on the
interpretations of the Staff set forth in the above-mentioned interpretive
letters, (b) will not be permitted or entitled to tender such Existing Notes in
the Exchange Offer and (c) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or other
transfer of such Existing Notes unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Existing Notes acquired for its own account as a result of
market-making or other trading activities and exchanges such Existing Notes for
New Notes (a "Participating Broker-Dealer"), then such Participating
Broker-Dealer may be deemed a statutory "underwriter" within the meaning of the
Securities Act and must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of such New Notes.
Each Holder of Existing Notes who wishes to exchange Existing Notes for New
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, and (iii) it has no arrangement
or understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it acquired the Existing Notes for its own account as a result
of market-making activities or other trading activities (and not directly from
the Company) and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, such a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the Staff in the interpretive letters referred to
above, the Company believes that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the New Notes received upon
exchange of such Existing Notes with a prospectus meeting the requirements of
the Securities Act, which may be the prospectus prepared for an exchange offer
so long as it contains a description of the plan of distribution with respect to
the resale of such New Notes. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Notes
received in exchange for Existing Notes where such Existing Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Notes
for a period of one year following effectiveness of the Exchange Offer
Registration Statement. See "Plan of Distribution." Any Participating
Broker-Dealer who is an affiliate of the Company may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Existing
Notes pursuant to the Exchange Offer will be deemed to have agreed, by execution
of the Letter of Transmittal, that, upon receipt of notice from the Company of
the occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in this Prospectus untrue in
any material
29
<PAGE>
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until the Company has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company and certain of
the Guarantors will have fulfilled certain of their obligations under the
Registration Rights Agreement, and Holders of Existing Notes who do not tender
their Notes, except for certain instances involving the Initial Purchaser or
Existing Holders who are not eligible to participate in the Exchange Offer, will
not have any further registration rights under the Registration Rights Agreement
or otherwise or rights to receive Liquidated Damages for failure to register.
Accordingly, any Holder of Existing Notes that does not exchange that Holder's
Existing Notes for New Notes will continue to hold the untendered Existing Notes
and will be entitled to all the rights and subject to all the limitations
applicable thereto under the Indenture, except to the extent that such rights or
limitations, by their terms, terminate or cease to have further effectiveness as
a result of the Exchange Offer.
The Existing Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to a person who the seller reasonably believes is a
qualified institutional buyer in a transaction meeting the requirements of Rule
144A, in a transaction meeting the requirements of Rule 144A under the
Securities Act, (ii) in a transaction occurring outside the United States to a
foreign person, which transaction meets the requirements of Rule 904 under the
Securities Act, (iii) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel if the
Company so requests), (iv) to the Company or (v) pursuant to an effective
registration statement, and, in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction.
OTHER
Participation in the Exchange Offer is voluntary and Existing Holders should
carefully consider whether to accept. Holders of the Existing Notes are urged to
consult their financial and tax advisors in making their own decision on what
action to take.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Existing
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Existing Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following sets forth a summary of the material anticipated federal
income tax consequences expected to result to Holders from the Exchange Offer
and from the purchase, ownership and disposition of the New Notes. The tax
consequences of these transactions are uncertain. The discussion of the federal
income tax consequences set forth below is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), and judicial decisions and administrative
interpretations thereunder, as of the date hereof, and such authorities may be
repealed, revoked, modified or otherwise interpreted or applied so as to result
in federal income tax consequences different from those discussed below. There
can be no assurance that
30
<PAGE>
the Internal Revenue Service (the "IRS") will not challenge one or more of the
tax consequences described herein, and the Company has not obtained, nor does it
intend to obtain, a ruling from the IRS or an opinion of counsel with respect to
the U.S. federal income tax consequences of acquiring or holding New Notes. The
discussion below pertains only to U.S. Holders, except as described below under
the caption "Non-U.S. Holders." As used herein, U.S. Holders means (i) citizens
or residents (within the meaning of Section 7701(b) of the Code) of the United
States, (ii) corporations, partnerships or other entities created in or under
the laws of the United States or any political subdivision thereof, (iii)
estates, the income of which is subject to United States federal income taxation
regardless of its source, and (iv) in general, trusts subject to the primary
supervision of a court within the United States and the control of a United
States person as described in Section 7701(a)(30) of the Code.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that may be relevant to a particular Holder in light of the
Holder's circumstances (for example, persons subject to the alternative minimum
tax provisions of the Code). Also, it is not intended to be wholly applicable to
all categories of investors, some of which (such as dealers in securities,
banks, insurance companies, tax-exempt organizations, and persons holding New
Notes as part of a hedging or conversion transaction or straddle or persons
deemed to sell New Notes under the constructive sale provisions of the Code) may
be subject to special rules. The discussion below is premised upon the
assumption that the New Notes and Existing Notes constitute indebtedness for
U.S. federal income tax purposes, and that the Existing Notes and New Notes are
held (or would be held if acquired) as capital assets within the meaning of
Section 1221 of the Code. This summary does not discuss the tax considerations
applicable to subsequent purchasers. The discussion also does not discuss any
aspect of state, local or foreign law, nor federal estate and gift tax law.
EACH PROSPECTIVE HOLDER AND, SUBSEQUENT TO THE EXCHANGE OFFER, EACH HOLDER,
OF NEW NOTES IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR INCLUDING WITH
RESPECT TO ITS PARTICULAR TAX SITUATION THE TAX EFFECTS OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
EXCHANGE OF NOTES
The exchange of Existing Notes for New Notes pursuant to the Exchange Offer
should not be a taxable exchange for U.S. federal income tax purposes.
Accordingly, a Holder should have the same adjusted issue price, adjusted basis
and holding period in the New Notes as it had in the Existing Notes immediately
before the exchange.
STATED INTEREST
The New Notes will be issued without original issue discount. Stated
interest on the Existing Notes and New Notes will be includable in the Holder's
income under such Holder's method of accounting.
BOND PREMIUM
Generally, if the New Notes are purchased, or if the Existing Notes were
purchased, for an amount in excess of the amount payable at the maturity date
(or a call date, if appropriate) of the New Notes, such excess will constitute
amortizable bond premium that the Holder may elect to amortize under the
constant interest method over the period from the date of acquisition to the
date of maturity (or until an earlier call date). If bond premium is amortized,
the amount required to be included in the Holder's income each year with respect
to interest on the Note will be reduced by the amount of amortizable bond
premium allocable to such year. An election to amortize bond premium is
available only if the New Notes are held as capital assets. This election is
revocable only with the consent of the IRS and applies to all obligations owned
or
31
<PAGE>
subsequently acquired by the Holder. To the extent the excess is deducted as
amortizable bond premium, the Holder's adjusted tax basis in the New Notes will
be reduced.
MARKET DISCOUNT ON THE NEW NOTES
To the extent a Holder had market discount with respect to an Existing Note,
the Holder generally will have market discount with respect to a New Note. Any
principal payment or gain realized by a Holder on disposition or retirement of a
New Note will be treated as ordinary income to the extent that there is accrued
market discount on the New Note. Unless a Holder elects to accrue under a
constant-interest method, accrued market discount is the total market discount
multiplied by a fraction, the numerator of which is the number of days the
Holder has held the obligation and the denominator of which is the number of
days from the date the Holder acquired the obligation under its maturity. A
Holder may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry a New Note purchased with market discount. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includable in income. If the Holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by the Holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
SALE, EXCHANGE OR RETIREMENT OF THE NEW NOTES
Upon the sale, exchange or retirement of a New Note, the Holder generally
will recognize gain or loss equal to the difference between the amount realized
on the sale, exchange or retirement (which does not include any amount
attributable to accrued but unpaid interest) and the Holder's adjusted tax basis
in the New Note. A Holder's adjusted tax basis in a New Note will generally
equal the Holder's adjusted basis for the Existing Note exchanged therefor
increased by any original issue discount or market discount previously included
in income by such Holder with respect to such New Note and decreased by any
payments received thereon that are not qualified stated interest and the amount
of any amortizable bond premium applied to reduce interest on the New Note.
Gain or loss realized on the sale, exchange or retirement of a New Note will
be capital (subject to the market discount rules, discussed above), and will be
long-term if at the time of sale, exchange or retirement the New Note has been
held or deemed held for more than one year. On August 5, 1997, legislation was
enacted which, among other things, reduces to 20% the maximum rate of tax on
long-term capital gains on most capital assets held by an individual for more
than 18 months, and under which gain on most capital assets held by an
individual more than one year and up to 18 months is subject to tax at a maximum
rate of 28%. Holders are urged to consult their tax advisor with respects to the
effects of the legislation. The deductibility of capital losses is subject to
limitations.
NON-U.S. HOLDERS
The following sets forth a summary of certain U.S. federal income and estate
tax considerations of the ownership and disposition of New Notes by Non-U.S.
Holders. As used herein, a Non-U.S. Holder means any Holder other than a U.S.
Holder.
INTEREST
Interest paid by the Company to a Non-U.S. Holder generally will not be
subject to United States federal income or withholding tax if such interest
is not effectively connected with the conduct of a trade or business within
the United States by such Non-U.S. Holder and pursuant to the "portfolio
interest exception" such Non-U.S. Holder: (i) does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company; (ii) is not a controlled foreign
32
<PAGE>
corporation with respect to which the Company is a "related person" within
the meaning of the code; and (iii) certifies, under penalties of perjury,
that such Holder is not a United States person and provides such Holder's
name and address.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to United States federal
income tax on gain recognized on a sale, redemption or other disposition of
a New Note unless: (i) the gain is effectively connected with the conduct of
a trade or business within the United States by the Non-U.S. Holder; or (ii)
in the case of a Non-U.S. Holder who is a nonresident alien individual and
holds the Note as a capital asset, such Holder is present in the United
States for 183 or more days in the taxable year and certain other
requirements are met.
FEDERAL ESTATE TAXES
If interest on the New Notes is exempt from withholding of United States
federal income tax under the portfolio interest exception described above,
the New Notes will generally not be included in the estate of a deceased
Non-U.S. Holder for United States federal estate tax purposes.
BACKUP WITHHOLDING
A Holder of the New Notes may be subject to backup withholding at a rate
of 31% with respect to interest paid or accrued on, and gross proceeds of a
sale of, the New Notes unless (i) such Holder is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact or (ii) provides a correct taxpayer identification number, certifies as
to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A Holder of the New
Notes who does not provide the Company with such Holder's correct taxpayer
identification number may be subject to penalties imposed by the IRS.
In general, payment of the proceeds from the sale of Notes to or through
a United States office of a broker is subject to both United States backup
withholding and information reporting unless the Holder or beneficial owner
certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption. United States information reporting and
backup withholding generally will not apply to a payment made outside the
United States of the proceeds of a sale of Notes through an office outside
the United States of a non-United States broker. However, United States
information reporting requirements (but not backup withholding) will apply
to a payment made outside the United States of the proceeds of a sale of
Notes through an office outside the United States of a broker that is a
United States person, that derives 50% or more of its gross income for a
specified three-year period from the conduct of a trade or business in the
United States, or that is a "controlled foreign corporation" as to the
United States, unless the broker has documentary evidence in its files that
the Holder or beneficial owner is a non-United States person or the Holder
or beneficial owner otherwise establishes an exemption.
Amounts withheld under the backup withholding rules may be credited
against a Holder's tax liability, and a Holder may obtain a refund of any
excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS.
The Company will report to the Holders of the New Notes and to the IRS
the amount of any "reportable payments" and any amount withheld with respect
to the Existing Notes and New Notes during the calendar year.
33
<PAGE>
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY, DOES NOT CONSTITUTE TAX ADVICE, AND IS NOT BASED UPON
ANY OPINION OF COUNSEL. ACCORDINGLY, EACH HOLDER OF THE EXISTING NOTES SHOULD
CONSULT SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO
SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW NOTES
INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
34
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of September 30, 1997, and as adjusted on a pro forma basis to give effect to
(i) the Merger Financing (which was completed on October 2, 1997) and (ii) the
anticipated pay down from available cash of $7 million under the Revolving
Credit Facility and $3.8 million under the Term Loan Facility. This table should
be read in conjunction with the financial statements, and the related notes
thereto, included elsewhere herein. See "Prospectus Summary," "Use of Proceeds"
and "Unaudited Pro Forma Combined Financial Information."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt (including current maturities):
Revolving Credit Facility (1)......................................................... $ -- $ --
Term Loan Facility.................................................................... -- 46,152
9 3/4% Senior Subordinated Notes due 2007............................................. -- 120,000
Senior subordinated debt(2)........................................................... 190,200 --
Other................................................................................. 6,300 6,300
----------- -----------
Total debt........................................................................ 196,500 172,452
----------- -----------
Total shareholders' equity (deficit).................................................. (12,373) (24,573)
----------- -----------
Total capitalization.................................................................... $ 184,127 $ 147,879
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) The Revolving Credit Facility provides for revolving loans in an aggregate
principal amount of up to $35.0 million.
(2) The senior subordinated debt consisted of $166.2 of senior indebtedness and
$24.0 million of Interim Preferred Stock incurred in connection with the
Tender Offer, of which $2.4 million was classified as current in the
Company's Condensed Consolidated Balance Sheet at September 30, 1997.
35
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Combined Financial Information set forth below is
based on the historical financial statements of Axiohm Transaction Solutions,
Inc. and DH after giving effect to the purchase method of accounting and other
adjustments relating to the Transactions (exclusive of the effect of the Tender
Financing) and after giving effect to the Exchange Offer for the periods ended
and as of the dates indicated. The Unaudited Pro Forma Combined Balance Sheet
gives effect to the Transactions (exclusive of the effect of the Tender
Financing) and to the Exchange Offer as of September 30, 1997. The Unaudited Pro
Forma Combined Statements of Operations for the fiscal year ended December 31,
1996 and the nine months ended September 30, 1997 are presented to give effect
to the Transactions (exclusive of the effect of the Tender Financing) and to the
Exchange Offer as if each had been consummated on January 1, 1996. The Unaudited
Pro Forma Combined Statement of Operations for the nine months ended September
30, 1997 are based on the historical financial statements of Axiohm Transaction
Solutions, Inc. for the nine months ended September 30, 1997 and the historical
financial statements of DH for the period for the period from January 1, 1997
through August 31, 1997 (the effective date of the Transactions for accounting
purposes).
The Unaudited Pro Forma Combined Financial Information set forth below
reflects pro forma adjustments that are based upon available information and
certain assumptions that the Company believes are reasonable. In preparing the
Unaudited Pro Forma Combined Financial Information, the Company believes it has
utilized reasonable methods to conform the basis of the presentation. The
Unaudited Pro Forma Combined Financial Information is intended for informational
purposes only and is not necessarily indicative of the future financial position
or results of operations of the Company had the Transactions and the Exchange
Offer described above occurred on the indicated dates or been in effect for the
periods presented.
The Unaudited Pro Forma Combined Financial Information should be read in
conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements of Axiohm Transaction Solutions, Inc. and DH,
including in each case, the related notes thereto, included elsewhere herein,
and with other financial information pertaining to the Company including "Use of
Proceeds," "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
36
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AXIOHM
HISTORICAL TRANSACTION
AXIOHM SOLUTIONS,
TRANSACTION INC.
SOLUTIONS, PRO FORMA PRO FORMA
INC. ADJUSTMENTS COMBINED
------------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (including short-term investment
securities held to maturity).................................. $ 36,248 $ (36,248) (1) $ --
Restricted cash................................................. 8,594 -- 8,594
Accounts receivable, net........................................ 32,295 -- 32,295
Inventories..................................................... 28,523 -- 28,523
Other........................................................... 9,487 -- 9,487
------------- ----------- -------------
Total current assets.......................................... 115,147 (36,248) 78,899
Fixed assets, net................................................. 20,928 -- 20,928
Intangible assets................................................. 86,839 -- 86,839
Other assets...................................................... 5,240 -- 5,240
------------- ----------- -------------
Total assets.................................................. $ 228,154 $ (36,248) $ 191,906
------------- ----------- -------------
------------- ----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................ 15,082 -- 15,082
Accrued payroll, payroll taxes and benefits..................... 4,877 -- 4,877
Current portion of long-term debt and other long-term
obligations................................................... 4,060 -- 4,060
Accrued expenses and other current liabilities.................. 7,529 -- 7,529
Income taxes payable............................................ 3,140 -- 3,140
Deferred revenue................................................ 493 -- 493
------------- ----------- -------------
Total current liabilities..................................... 35,181 -- 35,181
Senior Subordinated debt.......................................... 187,800 (24,048) (1) 163,752
Other long-term debt and long-term liabilities.................... 15,919 -- 15,919
Deferred tax liability............................................ 1,627 -- 1,627
------------- ----------- -------------
Total liabilities............................................. 240,527 (24,048) 216,479
------------- ----------- -------------
Shareholders' equity (deficit):
Common Stock.................................................... 23,851 -- 23,851
Retained earnings (accumulated deficit)......................... (36,117) (12,200) (1) (48,317)
Foreign currency translation adjustment......................... (107) -- (107)
------------- ----------- -------------
Total shareholders' equity (deficit).......................... (12,373) (12,200) (1) (24,573)
------------- ----------- -------------
Total liabilities and shareholders' equity (deficit).......... $ 228,154 $ (36,248) $ 191,906
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
37
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL AXIOHM TRANSACTION
------------------------------ SOLUTIONS, INC.
AXIOHM TRANSACTION PRO FORMA PRO FORMA
SOLUTIONS, INC. DH ADJUSTMENTS COMBINED(2)
------------------ ---------- ------------ --------------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 95,302 $ 115,784 $ -- $ 211,086
Costs and expenses:
Cost of net sales........................ 66,390 74,847 -- 141,237
Selling, general and administrative...... 11,013 15,207 -- 26,220
Research and development................. 6,648 5,805 -- 12,453
Amortization of goodwill................. 200 790 27,215(3) 28,205
------- ---------- ------------ --------
Total costs and expenses................... 84,251 96,649 27,215 208,115
------- ---------- ------------ --------
Income (loss) from operations.............. 11,051 19,135 (27,215) 2,971
Other income............................... 1,033 -- -- 1,033
Interest income............................ 158 1,491 (1,649) (4) --
Interest expense........................... (1,032) (149) (16,132) (5) (17,313)
------- ---------- ------------ --------
Income (loss) before income taxes.......... 11,210 20,477 (44,996) (13,309)
Income taxes (benefit)..................... 4,406 7,450 (7,468) (6) 4,388
------- ---------- ------------ --------
Net income (loss).......................... $ 6,804 $ 13,027 $ (37,528) $ (17,697)
------- ---------- ------------ --------
------- ---------- ------------ --------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
38
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL AXIOHM TRANSACTION
----------------------------- SOLUTIONS, INC.
AXIOHM TRANSACTION PRO FORMA PRO FORMA
SOLUTIONS, INC. DH ADJUSTMENTS COMBINED(2)
------------------ --------- ----------- ------------------
<S> <C> <C> <C> <C>
Net sales....................................... $ 99,558 $ 58,731 $ -- $ 158,289
Costs and expenses:
Cost of net sales............................. 66,978 39,473 -- 106,451
Selling, general and administrative........... 11,428 12,009 -- 23,437
Research and development...................... 6,198 3,928 -- 10,126
Amortization of goodwill...................... 2,450 420 18,144(3) 21,014
In-process technology, acquisition and other
charges..................................... 50,831 11,290 (50,831) (4) 11,290
-------- --------- ----------- --------
Total costs and expenses........................ 137,885 67,120 (32,687) 172,318
-------- --------- ----------- --------
Loss from operations............................ (38,327) (8,389) 32,687 (14,029)
Interest and other income....................... 390 1,138 (1,528) (5) --
Interest and other expense...................... (3,077) (117) (10,797) (6) (13,991)
-------- --------- ----------- --------
Loss before income taxes........................ (41,014) (7,368) 20,362 (28,020)
Income taxes (benefit).......................... 5,484 (1,151) (5,177) (7) (844)
-------- --------- ----------- --------
Net loss........................................ $ (46,498) $ (6,217) $ (25,539) $ (27,176)
-------- --------- ----------- --------
-------- --------- ----------- --------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
39
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The Unaudited Pro Forma Combined Financial Statements have been prepared
using the following facts and assumptions:
(1) Existing cash at September 30, 1997 was used to retire $24.0 million of the
Tender Financing and fund the $12.2 million payment made to Axiohm S.A.
shareholders in conjunction with Transactions on October 2, 1997.
(2) The Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1996 do not reflect the write-off of the anticipated
$50.8 million of in-process technology that was recorded in the financial
statements of Axiohm Transaction Solutions, Inc. on August 31, 1997 in
conjunction with the Transactions. The Unaudited Pro Forma Combined
Financial Statements for the year ended December 31, 1996 do not reflect
the $2.3 million anticipated charge related to the settlement of common
stock options of Axiohm S.A. outstanding immediately prior to the Merger,
which will be incurred ratably over a five-year period commencing at the
Merger date. The Unaudited Pro Forma Combined Statement of Operations for
the nine months ended September 30, 1997 includes $0.5 million of the
anticipated charge.
(3) Amortization of goodwill calculated on a straight line basis over three
years.
(4) Removes the effect of the one-time in-process research and development
charge recorded in conjunction with the Acquisition.
(5) Since a portion of the acquisition was funded by existing cash, a pro forma
adjustment is required to adjust for the interest income lost. Interest
income not earned as a result of the use of cash to partially fund the
transaction was approximately $1.6 million and $1.5 million for the year
ended December 31, 1996 and the nine months ended September 30, 1997,
respectively.
(6) Adjustment to interest expense:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
For the Year Ended December 31, 1996:
Interest expense on historical Axiohm S.A. debt repaid in the Merger............. $ (450)
Interest on New Credit Facility and Senior Subordinated Notes (at an assumed
weighted average interest rate of 9.4%)........................................ 15,618
Amortization of deferred debt issuance costs..................................... 964
-----------
Pro forma total adjustment....................................................... $ 16,132
-----------
-----------
For the Nine Months Ended September 30, 1997:
Interest expense on historical Axiohm S.A. debt repaid in the Merger............. $ (338)
Interest on New Credit Facility and Senior Subordinated Notes (at an assumed
weighted average interest rate of 9.4%)........................................ 10,412
Amortization of deferred debt issuance costs..................................... 723
-----------
Pro forma total adjustment....................................................... 10,797
-----------
-----------
</TABLE>
A 0.125% increase or decrease in the assumed weighted average interest rate
would change annual pro forma interest expense by $200,000. The pro forma
net losses would change by $116,000.
(7) Income tax effects of pro forma adjustments. Income taxes have been
provided for all applicable adjustments at an assumed rate of 42% assuming
that the amortization of goodwill is not deductible for tax purposes.
40
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The Consolidated Statement of Income Data set forth below with respect to
fiscal years 1994, 1995 and 1996, and the Consolidated Balance Sheet Data at
December 31, 1995 and 1996, are derived from, and should be read in conjunction
with, the audited Consolidated Financial Statements and Notes thereto of Axiohm
S.A. included elsewhere in this Prospectus. The Consolidated Balance Sheet Data
at December 31, 1994 and September 30, 1996 set forth below are derived from
unaudited financial statements of Axiohm S.A. that are not included in this
Prospectus. The Consolidated Statement of Income Data for the nine months ended
September 30, 1996 and 1997 and the Consolidated Balance Sheet Data set forth
below at September 30, 1997 are derived from the unaudited financial statements
of Axiohm Transaction Solutions, Inc. included in this Prospectus. The unaudited
financial statements of Axiohm Transaction Solutions, Inc. have been prepared on
the same basis as the audited financial statements of Axiohm S.A. (the
predecessor of Axiohm Transaction Solutions, Inc. for accounting purposes) and,
in the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for such periods. The
Consolidated Statement of Income Data for the nine months ended September 30,
1997 and the Consolidated Balance Sheet Data at September 30, 1997 include the
results of operations of Axiohm S.A. for the full period and the results of
operations for DH for the month of September 1997. Results for interim periods
are not necessarily indicative of results for any later period or for the entire
year.
The data set forth in the following table should be read in conjunction
with, and are qualified in their entirety by, "Management's Discussion and
Analysis of Financial Condition and Results of Operations-- Axiohm S.A.," Axiohm
S.A.'s Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
------------------------------- ---------
<S> <C> <C> <C> <C>
1994 1995 1996 1996
--------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenue.......................................................................... $ 24,810 $ 72,155 $ 95,302 $ 71,965
Costs and expenses:
Cost of products sold.......................................................... 15,095 52,202 66,390 49,792
Selling, general and administrative............................................ 4,506 9,200 11,013 6,003
Research and development....................................................... 3,310 5,836 6,648 4,702
Goodwill amortization.......................................................... -- 161 200 2,300
In process technology.......................................................... -- -- -- --
--------- --------- --------- ---------
Total costs and expenses..................................................... 22,911 67,399 84,251 62,797
--------- --------- --------- ---------
Income (loss) from operations.................................................... 1,899 4,756 11,051 9,168
Interest income.................................................................. 90 158 158 36
Interest expense................................................................. (244) (1,889) (1,032) (946)
Other income..................................................................... 167 -- 1,033 1,193
--------- --------- --------- ---------
Income (loss) before income taxes................................................ 1,912 3,025 11,210 9,451
Provision for income taxes....................................................... 482 1,095 4,406 3,657
--------- --------- --------- ---------
Net income (loss).............................................................. $ 1,430 $ 1,930 $ 6,804 $ 5,794
--------- --------- --------- ---------
--------- --------- --------- ---------
OTHER DATA:
Depreciation and amortization.................................................... 1,070 2,696 2,921 2,008
Capital expenditures............................................................. 2,190 2,955 3,056 2,532
Ratio of earnings to fixed charges (1)........................................... 8.8x 2.6x 11.9x 11.0x
CASH FLOWS PROVIDED BY (USED IN):
Operations....................................................................... $ 2,161 $ 1,007 $ 11,737 $ 9,593
Investing activities............................................................. (18,037) (3,025) (2,997) (2,532)
Financing activities............................................................. 16,011 942 (7,663) (5,967)
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................................................. $ 10,875 $ 14,781 $ 14,555 $ 11,681
Total assets..................................................................... 34,753 40,184 43,978 43,023
Long-term debt (2)............................................................... 19,415 19,508 10,532 10,491
Shareholders' equity (deficit)................................................... 4,302 5,977 16,433 15,240
<CAPTION>
<S> <C>
1997
---------
<S> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenue.......................................................................... $ 99,558
Costs and expenses:
Cost of products sold.......................................................... 66,978
Selling, general and administrative............................................ 11,008
Research and development....................................................... 6,198
Goodwill amortization.......................................................... 2,870
In process technology.......................................................... 50,831
---------
Total costs and expenses..................................................... 137,885
---------
Income (loss) from operations.................................................... (38,327)
Interest income.................................................................. 390
Interest expense................................................................. (3,077)
Other income..................................................................... --
---------
Income (loss) before income taxes................................................ (41,014)
Provision for income taxes....................................................... 5,484
---------
Net income (loss).............................................................. $ (46,498)
---------
---------
OTHER DATA:
Depreciation and amortization.................................................... 5,369
Capital expenditures............................................................. 3,670
Ratio of earnings to fixed charges (1)........................................... --
CASH FLOWS PROVIDED BY (USED IN):
Operations....................................................................... $ 8,701
Investing activities............................................................. (151,744)
Financing activities............................................................. 178,074
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................................................. $ 79,966
Total assets..................................................................... 228,154
Long-term debt (2)............................................................... 207,779
Shareholders' equity (deficit)................................................... (12,373)
</TABLE>
41
<PAGE>
- ------------------------
(1) For purposes of this computation, earnings consist of income (loss) before
income taxes plus fixed charges. Income before taxes is stated after
expensing amortization of goodwill, depreciation and other non-cash charges.
Fixed charges consist of interest on indebtedness plus that portion of lease
rental expense representative of the interest factor. For the nine months
ended September 30, 1997, earnings before fixed charges were insufficient to
cover fixed charges by approximately $41.0 million.
(2) Long-term debt includes bank borrowing obligations, credit facilities,
capital lease and government grant obligations.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT, INCLUDING, WITHOUT LIMITATION, STATEMENTS THAT INCLUDE THE WORDS
"BELIEVES," "EXPECTS," "ANTICIPATES" AND SIMILAR EXPRESSIONS RELATING TO:
ANTICIPATED COST SAVINGS FOLLOWING THE MERGER; EXPECTED TRENDS IN INTERNATIONAL
SALES AND SALES ACTIVITY BASED ON SEASONAL FACTORS; ESTIMATED LEVELS OF SELLING,
GENERAL AND ADMINISTRATIVE EXPENSE AFTER NON-CASH CHARGES RELATED TO THE
TRANSACTIONS; EXPECTED TRENDS IN RESEARCH AND DEVELOPMENT EXPENSES AND INTEREST
INCOME; AND PLANS TO MEET REQUIREMENTS FOR WORKING CAPITAL, CAPITAL EXPENDITURES
AND DEBT SERVICE. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT ITS PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATION ARE SET
FORTH BELOW UNDER THE CAPTION "RISK FACTORS."
GENERAL
The Company is a non-captive designer, manufacturer and marketer of
transaction printers. The Company's transaction printer products are used in
retail, financial and commercial transactions to provide transaction records
such as receipts, tickets, register journals, checks and other documents.
The Company sells its products to OEMs, VARs, distributors and end-users.
For the nine months ended September 30, 1997, approximately 70% of the Company's
pro forma net sales of transaction products were application-specific or
customizable products designed for and sold to OEMs. The Company's printer and
card reader products are frequently integrated by OEMs with component products
from other manufacturers to form a final product. Due to the wide variety of
end-users and applications for the Company's transaction printer and card reader
products, the Company believes that it is effective to sell through VARs and
multiple distributors with defined market niche expertise and presence as well
as directly to OEMs and end-users. Sales to OEMs fluctuate based on the ability
of an OEM to successfully market its products to its customers and on the life
cycle of the OEM's product. Accordingly, a substantial increase or decrease in
orders from an OEM for a particular product may have a material impact on
results of operations. Also, new product introductions by OEMs could result in
large initial orders to fill OEM inventory and establish a product base, but
orders for some OEM products in subsequent periods may not be at the same
levels. For example, DH had transaction printer sales to First Data Corporation
("FDC") of approximately $2.7 million and $15.6 million in 1995 and 1996,
respectively, while sales to FDC declined to approximately $700,000 for the nine
months ended September 30, 1997. The Company does not anticipate having any
material sales to FDC in the last quarter of 1997. See "Risk Factors--
Fluctuating Operating Results; Dependence on OEM Sales."
The Company has increased its presence in the non-OEM direct sales channels
(including VARs, distributors and end-users) for non-application-specific
products by leveraging its expertise in design and manufacturing. This provides
the Company with the means of selling to customers it was not previously
servicing and to provide diversification from sales to OEMs and sales from any
single OEM product line. Furthermore, variations of products and product
features designed for OEMs can be developed for non-OEM applications with much
shorter lead times.
The Company historically has derived a substantial portion of its net sales
from international customers and this trend is expected to continue. Although
the Company's net sales are denominated in U.S. dollars, its international
business may be affected by changes in demand resulting from fluctuations in
exchange rates and related risks. In addition, historically the French
operations of Axiohm S.A. have incurred a majority of Axiohm S.A.'s expenses in
French francs, while a substantial majority of Axiohm S.A.'s revenues have been
in U.S. dollars. Any material appreciation in the French franc relative to the
43
<PAGE>
U.S. dollar would, absent any effects associated with hedging or currency
trading transactions, detrimentally affect the financial performance of the
Company's French operations. The Company attempts to limit its exposure to
French franc currency fluctuation compared to the U.S. dollar by entering into
financial instruments, primarily forward exchange contracts, which qualify as
hedges of specific monetary assets. Accordingly, realized and unrealized gains
and losses arising from these instruments are recognized in income in the same
period as gains and losses resulting from the underlying hedged transactions.
Gains or losses from such transactions were immaterial for all periods
presented. The Company cannot predict the effect of exchange rate fluctuations
upon future operating results. See "Risk Factors--International Sales and
Operations."
EFFECTS OF ACQUISITIONS
The Company was formed from the combination of Axiohm S.A. and DH. See
"Prospectus Summary--The Transactions." Historically, Axiohm S.A. and DH have
achieved a portion of their growth through the acquisition of other businesses
and the Company intends to pursue additional acquisitions as a part of its
growth strategy. See "Risk Factors--Management of Future Acquisitions", Note 6
of the Notes to the Consolidated Financial Statements of Axiohm S.A., and Note 5
of the Notes to the Consolidated Financial Statements of DH.
In December 1994, Axiohm S.A. acquired the transaction printer business of
NCR, now known as Axiohm IPB, for up to $30.6 million, of which $15.6 million
was paid at closing, $552,000 has been paid to date in earn-out payments and a
final payment of up to $5.0 million may be paid in additional earn-out payments
based upon 1997 sales. The Company estimates such payment will be less than
approximately $1.5 million and is anticipated to be paid in 1998. Axiohm S.A.
recorded approximately $3.0 million of goodwill in connection with this
acquisition, which was accounted for using the purchase method of accounting.
On August 21, 1997, AX, a wholly-owned indirect subsidiary of Axiohm S.A.,
completed a tender offer to acquire 7 million (or approximately 88%) of the
outstanding shares of DH, which resulted in a change of control of DH. On
October 2, 1997, AX (i) acquired all of the outstanding shares of Axiohm S.A. in
exchange for 5,518,524 shares of DH Common Stock and $12.2 million in cash and
then (ii) was merged into DH. Although DH was the surviving corporation for
legal purposes, the Merger was treated as a purchase of DH for accounting
purposes. The effective date of the Merger was October 2, 1997 for legal
purposes while the effective date of the acquisition of DH was August 31, 1997
for accounting purposes. For the nine month period ended September 30, 1996, the
following discussion includes the results of operations of Axiohm S.A. only. For
the nine month period ended September 30, 1997, the following discussion
includes the results of operations of Axiohm S.A. for the full period plus the
results of operations of DH for the month of September 1997.
The DH acquisition has been accounted for using the purchase method of
accounting. The aggregate purchase price of $208.6 million consisted of cash for
DH shares and DH stock options, transaction costs and the fair value of DH
shares not tendered. The Tender Offer was financed through the incurrence of
$166.2 million of senior indebtedness under the Tender Credit Facility and $24
million of Interim Preferred Stock, both of which were retired with the proceeds
of the $120 million Existing Notes Offering and borrowings under the $85 million
New Credit Facility.
In connection with the DH acquisition, the Company (i) incurred a non-cash
charge of $50.8 million due to the write-off of acquired in-process technology
that had not reached technical feasibility and had no future alternative use and
(ii) expects to amortize approximately $81.6 million of goodwill and other
intangibles over the next three years. Of the approximately $12.2 million paid
for the DH stock options, approximately $8.6 million was funded to a Rabbi trust
and is reflected on the Company's balance sheet as restricted cash.
44
<PAGE>
The following discussion and analysis is based upon and should be read in
conjunction with the Axiohm Transaction Solutions, Inc. financial statements and
related notes and the DH financial statements and related notes and the other
financial information included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
NET SALES. Net sales of $99.6 million for the nine months ended September
30, 1997 increased 38.3% from net sales of $72.0 million for the same period in
the prior year. This increase was attributable to the addition of DH net sales
of $10.3 million and an increase in net sales of $27.6 million. The increase in
net sales reflects increased unit volumes of transaction printers and printer
mechanisms partially offset by a decline in average selling prices and a unit
decline in thermal mechanisms.
Historically, the Company has experienced lower levels of sales of
transaction printers during the period from mid-November to the end of December
which it believes has been caused by the fact that some of its POS customers do
not install new systems in their facilities between Thanksgiving and Christmas.
COST OF NET SALES. Cost of net sales of $67.0 million increased $17.2 or
34.5%, from $49.8 million in the 1996 period. Cost of net sales as a percentage
of revenues decreased from 69.2% in the 1996 period to 67.3% in the 1997 period.
The decline was due to a favorable impact of the exchange rate between the U.S.
dollar and the French franc for products manufactured in France and sold in the
U.S., lower purchase prices of components and parts, continuing technology
improvements and higher absorption of relatively fixed overhead costs partially
offset by a decrease in average selling prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $13.9 million for the 1997 period increased $5.6
million or 67.1% from $8.3 million in the 1996 period. Selling, general and
administrative expenses as a percentage of revenues increased from 11.5% in the
1996 period to 13.9% in the 1997 period. This increase was largely the result of
non-cash goodwill amortization expense of $2.5 million, the inclusion of
expenses attributable to DH of $1.6 million, $0.5 million in a one-time charge
for stock options and an increase of $0.8 million in base expenses. The increase
in base expenses was primarily a result of higher staffing levels and expenses
needed to support higher sales, offset, in part, by the favorable impact of the
fluctuations in the U.S. dollar compared to the French franc. The Company
anticipates that, on a quarterly basis through the third quarter of 2000,
selling, general and administrative expenses will include approximately $8
million to $9 million in non-cash acquisition related charges.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of
$6.2 million in the 1997 period increased $1.5 million or 31.8% from $4.7 in the
1996 period. Research and development expenses as a percentage of revenues
decreased slightly from 6.5% in the 1996 period to 6.2% in the 1997 period. The
Company believes that the timely development of new products and enhancements to
its existing products are essential to maintaining its competitive position.
Accordingly, the Company anticipates that such expenses will continue to
increase in absolute dollar terms for the foreseeable future.
IN-PROCESS TECHNOLOGY. In conjunction with the acquisition of DH, the
Company incurred a non-cash charge of $50.8 million due to the write-off of
acquired in-process technology (projects that had not reached technological
feasibility and had no future alternative use). If the Company were to complete
these in-process projects, it would not expect to incur research and development
costs in excess of historical levels as a percentage of net sales.
LOSS FROM OPERATIONS. Loss from operations for the 1997 period was $38.3
million, compared to net income of $9.2 million in the same period for 1996. The
net loss in the third quarter of 1997 was largely due to the in-process
technology charge discussed above.
45
<PAGE>
INTEREST AND OTHER INCOME. Interest income and other income of $0.4 million
in the 1997 period decreased $0.8 million from $1.2 million in the 1996 period.
In the 1996 period, Axiohm S.A. received insurance proceeds of $1.0 million as
compensation for the loss of revenue and commercial damage caused by water
damage in its clean room facility located in Puiseaux, France. The Company does
not anticipate that it will obtain significant interest income for at least the
next twelve months because substantially all of the Company's cash was used to
complete the Merger or became restricted following the Merger.
INTEREST AND OTHER EXPENSE. Interest expense increased to $3.1 million for
the 1997 period from $.09 million in the 1996 period due to the incurrence of
the Tender Financing.
PROVISION FOR INCOME TAXES. Provision for income taxes of $5.5 million in
1997 increased $1.8 million from $3.7 million in 1996. Income taxes as a
percentage of income before taxes, excluding the effect of acquisition related
charges, was approximately 41.8% compared to 38.3% due to the increase from
36.7% to 41.3%, in the French statutory tax rate. Income tax expense as a
percentage of loss before income taxes including the effect of acquisition
related charges, was 13.4% in the 1997 period primarily due to the in-process
technology charge being non-deductible for income tax purposes.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE. Revenues of $95.3 million for 1996 increased $23.1 million, or
32.1% from $72.2 million in 1995. The revenue increase in 1996 principally
represents increased unit volume from two transaction printer products which
were introduced in 1995 as well as higher transaction mechanism volume.
COST OF PRODUCTS SOLD. Cost of products sold of $66.4 million in 1996
increased $14.2 million, or 27.2%, from $52.2 million in 1995. Cost of products
sold as a percentage of revenues decreased to 69.7% in 1996 from 72.3% in 1995.
In 1995, cost of products sold included a provision for inventory obsolescence
of approximately $1.0 million related to the 1995 write-off of components and
products dedicated to a customer who filed for bankruptcy protection. If this
provision were excluded, cost of products sold as a percentage of revenues would
have been 71.0% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $11.0 million in 1996 increased $1.8 million, or
19.7%, from $9.2 million in 1995 primarily as a result of higher sales activity
and the reinforcement of Axiohm IPB's sales force after the acquisition of the
transaction printer business from NCR (now known as Axiohm IPB) in December
1994. In addition, Axiohm S.A. incurred charges of $265,000 in 1996 and $610,000
in 1995 in connection with the transfer of its existing French manufacturing
facility to a new facility in Puiseaux, France. Selling, general and
administrative expenses as a percentage of revenues decreased to 11.6% in 1996
from 12.8% in 1995.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of
$6.6 million in 1996 increased $812,000, or 13.9%, from $5.8 million in 1995.
Research and development expenses as a percentage of revenues decreased to 7.0%
in 1996 from 8.1% in 1995.
INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations of $11.1 million in 1996 increased $6.3 million, or 132.4%, from $4.8
million in 1995. Income from operations as a percentage of revenues increased to
11.6% in 1996 from 6.6% in the 1996 period.
INTEREST EXPENSE. Interest expense of $1.0 million in 1996 decreased
$857,000, or 45.4%, from $1.9 million in 1995 as a result of lower average debt
levels and interest rates in 1996 compared to 1995.
OTHER INCOME. Other income was $1.0 million in 1996 as a result of
insurance proceeds of $1.0 million received in 1996 as compensation for the loss
of revenue and commercial damage caused by water damage in the Company's clean
room facility in Puiseaux, France.
PROVISION FOR INCOME TAXES. Provision for income taxes of $4.4 million in
1996 increased $3.3 million, or 302.4%, from $1.1 million in 1995. Provision for
income taxes as a percentage of income before taxes was 39.3% in 1996 compared
to 36.2% in 1995, principally due to the reduced benefits from the French
46
<PAGE>
research and development tax credit, partially offset by the impact of
non-utilized loss carryforwards in overseas subsidiaries.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUE. Revenues of $72.2 million for fiscal 1995 increased $47.4 million,
or 190.8% from $24.8 million for fiscal 1994. The increase in 1995 principally
reflects the acquisition of the transaction printer business of NCR (now known
as Axiohm IPB) in December 1994 and increased unit shipments of thermal print
mechanisms in the United States. Axiohm S.A. recorded other income of $858,000
in 1994 in respect of liquidated damages from non-fulfillment of contractual
obligations.
There was a decrease of sales in Europe to unaffiliated customers from 1994
to 1995, which was primarily due to the acquisition of Axiohm IPB at the end of
1994. In 1994 sales to the NCR division located in Ithaca were recorded under
third party revenue while in 1995 they were classified under "transfer to
geographical areas", i.e. intercompany sales. If Axiohm IPB had been purchased
in December 1993 instead of December 1994, the 1994 third party sales would have
been $66.2 million.
COST OF PRODUCTS SOLD. Cost of products sold of $52.2 million in 1995
increased $37.1 million, or 245.8% from $15.1 million in 1994. As a percentage
of revenues, cost of products sold increased to 72.3% in 1995 from 60.8% in
1994. The increase was primarily due to the inclusion of Axiohm IPB which
operates at a gross margin below the historical average of Axiohm S.A., a
non-recurring provision for inventory obsolescence of approximately $1.0 million
related to the 1995 write-off of components and products dedicated to a customer
who filed for bankruptcy protection and an unfavorable impact of the exchange
rate between the U.S. dollar and the French franc for products manufactured in
France and sold in the U.S. Excluding the impact of the liquidated damages
explained above, cost of products sold as a percentage of revenues would have
been 63.2% in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses of $9.2 million in 1995 or 12.8% of revenues increased
$4.7 million, or 104.2%, from $4.5 million in 1994. The increase was due to the
inclusion of selling, general and administrative expenses of Axiohm IPB in 1995,
relocation costs of $610,000 resulting from the transfer of a manufacturing
facility to a new location in Puiseaux, France and the unfavorable impact of the
exchange rate between the U.S. dollar and the French franc on administrative
expenses for Axiohm S.A.'s French operations.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of
$5.8 million in 1995 increased $2.5 million, or 76.3%, from $3.3 million in
1994, primarily as a result of the additional research and development expenses
incurred by Axiohm IPB. As a percentage of revenues, research and development
expenses decreased to 8.1% in 1995 from 13.3% in 1994 due to revenues increasing
at a faster rate than research and development expenses.
INCOME FROM OPERATIONS. Income from operations of $4.8 million in 1995
increased $2.9 million, or 150.4%, from $1.9 million in 1994. Income from
operations as a percentage of revenue decreased to 6.6% in 1995 from 7.7% in
1994 as a result of the factors discussed above.
There was a decrease of $1.8 million in operating profit in Europe from 1994
and 1995, which was primarily due to: (i) a 1995 non-recurring provision for
inventory of $1.0 million related to components dedicated to a customer who
filed for bankruptcy protection; and (ii) other income amounting to $0.9 million
recorded in 1994 related to indemnity paid by IBM as a result of the
cancellation of a firm order and non-recurring income included in the terms of a
contract renegotiated with a customer (Costar).
INTEREST EXPENSE. Interest expense was $1.9 million in 1995 compared to
$244,000 in 1994. The increase reflected higher average debt levels used to
finance the acquisition of Axiohm IPB and the interest charges on the
indebtedness to finance the new operating facility in Puiseaux, France.
PROVISION FOR INCOME TAXES. Provision for income taxes of $1.1 million in
1995 increased $613,000, or 127.2%, from $482,000 in 1994. The effective income
tax rate increased from 25.2% in 1994 to 36.2% in
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1995 due to the higher research and development tax credit and the increase in
the statutory income tax rate in France.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are cash flow from operations and
borrowings under the New Credit Facility. The Company's primary capital
requirements include debt service, capital expenditures and working capital. The
Company's ability to make scheduled payments of principal of, or to pay the
premium, if any, interest or Liquidated Damages, if any, thereon or to
refinance, its indebtedness (including the Notes), or to fund planned capital
expenditures, will depend upon its future performance, which, in turn, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond its control. Based upon current levels of
operations and anticipated growth in revenues and cost savings, the Company
believes that the Company's cash flow from operations and amounts available
under the New Credit Facility will be adequate to meet its anticipated future
requirements for working capital, capital expenditures, and scheduled payments
of principal and interest on its indebtedness, including the Notes. Required
principal payments under the New Credit Facility and Notes are as follows: $3.2
million in 1998; $7.85 million in 1999; $7.85 million in 2000; $9.3 million in
2001; $9.3 million in 2002; $12.5 million in 2003; and $120 million in 2007.
Although the Company has not finalized its 1998 capital expenditure plans, it is
anticipated that capital expenditures will not exceed the maximum permitted
under the New Credit Facility of $10.5 million. There can be no assurance,
however, that the Company's business will generate cash flow at or above
anticipated levels or that the Company will be able to borrow funds under the
New Credit Facility in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or make anticipated capital expenditures. In
particular, there can be no assurance that anticipated revenue growth will be
achieved at the levels currently anticipated or at all. If the Company is unable
to generate sufficient cash flow from operations or to borrow sufficient funds
in the future to service its debt, it may be required to sell assets, reduce
capital expenditures, refinance all or a portion of its existing indebtedness,
including the Notes, or obtain additional financing. There can be no assurance
that any such refinancing would be available on commercially reasonable terms,
or at all, or that any additional financing could be obtained, particularly in
view of the Company's high level of debt, the restrictions under the New Credit
Facility and the Indenture on the Company's ability to incur additional debt,
and the fact that substantially all of the Company's assets will be pledged to
secure obligations under the New Credit Facility.
At September 30, 1997, after giving pro forma effect to the Transactions,
the Company's total debt would have been $172.5 million. The Company would also
have had borrowing availability under the New Credit Facility of an additional
$35.0 million for working capital and capital expenditure requirements, subject
to the borrowing conditions contained therein. See "Risk Factors--Substantial
Leverage and Debt Service."
The New Credit Facility and the Notes will, and other debt instruments of
the Company may, pose various restrictions and covenants on the Company which
could potentially limit the Company's ability to respond to market conditions,
to provide for unanticipated capital investments, to raise additional debt or
equity capital, or to take advantage of business opportunities. See "Description
of Certain Indebtedness-- New Credit Facility" and "Description of Notes."
RESTRICTIONS ON DISTRIBUTIONS BY GUARANTORS TO THE COMPANY
There are no contractual restrictions, under the New Credit Facility or
otherwise, upon the ability of the Guarantors to make distributions or pay
dividends to their respective equityholders. Directly or indirectly, the Company
is the sole equityholder of all of the Guarantors.
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BUSINESS
OVERVIEW
The Company is a non-captive designer, manufacturer and marketer of
transaction printers. The Company has a broad product line and manufactures its
own thermal and impact printheads. The Company's transaction printer products
are used in retail, financial and commercial transactions to provide transaction
records such as receipts, tickets, register journals, checks and other
documents. In addition to transaction printers, the Company also designs,
manufactures and markets: (i) card readers which, similar to transaction
printers, are an integral part of transaction activity; and (ii) bar code
printers and related consumable supplies, which are used for automatic
identification and data collection systems. The Company has sales offices in
eight countries, distributor relationships in 32 countries and manufacturing
facilities in four countries. For the nine months ended September 30, 1997,
approximately 79% of pro forma net sales were derived from North America, 15%
from Europe and 6% from Asia and other markets.
The Company sells its products to OEMs, VARs, distributors and end-users.
For the nine months ended September 30, 1997, approximately 70% of the Company's
pro forma net sales were application-specific or customizable products designed
for and sold to OEMs. The Company works closely with its OEM customers during
the design stage, providing engineering and manufacturing expertise to meet its
customers' specific needs.
INDUSTRY
Transaction products are used in numerous applications in three primary
vertical markets: (i) the POS market, which includes retailers, supermarkets,
gas stations, convenience stores and fast food retailers; (ii) the financial
services market, for applications such as ATMs, money order machines and bank
teller systems; and (iii) the specialty applications market, for uses in
products such as lottery machines, transportation ticketing machines,
pari-mutuel betting machines and information kiosks. The transaction printer
industry is comprised of non-captive manufacturers, such as the Company, and the
internal manufacturing operations of certain OEMs. This market has experienced
strong and stable growth over the past decade, and the Company expects this
trend to continue primarily as a result of: (i) an increase in the retail,
financial and commercial transaction activity in developed and developing
countries; (ii) an increase in non-cash transaction activity that requires
multiple receipts; and (iii) the continued trend of OEMs to outsource the design
and production of non-core components such as transaction printers and card
readers. The non-captive transaction printer market is highly fragmented, and
includes many small competitors that have limited product lines. The Company
also believes that larger competitors, such as the Company, benefit from a
greater diversification of end-use applications and markets, customers,
technology and geography, which reduces the impact of industry or regional
cyclicality.
Transaction printers utilize both impact and thermal printing technologies.
Impact printers create an image by striking an ink ribbon, transferring ink to
paper as the printhead passes over the paper. There are two types of thermal
printers -- direct thermal and thermal transfer. Direct thermal printers create
an image by passing a heated element over specially treated paper as the paper
passes by the printhead, causing the heated section of the paper to change
color. Thermal transfer printers create an image by melting ink from a ribbon
onto paper as the paper passes by the printhead.
Customers select printer technology based on cost, application requirements
and cost of consumables such as paper and ribbons. Impact printers generally
have lower paper costs, can print multiple copies of records and can print on
checks, tickets and forms. Thermal printers are generally faster, print higher
quality images, are quieter, have fewer moving parts and therefore lower
maintenance costs, last longer and operate in a greater range of environments.
As a result of these factors, impact printers for POS applications generally
represent the lower to middle price range of the transaction printer market,
thermal transaction printers for POS applications generally represent the middle
price range of the transaction
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printer market and hybrid printers (incorporating both thermal and impact
printing technologies) represent the high end price range of the transaction
printer market. In developing countries and for certain specialty applications
in developed countries, impact printing continues to be popular because of its
lower printer and paper cost and the need to maintain duplicate paper records.
However, for higher end applications in the U.S. and Europe, thermal printing
represents a greater proportion of new transaction printer and printer mechanism
sales than impact printing.
THE COMPANIES
The Company was created through the combination of the businesses of Axiohm
S.A., a French corporation, and DH, a California corporation, and their
subsidiaries on October 2, 1997. See "Prospectus Summary--The Transactions". The
businesses of Axiohm S.A. and DH prior to the combination may be summarized as
follows:
AXIOHM S.A. Axiohm S.A., headquartered in Montrouge, France, is a leading
designer, manufacturer, and marketer of thermal transaction printing mechanisms
and thermal and impact transaction printers for both standard and
application-specific uses. Axiohm S.A. has a fully integrated thermal printhead
manufacturing facility, which provides Axiohm S.A. with a consistent supply of
high quality thermal printheads. Axiohm S.A. was created in 1988 through a
management buyout of the thermal printhead business from Schlumberger Limited
("Schlumberger"). At that time, Axiohm S.A. had annual sales of approximately
$3.0 million. In 1994, Axiohm S.A. purchased from NCR the assets and operations
of NCR's transaction printer business and placed the business in a wholly-owned
U.S. subsidiary, Axiohm IPB.
DH. DH, headquartered in San Diego, California, is a leading designer,
manufacturer and marketer of impact transaction printing mechanisms, impact and
thermal transaction printers, impact printheads and thermal bar code products.
DH has recently broadened its role in transaction products with strategic
acquisitions of a manufacturer of magnetic heads and a manufacturer of card
readers.
PRODUCTS
The Company's products consist of transaction products, bar code products
and related consumable supplies and services. The Company has historically
received the majority of its revenues from the sales of transaction printers and
printer mechanisms. The Company now offers one of the broadest product lines in
the transaction printer industry and expects to continue to derive a significant
portion of its revenues from sales of transaction printers and printer
mechanisms. The Company has an increasing sales presence in two growing products
markets: (i) magnetic stripe and computer chip card readers which, similar to
transaction printers, are an integral part of transaction activity; and (ii) bar
code printers and related consumable supplies, which are used for automatic
identification and data collection systems.
TRANSACTION PRODUCTS
The Company designs, manufactures and sells the following transaction
products: (i) thermal and impact transaction printers and printer mechanisms as
well as a hybrid thermal/impact transaction printer; (ii) impact printheads; and
(iii) magnetic heads as well as magnetic stripe and computer chip card readers
and card reader modules. Printheads are the part of the printer that actually
creates the image on the paper. Printer mechanisms are application-specific
printers that are designed to be integrated into an OEM final product. Magnetic
heads retrieve from and store data on a magnetic stripe on a credit or debit
card, a check or an airline ticket or boarding pass. Computer chip card readers
retrieve from and store data on integrated circuits ("chips") imbedded on a
card. Card reader modules are card readers that are designed to be integrated
into an OEM final product. While both magnetic stripe and chip cards can be used
for stored value, credit, debit and personal identification applications, a chip
card can store substantially more data and information than a magnetic stripe
card.
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TRANSACTION PRINTERS AND PRINTER MECHANISMS. The Company's transaction
printers are largely used in retail, financial and commercial applications. The
Company has a broad offering of transaction printers ranging from basic single
receipt printers, to receipt, slip and journal printers and highly complex
transaction printers incorporating such features as magnetic ink character
recognition ("MICR") check reading. These products are either designed for OEMs
for integration in their final products and systems or as standard products
produced by the Company for non-OEM sales to VARs, distributors and end-users.
The Company has focused on being a solution provider to OEMs for
application-specific transaction printer mechanisms. The Company offers its OEM
customers highly developed, customized mechanisms that are designed into the
OEM's final products and are, consequently, difficult to replace with products
from an alternate supplier. The Company's application-specific products are
designed to adhere to OEM specifications, including providing electronic and
information interface with the other systems of the OEM's final product,
conforming to the space cavity provided in the OEM's final product and meeting
or exceeding performance quality and reliability standards. The Company recently
became the sole global supplier to NCR of thermal printing mechanisms for its
ATM requirements.
IMPACT PRINTHEADS. The Company believes it is the world's largest
non-captive designer, manufacturer and marketer of impact printheads. The
Company's impact printhead products range from 7 to 42 wires per head and 200 to
1200 characters per second in print speeds. Impact printheads are used in a
multitude of transaction printing applications, such as POS receipts, bank
transaction printing, lottery tickets, entertainment tickets and airline
tickets. In addition, the Company's impact printheads are used in a variety of
non-transaction printing applications, including office automation and data
processing.
Technological advances by the Company and others now enable impact
printheads to print text at speeds up to 1200 characters per second and print
multiple text sizes and fonts in draft quality or letter quality under software
control. The Company's strategy has been to convince large OEM impact printhead
manufacturers to outsource their development and manufacturing of impact
printheads to the Company as impact transaction printheads become less of a
product focus for these OEMs, thus allowing the Company to expand its impact
printhead business even though the market for impact printheads in higher-end
applications is declining. The Company believes it is the preferred alternative
supplier for impact printheads in the industry for three primary reasons: (i)
the Company is a low cost provider of impact printheads; (ii) the Company's
impact printheads are highly reliable and benefit from a reputation for quality;
and (iii) the Company is a technology leader in impact printheads with respect
to speed and print density.
The Company also sells replacement printheads and utilizes its expertise in
printhead design and manufacturing to support its printhead repair and
replacement operations.
MAGNETIC HEADS AND CARD READERS. The Company manufactures magnetic heads,
as well as magnetic stripe and computer chip card readers and card reader
modules, all of which are utilized in the "input" or "front-end" of transaction
activity. The Company's card reader products read either magnetic stripe cards
or computer chip cards, and in some cases both magnetic stripe and computer chip
cards. The Company entered the magnetic head and the card reader markets through
two strategic acquisitions in late 1995 and early 1997. The Company believes
that these "input" or "front-end" transaction products complement the Company's
expertise and leading position in the "output" or "back-end" printing segment of
transaction activity.
BAR CODE PRODUCTS
The Company's bar code products are primarily utilized in commercial, retail
and service environments to print labels and bar codes to automate the
collection of information. Typical applications include product identification,
inventory control, work order tracking and shipping and receiving in retail,
hospital
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and pharmaceutical, industrial, materials handling, and car and equipment rental
industries. The Company's bar code printer products incorporate direct thermal
and thermal transfer technology into a wide range of products, including compact
desktop printers designed for medium volume printing requirements, portable
printers for on-demand printing, industrial printers designed for high volume
printing and/or harsh environment printing, continuous-feed printers and print
and apply products for wholesale and industrial applications that automatically
apply bar code labels in high speed packaging environments. In addition, the
Company supplies a full range of related supplies including stock and custom bar
code labels as well as other custom label products and software.
PRODUCT DEVELOPMENT
The Company believes it is a leader in the development of both impact and
thermal transaction printers. The Company's product development activities are
targeted at both existing and new applications. A variety of engineering skills
are required in the development of the Company's products, and the Company
maintains expertise in mechanical, electrical, firmware and software engineering
disciplines. As of September 30, 1997, the Company had 164 employees dedicated
to research and development and spent $10.8 million and $12.5 million,
respectively, in 1995 and 1996 for research and development.
Most of the product and product feature innovations developed by the Company
arise out of creative mechanical and electrical engineering approaches and close
cooperation between the sales and marketing and engineering divisions. Customers
generally inform the Company of their transaction printing requirements, but
generally depend upon the Company to design a product that is suitable for the
desired application. For its OEM customers, the Company's engineers work closely
with each OEM's design and engineering department to provide a comprehensive,
application-specific transaction printer solution. For its standardized and
customizable products, the Company uses industry knowledge gained from its work
with OEM customers to develop new product applications in consultation with
potential customers.
The Company has developed many technologies and improvements in the field of
transaction printing and processing to improve speed, performance and ease of
use and to reduce the overall cost of its transaction printers. Such
improvements include innovations in the areas of paper loading, paper cutters,
print speeds, check processing incorporating MICR and proprietary software
drivers that are compatible with various hardware platforms and the Windows 95,
Windows NT and OLE for Point-of-Sale Operating Systems. In 1996 and 1997, the
Company's new product introductions included low-cost thermal and impact
printers, a liner-less bar code label printer, a lower-cost general purpose bar
code printer, an Ethernet bar code printer, an easy-load, multi-station POS
impact printer, a high speed thermal printer and the first clamshell shuttle
printer. In addition, the Company plans to launch the following new products in
1998: a new paper transport for gasoline pumps, ATMs and kiosk applications; the
next generation POS multi-station printer; and the smallest clamshell (easy
loading) printer mechanism in the POS market. The Company is also actively
developing inkjet printhead technology for the next generation of its
transaction printers.
The Company holds various U.S. and foreign patents on impact and thermal
printheads, transaction printers and printing mechanisms and has various U.S.
and foreign patent applications pending.
SALES AND MARKETING
The Company sells its products to OEMs, VARs, distributors and end-users.
For each of the year ended December 31, 1996 and the nine months ended September
30, 1996, approximately 70% of its pro forma net sales were derived from OEMs,
with the remaining sales largely split equally among VARs and distributors and
direct sales to end-users. Due to the wide variety of end-users and applications
for the Company's transaction and bar code printers and card reader products,
the Company believes that it is effective to sell through multiple VARs and
distributors with defined market niche expertise and presence as well as to OEMs
and end-users. OEMs and VARs provide customers with a variety of POS components
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(including printers), accessories, application software and systems integration
expertise. Some OEMs, such as NCR, resell the Company's products under their own
brand names.
The Company maintains sales offices in the United States, France, Germany,
the United Kingdom, Australia, Taiwan, China and Japan and also sells through
distributors in 32 countries in order to reach its worldwide customer base. The
Company employs a collaborative approach to sales and marketing, focusing the
efforts of its sales, engineering and manufacturing resources to present its
products and capabilities to its customers.
The Company develops application-specific, customizable and standardized
products. Application-specific products are typically developed for one OEM or
end-user customer. The process to develop and produce application-specific
products typically takes 12 to 18 months. Depending on the product, life cycles
are approximately four to eight years. In the case of the development of a
printer mechanism, the Company has historically been insulated from competition
for approximately five years since it is expensive and time-consuming for OEMs
to change suppliers. The OEM would be required to reconfigure its cabinetry
tools, electronic hardware and software to the specifications of a particular
printer mechanism. In addition, the product produced by the new supplier would
have to undergo extensive product testing for reliability. The Company's OEM
application-specific products also establish an opportunity for recurring
equipment and parts sales as well as service revenue following the introduction
of application-specific products.
The Company develops standard products for a variety of applications that
are sold to VARs, distributors and end-users. In some cases, the Company
develops standard products as derivatives of application-specific products or
product features previously developed for OEMs. The process to develop and
produce standard products is typically shorter than application-specific
products. The unit volumes for standard products tend to be smaller but the
number of customers is much greater than that of application-specific products
and therefore the Company sells many of its standard products through
distributors.
In addition to specific direct customer marketing efforts, the Company
exhibits at major international trade shows. These trade shows are used to
introduce new products, develop customer leads and help expand the Company's
sales to VARs and distributors. The Company also advertises in major trade
publications.
As of September 30, 1997, the Company had 126 employees in its sales and
marketing organization.
CUSTOMERS
TRANSACTION PRINTERS AND PRINTER MECHANISMS. The Company sells its
transaction printers to OEMs, VARs, distributors and end-users and its printer
mechanisms to OEMs. The Company's largest customers for transaction printers and
printer mechanisms in 1996 was NCR. Application-specific printer mechanisms are
typically developed for and sold to one OEM customer for integration into the
OEM's final products. Some OEMs, such as NCR, resell the Company's transaction
printers under their own brand names.
IMPACT PRINTHEADS. The Company sells impact printheads to OEMs for various
transaction and non-transaction applications and has benefitted from the trend
among OEMs of outsourcing the production of non-core components.
CARD READERS. The Company sells its magnetic stripe and computer chip card
reader products to OEMs, VARs, distributors and end-users.
BAR CODE PRODUCTS. The Company sells its bar code products to VARs,
distributors and end-users. The Company's VAR and distributor customers enhance
the value of the Company's bar code products by adding software and service.
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Sales to NCR, the Company's largest customer, represented 23% and 26%,
respectively, of pro forma net sales for the year ended December 31, 1996 and
the nine months ended September 30, 1997. No other customer accounted for more
than 10% of pro forma net sales for the year ended December 31, 1996 or the nine
months ended September 30, 1997.
COMPETITION
The markets in which the Company competes are extremely competitive and the
Company expects that competition will increase. The Company believes the
principal competitive factors in its business are product features, price,
product reliability, ability to meet customer delivery schedules, customer
service and support, reputation and distribution. The Company believes that it
competes favorably with respect to each of these factors. The Company competes
with other manufacturers of transaction products and bar code products,
including in some cases the captive suppliers of some of its OEM customers. Many
of the Company's competitors have significantly greater financial and other
resources than the Company and may have greater access to distribution channels.
The Company's principal competitor is Epson America along with affiliated Epson
entities, including Seiko Epson.
The Company's future prospects will be highly dependent upon the successful
development and introduction of new products that are responsive to market
needs. There can be no assurance that the Company will be successful in
developing or marketing such products. To remain competitive, the Company
believes that it will be required to maintain a high level of technological
expertise and deliver reliable, cost-effective products on a timely basis. There
can be no assurance that the Company will have sufficient resources to continue
to make the investments necessary to maintain its competitive position. A
failure to remain competitive would have a material adverse effect on the
Company's business, financial condition and results of operations.
MATERIALS
The Company's materials purchases are primarily comprised of custom-designed
component parts used in the assembly of the Company's products, most of which
use tooling designed and owned by the Company. The Company's principal
custom-designed component parts include printed circuit boards, plastic
injection molded parts, power supplies, metal stampings and motors, among other
items. The Company purchases its component parts from a variety of suppliers,
and believes alternate sources of supply are readily available.
MANUFACTURING
The Company manufactures its thermal printheads in Puiseaux, France and its
impact printheads and magnetic heads in Tijuana, Mexico. Transaction printers
and mechanisms are manufactured in Puiseaux; Ithaca, New York; Riverton,
Wyoming; and Manchester, England. Bar code printers are manufactured in Paso
Robles, California; and bar code printing labels and supplies in are produced in
Denver, Colorado. Magnetic stripe and computer chip card readers are
manufactured in Carson, California.
The Company manufactures its products to exacting quality standards.
Accordingly, the Company maintains an extensive quality assurance program,
including precision computerized final testing of all printheads and extensive
burn-in testing for transaction printers and mechanisms and its bar code
products.
The Company's San Diego, Tijuana, Ithaca and Riverton facilities are
certified ISO 9001, and the Manchester and Puiseaux facilities are certified ISO
9002.
The Company began manufacturing impact printheads in Mexico in 1986 to
benefit from a more cost-effective location. Currently, the Company manufactures
all of its impact printheads in Mexico. The Company is in the process of moving
its magnetic stripe and computer chip card reader manufacturing
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operations from Carson to Tijuana to benefit from lower labor and occupancy
costs. The Company has taken a $1.2 million one-time charge for severance,
relocation and other integration costs associated with the move of its card
reader manufacturing operations.
The Company has made a significant historical capital investment in its
clean room operations in Puiseaux, France for the manufacture of thermal
printheads. This facility is the world's only integrated thermal printhead
manufacturing facility owned and operated by a transaction printer manufacturer.
FACILITIES
The following table sets forth the Company's existing manufacturing and
other facilities:
<TABLE>
<CAPTION>
LEASE
LOCATION PURPOSE EXPIRATION DATE SQUARE FEET
- ----------------------------------------- ----------------------------------------- --------------- -----------
<S> <C> <C> <C>
San Diego, California.................... Executive offices, marketing, engineering 2000/2001 22,500
Sevres, France........................... Executive offices 2006 3,500
Montrouge, France........................ Marketing and research and development 2006 25,000
Riverton, Wyoming........................ Manufacturing, marketing, research and 2002 40,000
development
Paso Robles, California.................. Manufacturing, marketing, research and 1998 45,000
development
Carson, California....................... Manufacturing, research and development 1998 30,000
Denver, Colorado......................... Manufacturing, marketing, research and 2004 25,000
development
Tijuana, Mexico.......................... Manufacturing --(1) 27,000
10,500
Ithaca, New York......................... Manufacturing, marketing, research and Owned 270,000
development, administration
Puiseaux, France......................... Manufacturing 2010 75,000
Manchester, England...................... Manufacturing Owned 12,000
Sydney, Australia........................ Marketing, technical support 2003 7,180
</TABLE>
- ------------------------
(1) The Company leases its Tijuana facilities on a month-to-month basis.
The Company does not own any facilities other than the Manchester and Ithaca
facilities. The term of the Montrouge facility lease expires in June 2006;
however, under French law, the Company has the option to terminate the lease in
June of 2000 or 2003, without penalty. The Puiseaux facility is occupied under a
capitalized lease that commenced in 1995 and terminates in 2010. Pursuant to the
terms of the Puiseaux lease, the Company is committed to make payments through
the end of the term, but will be able to purchase the facility at the end of the
term for the sum of one French franc.
The Company believes that its existing facilities are generally suitable and
adequate for its businesses and has generally been able to renew its
manufacturing and office facilities leases as they expire at then-current market
rates. The Company believes that renewal of existing leases at market rates will
not have a material adverse effect on operating expenses or cash flow.
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ENVIRONMENTAL MATTERS
Federal, state, local and foreign regulations impose various controls on the
storage, handling, discharge and disposal of substances used in the Company's
manufacturing processes and on the Company's facilities. The Company believes
that its activities conform to present governmental regulations applicable to
its operations and its current facilities, including those related to
environmental, land use, public utility utilization and fire code matters. There
can be no assurance that such governmental regulations will not in the future
impose the need for additional capital equipment or other process requirements
upon the Company or restrict the Company's ability to expand its operations. The
adoption of such measures or any failure by the Company to comply with
applicable environmental and land use regulations or to restrict the discharge
of hazardous substances could have a material adverse effect on the Company's
business, financial condition and results of operations.
LEGAL PROCEEDINGS
In August 1992, DH filed a complaint in the Northern District of California
alleging infringement of DH's U.S. Patent No. 5,115,493 by Synergystex and
seeking injunctive relief and unspecified damages. Synergystex subsequently
asserted a counterclaim against DH alleging that U.S. Patent No. 5,115,493 is
invalid, unenforceable and not infringed. In August 1996, the District Court
granted a Motion for Summary Judgment, finding on its own motion that DH's
patent was invalid for improper payment of a small entity fee and entered a
judgment dismissing DH's complaint. In November 1996, DH appealed the District
Court's judgment to the Federal Circuit Court of Appeals. After DH filed its
opening brief on appeal, the Federal Circuit Court of Appeals stayed the appeal
pending a collateral ruling from the district court. That ruling was recently
issued, and the Federal Circuit has reactivated the appeal. There can be no
assurance that the Company will prevail in this litigation or that it will not
incur significant legal fees and expenses to further pursue this litigation.
On June 17, 1997, Axiohm S.A. filed a complaint in the Central District of
California alleging infringement of Axiohm S.A.'s U.S. Patent No. 5,579,043 by
Seiko Epson and Epson America. On December 22, 1997, Seiko Epson and Epson
America filed an answer to Axiohm S.A.'s complaint as well as counterclaims
against both Axiohm S.A. and Axiohm IPB. In their response, Seiko Epson and
Epson America deny the validity of Axiohm S.A.'s Patent No. 5,579,043 and
infringement thereof, and seek declaratory relief to that effect. Seiko Epson
and Epson America further allege that Axiohm S.A. and Axiohm IPB have infringed
and are infringing Seiko Epson's U.S. Patent Nos. 5,437,004, 5,594,653 and
5,555,349, and seek injunctive relief, treble damages and attorneys' fees.
Although the Company believes its claims are meritorious, such litigation could
be costly and time-consuming. In the event of an adverse result in such
litigation, the Company could be required to pay substantial damages; indemnify
its customers; cease the manufacture, use and sale of any infringing products;
expend significant resources to develop non-infringing technology; discontinue
the use of certain technology or obtain licenses to any infringing technology;
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will ultimately prevail in any litigation with Seiko Epson or Epson
America.
From time to time the Company is involved in legal proceedings arising in
the ordinary course of its business. The Company does not believe that the
outcome of any such legal proceedings will have a material adverse effect on its
business, financial condition or results of operations.
EMPLOYEES
As of September 30, 1997, the Company had 1,683 full-time employees.
Approximately 126 of these employees were involved in sales and marketing, 164
in research and development, 1,108 in manufacturing and 285 in administration.
Other than the 213 hourly production and manufacturing employees (as of
September 30, 1997) at the Ithaca, New York manufacturing facility, no United
States employees of the
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<PAGE>
Company are represented by a labor union. The Company's Ithaca employees are
members of the International Association of Machinists and Aerospace Workers.
There is a collective bargaining agreement in place with this union until July
1999. To date, the Company has not experienced any work stoppages or significant
employee-related problems at its Ithaca, New York manufacturing facility. The
Company considers its relationship with the union and its other employees to be
satisfactory.
57
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company, and their respective
ages, are as set forth in the table below.
<TABLE>
<CAPTION>
NAME AGE TITLE
- -------------------------------------------------- --- --------------------------------------------------------
<S> <C> <C>
Patrick Dupuy..................................... 45 Co-Chairman of the Board of Directors and Co-Chief
Executive Officer
Gilles Gibier..................................... 43 Co-Chairman of the Board of Directors and Co-Chief
Executive Officer
Walter S. Sobon................................... 48 Chief Financial Officer
Malcolm Unsworth.................................. 48 Vice President of Operations
Bernard Patry..................................... 45 Vice President of Sales and Marketing of Transaction
Products
William J. Bowers................................. 69 Director
Nicolas Dourassof................................. 42 Director
William H. Gibbs.................................. 54 Director
Bruce G. Klaas.................................... 64 Director
Don M. Lyle....................................... 58 Director
</TABLE>
MR. DUPUY has served as a director and Co-Chairman of the Company since
October 1997 and as Co-Chief Executive Officer of the Company since January
1998. Mr. Dupuy has been Chairman of Axiohm S.A. since its purchase from
Schlumberger by Axiohm S.A. management in 1988. Mr. Dupuy joined Schlumberger in
1984 as Marketing and Sales Manager for several Schlumberger divisions,
including printer products and low voltage equipment. Prior to joining
Schlumberger, Mr. Dupuy was employed as head of export sales for IER S.A., a
world leader in airline ticket printers.
MR. GIBIER has served as a director and Co-Chairman of the Company since
October 1997 and as Co-Chief Executive Officer of the Company since January
1998. Mr. Gibier has been a director of Axiohm S.A. since its purchase from
Schlumberger by Axiohm S.A. management in 1988. Mr. Gibier joined Schlumberger
in 1983. Mr. Gibier held various positions at Schlumberger, including Divisional
General Manager in France, where he was responsible for divesting certain
non-strategic operations, Manager of Internal Business Audit in the U.S., and
Plant Manager of an energy meter plant in the United Kingdom.
MR. SOBON has served as the Chief Financial Officer of the Company since
March 1997. From November 1995 to March 1997 Mr. Sobon was an independent
management consultant. From October 1989 to November 1995, Mr. Sobon served as
the Senior Vice President, Chief Financial Officer and Corporate Secretary of
VWR Scientific Products Corporation, a laboratory products company. Mr. Sobon is
a certified public accountant.
MR. UNSWORTH has served as Vice President of Operations for the Company
since September 1997. He has been the Vice President and General Manager of
Axiohm IPB since April 1995. Prior to joining Axiohm IPB, Mr. Unsworth worked
for Schlumberger for 17 years in various North American General Manager
positions including the Retail Petroleum Systems Division, the Transducer
Division, the Electricity Measurement Division and the Defense Systems Group. In
two of these positions, Mr. Unsworth was the immediate General Manager following
the acquisition of the businesses by Schlumberger and led the consolidation and
rationalization activity of numerous businesses within each group.
MR. PATRY has served as Vice President of Sales and Marketing of Transaction
Products for the Company since September 1997. He was the Vice President of
Sales for Axiohm S.A., from February 1997 to September 1997. From 1991 to 1995,
Mr. Patry was the Chief Executive Officer of Axiohm S.A. and from 1995 to 1997,
he was Vice President of Marketing and Business Development of Axiohm S.A.
58
<PAGE>
MR. BOWERS has served as a director of the Company since 1990. Mr. Bowers
was Chief Executive Officer and Chairman of MSI Data Corporation, a data
collection company, for more than five years prior to 1989. He retired from that
position in 1989 and is now a private investor. Mr. Bowers is also a director of
Quality Systems, Inc.
MR. DOURASSOF has served as a director of the Company since October 1997,
and as a director of Axiohm S.A. since 1996. Mr. Dourassof is currently a
Managing Director of ABN AMRO Investissement, the investment subsidiary of ABN
AMRO (a Dutch bank), a position he has held since 1995. Prior to joining ABN
AMRO Investissement, Mr. Dourassof had served since 1994 as the Director of the
Acquisition Financing Department of Banque De Neuflize, Schlumberger Mallet, a
subsidiary of ABN AMRO. From 1991 to 1994, Mr. Dourassof was director of the
Eurogem Project for the French Navy.
MR. GIBBS has served as a director of the Company since 1987. From November
1985 to January 1998 Mr. Gibbs served as President and Chief Executive Officer
of the Company, and from March 1987 through October 1997 as Chairman of the
Board of Directors of the Company. From August 1983 until November 1985, Mr.
Gibbs served as President and Chief Operating Officer of Information Magnetics
Corporation. From 1977 to 1983, Mr. Gibbs served as Divisional Vice President
and General Manager of Datapoint Corporation. From 1967 to 1977, Mr. Gibbs held
numerous management positions with General Electric.
MR. KLAAS has been a director of the Company since 1983, and is a private
investor and a patent lawyer. He has been of counsel to the law firm of Klaas,
Law, O'Meara and Malkin, P.C., Denver, Colorado, one of the Company's patent
counsels, since December 1990, when he retired from the active practice of law.
MR. LYLE has been a director of the Company since 1992. Since 1983, Mr. Lyle
has been an independent consultant to a number of technology-based companies in
the United States, Europe and Japan. From 1984 through 1987, Mr. Lyle was
President and Chief Executive Officer of Data Electronics, Inc. Mr. Lyle is also
a director of Emulex Network Systems, Insync Systems, Inc. and The National
Registry, Inc.
All non-employee directors receive a $6,000 annual retainer plus $1,250 for
each Board of Directors meeting attended and for each committee meeting which
did not occur on a regularly scheduled date. Each director has been elected to
serve until his successor has been elected and qualified at the next annual
meeting of the shareholders of the Company.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION TABLES
The following table shows the total compensation of (i) the Chief Executive
Officer serving as of the end of 1996 and (ii) all other executive officers of
DH who earned over $100,000 in salary and bonus in 1996 (together the "DH Named
Executive Officers"), as well as the total compensation paid to each such
individual for the Company's two previous fiscal years:
59
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------ PAYOUTS
--------------------------------------------------- RESTRICTED SECURITIES ---------
OTHER ANNUAL STOCK UNDERLYING LTIP
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS
POSITION YEAR ($) ($) ($) ($) (#) ($)
- ------------------------------------- --------- ----------- ----------- -------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
William H. Gibbs (2)................. 1996 $ 285,000 $ 44,599 -- -- -- --
Chief Executive Officer 1995 274,998 155,000 -- -- 150,000 --
1994 257,986 138,000 -- -- 150,000 --
David T. Ledwell (2)................. 1996 $ 132,981 $ 35,000 -- -- -- 22,500 --
Vice President, Identification and 1995 121,831 42,500 -- -- 7,500 --
Component Products 1994 115,283 31,000 -- -- --
Janet W. Shanks...................... 1996 $ 85,488 $ 20,000 -- -- -- --
Corporate Controller 1995 67,575 20,500 -- -- 15,000 --
1994 69,087 11,000 -- -- 7,500 --
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION
POSITION ($) (1)
- ------------------------------------- --------------
<S> <C>
William H. Gibbs (2)................. 1$,784 1,510
Chief Executive Officer 1,357
David T. Ledwell (2)................. $ 959
Vice President, Identification and 820
Component Products 982
Janet W. Shanks...................... $ 568
Corporate Controller 474
576
</TABLE>
- ------------------------
(1) Represents payments of insurance premiums on behalf of the DH Named
Executive Officers.
(2) The employment of both Mr. Gibbs and Mr. Ledwell with the Company terminated
in January 1998.
The foregoing table does not reflect the compensation paid to the executive
officers of Axiohm S.A. during the past two fiscal years. During this period,
only one executive officer of Axiohm S.A. earned more than $150,000 per year.
The following table sets forth certain information for the DH Named
Executive Officers with respect to exercises in 1996 of options to purchase
Common Stock of DH. The information in the table does not reflect the cash-out
of all vested options by the Company upon the closing of the Tender Offer. See
"Certain Transactions--Transactions in Connection with the Tender Offer, the
Merger and the Exchange--Treatment of DH Stock Options and Director Warrants."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF SECURITIES OPTIONS
UNDERLYING UNEXERCISED AT FISCAL
OPTIONS AT FISCAL YEAR END YEAR END (1)
SHARES VALUE (#) ($)
ACQUIRED ON REALIZED -------------------------- -------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ----------------------------------------- ----------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
William H. Gibbs (2)..................... -- -- 542,807 154,693 $ 8,278,844
David T. Ledwell (2)..................... -- -- 33,750 22,500 484,687
Janet W. Shanks.......................... -- -- 12,000 16,125 141,622
<CAPTION>
NAME UNEXERCISABLE
- ----------------------------------------- -------------
<S> <C>
William H. Gibbs (2)..................... $ 1,227,381
David T. Ledwell (2)..................... 168,436
Janet W. Shanks.......................... 126,308
</TABLE>
- ------------------------
(1) Market value of underlying securities at year-end minus the exercise price
multiplied by the number of shares.
(2) The employment of both Mr. Gibbs and Mr. Ledwell with the Company terminated
in January 1998.
The foregoing table does not reflect stock options exercised during 1996 or
the value of stock options held by the executive officers of Axiohm S.A. at
December 31, 1996. There were no stock options exercised by any executive
officers of Axiohm S.A. during 1996. At December 31, 1996, the only stock option
outstanding was an option to purchase 1,583 shares of Axiohm S.A. common stock
held by Mr. Unsworth. Upon the closing of the Exchange, this option was replaced
by an option to purchase 231,118 shares of the
60
<PAGE>
Company's Common Stock at an exercise price of $7.15 per share. See "Certain
Transactions--Transactions in Connection with the Tender Offer, the Merger and
the Exchange--Treatment of Axiohm S.A. Options." The Merger Agreement
contemplates that the Compensation Committee will grant stock options to
purchase up to an aggregate of 350,000 shares of the Company's Common Stock at
fair market value on the date of grant during the first six months following the
Merger. See "Certain Transactions-- Transactions in Connection with the Tender
Offer, the Merger and the Exchange--Grant of Additional Stock Options."
EMPLOYMENT AGREEMENTS
In connection with the Transactions, the Company entered into employment
agreements with Messrs. Dupuy, Gibier and Sobon and Ms. Shanks.
The Co-Chairman Employment Agreement dated effective as of October 2, 1997
between the Company and Mr. Dupuy (the "Dupuy Agreement") provides that the
Company will employ Mr. Dupuy, and Mr. Dupuy agrees, to serve as Co-Chairman of
the Company and to oversee the Company's investment in Axiohm S.A.R.L., Axiohm
Investissements and Dardel Technologies. Mr. Dupuy's compensation therefor is to
be $80,000 per year (along with French social security taxes with respect
thereto). The Dupuy Agreement may be terminated by either party on one year's
notice.
The Co-Chairman Employment Agreement dated effective as of October 2, 1997
between the Company and Mr. Gibier (the "Gibier Agreement") provides that the
Company will employ Mr. Gibier, and Mr. Gibier agrees, to serve as Co-Chairman
of the Company and to oversee the Company's investment in Axiohm S.A.R.L.,
Axiohm Investissements and Dardel Technologies. Mr. Gibier's compensation
therefor is to be $80,000 per year (along with French social security taxes with
respect thereto). The Gibier Agreement may be terminated by either party on one
year's notice.
The Employment Agreement with Mr. Sobon (the "Sobon Agreement") provides for
Mr. Sobon to be employed as the Company's Chief Financial Officer at a base
salary of no less than $160,000. Mr. Sobon is also eligible to receive a minimum
target bonus of $50,000, to be awarded based on the Company's financial
performance and is entitled to a car allowance and to participate in other
employee benefit plans and programs available to the Company's other employees.
The Sobon Agreement also contemplates that he will be granted an option to
purchase a number of shares of the Company's Common Stock as determined by the
Compensation Committee of the Board of Directors at an exercise price which
shall be equal to the then fair market value of the Company's Common Stock. The
option shall vest as to 50% of the shares 24 months following the grant date and
as to an additional 25% of the shares each year thereafter. In the event Mr.
Sobon's employment with the Company terminates in an Involuntary Termination (as
defined in the Sobon Agreement), Mr. Sobon shall receive a lump sum severance
payment equal to 12-months' compensation, except that (i) in the event that
William H. Gibbs' (the Company's former President and Chief Executive Officer,
who resigned from such positions effective January 10, 1998) employment is
terminated in the first 12 months following August 21, 1997 (the closing date of
the Tender Offer) and Mr. Sobon is terminated in the same 12-month period, Mr.
Sobon shall receive a lump sum severance payment equal to 18-months'
compensation and (ii) in the event that Mr. Gibbs' employment is terminated in
the second 12 months following August 21, 1997 (the closing date of the Tender
Offer) and Mr. Sobon is terminated in the same 12-month period, Mr. Sobon shall
receive a lump sum severance payment equal to 15-months' compensation. In
addition, in the event Mr. Sobon's employment is terminated as a result of an
Involuntary Termination, disability or death, the vesting and exercisability of
all outstanding stock options that were granted to Mr. Sobon prior to August 21,
1997 (the closing date of the Tender Offer) shall accelerate in full. The Sobon
Agreement supersedes the employment arrangement between the Company and Mr.
Sobon as set forth in a letter from the Company to Mr. Sobon dated September 20,
1996 and amended September 30, 1996.
The Employment Agreement with Ms. Shanks (the "Shanks Agreement") provides
for Ms. Shanks to be employed at a base salary of no less than $90,000. Ms.
Shanks will also be eligible to receive a minimum target bonus equal to $20,000,
to be awarded based on the Company's financial performance, and will be
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<PAGE>
entitled to participate in other employee benefit plans and programs available
to the Company's other employees. The Shanks Agreement also provides that, in
the event that Ms. Shanks' employment with the Company terminates in an
Involuntary Termination (as defined in the Shanks Agreement), Ms. Shanks shall
receive a lump sum severance payment equal to one year's compensation if
terminated in the first 24 months and 6-months' salary if terminated thereafter.
The Shanks Agreement provides that Ms. Shanks will be granted an option to
purchase a number of shares of the Company's Common Stock as determined by the
Compensation Committee of the Board of Directors at an exercise price equal to
the then fair market value of the Company's Comon Stock. The option shall vest
as to 50% of the shares 24 months following the grant date and as to an
additional 25% of the shares each year thereafter. In addition, the Shanks
Agreement provides that, in the event Ms. Shanks' employment is terminated as a
result of an Involuntary Termination, disability or death, the vesting and
exercisability of all outstanding stock options that Ms. Shanks received prior
to August 21, 1997 (the closing date of the Tender Offer) shall accelerate in
full.
ADDITIONAL AGREEMENTS, ARRANGEMENTS AND UNDERSTANDINGS
The Company's Restated Articles of Incorporation contain provisions that
eliminate the personal liability of its directors for monetary damages arising
from a breach of their fiduciary duties in certain circumstances to the fullest
extent permitted by law and authorize the Company to indemnify its directors and
officers to the fullest extent permitted by law. Such limitation of liability
does not affect the availability of equitable remedies such as injunctive relief
or rescission.
The Company's By-laws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by California law, including
circumstances in which indemnification is otherwise discretionary under
California law. The Company has entered into indemnification agreements with its
officers and directors containing provisions which are in some respects broader
than the specific indemnification provisions contained in the California
Corporations Code, including advancement of expenses to the indemnitee, the
indemnitee's right to select counsel and continuation of indemnification after
indemnitee's separation from the Company. The indemnification agreements may
require the Company, among other things, to indemnify such officers and
directors against certain liabilities arising from willful misconduct of a
culpable nature and advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
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<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS IN CONNECTION WITH THE TENDER OFFER, THE MERGER AND THE EXCHANGE
TREATMENT OF DH STOCK OPTIONS AND DIRECTOR WARRANTS
Pursuant to the Merger Agreement, upon payment of the purchase price of $25
per share (the "Offer Price") for the 7,000,000 shares of DH Common Stock (the
"Tendered Shares") acquired by Purchaser pursuant to the Tender Offer on August
21, 1997 (the "Tender Offer Closing Date"), all Vested DH Options (as
hereinafter defined), other than DH Options held by Mr. Gibbs, Mr. Sobon and Mr.
Ledwell (the "Designated Optionees"), were canceled and each holder thereof was
paid an amount in cash by DH equal to the product of (i) the number of shares of
DH Common Stock subject to Vested DH Options held by such holder and (ii) the
Offer Price minus the exercise price applicable to such Vested DH Options (the
"Option Spread"), less applicable taxes. The Designated Optionees had the option
to elect, before the Tender Offer Closing Date, to be covered under the
preceding sentence as to all or any portion of their Vested DH Options or to
receive the Option Spread on a deferred basis over a period not to exceed seven
years following the time of closing of the Merger (the "Merger Effective Time"),
subject to earlier distribution upon termination of such individual's employment
for any reason. Pursuant to the Merger Agreement, DH also agreed to pay a tax
subsidy payment on the Option Spread consisting of (i) a payment to reflect the
federal and state tax rate differential between long-term capital gains and
ordinary income and (ii) a payment to reimburse each optionee for taxes due as a
result of the rate differential payment, provided that such tax subsidy payment
is limited so as to avoid triggering the golden parachute excise tax under
Sections 280G and 4999 of the Internal Revenue Code. For purposes of the
foregoing, "Vested DH Options" means: (i) all stock options to purchase shares
of Common Stock of DH ("DH Options") that were exercisable as of the Tender
Offer Closing Date or that would have become exercisable through September 6,
1997; (ii) one-half of all DH Options granted to Mr. Sobon as of the date of the
Merger Agreement; and (iii) all warrants outstanding under DH's Director Warrant
Plan (the "Director Warrants").
Pursuant to the foregoing arrangements, on the Tender Offer Closing Date, DH
purchased Vested DH Options exercisable for 877,000 shares of DH Common Stock
for an aggregate purchase price of $12.2 million. Of this total, DH acquired
624,578 Vested DH Options from Mr. Gibbs for a total purchase price of
$9,667,241; 40,000 Vested DH Options from Mr. Sobon for a total purchase price
of $380,000; and 43,125 Vested DH Options from Mr. Ledwell for a total purchase
price of $612,189. In addition, on the Tender Offer Closing Date, DH purchased a
total of 56,250 Director Warrants for an aggregate purchase price of $1,016,626.
Of this total, DH acquired 14,250 Director Warrants from Mr. Bowers for a total
purchase price of $88,406; 15,750 Director Warrants from Mr. Klaas for a total
purchase price of $105,656; 5,250 Director Warrants from Mr. Lyle for a total
purchase price of $8,531; and 21,000 Director Warrants from Mr. Ryan for a total
purchase price of $187,031.
Pursuant to the Merger Agreement, all DH Options other than Vested DH
Options ("Unvested DH Options") remained outstanding and subject to the terms
and conditions of the applicable DH option plan and option agreement, but were
modified to provide for full vesting acceleration in the event the employee's
employment is terminated (i) by DH other than for cause, or (ii) as the result
of the employee's death or disability. Unvested DH Options held by Mr. Gibbs,
Mr. Sobon and Mr. Ledwell were also modified to provide for acceleration upon a
constructive termination of employment. See "Management-- Employment
Agreements." In the event DH engages in a transaction prior to April 1, 2001, as
a result of which DH's Common Stock is no longer registered under the Exchange
Act, each holder of Unvested DH Options shall be entitled to receive from DH a
cash payment equal to the product of (i) the number of shares subject to
Unvested DH Options held by such holder and (ii) the Offer Price minus the
exercise price applicable to such Unvested DH Options, less applicable taxes.
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<PAGE>
EXCHANGE OFFER WITH AXIOHM S.A. SHAREHOLDERS
Pursuant to the Merger Agreement, AX entered into stock purchase agreements
with each of the shareholders of Axiohm S.A. (the "Axiohm S.A. Holders")
pursuant to which AX acquired on October 2, 1997 all of the outstanding shares
of capital stock of Axiohm S.A. for an aggregate purchase price of (i) 5,518,524
shares (the "Exchange Shares") of DH Common Stock (out of the total of 7,000,000
shares of DH Common Stock acquired by AX in the Tender Offer) and (ii) $12.2
million in cash. Upon the closing of the Exchange, the following directors and
executive officers of Axiohm S.A. received Exchange Shares and cash in the
following amounts: Mr. Dupuy, 1,753,144 shares and $3,875,075 in cash (includes
1,632,284 shares and $3,607,925 in cash received by BV Instrumentenfabriek HM
Smitt, an entity wholly owned by Mr. Dupuy, and 120,726 shares and $266,850 in
cash received by Marie Dupuy, Mr. Dupuy's wife); Mr. Gibier, 1,740,133 shares
and $3,846,300 in cash (includes 1,639,528 shares and $3,623,925 in cash
received by Van der Hoorn & Wouda BV, an entity wholly owned by Mr. Gibier); Mr.
Unsworth, 134 shares and $300 in cash (does not include an option to purchase
231,118 shares of the Company's Common Stock which Mr. Unsworth received in
exchange for an option to purchase shares of Axiohm S.A.); Mr. Patry, 317,509
shares and $701,825 in cash (includes 115,092 shares and $254,400 in cash
received by Marie-Pierre Patry, Mr. Patry's wife); and Mr. Jentoft, 198,259
shares and $438,225 in cash. The Merger Agreement provides that, as soon as
practicable following the closing of the Exchange, the Company (i) shall file a
registration statement on Form S-3 with the Commission covering the resale of
the Exchange Shares by the Axiohm S.A. Holders; (ii) shall cause such
registration statement to be declared effective by the Commission as soon as
possible thereafter; and (iii) shall keep such registration statement effective
for a period of not less than two years. The closing of the Exchange occurred
simultaneously with the closing of the Existing Notes Offering.
TREATMENT OF AXIOHM S.A. STOCK OPTIONS
Pursuant to the Merger Agreement, upon the closing of the Exchange, the
Company caused the stock options to purchase 1,583 shares of the Common Stock of
Axiohm S.A. held by Mr. Unsworth to be replaced with an option to purchase
231,118 shares of the Company's Common Stock at an exercise price of $7.15 per
share (the "Replacement Option"). The Replacement Option granted to Mr. Unsworth
contains such general provisions as are typically contained in DH Options and
becomes exercisable as follows: 20% upon the closing date of the Exchange, and
20% on each of January 1, 1998, 1999, 2000 and 2001. The Company is obligated to
register the shares of the Company's Common Stock issuable upon the exercise of
the Replacement Option under the Securities Act.
GRANT OF ADDITIONAL STOCK OPTIONS
The Merger Agreement contemplates that on a date within the first six months
following consummation of the Merger, the Compensation Committee of the Board of
Directors of the Company will grant stock options (the "New Options") to
management and employees to purchase up to an aggregate of 350,000 shares of the
Company's Common Stock at an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant. The New Options shall have a
term of eight years and shall vest cumulatively as to 50% of the shares subject
to the options on the second anniversary of the date of grant, 25% on the third
anniversary and 25% on the fourth anniversary.
OTHER TRANSACTIONS
Dardel Technologies E.U.R.L. (formerly Dardel Technologies, S.A.) ("Dardel
Technologies") is a French corporation, formerly wholly-owned by Mr. Dupuy and
Mr. Gibier and now wholly owned by the Company as a result of the Transactions,
that historically provided insurance services, legal services, management
services (including the services of Mr. Dupuy and Mr. Gibier) and
telecommunications services to its only two former subsidiaries, Axiohm S.A. and
Dardel Measurement and Control International S.A. ("DMCI"). In 1995 and 1996,
Axiohm S.A. paid fees to Dardel Technologies in the amount of
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<PAGE>
$995,000 and $991,000, respectively, for services rendered to Axiohm S.A. In
anticipation of the Exchange, Dardel Technologies sold DMCI to Dardel
Industries, a company owned by Mr. Dupuy and Mr. Gibier, and Dardel Technologies
transferred all of its employees, assets and contracts to either Axiohm S.A. or
Dardel Industries, depending on which company had historically received the
benefit of such employees, assets or contracts. As a result, immediately
following the Exchange, the sole assets of Dardel Technologies consisted of 48%
of the voting stock of Axiohm S.A. and cash to pay taxes.
Prior to the Exchange, Dardel Technologies owned 48% of Axiohm S.A. and had
no ownership interest in Dardel Industries.
Mr. Dupuy and Mr. Gibier each owned 49.9% of Dardel Technologies before and
after the transfer of employees, assets and contracts, including Dardel
Technologies' 85.33% ownership interest in Dardel Measurement and Control
International, from Dardel Technologies to Dardel Industries.
In the Exchange, AX Acquisition Corporation transferred shares of DH (which
it had acquired in the Tender Offer) and cash to the shareholders of Axiohm
S.A., and the shareholders of Axiohm S.A. transferred their shares of Axiohm
S.A. to AX Acquisition Corporation. The only exception was with respect to
Dardel Technologies, which owned 48% of Axiohm S.A. Dardel Technologies did not
transfer its shares of Axiohm S.A. but rather retained them. Instead, ownership
of Dardel Technologies was transferred to AX Acquisition Corporation. Thus AX
Acquisition Corporation obtained 100% ownership of Axiohm S.A., 48% of that
interest being held indirectly through the still extant Dardel Technologies.
Pursuant to the Exchange, Dardel Technologies became wholly-owned by the
Company and the only transactions between the Company and Dardel Industries
(wholly-owned by Mr. Dupuy and Mr. Gibier) that are expected to continue will be
as follows: (i) Axiohm S.A. will continue to sublease a portion of its 3,500
square feet of office space in Sevres to Dardel Industries on substantially the
same terms and conditions that Axiohm S.A. pays to the independent third party
landlord, pro rated based on the amount of space used by Dardel Industries; (ii)
Dardel Industries will continue to render legal services to Axiohm S.A. at
hourly rates that are equal to or less than those of outside counsel; and (iii)
certain employees of the Company, namely Mr. Dupuy, Mr. Gibier and Mr. Andy
Shih, will continue to serve as consultants to Dardel Industries. Mr. Dupuy and
Mr. Gibier are paid salaries of $80,000 per annum by the Company and will
continue to render management and other services to Dardel Industries. Mr. Shih,
a shareholder of Axiohm S.A. and the sole employee of Axiohm Taiwan (a
subsidiary of Axiohm S.A.), negotiates product sales and manufacturing
arrangements for Axiohm Taiwan and Dardel Industries in Taiwan, Hong Kong and
the People's Republic of China. In 1995 and 1996, Axiohm Taiwan incurred
operating expenses (consisting of office space, traveling expenses and similar
costs) of approximately $120,000 per year and paid Mr. Shih a salary of
approximately $75,000 per year. Pursuant to an arrangement between Axiohm S.A.
and Dardel Industries, Axiohm S.A. has historically billed Dardel Industries an
amount equal to half of the costs of operating Axiohm Taiwan and half of Mr.
Shih's salary. Mr. Shih will continue to serve as an employee of the Company and
the Company will continue to bill Dardel Industries for half of the overhead of
Axiohm Taiwan and half of Mr. Shih's salary. The Company does not believe that
the continuing arrangements between Mr. Dupuy, Mr. Gibier, Mr. Shih, Axiohm
Taiwan and Dardel Industries will have an adverse effect on the ability of Mr.
Dupuy, Mr. Gibier or Mr. Shih to serve in their respective capacities with the
Company.
Axiohm S.A. believes that the terms of the transactions entered into between
Axiohm S.A. and Dardel Technologies or Axiohm S.A. and Dardel Industries prior
to the Exchange were on terms that were comparable to or better than could have
been obtained from unrelated third parties and that the terms of the
transactions that have been or are to be entered between Axiohm S.A. and Dardel
Industries after the Exchange are or will be on terms comparable to or better
than could be obtained from unrelated third parties. There are no contractual
agreements between Axiohm S.A. and Dardel Industries that require either party
to use the services of the other.
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SNC La Noire, which is owned by Mr. Dupuy, Mr. Gibier and Jean-Georges
Huglin, the Chief Financial Officer of Axiohm S.A., has historically provided
and is expected to continue to provide real estate and office management
services to Axiohm S.A. SNC La Noire owns the Montrouge facility and, prior to
July 1997, Dardel Technologies was the primary tenant. Pursuant to this
arrangement, Dardel Technologies subleased a portion of this space to Axiohm
S.A. and Dardel Industries. In July 1997, SNC La Noire terminated the existing
lease with Dardel Technologies and entered into separate leases with Axiohm S.A.
and Dardel Industries. Following renovations that are scheduled to be completed
in October 1997, Axiohm S.A. will lease approximately 26,000 square feet of
space from SNC La Noire at the Montrouge facility at a cost of approximately $15
per square foot. Based on independent appraisals, Axiohm S.A. believes that the
terms of the Montrouge lease is comparable to what Axiohm S.A. could have
obtained from unrelated third parties.
SNC La Noire also provides Axiohm S.A. with management services for the
space leased at the Montrouge facility. In 1995 and 1996, Axiohm S.A. paid SNC
La Noire $288,000 and $263,000, respectively, for such services. Axiohm S.A.
believes that the terms of these transactions between Axiohm S.A. and SNC La
Noire historically have been, and will continue to be, on terms that are
comparable to or better than could have been obtained from unrelated third
parties. The real estate management services agreements between Axiohm S.A. and
SNC La Noire are negotiated annually and can be terminated by either party upon
three months' written notice.
In 1996, Axiohm S.A. participated in cash pooling arrangement with Dardel
Technologies that allowed each company to borrow or loan cash as considered
necessary. At December 31, 1996, Axiohm S.A. had an outstanding loan to Dardel
Technologies amounting to $1.8 million and bearing interest at 6.42%. This loan
was repaid by Dardel Technologies in April 1997 and the cash pooling arrangement
has since been terminated.
On January 10, 1998, William H. Gibbs resigned his position as President and
Chief Executive Officer of the Company, while remaining a member of the
Company's Board of Directors. In connection with such resignation, Mr. Gibbs and
the Company entered into a Resignation Agreement (the "Gibbs Resignation
Agreement") and a Noncompetition and Mutual Release Agreement (the "Gibbs
Noncompetition Agreement"), both dated January 10, 1998. The Gibbs Resignation
Agreement generally provides that Mr. Gibbs will receive amounts due and owing
to him through the date of termination of his employment, including salary,
bonus and benefits, and that the Company will pay $1,524,873 in full
satisfaction of all currently accrued tax payment obligations to Mr. Gibbs under
the Option Cancellation Agreement dated August 10, 1997 (the "Gibbs Option
Cancellation Agreement") and the termination obligations, if any, pursuant to
the Employment Agreement between the Company and Mr. Gibbs dated July 14, 1997
(the "Gibbs Employment Agreement"). The Gibbs Resignation Agreement also
provides that all outstanding options held by Mr. Gibbs were canceled without
further consideration therefor, and that the Gibbs Resignation Agreement
constitutes full and final satisfaction of all rights of Mr. Gibbs under the
Gibbs Option Cancellation Agreement and the Gibbs Employment Agreement. The
Gibbs Noncompetition Agreement provides, among other things, that the Company
will pay Mr. Gibbs $1,350,000. In return, Mr. Gibbs has agreed for a period of
two years not to compete with the Company. The Gibbs Noncompetition Agreement
also contains a mutual release of all claims.
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OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information regarding ownership of
the Common Stock as of October 2, 1997 (except as otherwise specified) by: (i)
each person who is known by the Company to own beneficially more than five
percent of the Company's Common Stock; (ii) each of the Company's directors;
(iii) DH Named Executive Officers (as defined in "Executive Compensation Tables"
under "Management--Executive Compensation") who are executive officers of the
Company; and (iv) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below have sole investment and voting power
with respect to such shares, subject to community property laws.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) OWNERSHIP
- --------------------------------------------------------------------------------- ------------------ -------------
<S> <C> <C>
Patrick Dupuy (2)................................................................ 1,753,141(3) 26.9%
Gilles Gibier (2)................................................................ 1,740,133(4) 26.7
Jean-Georges Huglin (5).......................................................... 373,178 5.7
William J. Bowers................................................................ 500(6) *
Nicolas Dourassof................................................................ 16,768(7) *
William H. Gibbs................................................................. 25,571(8) *
Bruce G. Klaas................................................................... 690 *
Don M. Lyle...................................................................... 858 *
All executive officers and directors as a group (10 persons) (9)................. 3,901,528 59.9%
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days are deemed to be beneficially
owned by the person holding such option or warrant for computing the
percentage ownership of such person, but are not treated as outstanding for
computing the percentage of any other person.
(2) Mr. Dupuy's and Mr. Gibier's business address is Axiohm S.A.R.L., 20 rue
Troyon, 92310 Sevres, France.
(3) Includes: 30,317 shares held directly; 1,632,284 shares held in the name of
Ysatis BV; and 90,540 shares held by Mr. Dupuy's children.
(4) Includes 100,605 shares held directly and 1,639,528 shares held by Cargyl
BV.
(5) Mr. Huglin's business address is Axiohm S.A.R.L., 1 rue d'Arcueil, 92120
Montrouge, France.
(6) Held by the W.J. and J.G. Bowers Trust of 1975.
(7) Held by Sonafin SPRL, an entity wholly owned by Mr. Dourassof.
(8) Includes options to purchase 24,999 shares exercisable as of November 29,
1997. All outstanding options held by Mr. Gibbs were canceled on January 10,
1998 pursuant to the Gibbs Resignation Agreement. See "Certain
Transactions--Other Transactions."
(9) Includes shares noted in footnotes 3, 4, 6 and 7 above, and also includes
Bernard Patry (317,510 shares, including 114,958 shares held in the name of
Mrs. Marie-Pierre Patry, Mr. Patry's wife, 5,232 shares held by Mr. Patry's
children, and 82,362 shares held by BP Investissements S.A.), and Malcolm
Unsworth (46,357 shares, including options to purchase 46,223 shares
exercisable within 60 days of September 30, 1997).
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company
outstanding following the consummation of the Transactions. To the extent such
summary contains descriptions of the terms of such indebtedness, such
descriptions do not purport to be complete and are qualified in their entirety
by reference to the Credit Agreement described below or the other credit
documents entered into in connection with the New Credit Facility, which are
available upon request from the Company.
NEW CREDIT FACILITY
In connection with the Transactions, the Company entered into the credit
agreement (the "Credit Agreement") with a syndicate of financial institutions
(the "Lenders") for which Lehman Brothers Inc. acted as arranger and Lehman
Commercial Paper Inc. acted as syndication agent. The following is a summary of
the material terms and conditions of the New Credit Facility and is subject to
the detailed provisions of the Credit Agreement and the various related
documents entered into in connection therewith.
GENERAL. The New Credit Facility provides up to a maximum aggregate
principal amount of $85.0 million, consisting of a $50.0 million in aggregate
principal amount Term Loan Facility and a $35.0 million available principal
amount Revolving Credit Facility. The Revolving Credit Facility includes a $7.5
million letter of credit subfacility. The Term Loan Facility consists of Tranche
A term loans in an aggregate principal amount of $35.0 million (the "Tranche A
Loans") which have a maturity of five years and Tranche B term loans in an
aggregate principal amount of $15.0 million (the "Tranche B Loans") which have a
maturity of six years. A maximum of $10.0 million under the New Credit Facility
may be borrowed by Axiohm S.A.
INTEREST RATES; FEES. Interest will accrue on the Tranche A Loans at a
floating rate per annum initially equal to, at the Company's option, either: (i)
the base rate (the "Base Rate") plus 1.5%, or (ii) the eurodollar rate (the
"Eurodollar Rate") plus 2.5%. Interest will accrue on the Tranche B Loans at a
floating rate per annum initially equal to, at the Company's option, either: (i)
the Base Rate plus 2.0%; or (ii) the Eurodollar Rate plus 3.0%. Interest will be
computed on the outstanding daily balance of the Revolving Credit Facility at a
floating rate per annum initially equal to, at the Company's option, either: (i)
the Base Rate plus 1.5%; or (ii) the Eurodollar Rate plus 2.5%. The applicable
margin over the index used to determine the interest rates is adjustable from
time to time based upon the Company's ratio of debt to EBITDA. The Base Rate is
defined as, on any date, the greatest of: (i) the Federal Funds Rate, as
published from time to time by the Federal Reserve Bank of New York, plus 0.5%;
(ii) the secondary market rate for certificates of deposit adjusted for reserves
and assessments, plus 1.0%; and (iii) the prime commercial lending rate of
Citibank, N.A. The Eurodollar Rate is defined as the rate displayed for
eurodollar deposits for one, two, three or six months on page 3750 of the
Telerate Screen two days prior to the first day of the applicable interest
period, or, if such rate is not available, the rate at which such deposits are
offered to the administrative agent under the New Credit Facility in the
interbank eurodollar market.
The Company will be charged a fee of 0.375% per annum on the average daily
balance of the unused portion of the available Revolving Credit Facility,
payable quarterly in arrears. The Company will also pay a fronting fee of 0.25%
on the face amount of each letter of credit and a fee, calculated daily and
payable quarterly, in addition to any customary bank fees incurred, in an amount
determined by multiplying the applicable margin then in effect in respect of the
Eurodollar Rate for the Revolving Credit Facility (expressed as a percentage) by
the aggregate undrawn face amount of all letters of credit issued or guaranteed
from time to time under the Revolving Credit Facility.
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<PAGE>
REPAYMENT. The principal amounts of the Tranche A Loans and the Tranche B
Loans are repayable in quarterly installments during their respective terms in
the following approximate aggregate annual amounts:
<TABLE>
<CAPTION>
TRANCHE A LOANS
- -------------------------------------------------
<S> <C>
YEAR AMOUNT
- ---------------------------------- -------------
1................................. $ 2,700,000
2................................. 7,350,000
3................................. 7,350,000
4................................. 8,800,000
5................................. 8,800,000
TRANCHE B LOANS
- -------------------------------------------------
<CAPTION>
YEAR AMOUNT
- ---------------------------------- -------------
<S> <C>
1................................. $ 500,000
2................................. 500,000
3................................. 500,000
4................................. 500,000
5................................. 500,000
6................................. 12,500,000
</TABLE>
Revolving loans may be borrowed, repaid and reborrowed from time to time
until five years after the closing of the Credit Agreement, subject to certain
customary conditions on the date of any such borrowing.
SECURITY. The obligations under the New Credit Facility and the related
documents are secured by a first priority lien upon substantially all of the
real and personal property of the Company and its Subsidiaries and a pledge of
all of the capital stock of the Company's Subsidiaries (provided that no lien
was granted on the assets of Foreign Subsidiaries and no capital stock of
Foreign Subsidiaries was pledged to the extent that the granting of such lien or
the making of such pledge would result in materially adverse United States
federal income tax consequences to the Company or would violate applicable law).
GUARANTEES. The Obligations of the Company under the New Credit Facility
are guaranteed by the Company's Subsidiaries (provided that no guarantee by a
Foreign Subsidiary was made if such guarantee would result in materially adverse
United States federal income tax consequences to the Company or would violate
applicable law).
PREPAYMENTS. The Company is required to make prepayments, with customary
exceptions, on loans under the New Credit Facility in an amount equal to 100% of
the net proceeds of the incurrence of certain indebtedness, 75% of the net
proceeds of the sale of equity securities, 100% of the net proceeds received by
the Company and/or its Subsidiaries (other than certain net proceeds reinvested
in the business of the Company or its Subsidiaries) from the disposition of any
assets, including proceeds from the sale of stock of any of the Company's
Subsidiaries and 75% of excess cash flow if the ratio of total debt to EBITDA is
greater than or equal to 3.00 to 1.00 or 50% of excess cash flow if such ratio
is less than 3.00 to 1.00.
CONDITIONS AND COVENANTS. The obligations of the Lenders under the New
Credit Facility are subject to the satisfaction of certain conditions precedent
customary in similar credit facilities or otherwise appropriate under the
circumstances. The Company and each of its Subsidiaries will be subject to
certain negative covenants contained in the Credit Agreement, including without
limitation covenants that restrict, subject to specified exceptions: (i) the
incurrence of additional indebtedness and other obligations and the granting of
additional liens; (ii) mergers, acquisitions, investments and acquisitions and
dispositions of assets; (iii) the incurrence of capitalized lease obligations;
(iv) investments, loans and advances; (v) dividends, stock repurchases and
redemptions; (vi) prepayment or repurchase of other indebtedness and amendments
to certain agreements governing indebtedness, including the Indenture and the
Notes, (vii) engaging in transactions with affiliates and formation of
subsidiaries; (viii) capital expenditures; (ix) payment of management fees; (x)
the use of proceeds of loans; and (xi) changes of lines of business. The Credit
Agreement also contains customary affirmative covenants, including compliance
with ERISA and environmental and other laws, payment of taxes, maintenance of
corporate existence and rights, maintenance of insurance and interest rate
protection and financial reporting. In addition, the Credit
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<PAGE>
Agreement requires the Company to maintain compliance with certain specified
financial covenants including maximum capital expenditures, a maximum ratio of
debt to EBITDA, a minimum interest coverage ratio and a minimum fixed charge
coverage ratio. The maximum capital expenditures covenant specifies that the
Company shall not make or commit to make (by way of an acquisition of securities
or otherwise) any capital expenditure other than ordinary course amounts not to
exceed on a consolidated basis $3.0 million in 1997, $10.5 million in 1998,
$11.5 million in 1999, $12.5 million in 2000, $13.5 million in 2001, or $14.5
million in 2002 and subsequent years. The maximum ratio of debt to EBITDA
covenant specifies that the ratio of (i) consolidated total debt to (ii)
consolidated EBITDA, at the end of any period of four consecutive fiscal
quarters shall not exceed, initially, 5.5 to 1, declining at September 30, 1998
to 5.25 to 1, at December 31, 1998 to 4.75 to 1, at March 31, 1999 to 3.5 to 1,
at March 31, 2000 to 2.5 to 1, and at March 31, 2001 to 1.5 to 1. The minimum
interest coverage ratio covenant specifies that the ratio of (i) EBITDA to (ii)
consolidated interest expense (including that attributable to capital lease
obligations), shall not be less than, initially, 1.75 to 1, declining at March
31, 1998 to 1.5 to 1, then increasing at June 30, 1998 to 1.7 to 1, at September
30, 1998 to 1.9 to 1, at December 31, 1998 to 2.1 to 1, at March 31, 1999 to 3.1
to 1, at March 31, 2000 to 4.5 to 1, and at March 31, 2001 to 6.5 to 1. The
minimum fixed charge coverage ratio covenant specifies that the ratio of (i)
EBITDA (less the amount actually paid in cash during such period on account of
capital expenditures (excluding the principal amount of indebtedness incurred in
connection with such expenditures) or taxes) to (ii) consolidated fixed charges
(defined for any period as the sum without duplication of consolidated interest
expense, provisions for cash income taxes and scheduled payments on account of
principal of indebtedness (other than indebtedness under letter of credit
facilities, obligations to purchase or redeem capital stock other than common
stock, and the liquidation value of any preferred capital stock)), shall not be
less than, initially, 1 to 1, increasing at December 31, 1998 to 1.05 to 1, at
June 30, 1999 to 1.2 to 1, at March 31, 2000 to 1.5 to 1, and at March 31, 2001
to 1.7 to 1. Certain of these financial, negative and affirmative covenants are
more restrictive than those set forth in the Indenture.
EVENTS OF DEFAULT. The Credit Agreement includes events of default that are
typical for senior credit facilities and appropriate in the context of the
Transactions, including, without limitation, non-payment of principal, interest
or fees, violation of covenants, inaccuracy of representations and warranties in
any material respect, cross default to certain other indebtedness and
agreements, bankruptcy and insolvency events, material judgments and
liabilities, defaults or judgments under ERISA and change of control. The
occurrence of any of such events of default could result in acceleration of the
Company's obligations under the Credit Agreement and foreclosure on the
collateral securing such obligations, which could have material adverse results
to holders of the Notes.
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<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Existing Notes were issued and the New will be issued pursuant to an
Indenture (the "Indenture") among the Company, the Guarantors and The Bank of
New York, as trustee (the "Trustee"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes
are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
proposed form of Indenture and Registration Rights Agreement are available as
set forth below under "--Additional Information." The definitions of certain
terms used in the following summary are set forth below under "--Certain
Definitions." For purposes of this summary, the term "Company" refers only to
Axiohm Transaction Solutions, Inc. and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all current and future Senior Debt,
including borrowings under the Credit Agreement. Borrowings under the Credit
Agreement are secured by substantially all of the Company's assets, including a
pledge of 100% of the Capital Stock of the Company's existing and future
Subsidiaries (other than Foreign Subsidiaries which are not treated as
partnerships or branches of the Company or a Domestic Subsidiary for United
States federal income tax purposes, as to which only 65% of the Capital Stock
has been pledged), and are guaranteed by all existing and future Domestic
Subsidiaries and those Foreign Subsidiaries which are treated as partnerships or
branches of the Company or a Domestic Subsidiary for United States federal
income tax purposes (each, a "Foreign Guarantor"), which guarantees are secured
by all of such Domestic Subsidiaries' assets. The Existing Notes are and the New
Notes will be guaranteed on a senior subordinated basis by all of the Company's
existing and future Domestic Subsidiaries and Foreign Guarantors. See
"--Additional Subsidiary Guarantors." The Notes will rank PARI PASSU or senior
in right of payment with all other subordinated Indebtedness of the Company
issued in the future, if any. As of September 30, 1997, on a pro forma basis
giving effect to the Transactions, the Company and its Subsidiaries would have
had Senior Debt of approximately $46.2 million (exclusive of the revolving loan
commitment of $35.0 million under the Credit Agreement).
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $120.0 million
and will mature on October 1, 2007. Interest on the Notes will accrue at the
rate of 9 3/4% per annum and will be payable semi-annually in arrears on April 1
and October 1, commencing on April 1, 1998, to Holders of record on the
immediately preceding March 15 and September 15. Each New Note will bear
interest from the most recent date to which interest has been paid or duly
provided for on the Existing Note surrendered in exchange for such New Note or,
if no such interest has been paid or duly provided for on such Existing Note,
from October 2, 1997. Holders of the Existing Notes whose Existing Notes are
accepted for exchange will not receive accrued interest on such Existing Notes
for any period from and after the last Interest Payment Date to which interest
has been paid or duly provided for on such Existing Notes prior to the original
issue date of the New Notes or, if no such interest has been paid or duly
provided for, will not receive any accrued interest on such Existing Notes, and
will be deemed to have waived the right to receive any interest on such Existing
Notes accrued from and after such Interest Payment Date or, if no such interest
has been paid or duly provided for, from and after October 2, 1997. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months. Principal, premium, if any, interest and Liquidated Damages, if any, on
the Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the Holders of the
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<PAGE>
Notes at their respective addresses set forth in the register of Holders of
Notes; PROVIDED THAT all payments of principal, premium, if any, interest and
Liquidated Damages, if any, with respect to Notes the Holders of which have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's office
or agency in New York will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment, as set forth in the Indenture, to the prior
payment, in full, in cash, of all Senior Debt, whether outstanding on the date
of the Indenture or thereafter incurred, assumed or guaranteed.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities: (1) the holders of Senior Debt will be entitled to
receive payment in full in cash of all Obligations due in respect of such Senior
Debt (including interest after the commencement of any such proceeding at the
rate specified in the applicable Senior Debt, whether or not an allowable claim)
before the Holders of Notes will be entitled to receive any payment with respect
to the Notes (provided that Holders may receive Permitted Proceeds) and (2)
until all Obligations with respect to Senior Debt are paid in full, in cash, any
distribution to which the Holders of Notes would be entitled but for the
subordination provisions of the Indenture (other than Permitted Proceeds as
provided in clause (1) above) shall be made to the holders of Senior Debt.
The Company also may not make any payment or distribution to the Trustee or
any Holder of Notes or in respect of Obligations with respect to the Notes and
may not acquire from the Trustee or any Holder any securities for cash or
property (other than Permitted Proceeds) until all principal and other
Obligations with respect to the Senior Debt have been paid in full if (i) a
default in the payment of the principal of, premium, if any, or interest on
Designated Senior Debt occurs or any other default on Designated Senior Debt
occurs and the maturity of such Designated Senior Debt is accelerated in
accordance with its terms; or (ii) a default other than a payment default with
respect to Designated Senior Debt occurs and is continuing that then permits
holders of the Designated Senior Debt to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the
Representative of the holders of such Designated Senior Debt. Not more than one
Payment Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to such Designated Senior
Debt during such period; PROVIDED,that in no event may the total number of days
during which any payment blockage period or periods is in effect exceed 179 days
in the aggregate during any 360 consecutive day period. If the Trustee receives
any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be
effective for purposes of the subordination provisions of the Indenture unless
and until all scheduled payments of principal, premium, if any, and interest on
the Notes that have come due have been paid in full, in cash. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice. The Company will resume payments on and distributions
in respect of the Notes and may acquire them upon the earliest of: (a) the date
upon which the default is cured or waived by written notice to the Trustee and
the Company from the Person or Persons who gave such Payment Blockage Notice and
in the case of Designated Senior Debt that has been accelerated, such
acceleration has been rescinded, (b) in the case of a default referred to in
clause (ii) above, 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior Debt
has been accelerated and such acceleration has not been rescinded, and (c) the
payment in full of such Designated Senior Debt, if
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<PAGE>
the Indenture otherwise permits the payment, distribution or acquisition at the
time of such payment or acquisition.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. On a pro forma basis,
after giving effect to the Transactions, the Company and its Subsidiaries would
have had Senior Debt outstanding at September 30, 1997 of $46.2 million. The
Indenture will limit, subject to certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Company and its
Restricted Subsidiaries can incur. See "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Existing Notes are, and under
the New Notes will be, jointly and severally, fully and unconditionally
guaranteed (the "Subsidiary Guarantees") by: Axiohm; Axiohm Investissements;
Axiohm IPB, Inc.; Cognitive L.L.C.; Cognitive Solutions, Inc.; Dardel; and
Stadia Colorado Corp. If, at any time, a Foreign Guarantor ceases to be treated
as a partnership or branch of the Company or a Domestic Subsidiary for United
States federal income tax purposes and is no longer a guarantor of any
Indebtedness under the New Credit Facility, its status as a Guarantor will
terminate. The Subsidiary Guarantee of each Guarantor will be subordinated to
the prior payment in full of all Senior Debt of such Guarantor, which would
include the Guarantor's guarantees of the Company's Indebtedness under the New
Credit Facility and the amounts for which the Guarantors will be liable under
the guarantees issued from time to time with respect to Senior Debt. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited so
as not to constitute a fraudulent conveyance under applicable law. See, however,
"Risk Factors--Fraudulent Conveyance Considerations."
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity (except the Company or another Guarantor) or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its assets to another corporation, Person or entity unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture, in form and
substance reasonably satisfactory to the Trustee, under the Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; and (iii) (a) the Company would be permitted by
virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after
giving effect to such transaction, to incur at least $1.00 of additional
Indebtedness (other than Permitted Debt) pursuant to the first paragraph under
the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" or (b) would have a pro forma Fixed Charge Coverage Ratio that
is equal to or greater than the actual Fixed Charge Coverage Ratio for the same
four-quarter period.
Notwithstanding the foregoing paragraph, (i) any Guarantor may consolidate
with, merge into or transfer all or a part of its properties and assets to the
Company or any other Guarantor, (ii) any Guarantor may merge with an Affiliate
that has no significant assets or liabilities and was incorporated solely for
purpose of reincorporating such Guarantor in another State of the United States;
PROVIDED THAT such merged entity continues to be a Guarantor; and (iii) any
Foreign Guarantor may reorganize or otherwise change its legal status or form
even if it would not remain a Guarantor after such reorganization or other
change of legal status or form.
The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a
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merger, consolidation or otherwise, of all of the capital stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under its Subsidiary Guarantee; PROVIDED THAT the
Net Proceeds of such sale or other disposition are applied in accordance with
the applicable provisions of the Indenture. See "--Repurchase at the Option of
Holders--Asset Sales."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to October 1,
2002. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages,
if any, thereon, to the applicable redemption date, if redeemed during the
twelve-month period beginning on October 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 104.875%
2003.............................................................................. 103.250
2004.............................................................................. 101.625
2005 and thereafter............................................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to October 1, 2000, the Company may
redeem on any one or more occasions up to 35% of the original aggregate
principal amount of the Notes initially issued at a redemption price of 109.75%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
any Public Equity Offering of common stock of the Company; PROVIDED THAT at
least 65% of the aggregate principal amount of the Notes originally issued under
the Indenture remain outstanding immediately after the occurrence of each such
redemption; and PROVIDED, FURTHER, THAT each such redemption shall occur within
60 days of the date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED
THAT no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
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REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with a paying agent (the
"Paying Agent") an amount equal to the Change of Control Payment in respect of
all Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to each
Holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; PROVIDED THAT each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Indenture will provide that, prior to complying with the provisions
of this covenant, but in any event within 90 days following a Change of Control,
the Company will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of Notes required by this covenant. The Company
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Facility prohibits the Company from purchasing any Notes and
also provides that certain change of control events with respect to the Company
would constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could seek the consent of its lenders to purchase the Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under the New Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes. See "Description of
Certain Indebtedness."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance
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with the requirements set forth in the Indenture applicable to a Change of
Control Offer made by the Company and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale or issue Equity
Interests in any of its Restricted Subsidiaries or sell Equity Interests in any
of its Restricted Subsidiaries, unless (i) the Company (or the Restricted
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (which, in the case of any Asset
Sale involving shares or assets having a fair market value in excess of $2.0
million, shall be evidenced by a resolution of the Board of Directors set forth
in an Officer's Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 85% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; PROVIDED THAT the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any Guarantee
thereof) that are assumed by the transferee of any such assets such that the
Company or such Restricted Subsidiary has no further liability shall be deemed
to be cash for purposes of this provision, (y) any securities, notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision and (z) the licensing of intellectual
property which does not constitute the transfer of substantially all of the
economic value of such property and does not limit the Company's use of such
intellectual property for Permitted Businesses shall be deemed to comply with
clause (ii) above if the payments thereon are in cash over time.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay term
Indebtedness under the New Credit Facility or other Senior Debt, (b) to repay
and permanently reduce the availability of revolving credit Indebtedness under
the New Credit Facility or (c) to the acquisition of a controlling interest in
another business or of all or substantially all of the assets of another
business, or to the making of a capital expenditure or the acquisition of other
long-term assets, in each case in Permitted Businesses. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce
revolving Indebtedness or otherwise invest such Net Proceeds in any manner that
is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds". When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the date of purchase, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased
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on a PRO RATA basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire
or retire for value (including without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company; (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated in right of payment to the Notes,
except a payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by clauses
(ii), (iii) and (vi) (to the extent such distribution is paid to the Company or
a Restricted Subsidiary) of the next succeeding paragraph), is less than the sum
of (i) 50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net
Income for such period is a deficit, less 100% of such deficit), plus (ii) 100%
of the aggregate net cash proceeds received by the Company from the issue or
sale since the date of the Indenture of Equity Interests of the Company (other
than Disqualified Stock), or of Disqualified Stock or debt securities of the
Company that have been converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii) to the
extent that any Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial amount of
such Restricted Investment.
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The foregoing provisions will not prohibit (i) the payment of any dividend
or the making of any payment or distribution within 60 days after the date of
declaration thereof, if at said date of declaration such payment or distribution
would have complied with the provisions of the Indenture; (ii) the redemption,
repurchase, retirement, defeasance or other acquisition of any Indebtedness
subordinated in right of payment to the Notes or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, other Equity Interests of
the Company (other than any Disqualified Stock); PROVIDED THAT the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or
other acquisition of Indebtedness subordinated in right of payment to the Notes
with the net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness; (iv) the repurchase, redemption or other acquisition or retirement
for value of any Equity Interests of the Company or any Restricted Subsidiary
held by any employee or director of the Company (or any of its Subsidiaries),
other than a Principal, or any former employee or director of the Company (or
any of its Subsidiaries) issued pursuant to any management equity plan or stock
option plan or any other management or employee benefit plan or agreement;
PROVIDED, HOWEVER, that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests pursuant to this clause (iv)
shall not exceed $1.0 million in any twelve-month period and shall not exceed
$3.0 million in the aggregate; (v) repurchases of Equity Interests deemed to
occur upon the cashless exercise of stock options; (vi) the payment of any
dividend by a Subsidiary of the Company to the holders of its Equity Interests
on a pro rata basis to all holders of Equity Interests, including the Company or
any Restricted Subsidiary of the Company; and (vii) payments in accordance with
the terms of the Merger Agreement; PROVIDED THAT with respect to clauses (ii),
(iii), (iv) and (v) above, no Default or Event of Default shall have occurred
and be continuing immediately after such transaction.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $1.0 million. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by the covenant "Restricted Payments" were
computed, together with a copy of any fairness opinion or appraisal required by
the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company or any
Guarantor may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.00 to 1.00, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
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(i) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes and the Subsidiary Guarantees;
(ii) the incurrence by the Company of term Indebtedness under the New Credit
Facility and related Guarantees under the New Credit Facility; PROVIDED that the
aggregate principal amount of all term Indebtedness outstanding under the New
Credit Facility after giving effect to such incurrence, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (ii) does not exceed an amount
equal to $50.0 million less the aggregate amount of all repayments, optional or
mandatory (other than repayments in connection with the incurrence of Permitted
Refinancing Indebtedness), of the principal of any term Indebtedness under the
New Credit Facility that have been made since the date of the Indenture;
(iii) the incurrence by the Company of revolving credit Indebtedness under
the New Credit Facility, letters of credit (with letters of credit being deemed
to have a principal amount equal to the maximum potential liability of the
Company and its Restricted Subsidiaries thereunder) and related Guarantees under
the New Credit Facility; PROVIDED that the aggregate principal amount of all
revolving Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Restricted Subsidiaries thereunder) outstanding under the New Credit Facility
after giving effect to such incurrence, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (iii), does not exceed $35.0 million, less the
amount outstanding under clause (xiv) below and the aggregate amount of Asset
Sale proceeds applied to repay and permanently reduce the availability of
revolving credit Indebtedness under the New Credit Facility pursuant to the
provisions described under the caption "--Certain Covenants-- Asset Sales;"
(iv) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(v) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred in the normal course of business for the
purpose of fixing or hedging currency, commodity or interest rate risk
(including with respect to any floating rate Indebtedness that is permitted by
the terms of the Indenture to be outstanding) in connection with the conduct of
their respective businesses and not for speculative purposes;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between the Company and a Restricted Subsidiary or
between one Restricted Subsidiary and another; PROVIDED, HOWEVER, that (a) if
the Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated in liquidation to the prior payment in full in cash of all
Obligations with respect to the Notes and the Indenture; (b) if a Restricted
Subsidiary, that is not a Guarantor, is the obligor on such Indebtedness, such
Indebtedness owning to the Company or any Guarantor, together with all
intercompany Indebtedness owing from all Restricted Subsidiaries that are not
Guarantors to the Company or a Guarantor, does not exceed $5.0 million in
aggregate principal amount at any time outstanding; and (c) (A) any subsequent
event or issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Restricted
Subsidiary of the Company and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Guarantor shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (vi);
(vii) the Guarantee by the Company or any of the Guarantors of Indebtedness
of the Company or a Restricted Subsidiary of the Company that was permitted to
be incurred by another provision of this covenant; PROVIDED, that the Guarantee
of any Indebtedness of a Restricted Subsidiary that is not or is no longer a
Guarantor shall be deemed a Restricted Investment at the time of such Guarantee
or at the time such Restricted Subsidiary's Guarantor status terminates in an
amount equal to the maximum principal amount so guaranteed, for so long as, and
to the extent that, such Guarantee remains outstanding;
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(viii) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in respect of bid, performance, or advance payment bonds and
appeal and surety bonds;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund or replace Indebtedness that was permitted by the Indenture
to be incurred;
(x) the incurrence by the Company or any of the Guarantors of additional
Indebtedness in an aggregate principal amount (or accreted value, as applicable)
at any time outstanding, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness incurred
pursuant this clause (x), not to exceed the difference of (a) $15.0 million less
(b) the outstanding aggregate principal amount incurred pursuant to clause (xi)
below;
(xi) the incurrence by Restricted Subsidiaries that are not Guarantors of
additional Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (xi) not to exceed $5.0 million;
(xii) the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Restricted Subsidiary, in an aggregate principal amount, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace Indebtedness
incurred pursuant to this clause (xii), not to exceed $5.0 million at any time
outstanding; PROVIDED, HOWEVER, that the Company and its Restricted Subsidiaries
may incur any amount of additional Indebtedness of the type specified above in
this clause (xii) so long as the sole recourse of the obligee with respect to
such Indebtedness is to the property financed and any accessions and additions
thereto, replacements and substitutions therefor and the proceeds (including
insurance proceeds thereof);
(xiii) the issuance by a Restricted Subsidiary that is a Guarantor of
preferred stock to the Company or to any of its Restricted Subsidiaries that are
Guarantors; PROVIDED, HOWEVER, that any subsequent event or issuance or transfer
of any Equity Interests that results in the owner of such preferred stock
ceasing to be the Company or any of its Restricted Subsidiaries that are
Guarantors or any subsequent transfer of such preferred stock to a Person, other
than the Company or one of its Restricted Subsidiaries that are Guarantors,
shall be deemed to be an issuance of preferred stock by such Subsidiary that was
not permitted by this clause (xiii);
(xiv) the incurrence by Foreign Subsidiaries that are not holding companies
or by Axiohm S.A. of Indebtedness under the New Credit Facility or any Permitted
Refinancing Indebtedness; PROVIDED, HOWEVER, that the aggregate principal amount
of outstanding Indebtedness incurred pursuant to this clause (xiv) does not
exceed $15.0 million at any time; and PROVIDED, FURTHER, that out of the total
Indebtedness permitted pursuant to this clause (xiv), no more than $5.0 million
of Indebtedness can be incurred by any such Foreign Subsidiary that is not
Axiohm S.A.; and
(xv) the incurrence by a Restricted Subsidiary that is a Foreign Subsidiary
and is not a Guarantor of Indebtedness in an amount not to exceed the Borrowing
Base of such Restricted Subsidiary; PROVIDED, that none of the Company or any
other such Restricted Subsidiary shall be obligated, directly or indirectly, to
pay principal, premium, interest or other amounts thereon or in respect thereof
(including by way of net worth requirements, equity keepwells etc.).
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (xv) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall, in
its sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, the accretion of accreted value and
the payment
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of interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES
Any designation of an Unrestricted Subsidiary by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the terms of the Indenture governing the designation of
Unrestricted Subsidiaries and was permitted by the covenant described above
under the caption "--Restricted Payments." If, at any time, any Unrestricted
Subsidiary fails to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock," the Company shall be in default of such covenant).
The Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED THAT such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence following such
designation.
LIENS
The Indenture will provide that the Company will not and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or otherwise cause or suffer to exist or become effective any Lien of any kind
securing Indebtedness or trade payables (other than Permitted Liens) upon any of
their respective property or assets, now owned or hereafter acquired, unless all
payments due under the Indenture and the Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date of the Indenture,
(b) the New Credit Facility as in effect as of the date of the Indenture, and
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, PROVIDED THAT such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the New Credit
Facility as in effect on the date of the Indenture, (c) the Indenture and the
Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than
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the Person or such Person's Subsidiaries, or the property or assets of the
Person or such Person's Subsidiaries, so acquired, PROVIDED THAT, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment, subletting and
restriction on transfer provisions or restrictions on cash or other deposits or
net worth under leases, licenses or other contracts entered into in the ordinary
course of business, PROVIDED THAT such restrictions are limited to the property
or assets that are the subject of such lease, license or contract and not in
connection with a financing transaction, (g) any restriction on cash deposits by
reason of customary security deposits entered into in the ordinary course of
business, (h) any restriction with respect to a Subsidiary imposed pursuant to
an agreement entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary pending the closing of
such sale or disposition, (i) purchase money obligations for property acquired
in the ordinary course of business that impose restrictions of the nature
described in clause (iii) above on the property so acquired, together with any
accessions and additions thereto, replacements and substitutions therefor and
the proceeds (including insurance proceeds thereof), (j) Indebtedness of
Guarantors, PROVIDED THAT such Indebtedness was permitted to be incurred
pursuant to the Indenture, or (k) Permitted Refinancing Indebtedness, PROVIDED
THAT the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Restricted Subsidiary of the Company,
the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock."
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture will provide that if the Company or any of its Domestic
Subsidiaries shall acquire or create another Domestic Subsidiary after the date
of the Indenture, then such newly acquired or created Domestic Subsidiary shall
(i) execute a supplemental indenture in form and substance satisfactory to the
Trustee providing that such Domestic Subsidiary shall become a Guarantor under
the Indenture and (ii) deliver an opinion of counsel to the effect INTER ALIA,
that such supplemental indenture has been duly authorized and executed by such
Domestic Subsidiary, PROVIDED, HOWEVER, this covenant shall not apply to any
Domestic Subsidiary that has been properly designated as an Unrestricted
Subsidiary in accordance with the Indenture for so long as it continues to
constitute an Unrestricted Subsidiary.
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In addition, if an election is made to treat any Foreign Subsidiary as a
partnership or a branch for United States federal income tax purposes, within
five (5) days after the election is made, such Foreign Subsidiary shall (i)
execute a supplemental indenture in form and substance satisfactory to the
Trustee providing that such Foreign Subsidiary shall become a Guarantor under
the Indenture, (ii) execute any other necessary documentation to be executed by
a Guarantor and (iii) deliver an opinion of counsel to the effect INTER ALIA,
that such supplemental indenture has been duly authorized and executed by such
Foreign Subsidiary, PROVIDED, HOWEVER, that if Dardel, Axiohm S.A. or any other
Foreign Subsidiary shall cease to be treated as a partnership or a branch of the
Company and Dardel, Axiohm S.A. or any other Foreign Subsidiary, as the case may
be, is no longer a guarantor of any Indebtedness under the New Credit Facility,
then, as of the date such status as a partnership or a branch and as a guarantor
under the New Credit Facility terminates, such Subsidiary's status as a
Guarantor under the Indenture shall also terminate.
A Foreign Guarantor may not cease to be a Guarantor and remain a Restricted
Subsidiary of the Company, unless (a) all Investments made in such Foreign
Guarantor by the Company or any Restricted Subsidiary from the date it became a
Guarantor and which remain then outstanding shall be deemed to be Restricted
Investments made at the time the Foreign Guarantor ceased to be a Guarantor; (b)
any transaction that would have been an Asset Sale if the Foreign Guarantor had
not been a Guarantor at the time of such transaction would comply with the
covenant under "Asset Sales" at the time the Foreign Guarantor ceased to be a
Guarantor; (c) all Indebtedness incurred by such Foreign Guarantor and that is
then outstanding shall be deemed to be Indebtedness incurred by a Restricted
Subsidiary that is not a Guarantor at the time the Foreign Guarantor ceases to
be a Guarantor; (d) after giving effect to such deemed Restricted Investments,
deemed Asset Sales and deemed incurrences of Indebtedness, there would not have
occurred and be continuing any Default or Event of Default; and (e) such Foreign
Guarantor concurrent with its ceasing to be a Guarantor of the Notes ceases to
be a guarantor of The New Credit Facility.
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of their respective properties or assets
to, or purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or Guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $2.5
million, a resolution of its Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an investment banking firm (or, if an investment banking firm is
generally not qualified to give such an opinion, by an appraisal firm) of
national standing; PROVIDED THAT none of the following shall be deemed to be
Affiliate Transactions: (1) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business that
has been approved by a majority of the disinterested members of the Board of
Directors; PROVIDED that any such employment agreement providing for aggregate
remuneration of under $200,000 shall not require any such Board of Directors
approval; (2) transactions between or among the Company and/or its Restricted
Subsidiaries that are on fair and reasonable terms; (3) Restricted Payments that
are permitted by the provisions of the Indenture described above under the
caption "--Restricted Payments"; (4) fees and compensation paid to members of
the Board of Directors of the Company and of its Subsidiaries in their capacity
as such, to the extent such fees
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and compensation are reasonable and customary; (5) advances to employees for
moving, entertainment and travel expenses, drawing accounts and similar
expenditures in the ordinary course of business and consistent with past
practices; (6) maintenance in the ordinary course of business of customary
benefit programs or arrangements for employees, officers or directors, including
vacation plans, health and life insurance plans, deferred compensation plans and
retirement or savings plans and similar plans; (7) fees and compensation paid
to, and indemnity provided on behalf of, officers, directors or employees of the
Company or any of its Restricted Subsidiaries, to the extent such fees and
compensation are reasonable and customary as determined by the Board of
Directors of the Company or of any such Restricted Subsidiary; and (8) payments
in accordance with the terms of the Merger Agreement.
ANTI-LAYERING
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes and (ii) no Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinate or junior in right of payment to its Senior Debt and senior
in any respect in right of payment to its Subsidiary Guarantee.
BUSINESS ACTIVITIES
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to engage in any business other than Permitted Businesses,
except to such extent as would not be material to the Company and its Restricted
Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
REPORTS
The Indenture provides that whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations;" that describes the financial condition and results
of operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company) and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file a
copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition the Company has agreed that, for so long as any Notes
remain outstanding, it will furnish to the Holders and to
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securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due of the principal of or premium, if any, on the Notes (whether
or not prohibited by the subordination provisions of the Indenture); (iii)
failure by the Company to comply with the provisions described under the caption
"--Certain Covenants--Merger, Consolidation or Sale of Assets"; (iv) failure by
the Company or any of its Subsidiaries for 30 days to comply with the provisions
described under the captions "--Certain Covenants--Restricted Payments,"
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," "--Repurchase at the Option of Holders Asset Sales" or "--Repurchase at
the Option of Holders--Change of Control"; (v) failure by the Company for 60
days after notice to comply with any of its other agreements in the Indenture or
the Notes; (vi) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries),
whether such Indebtedness or guarantee was created before or after the date of
the Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness by the expiration of the
applicable grace period, if any, provided in such Indebtedness on the date of
such default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity, and, in the case of each of clauses
(a) and (b) above, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
without duplication $5.0 million or more; (vii) failure by the Company or any of
its Subsidiaries to pay final judgments aggregating in excess of $5.0 million,
which judgments are not paid, discharged or stayed, for a period of 60
consecutive days; (viii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person authorized to act on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Subsidiary Guarantee; and (ix)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company or any Significant Subsidiary, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture, and the Trustee shall be under no obligation to
exercise any of its rights and powers under this Indenture at the request of any
Holders, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
October 1, 2002 by reason of any willful action (or inaction) taken (or not
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taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to October 1, 2002, then the
premium specified in the Indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or the Guarantors, as such, shall have any liability for any obligations of the
Company or the Guarantors under the Notes, the Subsidiary Guarantees or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on such Notes when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "--Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, interest and Liquidated Damages, if
any, on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Notes are being defeased to maturity or to a particular redemption date; (ii) in
the case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize
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income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that, subject to
customary assumptions and exclusions, the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit (other
than a Default or Event of Default resulting from the borrowing of funds to be
applied to such deposit) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that, subject to customary assumptions and
exclusions, after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that, subject to customary assumptions and exclusions,
there has been compliance with all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, interest or
Liquidated Damages, if any,
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on the Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal of or premium, if
any, interest or Liquidated Damages, if any, on the Notes, (vii) waive a
redemption payment with respect to any Note (other than a payment required by
one of the covenants described above under the caption "--Repurchase at the
Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the provisions of Article 10 or
Article 12 of the Indenture (which relate to subordination) will require the
consent of the Holders of at least 75% in aggregate principal amount of the
Notes then outstanding (including consents obtained in connection with a tender
offer or exchange offer for Notes) if such amendment would adversely affect the
rights of Holders of Notes. In addition, without the consent of at least 66 2/3%
in principal amount of the Notes then outstanding (including consents obtained
in connection with a tender offer or exchange offer for Notes), no waiver or
amendment to the Indenture may make any change in the provisions described above
under the caption "--Repurchase at the Option of Holders-- Change of Control"
that adversely affect the rights of any Holder of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture, the Notes or
the Subsidiary Guarantees to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of Notes or that does
not adversely affect the legal rights under the Indenture of any such Holder, or
to comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to allow any
Guarantor to guarantee the Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Offering Memorandum may obtain a copy of the
Indenture and Registration Rights Agreement without charge by writing to Axiohm
Transaction Solutions, Inc., 15070 Avenue of Science, San Diego, California
92128, Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The Notes held by Qualified Institutional Buyers and institutional
accredited investors initially are in the form of one or more registered global
notes without interest coupons (collectively, the "U.S. Global
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Notes"). The U.S. Global Notes have been deposited with the Trustee, as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to the
accounts of DTC's Direct and Indirect Participants (as defined below). The Notes
issued in offshore transactions in reliance on Regulation S, if any, initially
are in the form of one or more registered, global book-entry notes without
interest coupons (the "Regulation S Global Notes"). The Regulation S Global
Notes have been deposited with the Trustee, as custodian for DTC, in New York,
New York, and registered in the name of a nominee of DTC (a "Nominee") for
credit to the accounts of Indirect Participants at the Euroclear System
("Euroclear") and Cedel Bank, societe anonyme ("CEDEL"). All registered global
notes are referred to herein collectively as "Global Notes."
Beneficial interests in all Global Existing Notes and all Certificated
Existing Notes (as defined below), if any, will be subject to certain
restrictions on transfer and will bear a restrictive legend as described under
"Notice to Investors." In addition, transfer of beneficial interests in any
Global Notes will be subject to the applicable rules and procedures of DTC and
its Direct or Indirect Participants (including, if applicable, those of
Euroclear and CEDEL), which may change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for Notes in certificated form in certain limited circumstances. See "--Transfer
of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Direct Participants. The Direct Participants
include securities brokers and dealers (including the Initial Purchaser), banks,
trust companies, clearing corporations and certain other organizations,
including Euroclear and CEDEL. Access to DTC's system is also available to other
entities that clear through or maintain a direct or indirect, custodial
relationship with a Direct Participant (collectively, the "Indirect
Participants"). DTC may hold securities beneficially owned by other persons only
though the Direct Participants or Indirect Participants and such other persons'
ownership interest and transfer of ownership interest will be recorded only on
the records of the Direct Participant and/or Indirect Participant, and not on
the records maintained by DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, (i) DTC
has credited the accounts of the Direct Participants designated by the Initial
Purchaser with portions of the principal amount of Global Notes allocated by the
Initial Purchaser to such Direct Participants, and (ii) DTC will maintain
records of the ownership interests of such Direct Participants in the Global
Notes and the transfer of ownership interests by and between Direct
Participants. DTC will not maintain records of the ownership interests of, or
the transfer of ownership interests by and between, Indirect Participants or
other owners of beneficial interests in the Global Notes. Direct Participants
and Indirect Participants must maintain their own records of the ownership
interests of, and the transfer of ownership interests by and between, Indirect
Participants and other owners of beneficial interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. Investors in the Regulation S
Global Notes may hold their interests therein directly though Euroclear or CEDEL
or indirectly through organizations that are participants in Euroclear or CEDEL.
Investors may also hold interests in the Regulation S Global Notes through
organizations other than Euroclear and CEDEL that are Direct Participants in the
DTC system. Morgan Guaranty Trust Company of New York,
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Brussels office is the operator and depository of Euroclear and Citibank, N.A.
is the operator and depository of CEDEL (each a "Nominee" of Euroclear and
CEDEL, respectively). Therefore, they will each be recorded on DTC's records as
the holders of all ownership interests held by them on behalf of Euroclear and
CEDEL, respectively. Euroclear and CEDEL will maintain on their records the
ownership interests, and transfers of ownership interests by and between, their
own customer's securities accounts. DTC will not maintain records of the
ownership interests of, or the transfer of ownership interests by and between,
customers of Euroclear or CEDEL. All ownership interests in any Global Notes,
including those of customers' securities accounts held though Euroclear or
CEDEL, may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form, of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Note to such
persons. Because DTC can act only on behalf of Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a person
having a beneficial interest in a Global Note to pledge such interest to persons
or entities that are not Direct Participants in DTC, or to otherwise take
actions in respect of such interests, may be affected by the lack of physical
certificates evidencing such interests. For certain other restrictions on the
transferability of the Notes see "--Transfers of Interests in Global Notes for
Certificated Notes."
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
holders thereof under the Indenture for any purpose.
Under the terms of the Indenture, the Company, the Guarantors and the
Trustee will treat the persons in whose names the Notes are registered
(including Notes represented by Global Notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, if any, interest and Liquidated
Damages, if any, on Global Notes registered in the name of DTC or its nominee
will be payable by the Trustee to DTC or its nominee as the registered holder
under the Indenture. Consequently, neither the Company, the Trustee nor any
agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Direct Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's or
Indirect Participant's records relating to the beneficial ownership interests in
any Global Note or (ii) any other matter relating to the actions and practices
of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, the Company or the Guarantors. Neither the Company, the Guarantors nor
the Trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the Notes, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
Notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the Notes through Euroclear or CEDEL) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but
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generally will settle in immediately available funds. Transfers between and
among Indirect Participants who hold interests in the Notes through Euroclear
and CEDEL will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between Direct Participants in DTC, on
the one hand, and Indirect Participants who hold interests in the Notes through
Euroclear or CEDEL, on the other hand, will be effected by Euroclear or CEDEL's
respective Nominee through DTC in accordance with DTC's rules on behalf of
Euroclear or CEDEL; HOWEVER, delivery of instructions relating to cross-market
transactions must be made directly to Euroclear or CEDEL, as the case may be, by
the counterparty in accordance with the rules and procedures of Euroclear or
CEDEL and within their established deadlines (Brussels time for Euroclear and UK
time for CEDEL). Indirect Participants who hold interests in the Notes through
Euroclear and CEDEL may not deliver instructions directly to Euroclear's or
CEDEL's Nominee. Euroclear or CEDEL will, if the transaction meets its
settlement requirements, deliver instructions to its respective Nominee to
deliver or receive interests on Euroclear's or CEDEL's behalf in the relevant
Global Note in DTC, and make or receive payment in accordance with normal
procedures for same-day funds settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or CEDEL, during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and CEDEL customers will not have access to the cash
amount credited to their accounts as a result of a sale of an interest in a
Regulation S Global Note to a DTC Participant until the European business day
for Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
as to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default on the Notes, DTC reserves
the right to exchange Global Notes (without the direction or one or more of its
Direct Participants) for Notes in certificated form, of which any Existing Notes
shall bear restrictive legends, and to distribute such certificated forms of
Notes to its Direct Participants. See "--Transfers of Interests in Global Notes
for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Regulation S Global Notes and in the
U.S. Global Notes among Direct Participants, Euroclear and CEDEL, they are under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Guarantors,
the Initial Purchaser or the Trustee will have any responsibility for the
performance by DTC, Euroclear or CEDEL or their respective Direct and Indirect
Participants of their respective, obligations under the rules and procedures
governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL
NOTE
An Indirect Participant who holds an interest in the Regulation S Global
Existing Notes will be permitted to transfer its interest to a U.S. Person who
takes delivery in the form of an interest in U.S. Global Existing Notes only
upon receipt by the Trustee of a written certification from the transferor to
the, effect that such transfer is being made in accordance with the restrictions
on transfer set forth under
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"Notice to Investors" in the Offering Memorandum delivered to investors in
connection with the Existing Notes Offering and set forth in the legend printed
on the Regulation S Global Existing Notes.
A Direct or Indirect Participant who holds an interest in U.S. Global
Existing Notes may transfer its interest to a person who takes delivery in the
form of an interest in Regulation S Global Existing Notes only upon receipt by
the Trustee of a written certification from the transferor to the effect that
such transfer is being made in accordance with Rule 903 or 904 of Regulation S.
Transfers involving an exchange of a beneficial interest in Regulation S
Global Notes for a beneficial interest in U.S. Global Notes or vice versa will
be effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection with
such transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the one Global Note and a corresponding increase in the
principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Note for as long as it remains such an interest.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC (x)
notifies the Company that it is unwilling or unable to continue as depositary
for the Global Notes and the Company thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Notes or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the Notes. In any such case, the Company will notify the Trustee
in writing that, upon surrender by the Direct and Indirect Participants of their
interest in such Global Note, Certificated Notes will be issued to each person
that such Direct and Indirect Participants and the DTC identify as being the
beneficial owner of the related Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC by such
Direct Participants (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interests in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
In all cases described herein, such Certificated Existing Notes will bear
the restrictive legend referred to in "Notice to Investors" in the Offering
Memorandum delivered to investors in connection with the Existing Notes Offering
unless the Company determines otherwise in compliance with applicable law.
Neither the Company, the Guarantors nor the Trustee will be liable for any
delay by the holder of the Global Notes or DTC in identifying the beneficial
owners of Notes, and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the holder of the Global Note
or DTC for all purposes.
TRANSFERS OF CERTIFICATED EXISTING NOTES FOR INTERESTS IN GLOBAL EXISTING
NOTES
Certificated Existing Notes may only be transferred if the transferor first
delivers to the Trustee a written certificate (and in certain circumstances, an
opinion of counsel) confirming that, in connection with such transfer, it has
complied with the restrictions on transfer described under "Notice to Investors"
in the Offering Memorandum delivered to investors in connection with the
Existing Notes Offering.
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SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to DTC
or its nominee as the registered holder of such Global Note. With respect to
Certificated Notes, the Company will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The Company expects that secondary trading in the Certificated Notes
will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and the Initial Purchaser entered into the
Registration Rights Agreement on the Closing Date of the Existing Notes
Offering, October 2, 1997. Pursuant to the Registration Rights Agreement, the
Company agreed to file with the Commission the Exchange Offer Registration
Statement of which this Prospectus is a part on the appropriate form under the
Securities Act with respect to the New Notes. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company will offer to the Holders of
Transfer Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for New Notes. If (i) the Company is not required to file
the Exchange Offer Registration Statement or permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any Holder of Transfer Restricted Securities notifies
the Company prior to the 20th day following consummation of the Exchange Offer
that (A) it is prohibited by law or Commission policy from participating in the
Exchange Offer or (B) it may not resell the New Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales or (C) it is a broker-dealer and owns Existing Notes
acquired directly from the Company or an affiliate of the Company, the Company
will file with the Commission a Shelf Registration Statement to cover resales of
the Existing Notes by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each Existing Note until (i) the date on which such Existing
Note has been exchanged by a person other than a broker-dealer for a New Note in
the Exchange Offer, (ii) following the exchange by a broker-dealer in the
Exchange Offer of an Existing Note for a New Note, the date on which such New
Note is sold to a purchaser who receives from such broker-dealer on or prior to
the date of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Existing Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iv) the date on which such Existing
Note is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will use its
best efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 120 days after the Closing Date, (ii)
unless the Exchange Offer would not be permitted by applicable law or Commission
policy, the Company will commence the Exchange Offer and use its best efforts to
issue on or prior to 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission, New Notes in
exchange for all Existing Notes tendered prior thereto in the Exchange Offer and
(iii) if obligated to file the Shelf Registration Statement, the Company will
use its best efforts to file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 90 days after such obligation arises. If (a) the Company fails to file
the Shelf Registration Statement required by the Registration Rights Agreement
on or before the date specified for such filing, (b) any of
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such Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), or (c) the Company fails to consummate the Exchange Offer within 30
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement, or (d) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or use of the prospectus is suspended in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement and is not succeeded within 30 days by another
effective Registration Statement or use of the prospectus (as supplemented, if
necessary) is again permitted; PROVIDED THAT the Shelf Registration Statement
shall not cease to be effective and the prospectus shall not cease to be usable
in connection with resales of Transfer Restricted Securities for more than 30
days in any calendar year (each such event referred to in clauses (a) through
(d) above a "Registration Default"), then the Company will pay Liquidated
Damages to each Holder of Notes, with respect to the first 90-day period
immediately following the occurrence of the first Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Notes held by such
Holder. The amount of the Liquidated Damages will increase by an additional $.05
per week per $1,000 principal amount of Notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages of $.35 per week per $1,000 principal amount of
Notes. All accrued Liquidated Damages will be paid by the Company on each
Damages Payment Date to the Global Note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated
Securities by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Existing Notes will be required to make certain representations
to the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Existing Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control "
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED THAT
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) (PROVIDED THAT the sale, lease, conveyance or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries taken
as a
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whole will be governed by the provisions of the Indenture described above under
the caption "--Repurchase at the Option of Holders--Change of Control" and/or
the provisions described above under the caption "--Certain Covenants--Merger,
Consolidation, or Sale of Assets" and not by the provisions of the Indenture
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales"), and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for Net Proceeds in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Guarantor or by a Guarantor to the Company or another Guarantor or by a
non-Guarantor Foreign Subsidiary to another non-Guarantor Foreign Subsidiary,
(ii) an issuance of Equity Interests by a Restricted Subsidiary to the Company
or to another Restricted Subsidiary, (iii) a Restricted Payment that is
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments," (iv) a transfer of Capital Stock of a Foreign
Subsidiary for cash and/or Indebtedness permitted by clause (xv) of the covenant
described above under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" and (v) a disposition of inventory
or Cash Equivalents in the ordinary course of business, will, in each case, not
be deemed to be Asset Sales.
"BORROWING BASE" means, with respect to any Restricted Subsidiary that is a
Foreign Subsidiary and is not a Guarantor, the sum of (x) 75% of the net book
value of the non-Affiliate accounts receivable of such Restricted Foreign
Subsidiary in accordance with GAAP and (y) 40% of the net book value of the
inventory of such Restricted Foreign Subsidiary in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL MARKET TRANSACTION" means (i) any direct or indirect public
offering or private placement of subordinated debt or equity securities of the
Company or any of its Subsidiaries or (ii) the incurrence of any other
Indebtedness by the Company or any of its Subsidiaries, or any direct or
indirect parent holding company of the Company (other than Permitted Debt);
PROVIDED, that, in each case, either such transaction does not violate the New
Credit Facility or the Indebtedness under the New Credit Facility has been paid
in full and all commitments thereunder have been terminated.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit, time deposits
and eurodollar time deposits with maturities of not more than one year from the
date of acquisition, bankers' acceptances with maturities of not more than one
year from the date of acquisition and overnight bank deposits, in each case with
any lender party to the New Credit Facility or any Permitted Refinancing
Indebtedness or with any domestic commercial bank having capital and surplus in
excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than thirty days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper rated at least P-2 by Moody's Investors
Service, Inc. or at least A-2 by Standard & Poor's Ratings Services with
maturities of not more than 270 days from the date of acquisition, (vi) readily
marketable direct obligations issued by any State of the United States of
America or any political subdivision thereof
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having maturities of not more than one year from the date of acquisition and
rated at least A by Moody's Investors Service, Inc. or A by Standard & Poor's
Corporation, and (vii) investment funds investing 95% of their assets in
securities of the types described in clauses (i)-(vi) above.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) (other than persons who are, or groups of persons who are,
made up entirely of Principals and/or their Related Parties); (ii) the adoption
of a plan relating to the liquidation or dissolution of the Company; (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than one or more Principals or their respective Related Parties, becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 35% of the
total of the Voting Stock of the Company (measured by voting power rather than
number of shares), PROVIDED, that no Principal and his Related Parties
beneficially own (as so defined), directly or indirectly, in the aggregate a
greater percentage of the total voting power of the Voting Stock of the Company
than such other person or have the right or ability by voting power, contract or
otherwise, to elect or designate for election a majority of the Board of
Directors of the Company (for purposes of this clause (iii), such other person
shall be deemed to beneficially own any Voting Stock of a person held by another
person (a "parent corporation"), if such other person "beneficially owns" (as so
defined), directly or indirectly, more than 50% of the voting power of the
Voting Stock of such parent corporation and the Principals and the Related
Parties "beneficially own" (as so defined), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock of
such parent corporation than such other person and do not have the right or
ability by voting power, contract or otherwise, to elect or designate for
election a majority of the Board of Directors of such parent corporation), (iv)
the first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors; or (v) the Company consolidates with,
or merges with or into, any Person, or any Person consolidates with, or merges
with or into, the Company, in any such event pursuant to a transaction in which
any of the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Company outstanding immediately prior
to such transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving or
transferee Person (immediately after giving effect to such conversion or
exchange).
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future
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period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded and (v)
the Net Income (or loss) of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to the Company or one of its Subsidiaries.
"CONTINUING DIRECTOR" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election, or (iii) was elected to such Board of Directors with the
approval of the holders of 80% or more of the voting securities held by the
Principals and their Related Parties.
"CREDIT AGREEMENT" means the Credit Agreement, dated as of the date of the
Indenture, among the Company, Lehman Brothers Inc., as arranger, Lehman
Commercial Paper Inc., as syndication agent and administrative agent, and the
lenders from time to time party thereto, as such agreement may be amended,
restated, modified, renewed, refunded, replaced or refinanced from time to time
thereafter, including any appendices, exhibits or schedules to any of the
foregoing, as the same may be in effect from time to time, in each case, as such
agreements may be amended, modified, supplemented, renewed, refunded, replaced,
refinanced, extended or restated from time to time (whether with the original
agents and lenders or other agents and lenders or otherwise, and whether
provided under the original credit agreement or other credit agreements or
otherwise), including any appendices, exhibits or schedules to any of the
foregoing.
"DARDEL" means Dardel Technologies S.A., a French corporation.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice (or both) would be an Event of Default.
"DESIGNATED SENIOR DEBT" means (i) any Indebtedness outstanding under the
Credit Agreement and (ii) any other Senior Debt permitted under the Indenture,
which, at the date of determination, has an aggregate principal amount
outstanding of, or under which at the date of creation thereof or determination,
the holders thereof are committed to lend, at least $25.0 million and is
specifically designated by the Company in the instrument evidencing or governing
such Senior Debt as "Designated Senior Debt" for purposes of the Indenture.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or
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otherwise, or redeemable at the option of the Holder thereof, in whole or in
part, on or prior to the date that is 91 days after the date on which the Notes
mature, except to the extent that such Capital Stock is solely redeemable with,
or solely exchangeable for, any Capital Stock of such Person that is not
Disqualified Stock.
"DOMESTIC SUBSIDIARY" means a Subsidiary that is formed under the laws of
the United States of America or of a state or territory thereof.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated
interest of such Person and its Restricted Subsidiaries that was capitalized
during such period, (iii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Guarantee or Lien is called upon) and (iv) the product of
(a) all dividend payments, whether or not in cash, on any series of preferred
stock of such Person or any of its Restricted Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests of the Company,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions and including
the Merger as an acquisition by the Company, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will
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not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"GUARANTORS" means each of (i) Axiohm IPB, Inc., Stadia Colorado Corp. and
Cognitive Solutions Inc. and (ii) any other subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the net payment
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements in the ordinary course of business designed to
protect such Person against fluctuations in commodity prices, interest rates or
currency exchange rates.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness (of the
types described above) of others secured by a Lien on any asset of such Person
(whether or not such Indebtedness is assumed by such Person) and, to the extent
not otherwise included, the Guarantee by such Person of any Indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall be
(i) the accreted value thereof in the case of any Indebtedness that does not
require current payments of interest and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness), advances or capital
contributions (excluding commission, travel and entertainment, relocation, and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP. If the Company or any of its Restricted Subsidiaries sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a direct or indirect Restricted Subsidiary of the
Company, the Company or such Restricted Subsidiary, as the case may be, shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
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"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
any asset and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"MERGER AGREEMENT" means the Agreement and Plan of Merger, dated as of July
14, 1997 among DH Technology, Inc., Axiohm S.A. and AX Acquisition Corporation,
as in effect on the date of the Indenture.
"NET CASH PROCEEDS" means the aggregate cash proceeds received from any
Capital Market Transaction, in each case net of (i) all commissions (including
any underwriter's discounts); (ii) other ordinary and reasonable fees and
expenses (including legal fees and expenses) incurred as a consequence of such
Capital Market Transaction and (iii) in the case of a Capital Market Transaction
of the nature described in clause (ii) of the definition thereof, any required
repayment of Senior Debt that is actually made with such proceeds.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting,
investment banking and brokers fees and sales commissions) and any relocation
expenses incurred as a result thereof, taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements), and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"NEW CREDIT FACILITY" means the Credit Agreement, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (iii) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries; PROVIDED, HOWEVER, that Indebtedness that would
otherwise be Non-Recourse Debt but for the reason that the Company or a
Restricted Subsidiary may be directly or indirectly liable as a guarantor, such
Indebtedness will be considered Non-Recourse Debt if the guarantee of such
Indebtedness was permitted at the time of its incurrence by the covenants
described under the captions "--Certain Covenants--
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Restricted Payments" and "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock."
"OBLIGATIONS" means any principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or its Subsidiaries whether or not a
claim for post-filing interest is allowed in such proceeding), penalties, fees,
charges, expenses, indemnifications, reimbursement obligations, damages
(including Liquidated Damages), guarantees and other liabilities or amounts
payable under the documentation governing any Indebtedness or in respect
thereof.
"PERMITTED BUSINESS" means (i) the lines of business conducted by the
Company and its Subsidiaries on the date hereof or to which the Company's or its
Subsidiaries' technology is applicable; (ii) the design, manufacture and sale of
input or output devices (including printers) or other devices related to,
involved with or used in the processing of commercial, retail, point-of-sale,
industrial or financial transactions or to bar coding or item identification;
and (iii) any business reasonably related or incidental thereto or which is an
extension thereof, including, without limitation, the design and sale of
ancillary software, electronic components, the sale of consumable products, or
the provision of related services.
"PERMITTED INVESTMENTS" means (i) any Investment in the Company or in a
Guarantor; (ii) any Investment in Cash Equivalents or deposit accounts
maintained in the ordinary course of business; (iii) any Investment by the
Company or any Restricted Subsidiary of the Company, if as a result of such
Investment (a) such Person becomes a Guarantor or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Guarantor; (iv)
any Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales;" (v) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company; (vi) any
Investment received involuntarily; (vii) any Investment received in connection
with or as a result of a bankruptcy, workout or reorganization of any Person;
(viii) advances and extensions of credit in the nature of accounts receivable
arising from the sale or lease of goods or services or the licensing of property
in the ordinary course of business; (ix) other Investments by the Company or any
Restricted Subsidiary in any Person having an aggregate fair market value
(measured as of the date each such Investment is made and without giving effect
to subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (ix) that are at the time outstanding (net of
returns of capital, dividends paid on Investments and repurchases of
Investments), not to exceed $5.0 million; (x) Investments in the form of
intercompany Indebtedness or Guarantees of Indebtedness permitted under clauses
(vi), (vii) and (xi) of the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock;" (xi)
Investments arising in connection with Hedging Obligations that are incurred in
the ordinary course of business for the purpose of fixing or hedging currency,
commodity or interest rate risk (including with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be outstanding)
in connection with the conduct of the business of the Company and its
Subsidiaries and not for speculative purposes; and (xii) any Investment existing
on the date of the Indenture and any amendment, modification, restatement,
supplement, extension, renewal, refunding, replacement, refinancing, in whole or
in part, thereof.
"PERMITTED LIENS" means (i) Liens securing Senior Debt of the Company or its
Restricted Subsidiaries; (ii) Liens securing Indebtedness that is pari passu in
right of payment with the Notes, provided that the Notes are equally and ratably
secured; (iii) Liens existing on the date of the Indenture; (iv) Liens on
property of a Person existing at the time such Person or such Person's parent
corporation becomes a Subsidiary of the Company or any Subsidiary of the
Company; PROVIDED THAT such Liens were in existence prior to the contemplation
of such transaction and do not extend to any assets other than those of such
Person; (v) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary
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of the Company, PROVIDED THAT such Liens were in existence prior to the
contemplation of such acquisition and extend only to the property so acquired
and the proceeds thereof; (vi) Liens to secure any Permitted Refinancing
Indebtedness incurred to refinance any Indebtedness secured by any Lien referred
to in the foregoing clauses (i) through (v), PROVIDED, HOWEVER, that such new
Lien shall be limited to all or part of the same property that secured the
original Lien (PROVIDED THAT such Liens may extend to after-acquired property,
including any assets or Capital Stock of any subsequently formed or acquired
Subsidiary, if such original Lien included such property or assets as
collateral) and the Indebtedness secured by such Lien at such time is not
increased to any amount greater than permitted under clauses (ii), (iii) and
(xiv) of the covenant described above under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock", or, in
the case of other Senior Debt, or, in the case of other Indebtedness, the
outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (i) through (v), as the case may be, at the
time the original Lien became a Permitted Lien; (vii) Liens in favor of the
Company or any Guarantor; (viii) Liens incurred in the ordinary course of
business of the Company or any Restricted Subsidiary with respect to obligations
that do not exceed $5.0 million in the aggregate at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary; (ix) Liens to secure the
performance of statutory obligations, surety or appeal bonds, performance bonds,
deposits to secure the performance of bids, trade contracts, government
contracts, leases or licenses or other obligations of a like nature incurred in
the ordinary course of business (including, without limitation, landlord Liens
on leased properties); (x) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently prosecuted,
PROVIDED THAT any reserve or other appropriate provision as shall be required to
conform with GAAP shall have been made therefor; (xi) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (xii) of
the second paragraph of the covenant described above under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness, together with
any additions and accessions thereto and replacements, substitutions and
proceeds (including insurance proceeds) thereof; (xii) carriers',
warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business in respect of obligations not
overdue for a period in excess of 60 days or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently prosecuted;
PROVIDED, that any reserve or other appropriate provision as shall be required
to conform with GAAP shall have been made therefor; (xiii) easements,
rights-of-way, zoning and similar restrictions and other similar encumbrances or
title defects incurred, or leases or subleases granted to others, in the
ordinary course of business, which do not in any case materially detract from
the value of the property subject thereto or do not interfere with or adversely
affect in any material respect the ordinary conduct of the business of the
Company and its Restricted Subsidiaries taken as a whole; (xiv) Liens in favor
of customs and revenue authorities to secure payment of customs duties in
connection with the importation of goods in the ordinary course of business and
other similar Liens arising in the ordinary course of business; (xv) leases or
subleases granted to third Persons not interfering with the ordinary course of
business of the Company or its Restricted Subsidiaries; (xvi) Liens (other than
any Lien imposed by ERISA or any rule or regulation promulgated thereunder)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance, and other types of social
security; (xvii) deposits made in the ordinary course of business to secure
liability to insurance carriers, and Liens on the proceeds of insurance granted
to insurance carriers solely to secure the payment of financed premiums; (xviii)
any attachment or judgment Lien not constituting an Event of Default under
clause (i) of the first paragraph of the section described above under the
caption "--Events of Default and Remedies"; (xix) any interest or title of a
lessor or sublessor under any operating lease; (xx) Liens arising by virtue of
any common law, statutory or contractual provision relating to bankers' liens,
rights of set-off or similar rights and remedies as to deposit or securities
accounts maintained in the ordinary course of
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business; (xxi) Liens in favor of a trustee under any indenture securing amounts
due to the trustee in connection with its services under such indenture; and
(xxii) Liens under licensing agreements for use of intellectual property entered
into in the ordinary course of business.
"PERMITTED PROCEEDS" means (i) any Net Cash Proceeds from a Capital Market
Transaction and (ii) the proceeds from any trust created as described under
"--Legal Defeasance and Covenant Defeasance" PROVIDED THAT such trust at the
time of its creation does not violate the New Credit Facility.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
PROVIDED THAT: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued and unpaid interest on, any
other Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith, including any premiums on principal) except in the case of revolving
indebtedness under clause (iii) of the second paragraph set forth under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" may be refinanced up to the limitations described in such
clause (iii); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to any other
Indebtedness, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of the Indebtedness extended, refinanced,
renewed, replaced, defeased or refunded, and is subordinated in right of payment
to, or is ranked in right of payment with respect to, the Notes on terms at
least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or a Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PRINCIPAL" means each of Patrick Dupuy, Gilles Gibier or William Gibbs.
"PUBLIC EQUITY OFFERING" means any underwritten primary public offering of
the Common Stock or other Voting Stock of the Company, pursuant to an effective
registration statement (other than a registration statement on Form S-4, Form
S-8, or any successor or similar form) under the Securities Act.
"RELATED PARTY" means, with respect to any Principal, (i) any spouse or
immediate family member (in the case of an individual) of such Principal or (ii)
a Person, the beneficiaries, stockholders, partners, owners, members or Persons
beneficially holding an 80% or more controlling interest of which consist of
such Principal and/or such other Persons referred to in the immediately
preceding clause (i).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary; provided that, on the Effective
Date of the Indenture, all Subsidiaries of the Company shall be Restricted
Subsidiaries of the Company.
"SENIOR DEBT" means (i) all Indebtedness outstanding under the New Credit
Facility permitted under the covenant described above under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," (ii) any other Indebtedness permitted to be incurred by the Company
under
103
<PAGE>
the terms of the Indenture, unless the instrument under which such Indebtedness
is incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Notes, and (iii) all Obligations with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (w) any liability for federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, (y) any trade payables, or (z) any
Indebtedness of the type described in clause (ii), or any Obligations with
respect thereto, that is incurred in violation of the Indenture; PROVIDED, THAT
this clause (z) shall not be read to negate the requirement in clause (i) in the
preceding sentence that Indebtedness outstanding under the New Credit Facility
be permitted under the convenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" to
qualify as Senior Debt.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by a
resolution of the Board of Directors as an Unrestricted Subsidiary; but only to
the extent that such Subsidiary: (i) has no Indebtedness other than Non-Recourse
Debt; (ii) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the terms of
any such agreement, contract, arrangement or understanding are no less favorable
to the Company or such Restricted Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of the Company; (iii) is a
Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (iv) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries;
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
104
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to time, may
be used by Participating Broker-Dealers in connection with resales of New Notes
received in exchange for Existing Notes where such Existing Notes were acquired
as a result of market-making activities or other trading activities. Each
Participating Broker-Dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Company has agreed that under
certain circumstances, for a period of up to one year after the Expiration Date,
it will make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale.
The Company and the Guarantors will not receive any proceeds from any sale
of New Notes by broker-dealers. New Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any Participating
Broker-Dealer that acquired Existing Notes as a result of market making
activities or other trading activities and who resells New Notes that were
received by it pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commission or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the New Notes offered hereby will be
passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The financial statements of DH Technology, Inc. as of December 31, 1996 and
1995, and for each of the years in the three-year period ended December 31,
1996, have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated balance sheets as of December 31, 1995 and 1996 and the
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996 of Axiohm S.A. and
subsidiaries included in this Prospectus have been audited by Price Waterhouse,
independent accountants, as stated in their report appearing herein.
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AXIOHM S.A.
Report of Independent Accountants......................................................................... F-2
Consolidated Balance Sheet as of December 31, 1996 and December 31, 1995.................................. F-3
Consolidated Statement of Income for the Years Ended December 31, 1996, 1995 and 1994..................... F-4
Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1995
and 1994................................................................................................ F-5
Consolidated Statement of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994....... F-6
Notes to the Consolidated Financial Statements............................................................ F-7
AXIOHM TRANSACTION SOLUTIONS, INC.
Unaudited Condensed Consolidated Balance Sheet as of September 30, 1997................................... F-31
Unaudited Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 1997 and
1996.................................................................................................... F-32
Unaudited Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1997 and
1996.................................................................................................... F-33
Notes to the Unaudited Condensed Consolidated Financial Statements........................................ F-34
<CAPTION>
DH TECHNOLOGY, INC.
<S> <C>
Independent Auditors' Report.............................................................................. F-43
Consolidated Balance Sheets as of December 31, 1995 and December 31, 1996................................. F-44
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and 1996.................... F-45
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1995 and 1996...... F-46
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996................ F-47
Notes to the Consolidated Financial Statements............................................................ F-48
Unaudited Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997........................... F-69
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1996 and
1997.................................................................................................... F-70
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1997........... F-71
Notes to the Unaudited Consolidated Financial Statements.................................................. F-72
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Axiohm S.A.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Axiohm S.A.
and its subsidiaries at December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with United States generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with United States generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Axiohm S.A. and its subsidiaries for any
period subsequent to December 31, 1996.
/s/ PRICE WATERHOUSE
Price Waterhouse
Paris, France
September 12, 1997, except as to Note 19, which is as of January 9, 1998
F-2
<PAGE>
AXIOHM S.A.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
NOTE 1995 1996
----- --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 636 $ 1,839
Accounts receivable, net........................................................... 3 9,700 10,552
Inventories, net................................................................... 4 13,506 13,900
Loan to related party.............................................................. 17 -- 1,832
Other current assets............................................................... 2,435 1,454
--------- ---------
Total current assets............................................................. 26,277 29,577
Property, plant and equipment, net................................................... 5 11,002 11,235
Goodwill............................................................................. 6 2,254 2,606
Other assets......................................................................... 651 560
--------- ---------
Total assets..................................................................... $ 40,184 $ 43,978
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 6,675 $ 7,480
Bank overdraft..................................................................... 545 --
Current portion of long-term debt.................................................. 8 1,748 1,267
Current portion of capital lease and financing obligations......................... 9 84 139
Current portion of government grant obligations.................................... 11 327 916
Other current liabilities.......................................................... 7 4,185 5,703
--------- ---------
Total current liabilities........................................................ 13,564 15,505
Long-term debt....................................................................... 8 13,087 4,821
Capital lease and financing obligations.............................................. 9 1,662 1,543
Government grant obligations......................................................... 11 2,600 1,846
Deferred income taxes................................................................ 13 1,482 1,557
Other long-term liabilities.......................................................... 14 1,812 2,273
--------- ---------
Total liabilities................................................................ $ 34,207 $ 27,545
--------- ---------
Commitments and contingencies........................................................ 10 -- --
Shareholders' equity:
Common stock, ordinary shares "A" par value FF 100 at December 31, 1995 and FF 500
at December 31, 1996; 38,000 shares authorized and outstanding at December 31,
1995; 38,405 shares authorized and outstanding at December 31, 1996.............. 15 $ 616 $ 3,579
Common stock, ordinary shares "B" par value FF 500, 2,735 shares authorized and
outstanding at December 31, 1996................................................. -- 262
Capital in excess of par value..................................................... 66 326
Retained earnings.................................................................. 5,434 12,149
Foreign currency translation adjustment............................................ (139) 117
--------- ---------
Total shareholders' equity....................................................... 5,977 16,433
--------- ---------
Total liabilities and shareholders' equity....................................... $ 40,184 $ 43,978
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
AXIOHM S.A.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
NOTE 1994 1995 1996
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Net sales........................................................ 3 $ 23,952 $ 72,155 $ 95,302
Other income..................................................... 12 858 -- --
---------- ---------- ----------
24,810 72,155 95,302
Costs and expenses:
Costs of products sold........................................... (15,095) (52,202) (66,390)
Selling, general and administrative.............................. (4,506) (9,200) (11,013)
Research and development......................................... (3,310) (5,836) (6,648)
Goodwill amortization............................................ 6 -- (161) (200)
---------- ---------- ----------
Total costs and expenses........................................... (22,911) (67,399) (84,251)
---------- ---------- ----------
Income from operations............................................. 1,899 4,756 11,051
Interest income.................................................... 90 158 158
Interest expense................................................... (244) (1,889) (1,032)
Other income....................................................... 12 167 -- 1,033
---------- ---------- ----------
Income before income taxes......................................... 1,912 3,025 11,210
Provision for income taxes......................................... 13 (482) (1,095) (4,406)
---------- ---------- ----------
Net income......................................................... $ 1,430 $ 1,930 $ 6,804
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
AXIOHM S.A.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1994 1995 1996
---------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 1,430 $ 1,930 $ 6,804
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 1,070 2,696 2,921
Deferred income taxes....................................................... 756 (155) 458
Provision for inventory obsolescence........................................ 57 1,040 87
Provision for long-term liabilities......................................... 94 184 461
Other....................................................................... -- 36 213
Effect on cash of changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable.................................. 580 (4,659) (2,215)
Increase in inventories..................................................... (1,411) (1,896) (823)
Increase in other current assets............................................ (220) (248) (517)
(Decrease)/increase in accounts payable..................................... (437) 160 2,700
Increase in other current liabilities....................................... 720 1,371 1,137
(Decrease)/increase in income tax payable................................... (420) 678 618
Decrease in deferred revenue................................................ (58) (130) (107)
---------- --------- ---------
Net cash provided by operating activities....................................... $ 2,161 $ 1,007 $ 11,737
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
IPB acquisition, net of cash acquired (Note 2)................................ $ (15,644) $ -- $ --
Capital expenditures.......................................................... (2,190) (2,955) (3,056)
Proceeds from disposition of property, plant and equipment.................... -- 53 71
Other......................................................................... (203) (123) (12)
---------- --------- ---------
Net cash used in investing activities........................................... $ (18,037) $ (3,025) $ (2,997)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft................................................................ $ (540) $ 409 $ (545)
Net borrowings under lines of credit.......................................... 645 953 (128)
Proceeds from long-term debt.................................................. 15,301 1,000 --
Principal repayments under long-term debt..................................... (371) (4,992) (8,446)
Proceeds from government grants............................................... 716 2,204 338
Proceeds from financing arrangements (Note 9)................................. -- 1,600 --
Repayment of government grants................................................ -- (196) (308)
Principal repayments under financing obligations.............................. -- (36) (119)
Payment of dividends.......................................................... (342) -- (411)
Proceeds from stock issuance, net of issuance costs (Note 15)................. -- -- 3,807
Net loans/repayments to related parties....................................... 602 -- (1,851)
---------- --------- ---------
Net cash provided by/(used in) financing activities............................. $ 16,011 $ 942 $ (7,663)
---------- --------- ---------
Effect of foreign exchange rate changes on cash and cash equivalents............ $ 399 $ 216 $ 126
---------- --------- ---------
Change in cash and cash equivalents............................................. $ 534 $ (860) $ 1,203
Cash and cash equivalents at beginning of year.................................. 962 1,496 636
---------- --------- ---------
Cash and cash equivalents at end of year........................................ $ 1,496 $ 636 $ 1,839
---------- --------- ---------
---------- --------- ---------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest...................................................................... $ 157 $ 1,649 $ 845
Income taxes, net of refunds.................................................. 140 604 3,245
NON-CASH TRANSACTIONS:
Capital lease obligations..................................................... -- $ 1,750 $ 163
Accrual for contingent purchase price consideration (Note 10)................. -- -- 552
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
AXIOHM S.A.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF SHARES COMMON STOCK
-------------------- -------------------- CAPITAL
IN FOREIGN
CLASS CLASS EXCESS CURRENCY
-------------------- -------------------- OF PAR RETAINED TRANSLATION
A B A B VALUE EARNINGS ADJUSTMENT
--------- --------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993................ 38,000 -- $ 616 $ -- $ 66 $ 2,416 $ (225)
Net income.................................. -- -- -- -- -- 1,430 --
Dividends................................... -- -- -- -- -- (342) --
Currency translation adjustment............. -- -- -- -- -- -- 341
--------- --------- --------- --------- --------- --------- -----
BALANCE AT DECEMBER 31, 1994................ 38,000 -- $ 616 $ -- $ 66 $ 3,504 $ 116
Net income.................................. -- -- -- -- -- 1,930 --
Currency translation adjustment............. -- -- -- -- -- -- (255)
--------- --------- --------- --------- --------- --------- -----
BALANCE AT DECEMBER 31, 1995................ 38,000 -- $ 616 $ -- $ 66 $ 5,434 $ (139)
Issuance of Common Stock "A"................ 405 -- 8 -- 489 -- --
Issuance of Common Stock "B"................ -- 2,735 -- 52 3,297 -- --
Stock issuance costs........................ -- -- -- -- (39) -- --
Increases in nominal value of each share
from FF 100 to FF 500..................... -- -- 2,955 210 (3,165) -- --
Allocation to restricted reserves........... -- -- -- -- (322) 322 --
Dividends................................... -- -- -- -- -- (411) --
Net income.................................. -- -- -- -- -- 6,804 --
Currency translation adjustment............. -- -- -- -- -- -- 256
--------- --------- --------- --------- --------- --------- -----
BALANCE AT DECEMBER 31, 1996................ 38,405 2,735 $ 3,579 $ 262 $ 326 $ 12,149 $ 117
--------- --------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- --------- -----
<CAPTION>
TOTAL
---------
<S> <C>
BALANCE AT DECEMBER 31, 1993................ $ 2,873
Net income.................................. 1,430
Dividends................................... (342)
Currency translation adjustment............. 341
---------
BALANCE AT DECEMBER 31, 1994................ $ 4,302
Net income.................................. 1,930
Currency translation adjustment............. (255)
---------
BALANCE AT DECEMBER 31, 1995................ $ 5,977
Issuance of Common Stock "A"................ 497
Issuance of Common Stock "B"................ 3,349
Stock issuance costs........................ (39)
Increases in nominal value of each share
from FF 100 to FF 500..................... --
Allocation to restricted reserves........... --
Dividends................................... (411)
Net income.................................. 6,804
Currency translation adjustment............. 256
---------
BALANCE AT DECEMBER 31, 1996................ $ 16,433
---------
---------
</TABLE>
The accompanying notes are integral part of the consolidated financial
statements.
F-6
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Axiohm Transaction Solutions, Inc. ("Axiohm") designs, develops, manufactures
and services printers, printer components and printing systems utilizing thermal
and impact technologies. Axiohm's customers include major point-of-sale
providers, gasoline pump manufacturers, banking systems suppliers and other
manufacturers of equipment printing slips, tickets or receipts. Axiohm operates
on a worldwide basis with significant activities in North America and Europe.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The financial statements of Axiohm include the accounts of its wholly owned
subsidiaries in the United States, Hong Kong and Japan. All intercompany
accounts and transactions have been eliminated.
These accompanying financial statements have been presented in accordance with
accounting principles generally accepted in the United States of America ("US
GAAP").
B. USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities as
of the date of the consolidated financial statements and the reported amount of
revenue and expenses during the reporting period. Actual results could differ
from estimates.
C. GOODWILL
Axiohm amortizes costs in excess of the fair value of net assets acquired using
the straight-line method over an estimated useful life of fifteen years.
D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives of the related
assets:
<TABLE>
<S> <C>
Buildings....................................... 20 to 40
years
Machinery and equipment......................... 3 to 5 years
Molds and tooling............................... 3 to 5 years
Furniture and fixtures.......................... 3 to 7 years
Computer software............................... 1 to 3 years
</TABLE>
E. INVENTORIES
Inventories are valued at the lower of cost or market, cost being determined
using the first-in, first-out ("FIFO") method.
F-7
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
F. CASH AND CASH EQUIVALENTS
Cash equivalents consist principally of short-term highly liquid money market
funds with original maturities of less than three months.
G. REVENUE
Revenue from product sales is recognized at the time of shipment. Service
revenue is recognized upon completion of the service activity and the shipment
of the repaired product to the customer.
H. RESEARCH & DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Certain government
research grants, which are repayable in the event that the related research
project proves to be successful, are recognized as a deduction to expenses when
the research project has been determined to be unsuccessful and all other
conditions of the grant have been satisfied.
I. TRANSLATION OF FINANCIAL STATEMENTS
Axiohm's financial results have been reported in U.S. dollars. The functional
currencies of Axiohm's subsidiaries are the local currencies where the
subsidiaries operate. When translating local currency based financial statements
into U.S. dollars, assets and liabilities are translated at the year end rate
unless hedged by forward foreign exchange contracts, in which case the rates
specified in such forward contracts are used, while income and expenses are
translated using the average rate for the year. Translation differences are
presented as a component of shareholders' equity.
J. FOREIGN CURRENCY HEDGES
The Company uses financial instruments, primarily forward exchange contracts, to
hedge its exposure to foreign currency exchange rate fluctuations resulting from
the fact that most of its expenses are incurred in French francs while a
substantial portion of its revenues and receivables are denominated in U.S.
dollars.
In order to mitigate the associated risk resulting from increases in the
French franc compared to the U.S. dollar, the Company identifies on a monthly
basis its cash requirements denominated in each currency for the next quarterly
period. Based on these requirements, currency forwards are entered into and
designated as hedges of specific cash commitments. Realized and unrealized gains
and losses arising from currency forwards are recognized in income in the same
period as gains and losses resulting from the underlying hedged transactions.
The Company does not use or hold financial instruments for speculative
trading purposes.
K. CONCENTRATION OF CREDIT RISK
Axiohm sells products to various customers across several industries throughout
the world. Axiohm performs on-going credit evaluations of its customers and
maintains reserves for potential credit losses. Such losses have been within
management's expectations. Axiohm generally requires no collateral from its
customers.
F-8
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
L. INCOME TAXES
Axiohm follows Statement of Financial Accounting Standard No. 109 ("SFAS 109"),
ACCOUNTING FOR INCOME TAXES. Under SFAS 109, the tax provision is determined
under the liability method. Under this method deferred tax assets and
liabilities are recognized based on the differences between the financial
reporting and the tax bases of assets and liabilities using presently enacted
tax rates. Valuation allowances are established on deferred tax assets when
management estimates that it is more likely than not that some or all of
deferred tax benefits will not be realized.
M. GOVERNMENT GRANTS AND SUBSIDIES
Grants received from government agencies for the acquisition of property and
equipment are netted against the related capital expenditure. Grants for
investments in foreign countries are deferred and recognized as a deduction to
expenses if and when the conditions for the grant have been satisfied. Subsidies
received for employee training are recognized as a deduction to expenses during
the period in which the related costs are incurred.
N. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1994, 1995 and 1996, the carrying amount of Axiohm's financial
instruments, including cash and cash equivalents, trade receivables, trade
payables and other accrued liabilities, approximates their fair value due to
their short-term maturities. Based on quoted market prices and rates of interest
available to Axiohm, the carrying amount of its debt instruments and other
long-term liabilities at December 31, 1994, 1995 and 1996 also approximates fair
value.
O. PROFIT SHARING AND RETIREMENT INDEMNITY PLANS
Substantially all Axiohm employees participate in statutory profit sharing and
retirement indemnity plans. Amounts owed under the profit sharing plan are based
on a formula prescribed by French law. Benefit obligations under the retirement
indemnity plan are determined based on length of service, annual remuneration
and job grade. These obligations and the related compensation expense are
recorded in the financial statements of the period during which the related
benefits are earned.
P. POST-RETIREMENT MEDICAL PLAN
Certain Axiohm employees participate in a defined benefit post-retirement
medical plan. Axiohm's projected benefit obligation relating to such benefits is
calculated and recorded in accordance with Statement of Financial Accounting
Standards No. 106 ("SFAS 106"), ACCOUNTING FOR POST-RETIREMENT BENEFITS.
Q. NEW ACCOUNTING STANDARDS
In March 1995, Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF was issued. This statement requires that long-lived assets held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. This
F-9
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
statement was implemented for the year ended December 31, 1996. The adoption of
this accounting standard had no significant impact on the financial position or
results of operations of Axiohm. Axiohm will continually assess impairment of
long-lived assets and certain identifiable intangibles whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Effective January 1, 1996, Axiohm adopted Statement of Accounting Standards No.
123 ("SFAS 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION. This statement
defines a fair value based method of accounting for employee options or similar
equity instruments and encourages all entities to adopt that method of
accounting. However, it also allows an entity to continue to measure
compensation costs using the intrinsic value based method of accounting
prescribed by Accounting Principle Board Opinion No. 25 ("APB 25"), ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES. Axiohm has elected to account for its employee
stock compensation plan under the provisions of APB 25.
2. IPB ACQUISITION
On December 29, 1994, Axiohm acquired the net assets of the printer division of
NCR ("the Seller") (formerly AT&T Global Information Solutions Company). The
acquisition was accounted for using the purchase method and the results of the
division have been included since that date.
The aggregate purchase price of the net assets acquired was $15.6 million
including acquisition costs and was financed through 12 year term loans
subscribed for a total amount of approximately $15.0 million and credit line
facilities of approximately $0.6 million. The agreement also provides for
additional contingent consideration for up to $5.0 million for each of the three
years ending December 31, 1995, 1996 and 1997 to be paid to the Seller to the
extent that sales made by Axiohm to the Seller exceed certain minimums specified
in the purchase agreement. Any additional consideration is allocated to
goodwill. In the year ended December 31, 1996, sales of products to the Seller
did exceed such minimums and an adjustment of $552 was made to goodwill (See
Note 10).
The purchase price has been allocated to the assets acquired and liabilities
assumed based upon fair market values at the date of acquisition. The fair value
of assets acquired and liabilities assumed is as follows:
<TABLE>
<CAPTION>
Current assets.................................................... $ 8,032
<S> <C>
Property, plant and equipment..................................... 8,664
Other assets...................................................... 298
Goodwill.......................................................... 2,415
Current liabilities............................................... (2,568)
Long-term liabilities............................................. (1,197)
---------
$ 15,644
---------
---------
</TABLE>
The following unaudited statement of revenue, gross margin, income from
operations and net income for the year ended December 31, 1994 is presented as
if the acquisition had been made at the beginning of the period. The financial
information utilized for the division in computing the following pro forma has
been derived from unaudited financial records carved out from the Seller's own
accounts and presented by the Seller to Axiohm at the time of acquisition. These
records include actual results for the nine-month period
F-10
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
2. IPB ACQUISITION (CONTINUED)
ended September 30, 1994 and an estimate of the results for the three-month
period ended December 31, 1994 as provided by the Seller.
The unaudited pro forma information is not necessarily indicative of the
revenue, gross margin, income from operations or net income that would have
occurred had the purchase been made at the beginning of the period.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
PRO FORMA (UNAUDITED)
---------------------
<S> <C>
Revenue.................................................................................... $ 66,218
Gross margin............................................................................... 18,923
Income from operations..................................................................... 4,142
Net income................................................................................. 3,032
</TABLE>
In connection with this acquisition, Axiohm and the Seller entered into a three
year OEM purchase agreement under which the Seller undertakes to purchase at
least 75% of its requirements for certain products from Axiohm at prices
specified in the agreement. On September 2, 1997, Axiohm entered into a new
three-year contract with NCR. The New NCR contract does not obligate NCR to
purchase a minimum of 75% of its requirements for transaction printers of the
type manufactured by Axiohm, but does provide that NCR and Axiohm intend and
expect that NCR will purchase from Axiohm substantially all of its requirements
for transaction printers.
3. ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Trade accounts receivable.................................................................... $ 9,838 $ 10,690
Less: allowance for doubtful accounts........................................................ (138) (138)
--------- ---------
Accounts receivable, net..................................................................... $ 9,700 $ 10,552
--------- ---------
--------- ---------
</TABLE>
For the years ended December 31, 1994, 1995 and 1996, revenue in the amount of
$2,063, $46,278 and $49,502, respectively, came from sales to NCR representing
approximately 9%, 64% and 52%, respectively, of Axiohm's total net sales. At
December 31, 1995 and 1996, accounts receivable from this customer were $4,239
and $2,860, respectively. All amounts are due within one year.
F-11
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
4. INVENTORIES, NET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Raw materials and components............................................ $ 11,992 $ 13,345
Work in process......................................................... 2,152 949
Semi-finished and finished goods........................................ 1,555 1,793
--------- ---------
15,699 16,087
Less: allowance for obsolescence........................................ (2,193) (2,187)
--------- ---------
Inventories, net........................................................ $ 13,506 $ 13,900
--------- ---------
--------- ---------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Land.................................................................... $ 803 $ 755
Buildings............................................................... 5,085 5,355
Machinery and equipment................................................. 1,763 1,797
Molds and tooling....................................................... 5,788 6,471
Furniture, fixtures and fittings........................................ 3,845 4,704
--------- ---------
17,284 19,082
Less: accumulated depreciation.......................................... (6,282) (7,847)
--------- ---------
Property, plant and equipment, net...................................... $ 11,002 $ 11,235
--------- ---------
--------- ---------
</TABLE>
Depreciation expense for the years ended December 31, 1994, 1995 and 1996 was
$1,044, $2,421 and $2,721, respectively.
6. GOODWILL
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Goodwill................................................................ $ 2,415 $ 2,967
Less: accumulated amortization.......................................... (161) (361)
--------- ---------
Goodwill, net........................................................... $ 2,254 $ 2,606
--------- ---------
--------- ---------
</TABLE>
Amortization expense for the years ended December 31, 1994, 1995 and 1996 was
$0, $161 and $200, respectively.
F-12
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
7. OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Accrued salaries and benefits............................................ $ 2,172 $ 2,501
Customer advances........................................................ 654 989
Accrued warranty expenses................................................ 485 718
Income taxes............................................................. 371 500
Other taxes.............................................................. 224 381
NCR earnout.............................................................. -- 552
Relocation accrual....................................................... 262 --
Other.................................................................... 17 62
--------- ---------
Total other current liabilities.......................................... $ 4,185 $ 5,703
--------- ---------
--------- ---------
</TABLE>
8. LONG-TERM DEBT
Axiohm has entered into borrowing arrangements with various banks for loans
denominated in French Francs ("FF"), U.S. Dollars ("USD") and Japanese Yen
("JPY").
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Revolving credit line up to $8,000, the first $3,000 at lender's prime rate
plus three quarters (9.75% at December 31, 1995 and 9.5% at December 31,
1996), the next $5,000 at lender's prime plus one quarter (9.25% at
December 31, 1995 and 9.00% at December 31, 1996), payable in full January
1, 1998, secured by inventory, accounts receivable, contract rights,
equipment and general intangibles.......................................... $ 1,302 $ 1,174
Revolving credit line in FF, USD or JPY up to an equivalent
amount of FF 4.5 million at the quarterly weighted average interest rate on
the Interbank Money Market plus 1.0% or lender's prime rate plus 1.0%
(5.75% at December 31, 1995 and 4.31% at December 31, 1996),
payable in full January 1, 1998, secured by Axiohm's accounts receivable... 301 --
Business loan at 10% collateralized by various assets; balance paid
in full in July 1996....................................................... 3,045 --
Bank mortgage loan at lender's prime rate plus three quarters (9.75% at
December 31, 1995 and 9.5% at December 31, 1996), payable in monthly
installments of $44 (including interest) through 1997, amortized on
twelve-year schedule beginning in 1998, with balloon for full outstanding
balance due January 1, 2000; payment collateralized by building, machinery
and equipment.............................................................. 4,019 3,868
Three bank loans in FF at rates between 4.6% and 7.25%, payable
from 1997 to 2002, secured by Axiohm's equipment........................... 1,328 1,046
Bank loan in FF to acquire IPB assets at PIBOR one year rate plus
1.2% payable in seven yearly installments through 2001, secured by
IPB shares; balance paid in full in 1996................................... 4,373 --
Five business loans in FF at rates between 5.75% and 8.75%, secured
by Axiohm's equipment; balance paid in full in 1996........................ 467 --
--------- ---------
$ 14,835 $ 6,088
Less current portion......................................................... (1,748) (1,267)
--------- ---------
Total long-term debt......................................................... $ 13,087 $ 4,821
--------- ---------
--------- ---------
</TABLE>
Commitment fees on the total amount of the revolving credit line in USD are
payable annually at an annual rate of 0.25%.
F-13
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
8. LONG-TERM DEBT (CONTINUED)
At December 31, 1996, annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -----------------------------------------------------------------------------------------
<S> <C>
1997..................................................................................... $ 1,267
1998..................................................................................... 391
1999..................................................................................... 750
2000..................................................................................... 3,427
2001..................................................................................... 165
2002 and thereafter...................................................................... 88
---------
Total................................................................................ $ 6,088
---------
---------
</TABLE>
9. CAPITAL LEASE AND FINANCING OBLIGATIONS
a. CAPITAL LEASES
Axiohm and its subsidiaries lease office equipment and vehicles under various
capital lease contracts with terms extending through December 31, 2000.
b. FINANCING ARRANGEMENT
In 1994, Axiohm negotiated a FF 8.0 million ($1.6 million) grant from various
agencies of the government of France to subsidize the purchase and improvement
of certain properties in France. The agreement is structured as a sale/leaseback
transaction in which title to the purchased property was sold to a government
agency in exchange for a cash payment of FF 16 million ($3.2 million) and
subsequently leased back for a fifteen year period. The terms of the agreement
provide for a bargain purchase option at the conclusion of the lease term, hence
the sale/leaseback transaction has been accounted for as financing arrangement
in which the related assets and a corresponding obligation are recorded in
Axiohm's financial statements. A financing obligation representing the proceeds
for the sale/leaseback component of the transaction has been netted against the
underlying capital expenditure. At December 31, 1996, Axiohm has a contingent
liability to repay, in whole or in part, grants received of approximately FF 8.0
million ($1.6 million), in the event Axiohm does not meet the requirements of
the grant including minimum employment levels through 1997, minimum capital
expenditures and continued use of the building throughout the lease term.
F-14
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
9. CAPITAL LEASE AND FINANCING OBLIGATIONS (CONTINUED)
Future minimum lease commitments under capital leases and the financing
arrangement at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING DECEMBER 31, LEASES FINANCING TOTAL
- --------------------------------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
1997........................................................... $ 102 $ 189 $ 291
1998........................................................... 102 189 291
1999........................................................... 47 189 236
2000........................................................... 19 189 208
2001........................................................... -- 189 189
2002 and thereafter............................................ -- 1,600 1,600
----- ----------- ---------
Total minimum lease payments................................... $ 270 $ 2,545 $ 2,815
----- -----------
----- -----------
Less: amounts representing interest............................ (1,133)
---------
Present value of minimum lease payments........................ 1,682
Current portion................................................ (139)
---------
Long-term portion of capital lease obligations................. $ 1,543
---------
---------
</TABLE>
Included in property, plant and equipment in the accompanying consolidated
balance sheets are the following assets under capital leases and the financing
arrangement:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Building at cost......................................................... $ 1,634 $ 1,527
Equipment at cost........................................................ 150 310
--------- ---------
1,784 1,837
Less: accumulated depreciation........................................... (64) (210)
--------- ---------
Assets under capital leases and financing arrangement, net............... $ 1,720 $ 1,627
--------- ---------
--------- ---------
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
In connection with the 1994 acquisition of what is now its Axiohm IPB
subsidiary, Axiohm is contingently liable to the Seller for up to $5.0 million
for each of the three years ending December 31, 1995, 1996 and 1997, for
additional purchase consideration (See Note 2). As of December 31, 1996, Axiohm
had accrued $552 for contingent payments resulting from 1996 sales performance.
F-15
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
11. GOVERNMENT GRANT OBLIGATIONS
French government agencies provide various long-term grants to promote
fundamental research programs and to encourage commercial implementation
overseas. The reimbursement of such grants is contingent upon the success of the
related program.
These grants are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Fundamental research....................................................... $ 1,709 $ 1,488
Commercial implementation in Asia.......................................... 1,218 1,274
--------- ---------
2,927 2,762
Less: current portion...................................................... (327) (916)
--------- ---------
Long-term portion.......................................................... $ 2,600 $ 1,846
--------- ---------
--------- ---------
</TABLE>
12. SUPPLEMENTARY INCOME STATEMENT DISCLOSURES
A. REVENUE
In 1994, Axiohm received revenue in respect of liquidation damages from
three customers for a total amount of $ 0.9 million. This amount represents
indemnities to Axiohm for the non-fulfillment of contractual terms by these
customers.
B. OTHER INCOME
At the end of 1995 and into 1996, Axiohm received insurance proceeds of
$ 1.0 million in compensation for the loss of revenue and commercial damage
caused by water in the thermal head clean room of the Puiseaux facility. The
insurance proceeds have been included in other income.
13. INCOME TAXES
Axiohm operates internationally and tax rates are subject to applicable tax
legislation in the country in which it operates. The domestic and foreign
components of pre-tax income are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Domestic (France) pre-tax income/(loss)...................... $ 1,979 $ (1,011) $ 4,780
Foreign pre-tax (loss)/income................................ (67) 4,036 6,430
--------- --------- ---------
Total........................................................ $ 1,912 $ 3,025 $ 11,210
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-16
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
13. INCOME TAXES (CONTINUED)
The provision for income tax consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
CURRENT INCOME TAX EXPENSE/(CREDIT)
Domestic....................................................... $ (283) $ (359) $ 1,159
Foreign........................................................ 9 1,609 2,789
--------- --------- ---------
Total............................................................ $ (274) $ 1,250 $ 3,948
--------- --------- ---------
--------- --------- ---------
DEFERRED INCOME TAX EXPENSE/(CREDIT)
Domestic....................................................... $ 661 $ (280) $ 577
Foreign........................................................ 95 125 (119)
--------- --------- ---------
Total............................................................ $ 756 $ (155) $ 458
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the differences between income tax expense computed at
the French statutory rate and Axiohm's reported income tax provision is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Statutory rate..................................................... 33.3% 36.7% 36.7%
Tax research credit.............................................. (14.8) (11.9) --
Non utilized foreign entities losses............................. 5.9 6.8 1.7
Effect of tax rate differences in foreign jurisdictions.......... 0.8 1.7 1.1
Effect of change in tax rate on domestic deferred taxes.......... -- 2.8 --
Other............................................................ -- 0.1 (0.2)
--------- --------- ---
Effective Tax Rate................................................. 25.2% 36.2% 39.3%
--------- --------- ---
--------- --------- ---
</TABLE>
A tax research credit of approximately $285 and $359 was recorded at December
31, 1994 and 1995, respectively. The tax research credit was based on an
increase in research and development expenditure. Additionally, certain tax
losses in foreign jurisdictions were unavailable for offset against taxable
income.
F-17
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
13. INCOME TAXES (CONTINUED)
The components of deferred tax assets/(liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Deferred tax assets:
Post-retirement benefit obligation..................................... $ 643 $ 677
Investment grants...................................................... 578 504
Operating loss carry forwards.......................................... 815 388
Other.................................................................. 403 720
--------- ---------
Total deferred tax assets................................................ 2,439 2,289
Less: valuation allowance.............................................. (260) (388)
--------- ---------
Net deferred tax assets.................................................. $ 2,179 $ 1,901
--------- ---------
--------- ---------
Deferred tax liabilities:
Long-term tax reserve.................................................. $ (1,756) $ (1,603)
Plant and equipment.................................................... (576) (639)
Goodwill............................................................... (436) (407)
Provisions............................................................. -- (304)
Other.................................................................. (27) (22)
--------- ---------
Total deferred tax/liabilities........................................... $ (2,795) $ (2,975)
--------- ---------
--------- ---------
</TABLE>
Axiohm recorded a valuation allowance of $260 and $388 at December 31, 1995
and 1996, respectively, for net operating loss carry forwards in certain tax
jurisdictions since realization of these future benefits cannot be reasonably
assured. These net operating loss carry forwards expire at varying dates through
2001.
14. OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Provision for post-retirement benefit...................................... 1,341 1,436
Other...................................................................... 471 837
--------- ---------
Total...................................................................... 1,812 2,273
--------- ---------
--------- ---------
</TABLE>
Axiohm is currently obligated to provide certain post-retirement medical and
life insurance benefits to approximately 100 employees who have met certain
requirements as to age (generally 55) and length of service (generally 10 years,
which includes a minimum of 5 years after January 1, 1995). Axiohm accounts for
the cost of these benefits in accordance with SFAS 106. Axiohm funds these costs
on a pay-as-you-go basis. The post-retirement benefit expense for the years
ended December 31, 1994, 1995 and 1996 amounts to $0 to $144 and $96,
respectively.
F-18
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
14. OTHER LONG-TERM LIABILITIES (CONTINUED)
The total obligation recognized in the balance sheet at December 31, 1995
and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Accumulated post-retirement benefit obligation:
Active--not fully eligible............................................... $ 1,471 $ 374
Retired.................................................................. -- 66
--------- ---------
Total................................................................ 1,471 440
Unrecognized prior service cost............................................ -- 1,690
Unrecognized net loss...................................................... (130) (694)
--------- ---------
Accrued post-retirement benefit obligation................................. $ 1,341 $ 1,436
--------- ---------
--------- ---------
</TABLE>
Significant assumptions employed in this valuation include a discount rate
of 7.25% at December 31, 1995, and 7.50% at December 31, 1996. The pre-Medicare
eligible healthcare cost trend rate is 8.0% for 1996 (6.0% for post-Medicare)
declining by one percent each year through the year 2000 (1998 for post-
Medicare), after which a rate of 5.0% is utilized for each year.
The annual costs of post-retirement benefits are based on assumed discount
rates set to reflect market conditions. If the healthcare cost trend rate was
increased by one percentage point, the net post-retirement benefit expense for
the year ended December 31, 1994, 1995 and 1996 and the accumulated post-
retirement benefit obligation, as of December 31, 1995 and 1996 would not
increase by a material amount.
Axiohm sponsors an employee savings plan for certain U.S. employees which
conforms to the provisions of Section 401(k) of the Internal Revenue Code.
Axiohm also provides certain defined pension benefits (based on years of
service) to certain categories of employees.
Axiohm's obligations under these plans for 1994, 1995 and 1996 were not
material.
15. SHAREHOLDERS' EQUITY
A. SHARE CAPITAL
On June 24, 1996, Axiohm completed a private offering of 405 Common
Shares "A," and 2,735 Common Shares "B" to an employee of Axiohm and two
institutional investors, respectively, from which it received total proceeds
of $3,807, net of offering costs of $39.
Common Shares "B" have substantially the same terms as Common Shares "A"
except for their economic rights (represented by CERTIFICATS
D'INVESTISSEMENTS) and their voting rights (represented by CERTIFICATS DE
DROIT DE VOTE) which can be separated and sold individually.
On the same date, Axiohm increased the par value of its Common Shares
from FF 100 to FF 500.
F-19
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
15. SHAREHOLDERS' EQUITY (CONTINUED)
B. RETAINED EARNINGS
At December 31, 1996, Axiohm's distributable retained earnings amounted
to $11,025 and would be subject to $2,851 of additional withholding tax,
"PRECOMPTE," in case of distribution. The withholding tax would be recorded
in equity as part of the dividend paid to shareholders and shareholders
receiving the dividend would be entitled to a tax credit "AVOIR FISCAL" at
least equal to the withholding tax paid, under conditions provided for in
relevant tax treaties under French law.
C. STOCK OPTIONS
On December 15, 1995, the shareholders of Axiohm implemented a stock
option plan authorizing the Board of Directors to issue stock options for
the subscription of a maximum of 1,583 shares of Axiohm's Common Stock.
On February 19, 1996, the Board of Directors granted all 1,583 options
(to acquire one share of Common Stock each) to an officer of Axiohm at an
exercise price of FF 6,050 which approximated the fair value of the
underlying shares on the date of grant.
The options are valid for ten years (until December 31, 2005) and become
exercisable ratably over five years. Non-vested options become void upon
termination of employment. The plan also allows for accelerated vesting upon
certain conditions and events including a public offering of Axiohm's stock
and specified changes in the existing ownership of Axiohm.
As of December 31, 1996, all 1,583 options (none of which are
exercisable) remained outstanding.
Had compensation costs for Axiohm's stock option plan been determined
consistent with the fair value approach set forth in SFAS No. 123, Axiohm's
net income for the year ended December 31, 1996 would have been reduced to
$6,726. The fair value of the options granted is estimated on the date of
grant using the minimum value method with the following assumptions: 3.9%
dividend yield, a risk free interest rate of 6.35%, an expected option life
of 10 years and no forfeitures.
16. FOREIGN CURRENCY HEDGES
At December 31, 1996, Axiohm's portfolio consisted of five foreign exchange
contracts to sell $4.5 million at an average rate of $1 = FF 5.17 and one option
to sell $3.0 million at August 29, 1997 at the rate of FF 5.15 for $1. The
option was acquired at a cost of $76.
17. RELATED PARTY TRANSACTIONS
Axiohm purchased from Dardel Technologies, a significant shareholder (44%
ownership) of Axiohm, services including insurance coverage, telecommunications
and legal and management assistance. These services amounted to $1,029, $995 and
$991 in fiscal years 1994, 1995 and 1996, respectively. In addition, Dardel
Technologies sub-leases to Axiohm S.A. office space that it leases from a
company owned by three directors of Axiohm S.A. These sub-lease payments to
Dardel Technologies amounted to $130, $291 and $279 in 1994, 1995 and 1996,
respectively. This same company also provided office management services to
Axiohm S.A. for an amount of $202, $288 and $263 in 1994, 1995 and 1996,
respectively. The terms of such transactions approximate those of an arm's
length transaction with an unrelated party.
F-20
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
17. RELATED PARTY TRANSACTIONS (CONTINUED)
Axiohm provided selling and commercial services to Enerdis S.A., a
subsidiary of Dardel Technologies for an amount of $0, $93 and $132 in the years
ended December 31, 1994, 1995 and 1996, respectively. The terms of such
transactions approximate those of an arm's length transaction with an unrelated
party.
In 1994, 1995 and 1996, Axiohm participated in a cash pooling agreement with
Dardel Technologies allowing it to borrow or loan cash as considered necessary.
At December 31, 1996, Axiohm S.A. had an outstanding loan with Dardel
Technologies amounting to $1,832 and bearing interest at 6.42% which was
recorded in other current assets. This loan was reimbursed in April 1997 and the
cash pooling agreement has been subsequently terminated. The terms of such
transactions approximate those of an arm's length transaction with an unrelated
party.
18. GEOGRAPHICAL INFORMATION
Axiohm operates predominantly in a single industry as a manufacturer and
service provider of thermal and impact printing equipment. Axiohm has operations
in France, the United States, Hong Kong and Japan. Transfers between geographic
areas primarily represent intercompany export sales of approximately $3.7
million, $8.7 million and $17.3 million in 1994, 1995 and 1996, respectively.
These produced goods are accounted for based on established sales prices between
the related companies. In computing income from operations for foreign
subsidiaries, no allocations of general corporate expenses, interest or income
taxes have been made.
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NORTH
EUROPE AMERICA ASIA ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers....................... $ 20,613 $ 3,339 $ -- $ -- $ 23,952
Other revenues........................................ 858 -- -- -- 858
Transfer between geographic areas..................... 3,188 507 21 (3,716) --
--------- --------- --------- ------------ ------------
Total revenues........................................ $ 24,659 $ 3,846 $ 21 $ (3,716) $ 24,810
--------- --------- --------- ------------ ------------
--------- --------- --------- ------------ ------------
Operating profit/(loss)............................... $ 1,889 $ 342 $ (332) $ -- $ 1,899
Net income/(loss)..................................... $ 1,499 $ 268 $ (337) $ -- $ 1,430
Total assets at December 31, 1994..................... $ 22,578 $ 21,327 $ 103 $ (9,255) $ 34,753
</TABLE>
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NORTH
EUROPE AMERICA ASIA ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers....................... $ 17,317 $ 54,099 $ 739 $ -- $ 72,155
Transfer between geographic areas..................... 8,716 -- -- (8,716) --
--------- --------- --------- ------------ ------------
Total revenues........................................ $ 26,033 $ 54,099 $ 739 $ (8,716) $ 72,155
--------- --------- --------- ------------ ------------
--------- --------- --------- ------------ ------------
Operating profit/(loss)............................... $ 68 $ 5,540 $ (528) $ (324) $ 4,756
Net income/(loss)..................................... $ (177) $ 2,862 $ (561) $ (194) $ 1,930
Total assets at December 31, 1995..................... $ 24,089 $ 26,184 $ 318 $ (10,407) $ 40,184
</TABLE>
F-21
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
18. GEOGRAPHICAL INFORMATION (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NORTH
EUROPE AMERICA ASIA ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers....................... $ 20,367 $ 73,625 $ 1,310 $ -- $ 95,302
Transfer between geographic areas..................... 17,335 -- -- (17,335) --
--------- --------- --------- ------------ ------------
Total revenues........................................ $ 37,702 $ 73,625 $ 1,310 $ (17,335) $ 95,302
--------- --------- --------- ------------ ------------
--------- --------- --------- ------------ ------------
Operating profit/(loss)............................... $ 4,075 $ 7,613 $ (445) $ (192) $ 11,051
Net income/(loss)..................................... $ 3,100 $ 4,265 $ (504) $ (57) $ 6,804
Total assets at December 31, 1996..................... $ 25,732 $ 28,640 $ 599 $ (10,993) $ 43,978
</TABLE>
19. SUBSEQUENT EVENTS: MERGER WITH DH TO COMBINE OPERATIONS
On August 12, 1997, Axiohm closed a tender offer to acquire approximately
7,000,000 shares of DH Technology Inc. ("DH"). The tender offer was made
pursuant to the Agreement and plan of Merger (the "Merger Agreement") dated July
14, 1997 between both companies. The Merger Agreement provided for the
subsequent merger of Axiohm into DH resulting in Axiohm becoming a wholly-owned
subsidiary of DH; however, as a result of the tender offer and related
transactions, the former shareholders of Axiohm assumed ownership of
approximately 85% of the merged entities and, therefore, for financial purposes,
the transaction has been accounted for in a manner similar to a reverse
acquisition whereby Axiohm was treated as the acquirer and DH as the acquired
company.
The ultimate merger of Axiohm into DH was consummated through a series of
transactions pursuant to the Merger Agreement on October 2, 1997. Subsequently,
the surviving legal entity, DH Technology, Inc. changed its name to "Axiohm
Transaction Solutions, Inc."
The Tender Offer was financed through the incurrence of $166.2 million of
senior indebtedness and the issuance of $24 million of preferred stock of Axiohm
IPB, a wholly owned subsidiary of Axiohm (collectively the "Tender Financing").
The Tender Financing was subsequently repaid with i) borrowings under an
$85.0 million credit facility placed with a syndicate of banks and ii) the
proceeds from a private placement of $120.0 million of 9 3/4% Senior
Subordinated Notes due 2007 (the "Senior Notes"). Obligations under the Senior
Notes are fully and unconditionally guaranteed, jointly and severally, by
certain of Axiohm's directly or indirectly wholly-owned subsidiaries (the
"Guarantor Subsidiaries") pursuant to guarantor indenture arrangements.
Condensed financial information regarding the Guarantor Subsidiaries (Axiohm
S.A., which became Axiohm SARL in connection with the above merger transaction,
Axiohm IPB and Axiohm Inc. which was merged into Axiohm IPB effective January 1,
1997) and non-Guarantor subsidiaries (Axiohm Ltd. (Hong Kong) and Axiohm Japan
Inc.) as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 is presented below for purposes of complying with
the reporting requirements of the Guarantor Subsidiaries. Separate financial
statements and other disclosures concerning each Guarantor Subsidiary have not
been presented because management has determined that such information is not
material to investors.
F-22
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents............................... $ 1,724 $ 115 $ -- $ 1,839
Accounts receivable, net.............................. 10,258 294 -- 10,552
Inventories, net...................................... 13,811 89 -- 13,900
Other current assets.................................. 4,293 59 (1,066) 3,286
----------- ------- ------------ ------------
Total current assets.............................. 30,086 557 (1,066) 29,577
Property, plant and equipment, net...................... 11,213 22 -- 11,235
Other assets, including Goodwill........................ 3,454 20 (308) 3,166
----------- ------- ------------ ------------
Total Assets...................................... $ 44,753 $ 599 $ (1,374) $ 43,978
----------- ------- ------------ ------------
----------- ------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 7,067 $ 413 $ -- $ 7,480
Bank overdraft........................................ -- -- -- --
Current portion of long-term debt..................... 1,250 17 -- 1,267
Current portion of financing obligations.............. 139 -- -- 139
Current portion of government grant obligations....... 916 -- -- 916
Other current liabilities............................. 5,660 1,109 (1,066) 5,703
----------- ------- ------------ ------------
Total current liabilities......................... 15,032 1,539 (1,066) 15,505
Long-term debt.......................................... 4,821 -- -- 4,821
Capital lease and financing obligations................. 1,543 -- -- 1,543
Government grant obligations............................ 1,846 -- -- 1,846
Other long-term liabilities............................. 3,829 1 -- 3,830
----------- ------- ------------ ------------
Total Liabilities................................. $ 27,071 $ 1,540 $ (1,066) $ 27,545
----------- ------- ------------ ------------
Commitments and contingencies -- -- -- --
Shareholders' equity:
Capital, par value.................................... $ 3,841 $ 308 $ (308) $ 3,841
Capital in excess of par value........................ 326 -- -- 326
Retained earnings..................................... 13,507 (1,358) -- 12,149
Foreign currency translation adjustment............... 8 109 -- 117
----------- ------- ------------ ------------
Total Shareholders' equity........................ 17,682 (941) (308) 16,433
----------- ------- ------------ ------------
Total Liabilities and Shareholders' equity.............. $ 44,753 $ 599 $ (1,374) $ 43,978
----------- ------- ------------ ------------
----------- ------- ------------ ------------
</TABLE>
F-23
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash & cash equivalents............................... $ 626 $ 10 $ -- $ 636
Accounts receivable, net.............................. 9,555 145 -- 9,700
Inventories, net...................................... 13,448 58 -- 13,506
Other current assets.................................. 3,106 50 (721) 2,435
----------- ------- ------------ ------------
Total current assets.............................. 26,735 263 (721) 26,277
Property, plant and equipment, net...................... 10,969 33 -- 11,002
Other assets, including Goodwill........................ 3,191 22 (308) 2,905
----------- ------- ------------ ------------
Total Assets...................................... $ 40,895 $ 318 $ (1,029) $ 40,184
----------- ------- ------------ ------------
----------- ------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable...................................... $ 6,538 $ 137 $ -- $ 6,675
Bank overdraft........................................ 545 -- -- 545
Current portion of long-term debt..................... 1,748 -- -- 1,748
Current portion of financing obligations.............. 84 -- -- 84
Current portion of government grant obligations....... 327 -- -- 327
Other current liabilities............................. 4,156 750 (721) 4,185
----------- ------- ------------ ------------
Total current liabilities......................... 13,398 887 (721) 13,564
Long-term debt.......................................... 13,087 -- -- 13,087
Capital lease and financing obligations................. 1,662 -- -- 1,662
Government grant obligations............................ 2,600 -- -- 2,600
Other long-term liabilities............................. 3,294 -- -- 3,294
----------- ------- ------------ ------------
Total Liabilities................................. $ 34,041 $ 887 $ (721) $ 34,207
----------- ------- ------------ ------------
Commitments and contingencies -- -- -- --
Shareholders' equity:
Capital, par value.................................... $ 616 $ 308 $ (308) $ 616
Capital in excess of par value........................ 66 -- -- 66
Retained earnings..................................... 6,288 (854) -- 5,434
Foreign currency translation adjustment............... (116) (23) -- (139)
----------- ------- ------------ ------------
Total Shareholders' equity........................ 6,854 (569) (308) 5,977
----------- ------- ------------ ------------
----------- ------- ------------ ------------
Total Liabilities and Shareholders' equity.............. $ 40,895 $ 318 $ (1,029) $ 40,184
----------- ------- ------------ ------------
----------- ------- ------------ ------------
</TABLE>
F-24
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue................................................. $ 95,090 $ 1,310 $ (1,098) $ 95,302
Cost and expenses:
Cost of products sold................................. (66,290) (1,198) 1,098 (66,390)
Selling, general and administrative................... (10,456) (557) -- (11,013)
Research and development.............................. (6,648) -- -- (6,648)
Goodwill amortization................................. (200) -- -- (200)
----------- ------- ------------ ------------
Total costs and expenses................................ (83,594) (1,755) 1,098 (84,251)
Income from operations.................................. 11,496 (445) -- 11,051
Interest (expense)/income, net.......................... (817) (57) -- (874)
Other income............................................ 1,033 -- -- 1033
----------- ------- ------------ ------------
Income before income taxes.............................. 11,712 (502) -- 11,210
Provision for income taxes.............................. (4,404) (2) -- (4,406)
----------- ------- ------------ ------------
Net income.............................................. $ 7,308 $ (504) $ -- $ 6,804
----------- ------- ------------ ------------
----------- ------- ------------ ------------
</TABLE>
F-25
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue................................................. $ 71,929 $ 739 $ (513) $ 72,155
Cost and expenses:
Cost of products sold................................. (52,220) (495) 513 (52,202)
Selling, general and administrative................... (8,428) (772) -- (9,200)
Research and development.............................. (5,836) -- -- (5,836)
Goodwill amortization................................. (161) -- -- (161)
----------- ------- ----- ------------
Total costs and expenses................................ (66,645) (1,267) 513 (67,399)
Income from operations.................................. 5,284 (528) -- 4,756
Interest expense, net................................... (1,709) (22) -- (1,731)
Other income/(expense), net............................. 11 (11) -- --
----------- ------- ----- ------------
Income before income taxes.............................. 3,586 (561) -- 3,025
Provision for income taxes.............................. (1,095) -- -- (1,095)
----------- ------- ----- ------------
Net income.............................................. $ 2,491 $ (561) $ -- $ 1,930
----------- ------- ----- ------------
----------- ------- ----- ------------
</TABLE>
F-26
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------------- --------------- ------------
<S> <C> <C> <C> <C>
Revenue................................................. $ 24,808 $ 21 $ (19) $ 24,810
Cost and expenses:
Cost of products sold................................. (15,095) (19) 19 (15,095)
Selling, general and administrative................... (4,172) (334) -- (4,506)
Research and development.............................. (3,310) -- -- (3,310)
Goodwill amortization................................. -- -- -- --
----------- ----- --- ------------
Total costs and expenses................................ (22,577) (353) 19 (22,911)
Income from operations.................................. 2,231 (332) -- 1,899
Interest expense, net................................... (149) (5) -- (154)
Other income/(expense), net............................. 167 -- -- 167
----------- ----- --- ------------
Income before income taxes.............................. 2,249 (337) -- 1,912
Provision for income taxes.............................. (482) -- -- (482)
----------- ----- --- ------------
Net income.............................................. $ 1,767 $ (337) $ -- $ 1,430
----------- ----- --- ------------
----------- ----- --- ------------
</TABLE>
F-27
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATED STATEMENT OF CASH-FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY/(USED IN) OPERATING
ACTIVITIES............................................ $ 12,093 $ (356) $ -- $ 11,737
----------- ----- ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES................... $ (2,989) $ (8) $ -- $ (2,997)
----------- ----- ------------ ------------
Principal repayments under long-term debt............... $ (8,446) $ -- $ -- $ (8,446)
Net proceeds from government grants..................... 30 -- -- 30
Proceeds from stock issuance, net of issuance costs..... 3,807 -- -- 3,807
Loans (to)/from related parties......................... (2,320) 469 -- (1,851)
Other................................................... (1,203) -- -- (1,203)
----------- ----- ------------ ------------
NET CASH (USED IN)/PROVIDED BY FINANCING
ACTIVITIES............................................ $ (8,132) $ 469 $ -- $ (7,663)
----------- ----- ------------ ------------
Effect of foreign exchange rate changes on cash and cash
equivalents........................................... $ 126 -- -- 126
----------- ----- ------------ ------------
Change in cash and cash equivalents..................... $ 1,098 $ 105 $ -- $ 1,203
Cash and cash equivalents at beginning of year.......... 626 10 -- 636
----------- ----- ------------ ------------
Cash and cash equivalents at end of year................ $ 1,724 $ 115 $ -- $ 1,839
----------- ----- ------------ ------------
----------- ----- ------------ ------------
</TABLE>
F-28
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATED STATEMENT OF CASH-FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY/(USED IN) OPERATING
ACTIVITIES............................................ $ 1,661 $ (654) $ -- $ 1,007
----------- ----- ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES................... $ (3,015) $ (10) $ -- $ (3,025)
----------- ----- ------------ ------------
Proceeds from long-term debt............................ $ 1,000 $ -- $ -- $ 1,000
Principal repayments under long-term debt............... (4,992) -- -- (4,992)
Net proceeds from government grants..................... 2,008 -- -- 2,008
Net proceeds from financing arrangements................ 1,564 -- -- 1,564
Loans (to)/from related parties......................... (650) 650 -- --
Other................................................... 1,362 -- -- 1,362
----------- ----- ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... $ 292 $ 650 $ -- $ 942
----------- ----- ------------ ------------
Effect of foreign exchange rate changes on cash and cash
equivalents........................................... $ 216 -- -- 216
----------- ----- ------------ ------------
Change in cash and cash equivalents..................... $ (846) $ (14) $ -- $ (860)
Cash and cash equivalents at beginning of year.......... 1,472 24 -- 1,496
----------- ----- ------------ ------------
Cash and cash equivalents at end of year................ $ 626 $ 10 $ -- $ 636
----------- ----- ------------ ------------
----------- ----- ------------ ------------
</TABLE>
F-29
<PAGE>
AXIOHM S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS OTHERWISE STATED)
CONDENSED CONSOLIDATED STATEMENT OF CASH-FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------
GUARANTORS NON GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY/(USED IN) OPERATING
ACTIVITIES............................................ $ 2,492 $ (331) $ -- $ 2,161
----------- ----- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
NCR acquisition......................................... $ (15,644) $ -- $ -- $ (15,644)
Other................................................... (2,321) (72) -- (2,393)
----------- ----- ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES................... $ (17,965) $ (72) $ -- $ (18,037)
----------- ----- ------------ ------------
Proceeds from long-term debt............................ $ 15,301 $ -- $ -- $ 15,301
Principal repayments under long-term debt............... (371) -- -- (371)
Net proceeds from government grants..................... 716 -- -- 716
Proceeds from stock issuance, net of issuance costs..... (308) 308 -- --
Loans to related parties................................ 496 106 -- 602
Other................................................... (265) 28 -- (237)
----------- ----- ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... $ 15,569 $ 442 $ -- $ 16,011
----------- ----- ------------ ------------
Effect of foreign exchange rate changes on cash and cash
equivalents........................................... $ 414 (15) -- 399
----------- ----- ------------ ------------
Change in cash and cash equivalents..................... $ 510 $ 24 $ -- $ 534
Cash and cash equivalents at beginning of year.......... 962 -- -- 962
----------- ----- ------------ ------------
Cash and cash equivalents at end of year................ $ 1,472 $ 24 $ -- $ 1,496
----------- ----- ------------ ------------
----------- ----- ------------ ------------
</TABLE>
F-30
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------- SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 1,839 $ 36,248
Restricted cash................................................................... -- 8,594
Accounts receivable, net.......................................................... 10,552 32,295
Inventories....................................................................... 13,900 28,523
Prepaid expenses and other current assets......................................... 3,286 9,487
------------- -------------
Total current assets............................................................ 29,577 115,147
Fixed assets, net of accumulated depreciation..................................... 11,235 20,928
Intangible assets................................................................. 2,606 86,839
Other assets...................................................................... 560 5,240
------------- -------------
Total assets.................................................................... $ 43,978 $ 228,154
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................................. $ 7,480 $ 15,082
Current portion of long-term debt................................................. 2,322 4,060
Accrued payroll, payroll taxes and benefits....................................... -- 4,877
Accrued expenses and other current liabilities.................................... 5,703 7,529
Income taxes payable.............................................................. -- 3,140
Deferred revenue.................................................................. -- 493
------------- -------------
Total current liabilities....................................................... 15,505 35,181
Non-current liabilities:
Senior subordinated debt.......................................................... -- 187,800
Other long-term debt and long-term liabilities.................................... 10,483 15,919
Deferred tax liability............................................................ 1,557 1,627
------------- -------------
Total liabilities............................................................... 27,545 240,527
------------- -------------
Shareholders' equity (deficit):
Preferred shares, no par value
Authorized: 1,000,000 shares, none issued....................................... -- --
Common shares:
Common stock, authorized: 28,500,000 shares; issued and outstanding: 6,512,926
shares in 1996 and 1997....................................................... 4,167 23,851
Foreign currency translation adjustment........................................... 117 (107)
Retained earnings (accumluated deficit)........................................... 12,149 (36,117)
------------- -------------
Total shareholders' equity (deficit)............................................ 16,433 (12,373)
------------- -------------
Total liabilities and shareholders' equity...................................... $ 43,978 $ 228,154
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-31
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1997
--------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales.................................................................................. $ 71,965 $ 99,558
Cost of net sales.......................................................................... 49,792 66,978
--------- ----------
Gross margin............................................................................... 22,173 32,580
Operating expenses:
Selling, general and administrative...................................................... 8,303 13,878
Research and development................................................................. 4,702 6,198
In-process technology.................................................................... -- 50,831
--------- ----------
Total operating expenses................................................................... 13,005 70,907
Income (loss) from operations.............................................................. 9,168 (38,327)
Interest and other income.................................................................. 1,229 390
Interest and other expense................................................................. 946 3,077
--------- ----------
Income (loss) before income taxes.......................................................... 9,451 (41,014)
Income taxes............................................................................... 3,657 5,484
--------- ----------
Net income (loss).......................................................................... $ 5,794 $ (46,498)
--------- ----------
--------- ----------
Net income (loss) per share................................................................ $ 0.93 $ (7.14)
Weighted average number of shares outstanding
Per share (primary and fully diluted):..................................................... 6,243 6,513
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-32
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1997
--------- ----------
(UNAUDITED)
<S> <C> <C>
CASHFLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................................................... $ 5,794 $ (46,498)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Write off of acquired in-process technology............................................. -- 50,831
Depreciation and amortization........................................................... 2,008 5,369
Other non-cash charges.................................................................. 939 450
Changes in assets and liabilities, net of effects of acquisition of business:
Accounts receivable..................................................................... (4,851) (8,909)
Inventory............................................................................... 1,738 (1,323)
Prepaid expenses and other assets....................................................... (501) 4,819
Accounts payable and accrued expenses................................................... 4,466 3,962
--------- ----------
Net cash provided by operating activities................................................... 9,593 8,701
CASHFLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition of business, net of cash acquired................................. -- (148,074)
Capital expenditures...................................................................... (2,532) (3,670)
--------- ----------
Net cash used in investing activities....................................................... (2,532) (151,744)
--------- ----------
CASHFLOWS FROM FINANCING ACTIVITIES:
Proceeds from tender financing............................................................ -- 186,979
Net repayment under line of credit........................................................ (759) (1,051)
Principal repayments on long term debt.................................................... (8,216) (5,000)
Dividends................................................................................. (411) (1,768)
Proceeds from stock issuance, net of issuance costs....................................... 3,807 --
Debt issuance costs....................................................................... -- (2,799)
Loans to related parties.................................................................. (388) 1,713
--------- ----------
Net cash provided by (used in) financing activities......................................... (5,967) 178,074
--------- ----------
Effect of exchange rate changes on cash..................................................... 12 (622)
--------- ----------
Net increase in cash and cash equivalents................................................... 1,106 34,409
Cash and cash equivalents at beginning of period............................................ 636 1,839
--------- ----------
Cash and cash equivalents at end of period.................................................. $ 1,742 $ 36,248
--------- ----------
--------- ----------
SUPPLEMENTAL CASHFLOW DISCLOSURES:
Interest paid............................................................................. $ 848 $ 488
Income taxes paid net of refunds.......................................................... $ 2,224 $ 4,723
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of business:
Fair value of assets acquired, net of cash acquired..................................... -- $ 134,480
In process technology................................................................... -- $ 50,831
Liabilities assumed..................................................................... -- $ (17,995)
Fair value of non-tendered stock........................................................ -- $ (19,242)
--------- ----------
Cash paid, net of cash acquired......................................................... -- $ 148,074
During 1996, the Company financed certain capital expenditures totaling $163,000 through
the incurrence of capital lease obligations.
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-33
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SEPTEMBER 30, 1997--UNAUDITED)
NOTE 1: UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine month period ended September
30, 1997 are not necessarily indicative of the results which may be expected for
the year ended December 31, 1997 or any other period. Reference is made to the
Consolidated Financial Statements and Notes thereto included in the AX
Acquisition Corporation's Schedule 14D-1 filing dated July 16,1997, for further
information.
NOTE 2: BASIS OF PRESENTATION
On August 21, 1997, pursuant to an Agreement and Plan of Merger dated as of
July 14, 1997 (the "Agreement of Merger"), AX Acquisition Corporation ("AX"), a
wholly-owned subsidiary of Axiohm S.A., acquired approximately 88%, or 7,000,000
shares, of the outstanding Common Stock of DH Technology, Inc. ("DH Technology")
through a public tender offer to the shareholders of DH Technology at a price of
$25 per share (the "Tender Offer").
On October 2, 1997, pursuant to the Agreement of Merger, AX acquired 100% of
the outstanding Common Stock of Axiohm S.A. in exchange for 5,518,524 shares of
DH Technology Common Stock and $12.2 million in cash (the "Share Exchange
Offer"). Simultaneous with the Share Exchange Offer, DH Technology purchased all
of the outstanding shares of AX in exchange for the assumption of approximately
$190 million of debt (the "Acquisition Financing") incurred by AX to finance the
Tender Offer. Immediately after the Share Exchange Offer, AX was merged with and
into DH Technology (the "Merger"), the surviving legal entity, and the company
changed its name from "DH Technology, Inc." to "Axiohm Transaction Solutions,
Inc". Immediately after the Merger, approximately 85% of DH Technology's
outstanding Common Stock was held by the former shareholders of Axiohm S.A. and
15% was held by the former public shareholders of DH Technology, Inc. Axiohm
S.A. and its subsidiaries and DH Technology and its subsidiaries are hereinafter
referred to collectively as the "Company".
The Tender Offer, the Share Exchange Offer and the Merger (collectively the
"Acquisition") have been accounted for as a reverse acquisition, in which Axiohm
S.A. was treated as the acquiror for accounting purposes. Accordingly, the
historical financial information for periods prior to August 31, 1997 are those
of Axiohm S.A. The effective date of the Acquisition and Merger of DH Technology
for accounting purposes was August 31, 1997, and, accordingly, the capital
structure of the Company has been retroactively restated to reflect the number
of shares outstanding as a result of the Acquisition. The results of operations
for the nine month periods ended September 30, 1997 include the operations of DH
Technology for the month of September 1997.
F-34
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(SEPTEMBER 30, 1997--UNAUDITED)
NOTE 3: ACQUISITION
The Acquisition of DH Technology has been accounted for using the purchase
method of accounting. The aggregate purchase price of $208.6 million was
allocated based on the fair values of tangible and intangible assets acquired
and consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Cash paid for DH Technology shares............................................ $ 175,000,000
Cash paid for DH Technology stock options..................................... 12,720,000
Transaction costs............................................................. 1,667,000
Fair value of DH Technology non-tendered shares (1)........................... 19,242,000
--------------
$ 208,629,000
--------------
--------------
</TABLE>
- ------------------------
(1) Recorded as an increase to common stock on the accompanying condensed
consolidated balance sheet.
The Company expects that the final purchase price allocation will be known
by December 31, 1997 and could differ from the preliminary allocation. A summary
of the preliminary purchase price allocation is as follows:
<TABLE>
<S> <C>
Net tangible assets acquired.................................. $76,152,000
In-process research and development........................... 50,831,000
Acquired technology........................................... 22,910,000
Customer lists................................................ 5,100,000
Workforce..................................................... 2,100,000
Goodwill...................................................... 51,536,000
-----------
Total......................................................... $208,629,000
-----------
-----------
</TABLE>
The purchased in-process research and development had not reached
technological feasibility, had no future uses, and was charged to operations
upon acquisition. Goodwill and other intangibles are being amortized over three
years using the straight line method, which is the period estimated to be
benefited.
Of the cash paid for the DH Technology stock options, $8.6 million was
funded to a Rabbi trust and is reflected on the balance sheet as restricted
cash.
The Acquisition Financing consisted of $166.2 million of senior indebtedness
under a credit facility with an institutional lender and $24 million of interim
preferred stock financing. Both of these amounts were fully repaid on October 2,
1997 with the proceeds from a private placement of $120 million of 9 3/4% Senior
Subordinated Notes due 2007 and borrowings under an $85 million Credit
Agreement. See Note 5 of the Notes to Condensed Consolidated Financial
Statements.
The following unaudited pro forma information has been prepared assuming
that the Acquisition and the Acquisition Financing had occurred at the beginning
of the periods presented. Pro forma adjustments included increased amortization
for the purchase price in excess of assets acquired; in-process research and
development expense; increased interest expense from the Acquisition Financing;
and related income tax
F-35
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(SEPTEMBER 30, 1997--UNAUDITED)
NOTE 3: ACQUISITION (CONTINUED)
effects. The pro forma information does not reflect any potential cost savings
from combining the operations of DH Technology and Axiohm S.A.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Net sales............................................. $ 159,222,000 $ 158,289,000
Net loss.............................................. $ 67,156,000 $ 69,239,000
Net loss per share.................................... $ 10.76 $ 10.63
Weighted average number of shares outstanding......... 6,242,926 6,512,926
</TABLE>
The pro forma information is provided for information purposes only and does
not purport to be indicative of the Company's results of operations that would
actually have been achieved had the Acquisition and the Acquisition Financing
been completed at the beginning of the periods presented, or results that may be
obtained for the year ended December 31, 1997 or for any other period. See Note
5 of the Notes to Condensed Consolidated Financial Statements.
NOTE 4: INVENTORIES
The composition of inventories at December 31, 1996 and September 30, 1997
was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Raw materials.......................................... $ 13,345,000 $ 32,612,000
Work in process........................................ 949,000 512,000
Finished goods......................................... 1,793,000 3,015,000
----------------- ------------------
Totals................................................. $ 16,087,000 $ 36,139,000
----------------- ------------------
----------------- ------------------
</TABLE>
NOTE 5: SUBSEQUENT EVENTS
SENIOR SUBORDINATED NOTES
On October 2, 1997, the Company completed a private placement (the "Initial
Notes Offering") of $120 million of its 9 3/4% Senior Subordinated Notes due
2007 (the "Initial Notes"). The Initial Notes were placed with Lehman Brothers
Inc. as initial purchaser (the "Initial Purchaser") and were subsequently resold
by the Initial Purchaser in the United States to "qualified institutional
buyers" in reliance on Rule 144A under the Securities Act of 1933, as amended,
(the "Securities Act") and outside of the United States in offshore transactions
to foreign investors in reliance on Regulation S under the Securities Act. The
underwriting discount to the Initial Purchaser was 2.75% of the principal amount
of the Initial Notes purchased (or an aggregate of $3.3 million).
Interest on the Initial Notes is payable semi-annually on April 1 and
October 1, commencing on April 1, 1998, until maturity on October 1, 2007. The
Initial Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after October 1, 2002 at various premiums to original face
value. The Company's payment obligation under the Initial Notes is jointly and
severally fully guaranteed
F-36
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(SEPTEMBER 30, 1997--UNAUDITED)
NOTE 5: SUBSEQUENT EVENTS (CONTINUED)
on a senior subordinated basis by each of the Company's U.S. subsidiaries ("the
Guarantors"), all of which are directly or indirectly wholly owned by the
Company. The proceeds from the sale of the Initial Notes, together with
borrowings under the $85 million Credit Agreement (see below) and existing cash
were used to repay principal and accrued interest under the Acquisition
Financing.
Pursuant to a Registration Rights Agreement dated October 2, 1997 (the
"Registration Rights Agreement") among the Company, certain of the Company's
U.S. subsidiaries, as Guarantors, and the Initial Purchaser, the Company and the
Guarantors have agreed to use their best efforts to file a registration
statement no later than 60 days after the closing of the Initial Notes Offering,
with respect to an offer to exchange the Initial Notes for new senior
subordinated notes of the Company (the "New Notes") registered under the
Securities Act, with terms identical to those of the Initial Notes, and to cause
such registration statement to become effective no later than 120 days after the
closing of the Initial Notes Offering. The Initial Notes and the New Notes are
hereinafter referred to collectively as the "Notes". The holders of the Notes
are entitled to certain penalty payments from the Company under certain
circumstances if the Company and the Guarantors are not in compliance with their
obligations under the Registration Rights Agreement.
The following consolidating financial information is presented for purposes
of complying with the reporting requirements of the Guarantor Subsidiaries.
Separate financial statements and other disclosures with respect to the
Guarantor Subsidiaries are not presented because the Company believes that such
financial statements and other information would not provide additional
information that is material to investors. The condensed consolidating financial
information presents condensed financial statements as of September 30, 1997 and
for the nine months ended September 30, 1997 of:
(a) the Company on a parent company only basis ("Parent") (carrying its
investments in the subsidiaries under the equity method),
(b) the Guarantor Subsidiaries (Axiohm S.A.R.L., Axiohm Investissements
S.A.R.L., Axiohm IPB, Inc., Cognitive L.L.C., Cognitive Solutions, Inc., and
Stadia Colorado Corp., but excluding Dardel Technologies E.U.R.L.),
(c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology Pty, DH
Technologia, Axiohm Ltd. (Hong Kong), and Axiohm Japan Inc.),
(d) elimination entries necessary to consolidate the Parent Company and its
subsidiaries, and
(e) the Company on a consolidated basis.
F-37
<PAGE>
NOTE 5: SUBSEQUENT EVENTS (CONTINUED)
AXIOHM TRANSACTION SOLUTIONS, INC.
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
(SEPTEMBER 30, 1997--UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................................ $ 41,151 ($ 5,455) $ 552 $ -- $ 36,248
Restricted cash............................. 8,594 -- -- -- 8,594
Accounts Receivable......................... 8,413 21,895 3,749 (1,762) 32,295
Inventories................................. 5,262 19,573 3,828 (140) 28,523
Other assets................................ (19,213) 34,610 1,073 (6,983) 9,487
---------- ----------- ------- ------------ ------------
Total current assets.................... 44,207 70,623 9,202 (8,885) 115,147
Fixed assets, net........................... 5,080 14,253 1,595 -- 20,928
Intangibles................................. 84,074 2,783 (18) -- 86,839
Other assets................................ 4,907 614 27 (308) 5,240
Investment in subsidiaries.................. 43,093 -- -- (43,093) --
---------- ----------- ------- ------------ ------------
Total assets............................ $ 181,361 $ 88,273 $ 10,806 $ (52,286) $ 228,154
---------- ----------- ------- ------------ ------------
---------- ----------- ------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................ $ 2,159 $ 11,465 $ 3,220 ($ 1,762) $ 15,082
Current portion of long-term debt........... 2,915 1,109 36 -- 4,060
Accrued expenses and other liabilities...... 13,412 5,546 448 (7,000) 12,406
Income taxes payable........................ 1,087 1,680 373 -- 3,140
Deferred revenue............................ 269 224 -- -- 493
---------- ----------- ------- ------------ ------------
Total current liabilities............... 19,842 20,024 4,077 (8,762) 35,181
Senior subordinated debt.................... 163,800 24,000 -- -- 187,800
Other long term debt and other
obligations............................... 9,854 5,476 589 -- 15,919
Deferred tax liability...................... -- 1,627 -- -- 1,627
---------- ----------- ------- ------------ ------------
Total liabilities....................... 193,496 51,127 4,666 (8,762) 240,527
---------- ----------- ------- ------------ ------------
Shareholders' equity (deficit):
Common stock................................ 23,851 4,167 367 (4,534) 23,851
Foreign currency, translation adjustment.... 131 (253) 13 2 (107)
Retained earnings (accumulated deficit)..... (36,117) 33,232 5,760 (38,992) (36,117)
---------- ----------- ------- ------------ ------------
Total shareholders' equity (deficit).... (12,135) 37,146 6,140 (43,524) (12,373)
---------- ----------- ------- ------------ ------------
Total liabilities and shareholders'
equity................................ $ 181,361 $ 88,273 $ 10,806 ($ 52,286) $ 228,154
---------- ----------- ------- ------------ ------------
---------- ----------- ------- ------------ ------------
</TABLE>
F-38
<PAGE>
NOTE 5: SUBSEQUENT EVENTS (CONTINUED)
AXIOHM TRANSACTION SOLUTIONS, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
(FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997--UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales...................................... $ 6,166 $ 91,807 $ 4,040 ($ 2,455) $ 99,558
Cost of net sales.............................. 4,160 61,858 3,415 (2,455) 66,978
---------- ----------- ------ ------------ ------------
Gross margin................................... 2,006 29,949 625 -- 32,580
Operating expenses:
Selling, general and administrative.......... 3,457 9,399 730 292 13,878
Research and development..................... 322 5,832 44 -- 6,198
In-process technology........................ 50,831 -- -- -- 50,831
---------- ----------- ------ ------------ ------------
Total operating expenses....................... 54,610 15,231 774 292 70,907
---------- ----------- ------ ------------ ------------
Income (loss)from operations................... (52,604) 14,718 (149) (292) (38,327)
Interest and other income...................... 284 89 17 -- 390
Interest and other expense..................... (3,588) 512 (1) -- (3,077)
---------- ----------- ------ ------------ ------------
Income (loss) before income taxes.............. (55,908) 15,319 (133) (292) (41,014)
---------- ----------- ------ ------------ ------------
Income taxes................................... (201) 5,838 (51) (102) 5,484
---------- ----------- ------ ------------ ------------
Net income (loss).............................. ($ 55,707) $ 9,481 ($ 82) ($ 190) ($ 46,498)
---------- ----------- ------ ------------ ------------
---------- ----------- ------ ------------ ------------
</TABLE>
F-39
<PAGE>
NOTE 5: SUBSEQUENT EVENTS (CONTINUED)
AXIOHM TRANSACTION SOLUTIONS, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
(FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997--UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES... 4,169 6,644 (1,997) (115) 8,701
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition of business, net
of cash acquired....................... (147,522) 552 -- -- (148,074)
Capital expenditures..................... (15) 3,655 -- -- (3,670)
----------- ----------- ------- ----- ------------
Net cash used in investing
activities........................... (147,537) (4,207) -- -- (151,744)
----------- ----------- ------- ----- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from tender financing........... 186,979 -- -- -- 186,979
Net repayment under line of credit....... -- (1,017) (34) -- (1,051)
Principal payments under long-term
debt................................... -- (4,994) (6) -- (5,000)
Dividends................................ -- (1,768) -- -- (1,768)
Debt issuance costs...................... (1,050) (1,749) -- -- (2,799)
Loans to related parties................. (728) (33) 2,474 -- 1,713
----------- ----------- ------- ----- ------------
Net cash provided by financing
activities........................... 185,201 (9,561) 2,434 -- 178,074
----------- ----------- ------- ----- ------------
Effect of exchange rates on cash........... (682) (55) -- 115 (622)
----------- ----------- ------- ----- ------------
Net increase (decrease) in cash and
equivalents.............................. 41,151 (7,179) 437 -- 34,409
Cash and equivalents at beginning of
period................................... -- 1,724 115 -- 1,839
----------- ----------- ------- ----- ------------
Cash and equivalents at end of
period................................... 41,151 (5,455) 552 -- 36,248
----------- ----------- ------- ----- ------------
----------- ----------- ------- ----- ------------
</TABLE>
F-40
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(SEPTEMBER 30, 1997--UNAUDITED)
NOTE 5: SUBSEQUENT EVENTS (CONTINUED)
SENIOR BANK CREDIT AGREEMENT
On October 2, 1997, the Company entered into a Credit Agreement (the "Credit
Agreement") with a syndicate of banks (the "Banks"), led by Union Bank and
Lehman Brothers which acted as agent. Pursuant to the Credit Agreement, the
Banks have extended the Company a two tranche amortizing term loan in the
original principal amount of $50 million (the "Term Loan") and established a $35
million revolving line of credit (the "Revolver") available through October 2,
2002. The Term Loan consists of a Tranche A term loan in an aggregate principal
amount of $35 million, which has a maturity of five years, and a Tranche B term
loan in an aggregate principal amount of $15 million, which has a maturity of
six years. The Term Loan and Revolver are secured by a lien on substantially all
of the real and personal property of the Company and certain of its subsidiaries
and a pledge of capital stock of certain of its subsidiaries (provided that no
lien was or will be granted on the assets of Foreign Subsidiaries (as defined)
and no capital stock of Foreign Subsidiaries will be pledged to the extent that
the granting of such lien or the making of such pledge would result in
materially adverse United States federal income tax consequences to the Company
or would violate applicable law). The proceeds of the Term Loan and the initial
advance under the Revolver were used by the Company to repay principal and
accrued interest under the Acquisition Financing. Both the Term Loan and the
Revolver have interest rate options including an interest rate based on the
Eurodollar Rate plus a margin of between 2.5% to 3%. Such margins will vary
depending upon the relationship between the Company's earnings before interest,
taxes, depreciation and amortization ("EBITDA") and the then aggregate total
debt outstanding. The Company is required to pay a fee of 0.375% per annum on
the unused portion of the Revolver. Under the Credit Agreement, the Company is
required to enter into arrangements to provide interest protection for $20
million of this floating rate debt for two years. The Credit Agreement contains
various restrictive covenants with which the Company must comply. The more
significant covenants relate to: limitations of capital expenditures,
established maximum debt to EBIDTA ratios, minimum interest coverage ratios,
minimum fixed charge ratios, and limitations on indebtedness related to capital
leases and certain of the Company's subsidiaries. Required principal payments
under the New Credit Facility and Notes are as follows: $3.2 million in 1998;
$7.85 million in 1999; $7.85 million in 2000; $9.3 million in 2001; $9.3 million
in 2002; $12.5 million in 2003; and $120 million in 2007.
NOTE 6: SHAREHOLDERS' EQUITY
On June 24, 1996, Axiohm received net proceeds of $3.8 million from a
private placement of 421,200 shares of Common Stock to an employee of Axiohm and
two institutional investors.
On June 24, 1996, Axiohm declared a cash dividend of $0.4 million on Common
Stock which was paid to shareholders of record on June 24, 1996.
On May 14, 1997, Axiohm declared a cash dividend of $1.8 million on Common
Stock which was paid to shareholders of record on May 14, 1997.
In September 1997, in connection with the Acquisition an officer of the
Company was granted options to purchase 231,118 shares of the Company's Common
Stock at an exercise price of $7.15 per share. The fair market value of the
Company's common stock was $17 per share on the date of grant, resulting in
F-41
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(SEPTEMBER 30, 1997--UNAUDITED)
NOTE 6: SHAREHOLDERS' EQUITY (CONTINUED)
compensation expense totaling $2,277,000. Included in the accompanying condensed
consolidated statement of operations for the nine months ended September 30,
1997 is $455,000 of this total charge. The remaining $1,822,000 of compensation
expense will be recognized over a four year period coinciding with option
vesting schedule.
NOTE 7: COMMITMENTS AND CONTINGENCIES
In connection with the August 1994 acquisition by DH Technology of all of
the outstanding stock of Cognitive Solutions, Inc. ("Cognitive"), a designer,
manufacturer and marketer of thermal bar code printers and complementary label
media for use in automatic data collection systems, the Company is obligated to
pay $0.5 million on August 15 in each of 1998 and 1999. The Company also may be
required to make additional payments, not to exceed $3.0 million, to the former
shareholder of Cognitive, based upon net sales of a specified Cognitive product
line.
In connection with the December 1994 acquisition by Axiohm S.A. of the
transaction printer business of NCR Corporation ("NCR"), now known as Axiohm
IPB, for up to $30.6 million, of which $15.6 million was paid at closing, $0.5
million has been paid to date in earn-out payments and a final payment of up to
$5.0 million may be paid in additional earn-out payments based upon 1997 sales.
The Company estimates that the final payment will be less than approximately
$1.5 million and is anticipated to be paid in 1998. Axiohm S.A. recorded
approximately $3.0 million of goodwill in connection with this acquisition,
which was accounted for using the purchase method of accounting.
In connection with the March 1997 acquisition by DH Technology of certain
assets and liabilities of American Magnetics Corporation ("AMC"), a designer,
manufacturer, and marketer of card reader modules and stand-alone card readers,
and a wholly-owned subsidiary of Group 4 Securitas Holdings, a Netherlands
company, for $5.7 million, of which $4.85 million was paid at closing, an
additional $0.8 million will become payable in the years of 2000 and 2001. Based
upon attainment of specified net sales, an additional $1.6 million may also
become payable.
In connection with the purchase and improvement of manufacturing facilities
in France, Axiohm S.A. negotiated in 1994 a $1.6 million grant (the "Grant")
from various agencies of the French government. The Company is contingently
liable to those agencies for the repayment, in whole or in part, of the Grant in
the event that the Company does not meet the requirements of the Grant, which
include minimum employment levels through 1997, minimum capital expenditures and
continued use of the building throughout the lease term.
In connection with the resignation of the Company's President and Chief
Executive Officer, the Company entered into a resignation agreement and a
separate noncompetition agreement dated January 10, 1998. The resignation
agreement provides for payments to the former President of approximately
$1,525,000 pursuant to an option cancellation agreement dated August 10, 1997.
Additionally, the Company will pay the former President $1,350,000 in
consideration for his agreement not to compete with the Company for a period of
two years.
F-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
DH Technology, Inc.:
We have audited the accompanying consolidated balance sheets of DH
Technology, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DH
Technology, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
February 12, 1997, except as to
Note 13, which is as of
October 2, 1997
F-43
<PAGE>
DH TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1995 1996
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 28,971,000 $ 30,943,000
Short-term investment securities held to maturity (Note 2)....................... 2,750,000 13,835,000
Accounts receivable, net of allowance for doubtful accounts of $1,067 in 1995 and
$1,197 in 1996................................................................. 15,785,000 16,006,000
Inventories (Note 3)............................................................. 14,382,000 11,582,000
Deferred tax asset (Note 12)..................................................... 1,744,000 2,089,000
Prepaid expenses and other current assets........................................ 573,000 792,000
------------- -------------
Total current assets......................................................... 64,205,000 75,247,000
Fixed assets, net (Notes 4 and 6).................................................. 6,290,000 8,250,000
Intangible assets, net (Note 5).................................................... 13,312,000 12,464,000
Deferred tax asset (Note 12)....................................................... -- 206,000
Other assets....................................................................... 1,478,000 938,000
------------- -------------
Total assets................................................................. $ 85,285,000 $ 97,105,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 6,383,000 $ 4,587,000
Current portion of long-term debt (Note 6)....................................... 980,000 577,000
Accrued payroll, payroll taxes, and benefits..................................... 2,579,000 2,630,000
Accrued expenses................................................................. 2,045,000 1,963,000
Income taxes payable (Note 12)................................................... 2,128,000 2,406,000
Accrued warranty................................................................. 479,000 478,000
Deferred revenue................................................................. 947,000 577,000
------------- -------------
Total current liabilities.................................................... 15,541,000 13,218,000
Long-term debt (Note 6)............................................................ 2,115,000 1,635,000
Deferred tax liability (Note 12)................................................... 149,000 --
------------- -------------
Total liabilities............................................................ 17,805,000 14,853,000
------------- -------------
Shareholders' equity (Note 8):
Preferred shares, no par value; authorized: 1,000,000 shares,
none issued.................................................................... -- --
Common shares:
Common stock, no par value, authorized:
28,500,000 shares; issued and outstanding:
7,890,090 shares in 1995 and 7,974,277 in 1996............................... 12,335,000 13,168,000
Foreign currency translation adjustment........................................ (519,000) 393,000
Retained earnings.............................................................. 55,664,000 68,691,000
------------- -------------
Total shareholders' equity................................................... 67,480,000 82,252,000
Commitments (Notes 6, 7, 8, 10 and 11).........................................
------------- -------------
Total liabilities and shareholders' equity................................... $ 85,285,000 $ 97,105,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE>
DH TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------- ------------- --------------
<S> <C> <C> <C>
Net sales.......................................................... $ 77,918,000 $ 98,855,000 $ 115,784,000
Costs and expenses:
Cost of net sales................................................ 48,972,000 63,267,000 74,847,000
Selling, general, and administrative............................. 12,769,000 15,383,000 15,997,000
Research and development......................................... 4,685,000 5,007,000 5,805,000
------------- ------------- --------------
Total costs and expenses........................................... 66,426,000 83,657,000 96,649,000
------------- ------------- --------------
Income from operations............................................. 11,492,000 15,198,000 19,135,000
------------- ------------- --------------
Interest income.................................................... 854,000 1,231,000 1,491,000
Interest expense................................................... (210,000) (276,000) (149,000)
------------- ------------- --------------
Net interest income................................................ 644,000 955,000 1,342,000
------------- ------------- --------------
Income before income taxes......................................... 12,136,000 16,153,000 20,477,000
Income taxes (Note 12)............................................. 4,078,000 5,852,000 7,450,000
------------- ------------- --------------
Net income......................................................... $ 8,058,000 $ 10,301,000 $ 13,027,000
------------- ------------- --------------
------------- ------------- --------------
Net income per share............................................... $ 1.00 $ 1.24 $ 1.56
------------- ------------- --------------
------------- ------------- --------------
Shares used in per share calculation............................... 8,076,000 8,337,000 8,351,000
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-45
<PAGE>
DH TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK CURRENCY TOTAL
------------------------- TRANSLATION RETAINED SHAREHOLDERS'
SHARES AMOUNT ADJUSTMENT EARNINGS EQUITY
---------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993.............. 7,624,384 $ 10,133,000 $ (706,000) $ 37,305,000 $ 46,732,000
Exercise of options and warrants.......... 106,777 511,000 -- -- 511,000
Tax benefit of stock option exercise...... -- 96,000 -- -- 96,000
Foreign currency translation adjustment... -- -- 451,000 -- 451,000
Net income................................ -- -- -- 8,058,000 8,058,000
---------- ------------- ----------- ------------- -------------
BALANCE AT DECEMBER 31, 1994.............. 7,731,161 10,740,000 (255,000) 45,363,000 55,848,000
Exercise of options and warrants.......... 158,929 1,235,000 -- -- 1,235,000
Tax benefit of stock option exercise...... -- 360,000 -- -- 360,000
Foreign currency translation adjustment... -- -- (264,000) -- (264,000)
Net income................................ -- -- -- 10,301,000 10,301,000
---------- ------------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1995................ 7,890,090 12,335,000 (519,000) 55,664,000 67,480,000
Exercise of options and warrants.......... 84,187 694,000 -- -- 694,000
Tax benefit of stock option exercise...... -- 139,000 -- -- 139,000
Foreign currency translation adjustment... -- -- 912,000 -- 912,000
Net income................................ -- -- -- 13,027,000 13,027,000
---------- ------------- ----------- ------------- -------------
BALANCE AT DECEMBER 31, 1996.............. 7,974,277 $ 13,168,000 $ 393,000 $ 68,691,000 $ 82,252,000
---------- ------------- ----------- ------------- -------------
---------- ------------- ----------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-46
<PAGE>
DH TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
-------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 8,058,000 $ 10,301,000 $ 13,027,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 2,391,000 3,640,000 3,830,000
Provision for loss on accounts receivable.................... 105,000 65,000 87,000
Undepreciated value of asset disposals....................... 6,000 65,000 42,000
Provision for deferred income taxes, excluding effect of
acquisitions............................................... (429,000) (658,000) (700,000)
Changes in assets and liabilities, excluding effect of
acquisitions:
Accounts receivable.......................................... (1,997,000) (3,219,000) (308,000)
Inventories.................................................. (1,651,000) (2,814,000) 2,800,000
Prepaid expenses and other assets............................ 170,000 (17,000) 321,000
Accounts payable and accrued expenses........................ (891,000) 2,264,000 (1,878,000)
Accrued payroll, payroll taxes, and benefits................. 513,000 431,000 51,000
Income taxes payable......................................... (343,000) 772,000 278,000
Accrued warranty............................................. (20,000) 96,000 (1,000)
Deferred revenue............................................. 696,000 61,000 (370,000)
-------------- ------------- -------------
Net cash provided by operating activities.................... 6,608,000 10,987,000 17,179,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in short-term investment securities held
to maturity.................................................... 5,420,000 1,550,000 (11,085,000)
Payment for acquisition purchases, net of cash acquired.......... (12,825,000) (753,000) --
Capital expenditures............................................. (2,293,000) (2,469,000) (4,869,000)
Proceeds from sale of assets..................................... 26,000 -- --
-------------- ------------- -------------
Net cash used in investing activities........................ (9,672,000) (1,672,000) (15,954,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of long-term debt........................... (1,482,000) (1,260,000) (883,000)
Exercise of stock options........................................ 511,000 1,235,000 694,000
Tax benefit of stock option exercise............................. 96,000 360,000 139,000
-------------- ------------- -------------
Net cash provided by (used in) financing activities.......... (875,000) 335,000 (50,000)
Effect of exchange rate changes on cash............................ 365,000 (266,000) 797,000
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents............... (3,574,000) 9,384,000 1,972,000
Cash and cash equivalents at beginning of year..................... 23,161,000 19,587,000 28,971,000
-------------- ------------- -------------
Cash and cash equivalents at end of year........................... $ 19,587,000 $ 28,971,000 $ 30,943,000
-------------- ------------- -------------
-------------- ------------- -------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid on debt............................................ $ 106,000 $ 93,000 $ 140,000
-------------- ------------- -------------
Income taxes paid................................................ $ 3,539,000 $ 5,738,000 $ 6,413,000
-------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITY:
Fair market value of assets acquired............................. $ 15,865,000 $ 815,000 $ --
Cash paid........................................................ $ (12,952,000) $ (753,000) $ --
-------------- ------------- -------------
Liabilities assumed.............................................. $ 2,913,000 $ 62,000 $ --
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-47
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--DH Technology, Inc. and subsidiaries' (the
"Company") principal business activity involves the design, manufacture, and
distribution of transaction printers and mechanisms, impact printheads, bar code
printers, and related services and supplies, such as labels and ribbons. The
Company's core technologies include thermal, impact and laser. Products are
marketed worldwide by a direct sales force, sales representatives, value-added
resellers and distributors. The Company maintains offices in the United States,
Mexico, England and Australia.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of DH Technology, Inc. and its wholly-owned subsidiaries, Stadia
Colorado Corp.; Cognitive Solutions, Inc.; DH Tecnologia de Mexico, S.A. de
C.V.; DH Technology plc; and DH Technology pty. Results of operations subsequent
to February 28, 1994, reflect the added results of Stadia, and results for
Cognitive are included after August 31, 1994 (Note 10). All significant
intercompany accounts and transactions have been eliminated.
NET INCOME PER SHARE--Net income per share for the years ended December 31,
1994, 1995, and 1996 is computed based on the weighted-average number of common
and common equivalent shares outstanding during each year. Stock options and
warrants that have a dilutive effect are considered common stock equivalents for
purposes of this calculation. Fully diluted net income per share is not
materially different from primary net income per share.
REVENUE RECOGNITION--Revenues related to product sales are recognized upon
shipment of products to the customer at which time title and risk of ownership
pass. Estimated provisions for product sale returns, installation and warranty
are accrued upon revenue recognition. The level of returns arising from
defective products has historically not been material. Cash received in advance
of revenue recognition is recorded as deferred revenue in the accompanying
consolidated balance sheet.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with a maturity of three months or less at the time of purchase to
be cash equivalents.
CONCENTRATION OF CREDIT RISK--Cash in excess of daily requirements is
invested in short-term investment securities consisting of money market funds,
municipal bonds, and short-term commercial investments of companies with strong
credit ratings. These investments typically mature within one year, and
therefore, bear minimal risk. To date, the Company has not incurred losses
related to these investments.
SHORT-TERM INVESTMENT SECURITIES HELD TO MATURITY--Investment securities at
December 31, 1996 consist primarily of U.S. Municipal Bonds and are classified
as held to maturity. Management determines the appropriate classification of
securities at the time of purchase. If management has the intent at the time of
purchase and the Company has the ability to hold securities until maturity, they
are classified as held to maturity. Investment securities held to maturity are
stated at cost, adjusted for amortization of premiums and accretion of discounts
over the period to maturity of the related security.
INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out) or market.
FOREIGN CURRENCY TRANSLATION--The accounts of foreign subsidiaries and
affiliates are measured using local currency as the functional currency. For
these operations, assets and liabilities are translated into U.S. dollars at
period-end exchange rates, and income and expense accounts are translated at
average monthly exchange rates. Net exchange gains or losses resulting from such
translation are excluded from net income and accumulated in a separate component
of shareholders' equity. Financial results of non-U.S. subsidiaries and
affiliates in countries with highly inflationary economies are translated using
a combination of
F-48
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
current and historical exchange rates and any translation adjustments are
included in net earnings, along with all transaction gains and losses for the
period. Gains and losses from foreign currency transactions are not significant
and are included in selling, general, and administrative expenses in the
accompanying consolidated statements of income.
FIXED ASSETS, DEPRECIATION, AND AMORTIZATION--Fixed assets are recorded at
cost. Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the related assets or over the terms of the
related leases, whichever is shorter (three to ten years). Capital lease
amortization is included in depreciation and amortization expense. Renewals and
replacements which extend the useful life of the fixed asset are capitalized.
INTANGIBLE ASSETS--Intangible assets are recorded at cost. The Company has
classified as goodwill the cost in excess of fair value of the net assets of the
companies acquired in purchase transactions. Intangible assets, excluding
goodwill, are amortized using the straight-line method over periods ranging from
five to 15 years. Goodwill is amortized over periods ranging from 20 to 25
years.
SOFTWARE DEVELOPMENT COSTS--The Company capitalizes certain software
development costs in accordance with Statement of Financial Accounting Standards
No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR
OTHERWISE MARKETED (SFAS 86). Capitalization of software development costs
begins upon the establishment of technological feasibility as defined in SFAS
86. The establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors including, but
not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life, and changes in software and hardware technologies.
Capitalized software costs are amortized using the straight-line method over
the estimated revenue or economic life of the related product. The Company
amortized $200,000 of such costs in 1994. In 1995, the Company determined the
software development costs had no future value, and accordingly, wrote-off the
remaining costs of $568,000.
Research and development expenditures are charged to research and
development expense in the period incurred.
WARRANTY RESERVE--The Company generally provides customers with limited
90-day to one-year warranties. The liability for future warranty claims reflects
the estimated future cost of warranty repairs on products previously sold. The
Company recognizes the estimated cost of warranty obligations at the time the
related products are sold and periodically evaluates and adjusts the warranty
reserve to the extent actual warranty experience varies from original estimates.
STOCK OPTIONS--Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION, which permits entities to recognize as expense
over the vesting period, the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in
F-49
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SFAS No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying
amount of cash and cash equivalents, accounts receivable, accounts payable, and
accrued expenses, approximate fair values because of the short maturity of these
instruments. The carrying amounts of long-term debt approximate fair values
because the applicable interest rates approximate current market rates.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF--The
Company adopted the provisions of SFAS 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, on January 1,
1996. This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
USE OF ESTIMATES--Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Actual results could differ from those estimates.
INCOME TAXES--Income taxes are accounted for under the asset and liability
method. 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 and operating loss and tax credit carryforwards. 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 rates is recognized in income in the period that includes the
enactment date.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1995 and
1994 financial statements to conform with the 1996 presentation.
F-50
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SHORT-TERM INVESTMENTS
The book value, gross unrealized gains and losses, and fair value of
short-term investment securities held to maturity as of December 31, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
<S> <C> <C>
1995 1996
------------ -------------
Municipal bonds:
Amortized cost................................................. $ 2,750,000 $ 13,835,000
Unrealized gains............................................... 39,000 202,000
Unrealized losses.............................................. -- --
------------ -------------
Fair value..................................................... $ 2,789,000 $ 14,037,000
------------ -------------
------------ -------------
</TABLE>
All of the above investment securities will generally mature in 1997.
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1995 1996
------------- -------------
Raw materials.................................................. $ 8,221,000 $ 6,810,000
Work in process................................................ 940,000 934,000
Finished goods................................................. 5,221,000 3,838,000
------------- -------------
$ 14,382,000 $ 11,582,000
------------- -------------
------------- -------------
</TABLE>
4. FIXED ASSETS
Fixed assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1995 1996
------------- -------------
Land............................................................ $ 264,000 $ 286,000
Building........................................................ 948,000 1,026,000
Leasehold improvements.......................................... 1,043,000 1,100,000
Machinery and equipment......................................... 12,820,000 14,606,000
Furniture, fixtures, and equipment.............................. 2,838,000 5,190,000
Automobiles..................................................... 172,000 316,000
------------- -------------
18,085,000 22,524,000
Accumulated depreciation and amortization....................... (11,795,000) (14,274,000)
------------- -------------
$ 6,290,000 $ 8,250,000
------------- -------------
------------- -------------
</TABLE>
Included above are assets under capital leases amounting to $144,000 and
$154,000, net of accumulated amortization of $54,000 and $49,000 at December 31,
1995 and 1996, respectively.
F-51
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INTANGIBLE ASSETS, NET
Intangible assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1995 1996
------------- -------------
Goodwill................................................................. $ 11,055,000 $ 11,082,000
Patents and technology rights............................................ 2,758,000 2,687,000
Covenants not to compete................................................. 1,375,000 1,175,000
------------- -------------
15,188,000 14,944,000
Accumulated amortization................................................. (1,876,000) (2,480,000)
------------- -------------
$ 13,312,000 $ 12,464,000
------------- -------------
------------- -------------
</TABLE>
6. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
7.5% note payable in monthly installments of $9,000, including interest,
with final payment due September 1998; secured by equipment............... $ 257,000 $ 163,000
First mortgage note payable in monthly installments of L2,000 ($3,600 at
December 31, 1996), interest due quarterly at the UK base rate plus 1.75%
(7.75% at December 31, 1996), due April 2014.............................. 593,000 606,000
Note payable from Stadia acquisition, two annual installments of $500,000
(discounted using 6% discount rate) due to former owner, final installment
paid in March 1996........................................................ 445,000 --
Note payable from Cognitive acquisition, five annual installments of
$500,000 (discounted using 8% discount rate) due to former owner, final
installment due August 1999............................................... 1,656,000 1,289,000
Capital lease obligations for equipment, interest rates ranging from 7.3% to
10.6% per annum, secured by equipment..................................... 144,000 154,000
------------ ------------
3,095,000 2,212,000
Less current portion........................................................ (980,000) (577,000)
------------ ------------
$ 2,115,000 $ 1,635,000
------------ ------------
------------ ------------
</TABLE>
F-52
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
CAPITAL TOTAL LONG-
DEBT LEASES TERM DEBT
------------ ---------- ------------
<S> <C> <C> <C>
1997................................................ $ 520,000 $ 75,000 $ 595,000
1998................................................ 538,000 23,000 561,000
1999................................................ 498,000 21,000 519,000
2000................................................ 35,000 56,000 91,000
2001................................................ 35,000 -- 35,000
Thereafter............................................ 432,000 -- 432,000
------------ ---------- ------------
2,058,000 175,000 2,233,000
Less imputed interest................................. -- (21,000) (21,000)
------------ ---------- ------------
2,058,000 154,000 2,212,000
Less current portion.................................. (521,000) (56,000) (577,000)
------------ ---------- ------------
$ 1,537,000 $ 98,000 $ 1,635,000
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
On August 15, 1996, the Company renewed a $6.5 million line of credit
agreement originally signed on August 15, 1994. The line of credit includes a
subfeature to issue standby and/or commercial letters of credit not to exceed
$1.5 million. The outstanding principal balance of the line of credit shall bear
interest at a rate per annum equal to the prime rate in effect from time to
time. No draws were made against this line of credit in 1995 or 1996.
7. OPERATING LEASES
Leases that do not meet the criteria for capitalization are classified as
operating leases with related rentals charged to operations as incurred. The
Company leases manufacturing and office facilities at various locations under
operating leases which expire at various dates through 2004. Management expects
that in the normal course of business, leases that expire will be renewed or
replaced with comparable leases.
Future minimum lease payments under noncancelable operating leases (with
initial lease terms in excess of one year) as of December 31, 1996, are as
follows:
<TABLE>
<S> <C>
Years Ending December 31,
1997.......................................................... $ 654,000
1998.......................................................... 442,000
1999.......................................................... 365,000
2000.......................................................... 361,000
2001.......................................................... 275,000
Thereafter...................................................... 412,000
---------
$2,509,000
---------
---------
</TABLE>
Total rent expense for operating leases was $974,000, $1,202,000, and
$1,181,000 for 1994, 1995, and 1996, respectively.
F-53
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK AND STOCK OPTIONS PLANS
The Company has authorized 1,000,000 shares of no par preferred stock and
28,500,000 shares of no par common stock. The terms and conditions of the
preferred stock, of which no shares have been issued, are set by the Board of
Directors of the Company.
On September 12, 1995, the Board of Directors declared a three-for-two
common stock split distributable on October 2, 1995 to shareholders of record at
the close of business on September 22, 1995. All per share amounts and numbers
of shares in the accompanying consolidated financial statements have been
restated to reflect the stock split.
In 1993 DH Technology, Inc. adopted the 1992 Stock Plan (the "1992 Plan") to
replace the 1983 Stock Option Plan which had expired. Under the 1992 Plan, the
Board of Directors may grant incentive stock options to purchase common stock at
prices which are not less than fair market value at the date of grant and
non-qualified stock options at prices which are to be determined by the
Compensation Committee of the Board of Directors. In April 1994, the plan was
amended to place a 1,050,000 share limit on the number of options and stock
appreciation rights ("SARs") that may be granted under the plan to an employee
in any fiscal year. The total number of shares authorized for grant is
1,473,470.
Stock options generally become exercisable in four equal annual installments
commencing one year from the date of grant and expire within either five or
eight years from the date of grant. As of December 31, 1996, options to purchase
a total of 992,400 shares of common stock were outstanding, and options to
purchase 641,242 shares of common stock were exercisable.
The Company has a Director Warrant Plan under which each of the outside
directors, upon first becoming a director, is granted an initial warrant to
purchase 15,000 shares of the Company's common stock. In addition, each director
automatically receives an additional warrant to purchase 5,250 shares each year
beginning in the fifth year after the grant of the initial warrant. The exercise
price of the warrants granted is equal to the fair market value of the Company's
common stock at the date of grant. Each initial warrant vests as to 1/48th of
the shares subject thereto for each full calendar month after the date of grant
that the holder of such initial warrant remains a member of the Board. Each
annual warrant vests one year after the date of grant, subject to the holder of
such annual warrant remaining a member of the Board during such one-year period.
A total of 225,000 common shares is reserved for issuance under the Director
Warrant Plan. As of December 31, 1996, warrants to purchase 136,000 shares have
been granted, of which 64,500 have been exercised and 15,000 have been purchased
by the Company and subsequently terminated. As of December 31, 1996, warrants to
purchase a total of 72,750 shares are outstanding, of which 51,750 are
exercisable.
F-54
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK AND STOCK OPTIONS PLANS (CONTINUED)
Information with respect to activity under the plans is set forth below:
<TABLE>
<CAPTION>
WEIGHTED-
# OF SHARES # OF OPTIONS/ AVG.
AVAIL. FOR WARRANTS PRICE EXERCISE AGGREGATE
GRANT OUTSTANDING PER SHARE PRICE PRICE
-------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE--DECEMBER 31, 1994.............. 685,790 1,014,863 $ 4.42-13.50 $ 8.38 $ 8,506,000
Shares reserved......................... 375,000 -- -- -- --
Options/warrants granted................ (332,700) 332,700 14.00-18.67 17.69 5,884,000
Options/warrants canceled............... 94,031 (97,781) 4.42-11.17 7.77 (917,000)
Options/warrants exercised.............. -- (158,945) 4.42-11.17 9.38 (1,235,000)
BALANCE--DECEMBER 31, 1995.............. 822,121 1,090,837 4.42-18.67 11.28 12,238,000
Options/warrants granted................ (55,500) 55,500 23.38-23.75 23.03 1,346,000
Options/warrants canceled............... 750 (750) 18.67-18.67 8.18 (657,000)
Options/warrants exercised.............. -- (80,437) 4.42-11.17 18.67 (14,000)
-------------- ------------- ------------- ----------- -------------
BALANCE--DECEMBER 31, 1996.............. 767,371 1,065,150 $ 4.42-23.75 $ 12.12 $ 12,913,000
-------------- ------------- ------------- ----------- -------------
-------------- ------------- ------------- ----------- -------------
</TABLE>
Information with respect to options outstanding and exercisable by exercise
price range at December 31, 1996 is set forth below:
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------------- EXERCISABLE
WEIGHTED- --------------------------
NUMBER OF AVERAGE WEIGHTED- NUMBER OF WEIGHTED-
OPTIONS/ REMAINING AVERAGE OPTIONS/ AVERAGE
WARRANTS CONTRACTUAL EXERCISE WARRANTS EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------------------------- ----------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 4.42--$ 4.42............................. 60,000 1.8 $ 4.42 60,000 $ 4.42
$ 6.64--$ 9.95............................. 406,950 3.3 $ 7.48 397,760 $ 7.48
$ 9.96--$14.92............................. 264,750 5.6 $ 11.92 143,809 $ 11.71
$14.93--$22.38............................. 280,950 6.4 $ 18.54 91,423 $ 18.48
$22.39--$23.75............................. 52,500 6.4 $ 23.54 -- --
</TABLE>
At December 31, 1995 and 1996, the number of options and warrants
exercisable was 566,501 and 692,992, and the weighted-average exercise price of
those options and warrants was $7.99 and $9.54, respectively.
The per share weighted-average fair value of stock options and warrants
granted during 1995 and 1996 was $10.44 and $13.62, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1995-expected dividend yield of 0.0%, stock
volatility rate of 48.50%, risk-free interest rates of 6.15% and 6.40%, and
expected lives of five and eight years; 1996-expected dividend yield of 0.0%,
stock volatility rate of 48.50%, risk-free interest rates of 6.15% and 6.40%,
and expected lives of five and eight years.
The Company applies APB Opinion No. 25 in accounting for its Plan, and
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
F-55
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. CAPITAL STOCK AND STOCK OPTIONS PLANS (CONTINUED)
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated in the following table:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Net income
As reported.................................................. $ 10,301,000 $ 13,027,000
Pro forma.................................................... $ 9,868,000 $ 12,203,000
Net income per share
As reported.................................................. $ 1.24 $ 1.56
Pro forma.................................................... $ 1.18 $ 1.46
</TABLE>
Pro forma net income reflects only options granted in 1995 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above as compensation cost is reflected over the options' vesting
period of four years and compensation cost for options granted prior to January
1, 1995 is not considered.
9. GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION
The Company operates in one industry segment: the design, manufacture, and
distribution of transaction printers and mechanisms, impact printheads, bar code
printers, and related services and supplies, such as labels and ribbons.
Export revenue amounted to $8,719,000, $10,234,000, and $10,617,000, in
1994, 1995, and 1996, respectively, or 11% of total revenue in 1994, 10% of
total revenue in 1995, and 9% of total revenue in 1996.
In 1996, one customer accounted for 13% of total revenue, or $15,042,000;
and no customer accounted for more than 10% of total revenue in 1994 or 1995.
Information about the Company's operations by geographic location is shown
below:
<TABLE>
<CAPTION>
REVENUE FROM
UNAFFILIATED OPERATING IDENTIFIABLE
CUSTOMERS PROFITS ASSETS
-------------- ------------- -------------
<S> <C> <C> <C>
1996
United States................................ $ 91,544,000 $ 15,361,000 $ 84,754,000
Europe....................................... 13,294,000 1,829,000 6,957,000
Australia.................................... 10,946,000 1,945,000 5,394,000
-------------- ------------- -------------
Total...................................... $ 115,784,000 $ 19,135,000 $ 97,105,000
-------------- ------------- -------------
-------------- ------------- -------------
1995
United States................................ $ 77,817,000 $ 12,157,000 $ 72,417,000
Europe....................................... 11,671,000 2,005,000 6,708,000
Australia.................................... 9,367,000 1,036,000 6,160,000
-------------- ------------- -------------
Total...................................... $ 98,855,000 $ 15,198,000 $ 85,285,000
-------------- ------------- -------------
-------------- ------------- -------------
1994
United States................................ $ 62,631,000 $ 9,691,000 $ 61,518,000
Europe....................................... 10,607,000 1,370,000 6,764,000
Australia.................................... 4,680,000 431,000 3,024,000
-------------- ------------- -------------
Total...................................... $ 77,918,000 $ 11,492,000 $ 71,306,000
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
F-56
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. ACQUISITIONS
On February 28, 1994, DH Technology, Inc. acquired all of the outstanding
stock of Stadia Colorado Corp. (Stadia) pursuant to a stock purchase agreement
for $6.5 million in cash ($5.5 million paid at closing and additional payments
of $500,000 paid in 1995 and 1996). This business is being operated as a
subsidiary of DH Technology, Inc. under the name Stadia Colorado Corp. Stadia,
located in Golden, Colorado, supplies labeling and marking solutions to a
variety of customers across the United States.
On August 31, 1994, DH Technology, Inc. acquired all of the outstanding
stock of Cognitive Solutions, Inc. (Cognitive) and certain technology rights
pursuant to a stock purchase agreement for $10 million in cash ($8.5 million
paid through 1996, and additional payments of $500,000 each due in 1997 through
1999). Also, the Company is required to make additional payments, not to exceed
an aggregate of $3 million, to the former shareholder of Cognitive based upon
net sales of a specified Cognitive product line. These additional payments, if
any, will be recorded as additional goodwill and represent the increased value
of Cognitive that was purchased. As of December 31, 1996, no additional payments
have been made. This business is being operated as a subsidiary of DH
Technology, Inc. under the name Cognitive Solutions, Inc. and is located in Paso
Robles, California. Cognitive designs, manufactures, and markets thermal bar
code printers and complementary label media for use in automatic data collection
systems.
The Stadia and Cognitive acquisitions were accounted for using the purchase
method; accordingly, the assets and liabilities of the acquired companies have
been recorded at their estimated fair values at the dates of acquisition. In
conjunction with the acquisitions of Stadia and Cognitive, the excess of
purchase price over the estimated fair values of the net assets acquired has
been recorded as goodwill of $4,062,000 and $5,590,000, respectively, which is
being amortized over 25 years using the straight-line method (Note 5). The
accompanying consolidated statements of income include the operations of Stadia
from February 28, 1994, and Cognitive from August 31, 1994.
On October 30, 1995, the Company acquired certain assets and liabilities of
Mos Magnetics, a privately held company in San Diego, California, for $752,000
in cash. Mos Magnetics designs, manufactures, and markets magnetic read and
write heads and modules for credit card and debit card readers, check readers,
and airline ticket readers. This acquisition was accounted for using the
purchase method. In conjunction with this acquisition, the Company has recorded
goodwill of $239,000, which is being amortized over 25 years using the
straight-line method.
11. EMPLOYEE BENEFIT PLANS
In 1989, the Company adopted a contributory profit-sharing plan for
employees meeting certain service requirements. The plan qualifies under Section
401(k) of the Internal Revenue Code and allows eligible employees to contribute
up to 15% of their compensation. The Company provides a guaranteed contribution
of $240 per eligible employee per year, and based on profitability, matches the
employee's contribution up to a maximum of six percent of the employee's
compensation. The guaranteed payments made by the Company were $74,000, $96,000
and $109,000, and the Company's matching contributions were $56,000, $72,000 and
$108,000, during 1994, 1995, and 1996, respectively. Total expenses paid by the
Company in 1994, 1995, and 1996 for the administration of the plan were $16,000,
$18,000, and $15,000, respectively.
F-57
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES
Components of income before income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
United States....................................................... $ 10,297,000 $ 13,004,000 $ 16,288,000
Foreign............................................................. 1,839,000 3,149,000 4,189,000
------------- ------------- -------------
$ 12,136,000 $ 16,153,000 $ 20,477,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Company's income taxes consist of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current income taxes:
Federal........................................................... $ 3,386,000 $ 4,685,000 $ 5,989,000
State............................................................. 412,000 663,000 698,000
Foreign........................................................... 709,000 1,162,000 1,463,000
Deferred income taxes............................................... (429,000) (658,000) (700,000)
------------- ------------- -------------
Total income taxes.................................................. $ 4,078,000 $ 5,852,000 $ 7,450,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The following table summarizes the difference between the U.S. federal
statutory effective income tax rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
U.S. federal statutory income tax rate............................................. 34.0% 34.2% 34.6%
State taxes, net of federal tax benefit............................................ 2.2 2.7 2.2
Nontaxable dividends and interest income........................................... (2.0) (1.9) (2.0)
Nondeductible goodwill amortization................................................ 1.2 0.9 0.7
Research and development credits................................................... (1.8) (1.1) (0.5)
Difference between U.S. statutory and foreign effective tax rates.................. 0.4 0.5 0.1
Change in valuation allowance...................................................... -- (2.1) (1.5)
Other, net......................................................................... (0.4) 3.0 2.8
--- --- ---
Effective income tax rate.......................................................... 33.6% 36.2% 36.4%
--- --- ---
--- --- ---
</TABLE>
F-58
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
The tax effects of significant temporary differences which comprise deferred
tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts..................................................... $ 334,000 $ 363,000
Inventory........................................................................... 943,000 788,000
Depreciation and amortization....................................................... -- 206,000
Self insurance...................................................................... 222,000 271,000
Accrued warranty.................................................................... 166,000 162,000
Accrued payroll..................................................................... 178,000 233,000
Other............................................................................... 201,000 272,000
------------ ------------
Gross deferred tax assets......................................................... 2,044,000 2,295,000
Deferred tax assets valuation allowance........................................... (300,000) --
------------ ------------
1,744,000 2,295,000
Deferred tax liabilities:
Depreciation and amortization....................................................... 149,000 --
------------ ------------
Gross deferred tax liabilities...................................................... 149,000 --
------------ ------------
Net deferred tax asset................................................................ $ 1,595,000 $ 2,295,000
------------ ------------
------------ ------------
Reflected on the accompanying consolidated balance sheets as:
Current deferred tax asset, net................................................... $ 1,744,000 $ 2,089,000
Noncurrent deferred tax asset (liability)......................................... (149,000) 206,000
------------ ------------
Net deferred tax asset................................................................ $ 1,595,000 $ 2,295,000
------------ ------------
------------ ------------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 and
1996 was $641,000 and $300,000, respectively. The net change in the total
valuation allowance for the years ended December 31, 1995 and 1996 was a
decrease of $341,000 and $300,000, respectively. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences.
F-59
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS
On October 2, 1997 the Company completed a series of transactions with
Axiohm S.A. a private French company ("Axiohm"), pursuant to an Agreement and
Plan of Merger dated July 14, 1997 among the Company, Axiohm and AX acquisition
Corporation, a California corporation (the "Purchaser") and indirect
wholly-owned subsidiary of Axiohm. On August 21, 1997, the Purchaser completed a
cash tender offer for 7,000,000 (approximately 88%) of the Company's Common
Stock (the "Tender Offer"). On October 2, 1997, AX acquired 100% of the
outstanding Common Stock of Axiohm S.A. in exchange for 5,518,524 shares of DH
Technology Common Stock and $12.2 million in cash. Simultaneously, DH Technology
purchased all of the outstanding shares of AX in exchange for the assumption of
approximately $190 million of debt incurred by AX to finance the tender offer
(the "Share Exchange"). Immediately after these transactions, AX was merged with
and into DH Technology (the "Merger"), the surviving legal entity, and the
company changed its name from "DH Technology, Inc." to "Axiohm Transaction
Solutions, Inc". Immediately after the Merger, approximately 85% of Axiohm
Transaction Solutions, Inc.'s outstanding Common Stock was held by the former
shareholders of Axiohm S.A. and 15% was held by the former public shareholders
of DH Technology, Inc.
The Tender Offer, the Share Exchange and the Merger (collectively the
"Acquisition") have been accounted for similar to a reverse acquisition using
the purchase method of accounting, in which Axiohm S.A. was treated as the
accounting acquiror and DH Technology, Inc. was treated as the acquired entity.
The effective date of the Acquisition for accounting purposes was August 31,
1997. Accordingly, the results of Axiohm Transaction Solutions, Inc.'s
operations for future periods will include DH Technology, Inc. only from
September 1, 1997.
On October 2, 1997, the Company financed the repayment of the obligations
incurred in connection with the Acquisition with i) borrowings under a $85.0
million credit facility placed with a syndicate of banks and ii) the proceeds
from a private placement of $120.0 million of 9% Senior Subordinated Notes due
2007 (the "Senior Notes"). The Company's obligations under the Senior Notes are
fully and unconditionally guaranteed, jointly and severally, by certain
wholly-owned direct and indirect subsidiaries (the "Guarantor Subsidiaries").
The following consolidating financial information is presented for purposes
of complying with the reporting requirements of the Guarantor Subsidiaries.
Separate financial statements and other disclosures concerning the Guarantor
Subsidiaries are not presented because the Company believes that such financial
statements and other information would not provide additional information that
is material to investors. The condensed consolidating financial information
presents condensed financial statements as of December 31, 1996 and 1995 and for
the years ended December 31, 1996, 1995 and 1994 of:
(a) the Company on a parent company only basis (for purposes of the following
financial information referred to as "DH") (carrying its investments in the
subsidiaries under the equity method),
(b) the Guarantor Subsidiaries (Cognitive Solutions, Inc. and Stadia Colorado
Corp.),
(c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology Pty and DH
Technologia),
(d) elimination entries necessary to consolidate the parent Company and its
subsidiaries, and
(e) the Company on a consolidated basis.
F-60
<PAGE>
13. SUBSEQUENT EVENTS (CONTINUED)
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $34,517,000 ($8,603,000) $ 5,029,000 -- $30,943,000
Short-term investment securities held to
maturity.............................. 13,835,000 -- -- -- 13,835,000
Accounts receivable, net................ 10,030,000 2,774,000 3,202,000 -- 16,006,000
Inventories............................. 3,478,000 4,860,000 3,395,000 (151,000) 11,582,000
Deferred tax asset...................... 2,089,000 -- -- -- 2,089,000
Prepaid expenses and other current
assets................................ (10,429,000) 13,748,000 (2,541,000) 14,000 792,000
----------- ----------- -------------- ------------ ------------
Total current assets.................. 53,520,000 12,779,000 9,085,000 (137,000) 75,247,000
Fixed assets, net....................... 4,079,000 2,167,000 2,004,000 -- 8,250,000
Intangible assets, net.................. 12,246,000 -- 218,000 -- 12,464,000
Deferred tax asset...................... 206,000 -- -- -- 206,000
Other assets............................ 932,000 (20,000) 26,000 -- 938,000
Investment in subsidiaries.............. 21,086,000 -- -- (21,086,000) --
----------- ----------- -------------- ------------ ------------
Total assets.......................... $92,069,000 1$4,926,000 $ 11,333,000 ($21,223,000) $97,105,000
----------- ----------- -------------- ------------ ------------
----------- ----------- -------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 2,962,000 $ 809,000 $ 733,000 $ 83,000 $4,587,000
Current portion of long-term debt....... 486,000 55,000 36,000 -- 577,000
Accrued payroll, payroll taxes, and
benefits.............................. 1,961,000 523,000 146,000 -- 2,630,000
Accrued expenses........................ 1,059,000 624,000 365,000 (85,000) 1,963,000
Income taxes payable.................... 1,865,000 (382,000) 923,000 -- 2,406,000
Accrued warranty........................ 414,000 44,000 20,000 -- 478,000
Deferred revenue........................ 509,000 68,000 -- -- 577,000
Intercompany............................ -- -- -- -- --
----------- ----------- -------------- ------------ ------------
Total current liabilities............. 9,256,000 1,741,000 2,223,000 (2,000) 13,218,000
Long-term debt.......................... 966,000 2,000 667,000 -- 1,635,000
----------- ----------- -------------- ------------ ------------
Total liabilities..................... 10,222,000 1,743,000 2,890,000 (2,000) 14,853,000
----------- ----------- -------------- ------------ ------------
Shareholders' equity:
Common shares:
Common stock............................ 13,168,000 -- 67,000 (67,000) 13,168,000
Foreign currency translation
adjustment............................ (12,000) -- 399,000 6,000 393,000
Retained earnings....................... 68,691,000 13,183,000 7,977,000 (21,160,000) 68,691,000
----------- ----------- -------------- ------------ ------------
Total shareholders' equity............ 81,847,000 13,183,000 8,443,000 (21,221,000) 82,252,000
----------- ----------- -------------- ------------ ------------
Total liabilities and shareholders'
equity.............................. $92,069,000 1$4,926,000 $ 11,333,000 ($21,223,000) $97,105,000
----------- ----------- -------------- ------------ ------------
----------- ----------- -------------- ------------ ------------
</TABLE>
F-61
<PAGE>
13. SUBSEQUENT EVENTS (CONTINUED)
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $32,562,000 ($8,050,000) $ 4,459,000 $28,971,000
Short-term investment securities held to
maturity............................... 2,750,000 -- -- -- 2,750,000
Accounts receivable, net of allowance for
doubtful accounts...................... 10,330,000 2,717,000 2,738,000 -- 15,785,000
Inventories.............................. 4,128,000 5,569,000 4,846,000 (161,000) 14,382,000
Deferred tax asset....................... 1,744,000 -- 4,000 (4,000) 1,744,000
Prepaid expenses and other current
assets................................. 4,395,000 1,051,000 (4,677,000) (196,000) 573,000
---------- ----------- -------------- ------------ ------------
Total current assets................. 55,909,000 1,287,000 7,370,000 (361,000) 64,205,000
Fixed assets, net........................ 2,468,000 2,053,000 1,769,000 -- 6,290,000
Intangible assets, net................... 893,000 12,208,000 211,000 -- 13,312,000
Other assets............................. 1,236,000 236,000 6,000 -- 1,478,000
Investment in subsidiaries............... 19,504,000 -- -- (19,504,000) --
---------- ----------- -------------- ------------ ------------
Total assets......................... $80,010,000 1$5,784,000 $ 9,356,000 ($19,865,000) $85,285,000
---------- ----------- -------------- ------------ ------------
---------- ----------- -------------- ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $4,234,000 $ 731,000 $ 1,418,000 -- $6,383,000
Current portion of long-term debt........ 901,000 46,000 33,000 -- 980,000
Accrued payroll, payroll taxes, and
benefits............................... 1,857,000 576,000 146,000 -- 2,579,000
Accrued expenses......................... 1,085,000 592,000 368,000 -- 2,045,000
Income taxes payable..................... 1,090,000 (92,000) 1,130,000 -- 2,128,000
Accrued warranty......................... 418,000 43,000 18,000 -- 479,000
Deferred revenue......................... 833,000 68,000 46,000 -- 947,000
---------- ----------- -------------- ------------ ------------
Total current liabilities............ 10,418,000 1,964,000 3,159,000 -- 15,541,000
Long-term debt............................. 1,456,000 49,000 610,000 -- 2,115,000
Deferred tax liability................... 149,000 -- -- -- 149,000
---------- ----------- -------------- ------------ ------------
Total liabilities.................... 12,023,000 2,013,000 3,769,000 -- 17,805,000
---------- ----------- -------------- ------------ ------------
Shareholders' equity:
Common shares:
Common stock........................... 12,335,000 -- 61,000 (61,000) 12,335,000
Foreign currency translation
adjustment............................. (12,000) -- (295,000) (212,000) (519,000)
Retained earnings........................ 55,664,000 13,771,000 5,821,000 (19,592,000) 55,664,000
---------- ----------- -------------- ------------ ------------
Total shareholders' equity........... 67,987,000 13,771,000 5,587,000 (19,865,000) 67,480,000
---------- ----------- -------------- ------------ ------------
Total liabilities and shareholders'
equity............................. $80,010,000 1$5,784,000 $ 9,356,000 ($19,865,000) $85,285,000
---------- ----------- -------------- ------------ ------------
---------- ----------- -------------- ------------ ------------
</TABLE>
F-62
<PAGE>
13. SUBSEQUENT EVENTS (CONTINUED)
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 69,249,000 $ 24,673,000 $ 31,413,000 $ (9,551,000) $ 115,784,000
Costs and expenses:
Cost of net sales................ 41,728,000 18,445,000 24,239,000 (9,565,000) 74,847,000
Selling, general, and
administrative................. 7,524,000 5,239,000 3,234,000 -- 15,997,000
Research and development......... 3,089,000 1,862,000 854,000 -- 5,805,000
------------- ------------- -------------- ------------- --------------
Total costs and expenses........... 52,341,000 25,546,000 28,327,000 (9,565,000) 96,649,000
------------- ------------- -------------- ------------- --------------
Income (loss) from operations...... 16,908,000 (873,000) 3,086,000 14,000 19,135,000
Interest income.................... 1,294,000 2,000 195,000 -- 1,491,000
Interest expense................... (152,000) (5,000) 8,000 -- (149,000)
------------- ------------- -------------- ------------- --------------
Net interest income (expense)...... 1,142,000 (3,000) 203,000 -- 1,342,000
Equity earnings in subsidiaries.... 1,582,000 -- -- (1,582,000) --
------------- ------------- -------------- ------------- --------------
Income before income taxes......... 19,632,000 (876,000) 3,289,000 (1,568,000) 20,477,000
Income taxes....................... 6,605,000 (290,000) 1,135,000 -- 7,450,000
------------- ------------- -------------- ------------- --------------
Net income (loss).................. $ 13,027,000 $ (586,000) $ 2,154,000 $ (1,568,000) $ 13,027,000
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
</TABLE>
F-63
<PAGE>
13. SUBSEQUENT EVENTS (CONTINUED)
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTO
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 54,556,000 $ 26,368,000 $ 28,545,000 $ (10,614,000) $ 98,855,000
Costs and expenses
Cost of net sales................ 33,668,000 18,413,000 21,695,000 (10,509,000) 63,267,000
Selling, general, and
administrative................. 5,698,000 6,430,000 3,255,000 -- 15,383,000
Research and development......... 2,820,000 1,703,000 484,000 -- 5,007,000
------------- ------------- -------------- -------------- -------------
Total costs and expenses........... 42,186,000 26,546,000 25,434,000 (10,509,000) 83,657,000
Income from operations............. 12,371,000 (178,000) 3,111,000 (105,000) 15,198,000
Interest income.................... 1,046,000 2,000 183,000 -- 1,231,000
Interest expense................... (251,000) (11,000) (14,000) -- (276,000)
------------- ------------- -------------- -------------- -------------
Net interest income................ 795,000 (9,000) 169,000 -- 955,000
Equity earnings in subsidiaries.... 1,885,000 -- -- (1,885,000) --
------------- ------------- -------------- -------------- -------------
Income before income taxes......... 15,050,000 (187,000) 3,280,000 (1,990,000) 16,153,000
Income taxes....................... 4,749,000 (68,000) 1,171,000 -- 5,852,000
------------- ------------- -------------- -------------- -------------
Net income......................... $ 10,301,000 $ (119,000) $ 2,109,000 $ (1,990,000) $ 10,301,000
------------- ------------- -------------- -------------- -------------
------------- ------------- -------------- -------------- -------------
</TABLE>
F-64
<PAGE>
13. SUBSEQUENT EVENTS (CONTINUED)
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 53,399,000 $ 14,036,000 $ 16,838,000 $ (6,355,000) $ 77,918,000
Costs and expenses
Cost of net sales................. 33,896,000 9,102,000 12,325,000 (6,351,000) 48,972,000
Selling, general, and
administrative.................. 7,183,000 3,318,000 2,268,000 -- 12,769,000
Research and development.......... 4,033,000 208,000 444,000 -- 4,685,000
------------- ------------- -------------- ------------- -------------
Total costs and expenses............ 45,112,000 12,628,000 15,037,000 (6,351,000) 66,426,000
Income from operations.............. 8,287,000 1,408,000 1,801,000 (4,000) 11,492,000
Interest income..................... 803,000 4,000 47,000 -- 854,000
Interest expense.................... (140,000) (21,000) (49,000) -- (210,000)
------------- ------------- -------------- ------------- -------------
Net interest income................. 663,000 (17,000) (2,000) -- 644,000
Equity earnings in subsidiaries..... 2,065,000 (2,065,000) --
------------- ------------- -------------- ------------- -------------
Income before income taxes.......... 11,015,000 1,391,000 1,799,000 (2,069,000) 12,136,000
Income taxes........................ 2,957,000 459,000 662,000 -- 4,078,000
------------- ------------- -------------- ------------- -------------
Net income.......................... $ 8,058,000 $ 932,000 $ 1,137,000 $ (2,069,000) $ 8,058,000
------------- ------------- -------------- ------------- -------------
------------- ------------- -------------- ------------- -------------
</TABLE>
F-65
<PAGE>
13. SUBSEQUENT EVENTS (CONTINUED)
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES........................ $ 16,962,000 $ 263,000 $ 161,000 $ (207,000) $ 17,179,000
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net decrease in short-term
investment securities held to
maturity........................ (11,085,000) -- -- -- (11,085,000)
Capital expenditures.............. (3,704,000) (777,000) (388,000) -- (4,869,000)
-------------- ------------- -------------- ------------ --------------
Net cash used in investing
activities.................. (14,789,000) (777,000) (388,000) -- (15,954,000)
-------------- ------------- -------------- ------------ --------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal repayments of long-term
debt............................ (906,000) (38,000) 61,000 -- (883,000)
Exercise of stock options......... 694,000 -- -- -- 694,000
Tax benefit of stock option
exercise........................ 139,000 -- -- -- 139,000
-------------- ------------- -------------- ------------ --------------
Net cash provided by (used in)
financing activities........ (73,000) (38,000) 61,000 -- (50,000)
-------------- ------------- -------------- ------------ --------------
Effect of exchange rates on cash.... (145,000) -- 735,000 207,000 797,000
-------------- ------------- -------------- ------------ --------------
Net increase (decrease) in cash and
cash equivalents.................. 1,955,000 (552,000) 569,000 -- 1,972,000
Cash and cash equivalents at
beginning of year................. 32,562,000 (8,050,000) 4,459,000 -- 28,971,000
-------------- ------------- -------------- ------------ --------------
Cash and cash equivalents at end of
year.............................. $ 34,517,000 $ (8,602,000) $ 5,028,000 -- $ 30,943,000
-------------- ------------- -------------- ------------ --------------
-------------- ------------- -------------- ------------ --------------
</TABLE>
F-66
<PAGE>
13. SUBSEQUENT EVENTS (CONTINUED)
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES............................. $ 8,710,000 $ (264,000) $ 2,494,000 $ 47,000 $ 10,987,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in short-term investment
securities held to maturity.......... 1,550,000 -- -- -- 1,550,000
Payment for acquisition purchases, net
of cash acquired..................... (753,000) -- -- -- (753,000)
Capital expenditures................... (980,000) (1,447,000) (42,000) -- (2,469,000)
------------- ------------- -------------- ------------ -------------
Net cash used in investing
activities......................... (183,000) (1,447,000) (42,000) -- (1,672,000)
------------- ------------- -------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of long-term
debt................................. (1,120,000) (84,000) (56,000) -- (1,260,000)
Exercise of stock options.............. 1,235,000 -- -- -- 1,235,000
Tax benefit of stock option exercise... 360,000 -- -- -- 360,000
------------- ------------- -------------- ------------ -------------
Net cash provided by (used in)
financing activities............... 475,000 (84,000) (56,000) -- 335,000
------------- ------------- -------------- ------------ -------------
Effect of exchange rates on cash......... -- -- (219,000) (47,000) (266,000)
------------- ------------- -------------- ------------ -------------
Net increase (decrease) in cash and cash
equivalents............................ 9,002,000 (1,795,000) 2,177,000 -- 9,384,000
Cash and cash equivalents at beginning of
year................................... 23,560,000 (6,255,000) 2,282,000 -- 19,587,000
------------- ------------- -------------- ------------ -------------
Cash and cash equivalents at end of
year................................... $ 32,562,000 $ (8,050,000) $ 4,459,000 -- $ 28,971,000
------------- ------------- -------------- ------------ -------------
------------- ------------- -------------- ------------ -------------
</TABLE>
F-67
<PAGE>
13. SUBSEQUENT EVENTS (CONTINUED)
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES............................ $ 9,493,000 $ (4,569,000) $ 1,696,000 $ (12,000) $ 6,608,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase (decrease) in short-term
investment securities held to
maturity............................ 5,420,000 -- -- -- 5,420,000
Payment for acquisition purchases, net
of cash acquired.................... (12,825,000) -- -- -- (12,825,000)
Capital expenditures.................. (1,563,000) (509,000) (221,000) -- (2,293,000)
Proceeds from sale of assets.......... 26,000 -- -- -- 26,000
-------------- ------------- -------------- ------------ --------------
Net cash used in investing
activities........................ (8,942,000) (509,000) (221,000) -- (9,672,000)
-------------- ------------- -------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of long-term
debt................................ (303,000) (1,177,000) (2,000) -- (1,482,000)
Exercise of stock options 511,000 -- -- -- 511,000
Tax benefit of stock option
exercise............................ 96,000 -- -- -- 96,000
-------------- ------------- -------------- ------------ --------------
Net cash provided by (used in)
financing activities.............. 304,000 (1,177,000) (2,000) -- (875,000)
-------------- ------------- -------------- ------------ --------------
Effect of exchange rates on cash........ (41,000) -- 394,000 12,000 365,000
-------------- ------------- -------------- ------------ --------------
Net increase (decrease) in cash and cash
equivalents........................... 814,000 (6,255,000) 1,867,000 -- (3,574,000)
Cash and cash equivalents at beginning
of year............................... 22,746,000 -- 415,000 -- 23,161,000
-------------- ------------- -------------- ------------ --------------
Cash and cash equivalents at end of
year.................................. $ 23,560,000 $ (6,255,000) $ 2,282,000 -- $ 19,587,000
-------------- ------------- -------------- ------------ --------------
-------------- ------------- -------------- ------------ --------------
</TABLE>
F-68
<PAGE>
DH TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 30,943,000 $ 34,751,000
Short-term investment securities held to maturity............................. 13,835,000 11,160,000
Accounts receivable, net...................................................... 16,006,000 15,205,000
Inventories................................................................... 11,582,000 12,947,000
Prepaid expenses and other current assets..................................... 2,881,000 2,855,000
------------- -------------
Total current assets........................................................ 75,247,000 76,918,000
------------- -------------
Fixed assets.................................................................... 22,524,000 25,947,000
Less accumulated depreciation and amortization.............................. 14,274,000 17,299,000
------------- -------------
8,250,000 8,648,000
Intangibles..................................................................... 12,464,000 4,971,000
Other assets.................................................................... 1,144,000 3,254,000
------------- -------------
Total assets................................................................ $ 97,105,000 $ 93,791,000
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 4,587,000 $ 6,005,000
Current portion of long-term debt............................................. 577,000 550,000
Accrued payroll, payroll taxes and benefits................................... 2,630,000 2,547,000
Accrued expenses.............................................................. 2,441,000 3,533,000
Income taxes payable.......................................................... 2,406,000 2,631,000
Deferred revenue.............................................................. 577,000 266,000
------------- -------------
Total current liabilities................................................... 13,218,000 15,532,000
------------- -------------
Non-current portion of long-term debt........................................... 1,635,000 2,339,000
------------- -------------
Total liabilities........................................................... 14,853,000 17,871,000
------------- -------------
Shareholders' equity:
Preferred shares, no par value; authorized: 1,000,000 shares, none issued..... -- --
Common shares: Common stock, authorized: 28,500,000 shares; issued and
outstanding: 7,974,277 shares in 1996 and 7,994,402 shares in 1997.......... 13,168,000 13,340,000
Foreign currency translation adjustment....................................... 393,000 (10,000)
Retained earnings............................................................. 68,691,000 62,590,000
------------- -------------
Total shareholders' equity.................................................. 82,252,000 75,920,000
------------- -------------
Total liabilities and shareholders' equity.................................. $ 97,105,000 $ 93,791,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-69
<PAGE>
DH TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(JUNE 30, 1996 AND 1997)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
------------- ------------- ------------- -------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales........................................ $ 29,210,000 $ 25,468,000 $ 57,406,000 $ 44,653,000
Cost of net sales................................ 18,971,000 16,815,000 37,441,000 29,342,000
------------- ------------- ------------- -------------
Gross margin................................... 10,239,000 8,653,000 19,965,000 15,311,000
Operating expenses:
Selling, general and administrative............ 3,944,000 4,356,000 7,905,000 8,319,000
Research and development....................... 1,414,000 1,482,000 2,702,000 2,933,000
In process technology, intangible assets,
acquisition integration and other charges.... -- 390,000 -- 11,680,000
------------- ------------- ------------- -------------
Total operating expenses....................... 5,358,000 6,228,000 10,607,000 22,932,000
Income (loss) from operations.................... 4,881,000 2,425,000 9,358,000 (7,621,000)
Interest income.................................. 389,000 394,000 719,000 816,000
Interest expense................................. 44,000 40,000 90,000 81,000
------------- ------------- ------------- -------------
Income (loss) before income taxes................ 5,226,000 2,779,000 9,987,000 (6,886,000)
Income taxes..................................... 1,935,000 996,000 3,662,000 (786,000)
------------- ------------- ------------- -------------
Net income (loss)................................ $ 3,291,000 $ 1,783,000 $ 6,325,000 $ (6,100,000)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) per share...................... $ 0.39 $ 0.22 $ 0.75 $ (0.76)
Weighted average number of shares outstanding
per share (primary and fully diluted).......... 8,521,000 8,282,000 8,490,000 7,994,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
<PAGE>
DH TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
<S> <C> <C>
1996 1997
------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................................. $ 6,325,000 $ (6,100,000)
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization................................................... 1,524,000 1,480,000
Write down of acquired in-process technology.................................... -- 2,440,000
Intangible writedown related to previous acquisition............................ -- 7,193,000
Provision for loss on accounts receivable....................................... 57,000 24,000
Undepreciated value of asset disposals.......................................... 55,000 8,000
Changes in assets and liabilities excluding effect of acquisitions.............. 510,000 4,310,000
Provision for deferred income taxes............................................. -- (2,104,000)
------------- -------------
Net cash provided by operating activities..................................... 8,471,000 7,251,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in short-term investment securities held to maturity...... (9,805,000) 2,675,000
Capital expenditures.............................................................. (2,851,000) (955,000)
Payment for acquisition purchases, net of cash acquired........................... -- (4,850,000)
------------- -------------
Net cash used in investing activities......................................... (12,656,000) (3,130,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on long-term debt............................................ (481,000) (121,000)
Proceeds from the exercise of stock options....................................... 429,000 172,000
------------- -------------
Net cash provided by (used in) financing activities........................... (52,000) 51,000
Effect of exchange rate changes on cash............................................. 89,000 (364,000)
Net increase (decrease) in cash and cash equivalents................................ (4,148,000) 3,808,000
Cash and cash equivalents at beginning of period.................................... 28,971,000 30,943,000
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 24,823,000 $ 34,751,000
------------- -------------
------------- -------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid on debt............................................................. $ 55,000 $ 30,000
Income taxes paid................................................................. $ 2,717,000 $ 770,000
SUPPLEMENTARY DISCLOSURE OF NONCASH INVESTING ACTIVITY:
Fair market value of assets acquired.............................................. -- $ 3,181,000
Cash paid......................................................................... -- --
Liabilities assumed............................................................... -- $ 3,181,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-71
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(JUNE 30, 1997--UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with SEC requirements for interim financial statements.
Therefore, they do not include all disclosures that would be presented in the
Company's Annual Report on Form 10-K. The financial statements should be read in
conjunction with the financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
The information furnished reflects all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of financial position, results of operations, and
changes in cash position for the interim period. The results of operations for
the periods presented are not necessarily indicative of results to be expected
for the full year.
2. INVENTORIES
The composition of inventories at December 31, 1996 and June 30, 1997, were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
<S> <C> <C>
Raw Materials.............................................. $ 6,810,000 $ 8,644,000
Work in Process............................................ 934,000 764,000
Finished Goods............................................. 3,838,000 3,539,000
----------------- -------------
Total...................................................... $ 11,582,000 $ 12,947,000
----------------- -------------
----------------- -------------
</TABLE>
3. OPERATIONS SUBJECT TO PURCHASE AND SALE AGREEMENTS
In October, 1995 the Company acquired certain assets and liabilities of Mos
Magnetics, a privately held company in San Diego, California, for $752,000 cash.
Mos Magnetics designs, manufactures, and markets magnetic read and write heads
and modules for credit card and debit card readers, check readers, and airline
ticket readers. This acquisition was accounted for using the purchase method. In
conjunction with this acquisition, the Company has recorded goodwill of
$239,000, which is being amortized over 25 years using the straight-line method.
In March, 1997 the Company purchased certain assets and liabilities of the
card reader business of American Magnetics Corporation ("AMC"), a wholly-owned
subsidiary of Group 4 Securitas Holding (A) BV headquartered in The Netherlands.
AMC designs, manufactures and markets card dealer modules and stand-alone card
readers, including both magnetics and chip card products. Based on fourth
quarter 1996 revenues the card reader business has approximately $12 million in
annualized revenues. The business was profitable in 1996.
This acquisition was accounted for under the purchase method, which requires
that the purchase price be allocated to the fair market value of the assets
acquired. Of the total consideration of $5.7 million, which consisted of $4.85
million paid in cash plus additional payments of $800,000 due to AMC payable in
the years 2000 and 2001, $3.2 million was allocated to net assets acquired based
on their estimated fair values, and $2.5 million was written down as in-process
technology. In conjunction with the acquisition, the Company also incurred $1.2
million of integration costs as discussed below.
F-72
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(JUNE 30, 1997--UNAUDITED)
4. INFREQUENT AND UNUSUAL CHARGES
In the first quarter of 1997, the Company incurred infrequent and unusual
charges totaling $11.3 million consisting of the items discussed below. In
conjunction with the acquisition of AMC discussed above, the Company wrote down
acquired in-process technology (projects that had not reached technological
feasibility and had no future alternative use) that was valued at $2.5 million.
Additionally, the Company incurred one-time, pre-tax charges of $1.2 million
which included severance, relocation and other integration charges associated
with the acquisition.
In the first quarter of 1997, based on a review of the operating results of
Cognitive Solutions, Inc., which was acquired by the Company in August, 1994,
and projections for subsequent quarters, the Company evaluated the intangible
assets associated with the acquisition in accordance with SFAS 121. Based on
management's analysis of future undiscounted cashflows the Company determined
that the intangible assets were impaired. Accordingly, the Company wrote down
$7.2 million of intangibles, which represented the excess of the carrying value
over the estimated fair value of those assets, in the first quarter of 1997.
Also, the Company incurred an unrelated $400,000 charge in connection with the
discontinuance of certain product lines.
In the second quarter of 1997 the Company incurred expenses totaling
$390,000 related to the definitive merger agreement with Axiohm. See Note 5 of
Notes to Condensed Consolidated Financial Statements.
5. SUBSEQUENT EVENTS
On October 2, 1997 the Company completed a series of transactions with
Axiohm S.A. a private French company ("Axiohm"), pursuant to an Agreement and
Plan of Merger dated July 14, 1997 among the Company, Axiohm and AX acquisition
Corporation, a California corporation (the "Purchaser") and indirect
wholly-owned subsidiary of Axiohm. On August 21, 1997, the Purchaser completed a
cash tender offer for 7,000,000 (approximately 88%) of the Company's Common
Stock (the "Tender Offer"). On October 2, 1997, AX acquired 100% of the
outstanding Common Stock of Axiohm S.A. in exchange for 5,518,524 shares of DH
Technology Common Stock and $12.2 million in cash. Simultaneously, DH Technology
purchased all of the outstanding shares of AX in exchange for the assumption of
approximately $190 million of debt incurred by AX to finance the tender offer
(the "Share Exchange"). Immediately after these transactions, AX was merged with
and into DH Technology (the "Merger"), the surviving legal entity, and the
company changed its name from "DH Technology, Inc." to "Axiohm Transaction
Solutions, Inc". Immediately after the Merger, approximately 85% of Axiohm
Transaction Solutions, Inc.'s outstanding Common Stock was held by the former
shareholders of Axiohm S.A. and 15% was held by the former public shareholders
of DH Technology, Inc.
The Tender Offer, the Share Exchange and the Merger (collectively the
"Acquisition") have been accounted for similar to a reverse acquisition using
the purchase method of accounting, in which Axiohm S.A. was treated as the
accounting acquiror and DH Technology, Inc. was treated as the acquired entity.
The effective date of the Acquisition for accounting purposes was August 31,
1997. Accordingly, the results of Axiohm Transaction Solutions, Inc.'s
operations for future periods will include DH Technology, Inc. only from
September 1, 1997.
On October 2, 1997, the Company financed the repayment of the obligations
incurred in connection with the Acquisition with i) borrowings under a $85.0
million credit facility placed with a syndicate of banks
F-73
<PAGE>
DH TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(JUNE 30, 1997--UNAUDITED)
5. SUBSEQUENT EVENTS (CONTINUED)
and ii) the proceeds from a private placement of $120.0 million of 9-3/4% Senior
Subordinated Notes due 2007 (the "Senior Notes"). The Company's obligations
under the Senior Notes are fully and unconditionally guaranteed, jointly and
severally, by certain wholly-owned direct and indirect subsidiaries (the
"Guarantor Subsidiaries").
The following consolidating financial information is presented for purposed
of complying with the reporting requirements of the Guarantor Subsidiaries.
Separate financial statements and other disclosures concerning the Guarantor
Subsidiaries are not presented because the Company believes that such financial
statements and other information would not provide additional information that
is material to investors. The condensed consolidating financial information
presents condensed financial statements as of June 30, 1997 and for the six
months ended June 30, 1997 of:
(a) the Company on a parent company only basis (for the purposes of the
following financial information referred to as "DH") (carrying its
investments in the subsidiaries under the equity method),
(b) the Guarantor Subsidiaries (Cognitive Solutions, Inc. and Stadia Colorado
Corp.),
(c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology Pty, and DH
Technologia),
(d) elimination entries necessary to consolidate the Parent Company and its
subsidiaries, and
(e) the Company on a consolidated basis.
F-74
<PAGE>
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
(JUNE 30, 1997--UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $ 37,867,000 $ (9,207,000) $ 6,091,000 -- $ 34,751,000
Short term investment
securities..................... 11,160,000 -- -- -- 11,160,000
Accounts receivable, net......... 7,769,000 3,193,000 4,243,000 -- 15,205,000
Inventories...................... 5,038,000 4,611,000 3,516,000 (218,000) 12,947,000
Prepaid expenses and other
current assets................. (7,627,000) 13,811,000 (3,273,000) (56,000) 2,855,000
------------- ------------- -------------- -------------- -------------
Total current assets......... 54,207,000 12,408,000 10,577,000 (274,000) 76,918,000
Fixed assets, net................ 4,583,000 2,111,000 1,954,000 -- 8,648,000
Investments in subsidiaries...... 21,791,000 -- -- (21,791,000) --
Intangibles...................... 4,764,000 -- 207,000 -- 4,971,000
Other assets..................... 3,039,000 196,000 19,000 -- 3,254,000
------------- ------------- -------------- -------------- -------------
Total assets................. $ 88,384,000 $ 14,715,000 $ 12,757,000 $ (22,065,000) $ 93,791,000
------------- ------------- -------------- -------------- -------------
------------- ------------- -------------- -------------- -------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable................. $ 3,064,000 $ 946,000 $ 1,995,000 -- $ 6,005,000
Current portion of long-term
debt........................... 486,000 24,000 40,000 -- 550,000
Accrued expenses................. 4,773,000 793,000 514,000 -- 6,080,000
Income taxes payable............. 2,323,000 (393,000) 701,000 -- 2,631,000
------------- ------------- -------------- -------------- -------------
Deferred revenue................. 198,000 68,000 -- -- 266,000
Total current liabilities.... 10,844,000 1,438,000 3,250,000 -- 15,532,000
Non-current portion of long-term
debt........................... 1,713,000 -- 626,000 -- 2,339,000
------------- ------------- -------------- -------------- -------------
Total liabilities............ 12,557,000 1,438,000 3,876,000 -- 17,871,000
Shareholders' equity:
Common stock..................... 13,340,000 -- 61,000 (61,000) 13,340,000
Foreign currency translation
adjustment..................... (103,000) 93,000 138,000 (138,000) (10,000)
Retained earnings................ 62,590,000 13,184,000 8,682,000 (21,866,000) 62,590,000
------------- ------------- -------------- -------------- -------------
Total shareholders' equity... 75,827,000 13,277,000 8,881,000 (22,065,000) 75,920,000
------------- ------------- -------------- -------------- -------------
Total liabilities and
shareholders' equity....... $ 88,384,000 $ 14,715,000 $ 12,757,000 $ (22,065,000) $ 93,791,000
------------- ------------- -------------- -------------- -------------
------------- ------------- -------------- -------------- -------------
</TABLE>
F-75
<PAGE>
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF INCOME INFORMATION
(FOR THE SIX MONTHS ENDED JUNE 30, 1997--UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... 25,045,000 11,908,000 12,193,000 (4,493,000) $ 44,653,000
Costs and expenses:
Cost of net sales................ 15,658,000 8,543,000 8,884,000 (3,743,000) 29,342,000
Selling, general and
administrative................. 4,162,000 2,422,000 1,735,000 -- 8,319,000
Research and development......... 1,683,000 944,000 264,000 42,000 2,933,000
In process technology, intangible
assets, acquisition integration
and other charges.............. 11,680,000 -- -- -- 11,680,000
------------- ------------- -------------- ------------- --------------
Total costs and expenses........... 33,183,000 11,909,000 10,883,000 (3,701,000) 52,274,000
------------- ------------- -------------- ------------- --------------
Income (loss) from operations...... (8,138,000) (1,000) 1,310,000 (792,000) (7,621,000)
--
Interest income.................... 710,000 1,000 105,000 -- 816,000
Interest expense................... (58,000) (1,000) (22,000) -- (81,000)
Equity earnings in subsidiaries.... 955,000 -- -- (955,000) --
------------- ------------- -------------- ------------- --------------
Income (loss) before income
taxes............................ (6,531,000) (1,000) 1,393,000 (1,747,000) (6,886,000)
Income taxes....................... (431,000) (2,000) 439,000 (792,000) (786,000)
------------- ------------- -------------- ------------- --------------
Net income (loss).................. $ (6,100,000) $ 1,000 $ 954,000 $ (955,000) $ (6,100,000)
------------- ------------- -------------- ------------- --------------
------------- ------------- -------------- ------------- --------------
</TABLE>
F-76
<PAGE>
DH TECHNOLOGY, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOW INFORMATION
(FOR THE SIX MONTHS ENDED JUNE 30, 1997--UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
DH SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING
ACTIVITIES.......................... $ 6,023,000 $ (267,000) $ 1,495,000 -- $ 7,251,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in short-term
investment securities held to
maturity........................ 2,675,000 -- -- -- 2,675,000
Payment for acquisition purchases,
net of cash acquired............ (4,850,000) -- -- -- (4,850,000)
Capital expenditures.............. (554,000) (304,000) (97,000) -- (955,000)
------------- ------------- -------------- ------------ -------------
Net cash used in investing
activities.................... (2,729,000) (304,000) (97,000) -- (3,130,000)
------------- ------------- -------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES: -- -- -- --
Principal repayments of long-term
debt............................ (50,000) (33,000) (38,000) -- (121,000)
Exercise of stock options......... 172,000 -- -- -- 172,000
------------- ------------- -------------- ------------ -------------
Net cash provided by (used in)
financing activities.......... 122,000 (33,000) (38,000) -- 51,000
------------- ------------- -------------- ------------ -------------
Effect of exchange rates on cash...... (66,000) -- (298,000) -- (364,000)
------------- ------------- -------------- ------------ -------------
Net increase (decrease) in cash and
cash equivalents.................... 3,350,000 (604,000) 1,062,000 -- 3,808,000
Cash and cash equivalents at beginning
of year............................. 34,517,000 (8,603,000) 5,029,000 -- 30,943,000
------------- ------------- -------------- ------------ -------------
Cash and cash equivalents at end of
year................................ $ 37,867,000 $ (9,207,000) $ 6,091,000 -- $ 34,751,000
------------- ------------- -------------- ------------ -------------
------------- ------------- -------------- ------------ -------------
</TABLE>
F-77
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE OF EXISTING NOTES FOR NEW NOTES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 12
Use of Proceeds................................ 22
The Exchange Offer............................. 22
Capitalization................................. 35
Unaudited Pro Forma Combined Financial
Information.................................. 36
Selected Historical Consolidated Financial and
Other Data................................... 41
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 43
Business....................................... 49
Management..................................... 58
Certain Transactions........................... 63
Ownership of Capital Stock..................... 67
Description of Certain Indebtedness............ 68
Description of Notes........................... 71
Plan of Distribution........................... 105
Legal Matters.................................. 105
Experts........................................ 105
Index to Financial Statements.................. F-1
</TABLE>
$120,000,000
[LOGO]
EXCHANGE OFFER
WITH RESPECT TO
9 3/4% SENIOR SUBORDINATED
NOTES DUE 2007
---------------------
PROSPECTUS
, 1998
------------------------
EXCHANGE AGENT:
The Bank of New York
101 Barclay Street, Floor 21W
New York, New York 10286
Attention: Thomas E. Tabor
Tel: (212) 815-5915; Fax: (212) 815-5381
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers who are parties or are threatened to be made parties to any
proceeding (with certain exceptions) by reason of the fact that the person is or
was an agent of the corporation, against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with the
proceeding if that person acted in good faith and in a manner the person
reasonably believed to be in the best interests of the corporation. This
limitation on liability has no effect on a director's liability (i) for acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, (iii) relating to
any transaction from which a director derived an improper personal benefit, (iv)
for acts or omissions that show a reckless disregard for the director's duty to
the corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the corporation or its
shareholders, (v) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders, (vi) under Section 310 of the California
General Corporation Law (concerning contracts or transactions between the
corporation and a director) or (vii) under Section 316 of the California General
Corporation Law (directors' liability for improper dividends, loans and
guarantees). The provision does not extend to acts or omissions of a director in
his or her capacity as an officer. Further, the provision has no effect on
claims arising under federal or state securities laws and does not affect the
availability of injunctions and other equitable remedies available to the
Company's shareholders for any violation of a director's fiduciary duty to the
Company or its shareholders. Although the validity and scope of the legislation
underlying the provision have not yet been interpreted to any significant extent
by the California courts, the provision may relieve directors of monetary
liability to the Company for grossly negligent conduct, including conduct in
situations involving attempted takeovers of the Company.
In accordance with Section 317, the Restated Articles of Incorporation, as
amended (the "Articles"), of the Company limit the liability of a director to
the Company or its shareholders for monetary damages to the fullest extent
permissible under California law, and authorize the Company to provide
indemnification to its agents (including officers and directors), subject to the
limitations set forth above. The Company's By-Laws further provide for
indemnification of corporate agents to the maximum extent permitted by the
California General Corporation Law.
Pursuant to the authority provided in the Articles, the Company has entered
into indemnification agreements with each of its officers and directors,
indemnifying them against certain potential liabilities that may arise as a
result of their service to the Company, and providing for certain other
protection.
The Company also maintains insurance policies which insure its officers and
directors against certain liabilities.
The foregoing summaries are necessarily subject to the complete text of the
statute, the Articles, the By-Laws and the agreements referred to above and are
qualified in their entirety by reference thereto.
II-1
<PAGE>
ITEM 21. EXHIBITS
A list of exhibits included as part of the Registration Statement is set
forth below:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of July 14, 1997, among DH
Technology, Inc., Axiohm S.A. and AX Acquisition Corporation
(incorporated by reference to Exhibit (c)(1) to DH Technology, Inc.'s
Schedule 14D-9 filed July 16, 1997).
2.2 Purchase and Assumption Agreement, dated October 2, 1997, among Axiohm
IPB, Inc., AX Acquisition Corporation and DH Technology, Inc.
(incorporated by reference to Exhibit 2.2 to Axiohm Transaction
Solutions, Inc.'s Current Report on Form 8-K filed October 17, 1997).
3.1 Restated Articles of Incorporation of DH Technology, Inc., as amended
(incorporated by reference to Exhibit 3.1 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988 filed March 30,
1989).
3.2 Certificate of Amendment of Restated Articles of Incorporation of DH
Technology, Inc., dated September 22, 1995 (incorporated by reference to
Exhibit 3.1(b) of the Company's Annual Report on Form 10-K for fiscal
year ended December 31, 1995 filed April 1, 1996).
3.3 Certificate of Ownership of DH Technology, Inc. filed with the California
Secretary of State on October 2, 1997 (incorporated by reference to
Exhibit 3.1 to Axiohm Transaction Solutions, Inc.'s Current Report on
Form 8-K filed October 17, 1997).
3.3A Certificate of Restated Articles of Incorporation of Axiohm Transaction
Solutions, Inc. filed with the California Secretary of State on January
13, 1998.
3.4 Amended and Restated Bylaws of Axiohm Transaction Solutions, Inc.
(incorporated by reference to Exhibit 3.2 to Axiohm Transaction
Solutions, Inc.'s Current Report on Form 8-K filed October 17, 1997).
3.5+ English Summary of Charter Document (STATUTS) of Axiohm S.A.R.L.
3.6+ English Summary of Charter Document (STATUTS) of Axiohm Investissements
S.A.R.L.
3.7+ Certificate of Incorporation of Axiohm IPB, Inc.
3.8+ Bylaws of Axiohm IPB, Inc.
3.9+ Certificate of Limited Liability Company of Cognitive L.L.C.
3.10+ Operating Agreement of Cognitive L.L.C.
3.11+ Articles of Incorporation of Cognitive Solutions, Inc.
3.12+ Bylaws of Cognitive Solutions, Inc.
3.13+ English Summary of Charter Document (STATUTS) of Dardel Technologies
E.U.R.L.
3.14+ Articles of Incorporation of Stadia Colorado Corp.
3.15+ Bylaws of Stadia Colorado Corp.
4.1 Indenture dated as of October 2, 1997 among Axiohm Transaction Solutions,
Inc., the Guarantors named therein and The Bank of New York, as trustee
(the "Indenture") (incorporated by reference to Exhibit 4.1 to Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed October
17, 1997).
4.1A Supplemental Indenture to the Indenture, dated as of January 9, 1998,
between Axiohm S.A.R.L., as a supplemental guarantor, and The Bank of
New York, as trustee.
4.2+ Supplemental Indenture to the Indenture, dated as of November 26, 1997,
between Axiohm Investissements S.A.R.L., as a supplemental guarantor,
and The Bank of New York, as trustee.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<C> <S>
4.3+ Supplemental Indenture to the Indenture, dated as of November 26, 1997,
between Cognitive L.L.C., as a supplemental guarantor, and The Bank of
New York, as trustee.
4.4+ Supplemental Indenture to the Indenture, dated as of November 26, 1997,
between Dardel Technologies E.U.R.L., as a supplemental guarantor, and
The Bank of New York, as trustee.
4.5 $117,300,000 9 3/4% Senior Subordinated Note due 2007 and Subsidiary
Guarantee (incorporated by reference to Exhibit 4.2 to Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed October
17, 1997).
4.6 $2,350,000 9 3/4% Senior Subordinated Note due 2007 and Subsidiary
Guarantee (incorporated by reference to Exhibit 4.3 to Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed October
17, 1997).
4.7 $350,000 9 3/4% Senior Subordinated Note due 2007 and Subsidiary Guarantee
(incorporated by reference to Exhibit 4.4 to Axiohm Transaction
Solutions, Inc.'s Current Report on Form 8-K filed October 17, 1997).
4.8+ Form of New 9 3/4% Senior Subordinated Note due 2007 and New Subsidiary
Guarantee.
5.1++ Opinion of Wilson Sonsini Goodrich & Rosati regarding legality of New
Notes being registered.
10.1 Registration Rights Agreement, dated as of October 2, 1997 among Axiohm
Transaction Solutions, Inc., Axiohm S.A., Axiohm IPB, Inc., Dardel
Technologies E.U.R.L., Stadia Colorado Corp., Cognitive Solutions, Inc.
and Lehman Brothers Inc. (incorporated by reference to Exhibit 10.1 to
Axiohm Transaction Solutions, Inc.'s Current Report on Form 8-K filed
October 17, 1997).
10.2 Purchase Agreement, dated September 25, 1997, among Axiohm Transaction
Solutions, Inc., Axiohm IPB, Inc., Cognitive Solutions, Inc., Stadia
Colorado Corp. and Lehman Brothers Inc. (incorporated by reference to
Exhibit 10.2 to Axiohm Transaction Solutions, Inc.'s Current Report on
Form 8-K filed October 17, 1997).
10.3* Employment Agreement between Axiohm Transaction Solutions, Inc. and
William H. Gibbs dated as of July 14, 1997 (incorporated by reference to
Exhibit 10.3 to Axiohm Transaction Solutions, Inc.'s Current Report on
Form 8-K filed October 17, 1997).
10.3A Resignation Agreement dated January 10, 1998 between Axiohm Transaction
Solutions, Inc. and William H. Gibbs.
10.3B Noncompetition and Mutual Release Agreement dated January 10, 1998 between
Axiohm Transaction Solutions, Inc. and William H. Gibbs.
10.4* Employment Agreement between Axiohm Transaction Solutions, Inc. and Walter
Sobon dated as of July 14, 1997 (incorporated by reference to Exhibit
10.4 to Axiohm Transaction Solutions, Inc.'s Current Report on Form 8-K
filed October 17, 1997).
10.5* Employment Agreement between Axiohm Transaction Solutions, Inc. and Janet
Shanks dated as of July 14, 1997 (incorporated by reference to Exhibit
10.5 to Axiohm Transaction Solutions, Inc.'s Current Report on Form 8-K
filed October 17, 1997).
10.6* Employment Agreement between Axiohm Transaction Solutions, Inc. and David
Ledwell dated as of July 14, 1997 (incorporated by reference to Exhibit
10.6 to Axiohm Transaction Solutions, Inc.'s Current Report on Form 8-K
filed October 17, 1997).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<C> <S>
10.7+ Global Amendment and Assignment and Acceptance, dated October 20, 1997,
among Axiohm Transaction Solutions, Inc., the Lenders named therein,
Union Bank of California, N.A., as successor administrative agent,
Lehman Brothers Inc., as arranger, and Lehman Commercial Paper, Inc., as
resigning administrative agent and as Syndication Agent and as a Lender,
with the Amended and Restated Credit Agreement as Exhibit A.
10.8 Guarantee and Collateral Agreement, dated as of October 2, 1997, between
Axiohm Transaction Solutions, Inc., Lehman Brothers Inc., Lehman
Commercial Paper Inc. and certain of Axiohm Transaction Solutions,
Inc.'s subsidiaries (incorporated by reference to Exhibit 10.8 to Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed October
17, 1997).
10.9* Axiohm Transaction Solutions, Inc.'s 1985 Director Warrant Plan and Forms
of Warrant issued under the Plan, as amended. (incorporated by reference
to Exhibit 10.3 of Axiohm Transaction Solutions, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 filed March 28,
1992).
10.10* Axiohm Transaction Solutions, Inc.'s 1983 Incentive Stock Option Plan and
Forms of Incentive Stock Option Agreement and Nonstatutory Stock Option
Agreement, as amended. (incorporated by reference to Exhibit 10.4 of
Axiohm Transaction Solutions, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 filed March 28, 1991).
10.11* Axiohm Transaction Solutions, Inc.'s 1992 Stock Plan and Form of Incentive
Stock Option Agreement, as amended. (incorporated by reference to
Exhibit 10.6 of Axiohm Transaction Solutions, Inc.'s Form 10-K for the
fiscal year ended December 31, 1994 filed March 15, 1995).
10.12 Lease Agreement dated April 20, 1990, between Axiohm Transaction
Solutions, Inc.'s and Coast Income Properties, Inc., as amended.
(incorporated by reference to Exhibit 10.5 of Axiohm Transaction
Solutions, Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 filed March 29, 1993).
10.13 Lease Agreement dated July 1, 1990, between DH Tecnologia de Mexico S.A.
de C. V. and Alberto Lutteroth. (incorporated by reference to Exhibit
10.6 of Axiohm Transaction Solutions, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1990 filed March 28, 1991).
10.14 Lease Agreement dated April 1, 1994, by and between Axiohm Transaction
Solutions, Inc. and Wind River Development Co., a Wyoming corporation.
(incorporated by reference to Exhibit 10.6 of Axiohm Transaction
Solutions, Inc.'s Form 10-K for the fiscal year ended December 31, 1994
filed March 15, 1995).
10.15 Lease Agreement dated February 28, 1994, between Chardan, Ltd., and Stadia
Colorado Corp. (incorporated by reference to Exhibit 2.2 of Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed March 14,
1994).
10.16 Sublease Agreement dated September 30, 1992, by and between Medical
Engineering Corporation and Cognitive Solutions, Inc. (incorporated by
reference to Exhibit 10.6 of Axiohm Transaction Solutions, Inc.'s Form
10-K for the fiscal year ended December 31, 1994 filed March 15, 1995).
10.17 Line of Credit Agreement dated August 15, 1994 by and between DH
Technology, Inc. and Wells Fargo Bank. (Incorporated by reference to
Exhibit 10.10 of Axiohm Transaction Solutions, Inc.'s Form 10-Q for the
Quarter Ended March 31, 1995 filed May 15, 1995).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<C> <S>
10.18*+ Stock Option Agreement dated October 2, 1997 between Axiohm Transaction
Solutions, Inc. and Malcolm Unsworth.
10.19* Co-Chairman Employment Agreement dated effective October 2, 1997 between
Axiohm Transaction Solutions, Inc. and Patrick Dupuy.
10.20* Co-Chairman Employment Agreement dated effective October 2, 1997 between
Axiohm Transaction Solutions, Inc. and Gilles Gibier.
12.1 Statement re Computation of Ratios.
21.1+ List of Subsidiaries of Axiohm Transaction Solutions, Inc.
23.1 Consent of KPMG Peat Marwick LLP, dated January 16, 1998.
23.2 Consent of Price Waterhouse, dated January 20, 1998.
23.3 Consent of Wilson, Sonsini, Goodrich & Rosati (included in Exhibit 5.1).
24.1+ Power of Attorney (Previously filed, except for pages II-8, II-13, and
II-15).
25.1+ Statement of Eligibility on Form T-1 for The Bank of New York to act as
Trustee under the Indenture.
99.1+ Form of Letter of Transmittal.
99.2+ Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
* This item is a compensatory plan or management contract.
+ Previously filed.
++ To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned Registrants hereby undertake:
1. To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of
responding to the request.
2. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
3. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of each Issuer pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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
an action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of their 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 Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the following
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Philadelphia, State of Pennsylvania on the 20th day of January, 1998.
<TABLE>
<S> <C>
AXIOHM TRANSACTION SOLUTIONS, INC.
/s/ WALTER S. SOBON
------------------------------------------
Walter S. Sobon,
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Co-Chairman of the Board
/s/ PATRICK DUPUY* and Co-Chief Executive
- ------------------------------ Officer (Co-Principal January 20, 1998
Patrick Dupuy Executive Officer)
Co-Chairman of the Board
/s/ GILLES GIBIER* and Co-Chief Executive
- ------------------------------ Officer (Co-Principal January 20, 1998
Gilles Gibier Executive Officer)
/s/ WALTER S. SOBON Chief Financial Officer
- ------------------------------ (Principal Financial January 20, 1998
Walter S. Sobon Officer)
/s/ JANET W. SHANKS*
- ------------------------------ Corporate Controller January 20, 1998
Janet W. Shanks
/s/ WILLIAM J. BOWERS*
- ------------------------------ Director January 20, 1998
William J. Bowers
/s/ NICOLAS DOURASSOF*
- ------------------------------ Director January 20, 1998
Nicolas Dourassof
/s/ WILLIAM H. GIBBS*
- ------------------------------ Director January 20, 1998
William H. Gibbs
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ BRUCE G. KLAAS*
- ------------------------------ Director January 20, 1998
Bruce G. Klaas
/s/ DON M. LYLE*
- ------------------------------ Director January 20, 1998
Don M. Lyle
</TABLE>
*By: /s/ WALTER S. SOBON
-------------------------
Walter S. Sobon
ATTORNEY-IN-FACT
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the following
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Paris, Republic of France on the 20th day of January, 1998.
<TABLE>
<S> <C>
AXIOHM S.A.R.L.
/s/ PATRICK DUPUY
------------------------------------------
Patrick Dupuy,
CO-MANAGER (GERANT) AND CO-CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has also duly caused this Amendment No. 1 to the Registration Statement to be
signed by the undersigned representative of the Registrant in the United States,
thereunto duly authorized, in the City of Philadelphia, State of Pennsylvania on
the 20th day of January, 1998.
<TABLE>
<S> <C>
/s/ WALTER S. SOBON
------------------------------------------
Walter S. Sobon,
AUTHORIZED REPRESENTATIVE
</TABLE>
POWER OF ATTORNEY
Each person whose signature to this Amendment No. 1 to the Registration
Statement appears below hereby appoints Walter S. Sobon as his or her
attorney-in-fact to sign on his or her behalf individually and in the capacity
stated below and to file all amendments and post-effective amendments to this
Registration Statement, which amendments may make such changes in and additions
to this Registration Statement as such attorney-in-fact may deem appropriate or
necessary.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Director (GERANT) and
/s/ PATRICK DUPUY Co-Chief Executive
- ------------------------------ Officer January 20, 1998
Patrick Dupuy (Co-Principal Executive
Officer)
Director (GERANT) and
/s/ GILLES GIBIER Co-Chief Executive
- ------------------------------ Officer January 20, 1998
Gilles Gibier (Co-Principal Executive
Officer)
/s/ JEAN-GEORGES HUGLIN
- ------------------------------ Principal Financial January 20, 1998
Jean-Georges Huglin Officer
/s/ YVES HAGEGE
- ------------------------------ Principal Accounting January 20, 1998
Yves Hagege Officer
</TABLE>
II-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the following
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Paris, Republic of France on the 20th day of January, 1998.
<TABLE>
<S> <C>
AXIOHM INVESTISSEMENTS S.A.R.L.
/s/ PATRICK DUPUY
------------------------------------------
Patrick Dupuy,
CO-MANAGER (GERANT) AND CO-CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has also duly caused this Amendment No. 1 to the Registration Statement to be
signed by the undersigned representative of the Registrant in the United States,
thereunto duly authorized, in the City of Philadelphia, State of Pennsylvania on
the 20th day of January, 1998.
<TABLE>
<S> <C>
/s/ WALTER S. SOBON
------------------------------------------
Walter S. Sobon,
AUTHORIZED REPRESENTATIVE
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Director (GERANT) and
/s/ PATRICK DUPUY* Co-Chief Executive
- ------------------------------ Officer January 20, 1998
Patrick Dupuy (Co-Principal Executive
Officer)
Director (GERANT) and
/s/ GILLES GIBIER* Co-Chief Executive
- ------------------------------ Officer January 20, 1998
Gilles Gibier (Co-Principal Executive
Officer)
/s/ JEAN-GEORGES HUGLIN*
- ------------------------------ Principal Financial January 20, 1998
Jean-Georges Huglin Officer
/s/ YVES HAGEGE*
- ------------------------------ Principal Accounting January 20, 1998
Yves Hagege Officer
</TABLE>
*By: /s/ WALTER S. SOBON
-------------------------
Walter S. Sobon
ATTORNEY-IN-FACT
II-9
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the following
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Philadelphia, State of Pennsylvania on the 20th day of January, 1998.
<TABLE>
<S> <C>
AXIOHM IPB, INC.
/s/ WALTER S. SOBON
------------------------------------------
Walter S. Sobon,
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ PATRICK DUPUY* Officer and Director
- ------------------------------ (Principal Executive January 20, 1998
Patrick Dupuy Officer)
/s/ WALTER S. SOBON Chief Financial Officer
- ------------------------------ (Principal Financial January 20, 1998
Walter S. Sobon Officer)
/s/ JANET W. SHANKS*
- ------------------------------ Chief Accounting Officer January 20, 1998
Janet W. Shanks
/s/ GILLES GIBIER*
- ------------------------------ Director January 20, 1998
Gilles Gibier
</TABLE>
*By: /s/ WALTER S. SOBON
-------------------------
Walter S. Sobon
ATTORNEY-IN-FACT
II-10
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the following
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Philadelphia, State of Pennsylvania on the 20th day of January, 1998.
<TABLE>
<S> <C> <C>
COGNITIVE L.L.C.
By: AXIOHM TRANSACTION SOLUTIONS, INC.,
Sole Member
By: /s/ WALTER S. SOBON
------------------------------------------
Walter S. Sobon,
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
AXIOHM TRANSACTION SOLUTIONS,
INC. ("ATS") Sole Member
By:
Co-Chairman of the Board
/s/ PATRICK DUPUY* and Co-Chief Executive
- ------------------------------ Officer of ATS January 20, 1998
Patrick Dupuy (Co-Principal Executive
Officer of ATS)
Co-Chairman of the Board
/s/ GILLES GIBIER* and Co-Chief Executive
- ------------------------------ Officer of ATS January 20, 1998
Gilles Gibier (Co-Principal Executive
Officer of ATS)
Chief Financial Officer of
/s/ WALTER S. SOBON ATS
- ------------------------------ (Principal Financial January 20, 1998
Walter S. Sobon Officer of ATS)
/s/ JANET W. SHANKS*
- ------------------------------ Corporate Controller of January 20, 1998
Janet W. Shanks ATS
/s/ WILLIAM J. BOWERS*
- ------------------------------ Director of ATS January 20, 1998
William J. Bowers
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ NICOLAS DOURASSOF*
- ------------------------------ Director of ATS January 20, 1998
Nicolas Dourassof
/s/ WILLIAM H. GIBBS*
- ------------------------------ Directors of ATS January 20, 1998
William H. Gibbs
/s/ BRUCE G. KLAAS*
- ------------------------------ Director of ATS January 20, 1998
Bruce G. Klaas
/s/ DON M. LYLE*
- ------------------------------ Director of ATS January 20, 1998
Don M. Lyle
</TABLE>
*By: /s/ WALTER S. SOBON
-------------------------
Walter S. Sobon
ATTORNEY-IN-FACT
II-12
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the following
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Paris, Republic of France on the 20th day of January, 1998.
<TABLE>
<S> <C>
COGNITIVE SOLUTIONS, INC.
/s/ PATRICK DUPUY
------------------------------------------
Patrick Dupuy,
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature to this Amendment No. 1 to the Registration
Statement appears below hereby appoints Walter S. Sobon as his or her
attorney-in-fact to sign on his or her behalf individually and in the capacity
stated below and to file all amendments and post-effective amendments to this
Registration Statement, which amendments may make such changes in and additions
to this Registration Statement as such attorney-in-fact may deem appropriate or
necessary.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President and Sole
/s/ PATRICK DUPUY Director
- ------------------------------ (Principal Executive January 20, 1998
Patrick Dupuy Officer)
Vice President and Chief
/s/ WALTER S. SOBON Financial Officer
- ------------------------------ (Principal Financial January 20, 1998
Walter S. Sobon Officer and Principal
Accounting Officer)
</TABLE>
II-13
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the following
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Paris, Republic of France on the 20th day of January, 1998.
<TABLE>
<S> <C>
DARDEL TECHNOLOGIES E.U.R.L.
/s/ PATRICK DUPUY
------------------------------------------
Patrick Dupuy,
CO-MANAGER (GERANT) AND CO-CHIEF EXECUTIVE
OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has also duly caused this Amendment No. 1 to the Registration Statement to be
signed by the undersigned representative of the Registrant in the United States,
thereunto duly authorized, in the City of Philadelphia, State of Pennsylvania on
the 20th day of January, 1998.
<TABLE>
<S> <C>
/s/ WALTER S. SOBON
------------------------------------------
Walter S. Sobon,
AUTHORIZED REPRESENTATIVE
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Director (GERANT) and
/s/ PATRICK DUPUY* Co-Chief Executive
- ------------------------------ Officer January 20, 1998
Patrick Dupuy (Co-Principal Executive
Officer)
Director (GERANT) and
/s/ GILLES GIBIER* Co-Chief Executive
- ------------------------------ Officer January 20, 1998
Gilles Gibier (Co-Principal Executive
Officer)
/s/ JEAN-GEORGES HUGLIN*
- ------------------------------ Principal Financial January 20, 1998
Jean-Georges Huglin Officer
/s/ YVES HAGEGE*
- ------------------------------ Principal Accounting January 20, 1998
Yves Hagege Officer
</TABLE>
*By: /s/ WALTER S. SOBON
-------------------------
Walter S. Sobon
ATTORNEY-IN-FACT
II-14
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, the following
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Paris, Republic of France on the 20th day of January, 1998.
<TABLE>
<S> <C>
STADIA COLORADO CORP.
/s/ PATRICK DUPUY
------------------------------------------
Patrick Dupuy,
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature to this Amendment No. 1 to the Registration
Statement appears below hereby appoints Walter S. Sobon as his or her
attorney-in-fact to sign on his or her behalf individually and in the capacity
stated below and to file all amendments and post-effective amendments to this
Registration Statement, which amendments may make such changes in and additions
to this Registration Statement as such attorney-in-fact may deem appropriate or
necessary.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President and Sole
/s/ PATRICK DUPUY Director
- ------------------------------ (Principal Executive January 20, 1998
Patrick Dupuy Officer)
Vice President and Chief
/s/ WALTER S. SOBON Financial Officer
- ------------------------------ (Principal Financial January 20, 1998
Walter S. Sobon Officer and Principal
Accounting Officer)
</TABLE>
II-15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of July 14, 1997, among DH
Technology, Inc., Axiohm S.A. and AX Acquisition Corporation
(incorporated by reference to Exhibit (c)(1) to DH Technology, Inc.'s
Schedule 14D-9 filed July 16, 1997).
2.2 Purchase and Assumption Agreement, dated October 2, 1997, among Axiohm
IPB, Inc., AX Acquisition Corporation and DH Technology, Inc.
(incorporated by reference to Exhibit 2.2 to Axiohm Transaction
Solutions, Inc.'s Current Report on Form 8-K filed October 17, 1997).
3.1 Restated Articles of Incorporation of DH Technology, Inc., as amended
(incorporated by reference to Exhibit 3.1 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988 filed March 30,
1989).
3.2 Certificate of Amendment of Restated Articles of Incorporation of DH
Technology, Inc., dated September 22, 1995 (incorporated by reference to
Exhibit 3.1(b) of the Company's Annual Report on Form 10-K for fiscal
year ended December 31, 1995 filed April 1, 1996).
3.3 Certificate of Ownership of DH Technology, Inc. filed with the California
Secretary of State on October 2, 1997 (incorporated by reference to
Exhibit 3.1 to Axiohm Transaction Solutions, Inc.'s Current Report on
Form 8-K filed October 17, 1997).
3.3A Certificate of Restated Articles of Incorporation of Axiohm Transaction
Solutions, Inc. filed with the California Secretary of State on January
13, 1998.
3.4 Amended and Restated Bylaws of Axiohm Transaction Solutions, Inc.
(incorporated by reference to Exhibit 3.2 to Axiohm Transaction
Solutions, Inc.'s Current Report on Form 8-K filed October 17, 1997).
3.5+ English Summary of Charter Document (STATUTS) of Axiohm S.A.R.L.
3.6+ English Summary of Charter Document (STATUTS) of Axiohm Investissements
S.A.R.L.
3.7+ Certificate of Incorporation of Axiohm IPB, Inc.
3.8+ Bylaws of Axiohm IPB, Inc.
3.9+ Certificate of Limited Liability Company of Cognitive L.L.C.
3.10+ Operating Agreement of Cognitive L.L.C.
3.11+ Articles of Incorporation of Cognitive Solutions, Inc.
3.12+ Bylaws of Cognitive Solutions, Inc.
3.13+ English Summary of Charter Document (STATUTS) of Dardel Technologies
E.U.R.L.
3.14+ Articles of Incorporation of Stadia Colorado Corp.
3.15+ Bylaws of Stadia Colorado Corp.
4.1 Indenture dated as of October 2, 1997 among Axiohm Transaction Solutions,
Inc., the Guarantors named therein and The Bank of New York, as trustee
(the "Indenture") (incorporated by reference to Exhibit 4.1 to Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed October
17, 1997).
4.1A Supplemental Indenture to the Indenture, dated as of January 9, 1998,
between Axiohm S.A.R.L., as a supplemental guarantor, and The Bank of
New York, as trustee.
4.2+ Supplemental Indenture to the Indenture, dated as of November 26, 1997,
between Axiohm Investissements S.A.R.L., as a supplemental guarantor,
and The Bank of New York, as trustee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<C> <S>
4.3+ Supplemental Indenture to the Indenture, dated as of November 26, 1997,
between Cognitive L.L.C., as a supplemental guarantor, and The Bank of
New York, as trustee.
4.4+ Supplemental Indenture to the Indenture, dated as of November 26, 1997,
between Dardel Technologies E.U.R.L., as a supplemental guarantor, and
The Bank of New York, as trustee.
4.5 $117,300,000 9 3/4% Senior Subordinated Note due 2007 and Subsidiary
Guarantee (incorporated by reference to Exhibit 4.2 to Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed October
17, 1997).
4.6 $2,350,000 9 3/4% Senior Subordinated Note due 2007 and Subsidiary
Guarantee (incorporated by reference to Exhibit 4.3 to Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed October
17, 1997).
4.7 $350,000 9 3/4% Senior Subordinated Note due 2007 and Subsidiary Guarantee
(incorporated by reference to Exhibit 4.4 to Axiohm Transaction
Solutions, Inc.'s Current Report on Form 8-K filed October 17, 1997).
4.8+ Form of New 9 3/4% Senior Subordinated Note due 2007 and New Subsidiary
Guarantee.
5.1++ Opinion of Wilson Sonsini Goodrich & Rosati regarding legality of New
Notes being registered.
10.1 Registration Rights Agreement, dated as of October 2, 1997 among Axiohm
Transaction Solutions, Inc., Axiohm S.A., Axiohm IPB, Inc., Dardel
Technologies E.U.R.L., Stadia Colorado Corp., Cognitive Solutions, Inc.
and Lehman Brothers Inc. (incorporated by reference to Exhibit 10.1 to
Axiohm Transaction Solutions, Inc.'s Current Report on Form 8-K filed
October 17, 1997).
10.2 Purchase Agreement, dated September 25, 1997, among Axiohm Transaction
Solutions, Inc., Axiohm IPB, Inc., Cognitive Solutions, Inc., Stadia
Colorado Corp. and Lehman Brothers Inc. (incorporated by reference to
Exhibit 10.2 to Axiohm Transaction Solutions, Inc.'s Current Report on
Form 8-K filed October 17, 1997).
10.3* Employment Agreement between Axiohm Transaction Solutions, Inc. and
William H. Gibbs dated as of July 14, 1997 (incorporated by reference to
Exhibit 10.3 to Axiohm Transaction Solutions, Inc.'s Current Report on
Form 8-K filed October 17, 1997).
10.3A Resignation Agreement dated January 10, 1998 between Axiohm Transaction
Solutions, Inc. and William H. Gibbs.
10.3B Noncompetition and Mutual Release Agreement dated January 10, 1998 between
Axiohm Transaction Solutions, Inc. and William H. Gibbs.
10.4* Employment Agreement between Axiohm Transaction Solutions, Inc. and Walter
Sobon dated as of July 14, 1997 (incorporated by reference to Exhibit
10.4 to Axiohm Transaction Solutions, Inc.'s Current Report on Form 8-K
filed October 17, 1997).
10.5* Employment Agreement between Axiohm Transaction Solutions, Inc. and Janet
Shanks dated as of July 14, 1997 (incorporated by reference to Exhibit
10.5 to Axiohm Transaction Solutions, Inc.'s Current Report on Form 8-K
filed October 17, 1997).
10.6* Employment Agreement between Axiohm Transaction Solutions, Inc. and David
Ledwell dated as of July 14, 1997 (incorporated by reference to Exhibit
10.6 to Axiohm Transaction Solutions, Inc.'s Current Report on Form 8-K
filed October 17, 1997).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<C> <S>
10.7+ Global Amendment and Assignment and Acceptance, dated October 20, 1997,
among Axiohm Transaction Solutions, Inc., the Lenders named therein,
Union Bank of California, N.A., as successor administrative agent,
Lehman Brothers Inc., as arranger, and Lehman Commercial Paper, Inc., as
resigning administrative agent and as Syndication Agent and as a Lender,
with the Amended and Restated Credit Agreement as Exhibit A.
10.8 Guarantee and Collateral Agreement, dated as of October 2, 1997, between
Axiohm Transaction Solutions, Inc., Lehman Brothers Inc., Lehman
Commercial Paper Inc. and certain of Axiohm Transaction Solutions,
Inc.'s subsidiaries (incorporated by reference to Exhibit 10.8 to Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed October
17, 1997).
10.9* Axiohm Transaction Solutions, Inc.'s 1985 Director Warrant Plan and Forms
of Warrant issued under the Plan, as amended. (incorporated by reference
to Exhibit 10.3 of Axiohm Transaction Solutions, Inc. Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 filed March 28,
1992).
10.10* Axiohm Transaction Solutions, Inc.'s 1983 Incentive Stock Option Plan and
Forms of Incentive Stock Option Agreement and Nonstatutory Stock Option
Agreement, as amended. (incorporated by reference to Exhibit 10.4 of
Axiohm Transaction Solutions, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 filed March 28, 1991).
10.11* Axiohm Transaction Solutions, Inc.'s 1992 Stock Plan and Form of Incentive
Stock Option Agreement, as amended. (incorporated by reference to
Exhibit 10.6 of Axiohm Transaction Solutions, Inc.'s Form 10-K for the
fiscal year ended December 31, 1994 filed March 15, 1995).
10.12 Lease Agreement dated April 20, 1990, between Axiohm Transaction
Solutions, Inc.'s and Coast Income Properties, Inc., as amended.
(incorporated by reference to Exhibit 10.5 of Axiohm Transaction
Solutions, Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 filed March 29, 1993).
10.13 Lease Agreement dated July 1, 1990, between DH Tecnologia de Mexico S.A.
de C. V. and Alberto Lutteroth. (incorporated by reference to Exhibit
10.6 of Axiohm Transaction Solutions, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1990 filed March 28, 1991).
10.14 Lease Agreement dated April 1, 1994, by and between Axiohm Transaction
Solutions, Inc. and Wind River Development Co., a Wyoming corporation.
(incorporated by reference to Exhibit 10.6 of Axiohm Transaction
Solutions, Inc.'s Form 10-K for the fiscal year ended December 31, 1994
filed March 15, 1995).
10.15 Lease Agreement dated February 28, 1994, between Chardan, Ltd., and Stadia
Colorado Corp. (incorporated by reference to Exhibit 2.2 of Axiohm
Transaction Solutions, Inc.'s Current Report on Form 8-K filed March 14,
1994).
10.16 Sublease Agreement dated September 30, 1992, by and between Medical
Engineering Corporation and Cognitive Solutions, Inc. (incorporated by
reference to Exhibit 10.6 of Axiohm Transaction Solutions, Inc.'s Form
10-K for the fiscal year ended December 31, 1994 filed March 15, 1995).
10.17 Line of Credit Agreement dated August 15, 1994 by and between DH
Technology, Inc. and Wells Fargo Bank. (Incorporated by reference to
Exhibit 10.10 of Axiohm Transaction Solutions, Inc.'s Form 10-Q for the
Quarter Ended March 31, 1995 filed May 15, 1995).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- --------------------------------------------------------------------------
<C> <S>
10.18*+ Stock Option Agreement dated October 2, 1997 between Axiohm Transaction
Solutions, Inc. and Malcolm Unsworth.
10.19* Co-Chairman Employment Agreement dated effective October 2, 1997 between
Axiohm Transaction Solutions, Inc. and Patrick Dupuy.
10.20* Co-Chairman Employment Agreement dated effective October 2, 1997 between
Axiohm Transaction Solutions, Inc. and Gilles Gibier.
12.1 Statement re Computation of Ratios.
21.1+ List of Subsidiaries of Axiohm Transaction Solutions, Inc.
23.1 Consent of KPMG Peat Marwick LLP, dated January 16, 1998.
23.2 Consent of Price Waterhouse, dated January 20, 1998.
23.3 Consent of Wilson, Sonsini, Goodrich & Rosati (included in Exhibit 5.1).
24.1+ Power of Attorney (Previously filed, except for pages II-8, II-13, and
II-15).
25.1+ Statement of Eligibility on Form T-1 for The Bank of New York to act as
Trustee under the Indenture.
99.1+ Form of Letter of Transmittal.
99.2+ Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
* This item is a compensatory plan or management contract.
+ Previously filed.
++ To be filed by amendment.
<PAGE>
Exhibit 3.3A
CERTIFICATE OF RESTATED
ARTICLES OF INCORPORATION
OF
AXIOHM TRANSACTION SOLUTIONS, INC.
WILLIAM H. GIBBS and JANET W. SHANKS certify that:
1. They are the President and Chief Executive Officer, and the
Secretary, respectively, of AXIOHM TRANSACTION SOLUTIONS, INC. a California
corporation.
2. The Articles of Incorporation of this corporation, as amended to the
date of the filing of this certificate, are restated as in Exhibit A attached
hereto (the "Restated Articles of Incorporation").
3. The Restated Articles of Incorporation have been duly approved by
the Board of Directors. As this is a restatement pursuant to Section 910(b)
of the California General Corporation Law which does not itself alter or
amend the Articles of Incorporation in any respect, no approval of this
restatement by the outstanding shares was required.
Each of the undersigned declares under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are
true and correct of our own knowledge.
Dated: 1/7/98 /s/ WILLIAM H. GIBBS
--------------- --------------------------------------
William H. Gibbs, President and Chief
Executive Officer
Dated: 1/7/98 /s/ JANET W. SHANKS
--------------- --------------------------------------
Janet W. Shanks, Secretary
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
AXIOHM TRANSACTION SOLUTIONS, INC.
I
The name of this corporation is Axiohm Transaction Solutions, Inc.
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than a banking business, the trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
III
(a) (i) This corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock." The total number of shares
which this corporation shall have authority to issue is Twenty-Nine Million
Five Hundred Thousand (29,500,000), of which Twenty-Eight Million Five
Hundred Thousand (28,500,000) shall be Common Stock and One Million
(1,000,000) shall be Preferred Stock.
(ii) The Preferred Stock authorized by these Articles of
Incorporation shall be issued in series. The Board of Directors of this
corporation is authorized to determine or alter the rights, preferences,
privileges, and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock, and within the limitations or restrictions stated
in any resolution or resolutions of the Board of Directors originally fixing
the number of shares of Preferred Stock constituting any series, to increase
or decrease (but not below the number of shares of any such series then
outstanding) the number of shares of any such series subsequent to the issue
of shares of that series, to determine the designation of any series and to
fix the number of any series.
IV
(a) LIMITATION OF DIRECTORS' LIABILITY. The liability of the directors
of this Corporation for monetary damages shall be eliminated to the fullest
extent permissible under California law.
(b) INDEMNIFICATION OF CORPORATION AGENTS. The corporation is
authorized to provide indemnification of agents (as defined in Section 317 of
the California Corporations Code) through bylaw provisions, agreements with
agents, vote of
<PAGE>
shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the corporation and its shareholders.
(c) REPEAL OR MODIFICATION. Any repeal or modification of the
foregoing provisions of this Article IV shall not adversely affect any right
of indemnification or limitation of liability of an agent of this Corporation
relating to acts or omissions occurring prior to such repeal or modification.
<PAGE>
EXHIBIT 4.1A
SUPPLEMENTAL INDENTURE
THIS SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
January 9, 1998, is made by and between Axiohm S.A.R.L. (the "New
Guarantor"), a direct or indirect subsidiary of Axiohm Transaction Solutions,
Inc., a California corporation (the "Company"), and The Bank of New York, as
trustee under the indenture referred to below (the "Trustee"). Capitalized
terms used herein and not defined herein shall have the meanings ascribed to
them in the Indenture (as defined below).
WITNESSETH
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of October 2, 1997, providing for the
issuance of an aggregate principal amount of $120,000,000 of 9 3/4% Senior
Subordinated Notes due 2007 (the "Notes");
WHEREAS, Sections 11.03 and 11.05 of the Indenture provide that under
certain circumstances the Company shall cause certain of its subsidiaries to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such subsidiaries shall unconditionally guarantee all of the Company's
Obligations under the Notes pursuant to a Subsidiary Guarantee on the terms and
conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO SUBSIDIARY GUARANTEE. The New Guarantor hereby agrees,
jointly and severally with all other Guarantors, to guarantee the Company's
Obligations under the Notes and the Indenture on the terms and subject to the
conditions set forth in Article 11 and Article 12 of the Indenture and to be
bound by all other applicable provisions of the Indenture.
3. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, shareholder or agent of any Guarantor, as such,
shall have any liability for any obligations of the Company or any Guarantor
under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental
Indenture or for any claim based on, in respect of, or by reason of, such
obligations
<PAGE>
or their creation. Each Holder by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes.
4. NEW YORK LAW TO GOVERN. The internal law of the State of New
York without regard to conflicts shall govern and be used to construe this
Supplemental Indenture.
5. COUNTERPARTS. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Guarantor.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
effective
Dated: January 9, 1998 AXIOHM S.A.R.L.
--------------------
By: /s/ PATRICK DUPUY
---------------------------------------------
Name: Patrick Dupuy
Title: Director/Manager (GERANT)
effective
Dated: January 9, 1998 THE BANK OF NEW YORK
-------------------- as Trustee
By: /s/ THOMAS TABOR
---------------------------------------------
Name: Thomas Tabor
Title: Assistant Treasurer
-3-
<PAGE>
RESIGNATION AGREEMENT
Axiohm Transaction Solutions, Inc. a California corporation ("Employer"),
and William H. Gibbs on behalf of himself, his heirs and assigns ("Gibbs"),
hereby enter into this Resignation Agreement ("Agreement") this 10th day of
January, 1998.
1. Gibbs hereby tenders and Employer hereby accepts the voluntary
resignation of Gibbs effective the date hereof of his employment and his
positions as President and Chief Executive Officer of Employer. Gibbs agrees
not to request reinstatement or reapply for employment. These resignations and
agreements in this Section 1 are irrevocable.
2. In full and final satisfaction of all rights of Gibbs under the
Employment Agreement dated July 14, 1997 ("Employment Agreement") and the Option
Cancellation Agreement dated August 10, 1997 between Gibbs and Employer ("Option
Cancellation Agreement"), Gibbs and Employer agree that the following and solely
the following is owing and shall be paid in accordance with Employer practice
and law:
a. Employer will pay Gibbs the full amount of his salary at the
current rate of pay which he has been receiving plus all vacation
pay owing, plus an additional $76,000 for backpay authorized but
not received by him, less withholding as required by law, through
the date hereof;
b. Employer shall provide Gibbs an option to continue his insurance
coverage under COBRA, beginning the date hereof;
d. Employer shall make the required withheld and matching
contribution to its 401(k) plan in respect of Gibbs'
compensation;
c. Gibbs shall receive distribution of all amounts held in rabbi
trusts established under the Option Cancellation Agreement;
d. Pursuant to Section 9 of the Employment Agreement and Section
5(b) of the Option Cancellation Agreement, Employer shall pay to
Employee the amount of $1,524,873 in full satisfaction of all Tax
Payment obligations to Gibbs under Section 5 of the Option
Cancellation Agreement and the termination obligations, if any
pursuant to section 7(a) of the Employment Agreement.
e. Employer shall pay to Gibbs $75,000, less
<PAGE>
applicable withholding required by law, in payment of 1997 bonus;
f. Gibbs shall be entitled to reimbursement of customary business
expenses incurred through the date hereof, all based upon
submitted and approved expense reports, all of which must be
submitted no later than March 31, 1998;
3. The parties agree that all of Gibbs' outstanding options held by him,
vested or unvested, are hereby cancelled, without additional compensation,
notwithstanding his entitlement under existing option grants and the Employment
Agreement.
4. Employer shall review with Gibbs the contents of Employer's public
disclosure of Gibbs' resignation. Gibbs shall not issue any separate disclosure
without Employer's prior written consent.
AXIOHM TRANSACTION SOLUTIONS, INC.
By: /s/ PATRICK DUPUY
----------------------------------------------------------------------
Its: Co-Chairman
/s/ WILLIAM H. GIBBS
- --------------------------------------
WILLIAM H. GIBBS
-2-
<PAGE>
NONCOMPETITION AND MUTUAL RELEASE AGREEMENT
Axiohm Transaction Solutions, Inc. a California corporation ("Employer"),
and William H. Gibbs on behalf of himself, his heirs and assigns ("Gibbs"),
hereby enter into this Noncompetition and Mutual Release Agreement ("Agreement")
this 10th day of January, 1998.
WHEREAS, Gibbs has resigned his positions as President and Chief Executive
Officer of Employer; and
WHEREAS, Employer is willing to provide certain benefits to Gibbs in
exchange for the covenants and releases set forth herein;
1. In full and final satisfaction of all claims by Gibbs against Employer
and the other Released Parties (as defined in Section 4), and in consideration
for and subject to the undertakings described in this Agreement, Employer agrees
to make the following payments and to provide the following benefits to Gibbs
upon the Benefit Award Date, being the last to occur of (i) Gibbs's election not
to revoke his release in Section 4 within seven (7) days after his execution and
delivery of the Agreement, and (ii) Gibbs's execution and delivery to Employer
of the notarized Ratification Affidavit attached as Exhibit A between eight (8)
and fifteen (15) days after Gibbs's execution and delivery to Employer of the
Agreement:
(a) Employer shall pay the first six months of COBRA benefits elected
by Gibbs;
(b) Employer shall pay To Gibbs the sum of One Million Three Hundred
Fifty Thousand Dollars ($1,350,000);
(c) Employer shall provide Gibbs an office in Employer's offices (the
actual space provided to be subject to Employer's other
requirements and so long as available, not to exceed in any event
the period of the noncompete covenant);
(d) Employer shall allow Gibbs to utilize Employer's current leased
corporate apartment in Golden, Colorado until expiration of the
current term of the lease (October 1, 1998).
(e) Gibbs may retain (and shall be deemed to have purchased for $1)
the 1997 Chevrolet Suburban used by him, all office furniture in
his current office and the two personal computers used by him.
2. (a) Gibbs agrees that (except in connection with tax
<PAGE>
reporting, or pursuant to legal process or any legal action to enforce the terms
of this Agreement), he shall keep confidential the terms of this Agreement, all
performance hereunder and all circumstances relating to Gibbs's resignation from
Employer. In addition, Gibbs shall not take any action intended to portray
Employer, its affiliated entities, or their directors, officers, employees,
accountants, agents or attorneys (past or present) in a negative light and shall
not disclose to any one (without the prior written consent of Employer) any
information regarding Employer or its financial condition, clients, contractual
arrangements, internal affairs, or governance which is non-public, confidential,
or proprietary.
(b) Employer agrees that (except in connection with tax reporting, or
pursuant to legal process or any legal action to enforce the terms of this
Agreement or except as required by law or compliance with debt covenants), it
shall keep confidential the terms of this Agreement, all performance hereunder
and all circumstances relating to Gibbs's resignation from Employer. Employer
shall cause its board of directors and officers and its subsidiaries' boards and
officers not take any action intended to portray Gibbs in a negative light.
(c) Gibbs agrees to return all Employer property and confidential
information, if any, of Employer and its affiliated entities in his possession
or control, except those required to be utilized by him in connection with
performance of his service as a director of Employer, and only so long as so
required. Without limitation of the foregoing, files relating to Employer on
computers retained by Gibbs may be utilized by Employee in performance of his
services as a director of Employer but shall be deleted at such time as he is no
longer a director.
3. (a) Gibbs agrees that for a period of two years from the date of this
Agreement (the "Restricted Period") Gibbs shall not, directly or indirectly,
without the prior written consent of a co-chairman of Employer (which may be
given or denied in his sole discretion), except in his capacity of a director of
Employer:
(i) engage from Wyoming, Colorado, New York, or from any other
state or country in which Employer or any of its direct or indirect
subsidiaries (collectively, the "Companies") have business, have
customers or have solicited customers, in the development,
manufacture, product marketing, product
-2-
<PAGE>
management, public relations, representation or sale of any printers,
printer mechanisms, bar coding or other products competitive with any
products sold by or under development by the Companies, whether as
owner (except through mutual funds or as a less than 5% owner of a
public company), employee, consultant, distributor, independent sales
representative or otherwise, directly or indirectly (by assisting
another person or otherwise); nor
(ii) engage from any other location in the development,
manufacture, product marketing, product management, public relations,
representation or sale of any product competitive with any printers,
printer mechanisms, bar coding or other products competitive with any
products sold by or under development by the Companies, whether as
owner (except through mutual funds or as a less than 5% owner of a
public company), employee, consultant, distributor, independent sales
representative or otherwise, directly or indirectly (by assisting
another person or otherwise); nor
(iii) call upon, solicit, serve, or accept business, from any
customer or prospective customer (wherever located) of the Companies
for printers, printer mechanisms, bar coding or other products
competitive with any products sold by or under development by the
Companies, whether as owner (except through mutual funds or as a less
than 5% owner of a public company), employee, consultant, distributor,
independent sales representative or otherwise, directly or indirectly
(by assisting another person or otherwise); nor
(iv) interfere with any business relationship of any of the
Companies with any of their customers or prospective customers or
induce any of such customers to discontinue or reduce their
relationship with the Companies; nor
(v) employ or retain as an independent contractor any of the
employees or officers of the Companies or recruit, solicit or
otherwise induce any employee of the Companies to discontinue such
employment relationship unless and until such persons have been
separated from the Companies' employment for six months (but in any
event this covenant in clause (v) shall expire 24 months from the date
hereof.
Gibbs acknowledges that these restrictions are reasonable in scope,
are necessary to protect the trade secrets and other proprietary information of
the Companies, that the
-3-
<PAGE>
benefits provided hereunder are fair compensation for these covenants and that
these covenants do not impair Gibbs' ability to be employed as a managerial
level officer or other areas of his expertise and experience. Specifically,
Gibbs acknowledges the reasonableness of the international scope of these
covenants by reason of the international customer base and prospective customer
base and activities of the Companies and the widespread domestic and
international scope of Gibbs's contacts created during his employment with the
Companies and his domestic and international scope of Gibbs's responsibilities
with the Companies and his access to marketing strategies of the Companies.
(b) In the event that Gibbs shall violate any of the covenants in
Section 3(a) (i), (ii), (iii) or (iv) which are not cured within 30 days of
written notice by Employer to Gibbs, Employer shall at its option, be entitled
to a pro-rated return of the amounts paid under Section 1(b) for the not yet
elapsed period of those covenants and cancellation of remaining benefits under
Section 1(c) and 1(d) in lieu of enforcing those covenants. Return of those
amount and cancellation of those benefits shall not affect the enforceability of
any releases or other covenants in this Agreement.
At Gibbs' option, upon written notice to Employer accompanied by
payment of a pro-rated return of the amounts paid under Section 1(b) for the not
yet elapsed period of covenants in Section 3(a)(i), (ii), (iii) or (iv) and
notice of relinquishment of remaining benefits under Section 1(c) and 1(d) of
this Agreement, Gibbs shall be released from further compliance with covenants
in Section 3(a)(i), (ii), (iii) or (iv). Return of those amounts and
cancellation of those benefits shall not affect the enforceability of any
releases or other covenants in this Agreement.
4. Gibbs, on behalf of himself, his heirs, executors, attorneys,
administrators, successors and assigns, hereby fully and forever, to the full
extent permitted by law, releases and discharges Employer (except to the extent
of indemnification to which he is otherwise entitled under Employer's bylaws or
required by law) and each of Employer's affiliated entities and each of their
directors, officers, employees, accountants, agents and attorneys, past, present
and future, and all predecessors, successors and assigns thereof (collectively
"Released Parties") from any and all claims, demands, agreements, actions,
suits, causes of action, damages, injunctions, restraints and liabilities, of
whatever kind or nature, in law, equity or otherwise, whether now known or
unknown or which have ever existed or which may now exist (except to enforce the
terms of this Agreement or his vested retirement benefits), including, but not
limited to, any and all claims, liabilities, demands or causes of action
relating to or arising out of Gibbs's employment
-4-
<PAGE>
or separation from Employer, including, without limitation, any and all stock
option grants and agreements granted under Employer's 1983 Incentive Stock
Option Plan and/or 1992 Stock Plan, claims under Title VII of the Civil Rights
Act of 1964, as amended, 42 U.S.C. Section 2000e ET SEQ., 42 U.S.C. Section
1981, the Civil Rights Act of 1991, the Americans with Disabilities Act, the
Family and Medical Leave Act, the Age Discrimination in Employment Act, as
amended by the Older Workers Benefit Protection Act, the anti-trust and
restraint of trade statutes and common law, the federal and state statutes or
common law, or claims for breach of contract, for misrepresentation, for
violation of any other federal, state or local statute, ordinance or regulation
or common law dealing in any respect with discrimination in employment or
otherwise, defamation, retaliatory or wrongful discharge under the common law of
any state, infliction of emotional distress or any other tort under the common
law of any state or for attorney's fees. Gibbs acknowledges and agrees that
this release and the covenant not to sue set forth in Section 5 are essential
and material terms of this Agreement and that without such release and covenant
not to sue no agreement would have been reached by the parties. Gibbs
understands and acknowledges the significance and consequences of this release
and this Agreement.
The following provisions are applicable to and made a part of this
Agreement and the foregoing general release and waiver:
(a) Gibbs does not release or waive any right or claim which he may
have under the Age Discrimination in Employment Act, as amended
by the Older Workers Benefits Protection Act, which arises after
the date of execution of this Agreement, it being acknowledged
that any claim based upon his separation from Employer has arisen
prior to the execution of this Agreement;
(b) In exchange for this general release and waiver hereunder, Gibbs
hereby acknowledges that he has received separate consideration
beyond that to which he is otherwise entitled under Employer
policy or applicable law;
(c) Employer has advised, and hereby again expressly advises, Gibbs
to consult with an attorney of his choosing regarding, and prior
to executing, this Agreement which contains a general release and
waiver.
(d) Gibbs has twenty-one (21) days from the date of receiving this
document to consider whether or not to execute this Agreement.
In the event of such
-5-
<PAGE>
execution, Gibbs has a further period of seven (7) days from such
date in which to revoke said execution and this Agreement shall
not become effective or enforceable prior to the expiration of
such period.
Gibbs shall ratify the release thereafter, in accordance with the provisions of
Section 1 above, in order to receive the payments described in Section 1.
This release and the covenant not to sue under Section 7 shall not
apply to workers' compensation claims, rights under Employer's 401(k) plan,
claims under the Employee Retirement Income and Security Act and claims under
state and federal insurance laws. This release and the covenant not to sue in
Section 5 shall also not apply to rights under the Resignation Agreement between
the parties dated the date hereof.
Gibbs acknowledges that he may learn of circumstances bearing upon the
things and items released by this Section 4, but it is his intention by doing so
and doing the acts called for by this Agreement, that this Agreement shall be
effective as a full and final accord and satisfaction and release of each and
every thing and item released herein, whether known or unknown.
Gibbs agrees that he waives any protective law under the law of the
state of Wyoming or any other state which would otherwise prevent him from
releasing all claims that he may have against the Released Parties (except those
specifically reserved hereunder), even though he does not know of their
existence at the time of executing this Agreement. Thus, notwithstanding the
provisions of the laws of the state of Wyoming or any other state, and for the
purpose of implementing a full and complete release and discharge of the
Released Parties, Gibbs expressly acknowledges that this Agreement is intended
to include in its effect, without limitation, all of Gibbs' claims which he does
not know or suspect to exist in his favor at the time of execution hereof, and
that this Agreement contemplates the extinguishment of any such claim or claims,
except as specifically reserved hereunder.
5. To the maximum extent permitted by law, Gibbs covenants not to sue or
to institute or cause to be instituted any kind of claim or action in any
federal, state or local agency or court against any of the Released Parties
relating to the matters covered by the foregoing release. In addition, Gibbs
covenants not to sue to contest the enforceability of any provision of this
Agreement.
Gibbs warrants and represents that he has neither made, will make, nor
suffered to be made any assignment or transfer of any right, claim, demand or
cause of action covered by the above
-6-
<PAGE>
release or covenant not to sue, that Gibbs is the sole and absolute owner of all
thereof, and that Gibbs has not filed or suffered to be filed on its behalf any
claim, action, demand of any kind covered by the above release or covenant not
to sue as of the date and time of the execution of this Agreement.
6. Employer fully and forever, to the full extent permitted by law,
releases and discharges Gibbs from any and all claims, demands, agreements,
actions, suits, causes of action, damages, injunctions, restraints and
liabilities, of whatever kind or nature, in law, equity or otherwise, whether
now known or unknown or which have ever existed or which may now exist (except
to enforce the terms of this Agreement and any criminal acts). Employer
acknowledges and agrees that this release and the covenant not to sue set forth
in Section 7 are essential and material terms of this Agreement and that without
such release and covenant not to sue no agreement would have been reached by the
parties. Employer understands and acknowledges the significance and
consequences of this release and this Agreement.
Employer acknowledges that it may learn of circumstances bearing upon
the things and items released by this Section 6, but it is its intention by
doing so and doing the acts called for by this Agreement, that this Agreement
shall be effective as a full and final accord and satisfaction and release of
each and every thing and item released herein, whether known or unknown.
Employer agrees that it waives any protective law under the law of the
state of Wyoming or any other state which would otherwise prevent it from
releasing all claims that it may have against Gibbs (except those specifically
reserved hereunder), even though it does not know of their existence at the time
of executing this Agreement. Thus, notwithstanding the provisions of the laws of
the state of Wyoming or any other state, and for the purpose of implementing a
full and complete release and discharge of the Gibbs, Employer expressly
acknowledges that this Agreement is intended to include in its effect, without
limitation, all of Employer's claims which it does not know or suspect to exist
in its favor at the time of execution hereof, and that this Agreement
contemplates the extinguishment of any such claim or claims, except as
specifically reserved hereunder.
This release and the covenant not to sue in Section 7 shall also not apply
to rights under the Resignation Agreement between the parties dated the date
hereof.
7. To the maximum extent permitted by law, Employer covenants not to sue
or to institute or cause to be instituted any kind of claim or action in any
federal, state or local agency or court against Gibbs relating to the matters
covered by the foregoing release. In addition, Employer covenants not to sue to
-7-
<PAGE>
contest the enforceability of any provision of this Agreement.
Employer warrants and represents that it has neither made, will make,
nor suffered to be made any assignment or transfer of any right, claim, demand
or cause of action covered by the above release or covenant not to sue, that
Employer is the sole and absolute owner of all thereof, and that Employer has
not filed or suffered to be filed on its behalf any claim, action, demand of any
kind covered by the above release or covenant not to sue as of the date and time
of the execution of this Agreement.
8. Gibbs and Employer each agrees that neither this Agreement nor
performance hereunder constitutes an admission by the other of any violation of
any federal, state or local law, regulation, common law, of any breach of any
contract or any other wrongdoing of any type.
9. The parties represent and warrant to each other that this Agreement is
the result of negotiations that began on December 2, 1997 and no provision
hereof was part of any earlier negotiation, understanding, agreement or
arrangement.
-8-
<PAGE>
10. In the event that any Section or provision of this Agreement shall be
determined to be contrary to governing law or otherwise unenforceable, all
remaining portions of this Agreement shall be enforced to the maximum extent
permitted by law; the unenforceable paragraph, subparagraph or provision shall
first be construed or interpreted, if possible, to render it enforceable and, if
that is not possible, then the provision shall be severed and disregarded, and
the remainder of this Agreement shall be enforced to the maximum extent
permitted by law. No such modification or severance shall, however, affect the
payments in Section 1, which are irrevocable except as provided in Section 3(b).
11. Gibbs shall continue to honor and be bound by all obligations of
confidentiality and assignment of inventions regarding Employer information and
property to which he is currently bound under state law or under any general
confidentiality, nondisclosure or invention assignment agreement previously
executed by him in favor of Employer.
12. No warranties or representations are made by either party as to the
proper tax treatment of the benefits granted or payable under this Agreement.
13. This Agreement shall be governed by and construed in accordance with
the internal substantive laws, but not the choice of law rules, of the state of
Wyoming, which is Gibbs' legal state of residence and the place of execution of
this Agreement by Gibbs. The parties agree that the state and federal courts in
the state of Wyoming shall be the sole venue and exclusive jurisdiction for any
dispute or any action for enforcement of this Agreement and each party agrees to
the personal jurisdiction and venue of such courts.
AXIOHM TRANSACTION SOLUTIONS, INC.
By: /s/ PATRICK DUPUY
----------------------------------
Its Co-Chairman
/s/ WILLIAM H. GIBBS
- ---------------------------------------
WILLIAM H. GIBBS
-9-
<PAGE>
EXHIBIT A
STATE OF _________ ) RATIFICATION AFFIDAVIT
)SS:
COUNTY OF _________ )
William H. Gibbs, being first duly cautioned and sworn on oath, deposes and
states:
1. I am the same William H. Gibbs who is a party to a Noncompetition and
Mutual Release Agreement (Agreement) between Axiohm Transaction Solutions, Inc.
and myself dated January 10, 1998.
2. I affirm that, prior to my acceptance of that Agreement on January __,
1998 I was advised to seek my own lawyer's advice, and further I was advised
that I had a minimum of 21 days in which to consider the matter (which period of
time I utilized to the extent deemed prudent by myself, I being under no
compulsion to make a decision sooner). I further affirm that the Agreement was
written in such a manner that I understood the terms, and that the consideration
called for by the Agreement in exchange for the release and covenant not to sue
arises solely from that aspect of the Agreement, and is something to which I
would not otherwise be entitled absent the Agreement. I have been advised by my
attorney of my right to waive consideration of the Agreement for the entire 21
day period permitted by law and,, I hereby elect to waive the remainder of such
21 period, if any.
3. More than seven calendar days have passed since I executed the
Agreement and I have not taken any action to revoke the Agreement. In full
recognition of my rights and obligations under that Agreement, I ratify my
initial acceptance.
4. I have read all of the statements in this Ratification Affidavit, and
all of the facts are true to my own personal knowledge.
5. Further this affiant sayeth naught.
-------------------------------------------
WILLIAM H. GIBBS
Notarization on next page
-10-
<PAGE>
Subscribed and sworn to before me, the undersigned notary public, this
____ day of __________________, 1998.
----------------------------------
Notary public in and for the
State of ______________
-11-
<PAGE>
CO-CHAIRMAN EMPLOYMENT AGREEMENT
This Agreement (this "Agreement") is entered into effective as of
October 2, 1997 (the "Effective Date") by and between Patrick Dupuy of
____________________________, France ("Executive") and Axiohm Transaction
Solutions, Inc., a California corporation (the "Company")
W I T N E S S E T H:
WHEREAS, Executive is a domiciliary and tax resident of France and
does not intend to establish a domicile or tax residence outside of France
during the term of this Agreement;
WHEREAS, Executive is a director and co-chairman of the board of
directors of the Company; and
WHEREAS, Executive has prior to the Effective Date actively assisted
in the strategic decision making and management of Axiohm SA (which became on
October 31, 1997 Axiohm Sarl), Dardel Eurl and Axiohm Investissements Sarl
(collectively, the "French Companies"), all of which became direct or indirect
subsidiaries of the Company on the Effective Date;
WHEREAS, the Company recognizes the value of Executive's experience
and knowledge and desires that Executive be employed by the Company both (i) to
continue to provide services to the Company in the role of co-chairman of the
board of the directors of the Company which activities are to be conducted in
the United States and (ii) to continue to oversee (together with the other
co-chairman of the Company) the Company's investment in the French Companies,
which services are to be conducted in France; and
WHEREAS, Executive desires to be employed to provide the services
provided herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements contained herein, the parties hereto agrees as follows:
I. AGREEMENT OF SERVICE; PLACE OF SERVICES. The Company hereby
agrees to employ Executive to provide services as co-chairman of the Company and
to oversee (together with the other co-chairman of the Company) the Company's
investment in the French Companies for the Service Period and Executive hereby
agrees to provide such services. Executive may be required to travel on Company
business to such places as the
<PAGE>
Company shall designate, it being specifically understood that he is expected to
travel to the United States to perform services and duties as co-chairman of the
Company.
II. PERFORMANCE OF SERVICES. Executive hereby agrees to devote such
amount of his time and energies to the performance of his services hereunder as
may be required.
III. COMPENSATION AND EXPENSES.
A. COMPENSATION. As compensation for all services rendered by
Executive in any capacity hereunder during the Service Period, and in
consideration of all of Executive's agreements hereunder, the Company agrees to
pay Executive, and Executive agrees to accept as total consideration for the
foregoing a salary, payable in the manner and at the time the Company pays its
management employees, at the rate of U.S.$80,000 per annum. The Company and
Executive agree that, based in part on the expected relative time commitments
related to his activities as co-chairman of the Company and as an overseer of
its investment the French companies, that the value of his services as
co-chairman of the board is 3/8 of the total salary payable hereunder and that
the value of his services as an overseer of the Company's investment in the
French companies is 5/8 of the total salary payable hereunder. The Company
shall also pay Executive an amount equal to the French social security taxes
that are paid by Executive in respect of the portion of salary allocated to
overseeing the Company's investment in the French companies (which amount shall
also be deemed in respect of those services).
B. EXPENSES. The Company shall reimburse Executive for all
proper expenses incurred by him in performance of his duties hereunder in
accordance with the policies and procedures of the Company.
IV. TERM AND TERMINATION.
A. TERM. The "Service Period" shall commence on the date
hereof and continue until terminated by either party by giving at least 365 days
prior written notice.
B. OBLIGATIONS UPON TERMINATION. Upon the termination of this
Agreement, the Service Period shall end and the Company shall pay to Executive
the salary and expenses due to him as accrued to the date of such termination.
The obligation of the Company for the payment of any further salary shall
automatically cease upon such expiration or termination, and Executive shall
have no claim against the Company for compensation for loss of employment or
otherwise in respect thereof.
V. ASSIGNMENT. This Agreement shall be binding upon the Company and
its successors and assigns and on Executive, his heirs, executors, and
administrators. This
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<PAGE>
Agreement is a personal services contract and the rights and interest of
Executive hereunder may not be sold, transferred, assigned or pledged.
VI. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to conflict of law principles thereof.
VII. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire understanding of the parties hereto with regard to the subject matter
contained herein, and supersedes all prior agreements, understandings or
intents between or among any of the parties hereto or any related parties.
The parties hereto, by mutual agreement in writing, may amend, modify and
supplement this Agreement. Any such amendment shall be validly and
sufficiently authorized for purposes of this Agreement if it is evidenced by
a writing signed by the parties hereto.
VIII. INTERPRETATION. Titles and headings to paragraphs herein are
inserted for convenience of reference only and are not intended to be a part
or to affect the meanings or interpretation of this Agreement.
IX. WAIVERS. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or
parties entitled to the benefit thereof, but only to the extent evidenced by
a writing executed by such party. The failure of any party hereto to enforce
at any time any provision of this Agreement shall not be construed to be a
waiver of such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of any party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement
shall be held to constitute a waiver of any other or subsequent breach.
X. EXECUTION OF COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement,
and shall become binding when one or more counterparts have been signed by
each of the parties and delivered to Executive and the Company.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
December __, 1997 with an Effective Date indicated above.
Axiohm Transaction Solutions, Inc.
By:
-----------------------------------------
Walter Sobon, Chief Financial Officer
-------------------------------------------
Patrick Dupuy
-4-
<PAGE>
CO-CHAIRMAN EMPLOYMENT AGREEMENT
This Agreement (this "Agreement") is entered into effective as of
October 2, 1997 (the "Effective Date") by and between Gilles Gibier of
____________________________, France ("Executive") and Axiohm Transaction
Solutions, Inc., a California corporation (the "Company")
W I T N E S S E T H:
WHEREAS, Executive is a domiciliary and tax resident of France and
does not intend to establish a domicile or tax residence outside of France
during the term of this Agreement;
WHEREAS, Executive is a director and co-chairman of the board of
directors of the Company; and
WHEREAS, Executive has prior to the Effective Date actively assisted
in the strategic decision making and management of Axiohm SA (which became on
October 31, 1997 Axiohm Sarl), Dardel Eurl and Axiohm Investissements Sarl
(collectively, the "French Companies"), all of which became direct or indirect
subsidiaries of the Company on the Effective Date;
WHEREAS, the Company recognizes the value of Executive's experience
and knowledge and desires that Executive be employed by the Company both (i) to
continue to provide services to the Company in the role of co-chairman of the
board of the directors of the Company which activities are to be conducted in
the United States and (ii) to continue to oversee (together with the other
co-chairman of the Company) the Company's investment in the French Companies,
which services are to be conducted in France; and
WHEREAS, Executive desires to be employed to provide the services
provided herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements contained herein, the parties hereto agrees as follows:
I. AGREEMENT OF SERVICE; PLACE OF SERVICES. The Company hereby
agrees to employ Executive to provide services as co-chairman of the Company and
to oversee (together with the other co-chairman of the Company) the Company's
investment in the French Companies for the Service Period and Executive hereby
agrees to provide such services. Executive may be required to travel on Company
business to such places as the
<PAGE>
Company shall designate, it being specifically understood that he is expected to
travel to the United States to perform services and duties as co-chairman of the
Company.
II. PERFORMANCE OF SERVICES. Executive hereby agrees to devote such
amount of his time and energies to the performance of his services hereunder as
may be required.
III. COMPENSATION AND EXPENSES.
A. COMPENSATION. As compensation for all services rendered by
Executive in any capacity hereunder during the Service Period, and in
consideration of all of Executive's agreements hereunder, the Company agrees to
pay Executive, and Executive agrees to accept as total consideration for the
foregoing a salary, payable in the manner and at the time the Company pays its
management employees, at the rate of U.S.$80,000 per annum. The Company and
Executive agree that, based in part on the expected relative time commitments
related to his activities as co-chairman of the Company and as an overseer of
its investment the French companies, that the value of his services as
co-chairman of the board is 3/8 of the total salary payable hereunder and that
the value of his services as an overseer of the Company's investment in the
French companies is 5/8 of the total salary payable hereunder. The Company
shall also pay Executive an amount equal to the French social security taxes
that are paid by Executive in respect of the portion of salary allocated to
overseeing the Company's investment in the French companies (which amount shall
also be deemed in respect of those services).
B. EXPENSES. The Company shall reimburse Executive for all
proper expenses incurred by him in performance of his duties hereunder in
accordance with the policies and procedures of the Company.
IV. TERM AND TERMINATION.
A. TERM. The "Service Period" shall commence on the date
hereof and continue until terminated by either party by giving at least 365 days
prior written notice.
B. OBLIGATIONS UPON TERMINATION. Upon the termination of this
Agreement, the Service Period shall end and the Company shall pay to Executive
the salary and expenses due to him as accrued to the date of such termination.
The obligation of the Company for the payment of any further salary shall
automatically cease upon such expiration or termination, and Executive shall
have no claim against the Company for compensation for loss of employment or
otherwise in respect thereof.
V. ASSIGNMENT. This Agreement shall be binding upon the Company and
its successors and assigns and on Executive, his heirs, executors, and
administrators. This
-2-
<PAGE>
Agreement is a personal services contract and the rights and interest of
Executive hereunder may not be sold, transferred, assigned or pledged.
VI. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to conflict of law principles thereof.
VII. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire understanding of the parties hereto with regard to the subject matter
contained herein, and supersedes all prior agreements, understandings or
intents between or among any of the parties hereto or any related parties.
The parties hereto, by mutual agreement in writing, may amend, modify and
supplement this Agreement. Any such amendment shall be validly and
sufficiently authorized for purposes of this Agreement if it is evidenced by
a writing signed by the parties hereto.
VIII. INTERPRETATION. Titles and headings to paragraphs herein are
inserted for convenience of reference only and are not intended to be a part
or to affect the meanings or interpretation of this Agreement.
IX. WAIVERS. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or
parties entitled to the benefit thereof, but only to the extent evidenced by
a writing executed by such party. The failure of any party hereto to enforce
at any time any provision of this Agreement shall not be construed to be a
waiver of such provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of any party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement
shall be held to constitute a waiver of any other or subsequent breach.
X. EXECUTION OF COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement,
and shall become binding when one or more counterparts have been signed by
each of the parties and delivered to Executive and the Company.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
December __, 1997 with an Effective Date indicated above.
Axiohm Transaction Solutions, Inc.
By:
------------------------------------------
Walter Sobon, Chief Financial Officer
---------------------------------------------
Gilles Gibier
-4-
<PAGE>
Exhibit 12.1
EXHIBIT 12.1 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Axiohm Transaction Solutions, Inc.
Computation of Ratio of Earnings to Fixed charges
(dollars in thousands)
SUPPORTS HISTORICAL DATA ON PAGE 40 HISTORICAL
<TABLE>
<CAPTION>
Years ended December 31, Nine months Ended September 30,
------------------------ -------------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes $ 1,912 $ 3,025 $ 11,210 $ 9,451 $(41,014)
Add fixed charges (from below) 244 1,889 1,032 946 3,113
------- ------- -------- ------- --------
Adjusted earnings $ 2,156 $ 4,914 $ 12,242 $10,397 $(37,901)
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Fixed charges:
Interest on indebtedness $ 244 $ 1,889 $ 1,032 $ 946 $ 3,077
Interest factor on lease rentals - - - - 36
------- ------- -------- ------- --------
Total fixed charges $ 244 $ 1,889 $ 1,032 $ 946 $ 3,113
------- ------- -------- ------- --------
------- ------- -------- ------- --------
Ratio of earnings to fixed charges 8.8x 2.6x 11.9x 11.0x (a)
------- ------- -------- ------- --------
------- ------- -------- ------- --------
</TABLE>
SUPPORTS PRO FORMA DATA ON PAGE 10 PRO FORMA
<TABLE>
<CAPTION>
Year ended Nine months
December 31, ended September 30,
1996 1997
---- ----
<S> <S> <C>
Earnings:
Loss before income taxes $(13,309) $(78,851)
Add fixed charges (from below) 17,313 14,027
-------- --------
Adjusted earnings (loss) $ 4,004 $(64,824)
-------- --------
-------- --------
Fixed charges:
Interest on indebtedness $ 17,313 $ 13,991
Interest factor on lease rentals - 36
-------- --------
Total fixed charges $ 17,313 $ 14,027
-------- --------
-------- --------
Ratio of earnings to fixed charges (a) (a)
-------- --------
-------- --------
</TABLE>
(a) Adjusted earnings are not sufficient to cover fixed charges
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors and Shareholders
Axiohm Transaction Solutions, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
January 16, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-4 (No. 333-41245) of
Axiohm Transaction Solutions, Inc., of our report dated September 12, 1997
relating to the consolidated financial statements of Axiohm S.A., which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
Price Waterhouse
/s/ PRICE WATERHOUSE
Paris, France
January 20, 1998
