<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 1999, OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _________
COMMISSION FILE NUMBER: 0-13459
AXIOHM TRANSACTION SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-2917470
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
16 SENTRY PARK WEST, SUITE 450
1787 SENTRY PARKWAY WEST
BLUE BELL, PA 19422
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 591-0940
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES XXX NO
----
AS OF APRIL 3, 1999, THERE WERE 6,519,301 SHARES OF THE REGISTRANT'S
COMMON STOCK OUTSTANDING.
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS 3
APRIL 3, 1999 AND JANUARY 2, 1999
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 4, 1998 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 4, 1998 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3 - QUANTITATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISKS 24
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 25
SIGNATURES 26
EXHIBITS INDEX 27
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
April 3, January 2,
1999 1999
------------------- -----------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 902
Accounts receivable, net 35,257 33,361
Inventories 33,356 33,210
Prepaid expenses and other current assets 11,230 11,476
--------- ---------
Total current assets 79,843 78,949
Fixed assets, net of accumulated depreciation 19,455 20,556
Intangible assets 54,200 63,411
Other assets 9,203 8,810
--------- ---------
Total assets $ 162,701 $ 171,726
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 22,116 $ 20,712
Current portion of long-term debt 7,097 9,085
Current portion of government grant obligations 757 813
Accrued payroll, payroll taxes and benefits 5,528 5,367
Accrued expenses 6,370 6,951
Income taxes payable 670 --
Deferred revenue 1,812 1,910
Other current liabilities -- 3,015
--------- ---------
Total current liabilities 44,350 47,853
Non-current liabilities:
Long-term debt 171,856 167,034
Government grant obligations 1,312 1,374
Other long-term liabilities 3,362 3,463
--------- ---------
Total liabilities 220,880 219,724
--------- ---------
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:
6,519,301 shares in 1999 and 1998 respectively 24,478 24,367
Comprehensive income (1,125) (153)
Accumulated deficit (81,532) (72,212)
--------- ---------
Total shareholders' equity (deficit) (58,179) (47,998)
--------- ---------
Total liabilities and shareholders' equity (deficit) $ 162,701 $ 171,726
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
April 3, April 4,
1999 1998
-----------------------
(Unaudited)
<S> <C> <C>
Net sales $ 60,477 $ 57,069
Cost of net sales 41,623 36,995
-------- --------
Gross margin 18,854 20,074
Operating expenses:
Selling, general and administrative 9,766 8,804
Research and development 4,307 4,090
Plant closing expenses 934 --
Acquisition related intangible amortization 9,082 8,462
-------- --------
Total operating expenses 24,089 21,356
-------- --------
Loss from operations (5,235) (1,282)
Interest and other income (62) 88
Interest and other expense 4,197 4,367
-------- --------
Loss before income taxes (benefit) (9,494) (5,561)
-------- --------
Income taxes (benefit) (173) 1,175
-------- --------
Net loss $ (9,321) $ (6,736)
-------- --------
-------- --------
Basic:
Net loss per share $ (1.43) $ (1.03)
Shares used in per share calculation 6,519 6,517
Diluted:
Net loss per share $ (1.43) $ (1.03)
Shares used in per share calculation 6,519 6,517
Foreign currency translation adjustment (972) 245
-------- --------
Other comprehensive loss $(10,293) $ (6,491)
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 3, April 4,
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cashflows from operating activities:
Net loss $ (9,321) $ (6,736)
Adjustments to reconcile net loss to net cash provided by (used in) operations:
Depreciation and amortization 10,672 10,209
Other non-cash items 111 (1,961)
Changes in assets and liabilities, net of effects of acquisition of business:
Accounts receivable (2,995) (4,310)
Inventories (697) (3,801)
Other current assets 175 586
Accounts payable and accrued expenses 2,259 (272)
Other current liabilities (3,015) (3,033)
-------- --------
Net cash provided (used in) by operating activities (2,811) (9,318)
Cashflows from investing activities:
Payment for acquisition of business, net of cash acquired (62) (3,207)
Capital expenditures and other (730) (890)
-------- --------
Net cash used in investing activities (792) (4,097)
Cashflows from financing activities:
Net borrowings under line of credit 5,000 13,205
Principal repayments under long term debt (2,137) (800)
Exercise of Stock Options -- 46
Debt issuance costs (328) --
-------- --------
Net cash provided by financing activities 2,535 12,451
Effect of exchange rate changes on cash 166 245
-------- --------
Net decrease in cash and cash equivalents (902) (719)
Cash and cash equivalents at beginning of period 902 3,877
-------- --------
Cash and cash equivalents at end of period $ -- $ 3,158
-------- --------
-------- --------
Supplemental Cashflow Disclosures:
Cash paid during the year for:
Interest $ 7,221 $ 7,252
Income taxes $ -- $ 3,112
Other transactions:
Payment of restricted cash to former officers -- (8,594)
Reduction of liability to former officers -- 8,594
-------- --------
Cash paid, net of cash acquired $ -- $ --
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
5
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(APRIL 3, 1999 - 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 quarter ended April 3, 1999 are
not necessarily indicative of the results which may be expected for the year
ending January 1, 2000 or any other period. Reference is made to the
Consolidated Financial Statements and Notes thereto included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission
(the "SEC") on April 1, 1999.
In May 1998, Axiohm Transaction Solutions, Inc. (the "Company") changed its
fiscal year from the twelve-month period ended December 31 to the 52 or 53-week
period that ends on the Saturday nearest December 31, effective for fiscal year
1998. As a result, the Company's first quarter of 1999 and 1998 represents the
thirteen-week period ended on April 3, 1999, and April 4, 1998. The Company's
1999 fiscal year will end on January 1, 2000.
NOTE 2: BASIS OF PRESENTATION
The financial statements of the Company include the accounts of its wholly owned
subsidiaries in the United States, France, Mexico, the United Kingdom,
Australia, Hong Kong and Japan. All intercompany accounts and transactions have
been eliminated.
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" or the
"Purchaser"), an indirect wholly-owned subsidiary of Axiohm S.A., a private
French Corporation, acquired approximately 88%, or 7,000,000 shares, of the
outstanding Common Stock of DH Technology, Inc. ("DH") through a public tender
offer to the shareholders of DH at a price of $25 per share (the "Tender
Offer").
On October 2, 1997, pursuant to the Agreement of Merger, AX acquired, directly
or indirectly, 100% of the outstanding Common Stock of Axiohm S.A. in exchange
for 5,518,524 shares of DH Common Stock and $12.2 million in cash (the "Share
Exchange Offer"). Simultaneously with the Share Exchange Offer, DH 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. As part of the Acquisition Financing the Company completed a
private placement (the "Senior Notes Offering") of $120 million of its 9.75%
Senior Subordinated Notes due 2007. The notes were exchanged in March 1998 for
new, substantially identical notes, which have been registered under the
Securities Act of 1933, as amended (the "Notes"). The Company's payment
obligation under the Notes is jointly and severally fully and unconditionally
guaranteed on a senior subordinated basis by certain of the Company's
subsidiaries (the "Guarantor Subsidiaries"), all of which are directly or
indirectly wholly owned by the Company. Immediately after the Share Exchange
Offer, AX was merged with and into DH (the "Merger"), the surviving legal
entity, and the company changed its name from "DH Technology, Inc." to "Axiohm
Transaction Solutions, Inc.". In connection with the Merger, Axiohm S.A. changed
its tax filing status and was renamed Axiohm S.A.R.L. Immediately after the
Merger, approximately 85% of DH's outstanding Common Stock were held by the
former shareholders of Axiohm S.A.R.L. and approximately 15% were held by the
former public shareholders of DH.
The Tender Offer, the Share Exchange Offer and the Merger (collectively the
"Acquisition") have been accounted for in a manner similar to a reverse
acquisition, in which Axiohm S.A.R.L. was treated as the acquirer for accounting
purposes. Accordingly, the historical financial information for periods prior to
August 31, 1997 is that of Axiohm S.A.R.L. The effective date of the Acquisition
and Merger of DH for accounting purposes was August 31,
6
<PAGE>
1997, and, accordingly, the capital structure of the Company has been
retroactively restated to reflect the number of shares and options outstanding
as a result of the Acquisition.
NOTE 2: INVENTORIES
<TABLE>
<CAPTION>
April 3, 1999 January 2, 1999
------------- ---------------
<S> <C> <C>
Raw Materials $26,185,000 $24,632,000
Work in Process 1,614,000 2,027,000
Finished Goods 5,557,000 6,551,000
------------- ---------------
Totals $33,356,000 $33,210,000
</TABLE>
NOTE 4: COMPREHENSIVE
INCOME
Comprehensive income for the three months ended April 3, 1999 and April 4, 1998
presented below includes foreign currency translation items. There was no tax
expense or tax benefit associated with the foreign currency translation items.
<TABLE>
<CAPTION>
April 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Net Loss $(9,321,000) $(6,736,000)
Foreign Currency Translation Adjustment (972,000) 245,000
------------- ---------------
Comprehensive Loss $(10,293,000) $(6,491,000)
</TABLE>
NOTE 5: GUARANTORS AND FINANCIAL INFORMATION
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.
There are no contractual restrictions, under the Notes or otherwise, upon the
ability of the Guarantor Subsidiaries to make distributions or pay dividends to
their respective equity-holders. Directly or indirectly, the Company is the sole
equity-holder of all of the Guarantor Subsidiaries.
The Company's payment obligation under the Notes is jointly and severally fully
and unconditionally guaranteed on a senior subordinated basis by the Guarantor
Subsidiaries, all of which are directly or indirectly wholly owned by the
Company.
The condensed consolidating financial information presents condensed financial
statements as of April 3, 1999 and January 2, 1999 and for the quarter ended
April 3, 1999 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 separated as to French Guarantors
(Axiohm S.A.R.L., Dardel Technologies E.U.R.L., Axiohm
Investissements S.A.R.L.), and U.S. Guarantors (Axiohm IPB, Inc.,
Cognitive L.L.C., Cognitive Solutions, Inc., and Stadia Colorado
Corp.),
c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology
Pty, DH Technologia, Axiohm Ltd. (Hong Kong), Axiohm Japan Inc. and
AP Print S.A.R.L),
d) elimination entries necessary to consolidate the Parent Company and
its subsidiaries, and
e) the Company on a consolidated basis.
7
<PAGE>
The condensed consolidating financial information also presents condensed
financial statements for the quarter ended April 4, 1998.
a) the Company on a parent company only basis ("Parent") (carrying its
investments in the subsidiaries under the equity method),
b) the Guarantor Subsidiaries separated as to French Guarantors
(Axiohm S.A.R.L., Dardel Technologies E.U.R.L., Axiohm
Investissements S.A.R.L.), and U.S. Guarantors (Axiohm IPB, Inc.,
Cognitive L.L.C., Cognitive Solutions, Inc., and Stadia Colorado
Corp.),
c) the Non-Guarantor Subsidiaries (DH Technology Plc, DH Technology
Pty, DH Technologia, Axiohm Ltd. (Hong Kong), Axiohm Japan
Inc.
d) elimination entries necessary to consolidate the Parent Company and
its subsidiaries, and
e) the Company on a consolidated basis.
8
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
April 3, 1999 (Unaudited)
---------------------------------------------------------------------------
Guarantor Subsidiaries
---------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
--------- --------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Accounts receivable, net $ 11,117 $ 4,151 $ 16,134 $ 3,855 $ -- $ 35,257
Inventories 6,674 6,303 17,410 4,363 (1,394) 33,356
Prepaid expenses and other current assets 9,409 853 400 255 313 11,230
Intercompany (16,043) 2,202 14,377 (4,689) 4,153 --
--------- --------- --------- --------- --------- ---------
Total current assets 11,157 13,509 48,321 3,784 3,072 79,843
Fixed assets, net of accumulated depreciation 4,099 3,745 10,235 1,376 -- 19,455
Intangible assets 50,840 365 3,019 (24) -- 54,200
Other assets 6,158 361 2,658 26 -- 9,203
Investment in Subsidiaries 45,029 8,752 -- -- (53,781) --
--------- --------- --------- --------- --------- ---------
Total assets $ 117,283 $ 26,732 $ 64,233 $ 5,162 $ (50,709) $ 162,701
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 4,850 $ 6,823 $ 10,600 $ (157) $ -- $ 22,116
Current portion of long-term debt 6,873 193 21 10 -- 7,097
Current portion of government grant obligations -- 705 34 18 -- 757
Accrued payroll, payroll taxes and benefits 1,410 2,036 1,736 346 -- 5,528
Accrued expenses 4,443 706 959 262 -- 6,370
Income taxes payable (4,500) (929) 6,106 60 (67) 670
Deferred revenue 38 1,035 739 -- -- 1,812
--------- --------- --------- --------- --------- ---------
Total current liabilities 13,114 10,569 20,195 539 (67) 44,350
Non-current liabilities:
Long-term debt 170,376 1,392 14 74 -- 171,856
Government grant obligations 1 795 516 -- -- 1,312
Other long-term liabilities 1 1,619 1,743 -- -- 3,363
Deferred tax liability (2,474) 2,158 315 -- -- (1)
--------- --------- --------- --------- --------- ---------
Total liabilities 181,018 16,533 22,783 613 (67) 220,880
--------- --------- --------- --------- --------- ---------
Shareholders' equity (deficit):
Preferred shares, no par value
Authorized: 1,000,000 shares, none issued -- -- -- -- -- --
Common stock 17,678 11,009 -- 505 (4,714) 24,478
Other comprehensive income 119 (386) -- (339) (519) (1,125)
Retained earnings (accumulated deficit) (81,532) (424) 41,450 4,383 (45,409) (81,532)
--------- --------- --------- --------- --------- ---------
Total shareholders' equity (deficit) (63,735) 10,199 41,450 4,549 (50,642) (58,179)
--------- --------- --------- --------- --------- ---------
Total liabilities and shareholders' equity $ 117,283 $ 26,732 $ 64,233 $ 5,162 $ (50,709) $ 162,701
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
9
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended April 3, 1999 (Unaudited)
---------------------------------------------------------------------------
Guarantor Subsidiaries
---------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
--------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 13,578 $ 11,215 $ 39,911 $ 7,603 $(11,830) $ 60,477
Cost of net sales 9,206 7,678 30,627 5,751 (11,639) 41,623
-------- -------- -------- -------- -------- --------
Gross margin 4,372 3,537 9,284 1,852 (191) 18,854
Operating expenses:
Selling, general & administrative
3,574 1,441 3,504 1,247 -- 9,766
Research and development
1,165 990 2,045 107 -- 4,307
Plant closing expenses
934 -- -- -- -- 934
Acquisition related amortization
9,082 -- -- -- -- 9,082
-------- -------- -------- -------- -------- --------
Total operating expenses 14,755 2,431 5,549 1,354 -- 24,089
-------- -------- -------- -------- -------- --------
Income (loss) from operations (10,383) 1,106 3,735 498 (191) (5,235)
Interest and other income 1,718 19 -- (55) (1,744) (62)
Interest and other expense 4,156 992 801 (9) (1,743) 4,197
Equity earnings in subsidiaries 1,411 -- -- -- (1,411) --
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes (benefit) (11,410) 133 2,934 452 (1,603) (9,494)
Income taxes (benefit) (2,089) 457 1,494 157 (192) (173)
-------- -------- -------- -------- -------- --------
Net income (loss) $ (9,321) $ (324) $ 1,440 $ 295 $ (1,411) $ (9,321)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
10
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended April 3, 1999 (Unaudited)
---------------------------------------------------------------------------
Guarantor Subsidiaries
---------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
--------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating activities $(7,571) $ (494) $ 4,120 $ 851 $ 283 $(2,811)
Cashflows from investing activities:
Payment for acquisition of business and other
intangibles (62) -- -- -- -- (62)
Capital expenditures and other -- (254) (481) 5 -- (730)
------- ------- ------- ------- ------- -------
Net cash provided by (used in) investing activities (62) (254) (481) 5 -- (792)
Cashflows from financing activities:
Net borrowings under line of credit 5,000 -- -- -- -- 5,000
Principal repayments under long term debt (2,000) (119) (4) (14) -- (2,137)
Debt issuance costs (328) -- -- -- -- (328)
------- ------- ------- ------- ------- -------
Net cash provided by (used in) financing activities 2,672 (119) (4) (14) -- 2,535
Effect of exchange rate changes on cash -- 372 -- 77 (283) 166
------- ------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents (4,961) (495) 3,635 919 -- (902)
Cash and cash equivalents at beginning of period 4,055 (831) (3,317) 995 -- 902
------- ------- ------- ------- ------- -------
Cash and cash equivalents at end of period $ (906) $(1,326) $ 318 $ 1,914 $ -- $ --
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
11
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
January 2, 1999
----------------------------------------------------------------------------
Guarantor Subsidiaries
---------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
--------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,055 $ (831) $ (3,317) $ 995 $ -- $ 902
Restricted cash -- -- -- -- -- --
Accounts receivable, net 10,573 4,255 14,702 3,831 -- 33,361
Inventories 6,438 7,205 15,556 4,665 (654) 33,210
Prepaid expenses and other current assets 9,494 826 557 426 173 11,476
Intercompany (18,753) 2,889 15,538 (4,989) 5,315 --
--------- --------- --------- --------- --------- ---------
Total current assets 11,807 14,344 43,036 4,928 4,834 78,949
Fixed assets, net of accumulated depreciation 4,239 4,229 10,650 1,438 -- 20,556
Intangible assets 59,922 412 3,098 (21) -- 63,411
Other assets 6,163 366 2,253 28 -- 8,810
Investment in Subsidiaries 45,029 8,752 -- -- (53,781) --
--------- --------- --------- --------- --------- ---------
Total assets $ 127,160 $ 28,103 $ 59,037 $ 6,373 $ (48,947) $ 171,726
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,397 $ 6,847 $ 8,679 $ 1,789 $ -- $ 20,712
Current portion of long-term debt 8,839 214 21 11 -- 9,085
Current portion of government grant obligations -- 760 34 19 -- 813
Accrued payroll, payroll taxes and benefits 1,534 1,912 1,580 341 -- 5,367
Accrued expenses 4,578 994 1,199 180 -- 6,951
Income taxes payable (2,538) (1,462) 4,232 (232) -- --
Deferred revenue (39) 1,203 746 -- -- 1,910
Rabbi Trust -- -- -- -- -- --
Other current liabilities 3,015 -- -- -- -- 3,015
--------- --------- --------- --------- --------- ---------
Total current liabilities 18,786 10,468 16,491 2,108 -- 47,853
Non-current liabilities:
Long-term debt 165,376 1,552 18 88 -- 167,034
Government grant obligations -- 858 516 -- -- 1,374
Other long-term liabilities -- 1,609 1,687 -- -- 3,296
Deferred tax liability (2,475) 2,327 315 -- -- 167
--------- --------- --------- --------- --------- ---------
Total liabilities 181,687 16,814 19,027 2,196 -- 219,724
--------- --------- --------- --------- --------- ---------
Shareholders' equity (deficit):
Common stock 17,567 11,009 -- 505 (4,714) 24,367
Other comprehensive income 118 380 -- (416) (235) (153)
Retained earnings (accumulated deficit) (72,212) (100) 40,010 4,088 (43,998) (72,212)
--------- --------- --------- --------- --------- ---------
Total shareholders' equity (deficit) (54,527) 11,289 40,010 4,177 (48,947) (47,998)
--------- --------- --------- --------- --------- ---------
Total liabilities and shareholders' equity $ 127,160 $ 28,103 $ 59,037 $ 6,373 $ (48,947) $ 171,726
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
12
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
April 4, 1998 (Unaudited)
------------------------------------------------------------------------
Guarantor Subsidiaries
-------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
--------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,506 $ 333 $ (13,627) $ 946 $ -- $ 3,158
Accounts receivable, net 10,433 3,264 18,231 2,897 -- 34,825
Inventories 5,498 7,875 17,390 4,575 (1,434) 33,904
Prepaid expenses and other current assets 7,256 1,817 644 181 531 10,429
Intercompany (16,532) 827 11,790 (3,240) 7,155 --
--------- --------- --------- --------- --------- ---------
Total current assets 22,161 14,116 34,428 5,359 6,252 82,316
Fixed assets, net of accumulated depreciation 3,775 3,838 11,863 1,685 -- 21,161
Intangible assets 83,307 93 3,440 8 -- 86,848
Other assets 5,491 8,948 76 51 (8,740) 5,826
Investment in Subsidiaries 45,030 -- -- -- (45,030) --
--------- --------- --------- --------- --------- ---------
Total assets $ 159,764 $ 26,995 $ 49,807 $ 7,103 $ (47,518) $ 196,151
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 4,990 $ 5,887 $ 6,809 $ 1,495 $ -- $ 19,181
Current portion of long-term debt 4,824 575 32 56 -- 5,487
Current portion of government grant obligations -- 700 -- -- -- 700
Accrued payroll, payroll taxes and benefits 2,041 1,856 1,362 55 -- 5,314
Accrued expenses 2,381 256 824 66 -- 3,527
Income taxes payable (4,608) 3,053 476 73 1,006 --
Deferred revenue 324 1,061 567 -- -- 1,952
Other current liabilities (832) 2,713 790 69 (1,292) 1,448
--------- --------- --------- --------- --------- ---------
Total current liabilities 9,120 16,101 10,860 1,814 (286) 37,609
Non-current liabilities:
Long-term debt 176,860 1,548 40 38 -- 178,486
Government grant obligations -- 912 550 -- -- 1,462
Other long-term liabilities (2,168) 3,391 1,897 -- -- 3,120
Deferred tax liability -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total liabilities 183,812 21,952 13,347 1,852 (286) 220,677
--------- --------- --------- --------- --------- ---------
Shareholders' equity (deficit):
Common stock 23,898 4,167 -- 360 (4,527) 23,898
Other comprehensive income 65 (494) -- 129 (113) (413)
Retained earnings (accumulated deficit) (48,011) 1,370 36,460 4,762 (42,592) (48,011)
--------- --------- --------- --------- --------- ---------
Total shareholders' equity (deficit) (24,048) 5,043 36,460 5,251 (47,232) (24,526)
--------- --------- --------- --------- --------- ---------
Total liabilities and shareholders' equity (deficit) $ 159,764 $ 26,995 $ 49,807 $ 7,103 $ (47,518) $ 196,151
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
13
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended April 4, 1998 (Unaudited)
----------------------------------------------------------------------------
Guarantor Subsidiaries
-------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
-------- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 15,812 $ 9,677 $34,003 $ 4,992 $(7,415) $ 57,069
Cost of net sales 10,280 6,222 24,909 3,794 (8,210) 36,995
-------- ------- ------- ------- ------- --------
Gross margin 5,532 3,455 9,094 1,198 795 20,074
Operating expenses:
Selling, general & administrative 2,640 915 4,159 1,090 -- 8,804
Research and development 1,183 921 1,829 157 -- 4,090
In-process technology 8,462 -- -- -- -- 8,462
-------- ------- ------- ------- ------- --------
Total operating expenses 12,285 1,836 5,988 1,247 -- 21,356
-------- ------- ------- ------- ------- --------
Income (loss) from operations (6,753) 1,619 3,106 (49) 795 (1,282)
Interest and other income 1,262 34 15 20 (1,243) 88
Interest and other expense 4,312 1,294 3 1 (1,243) 4,367
Equity earnings in subsidiaries 1,998 -- -- -- (1,998) --
-------- ------- ------- ------- ------- --------
Income (loss) before income taxes (benefit) (7,805) 359 3,118 (30) (1,203) (5,561)
Income taxes (benefit) (1,069) 669 1,254 (12) 333 1,175
-------- ------- ------- ------- ------- --------
Net income (loss) $ (6,736) $ (310) $ 1,864 $ (18) $(1,536) $ (6,736)
-------- ------- ------- ------- ------- --------
-------- ------- ------- ------- ------- --------
</TABLE>
14
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed Consolidating Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Period Ended April 4, 1998 (Unaudited)
----------------------------------------------------------------------
Guarantor Subsidiaries
------------------- Non-Guarantor
Parent French US Subsidiaries Eliminations Consolidated
-------- ------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cashflows from operating activities:
Net cash provided by (used in) operating activities $ (7,761) $ 9,479 $ (1,553) $(1,021) $(8,462) $ (9,318)
Cashflows from investing activities:
Payment for acquisition of business and other intangibles (3,207) -- -- -- -- (3,207)
Capital expenditures and other (549) (8,623) (398) 248 8,432 (890)
-------- ------- -------- ------- ------- --------
Net cash provided by (used in) investing activities (3,756) (8,623) (398) 248 8,432 (4,097)
Cashflows from financing activities:
Net borrowings under line of credit 13,892 (724) (10) 47 -- 13,205
Principal repayments under long term debt (800) -- -- -- -- (800)
Exercise of stock options 46 -- -- -- -- 46
-------- ------- -------- ------- ------- --------
Net cash provided by (used in) financing activities 13,138 (724) (10) 47 -- 12,451
Effect of exchange rate changes on cash 25 63 -- 127 30 245
-------- ------- -------- ------- ------- --------
Net increase in cash and cash equivalents 1,646 195 (1,961) (599) -- (719)
Cash and cash equivalents at beginning of period 13,860 138 (11,666) 1,545 -- 3,877
-------- ------- -------- ------- ------- --------
Cash and cash equivalents at end of period $ 15,506 $ 333 $(13,627) $ 946 $ -- $ 3,158
-------- ------- -------- ------- ------- --------
-------- ------- -------- ------- ------- --------
</TABLE>
15
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and Notes thereto included herein.
BACKGROUND
The Company was formed from the combination of Axiohm S.A. a French
corporation ("Axiohm") and DH Technology, Inc. ("DH"). On August 21, 1997, AX
Acquisition Corporation, an indirect wholly-owned subsidiary of Axiohm
("Purchaser"), acquired 7,000,000 shares of the Common Stock of DH
(approximately 88%) through a tender offer to the shareholders of DH ("the
Tender Offer"), resulting in a change in control of DH. On October 2, 1997,
the Purchaser exchanged 5,518,524 shares of the Common Stock it had acquired
in the Tender Offer and approximately $12.2 million in cash for certain of
the outstanding shares of capital stock of Axiohm and all of the outstanding
shares of capital stock of Axiohm Technologies EUR, formerly Dardel
Technologies S.A. ("Dardel"), which held the remaining shares of capital
stock of Axiohm. Immediately after this exchange, DH purchased from Axiohm
IPB all of Purchaser's outstanding capital stock in exchange for the
assumption by DH of the obligations incurred in financing the Tender Offer.
Purchaser was then merged with and into DH (the "Merger"), and the remaining
1,481,476 shares of DH's Common Stock acquired in the Tender Offer and held
by Purchaser at the time of the Merger were canceled in the Merger.
Simultaneously, DH changed its name to Axiohm Transaction Solutions, Inc. The
aggregate initial purchase price of $209.1 million consisted of cash for DH
shares and stock options, transaction costs and the fair value of DH shares
not tendered. The above transactions were financed with (i) borrowings of
approximately $57.0 million, under a new $85 million credit facility that
provides term loans in the aggregate principal amount of $50.0 million (the
"Term Loan Facility), and revolving loans and letters of credit of up to
$35.0 million (the "Revolving Credit Facility", and together with the Term
Loan Facility, the "New Credit Facility") (ii) the proceeds of the Offering
of $120,000,000 of its 9 3/4% Senior Subordinated Notes due in 2007, which
were exchanged in March 1998 for equivalent notes which have been registered
under the Securities Act (the "Notes").
In connection with the foregoing transactions, the Company recorded
approximately $102.1 million of goodwill and other intangibles which is being
amortized over three years using the straight line method, which is the period
estimated to be benefited.
On July 28, 1998 the Company announced a major restructuring program designed to
streamline operations and improve manufacturing efficiencies. As part of this
program, the Company will consolidate its Paso Robles, California and Riverton,
Wyoming manufacturing operations principally into its Ithaca, New York
manufacturing operation. The Company expects that these actions will result in
the reduction of approximately 200 jobs in the closing locations and the
addition of approximately 100 jobs in Ithaca, New York. This final program is a
result of an assessment that began at the time of the acquisition of DH
Technology.
The Company expects that when the consolidation moves are completed by late
1999, pre-tax operating costs will be reduced by approximately $3.5 million a
year. The Company expects to incur approximately $6 million of costs to fully
implement the plan by the end of 1999, of which approximately $3 million was
recorded in the second quarter of 1998 as an adjustment of the purchase price of
DH Technology, Inc. thereby increasing goodwill and other intangibles from
$102.1 million to $105 million.
The company was reorganized into two divisions during the third quarter of 1998:
transaction products, based in Blue Bell, Pennsylvania and identification
products, based in Denver, Colorado. Transaction products account for
approximately 85-90% of the revenue of the business and identification products
represent the balance of the revenue of the business. This reorganization was
undertaken to better serve customer needs.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 3, 1999 COMPARED TO THREE MONTHS ENDED APRIL 4, 1998
NET SALES
Net Sales of $60.5 million for the 1st quarter of 1999 increased $3.4 million or
6.0% from revenues of $57.1 million during the same period in 1998. The increase
in sales is due generally to increased volume in transaction and bar
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<PAGE>
code products both internationally and domestically as a result of larger than
expected orders from several customers. The increase in volume was offset
slightly by decreases in average selling prices and decreased sales of card
readers from the first quarter 1998 because of lower sales to customers in
emerging markets.
COST OF NET SALES
Cost of net sales for the 1st quarter of 1999 were $41.6 million or 68.7% of net
sales, increasing from $37.0 million or 64.8% of net sales during the 1st
quarter of 1998. Increase in absolute cost of sale dollars is a direct
correlation to the increase in net sales. Increase in cost of net sales as a
percentage of net sales is due predominately to product mix. The continued
operation of the Company's Paso Robles facility also increased costs during the
first quarter of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (S,G&A)
S,G&A expenses for the 1st quarter 1999 totaled $9.8 million increasing to
16.1% of net sales from $8.8 million or 15.4% of net sales during the same
period a year ago. The increase over the 1st quarter 1998 is due generally to
higher staffing levels to support increased sales growth. SG&A expenses
during the 1st quarter of 1999 have decreased as a percentage of sales
compared to the 16.8% of net sales in the 4th quarter of 1998.
RESEARCH AND DEVELOPMENT EXPENSES (R&D)
R&D expenses for the 1st quarter 1999 totaled $4.3 million or 7.1% of net
sales, remaining unchanged as a percentage of sales to the same period a year
ago.
PLANT CLOSING EXPENSES
The Company recorded $0.9 million in expenses in the first quarter of 1999,
relating to the relocation of operations from Paso Robles, California and
Riverton, Wyoming facilities to the company's Ithaca, New York and Golden,
Colorado facilities, primarily for the payment of "staying" bonuses.
ACQUISITION RELATED INTANGIBLE AMORTIZATION The Company anticipates that on a
quarterly basis through the third quarter of 2000, operating expenses will
include approximately $9.0 million in non-cash acquisition related charges which
principally includes non-cash intangible amortization.
LOSS FROM OPERATIONS
Loss from operations for the first quarter of 1999 was $5.2 million compared to
a loss of $1.3 million for the same period a year ago. The loss is principally
due to the above mentioned non-cash acquisition related amortization charge of
$9.0 million, coupled with the plant closing expenses of $0.9 million, and
decreases in gross margin due to changing product mix.
INTEREST AND OTHER INCOME
The Company did not generate significant interest income and other income
during the first three months of 1999, as the Company's cash was used to
complete the acquisition of DH as well as repay any outstanding debt.
INTEREST AND OTHER EXPENSE Interest expense for the 1st quarter remained
relatively stable at $4.2 million in the first quarter of 1999 compared to $4.4
million in the first quarter of 1998.
INCOME TAXES
The Company record a tax benefit of $173 thousand for the first quarter 1999
compared to a tax provision of $1.2 million in the first quarter 1998. Although
the Company reported a net loss before income taxes in both periods, goodwill
amortization is not deductible for income tax purposes. Additionally, the
Company recognizes and pays income taxes in foreign countries, principally
France. The increase in one time restructuring charges within operating expenses
has resulted in a tax benefit for the 1st quarter 1999. Income tax as a
percentage of income before taxes, excluding the effect of acquisition related
charges, was approximately 42% in 1999 compared to 45% in 1998.
17
<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The risk factors set forth below are important factors that may affect future
results and that could cause actual results to differ materially from those
projected in forward-looking statements that may be made by the Company from
time to time, including the forward-looking statements included in this report.
Substantial Leverage and Debt Service. On April 3, 1999, the Company's total
debt (net of cash) was $181.0 million. Total debt excluding government grant
was $178.9 million and shareholders' deficit was $81.5 million. Required
principal payments under the New Credit Facility and Notes (excluding the
Revolver) are as follows: $7.1 million remaining in 1999; $8.5 million in
2000; $14.6 million in 2001; $27.5 million in 2002; $121.2 million
thereafter. Through 1999, it is anticipated that capital expenditures will
not exceed the limit of $11.5 million permitted under the Credit Facility.
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 credit facility in an amount sufficient to enable the
Company to service its indebtedness, 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, 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 Credit Facility and the indenture under which the
Notes were issued (the "Indenture"), and the fact that substantially all of
the Company's and its subsidiaries' assets have been pledged to secure
obligations under the Credit Facility.
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.
At April 3, 1999, the Company's total debt excluding government grants was
$178.9 million. The Company also had borrowing availability under the Credit
Facility of an additional $9.6 million for working capital and capital
expenditure requirements, subject to the borrowing conditions contained
therein. Debt levels have increased during the first quarter of 1999 from the
debt levels at January 2, 1999 due to the payment of $5.9 million of
subordinated interest on April 1, 1999. Effective April 2, 1999 the Company
renegotiated the conditions of its bank agreement. Modifications, among other
items, affected the covenant levels, the reduction of the revolving line of
credit from $35 million to $25 million, as well as, rescheduling of principal
payments under its term loan agreements. (See Fifth Amendment to the Credit
Agreement exhibit filed with this document) At April 3, 1999 the Company was
in compliance with the debt covenants.
FUTURE OPERATING RESULTS SUBJECT TO FLUCTUATION.
The Company's operating results may fluctuate in the future as a result of a
number of factors, including the timing of customer orders, timing of completion
of existing customer contracts, variations in the Company's sales channels or
the mix of products it sells, changes in pricing policies by the Company's
suppliers, fluctuations in manufacturing yields, market acceptance of new and
enhanced versions of the Company's products and the timing of acquisitions of
other businesses, products and technologies and any associated charges to
earnings.
In addition, the Company periodically evaluates the possible impairment of
goodwill to determine whether events or changes in circumstances indicate that
the carrying amount of goodwill may not be recoverable. Further, the Company's
expense levels are based in part on expectations of future revenues. If
anticipated sales and shipments in any quarter do not occur when expected,
operating expenses and inventory levels could be disproportionately high and the
Company's operating results for that quarter, and potentially for future
quarters, would be adversely affected. The Company's operating results could
also be affected by general economic conditions. Fluctuations in operating
results are likely to cause volatility in the price of the Company's Common
Stock.
The Company's customers encounter uncertain and changing demand for their
products. They typically order products from the Company based on their
forecasts. 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
18
<PAGE>
Company. The Company has in the past experienced, and may at any time and with
minimal notice in the future experience, cancellations and postponements of
orders.
DEPENDENCE ON PRINCIPAL CUSTOMER.
Sales to NCR Corporation ("NCR"), the Company's largest customer, for the three
months ended April 3, 1999 was 23.4% of total revenue. Net sales for the years
ended January 2, 1999 and December 31, 1997 were 25% and 35% respectively. No
other customer accounted for more than 10% of net sales at any time period. On
September 2, 1997, the Company entered into a three-year contract with NCR (the
"NCR Contract"). The NCR Contract provides that NCR and Axiohm intend and expect
that NCR will purchase from Axiohm substantially all of its requirements for
transaction printers of the type manufactured by the Company (the "Covered
Products"). In case there is reason to believe that NCR is purchasing less than
75% of its requirements for Covered Products from Axiohm 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. The NCR Contract provides that NCR's
purchase commitment is subject to Axiohm's ability to meet NCR's specifications
and requirements for price, performance, quality, service and delivery with
respect to such Covered Products. Any failure by NCR to continue purchasing
products from the Company at historical levels or the termination of the NCR
Contract would have a material adverse effect on the Company's business,
financial condition and operating results.
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.
INTEGRATION OF OPERATIONS/ RESTRUCTURING.
The integration of the administrative, finance and manufacturing operations of
Axiohm 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
substantial attention from management. During the second quarter of 1998, as
part of the strategy to achieve purchasing, manufacturing and other synergies
begun with the acquisition of DH, the Company finalized its plan to consolidate
two of its manufacturing operations, Paso Robles, California and Riverton,
Wyoming, principally into its Ithaca, New York manufacturing operation as
discussed above. The Company expects to incur $6 million in costs through 1999
related to consolidation of these two facilities. The Company recorded
approximately $3 million in additional goodwill in the second quarter of 1998
related to the closure of the two former DH manufacturing operations. Through
April 3, 1999, the Company has incurred $620,000, in charges against the
reserve. The balance is expected to be incurred until the manufacturing
locations are closed. The Company also recorded $0.9 million in expenses during
the quarter ended April 3, 1999, and $2.5 million since the beginning of the 2nd
quarter 1998, relating to the relocation of operations from Paso Robles,
California and Riverton, Wyoming to Ithaca, New York, primarily for staying
bonuses to be paid to employees upon completion of integration duties. Any
inability of the Company to integrate these operations 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 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.
TECHNOLOGICAL CHANGE; COMPETITION; DEPENDENCE ON NEW PRODUCTS.
The markets for some of the Company's products are characterized by frequent new
product introductions and declining average selling prices over product life
cycles. The Company's future success is highly dependent upon the timely
completion and introduction of new products at competitive price/performance
levels. In addition, the Company must respond to current competitors, who may
choose to increase their presence in the Company's
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<PAGE>
markets, and to new competitors, who may choose to enter those markets. If the
Company is unable to make timely introduction of new products or respond to
competitive threats, its business and operating results could be materially
adversely affected.
INTERNATIONAL SALES AND OPERATIONS.
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.R.L. have incurred
a majority of Axiohm S.A.R.L.'s expenses in French francs, while a substantial
majority of Axiohm S.A.R.L.'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.
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. 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. 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.
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 issuance of equity securities, the occurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets associated with the acquisitions of other
20
<PAGE>
businesses, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
FUTURE SALE OF AXIOHM EXCHANGE SHARES.
In May 1998, the Company registered with the SEC an aggregate of 5,515,858
shares of Common Stock held by the former shareholders of Axiohm S.A.R.L. and
Dardel for sale by such shareholders from time to time in the open market or in
private transactions. Such sales, or the potential for such sales, could have a
material adverse effect on the market price for the Company's Common Stock.
On March 3, 1999, the Nasdaq Stock Market notified the Company that the
Company would be de-listed unless the Company can demonstrate the ability to
sustain compliance with all listing criteria. The Company has scheduled a
hearing with Nasdaq to be held on May 27, 1999 to appeal the de-listing of
the Company's stock from the Market. The de-listing has been delayed pending
the outcome of the hearing. There is no assurance that the Company's stock
will continue to listed and meet all of the listing criteria. Delisting of
the Company's stock could adversely impact the liquidity of the Company's
stock.
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, computer
systems and/or software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements.
The Company's failure to resolve Year 2000 issues could result in systems
failure or miscalculations causing disruptions in operations, including a
temporary inability to process transactions, send invoices, or engage in normal
business activities. Such failures could materially and adversely affect the
liquidity and financial performance of the company. Dependent on the readiness
of suppliers, delays in supplies could directly correlate to reduce shipments
and lost sales. In addition, a similar result may occur, in the event major
customers do not meet Year 2000 compliance.
Year 2000-State of Readiness
The Company recognizes the need for addressing the "Year 2000" issue and has
developed an oversight committee to ensure compliance. Representatives from each
operating location, both domestic and international, have been identified and
assigned the task of evaluating the state of readiness of each respective
location. The Chief Information Officer has the responsibility to oversee the
Company's Year 2000 compliance issues. Information systems ("IT") which are
considered to be non-compliant are expected to be modified or replaced with
systems that are Year 2000 compliant. Similar actions are being taken with
respect to non-IT systems, primarily those systems embedded in equipment and
systems used in manufacturing and other facilities. In addition, the teams have
been given the responsibility of determining the state of readiness of customers
and vendors and other third parties that may have a material impact on the
Company, and develop contingency plans where necessary. The Company thus far has
primarily used, and expects to continue to primarily use, internal resources to
implement its readiness plan and to upgrade or replace systems affected by the
Year 2000 issue.
As part of the Company's Year 2000 project, the Company has completed the
awareness phase of all IT and non-IT systems pertaining to the Year 2000 issue.
The Company has completed its initial evaluation of current computer systems
hardware, including software and embedded technologies. Evaluation of IT systems
is approximately 75% complete and is expected to be 100% complete during the
second quarter of 1999. The Company has begun its evaluation of the "state of
readiness" and expects to complete this evaluation of the "state of readiness"
of both vendors and customers with a material relationship during the second
quarter 1999. The following table summarizes the current status of the Company's
position in addressing Year 2000 issues.
21
<PAGE>
<TABLE>
<CAPTION>
-------------------- -------------- --------------------------------
Phase % Completed Project Completion Date During
the Qtr. Ending
-------------------- -------------- --------------------------------
<S> <C> <C>
Awareness 100%
-------------------- -------------- --------------------------------
Evaluation 75% 6/30/99
-------------------- -------------- --------------------------------
Renovation 75% 6/30/99
-------------------- -------------- --------------------------------
Validation 50% 9/30/99
-------------------- -------------- --------------------------------
Implementation 50% 12/31/99
-------------------- -------------- --------------------------------
</TABLE>
Based on the evaluation process thus far, the Company has identified the
primarily non-compliant issue to reside within the company's accounting and
manufacturing software.
The Company has purchased the necessary hardware and software and is currently
in the process of implementing firm wide an Oracle based enterprise resource
planning system ("ERP"). To date, Version 10.6 has been implemented in several
locations. Although Version 10.6 does not fully address Year 2000 requirements,
the Company believes that Oracle ERP Version 10.7 does. Version 10.7 has already
been released by Oracle, and the Company has begun testing and implementation
with those divisions currently working with 10.6.
The Company anticipates 75% completion of the Oracle conversion by second
quarter 1999, and 100% completion to be achieved by the third quarter 1999.
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.
While the Company has not completed its evaluation of non-IT systems, it is
believed that such items which are not Year 2000 compliant can easily be
remedied through the purchase of "over the counter" products. A material effect
on the company's performance is not expected.
Year 2000-Costs to Address Issues
Incremental costs associated with Year 2000 compliance are expected to
approximate $3.0 million through December 31, 1999, of which the Oracle
conversion is expected to be the largest portion totaling $2.0 million. Through
April 3, 1999, the company has spent approximately $1.6 million associated with
the Oracle conversion or 80% of the total. This estimate assumes that the
Company will not incur significant costs associated with Year 2000 compliance on
behalf of vendors, customers or other third parties.
Year 2000-Contingency Plan
The Company has not, to date, implemented a contingency plan regarding Year 2000
non-compliance. The Company has developed a foundation for the contingency plan
and is expecting to complete the plan by the end of the second quarter 1999. The
Company believes that in-house problems can be addressed through the use of
alternative resources and manual processes. However, due to the uncertainty of
third party factors, the Company believes a detailed contingency plan is needed.
The costs and timetables in which the Company plans to complete the Year 2000
readiness activities, as well as potential outcomes of non-compliance are based
on management's best estimates. These estimates were derived using numerous
assumptions of future events including continuing factors. Evaluation of Year
2000 issues is a continuous process. There can be no assurance that these
estimates will be achieved. Failure to achieve these estimates, or complete the
Company's Year 2000 readiness plan and activities, could have a material effect
on the company's financial condition and operating results.
EURO CURRENCY RISKS.
Eleven of fifteen member countries of the European Union established fixed
conversion rates between their existing currencies ("legacy currencies") and one
common currency - the Euro. The Euro now trades on currency exchanges and may be
used in business transactions, eliminating currency exchange risk between the
member countries.
22
<PAGE>
Beginning in January 2002, new Euro-denominated bills and coins will be issued,
and legacy currencies will be withdrawn from circulation. The Company has
recognized this situation and is currently in the process of developing a plan
to address issues raised by the Euro conversion. Possible issues include, but
are not limited to, the need to adapt computer and financial systems to
recognize Euro-denominated transactions, as well as the impact of one common
European currency on pricing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are cash flow from operations and
borrowings under the Credit Facility. For the quarter ended April 3, 1999, cash
used in operating activities was $2.8 million. Depreciation and amortization
represented $10.6 million of cash flows from operating activities. The
semi-annual interest payment on subordinated debt of $5.9 million was made on
April 1, 1999. Accounts Receivable increased by approximately $2.9 million as a
result of increased sales offset by accounts payable increases of approximately
$2.3 million. Inventory increased by $150,000 during the same period.
Cash used in investing activities was approximately $0.8 million in the first
quarter of 1999, is comprised primarily by the capital expenditures of $0.7
million. Capital expenditures relate primarily to increases in tooling used to
support new products.
The Company's primary capital requirements include debt service, capital
expenditures and working capital. The Company's ability to make scheduled
payments of principal and interest to refinance its indebtedness, 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 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 during the next twelve
months.
Required long term debt payments under the Credit Facility and Notes are as
follows: $7.1 million remaining in 1999; $8.5 million in 2000; $14.6 million in
2001; $27.5 million in 2002; $121.2 million thereafter. It is anticipated that
capital expenditures in 1999 will not exceed the maximum permitted under the New
Credit Facility of $11.5 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 Credit Facility in an
amount sufficient to enable the Company to service its indebtedness, 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, 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.
At April 3, 1999, the Company's total debt excluding government grants was
$181.0 million. Total debt excluding government grants totaled $178.9 million.
The Company also had borrowing availability under the Credit Facility of an
additional $9.6 million, subject to the borrowing conditions contained therein.
Debt levels have increased during the first quarter of 1999 from the debt levels
at January 2, 1999 due the payment of $5.9 million of subordinated interest on
April 1, 1999 and working capital requirements. Effective April 2, 1999 the
Company renegotiated the conditions of its bank agreement. Modifications
affected the covenant levels within the agreement. Additional modifications
include the reduction of the revolving line of credit from $35 million to $25
million, as well as, rescheduling of the principal payments under the Company's
two term loan agreements. (See Fifth Amendment to the Credit Agreement exhibit
filed within this document) At April 3, 1999 the Company is in compliance with
the debt covenants.
The Credit Facility and the Notes do, 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. The Credit
Facility includes various financial covenants of the Company, including
covenants with respect to the maximum capital expenditures, a maximum ratio of
debt to EBITDA, a minimum interest coverage ratio and a minimum fixed charge
coverage ratio. The Credit Facility subjects the Company to certain negative
covenants, including without limitation covenants that restrict, subject to
specified exceptions: the
23
<PAGE>
incurrence of additional indebtedness and other obligations and the granting of
additional liens; mergers and acquisitions, investments and acquisitions and
dispositions of assets; the incurrence of capitalized lease obligations;
investments, loans and advances; dividends, stock repurchases and redemption's;
prepayment or repurchase of other indebtedness and other provisions.
In managing interest rate exposure, principally under the Company's floating
rate revolving credit facilities, the Company has entered into 3 interest rate
swap agreements during the period from December 1997 through October 2001. The
swap agreements are with major financial institutions and aggregate $35 million
in notional principal amount at April 3, 1999. The first swap agreement of $20
million notional principal amount requires fixed interest payments at a fixed
rate of 5.90% through November 1999. The second swap agreement of $10 million
notional principal amount requires fixed interest payments at a fixed rate of
4.76% through October 2001. The third swap agreement of $5 million in notional
principal amount requires fixed interest payments at a fixed interest rate of
4.365% through October 2001.
The Company incurred indebtedness of $120 million in connection with the
issuance of the Notes. The indebtedness evidenced by the Notes is subordinated
to the Company's obligations under the Credit Facility. Interest is payable
semi-annually on the unpaid principal at 9.75% per annum. The Company made the
first of two payments for 1999 on April 1, 1999 totaling $5.9 million. The
Indenture contains covenants regarding restricted payments, incurrence of
indebtedness, liens, dividends, merger, consolidation or sale of assets, and
transactions with affiliates.
NEW ACCOUNTING STANDARDS
In February 1999, the Financial Accounting Standards board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 135 "Discussion of FASB
Statement No. 75 and Technical Corrections." This Statement amends existing
authoritative literature to make various technical corrections, clarify
meanings, or describe applicability under changed conditions. The statement is
effective for fiscal year ending after February 15, 1999. Management has not yet
determined the impact that the inclusion of this statement may have on
consolidated results, financial condition or liquidity of the Company.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement standardizes the accounting
for derivative instruments, including derivative instruments embedded in
contracts, by requiring that the entity recognize those items as assets of
liabilities in the statement of financial position and measure them at fair
value. The statement is effective for fiscal year beginning after June 15, 1999.
Management has not yet determined the impact that the adoption of this statement
may have on consolidated results, financial condition or liquidity of the
Company. The Company plans to adopt SFAS No. 133 as permitted by this accounting
standard by January 1, 2000.
The Company plans to adopt these statements in connection with the preparation
of the consolidated financial statements, as permitted by each of the
pronouncements. The adoption of these standards is not expected to have a
material impact on consolidated results, financial condition, or long-term
liquidity of the Company.
RESTRICTIONS ON DISTRIBUTIONS BY GUARANTORS TO THE COMPANY
There are no contractual restrictions, under the Credit Facility or otherwise,
upon the ability of the Guarantor Subsidiaries to make distributions or pay
dividends to their respective equityholders. Directly or indirectly, the Company
is the sole equity-holder of all the Guarantor Subsidiaries.
ITEM 3 - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS
The market risk exposure inherent in the Company's international operations
creates potential for losses arising from adverse changes in foreign currency
exchange rates. The Company is exposed to such foreign exchange rate risks in
two main areas: (1) The company has operating facilities and correspondingly
expense generation from multiple non-US locations such as: France; the United
Kingdom; and Australia, operating expenses are expected to be denominated in
various foreign currencies and (2) most of the Company's capital lease
obligation is expressed in the French Franc. Conversions from foreign currencies
to US dollars can cause significant exchange gains or losses. In addition, gains
and losses arising from the conversion to U.S. dollars of assets and liabilities
denominated in foreign currencies may contribute to fluctuations in the
Company's operating results.
24
<PAGE>
The Company manufactures and sells its products in a number of locations around
the world, resulting in a diversified revenue and cost base that is exposed to
fluctuations in European and Asian currencies. The diverse base of foreign
currency revenues and costs serves to create a hedge that limits the Company's
net exposure to fluctuations in these foreign currencies.
The Company uses financial instruments, primarily forward exchange contracts, to
hedge its exposure to foreign currency exchange rate fluctuations. 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. These contracts must be designated at
inception as a hedge and measured for effectiveness at both inception and on an
ongoing basis. 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. At April 3, 1999 the
Company's portfolio consisted of eight foreign exchange contracts to sell $11
million at an average rate of $1 = FF 5.77.
The Company has undertaken a substantial amount of debt associated with the
Merger. (See item 1. Business - Substantial Debt Leverage and Service) In
managing interest rate exposure, principally under the Company's floating rate
revolving credit facilities, the Company has entered into 3 interest rate swap
agreements during the period from December 1997 through October 2001. The swap
agreements are with major financial institutions and aggregate $35 million in
notional principal amount at January 2, 1999. The first swap agreement of $20
million notional principal amount requires fixed interest payments at a fixed
rate of 5.90% through November 1999. The second swap agreement of $10 million
notional principal amount requires fixed interest payments at a fixed rate of
4.76% through October 2001. The third swap agreement of $5 million in notional
principal amount requires fixed interest payments at a fixed interest rate of
4.365% through October 2001. A 100 (10% adverse change) basis point move in
interest rates would not have a material affect on the Company's floating and
fixed rate instruments, including short and long-term debt and derivative
instruments.
The Company's hedging activities have not had a material impact on its
operations or cash flows. The Company does not use or hold financial instruments
for speculative trading purposes. The Company does not anticipate an adverse
impact on the interest rate protection agreements, as a result of interest rate
volatility.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In September 1998, Andrew Newmark filed a complaint against the Company in the
United States District Court, Southern District of California, claiming rights
to a finders fee of up to $2,187,500 in connection with the 1997 acquisition of
the Company by Axiohm S.A. Also in September, the Company filed an action in the
United States District Court for the Southern District of New York against Mr.
Newmark, seeking a judgement that Mr. Newmark is not entitled to any fee. The
New York action has been stayed pending resolution of the California action, in
which discovery is presently being conducted. The Company strongly believes that
its position is meritorious, and that Mr. Newmark's claims are without merit.
However, there can be no assurance that the Company will ultimately prevail in
the suits with Mr. Newmark.
25
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AXIOHM TRANSACTION SOLUTIONS, INC.
MAY 13,1999 BY: /S/ WALTER S. SOBON
----------- -----------------------------------
DATE WALTER S. SOBON, CHIEF FINANCIAL
OFFICER (CHIEF FINANCIAL OFFICER)
26
<PAGE>
AXIOHM TRANSACTION SOLUTIONS, INC.
EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 3, 1998
EXHIBIT DESCRIPTION
- -------------------------------------------------------------------------------
10.1 Fifth AMENDMENT, dated as of April 2, 1999 to the CREDIT
AGREEMENT, dated as of October 2, 1997, among the Company,
as Borrower, the several Lenders from time to time Parties
thereto, Lehman Brothers Inc. as Arranger, Lehman Commercial
Paper Inc, as Syndication Agent and Union Bank of
California, N.A. as Administrative Agent, as amended by the
Global Amendment and Assignment and Acceptance, dated as of
October 20, 1997.
10.2 Change of Control Agreement dated March 22, 1999, between
the Registrant and Nicholas Dourassoff.
27.1 Financial Data Schedule
27
<PAGE>
Exhibit 10.1
EXECUTION COPY
FIFTH AMENDMENT, dated as of April 2, 1999 (this "AMENDMENT"), to the
CREDIT AGREEMENT, dated as of October 2, 1997, as amended by the Global
Amendment and Assignment and Acceptance, dated as of October 20, 1997, the
Second Amendment, dated as of March 13, 1998, the Third Amendment, dated as of
May 8, 1998, and the Fourth Amendment, dated as of September 25, 1998 (as
further amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among AXIOHM TRANSACTION SOLUTIONS, INC. (f/k/a DH
Technology, Inc.), a California corporation (the "BORROWER"), the several banks
and other financial institutions or entities from time to time parties to the
Credit Agreement (the "LENDERS"), LEHMAN BROTHERS INC., as arranger, LEHMAN
COMMERCIAL PAPER INC., as syndication agent (in such capacities, the
"SYNDICATION AGENT"), and UNION BANK OF CALIFORNIA, N.A., as administrative
agent (the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, the Borrower, the Syndication Agent, the Administrative Agent
and the Lenders are parties to the Credit Agreement; and
WHEREAS, the parties wish to amend the Credit Agreement to effectuate
certain changes requested by the Borrower and the Administrative Agent, all as
set forth in this Amendment;
NOW THEREFORE, in consideration of the premises, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS.
1.1 DEFINED TERMS. Unless otherwise defined herein and except as set
forth in this Amendment, terms defined in the Credit Agreement are used herein
as therein defined.
SECTION 2. AMENDMENT OF CREDIT AGREEMENT.
2.1 AMENDMENTS TO SECTION 1.1 OF THE CREDIT AGREEMENT.
(a) The following definition is hereby added to Section 1.1 of the
Credit Agreement in its proper alphabetical order:
"'FIFTH AMENDMENT EFFECTIVE DATE': the date on which the Fifth
Amendment, dated as of April 2, 1999, to this Agreement became effective in
accordance with the terms thereof."
(b) The definition of the term "L/C Commitment" is hereby amended by
deleting such definition in its entirety and by substituting in lieu thereof the
following:
"'L/C COMMITMENT': $5,000,000."
(c) The definition of the term "Revolving Credit Commitment" is hereby
amended by deleting such definition in its entirety and by substituting in lieu
thereof the following:
"'REVOLVING CREDIT COMMITMENT': as to any Lender, the obligation of
such Lender, if any, to make Revolving Credit Loans and participate in
Swing Line Loans and Letters of Credit, in an aggregate principal and/or
face amount not to exceed the amount set forth under the heading "Revolving
Credit Commitment" opposite such Lender's name on Schedule 1.1A to the
Disclosure Letter or in the Assignment and Acceptance pursuant to which
such Lender became a party hereto, as the same may be changed from time to
time pursuant to the terms hereof; PROVIDED that, effective on and as of
July 3, 1999, the Revolving Credit Commitment of each Lender shall equal
the amount set forth under the heading "Revolving Credit Commitment as of
July 3, 1999" opposite such Lender's name on Schedule 1.1A to the
Disclosure Letter."
28
<PAGE>
(d) The definition of the term "Scheduled Revolving Credit Termination
Date" is hereby amended by deleting the reference to the date "October 2, 2002"
contained therein and replacing it with the date "February 1, 2001."
(e) The definition of the term "Swing Line Commitment" is hereby
amended by deleting such definition in its entirety and by substituting in lieu
thereof the following:
"'SWING LINE COMMITMENT': the obligation of the Swing Line Lender to
make Swing Line Loans pursuant to Section 2.23 in an aggregate principal
amount at any one time outstanding not to exceed $3,214,286 and, effective
on and as of July 3, 1999, $2,571,429."
2.2 AMENDMENT TO SECTION 2.3(a) OF THE CREDIT AGREEMENT. Section
2.3(a) is hereby amended by deleting such Section 2.3(a) in its entirety and by
substituting in lieu thereof the following:
"(a) The Tranche A Term Loan of each Tranche A Lender shall mature in
13 consecutive quarterly installments, commencing on March 31, 1998, each
of which shall be in an amount equal to such Lender's Tranche A Term Loan
Percentage multiplied by the amount set forth below opposite such
installment:
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
March 31, 1998 $700,000
June 30, 1998 700,000
September 30, 1998 700,000
December 31, 1998 700,000
March 31, 1999 1,850,000
June 30, 1999 1,850,000
September 30, 1999 1,850,000
December 31, 1999 1,850,000
March 31, 2000 1,850,000
June 30, 2000 1,850,000
September 30, 2000 1,850,000
December 31, 2000 1,850,000
February 1, 2001 13,900,000"
</TABLE>
2.3 AMENDMENT OF SECTION 2.3(b) OF THE CREDIT AGREEMENT. Section
2.3(b) of the Credit Agreement is hereby amended by deleting such Section 2.3(b)
in its entirety and by substituting in lieu thereof the following:
"(b) The Tranche B Term Loan of each Tranche B Lender shall mature in
17 consecutive quarterly installments, commencing on March 31, 1998, each
of which shall be in an amount equal to such Lender's Tranche B Term Loan
Percentage multiplied by the amount set forth below opposite such
installment:
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
March 31, 1998 $100,000
June 30, 1998 100,000
September 30, 1998 100,000
December 31, 1998 100,000
March 31, 1999 100,000
June 30, 1999 100,000
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
September 30, 1999 100,000
December 31, 1999 100,000
March 31, 2000 100,000
June 30, 2000 100,000
September 30, 2000 100,000
December 31, 2000 100,000
March 31, 2001 100,000
June 30, 2001 100,000
September 30, 2001 100,000
December 31, 2001 100,000
February 1, 2002 12,650,000"
</TABLE>
2.4 AMENDMENT OF SECTION 2.7 (a) OF THE CREDIT AGREEMENT. Section
2.7(a) of the Credit Agreement is hereby amended by deleting the reference to
the figure ".375%" therein and by replacing it with the figure ".50%."
2.5 AMENDMENT TO SECTION 7.1 OF THE CREDIT AGREEMENT. Section 7.1 of
the Credit Agreement is hereby amended by deleting such Section 7.1 in its
entirety and by substituting in lieu thereof the following:
"7.1 FINANCIAL CONDITION COVENANTS.
(a) CONSOLIDATED LEVERAGE RATIO. Permit the Consolidated Leverage
Ratio as at the last day of any period of four consecutive fiscal quarters
of the Borrower (or, if less, the number of full fiscal quarters subsequent
to the Closing Date) ending with any fiscal quarter set forth below to
exceed the ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Consolidated
Fiscal Quarter Leverage Ratio
-------------- --------------
<S> <C>
FYE 1997 5.50 to 1.00
FQE 1 1998 5.50 to 1.00
FQE 2 1998 5.50 to 1.00
FQE 3 1998 5.50 to 1.00
FYE 1998 5.50 to 1.00
FQE 1 1999 6.00 to 1.00
FQE 2 1999 6.40 to 1.00
FQE 3 1999 6.00 to 1.00
FYE 1999 5.25 to 1.00
FQE 1 2000 5.25 to 1.00
FQE 2 2000 5.25 to 1.00
FQE 3 2000 5.25 to 1.00
FYE 2000 4.75 to 1.00
FQE 1 2001 4.75 to 1.00
FQE 2 2001 4.75 to 1.00
FQE 3 2001 4.75 to 1.00
Thereafter 3.75 to 1.00
</TABLE>
; PROVIDED, that for the purposes of determining the ratio described
above for the fiscal quarters of the Borrower ending FYE 1997, FQE 1 1998
and FQE 2 1998, Consolidated EBITDA for the relevant period shall be deemed
to equal Consolidated EBITDA for such fiscal quarter (and, in the case of
the latter two such determinations, each previous fiscal quarter commencing
after the Closing Date) MULTIPLIED BY 4, 2 and 4/3, respectively.
(b) CONSOLIDATED INTEREST COVERAGE RATIO. Permit the Consolidated
Interest Coverage Ratio for any period of four consecutive fiscal quarters
of the Borrower (or, if less, the number of full fiscal quarters subsequent
to the Closing Date) ending with any fiscal quarter set forth below to be
less than the ratio set forth below opposite such fiscal quarter:
30
<PAGE>
<TABLE>
<CAPTION>
Consolidated Interest
Fiscal Quarter Coverage Ratio
-------------- --------------
<S> <C>
FYE 1997 1.75 to 1.00
FQE 1 1998 1.50 to 1.00
FQE 2 1998 1.70 to 1.00
FQE 3 1998 1.90 to 1.00
FYE 1998 1.80 to 1.00
FQE 1 1999 1.65 to 1.00
FQE 2 1999 1.55 to 1.00
FQE 3 1999 1.75 to 1.00
FYE 1999 1.90 to 1.00
FQE 1 2000 1.90 to 1.00
FQE 2 2000 1.90 to 1.00
FQE 3 2000 1.90 to 1.00
FYE 2000 2.00 to 1.00
FQE 1 2001 2.00 to 1.00
FQE 2 2001 2.00 to 1.00
FQE 3 2001 2.00 to 1.00
Thereafter 2.50 to 1.00
</TABLE>
(c) CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Permit the Consolidated
Fixed Charge Coverage Ratio for any period of four consecutive fiscal
quarters of the Borrower ending with any fiscal quarter set forth below to
be less than the ratio set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Consolidated Fixed
Fiscal Quarter Charge Coverage Ratio
-------------- ---------------------
<S> <C>
FQE 3 1998 1.45 to 1.00
FYE 1998 1.25 to 1.00
FQE 1 1999 1.05 to 1.00
FQE 2 1999 0.85 to 1.00
FQE 3 1999 1.00 to 1.00
FYE 1999 1.05 to 1.00
FQE 1 2000 1.05 to 1.00
FQE 2 2000 1.05 to 1.00
FQE 3 2000 1.05 to 1.00
FYE 2000 1.10 to 1.00
FQE 1 2001 1.10 to 1.00
FQE 2 2001 1.10 to 1.00
FQE 3 2001 1.10 to 1.00
Thereafter 1.15 to 1.00"
</TABLE>
2.6 AMENDMENT TO SECTION 7.2(i) OF THE CREDIT AGREEMENT. Section
7.2(i) of the Credit Agreement is hereby amended by deleting each reference to
the figure "$10,000,000" therein and by replacing it with the figure
"$3,000,000" in each instance.
2.7 AMENDMENT OF ANNEX A. Annex A is hereby amended by deleting such
Annex A in its entirety and substituting in lieu thereof the following:
"PRICING GRID FOR REVOLVING CREDIT LOANS, SWING LINE LOANS AND
TRANCHE A TERM LOANS
31
<PAGE>
<TABLE>
<CAPTION>
Consolidated Leverage Ratio Applicable Margin Applicable Margin
for Eurodollar for Base Rate
Loans Loans
- --------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.00 to 1.00 3.25% 2.25%
- --------------------------------------------------------------------------------
Less than 5.00 to 1.00 but greater than 3.00% 2.00%
or equal to 4.25 to 1.00
- --------------------------------------------------------------------------------
Less than 4.25 to 1.00 but greater than 2.75% 1.75%
or equal to 3.50 to 1.00
- --------------------------------------------------------------------------------
Less than 3.50 to 1.00 but greater than 2.50% 1.50%
or equal to 3.00 to 1.00
- --------------------------------------------------------------------------------
Less than 3.00 to 1.00 but greater than 2.25% 1.25%
or equal to 2.50 to 1.00
- --------------------------------------------------------------------------------
Less than 2.50 to 1.00 2.00% 1.00%
- --------------------------------------------------------------------------------
</TABLE>
PRICING GRID FOR TRANCHE B TERM LOANS
<TABLE>
<CAPTION>
Consolidated Leverage Ratio Applicable Margin Applicable Margin
for Eurodollar for Base Rate
Loans Loans
- --------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.00 to 1.00 3.50% 2.50%
- --------------------------------------------------------------------------------
Less than 5.00 to 1.00 3.25% 2.25%
- --------------------------------------------------------------------------------
</TABLE>
Changes in the Applicable Margin with respect to Revolving Credit Loans, Tranche
A Term Loans and Tranche B Term Loans resulting from changes in the Consolidated
Leverage Ratio shall become effective on the date (the "ADJUSTMENT DATE") on
which financial statements are delivered to the Lenders pursuant to Section 6.1
(but in any event not later than the 45th day after the end of each of the first
three quarterly periods of each fiscal year or the 90th day after the end of
each fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph. In addition, effective on and
as of each Adjustment Date, the Applicable Margin with respect to Revolving
Credit Loans, Tranche A Term Loans and Tranche B Terms Loans, at all levels
within the Pricing Grid, shall increase by 0.125%; PROVIDED that, such increases
in the Applicable Margin shall not exceed 0.50% from the levels in effect prior
to the Fifth Amendment Effective Date. If any financial statements referred to
above are not delivered within the time periods specified above, then, until
such financial statements are delivered, the Consolidated Leverage Ratio as at
the end of the fiscal period that would have been covered thereby shall for the
purposes of this definition be deemed to be greater than 5.00 to 1.00. In
addition, at all times while an Event of Default shall have occurred and be
continuing, the Consolidated Leverage Ratio shall for the purposes of this
definition be deemed to be greater than 5.00 to 1.00. Each determination of the
Consolidated Leverage Ratio pursuant to this definition shall be made with
respect to the period of four consecutive fiscal quarters of the Borrower ending
at the end of the period covered by the relevant financial statements."
SECTION 3. AMENDMENT OF DISCLOSURE LETTER.
3.1 SCHEDULE 1.1A. Schedule 1.1A to the Disclosure Letter is hereby
amended by deleting the existing Schedule 1.1A in its entirety and by
substituting in lieu thereof the Schedule 1.1A attached hereto as Exhibit A.
SECTION 4. MISCELLANEOUS.
4.1 EFFECTIVENESS. This Amendment shall become effective as of the
date hereof when (i) the Administrative Agent shall have received counterparts
of this Amendment, duly executed and delivered by the
32
<PAGE>
Borrower, the Required Lenders and the Administrative Agent and (ii) each Lender
party to this Amendment shall have received (x) an amendment fee equal to 0.375%
of the total Commitment of such Lender if approval from such Lender is received
on or prior to April 2, 1999 or (y) an amendment fee equal to 0.1875% of the
total Commitment of such Lender if approval from such Lender is received on or
prior to April 9, 1999.
4.2 REPRESENTATIONS AND WARRANTIES. After giving effect to the
amendments contained herein, on the Effective Date, the Borrower hereby (i)
confirms, reaffirms and restates the representations and warranties set forth in
Section 4 of the Credit Agreement; PROVIDED that each reference in such Section
4 to "this Agreement" shall be deemed to be a reference both to this Amendment
and to the Credit Agreement as amended by this Amendment and (ii) confirms that
no Default or Event of Default shall have occurred and be continuing.
4.3 CONTINUING EFFECT; NO OTHER AMENDMENTS. Except as expressly
amended or waived hereby, all of the terms and provisions of the Credit
Agreement and the other Loan Documents are and shall remain in full force and
effect. The amendments contained herein shall not constitute an amendment or
waiver of any other provision of the Credit Agreement or the other Loan
Documents or for any purpose except as expressly set forth herein.
4.4 COUNTERPARTS. This Amendment may be executed in any number of
counterparts by the parties hereto, each of which counterparts when so executed
shall be an original, but all the counterparts shall together constitute one and
the same instrument.
4.5 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
4.6 EXPENSES. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and expenses incurred in
connection with the preparation, negotiation and execution of this Amendment,
including, without limitation, the fees and disbursements of counsel to the
Administrative Agent.
4.7 SUCCESS FEE. The Borrower agrees that upon either the execution of
any amendment to the Credit Agreement or the termination of the Credit Agreement
in connection with its consummation of any transaction of the type currently
prohibited by Sections 7.4 and 7.5 of the Credit Agreement, the Borrower will
pay to the Administrative Agent, for the benefit of each Lender, a fee equal to
0.75% of the total Commitments as of such date.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers as of the
date first above written.
AXIOHM TRANSACTION SOLUTIONS, INC.
By:
Title:
UNION BANK OF CALIFORNIA, N.A., as
Administrative Agent and as a Lender
By:
Title:
LEHMAN COMMERCIAL PAPER INC., as
Syndication Agent and as a Lender
By:
Title:
34
<PAGE>
SOUTHERN PACIFIC BANK
By:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:
Title:
By:
Title:
BSB BANK & TRUST COMPANY
By:
Title:
IMPERIAL BANK, A CALIFORNIA BANKING CORPORATION
By:
Title:
MELLON BANK, N.A.
By:
Title:
35
<PAGE>
SOCIETE GENERALE
By:
Title:
BANQUE NATIONALE DE PARIS
By:
Title:
BALANCED HIGH-YIELD FUND I LTD.
By: BHF-Bank Aktiengesellschaft, acting through
its New York Branch, as attorney-in-fact
By:
Title:
By:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By:
Title
36
<PAGE>
Exhibit 10.2
Change in Control Contract
Page 37
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT dated as of March 22, 1999 between AXIOHM TRANSACTION
SOLUTIONS, INC., a California corporation (the "Company") and Nicolas
Dourassoff, (the "Executive").
RECITALS
A. WHEREAS, the Company and Executive have agreed to conditions as outlined in
an employment letter dated March 15, 1998, (the Employment Letter):
B. It is possible that the Company from time to time will consider the
possibility of an acquisition by another company or other change of
control. The Board of Directors of the Company (the "Board") recognizes
that such consideration can be a distraction to the Executive and can cause
the Executive to consider alternative employment opportunities. The Board
has determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication
and objectivity of the Executive, notwithstanding the possibility, threat,
or occurrence of a Change of Control (as defined below) of the Company.
C. The Board believes that it is in the best interests of the Company and its
shareholders to provide the Executive with an incentive to continue his
employment and to motivate the Executive to maximize the value of the
Company upon a Change of Control for the benefit of its shareholder.
D. The Board believes that it is imperative to provide the Executive with
certain severance benefits upon Executive's termination of employment
following a Change of Control which provides the Executive with enhanced
financial security and provides incentive and encouragement to the
Executive to remain with the Company notwithstanding the possibility of a
Change of Control.
IN CONSIDERATION of the mutual obligations and agreements contained herein
and intending to be legally bound hereby, the Executive and the Company agree as
follows:
1. TERM OF AGREEMENT
THIS AGREEMENT SHALL BECOME EFFECTIVE AS OF THE DATE SET FORTH ABOVE (THE
"EFFECTIVE DATE"), AND SHALL TERMINATE AND BE OF NO FURTHER FORCE AND EFFECT IF:
(a) A CHANGE IN CONTROL (AS DEFINED HEREIN) SHALL NOT HAVE OCCURRED WITHIN TWO
YEARS FROM THE EFFECTIVE DATE OR (b) PRIOR TO A CHANGE OF CONTROL, THE EXECUTIVE
CEASES, FOR ANY REASON, TO BE AN EMPLOYEE OF THE COMPANY, EXCEPT THAT IF THE
EXECUTIVE'S STATUS AS AN EMPLOYEE OF THE COMPANY IS TERMINATED BY THE COMPANY
PRIOR TO A CHANGE IN CONTROL AND IT IS REASONABLY DEMONSTRATED THAT SUCH
TERMINATION (i) WAS AT THE REQUEST OF A PERSON OR ENTITY WHO OR WHICH HAS TAKEN
STEPS REASONABLY CALCULATED TO EFFECT AN IMMINENT CHANGE IN CONTROL OR (ii)
OTHERWISE AROSE IN CONNECTION WITH OR IN ANTICIPATION OF AN IMMINENT CHANGE IN
CONTROL, THEN THIS AGREEMENT SHALL REMAIN EFFECTIVE.
2. EMPLOYMENT STATUS
37
<PAGE>
Change in Control Contract
Page 38
THE COMPANY AND THE EXECUTIVE ACKNOWLEDGE THAT THE EXECUTIVE'S EMPLOYMENT
RELATIONSHIP IS GOVERNED SOLELY BY THE EMPLOYMENT LETTER OF MARCH 15, 1998 AND
THE EXECUTION OF THE AGREEMENT DOES NOT AND IS NOT INTENDED TO GIVE THE
EXECUTIVE ANY GREATER EMPLOYMENT RIGHTS THAN ARE SET FORTH IN THE EMPLOYMENT
LETTER.
3. CERTAIN DEFINITIONS
A. "Change in Control" means the following:
(i) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities and Exchange Act of 1934, as
amended) other than Patrick Dupuy or Gilles Gibier becomes
the "beneficial owner" (as defined in Rule 13d-3 under said
Act)("Beneficial Owner"), directly or indirectly, of
securities of the Company representing Thirty-Five percent
(35%), or more of the total voting power represented by the
Company's then outstanding voting securities, unless Patrick
Dupuy and Gilles Gibier in aggregate are still beneficial
owners, directly or indirectly, of a higher percentage than
such person.
(ii) a change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors
of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board with the affirmative
vote of at least a majority of the Incumbent Directors at
the time of such election or nomination;
(iii) the Company's shareholders or the Company's Board of
Directors shall approve any consolidation or merger of the
Company in which the Company is not the continuing or
surviving corporation or pursuant to which the Company's
voting common shares (the "Common Shares") would be
converted to cash, securities, and/or other property, other
than a merger of the Company in which holders of Common
Shares immediately prior to the merger have the same
proportionate ownership of Common Shares of the surviving
corporation immediately after the merger as they had in the
Common Shares immediately before;
(iv) any sale, lease exchange, or other transfer (in one
transaction or a series of related transactions) of 50% of
the assets or earning power of the Company;
(v) the liquidation or dissolution of the Company.
B. GOOD REASON Executive shall have been deemed to have terminated his
employment for "Good Reason." Good Reason shall mean:
(i) without the Executive's express written consent, a material reduction
of the Executive's duties, title, authority or responsibilities, relative
to the Executive's duties, title, authority or responsibilities as in
effect immediately prior to such reduction, or the assignment to the
Executive of such reduced duties, title, authority, or responsibilities;
provided, however, that a reduction in duties, title, authority or
responsibilities solely by virtue of the Company being acquired and made
part of a larger entity (as, for example when the Chief Financial Officer
of the Company remains as such following a Change of Control and is not
made the Chief Financial Officer of the acquiring corporation) shall not
constitute "Good Reason;"
38
<PAGE>
Change in Control Contract
Page 39
(ii) without the Executive's express written consent, a material reduction,
without good business reasons, of the facilities and perquisites (including
office space and location) available to the Executive immediately prior to
such reduction;
(iii) a reduction by the Company in the base salary of the Executive as in
effect immediately prior to such reduction;
(iv) a material reduction by the Company in the kind or level of employee
benefits, including bonuses, to which the Executive was entitled
immediately prior to such reduction with the result that the Executive's
overall benefits package is materially reduced;
(v) the relocation of the Executive to a facility or location more than
Twenty-Five (25) miles from the Executive's then present location, without
the Executive's express written consent;
(vi) any purported termination of the Executive by the Company which is not
effected by Disability or for Cause, or any purported termination for which
the grounds relied upon are not valid;
(vii) the failure of the Company to obtain the assumption of this agreement
by any successor;
(viii) any act or set of facts or circumstances which would, under
Pennsylvania case law or statute constitute a constructive termination of
the Executive.
C. "Annual Compensation" means an amount equal to the sum of Executive's
(i) annual Company salary at the highest rate in effect in the twelve
months immediately preceding the Change of Control, and (ii) 100% of
the Executive's annual target bonus as in effect immediately prior to
the Change of Control, (iii) 100% tuition supplement, (iv) 100% of car
allowance. Annual Compensation shall not include any other severance
compensation the Executive was entitled to receive under the
Employment Letter or otherwise established plan or practice of the
Company.
D. "Cause" shall mean (i) any act of personal dishonesty taken by the
Executive in connection with his responsibilities as an employee, (ii)
Executive's conviction or (or pleas of guilty or no contest to) a
felony, (iii) a willful act by the Executive which constitutes gross
misconduct and which is injurious to the Company, or (iv) following
delivery to the Executive of a written demand for performance from the
Company which describes the basis for the Company's belief that the
Executive has not substantially performed his duties, continued
substantial violations by the Executive of the Executive's obligations
to the Company which are demonstrably willful and deliberate on the
Executive's part.
4. SEVERANCE UPON THE HAPPENING OF CERTAIN EVENTS
TERMINATION OTHER THAN FOR CAUSE: TERMINATION FOR GOOD REASON; DEATH;
PERMANENT AND TOTAL DISABILITY. If the Executive's employment (i) is
terminated by the Company other than for Cause (as defined herein), (ii) is
terminated by the Executive for Good Reason (as defined herein), (iii)
terminates due to Employee's death or "permanent and total disability" (as
such term is defined under Internal Revenue Code Section 22(e)(3) or its
successor provision), in any case within (x) Twelve (12) months following
the Change of Control (as defined herein) and (y) Twenty-Four (24) months
following the Effective Date, then the Executive shall receive the
following severance from the Company:
(1) LUMP SUM SEVERANCE PAYMENT A cash payment in an amount equal to 299%
of the Executive's Annual Compensation (as defined above). Any such
severance payment shall be paid by the Company to the Executive (or to
the Executive's successors in interest) in cash and in full, not later
than thirty (30) calendar days following the termination date. This
severance payment shall be in lieu of any other severance compensation
to which the executive was otherwise entitled.
(2) CONTINUED EXECUTIVE BENEFITS One hundred percent (100%) of
Company-paid health, dental, and vision insurance coverage at the same
level of coverage as was provided to Executive immediately prior to
the Change of Control (the "Company-Paid Coverage"). If
39
<PAGE>
Change in Control Contract
Page 40
such coverage included the Executive's dependents immediately prior to
the Change of Control, such dependents shall also be covered at
Company expense. Company-Paid Coverage shall continue until the
earlier of (i) a period of one (1) year from termination or (ii) the
date upon which the Executive and his dependents become covered under
another employer's group health, dental, vision, long-term disability
or life insurance plans that provide Executive and his dependents with
comparable benefits and level of coverage. For purposes of Title X of
the consolidated Budget Reconciliation Act of 1985 ("COBRA"), the date
of the "qualifying event" for the Executive and his dependents shall
be the date upon which the Company-Paid Coverage terminates.
(3) CERTAIN EXPENSES In addition to the above, as the Executive relocated
to the United States from another country, if the Executive relocates
to Europe within Twelve (12) months after termination, the Company
shall pay the reasonable expenses of such move. The expenses of the
move and any real estate commission payable upon the sale of his
residence in the U.S., if not offered by new employer.
5. CONFIDENTIALITY
The Executive acknowledges that information concerning the method and
conduct of the Company's (and any affiliate's) business, including, without
limitation, strategic and marketing plans, budgets, corporate practices and
procedures, financial statements, customer and supplier information,
formulae, formulation information, application technology, manufacturing
information, and laboratory test methods and all of the Company's (and any
affiliate's) manuals, documents, notes, letters, records, and computer
programs are the Company's (and/or the Company's affiliate's, as the case
may be), trade secrets ("Trade Secrets") and are the sole and exclusive
property of the Company (and/or the Company's affiliate's, as the case may
be). The Executive agrees that at no time during or following his
employment with the Company will he use, divulge, or pass on, directly or
through any other individual or entity, any Trade Secrets. Upon termination
of the Executive's employment with the Company, regardless of the reason
for such termination or at any other time upon the Company's request, the
Executive agrees to forthwith surrender to the Company any and all
materials in his possession or control which include or contain any such
Trade Secrets. The words "Trade Secrets" do not include information already
known to the public through no act or failure to act on the part of the
Executive, required by law to be disclosed, or which can be clearly shown
by written records to have been known by the Executive prior to his
employment with the Company.
6. SET-OFF MITIGATION
Subject to Section 4(a)(1), the Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense, or other claim, right, or action which the Company may have
against the Executive or others. In no event, shall the Executive be
obliged to seek other employment or take any other action by way of
mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement.
7. ARBITRATION: COSTS AND EXPENSE OF ENFORCEMENT
(a) Except as otherwise provided in Section 4 hereof, any controversy or
claim arising out of or relating to this Agreement or the breach thereof
which cannot be promptly resolved by the parties shall be promptly
submitted to and settled exclusively by arbitration in the City of
Philadelphia, Pennsylvania in accordance with the laws of the Commonwealth
of Pennsylvania by three arbitrators, one of whom shall be appointed by the
Company, one by the Executive, and the third of whom shall be appointed by
the first two arbitrators. The arbitration shall be conducted in accordance
with the rules of the American Arbitration Association, except with respect
to the selection of arbitrators which shall be as
40
<PAGE>
Change in Control Contract
Page 41
provided in this Section 7. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
(b)In the event that it shall be necessary or desirable for the Executive
to retain legal counsel and/or incur other costs and expenses in connection
with the enforcement of any and all of his rights under this Agreement, the
Company shall pay (or the Executive shall be entitled to recover from the
Company, as the case may be) his reasonable attorney's fees and costs and
expenses in connection with the enforcement of his said rights (including
those incurred in or related to any arbitration proceedings provided for in
subsection (a) above and the enforcement of any arbitration award in
court), regardless of the final outcome, unless the arbitrators or a court
shall determine that under the circumstances recovery by the Executive of
all or apart of any such fees and costs and expenses would be unjust.
8. NOTICES
Any notices, requests, demands, and other communications provided for by
this Agreement shall be sufficient if in writing, and if hand delivered, or
if sent by registered or certified mail, if to the Executive, at the last
address he had filed in writing with the Company or if to the Company, at
its principal Executive offices. Notices, requests, etc. shall be effective
when actually received by the addressee or at such address.
9. ASSIGNMENT AND BENEFITS.
(a) This Agreement is personal to the Executive and shall not be
assignable by the Executives, by operation of law, or otherwise
without the prior written consent of the Company otherwise than by
will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's heirs
and legal representatives.
(b) This agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns, including without limitation,
any subsidiary of the Company to which the Company may assign any of
its rights hereunder; provided, however, that no assignment of this
Agreement by the Company, by operation of law, or otherwise, shall
relieve it of its obligations hereunder except an assignment of this
Agreement to, and its assumption by, a successor pursuant to
subsection (c) below.
(c) The Company shall require any successor (whether direct or indirect,
by purchase, merger consolidation operation of law, or otherwise) to
all or substantially all of the business and/or assets of the Company
to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place, but irrespective of
any such assignment or assumption, this Agreement shall issue to the
benefit of and be binding upon such a successor. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid.
10. GOVERNING LAW
The provisions of this Agreement shall be construed in accordance with the
laws of the Commonwealth of Pennsylvania without reference to principles of
conflicts of laws.
11. ENTIRE AGREEMENT
This Agreement represents the entire agreement and understanding of the
parties with respect to the subject matter hereof, and it may not be
altered or amended except by an agreement in writing. In the event of a
conflict between the terms hereof and the terms of the employment letter,
the terms hereof shall control.
41
<PAGE>
Change in Control Contract
Page 42
12. NO WAIVER
The failure to insist upon strict compliance with any provision of this
Agreement by any party shall not be deemed to be a waiver of any future
noncompliance with such provision or of noncompliance with any other
provision.
13. SEVERABILITY
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain
in full force and effect.
14. WITHHOLDING
All payments made pursuant to this Agreement will be subject to withholding
of applicable income and employment taxes to the extent required by law.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year
set forth above.
COMPANY AXIOHM TRANSACTION SOLUTIONS, INC.
By:
---------------------------------------
------------------------------------------
Print Name
------------------------------------------
Title
EXECUTIVE ------------------------------------------
Signature
------------------------------------------
Print Name
42
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 0
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<RECEIVABLES> 35,707
<ALLOWANCES> 450
<INVENTORY> 33,356
<CURRENT-ASSETS> 79,843
<PP&E> 37,691
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<CURRENT-LIABILITIES> 44,350
<BONDS> 0
0
0
<COMMON> 24,478
<OTHER-SE> (82,657)
<TOTAL-LIABILITY-AND-EQUITY> 162,701
<SALES> 60,477
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</TABLE>
