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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1996 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 0-18376
VERIFONE, INC.
(Exact name of registrant as specified in its charter)
Delaware 99-0206064
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Three Lagoon Drive, Redwood City, CA 94065
(Address of principal executive offices)
(415) 591-6500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $0.01
par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. \ X \
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on March 7,
1997, as reported by the New York Stock Exchange, was approximately
$807,176,000.
The number of shares of the registrant's Common Stock outstanding on March 24,
1997, was 23,298,640.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission relating to the Company's 1997 Annual Meeting of
Stockholders to be held on May 9, 1997 (Part III of Form 10-K).
(2) Portions of the registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1996 (Parts II and IV of Form 10-K).
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PART I
ITEM 1. BUSINESS
INDEX
SECTION PAGE
Company Summary 4
Industry and Company Background 5
Products 6
Markets 8
Sales Organization 10
Manufacturing and Distribution 10
Research and Product Development 11
Proprietary Rights 11
Competition 12
Government Regulation 13
Factors That May Affect Future Results
And The Market Price Of The Company's Stock 13
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this report -- including statements
regarding the Company's plans and strategies -- are all based on current
expectations, and the Company assumes no obligation to update this
information. Numerous factors could cause actual results to differ from those
described in the forward-looking statements, including the factors set forth
below under the heading "Factors That May Affect Future Results And The
Market Price Of The Company's Stock." The Company cautions investors that its
business is subject to significant risks and uncertainties.
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COMPANY SUMMARY
VeriFone, Inc. (herein "VeriFone" or the "Company") is a corporation
organized in Hawaii in 1981 and reincorporated in Delaware in 1986. The
Company develops, manufactures, markets and supports hardware and software
systems which automate transactions -- principally electronic payment
transactions among consumers, merchants and financial institutions.
The Company's product line consists primarily of: terminal products which
interface with magnetic-stripe cards; products which interface with
integrated circuit cards ("chip cards"); peripherals such as printers, PIN
pads and communications products; and software and services. Currently, the
most prevalent use of the Company's products is to automate credit and debit
card payments at the point of sale in merchant establishments. The Company's
products also automate payments by check, electronic cash (i.e., stored value
on a chip card) and other means, and automate payment transactions in venues
other than merchant establishments, including credit card transactions over
the Internet. In addition to products used at the point of sale, some of the
Company's products are used by banks and payment processors, at their
"back-end" facilities, to process (e.g., sort and route) payment transactions
and to manage terminal operations. Other VeriFone products are used to
automate non-payment transactions, such as the collection of labor management
data, implementation of retail loyalty programs, submission of health
insurance claims, and issuance of government permits. The services provided
by the Company include consulting services (e.g., advice on system strategies
and alternatives), professional services (e.g., the design, installation and
integration of systems), support services (e.g., maintenance), and financing.
(See "Item 1 - Business - Products", below).
The Company distributes its products through direct sales and various
third party distribution arrangements. In 1996, the Company sold transaction
automation systems to more than 1,300 customers. No single customer accounted
for more than approximately 4 percent of the Company's net revenues in 1996.
Since its inception, the Company has delivered more than 5 million systems to
customers in more than 100 countries. The Company's customers include banks,
payment processors, retail merchants, petroleum service station and
convenience-store operators, supermarkets and other mass merchandisers,
healthcare providers, and government benefits disbursers (See "Item I -
Business - Markets" and "Item I - Business - Sales Organization," below.)
The Company employs approximately 2,800 persons in eighteen countries.
These employees are located in approximately 35 facilities, including
development centers, manufacturing and distribution centers, customer service
centers, and sales and support offices. (See "Item 2 - Properties," below.)
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INDUSTRY AND COMPANY BACKGROUND
HISTORY
Until the 1980s, automating the processing of routine transactions --
credit and debit card authorization, check verification, and the like -- was not
cost-effective, and most transactions were completed manually. In the 1980s,
major changes in computer and telecommunications technology supported the
development of transaction automation systems that could rapidly capture and
process transaction data electronically. These systems could provide greater
convenience to consumers; speed settlement and customer throughput for
merchants; and potentially reduce processing costs and losses from fraud for
financial institutions.
While the transaction automation devices introduced in the early 1980s
offered significant potential benefits, they were relatively expensive,
generally slow, unreliable and difficult to use. The Company was established in
1981 to develop and deliver low-cost, highly reliable, easy-to-use transaction
systems, and has played a major role in developing the market for electronic
payment processing. Today, the Company is a leading provider of transaction
automation systems for the payment processing market.
CURRENT DEVELOPMENTS
The Company introduced a number of new products in 1996, including: vGATE
and vPOS software, which enable payment by credit card over the Internet; the
OMNI 1250, a chip card device that can handle up to four stored value/electronic
purse schemes; the Smartnet 50 network controller, a controller optimized for
payment applications; the PrintPak 350, a modular thermal printer that couples
with the Zon Jr XL, TRANZ and OMNI 300 series of terminals to form an integrated
terminal/printer system; the CR500/550 electronic check reader, a stand-alone
check reading device; Softpay software, a modular software product which
simplifies the development of customer applications for OMNI terminals; and the
Lodgelink payment system, a software/hardware solution that allows hotels and
other large properties with multiple retail outlets to consolidate credit card,
reporting, settlement and funding. The Company also announced plans to develop
the VeriSmart system, which is designed to enable consumers to access various
chip card-based applications from their homes through a VeriFone Personal ATM or
other devices.
Other business developments in 1996 included the formation of two new
service organizations: the Centum Consultancy, which advises customers on a
range of electronic payment strategies and alternatives, and our Professional
Services group, which helps design, install, integrate and manage electronic
payment solutions for customers. In addition, the Company entered into a number
of strategic relationships in 1996, with companies including Hewlett Packard,
Microsoft, Netscape and Oracle.
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PRODUCTS
The Company develops, manufactures, markets and supports a comprehensive
line of transaction automation products. The Company's product line consists
principally of: terminal products; chip card products; peripheral products; and
software and services.
TERMINAL PRODUCTS
The Company's terminal products -- which are designed for use principally
with magnetic-stripe cards, such as the typical credit or debit card -- may be
categorized in three groups:
Some terminals have limited functionality, generally performing credit
authorization only, or credit authorization and basic draft capture. The
principal product in this category is the ZON Jr XL, which was introduced in
1986 and is capable of credit authorization and basic draft capture functions.
Other terminals perform higher level functions, such as credit and debit
card authorization, draft capture and settlement; eligibility checking for
health insurance or government benefits; or time and attendance data collection
reporting. This category includes terminals which have integrated printers in a
single footprint, as well as stand-alone terminals with special advanced
functionality. The principal products in this category are the TRANZ 330, 380,
460 and 470, and the OMNI 395, 460 and 470. The TRANZ 330 continues to be the
Company's top-selling product, with approximately 264,000 units sold in 1996.
Other terminals are targeted mainly at the multi-lane retail and
petroleum/convenience-store markets, where the customer requirement is for
logical and/or physical integration of functionality with other devices, such as
in-lane electronic cash registers, pump controllers or scanning equipment. The
principal products in this category are the OMNI 490 and Everest, which were
developed specifically for supermarket payment systems, and the Ruby
SuperSystem, which integrates the functions of a pump controller, electronic
cash register and payment system.
CHIP CARD PRODUCTS
In addition to the Company's terminal products which are designed for use
principally with magnetic-stripe cards, the Company has a line of products
which are designed for use with integrated circuit cards -- also known as
"chip cards" or "smart cards." The principal products in this category are:
the CM 450, which reads from and writes to chip cards and functions as a
secure peripheral in payment and other transactions that require memory and
microprocessor chip cards; the SC 455, which supports a range of security
requirements to meet different local, regional and national requirements for
chip card transactions; the SC 550 and SC 552, which support memory and
microprocessor chip cards as well as magnetic-stripe credit and debit cards
in the same application; and the OMNI 1250, a chip card device that can
handle up to four stored value/electronic purse schemes.
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PERIPHERAL PRODUCTS
The principal peripherals which interface with VeriFone terminal and chip
card products are printers, personal identification number devices (known as
PIN pads) and communications products. Printers enable printing of customer
receipts. PIN pads allow acceptance of debit card and other forms of payment
requiring a personal identification number. Communications products, such as
the Smartnet line of network controllers, facilitate communications among
terminals and between terminals and other devices.
SOFTWARE PRODUCTS
The Company has developed several families of software products which --
operating on VeriFone terminal or chip card products or on other platforms (such
as client-server computer systems) -- automate payment and other transactions.
TERMINAL APPLICATION SOFTWARE. The Company works closely with its
customers to develop custom applications which operate on VeriFone terminals.
To date, the Company has developed over 2,000 terminal software applications
ranging from entry-level credit and debit solutions to complex systems to
support large retail operations. Among these software applications are
specialized applications for specific markets such as lodging (the Lodgelink
product) and multi-lane (the PayLane product). The Company is also developing
a modular software product, Softpay, which simplifies the development of
customer applications for OMNI terminals.
TERMINAL MANAGEMENT SOFTWARE. The Company has developed a client-server
based terminal management system, VeriTalk, which enables the installation and
upgrade of terminal software via telephone lines. It allows multiple,
simultaneous downloading of application updates and has network diagnostic
capabilities.
PAYMENT PROCESSING SOFTWARE. The Company has developed a client-server
based software solution, Omnihost, which can efficiently perform enterprise-wide
transaction switching and electronic payment processing. This solution can
replace traditional mainframe host systems.
INTERNET COMMERCE SOFTWARE. The Company has developed a suite of software
products, vPOS and vGATE, that enable credit card payments over the Internet.
The vPOS software provides an Internet merchant the ability to capture
orders and credit card payment data and to communicate with the vGATE system
at a financial institution or processor. The vGATE software receives the
merchant's data and interfaces this data with the financial institution's or
processor's internal systems. In addition to vPOS and vGATE, the Company is
developing vWALLET software, which will provide consumers with a convenient
way to purchase and pay for goods purchased via the Internet.
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CONSUMER SYSTEMS/CHIP CARD SOFTWARE. The Company is currently developing a
client-server based software system, VeriSmart, which is designed to enable
consumers to access various chip card-based applications -- such as stored value
applications, loyalty programs and others -- expected to be offered in
the future by financial institutions, telephone companies, retail merchants and
others. The Company is also developing a hardware product, the Personal ATM,
which is one of the devices that consumers will be able to use to access a
VeriSmart system.
LABOR MANAGEMENT SOFTWARE. The Company continues to develop software
products that facilitate the collection and manipulation of labor management
data, including data relating to time and attendance, labor scheduling and
business forecasting.
SERVICES
The Company offers a range of services relating to its other products:
CONSULTING SERVICES. The Company's Centum Consultancy group provides
consulting services on strategies and alternatives for electronic payment
systems.
PROFESSIONAL SERVICES. VeriFone Professional Services provides services to
assist in the design, installation, integration and management of electronic
payment systems.
SUPPORT SERVICES. VeriFone Support Services provides deployment, training,
technical assistance and maintenance services for VeriFone products. The Company
generally provides a one-year warranty on its systems. Extended maintenance
agreements following the warranty period are also available.
FINANCING PROGRAMS. VeriFone Finance provides leasing, rental and other
financing programs for VeriFone systems.
MARKETS
The Company classifies its business into markets principally along
geographic lines: the United States market and international markets.
UNITED STATES MARKET
The Company's business in the United States, taken as a whole, is the
Company's largest market. In 1996, revenues from the United States were $287.5
million, up 16.9 percent over 1995, and represented 60.9 percent of total net
revenues, compared to 63.6 percent in 1995.
The Company's United States market consists of four vertical sub-markets:
the financial retail market, the petroleum/convenience-store market, the
multi-lane market, and the government/healthcare market.
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* The financial retail market is referred to as such because the Company
uses bank and payment processor distribution channels to reach the
end-users in this market, who are typically retail merchants including
specialty stores, restaurants and lodging establishments.
* The petroleum/convenience-store market involves the sale of
transaction automation systems to large petroleum companies and
convenience-store operators, and other companies involved in the
petroleum and convenience-store industries.
* The multi-lane market has two components, both of which focus on the
same customers, principally supermarkets, drug store chains and
mass merchandisers. One component involves the sale of transaction
automation systems to multi-lane customers. The other component
involves the licensing of labor management software to multi-lane
customers.
* The government market involves the sale of transaction automation
systems which are used principally in the automation of government
benefits and licenses. The healthcare market involves the sale of
transaction automation systems to facilitate healthcare payments,
verify patient eligibility for insurance coverage and submit insurance
claims for healthcare providers.
The financial retail market differs in a number of respects from the
petroleum/convenience-store market, multi-lane market, and government/healthcare
market (which are sometimes referred to as the "emerging markets"). Relative to
the financial retail market, the emerging markets are characterized by longer
sales cycles, small numbers of accounts, and uneven order flows. Accordingly,
the emerging markets tend to be "lumpy" and to some extent unpredictable, in
that customers' orders are typically large and placed infrequently. In addition,
customers in the government market face the complexity of the government
procurement process, which typically extends the purchasing and implementation
cycle.
INTERNATIONAL MARKETS
The contribution of the Company's international business to the Company's
total net revenues has increased steadily. In 1996, revenues outside the United
States were $185.0 million, up 31.2 percent over 1995, and represented 39.1
percent of total net revenues, compared to 36.4 percent in 1995. During 1996,
the Company delivered systems in more than 100 countries. For additional
financial information on the Company's international operations, see Note Eight
to the consolidated financial statements contained in the Company's 1996 Annual
Report to Stockholders.
International markets, in the aggregate, are potentially larger than the
United States market, and are currently less penetrated. However, market
opportunities, conditions and requirements vary widely from country to country.
In addition, international operations involve
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a number of special risks. (See "Factors That May Affect The Company's Future
Results And The Market Price Of The Company's Stock," below.)
The Company's international markets are divided into three regions: the
Americas, which is all of North and South America except the United States;
Europe, the Middle East and Africa (EMEA); and Asia Pacific (ASPAC). The
customers in these regions are principally financial retail customers, similar
to the United States financial retail customers described above.
SALES ORGANIZATION
The Company markets its products through both direct sales to end-users and
third party distribution arrangements with financial institutions, processors,
service providers and other resellers. The Company's sales force is organized to
address specific segments of the transaction automation market, including retail
merchants, petroleum service stations/convenience stores, multi-lane retailers,
healthcare providers, and state and federal government agencies.
The Company has ten United States sales offices. Outside the United
States, the Company's products are marketed through direct sales offices in
or near Frankfurt, which serves central and eastern Europe; London, which
serves northern and southern Europe, Russia, the Middle East and parts of
English-speaking Africa; Barcelona, which serves Spain and Portugal; Milan,
which serves Italy; Paris, which serves France and French-speaking Africa;
Johannesburg, which serves South Africa and Zimbabwe; Bangalore, Beijing,
Hong Kong, Singapore, Sydney, and Tokyo, which serve the Asia-Pacific region;
Toronto, which serves Canada; Miami, which serves Central and South America;
Mexico City, which serves Mexico; Buenos Aires, which serves Argentina; and
Sao Paulo, which serves Brazil. Many of the Company's sales offices are
staffed with application software programmers, technical systems analysts and
customer support personnel.
The Company's use of third party distribution arrangements is prevalent
especially in international sales. The Company currently has a network of more
than 50 international distributors.
The Company's leasing programs are offered through its leasing subsidiary,
VeriFone Finance.
MANUFACTURING AND DISTRIBUTION
The Company's manufacturing and distribution operations have been
structured and geographically located with the aim to deliver high-quality,
competitively priced products to customers on time. The Company owns and
operates a manufacturing and distribution facility in Kaohsiung, Taiwan, R.O.C.
and a newly constructed manufacturing facility in Kunshan, near Shanghai,
People's Republic of China. Currently, more than 1,300 employees are producing
approximately 170,000 units (including printers, PIN pads, etc.) per month at
these facilities.
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The Company conducts limited manufacturing at its facility in Costa
Mesa, California, which has special-configuration and light manufacturing
capabilities. The Costa Mesa facility also provides distribution to customers
in North, Central and South America, and includes a distribution capability
for expediting delivery to customers in Asia, Australia, Europe, Africa and
the Middle East.
For certain low-volume products, and to augment production capacity, the
Company occasionally uses subcontractors. A few VeriFone products are
procured through original equipment manufacturers (OEMs).
RESEARCH AND PRODUCT DEVELOPMENT
The Company conducts its major research and development at seven facilities
worldwide, which are located in or near: Auburn, California; Bangalore, India;
Dallas, Texas; Honolulu, Hawaii; Paris, France; San Francisco, California;
Taipei, Taiwan; and Tampa, Florida.
The Company works closely with its customers to define new product concepts
and identify emerging applications for its products. Development projects are
evaluated through a management review process and assigned to the Company's
development centers based upon the potential value of the target markets as well
as the manpower and engineering expertise requirements.
The Company's research and development efforts are focused on new products
(including products for the Internet commerce and consumer markets);
modifications of and extensions to existing products for new market
opportunities; and the development of applications for advanced transaction
systems. There can be no assurance that any of the Company's research and
product development projects will be successfully completed.
In 1996, 1995 and 1994, the Company's research and product development
expenses were approximately $53.4 million, $45.0 million, and $38.4 million,
respectively. The Company currently expects that, in the long term, its research
and development expenses will continue to increase in absolute dollars but may
decline as a percentage of net revenues.
PROPRIETARY RIGHTS
The Company currently holds 41 United States patents, one Canadian patent
and one Australian patent. These patents cover a number of inventions, including
among others a magnetic-stripe card reader apparatus integrated into the card
slot of the Company's transaction automation systems, a programming method for
downloading an operating system into local VeriFone systems from a remote host
computer, a check processing system, a print element drive control, and the
unique design of several VeriFone products. In 1996, the Company filed
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32 United States patent applications and, as of the end of the year, had a total
of 37 pending United States patent applications.
The Company's trademarks registered in the United States include
VeriFone's name and logo, and the names of a number of VeriFone products,
including ZON, TRANZ, OMNI, Ruby SuperSystem, VeriFone Folio, and Omnihost.
The Company has also applied for registration in the United States for over
40 other trademarks that it is using or intends to use, including Everest,
SC, Folio, PATM, Personal ATM, PrintPak, VeriTalk, SoftPay, vGATE, vPOS,
vWALLET, Lodgelink and LaborDay. The Company has trademarks registered or
pending registration in numerous foreign jurisdictions where the Company does
business, including VeriFone's name and logo and the names of several
VeriFone products. Numerous other trademarks or markings are used to
identify products of VeriFone and distinguish them from products of others.
The Company relies on copyrights and contractual arrangements to protect
proprietary software programs, and the Company seeks to protect its trade
secrets by entering into confidentiality agreements with its employees and third
parties and implementing various internal safeguards.
There can be no assurance that others will not develop products or
technology that are equivalent or superior to those of the Company, or that the
patents, trademarks, copyrights, confidentiality agreements and internal
safeguards upon which the Company relies will be adequate to protect its
interests.
COMPETITION
The Company competes in its hardware businesses primarily on the basis of
product quality, features and price; the availability of application software
programs; the number of network, host and telephone system certifications it
obtains for it products and application programs; and customer support and
responsiveness. The Company competes in its software businesses, including
its Internet commerce business, primarily on the basis of the rapid
development, release and delivery of its software products.
The Company believes that it is competitive with respect to each of these
factors. However, certain competitors have significantly larger financial,
technical and marketing resources than the Company, and there can be no
assurance that the Company will remain competitive in the future. Also, the
Company often faces additional competitive factors in foreign countries,
including preferences for national vendors, and difficulties in obtaining
necessary certifications and in meeting the requirements of government policies.
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GOVERNMENT REGULATION
Government regulatory policies affect charges and terms for both
private-line and public network service. Therefore, changes in such policies
that make it more costly to communicate on such networks could adversely
affect the demand for transaction automation systems. The Company must also
obtain product certification on applicable communications networks both in
the United States and other countries. Any delays in obtaining necessary
certifications with respect to future products could delay their
introduction. In addition, the Federal Communications Commission requires
that the Company's products comply with certain rules and regulations
governing their performance.
FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS AND THE MARKET PRICE OF THE
COMPANY'S STOCK
The Company's operations are subject to various risks and uncertainties,
many of which are beyond the Company's control. The following highlights some of
these risks.
VARIATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results are subject to various risks and
uncertainties, including risks and uncertainties related to: local economic
conditions; competitive pressures; the composition, timing and size of orders
from and shipments to major customers; variations in product mix and the mix
between leases and sales; variations in product cost; infrastructure costs;
obsolescence of inventory; and other factors as discussed below. Accordingly,
the Company's operating results may vary materially from quarter to quarter.
The Company operates with little backlog and, as a result, net revenues in
any quarter are substantially dependent on the orders booked and shipped in that
quarter. Because the Company's operating expenses are based on anticipated
revenue levels and because a high percentage of the Company's expenses are
relatively fixed, if anticipated shipments in any quarter do not occur as
expected, the Company's operating results may be adversely affected and fall
significantly short of expectations. Any other unanticipated decline in the
growth rate of the Company's net revenues, without a corresponding and timely
reduction in the growth of operating expenses, could also have an adverse effect
on the Company and its future operating results.
The Company aims to prudently control its operating expenses. However,
there is no assurance that, in the event of any revenue, gross margin or other
shortfall in a quarter, the Company will be able to control expenses
sufficiently to meet profitability objectives for the quarter.
Compounding these risks is the fact that a substantial portion of the
Company's net revenues in each quarter generally results from shipments during
the latter part of the quarter. For this and other reasons, the Company may not
learn of shortfalls in revenues, earnings or
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other financial results relative to expectations until very late in a quarter.
Any such shortfall could have an immediate and significant adverse effect on the
trading price of the Company's Common Stock.
The Company's business may be characterized as showing a pattern -- in that,
historically, net revenues during the first calendar quarter of a year have
generally been less than net revenues during the fourth quarter of the preceding
year.
CHANGES IN GROSS MARGINS
Certain of the Company's net revenues are derived from products and markets
- -- such as international and government markets -- which typically have lower
gross margins compared to other products and markets, due to higher costs and/or
lower prices associated with the lower gross margin products and markets. The
Company currently expects that its net revenues from international markets will
continue to increase as a percentage of total net revenues, and its net revenues
from government markets may increase. In addition, the Company is currently
experiencing pricing pressures due to a number of factors, including competitive
conditions and consolidation within certain groups of customers. To the extent
that these factors continue, the Company's gross margins would decline, which
would adversely affect the Company and its future operating results.
Downward pressure on the Company's gross margins may be mitigated by other
factors, such as a reduction in product costs and/or an increased percentage of
net revenues from higher gross margin products, such as software. The Company is
aiming to reduce its product costs and to increase its percentage of net
revenues from software. However, there is no assurance that these efforts will
be successful.
NEW MARKETS AND PRODUCTS
The Company is entering new markets, including the Internet commerce market
and the consumer smart card market. At present, these new markets are relatively
small and rapidly changing, and the development of these markets depends in
significant part on the widespread adoption of new technologies by financial
institutions, merchants and consumers, the emergence of industry standards, and
other factors. There is no assurance that these markets will develop as expected
by the Company. If these markets do not develop as expected by the Company, or
the Company's strategies for these markets are unsuccessful, or the Company
fails to successfully and timely develop and introduce products suitable for
these markets, the Company and its future operating results may be adversely
affected.
The Company is developing a number of products for these new markets
including a number of Internet commerce and consumer products. There is no
assurance that these development efforts will be successful or that, if
successfully developed, these products will achieve commercial success.
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Similarly, in connection with entering these new markets, the Company has
entered into or expects to enter into relationships with a number of companies
in these markets, including Microsoft, Netscape, Oracle and others. These
relationships may not develop as expected by the Company, and thus, the expected
benefits from the relationships may not be obtained.
GROWTH DEPENDENCIES
In general, the Company's future growth is dependent on the Company's
ability to successfully and timely enhance existing products, develop and
introduce new products, establish new distribution channels, develop
affiliations with leading market participants in order to facilitate product
development and distribution, and certify its existing and new products with
service providers, telephone companies and others. The failure to achieve these
and other objectives could limit future growth and have an adverse effect on the
Company and its future operating results.
On a related note, the pressure to develop and enhance products, and to
establish and expand markets, may cause the Company's research and development
expenses and selling, general and administrative expenses to increase
substantially, which could also have an adverse effect on the Company and its
future operating results.
ACQUISITIONS
The Company may acquire or make substantial investments in other businesses
in the future. Any such acquisition or investment would entail various risks,
including the difficulty of assimilating the operations and personnel of the
acquired business; the potential disruption of the Company's ongoing business;
and generally, the potential inability of the Company to obtain the desired
financial and strategic benefits from the acquisition or investment. These
factors could have a material adverse effect on the Company and its future
operating results. Future acquisitions and investments by the Company could also
result in substantial cash expenditures, potentially dilutive issuances of
equity securities, the incurrence of additional debt and contingent liabilities,
and amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company and its future operating results.
INTERNATIONAL OPERATIONS
The Company's international operations, including international sales and
manufacturing, have grown substantially, and thus, the Company is
increasingly affected by the risks associated with international operations.
Such risks include: managing an organization spread over various countries;
fluctuations in currency exchange rates (as discussed further below); the
burden of complying with international laws and other regulatory and product
certification requirements, and changes in such laws and requirements;
tariffs and other trade barriers; import and export controls; international
staffing and employment issues; political and economic instability; and
longer payment cycles in certain countries. The Company's manufacturing
facilities outside of the United States, which are in Taiwan and the People's
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Republic of China, are subject to particular risks relating to political
developments and trade barriers. The inability to effectively manage these and
other risks could adversely affect the Company and its future operating results.
The majority of the Company's international sales are denominated in United
States currency. An increase in the value of the United States dollar relative
to foreign currencies could make the Company's products sold internationally
less competitive. The Company has offices in a number of foreign countries, the
operating expenses of which are also subject to the effects of fluctuations in
foreign currency exchange rates. Although the Company engages in hedging
transactions which may partially offset the effects of fluctuations in foreign
currency exchange rates, financial exposure may nonetheless result primarily due
to the timing of transactions and movement of exchange rates.
COMPETITION
The various markets in which the Company operates are becoming increasingly
competitive as a number of other companies are developing and selling products
which compete with the Company's products in these markets. Certain of these
competitors have significantly more financial and technical resources than the
Company. The Company faces additional competitive factors in foreign countries,
including preferences for national vendors, and difficulties in obtaining
necessary certifications and in meeting the requirements of government policies.
These competitive factors may result in, among other things, price discounts by
the Company and sales lost by the Company to competitors, which may adversely
affect the Company and its future operating results.
THIRD PARTY DISTRIBUTORS
The Company uses various channels to market and distribute its products,
including direct sales to end-users and sales to end-users via third party
distributors. Third party distributors are a substantial channel for
distribution internationally and are increasingly becoming a substantial channel
for distribution in the United States. Accordingly, the Company's ability to
market and distribute its products depends in significant part on its
relationship with third party distributors, as well as the performance and
financial condition of these distributors. In the event that the Company's
relationship with its distributors deteriorates, or the performance or financial
condition of the distributors becomes unsatisfactory, the Company and its future
operating results could be adversely affected.
SOLE SUPPLIERS
The Company is currently dependent on single suppliers for certain
product components, including mask-programmed microcontrollers, various
printer mechanisms, display devices, certain integrated circuits, and certain
magnetic parts. The failure of any such supplier to continue to provide these
components to the Company could result in significant manufacturing delays
that could adversely affect the Company and its future operating results.
16
<PAGE>
EXCESS OR OBSOLETE INVENTORY
Managing the Company's inventory of components and finished products is a
complex task. A number of factors -- including the need to maintain a
significant inventory of certain components which are in short supply or which
must be purchased in bulk to obtain favorable pricing, the general
unpredictability of demand for specific products, and customer requests for
quick delivery schedules -- may result in the Company maintaining excess
inventory. Other factors -- including changes in market demand and technology --
may cause inventory to become obsolete. Any excess or obsolete inventory could
result in price reductions and inventory write-downs, which in turn could
adversely affect the Company and its operating results.
SECURITY FEATURES OF PRODUCTS
Most of the Company's products are used to process payment transactions,
and thus, the security features of the products are important. In general, the
Company's products are designed to comply with industry practices relating to
security in payment transactions. However, no security feature, whether or not
an industry practice, is infallible. In the event of a significant breach of the
security features in the Company's products, the Company and its future
operating results could be adversely affected.
PROPRIETARY TECHNOLOGY
The Company seeks to establish and protect the proprietary aspects of its
products by relying on applicable patent, copyright, trademark and trade secret
laws and on confidentiality, licensing and other contractual arrangements.
Notwithstanding the Company's efforts to protect its proprietary rights, it may
be possible for unauthorized third parties to copy certain portions of the
Company's products or to reverse engineer or obtain and use technology that the
Company regards as proprietary. In addition, the laws of certain countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. Accordingly, there can be no assurance that the Company
will be able to protect its proprietary technology against unauthorized third
party copying or use, which could adversely affect the Company's competitive
position.
The Company from time to time receives notices from third parties claiming
that the Company's products infringe such parties' proprietary rights.
Regardless of its merit, any such claim can be time-consuming, result in costly
litigation and require the Company to enter into royalty and licensing
agreements. Such royalty or licensing agreements may not be offered or may not
be available on terms acceptable to the Company. If a successful claim is made
against the Company and the Company fails to develop or license a substitute
technology, the Company and its future operating results could be adversely
affected.
17
<PAGE>
HIRING AND RETENTION OF EMPLOYEES
The Company's continued growth and success depends to a significant extent
on the continued service of senior management and other key employees and the
hiring of new qualified employees. Competition for highly skilled business,
technical, marketing and other personnel is intense, particularly in the strong
economic cycle currently prevailing for high technology companies. The loss of
one or more key employees or the Company's inability to attract additional
qualified employees or retain other employees could have an adverse effect on
the Company and its future operating results. In addition, the Company may
experience increased compensation costs in order to compete for skilled
employees.
REGULATORY REQUIREMENTS
The Company's operations are subject to various laws, regulations,
governmental policies and product certification requirements worldwide. Changes
in such laws, regulations, policies or requirements could affect the demand for
the Company's products or result in the need to modify products, which may
involve substantial costs or delays in sales and could have an adverse effect on
the Company and its future operating results.
SEISMIC RISKS
The Company's manufacturing and distribution facilities, as well as a
portion of the Company's research and development, sales and administrative
functions, are located near major earthquake faults. In the event of a major
earthquake, the Company and its future operating results could be adversely
affected
STOCK MARKET FLUCTUATIONS
In recent years, the stock market in general, and the market for technology
stocks in particular, including the Company's Common Stock, have experienced
extreme price fluctuations. The market price of the Company's Common Stock may
be significantly affected by various factors such as: quarterly variations in
the Company's operating results; changes in revenue growth rates for the Company
as a whole or for specific geographic areas, business units or products; changes
in earnings estimates by market analysts; the announcement of new products or
product enhancements by the Company or its competitors; speculation in the press
or analyst community; and general market conditions or market conditions
specific to particular industries. There can be no assurance that the market
price of the Company's Common Stock will not experience significant fluctuations
in the future.
18
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate offices are located in approximately 55,000 square
feet of leased office space in Redwood City, California. The Company is planning
to relocate these offices to a new facility in Santa Clara, California in late
1997 or early 1998.
The Company's United States distribution, repair and customer service
center is located in two adjacent leased office and warehouse buildings which,
in the aggregate, total approximately 156,700-square-feet in Costa Mesa,
California.
The Company owns a 120,000-square-foot manufacturing and distribution
facility in Kaohsiung, Taiwan, R.O.C. and a 180,000-square-foot manufacturing
and distribution facility in Kunshan, near Shanghai, People's Republic of China.
In addition, the Company leases a 65,000-square-foot software engineering center
in Bangalore, India.
The Company leases space for various purposes (including sales, development
and customer service) in or near Atlanta, Georgia; Auburn, California;
Bangalore, India; Barcelona, Spain; Beijing, People's Republic of China; Buenos
Aires, Argentina; Chicago, Illinois; Dallas, Texas; Dayton, Ohio; Fort
Lauderdale, Florida; Frankfurt, Germany; Guangzhou, People's Republic of China;
Honolulu, Hawaii; Hong Kong; Johannesburg, South Africa; London, United Kingdom;
Louisville, Kentucky; Madrid, Spain; Mexico City, Mexico; Miami, Florida; Milan,
Italy; New York, New York; Palo Alto, California; Paris, France; Portland,
Oregon; Sao Paulo, Brazil; Singapore; Sydney, Australia; Taipei, Taiwan; Tampa,
Florida; Tokyo, Japan; and Toronto, Canada.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, various legal proceedings are
initiated against the Company. The Company is not currently aware of any
legal proceeding pending against it, the resolution of which is expected
to have a material impact on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Incorporated by reference to the section of the Company's 1996 Annual
Report to Stockholders entitled "VFIC Stock Performance," page 33.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the section of the Company's 1996 Annual
Report to Stockholders entitled "Selected Consolidated Financial Data," page 10.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Incorporated by reference to the section of the Company's 1996 Annual
Report to Stockholders entitled "Management's Discussion and Analysis," pages 11
through 17.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the sections of the Company's 1996 Annual
Report to Stockholders included in the financial statements and notes on pages
18 through 32, and in "Quarterly Data" on page 34.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the sections of the Company's proxy statement
for the 1997 Annual Meeting of Stockholders entitled "Election of Directors",
"Management" and "Certain Transactions."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the sections of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders entitled "Compensation of
Directors" and "Compensation of Executive Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the section of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders entitled "Security
Ownership of Management and Principal Stockholders."
ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS
Incorporated by reference to the section of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders entitled "Certain
Transactions."
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. INDEX TO FINANCIAL STATEMENTS
The following documents are incorporated in Part II of this Annual Report
by reference to the 1996 Annual Report to Stockholders:
Annual Report
to Stockholders
---------------
Consolidated Balance Sheets
as of December 31, 1996 and 1995 Page 18
Consolidated Statements of Income
for each of the three years in the period
ended December 31, 1996 Page 19
Consolidated Statements of Stockholders' Equity
for each of the three years in the period
ended December 31, 1996 Page 20
Consolidated Statements of Cash Flows
for each of the three years in the period
ended December 31, 1996 Page 21
Notes to Consolidated Financial Statements Pages 22-32
The Report of Independent Auditors on page 33 of the 1996 Annual Report to
Stockholders is also incorporated by reference. With the exception of the
information expressly incorporated by reference into Items 5, 6, 7 and 8 of this
Annual Report, the 1996 Annual Report to Stockholders, attached as Exhibit 13.1,
is not deemed filed as part of this report.
(a)2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as a part of the Annual
Report and should be read in conjunction with the Financial Statements:
Schedule II Valuation and Qualifying Accounts
22
<PAGE>
All other schedules are omitted because they are not required, or not
applicable, or because the required information is included in the 1996 Annual
Report to Stockholders, filed as Exhibit 13.1.
(a)3. EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation (1)
3.2 Bylaws of Registrant as currently in effect
10.1 Incentive Stock Option Plan, as amended *
10.2 1987 Supplemental Stock Option Plan, as amended *
10.3 1992 Non-Employee Directors' Stock Option Plan, as
amended *
10.4 1996 Restricted Phantom Stock Plan *
10.5 Form of Indemnity Agreement between the Company
and each of its directors (1) *
10.6 Form of Indemnity Agreement between the Company
and each of its executive officers (3) *
10.7 Series D Preferred Stock Purchase Agreement, dated
August 11, 1988, as amended on January 26, 1990
(1)
10.8 Employment letter agreement between the Company
and Hatim Tyabji, dated August 26, 1986 (2) *
11.1 Statement of Computation of Net Earnings per Share
13.1 1996 Annual Report to Stockholders
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney. Reference is made to the
signature page.
23
<PAGE>
(1) Incorporated by reference from the exhibits in the Company's
Registration Statement on Form S-l filed with the Commission
(File No. 33-33304) on or about February 1, 1990.
(2) Incorporated by reference from the exhibits in the Company's
Annual Report on Form 10-K filed with the Commission (File No.
0-18376) on or about March 24, 1993.
(3) Incorporated by reference from the exhibits in the Company's
Annual Report on Form 10-K filed with the Commission (File No.
0-18376) on or about March 29, 1994.
* Designates "management contract or compensatory plan."
(b) REPORTS ON FORM 8-K
None.
24
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) 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.
VERIFONE, INC.
Dated: March 26, 1997 By: /S/ JOSEPH M. ZAELIT
--------------------
Joseph M. Zaelit
Senior Vice President,
Finance and Administration,
and Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Hatim A. Tyabji and Joseph M. Zaelit, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him in any and all capacities, to sign any amendments
to this report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
25
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ HATIM A. TYABJI Director, Chairman of the March 26, 1997
- ------------------- Board, President and
(Hatim A. Tyabji) Chief Executive Officer
/S/ JOSEPH M. ZAELIT Senior Vice President, March 26, 1997
- --------------------- Finance and Administration,
(Joseph M. Zaelit) and Chief Financial Officer
(principal financial officer)
/S/ ELDON M. BULLINGTON Vice President and March 26, 1997
- ------------------------ Corporate Controller
(Eldon M. Bullington) (principal accounting officer)
/S/ H. H. HAIGHT IV Director March 10, 1997
- -------------------
(H. H. Haight IV)
/S/ J. ROBERT HARCHARIK Director March 7, 1997
- -----------------------
(J. Robert Harcharik)
/S/ THOMAS E. PETERSON Director March 6, 1997
- ----------------------
(Thomas E. Peterson)
/S/ JOHN R. C. PORTER Director March 7, 1997
- ---------------------
(John R. C. Porter)
/S/ CLINTON V. SILVER Director March 10, 1997
- ---------------------
(Clinton V. Silver)
/S/ A. MICHAEL SPENCE Director March 6, 1997
- ---------------------
(A. Michael Spence)
/S/ R. ELTON WHITE Director March 26, 1997
- ------------------
(R. Elton White)
26
<PAGE>
SCHEDULE II
VERIFONE, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at
Beginning of Costs and Deductions/ Balance at End
Description Period Expenses Write-Offs of Period
- ----------- ------ -------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994 $3,900 $3,250 $(2,245) $4,905
Allowance for doubtful accounts ------ ------ ------- ------
------ ------ ------- ------
Year Ended December 31, 1995
Allowance for doubtful accounts $4,905 $5,495 $(5,725) $4,675
------ ------ ------- ------
------ ------ ------- ------
Year Ended December 31, 1996
Allowance for doubtful accounts $4,675 $ 371 $(1,204) $3,842
------ ------ ------- ------
------ ------ ------- ------
</TABLE>
27
<PAGE>
EXHIBIT 3.2
28
<PAGE>
BYLAWS
OF
VERIFONE, INC.
AS AMENDED THROUGH MARCH 15, 1997
29
<PAGE>
BYLAWS
OF
VERIFONE, INC.
(a Delaware corporation)
As amended through March 15, 1997
ARTICLE I
Offices
Section 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent.
Section 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
Corporate Seal
Section 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
Stockholders' Meetings
Section 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
30
<PAGE>
Section 5. ANNUAL MEETING. The annual meeting of the stockholders of the
corporation, for the purpose of election of Directors and for such other
business as may lawfully come before it shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by the President or the
Board of Directors, and shall be held at such place, on such date, and at such
time as the President or the Board of Directors, as the case may be, shall fix.
Section 7. NOTICE OF MEETINGS. (a) Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than 10 or more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting, such notice to
specify the place, date and hour and purpose or purposes of the meeting. Notice
of the time, place and purpose of any meeting of stockholders may be waived in
writing, signed by the person entitled to notice thereof, either before or after
such meeting, and will be waived by any stockholder by his attendance thereat in
person or by proxy, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Any stockholder so waiving notice of such meeting shall be bound by
the proceedings of any such meeting in all respects as if due notice thereof had
been given.
(b) Subject to the rights of the holders of any series of Preferred Stock,
(i) nominations for the election of directors may be made, and (ii) business
proposed to be brought before any stockholder meeting may be initiated by the
Board of Directors or a proxy committee appointed by the Board of Directors or
by any stockholder entitled to vote in the election of directors generally.
However, any such stockholder may nominate one or more persons for election as
directors at a meeting or propose business to be brought before a meeting, or
both, only if such stockholder has given timely notice in proper written form of
his intent to make such nomination or nominations or to propose such business.
To be timely, a stockholder's notice must be delivered to or mailed and received
by the Secretary of the corporation not later than 120 days prior to such
meeting; provided, however, that in the event that less than 130 days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the date on which such
notice of the date of such meeting was mailed or such public disclosure was
made. To be in proper written form, a stockholder's notice to the Secretary
shall set forth:
(A) the name and address of the stockholder who intends to make
the nominations or propose the business and, as the case may be, of the person
or persons to be nominated or the business to be proposed;
31
<PAGE>
(B) a representation that the stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice;
(C) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(D) such other information regarding each nominee or each matter
of business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, or the matter been proposed, or intended to be proposed by the
Board of Directors; and
(E) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of any
person or the proposal of any business not made in compliance with the foregoing
procedure.
Section 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum any meeting of stockholders may be adjourned, from time to time, by
vote of the holders of a majority of the shares represented thereat, but no
other business shall be transacted at such meeting. The stockholders present
at a duly called or convened meeting, at which a quorum is present, may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws,
all action taken by the holders of a majority of the votes cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation.
Section 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes (excluding abstentions). When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
32
<PAGE>
Section 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a written proxy executed by
such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted on after three
years from its date of creation unless the proxy provides for a longer period.
All elections of Directors shall be by written ballot, unless otherwise provided
in the Certificate of Incorporation.
Section 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two or more persons have the same fiduciary
relationship respecting the same shares, unless the Secretary is given written
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, their
acts with respect to voting shall have the following effect: (i) if only one
votes, his act binds all; (ii) if more than one votes, the act of the majority
so voting binds all; (iii) if more than one votes, but the vote is evenly split
on any particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the General Corporation Law of Delaware, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of this subsection
(iii) shall be a majority or even-split in interest.
Section 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least 10 days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not specified, at the place where the
meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at
33
<PAGE>
a meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
(b) Notwithstanding the foregoing, no such action by written consent
may be taken following the effectiveness of the registration of any class of
securities of the corporation under the Securities Exchange Act of 1934, as
amended.
Section 14. ORGANIZATION. At every meeting of stockholders, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or, if the President is absent, the most senior Vice
President present, or in the absence of any such officer, a chairman of the
meeting chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
ARTICLE IV
Directors
Section 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
shall be fixed in the manner set forth in the Certificate of Incorporation.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the Directors shall not have been elected at
an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws.
Section 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. CLASSES OF DIRECTORS. Effective at the 1990 annual meeting,
the Board of Directors shall be divided into three classes: Class I, Class II
and Class III. Each director shall serve for a term ending on the date of the
third annual meeting of stockholders following the annual meeting at which the
director was elected; provided, however, that each initial director in Class I
shall hold office until the annual meeting of stockholders in 1991; each initial
director in Class II shall hold office until the annual meeting of stockholders
in 1992; and each initial director in Class III shall hold office until the
annual meeting of stockholders in 1993. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
Section 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification,
34
<PAGE>
removal or other causes shall be filled by either (i) the affirmative vote of
the holders of a majority of the voting power of the then-outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors voting together as a single class; or (ii) by the affirmative vote of
a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Newly created directorships resulting from
any increase in the number of directors shall, unless the Board of Directors
determines by resolution that any such newly created directorship shall be
filled by the stockholders, be filled only by the affirmative vote of the
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with this Section 18 shall hold
office for the remainder of the full term of the class of directors in which the
new directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified.
Section 19. RESIGNATION. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 20. REMOVAL. Any Director, or the entire Board of Directors, may
be removed from office, (a) with cause by the affirmative vote of the holders of
a majority of the voting power of all of the then-outstanding shares of the
Company's capital stock, voting together as a single class; or (b) without
cause, by the affirmative vote of the holders of at least 66-2/3% of the voting
power of the Company's capital stock.
Section 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
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(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may
be held at any time and place within or without the State of Delaware
whenever called by the Chairman of the Board, the President, or any two of
the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Written notice of the time and place of
all regular and special meetings of the Board of Directors shall be given at
least one day before the date of the meeting. Notice of any meeting may be
waived in writing at any time before or after the meeting and will be waived by
any director by attendance thereat, except when the Director attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice, or a consent to holding such meeting, or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 22. QUORUM AND VOTING.
(a) QUORUM. Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time in accordance with the Certificate
of Incorporation, but not less than one, a quorum of the Board of Directors
shall consist of a majority of the exact number of directors fixed from time to
time in accordance with Section 15 of these Bylaws, but not less than one;
provided, however, at any meeting whether a quorum be present or otherwise, a
majority of the directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors, without notice
other than by announcement at the meeting.
(b) MAJORITY VOTE. At each meeting of the Board of Directors at
which a quorum is present all questions and business shall be determined by a
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
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Section 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
Section 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors, appoint an
Executive Committee to consist of one or more members of the Board of Directors.
The Executive Committee, to the extent permitted by law and specifically granted
by the Board of Directors, shall have and may exercise when the Board of
Directors is not in session all powers of the Board of Directors in the
management of the business and affairs of the corporation, including, without
limitation, the power and authority to declare a dividend or to authorize the
issuance of stock, except such committee shall not have the power or authority
to amend the Certificate of Incorporation, to adopt an agreement of merger or
consolidation, to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, to recommend
to the stockholders of the corporation a dissolution of the corporation or a
revocation of a dissolution, or to amend these Bylaws.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one or more members of the
Board of Directors, and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall such committee have the powers denied to the Executive Committee in
these Bylaws.
(c) TERM. The members of all committees of the Board of
Directors shall serve a one year term. The Board of Directors, subject to the
provisions of subsections (a) or (b) of this Section 25, may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee. The membership of a committee member shall terminate
on the date of his death or voluntary resignation. The Board of Directors may
at any time for any reason remove any individual committee member and the Board
of Directors may fill any committee vacancy created by death, resignation,
removal or increase in the number of
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members of the committee. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at the principal office of the corporation
required to be maintained pursuant to Section 2 hereof, or at any place which
has been designated from time to time by resolution of such committee or by
written consent of all members thereof, and may be called by any Director who is
a member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any Director by attendance thereat, except
when the Director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
Section 26. ORGANIZATION. At every meeting of the Directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence an Assistant Secretary directed to do so by the
President, shall act as secretary of the meeting.
ARTICLE V
Officers
Section 27. OFFICERS DESIGNATED. The officers of the corporation shall be
the Chairman of the Board of Directors, the President, one or more Vice
Presidents, the Secretary and the Chief Financial Officer, all of whom shall be
elected at the annual meeting of the Board of Directors. The order of the
seniority of the Vice Presidents shall be in the order of their nomination,
unless otherwise determined by the Board of Directors. The Board of Directors
may also appoint one or more Assistant Secretaries, Assistant Treasurers, and
such other officers
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and agents with such powers and duties as it shall deem necessary. The Board of
Directors may assign such additional titles to one or more of the officers as it
shall deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors.
Section 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
The President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the Corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the
order of their seniority, may assume and perform the duties of the President in
the absence or disability of the President or whenever the office of President
is vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors, and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders, and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the Secretary
in the absence or disability of the Secretary, and each Assistant Secretary
shall perform other duties commonly incident to his office and shall also
perform such other duties
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and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner, and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct any Assistant Treasurer
to assume and perform the duties of the Chief Financial Officer in the absence
or disability of the Chief Financial Officer, and each Assistant Treasurer shall
perform other duties commonly incident to his office and shall also perform
such other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
Section 29. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
Section 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective.
Section 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the vote or written consent of a majority of
the directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
Execution of Corporate Instruments and Voting
of Securities Owned by the Corporation
Section 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
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Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or any Assistant Secretary or Assistant
Treasurer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Section 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
ARTICLE VII
Shares of Stock
Section 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Chief Financial Officer or Assistant Treasurer
or the Secretary or Assistant Secretary, certifying the number of shares owned
by him in the corporation. Where such certificate is countersigned by a
transfer agent other than the corporation or its employee, or by a registrar
other than the corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued with the same effect as if
he were such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the designations, preferences, limitations, restrictions on transfer and
relative rights of the shares authorized to be issued.
Section 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen or
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destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require or to give the corporation
a surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen, or destroyed.
Section 36. TRANSFERS. Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
Section 37. FIXING RECORD DATES. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 60 nor less than 10 days
before the date of such meeting, nor more than 60 days prior to any other
action. If no record date is fixed: (a) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (b) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed; and
(c) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Section 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VIII
Other Securities of the Corporation
Section 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates,
may be signed by the Chairman of the Board of Directors, the President or any
Vice President, or such other person as may be authorized by the Board of
Directors, and the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Chief Financial Officer or an Assistant Treasurer; provided,
however, that where any such bond, debenture or other corporate security shall
be authenticated by the manual signature of a trustee under an indenture
pursuant to which such bond, debenture or other corporate security shall be
issued, the signatures of the persons signing and attesting the corporate seal
on such bond, debenture or other corporate security may be the imprinted
facsimile of the signatures of such persons. Interest coupons appertaining to
any such bond, debenture or other corporate security, authenticated by a trustee
as aforesaid, shall be signed by the Chief Financial Officer or an Assistant
Treasurer of the corporation or such other person as may be authorized by the
Board of Directors, or bear imprinted thereon the facsimile signature of such
person. In case any officer who shall have signed or attested any bond
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
Dividends
Section 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to
law at any regular or special meeting. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation.
Section 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X
Fiscal Year
Section 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
Indemnification of Officers,
Directors, Employees and Agents
Section 43. INDEMNIFICATION OF DIRECTORS. The corporation shall indemnify
its directors to the fullest extent permitted by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of alleged occurrences of actions or omissions preceding any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than said law permitted the corporation
to provide prior to such amendment); PROVIDED, HOWEVER, that the corporation
shall not be required to indemnify any director in connection with any
proceeding (or part thereof) initiated by such person or any proceeding by such
person against the corporation or its directors, officers, employees or other
agents unless (i) such indemnification is expressly required to be made by law,
(ii) the proceeding was authorized by the Board of Directors or (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the Delaware General Corporation
Law.
Section 44. INDEMNIFICATION OF OFFICERS AND OTHER EMPLOYEES AND AGENTS.
The corporation shall have power to indemnify its officers, employees and other
agents as set forth in the Delaware General Corporation Law.
Section 45. GOOD FAITH. For purposes of any determination under this
Article XI, a director shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on the records or books of account of the corporation or another
enterprise, or on information supplied to him by the officers of the corporation
or another enterprise in the course of their duties, or on the advice of legal
counsel for the corporation or another enterprise or on information or records
given or reports made to the corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the corporation or another enterprise.
The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he had reasonable cause to believe that his conduct was unlawful.
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The provisions of this Section 44 shall not be deemed to be exclusive or to
limit in any way the circumstances in which a person may be deemed to have met
the applicable standard of conduct set forth by the Delaware General Corporation
Law.
Section 46. EXPENSES. The corporation may advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Article XI or otherwise.
Section 47. ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances under this Article
XI shall be deemed to be contractual rights and be effective to the same extent
and as if provided for in a contract between the corporation and the Director
who serves in such capacity at any time while this Article XI and other relevant
provisions of the Delaware General Corporation Law and other applicable law, if
any, are in effect. Any right to indemnification or advances granted by this
Article XI to a Director shall be enforceable by or on behalf of the person
holding such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within 90 days of request therefor. The
claimant in such enforcement action, if successful in whole or in part, shall be
entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in connection with any proceeding in advance of its final
disposition when the required undertaking has been tendered to the corporation)
that the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the corporation to indemnify the
claimant for the amount claimed. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
Section 48. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Article XI shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specially
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent permitted by the Delaware General Corporation Law.
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Section 49. SURVIVAL OF RIGHTS. The rights conferred on any person by
this Article XI shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 50. INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Article XI.
Section 51. AMENDMENTS. Any repeal or modification of this Article XI
shall only be prospective and shall not affect the rights under this Article XI
in effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
Section 52. SAVINGS CLAUSE. If this Article XI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each agent to the full extent
permitted by any applicable portion of this Article XI that shall not have been
invalidated, or by any other applicable law.
Section 53. CERTAIN DEFINITIONS. For the purposes of this Article XI, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement and appeal of any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(c) The term "the corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article XI with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(d) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the
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request of the corporation as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
(e) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Article XI.
ARTICLE XII
Notices
Section 54. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by telegram or
facsimile, except that such notice other than one which is delivered personally
shall be sent to such address as such Director shall have filed in writing with
the Secretary, or, in the absence of such filing, to the last known post office
address of such Director.
(c) ADDRESS UNKNOWN. If no address of a stockholder or Director
be known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.
(d) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
Director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.
(e) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by telegram shall be deemed to have been given as at the
sending time recorded by the telegraph company transmitting the notices.
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(f) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
ARTICLE XIII
Amendments
Section 55. AMENDMENTS. Except as otherwise set forth in Section 51,
these Bylaws may be repealed, altered or amended or new Bylaws adopted by the
stockholders. The Board of Directors shall also have the authority, if such
authority is conferred upon the Board of Directors by the Certificate of
Incorporation, to repeal, alter or amend these Bylaws or adopt new Bylaws.
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EXHIBIT 10.1
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VERIFONE, INC.
AMENDED AND RESTATED
INCENTIVE STOCK OPTION PLAN
Adopted by Board of Directors in November, 1985
Approved by the Stockholders in November, 1985
Amended by Board of Directors in May, 1987
Approved by the Stockholders on April 18, 1988
Amended by Board of Directors on April 30, 1990
Approved by the Stockholders on June 22, 1990
Amended by Board of Directors on February 13, 1992
Approved by the Stockholders on April 23, 1992
Amended by Board of Directors on March 15, 1995
Approved by the Stockholders on May 5, 1995
Amended by Board of Directors on January 18, 1996
Approved by the Stockholders on May 10, 1996
I. PURPOSE.
A. The purpose of the Plan is to provide a means by which selected key
employees of VeriFone, Inc. (the "Company") and its Affiliates, as defined in
subparagraph l(b), may be given an opportunity to purchase stock of the Company.
B. The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company, as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
C. The Company, by means of the Plan, seeks to retain the services of
persons now holding key positions, to secure and retain the services of persons
capable of filling such positions, and to provide incentives for such persons to
exert maximum efforts for the success of the Company.
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D. The Company intends that the options issued under the Plan be
incentive stock options as that term is used in Section 422 of the Code.
II. ADMINISTRATION.
A. The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
B. The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
1. To determine from time to time which of the persons eligible
under the Plan shall be granted options; when and how the option shall be
granted; the provisions of each option granted (which need not be identical),
including the time or times during the term of each option within which all or
portions of such option may be exercised; and the number of shares for which an
option shall be granted to each such person.
2. To construe and interpret the Plan and options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any option agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
3. To amend the Plan as provided in paragraph 10.
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4. Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
C. The Board may delegate administration of the Plan to a committee
composed of not fewer than three (3) members (the "Committee"), all of the
members of which Committee shall be disinterested persons, if required and as
defined by the provisions of subparagraph 2(d), or may also be, in the
discretion of the Board, outside directors as defined in Section 162(m) of the
Code. If administration is delegated to a Committee, the Committee shall have,
in connection with the administration of the Plan, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not inconsistent
with the provisions of the Plan, as may be adopted from time to time by the
Board and references to the Board herein shall be construed as references to the
Committee. The Board may abolish the Committee at any time and revest in the
Board the administration of the Plan. Notwithstanding anything in this
paragraph 2 to the contrary, the Board may delegate to a committee of one or
more members of the Board the authority to grant options to eligible persons who
(i) are not then subject to Section 16 under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and (ii) are either (A) not persons
expected to be subject to Section 162(m) of the code ("Section 162(m)") at the
time of recognition of income from such Option or (B) not persons with respect
to whom the Company desires to comply with Section 162(m).
D. The term "disinterested person," as used in the Plan, shall mean an
administrator of the Plan, whether a member of the Board or any Committee to
which responsibility for administration of the Plan has been delegated pursuant
to subparagraph 2(c), who was not at any time within one (l) year prior to
service as administrator to the Plan granted or awarded equity
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securities pursuant to the Plan or any other plan of the Company or any of its
affiliates except as permitted by Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or who is otherwise
considered to be a "disinterested person" under said Rule 16b-3.
E. Any requirement that an administrator of the Plan be a "disinterested
person" shall not apply if the Board expressly declares it shall not apply.
III. SHARES SUBJECT TO THE PLAN.
A. Subject to the provisions of paragraph 9 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
either the Plan or the Company's 1987 Supplemental Stock Option Plan shall not
exceed in the aggregate Seven Million Seventy-Five Thousand (7,075,000) shares
of the Company's common stock. The aggregate number of shares as to which
options may be granted under the Plan shall be reduced to reflect the number of
shares of the Company's common stock which has been sold under, or may be sold
pursuant to outstanding options granted under the Company's 1987 Amended and
Restated Supplemental Stock Option Plan to the same extent as if such sales had
been made or options had been granted pursuant to this Plan. If any option
granted under the Plan shall for any reason expire or otherwise terminate
without having been exercised in full, the stock not purchased under such option
shall again become available for the Plan.
B. The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
C. An option may be granted to an eligible person under the Plan only if
the aggregate fair market value (determined at the time the option is granted)
of the stock with
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respect to which incentive stock options are exercisable for the first time by
such optionee during any calendar year under all incentive stock option plans of
the Company and its Affiliates does not exceed one hundred thousand dollars
($100,000). Should it be determined that an option granted under the Plan
exceeds such maximum for any reason other than the failure of a good faith
attempt to value the stock subject to the option, such option shall be
considered a nonstatutory stock option to the extent, but only to the extent, of
such excess; provided, however, that should it be determined that an entire
option or any portion thereof does not qualify for treatment as an incentive
stock option by reason of exceeding such maximum, such option or the applicable
portion shall be considered a nonstatutory stock option.
(D) Subject to the provisions of paragraph 9 relating to adjustments upon
changes in stock, no employee shall be eligible, during any twelve (12) month
period, to be granted options under the Plan to purchase in excess of 750,000
shares of common stock of the Company. The total number of shares as to which
options may be granted to an employee under this paragraph 3(d) shall be reduced
to reflect the total number of shares as to which options have been granted,
during the same twelve (12) month period, under the Company's 1987 Amended and
Restated Supplemental Stock Option Plan.
IV. ELIGIBILITY.
A. Options may be granted only to key employees (including officers) of
the Company or its Affiliates. A director of the Company shall not be eligible
for the benefits of the Plan unless such director is also a key employee
(including an officer) of the Company or any Affiliate.
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B. A director shall in no event be eligible for the benefits of the Plan
unless and until such director is expressly declared eligible to participate in
the Plan by action of the Board, and only if, at any time discretion is
exercised by the Board in the selection of a director as a person to whom
options may be granted, or in the determination of the number or maximum number
of shares which may be covered by options granted to a director, the Board has
delegated its discretionary authority over the Plan to a committee of
disinterested directors (as defined in subparagraph 2(c)) or the Plan otherwise
complies with Rule 16b-3. The Board shall otherwise comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act, as from time to
time in effect.
C. No person shall be eligible for the grant of an option under the Plan
if, at the time of grant, such person owns (or is deemed to own pursuant to the
attribution rules of Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates unless the option price is at least one
hundred ten percent (110%) of the fair market value of such stock at the date of
grant and the term of the option does not exceed five (5) years from the date of
grant.
V. OPTION PROVISIONS.
Each option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. The provisions
of separate options need not be identical, but each option shall include
(through incorporation of provisions hereof by reference in the option or
otherwise) the substance of each of the following provisions:
A. The term of any option shall not be greater than ten (10) years from
the date it was granted.
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B. The exercise price of each option shall be not less than one hundred
percent (100%) of the fair market value of the stock subject to the option on
the date the option is granted.
C. The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either (i)
in cash at the time the option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of grant or exercise of the option
(A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the option is granted or to whom the option is
transferred pursuant to subparagraph 5(d), or (C) in any other form of legal
consideration that may be acceptable to the Board or Committee in their
discretion.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable provisions of the Code,
of any amounts other than amounts stated to be interest under the deferred
payment arrangement.
D. An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person.
E. The total number of shares of stock subject to an option may, but need
not, be allotted in periodic installments (which may, but need not, be equal).
From time to time during each of such installment periods, the option may be
exercised with respect to some or all of the
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shares allotted to that period, and/or with respect to some or all of the shares
allotted to any prior period as to which the option was not fully exercised.
During the remainder of the term of the option (if its term extends beyond the
end of the installment periods), the option may be exercised from time to time
with respect to any shares then remaining subject to the option. The option may
be subject to such other terms and conditions on the time or times when it may
be exercised (which may be based on performance or other criteria) as the Board
may deem appropriate. The provisions of this subparagraph 5(e) are subject to
any option provisions governing the minimum number of shares as to which an
option may be exercised.
F. The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 5(d), as a condition of exercising any such
option: (l) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the option; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the option for such person's own account and not
with any present intention of selling or otherwise distributing the stock.
These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise of the
option has been registered under a then currently effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii), as to any particular requirement, a
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determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.
G. An option shall terminate three (3) months after termination of the
optionee's employment with the Company or an Affiliate, unless (i) the
termination of employment of the optionee is due to such person's permanent and
total disability, within the meaning of Section 422(c)(7) of the Code, in which
case the option may, but need not, provide that it may be exercised at any time
within one (l) year following such termination of employment; or (ii) the
optionee dies while in the employ of the Company or an Affiliate, or within not
more than three (3) months after termination of such employment, in which case
the option may, but need not, provide that it may be exercised at any time
within eighteen (18) months following the death of the optionee by the person or
persons to whom the optionee's rights under such option pass by will or by the
laws of descent and distribution; or (iii) the option by its terms specifies
either (a) that it shall terminate sooner than three (3) months after
termination of the optionee's employment, or (b) that it may be exercised more
than three (3) months after termination of the optionee's employment with the
Company or an Affiliate. This subparagraph 5(g) shall not be construed to
extend the term of any option or to permit anyone to exercise the option after
expiration of its term, nor shall it be construed to increase the number of
shares as to which any option is exercisable from the amount exercisable on the
date of termination of the optionee's employment.
H. The option may, but need not, include a provision whereby the optionee
may elect at any time during the term of his or her employment with the Company
or any Affiliate to exercise the option as to any part or all of the shares
subject to the option prior to the stated
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vesting date of the option or of any installment or installments specified in
the option. Any shares so purchased from any unvested installment or option may
be subject to a repurchase right in favor of the Company or to any other
restriction the Board or the Committee determines to be appropriate.
(I). To the extent provided in the terms of an Option Agreement, an
optionee may satisfy any federal, state, or local tax withholding obligation
relating to the exercise of such option by any of the following means or by a
combination of such means: (i) tendering a cash payment, (ii) authorizing the
Company to withhold from the shares of common stock otherwise issuable to the
optionee as a result of the exercise of the option or (iii) delivering to the
Company owned and unencumbered shares of the common stock of the Company.
VI. COVENANTS OF THE COMPANY.
A. During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
B. The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority that counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any
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liability for failure to issue and sell stock upon exercise of such options
unless and until such authority is obtained.
VII. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.
VIII. MISCELLANEOUS.
A. The Board or the Committee shall have the power to accelerate the time
during which an option may be exercised, or the time during which an option or
any portion thereof will vest pursuant to subparagraph 5(e), notwithstanding the
provisions in the option stating the time during which it may be exercised or
the time during which it will vest.
B. Neither an optionee nor any person to whom an option is transferred
under subparagraph 5(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
C. Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the option term, upon request, such financial and other information
regarding the Company as comprises the annual report to the shareholders of the
Company provided for in the bylaws of the Company.
D. Nothing in the Plan or any instrument executed or option granted
pursuant thereto shall confer upon any eligible employee or optionee any right
to continue in the employ
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of the Company or any Affiliate or shall affect the right of the Company or any
Affiliate to terminate the employment of any eligible employee or optionee with
or without cause.
IX. ADJUSTMENTS UPON CHANGES IN STOCK.
A. If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the type of security and maximum
number of shares subject to the Plan, the maximum number of shares subject to
option that can be granted to any single person under subparagraph 3(d) and the
type of security and number of shares and price per share of stock subject to
outstanding options.
B. In the event of: (l) a dissolution or liquidation of the Company; (2)
a merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's common stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) any other capital reorganization
in which more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, then, at the sole discretion of the Board and to the extent
permitted by applicable law: (i) any surviving corporation shall assume any
options outstanding under the Plan or shall substitute similar options for those
outstanding under the Plan, or (ii) the time during which such options may be
exercised shall be accelerated and the options terminated if not exercised prior
to such event, or (iii) such options shall continue in full force and effect.
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X. AMENDMENT OF THE PLAN.
A. The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 9 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the vote of a
majority of the outstanding shares of the Company entitled to vote, or by the
written consent of the holders of the outstanding shares of the Company entitled
to vote to the extent necessary under applicable laws to obtain incentive stock
option treatment under Section 422 of the Code, within twelve (12) months before
or after the adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for options under the Plan;
(ii) Modify the requirements as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to satisfy the requirements of Section 422 of the Code or Rule
16b-3 ; or
(iii) Otherwise modify the Plan to the extent such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or Rule 16b-3.
The Board may, in its discretion, submit any other amendment to the Plan
for stockholder approval.
(B) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee incentive stock
options and/or to bring the Plan and/or options granted under it into compliance
therewith.
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(C) Rights and obligations under any option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the option was
granted and (ii) such person consents in writing.
XI. TERMINATION OR SUSPENSION OF THE PLAN.
(A) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on December 31, 2005. No options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(B) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
XII. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the vote of the holders of a majority of the outstanding shares of
the Company entitled to vote, or by the written consent of the holders of the
outstanding shares of the Company entitled to vote to the extent necessary under
applicable laws to obtain incentive stock option treatment under Section 422 of
the Code.
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EXHIBIT 10.2
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VERIFONE, INC
AMENDED AND RESTATED
1987 SUPPLEMENTAL STOCK OPTION PLAN
-----------------------------------
Adopted by Board of Directors in May, 1987
Approved by the Stockholders on April 18, 1988
Amended by Board of Directors on April 30, 1990
Approved by the Stockholders on June 22, 1990
Amended by Board of Directors on February 13, 1992
Approved by the Stockholders on April 23, 1992
Amended by Board of Directors on March 15, 1995
Approved by the Stockholders on May 5, 1995
Amended by Board of Directors on January 18, 1996
Approved by the Stockholders on May 10, 1996
I. PURPOSE
A. The purpose of the Plan is to provide a means by which selected
employees, directors and consultants of VeriFone, Inc. (the "Company") and its
Affiliates, as defined in subparagraph 1(b), may be given an opportunity to
purchase stock of the Company.
B. The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue code of 1986, as amended
from time to time (the "Code").
C. The Company, by means of the Plan, seeks to retain the services of
persons now employed by or serving as consultants or directors to the Company,
to secure and retain the services of new employees/persons capable of filling
such positions, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
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D. The Company intends that the options issued under the Plan not be
incentive stock options as that term is used in Section 422 of the Code.
II. ADMINISTRATION
A. The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
B. The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
1. To determine from time to time which of the persons eligible
under the Plan shall be granted options; when and how the option shall be
granted; the provisions of each option granted (which need not be identical),
including the time or times during the term of each option within which all or
portions of such option may be exercised; and the number of shares for which an
option shall be granted to each such person.
2. To construe and interpret the Plan and options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any option agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
3. To amend the Plan as provided in paragraph 10.
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4. Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
C. The Board may delegate administration of the Plan to a committee
composed of not fewer than three (3) members (the "Committee"), all of the
members of which Committee shall be disinterested persons, if required and as
defined by the provisions of subparagraph 2(d), or may also be, in the
discretion of the Board, outside directors as defined in Section 162(m) of the
Code. If administration is delegated to a Committee, the Committee shall have,
in connection with the administration of the Plan, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not inconsistent
with the provisions of the Plan, as may be adopted from time to time by the
Board and references to the Board herein shall be construed as references to the
Committee. The Board may abolish the Committee at any time and revest in the
Board the administration of the Plan. Notwithstanding anything in this
paragraph 2 to the contrary, the Board may delegate to a committee of one or
more members of the Board the authority to grant options to eligible persons who
(i) are not then subject to Section 16 under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and (ii) are either (A) not persons
expected to be subject to Section 162(m) of the code ("Section 162(m)") at the
time of recognition of income from such Option or (B) not persons with respect
to whom the Company desires to comply with Section 162(m).
D. The term "disinterested person," as used in the Plan, shall mean an
administrator of the Plan, whether a member of the Board or any Committee to
which responsibility for administration of the Plan has been delegated pursuant
to subparagraph 2(c), who was not at any time within one (l) year prior to
service as administrator to the Plan granted or awarded equity
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securities pursuant to the Plan or any other plan of the Company or any of its
affiliates except as permitted by Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or who is otherwise
considered to be a "disinterested person" under said Rule 16b-3.
E. Any requirement that an administrator of the Plan be a "disinterested
person" shall not apply if the Board expressly declares it shall not apply.
III. SHARES SUBJECT TO THE PLAN
A. Subject to the provisions of paragraph 9 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
either the Plan or the Company's Amended and Restated Incentive Stock Option
Plan shall not exceed in the aggregate Seven Million Seventy-Five Thousand
(7,075,000) shares of the Company's common stock. The aggregate number of shares
as to which options may be granted under the Plan shall be reduced to reflect
the number of shares of the Company's common stock which has been sold under, or
may be sold pursuant to outstanding options granted under the Company's Amended
and Restated Incentive Stock Option Plan to the same extent as if such sales had
been made or option had been granted pursuant to this Plan. If any option
granted under the Plan shall for any reason expire or otherwise terminate
without having been exercised in full, the stock not purchased under such option
shall again become available for the Plan.
B. The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
C. Subject to the provisions of paragraph 9 relating to adjustments upon
changes in stock, no employee shall be eligible, during any twelve (12) month
period, to be granted options
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under the Plan to purchase in excess of 750,000 shares of common stock of the
Company. The total number of shares as to which options may be granted to an
employee under this paragraph 3(c) shall be reduced to reflect the total number
of shares as to which options have been granted, during the same twelve (12)
month period, under the Company's Amended and Restated Incentive Stock Option
Plan.
IV. ELIGIBILITY
A. Options may be granted only to employees (including officers) of,
directors of or consultants to the Company or its Affiliates.
B. A director shall in no event be eligible for the benefits of the Plan
unless and until such director is expressly declared eligible to participate in
the Plan by action of the Board, and only if, at any time discretion is
exercised by the Board in the selection of a director as a person to whom
options may be granted, or in the determination of the number or maximum number
of shares which may be covered by options granted to a director, the Board has
delegated its discretionary authority over the Plan to a committee of
disinterested directors (as defined in subparagraph 2(c)) or the Plan otherwise
complies with Rule 16b-3. The Board shall otherwise comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act, as from time to
time in effect.
C. No person shall be eligible for the grant of an option under the Plan
if, at the time of grant, such person owns (or is deemed to own pursuant to the
attribution rules of Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates unless the option price is
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at least one hundred ten percent (110%) of the fair market value of such stock
at the date of grant and the term of the option does not exceed five (5) years
from the date of grant.
V. OPTION PROVISIONS
Each option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. The provisions
of separate options need not be identical, but each option shall include
(through incorporation of provisions hereof by reference in the option or
otherwise) the substance of each of the following provisions:
A. The term of any option shall not be greater than ten (10) years from
the date it was granted.
B. The exercise price of each option shall be not less than eighty-five
percent (85%) of the fair market value of the stock subject to the option on the
date the option is granted.
C. The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either (i)
in cash at the time the option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of grant or exercise of the option
(A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other common stock of the
Company) with the person to whom the option is granted or to whom the option is
transferred pursuant to subparagraph 5(d), or (C) in any other form of legal
consideration that may be acceptable to the Board or the Committee in their
discretion.
In the case of any deferred payment arrangement, any interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as
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interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.
D. An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person.
E. The total number of shares of stock subject to an option may, but need
not, be allotted in periodic installments (which may, but need not, be equal).
From time to time during each of such installment periods, the option may be
exercised with respect to some or all of the shares allotted to that period,
and/or with respect to some or all of the shares allotted to any prior period as
to which the option was not fully exercised. During the remainder of the term of
the option (if its term extends beyond the end of the installment periods), the
option may be exercised from time to time with respect to any shares then
remaining subject to the option. The option may be subject to such other terms
and conditions on the time or times when it may be exercised (which may be based
on performance or other criteria) as the Board may deem appropriate. The
provisions of this subparagraph 5(e) are subject to any option provisions
governing the minimum number of shares as to which an option may be exercised.
F. The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 5(d), as a condition of exercising any such
option: (l) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters that he or she
is capable of evaluating, alone or together with the purchaser
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representative, the merits and risks of exercising the option; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the option for such person's own account and not
with any present intention of selling or otherwise distributing the stock. These
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise of the option
has been registered under a then currently effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws.
G. An option shall terminate three (3) months after termination of the
optionee's employment with the Company or an Affiliate, unless (i) the
termination of employment of the optionee is due to such person's permanent and
total disability, within the meaning of Section 422(c)(7) of the Code, in which
case the option may, but need not, provide that it may be exercised at any time
within one (l) year following such termination of employment; or (ii) the
optionee dies while in the employ of the Company or an Affiliate, or within not
more than three (3) months after termination of such employment, in which case
the option may, but need not, provide that it may be exercised at any time
within eighteen (18) months following the death of the optionee by the person or
persons to whom the optionee's rights under such option pass by will or by the
laws of descent and distribution; or (iii) the option by its terms specifies
either (a) that it shall terminate sooner than three (3) months after
termination of the optionee's employment, or (b) that it may be exercised more
than three (3) months after termination of the optionee's employment with the
Company or an Affiliate. This subparagraph 5(g) shall not be
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construed to extend the term of any option or to permit anyone to exercise the
option after expiration of its term, nor shall it be construed to increase the
number of shares as to which any option is exercisable from the amount
exercisable on the date of termination of the optionee's employment.
H. The option may, but need not, include a provision whereby the optionee
may elect at any time during the term of his or her employment with the Company
or any Affiliate to exercise the option as to any part or all of the shares
subject to the option prior to the stated vesting date of the option or of any
installment or installments specified in the option. Any shares so purchased
from any unvested installment or option may be subject to a repurchase right in
favor of the Company or to any other restriction the Board or the Committee
determines to be appropriate.
I. To the extent provided in the terms of an Option Agreement, an
optionee may satisfy any federal, state, or local tax withholding obligation
relating to the exercise of such option by any of the following means or by a
combination of such means: (i) tendering a cash payment, (ii) authorizing the
Company to withhold from the shares of common stock otherwise issuable to the
optionee as a result of the exercise of the option or (iii) delivering to the
Company owned and unencumbered shares of the common stock of the Company.
VI. COVENANTS OF THE COMPANY
A. During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
B. The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of
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stock upon exercise of the options granted under the Plan; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any option granted under the Plan or any stock
issued or issuable pursuant to any such option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such options
unless and until such authority is obtained.
VII. USE OF PROCEEDS FROM STOCK
Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.
VIII. MISCELLANEOUS
A. The Board or the Committee shall have the power to accelerate the time
during which an option may be exercised or the time during which an option or
any portion thereof will vest pursuant to subparagraph 5(e), notwithstanding the
provisions in the option stating the time during which it may be exercised or
the time during which it will vest.
B. Neither an optionee nor any person to whom an option is transferred
under subparagraph 5(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
C. Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the option term, upon request, such
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financial and other information regarding the Company as comprises the annual
report to the shareholders of the Company provided for in the bylaws of the
Company.
D. Nothing in the Plan or any instrument executed or option granted
pursuant thereto shall confer upon any eligible person or optionee any right to
continue in the employ of the Company or any Affiliate or shall affect the right
of the Company or any Affiliate to terminate the employment of any eligible
person or optionee with or without cause.
IX. ADJUSTMENTS UPON CHANGES IN STOCK
A. If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the type of security and maximum
number of shares subject to the Plan the maximum number of shares subject to
option that may be granted to any single person under subparagraph 3(c) and the
type of security and number of shares and price per share of stock subject to
outstanding options.
B. In the event of: (l) a dissolution or liquidation of the Company; (2)
a merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's common stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) any other capital reorganization
in which more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, then, at the sole discretion of the Board and to the extent
permitted by applicable
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law: (i) any surviving corporation shall assume any options outstanding under
the Plan or shall substitute similar options for those outstanding under the
Plan, or (ii) the time during which such options may be exercised shall be
accelerated and the option terminated if not exercised prior to such event, or
(iii) such options shall continue in full force and effect.
X. AMENDMENT OF THE PLAN
A. The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 9 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the vote of a
majority of the outstanding shares of the Company entitled to vote, or by the
written consent of the holders of the outstanding shares of the Company entitled
to vote to the extent necessary under applicable laws to obtain incentive stock
option treatment under Section 422 of the Code, within twelve (12) months before
or after the adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for options under the Plan;
(ii) Modify the requirements as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to satisfy the requirements of Section 422 of the Code or Rule
16b-3 ; or
(iii) Otherwise modify the Plan to the extent such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or Rule 16b-3.
B The Board may, in its discretion, submit any other amendment to the
Plan for stockholder approval.
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C. Rights and obligations under any option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom the option was granted.
11. TERMINATION OR SUSPENSION OF THE PLAN
A. The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on December 31, 2005. No options may be
granted under the Plan while the Plan is suspended or after it is terminated.
B. Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
12. EFFECTIVE DATE OF PLAN
The Plan shall become effective as determined by the Board, but no options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the vote or written consent of the holders of a majority of the
outstanding shares of the Company entitled to vote.
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EXHIBIT 10.3
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VERIFONE, INC.
AMENDED AND RESTATED
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Adopted by the Board of Directors on November 16, 1992
Approved by the Stockholders on April 22, 1993
Amended by the Board of Directors on October 19, 1995
Approved by the Stockholders on May 10, 1996
1. PURPOSE.
(a) The purpose of the 1992 Non-Employee Directors' Stock Option Plan (the
"Plan") is to provide a means by which each director of VeriFone, Inc., a
Delaware corporation (the "Company"), who is not otherwise an employee of the
Company or of any Affiliate of the Company (each such person being hereafter
referred to as a "Non-Employee Director") will be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation
or subsidiary corporation of the Company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the options issued under the Plan not be
incentive stock options as that term is used in Section 422 of the Code.
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2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To construe and interpret the Plan and options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any option agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(2) To amend the Plan as provided in paragraph 11.
(3) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than three (3) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
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3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Plan shall not exceed in the aggregate four hundred ninety thousand
(490,000) shares of the Company's Common Stock. If any option granted under the
Plan shall for any reason expire or otherwise terminate without having been
exercised in full, the stock not purchased under such option shall revert to and
again become available for issuance pursuant to exercises of options granted
under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is, on the date of approval of the Plan by the Board
(the "Adoption Date"), a Non-Employee Director of the Company shall, upon the
Adoption Date and upon each third anniversary date thereafter (each, a "Grant
Date"), be granted an option to purchase twenty thousand (20,000) shares of
Common Stock of the Company pursuant to the terms and conditions set forth
herein.
(b) Each person who is, after the Adoption Date, elected for the first
time to be a Non-Employee Director of the Company shall, upon the date of his or
her initial election to be a Non-Employee Director by the Board or stockholders
of the Company and upon each third anniversary of such date thereafter (each, a
"Grant Date"), be granted an option to purchase
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twenty thousand (20,000) shares of Common Stock of the Company on the terms and
conditions set forth herein.
(c) Each person who, having previously been a Director who is not a
Non-Employee Director, becomes a Non-Employee Director of the Company shall,
upon the date he or she becomes a Non-Employee Director and upon each third
anniversary of such date thereafter (a "Grant Date"), be granted an option to
purchase twenty thousand (20,000) shares of Common Stock of the Company on the
terms and conditions set forth herein.
6. OPTION PROVISIONS.
Each option shall contain the following terms and conditions:
(a) No option shall be exercisable after the expiration of ten (10) years
from the date it was granted.
(b) The exercise price of each option shall be one hundred percent (100%)
of the fair market value on the Grant Date of the stock subject to such option.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either
(1) in cash at the time the option is exercised, or (2) by delivery to the
Company of shares of the Company's Common Stock that have been held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at the fair market value on the date of exercise, or (3) by a
combination of such methods of payment.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or by his or her
guardian or legal representative.
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(e) An option shall vest with respect to each optionee in thirty-six (36)
equal monthly installments commencing on the date one month after the Grant Date
of the option, provided that the optionee has, during the entire period prior to
such vesting date, continuously served as a Non-Employee Director or as an
employee of or consultant to the Company or any Affiliate of the Company,
whereupon such option shall become fully exercisable in accordance with its
terms with respect to that portion of the shares represented by that
installment.
(f) The Company may require any optionee, or any person to whom an option
is transferred under subparagraph 6(d), as a condition of exercising any such
option: (1) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters and/or to
employ a purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the option; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the option for such person's own account and not
with any present intention of selling or otherwise distributing the stock.
These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise of the
option has been registered under a then-currently-effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or (ii), as to any particular requirement, a determination is made by counsel
for the Company that such requirement need not be met in the circumstances under
the then-applicable securities laws.
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(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.
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9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any
Non-Employee Director with or without cause.
(c) No Non-Employee Director, individually or as a member of a group, and
no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of Common Stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(d) In connection with each option made pursuant to the Plan, it shall be
a condition precedent to the Company's obligation to issue or transfer shares to
a Non-Employee Director, or an affiliate of such Non-Employee Director, or to
evidence the removal of any restrictions on transfer, that such Non-Employee
Director make arrangements satisfactory to the Company to insure that the amount
of any federal or other withholding tax required to be withheld with respect to
such sale or transfer, or such removal or lapse, is made available to the
Company for timely payment of such tax.
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10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the type of security and maximum
number of shares subject to the Plan and the type of security and number of
shares and price per share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, (i) the time during which such
options may be exercised shall be accelerated to immediately prior to such event
and (ii) either (A) any surviving corporation shall assume any options
outstanding under the Plan or shall substitute similar options for those
outstanding under the Plan, or (B) the options shall be terminated if not
exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than once every
six months, with respect
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to the provisions of the plan which relate to the amount, price and timing of
grants, other than to comport with changes in the Code, the Employee Retirement
Income Security Act, or the rules thereunder. Except as provided in paragraph
10 relating to adjustments upon changes in stock, no amendment shall be
effective unless approved by the stockholders of the Company within twelve (12)
months before or after the adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for options under the
Plan;
(2) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires stockholder approval in order
for the Plan to comply with the requirements of Rule 16b-3 promulgated under the
Exchange Act); or
(3) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to comply with the requirements of
Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by such amendment of the Plan
unless (i) the Company requests the consent of the person to whom the option was
granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on November 15, 2002. No options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
87
<PAGE>
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, but no options granted under the Plan or any amendment thereto shall
be exercised or exercisable until the Plan or such amendment is approved by the
stockholders of the Company in accordance with applicable law.
88
<PAGE>
EXHIBIT 10.4
89
<PAGE>
VERIFONE, INC.
1996 RESTRICTED PHANTOM STOCK PLAN
1. PURPOSE.
To attract and maintain key employees who are and will be providing
services to the Company, the Company desires to establish a compensatory plan
for grants of restricted phantom stock in which participants will have the
opportunity to receive cash incentive compensation based on the value of the
Company's common stock.
2. DEFINITIONS.
The following words and phrases as used herein shall have the following
meanings, unless a different meaning is plainly required by the context:
(A) "CHANGE IN CONTROL" means: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged.
(B) "COMPANY" means VeriFone, Inc.
(C) "COMPENSATION COMMITTEE" means the Compensation Committee of the Board
of Directors of the Company.
(D) "COMMON STOCK" means the Company's shares of common stock.
(E) "EMPLOYEE" means any person employed by the Company and its
subsidiaries.
(F) "PARTICIPANT" means an Employee who has received a Restricted Phantom
Grant.
(G) "PLAN" means this 1996 Restricted Phantom Stock Plan.
(H) "REDEMPTION VALUE PER SHARE" means the closing sales price for a share
of common stock (or the mean between the closing bid and asked prices, if no
sales were reported) on the New York Stock Exchange on the last trading day
prior to the applicable redemption date, as reported in THE WALL STREET JOURNAL
or such other source as the Company deems reliable or, if greater, the average
of such mean prices over the 90 calendar days preceding the applicable
redemption date.
90
<PAGE>
(I) "RESTRICTED PHANTOM STOCK AGREEMENT" means an agreement evidencing the
terms of a Restricted Phantom Stock Grant under the Plan.
(J) "RESTRICTED PHANTOM STOCK GRANT" means a grant of Shares of Restricted
Phantom Stock under the Plan.
(K) "SHARE OF RESTRICTED PHANTOM STOCK" means a single unit of value based
on the value of a share of Common Stock, which is equal in value to the
Redemption Value Per Share and which cannot be redeemed prior to completion of
vesting and redemption conditions set forth in a Restricted Phantom Stock
Agreement.
3. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee. Subject to
the provisions of the Plan, the Compensation Committee shall have exclusive
power to select the Employees to receive Restricted Phantom Stock Grants, to
determine the number of Shares of Restricted Phantom Stock subject to each
Restricted Phantom Stock Grant, the time or times of Restricted Phantom Stock
Grants, and the vesting and redemption conditions of Restricted Phantom Stock
Grants. In addition, the Compensation Committee shall have authority to
interpret the Plan, establish and revise rules and regulations relating to the
Plan and make any other determination in connection with the administration of
the Plan. All decisions and determinations by the Compensation Committee and
any action taken by it in respect of the Plan and within the powers granted to
it herein shall be conclusive and binding on all persons', including
Participants', interests.
4. ELIGIBILITY AND AWARD OF RESTRICTED PHANTOM STOCK GRANTS.
All Employees shall be eligible for Restricted Phantom Stock Grants.
Restricted Phantom Stock Grants shall be credited to a bookkeeping account to be
maintained for the Employee receiving the grant. An Employee may receive more
than one Restricted Phantom Stock Grant under the Plan.
5. VESTING OF RESTRICTED PHANTOM STOCK GRANTS.
The Compensation Committee shall determine the manner in which Shares of
Restricted Phantom Stock subject to each Restricted Phantom Stock Grant shall
become vested (i.e., become redeemable). The vesting provisions of individual
Restricted Phantom Stock Grants may vary. The Compensation Committee may
determine to accelerate the vesting date(s) for an outstanding Restricted
Phantom Stock Grant.
6. REDEMPTION OF RESTRICTED PHANTOM STOCK GRANTS.
Awards under the Plan shall be in the form of Restricted Phantom Stock
Grants, which will entitle the holder to receive a cash payment from the Company
upon redemption in an
91
<PAGE>
amount equal to the Redemption Value Per Share on the redemption date
established under the Participant's Restricted Phantom Stock Agreement,
multiplied by the number of Shares of Restricted Phantom Stock redeemed, less
applicable withholding taxes and authorized payroll deductions. Notwithstanding
the foregoing, a Restricted Phantom Stock Grant may provide, with approval of
the Compensation Committee, that payments in redemption of Shares of Restricted
Phantom Stock may be made in the form of Common Stock, provided that: (i) such
provision does not impair the ability of other Restricted Phantom Stock Grants
under the Plan to qualify for the exemption from the definition of "derivative
security" set forth in Rule 16(a)-1(c)(3)(ii) under the Securities Exchange Act
of 1934 ("Rule 16(a)-1(c)(3)(ii)"); and (ii) the Compensation Committee
determines that it is not desirable for the Restricted Phantom Stock Grant with
this provision to qualify for the exemption of Rule 16(a)-1(c)(3)(ii).
The Company will treat any cash payments due upon redemption of Shares of
Restricted Phantom Stock in the same manner as other cash compensation for
services rendered by the Participant to the Company for purposes of applicable
law, including applicable tax and labor laws. Payments due upon redemption of
Shares of Restricted Phantom Stock will be paid to the Participant by the
Company as soon as administratively reasonably practicable following the
redemption date.
7. NONASSIGNABILITY OF RESTRICTED PHANTOM STOCK GRANTS.
No Restricted Phantom Stock Grant under the Plan shall be assignable or
transferable in any manner by a Participant. During the lifetime of a
Participant, Restricted Phantom Stock Grants held by such Participant shall be
redeemed only by such Participant or his or her guardian or legal
representative. To the extent provided in a Restricted Phantom Stock Agreement,
a Participant may designate a beneficiary who may redeem the Participant's
Restricted Phantom Stock Grants following the Participant's death.
8. ADJUSTMENTS UPON CHANGES IN STOCK.
(A) If any change is made in the capital structure of the Company in a
transaction not involving the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, stock dividend,
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or
otherwise), the Plan and the Shares of Restricted Phantom Stock subject to
outstanding Restricted Phantom Stock Grants will be appropriately adjusted in
class, number and value. The issuance of equity securities of the Company in
order to raise additional financial capital shall not be treated as a change
which shall trigger the adjustments provided for under this subsection 8(A).
(B) In the event of a Change in Control, (i) any surviving corporation
shall assume any Restricted Phantom Stock Grants outstanding under the Plan or
shall substitute similar rights for those outstanding under the Plan, or (ii)
such Restricted Phantom Stock Grants shall continue in full force and effect.
In the event any surviving corporation refuses to assume such Restricted Phantom
Stock Grants, or to substitute similar rights for those outstanding under the
92
<PAGE>
Plan, then such Restricted Phantom Stock Grants shall become immediately
redeemable prior to such event and shall be terminated if not redeemed at or
prior to the occurrence of such event.
9. MISCELLANEOUS PROVISIONS.
(A) No Employee or other person shall have any claim or right to
Restricted Phantom Stock Grants under the Plan. The Plan shall not confer upon
any Employee or Participant any right with respect to continuation of employment
by the Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment at any time.
(B) The Compensation Committee may cancel Restricted Phantom Stock Grants
with the written consent of the Participant who holds such Restricted Phantom
Stock Grants, and, upon any such cancellation, all rights of Participant in
respect of such canceled Restricted Phantom Stock Grants shall terminate and
such canceled Restricted Phantom Stock Grants shall be available for further
grant under the Plan. In addition, the Compensation Committee may modify, amend
or terminate the Plan at any time, and amend the terms of one or more Restricted
Phantom Stock Grants at any time, except that no such action shall impair any
rights or obligations theretofore granted under the Plan without the holder's
written consent.
(C) The Plan shall not be funded, the Company shall not be required to
segregate any funds representing the value of Restricted Phantom Stock Grants,
and nothing in the Plan shall be construed as providing for such segregation. A
Participant's rights to amounts received upon the redemption of Restricted
Phantom Stock Grants under the Plan shall be those of an unsecured general
creditor of the Company. The liability for payment upon the redemption of a
Restricted Phantom Stock Grant is a liability of the Company alone and is not a
liability of any officer, director, shareholder, or affiliate of the Company.
(D) No Participant or successor in interest shall be deemed to be a
shareholder of the Company or have any right to receive any securities of the
Company by virtue of having received a Restricted Phantom Stock Grant.
10. EFFECTIVE DATE.
The Plan shall be effective on the date approved by the Compensation
Committee.
93
<PAGE>
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31
1996 1995 1994
----------------------------------
(In thousands, except per share data)
Primary
Average shares outstanding 24,823 24,048 24,277
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 914 495 319
------- ------- -------
Total 25,737 24,543 24,596
------- ------- -------
------- ------- -------
Net Income $39,264 $32,505 $28,110
------- ------- -------
------- ------- -------
Per share amount $ 1.53 $ 1.32 $ 1.14
------- ------- -------
------- ------- -------
Fully Diluted
Average shares outstanding 24,823 24,048 24,277
Net effect of dilutive stock options--
based on the treasury stock method
using the year-end market price, if
higher than average market price 967 549 320
------- ------- -------
Total 25,790 24,597 24,597
------- ------- -------
------- ------- -------
Net Income $39,264 $32,505 $28,110
------- ------- -------
------- ------- -------
Per share amount $ 1.52 $ 1.32 $ 1.14
------- ------- -------
------- ------- -------
94
<PAGE>
EXHIBIT 13.1
1996 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
WE MOVE MONEY: DELIVERING A WORLD OF ELECTRONIC PAYMENT
[SEAL]
VERIFONE 1996 ANNUAL REPORT
[LOGO] VERIFONE
<PAGE>
VeriFone provides hardware and software systems that enable secure electronic
payment among consumers, merchants and financial institutions. As the leader in
electronic payment systems for the merchant countertop, we support the broadest
range of applications in the industry. Our products access all the principal
payment networks. And we have formed strong relationships with major banks, card
issuers, transaction processors, technology companies and value-added resellers.
Our comprehensive product line includes credit, debit and smart card
payment systems; application, network and communications software; and
Internet commerce products. In addition, we offer the most comprehensive
customer service in our industry, as well as product financing and consulting
services. VeriFone solutions are being used by retail merchants, healthcare
providers, government agencies, restaurants, service stations, convenience
stores, Internet merchants, transaction processors and consumers.
VeriFone's strategy is to continue to pursue market opportunities on a
global scale. In addition to automating traditional merchant point-of-sale
applications worldwide, we are driving developments in the rapidly evolving
consumer systems and Internet commerce markets.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OTHER DATA
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND EMPLOYEES) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $472,460 $387,016 $316,108 $264,227 $228,928
Operating income 53,517 41,737 37,469 30,409 31,409
Net income 39,264 32,505 28,110 21,946 24,439
Earnings per share 1.53 1.32 1.14 0.88 0.99
Working capital 145,239 210,999 182,229 167,555 154,503
Total assets 404,980 379,516 330,552 292,505 241,153
Global employees 2,850 2,471 1,932 1,750 1,562
</TABLE>
Annual Net Revenues
- -----------------------------------
[GRAPH]
Annual Net Income
- -----------------------------------
[GRAPH]
R&D Expenditure
- -----------------------------------
[GRAPH]
Earning Per Share
- -----------------------------------
[GRAPH]
<PAGE>
TO OUR STOCKHOLDERS
WHEN I TALK ABOUT VERIFONE--to our customers, stockholders or employees--I often
like to begin by underscoring what it is we do, and in our view do better than
anyone else. VeriFone develops, markets and supports the hardware and software
systems that enable electronic payment, on a global scale, among consumers,
merchants and financial institutions. To describe our business in a phrase--WE
MOVE MONEY.
Nineteen ninety-six was a significant year for VeriFone, as we delivered
solid operating results, made substantial investments in opportunities for
future growth, and overall, strengthened our position as the leading provider
of end-to-end electronic payment systems.
These are very exciting times for the Company. The nature of electronic
payment is expanding rapidly, with emerging technologies creating new
opportunities in markets like Internet and consumer systems. As the global
leader in electronic payment systems, we are in a unique position to leverage
our competencies, our customer and technology partner relationships, and our
resources in pursuit of these opportunities.
NEW MARKETS, PRODUCTS AND SERVICES
Many of you have probably tracked our progress in the world of Internet
commerce, because that is where so much industry attention has been focused.
After almost two years in this fast-moving market, we have concluded that, while
the growth of Internet commerce may not be an overnight phenomenon, the market
potential is truly vast.
We believe that we are well positioned for success in the Internet
commerce market. I am proud to say that we are on schedule in accomplishing
our mission of deploying secure payment solutions to enable commerce on the
World Wide Web. In 1996 we unveiled the first Internet payment product suite,
including our vGATE and vPOS software, that allows the use of the
MasterCard/Visa Secure Electronic Transaction (SET) protocol between the
merchant and the financial institution. SET is expected to become the
industry standard for handling secure Internet credit card transactions. Just
as we made "Slide and Go" credit and debit card transactions fast, secure and
easy, we are aiming to make "Click and Go" secure Internet transactions a
standard payment solution.
To facilitate our progress in this new market, we have entered into
strategic relationships with several key Internet technology providers, such
as Hewlett Packard, Microsoft, Netscape and Oracle. For example, our vPOS
Internet payment solution is currently embedded in the new Microsoft Merchant
Server for Internet retailing. The list of customers that have selected our
vPOS and vGATE software for their Internet commerce strategies is impressive
as well--and includes Bank of America, First USA Paymentech, Royal Bank of
Canada, Sumitomo Credit and Wells Fargo Bank.
Last year our focus on the consumer market also sharpened. We announced plans
to develop our new VeriSmart system, which will be the first software-centric
smart card solution that is independent of particular card programs and hardware
devices. Combining smart card technology with client/server software and
consumer applications, VeriSmart is being designed to link consumers to their
banks, telephones, utility companies, merchants and other personal services.
Through our VeriFone Personal ATM, telephones, TV set-top boxes, PCs and other
devices, consumers will be able to access multiple stored value card schemes,
shopper-loyalty programs, information services and healthcare applications.
In addition, we made substantial progress last year in the development and
deployment of our Omnihost software, which is a client/server solution for
transaction processing. Our financial institution customers, who have looked to
us for traditional merchant point-of-sale (POS) solutions, are starting to
migrate their legacy back-end systems to more modern technology, such as
Omnihost software, which is now being deployed worldwide. A significant
development in this area was the global agreement that we entered into last year
with Hewlett Packard to jointly market our Omnihost software as an application
running on the HP 9000 family of enterprise servers. The agreement calls for
collaborative activities in other areas, including Internet commerce and smart
card applications.
TWO
<PAGE>
Our continued metamorphosis into a complete hardware, software and services
company led to the creation last year of our Centum Consulting group, which
advises customers on a range of electronic payment strategies and alternatives,
and our Professional Services group, which helps design, build, support and
manage electronic payment solutions for our customers. These organizations
complement the extensive customer service offered through VeriFone Support
Services as well as the leasing, rental and equipment management programs
offered through VeriFone finance.
CONTINUED PROFITABILITY
While pursuing new markets, products and services, we have not lost sight of the
necessity of delivering solid revenues and profits from our traditional
business. Our business remained strong last year, as we shipped our 5 millionth
system, established our 100th country market and maintained our profitability.
Net revenues for the full year 1996 rose 22.1 percent to $472.5 million,
compared with net revenues of $387.0 million in 1995. Income from operations
grew 28.2 percent to $53.5 million in 1996, compared with $41.7 million a year
ago. Net income increased 20.8 percent to $39.3 million, or $1.53 per share,
compared with $32.5 million, or $1.32 per share in 1995.
Our growth last year continued to be global in nature. Our U.S. revenues
increased by 16.9 percent year-over-year, and our international revenues
increased by 31.1 percent year-over-year. Consistent with these results, the
portion of our revenues generated from countries outside the U.S. increased to
39.1 percent last year.
FOCUS ON STOCKHOLDER VALUE
Underscoring our confidence in the fundamentals of our business, we repurchased
2.5 million shares of outstanding Common Stock for $100.0 million in open market
transactions last year. We also adopted economic value-added (EVA) principles of
financial measurement, which focus on the efficient management of capital.
Through EVA, we will strive to further improve the overall strength of our
balance sheet.
As managers, our ultimate responsibility is to maximize stockholder value.
Our strategy of building businesses in varied markets--horizontal, vertical and
geographic--has allowed us to deliver solid operating results. These results, in
turn, have allowed us to make significant investments in new opportunities--like
the ones mentioned above--that provide the foundation for our future growth. It
is through this dual focus on current operating results and long-term
opportunities that we intend to carry out our responsibility to the Company's
stockholders.
LOOKING TO THE FUTURE
We look forward to the challenges that lie ahead in the rapidly changing world
of electronic payment. I would like to extend my personal thanks to our
stockholders and our customers for the major role you have played in our success
throughout this exciting and productive year. I would also like to thank our
employees, whose commitment to excellence has made VeriFone the leading company
it is today.
/s/ Hatim A. Tyabji
Hatim A. Tyabji
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
This letter contains forward-looking statements concerning the Company's
performance and plans. Important factors to consider in this regard are
discussed on pages 15 to 17 of this annual report.
THREE
<PAGE>
Page four - Foreign language letter
<PAGE>
Page five - Foreign language letter
<PAGE>
Page six - Foreign language letter
<PAGE>
Page seven - Foreign language letter
<PAGE>
Page eight - Foreign language letter
<PAGE>
Page nine - Foreign language letter
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Statements of Income Data:
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $472,460 $387,016 $316,108 $264,227 $228,928
Costs and expenses:
Cost of revenues 256,250 202,356 160,776 129,644 109,576
Research and development 53,434 45,036 38,442 33,546 28,322
Selling, general and administrative 109,259 97,887 79,421 70,628 59,621
---------------------------------------------------------------------
Total costs and expenses 418,943 345,279 278,639 233,818 197,519
---------------------------------------------------------------------
Income from operations 53,517 41,737 37,469 30,409 31,409
Interest income and other, net 1,785 4,045 2,712 2,610 2,344
Minority interest in consolidated
subsidiary -- -- (615) (2,082) --
---------------------------------------------------------------------
Income before income taxes 55,302 45,782 39,566 30,937 33,753
Provision for income taxes 16,038 13,277 11,456 8,991 9,314
---------------------------------------------------------------------
Net Income $ 39,264 $ 32,505 $ 28,110 $ 21,946 $ 24,439
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income per share $ 1.53 $ 1.32 $ 1.14 $ 0.88 $ 0.99
---------------------------------------------------------------------
---------------------------------------------------------------------
Common and common equivalent shares
used in computing per share amounts 25,737 24,543 24,596 24,875 24,606
---------------------------------------------------------------------
---------------------------------------------------------------------
Consolidated Balance Sheet Data:
Working capital $145,239 $210,999 $182,229 $ 167,555 $154,503
Total assets 404,980 379,516 330,552 292,505 241,153
Long-term debt and obligations under
capital leases--non-current portion 517 2,205 7,515 12,180 2,216
Stockholders' equity 239,566 264,385 218,372 195,177 174,092
</TABLE>
TEN
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
All references herein to the "Company" mean VeriFone, Inc. and its consolidated
subsidiaries.
In November 1995, the Company merged with Enterprise Integration Technologies
Corporation ("EIT") and TimeCorp Systems, Inc. ("TimeCorp"). The mergers have
been accounted for as poolings of interest, and accordingly, the financial
results for all periods have been restated to include the results of EIT and
TimeCorp.
Forward-looking statements in this Management's Discussion and Analysis--
including statements regarding international markets; gross margins; research
and development expenses; selling, general and administrative expenses;
liquidity and cash needs; and the Company's plans and strategies--are all based
on current expectations, and the Company assumes no obligation to update this
information. Numerous factors could cause actual results to differ from those
described in the forward-looking statements, including the factors set forth
below under the heading "Factors That May Affect Future Results and the Market
Price of the Company's Stock" (which are also discussed in the Company's Annual
Report on Form 10-K for 1996). The Company cautions investors that its business
is subject to significant risks and uncertainties.
The following table sets forth, for the fiscal years indicated, selected
operational data as a percentage of net revenues:
YEARS ENDED DECEMBER 31,
--------------------------------------
(PERCENTAGES MAY NOT TOTAL DUE TO ROUNDING) 1996 1995 1994
- ------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues 54.2 52.3 50.9
Research and development 11.3 11.6 12.2
Selling, general and administrative 23.1 25.3 25.1
------------------------------
Total costs and expenses 88.7 89.2 88.1
------------------------------
Income from operations 11.3 10.8 11.9
Interest income and other, net 0.4 1.0 0.9
Minority interest in consolidated subsidiary 0.0 0.0 (0.2)
------------------------------
Income before income taxes 11.7 11.8 12.5
Provision for income taxes 3.4 3.4 3.6
------------------------------
Net income 8.3% 8.4% 8.9%
------------------------------
------------------------------
The Company's net revenues were $472.5 million in 1996, $387.0 million in 1995
and $316.1 million in 1994, reflecting growth of 22.1% from 1995 to 1996 and
22.4% from 1994 to 1995.
UNITED STATES OPERATIONS--The following table sets forth, by market, revenues
from sales in the United States and the percentage change year-over-year for the
fiscal years indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
REVENUES PERCENTAGE CHANGE
(IN MILLIONS) (FROM PRIOR YEAR)
MARKET 1996 1995 1994 1996 1995
- ------------------------------------------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Financial retail $187.4 $171.3 $156.4 9.4% 9.5%
Petroleum/convenience store 43.3 29.8 21.0 45.3 41.9
Multi-lane retail* 39.8 34.5 30.2 15.4 14.2
Healthcare/government 12.6 11.1 8.0 13.5 38.8
Other 4.4 (0.7) 0.4 -- --
--------------------------------- -------------------
United States net revenues $287.5 $246.0 $216.0 16.9% 13.9%
--------------------------------- -------------------
--------------------------------- -------------------
</TABLE>
* THE MULTI-LANE FIGURES ABOVE HAVE BEEN RESTATED YEAR-TO-DATE TO REFLECT THE
COMBINATION OF MULTI-LANE RETAIL AND LABOR MANAGEMENT SYSTEMS.
ELEVEN
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The increase in revenues from sales in the United States during 1996 and 1995
was due primarily to increased sales in the financial retail market,
petroleum/convenience-store market and multi-lane market.
Revenue from the financial retail market increased in 1996 and 1995, although
it declined as a percentage of total United States revenues, accounting for
65.2% of total United States revenues in 1996, compared with 69.6% in 1995 and
72.4% in 1994. Revenue growth (in absolute dollars) in the financial retail
market in 1996 and 1995 was due primarily to continued acceptance of credit and
debit card transaction systems.
Revenue growth in the petroleum/convenience-store market in 1996 and 1995
was due primarily to demand for the integrated Ruby SuperSystem-Registered
Trademark- and OMNI-Registered Trademark- 490 terminals sold to major oil
companies and OEM resellers, and sold via distributors--which resell products
to petroleum/convenience-store dealers and jobbers.
Revenue growth in the multi-lane market in 1996 and 1995 reflected revenues
from both the multi-lane retail and labor management markets. Revenue from the
multi-lane retail market was $28.5 million in 1996, $27.6 million in 1995 and
$21.6 million in 1994. Revenue from labor management systems was $11.3 million
in 1996, $6.9 million in 1995 and $8.6 million in 1994.
Revenue from the healthcare and government market was relatively stable in
1996 after growth in 1995. In 1995, revenue growth from the
government/healthcare market was due primarily to increased shipments to various
states for food stamp programs, fish and game licensing programs, and Medicaid
patient eligibility verification programs.
INTERNATIONAL OPERATIONS--The following table sets forth, by geographic region,
revenues from sales outside the United States, and the percentage change year-
over-year for the fiscal years indicated:
<TABLE>
<CAPTION>
REVENUES PERCENTAGE CHANGE
(IN MILLIONS) (FROM PRIOR YEAR)
---------------------------------- -------------------
GEOGRAPHIC REGION 1996 1995 1994 1996 1995
- ------------------------------------------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Asia-Pacific $ 64.4 $ 40.9 $ 22.7 57.5% 80.2%
Europe, Middle East and Africa 69.1 57.0 47.4 21.2 20.3
Americas 51.5 43.1 30.0 19.5 43.7
----------------------------------- ---------------------
International net revenues $185.0 $141.0 $100.1 31.2% 40.9%
----------------------------------- ---------------------
----------------------------------- ---------------------
</TABLE>
The increase in revenues from sales outside the United States during 1996 and
1995 was driven primarily by worldwide demand for electronic payments, the
expansion of chip-card opportunities outside the United States, and the
continued development of new country markets. International sales represented
39.1%, 36.4% and 31.7% of the Company's net revenues in 1996, 1995 and 1994,
respectively.
Growth in international sales during 1996 and 1995 occurred in all geographic
regions. International revenue growth during 1996 was due in significant part to
shipments to Australia, the People's Republic of China, Japan, Spain and Canada.
In contrast, Mexico, Germany and Italy had lower shipments in 1996.
International revenue growth during 1995 was due in significant part to
shipments to the People's Republic of China, Mexico, Italy, Canada and Japan. In
contrast, Saudi Arabia, Korea and Brazil had lower shipments in 1995.
The Company plans to continue to expand its global infrastructure with the
aim of increasing market share in established country markets, as well as
opening new country markets. Achievement of these plans is subject to various
risks, including local economic conditions, as discussed below under "Factors
That May Affect Future Results and the Market Price of the Company's Stock."
International growth has increased the Company's exposure to the effects of
foreign currency fluctuations. The Company engages in a foreign currency
management program that is intended to minimize the effects of these
fluctuations. This program includes the use of foreign exchange contracts to
hedge its intercompany balances. The gains and losses on these contracts were
immaterial as the majority of the Company's sales are denominated in United
States dollars.
TWELVE
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
PRODUCT ANALYSIS--The following table sets forth, by product type, net revenues
and the percentage change year-over-year for the fiscal years indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
REVENUES PERCENTAGE CHANGE
(IN MILLIONS) (FROM PRIOR YEAR)
--------------------------------- --------------------
PRODUCT TYPE 1996 1995 1994 1996 1995
- ------------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Basic terminals $ 13.7 $ 15.9 $ 17.6 (13.8)% (9.7)%
High-functionality terminals 201.0 164.9 136.6 21.9 20.7
Fully integrated systems 44.1 27.4 23.3 60.9 17.6
Printers and PIN pads 123.9 122.7 98.8 1.0 24.2
Smart card systems 18.6 8.5 1.1 118.8 672.7
Other* 71.2 47.6 38.7 49.6 23.0
---------------------------------- --------------------
$472.5 $387.0 $316.1 22.1% 22.4%
---------------------------------- --------------------
---------------------------------- --------------------
</TABLE>
* "OTHER" INCLUDES CERTAIN SOFTWARE, SERVICES, LEASING, ACCESSORIES AND OTHER
REVENUE.
The increase in net revenues in 1996 and 1995 was due, in part, to a shift in
product mix from basic terminals to high-functionality systems (such as
TRANZ-Registered Trademark- 330 and TRANZ 460 products), fully integrated
systems (such as OMNI 490 and the Ruby SuperSystem), and smart card systems
(such as SC-TM- 552 and SC 542 Smart Card Reader/Writers). The increase in
other revenues in 1996 and 1995 was due to several factors, including growth
in software revenue and VeriFone Finance's recurring revenue stream
(consisting primarily of revenue related to sales-type lease arrangements and
term and month-to-month rental programs).
GROSS MARGINS (NET REVENUES LESS COST OF REVENUES)--Gross margins were 45.8%,
47.7% and 49.1% in 1996, 1995 and 1994, respectively. The decrease in gross
margins was due in part to a higher proportion of sales to international
markets, which typically have lower gross margins. The decrease was also due to
other factors, including general competitive pricing pressures and shifts in the
Company's overall business and product mix.
The Company currently expects its gross margins to continue to be affected by
changes in business segment mix, product mix, competition and other factors, as
discussed below under "Factors That May Affect Future Results and the Market
Price of the Company's Stock."
R&D EXPENSES--Research and development expenses increased 18.6% in 1996 and
17.2% in 1995. R&D expenses, as a percentage of net revenues, decreased to 11.3%
in 1996, compared with 11.6% in 1995 and 12.2% in 1994. The increase in R&D
expenses in 1996 and 1995 was due, in part, to the development of software
applications for new markets (including the Internet and labor management
markets), the development of new software applications for existing markets and
the development of new system platforms. The Company currently expects that, in
the long term, R&D expenses will continue to increase in absolute dollars but
may decline as a percentage of net revenues.
SG&A EXPENSES--Selling, general and administrative (SG&A) expenses increased
11.6% in 1996 and 23.3% in 1995. As a percentage of net revenues, SG&A expenses
were 23.1%, compared with 25.3% in 1995 and 25.1% in 1994. The increase in SG&A
expenses during 1996 and 1995 was due primarily to the expansion of the
Company's domestic and international sales and support forces, increased
spending for marketing and sales programs to support new and existing products,
and the development of additional international markets. In addition, in 1995,
the Company incurred a $1.4 million, before tax, one-time charge related to the
acquisition of EIT and TimeCorp.
The Company currently expects to make additional investments in sales and
marketing to further develop established international markets, introduce
products to new international markets, and to develop additional vertical
markets and distribution channels on a global basis. (Achievement of these plans
is subject to various risks, as discussed below under "Factors That May Affect
Future Results and the Market Price of the Company's Stock.") The Company
currently expects that, in the long term, SG&A expenses will continue to
increase in absolute dollars but may decline as a percentage of net revenues.
THIRTEEN
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
INTEREST INCOME AND OTHER, NET--Interest income and other, net, was $1.8 million
in 1996, compared with $4.0 million in 1995 and $2.7 million in 1994. The
decrease in interest income and other, net, in 1996 was due primarily to lower
investment balances as a result of the repurchase of treasury shares. The
increase in interest income and other, net, in 1995 was due primarily to the
sale of a portion of EIT's interest in Terisa Systems for a net gain of $2.5
million. This gain is partially offset by a reduction in interest income
resulting from a decline in investment balances.
TAX RATE--The Company's combined federal, state and foreign effective income tax
rate was 29% for 1996, 1995 and 1994. The combined tax rate differs from the
federal statutory rate primarily because the Company does not provide for United
States federal income taxes on the undistributed earnings of its foreign
subsidiaries, which the Company intends to permanently reinvest in those
operations.
NET INCOME--Net income increased 20.8% during 1996 and 15.6% during 1995.
Earnings per share were $1.53 in 1996, $1.32 in 1995 and $1.14 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments at December 31, 1996
decreased to $47.9 million from $82.8 million at December 31, 1995. The
Company experienced positive cash flow from operations of $64.1 million
during 1996 as a result of net income, a decrease in inventory, an increase
in trade payables and other accrued liabilities, and depreciation and
amortization. The Company used $35.5 million for investing in 1996 as a
result of the purchase of fixed assets for operations and the construction of
the new manufacturing facility in Kunshan, People's Republic of China. The
Company used $54.1 million for financing activities during 1996, which
included the repurchase of shares partially offset by proceeds from issuance
of shares.
During 1996, the Company repurchased 2,495,500 shares of outstanding Common
Stock in the open market for an aggregate purchase price of $100.0 million.
The Company's Board of Directors has authorized the Company to repurchase
during the first quarter of 1997 up to 200,000 shares of outstanding Common
Stock in the open market for an aggregate purchase price of up to $9.0 million.
At December 31, 1996, the Company's principal sources of liquidity included
$47.9 million in cash, cash equivalents and short-term investments; $30.0
million available under an unsecured United States currency bank line of credit,
expiring in April 1997; $17.0 million available under an unsecured foreign
currency bank line of credit, expiring in May 1997; and $3.0 million available
under an unsecured foreign currency bank line of credit, expiring in January
1998. At December 31, 1996, $20.0 million was outstanding under the $30.0
million line of credit, $15.7 million was outstanding under the $17.0 million
line of credit, and $1.2 million was outstanding under the $3.0 million line of
credit. In connection with the activities of VeriFone Finance, the Company also
has non-recourse notes payable to a financing company due in monthly
installments, with interest rates ranging from 7.93% to 9.3%. These notes mature
at various dates through June 1998 and are secured by all rights to certain
leases, including a security interest in equipment under certain lease
agreements and future minimum lease payments. At December 31, 1996, the Company
had $1.3 million outstanding under these notes. In addition, at December 31,
1996, the Company had obligations under capital leases of $900,000.
Inventories at December 31, 1996 decreased to $59.5 million, compared with
$76.6 million at December 31, 1995. This decline was due primarily to inventory
management programs.
Net trade accounts receivable at December 31, 1996 increased to $131.2
million from $96.4 million at December 31, 1995. This increase was due, in part,
to growth in total net revenues, conditions in a number of markets resulting in
longer payment terms, and a greater percentage of international revenues which
typically have longer payment terms and cycles. Days sales outstanding were 95
days at December 31, 1996, compared with 79 days at December 31, 1995.
The Company currently expects to have significant cash needs during 1997 in
connection with various events, including the repurchase of shares, development
of new products and possible acquisitions. However, the Company currently
believes that the liquidity provided by its ongoing operations, existing
cash, cash equivalents and short-term investments, as well as the borrowing
arrangements described above (including expected renewals of and substitutes for
such arrangements), will be sufficient to meet its projected cash needs.
FOURTEEN
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
FACTORS THAT MAY AFFECT FUTURE RESULTS AND THE MARKET PRICE OF THE COMPANY'S
STOCK
The Company's operations are subject to various risks and uncertainties, many of
which are beyond the Company's control. The following highlights some of these
risks.
VARIATIONS IN QUARTERLY RESULTS--The Company's quarterly operating results are
subject to various risks and uncertainties, including risks and uncertainties
related to: local economic conditions; competitive pressures; the composition,
timing and size of orders from and shipments to major customers; variations in
product mix and the mix between leases and sales; variations in product cost;
infrastructure costs; obsolescence of inventory; and other factors as discussed
below. Accordingly, the Company's operating results may vary materially from
quarter to quarter.
The Company operates with little backlog and, as a result, net revenues in
any quarter are substantially dependent on the orders booked and shipped in that
quarter. Because the Company's operating expenses are based on anticipated
revenue levels and because a high percentage of the Company's expenses are
relatively fixed, if anticipated shipments in any quarter do not occur as
expected, the Company's operating results may be adversely affected and fall
significantly short of expectations. Any other unanticipated decline in the
growth rate of the Company's net revenues, without a corresponding and timely
reduction in the growth of operating expenses, could also have an adverse effect
on the Company and its future operating results.
The Company aims to prudently control its operating expenses. However, there
is no assurance that, in the event of any revenue, gross margin or other
shortfall in a quarter, the Company will be able to control expenses
sufficiently to meet profitability objectives for the quarter.
Compounding these risks is the fact that a substantial portion of the
Company's net revenues in each quarter generally results from shipments during
the latter part of the quarter. For this and other reasons, the Company may not
learn of shortfalls in revenues, earnings or other financial results relative to
expectations until very late in a quarter. Any such shortfall could have an
immediate and significant adverse effect on the trading price of the Company's
Common Stock.
The Company's business may be characterized as showing a pattern, in that,
historically, net revenues during the first calendar quarter of a year have
generally been less than net revenues during the fourth quarter of the preceding
year.
CHANGES IN GROSS MARGINS--Certain of the Company's net revenues are derived from
products and markets--such as international and government markets--which
typically have lower gross margins compared to other products and markets, due
to higher costs and/or lower prices associated with the lower gross margin
products and markets. The Company currently expects that its net revenues from
international markets will continue to increase as a percentage of total net
revenues, and its net revenues from government markets may increase. In
addition, the Company is currently experiencing pricing pressures due to a
number of factors, including competitive conditions and consolidation within
certain groups of customers. To the extent that these factors continue, the
Company's gross margins would decline, which would adversely affect the Company
and its future operating results.
Downward pressure on the Company's gross margins may be mitigated by other
factors, such as a reduction in product costs and/or an increased percentage of
net revenues from higher gross margin products, such as software. The Company is
aiming to reduce its product costs and to increase its percentage of net
revenues from software. However, there is no assurance that these efforts will
be successful.
NEW MARKETS AND PRODUCTS--The Company is entering new markets, including the
Internet commerce market and the consumer smart card market. At present, these
new markets are relatively small and rapidly changing, and the development of
these markets depends in significant part on the widespread adoption of new
technologies by financial institutions, merchants and consumers; the emergence
of industry standards; and other factors. There is no assurance that these
markets will develop as expected by the Company. If these markets do not develop
as expected by the Company, or the Company's strategies for these markets
are unsuccessful, or the Company fails to successfully and timely develop and
introduce products suitable for these markets, the Company and its future
operating results may be adversely affected.
The Company is developing a number of products for these new markets--
including a number of Internet commerce and consumer products. There is no
assurance that these development efforts will be successful or that, if
successfully developed, these products will achieve commercial success.
Similarly, in connection with entering these new markets, the Company has
entered into or expects to enter into relationships with a number of companies
in these markets--including Microsoft, Netscape, Oracle and others. These
relationships may not develop as expected by the Company, and thus, the
expected benefits from the relationships may not be obtained.
FIFTEEN
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
GROWTH DEPENDENCIES--In general, the Company's future growth is dependent on the
Company's ability to successfully and timely enhance existing products, develop
and introduce new products, establish new distribution channels, develop
affiliations with leading market participants in order to facilitate product
development and distribution, and certify its existing and new products with
service providers, telephone companies and others. The failure to achieve these
and other objectives could limit future growth and have an adverse effect on the
Company and its future operating results.
On a related note, the pressure to develop and enhance products, and to
establish and expand markets, may cause the Company's research and development
expenses and selling, general and administrative expenses to increase
substantially, which could also have an adverse effect on the Company and its
future operating results.
ACQUISITIONS--The Company may acquire or make substantial investments in other
businesses in the future. Any such acquisition or investment would entail
various risks, including the difficulty of assimilating the operations and
personnel of the acquired business; the potential disruption of the Company's
ongoing business; and generally, the potential inability of the Company to
obtain the desired financial and strategic benefits from the acquisition or
investment. These factors could have a material adverse effect on the Company
and its future operating results. Future acquisitions and investments by the
Company could also result in substantial cash expenditures, potentially dilutive
issuances of equity securities, the incurrence of additional debt and contingent
liabilities, and amortization expenses related to goodwill and other intangible
assets, which could adversely affect the Company and its future operating
results.
INTERNATIONAL OPERATIONS--The Company's international operations, including
international sales and manufacturing, have grown substantially, and thus,
the Company is increasingly affected by the risks associated with
international operations. Such risks include managing an organization spread
over various countries; fluctuations in currency exchange rates (as discussed
further below); the burden of complying with international laws and other
regulatory and product certification requirements, and changes in such laws
and requirements; tariffs and other trade barriers; import and export
controls; international staffing and employment issues; political and
economic instability; and longer payment cycles in certain countries. The
Company's manufacturing facilities outside the United States, which are in
Taiwan and the People's Republic of China, are subject to particular risks
relating to political developments and trade barriers. The inability to
effectively manage these and other risks could adversely affect the Company
and its future operating results.
The majority of the Company's international sales are denominated in United
States currency. An increase in the value of the United States dollar relative
to foreign currencies could make the Company's products sold internationally
less competitive. The Company has offices in a number of foreign countries, the
operating expenses of which are also subject to the effects of fluctuations in
foreign currency exchange rates. Although the Company engages in hedging
transactions that may partially offset the effects of fluctuations in foreign
currency exchange rates, financial exposure may nonetheless result primarily due
to the timing of transactions and movement of exchange rates.
COMPETITION--The various markets in which the Company operates are becoming
increasingly competitive as a number of other companies develop and sell
products that compete with the Company's products in these markets. Certain of
these competitors have significantly more financial and technical resources than
the Company. The Company faces additional competitive factors in foreign
countries, including preferences for national vendors and difficulties in
obtaining necessary certifications and in meeting the requirements of government
policies. These competitive factors may result in, among other things, price
discounts by the Company and sales lost by the Company to competitors that may
adversely affect the Company and its future operating results.
THIRD-PARTY DISTRIBUTORS--The Company uses various channels to market and
distribute its products, including direct sales to end-users and sales to end-
users via third-party distributors. Third-party distributors are a substantial
channel for distribution internationally and are increasingly becoming a
substantial channel for distribution in the United States. Accordingly, the
Company's ability to market and distribute its products depends in significant
part on its relationship with third-party distributors, as well as the
performance and financial condition of these distributors. In the event that the
Company's relationship with its distributors deteriorates, or the performance or
financial condition of the distributors becomes unsatisfactory, the Company and
its future operating results could be adversely affected.
SOLE SUPPLIERS--The Company is currently dependent on single suppliers for
certain product components, including mask-programmed microcontrollers, various
printer mechanisms, display devices and certain magnetic parts. The failure of
any such supplier to continue to provide these components to the Company could
result in significant manufacturing delays that could adversely affect the
Company and its future operating results.
SIXTEEN
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
EXCESS OR OBSOLETE INVENTORY--Managing the Company's inventory of components and
finished products is a complex task. A number of factors--including the need to
maintain a significant inventory of certain components which are in short supply
or which must be purchased in bulk to obtain favorable pricing, the general
unpredictability of demand for specific products and customer requests for quick
delivery schedules--may result in the Company maintaining excess inventory.
Other factors--including changes in market demand and technology--may cause
inventory to become obsolete. Any excess or obsolete inventory could result in
price reductions and inventory write-downs, which in turn could adversely affect
the Company and its operating results.
SECURITY FEATURES OF PRODUCTS--Most of the Company's products are used to
process payment transactions, and thus, the security features of the products
are important. In general, the Company's products are designed to comply with
industry practices relating to security in payment transactions. However, no
security feature, whether or not an industry practice, is infallible. In the
event of a significant breach of the security features in the Company's
products, the Company and its future operating results could be adversely
affected.
PROPRIETARY TECHNOLOGY--The Company seeks to establish and protect the
proprietary aspects of its products by relying on applicable patent, copyright,
trademark and trade secret laws and on confidentiality, licensing and other
contractual arrangements. Notwithstanding the Company's efforts to protect its
proprietary rights, it may be possible for unauthorized third parties to copy
certain portions of the Company's products or to reverse engineer or obtain and
use technology that the Company regards as proprietary. In addition, the laws of
certain countries do not protect the Company's proprietary rights to the same
extent as the laws of the United States. Accordingly, there can be no assurance
that the Company will be able to protect its proprietary technology against
unauthorized third-party copying or use, which could adversely affect the
Company's competitive position.
The Company from time to time receives notices from third parties claiming
that the Company's products infringe such parties' proprietary rights.
Regardless of its merit, any such claim can be time-consuming, result in costly
litigation and require the Company to enter into royalty and licensing
agreements. Such royalty or licensing agreements may not be offered or may not
be available on terms acceptable to the Company. If a successful claim is made
against the Company and the Company fails to develop or license a substitute
technology, the Company and its future operating results could be adversely
affected.
HIRING AND RETENTION OF EMPLOYEES--The Company's continued growth and success
depend to a significant extent on the continued service of senior management and
other key employees and the hiring of new qualified employees. Competition for
highly skilled business, technical, marketing and other personnel is intense,
particularly in the strong economic cycle currently prevailing for high
technology companies. The loss of one or more key employees or the Company's
inability to attract additional qualified employees or retain other employees
could have an adverse effect on the Company and its future operating results.
In addition, the Company may experience increased compensation costs in order to
compete for skilled employees.
REGULATORY REQUIREMENTS--The Company's operations are subject to various laws,
regulations, governmental policies and product certification requirements
worldwide. Changes in such laws, regulations, policies or requirements could
affect the demand for the Company's products or result in the need to modify
products, which may involve substantial costs or delays in sales and could have
an adverse effect on the Company and its future operating results.
SEISMIC RISKS--The Company's manufacturing and distribution facilities, as well
as a portion of the Company's research and development, sales and administrative
functions, are located near major earth quake faults. In the event of a major
earthquake, the Company and its future operating results could be adversely
affected.
STOCK MARKET FLUCTUATIONS--In recent years, the stock market in general, and the
market for technology stocks in particular, including the Company's Common
Stock, have experienced extreme price fluctuations. The market price of the
Company's Common Stock may be significantly affected by various factors such as
quarterly variations in the Company's operating results; changes in revenue
growth rates for the Company as a whole or for specific geographic areas,
business units or products; changes in earnings estimates by market analysts;
the announcement of new products or product enhancements by the Company or its
competitors; speculation in the press or analyst community; and general market
conditions or market conditions specific to particular industries. There can be
no assurance that the market price of the Company's Common Stock will not
experience significant fluctuations in the future.
SEVENTEEN
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 47,395 $ 72,882
Short-term investments 515 9,939
Accounts receivable, net of allowance for doubtful accounts
of $3,842 and $4,675 at 1996 and 1995, respectively 131,192 96,419
Net investment in sales-type leases 13,450 10,487
Inventories 59,524 76,611
Deferred income taxes 11,079 16,827
Prepaid expenses and other current assets 9,163 7,158
----------------------
Total current assets 272,318 290,323
Net investment in sales-type leases 19,329 15,360
Property, plant and equipment, net 64,722 50,942
Other assets, net 48,611 22,891
----------------------
$404,980 $379,516
----------------------
----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,641 $ 20,693
Accrued compensation 12,612 11,072
Other accrued liabilities 26,790 18,805
Income taxes payable 7,504 12,910
Deferred revenue 9,951 5,275
Notes payable and capital leases 38,581 10,569
----------------------
Total current liabilities 127,079 79,324
Non-current portion of capital leases 517 2,205
Deferred income taxes 37,818 33,602
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value; 2,000 shares authorized; none issued
and outstanding -- --
Common Stock, $0.01 par value; 50,000 shares authorized; 23,341 and
24,906 shares issued and outstanding at 1996 and 1995, respectively 248 244
Additional paid-in capital 109,101 110,911
Less treasury stock at cost; 1,924 shares at 1996 (72,700) --
Retained earnings 191,666 152,402
Other 11,251 828
----------------------
Total stockholders' equity 239,566 264,285
----------------------
$404,980 $379,516
----------------------
----------------------
</TABLE>
SEE ACCOMPANYING NOTES.
EIGHTEEN
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
(IN THOUSAND, EXCEPT PER SHARE DATA) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $472,460 $387,016 $316,108
Costs and expenses:
Cost of revenues 256,250 202,356 160,776
Research and development 53,434 45,036 38,442
Selling, general and administrative 109,259 97,887 79,421
--------------------------------------
Total costs and expenses 418,943 345,279 278,639
--------------------------------------
Income from operations 53,517 41,737 37,469
Interest and other income 2,875 4,993 3,331
Interest expense (1,090) (948) (619)
Minority interest in consolidated subsidiary -- -- (615)
--------------------------------------
Income before income taxes 55,302 45,782 39,566
Provision for income taxes 16,038 13,277 11,456
--------------------------------------
Net income $ 39,264 $ 32,505 $ 28,110
--------------------------------------
--------------------------------------
Net income per share $ 1.53 $ 1.32 $ 1.14
--------------------------------------
--------------------------------------
Common and common equivalent shares used
in computing per share amounts 25,737 24,543 24,596
--------------------------------------
--------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
NINETEEN
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------------------------------------------------------------------------------
ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN TREASURY RETAINED STOCKHOLDERS'
(IN THOUSANDS) STOCK STOCK CAPITAL STOCK EARNINGS OTHER EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $-- $243 $110,475 $ (7,895) $ 91,980 $ 374 $ 195,177
Repurchase of 451 shares of
Common Stock -- -- -- (9,280) -- -- (9,280)
Reissuance of 433 shares of
Common Stock under the Employee
Stock Purchase Plan (ESPP), and
pursuant to option and
other activity -- -- (3,470) 6,882 -- -- 3,412
Issuance of 19 shares of Common
Stock for cash, notes receivable
and services -- -- 35 -- -- (20) 15
Tax benefit from stock options -- -- 700 -- -- -- 700
Unrealized loss on available-
for-sale investments,
net of tax -- -- -- -- -- (156) (156)
Accumulated translation adjustment -- -- -- -- -- 394 394
Net income -- -- -- -- 28,110 -- 28,110
-----------------------------------------------------------------------------------
Balance, December 31, 1994 -- 243 107,740 (10,293) 120,090 592 218,372
Repurchase of 600 shares of
Common Stock -- -- -- (14,543) -- -- (14,543)
Reissuance of 447 shares of
Common Stock under the ESPP, and
pursuant to option and other
activity -- 1 (809) 8,948 -- -- 8,140
Issuance of 115 shares of Common
Stock pursuant to option activity -- -- 69 -- -- -- 69
Sale of 738 shares of Common Stock -- -- 2,680 15,888 -- -- 18,568
Tax benefit from stock options -- -- 1,038 -- -- -- 1,038
TimeCorp stock dividend -- -- 193 -- (193) -- --
Unrealized gain on available-
for-sale investments, net of tax -- -- -- -- -- 175 175
Accumulated translation adjustment -- -- -- -- -- 61 61
Net income -- -- -- -- 32,505 -- 32,505
-----------------------------------------------------------------------------------
Balance, December 31, 1995 -- 244 110,911 -- 152,402 828 264,385
Repurchase of 2,496 shares of
Common Stock -- -- -- (99,991) -- -- (99,991)
Reissuance of 572 shares of
Common Stock under the ESPP and
pursuant to option activity -- -- (14,488) 27,291 -- -- 12,803
Issuance of 359 shares of
Common Stock under the ESPP and
pursuant to option activity -- 4 6,728 -- -- -- 6,732
Tax benefit from stock options -- -- 5,950 -- -- -- 5,950
Unrealized gain on available-
for-sale investments, net of tax -- -- -- -- -- 10,825 10,825
Accumulated translation adjustment -- -- -- -- -- (402) (402)
Net income -- -- -- -- 39,264 -- 39,264
-----------------------------------------------------------------------------------
Balance, December 31, 1996 $-- $248 $109,101 $(72,700) $191,666 $11,251 $ 239,556
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
TWENTY
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $39,264 $32,505 $28,110
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 23,291 19,857 18,055
Deferred income taxes 2,883 2,558 (2,238)
Net increase in receivables, inventories and prepaid expenses (26,623) (37,313) (14,097)
Net increase in payables, accruals and other current liabilities 25,693 9,281 16,514
Other, net (402) 62 674
-------------------------------------
Net cast provided by operating activities 64,106 26,950 47,018
-------------------------------------
Cash flows from investing activities:
Capital expenditures (31,111) (26,469) (12,642)
Acquisition of other assets (13,741) (8,607) (623)
Acquisition of subsidiary, net of cash acquired -- -- (10,361)
Available-for-sale investments:
Purchases (70,663) (10,686) (54,547)
Maturities 74,350 38,917 58,777
Held-to-maturity investments:
Purchases -- (3,666) --
Maturities 5,704 9,194 --
-------------------------------------
Net cash used for investing activities (35,461) (1,317) (19,396)
-------------------------------------
Cash flows from financing activities:
Proceeds from notes payable and capital leases 31,497 3,294 11,490
Payments on notes payable and capital leases (5,173) (12,110) (15,333)
Proceeds from issuance of Common Stock 19,535 26,777 3,437
Purchase of treasury stock (99,991) (14,5430 (9,280)
-------------------------------------
Net cash (used for) provided by financial activities (54,132) 3,418 (9,686)
-------------------------------------
Net increase (decrease) in cash and cash equivalents (25,487) 29,051 17,936
Cash and cash equivalents at beginning of year 72,882 43,831 25,895
-------------------------------------
Cash and cash equivalents at end of year $47,395 $72,882 $43,831
-------------------------------------
-------------------------------------
Schedule of non-cash transactions:
Tax benefits from stock options $ 5,950 $ 1,038 $ 700
-------------------------------------
-------------------------------------
Write-off of fully depreciated fixed assets $ 5,277 $ 4,298 $ 2,552
-------------------------------------
-------------------------------------
Write-off of fully amortized other assets $ 7,452 $ 840 $ 4,434
-------------------------------------
-------------------------------------
Acquisition of minority interest $ -- $ -- $ 3,667
-------------------------------------
-------------------------------------
Acquisition of equipment under capital leases $ -- $ -- $ 279
-------------------------------------
-------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $ 986 $ 885 $ 1,584
-------------------------------------
-------------------------------------
Income taxes paid $11,706 $ 6,691 $ 8,424
-------------------------------------
-------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
TWENTY-ONE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE ONE--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--The consolidated financial statements comprise the
accounts of VeriFone, Inc. and its worldwide subsidiaries (collectively, the
"Company"), including Enterprise Integration Technologies Corporation ("EIT")
and TimeCorp Systems, Inc. ("TimeCorp"), which were merged into the Company
effective November 1995 (see Note 2). The mergers have been accounted for as
poolings of interests, and prior periods have been restated to include both
EIT and TimeCorp. All significant intercompany balances and transactions have
been eliminated.
For purposes of presentation, the Company has indicated its fiscal year as
ending on December 31; as of calendar year 1996 the Company operates and
reports on a 52-53 week fiscal year which ends on the last Friday in the
calendar year. Prior to 1996, the Company's fiscal year ended on the Friday
closest to December 31. Fiscal years 1996, 1995 and 1994 are 52-week years.
INDUSTRY SEGMENT AND CONCENTRATION OF CREDIT RISK--The Company, which
operates in a single industry segment, designs, manufactures, markets and
services transaction automation systems. The Company sells its products to
customers in diversified industries globally. The Company performs ongoing
credit evaluations of its customers and generally does not require
collateral. The Company maintains reserves for potential credit losses, and
such losses have been within management's expectations. No customer accounted
for 10% or more of net revenues in 1996, 1995 or 1994.
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash investments, trade
receivables and foreign exchange contracts. The Company invests its excess
cash in deposits with major banks, in local and state government obligations,
commercial paper, and in money market instruments issued by companies with
strong credit ratings and in a variety of industries. The counterparties to
the agreements relating to the Company's foreign exchange contracts consist
of financial institutions of high credit standing. The Company does not
believe there is significant risk of non-performance by these counterparties.
CONCENTRATION OF OTHER RISKS--The Company's operating results are subject to
various risks and uncertainties as discussed in the Company's Annual Report
on Form 10-K, including risks and uncertainties related to local economic
conditions; competitive pressures; the composition, timing and size of orders
from and shipments to major customers; variations in product mix and the mix
between leases and sales; variations in product cost; infrastructure costs;
obsolescence of inventory; and other factors. Accordingly, the Company's
operating results may vary materially from quarter to quarter.
The Company operates with little backlog and, as a result, net revenues in
any quarter are substantially dependent on the orders booked and shipped in
that quarter. Because the Company's operating expenses are based on
anticipated revenue levels and because a high percentage of the Company's
expenses are relatively fixed, if anticipated shipments in any quarter do not
occur as expected, the Company's operating results may be adversely affected
and fall significantly short of expectations. Any other unanticipated decline
in the growth rate of the Company's net revenues, without a corresponding and
timely reduction in the growth of operating expenses, could also have an
adverse effect on the Company and its future operating results.
Compounding these risks is the fact that a substantial portion of the
Company's net revenues in each quarter generally results from shipments
during the latter part of the quarter. For this and other reasons, the
Company may not learn of shortfalls in revenues, earnings or other financial
results relative to expectations until very late in a quarter. Any such
shortfall could have an immediate and significant adverse effect on the
trading price of the Company's Common Stock.
The Company's international operations, including international sales and
manufacturing, have grown substantially, and thus, the Company is
increasingly affected by the risks associated with international operations.
Such risks include managing an organization spread over various countries;
fluctuations in currency exchange rates (as discussed further below); the
burden of complying with international laws and other regulatory and product
certification requirements, and changes in such laws and requirements;
tariffs and other trade barriers; import and export controls; international
staffing and employment issues; political and economic instability; and
longer payment cycles in certain countries. The Company's manufacturing
facilities outside the United States, which are in Taiwan and the People's
Republic of China, are subject to particular risks relating to political
developments and trade barriers. The inability to effectively manage these
and other risks could adversely affect the Company and its future operating
results.
TWENTY-TWO
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The majority of the Company's international sales are denominated in U.S.
currency. An increase in the value of the U.S. dollar relative to foreign
currencies could make the Company's products sold internationally less
competitive. The Company has offices in a number of foreign countries, the
operating expenses of which are also subject to the effects of fluctuations
in foreign currency exchange rates. Although the Company engages in hedging
transactions which may partially offset the effects of fluctuations in
foreign currency exchange rates, financial exposure may nonetheless result,
primarily due to the timing of transactions and movement of exchange rates.
Most components used in the Company's products are purchased from outside
sources. The Company is currently dependent on single suppliers for certain
product components, including mask-programmed microcontrollers, various
printer mechanisms, display devices and certain magnetic parts. The failure
of any such supplier to continue to provide these components to the Company
could result in significant manufacturing delays that could adversely affect
the Company and its future operating results.
Managing the Company's inventory of components and finished products is a
complex task. A number of factors--including the need to maintain a
significant inventory of certain components that are in short supply or that
must be purchased in bulk to obtain favorable pricing, the general
unpredictability of demand for specific products and customer requests for
quick delivery schedules--may result in the Company maintaining excess
inventory. Other factors--including changes in market demand and
technology--may cause inventory to become obsolete. Any excess or obsolete
inventory could result in price reductions and inventory write-downs, which
in turn could adversely affect the Company and its operating results.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
REVENUE RECOGNITION AND DEFERRED REVENUE--The Company utilizes direct sales
and both sales-type and operating lease arrangements to provide product to
its customers. Revenue from both direct sales and sales-type leases is
recognized when product shipment terms are met. Operating lease revenue is
recognized ratably over the term of the lease.
Under sales-type lease accounting, the present value of the minimum lease
payments computed at the interest rate implicit in the lease is recorded as
sales revenue. The cost of the leased property less the present value of the
unguaranteed residual value accruing to the benefit of the Company, computed
at the interest rate implicit in the lease, is charged against income. The
net investment in sales-type leases is carried at the present value of the
minimum lease payments plus the present value of the unguaranteed residual
value accruing to the benefit of the Company over the life of the lease. The
excess of the sum of the future minimum lease payments to be received, over
the carrying value of the lease, represents unearned interest income.
Unearned interest income is amortized into income using the interest method
over the lives of the leases.
Software licenses are recognized as revenues, either after execution of a
license agreement and certain terms of the agreement have been met, or upon
receipt of a definitive purchase order and shipment of the product. In either
case, software licenses are recognized as revenue only if no significant
vendor obligations remain and collection of the resulting receivable is
probable. Revenue for software services is recognized using the percentage of
completion method.
Extended warranty revenue is deferred and recognized ratably over the
warranty contract period. Service revenue is recognized when services are
performed.
PRODUCT WARRANTY OBLIGATIONS--The Company provides, at the time of sale, for
the estimated cost to warranty its products against defects in materials and
workmanship. The term of the Company's warranty is generally one year.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS--Cash and cash equivalents
consists of cash and highly liquid investments on deposit with banks maturing
within 90 days or less from the date of purchase. Short-term investments
consist of high-quality money market instruments with original maturities
greater than 90 days.
Marketable securities held as collateral against the Company's line of
credit for foreign currency transactions are classified as held-to-maturity
and are carried at the amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Available-for-sale securities are
carried at fair market value with unrealized gains or losses, net of tax,
included in "Other" in stockholders' equity. In 1995 the Company realized a
gain of $2.5 million from the sale of EIT's interest in Terisa Systems. The
Company did not realize any material gains or losses on investments during
1994 and 1996.
TWENTY-THREE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS--For certain of the Company's financial
instruments, including cash and cash equivalents, short-term investments,
accounts receivable and payable, and accrued liabilities, the carrying
amounts approximate fair value due to their short maturities. The carrying
value of long-term debt approximates its fair value, determined by using
discounted cash flow analysis based upon quoted market rates for similar types
of borrowing arrangements. The carrying amounts of the Company's forward
exchange contracts approximate the estimated fair market value of the
contracts outstanding at December 31, 1996 and 1995; differences in such
amounts are immaterial.
The following tables summarize the Company's marketable investments as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
(IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of December 31, 1996
Available-for-sale securities
Foreign corporate debt $ 5,000 $ -- $ -- $ 5,000
Obligations of state and local government agencies 594 2 -- 596
Money market mutual funds 20,609 -- -- 20,609
Investment in Cybercash, Inc. 4,000 17,939 -- 21,939
----------------------------------------------------------
$ 30,203 $ 17,941 $ -- $ 48,144
----------------------------------------------------------
----------------------------------------------------------
As of December 31, 1995
Available-for-sale securities
Obligations of state and local government agencies $ 41,404 $ 33 $ -- $ 41,437
Money market mutual funds 20,175 -- -- 20,175
Investment in Cybercash, Inc. 4,000 -- -- 4,000
----------------------------------------------------------
$ 65,579 $ 33 $ -- $ 65,612
----------------------------------------------------------
----------------------------------------------------------
Held-to-maturity securities
Obligations of state and local government agencies $ 5,704 $ -- $ -- $ 5,704
----------------------------------------------------------
----------------------------------------------------------
Balance sheet classification as of December 31, 1996
Cash equivalent $ 25,690 $ -- $ -- $ 25,690
Short-term investments 513 2 -- 515
Other assets 4,000 17,939 -- 21,939
----------------------------------------------------------
Total $ 30,203 $ 17,941 $ -- $ 48,144
----------------------------------------------------------
----------------------------------------------------------
Balance sheet classification as of December 31, 1995
Cash equivalent $ 57,344 $ 33 $ -- $ 57,377
Short-term investments 9,939 -- -- 9,939
Other assets 4,000 -- -- 4,000
----------------------------------------------------------
----------------------------------------------------------
$ 71,283 $ 33 $ -- $ 71,316
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
ALL INVESTMENTS AT DECEMBER 31, 1995 AND 1996 MATURE IN ONE YEAR OR LESS.
INVENTORIES--Inventories are stated at the lower of cost (principally first-in,
first-out) or market. Inventories at December 31, 1996 and 1995 are composed of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 28,992 $ 39,183
Work in process 4,741 6,369
Finished goods 25,791 31,059
------------------------
$ 59,524 $ 76,611
------------------------
------------------------
</TABLE>
TWENTY-FOUR
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of 20 years for buildings and 3 to 5 years or the
remaining life of the lease for other property and equipment. For equipment on
rental under operating leases, depreciation is computed using the straight-line
method over the life of the lease. Property, plant and equipment, including
equipment on rental under operating leases, at December 31, 1996 and 1995 are as
follows:
DECEMBER 31,
----------------------
(IN THOUSANDS) 1996 1995
- ----------------------------------------------------------------------
Buildings $20,265 $11,587
Machinery and equipment 72,870 55,300
Furniture and fixtures 8,901 7,320
Leasehold improvements 11,068 12,650
Equipment under capitalized leases 5,343 5,558
Equipment on rental under operating leases 5,039 5,237
----------------------
123,486 97,652
Accumulated depreciation and amortization (58,764) (46,710)
----------------------
$64,722 $50,942
----------------------
----------------------
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires recognition
of impairment of long-lived assets in the event the net book value of such
assets exceeds the future undiscounted cash flows attributable to such assets.
The effect of adopting the statement was immaterial.
OTHER ASSETS--Other assets include the following at December 31, 1996 and 1995:
DECEMBER 31,
----------------------
(IN THOUSANDS) 1996 1995
- ----------------------------------------------------------------------
Capitalized software costs $22,070 $17,552
Purchased intangibles 17,903 24,875
Investment in Cybercash, Inc. 21,939 4,000
Other investments 3,000 --
Other 9,481 3,738
----------------------
74,393 50,165
Accumulated depreciation and amortization (25,782) (27,274)
----------------------
$48,611 $22,891
----------------------
----------------------
The Company capitalizes certain costs for internally developed software in
accordance with SFAS No. 86. Such costs are amortized, commencing upon first
customer shipment, over the greater of either the straight-line basis with
estimated useful lives of three to five years, or the ratio of current revenue
to the total of current and anticipated future revenue. Capitalized software
costs are stated at the lower of cost or net realizable value. Amortization
expense was $2,357,000, $3,726,000 and $4,016,000 in 1996, 1995 and
1994, respectively, and is included in cost of revenues.
Purchased intangibles consist of amounts relating to the acquisition of
VeriFone Finance and other purchased technology, and are being amortized over
useful lives of four to ten years. Amortization of purchased intangibles was
$3,603,000, $4,012,000 and $4,586,000 in 1996, 1995 and 1994, respectively.
FOREIGN CURRENCY TRANSLATION--The Company translates the assets and liabilities
of its foreign sales subsidiaries at year-end exchange rates. Gains and losses
from this translation are credited or charged to "Other" in stockholders'
equity. The foreign manufacturing entities use the U.S. dollar as the functional
currency and translate monetary assets and liabilities at year-end exchange
rates, and inventories, property, and non-monetary assets and liabilities at
historical rates. Adjustments resulting from these translations are included in
the results of operations and are immaterial.
TWENTY-FIVE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FOREIGN CURRENCY EXPOSURE MANAGEMENT--The Company enters into foreign exchange
contracts designed to hedge against changes in foreign currency exchange rates
to reduce the impact of currency fluctuations on recorded monetary assets and
liabilities denominated in currencies other than the entity's functional
currency. The monetary accounts subject to currency exchange rate fluctuations
are primarily cash, trade receivables and intercompany accounts receivable and
payable. Amounts receivable and payable on forward foreign exchange contracts
are not reflected on the balance sheet. Gains and losses on these contracts,
which equal the difference between the foreign exchange contract rate and the
prevailing market spot rate at the time of valuation, are recognized in the
consolidated statements of operations.
The Company does not trade foreign exchange contracts or act as a broker of
foreign exchange contracts to incur trading profit. Because the impact of
movements in currency exchange rates on foreign exchange contracts offsets the
related impact on the underlying items being hedged, these instruments do not
subject the Company to risk that would otherwise result from changes in currency
exchange rates. At December 31, 1996, the Company had eight forward contracts
open in nine currencies maturing in January 1997. Currencies hedged include the
British Pound, French Franc, Canadian Dollar, Australian Dollar, Singapore
Dollar and Spanish Peseta. The Company had forward foreign exchange contracts to
buy foreign currencies with notional amounts of $5,132,000 and $4,934,000 at
December 31, 1996 and 1995, respectively. The Company had forward foreign
exchange contracts to sell foreign currencies with notional amounts of
$8,500,000 and $11,439,000 at December 31, 1996 and 1995, respectively. Foreign
exchange contracts require the company to buy and sell foreign currencies and
generally mature within one to three months, and as a result the notional value
approximates the fair market value.
NET INCOME PER SHARE--Net income per common and common equivalent share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Dilutive common equivalent
shares consist of stock options (using the treasury stock method). Fully
dilutive earnings per share have not been presented as the differences are
immaterial.
ACCOUNTING FOR STOCK-BASED COMPENSATION--In 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123 provides an alternative to the Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
accounts for its employee stock plans in accordance with the provisions of APB
No. 25 (see Note 7).
RECLASSIFICATION--The Company has reclassified certain prior year balances to
conform with current year presentation.
NOTE TWO--BUSINESS COMBINATIONS
In November 1995, the Company merged with EIT and TimeCorp. VeriFone outstanding
stock was exchanged for Common Stock of EIT and TimeCorp at rates of
approximately 0.77 and 0.15 VeriFone share for each share of outstanding EIT and
TimeCorp stock, respectively. A total of 1,188,757 shares of VeriFone's Common
Stock was issued in connection with the mergers. The mergers were accounted for
as a pooling of interests and, accordingly, the Company's consolidated financial
statements and notes to consolidated financial statements have been restated to
include the results of EIT and TimeCorp.
The Company incurred costs in connection with the mergers and consolidation
of operations. Included in "Selling, general and administrative" expenses in
1995 are merger-related expenses totaling $1,425,000, consisting primarily of
charges for transaction and professional fees, before tax.
TWENTY-SIX
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE THREE--NET INVESTMENT IN SALES-TYPE LEASES
The following lists the components of the net investment in sales-type leases:
DECEMBER 31,
----------------------
(IN THOUSANDS) 1996 1995
- ----------------------------------------------------------------------
Total minimum lease payments receivable $38,120 $30,226
Residual values 1,765 1,208
----------------------
39,885 31,434
Less unearned interest income (7,106) (5,587)
----------------------
Net investment in sales-type leases $32,779 $25,847
----------------------
----------------------
Net investment classified as:
Current $13,450 $10,487
Non-current 19,329 15,360
----------------------
$32,779 $25,847
----------------------
----------------------
Future minimum lease payments to be received on sales-type leases at December
31, 1996 are as follows (in thousands): 1997-$16,066; 1998-$10,376; 1999-$5,895;
2000-$3,704; 2001-$2,079.
NOTE FOUR--NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases include the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable under a $30,000,000 million unsecured line of credit expiring
April 1997, interest rate at 5.86% $ 20,000 $ --
Notes payable to financing companies, non-recourse, due in monthly installments,
interest applies at rates ranging from 7.93% to 9.32%, maturing at various
dates through June 1998, secured by all rights in certain leases including a
security interest in equipment under certain lease agreements and future
minimum lease payments 1,344 3,002
Notes payable due in Australian and Japanese currencies, under a $17,000,000 million
unsecured line of credit for foreign currency transactions, expiring May 1997,
interest rate at bank's cost plus 0.50% (6.29% at December 31, 1996) 15,656 --
Notes payable in Australian currency, under a $8,500,000 unsecured line
of credit expired May 1996, interest rate at bank's cost plus 0.75%
(8.48% at December 31, 1995) -- 6,508
Notes payable in Japanese currency, under a $3,000,000 million line of credit in Japan,
for foreign currency transactions expiring January 1998, secured by short-term
investments equal to 110% of borrowings, interest rate at bank's cost plus 0.50%
(4.41% at December 31, 1996) 1,224 1,555
Obligations under capital leases 874 1,709
-----------------------
Total notes payable and capital leases, including current maturities 39,098 12,774
Less current maturities (38,581) (10,569)
-----------------------
Total non-current portion of capital leases $ 517 $ 2,205
-----------------------
-----------------------
</TABLE>
Principal maturities of notes payable and capital leases at December 31, 1996
are as follows (in thousands): 1997-$38,581; 1998-$476; and 1999-$41. The
weighted average interest rate for borrowings was 6.50% and 6.71% in 1996 and
1995, respectively.
The fair value of notes payable to a financing company and obligations under
the lines of credit in the U.S., Australia and Japan were $38,213,000 and
$10,610,000 at December 31, 1996 and 1995, respectively. Fair market value is
determined by using discounted cash flow analysis based upon quoted market rates
for similar types of borrowing arrangements.
Covenants governing the Company's lines of credit require the maintenance of
certain financial ratios. At December 31, 1996, the Company was in compliance
with these covenants.
The Company leases certain equipment under non-cancelable leases. Accumulated
amortization related to assets under capital leases was $4,862,000 and
$4,257,000 at December 31, 1996 and 1995, respectively.
TWENTY-SEVEN
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE FIVE--INCOME TAXES
Income before income taxes consisted of the following:
YEARS ENDED DECEMBER 31,
----------------------------------
(IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------
Income before income taxes:
United States $22,937 $16,554 $19,318
Foreign 32,365 29,228 20,248
----------------------------------
Total income before income taxes $55,302 $45,782 $39,566
----------------------------------
----------------------------------
The provision for income taxes is computed in accordance with SFAS No. 109,
"Accounting for Income Taxes," and consists of the following:
YEARS ENDED DECEMBER 31,
----------------------------------
(IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------
Current income taxes:
U.S. federal $ 8,150 $ 5,123 $ 8,352
Foreign 2,351 3,874 2,132
State 1,879 1,846 3,107
----------------------------------
12,380 10,843 13,591
----------------------------------
Deferred income taxes:
U.S. federal 2,391 1,022 (2,455)
Foreign 412 40 24
State 855 1,372 296
----------------------------------
3,658 2,434 (2,135)
----------------------------------
$16,038 $13,277 $11,456
----------------------------------
----------------------------------
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes. The sources and
tax effects of the differences are as follows:
YEARS ENDED DECEMBER 31,
----------------------------------
(IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------
Tax at U.S. federal statutory rate based on
pre-tax income before minority interest $19,356 $16,024 $14,055
State income taxes, net of federal benefits 1,777 2,091 2,213
Research tax credits -- -- (43)
Tax-exempt income (527) (422) (846)
Permanently invested profits of foreign
subsidiaries (6,650) (6,685) (3,500)
Purchased intangibles 969 2,019 --
Other 1,113 250 (423)
----------------------------------
Provision for income taxes $16,038 $13,277 $11,456
----------------------------------
----------------------------------
TWENTY-EIGHT
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred income taxes result from differences in the timing of certain revenue
and expense items for tax and financial reporting purposes. Significant
components of deferred tax assets and liabilities are as follows:
DECEMBER 31,
-----------------------
(IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------
Deferred tax assets:
Deferred income $ 2,378 $ 2,120
Inventory valuation and reserves 5,544 4,597
Other reserves and accruals 5,615 5,033
Fixed assets and leases 701 --
State income taxes 2,100 1,871
Other -- 83
-----------------------
Total deferred tax assets 16,338 13,704
-----------------------
Deferred tax liabilities:
Undistributed profits of foreign subsidiaries (31,558) (27,194)
Software and intangibles (3,910) (2,280)
Fixed assets and leases -- (928)
Unrealized gain on available-for-sale securities (7,095) --
Other (514) (77)
-----------------------
Total deferred tax liabilities (43,077) (30,479)
-----------------------
Net deferred tax liabilities $(26,739) $(16,775)
-----------------------
-----------------------
The cumulative unrecognized deferred tax liability related to undistributed
earnings of foreign subsidiaries which the Company intends to permanently invest
is approximately $30.5 million.
The Internal Revenue Service is currently examining the Company's tax returns
for each of the years ended December 31, 1991, 1990 and 1989. Management
believes that adequate provision has been made for any adjustments that might
result.
NOTE SIX--COMMITMENTS AND CONTINGENCIES
OPERATING LEASES--The Company leases certain of its facilities under
non-cancelable operating leases. Rent expense was approximately $9,385,000,
$7,687,000 and $6,314,000 in 1996, 1995 and 1994, respectively.
Future minimum operating lease payments and commitments associated with the
Company's new facilities at December 31, 1996 are as follows (in thousands):
1997-$10,856; 1998-$10,665; 1999-$8,568; 2000-$7,581; 2001-$6,881; thereafter-
$29,772.
CONTINGENCIES--In the ordinary course of business, various claims are made
against the Company. Historically, the liability associated with the resolution
of such claims has not been significant. The Company is not aware of any claims
pending against it, the resolution of which is expected to have a material
impact on the Company's financial condition.
TWENTY-NINE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE SEVEN--STOCKHOLDERS' EQUITY
STOCK OPTIONS--In 1985, the Company adopted an Incentive Stock Option Plan.
Options under this Plan may be granted to any employee (including officers) of
the Company. In 1987, the Company adopted a Supplemental Stock Option Plan which
allows for options other than incentive stock options to be granted to any
employee (including officers) or consultant to the Company. In 1992, the Company
adopted a Non-employee Directors' Stock Option Plan. As amended, there were
7,737,617 shares of Common Stock authorized for issuance under these Plans. As
of December 31, 1996, there remained 3,851,261 shares reserved for issuance
under these Plans.
Options may be granted at prices generally not lower than fair market value
of the Company's Common Stock at the date of grant. Options vest over varying
terms of up to four years, as determined by the Board of Directors, and expire
five or ten years after the date of grant or upon certain events. At December
31, 1996, options for 1,148,146 shares were exercisable at prices ranging from
$0.32 to $49.50 per share.
Information with respect to activity under the Plans is as follows:
<TABLE>
<CAPTION>
SHARES UNDER OUTSTANDING OPTIONS
--------------------------------
WEIGHTED-
SHARES AVAILABLE NUMBER OF AVERAGE
FOR GRANT SHARES PRICE PER SHARE EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 765,001 1,729,092 $ 0.05-$29.50 $ 18.53
Increase in shares reserved 154,573 -- -- --
Options cancelled 141,587 (141,587) $ 0.25-$29.50 $ 20.58
Options granted (887,473) 887,473 $ 1.94-$21.75 $ 16.27
Options exercised -- (295,747) $ 0.05-$22.00 $ 4.77
--------------------------------------------------------------------------
Balance, December 31, 1994 173,688 2,179,231 $ 0.05-$29.50 $ 19.26
Increase in shares reserved 2,270,403 -- -- --
Options cancelled 170,056 (170,056) $ 0.32-$29.75 $ 22.20
Options granted (1,418,772) 1,418,772 $ 1.94-$29.75 $ 27.18
Options exercised -- (407,230) $ 0.05-$28.50 $ 16.55
--------------------------------------------------------------------------
Balance, December 31, 1995 1,195,375 3,020,717 $ 0.32-$29.75 $ 22.50
Increase in shares reserved 400,000 -- -- --
Options cancelled 377,047 (377,047) $ 0.32-$49.50 $ 33.31
Options granted (1,228,828) 1,228,828 $ 29.25-$49.50 $ 39.37
Options exercised -- (764,831) $ 0.32-$42.25 $ 20.06
--------------------------------------------------------------------------
Balance, December 31, 1996 743,594 3,107,667 $ 0.32-$49.50 $ 28.45
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
The options outstanding at December 31, 1996 have been segregated into four
price ranges for additional disclosure as follows (option amounts are recorded
in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------------------
WEIGHTED-AVG WEIGHTED- OPTIONS WEIGHTED-
RANGE OF OPTIONS REMAINING AVERAGE CURRENTLY AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
PRICES DEC. 31, 1996 LIFE PRICE DEC. 31, 1996 PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.32-$ 1.94 96 7.64 $ 1.84 46 $ 1.74
$15.00-$25.50 1,145 7.06 $21.36 684 $20.91
$26.23-$39.00 1,740 8.93 $33.42 406 $31.17
$41.00-$49.50 127 9.45 $44.22 12 $44.05
-----------------------------------------------------------------------------------
3,108 8.22 $28.45 1,148 $24.03
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN--In 1990, the Company adopted its Employee Stock
Purchase Plan, for which permanent, full-time employees who meet certain minimum
employment criteria are eligible. As amended, there were 1,000,000 shares of
Common Stock authorized for issuance under the Plan. As of December 31, 1996,
889,329 shares had been issued under the Plan (166,069 shares were issued in
1996), with 110,671 shares remaining reserved for issuance under the Plan.
Eligible employees may purchase stock at 85% of the lower of the closing price
at the beginning or end of the Plan offering period (six-month periods beginning
February and August). Through January 1995, Plan purchases were limited to 10%
of each employee's compensation; thereafter, Plan purchases are limited to 15%
of each employee's compensation.
THIRTY
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STOCK COMPENSATION--The Company has elected to follow APB No. 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
SFAS No. 123 requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB No. 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of the grant, no
compensation expense is recognized.
Pro forma information regarding the net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options granted subsequent to 1994 under the
fair value method of that statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model for
the multiple-option approach, with the following weighted-average assumptions
for 1996 and 1995: risk-free interest rate of 5.71% and 5.81%, respectively;
volatility factor of the expected market price of the Company's Common Stock of
45%; no expected dividend payments; and a weighted-average expected life of the
option of one year.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to pro forma net income over the options' vesting period.
The Company's pro forma information follows:
DECEMBER 31,
----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
- ------------------------------------------------------------------------
Pro forma net income $32,174 $29,852
Pro forma earnings per share $ 1.27 $ 1.28
Because SFAS No. 123 is applicable only to options granted subsequent to 1994,
its pro forma effect will not be fully reflected until 1998.
STOCK REPURCHASE/SALE--In 1996 and 1995, 2,496,000 and 600,000 shares were
repurchased for an aggregate purchase price of $99,991,000 and $14,543,000,
respectively. In October 1995, 660,000 shares were issued for an aggregate price
of $17,302,000.
401(K) RETIREMENT SAVINGS AND INVESTMENT PLAN--The Company has a 401(k) Plan
which, effective January 1, 1994, the Company began matching contributions to
the Plan equal to 50% of the first 6% of a participant's salary deferral
contribution, subject to a maximum of 3% of the participant's qualifying
contribution.
THIRTY-ONE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE EIGHT--GEOGRAPHIC SEGMENT DATA
United States operations primarily consist of product development, sales and
marketing, distribution and service. European operations consist of product
distribution through the Company's subsidiaries located in the United Kingdom,
France, Germany, Italy and Spain, and via third-party distributors in other
countries. The Americas, consisting of Latin America, the Caribbean and Canada,
engage primarily in product distribution via third-party distributors and
direct sales in Mexico and Canada. The Pacific Basin is primarily engaged in
product development and manufacturing through the Company's subsidiaries in
Taiwan and Kunshan and product distribution through the Company's subsidiaries
in Singapore, Hong Kong, Japan, Australia and the People's Republic of China,
and via third-party distributors.
Net sales to unaffiliated customers are based on the location of the
customer. Transfers between geographic areas are recorded at amounts generally
above cost and in accordance with the rules and regulations of the respective
governing tax authorities. Thus, the information may not be indicative of
results if the geographic areas were independent organizations. Geographic
information for the three years ended December 31, 1996 is presented in the
table below.
<TABLE>
<CAPTION>
GEOGRAPHIC AREA
------------------------------------------------------
UNITED PACIFIC BASIN
(IN THOUSANDS) STATES EUROPE AMERICAS AND OTHER ELIMINATIONS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Sales to unaffiliated customers $ 287,518 $ 69,048 $ 51,478 $ 64,416 $ -- $ 472,460
Intercompany transfers 28,016 17,971 2,191 262,163 (310,341) --
------------------------------------------------------------------------------------
Net revenues $ 315,534 $ 87,019 $ 53,669 $ 326,579 $ (310,341) $ 472,460
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Income from operations $ 693 $ 4,369 $ 10,849 $ 35,326 $ 2,280 $ 53,517
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Income before income taxes $ 13,295 $ 4,363 $ 10,833 $ 36,388 $ (9,577) $ 55,302
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Identifiable assets $ 242,973 $ 57,350 $ 11,696 $ 263,160 $( 170,199) $ 404,980
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
1995
Sales to unaffiliated customers $ 245,988 $ 57,018 $ 43,111 $ 40,899 $ -- $ 387,016
Intercompany transfers 20,620 6,850 12 210,659 (238,141) --
------------------------------------------------------------------------------------
Net revenues $ 266,608 $ 63,868 $ 43,123 $ 251,558 $ (238,141) $ 387,016
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Income from operations $ 2,489 $ 6,261 $ 10,370 $ 21,740 $ 877 $ 41,737
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Income before income taxes $ 8,664 $ 6,189 $ 10,396 $ 22,505 $ (1,972) $ 45,782
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Identifiable assets $ 225,765 $ 43,031 $ 13,681 $ 177,600 $ (80,561) $ 379,516
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
1994
Sales to unaffiliated customers $ 216,055 $ 47,395 $ 29,996 $ 22,662 $ -- $ 316,108
Intercompany transfers 6,987 3,900 224 153,718 (164,829) --
------------------------------------------------------------------------------------
Net revenues $ 223,042 $ 51,295 $ 30,220 $ 176,380 $ (164,829) $ 316,108
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Income from operations $ 7,326 $ 3,370 $ 2,938 $ 20,054 $ 3,781 $ 37,469
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Income before income taxes $ 16,543 $ 3,410 $ 2,938 $ 21,559 $ (4,884) $ 39,566
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Identifiable assets $ 233,303 $ 37,151 $ 2,023 $ 149,768 $ (91,693) $ 330,552
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
THIRTY-TWO
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
VERIFONE, INC.
We have audited the accompanying consolidated balance sheets of VeriFone, Inc.
at December 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VeriFone,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
PALO ALTO, CALIFORNIA
JANUARY 17, 1997
STOCK PERFORMANCE
- --------------------------------------------------------------------------------
The following tables set forth, for the periods indicated, the high, low and
closing prices for the Company's Common Stock as reported by the New York Stock
Exchange and the Nasdaq Stock Market. VeriFone, Inc. began trading on the New
York Stock Exchange on August 10, 1995. The prices shown for the period that
VeriFone's Common Stock was traded on the Nasdaq Stock Market represent
quotations among dealers without adjustments for retail markups, markdowns or
commissions, and may not represent actual transactions.
FISCAL YEAR ENDED DECEMBER 31, 1996 HIGH LOW CLOSE
- -------------------------------------------------------------------------------
First quarter 47 1/2 25 3/4 42
Second quarter 52 5/8 35 1/4 42 1/4
Third quarter 50 1/2 34 1/8 46
Fourth quarter 45 3/8 28 3/4 29
FISCAL YEAR ENDED DECEMBER 31, 1995 HIGH LOW CLOSE
- -------------------------------------------------------------------------------
First quarter 27 20 3/4 24 1/2
Second quarter 24 3/4 19 3/4 24 1/2
Third quarter 31 3/8 23 3/4 27 7/8
Fourth quarter 30 3/8 24 3/4 28 5/8
As of December 31, 1996, there were approximately 1,396 holders of record of the
Company's Common Stock. The Company has never paid cash dividends on its Common
Stock. The Company currently intends to retain earnings, if any, for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future.
THIRTY-THREE
<PAGE>
QUARTERLY DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------------
Net revenues $102,927 $124,959 $120,897 $123,677
Costs and expenses:
Cost of revenues 54,368 66,661 65,928 69,293
Research and development 12,573 14,004 13,070 13,787
Selling, general and administrative 27,134 29,210 27,007 25,908
--------------------------------------------
Total costs and expenses 94,075 109,875 106,005 108,988
--------------------------------------------
Income from operations 8,852 15,084 14,892 14,689
Interest income, net 609 750 578 (152)
--------------------------------------------
Income before income taxes 9,461 15,834 15,470 14,537
Provision for income taxes 2,744 4,591 4,487 4,216
-------------------------------------------
Net income $ 6,717 $ 11,243 $ 10,983 $ 10,321
--------------------------------------------
--------------------------------------------
Net income per share $ 0.26 $ 0.43 $ 0.42 $ 0.42
--------------------------------------------
--------------------------------------------
Shares used in per share calculations 26,039 26,322 26,073 24,515
--------------------------------------------
--------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------
FIRST SECOND THIRD FOURTH
(IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 80,156 $ 94,850 $102,742 $109,268
Costs and expenses:
Cost of revenues 41,233 48,626 54,011 58,486
Research and development 10,833 11,109 11,467 11,627
Selling, general and administrative 21,235 23,127 26,238 27,287
--------------------------------------------
Total costs and expenses 73,301 82,862 91,716 97,400
--------------------------------------------
Income from operations 6,855 11,988 11,026 11,868
Interest income, net 496 391 2,060 1,098
--------------------------------------------
Income before income taxes 7,351 12,379 13,086 12,966
Provision for income taxes 2,132 3,590 3,795 3,760
--------------------------------------------
Net income $ 5,219 $ 8,789 $ 9,291 $ 9,206
--------------------------------------------
--------------------------------------------
Net income per share $ 0.21 $ 0.36 $ 0.38 $ 0.37
--------------------------------------------
--------------------------------------------
Shares used in per share calculations 24,389 24,173 24,423 25,186
--------------------------------------------
--------------------------------------------
</TABLE>
THIRTY-FOUR
<PAGE>
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
Hatim A. Tyabji
Chairman of the Board, President
and Chief Executive Officer
VeriFone, Inc.
H.H. Haight IV*
Venture Capitalist
Advent International Corporation
J. Robert Harcharik**
Private Consultant in Telecommunications
Thomas E. Peterson*
Vice Chairman
BankAmerica Corporation and
Bank of America NT&SA
John R.C. Porter*
Chairman of the Board
Cast Alloys, Inc.
Clinton W. Silver
Former Deputy Chairman
Marks & Spencer Plc.
A. Michael Spence**
Dean, Graduate School of Business
Stanford University
R. Elton White**
Former President
NCR Corporation
* Audit Committee
** Compensation Committee
VERIFONE MANAGEMENT TEAM
Hatim A. Tyabji
Chairman of the Board, President
and Chief Executive Officer
Robin A. Abrams
Vice President and General Manager,
Americas Group
William G. Barmeier
Senior Vice President, General Counsel
and Secretary
Katherine B. Beall
Vice President, Human Resources
Roger B. Bertman
Vice President, Corporate Development
Eugene K. Buechele
Vice President, Software Development
Eldon M. Bullington
Vice President and Corporate Controller
Gary L. Grant
Vice President, Asia-Pacific, Sales Operations
and Marketing
George C. Hoyem
Vice President and General Manager,
Internet Commerce
Larry W. Kessler
Vice President and General Manager,
Asia-Pacific
Thomas J. Kilcoyne
Vice President, Consumer Systems Division
Curtis A. Lindemer
Treasurer
Patrick A. McGill
Vice President and Special Assistant
to the Chairman of the Board
C. Lloyd Mahaffey
Senior Vice President and General Manager,
Global Marketing and Software Systems
Division
James A. Palmer
Executive Vice President, Development and
Manufacturing
Alexander Pappas
Vice President and Chief Information Officer
Anthony T.M. Robertson
Vice President, Development
Jan-Erik Rottinghuis
Vice President, Europe, Middle East and Africa
Michael J. Shade
Vice President, Centum Consulting Services
William L. Smith
Vice President, U.S. Field Technical Support
Elmore E. Waller
Vice President and General Manager,
Petroleum Division
John Weitzner
Vice President, Operations
Robert L. Wilson
Vice President, Business Development,
Chip Card Adoption
Joseph M. Zaelit
Senior Vice President, Finance and
Administration, and Chief Financial Officer
INDEPENDENT AUDITORS
Ernst & Young LLP
Palo Alto, California
STOCKHOLDER INFORMATION
ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of stockholders will be held on Friday, May 9, 1997 at 10:00
a.m. at the Stanford Park Hotel, 100 El Camino Real, Menlo Park, California
94025.
TRANSFER AGENT AND REGISTRAR
For questions concerning stock certificates, transfer of ownership and other
matters pertaining to stock registration, please contact:
The First National Bank of Boston
c/o Boston EquiServe
Shareholder Services
m/s 45-01-20
P.O. Box 644
Boston, MA 02101-0644
Phone: 617-575-3120
COMMON STOCK
The Company's stock is listed on the New York Stock Exchange and Pacific Stock
Exchange under the ticker symbol VFI.
INVESTOR INFORMATION
A copy of the Company's annual report, proxy statement, SEC Form 10-K, quarterly
SEC Form 10-Qs and press releases are available free of charge by writing
VeriFone's Investor Relations Department at Three Lagoon Drive, Redwood City,
CA 94065, or calling 415-598-5653.
This information is also available on our Web site: www.verifone.com.
THIRTY-FIVE
<PAGE>
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
VERIFONE, INC.
Three Lagoon Drive
Redwood City, CA 94065-1561
TEL: 415-591-6500
FAX: 415-598-5504
NET: www.verifone.com
RESEARCH & DEVELOPMENT
One Northwinds Center
2475 Northwinds Parkway, Suite 600
Alpharetta, GA 30201
12830 Earhart Avenue
Auburn, CA 95602-9027
16001 Bay Vista Drive, Suite 200
Clearwater, FL 34620-3102
14881 Quorum Drive, Suite 800
Dallas, TX 75240-7018
2000 West Commercial Blvd., Suite 202
Ft. Lauderdale, FL 33309-3060
Old Dispensary Road
Lapahoehoe, HI 96764-9027
800 El Camino Real
Menlo Park, CA 94025-4800
100 Kahelu Avenue
Mililani, HI 96789-3909
530 Lytton Avenue
Palo Alto, CA 94301-2539
Three Lagoon Drive
Redwood City, CA 94065-1561
VeriFone India Pvt. Ltd.
Indian Express Building, 2nd Floor
Dr. B.R. Ambedkar Road
Bangalore-560 001, India
VeriFone Technology Park
Golf View Homes
Wind Tunnel Road
Murgesh Palya
Bangalore-560 017, India
VeriFone S.A. & VeriFone B.V.
117/119 Quai de Valmy
75484 Paris, Cedex 10, France
VeriFone Pte. Ltd.
24 Raffles Place #14-01/06
Clifford Centre
Singapore 048621
VeriFone Technology Pte. Ltd.
CTS Building, 4th Floor
102 Kuang Fu South Road
10553 Taipei, Taiwan, R.O.C.
VeriFone (UK) Ltd.
Salamander Quay West
Park Lane, Harefield
Uxbridge, Middlesex
UB9 6NZ United Kingdom
MANUFACTURING
3080 Airway Avenue
Costa Mesa, CA 92626-4540
VeriFone Electronics (Kunshan) Co., Ltd.
312, Chin-Yang South Rd.
E.T.D.Z.
Kunshan, Jiang-Su Province, China
215300
VeriFone Taiwan Ltd.
6-2, Hsin Kai Fa Road
N.E.P.Z.
Kaohsiung, Taiwan, R.O.C.
VeriFone Technology Pte. Ltd.
CTS Building, 4th Floor
102 Kuang Fu South Road
10553 Taipei, Taiwan, R.O.C.
DISTRIBUTION
3080 Airway Avenue
Costa Mesa, CA 92626-4540
VeriFone Taiwan Ltd.
6-2, Hsin Kai Fa Road
N.E.P.Z.
Kaohsiung, Taiwan, R.O.C.
CUSTOMER SERVICE
3080 Airway Avenue
Costa Mesa, CA 92626-4540
12540 Westport Road
Louisville, KY 40245-3860
Transaction Technology Pty. Ltd.
Unit 8 552-560 Church Street
North Parramatta NSW 2151
U.S. SALES OFFICES
ATLANTA
USA Division Headquarters
One Northwinds Center
2475 Northwinds Parkway, Suite 600
Alpharetta, GA 30201
CHICAGO
3701 Algonquin Road, Suite 710
Rolling Meadows, IL 60008-3121
DALLAS
14881 Quorum Drive, Suite 800
Dallas, TX 75240-7018
DAYTON
580 Lincoln Park Blvd. East, Suite 222
Dayton, OH 45429-3493
LOS ANGELES
3080 Airway Avenue
Costa Mesa, CA 92626-4540
NEW YORK
One Mountain Blvd., Suite 201
Warren, NJ 07059-5613
PALO ALTO
530 Lytton Avenue
Palo Alto, CA 94301-2539
PORTLAND
VeriFone Finance, Inc.
Oregon Business Park
16100 SW 72nd Avenue, Building 18
Portland, OR 97224-7745
SAN FRANCISCO
Three Lagoon Drive
Redwood City, CA 94065-1561
TAMPA
16001 Bay Vista Drive, Suite 200
Clearwater, FL 34620-3102
INTERNATIONAL SALES OFFICES
ARGENTINA
VeriFone Argentina S.A.
Florida 375-5 Piso Of. "C"
1005 Buenos Aires, Argentina
AUSTRALIA
VeriFone Australia Pty. Ltd.
Level 9, 275 Alfred Street North
North Sydney NSW 2060, Australia
VeriFone Australia Pty. Ltd.
14 Hamilton Street
Mont Albert VIC 3127
Australia
INTERNATIONAL SALES OFFICES
BRAZIL
VeriFone de Brasil, Ltda.
Av. Dr. Chucri Zaidan, 920-90. Andar
Sao Paulo, S.P. Barsil 04583-904
CANADA
VeriFone Ltd.
33 Yonge Street, Suite 730
Toronto, Ontario M5E 1S9, Canada
FRANCE
VeriFone S.A. & VeriFone B.V.
117/119 Quai de Valmy
75484 Paris, Cedex 10, France
GERMANY
VeriFone GmbH
Otto-von-Guericke-Ring 13-15
65205 Wiesbaden-Nordenstadt, Germany
HONG KONG
VeriFone North Asia Ltd.
20/F Chinachem Century Tower
178 Gloucester Road
Wanchai, Hong Kong
INDIA
VeriFone India Pvt. Ltd.
Indian Express Building
Dr. B.R. Ambedkar Road
Bangalore-560 001, India
ITALY
VeriFone S.r.l.
Via Cesare Cantu, 19
I-20092 Cinisello Balsamo
Milan, Italy
JAPAN
Nihon VeriFone K.K.
Gobancho Center Bldg. 3rd Fl.
10-2, Gobancho, Chiyoda-ku
Tokyo 102, Japan
Latin America & the Caribbean
One Datran Center
9100 South Dadeland Blvd.
Miami, FL 33156-7852
MEXICO
VeriFone, S.A. de C.V.
Monte Elbruz, No. 124, 3rd Floor
Deleg. Miguel Hidalgo
Mexico D.F. 11560
PEOPLE'S REPUBLIC OF CHINA
VeriFone (Beijing)
Rm. 1860 New Century Office Tower
No. 6 Southern Road, Capital Gym.
100044 Beijing, China
SINGAPORE
VeriFone Pte. Ltd.
24 Raffles Place #14-01/06
Clifford Centre
Singapore 048621
SOUTH AFRICA
VeriFone (Pty) Limited
4 Pybus Road
Wierda Valley
Sandton 2146
Republic of South Africa
SPAIN
VeriFone Espana S.A.
Francisco Giralte, 2
28002 Madrid, Spain
VeriFone Espana S.A.
Diputacion, 279 3 3
08007 Barcelona, Spain
UNITED KINGDOM
VeriFone (UK) Ltd.
Salamander Quay West
Park Lane, Harefield
Uxbridge, Middlesex
UB9 6NZ United Kingdom
THIRTY-SIX
<PAGE>
VeriFone is an equal employment opportunity and affirmative action employer.
VeriFone, the VeriFone logo, OMNI, Omnihost, Ruby SuperSystem and TRANZ are
United States registered trademarks. VeriFone and the VeriFone logo are
registered or pending registration in most of the foreign jurisdictions where
the Company does business. In addition, SC, vGATE and vPOS are trademarks of
the Company. All other brand names or trademarks appearing in this Annual Report
are the property of their respective holders.
<PAGE>
[LOGO] VERIFONE
GLOBAL HEADQUARTERS
Three Lagoon Drive
Redwood City, CA 94065-1561 #14-01/06
TEL: 415-591-6500
FAX: 415-598-5504
NET: www.verifone.com
USA DIVISION SALES & SUPPORT
One Northwinds Center
2475 Northwinds Parkway, Suite 600
Alpharetta, GA 30301
TEL: 770-410-0890
FAX: 770-754-3478
ASIA-PACIFIC SALES & SUPPORT
VeriFone Pte. Ltd.
24 Raffles Place #14-01/06
Clifford Centre
Singapore, 048821
TEL: 65-538-5110
FAX: 85-538-5120
CANADA SALES & SUPPORT
VeriFone Ltd.
33 Yonge Street, Suite 730
Toronto, Ontario M5E 1S9, Canada
TEL: 416-214-1334
FAX: 416-214-5599
EUROPE, MIDDLE EAST & AFTICA SALES & SUPPORT
VeriFone S.A. & VeriFone B.V.
117/119 Quaide Valmy
75484 Parie, Cadex 10, France
TEL: 33-153-356-000
FAX: 33-153-358-002
LATIN AMERICA & THE CARIBBEAN SALES & SUPPORT
One Datran Center
9100 South Dadeland Blvd.
Miami, FL 33156-7852
TEL: 305-670-1820
FAX: 305-670-1699
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF VERIFONE, INC.
1. VeriFone (Argentina) S.A. (Argentina)
2. VeriFone (Australia) Pty Limited (Australia)
3. Transaction Technology Pty Ltd. (Australia)
4. VeriFone do Brasil Ltda (Brazil)
5. VeriFone Limited (Canada)
6. VeriFone S.A. (France)
7. VeriFone GmbH (Germany)
8. VeriFone Hong Kong Limited (Hong Kong)
9. VeriFone North Asia Limited (Hong Kong)
10. VeriFone India Private Ltd. (India)
11. VeriFone S.r.l. (Italy)
12. Nihon VeriFone K.K. (Japan)
13. VeriFone S.A. de C.V. (Mexico)
14. VeriFone B.V. (Netherlands)
15. VeriFone Electronics (Kushan) Co., Ltd. (People's Republic of China)
16. VeriFone Sp. z O.O. (Poland)
17. VeriFone Pte Ltd. (Singapore)
18. VeriFone Technology Pte. Ltd. (Singapore)
19. VeriFone (South Africa) Pty Ltd. (South Africa)
20. VeriFone Esp na, S.A. (Spain)
21. VeriFone Taiwan Ltd. (Taiwan R.O.C.)
22. VeriFone (UK) Ltd. (United Kingdom)
23. Enterprise Integration Technologies Corporation (California, USA)
24. VeriFone Finance, Inc. (Delaware, USA)
25. VeriFone VeriGem, Inc. (Delaware, USA)
26. TimeCorp Systems, Inc. (Georgia, USA)
96
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of VeriFone, Inc. of our report dated January 17, 1997, included in the 1996
Annual Report to Stockholders of VeriFone, Inc.
Our audits also included the financial statement schedule of VeriFone, Inc.
listed in item 14(a)2. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-48833 and 333-08839) pertaining to the Incentive Stock Option
Plan and 1987 Supplemental Stock Option Plan, Registration Statement (Form S-8,
No. 33-81698) pertaining to the Non-employee Directors Stock Option Plan,
Registration Statement (Form S-8 No. 33-81704) pertaining to the Employee Stock
Purchase Plan, Registration Statement (Form S-8, No. 333-00194) pertaining to
stock options issued in connection with the acquisition of Enterprise
Integration Technology, Inc., Registration Statements (Form S-3, Nos. 33-97510,
333-02810 and 333-20455) pertaining to the sale of Common Stock, of our report
dated January 17, 1997, with respect to the consolidated financial statements
incorporated herein by reference and our report included in the preceding
paragraph with respect to the financial statement schedule included in this
Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Palo Alto, California
March 24, 1997
97
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