SECOND AMENDMENT TO CREDIT AGREEMENT
Exhibit 10.1
EXECUTION VERSION
SECOND AMENDMENT TO CREDIT AGREEMENT
SECOND AMENDMENT dated as of April 28, 2008 (this “Second Amendment”) among VERIFONE
INTERMEDIATE HOLDINGS, INC., a Delaware corporation (“Holdings”), VERIFONE, INC., a
Delaware corporation (the “Borrower”), the Lenders party or consenting hereto and JPMORGAN
CHASE BANK, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”) to
the Credit Agreement (as defined below).
Holdings, the Borrower, the banks and other lending institutions from time to time party
thereto (each a “Lender” and, collectively, the “Lenders”), the Administrative
Agent, JPMorgan Chase Bank, N.A., as Swing Line Lender and as an L/C Issuer, Bank Leumi USA and
Xxxxx Fargo Bank, N.A., as Co-Documentation Agents, and Xxxxxx Commercial Paper Inc., as
Syndication Agent, are parties to a Credit Agreement dated as of October 31, 2006, as amended by a
First Amendment dated as of January 25, 2008 (the “Credit Agreement”; terms used herein
without definition which are defined in the Credit Agreement being used herein as therein defined).
Holdings and the Borrower have requested that the Required Lenders agree to certain amendments to
the Credit Agreement, and each of the Lenders party or consenting hereto (which Lenders
collectively constitute the Required Lenders), have agreed, subject to the terms and conditions set
forth herein, to amend the Credit Agreement as herein provided. Accordingly, Holdings, the
Borrower and the Lenders party or consenting hereto agree as follows:
ARTICLE I
DEFINITIONS
DEFINITIONS
Section 1.01 Definitions. Unless otherwise defined herein, capitalized terms defined
in the Credit Agreement or in Section 2.01(a) of this Second Amendment have the same
meanings when used in this Second Amendment. The following additional terms, as used herein, have
the following respective meanings:
“Consenting Lender” means each Lender that consents to this Second Amendment as
evidenced by the receipt by Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx LLP, counsel to the
Administrative Agent, of an executed counterpart signature page evidencing such Lender’s consent
and agreement to this Second Amendment from such Lender prior to 12:00 noon (local time in New York
City) on April 28, 2008.
“Second Amendment Fee” has the meaning set forth in Section 3.01(e) of this
Second Amendment.
ARTICLE II
AMENDMENTS TO THE CREDIT AGREEMENT
AMENDMENTS TO THE CREDIT AGREEMENT
Section 2.01 Amendments to Article I of the Credit Agreement.
(a) Clause (a) of the definition of “Applicable Margin” in Section 1.01 of the
Credit Agreement is hereby amended by inserting the following pricing grid for Revolving Loans in
lieu of the existing pricing grid:
| Applicable Margin for Revolving Loans | ||||||||||
| Pricing Level | Total Leverage Ratio | Eurodollar Rate | Base Rate | |||||||
1
|
³ 3.00:1 | 2.250 | % | 1.250 | % | |||||
2
|
< 3.00:1 but ³ 2.50:1 | 2.125 | % | 1.125 | % | |||||
3
|
< 2.50:1 | 2.000 | % | 1.000 | % | |||||
(b) Clause (b) of the definition of “Applicable Margin” in Section 1.01 of the
Credit Agreement is hereby amended to read in full as follows:
“(b) With respect to Term B Loans, 2.75% if such Loans are Eurodollar Loans and
1.75% if such Loans are Base Rate Loans.”
(c) Clause (c) of the definition of “Applicable Margin” in Section 1.01 of the
Credit Agreement is hereby amended by inserting the following pricing grid for Commitment Fees and
L/C Fees in lieu of the existing pricing grid:
| Commitment Fee and L/C Fee | ||||||||||
| Pricing Level | Total Leverage Ratio | Commitment Fee | L/C Fee | |||||||
1
|
³ 3.00:1 | 0.5000 | % | 2.250 | % | |||||
2
|
< 3.00:1 but ³ 2.50:1 | 0.4750 | % | 2.125 | % | |||||
3
|
< 2.50:1 | 0.4250 | % | 2.000 | % | |||||
(d) The definition of “Restated Financials” is hereby amended by inserting “the consequences
of” prior to “the Earnings Restatements for the applicable periods.”
Section 2.02 Amendment to Article II of the Credit Agreement. The proviso to
Section 2.09(b)(ii) of the Credit Agreement is hereby amended by inserting “August 10,
2008” in lieu of “May 10, 2008”.
Section 2.03 Amendments to Article VI of the Credit Agreement.
(a) Section 6.01(a) of the Credit Agreement is hereby amended to read in full as
follows:
“(a) Annual Financial Statements. As soon as available, and in any
event (i) within 90 days after the end of each fiscal year of Parent Holdings
(commencing with the fiscal year ended October 31, 2006 but other than the fiscal
year ended October 31, 2007)
- 2 -
and (ii) by July 31, 2008 with respect to the fiscal
year ended October 31, 2007, a consolidated balance sheet of Parent Holdings and its
Consolidated Subsidiaries, as of the end of such fiscal year, and the related
consolidated statement of operations and retained earnings and consolidated
statement of cash flows for such fiscal year, setting forth in comparative form
consolidated figures for the preceding fiscal year, all such financial statements to
be in reasonable form and detail and audited by Parent Holdings’ registered
independent public accounting firm and accompanied by an opinion of such firm
(which shall not be qualified or limited in any material respect) to the effect that
such consolidated financial statements have been prepared in accordance with GAAP
and present fairly in all material respects the consolidated financial position and
consolidated results of operations and cash flows of Parent Holdings and its
Consolidated Subsidiaries in accordance with GAAP consistently applied (except for
changes with which such accountants concur).”
(b) Section 6.01(b) of the Credit Agreement is hereby amended to read in full as
follows:
“(b) Quarterly Financial Statements. As soon as available, and in any
event (i) within 45 days after the end of each of the first three fiscal quarters in
each fiscal year of Parent Holdings (commencing with fiscal quarter ended January
31, 2007 but other than the Affected Quarters and the fiscal quarter ended January
31, 2008 and the fiscal quarter ending April 30, 2008) and (ii) by July 31, 2008
with respect to the Affected Quarters and the fiscal quarters ended January 31, 2008
and the fiscal quarter ending April 30, 2008, a consolidated balance sheet of Parent
Holdings and its Consolidated Subsidiaries as of the end of such fiscal quarter,
together with related consolidated statement of operations and retained earnings and
consolidated statement of cash flows for such fiscal quarter and the then elapsed
portion of such fiscal year, setting forth in comparative form consolidated figures
for the corresponding periods of the preceding fiscal year, all such financial
statements to be in form and detail and reasonably acceptable to the Administrative
Agent, and accompanied by a certificate of the chief financial officer of Parent
Holdings to the effect that such quarterly financial statements have been prepared
in accordance with GAAP and present fairly in all material respects the consolidated
financial position and consolidated results of operations and cash flows of Parent
Holdings and its Consolidated Subsidiaries in accordance with GAAP consistently
applied, subject to changes resulting from normal year-end audit adjustments and the
absence of footnotes required by GAAP.”
(c) Section 6.02(f) of the Credit Agreement is hereby amended to read in full as
follows:
“(f) Excess Cash Flow. Commencing with the fiscal year ending October
31, 2007, a certificate of the chief financial officer of Holdings containing
information regarding the calculation of the amount, if any, required to be prepaid
by the Borrower under Section 2.09(b)(ii) in respect of Excess Cash Flow for
such fiscal year. Such certificate shall be due (i) for the fiscal year ending
October 31, 2007, on or before August 10, 2008 and (ii) within 100 days after the
end of each fiscal year of Holdings thereafter.”
- 3 -
Section 2.04 General Amendment. The Credit Agreement is hereby amended by replacing
Schedule I to the Credit Agreement with the text of Schedule I hereto.
ARTICLE III
CONDITIONS TO EFFECTIVENESS
CONDITIONS TO EFFECTIVENESS
Section 3.01 Conditions to Effectiveness of this Second Amendment. This Second
Amendment, and each of the amendments contained herein, shall become effective on the date (the
“Second Amendment Effective Date”) when each of the following conditions precedent have
been fulfilled (or waived) to the reasonable satisfaction of the Administrative Agent:
(a) Execution and Delivery of this Second Amendment. The Administrative Agent shall
have received counterparts of this Second Amendment duly executed by Holdings, the Borrower and the
Administrative Agent and duly consented to by the Required Lenders.
(b) Acknowledgement. The Administrative Agent shall have received counterparts of an
Acknowledgement and Agreement, substantially in the form of Exhibit A hereto, duly executed
by each of the Persons (other than Holdings and the Borrower) who are or are required by the
Finance Documents to be Loan Parties.
(c) Payment of Fees. All costs, fees and expenses due to the Administrative Agent and
the Lenders on or before the Second Amendment Effective Date pursuant to the Finance Documents
shall have been paid, including, without limitation, the Second Amendment Fee.
(d) Counsel Fees. Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx LLP (“Xxxxx
Xxxxx”) shall have received full payment from the Borrower of the fees and expenses of Xxxxx
Xxxxx described in Section 6.07 of this Second Amendment which are billed through the
Second Amendment Effective Date.
(e) Amendment Fee. The Borrower shall have paid to the Administrative Agent for the
account of each Consenting Lender a non-refundable and fully earned fee (the “Second Amendment
Fee”) equal to 0.250% of each such Consenting Lender’s aggregate Revolving Commitment and the
outstanding principal amount of its Term B Loans, in each case as of the Second Amendment Effective
Date.
(f) Other. The Administrative Agent shall have received such other documents,
instruments, agreements or information as may be reasonably requested by the Administrative Agent.
All corporate and legal proceedings and all instruments and agreements relating to the transactions
contemplated by this Second Amendment or in any other document delivered in connection herewith
shall be reasonably satisfactory in form and substance to the Administrative Agent and Xxxxx Xxxxx,
and the Administrative Agent shall have received all information and copies of all documents and
papers, including records of corporate proceedings, governmental approvals, good standing
certificates and bring-down telegrams, if any, which the Administrative Agent may reasonably have
requested, such documents and papers where appropriate to be certified by proper corporate or
governmental authorities. The documents referred to in this Section 3.01(f) shall be
delivered to the Administrative Agent no later than the Second Amendment Effective Date.
- 4 -
Section 3.02 Effects of this Second Amendment.
(a) Once the Second Amendment Effective Date has occurred, the Credit Agreement will be
automatically amended retroactive to, and as of, the date of this Second Amendment to reflect the
amendments thereto provided for in this Second Amendment. Once the Second Amendment Effective date
has occurred, then on and after the Second Amendment Effective Date, the rights and obligations of
the parties to the Credit Agreement shall be governed by the Credit Agreement, as amended by this
Second Amendment. Once the Second Amendment Effective Date has occurred, all references to the
Credit Agreement in any document, instrument, agreement or writing shall be deemed to refer to the
Credit Agreement as amended by this Second Amendment.
(b) Other than as specifically provided herein, this Second Amendment shall not operate as a
waiver or amendment of any right, power or privilege of the Administrative Agent or any Lender
under the Credit Agreement or any other Finance Document or of any other term or condition of the
Credit Agreement or any other Finance Document, nor shall the entering into of this Second
Amendment preclude the Administrative Agent and/or any Lender from refusing to enter into any
further waivers or amendments with respect thereto. This Second Amendment is not intended by any
of the parties hereto to be interpreted as a course of dealing which would in any way impair the
rights or remedies of the Administrative Agent or any Lender except as expressly stated herein, and
no Lender shall have any obligation to extend credit to the Borrower other than pursuant to the
strict terms of the Credit Agreement and the other Finance Documents, as amended or supplemented to
date (including by means of this Second Amendment).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES
Section 4.01 Representations and Warranties. In order to induce the Required Lenders
to consent to the amendments contained herein, each of Holdings and the Borrower represents and
warrants as set forth below:
(a) After giving effect to this Second Amendment, the Credit Agreement, as amended, does not
impair the validity, effectiveness or priority of the Liens granted pursuant to the Collateral
Documents, and such Liens continue unimpaired with the same priority to secure repayment of all
Finance Obligations, whether heretofore or hereafter incurred. The position of the Lenders with
respect to such Liens, the Collateral in which a security interest was granted pursuant to the
Collateral Documents and the ability of the Administrative Agent to realize upon such Liens
pursuant to the terms of the Collateral Documents have not been adversely affected in any material
respect by the amendments to the Credit Agreement effected pursuant to this Second Amendment or by
the execution, delivery, performance or effectiveness of this Second Amendment.
- 5 -
(b) Each of Holdings and the Borrower reaffirms as of the date hereof and the Second Amendment
Effective Date its covenants and agreements contained in the Credit Agreement and each Collateral
Document and other Finance Document to which it is a party, including, in each case, as such
covenants and agreements may be modified by this Second Amendment on the Second Amendment Effective
Date. Each of Holdings and the Borrower further confirms that each Collateral Document and other
Finance Document to which it is a party is, and shall continue to be, in full force and effect, and
the same are hereby ratified, approved and confirmed in all respects, except as the Credit
Agreement may be amended by this Second Amendment.
(c) Immediately after giving effect to this Second Amendment, the representations and
warranties set forth in Article V of the Credit Agreement (as so amended) and each other
Finance Document are, in each case, true and correct in all material respects (unless stated to
relate solely to an earlier date, in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date).
(d) This Second Amendment constitutes the legal, valid and binding obligation of each of
Holdings and the Borrower enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors’ rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
(e) The parties signatory to the Acknowledgment and Agreement delivered pursuant to
Section 3.01(b) of this Second Amendment constitute all of the Persons who (together with
Holdings and the Borrower) are or are required under the terms of the Finance Documents to be Loan
Parties.
(f) The written statements and information contained in this Second Amendment and the other
documents, certificates and statements furnished or made to the Administrative Agent and the
Lenders on or prior to the Second Amendment Effective Date by or on behalf of any Loan Party for
use in connection with the transactions contemplated by this Second Amendment, including without
limitation the description set forth on Schedule I hereto, taken as a whole, do not, as of the
Second Amendment Effective Date, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein not materially
misleading.
(g) Each of Holdings and the Borrower has all requisite corporate power and authority to enter
into this Second Amendment and to carry out the transactions contemplated by, and perform its
obligations under, this Second Amendment and the Credit Agreement as amended by this Second
Amendment.
(h) As of the Second Amendment Effective Date (and giving effect to this Second Amendment), no
event has occurred and is continuing or will result from the consummation of the transactions
contemplated by this Second Amendment or the Credit Agreement as amended by this Second Amendment
that would constitute an Event of Default or a Default.
- 6 -
ARTICLE V
WAIVER
WAIVER
Section 5.01 Waiver Subject to the terms and conditions hereof and compliance by
Holdings and the Borrower with their respective obligations hereunder and under the Credit
Agreement as amended hereby, and in reliance on the representations and warranties of Holdings and
the Borrower set forth herein, the Lenders agree that no Default or Event of Default that may have
arisen under the Credit Agreement by virtue of the failure to deliver accurate financial statements
or related certifications for the Affected Quarters prior to the delivery of the Restated
Financials shall constitute a Default or an Event of
Default under the Credit Agreement, and any such Default or Event of Default shall for all
purposes of the Loan Documents be waived as of the Second Amendment Effective Date.
ARTICLE VI
MISCELLANEOUS
MISCELLANEOUS
Section 6.01 Headings. The various headings of this Second Amendment are inserted for
convenience only and shall not affect the meaning or interpretation of this Second Amendment or any
provisions hereof.
Section 6.02 Execution in Counterparts. This Second Amendment may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement. A counterpart hereof executed and
delivered by facsimile or pdf or other similar electronic transmission shall be effective as an
original.
Section 6.03 Successors and Assigns. This Second Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and assigns.
Section 6.04 Governing Law.
(a) THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
(b) Any legal action or proceeding with respect to this Second Amendment may be brought in the
courts of the State of New York in New York County, or of the United States for the Southern
District of New York, and, by execution and delivery of this Second Amendment, each of Holdings and
the Borrower hereby irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the nonexclusive jurisdiction of such courts. Each of Holdings and the Borrower
irrevocably waives, to the fullest extent permitted by Law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in such court and any
claim that any such proceeding brought in any such court has been brought in an inconvenient forum.
- 7 -
Section 6.05 Waiver of Right to Trial by Jury. EACH PARTY TO THIS SECOND AMENDMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING HEREUNDER OR UNDER ANY OTHER FINANCE DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS SECOND
AMENDMENT OR ANY OTHER FINANCE DOCUMENT, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS SECOND
AMENDMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 6.06 Entire Agreement. This Second Amendment constitutes the entire
understanding among the parties hereto with respect to the subject matter hereof and supersedes any
prior agreements, written or oral, with respect thereto.
Section 6.07 Fees and Expenses. The Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Administrative Agent in connection with the preparation,
negotiation, execution, delivery and enforcement of this Second Amendment and the other documents
and instruments referred to herein or contemplated hereby, including, but not limited to, the fees
and disbursements of Xxxxx Xxxxx, counsel to the Administrative Agent.
Section 6.08 Finance Document Pursuant to Credit Agreement. This Second Amendment is
a Finance Document executed pursuant to the Credit Agreement and shall be construed, administered
and applied in accordance with all of the terms and provisions of the Credit Agreement (and,
following the date hereof, the Credit Agreement, as amended hereby).
[Signature Pages Follow]
- 8 -
IN WITNESS WHEREOF, the signatories hereto have caused this Second Amendment to be executed by
their respective officers thereunto duly authorized as of the day and year first above written.
| HOLDINGS: | VERIFONE INTERMEDIATE HOLDINGS, INC. |
|||
| By: | /s/ Xxxxxxx X. Bergone | |||
| Name: | Xxxxxxx X. Xxxxxxxx | |||
| Title: | Chief Executive Officer | |||
| BORROWER: | VERIFONE, INC. |
|||
| By: | /s/ Xxxxxxx X. Xxxxxxxx | |||
| Name: | Xxxxxxx X. Xxxxxxxx | |||
| Title: | Chief Executive Officer | |||
S-1
| ADMINISTRATIVE AGENT: | JPMORGAN CHASE BANK, N.A., as Administrative Agent |
|||
| By: | /s/ Xxxxxx Xxxxxx | |||
| Name: | Xxxxxx Xxxxxx | |||
| Title: | Vice President | |||
S-2
Lender Signature Page to the Second Amendment to Credit Agreement
REQUIRED LENDERS:
|
SIGNATURE PAGE TO THE SECOND AMENDMENT DATED AS OF APRIL 28, 2008 TO THE CREDIT AGREEMENT DATED AS OF OCTOBER 31, 2006 AND AMENDED AS OF JANUARY 25, 2008 AMONG VERIFONE INTERMEDIATE HOLDINGS, INC., VERIFONE, INC., THE LENDERS PARTY THERETO, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, AN L/C ISSUER AND SWING LINE LENDER, BANK LEUMI USA AND XXXXX FARGO BANK, N.A., AS CO-DOCUMENTATION AGENTS, AND XXXXXX COMMERCIAL PAPER INC., AS SYNDICATION AGENT | |
JPMORGAN CHASE BANK, N.A., as Administrative
Agent, for and on behalf of the Required Lenders
who have consented hereto as provided in Section
10.01 of the Credit Agreement |
| By: | /s/ Xxxxxx Xxxxxx | |||
| Name: | Xxxxxx Xxxxxx | |||
| Title: | Vice President | |||
S-3
SCHEDULE I
Description of Earnings Restatements
In December 2007, the Company announced that it would be required to restate its unaudited
interim financial statements for its interim periods ended January 31, 2007, April 30, 2007 and
July 31, 2007. These restatements were required due to the discovery of accounting errors
primarily related to the Company’s valuation of in-transit inventory and allocation of
manufacturing and distribution overhead to inventory. Each of these errors also affected the
Company’s reported cost of net revenues and consequently the Company’s reported gross profit, total
operating income and net income.
The errors resulting in the largest portion of the adjustment related to the Company’s
valuation of in-transit inventory. These errors were made by employees in the Company’s supply
chain accounting organization in Rocklin, California. Starting in the second quarter of 2007, the
Company’s reported inventories included significantly more in-transit inventory than had been
reflected in the Company’s consolidated balance sheet at previous quarter ends. This in-transit
inventory was intended to reflect the value of inventory that was in the process of being shipped
from one of the Company’s business units to another of the Company’s business unit, but that had
not yet been physically received by the second business unit. Most of the in-transit inventory
included in the Company’s total inventory reported at April 30 and July 31, 2007 purportedly
reflected shipments from the Company’s international headquarters in Singapore to its main
distribution center in California and from the Company’s Tel Aviv manufacturing facility to its
Singapore international headquarters and to the Company’s main distribution center in California.
The second principal group of errors related to the application of manufacturing and
distribution overhead to inventory. The adjustments arising from these errors primarily affected
the first quarter of fiscal 2007, and to a lesser extent, affected the third quarter of fiscal
2007. During each of these periods, the amount of overhead allocated to inventory in certain of
the Company’s locations was overstated, increasing inventory and decreasing reported cost of net
revenues.
The Company’s supply chain accounting organization identified certain of these issues while
preparing for the annual audit and notified senior management of the concerns. The Company’s
management investigated these issues and apprised its independent accounting firm and the Company’s
audit committee of these issues in the several days leading up to the Company’s December 3, 2007
announcement of the anticipated restatement.
The Company announced, on December 3, 2007, that it anticipated that the restatement would
result in a reduction in reported inventories that amounted to approximately $29.7 million at July
31, 2007 and reductions to previously reported pre-tax income aggregating approximately $29.7
million for the interim periods through July 31, 2007, including other unrelated errors detected in
the normal course that had not been corrected because the Company believed that individually and in
the aggregate such errors were not material to the Company’s consolidated financial statements.
The Company also announced that there could be no assurance that additional errors requiring
correction would not be uncovered in the course of the restatement process.
- 2 -
Following the December 3 announcement, the Company’s audit committee began working with its
independent counsel, Xxxxxxx Xxxxxxx & Xxxxxxxx LLP, and forensic accountants, Navigant LLC, to
investigate the events leading to the required restatement. The Company announced the completion
of the independent investigation on April 2, 2008. The investigation determined that incorrect
manual journal and elimination entries were made with respect to certain inventory-related matters,
that existing policies with respect to manual journal entries were not followed, and that
insufficient review processes and controls were in place to identify and correct the erroneous
manual journal and elimination entries in a timely manner. As a result of the investigation, the
Company’s management concluded that the Company did not maintain effective internal control over
financial reporting, and has directed that remedial measures be taken. These measures include:
implementation of a more stringent voucher approval process for manual journal entries;
implementation of enhanced information technology/enterprise resource planning systems; additional
centralized staffing with individuals having sufficient knowledge and experience in cost accounting
and other GAAP principles; enhanced segregation of duties between the financial planning and the
accounting and control functions; improvement in governance and compliance functions; and personnel
actions, including termination of the Company’s supply chain controller, enhanced supervision and
other actions.
Subject to completion of the restatements and review by the Company’s auditors, the
restatements are expected to have the following effects: previously reported inventories will be
reduced by approximately $13.3 million, $23.9 million and $40.6 million as compared to originally
reported amounts at January 31, 2007, April 30, 2007, and July 31, 2007; and previously reported
operating income will be decreased by approximately $12.5 million, $9.8 million, and $14.7 million
as compared to originally reported amounts for the three months ending January 31, 2007, April 30,
2007, and July 31, 2007. The aggregate decrease in operating income for the nine months ended July
31, 2007, of approximately $36.9 million, as determined through the audit committee investigation,
represents an increase of approximately $7.2 million compared to the original estimate of
approximately $29.7 million reported on December 3, 2007. The foregoing amounts are preliminary
and are subject to revision following completion of the restatement and the related review and
audit.
The Company announced on April 2, 2008 that it was then targeting to file its amended and
restated quarterly reports on Form 10-Q/A for the quarters ended January 31, 2007, April 30, 2007,
and July 31, 2007, its annual report on Form 10-K for the year ended October 31, 2007 and its
quarterly report on Form 10-Q for the quarter ended on January 31, 2008 on or about April 30, 2008.
Because of the rigorous processes that are required for the restatement and the related review and
audit and the number of periods required to be reported, the Company cannot be certain how much
time will ultimately be required to complete the restatement process or even whether the Company
will be able to file these reports by April 30, 2008 and there remains a substantial risk that
additional time will be required.
Schedule I
EXHIBIT A
ACKNOWLEDGEMENT AND AGREEMENT
Each Loan Party listed below hereby acknowledges that it has reviewed the Second Amendment to
the Credit Agreement to which this Acknowledgement and Agreement is attached as an exhibit (the
“Second Amendment”) and hereby consents to the execution, delivery and performance thereof
by each of Holdings and the Borrower. Each Loan Party hereby confirms its obligation under each
Finance Document to which it is a party and agrees that, after giving effect to the Second
Amendment, neither the modification of the Credit Agreement or any other Finance Document effected
pursuant to the Second Amendment, nor the execution, delivery, performance or effectiveness of the
Second Amendment or any other Finance Document impairs the validity or effectiveness of any Finance
Document to which it is a party or impairs the validity, effectiveness or priority of the Liens
granted pursuant to any other Finance Document to which it is a party or by which it is otherwise
bound. Each Loan Party hereby further agrees that the Liens created pursuant to the Finance
Documents continue unimpaired with the same enforceability and priority to secure repayment of all
Loans and other obligations arising thereunder, whether heretofore or hereafter incurred. Under
the foregoing circumstances, the position of the Administrative Agent and the Lenders with respect
to such Liens, the Collateral in which a security interest was granted pursuant to the Finance
Documents, and the ability of the Administrative Agent to enforce the provisions of the Finance
Documents and to realize upon such Liens pursuant to the terms of the Finance Documents, have not
been adversely affected in any material respect by the amendments to the Credit Agreement effected
pursuant to the Second Amendment, the amendment or modification of any other Finance Document
effected pursuant to the Second Amendment or the execution, delivery, performance or effectiveness
of the Second Amendment.
| VERIFONE HOLDINGS, INC. |
||||
| By: | ||||
| Name: | Xxxxxxx X. Xxxxxxxx | |||
| Title: | Chief Executive Officer | |||
